Statement_Reference,Title,Date_of_Issue,Date_of_Effect,Document_Type,Has_Compendium,Body,Related_Documents,Related_Practice_Statements,Legislative_References,Subject_References,Other_References,Is_Draft,Is_Withdrawn,Source_URL,Unmatched_Content
PS LA 2026/D1,Administration of penalties for failure to comply with superannuation member account reporting obligations,12 March 2026,,Law Administration Practice Statement,True,"What this draft Practice Statement is about: 1. Super funds, approved deposit funds, retirement savings account providers and some life insurance companies have reporting obligations to the ATO about member accounts. 2. For entities that are not self-managed super funds, these reporting obligations are required to be met using the member account attribute service (MAAS) and member account transaction service (MATS). 3. Super funds [1] that do not report through the MAAS and MATS as required in a timely and accurate manner may be liable to administrative penalties for: • failure to lodge in the approved form by the due date • making false or misleading statements. • failure to lodge in the approved form by the due date • making false or misleading statements. 4. This draft Practice Statement [2] provides guidance on the administration of these penalties. 5. The reporting obligations of self-managed super funds are not within the scope of this Practice Statement. 6. All legislative references in this Practice Statement are to Schedule 1 to the Taxation Administration Act 1953, unless otherwise indicated. | Outline of member account attribute service and member account transaction service reporting: 7. The MAAS and MATS are event-based reporting services used by super funds to report information about their members' super accounts to us. | Member account attribute service forms: 8. A MAAS form is an approved form for the giving of a statement to the Commissioner under section 390-5 and section 390-20. 9. It is used for reporting of changes to a member's account, including opened, updated, and closed accounts and account attributes such as account phases. | Member account transaction service forms: 10. A MATS form is an approved form for providing a statement to the Commissioner under section 390-5 and section 390-20. 11. It is used for event-based reporting of transactions on a member's account, such as the making of contributions. | Importance of timely and accurate reporting: 12. The accuracy and timeliness of member data reported by super funds is critical to the efficient operation of the superannuation system. 13. Incorrect or late reporting can have severe consequences for individual super fund members and can impact decisions they make about their super. 14. Information reported by super funds using the MAAS and MATS is: • displayed to individuals through ATO online services to assist them in making decisions about their tax position and super affairs • used to administer tax and super regimes that apply to individuals, including – income tax – excess concessional contributions – excess non-concessional contributions and excess non-concessional contributions tax – Division 293 tax – the transfer balance cap and excess transfer balance tax – the first home super saver scheme • used in conjunction with Single Touch Payroll reporting to identify compliance issues that may affect individuals' super, such as employers who do not make super guarantee contributions sufficient to avoid liability to the superannuation guarantee charge. • displayed to individuals through ATO online services to assist them in making decisions about their tax position and super affairs • used to administer tax and super regimes that apply to individuals, including – income tax – excess concessional contributions – excess non-concessional contributions and excess non-concessional contributions tax – Division 293 tax – the transfer balance cap and excess transfer balance tax – the first home super saver scheme • used in conjunction with Single Touch Payroll reporting to identify compliance issues that may affect individuals' super, such as employers who do not make super guarantee contributions sufficient to avoid liability to the superannuation guarantee charge. – income tax – excess concessional contributions – excess non-concessional contributions and excess non-concessional contributions tax – Division 293 tax – the transfer balance cap and excess transfer balance tax – the first home super saver scheme 15. Under the law, the liability for penalties associated with member account reporting obligations applies at an individual member level – that is, a failure to lodge in the approved form or a false or misleading statement in respect of each member of the fund will potentially attract a separate penalty. This in part reflects the importance of timely and accurate reporting for each individual member. 16. Accordingly, where the circumstances giving rise to the incorrect or late reporting impact multiple members in the same way and it is determined a penalty is to apply, the amount of the penalty will reflect this number of members. It will be particularly important in these cases to consider penalty remission, balancing the impact of the incorrect or late reporting on each individual member with the circumstances giving rise to the liability. | Process to follow when raising penalties: 17. You should follow this 5-step process when you are raising penalties against a super fund for failing to comply with their member account reporting obligations: 1. Determine the type of penalty that is applicable to the circumstances. 2. Consider whether the law protects the super fund from penalties in the circumstances. 3. Determine the extent and amount of penalty. 4. Consider penalty remission. 5. Issue written notice of the penalty. 1. Determine the type of penalty that is applicable to the circumstances. 2. Consider whether the law protects the super fund from penalties in the circumstances. 3. Determine the extent and amount of penalty. 4. Consider penalty remission. 5. Issue written notice of the penalty. 18. The process is designed to accommodate the principles of this and other relevant Practice Statements and to ensure super funds receive like treatment as much as practicable. 19. You must have collected all relevant information and document the evidence and basis for any penalty decision you make. Examples illustrating this process can be found in Appendix D to this Practice Statement. | Step 1 – determine the type of penalty that is applicable to the circumstances: 20. It is important to identify which penalties may apply in the circumstances of a case, as different penalties apply in relation to different behaviours and those penalties have different rules and calculation methods. Penalties for failure to lodge in the approved form by the due date 21. There are 2 kinds of conduct that can cause a super fund to become liable to an administrative penalty for failing to lodge in the approved form by the due date: • failure to lodge MAAS or MATS reporting by the due date [3] • lodging, but failing to do so in the approved form. • failure to lodge MAAS or MATS reporting by the due date [3] • lodging, but failing to do so in the approved form. 22. MAAS or MATS reporting is in the approved form if, and only if [4] : • it is in the form approved in writing by the Commissioner • it contains a declaration signed by a person, or persons, as the form requires [5] • it contains the information that the form requires, and any further information, statement or document as we require, whether in the form or otherwise • it is given in the manner that we require. • it is in the form approved in writing by the Commissioner • it contains a declaration signed by a person, or persons, as the form requires [5] • it contains the information that the form requires, and any further information, statement or document as we require, whether in the form or otherwise • it is given in the manner that we require. 23. The approved form for MAAS or MATS reporting may be updated by creating a new version from time to time to account for changes in: • the law • the way we use information reported through the MAAS or MATS, or • the information we require in order to administer tax and super laws. • the law • the way we use information reported through the MAAS or MATS, or • the information we require in order to administer tax and super laws. 24. Generally, when a new version of the approved form for MAAS or MATS reporting is created, a super fund will be required to begin using the new version unless they have been given approval to remain using the superseded version for a transitional period. 25. A super fund that does not begin using the new version of the approved form for their MAAS or MATS reporting and does not have approval to remain using the superseded version (or had approval for a period which has expired) has failed to lodge in the approved form and will be liable to an administrative penalty. This is the case even if they continue to lodge MAAS or MATS reporting using the superseded version. False or misleading statement penalties 26. A super fund is liable to an administrative penalty if they make a statement in their MAAS or MATS reporting that is false or misleading in a material particular. [6] 27. A statement is false when it is incorrect, or not according to truth or fact. 28. A statement is misleading when it gives the wrong idea or impression. 29. A statement may be either false or misleading because of something included in the statement or because of something omitted from it. 30. For a particular to be 'material', it must have a connection to the purpose for which the statement is made, but it does not have to be something that must, or actually will, be taken into account in making a decision. 31. The following Practice Statements provide further information about the meaning of the terms 'false', 'misleading' and 'material particular': • Law Administration Practice Statement PS LA 2012/4 Administration of the false or misleading statement penalty – where there is no shortfall amount • Law Administration Practice Statement PS LA 2012/5 Administration of the false or misleading statement penalty – where there is a shortfall amount. • Law Administration Practice Statement PS LA 2012/4 Administration of the false or misleading statement penalty – where there is no shortfall amount • Law Administration Practice Statement PS LA 2012/5 Administration of the false or misleading statement penalty – where there is a shortfall amount. 32. A super fund may make several false or misleading statements in the same document and is liable to a penalty in relation to each statement. For example, a super fund that makes a false or misleading statement in relation to both the type and amount of a contribution received has made 2 statements and will be liable to 2 administrative penalties. | Step 2 – consider whether the law protects the super fund from penalties in the circumstances: 33. In limited circumstances, the law protects a super fund from the penalties covered in this Practice Statement. You must determine whether these protections apply before proceeding. Reasonable care 34. A super fund will not be liable to a false or misleading statement penalty where they and their agent (if relevant) took reasonable care in connection with making the statement. [7] 35. When assessing a super fund's behaviour in making a statement, you must consider the actions and behaviours at the time the statement was made. Miscellaneous Taxation Ruling MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard provides guidelines for determining whether an entity took reasonable care. While 'reasonable care' is described briefly in this section, you must consult and follow MT 2008/1. 36. The 'reasonable care test' requires a super fund to make a reasonable and genuine attempt to comply with obligations imposed under legislative requirements. This means considering actions leading up to the making of the statement. 37. Making a genuine attempt means that the super fund was actively engaged with the superannuation system and actively attempting to comply with their reporting obligations. When considering if a genuine attempt has been made, we compare the super fund's attempt with that of other entities in similar circumstances. 38. We are looking for evidence that the super fund's attempt to comply is within the standard of care reasonably expected, considering all relevant circumstances. 39. This may mean that, in some circumstances, a higher standard of care may need to be demonstrated. For example, when a significant event occurs (such as transfer to a new administrator or fund administration system), a higher standard of care would be reasonably expected considering the potential impact of those events to the super fund's reporting. 40. The effort required is one commensurate with the super fund's circumstances, including their knowledge, education, experience and skill. [8] 41. The following factors are relevant when assessing reasonable care: • if there was an inadvertent mistake – if reasonable enquiries were made, including whether the super fund conducted a level of enquiry commensurate with the risk of the decision and their resources, or – the super fund just assumed the statement was correct • whether the super fund was aware, or should have been aware, of the correct treatment of the law or of the facts, noting a super fund – should not rely on advice they have received where a reasonable person would be expected to know, or strongly suspect, the advice is not worthy of such reliance – is not obliged or entitled to accept assurance by their professional adviser where statements appear flawed or questionable • whether any factors prevented the super fund from seeking advice, understanding the requirements of the tax law or reporting correctly, and • whether the super fund's level of knowledge, understanding of the tax and superannuation systems or circumstances impacted their compliance, considering the – super fund's level of sophistication relating to superannuation reporting matters – level of knowledge, education, experience and skills of relevant persons involved with the super fund – governance arrangements and compliance assurance processes of the super fund – frameworks the super fund has in place to ensure compliance of any outsourced functions. • if there was an inadvertent mistake – if reasonable enquiries were made, including whether the super fund conducted a level of enquiry commensurate with the risk of the decision and their resources, or – the super fund just assumed the statement was correct • whether the super fund was aware, or should have been aware, of the correct treatment of the law or of the facts, noting a super fund – should not rely on advice they have received where a reasonable person would be expected to know, or strongly suspect, the advice is not worthy of such reliance – is not obliged or entitled to accept assurance by their professional adviser where statements appear flawed or questionable • whether any factors prevented the super fund from seeking advice, understanding the requirements of the tax law or reporting correctly, and • whether the super fund's level of knowledge, understanding of the tax and superannuation systems or circumstances impacted their compliance, considering the – super fund's level of sophistication relating to superannuation reporting matters – level of knowledge, education, experience and skills of relevant persons involved with the super fund – governance arrangements and compliance assurance processes of the super fund – frameworks the super fund has in place to ensure compliance of any outsourced functions. – if reasonable enquiries were made, including whether the super fund conducted a level of enquiry commensurate with the risk of the decision and their resources, or – the super fund just assumed the statement was correct – should not rely on advice they have received where a reasonable person would be expected to know, or strongly suspect, the advice is not worthy of such reliance – is not obliged or entitled to accept assurance by their professional adviser where statements appear flawed or questionable – super fund's level of sophistication relating to superannuation reporting matters – level of knowledge, education, experience and skills of relevant persons involved with the super fund – governance arrangements and compliance assurance processes of the super fund – frameworks the super fund has in place to ensure compliance of any outsourced functions. Grace periods 42. Subsection 284-75(9) provides that an entity is not liable to a false or misleading statement penalty if they correct a false or misleading statement made in their MAAS or MATS reporting within the prescribed period. [9] This period is called a grace period. 43. There is currently no grace period that has been prescribed, meaning a super fund is not able to take advantage of a grace period. Safe harbours 44. Legislative safe harbours protect a super fund from being liable to a penalty because of the actions of their registered tax or BAS agent. 45. In relation to penalties for failing to lodge in the approved form by the due date, the safe harbour [10] applies where all of the following apply: • the super fund provided all relevant information to the registered agent to enable the document to be lodged on time (noting that the onus is on the super fund to prove that they met this requirement) [11] • the registered agent does not lodge the document on time, and • the failure to lodge on time was not due to either – intentional disregard of a taxation law by the registered agent, or – recklessness by the registered agent as to the operation of a taxation law. • the super fund provided all relevant information to the registered agent to enable the document to be lodged on time (noting that the onus is on the super fund to prove that they met this requirement) [11] • the registered agent does not lodge the document on time, and • the failure to lodge on time was not due to either – intentional disregard of a taxation law by the registered agent, or – recklessness by the registered agent as to the operation of a taxation law. – intentional disregard of a taxation law by the registered agent, or – recklessness by the registered agent as to the operation of a taxation law. 46. In relation to false or misleading statement penalties, each statement must be considered separately and the safe harbour [12] applies where both of the following apply: • the super fund gave all the relevant information to the agent necessary for the statement to be correctly prepared, and • the agent did not act recklessly or with intentional disregard of the law. • the super fund gave all the relevant information to the agent necessary for the statement to be correctly prepared, and • the agent did not act recklessly or with intentional disregard of the law. 47. This means the safe harbour exception applies only where the agent has failed to take reasonable care. 48. Super funds that engage the services of third-party administrators are not protected from penalties by the safe harbours for the actions of the administrator, unless the third-party administrator is also a registered tax or BAS agent. 49. If you determine that a safe harbour does not apply in the circumstances, you can still consider if the circumstances warrant remission of the penalty. 50. More information to assist you in determining whether a safe harbour is relevant in the circumstances can be found: • for penalties for failing to lodge in the approved form by the due date, in Law Administration Practice Statement PS LA 2011/19 Administration of the penalty for failure to lodge on time • for false or misleading statement penalties, in PS LA 2012/4 (where there is no shortfall amount) or PS LA 2012/5 (where there is a shortfall amount). • for penalties for failing to lodge in the approved form by the due date, in Law Administration Practice Statement PS LA 2011/19 Administration of the penalty for failure to lodge on time • for false or misleading statement penalties, in PS LA 2012/4 (where there is no shortfall amount) or PS LA 2012/5 (where there is a shortfall amount). | Step 3 – determine the extent and amount of penalty: 51. The key considerations when applying a penalty are: • where penalties for failure to lodge in the approved form by the due date are applicable in the circumstances – deciding whether, and to what extent, to apply penalties • where false or misleading statement penalties are applicable in the circumstances – deciding whether, and to what extent, to assess penalties • calculating the penalty amounts. • where penalties for failure to lodge in the approved form by the due date are applicable in the circumstances – deciding whether, and to what extent, to apply penalties • where false or misleading statement penalties are applicable in the circumstances – deciding whether, and to what extent, to assess penalties • calculating the penalty amounts. 52. Appendix A to this Practice Statement covers these considerations in relation to penalties for failure to lodge in the approved form by the due date. 53. Appendix B to this Practice Statement covers these considerations in relation to false or misleading statement penalties. | Step 4 – consider penalty remission: 54. Remission allows us to adjust the penalty to match the observed behaviour or particular circumstances of a case, offering administrative flexibility. 55. We have the discretion to remit all or part of the penalty. [13] Our discretion to remit is unfettered, meaning there's no legal restriction on when we can remit. 56. Remission decisions you make need to balance: • the purpose of the penalty regime to encourage entities to take reasonable care in complying with the tax and super obligations and promote consistent treatment between entities in similar circumstances • producing a fair, just and proportionate outcome taking into account the super fund's circumstances. • the purpose of the penalty regime to encourage entities to take reasonable care in complying with the tax and super obligations and promote consistent treatment between entities in similar circumstances • producing a fair, just and proportionate outcome taking into account the super fund's circumstances. 57. A remission decision should be made for every penalty decision, even if that decision is that there are no grounds for penalty remission. 58. You must follow the 4-step penalty remission process outlined in Appendix C to this Practice Statement when deciding on remission of penalties relating to the superannuation member account reporting obligations covered by this Practice Statement. | Step 5 – issue written notice of the penalty: 59. When a penalty remains payable (for example, because it was not remitted in full), we must send a written notice to the super fund that includes [14] : • their liability to pay the penalty, after any reductions or remissions • the reasons why they are liable for the penalty • if the penalty has not been fully remitted, why it has not been fully remitted. • their liability to pay the penalty, after any reductions or remissions • the reasons why they are liable for the penalty • if the penalty has not been fully remitted, why it has not been fully remitted. 60. The penalty is payable on the day specified in the notice (which must be at least 14 days after the notice is given). [15] Penalties for failing to lodge in the approved form by the due date 61. Notice of the penalty may be given before or after the super fund has lodged the relevant MAAS or MATS reporting in the approved form. If it is given before, we can later increase the penalty (up to the statutory maximum) either when the reporting is lodged, or if it remains unlodged. [16] False or misleading statement penalties 62. When a penalty is assessed, we must provide reasons for the decisions, detailing the findings on key facts and referring to the evidence or other material facts those findings are based on. These reasons should be given to the super fund along with, or before, the penalty notice. If that's not possible, it should be done as soon as possible after notifying them of the penalty. | More information: 63. For more information, see: • Miscellaneous Taxation Ruling MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard • Miscellaneous Taxation Ruling MT 2012/3 Administrative penalties: voluntary disclosures • Law Administration Practice Statement PS LA 2008/3 Provision of advice and guidance by the ATO • Law Administration Practice Statement PS LA 2011/15 Lodgment obligations, due dates and deferrals • Law Administration Practice Statement PS LA 2011/19 Administration of the penalty for failure to lodge on time • Law Administration Practice Statement PS LA 2012/4 Administration of the false or misleading statement penalty – where there is no shortfall amount • Law Administration Practice Statement PS LA 2012/5 Administration of the false or misleading statement penalty – where there is a shortfall amount. • Miscellaneous Taxation Ruling MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard • Miscellaneous Taxation Ruling MT 2012/3 Administrative penalties: voluntary disclosures • Law Administration Practice Statement PS LA 2008/3 Provision of advice and guidance by the ATO • Law Administration Practice Statement PS LA 2011/15 Lodgment obligations, due dates and deferrals • Law Administration Practice Statement PS LA 2011/19 Administration of the penalty for failure to lodge on time • Law Administration Practice Statement PS LA 2012/4 Administration of the false or misleading statement penalty – where there is no shortfall amount • Law Administration Practice Statement PS LA 2012/5 Administration of the false or misleading statement penalty – where there is a shortfall amount. | Deciding whether and to what extent a penalty should be applied: 64. Overall, you should seek to apply the penalty for failure to lodge in the approved form by the due date in such a way as to improve lodgment behaviours. 65. PS LA 2011/19 [17] outlines that the penalty will be applied if the failure to lodge: • places the efficient operation of the taxation and superannuation systems at risk • provides a benefit or advantage to the late or non-lodger over the general community, or • erodes community confidence in the taxation and superannuation systems. • places the efficient operation of the taxation and superannuation systems at risk • provides a benefit or advantage to the late or non-lodger over the general community, or • erodes community confidence in the taxation and superannuation systems. 66. Superannuation member account reporting is characterised by both its high frequency and the significance it holds for individuals in effectively managing their tax and super affairs. Where this reporting is not lodged in the approved form by the due date, it may be viewed as undermining the efficient functioning of Australia's tax and superannuation systems and may diminish public confidence in its integrity. Accordingly, you generally should decide to apply a penalty if a super fund is liable to it – noting that it may be remitted (see paragraphs 54 to 58 and Appendix C to this Practice Statement). 67. However, it may be appropriate to decide not to apply a penalty in some circumstances, taking into account: • the compliance history of the super fund • the effort it took to obtain lodgment • the value of the information to be disclosed in the taxation document • whether the super fund is aware of their lodgment obligation and the consequences of not meeting that obligation • whether the super fund has had an opportunity to comply • the length of time the taxation document was overdue • any contact the super fund or their representative may have had with us prior to the due date for lodgment. • the compliance history of the super fund • the effort it took to obtain lodgment • the value of the information to be disclosed in the taxation document • whether the super fund is aware of their lodgment obligation and the consequences of not meeting that obligation • whether the super fund has had an opportunity to comply • the length of time the taxation document was overdue • any contact the super fund or their representative may have had with us prior to the due date for lodgment. This list is not exhaustive. 68. For example, it may be appropriate to decide not to apply a penalty where a super fund has failed to lodge in the approved form by the due date and: • the reporting has now been lodged with minimal delay • you are satisfied that it is an isolated incident • the super fund has a good compliance history • the super fund has demonstrated that they have taken steps to prevent the failure occurring again. • the reporting has now been lodged with minimal delay • you are satisfied that it is an isolated incident • the super fund has a good compliance history • the super fund has demonstrated that they have taken steps to prevent the failure occurring again. 69. Where you decide it is appropriate not to apply a penalty, you must document your decision on the taxpayer's account. | Multiple simultaneous failures: 70. A super fund that is required to report through the MAAS or MATS may be required to report multiple events on the same day (for example, because an account has been opened and a contribution has been allocated to that account on the same day). 71. Each event gives rise to a separate requirement to report, and each event that a super fund fails to report as required in the approved form by the due date results in them becoming liable to a penalty. For example, where an account is opened and a contribution is allocated to that account on the same day, a super fund is required to report using the MAAS that an account has been opened, and using the MATS that a contribution has been allocated. If the super fund does not lodge this reporting, they will be liable to 2 penalties. 72. This principle, where a penalty can apply for each obligation a super fund fails to meet, is particularly important because: • Failure to lodge MAAS or MATS reporting affects the ability of each member about whom information is being reported to manage and meet their own tax obligations. • It ensures the level of penalty that may apply reflects the culpability of the super fund failing to report – that is, it means a super fund that fails to lodge MAAS or MATS reporting for 100 reportable events may receive a penalty that is larger than a super fund that fails to lodge once. • Failure to lodge MAAS or MATS reporting affects the ability of each member about whom information is being reported to manage and meet their own tax obligations. • It ensures the level of penalty that may apply reflects the culpability of the super fund failing to report – that is, it means a super fund that fails to lodge MAAS or MATS reporting for 100 reportable events may receive a penalty that is larger than a super fund that fails to lodge once. 73. Where you are making a decision about applying penalties for multiple related events, you should consider whether it is fair and reasonable to do so in totality, taking into account: • the super fund's compliance history • the impact of the failure on the tax and superannuation systems • the super fund's previous pattern of failing to lodge through the MAAS or MATS in the approved form by the due date • any prior contact with the super fund (or their representative) about their failure to comply with their MAAS or MATS obligations • whether applying multiple penalties in the circumstances produces an unfair, unjust or disproportionate result. • the super fund's compliance history • the impact of the failure on the tax and superannuation systems • the super fund's previous pattern of failing to lodge through the MAAS or MATS in the approved form by the due date • any prior contact with the super fund (or their representative) about their failure to comply with their MAAS or MATS obligations • whether applying multiple penalties in the circumstances produces an unfair, unjust or disproportionate result. 74. Absence of a prior warning from us to the super fund does not prevent you from applying penalties in relation to multiple MAAS or MATS reports that were due on the same day if it is fair, reasonable and just in the circumstances to do so. 75. However, only one penalty applies in relation to a specific event. For example, where a super fund reports that an account has been opened after the due date, but also fails to do so in the approved form, only one penalty applies in relation to that reporting. | Calculating the penalty for failing to lodge in the approved form by the due date: 76. The penalty is calculated in 2 stages [18] : • The base penalty amount (BPA) is calculated. • The BPA is increased if the entity size tests are satisfied. • The base penalty amount (BPA) is calculated. • The BPA is increased if the entity size tests are satisfied. | Base penalty amount: 77. The BPA is one penalty unit [19] for every 28 days (or part thereof) after the due date that the super fund has failed to lodge in the approved form, up to a maximum of 5 penalty units. [20] 78. The due dates for MAAS reporting [21] are outlined in Table 1 of this Practice Statement. Table 1: Due dates for MAAS reporting Scenario Due date The super fund is reporting that an account has been opened or life insurance policy first held MAAS reporting is due on or before 5 business days after the account was opened or life insurance policy first held. The super fund is reporting that there has been a change to account phases or attributes relating to the account or policy (or both) MAAS reporting is due on or before 5 business days after the change. 79. The due dates for MATS reporting [22] are outlined in the Table 2 of this Practice Statement. Table 2: Due dates for MATS reporting Scenario Due date The super fund is reporting employer contributions MATS reporting is due on or before 10 business days after the day the contribution amount is allocated to the member's account. The super fund is reporting non-employer transactions MATS reporting is due on or before 10 business days after the day the transaction amount is allocated to the member's account. The super fund is reporting retirement phase events MATS reporting is due on or before 10 business days after the day the event occurs. The super fund is reporting acknowledgments of valid notices of intent to claim a personal superannuation contribution deduction MATS reporting is due on or before 10 business days after the day the notice is acknowledged. The super fund is reporting member contribution balance amounts MATS reporting is due on or before 31 October following the end of the financial year to which the amount relates. 80. The BPA is calculated from the due date of the relevant MAAS or MATS reporting to the date before it is received in the approved form. | Increasing the base penalty amount: 81. The BPA is multiplied by 2 if the super fund [23] : • is a medium withholder in the month the MAAS or MATS reporting was due [24] • has an assessable income for the income year in which the MAAS or MATS reporting was due of more than $1 million but less than $20 million, or • has a current GST turnover of more than $1 million but less than $20 million in the month the MAAS or MATS reporting was due. • is a medium withholder in the month the MAAS or MATS reporting was due [24] • has an assessable income for the income year in which the MAAS or MATS reporting was due of more than $1 million but less than $20 million, or • has a current GST turnover of more than $1 million but less than $20 million in the month the MAAS or MATS reporting was due. 82. The BPA is multiplied by 5 if the super fund [25] : • is a large withholder in the month the MAAS or MATS reporting was due [26] • has an assessable income for the income year in which the MAAS or MATS reporting was due of $20 million or more, or • has a current GST turnover of $20 million or more in the month the MAAS or MATS reporting was due. • is a large withholder in the month the MAAS or MATS reporting was due [26] • has an assessable income for the income year in which the MAAS or MATS reporting was due of $20 million or more, or • has a current GST turnover of $20 million or more in the month the MAAS or MATS reporting was due. 83. The BPA is multiplied by 500 if the super fund is a significant global entity (SGE). [27] An entity is an SGE according to the most recent income tax assessment. [28] 84. If we do not have current information to apply all 3 size tests, you should use the super fund's withholder status or assessable income to determine their size, whichever results in the higher penalty. 85. Where it is determined that the penalty amount does not reflect the actual size of the super fund, the following actions will occur: • The penalty notice will be cancelled. • A new notice using the correct rate of penalty and reasons for the imposition and calculation will be provided to the super fund. • The penalty notice will be cancelled. • A new notice using the correct rate of penalty and reasons for the imposition and calculation will be provided to the super fund. | Deciding whether, and to what extent, a penalty should be assessed: 86. It is not administratively appropriate, nor is it necessary, to consider applying the false or misleading statement penalty to every potentially false or misleading statement. 87. Instead, when deciding whether or not to assess a penalty, you should consider the significance of the false or misleading statement to the integrity of the tax and superannuation systems. 88. For example: • A statement by a super fund that provides an incorrect date of birth for a member, where there was otherwise sufficient information to identify the individual it relates to, is unlikely to be significant enough to warrant assessment of a penalty. • A statement by a super fund that a large employer super guarantee contribution has been made, when in fact it was a downsizer contribution (which has significantly different tax treatment for an individual), is likely to be significant enough to warrant assessment of a penalty. • A statement by a super fund that provides an incorrect date of birth for a member, where there was otherwise sufficient information to identify the individual it relates to, is unlikely to be significant enough to warrant assessment of a penalty. • A statement by a super fund that a large employer super guarantee contribution has been made, when in fact it was a downsizer contribution (which has significantly different tax treatment for an individual), is likely to be significant enough to warrant assessment of a penalty. 89. Where you determine that the false or misleading statement does have significance to the integrity of the tax and superannuation systems, you should generally proceed to assess the penalty– noting that it may be remitted (see paragraphs 54 to 58 and Appendix C to this Practice Statement). | Multiple false or misleading statements with a common source: 90. The event or transactional nature of MAAS or MATS reporting means that some circumstances, such as systems or process issues, may result in a super fund making multiple false or misleading statements of essentially the same nature – a particular may be repeatedly false or misleading in the same way, as a result of each statement having a common source. 91. Each statement that is false or misleading results in the super fund becoming liable to a penalty. For example, if a system issue results in false or misleading reporting about the same particular 5 times, the super fund will be liable to 5 penalties. 92. This is an important reflection of the importance MAAS and MATS reporting has to the operation of the tax and super systems because: • incorrect MAAS or MATS reporting lodged by a super fund can have tax consequences for members and this is exacerbated where multiple members are affected • members relying on the information provided by their super fund may be misled into actions that they were not able to validly take or which have detrimental effects, and • it ensures the level of penalty that may apply reflects the culpability of the super fund – that is, it means a super fund that makes a false or misleading statement 100 times may receive a penalty that is larger than a super fund that only does so once. • incorrect MAAS or MATS reporting lodged by a super fund can have tax consequences for members and this is exacerbated where multiple members are affected • members relying on the information provided by their super fund may be misled into actions that they were not able to validly take or which have detrimental effects, and • it ensures the level of penalty that may apply reflects the culpability of the super fund – that is, it means a super fund that makes a false or misleading statement 100 times may receive a penalty that is larger than a super fund that only does so once. 93. However, where you are making a decision about applying penalties for multiple related statements, you should consider whether it is fair and reasonable to do so in totality, taking into account: • the super fund's compliance history • the impact of the failure on the tax and superannuation systems • the super fund's previous pattern of accurate reporting through the MAAS or MATS • any prior contact with the super fund (or their representative) about their failure to comply with their MAAS or MATS obligations • whether applying multiple penalties in the circumstances produces an unfair, unjust or disproportionate result. • the super fund's compliance history • the impact of the failure on the tax and superannuation systems • the super fund's previous pattern of accurate reporting through the MAAS or MATS • any prior contact with the super fund (or their representative) about their failure to comply with their MAAS or MATS obligations • whether applying multiple penalties in the circumstances produces an unfair, unjust or disproportionate result. 94. Absence of a prior warning from the ATO does not prevent you from applying penalties in relation to multiple statements if it is fair, reasonable and just in the circumstances to do so. | Calculating the false or misleading statement penalty: 95. To assess the penalty amount: • assess the super fund's behaviour to determine the amount of the BPA • increase or reduce the BPA (or both). • assess the super fund's behaviour to determine the amount of the BPA • increase or reduce the BPA (or both). | Assessing the super fund's behaviour in making the statement: 96. When assessing the super fund's behaviour in making the statement, we consider the actions and behaviours at the time the statement was made. The guidelines for determining the behaviour are in MT 2008/1. They are described briefly in the remaining paragraphs of this Practice Statement, but you must consult and follow MT 2008/1. 97. Actions and behaviours after the statement are not relevant in working out the BPA. | Failure to take reasonable care: 98. Failure to take reasonable care occurs where reasonable care has not been taken in connection with making the statement, but the super fund or their agent has not been reckless or intentionally disregarded the law. | Recklessness: 99. Recklessness is when a super fund behaves far below the standard of care expected of a reasonable person in similar circumstances. It's essentially extreme carelessness. Recklessness means a super fund shows a disregard for risks or indifference to consequences that could reasonably be foreseen. However, the super fund doesn't need to actually realise the risk for their behaviour to be considered reckless. | Intentional disregard: 100. Intentional disregard of the law means more than just being reckless or indifferent to a tax law. The super fund must actually know the statement is false. They must understand the relevant legislation, how it applies to their situation, and then choose to ignore the law deliberately. | Amount of the penalty: 101. The BPA is calculated by: • assessing the super fund's behaviour in making the statement • reducing the BPA to the extent that the super fund applied a taxation law in an accepted way. • assessing the super fund's behaviour in making the statement • reducing the BPA to the extent that the super fund applied a taxation law in an accepted way. 102. The initial BPA is based on the assessment of the super fund's behaviour and whether or not there is a shortfall amount. A shortfall amount is the amount by which: • a tax-related liability is less than it would have been if the statement were not false or misleading, or • a payment or credit that we must make under a taxation law is more than it would have been if the statement were not false or misleading. • a tax-related liability is less than it would have been if the statement were not false or misleading, or • a payment or credit that we must make under a taxation law is more than it would have been if the statement were not false or misleading. 103. While a super fund relying on advice we provided is highly likely to have taken reasonable care (and therefore will not be liable to a penalty), even if reasonable care has not been taken, the BPA is reduced to the extent that the super fund applied the law in an accepted way that agreed with: • advice given to them by or on behalf of us • our general administrative practice • a statement in a publication approved in writing by the Commissioner. • advice given to them by or on behalf of us • our general administrative practice • a statement in a publication approved in writing by the Commissioner. 104. Subsection 284-90(1) provides the initial BPA as shown in Table 3 of this Practice Statement [29] : Table 3: Base penalty amount Situation Where there is a shortfall amount Where there is no shortfall amount Intentional disregard of a taxation law by the super fund or their agent BPA is 75% of the shortfall amount BPA is 60 penalty units Recklessness by the super fund or their agent as to the operation of a taxation law BPA is 50% of the shortfall amount BPA is 40 penalty units Failure by the super fund or their agent to take reasonable care to comply with a taxation law BPA is 25% of the shortfall amount BPA is 20 penalty units 105. If the super fund is an SGE, the BPA amount is doubled. A super fund's status as an SGE must be worked out on the day the statement was made and is based upon the most recent income year for which an income tax assessment has been made for the super fund or a determination by us that the super fund is an SGE at the date of the statement. | Increasing or reducing the base penalty amount: 106. In certain instances, the BPA is increased or reduced, using the following formula: BPA + [BPA × (increase % - reduction %)] BPA + [BPA × (increase % - reduction %)] | Increasing the base penalty amount: 107. The BPA is increased by 20% where the super fund [30] : • prevents or obstructs us from finding out about the false or misleading nature of the statement • becomes aware of the false or misleading nature of the statement after the statement is made and does not tell us about it within a reasonable time, or • had a BPA worked out for this type of penalty previously, even if the penalty was remitted. • prevents or obstructs us from finding out about the false or misleading nature of the statement • becomes aware of the false or misleading nature of the statement after the statement is made and does not tell us about it within a reasonable time, or • had a BPA worked out for this type of penalty previously, even if the penalty was remitted. 108. The increase is a maximum of 20%, even if more than one of the criteria in paragraph 107 of this Practice Statement applies. | Increasing the base penalty amount – prevent or obstruct: 109. Examples of what would constitute preventing or obstructing us would include where the super fund, without an acceptable reason: • repeatedly defers or fails to keep appointments • repeatedly fails to supply information • repeatedly fails to respond adequately to reasonable requests for information, such as – by not replying to the request for information – giving information that is not relevant – not addressing all the issues in the request, or – supplying inadequate information • fails to respond to formal information-gathering notices • provides incorrect information or fraudulently prepares documents in support of statements (although these may also be further false or misleading statements), or • destroys records. • repeatedly defers or fails to keep appointments • repeatedly fails to supply information • repeatedly fails to respond adequately to reasonable requests for information, such as – by not replying to the request for information – giving information that is not relevant – not addressing all the issues in the request, or – supplying inadequate information • fails to respond to formal information-gathering notices • provides incorrect information or fraudulently prepares documents in support of statements (although these may also be further false or misleading statements), or • destroys records. – by not replying to the request for information – giving information that is not relevant – not addressing all the issues in the request, or – supplying inadequate information 110. You should also note the use of the term 'repeatedly' when considering increases for prevention or obstruction. Simply not replying to a letter or not returning a call does not indicate the super fund is taking steps to prevent or obstruct us. [31] It will also not be obstruction where the incorrect information or the failure to provide information was the result of the taxpayer not understanding the request. 111. We expect that where legal professional privilege (LPP) claims are made, they are made properly. [32] Claims of LPP will not generally be considered to be obstructive. However, if you discover that claims were unjustified, you should consider if they were made to obstruct us. | Increasing the base penalty amount – previous penalty: 112. The BPA is increased by 20% where the super fund has a previous penalty of the same type as the penalty being assessed. For false or misleading statements which do not result in a shortfall amount, the previous penalty must also have been for a false or misleading statement which did not result in a shortfall amount. 113. The increase will apply regardless of whether the previous penalty was assessed during a previous interaction, or whether it occurs on the same day. This means that, where you assess multiple penalties of the same type at the same time, the increase will apply to the second and subsequent statements. 114. The order of the statements is determined by the date on which they were made, not the period to which they relate. | Reducing the base penalty amount for voluntary disclosure: 115. The BPA can be reduced in certain circumstances where a super fund voluntarily discloses the false or misleading statement, if they do so in 'the approved form'. [33] 116. You must refer to MT 2012/3 when making any decision regarding voluntary disclosure and the rates of penalty reduction applicable in certain situations. [34] 117. A voluntary disclosure must meet the requirements of the approved form. 118. The approved form sets out a list of the information required for the super fund to make that disclosure. This includes an identification of the statement and an explanation of its false or misleading nature. 119. Generally, the actual form and structure used is irrelevant, as long as the super fund provides the required information through an acceptable mechanism. You can find full details of the information required and the methods or mechanisms available to make a voluntary disclosure at How to make a voluntary disclosure . 120. In working out if a voluntary disclosure has been made, it is important to recognise that a super fund making a genuine attempt to inform us of a mistake may not be fully aware of all the information we require. 121. If the disclosure fails to meet the strict requirements of the approved form, but substantially complies with the requirements, and you can accurately determine the nature of the false or misleading statement from the information provided, the disclosure should be treated as meeting the requirements of the approved form. 122. If additional information is sought on an incomplete disclosure and it is provided within a reasonable time, the original incomplete disclosure should be treated as sufficiently complete. 123. The super fund's original disclosure would not be regarded as constituting a voluntary disclosure if the facts or reasonable inferences indicate that the super fund supplied incomplete information in an attempt to obstruct or hinder us from identifying the correct information (that is, the false or misleading nature of the statement), particularly where the degree of incompleteness is significant. [35] | Step 1 – consider remission based on the super fund's attempt to comply with their obligations: 124. Where a super fund has not rectified their failure to comply in a manner that protects them from penalties [36] , it is still appropriate to recognise that some remission is warranted for a super fund that has attempted to comply compared to a super fund that has not. 125. Using Table 4 of this Practice Statement, consider an initial amount of remission based on a super fund's attempt to comply with their superannuation member account reporting obligations using the MAAS or MATS. Table 4: Degree of attempt to comply with obligations Situation Initial remission The super fund lodges in the approved form or corrects a statement which was false or misleading prior to contact from us, less than 3 months after the initial failure to comply with superannuation member account reporting obligations. 90% The super fund lodges in the approved form or corrects a statement which was false or misleading prior to contact from us, more than 3 and less than 9 months after the initial failure to comply with superannuation member account reporting obligations. 80% The super fund lodges in the approved form or corrects a statement which was false or misleading prior to contact from us, more than 9 months after the initial failure to comply with superannuation member account reporting obligations. 60% The super fund lodges in the approved form or corrects a statement which was false or misleading after initial contact from us but before any compliance action. 40% The super fund lodges in the approved form or corrects a statement which was false or misleading after being notified of our compliance action. 25% There is a deliberate failure by the super fund to comply (regardless of whether or not the failure was rectified later), or no attempt to comply by lodging in the approved form or correcting a statement which was false or misleading. 0% | Step 2 – consider increasing or reducing the remission based on the super fund's compliance history: 126. You should consider the super fund's compliance history for both their superannuation member account reporting obligations and obligations under other taxation laws [37] for the 3-year period leading up to the earlier of the day before: • the super fund rectified their failure through lodging in the approved form or correcting a statement that was false or misleading, or • we commenced compliance action (either by phone or in writing). • the super fund rectified their failure through lodging in the approved form or correcting a statement that was false or misleading, or • we commenced compliance action (either by phone or in writing). 127. Your consideration at this step should focus on the super fund's history, not their current failure to meet obligations for which the penalty is being raised. This is because behaviours relating to the current failure (such as obstruction) are already taken into account when determining the BPA. Any additional factors relating to the super fund's current failure that were not taken into account earlier can be considered in Step 3 of this remission process. 128. You should evaluate a super fund's history by reviewing their ATO records, as well as information supplied by the super fund and any other parties. 129. The super fund's superannuation member account reporting compliance history will be given more weight than their compliance history for other taxation laws. When reviewing compliance history, you should focus on: • the number of occasions on which the super fund previously failed to lodge MAAS or MATS reporting in the approved form by the due date or on which it has been identified that statements made in MAAS or MATS reporting were false or misleading • the degree of the super fund's attempt to comply with their MAAS and MATS obligations previously (not including their attempts to comply for the period being considered), and • any shift in behaviour by the super fund that has been subject to previous compliance activity (this may be demonstrated by an improvement or deterioration in their level of engagement and cooperation with us during the compliance activity). • the number of occasions on which the super fund previously failed to lodge MAAS or MATS reporting in the approved form by the due date or on which it has been identified that statements made in MAAS or MATS reporting were false or misleading • the degree of the super fund's attempt to comply with their MAAS and MATS obligations previously (not including their attempts to comply for the period being considered), and • any shift in behaviour by the super fund that has been subject to previous compliance activity (this may be demonstrated by an improvement or deterioration in their level of engagement and cooperation with us during the compliance activity). 130. Previous occasions of failing to comply with superannuation member account reporting obligations that were identified due to our compliance action will reflect a poorer compliance history than those identified via a voluntary disclosure. 131. Depending on a super fund's compliance history, you may provide additional remission or may reduce the level of remission provided by the other steps in this remission process. Generally, the amount of additional remission or reduced remission should not exceed the amounts in Table 5 of this Practice Statement: Table 5: Level of compliance history Level of compliance history Further remission up to good compliance history (noting that 'good' does not have to mean flawless or exceptional) 15% neither good nor poor compliance history No change poor compliance history −15% extremely poor compliance history −30% 132. When considering increasing or reducing the level of remission determined in Step 1, remember that you cannot: • remit more than 100% of the penalty amount • remit less than 0% of the penalty amount (that is, you can decline to grant any remission but you cannot increase the penalty amount to be higher than the law provides). • remit more than 100% of the penalty amount • remit less than 0% of the penalty amount (that is, you can decline to grant any remission but you cannot increase the penalty amount to be higher than the law provides). 133. The following examples illustrate some of the common situations of poor compliance history where a reduction in remission may be appropriate: • The super fund has demonstrated a history or habit of failing to lodge MAAS or MATS reporting or lodging late. • The super fund has demonstrated a history or habit of making false or misleading statements in their MAAS or MATS reporting. • The super fund has previously been subject to compliance activity relating to their MAAS or MATS reporting and has shown no improvement in behaviour. • The super fund has several outstanding lodgments relating to other tax and super obligations. • Evidence indicates that the super fund has previously been disingenuous or deceptive with the information disclosed in their MAAS or MATS reporting (for example, by deliberately disclosing only some information that obscures the true picture). • The super fund has demonstrated a history or habit of failing to lodge MAAS or MATS reporting or lodging late. • The super fund has demonstrated a history or habit of making false or misleading statements in their MAAS or MATS reporting. • The super fund has previously been subject to compliance activity relating to their MAAS or MATS reporting and has shown no improvement in behaviour. • The super fund has several outstanding lodgments relating to other tax and super obligations. • Evidence indicates that the super fund has previously been disingenuous or deceptive with the information disclosed in their MAAS or MATS reporting (for example, by deliberately disclosing only some information that obscures the true picture). 134. The following examples illustrate some of the situations where compliance history is considered extremely poor: • The super fund has repeatedly failed to meet their obligations even after multiple compliance actions by us (for example, where they have been audited more than 3 times previously and were found to have failed to meet their obligations each time). • The super fund has repeatedly attempted to obstruct or hinder compliance action or provided false or misleading statements during compliance action on multiple occasions. • The super fund has repeatedly and deliberately failed to meet their obligations (for example, by failing to correct known issues in their systems or processes which affect the correctness of their reporting). • The super fund has repeatedly failed to meet their obligations even after multiple compliance actions by us (for example, where they have been audited more than 3 times previously and were found to have failed to meet their obligations each time). • The super fund has repeatedly attempted to obstruct or hinder compliance action or provided false or misleading statements during compliance action on multiple occasions. • The super fund has repeatedly and deliberately failed to meet their obligations (for example, by failing to correct known issues in their systems or processes which affect the correctness of their reporting). Step 3 – consider any other mitigating or exacerbating factors that may warrant further increasing or reducing the amount of remission 135. You need to consider all other relevant facts and circumstances to ensure any penalty remaining after your remission decision takes the super fund's circumstances into account. After considering other relevant facts and circumstances, it may be appropriate to: • increase the level of penalty remission (including to full remission) • maintain the level of penalty without further remission • reduce the level of penalty remission. • increase the level of penalty remission (including to full remission) • maintain the level of penalty without further remission • reduce the level of penalty remission. 136. Where you have already taken into account the degree of the super fund's attempt to comply (in Step 1) and the super fund's compliance history (in Step 2), you should not consider these circumstances again at Step 3. 137. For example, a super fund may be found to have a good compliance history at Step 2 due to there being no previous compliance activity. The fact a super fund has not been subject to compliance activity before is not also an 'other mitigating fact or circumstance'. 138. When considering increasing or reducing the level of remission determined in Steps 1 and 2, remember that you cannot: • remit more than 100% of the penalty amount • remit less than 0% of the penalty amount (that is, you can decline to grant any remission but you cannot increase the penalty amount to be higher than the law provides). • remit more than 100% of the penalty amount • remit less than 0% of the penalty amount (that is, you can decline to grant any remission but you cannot increase the penalty amount to be higher than the law provides). 139. A penalty should not be remitted at Step 3 merely because the penalty may be 'relatively small'. 140. A penalty for failing to lodge in the approved form by the due date should generally only be further remitted at this step if the super fund has lodged the reporting concerned. | Mitigating factors: 141. Different mitigating facts or circumstances may warrant different levels of further remission, depending on their significance in contributing to the super fund's non-compliance. Where there are multiple mitigating factors present, they should each be considered for remission. The circumstances outlined in this section are examples of mitigating facts or circumstances and are not exhaustive. 142. Mitigating facts or circumstances that only warrant minor further remission (generally not exceeding 10%) include: • the facts indicate the super fund's failure to comply with their MAAS or MATS reporting obligations arose due to an error or honest mistake • you are satisfied that the super fund has addressed the issue that led to their failure to comply, or • the super fund's non-compliance occurred in their first year of operation and you are satisfied the failure to comply was not a deliberate attempt to avoid their MAAS or MATS reporting obligations. • the facts indicate the super fund's failure to comply with their MAAS or MATS reporting obligations arose due to an error or honest mistake • you are satisfied that the super fund has addressed the issue that led to their failure to comply, or • the super fund's non-compliance occurred in their first year of operation and you are satisfied the failure to comply was not a deliberate attempt to avoid their MAAS or MATS reporting obligations. 143. Mitigating facts or circumstances that may warrant moderate further remission (generally not exceeding 20%) include: • the super fund's ability to comply was impacted by the severe ill health of a key employee of the employer • the super fund did meet a significant proportion of their MAAS or MATS reporting obligations accurately and on time and the failure to comply represents a small portion of their overall obligations for the period under consideration, or • the super fund misidentified a transaction due to complex legal interpretative issues. • the super fund's ability to comply was impacted by the severe ill health of a key employee of the employer • the super fund did meet a significant proportion of their MAAS or MATS reporting obligations accurately and on time and the failure to comply represents a small portion of their overall obligations for the period under consideration, or • the super fund misidentified a transaction due to complex legal interpretative issues. 144. Mitigating facts or circumstances that may warrant a larger additional remission (generally not exceeding 50%) include: • the malfunction or outage of a key ATO system which the super fund can demonstrate caused them to narrowly miss the lodgment due date, or • a natural disaster, emergency or other similar event has significantly impacted the super fund's ability to comply with their obligations. • the malfunction or outage of a key ATO system which the super fund can demonstrate caused them to narrowly miss the lodgment due date, or • a natural disaster, emergency or other similar event has significantly impacted the super fund's ability to comply with their obligations. 145. You must ensure that you are considering mitigating circumstances in the context of the type of penalty that applies in the circumstances, as some mitigating circumstances may have more weight in relation to some penalties compared to others. For example, an outage of a key ATO system may warrant larger additional remission of penalties for failing to lodge on time in the approved form but not warrant additional remission of penalties for making a false or misleading statement, as an ATO system outage has greater effect on a super fund's ability to lodge than it does on the correctness of a super fund's reporting. | Exacerbating factors: 146. In limited cases, there may be exacerbating facts or circumstances which warrant reducing the level of remission determined in Steps 1 and 2. Where there are multiple exacerbating factors present, they should each be considered. The circumstances outlined in this section are examples of exacerbating factors and are not exhaustive. 147. Exacerbating facts or circumstances that may warrant minor reduction in remission level (generally not exceeding 10%) include where the super fund: • is reasonably expected to have fully understood their superannuation member reporting obligations (for example, where they have previously been subject to compliance activity or have previously received advice from the ATO about how those obligations apply to the transaction being considered), or • has a demonstrated history of repeated disengagement. • is reasonably expected to have fully understood their superannuation member reporting obligations (for example, where they have previously been subject to compliance activity or have previously received advice from the ATO about how those obligations apply to the transaction being considered), or • has a demonstrated history of repeated disengagement. 148. Exacerbating factors which may warrant moderate reduction in remission level (generally not exceeding 20%) include where the super fund: • has a history of not meeting superannuation member reporting obligations on other entities (for example, where a new super fund is the successor fund to a previous super fund with demonstrated poor compliance history and there is clear continuity between the 2 funds' governance, systems or process arrangements), or • demonstrates unwillingness to assist in efforts to reduce any impact to their members, or assist their members to respond to that impact, resulting from the super fund's failure to comply. • has a history of not meeting superannuation member reporting obligations on other entities (for example, where a new super fund is the successor fund to a previous super fund with demonstrated poor compliance history and there is clear continuity between the 2 funds' governance, systems or process arrangements), or • demonstrates unwillingness to assist in efforts to reduce any impact to their members, or assist their members to respond to that impact, resulting from the super fund's failure to comply. 149. Exacerbating factors which may warrant larger reduction in remission level (generally not exceeding 50%) include where the super fund took steps to: • deliberately avoid their superannuation member reporting obligations, or • prevent or obstruct us from undertaking compliance activity. This is more than just failing to respond to a letter; rather, it may be repeated failure to meet agreed timeframes to supply information without acceptable reason, or deliberately supplying irrelevant, inadequate or misleading information. • deliberately avoid their superannuation member reporting obligations, or • prevent or obstruct us from undertaking compliance activity. This is more than just failing to respond to a letter; rather, it may be repeated failure to meet agreed timeframes to supply information without acceptable reason, or deliberately supplying irrelevant, inadequate or misleading information. | Step 4 – consider whether or not the result is fair, just and proportionate in the circumstances: 150. After considering the super fund's attempt to comply, compliance history and other relevant circumstances to determine a remission level, you must also consider whether the remission level you have determined is a fair, just and proportionate outcome. 151. Where you determine that the level of remission reached by applying Steps 1, 2 and 3 of this process is not a fair, just and proportionate outcome, you must consider remitting the penalty (or penalties) further to achieve a fair, just and proportionate outcome. What is a fair, just and proportionate outcome will depend on the particular circumstances of a case. 152. Paragraphs 153 to 161 of this Practice Statement describe some situations that may not result in a fair, just and proportionate outcome. They are not exhaustive and where an unfair, unjust or disproportionate outcome arises in other situations, you must still consider further remission. | Mechanical process of the law: 153. In some instances, the mechanical process of the law could result in an unintended or unjust result. In particular, this can arise where the BPA when calculating a false or misleading statement penalty is increased because 2 or more penalties were assessed at the same time. In situations where the super fund has not been advised of a previous penalty and the behaviour is not intentional disregard of the law, it is appropriate to consider remitting the penalty to the extent of the amount of the BPA increase. | Penalty is disproportionate to the severity of the failure to comply: 154. Situations may arise where relatively small errors receive penalties which are disproportionate to the severity of the failure to comply. For example, penalties for false or misleading statements that do not result in a shortfall amount are based on a fixed number of penalty units, and this may result in penalties applying that are significantly larger than would be the case for a similar false or misleading statement that did result in a shortfall. 155. Where this occurs, it is appropriate to consider remitting the penalty in part, to an amount which is proportionate to the size of the misstatement. | Misalignment between the failure to comply and a super fund's significant global entity status: 156. A super fund (which is not an SGE at the time they fail to lodge in the approved form by the due date, or make a false or misleading statement) may be treated as an SGE on the basis of their last lodged return, default assessment or a determination by us, and have a penalty multiplier used to calculate their penalties. 157. If the super fund is able to provide sufficient evidence that they were no longer or likely not an SGE at the time of the failure to comply, remission of the additional penalty would be appropriate. 158. For example, a change in SGE status may have occurred as a result of an Australian entity being sold to a new owner, or investment market fluctuations may have resulted in the entity's turnover dropping significantly after the period covered by their last return or default assessment. | Total penalty impact: 159. The event-based nature of superannuation member account reporting obligations through the MAAS and MATS means that super funds generally have many discrete obligations to lodge, and in the course of lodging, make many discrete statements. As a result, you may be simultaneously considering many instances of a super fund being liable to penalties for failing to lodge in the approved form by the due date, making false or misleading statements, or both. 160. In these situations, you must consider whether the total penalties overall produce a fair, just and proportionate outcome in addition to the penalties when considered individually. 161. For example, where a super fund is liable to penalties for failing to lodge in the approved form by the due date, the penalty for each individual failure may be reasonable but when totalled across multiple failures being considered simultaneously the overall penalty amount may be so high that it is disproportionate or unfair. In those circumstances, it would be appropriate to remit the penalty to a more fair, just and proportionate level. | Example 1: 162. Mini Super receives a contribution for their member, Brenda, and allocates the contribution to Brenda's account. However, Mini Super fails to lodge MATS reporting about this contribution until 21 days later. Mini Super has not been granted a deferral of the due date and does not engage the services of a registered tax or BAS agent. 163. A tax officer considering penalties follows the process set out in this Practice Statement. 164. First, they determine the type of penalty which is applicable in the circumstances. Mini Super has correctly reported the details of the contribution through the MATS, and they have done so in the approved form. However, the due date for lodging their reporting through the MATS was 10 business days after the contribution was allocated to Brenda's account, and Mini Super failed to lodge by that due date. The penalty that is applicable in the circumstances is a penalty for failing to lodge in the approved form by the due date. 165. Next, the tax officer considers whether the law protects Mini Super from this penalty. Reasonable care and grace periods do not apply, as neither protects a super fund from penalties for failure to lodge in the approved form by the due date. As Mini Super does not engage the services of a registered tax or BAS agent, there is also no safe harbour that protects them from the penalty. 166. The tax officer moves onto Step 3 and considers whether or not to apply a penalty. They consider that it is appropriate not to apply a penalty because: • Mini Super lodged their MATS reporting with only minimal delay and without intervention from the ATO. • A review of Mini Super's compliance history satisfies the tax officer that this is an isolated incident. • Mini Super lodged their MATS reporting with only minimal delay and without intervention from the ATO. • A review of Mini Super's compliance history satisfies the tax officer that this is an isolated incident. | Example 2: 167. BCD Super submits a batch of MATS reports relating to notices of intent to claim a deduction given to them by their members. However, BCD Super does not have systems in place to ensure reportable transactions are identified and, as a result, transactions are missed for 150 members over the course of the 2024–25 financial year. 168. We identify this after several individuals' tax returns are stopped for review because they have claimed a deduction but there is no corresponding MATS reporting from BCD Super. BCD Super lodges MATS reporting for all 150 members on 5 August 2025, after contact from the ATO. 169. A tax officer considering penalties follows the process set out in this Practice Statement. 170. First, they determine the type of penalty which is applicable in the circumstances. BCD Super has correctly reported the details of the acknowledged notices of intent through the MATS, and they have done so in the approved form. However, the due date for BCD Super to report acknowledgment of valid notices of intent to claim is 10 business days after the day the notice was acknowledged. In each of the 150 cases, BCD Super fails to do this. The penalty that is applicable in the circumstances is a penalty for failing to lodge in the approved form by the due date. 171. Next, the tax officer considers whether the law protects BCD Super from this penalty. Reasonable care and grace periods do not apply, as neither protects a super fund from penalties for failure to lodge in the approved form by the due date. BCD Super does not engage the services of a registered tax or BAS agent, so there is also no safe harbour that protects them from the penalty. 172. The tax officer moves onto Step 3 and considers whether or not to apply a penalty. They consider that is it appropriate to apply a penalty because: BCD Super did not lodge until contacted by the ATO. 173. It is not an isolated failure, with BCD Super failing to make 150 lodgments. 174. The information is highly relevant to the income tax affairs of affected members, and the failure to lodge has put those members to additional inconvenience when lodging their tax returns. 175. As each MATS report is a separate lodgment obligation, BCD Super is liable to an administrative penalty for failing to lodge in the approved form by the due date in relation to each of the 150 MATS reports that they failed to lodge. 176. The tax officer calculates the amount of the penalties to be applied: • First, they calculate the BPA: – 18 MATS reports were between 29 and 56 days overdue; the BPA for each is 2 penalty units ($660) – 12 MATS reports were between 57 and 84 days overdue; the BPA for each is 3 penalty units ($990) – 15 MATS reports were between 85 and 112 days overdue; the BPA for each is 4 penalty units ($1,320) – 57 MATS reports were 113 or more days overdue and the failure to lodge occurred on or after 7 November 2024 [38] ; the BPA for each is 5 penalty units ($1,650) – the remaining 48 MATS reports were 113 or more days overdue and the failure to lodge occurred before 7 November 2024; the BPA for each is 5 penalty units ($1,565). • Next, they determine whether the BPA is increased. BCD Super is a medium withholder with assessable income between $1 million and $20 million for the whole of the 2024–-25 year. The BPA for each penalty is multiplied by 2. • First, they calculate the BPA: – 18 MATS reports were between 29 and 56 days overdue; the BPA for each is 2 penalty units ($660) – 12 MATS reports were between 57 and 84 days overdue; the BPA for each is 3 penalty units ($990) – 15 MATS reports were between 85 and 112 days overdue; the BPA for each is 4 penalty units ($1,320) – 57 MATS reports were 113 or more days overdue and the failure to lodge occurred on or after 7 November 2024 [38] ; the BPA for each is 5 penalty units ($1,650) – the remaining 48 MATS reports were 113 or more days overdue and the failure to lodge occurred before 7 November 2024; the BPA for each is 5 penalty units ($1,565). • Next, they determine whether the BPA is increased. BCD Super is a medium withholder with assessable income between $1 million and $20 million for the whole of the 2024–-25 year. The BPA for each penalty is multiplied by 2. – 18 MATS reports were between 29 and 56 days overdue; the BPA for each is 2 penalty units ($660) – 12 MATS reports were between 57 and 84 days overdue; the BPA for each is 3 penalty units ($990) – 15 MATS reports were between 85 and 112 days overdue; the BPA for each is 4 penalty units ($1,320) – 57 MATS reports were 113 or more days overdue and the failure to lodge occurred on or after 7 November 2024 [38] ; the BPA for each is 5 penalty units ($1,650) – the remaining 48 MATS reports were 113 or more days overdue and the failure to lodge occurred before 7 November 2024; the BPA for each is 5 penalty units ($1,565). 177. This means that, in total, BCD Super is liable to penalties for failure to lodge in the approved form by the due date as shown in Table 6 of this Practice Statement. Table 6: Example 2 – calculation of penalties to which BCD Super is liable MATS reports that were overdue BPA for each penalty Increase to BPA Amount of each penalty Total amount of penalties 18 MATS reports between 29 and 56 days overdue $660 multiplied by 2 $1,320 $23,760 12 MATS reports between 57 and 84 days overdue $990 multiplied by 2 $1,980 $23,760 15 MATS reports between 85 and 112 days overdue $1,320 multiplied by 2 $2,640 $39,600 57 MATS reports 113 or more days overdue and failure to lodge occurred on or after 7 November 2024 $1,650 multiplied by 2 $3,300 $188,100 48 MATS reports 113 or more days overdue and failure to lodge occurred before 7 November 2024 $1,565 multiplied by 2 $3,130 $150,240 178. When applying the penalties, totalling $425,460, the tax officer considers remission. They do this by following the 4-step penalty remission process in Appendix C to this Practice Statement: • First, they consider initial remission based on BCD Super's attempt to comply with their obligations. As BCD Super lodged their MATS reporting after initial contact from us but before compliance action, the initial remission level is 40%. • Second, they consider increasing or reducing the level of remission based on BCD Super's compliance history. The tax officer considers that BCD Super's compliance history is neither good nor poor, with a seemingly good history in relation to their income tax affairs balanced out by a mixed history in relation to their MAAS and MATS reporting obligations. There is no change to remission level. • Third, the tax officer considers all other relevant facts and circumstances to determine whether further change to the remission level is warranted. They determine that further minor remission of 5% is warranted. – On one hand, BCD Super has interacted with the ATO in relation to their MAAS and MATS reporting enough previously that it is reasonably expected that they fully understood their obligations. – On the other hand, BCD Super has supplied supporting evidence which satisfies the tax officer that BCD Super has now put systems in place to prevent recurrence of this failure. • Finally, the tax officer considers whether the outcome ($234,003 after the 45% remission) is fair, just and proportionate in the circumstances. They consider that, while several penalties are being applied at the same time, the final level of penalty is not so high as to be unfair, nor disproportionate to the severity of BCD Super's sustained failure to comply with obligations over an extended period, which ultimately affected some of their members. They decide it is appropriate to provide no further remission. • First, they consider initial remission based on BCD Super's attempt to comply with their obligations. As BCD Super lodged their MATS reporting after initial contact from us but before compliance action, the initial remission level is 40%. • Second, they consider increasing or reducing the level of remission based on BCD Super's compliance history. The tax officer considers that BCD Super's compliance history is neither good nor poor, with a seemingly good history in relation to their income tax affairs balanced out by a mixed history in relation to their MAAS and MATS reporting obligations. There is no change to remission level. • Third, the tax officer considers all other relevant facts and circumstances to determine whether further change to the remission level is warranted. They determine that further minor remission of 5% is warranted. – On one hand, BCD Super has interacted with the ATO in relation to their MAAS and MATS reporting enough previously that it is reasonably expected that they fully understood their obligations. – On the other hand, BCD Super has supplied supporting evidence which satisfies the tax officer that BCD Super has now put systems in place to prevent recurrence of this failure. • Finally, the tax officer considers whether the outcome ($234,003 after the 45% remission) is fair, just and proportionate in the circumstances. They consider that, while several penalties are being applied at the same time, the final level of penalty is not so high as to be unfair, nor disproportionate to the severity of BCD Super's sustained failure to comply with obligations over an extended period, which ultimately affected some of their members. They decide it is appropriate to provide no further remission. – On one hand, BCD Super has interacted with the ATO in relation to their MAAS and MATS reporting enough previously that it is reasonably expected that they fully understood their obligations. – On the other hand, BCD Super has supplied supporting evidence which satisfies the tax officer that BCD Super has now put systems in place to prevent recurrence of this failure. 179. The tax officer issues a penalty notice to BCD Super which includes their liability to pay penalties totalling $234,003 in respect of 150 MATS reports, the reasons BCD Super is liable to the penalty, and the reasons it was not remitted in full. | Example 3: 180. BigFund is a super fund that is an SGE. They do not engage the services of a registered tax or BAS agent. 181. By 31 October 2025, BigFund is required to report member contribution balance amounts for each of its members through the MATS. 182. BigFund fails to report these amounts for 1,000 members until 5 December 2025. 183. A tax officer considering penalties follows the process set out in this Practice Statement. 184. First, they determine the type of penalty which is applicable in the circumstances. BigFund has correctly reported the member contribution balance amounts for each of their members, and they have done so in the approved form. However, BigFund has not done this by the due date in respect of 1,000 members. The penalty that is applicable in the circumstances is a penalty for failing to lodge in the approved form by the due date. 185. Next, the tax officer considers whether the law protects BigFund from this penalty. Reasonable care and grace periods do not apply, as neither protects a super fund from penalties for failure to lodge in the approved form by the due date. As BigFund does not engage the services of a registered tax or BAS agent, there is also no safe harbour that protects them from the penalty. 186. The tax officer moves onto Step 3 and considers whether or not to apply a penalty. 187. The tax officer considers that it is appropriate to apply a penalty because the failure is to a significant scale, comprising 1,000 failures to meet lodgment obligations, and the account balance information is of high significance to individuals in managing their own tax affairs. The tax officer also considers that this is not outweighed by the fact BigFund lodged without intervention from us, or by BigFund's good compliance history. The tax officer considers that the scale of BigFund's failure to meet their obligations means it is appropriate to apply penalties in relation to all 1,000 failures (and to consider remission) rather than choosing not to apply a penalty. 188. As each MATS report is a separate lodgment obligation, BigFund is liable to an administrative penalty for failing to lodge in the approved form by the due date in relation to each of the 1,000 MATS reports that they failed to lodge. 189. The tax officer calculates the amount of the penalties to be applied: • The BPA is 2 penalty units ($660), as BigFund's MATS reporting was overdue by more than 28 days but less than 56 days. • As BigFund is an SGE, the BPA is multiplied by 500. • The BPA is 2 penalty units ($660), as BigFund's MATS reporting was overdue by more than 28 days but less than 56 days. • As BigFund is an SGE, the BPA is multiplied by 500. 190. Each penalty amount is $330,000, meaning BigFund is liable to administrative penalties totalling $330 million. 191. When applying the penalties, the tax officer must consider remission and they do this by following the 4-step penalty remission process in Appendix C to this Practice Statement: • First, they consider initial remission based on BigFund's attempt to comply with their obligations. As BigFund lodged their MATS reporting before contact from us and less than 3 months after their initial failure to lodge, the initial remission level is 90%. • Second, they consider increasing or reducing the level of remission based on BigFund's compliance history. The tax officer considers that BigFund's compliance history is good, with generally good compliance with all their obligations over the last 3 years but some significant failures in relation to their MAAS or MATS reporting. The tax officer decides further remission of 7.5% is appropriate. • Third, the tax officer considers all other relevant facts and circumstances to determine whether further change to remission level is warranted. They determine that no change to remission level is appropriate. – On one hand, BigFund provided supporting evidence to satisfy the tax officer that the failure was an unintentional error. – On the other hand, BigFund is reasonably expected to be fully aware of their obligation to report member contributions balance amounts annually and have sufficient controls to ensure their obligation is met. • Finally, the tax officer considers whether the outcome ($8.25 million after the 97.5% remission) is fair, just and proportionate in the circumstances. The tax officer considers that penalties of that magnitude produce a disproportionate and unjust result and that further remission to $3.3 million (representing overall remission of 99%) is a fair and just outcome that is proportionate to the scale of BigFund's failure to comply with their obligations. • First, they consider initial remission based on BigFund's attempt to comply with their obligations. As BigFund lodged their MATS reporting before contact from us and less than 3 months after their initial failure to lodge, the initial remission level is 90%. • Second, they consider increasing or reducing the level of remission based on BigFund's compliance history. The tax officer considers that BigFund's compliance history is good, with generally good compliance with all their obligations over the last 3 years but some significant failures in relation to their MAAS or MATS reporting. The tax officer decides further remission of 7.5% is appropriate. • Third, the tax officer considers all other relevant facts and circumstances to determine whether further change to remission level is warranted. They determine that no change to remission level is appropriate. – On one hand, BigFund provided supporting evidence to satisfy the tax officer that the failure was an unintentional error. – On the other hand, BigFund is reasonably expected to be fully aware of their obligation to report member contributions balance amounts annually and have sufficient controls to ensure their obligation is met. • Finally, the tax officer considers whether the outcome ($8.25 million after the 97.5% remission) is fair, just and proportionate in the circumstances. The tax officer considers that penalties of that magnitude produce a disproportionate and unjust result and that further remission to $3.3 million (representing overall remission of 99%) is a fair and just outcome that is proportionate to the scale of BigFund's failure to comply with their obligations. – On one hand, BigFund provided supporting evidence to satisfy the tax officer that the failure was an unintentional error. – On the other hand, BigFund is reasonably expected to be fully aware of their obligation to report member contributions balance amounts annually and have sufficient controls to ensure their obligation is met. 192. The tax officer issues a penalty notice to BigFund which includes their liability to pay penalties totalling $3.3 million in respect of 1,000 MATS reports, the reasons BigFund is liable to the penalty, and the reasons it was not remitted in full. | Example 4: 193. Dooper Super lodges MAAS reporting that mis-identifies member accounts as capped defined benefit income streams when they are in fact transition to retirement income streams (TRIS). 194. The issue with Dooper Super's reporting is brought to our attention when the misreporting causes difficulty for Dooper Super's members in managing their own tax affairs. We make Dooper Super aware of the issue in December 2024. 195. However, as TRIS only comprise a small portion of benefits paid by Dooper Super, they decide that the cost of implementing measures to resolve the issue outweighs the scale of the problem. They choose not to invest in a solution and knowingly continue to report incorrectly on 350 occasions throughout 2025. 196. A tax officer considering penalties follows the process set out in this Practice Statement. 197. First, they determine the type of penalty which is applicable in the circumstances. Dooper Super has reported the account status by the due date, and they have done so in the approved form. However, Dooper Super has reported an account status which is false. The penalty that is applicable in the circumstances is a false or misleading statement penalty. 198. Next, the tax officer considers whether the law protects Dooper Super from this penalty. Grace periods do not apply, as there are no grace periods applicable. As Dooper Super does not engage the services of a registered tax or BAS agent, no safe harbour protects them from the penalty. Dooper Super would be protected from the false or misleading statement penalty if they took reasonable care; however, intentionally reporting information that is false is not taking reasonable care. 199. The tax officer moves onto Step 3 and considers whether or not to assess a penalty. 200. The tax officer considers that the significance of the information to the tax and superannuation systems and the intentional reporting of false information means it is appropriate to assess a penalty. 201. As each occasion that Dooper Super reports a member account as being a capped defined benefit income stream when it is a TRIS is a separate statement, Dooper Super is liable to a false or misleading statement penalty in relation to each of the 350 false statements they made. 202. The tax officer calculates the amount of the penalties to be applied: • With Dooper Super having made a deliberate choice to continue reporting incorrectly, the tax officer assessing the penalty consults MT 2008/1 and determines that Dooper Super's conduct amounts to intentional disregard of a taxation law, meaning the BPA is 60 penalty units. • The BPA is increased by 20% in relation to the last 349 false or misleading statements, as Dooper Super has had a BPA worked out for the first incorrect report. • With Dooper Super having made a deliberate choice to continue reporting incorrectly, the tax officer assessing the penalty consults MT 2008/1 and determines that Dooper Super's conduct amounts to intentional disregard of a taxation law, meaning the BPA is 60 penalty units. • The BPA is increased by 20% in relation to the last 349 false or misleading statements, as Dooper Super has had a BPA worked out for the first incorrect report. 203. The penalty amount for the first false or misleading statement is $19,800. For each subsequent false or misleading statement, the penalty amount is $23,760. In total, Dooper Super is liable to administrative penalties totalling $8,312,040. 204. When assessing the penalties, the tax officer must consider remission and they do this by following the 4-step penalty remission process in Appendix C to this Practice Statement: • First, they consider initial remission based on Dooper Super's attempt to comply with their obligations. As Dooper Super's making of false or misleading statements was deliberate, the initial remission level is 0%. • Second, they consider increasing or reducing the level of remission based on Dooper Super's compliance history. The tax officer considers that Dooper Super's compliance history is neither good nor poor, with a mixed history of failing to meet various obligations over the last 3 years. The tax officer decides it is appropriate to maintain the remission level with no change. • Third, the tax officer considers all other relevant facts and circumstances to determine whether further change to remission level is warranted. They determine that it is appropriate to maintain the level of remission with no change. – On one hand, Dooper Super has met a significant proportion of their other MAAS and MATS reporting obligations. – On the other hand, Dooper Super has not willingly corrected their false statements, nor demonstrated that steps are being taken to prevent the issue recurring in future. On the contrary, Dooper Super has stated that they are not willing to invest in fixing the issue that causes their repeated false statements. • Finally, the tax officer considers whether the outcome ($8,312,040 with no remission) is fair, just and proportionate in the circumstances. While of a significant magnitude, the tax officer considers that the outcome is a fair, just and proportionate outcome in the context of a super fund that has deliberately made false statements to us and demonstrated unwillingness to correct their behaviour in the future. However, the tax officer also acknowledges that multiple penalties were assessed at the same time and determines it would be appropriate to remit the 20% increase in BPA in relation to the latter 349 false statements. • First, they consider initial remission based on Dooper Super's attempt to comply with their obligations. As Dooper Super's making of false or misleading statements was deliberate, the initial remission level is 0%. • Second, they consider increasing or reducing the level of remission based on Dooper Super's compliance history. The tax officer considers that Dooper Super's compliance history is neither good nor poor, with a mixed history of failing to meet various obligations over the last 3 years. The tax officer decides it is appropriate to maintain the remission level with no change. • Third, the tax officer considers all other relevant facts and circumstances to determine whether further change to remission level is warranted. They determine that it is appropriate to maintain the level of remission with no change. – On one hand, Dooper Super has met a significant proportion of their other MAAS and MATS reporting obligations. – On the other hand, Dooper Super has not willingly corrected their false statements, nor demonstrated that steps are being taken to prevent the issue recurring in future. On the contrary, Dooper Super has stated that they are not willing to invest in fixing the issue that causes their repeated false statements. • Finally, the tax officer considers whether the outcome ($8,312,040 with no remission) is fair, just and proportionate in the circumstances. While of a significant magnitude, the tax officer considers that the outcome is a fair, just and proportionate outcome in the context of a super fund that has deliberately made false statements to us and demonstrated unwillingness to correct their behaviour in the future. However, the tax officer also acknowledges that multiple penalties were assessed at the same time and determines it would be appropriate to remit the 20% increase in BPA in relation to the latter 349 false statements. – On one hand, Dooper Super has met a significant proportion of their other MAAS and MATS reporting obligations. – On the other hand, Dooper Super has not willingly corrected their false statements, nor demonstrated that steps are being taken to prevent the issue recurring in future. On the contrary, Dooper Super has stated that they are not willing to invest in fixing the issue that causes their repeated false statements. 205. The tax officer issues a penalty notice to Dooper Super which includes their liability to pay penalties totalling $6,930,000 in respect of 350 false or misleading statements, the reasons Dooper Super is liable to the penalty, and the reasons it was not remitted in full. | Example 5: 206. MediumFund undertakes restructuring of its administrative systems and processes. As an unintended consequence of these changes, on 23 June 2025, MediumFund's IT systems generates and sends 200,000 MATS reports in relation to received employer contributions that are duplicates of MATS reporting previously lodged. This duplication causes several individuals to receive incorrect excess contributions determinations. 207. Soon after, MediumFund discovers the error, voluntarily discloses the error, and corrects their reporting. Additionally, Medium Fund has not identified any errors in their previous MAAS or MATS reporting in the last 3 years. 208. A tax officer considering penalties follows the process set out in this Practice Statement. 209. First, they determine the type of penalty which is applicable in the circumstances. As MediumFund did not actually receive a contribution, there was no due date for reporting or a requirement to do so in the approved form. However, by reporting that they received a new contribution when in fact they did not, MediumFund has made a false statement. The penalty that is applicable in the circumstances is a false or misleading statement penalty. 210. Next, the tax officer considers whether the law protects MediumFund from this penalty. Grace periods do not apply, as there are no grace periods applicable. As MediumFund does not engage the services of a registered tax or BAS agent, no safe harbour protects them from the penalty. MediumFund would be protected from the false or misleading statement penalty if they took reasonable care; however, the tax officer consults MT 2008/1 and determines that MediumFund did not take reasonable care, as a reasonable person would foresee a risk when undertaking work affecting reporting systems that incorrect reporting might be generated and take steps to prevent it occurring. 211. The tax officer moves onto Step 3 and considers whether or not to assess a penalty. 212. The tax officer considers that the significance of the information to the tax and superannuation systems and the impact to individuals that has resulted means it is appropriate to assess a penalty. 213. As each occasion that MediumFund reported receiving a contribution that did not exist is a separate statement, MediumFund is liable to a false or misleading statement penalty in relation to each of the 200,000 false statements they made. 214. The tax officer calculates the amount of the penalties to be applied: • The tax officer assessing the penalty determines that MediumFund's conduct amounts to a failure to take reasonable care, meaning the BPA is 20 penalty units. • The BPA is increased by 20% in relation to the last 199,999 false or misleading statements, as MediumFund has had a BPA worked out for the first incorrect report. • The BPA is reduced to nil as a result of MediumFund voluntarily disclosing their false statements without intervention from the ATO, and as there are no previous occasions on which the fund has made errors in their MAAS or MATS reporting in the last 3 years. • The tax officer assessing the penalty determines that MediumFund's conduct amounts to a failure to take reasonable care, meaning the BPA is 20 penalty units. • The BPA is increased by 20% in relation to the last 199,999 false or misleading statements, as MediumFund has had a BPA worked out for the first incorrect report. • The BPA is reduced to nil as a result of MediumFund voluntarily disclosing their false statements without intervention from the ATO, and as there are no previous occasions on which the fund has made errors in their MAAS or MATS reporting in the last 3 years. 215. As the BPA is reduced to nil, MediumFund will not be required to pay a penalty. | Example 6: 216. RegCorp is a super fund administrator. They look after member reporting for several funds including ZZZ Super. RegCorp is not a registered tax or BAS agent. 217. RegCorp makes updates to their registry systems which causes errors in ZZZ Super's MATS reporting. Insufficient staffing of RegCorp's reporting compliance team results in these errors not being identified before the MATS reporting is lodged. This combination of circumstances means ZZZ Super's MATS reporting contains some false and misleading statements. 218. A tax officer considering penalties follows the process set out in this Practice Statement. 219. First, they determine the type of penalty which is applicable in the circumstances. ZZZ Super's MATS reporting was lodged by the due date and in the approved form. However, where the errors in ZZZ Super's MATS reporting result in the information provided being false or misleading, ZZZ Super has made a false or misleading statement. The penalty that is applicable in the circumstances is a false or misleading statement penalty. 220. Next, the tax officer considers whether the law protects ZZZ Super from this penalty. Grace periods do not apply, as there are no grace periods applicable. As RegCorp is not a registered tax or BAS agent, ZZZ Super is not protected from the penalty by a safe harbour. The tax officer considering penalties needs to consider whether ZZZ Super took reasonable care in ensuring the accuracy of their reporting. If it is determined that ZZZ Super did not take reasonable care, the tax officer would continue to follow the process set out in this Practice Statement, and potentially assess a false or misleading statement penalty against ZZZ Super, notwithstanding that the false or misleading statements in their reporting were the result of RegCorp's error. 221. You are invited to provide comments on this draft Practice Statement. Forward your comments to the contact officer by the due date. 222. When providing comments, we invite you to consider the following specific questions: (a) Does the step-by-step approach of the draft Practice Statement strike an appropriate balance between clarity of outcomes and maintaining flexibility to take account of a super fund's individual circumstances? (b) Are the mitigating and exacerbating factors outlined at Step 3 in Appendix C to this draft Practice Statement representative of circumstances that may reasonably arise? Are there any additional mitigating and exacerbating factors that should be considered? Does the guidance on increasing or reducing the remission level appropriately reflect the impact or severity of those circumstances? (c) Where a super fund becomes liable to penalties because of the actions of a third-party service provider, to what extent should the ATO take this into account when considering imposition and remission of penalties? Should it instead be treated as a matter to be resolved privately between the super fund and their service provider? (a) Does the step-by-step approach of the draft Practice Statement strike an appropriate balance between clarity of outcomes and maintaining flexibility to take account of a super fund's individual circumstances? (b) Are the mitigating and exacerbating factors outlined at Step 3 in Appendix C to this draft Practice Statement representative of circumstances that may reasonably arise? Are there any additional mitigating and exacerbating factors that should be considered? Does the guidance on increasing or reducing the remission level appropriately reflect the impact or severity of those circumstances? (c) Where a super fund becomes liable to penalties because of the actions of a third-party service provider, to what extent should the ATO take this into account when considering imposition and remission of penalties? Should it instead be treated as a matter to be resolved privately between the super fund and their service provider? 223. A compendium of comments is prepared as part of the finalisation of this Practice Statement. An edited version of the compendium (with names and identifying information removed) is published to the ATO Legal database on ato.gov.au. 224. Advise the contact officer if you do not wish for your comments to be included in the edited compendium. Due date: 24 April 2026 Contact officer details have been removed as the comments period has ended. © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Date of Issue: 12 March 2026 Date of Effect: When finalised, this Practice Statement will apply from the date of publication. [1] References in this draft Practice Statement to a super fund include all entities that are required to report information about member accounts using the MAAS and MATS. [2] For readability, all further references to 'this Practice Statement' refer to the Practice Statement as it will read when finalised. Note that this Practice Statement will not take effect until finalised. [3] Section 286-75. [4] Section 388-50. [5] Section 388-75. [6] See section 284-75. [7] Subsection 284-75(5). [8] Paragraph 28 of MT 2008/1. [9] Under section 390-7. [10] Subsection 286-75(1A). [11] Subsection 286-75(1B). [12] Subsection 284-75(6). [13] Section 298-20. [14] Sections 298-10 and 298-20. [15] Sections 298-10 and 298-15. [16] Subsection 286-80(6). [17] At paragraph 5. [18] Subsection 286-80(1). [19] The value of a penalty unit is contained in section 4AA of the Crimes Act 1914 and is indexed regularly. The dollar amount of a penalty unit is available at Penalties . [20] Subsection 286-80(2). [21] Taxation Administration Member Account Attribute Service – the Reporting of Information relating to Superannuation Account Phases and Attributes 2018 . [22] Taxation Administration Member Account Transaction Service – the Reporting of Information Relating to Superannuation Account Transactions 2018 . [23] Subsection 286-80(3). [24] Section 16-100. [25] Subsection 286-80(4). [26] Section 16-95. [27] Subsection 286-80(4A). [28] See paragraph 8 of PS LA 2011/19. [29] The value of a penalty unit is contained in section 4AA of the Crimes Act 1914 and is indexed regularly. The dollar amount of a penalty unit is available at Penalties . [30] Section 284-220. [31] Ebner and Commissioner of Taxation [2006] AATA 525 at [19]; Ciprian and Ors and Commissioner of Taxation [2002] AATA 746. [32] Guidance on our approach to dealing with claims for LPP can be found in Compliance with formal notices – claiming legal professional privilege in response to formal notices . [33] Section 284-225. [34] Unlike shortfall penalties where the reduction rates are 20%, 80% and to nil, this false or misleading statement penalty is reduced to nil for pre-notification disclosures, and either by 20% or to nil (if the discretion is exercised) after being told of an examination. [35] Kdouh and Commissioner of Taxation [2005] AATA 6. [36] For example, by making a voluntary disclosure in circumstances where it reduces the BPA to nil. [37] Taxation law is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 to mean an Act or part of an Act of which the Commissioner has the general administration, and legislative instruments made under such an Act or part of an Act. [38] The value of a Commonwealth penalty unit increased on 7 November 2024. File 1-1462AABE Related Rulings/Determinations: MT 2008/1 MT 2012/3 Related Practice Statements: PS LA 2008/3 PS LA 2011/19 PS LA 2012/4 PS LA 2012/5 Other References: Compliance with formal notices – claiming legal professional privilege in response to formal notices How to make a voluntary disclosure Penalties Taxation Administration Member Account Attribute Service – the Reporting of Information relating to Superannuation Account Phases and Attributes 2018 Taxation Administration Member Account Transaction Service – the Reporting of Information Relating to Superannuation Account Transactions 2018",MT 2008/1 | MT 2012/3 | PS LA 2008/3 | PS LA 2011/15 | PS LA 2011/19 | PS LA 2012/4 | PS LA 2012/5 | Compliance with formal notices – claiming legal professional privilege in response to formal notices | Taxation Administration Member Account Attribute Service – the Reporting of Information relating to Superannuation Account Phases and Attributes 2018 | Taxation Administration Member Account Transaction Service – the Reporting of Information Relating to Superannuation Account Transactions 2018 | Crimes Act 1914 4AA | ITAA 1997 995-1(1) | TAA 1953 Sch 1 16-95 | TAA 1953 Sch 1 16-100 | TAA 1953 Sch 1 284-75 | TAA 1953 Sch 1 284-75(5) | TAA 1953 Sch 1 284-75(6) | TAA 1953 Sch 1 284-75(9) | TAA 1953 Sch 1 284-90(1) | TAA 1953 Sch 1 284-220 | TAA 1953 Sch 1 284-225 | TAA 1953 Sch 1 286-75 | TAA 1953 Sch 1 286-75(1A) | TAA 1953 Sch 1 286-75(1B) | TAA 1953 Sch 1 286-80(1) | TAA 1953 Sch 1 286-80(2) | TAA 1953 Sch 1 286-80(3) | TAA 1953 Sch 1 286-80(4) | TAA 1953 Sch 1 286-80(4A) | TAA 1953 Sch 1 286-80(6) | TAA 1953 Sch 1 298-10 | TAA 1953 Sch 1 298-15 | TAA 1953 Sch 1 298-20 | TAA 1953 Sch 1 388-50 | TAA 1953 Sch 1 388-75 | TAA 1953 Sch 1 390-5 | TAA 1953 Sch 1 390-7 | TAA 1953 Sch 1 390-20 | 2002 ATC 2099 | 2006 ATC 2263 | 2005 ATC 2001,PS LA 2008/3 PS LA 2011/19 PS LA 2012/4 PS LA 2012/5,Crimes Act 1914 4AA | ITAA 1997 995-1(1) | TAA 1953 Sch 1 16-95 | TAA 1953 Sch 1 16-100 | TAA 1953 Sch 1 284-75 | TAA 1953 Sch 1 284-75(5) | TAA 1953 Sch 1 284-75(6) | TAA 1953 Sch 1 284-75(9) | TAA 1953 Sch 1 284-90(1) | TAA 1953 Sch 1 284-220 | TAA 1953 Sch 1 284-225 | TAA 1953 Sch 1 286-75 | TAA 1953 Sch 1 286-75(1A) | TAA 1953 Sch 1 286-75(1B) | TAA 1953 Sch 1 286-80(1) | TAA 1953 Sch 1 286-80(2) | TAA 1953 Sch 1 286-80(3) | TAA 1953 Sch 1 286-80(4) | TAA 1953 Sch 1 286-80(4A) | TAA 1953 Sch 1 286-80(6) | TAA 1953 Sch 1 298-10 | TAA 1953 Sch 1 298-15 | TAA 1953 Sch 1 298-20 | TAA 1953 Sch 1 388-50 | TAA 1953 Sch 1 388-75 | TAA 1953 Sch 1 390-5 | TAA 1953 Sch 1 390-7 | TAA 1953 Sch 1 390-20,,Compliance with formal notices – claiming legal professional privilege in response to formal notices How to make a voluntary disclosure Penalties Taxation Administration Member Account Attribute Service – the Reporting of Information relating to Superannuation Account Phases and Attributes 2018 Taxation Administration Member Account Transaction Service – the Reporting of Information Relating to Superannuation Account Transactions 2018,True,False,https://www.ato.gov.au/law/view/document?docid=DPS/PSD20261/NAT/ATO/00001,"For information about the status of this draft Practice Statement, see item [4200] on our Advice under development program | Appendix A – Applying penalties for failure to lodge in the approved form by the due date | Appendix B – Assessing penalties for false or misleading statements | Appendix C – 4-step penalty remission process | Appendix E – Your comments | This Practice Statement is a draft for consultation purposes only. When the final Pratice Statement issues, it will have the following preamble: | Ciprian and Ors and Commissioner of Taxation [2002] AATA 746 2002 ATC 2099 50 ATR 1257 | Ebner and Commissioner of Taxation [2006] AATA 525 2006 ATC 2263 63 ATR 1073 [2007] ALMD 2241 | Kdouh and Commissioner of Taxation [2005] AATA 6 58 ATR 1198 2005 ATC 2001 [2005] ALMD 7887"
PS LA 2026/D2,Administration of penalties for failure to comply with Single Touch Payroll reporting obligations,12 March 2026,,Law Administration Practice Statement,True,"What this draft Practice Statement is about: 1. Entities that make employment-related payments have obligations to report information to us about those payments. This information is required to be reported using Single Touch Payroll (STP). 2. This draft Practice Statement [1] provides guidance on the administration of penalties these entities may become liable to because of failing to report in a timely and accurate manner through STP. 3. All legislative references in this Practice Statement are to Schedule 1 to the Taxation Administration Act 1953, unless otherwise indicated. | Outline of Single Touch Payroll reporting obligations: 4. STP is an event-based reporting framework for entities to provide payroll information to us using Standard Business Reporting (SBR) enabled software. 5. Entities that make relevant related payments, unless exempted [2] , have been required to report through STP since: • 1 July 2018 for employers that had 20 or more employees on 1 April 2018 • 1 July 2019 for all remaining entities. • 1 July 2018 for employers that had 20 or more employees on 1 April 2018 • 1 July 2019 for all remaining entities. 6. Section 389-5 requires an entity to notify the Commissioner of: • a withholding payment covered by STP • the amount (including a nil amount) withheld from that withholding payment • a payment that constitutes an employee's ordinary time earnings or salary or wages (within the meaning of the Superannuation Guarantee (Administration) Act 1992 (SGAA)) [3] to the extent they are not covered by the withholding payment • a salary sacrificed amount that would have constituted ordinary time earnings or salary and wages if paid directly to an employee. • a withholding payment covered by STP • the amount (including a nil amount) withheld from that withholding payment • a payment that constitutes an employee's ordinary time earnings or salary or wages (within the meaning of the Superannuation Guarantee (Administration) Act 1992 (SGAA)) [3] to the extent they are not covered by the withholding payment • a salary sacrificed amount that would have constituted ordinary time earnings or salary and wages if paid directly to an employee. 7. The employment-related withholding payments covered by STP are: • a payment of salary, wages, allowance, commissions or bonuses to an employee • a payment to a company director • a payment to an officeholder [4] • a payment to a religious practitioner • a return to work payment • an employment termination payment (or payment that would be an employment termination payment except for being received more than 12 months after termination) • an unused annual leave or unused long service leave payment • parental leave pay • a payment to an employee under certain labour mobility programs covered by section 840-906 of the Income Tax Assessment Act 1997 (ITAA 1997). • a payment of salary, wages, allowance, commissions or bonuses to an employee • a payment to a company director • a payment to an officeholder [4] • a payment to a religious practitioner • a return to work payment • an employment termination payment (or payment that would be an employment termination payment except for being received more than 12 months after termination) • an unused annual leave or unused long service leave payment • parental leave pay • a payment to an employee under certain labour mobility programs covered by section 840-906 of the Income Tax Assessment Act 1997 (ITAA 1997). 8. Each time a payment is made (or would have been made if the amount was not sacrificed) is an event which triggers an obligation to report through STP. The reporting must be in the approved form and lodged by the due date. [5] 9. Entities that do not report as required in a timely and accurate manner may be liable to administrative penalties for: • failing to lodge in the approved form by the due date • making false or misleading statements. • failing to lodge in the approved form by the due date • making false or misleading statements. | Voluntary reporting through Single Touch Payroll: 10. Entities may also use STP to: • notify of reportable employer superannuation contributions (RESC) and reportable fringe benefits amounts (RFBA) [6] • make a finalisation declaration indicating they have used STP to report all information they would otherwise be required to include on a payment summary. [7] • notify of reportable employer superannuation contributions (RESC) and reportable fringe benefits amounts (RFBA) [6] • make a finalisation declaration indicating they have used STP to report all information they would otherwise be required to include on a payment summary. [7] 11. An entity is not liable to administrative penalties for failing to use STP to notify of RESC and RFBA or make a finalisation declaration. However, an entity that chooses to use STP for these and does so inaccurately may be liable to administrative penalties for making a false or misleading statement. 12. Entities that do not use STP to notify of RESC and RFBA or make a finalisation declaration are required to issue a payment summary to a payee and provide a payment summary annual report to the ATO. Administrative penalties for failing to comply with these other obligations are not within scope of this Practice Statement. [8] 13. An entity may also choose to use STP to notify of certain amounts under child support laws. [9] Penalties for notifying of child support amounts inaccurately, or failing to report directly to the Child Support Registrar in place of STP reporting, will generally be a matter for Services Australia and are not within the scope of this Practice Statement. | Exemptions from Single Touch Payroll: 14. An entity may be granted an exemption from STP reporting, either on a class of entity basis or an individual basis. [10] An entity that is exempt from STP reporting will: • not become liable to administrative penalties for failing to report through STP • generally continue to be subject to other reporting obligations covering the same information (such as the requirement to provide payment summaries). • not become liable to administrative penalties for failing to report through STP • generally continue to be subject to other reporting obligations covering the same information (such as the requirement to provide payment summaries). 15. Decisions to grant (or refuse) an STP exemption are not within scope of this Practice Statement. [11] | Importance of timely and accurate reporting: 16. The accuracy and timeliness of information reported through STP is critical to the efficient operation of the tax and superannuation systems, and to other programs across the government. 17. Reporting errors also can have severe consequences for individuals who rely on STP reporting, including not having correct information with which to meet their own obligations resulting in their income being incorrectly treated for tax, super or social security purposes, and not ensuring the timely payment of their superannuation entitlements. 18. Information reported using STP is: • displayed to individuals through ATO online services • pre-filled into individuals' tax returns • used to assist in identifying compliance issues, such as payers that fail to meet their pay as you go (PAYG) withholding obligations • used in conjunction with superannuation fund member account reporting to identify compliance issues that may affect individuals' super, where employers do not make super guarantee contributions sufficient to avoid liability to the superannuation guarantee charge • used to support administration of other government programs including – social security programs administered by Services Australia – employment programs administered by the Department of Employment and Workplace Relations – production of statistics by the Australian Bureau of Statistics. • displayed to individuals through ATO online services • pre-filled into individuals' tax returns • used to assist in identifying compliance issues, such as payers that fail to meet their pay as you go (PAYG) withholding obligations • used in conjunction with superannuation fund member account reporting to identify compliance issues that may affect individuals' super, where employers do not make super guarantee contributions sufficient to avoid liability to the superannuation guarantee charge • used to support administration of other government programs including – social security programs administered by Services Australia – employment programs administered by the Department of Employment and Workplace Relations – production of statistics by the Australian Bureau of Statistics. – social security programs administered by Services Australia – employment programs administered by the Department of Employment and Workplace Relations – production of statistics by the Australian Bureau of Statistics. 19. Under the law, the liability for penalties associated with STP reporting applies at an individual payee level – that is, a failure to lodge in the approved form or a false or misleading statement in respect of each payee will potentially attract a separate penalty. This in part reflects the importance of timely and accurate reporting for each individual payee. 20. Accordingly, where the circumstances giving rise to the incorrect or late reporting impact multiple payees in the same way and it is determined a penalty is to apply, the amount of the penalty will reflect this number of payees. It will be particularly important in these cases to consider penalty remission, balancing the impact of the incorrect or late reporting on each individual payee with the circumstances giving rise to the liability. | Process to follow when raising penalties: 21. You should follow this 5-step process when you are raising penalties against an entity for failing to comply with their STP reporting obligations: 1. Determine the type of penalty that is applicable to the circumstances. 2. Consider whether the law protects the entity from penalties in the circumstances. 3. Determine the extent and amount of penalty. 4. Consider penalty remission. 5. Issue written notice of the penalty. 1. Determine the type of penalty that is applicable to the circumstances. 2. Consider whether the law protects the entity from penalties in the circumstances. 3. Determine the extent and amount of penalty. 4. Consider penalty remission. 5. Issue written notice of the penalty. 22. The process is designed to accommodate the principles of this and other relevant practice statements and to ensure entities receive like treatment as much as practicable. 23. You must have collected all relevant information and document the evidence and basis for any penalty decision you make. Examples illustrating this process can be found in Appendix D to this Practice Statement. | Step 1 – determine the type of penalty that is applicable to the circumstances: 24. It is important to identify which penalties may apply in the circumstances of a case, as different penalties apply in relation to different behaviour and those penalties have different rules and calculation methods. Penalties for failure to lodge in the approved form by the due date 25. There are 2 kinds of conduct that can cause an entity to become liable to an administrative penalty for failing to lodge in the approved form by the due date: • failing to lodge STP reporting by the due date • lodging, but failing to do so in the approved form. • failing to lodge STP reporting by the due date • lodging, but failing to do so in the approved form. 26. STP reporting is in the approved form if, and only if: • it is in the form approved in writing by the Commissioner • it contains a declaration signed by a person or persons as the form requires [12] • it contains the information that the form requires, and any further information, statement or document as we require, whether in the form or otherwise • it is given in the manner that we require. [13] • it is in the form approved in writing by the Commissioner • it contains a declaration signed by a person or persons as the form requires [12] • it contains the information that the form requires, and any further information, statement or document as we require, whether in the form or otherwise • it is given in the manner that we require. [13] 27. The approved form for STP reporting may be updated by creating a new version from time to time to account for changes in the: • law • way we use information reported through STP, or • information we require in order to administer tax and super laws. • law • way we use information reported through STP, or • information we require in order to administer tax and super laws. 28. Generally, when a new version of the approved form for STP reporting is created, an entity will be required to begin using the new version unless they have been given approval to remain using the superseded version for a transitional period. 29. An entity that does not begin using the new version of the approved form for their STP reporting and does not have approval to remain using the superseded version (or had approval for a period which has expired) has failed to lodge in the approved form and will be liable to an administrative penalty. This is the case even if they continue to lodge STP reporting using the superseded version. False or misleading statement penalties 30. An entity is liable to an administrative penalty if they make a statement in their STP reporting that is false or misleading in a material particular. [14] 31. A statement is false when it is incorrect, or not according to truth or fact. 32. A statement is misleading when it gives the wrong idea or impression. 33. A statement may be either false or misleading because of something included in the statement or because of something omitted from it. 34. For a particular to be 'material', it must have a connection to the purpose for which the statement is made, but it does not have to be something that must or actually will be taken into account in making a decision. 35. The following practice statements provide further information about the meaning of the terms 'false', 'misleading' and 'material particular': • Law Administration Practice Statement PS LA 2012/4 Administration of the false or misleading statement penalty – where there is no shortfall amount • Law Administration Practice Statement PS LA 2012/5 Administration of the false or misleading statement penalty – where there is a shortfall amount. • Law Administration Practice Statement PS LA 2012/4 Administration of the false or misleading statement penalty – where there is no shortfall amount • Law Administration Practice Statement PS LA 2012/5 Administration of the false or misleading statement penalty – where there is a shortfall amount. 36. An entity may make several false or misleading statements in the same document, and an entity is liable to a penalty in relation to each statement. For example, an entity that makes a false or misleading statement relating to each of their 10 employees has made 10 statements and will be liable to 10 administrative penalties. | Step 2 – consider whether the law protects the entity from penalties in the circumstances: 37. In limited circumstances, the law protects an entity from the penalties covered in this Practice Statement. You must determine whether these protections apply before proceeding. Reasonable care 38. An entity will not be liable to a false or misleading statement penalty where they and their agent (if relevant) took reasonable care in connection with making the statement. [15] 39. When assessing an entity's behaviour in making a statement, you must consider the actions and behaviours at the time the statement was made. Miscellaneous Taxation Ruling MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard provides guidelines for determining whether an entity took reasonable care. While 'reasonable care' is described briefly in this section, you must consult and follow MT 2008/1. 40. The 'reasonable care test' requires an entity to make a reasonable and genuine attempt to comply with obligations imposed under legislative requirements. This means considering actions leading up to the making of the statement. 41. Making a genuine attempt means that the entity was actively engaged with the tax and superannuation systems and actively attempting to comply with their reporting obligations. When considering if a genuine attempt has been made, we compare the entity's attempt with that of other entities in similar circumstances. 42. We are looking for evidence that the entity's attempt to comply is within the standard of care reasonably expected, considering all relevant circumstances. 43. This may mean that, in some circumstances, a higher standard of care may need to be demonstrated. For example, where a significant event occurs (such as transfer to a new payroll system), a higher standard of care would be reasonably expected considering the potential impact of those events to the entity's reporting. 44. The effort required is one commensurate with the entity's circumstances, including their knowledge, education, experience and skill. [16] 45. The following factors are relevant when assessing reasonable care: • if there was an inadvertent mistake – if reasonable enquiries were made, including whether the entity conducted a level of enquiry commensurate with the risk of the decision and their resources, or – the entity just assumed the statement was correct • whether the entity was aware, or should have been aware, of the correct treatment of the law or of the facts, noting an entity – should not rely on advice they have received where a reasonable person would be expected to know or strongly suspect the advice is not worthy of such reliance – is not obliged or entitled to accept assurance by their professional adviser where statements appear flawed or questionable • whether any factors prevented the entity from seeking advice, understanding the requirements of the tax law or reporting correctly, and • whether the entity's level of knowledge, understanding of the tax and superannuation systems or circumstances impacted their compliance, considering the – entity's level of sophistication relating to STP reporting matters – level of knowledge, education, experience and skills of relevant persons involved with the entity – governance arrangements and compliance assurance processes of the entity. • if there was an inadvertent mistake – if reasonable enquiries were made, including whether the entity conducted a level of enquiry commensurate with the risk of the decision and their resources, or – the entity just assumed the statement was correct • whether the entity was aware, or should have been aware, of the correct treatment of the law or of the facts, noting an entity – should not rely on advice they have received where a reasonable person would be expected to know or strongly suspect the advice is not worthy of such reliance – is not obliged or entitled to accept assurance by their professional adviser where statements appear flawed or questionable • whether any factors prevented the entity from seeking advice, understanding the requirements of the tax law or reporting correctly, and • whether the entity's level of knowledge, understanding of the tax and superannuation systems or circumstances impacted their compliance, considering the – entity's level of sophistication relating to STP reporting matters – level of knowledge, education, experience and skills of relevant persons involved with the entity – governance arrangements and compliance assurance processes of the entity. – if reasonable enquiries were made, including whether the entity conducted a level of enquiry commensurate with the risk of the decision and their resources, or – the entity just assumed the statement was correct – should not rely on advice they have received where a reasonable person would be expected to know or strongly suspect the advice is not worthy of such reliance – is not obliged or entitled to accept assurance by their professional adviser where statements appear flawed or questionable – entity's level of sophistication relating to STP reporting matters – level of knowledge, education, experience and skills of relevant persons involved with the entity – governance arrangements and compliance assurance processes of the entity. Grace periods 46. An entity is not liable to a false or misleading statement penalty if they correct a false or misleading statement made in the course of their STP reporting within a prescribed period. This period is called a grace period. 47. For an entity to be protected from penalties by the grace period, they must: • have made the false or misleading statement within the financial year to which it relates [17] • correct the statement, in the approved form, within the periods [18] shown in Table 1 of this Practice Statement. Table 1: Grace periods for correcting statements Scenario Start of grace period End of grace period The original statement was made in relation to amounts paid to a person that the entity reasonably expects they will not pay amounts to again within the same financial year. The grace period starts on the day the entity becomes aware that their statement is false or misleading. The grace period ends 14 days later or 14 July immediately following the end of the financial year, whichever comes first. The original statement was made in relation to amounts paid to a person that the entity reasonably expects they will pay amounts to again within the same financial year. The grace period starts on the day the entity becomes aware that their statement is false or misleading. The grace period ends the day that (having regard to the pattern of payments over the previous 6 months) the entity would ordinarily next pay an amount to that person or 14 July immediately following the end of the financial year, whichever comes first. • have made the false or misleading statement within the financial year to which it relates [17] • correct the statement, in the approved form, within the periods [18] shown in Table 1 of this Practice Statement. 48. An entity that corrects a false or misleading statement within the grace period is protected from penalties regardless of whether the false or misleading statement was identified on the entity's own initiative or because we alerted them to the error. Safe harbours 49. Legislative safe harbours protect an entity from being liable to a penalty because of the actions of their registered tax or BAS agent. 50. In relation to penalties for failing to lodge in the approved form by the due date, the safe harbour [19] applies where all of the following apply: • the entity provided all relevant information to the registered agent to enable the document to be lodged on time (noting that the onus is on the entity to prove that they met this requirement) [20] • the registered agent does not lodge the document on time, and • the failure to lodge on time was not due to either – intentional disregard of a taxation law by the registered agent, or – recklessness by the registered agent as to the operation of a taxation law. • the entity provided all relevant information to the registered agent to enable the document to be lodged on time (noting that the onus is on the entity to prove that they met this requirement) [20] • the registered agent does not lodge the document on time, and • the failure to lodge on time was not due to either – intentional disregard of a taxation law by the registered agent, or – recklessness by the registered agent as to the operation of a taxation law. – intentional disregard of a taxation law by the registered agent, or – recklessness by the registered agent as to the operation of a taxation law. 51. In relation to false or misleading statement penalties, each statement must be considered separately and the safe harbour [21] applies where both of the following apply: • the entity gave all the relevant information to the registered agent necessary for the statement to be correctly prepared, and • the agent did not act recklessly or with intentional disregard of the law. • the entity gave all the relevant information to the registered agent necessary for the statement to be correctly prepared, and • the agent did not act recklessly or with intentional disregard of the law. 52. This means the safe harbour exception applies only where the agent has failed to take reasonable care. 53. Entities that engage the services of third-party payroll service providers are not protected from penalties by the safe harbours for the actions of the payroll service provider unless the third-party payroll service provider is also a registered tax or BAS agent. 54. If you determine that a safe harbour does not apply in the circumstances, you can still consider if the circumstances warrant remission of the penalty. 55. More information to assist you in determining whether a safe harbour is relevant in the circumstances can be found: • for penalties for failing to lodge in the approved form by the due date, in Law Administration Practice Statement PS LA 2011/19 Administration of the penalty for failure to lodge on time • for false or misleading statement penalties, in PS LA 2012/4 (where there is no shortfall amount) or PS LA 2012/5 (where there is a shortfall amount). • for penalties for failing to lodge in the approved form by the due date, in Law Administration Practice Statement PS LA 2011/19 Administration of the penalty for failure to lodge on time • for false or misleading statement penalties, in PS LA 2012/4 (where there is no shortfall amount) or PS LA 2012/5 (where there is a shortfall amount). Penalty relief 56. Entities are eligible for relief against penalties for failing to lodge in the approved form by the due date for the first 12 months that the STP regime applied to the class of entities they belong to. [22] 57. This means you cannot apply a penalty for failing to lodge STP reporting in the approved form for failures that occurred before: • 1 July 2019 for employers that had 20 or more employees on 1 April 2018 • 1 July 2020 for all other entities. • 1 July 2019 for employers that had 20 or more employees on 1 April 2018 • 1 July 2020 for all other entities. | Step 3 – determine the extent and amount of penalty: 58. The key considerations when applying a penalty are: • where penalties for failure to lodge in the approved form by the due date are applicable in the circumstances – deciding whether, and to what extent, to apply penalties • where false or misleading statement penalties are applicable in the circumstances – deciding whether, and to what extent, to assess penalties • calculating the penalty amounts. • where penalties for failure to lodge in the approved form by the due date are applicable in the circumstances – deciding whether, and to what extent, to apply penalties • where false or misleading statement penalties are applicable in the circumstances – deciding whether, and to what extent, to assess penalties • calculating the penalty amounts. 59. Appendix A to this Practice Statement covers these considerations in relation to penalties for failure to lodge in the approved form by the due date. 60. Appendix B to this Practice Statement covers these considerations in relation to false or misleading statement penalties. | Step 4 – consider penalty remission: 61. Remission allows us to adjust the penalty to match the observed behaviour or particular circumstances of a case, offering administrative flexibility. 62. We have the discretion to remit all or part of the penalty. [23] Our discretion to remit is unfettered, meaning there's no legal restriction on when we can remit. 63. Remission decisions you make need to balance: • the purpose of the penalty regime to encourage entities to take reasonable care in complying with the tax and super obligations and promote consistent treatment between entities in similar circumstances • producing a fair, just and proportionate outcome taking into account the entity's circumstances. • the purpose of the penalty regime to encourage entities to take reasonable care in complying with the tax and super obligations and promote consistent treatment between entities in similar circumstances • producing a fair, just and proportionate outcome taking into account the entity's circumstances. 64. A remission decision should be made for every penalty decision, even if that decision is that there are no grounds for penalty remission. 65. You must follow the 4-step penalty remission process outlined in Appendix C to this Practice Statement when deciding on remission of penalties relating to the STP reporting obligations covered by this Practice Statement. | Step 5 – issue written notice of the penalty: 66. Where a penalty remains payable (for example, because it was not remitted in full), we must send a written notice to the entity that includes [24] : • their liability to pay the penalty, after any reductions or remissions • the reasons why they are liable for the penalty • if the penalty has not been fully remitted, why it has not been fully remitted. • their liability to pay the penalty, after any reductions or remissions • the reasons why they are liable for the penalty • if the penalty has not been fully remitted, why it has not been fully remitted. 67. The penalty is payable on the day specified in the notice (which must be at least 14 days after the notice is given). [25] Penalties for failing to lodge in the approved form by the due date 68. Notice of the penalty may be given before or after the entity has lodged the relevant STP reporting in the approved form. If it is given before, we can later increase the penalty (up to the statutory maximum) either when the reporting is lodged, or if it remains unlodged. [26] False or misleading statement penalties 69. When a penalty is assessed, we must provide reasons for the decisions, detailing the findings on key facts and referring to the evidence or other material facts on which those findings are based. These reasons should be given to the entity along with, or before, the penalty notice. If that's not possible, it should be done as soon as possible after notifying them of the penalty. | More information: 70. For more information, see: • Miscellaneous Taxation Ruling MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard • Miscellaneous Taxation Ruling MT 2012/3 Administrative penalties: voluntary disclosures • Law Administration Practice Statement PS LA 2008/3 Provision of advice and guidance by the ATO • Law Administration Practice Statement PS LA 2011/15 Lodgment obligations, due dates and deferrals • Law Administration Practice Statement PS LA 2011/19 Administration of the penalty for failure to lodge on time • Law Administration Practice Statement PS LA 2012/4 Administration of the false or misleading statement penalty – where there is no shortfall amount • Law Administration Practice Statement PS LA 2012/5 Administration of the false or misleading statement penalty – where there is a shortfall amount. • Miscellaneous Taxation Ruling MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard • Miscellaneous Taxation Ruling MT 2012/3 Administrative penalties: voluntary disclosures • Law Administration Practice Statement PS LA 2008/3 Provision of advice and guidance by the ATO • Law Administration Practice Statement PS LA 2011/15 Lodgment obligations, due dates and deferrals • Law Administration Practice Statement PS LA 2011/19 Administration of the penalty for failure to lodge on time • Law Administration Practice Statement PS LA 2012/4 Administration of the false or misleading statement penalty – where there is no shortfall amount • Law Administration Practice Statement PS LA 2012/5 Administration of the false or misleading statement penalty – where there is a shortfall amount. | Deciding whether and to what extent a penalty should be applied: 71. Overall, you should seek to apply the penalty for failure to lodge in the approved form by the due date in such a way as to improve lodgment behaviours. 72. PS LA 2011/19 [27] outlines that the penalty will be applied if the failure to lodge: • places the efficient operation of the taxation and superannuation systems at risk • provides a benefit or advantage to the late or non-lodger over the general community, or • erodes community confidence in the taxation and superannuation systems. • places the efficient operation of the taxation and superannuation systems at risk • provides a benefit or advantage to the late or non-lodger over the general community, or • erodes community confidence in the taxation and superannuation systems. 73. STP reporting is characterised by both its high frequency and the significance it holds for individuals in effectively managing their tax and super affairs. Where this reporting is not lodged in the approved form by the due date, it may be viewed as undermining the efficient functioning of Australia's tax and superannuation systems and may diminish public confidence in its integrity. Accordingly, you generally should decide to apply a penalty if an entity is liable to it – noting that it may be remitted (see paragraphs 61 to 65 and Appendix C to this Practice Statement). 74. However, it may be appropriate to decide not to apply a penalty in some circumstances, taking into account: • the compliance history of the entity • the effort it took to obtain lodgment • the value of the information to be disclosed in the taxation document • whether the entity is aware of their lodgment obligation and the consequences of not meeting that obligation • whether the entity has had an opportunity to comply • the length of time the taxation document was overdue • any contact the entity or their representative may have had with us prior to the due date for lodgment. • the compliance history of the entity • the effort it took to obtain lodgment • the value of the information to be disclosed in the taxation document • whether the entity is aware of their lodgment obligation and the consequences of not meeting that obligation • whether the entity has had an opportunity to comply • the length of time the taxation document was overdue • any contact the entity or their representative may have had with us prior to the due date for lodgment. This list is not exhaustive. 75. For example, it may be appropriate to decide not to apply a penalty where an entity has failed to lodge in the approved form by the due date and: • the reporting has now been lodged with minimal delay • you are satisfied that it is an isolated incident • the entity has a good compliance history • the entity has demonstrated that they have taken steps to prevent the failure occurring again. • the reporting has now been lodged with minimal delay • you are satisfied that it is an isolated incident • the entity has a good compliance history • the entity has demonstrated that they have taken steps to prevent the failure occurring again. 76. Where you decide it is appropriate not to apply a penalty, you must document your decision on the taxpayer's account. | Multiple simultaneous failures: 77. An entity that is required to report through STP may be required to report multiple events on the same day (for example, because relevant payments have been made to multiple employees on the same day). 78. Each event gives rise to a separate obligation to report, and each event that an entity fails to report as required in the approved form by the due date results in them becoming liable to a penalty. 79. PS LA 2011/19 [28] outlines a general rule that where multiple entities are required to be reported on the same document (such as for a superannuation member contribution statement), multiple penalties equivalent to the number of obligations not lodged can be applied. This principle is particularly important for STP reporting because: • Failure to lodge STP reporting affects the ability of each employee about whom information is being reported to manage and meet their own tax obligations. • It ensures the level of penalty that may apply reflects the culpability of the entity failing to report – that is, it means an entity that fails to lodge STP reporting about 100 employees may receive a penalty that is larger than an entity that fails to lodge STP reporting about one employee. • Failure to lodge STP reporting affects the ability of each employee about whom information is being reported to manage and meet their own tax obligations. • It ensures the level of penalty that may apply reflects the culpability of the entity failing to report – that is, it means an entity that fails to lodge STP reporting about 100 employees may receive a penalty that is larger than an entity that fails to lodge STP reporting about one employee. 80. This section explains how to apply to that general rule in relation to STP reporting. 81. You may apply multiple penalties in relation to related STP reporting obligations that were due on the same day. Where you are making a decision about applying penalties for multiple related obligations that were due on the same day, you should consider whether it is fair and reasonable to do so in totality, taking into account: • the entity's compliance history • the impact of the failure on the tax and superannuation systems • the entity's previous pattern of failing to lodge through STP in the approved form by the due date • any prior contact with the entity (or their representative) about their failure to comply with STP obligations • whether applying multiple penalties in the circumstances produces an unfair, unjust or disproportionate result. • the entity's compliance history • the impact of the failure on the tax and superannuation systems • the entity's previous pattern of failing to lodge through STP in the approved form by the due date • any prior contact with the entity (or their representative) about their failure to comply with STP obligations • whether applying multiple penalties in the circumstances produces an unfair, unjust or disproportionate result. 82. Absence of a prior warning from us to the entity does not prevent you from applying multiple penalties in respect of the STP reporting if it is fair, reasonable and just in the circumstances to do so. 83. However, it will generally not be fair and reasonable to apply multiple penalties in relation to STP reporting that was due on the same day if it is the first time the entity is receiving a penalty for failure to lodge their STP reporting in the approved form by the due date. 84. While you may decide to apply multiple penalties in relation to obligations that were due on the same day, only one penalty applies in relation to each specific obligation. For example, where an entity notifies us of a payment made to an employee and does so after the due date, but also fails to do so in the approved form, only one penalty applies in relation to that notification. | Calculating the penalty for failing to lodge in the approved form by the due date: 85. The penalty is calculated in 2 stages [29] : • The base penalty amount (BPA) is calculated. • The BPA is increased if the entity size tests are satisfied. • The base penalty amount (BPA) is calculated. • The BPA is increased if the entity size tests are satisfied. | Base penalty amount: 86. The BPA is one penalty unit [30] for every 28 days (or part thereof) after the due date that the entity has failed to lodge in the approved form, up to a maximum of 5 penalty units. [31] 87. The due dates for STP reporting [32] are outlined in Table 2 of this Practice Statement. Table 2: Due dates for STP reporting Scenario STP reporting due date The entity is reporting a withholding payment that is made and the amount (including a nil amount) withheld from that withholding payment. STP reporting is due on or before the day by which an amount is required to be withheld from the withholding payment (regardless of whether or not any amount was withheld). The entity is reporting a payment that constitutes an employee's ordinary time earnings or salary or wages (within the meaning of the SGAA) [33] to the extent they are not covered by the withholding payment. STP reporting is due on or before the day on which the amount is paid. The entity is reporting a salary sacrificed amount that would have constituted ordinary time earnings or salary and wages if paid directly to an employee. STP reporting is due on or before the day by which the amount would have been paid if not sacrificed. 88. The BPA is calculated from the due date of the relevant STP reporting to the date before it is received in the approved form. | Increasing the base penalty amount: 89. The BPA is multiplied by 2 if the entity [34] : • is a medium withholder in the month the STP reporting was due [35] • has an assessable income for the income year in which the STP reporting was due of more than $1 million but less than $20 million, or • has a current GST turnover of more than $1 million but less than $20 million in the month the STP reporting was due. • is a medium withholder in the month the STP reporting was due [35] • has an assessable income for the income year in which the STP reporting was due of more than $1 million but less than $20 million, or • has a current GST turnover of more than $1 million but less than $20 million in the month the STP reporting was due. 90. The BPA is multiplied by 5 if the entity [36] : • is a large withholder in the month the STP reporting was due [37] , • has an assessable income for the income year in which the STP reporting was due of $20 million or more, or • has a current GST turnover of $20 million or more in the month the STP reporting was due. • is a large withholder in the month the STP reporting was due [37] , • has an assessable income for the income year in which the STP reporting was due of $20 million or more, or • has a current GST turnover of $20 million or more in the month the STP reporting was due. 91. The BPA is multiplied by 500 if the entity is a significant global entity (SGE). [38] An entity is an SGE according to the most recent income tax assessment. [39] 92. If we do not have current information to apply the entity size tests to determine the size of an entity, you should use their withholder status or assessable income to determine their size, whichever results in the higher penalty. 93. Where it is determined that the penalty amount does not reflect the actual size of the entity, the following actions will occur: • The penalty notice will be cancelled. • A new notice using the correct rate of penalty and reasons for the imposition and calculation will be provided to the entity. • The penalty notice will be cancelled. • A new notice using the correct rate of penalty and reasons for the imposition and calculation will be provided to the entity. | Deciding whether, and to what extent, a penalty should be assessed: 94. It is not administratively appropriate, nor is it necessary, to consider applying the false or misleading statement penalty to every potentially false or misleading statement. 95. Instead, when deciding whether or not to assess a penalty, you should consider the significance of the false or misleading statement to the integrity of the tax and superannuation systems. 96. For example: • A statement by an entity that provides an incorrect date of birth for a payee, where there was otherwise sufficient information to identify the individual it relates to, is unlikely to be significant enough to warrant assessment of a penalty. • A statement by an entity that the entirety of a payment was gross pay when in fact it also comprised some allowances (which can have different tax consequences for an individual), is likely to be significant enough to warrant assessment of a penalty. • A statement by an entity that provides an incorrect date of birth for a payee, where there was otherwise sufficient information to identify the individual it relates to, is unlikely to be significant enough to warrant assessment of a penalty. • A statement by an entity that the entirety of a payment was gross pay when in fact it also comprised some allowances (which can have different tax consequences for an individual), is likely to be significant enough to warrant assessment of a penalty. 97. Where you determine that the false or misleading statement does have significance to the integrity of the tax and superannuation systems, you should generally proceed to assess the penalty – noting that it may be remitted (see paragraphs 61 to 65 and Appendix C to this Practice Statement). | Multiple false or misleading statements with a common source: 98. The event or transactional nature of STP reporting means that some circumstances, such as systems or process issues, may result in an entity making multiple false or misleading statements of essentially the same nature – a particular may be repeatedly false or misleading in the same way, as a result of each statement having a common source. For example, a mistake in configuring payroll software might result in a pay item being classified incorrectly in STP reporting every time it is paid. 99. Each statement that is false or misleading results in the entity becoming liable to a penalty. For example, if a system issue results in false or misleading reporting about the same particular 5 times, the entity will be liable to 5 penalties. 100. This is an important reflection of the importance STP reporting has to the operation of the tax and super systems because: • incorrect STP reporting lodged by an entity can have tax consequences for individuals and this is exacerbated where multiple individuals are affected • individuals relying on the information reported through STP may be misled into actions that they were not able to validly take or which have detrimental effects, and • it ensures the level of penalty that may apply reflects the culpability of the entity – that is, it means an entity that makes a false or misleading statement 100 times may receive a penalty that is larger than an entity that only does so once. • incorrect STP reporting lodged by an entity can have tax consequences for individuals and this is exacerbated where multiple individuals are affected • individuals relying on the information reported through STP may be misled into actions that they were not able to validly take or which have detrimental effects, and • it ensures the level of penalty that may apply reflects the culpability of the entity – that is, it means an entity that makes a false or misleading statement 100 times may receive a penalty that is larger than an entity that only does so once. 101. However, where you are making a decision about applying penalties for multiple related statements, you should consider whether it is fair and reasonable to do so in totality, taking into account: • the entity's compliance history • the impact of the failure on the tax and superannuation systems • the entity's previous pattern of accurate reporting through STP • any prior contact with the entity (or their representative) about their failure to comply with STP obligations • whether applying multiple penalties in the circumstances produces an unfair, unjust or disproportionate result. • the entity's compliance history • the impact of the failure on the tax and superannuation systems • the entity's previous pattern of accurate reporting through STP • any prior contact with the entity (or their representative) about their failure to comply with STP obligations • whether applying multiple penalties in the circumstances produces an unfair, unjust or disproportionate result. 102. Absence of a prior warning from us does not prevent you from applying penalties in relation to multiple statements if it is fair, reasonable and just in the circumstances to do so. | Calculating the false or misleading statement penalty: 103. To assess the penalty amount: • assess the entity's behaviour to determine the amount of the BPA • increase or reduce the BPA (or both). • assess the entity's behaviour to determine the amount of the BPA • increase or reduce the BPA (or both). | Assessing the entity's behaviour in making the statement: 104. When assessing the entity's behaviour in making the statement, we consider the actions and behaviours at the time the statement was made. The guidelines for determining the behaviour are in MT 2008/1. They are described briefly in the remaining paragraphs of this Practice Statement, but you must consult and follow MT 2008/1. 105. Actions and behaviours after the statement are not relevant in working out the BPA. | Failure to take reasonable care: 106. Failure to take reasonable care occurs where reasonable care has not been taken in connection with making the statement, but the entity or their agent has not been reckless or intentionally disregarded the law. | Recklessness: 107. Recklessness is when an entity behaves far below the standard of care expected of a reasonable person in similar circumstances. It's essentially extreme carelessness. Recklessness means an entity shows a disregard for risks or indifference to consequences that could reasonably be foreseen. However, the entity doesn't need to actually realise the risk for their behaviour to be considered reckless. | Intentional disregard: 108. Intentional disregard of the law means more than just being reckless or indifferent to a tax law. The entity must actually know the statement is false. They must understand the relevant legislation, how it applies to their situation, and then choose to ignore the law deliberately. | Amount of the penalty: 109. The BPA is calculated by: • assessing the entity's behaviour in making the statement • reducing the BPA to the extent that the entity applied a taxation law in an accepted way. • assessing the entity's behaviour in making the statement • reducing the BPA to the extent that the entity applied a taxation law in an accepted way. 110. The initial BPA is based on the assessment of the entity's behaviour and whether or not there is a shortfall amount. A shortfall amount is the amount by which a: • tax-related liability is less than it would have been if the statement were not false or misleading, or • payment or credit that we must make under a taxation law is more than it would have been if the statement were not false or misleading. • tax-related liability is less than it would have been if the statement were not false or misleading, or • payment or credit that we must make under a taxation law is more than it would have been if the statement were not false or misleading. 111. While an entity relying on advice we provided is highly likely to have taken reasonable care (and therefore will not be liable to a penalty), even if reasonable care has not been taken the BPA is reduced to the extent that the entity applied the law in an accepted way that agreed with: • advice given to them by or on behalf of us • our general administrative practice • a statement in a publication approved in writing by the Commissioner. • advice given to them by or on behalf of us • our general administrative practice • a statement in a publication approved in writing by the Commissioner. 112. Subsection 284-90(1) provides the initial BPA as shown in Table 3 of this Practice Statement [40] : Table 3: Base penalty amount Situation Where there is a shortfall amount present Where there is no shortfall amount Intentional disregard of a taxation law by the entity or their agent BPA is 75% of the shortfall amount BPA is 60 penalty units Recklessness by the entity or their agent as to the operation of a taxation law BPA is 50% of the shortfall amount BPA is 40 penalty units Failure by the entity or their agent to take reasonable care to comply with a taxation law BPA is 25% of the shortfall amount BPA is 20 penalty units 113. If the entity is an SGE, the BPA amount is doubled. An entity's status as an SGE must be worked out on the day the statement was made and is based upon the most recent income year for which an income tax assessment has been made for the entity or a determination by us that the entity is an SGE at the date of the statement. | Increasing or reducing the base penalty amount: 114. In certain instances, the BPA is increased or reduced, using the following formula: BPA + [BPA × (increase % − reduction %)] BPA + [BPA × (increase % − reduction %)] | Increasing the base penalty amount: 115. The BPA is increased by 20% where the entity [41] : • prevents or obstructs us from finding out about the false or misleading nature of the statement • becomes aware of the false or misleading nature of the statement after the statement is made and does not tell us about it within a reasonable time, or • had a BPA worked out for this type of penalty previously, even if the penalty was remitted. • prevents or obstructs us from finding out about the false or misleading nature of the statement • becomes aware of the false or misleading nature of the statement after the statement is made and does not tell us about it within a reasonable time, or • had a BPA worked out for this type of penalty previously, even if the penalty was remitted. 116. The increase is a maximum of 20%, even if more than one of the criteria in paragraph 115 of this Practice Statement applies. | Increasing the base penalty amount – prevent or obstruct: 117. Examples of what would constitute preventing or obstructing us would include where the entity, without an acceptable reason: • repeatedly defers or fails to keep appointments • repeatedly fails to supply information • repeatedly fails to respond adequately to reasonable requests for information, such as – by not replying to the request for information – giving information that is not relevant – not addressing all the issues in the request, or – supplying inadequate information • fails to respond to formal information gathering notices • provides incorrect information or fraudulently prepares documents in support of statements (although these may also be further false or misleading statements), or • destroys records. • repeatedly defers or fails to keep appointments • repeatedly fails to supply information • repeatedly fails to respond adequately to reasonable requests for information, such as – by not replying to the request for information – giving information that is not relevant – not addressing all the issues in the request, or – supplying inadequate information • fails to respond to formal information gathering notices • provides incorrect information or fraudulently prepares documents in support of statements (although these may also be further false or misleading statements), or • destroys records. – by not replying to the request for information – giving information that is not relevant – not addressing all the issues in the request, or – supplying inadequate information 118. You should also note the use of the term 'repeatedly' when considering increases for prevention or obstruction. Simply not replying to a letter or not returning a call does not indicate the entity is taking steps to prevent or obstruct us. [42] It will also not be obstruction where the incorrect information or the failure to provide information was the result of the taxpayer not understanding the request. 119. We expect that where legal professional privilege (LPP) claims are made, they are made properly. [43] Claims of LPP will not generally be considered to be obstructive. However, if you discover that claims were unjustified, you should consider if they were made to obstruct us. | Increasing the base penalty amount – previous penalty: 120. The BPA is increased by 20% where the entity has a previous penalty of the same type as the penalty being assessed. For false or misleading statements which do not result in a shortfall amount, the previous penalty must also have been for a false or misleading statement which did not result in a shortfall amount. 121. The increase will apply regardless of whether the previous penalty was assessed during a previous interaction, or whether it occurs on the same day. This means that, where you assess multiple penalties of the same type at the same time, the increase will apply to the second and subsequent statements. 122. The order of the statements is determined by the date on which they were made, not the period to which they relate. | Reducing the base penalty amount for voluntary disclosure: 123. The BPA can be reduced in certain circumstances where an entity voluntarily discloses the false or misleading statement, if they do so in 'the approved form'. [44] 124. You must refer to MT 2012/3 when making any decision regarding voluntary disclosure and the rates of penalty reduction applicable in certain situations. [45] 125. A voluntary disclosure must meet the requirements of the approved form. 126. The approved form sets out a list of the information required for the entity to make that disclosure. This includes an identification of the statement and an explanation of its false or misleading nature. 127. Generally, the actual form and structure used is irrelevant, as long as the entity provides the required information through an acceptable mechanism. You can find full details of the information required and the methods or mechanisms available to make a voluntary disclosure at How to make a voluntary disclosure . 128. In working out if a voluntary disclosure has been made, it is important to recognise that an entity making a genuine attempt to inform us of a mistake may not be fully aware of all the information we require. 129. If the disclosure fails to meet the strict requirements of the approved form, but substantially complies with the requirements, and you can accurately determine the nature of the false or misleading statement from the information provided, the disclosure should be treated as meeting the requirements of the approved form. 130. If additional information is sought on an incomplete disclosure and it is provided within a reasonable time, the original incomplete disclosure should be treated as sufficiently complete. 131. The entity's original disclosure would not be regarded as constituting a voluntary disclosure if the facts or reasonable inferences indicate that the entity supplied incomplete information in an attempt to obstruct or hinder us from identifying the correct information (that is, the false or misleading nature of the statement), particularly where the degree of incompleteness is significant. [46] | Step 1 – consider remission based on the entity's attempt to comply with their obligations: 132. Where an entity has not rectified their failure to comply in a manner that protects them from penalties [47] , it is still appropriate to recognise that some remission is warranted for an entity that has attempted to comply compared to an entity that has not. 133. Using Table 4 of this Practice Statement, consider an initial amount of remission based on an entity's attempt to comply with their STP reporting obligations. Table 4: Degree of attempt to comply with obligations Situation Initial remission The entity lodges in the approved form or corrects a statement which was false or misleading prior to contact from us, less than 3 months after the initial failure to comply with STP reporting obligations. 90% The entity lodges in the approved form or corrects a statement which was false or misleading prior to contact from us, more than 3 and less than 9 months after the initial failure to comply with STP reporting obligations. 80% The entity lodges in the approved form or corrects a statement which was false or misleading prior to contact from us, more than 9 months after the initial failure to comply with STP reporting obligations. 60% The entity lodges in the approved form or corrects a statement which was false or misleading after initial contact from us but before any compliance action. 40% The entity lodges in the approved form or corrects a statement which was false or misleading after being notified of our compliance action. 25% The entity deliberately fails to comply (regardless of whether or not the failure is rectified later), or makes no attempt to comply by lodging in the approved form or correcting a statement which was false or misleading. 0% | Step 2 – consider increasing or reducing the remission based on the entity's compliance history: 134. You should consider the entity's compliance history for both their STP reporting obligations and obligations under other taxation laws [48] for the 3-year period leading up to the earlier of the day before: • the entity rectified their failure through lodging in the approved form or correcting a statement that was false or misleading, or • we commenced compliance action (either by phone or in writing). • the entity rectified their failure through lodging in the approved form or correcting a statement that was false or misleading, or • we commenced compliance action (either by phone or in writing). 135. Your consideration at this step should focus on the entity's history, not their current failure to meet obligations for which the penalty is being raised. This is because behaviours relating to the current failure (such as obstruction) are already taken into account when determining the BPA. Any additional factors relating to the entity's current failure that were not taken into account earlier can be considered in Step 3 of this remission process. 136. You should evaluate an entity's compliance history by reviewing their ATO records, as well as information supplied by the entity and any other parties. 137. The entity's STP reporting compliance history will be given more weight than their compliance history for other taxation laws. When reviewing compliance history, you should focus on: • the number of occasions on which the entity previously failed to lodge STP reporting in the approved form by the due date or on which it has been identified that statements made in STP reporting were false or misleading • the degree of the entity's attempt to comply with their STP obligations previously (not including their attempts to comply for the period being considered), and • any shift in behaviour by the entity that has been subject to previous compliance activity (this may be demonstrated by an improvement or deterioration in their level of engagement and cooperation with us during the compliance activity). • the number of occasions on which the entity previously failed to lodge STP reporting in the approved form by the due date or on which it has been identified that statements made in STP reporting were false or misleading • the degree of the entity's attempt to comply with their STP obligations previously (not including their attempts to comply for the period being considered), and • any shift in behaviour by the entity that has been subject to previous compliance activity (this may be demonstrated by an improvement or deterioration in their level of engagement and cooperation with us during the compliance activity). 138. Previous occasions of failing to comply with STP reporting obligations that were identified due to our compliance action will reflect a poorer compliance history than those identified via a voluntary disclosure. 139. Depending on an entity's compliance history, you may provide additional remission or may reduce the level of remission provided by the other steps in this remission process. Generally, the amount of additional remission or reduced remission should not exceed the amounts in Table 5 of this Practice Statement: Table 5: Level of compliance history Level of compliance history Further remission up to good compliance history (noting that 'good' does not have to mean flawless or exceptional) 15% neither good nor poor compliance history No change poor compliance history −15% extremely poor compliance history −30% 140. When considering increasing or reducing the level of remission determined in Step 1, remember that you cannot: • remit more than 100% of the penalty amount • remit less than 0% of the penalty amount (that is, you can decline to grant any remission but you cannot increase the penalty amount to be higher than the law provides). • remit more than 100% of the penalty amount • remit less than 0% of the penalty amount (that is, you can decline to grant any remission but you cannot increase the penalty amount to be higher than the law provides). 141. The following examples illustrate some of the common situations of poor compliance history where a reduction in remission may be appropriate: • The entity has demonstrated a history or habit of failing to lodge STP reporting or lodging late. • The entity has demonstrated a history or habit of making false or misleading statements in their STP reporting. • The entity has previously been subject to compliance activity relating to their STP reporting and has shown no improvement in behaviour. • The entity has several outstanding lodgments relating to other tax and super obligations. • Evidence indicates that the entity has previously been disingenuous or deceptive with the information disclosed in STP reporting (for example, by deliberately disclosing only some information that obscures the true picture). • The entity has demonstrated a history or habit of failing to lodge STP reporting or lodging late. • The entity has demonstrated a history or habit of making false or misleading statements in their STP reporting. • The entity has previously been subject to compliance activity relating to their STP reporting and has shown no improvement in behaviour. • The entity has several outstanding lodgments relating to other tax and super obligations. • Evidence indicates that the entity has previously been disingenuous or deceptive with the information disclosed in STP reporting (for example, by deliberately disclosing only some information that obscures the true picture). 142. The following examples illustrate some of the situations where compliance history is considered extremely poor: • The entity has repeatedly failed to meet their obligations even after multiple compliance actions by us (for example, where they have been audited more than 3 times previously and were found to have failed to meet their obligations each time). • The entity has repeatedly attempted to obstruct or hinder compliance action or provided false or misleading statements during compliance action on multiple occasions. • The entity has repeatedly and deliberately failed to meet their obligations (for example, by failing to correct known issues in their systems or processes which affect the correctness of their reporting). • The entity has repeatedly failed to meet their obligations even after multiple compliance actions by us (for example, where they have been audited more than 3 times previously and were found to have failed to meet their obligations each time). • The entity has repeatedly attempted to obstruct or hinder compliance action or provided false or misleading statements during compliance action on multiple occasions. • The entity has repeatedly and deliberately failed to meet their obligations (for example, by failing to correct known issues in their systems or processes which affect the correctness of their reporting). Step 3 – consider any other mitigating or exacerbating factors that may warrant further increasing or reducing the amount of remission 143. You need to consider all other relevant facts and circumstances to ensure any penalty remaining after your remission decision takes the entity's circumstances into account. After considering other relevant facts and circumstances, it may be appropriate to: • increase the level of penalty remission (including to full remission) • maintain the level of penalty without further remission • reduce the level of penalty remission. • increase the level of penalty remission (including to full remission) • maintain the level of penalty without further remission • reduce the level of penalty remission. 144. Where you have already taken into account the degree of the entity's attempt to comply (in Step 1) and the entity's compliance history (in Step 2), you should not consider these circumstances again at Step 3. 145. For example, an entity may be found to have a good compliance history at Step 2 due to there being no previous compliance activity. The fact an entity has not been subject to compliance activity before is not also an 'other mitigating fact or circumstance'. 146. When considering increasing or reducing the level of remission determined in Steps 1 and 2, remember that you cannot: • remit more than 100% of the penalty amount • remit less than 0% of the penalty amount (that is, you can decline to grant any remission but you cannot increase the penalty amount to be higher than the law provides). • remit more than 100% of the penalty amount • remit less than 0% of the penalty amount (that is, you can decline to grant any remission but you cannot increase the penalty amount to be higher than the law provides). 147. A penalty should not be remitted at Step 3 merely because the penalty may be 'relatively small'. 148. A penalty for failing to lodge in the approved form by the due date should generally only be further remitted at this step if the entity has lodged the STP reporting concerned. | Mitigating factors: 149. Different mitigating facts or circumstances may warrant different levels of further remission, depending on their significance in contributing to the entity's non-compliance. Where there are multiple mitigating factors present, they should each be considered for remission. The circumstances outlined in this section are examples of mitigating facts or circumstances and are not exhaustive. 150. Mitigating facts or circumstances that only warrant minor further remission (generally not exceeding 10%) include: • the facts indicate the entity's failure to comply with their STP reporting obligations arose due to an error or honest mistake • you are satisfied that the entity has addressed the issue that led to their failure to comply, or • the entity's non-compliance occurred in their first year of operation and you are satisfied the failure to comply was not a deliberate attempt to avoid their STP reporting obligations. • the facts indicate the entity's failure to comply with their STP reporting obligations arose due to an error or honest mistake • you are satisfied that the entity has addressed the issue that led to their failure to comply, or • the entity's non-compliance occurred in their first year of operation and you are satisfied the failure to comply was not a deliberate attempt to avoid their STP reporting obligations. 151. Mitigating facts or circumstances that may warrant moderate further remission (generally not exceeding 20%) include: • the entity's ability to comply was impacted by the severe ill health of a key employee of the employer • the entity did meet a significant proportion of their STP reporting obligations accurately and on time and the failure to comply represents a small portion of their overall obligations for the period under consideration, or • the entity misidentified a transaction due to complex legal interpretative issues. • the entity's ability to comply was impacted by the severe ill health of a key employee of the employer • the entity did meet a significant proportion of their STP reporting obligations accurately and on time and the failure to comply represents a small portion of their overall obligations for the period under consideration, or • the entity misidentified a transaction due to complex legal interpretative issues. 152. Mitigating facts or circumstances that may warrant a larger additional remission (generally not exceeding 50%) include: • the malfunction or outage of a key ATO system which the entity can demonstrate caused them to narrowly miss the lodgment due date, or • a natural disaster, emergency or other similar event has significantly impacted the entity's ability to comply with their obligations. • the malfunction or outage of a key ATO system which the entity can demonstrate caused them to narrowly miss the lodgment due date, or • a natural disaster, emergency or other similar event has significantly impacted the entity's ability to comply with their obligations. 153. You must ensure that you are considering mitigating circumstances in the context of the type of penalty that applies in the circumstances, as some mitigating circumstances may have more weight in relation to some penalties compared to others. For example, an outage of a key ATO system may warrant larger additional remission of penalties for failing to lodge on time in the approved form but not warrant additional remission of penalties for making a false or misleading statement, as an ATO system outage has greater effect on an entity's ability to lodge than it does on the correctness of an entity's reporting. | Exacerbating factors: 154. In limited cases, there may be exacerbating facts or circumstances which warrant reducing the level of remission determined in Steps 1 and 2. Where there are multiple exacerbating factors present, they should each be considered. The circumstances outlined in this section are examples of exacerbating factors and are not exhaustive. 155. Exacerbating facts or circumstances that may warrant minor reduction in remission level (generally not exceeding 10%) include where the entity: • is reasonably expected to have fully understood their STP reporting obligations (for example, where they have previously been subject to compliance activity or have previously received advice from the ATO about how those obligations apply to the payment being considered), or • has a demonstrated history of repeated disengagement. • is reasonably expected to have fully understood their STP reporting obligations (for example, where they have previously been subject to compliance activity or have previously received advice from the ATO about how those obligations apply to the payment being considered), or • has a demonstrated history of repeated disengagement. 156. Exacerbating factors which may warrant moderate reduction in remission level (generally not exceeding 20%) include where the entity: • is related to other entities with a history of not meeting STP reporting obligations (for example, where multiple employer entities are controlled by common directors, or are members of a consolidated group, with demonstrated poor compliance history), or • demonstrates unwillingness to assist in efforts to reduce any impact to their employees, or assist their employees to respond to that impact, resulting from the entity's failure to comply. • is related to other entities with a history of not meeting STP reporting obligations (for example, where multiple employer entities are controlled by common directors, or are members of a consolidated group, with demonstrated poor compliance history), or • demonstrates unwillingness to assist in efforts to reduce any impact to their employees, or assist their employees to respond to that impact, resulting from the entity's failure to comply. 157. Exacerbating factors which may warrant larger reduction in remission level (generally not exceeding 50%) include where the entity took steps to: • deliberately avoid their STP reporting obligations, or • prevent or obstruct us from undertaking compliance activity. This is more than just failing to respond to a letter; rather, it may be repeated failure to meet agreed timeframes to supply information without acceptable reason, or deliberately supplying irrelevant, inadequate or misleading information. • deliberately avoid their STP reporting obligations, or • prevent or obstruct us from undertaking compliance activity. This is more than just failing to respond to a letter; rather, it may be repeated failure to meet agreed timeframes to supply information without acceptable reason, or deliberately supplying irrelevant, inadequate or misleading information. | Step 4 – consider whether or not the result is fair, just and proportionate in the circumstances: 158. After considering the entity's attempt to comply, compliance history and other relevant circumstances to determine a remission level, you must also consider whether the remission level you have determined is a fair, just and proportionate outcome. 159. Where you determine that the level of remission reached by applying Steps 1, 2 and 3 of this process is not a fair, just and proportionate outcome you must consider remitting the penalty (or penalties) further to achieve a fair, just and proportionate outcome. What is a fair, just and proportionate outcome will depend on the particular circumstances of a case. 160. Paragraphs 161 to 169 of this Practice Statement describe some situations that may not result in a fair, just and proportionate outcome. They are not exhaustive and where an unfair, unjust or disproportionate outcome arises in other situations, you must still consider further remission. | Mechanical process of the law: 161. In some instances, the mechanical process of the law could result in an unintended or unjust result. In particular, this can arise where the BPA when calculating a false or misleading statement penalty is increased because 2 or more penalties were assessed at the same time. In situations where the entity has not been advised of a previous penalty and the behaviour is not intentional disregard of the law, it is appropriate to consider remitting the penalty to the extent of the amount of the BPA increase. | Penalty is disproportionate to the severity of the failure to comply: 162. Situations may arise where relatively small errors receive penalties which are disproportionate to the severity of the failure to comply. For example, penalties for false or misleading statements that do not result in a shortfall amount are based on a fixed number of penalty units, and this may result in penalties applying that are significantly larger than would be the case for a similar false or misleading statement that did result in a shortfall. 163. Where this occurs, it is appropriate to consider remitting the penalty in part, to an amount which is proportionate to the size of the misstatement. | Misalignment between the failure to comply and an entity's significant global entity status: 164. An entity (which is not an SGE at the time they fail to lodge in the approved form by the due date, or make a false or misleading statement) may be treated as an SGE on the basis of their last lodged return, default assessment or a determination by us, and have a penalty multiplier used to calculate their penalties. 165. If the entity is able to provide sufficient evidence that they were no longer or likely not an SGE at the time of the failure to comply, remission of the additional penalty would be appropriate. 166. For example, a change in SGE status may have occurred as a result of the Australian entity being sold to a new owner, or the SGE may have divided its group, sold off some parts of its business, demerged, restructured, had their turnover drop significantly or go through some other change which affects their SGE status after the period covered by their last return or default assessment. | Total penalty impact: 167. The event-based nature of STP reporting obligations through STP means that entities generally have many discrete obligations to lodge, and in the course of lodging make many discrete statements. As a result, you may be simultaneously considering many instances of an entity being liable to penalties for failing to lodge in the approved form by the due date, making false or misleading statements, or both. 168. In these situations, you must consider whether the total penalties overall produce a fair, just and proportionate outcome in addition to the penalties when considered individually. 169. For example, where an entity is liable to penalties for failing to lodge in the approved form by the due date, the penalty for each individual failure may be reasonable but when totalled across multiple failures being considered simultaneously the overall penalty amount may be so high that it is disproportionate or unfair. In those circumstances, it would be appropriate to remit the penalty to a more fair, just and proportionate level. | Example 1: 170. Nitin has one employee, who he pays wages to on Thursdays. However, on one occasion, Nitin fails to lodge his STP reporting about a payment until the following Wednesday. Nitin has not been granted an exemption or deferral of the due date. Nitin engages the services of a registered tax agent for preparing his activity statements, but not in relation to his payroll and STP reporting. 171. A tax officer considering penalties follows the process set out in this Practice Statement. 172. First, they determine the type of penalty which is applicable in the circumstances. Nitin has correctly reported the details of the payment he made to his employee and has done so in the approved form. However, the due date for lodging STP reporting was the day Nitin was required to withhold from the payment, and Nitin failed to lodge by that due date. The penalty that is applicable in the circumstances is a penalty for failing to lodge in the approved form by the due date. 173. Next, the tax officer considers whether the law protects Nitin from this penalty. Reasonable care and grace periods do not apply, as neither protects an entity from penalties for failure to lodge in the approved form by the due date. The safe harbour is not available to Nitin, as he doesn't engage his registered tax agent for STP reporting purposes. 174. The tax officer moves onto Step 3 and considers whether or not to apply a penalty. They consider that it is appropriate to not apply a penalty because: • Nitin lodged his STP reporting with only minimal delay and without intervention from us. • A review of Nitin's compliance history satisfies the tax officer that this is an isolated incident. • Nitin lodged his STP reporting with only minimal delay and without intervention from us. • A review of Nitin's compliance history satisfies the tax officer that this is an isolated incident. | Example 2: 175. In 2019, Barbara begins regularly lodging STP reporting when she pays her 10 employees. She ordinarily pays her employees on the 15th day of each month. 176. In 2022, the STP approved form is changed, from STP Phase 1 to STP Phase 2. All entities become required to use STP Phase 2 unless they have been granted approval to continue using STP Phase 1 for a transitional period. 177. Barbara was granted approval to continue using STP Phase 1 for a transitional period expiring on 30 September 2023. However, Barbara does not transition to using STP Phase 2 during that period and continues to lodge her STP reporting using STP Phase 1. 178. Each time Barbara pays her employees on or after 1 October 2023 and reports using STP Phase 1, her STP reporting is not in the approved form. 179. A tax officer considering penalties follows the process set out in this Practice Statement. 180. First, they determine the type of penalty which is applicable in the circumstances. Barbara has correctly reported the details of payments made to her employees and has done so by the due date. However, Barbara has failed to do this using the approved form. The penalty that is applicable in the circumstances is a penalty for failing to lodge in the approved form by the due date. 181. Next, the tax officer considers whether the law protects Barbara from the penalty. Reasonable care and grace periods do not apply, as neither protects an entity from penalties for failure to lodge in the approved form by the due date. Barbara does not engage the services of a registered tax or BAS agent, so the safe harbour provisions are not available to her. 182. The tax officer moves onto Step 3 and considers whether or not to apply a penalty. They consider that is it appropriate to apply a penalty because: • Barbara has had ample opportunity to prepare for and begin reporting in the approved form. • It is not an isolated failure, with Barbara having made multiple lodgments since 1 October 2023 that were not in the approved form. • Barbara has had ample opportunity to prepare for and begin reporting in the approved form. • It is not an isolated failure, with Barbara having made multiple lodgments since 1 October 2023 that were not in the approved form. 183. As STP reporting in respect of each payment made to an employee is a separate lodgment obligation, Barbara is liable to an administrative penalty for failing to lodge in the approved form by the due date in relation to each payment to each of her 10 employees over the period since 1 October 2023. However, as it is the first time Barbara is receiving a penalty for this behaviour, the tax officer decides it would be fair and reasonable to only apply a penalty in relation to a single payment to a single employee on 15 October 2023 rather than all of the multiple penalties Barbara is liable to. 184. The tax officer calculates the amount of the penalty to be applied: 185. First, they calculate the BPA: • A penalty is being applied in respect of one STP report which was not lodged in the approved form for more than 113 days after it was due; the BPA is 5 penalty units ($1,565). • Next, they determine whether the BPA is increased. Barbara was a small withholder with assessable income less than $1 million for the whole of the 2023–24 year; the BPA is not increased. • A penalty is being applied in respect of one STP report which was not lodged in the approved form for more than 113 days after it was due; the BPA is 5 penalty units ($1,565). • Next, they determine whether the BPA is increased. Barbara was a small withholder with assessable income less than $1 million for the whole of the 2023–24 year; the BPA is not increased. 186. When applying the penalty, totalling $1,565, the tax officer must consider remission and they do this by following the 4-step penalty remission process in Appendix C to this Practice Statement: • First, they consider initial remission based on Barbara's attempt to comply with her obligations. Notwithstanding that Barbara has lodged STP reporting, she has made no attempt to do so in the approved form. The initial remission level is 0%. • Second, they consider increasing or reducing the level of remission based on Barbara's compliance history. The tax officer considers that Barbara's compliance history is good, with an otherwise good history in relation to her STP reporting and a good history in relation to other reporting obligations. Remission is increased by 15%. • Third, the tax officer considers all other relevant facts and circumstances to determine whether further change to remission level is warranted. They determine that no further remission is warranted as Barbara has not displayed exacerbating behaviours that would warrant reducing the level of remission, but also has not demonstrated any mitigating factors which affected her ability to lodge in the approved form. • Finally, the tax officer considers whether the outcome ($1,330 after the 15% remission) is fair, just and proportionate in the circumstances. They consider that the final level of penalty is not so high as to be disproportionate to the severity of Barbara's sustained failure to comply with her STP reporting obligations over an extended period, or unfair. They decide it is appropriate to provide no further remission. • First, they consider initial remission based on Barbara's attempt to comply with her obligations. Notwithstanding that Barbara has lodged STP reporting, she has made no attempt to do so in the approved form. The initial remission level is 0%. • Second, they consider increasing or reducing the level of remission based on Barbara's compliance history. The tax officer considers that Barbara's compliance history is good, with an otherwise good history in relation to her STP reporting and a good history in relation to other reporting obligations. Remission is increased by 15%. • Third, the tax officer considers all other relevant facts and circumstances to determine whether further change to remission level is warranted. They determine that no further remission is warranted as Barbara has not displayed exacerbating behaviours that would warrant reducing the level of remission, but also has not demonstrated any mitigating factors which affected her ability to lodge in the approved form. • Finally, the tax officer considers whether the outcome ($1,330 after the 15% remission) is fair, just and proportionate in the circumstances. They consider that the final level of penalty is not so high as to be disproportionate to the severity of Barbara's sustained failure to comply with her STP reporting obligations over an extended period, or unfair. They decide it is appropriate to provide no further remission. 187. The tax officer issues a penalty notice to Barbara which includes her liability to pay a penalty of $1,330, the reasons Barbara is liable to the penalty, and the reasons it was not remitted in full. 188. If, following the penalty, Barbara does not begin to comply with her STP reporting obligations by starting to lodge in the approved form, the penalty will be a relevant factor when future penalties are considered and may support a decision that it is fair and reasonable to apply penalties in relation to a greater number of the overall total obligations Barbara has not met, or that a lower level of remission is warranted. | Example 3: 189. BigCorp is a large withholder that pays salary to its 5,000 employees on 5 November 2025. It had 5,000 separate obligations to notify us in relation to these payments that were due on 5 November 2025. BigCorp receives a warning letter about its failure to lodge on 20 February 2026 and ultimately lodged its STP reporting on 26 April 2026. 190. A tax officer considering penalties follows the process set out in this Practice Statement. 191. First, they determine the type of penalty which is applicable in the circumstances. BigCorp has correctly reported the payments made to employees and has done so in the approved form. However, it has not done so by the due date. The penalty that is applicable in the circumstances is a penalty for failing to lodge in the approved form by the due date. 192. Next, the tax officer considers whether the law protects BigCorp from this penalty. Reasonable care and grace periods do not apply, as neither protects an entity from penalties for failure to lodge in the approved form by the due date. As BigCorp does not engage the services of a registered tax or BAS agent, there is also no safe harbour that protects them from the penalty. 193. The tax officer moves onto Step 3 and considers whether or not to apply a penalty. 194. The tax officer considers that the value of the information that BigCorp failed to lodge in the approved form by the due date and the fact that BigCorp did not lodge of their own accord (instead only lodging after contact from the ATO) means it is appropriate to apply penalties in relation to all 5,000 failures (and to consider remission) rather than choosing not to apply a penalty. 195. As STP reporting in relation to each payment to an employee is a separate lodgment obligation, BigCorp is liable to an administrative penalty for failing to lodge in the approved form by the due date in relation to each of the 5,000 payments for which they failed to lodge STP reporting in the approved form by the due date. 196. The tax officer calculates the amount of the penalties to be applied: • The BPA is 5 penalty units ($1,650), as BigCorp's STP reporting was overdue by more than 113 days. • As BigCorp is a large withholder, the BPA is multiplied by 5. • The BPA is 5 penalty units ($1,650), as BigCorp's STP reporting was overdue by more than 113 days. • As BigCorp is a large withholder, the BPA is multiplied by 5. 197. Each penalty amount is $8,250, meaning BigCorp is liable to administrative penalties totalling $41.25 million. 198. When applying the penalties, the tax officer must consider remission and they do this by following the 4-step penalty remission process in Appendix C to this Practice Statement: • First, they consider initial remission based on BigCorp's attempt to comply with their obligations. As BigCorp ultimately complied with their obligations insofar as they lodged after initial contact from the ATO but before the start of compliance activity, the initial remission level is 40%. • Second, they consider increasing or reducing the level of remission based on BigCorp's compliance history. The tax officer considers that BigCorp's compliance history is poor, with 8 occasions over the previous year on which BigCorp has failed to lodge their STP reporting on time or at all, previous penalties applied for failure to lodge STP reporting and various other documents on time. The tax officer decides reducing remission by 10% is appropriate. • Third, the tax officer considers all other relevant facts and circumstances to determine whether further change to remission level is warranted. They determine that increasing the remission level by 5% is appropriate. – BigCorp has provided supporting evidence to satisfy the tax officer that the initial failure to lodge was the result of sudden illness of a key payroll processing staff member. – However, BigCorp could reasonably be expected to be fully aware of their obligation to report on time (particularly having had previous interactions with the ATO about the timeliness of their STP lodgments) and have sufficient controls to ensure their obligation is met. • Finally, the tax officer considers whether the outcome ($26,812,500 after the 35% remission) is fair, just and proportionate in the circumstances. The tax officer decides that penalties of that magnitude produce a disproportionate result which is unreasonable or unfair in the circumstances. The tax officer considers further remission to $5 million (representing overall remission of approximately 88%) is a fair and just outcome that is proportionate to the significant scale of BigCorp's failure to comply with their obligations. • First, they consider initial remission based on BigCorp's attempt to comply with their obligations. As BigCorp ultimately complied with their obligations insofar as they lodged after initial contact from the ATO but before the start of compliance activity, the initial remission level is 40%. • Second, they consider increasing or reducing the level of remission based on BigCorp's compliance history. The tax officer considers that BigCorp's compliance history is poor, with 8 occasions over the previous year on which BigCorp has failed to lodge their STP reporting on time or at all, previous penalties applied for failure to lodge STP reporting and various other documents on time. The tax officer decides reducing remission by 10% is appropriate. • Third, the tax officer considers all other relevant facts and circumstances to determine whether further change to remission level is warranted. They determine that increasing the remission level by 5% is appropriate. – BigCorp has provided supporting evidence to satisfy the tax officer that the initial failure to lodge was the result of sudden illness of a key payroll processing staff member. – However, BigCorp could reasonably be expected to be fully aware of their obligation to report on time (particularly having had previous interactions with the ATO about the timeliness of their STP lodgments) and have sufficient controls to ensure their obligation is met. • Finally, the tax officer considers whether the outcome ($26,812,500 after the 35% remission) is fair, just and proportionate in the circumstances. The tax officer decides that penalties of that magnitude produce a disproportionate result which is unreasonable or unfair in the circumstances. The tax officer considers further remission to $5 million (representing overall remission of approximately 88%) is a fair and just outcome that is proportionate to the significant scale of BigCorp's failure to comply with their obligations. – BigCorp has provided supporting evidence to satisfy the tax officer that the initial failure to lodge was the result of sudden illness of a key payroll processing staff member. – However, BigCorp could reasonably be expected to be fully aware of their obligation to report on time (particularly having had previous interactions with the ATO about the timeliness of their STP lodgments) and have sufficient controls to ensure their obligation is met. 199. The tax officer issues a penalty notice to BigCorp which includes their liability to pay penalties totalling $5 million in respect of 5,000 STP reporting obligations, the reasons BigCorp is liable to the penalty, and the reasons it was not remitted in full. | Example 4: 200. Bob operates a business with employees, which closes in 2004. He then works for another business as an employee until February 2025 when he starts his own business again. 201. Bob pays amounts to his 4 employees that include several different kinds of allowances. In his STP reporting, Bob combines all of these allowances together with the main salary and wages shown at the label called 'Gross'. 202. Bob does this because that is what he used to do before 2004 when he ran his previous business. He does not check whether reporting requirements have changed by consulting the guidance on STP reporting on our website or seeking other advice. 203. As STP reporting requires allowances to be separately identified, every time Bob lodges STP reporting which combines allowances with the main salary and wages payments at the 'Gross' label, his reporting is not true. 204. It is identified that Bob is reporting this way in October 2025 after Bob is sent a letter in response to high levels of changes to the reported information being made by his employees when lodging their tax returns. At this time, Bob corrects his false statements. 205. A tax officer considering penalties follows the process set out in this Practice Statement. 206. First, they determine the type of penalty which is applicable in the circumstances. Bob has reported the payments made to his employees by the due date and has done so in the approved form. However, Bob has reported information about the payments which is false. The penalty that is applicable in the circumstances is a false or misleading statement penalty. 207. Next, the tax officer considers whether the law protects Bob from this penalty. • As Bob did not correct his false statements before 14 July 2025, the grace periods do not apply to protect Bob from a penalty in relation to his STP reporting during the 2024–25 financial year. • The grace periods might apply to protect Bob from a penalty in relation to his STP reporting during the 2025–26 financial year if, after he becomes aware of the false nature of his statements, he takes action to correct those statements within the applicable grace period. • As Bob does not engage the services of a registered tax or BAS agent, no safe harbour protects him from the penalty. • Bob would be protected from the false or misleading statement penalty if he took reasonable care. However, the tax officer consults MT 2008/1 and determines that Bob's indifference to the information required in reporting and failure to seek appropriate and up-to-date advice is not taking reasonable care. • As Bob did not correct his false statements before 14 July 2025, the grace periods do not apply to protect Bob from a penalty in relation to his STP reporting during the 2024–25 financial year. • The grace periods might apply to protect Bob from a penalty in relation to his STP reporting during the 2025–26 financial year if, after he becomes aware of the false nature of his statements, he takes action to correct those statements within the applicable grace period. • As Bob does not engage the services of a registered tax or BAS agent, no safe harbour protects him from the penalty. • Bob would be protected from the false or misleading statement penalty if he took reasonable care. However, the tax officer consults MT 2008/1 and determines that Bob's indifference to the information required in reporting and failure to seek appropriate and up-to-date advice is not taking reasonable care. 208. The tax officer moves onto Step 3 and considers whether or not to assess a penalty. 209. The tax officer considers the significance of the information to the tax and superannuation systems and the impact to Bob's employees when completing their 2024–25 tax returns that resulted from his failure to report accurately. 210. The tax officer decides it is appropriate to assess a penalty in relation to Bob's 2024–25 STP reporting. However, as it is the first time Bob is being assessed for this type of penalty, they decide that it would be appropriate to assess a penalty in relation to STP reporting for a single payday rather than for every occasion in the 2024–25 financial year that Bob made a false or misleading statement in his STP reporting. 211. As each occasion that Bob reports an amount at Gross in STP reporting that is not true is a separate statement, assessing a penalty in relation to STP reporting for a single payday means Bob is liable to false or misleading statement penalty in relation to each of the 4 false statements (one in relation to each employee) that he made. 212. The tax officer calculates the amount of the penalties to be applied: • With Bob having continued to apply practices from his earlier business with indifference to whether the requirements for reporting had changed over time and having failed to make enquiries about the correct way to report, the tax officer assessing the penalty consults MT 2008/1 and determines that Bob's conduct amounts to recklessness as to the operation of a taxation law, meaning the BPA is 40 penalty units. • The BPA is increased by 20% in relation to the last 3 false statements, as Bob has had a BPA worked out for the first incorrect report. • With Bob having continued to apply practices from his earlier business with indifference to whether the requirements for reporting had changed over time and having failed to make enquiries about the correct way to report, the tax officer assessing the penalty consults MT 2008/1 and determines that Bob's conduct amounts to recklessness as to the operation of a taxation law, meaning the BPA is 40 penalty units. • The BPA is increased by 20% in relation to the last 3 false statements, as Bob has had a BPA worked out for the first incorrect report. 213. The penalty amount for the first false or misleading statement is $13,200. For each subsequent false or misleading statement, the penalty amount is $15,840. In total, Bob is liable to administrative penalties totalling $60,720. 214. When assessing the penalties, the tax officer must consider remission and they do this by following the 4-step penalty remission process in Appendix C to this Practice Statement: • First, they consider initial remission based on Bob's attempt to comply with their obligations. As Bob corrected his false statements only after the commencement of ATO audit activity, the initial remission level is 25%. • Second, they consider increasing or reducing the level of remission based on Bob's compliance history. The tax officer considers that Bob's compliance history is good, with good STP reporting history (notwithstanding the false or misleading statements) in the short time since he has resumed his business and a good history in maintaining his personal tax obligations as an employee over the last 3 years. The tax officer decides it is appropriate to increase the level of remission by 15%. • Third, the tax officer considers all other relevant facts and circumstances to determine whether further change to the remission level is warranted. They determine that it is appropriate to increase the level of remission by a further 10%, as Bob's false statements occurred during his first year of operating the new business and he has not previously been required to report through STP. • Finally, the tax officer considers whether the outcome ($30,360 after 50% remission) is fair, just and proportionate in the circumstances. The tax officer considers that this outcome would be disproportionate and unfair to Bob, given his inexperience, genuine (albeit incorrect) attempts to lodge truthfully, and the fact that the total amounts of payments to employees overall were reported correctly (minimising the impact to those employees when managing their own affairs) despite the incorrect particularisation. The tax officer also acknowledges that multiple penalties were assessed at the same time. Overall, the tax officer determines it would be appropriate to – remit the 20% increase in BPA in relation to the latter 3 false statements, and – increase the overall remission level to 95%. • First, they consider initial remission based on Bob's attempt to comply with their obligations. As Bob corrected his false statements only after the commencement of ATO audit activity, the initial remission level is 25%. • Second, they consider increasing or reducing the level of remission based on Bob's compliance history. The tax officer considers that Bob's compliance history is good, with good STP reporting history (notwithstanding the false or misleading statements) in the short time since he has resumed his business and a good history in maintaining his personal tax obligations as an employee over the last 3 years. The tax officer decides it is appropriate to increase the level of remission by 15%. • Third, the tax officer considers all other relevant facts and circumstances to determine whether further change to the remission level is warranted. They determine that it is appropriate to increase the level of remission by a further 10%, as Bob's false statements occurred during his first year of operating the new business and he has not previously been required to report through STP. • Finally, the tax officer considers whether the outcome ($30,360 after 50% remission) is fair, just and proportionate in the circumstances. The tax officer considers that this outcome would be disproportionate and unfair to Bob, given his inexperience, genuine (albeit incorrect) attempts to lodge truthfully, and the fact that the total amounts of payments to employees overall were reported correctly (minimising the impact to those employees when managing their own affairs) despite the incorrect particularisation. The tax officer also acknowledges that multiple penalties were assessed at the same time. Overall, the tax officer determines it would be appropriate to – remit the 20% increase in BPA in relation to the latter 3 false statements, and – increase the overall remission level to 95%. – remit the 20% increase in BPA in relation to the latter 3 false statements, and – increase the overall remission level to 95%. 215. The tax officer issues a penalty notice to Bob which includes his liability to pay penalties totalling $3,036 in respect of 4 false statements, the reasons Bob is liable to the penalty, and the reasons it was not remitted in full. | Example 5: 216. MediumCo is having financial difficulty and is unable to pay its employees' super. In an attempt to avoid detection, MediumCo deliberately and incorrectly includes in its STP reporting on 23 June 2025 that it has a super liability of nil for each employee. This is not the first time MediumCo has run into trouble and they have previously been liable to administrative penalties relating to false statements they have made. 217. The incorrect reporting is detected by the ATO during an audit into MediumCo's super guarantee affairs, and MediumCo does not correct their reporting. 218. A tax officer considering penalties follows the process set out in this Practice Statement. 219. First, they determine the type of penalty which is applicable in the circumstances. MediumCo reported information about the payments made to their employees by the due date and in the approved form. However, by reporting that they had no super liability when that was not true, MediumCo has made a false statement. The penalty that is applicable in the circumstances is a false or misleading statement penalty. 220. Next, the tax officer considers whether the law protects MediumCo from this penalty. Grace periods do not apply, as MediumCo has not corrected its reporting. As MediumCo does not engage the services of a registered tax or BAS agent for their STP reporting, no safe harbour protects them from the penalty. MediumCo would be protected from the false or misleading statement penalty if they took reasonable care; however, deliberately reporting false information is not taking reasonable care. 221. The tax officer moves onto Step 3 and considers whether or not to assess a penalty. 222. The tax officer considers that the significance of the information to the tax and superannuation systems, the impact to individuals, and the deliberate nature of the false statements means it is appropriate to assess a penalty in relation to each false or misleading statement. 223. Each time MediumCo makes a false statement that they have a nil super liability for an employee, that is a separate statement. Making a statement of that nature for each of their 500 employees means MediumCo has made 500 false statements. 224. The tax officer calculates the amount of the penalties to be applied: • The tax officer assessing the penalty consults MT 2008/1 and determines that MediumCo's conduct amounts to intentional disregard of a taxation law, meaning the BPA is 60 penalty units • The BPA is increased by 20% in relation to all false or misleading statements, as MediumCo has previously been assessed to penalties for false or misleading statements. • The tax officer assessing the penalty consults MT 2008/1 and determines that MediumCo's conduct amounts to intentional disregard of a taxation law, meaning the BPA is 60 penalty units • The BPA is increased by 20% in relation to all false or misleading statements, as MediumCo has previously been assessed to penalties for false or misleading statements. 225. Each penalty amount is $23,760. A penalty for each of the 500 false statements means that MediumCo would be liable to total administrative penalties of $11.88 million. 226. When assessing the penalties, the tax officer must consider remission and they do this by following the 4-step penalty remission process in Appendix C to this Practice Statement: • First, they consider initial remission based on MediumCo's attempt to comply with their obligations. As MediumCo made no attempt to comply with their obligations by correcting their false statements, the initial remission level is 0%. • Second, they consider increasing or reducing the level of remission based on MediumCo's compliance history. The tax officer considers that MediumCo's compliance history is poor, with several instances of failing to meet their obligations and of receiving penalties for their failure to comply over the last 3 years. As the overall level of remission cannot be less than zero, the tax officer decides it is appropriate to maintain the remission level at 0%. • Third, the tax officer considers all other relevant facts and circumstances to determine whether further change to remission level is warranted. They determine that it is appropriate to maintain the level of remission, as MediumCo – has not demonstrated any mitigating circumstances – has engaged in exacerbating behaviours during the audit by attempting to obstruct detection of their failures. • Finally, the tax officer considers whether the outcome ($11.88 million with no remission) is fair, just and proportionate in the circumstances. The tax officer considers that, notwithstanding the egregious nature of MediumCo's conduct, this outcome would be disproportionate and the overall magnitude of penalties means it would be fair and reasonable to remit some of the penalty. Overall, the tax officer determines it would be appropriate to remit the penalties by 74.74% to produce an outcome that is fair and just in the circumstances while balancing with the egregious and deliberate conduct of MediumCo in failing to comply with their STP reporting obligations. • First, they consider initial remission based on MediumCo's attempt to comply with their obligations. As MediumCo made no attempt to comply with their obligations by correcting their false statements, the initial remission level is 0%. • Second, they consider increasing or reducing the level of remission based on MediumCo's compliance history. The tax officer considers that MediumCo's compliance history is poor, with several instances of failing to meet their obligations and of receiving penalties for their failure to comply over the last 3 years. As the overall level of remission cannot be less than zero, the tax officer decides it is appropriate to maintain the remission level at 0%. • Third, the tax officer considers all other relevant facts and circumstances to determine whether further change to remission level is warranted. They determine that it is appropriate to maintain the level of remission, as MediumCo – has not demonstrated any mitigating circumstances – has engaged in exacerbating behaviours during the audit by attempting to obstruct detection of their failures. • Finally, the tax officer considers whether the outcome ($11.88 million with no remission) is fair, just and proportionate in the circumstances. The tax officer considers that, notwithstanding the egregious nature of MediumCo's conduct, this outcome would be disproportionate and the overall magnitude of penalties means it would be fair and reasonable to remit some of the penalty. Overall, the tax officer determines it would be appropriate to remit the penalties by 74.74% to produce an outcome that is fair and just in the circumstances while balancing with the egregious and deliberate conduct of MediumCo in failing to comply with their STP reporting obligations. – has not demonstrated any mitigating circumstances – has engaged in exacerbating behaviours during the audit by attempting to obstruct detection of their failures. 227. The tax officer issues a penalty notice to MediumCo which includes its liability to pay penalties totalling $3 million in respect of 500 false statements, the reasons MediumCo is liable to the penalty, and the reasons it was not remitted in full. | Example 6: 228. TechCorp is a digital service provider specialising in payroll software with a customer base of 35,000 employers. TechCorp is not a registered tax or BAS agent. 229. TechCorp pushes out an update patch for its customers to install. Due to inadequate testing, it hasn't been identified that this update patch causes some incorrect information to be drawn from an unintended source and included in STP reporting lodged by their customers, including LMNOP Store. 230. A tax officer following the process set out in this Practice Statement in relation to LMNOP Store's STP reporting will firstly determine the type of penalty which is applicable in the circumstances. LMNOP Store's STP reporting was lodged by the due date and in the approved form. However, where the errors in LMNOP Store's STP reporting result in the information provided being false or misleading, LMNOP Store has made a false or misleading statement. The penalty that is applicable in the circumstances is a false or misleading statement penalty. 231. Next, the tax officer considers whether the law protects LMNOP Store from this penalty. As TechCorp is not a registered tax or BAS agent, LMNOP Store is not protected from the penalty by a safe harbour. The tax officer considering penalties would need to consider whether LMNOP Store took reasonable care in ensuring the accuracy of their reporting. For the grace period to apply and protect LMNOP Store from a penalty, LMNOP Store must correct their reporting within the applicable timeframe. If it was determined that LMNOP Store did not take reasonable care and did not correct their false or misleading statements within the grace period, the tax officer would continue to follow the process set out in this Practice Statement and potentially assess a false or misleading statement penalty against LMNOP Store notwithstanding that the false or misleading statements in their reporting were the result of TechCorp's error. 232. You are invited to provide comments on this draft Practice Statement. Forward your comments to the contact officer by the due date. 233. When providing comments, we invite you to consider the following specific questions: (a) Does the step-by-step approach of the draft Practice Statement strike an appropriate balance between clarity of outcomes and maintaining flexibility to take account of an entity's individual circumstances? (b) Are the mitigating and exacerbating factors outlined at Step 3 in Appendix C to this draft Practice Statement representative of circumstances that may reasonably arise? Are there any additional mitigating and exacerbating factors that should be considered? Does the guidance on increasing or reducing the remission level appropriately reflect the impact or severity of those circumstances? (c) Where an entity becomes liable to penalties because of the actions of a third-party service provider, to what extent should the ATO take this into account when considering imposition and remission of penalties? Should it instead be treated as a matter to be resolved privately between the entity and their service provider? (a) Does the step-by-step approach of the draft Practice Statement strike an appropriate balance between clarity of outcomes and maintaining flexibility to take account of an entity's individual circumstances? (b) Are the mitigating and exacerbating factors outlined at Step 3 in Appendix C to this draft Practice Statement representative of circumstances that may reasonably arise? Are there any additional mitigating and exacerbating factors that should be considered? Does the guidance on increasing or reducing the remission level appropriately reflect the impact or severity of those circumstances? (c) Where an entity becomes liable to penalties because of the actions of a third-party service provider, to what extent should the ATO take this into account when considering imposition and remission of penalties? Should it instead be treated as a matter to be resolved privately between the entity and their service provider? 234. A compendium of comments is prepared as part of the finalisation of this Practice Statement. An edited version of the compendium (with names and identifying information removed) is published to the ATO Legal database on ato.gov.au. 235. Advise the contact officer if you do not wish for your comments to be included in the edited compendium. Due date: 24 April 2026 Contact officer details have been removed as the comments period has ended. © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Date of Issue: 12 March 2026 Date of Effect: When finalised, this Practice Statement will apply from the date of publication. [1] For readability, all further references to 'this Practice Statement' refer to the Practice Statement as it will read when finalised. Note that this Practice Statement will not take effect until finalised. [2] Under section 389-10. [3] Excluding contractors that are within the scope of subsection 12(3) of the SGAA. [4] Including: • a member of an Australian legislature • a person who holds, or performs the duties of, an appointment, office or position under the Constitution or an Australian law • a member of the Defence Force, or of a police force of the Commonwealth, a state or a territory • a person who is otherwise in the service of the Commonwealth, a state or a territory, or • a member of a local governing body where there is in effect a unanimous resolution that the remuneration of members of the body be subject to withholding. • a member of an Australian legislature • a person who holds, or performs the duties of, an appointment, office or position under the Constitution or an Australian law • a member of the Defence Force, or of a police force of the Commonwealth, a state or a territory • a person who is otherwise in the service of the Commonwealth, a state or a territory, or • a member of a local governing body where there is in effect a unanimous resolution that the remuneration of members of the body be subject to withholding. [5] Section 389-5. [6] Subsection 389-15(3). [7] Subsection 389-20(2). [8] See instead Law Administration Practice Statement PS LA 2011/19 Administration of the penalty for failure to lodge on time. [9] Section 389-30. [10] Section 389-10. [11] See instead Law Administration Practice Statement PS LA 2011/15 Lodgment obligations, due dates and deferrals. [12] Section 388-75. [13] Section 388-50. [14] Section 284-75. [15] Subsection 284-75(5). [16] Paragraph 28 of MT 2008/1. [17] Subsection 284-75(8). [18] Taxation Administration - Single Touch Payroll - Grace periods for correcting statements . [19] Subsection 286-75(1A). [20] Subsection 286-75(1B). [21] Subsection 284-75(6). [22] Section 22 of Schedule 23 to the Budget Savings (Omnibus) Act 2016. [23] Section 298-20. [24] Sections 298-10 and 298-20. [25] Sections 298-10 and 298-15. [26] Subsection 286-80(6). [27] At paragraph 5. [28] At paragraph 5. [29] Subsection 286-80(1). [30] The value of a penalty unit is contained in section 4AA of the Crimes Act 1914 and is indexed regularly. The dollar amount of a penalty unit is available at Penalties . [31] Subsection 286-80(2). [32] Subsection 389-5(1). [33] Excluding contractors that are within the scope of subsection 12(3) of the SGAA. [34] Subsection 286-80(3). [35] Section 16-100. [36] Subsection 286-80(4). [37] Section 16-95. [38] Subsection 286-80(4A). [39] See paragraph 8 of PS LA 2011/19. [40] The value of a penalty unit is contained in section 4AA of the Crimes Act 1914 and is indexed regularly. The dollar amount of a penalty unit is available at Penalties . [41] Section 284-220. [42] Ebner and Commissioner of Taxation [2006] AATA 525 at [19]; Ciprian and Ors and Commissioner of Taxation [2002] AATA 746. [43] Guidance on our approach to dealing with claims for LPP can be found in Compliance with formal notices - claiming legal professional privilege in response to formal notices . [44] Section 284-225. [45] Unlike shortfall penalties where the reduction rates are 20%, 80% and to nil, this false or misleading statement penalty is reduced to nil for pre-notification disclosures, and either by 20% or to nil (if the discretion is exercised) after being told of an examination. [46] Kdouh and Commissioner of Taxation [2005] AATA 6. [47] For example, by correcting a false or misleading statement within the applicable grace period or making a voluntary disclosure in circumstances where it reduces the BPA to nil. [48] Taxation law is defined in subsection 995-1(1) of the ITAA 1997 to mean an Act or part of an Act of which the Commissioner has the general administration, and legislative instruments made under such an Act or part of an Act. File 1-1462AABE Related Rulings/Determinations: MT 2008/1 MT 2012/3 TD 2011/19 Related Practice Statements: PS LA 2008/3 PS LA 2011/15 PS LA 2011/19 PS LA 2012/4 PS LA 2012/5 Other References: Taxation Administration – Single Touch Payroll – Grace periods for correcting statements Penalties Compliance with formal notices – claiming legal professional privilege in response to formal notices How to make a voluntary disclosure",MT 2008/1 | MT 2012/3 | PS LA 2008/3 | PS LA 2011/15 | PS LA 2011/19 | PS LA 2012/4 | PS LA 2012/5 | Taxation Administration - Single Touch Payroll - Grace periods for correcting statements | Compliance with formal notices - claiming legal professional privilege in response to formal notices | TD 2011/19 | Taxation Administration – Single Touch Payroll – Grace periods for correcting statements | Compliance with formal notices – claiming legal professional privilege in response to formal notices | Crimes Act 1914 4AA | ITAA 1997 840-906 | ITAA 1997 995-1(1) | TAA 1953 Sch 1 16-95 | TAA 1953 Sch 1 16-100 | TAA 1953 Sch 1 284-75 | TAA 1953 Sch 1 284-75(5) | TAA 1953 Sch 1 284-75(6) | TAA 1953 Sch 1 284-75(9) | TAA 1953 Sch 1 284-90(1) | TAA 1953 Sch 1 284-220 | TAA 1953 Sch 1 284-225 | TAA 1953 Sch 1 286-75(1A) | TAA 1953 Sch 1 286-75(1B) | TAA 1953 Sch 1 286-80(1) | TAA 1953 Sch 1 286-80(2) | TAA 1953 Sch 1 286-80(3) | TAA 1953 Sch 1 286-80(4) | TAA 1953 Sch 1 286-80(4A) | TAA 1953 Sch 1 286-80(6) | TAA 1953 Sch 1 298-10 | TAA 1953 Sch 1 298-15 | TAA 1953 Sch 1 298-20 | TAA 1953 Sch 1 388-50 | TAA 1953 Sch 1 388-75 | TAA 1953 Sch 1 389-5 | TAA 1953 Sch 1 389-5(1) | TAA 1953 Sch 1 389-10 | TAA 1953 Sch 1 389-15(3) | TAA 1953 Sch 1 389-20(2) | TAA 1953 Sch 1 389-30 | SGAA 1992 12(3) | 2002 ATC 2099 | 2006 ATC 2263 | 2005 ATC 2001,PS LA 2008/3 PS LA 2011/15 PS LA 2011/19 PS LA 2012/4 PS LA 2012/5,Crimes Act 1914 4AA | Budget Savings (Omnibus) Act 2016 Sch 23 22 | ITAA 1997 840-906 | ITAA 1997 995-1(1) | TAA 1953 Sch 1 16-95 | TAA 1953 Sch 1 16-100 | TAA 1953 Sch 1 284-75 | TAA 1953 Sch 1 284-75(5) | TAA 1953 Sch 1 284-75(6) | TAA 1953 Sch 1 284-75(9) | TAA 1953 Sch 1 284-90(1) | TAA 1953 Sch 1 284-220 | TAA 1953 Sch 1 284-225 | TAA 1953 Sch 1 286-75(1A) | TAA 1953 Sch 1 286-75(1B) | TAA 1953 Sch 1 286-80(1) | TAA 1953 Sch 1 286-80(2) | TAA 1953 Sch 1 286-80(3) | TAA 1953 Sch 1 286-80(4) | TAA 1953 Sch 1 286-80(4A) | TAA 1953 Sch 1 286-80(6) | TAA 1953 Sch 1 298-10 | TAA 1953 Sch 1 298-15 | TAA 1953 Sch 1 298-20 | TAA 1953 Sch 1 388-50 | TAA 1953 Sch 1 388-75 | TAA 1953 Sch 1 389-5 | TAA 1953 Sch 1 389-5(1) | TAA 1953 Sch 1 389-10 | TAA 1953 Sch 1 389-15(3) | TAA 1953 Sch 1 389-20(2) | TAA 1953 Sch 1 389-30 | SGAA 1992 12(3),,Taxation Administration – Single Touch Payroll – Grace periods for correcting statements Penalties Compliance with formal notices – claiming legal professional privilege in response to formal notices How to make a voluntary disclosure,True,False,https://www.ato.gov.au/law/view/document?docid=DPS/PSD20262/NAT/ATO/00001,"For information about the status of this draft Practice Statement, see item [4200] on our Advice under development program | Appendix A – Applying penalties for failure to lodge in the approved form by the due date | Appendix B – Assessing penalties for false or misleading statements | Appendix C – 4-step penalty remission process | Misalignment between the failure to comply and entity's significant global entity status | Appendix E – Your comments | This Practice Statement is a draft for consultation purposes only. When the final Pratice Statement issues, it will have the following preamble: | Ciprian and Ors and Commissioner of Taxation [2002] AATA 746 2002 ATC 2099 50 ATR 1257 | Ebner and Commissioner of Taxation [2006] AATA 525 2006 ATC 2263 63 ATR 1073 [2007] ALMD 2241 | Kdouh and Commissioner of Taxation [2005] AATA 6 58 ATR 1198 2005 ATC 2001 [2005] ALMD 7887"
PS LA 2021/D3,Superannuation - Commissioner's discretion where members receive benefits in breach of legislative requirements,15 December 2021,,Law Administration Practice Statement,True,"1. What is this draft Practice Statement about?: This draft Practice Statement [1] sets out when and how to apply the discretion in section 304-10 of the Income Tax Assessment Act 1997 (ITAA 1997) where a taxpayer receives a superannuation benefit from a complying superannuation fund in breach of legislative requirements. [2] If the Commissioner exercises the discretion, the superannuation benefit will not form part of the person's assessable income under section 304-10, but will instead be taxed as a superannuation benefit. [3] This Practice Statement outlines: • what the discretion is for • the legislative history and context of section 304-10, and • principles for considering the discretion. • what the discretion is for • the legislative history and context of section 304-10, and • principles for considering the discretion. The Appendix to this Practice Statement includes more detail about the factors that may or may not be relevant when you are considering the exercise of the discretion. This Practice Statement does not deal with superannuation benefits received from approved deposit funds or non-complying superannuation funds. | 2. The discretion: Generally, superannuation benefits are taxed at a lower rate than income included in the person's assessable income. Divisions 301, 302 and 303 set out the tax treatment of superannuation benefits received from complying superannuation funds. These rules, however, do not apply where a person receives a payment from a complying superannuation fund (or the benefit was attributable to the assets from such a fund) and: • the fund was not (when the benefit was received) maintained as required by section 62 of the Superannuation Industry Supervision Act 1993 (SISA) (the sole purpose test), or • the person received the benefit otherwise than in accordance with the payment standards in subsection 31(1) of the SISA. [4] • the fund was not (when the benefit was received) maintained as required by section 62 of the Superannuation Industry Supervision Act 1993 (SISA) (the sole purpose test), or • the person received the benefit otherwise than in accordance with the payment standards in subsection 31(1) of the SISA. [4] In these circumstances, the benefit is included in the person's assessable income. [5] However, to the extent that we consider this unreasonable, we may exercise a discretion that the amount is not included in the person's assessable income under Division 304. When exercising the discretion, we consider: • the nature of the fund, and • any other relevant matters. [6] • the nature of the fund, and • any other relevant matters. [6] This may be for the whole or part of the superannuation benefit. The part of the benefit you exercise the discretion for remains assessable but is subject to the relevant tax treatment set out in Divisions 301, 302 or 303. [7] That part of the benefit, therefore, may be subject to less tax than it would have been if included under section 304-10. | 3. Legislative history and context of section 304-10: The superannuation system allows individuals to provide for their retirement or to provide for their dependants in the event of their death. Division 304 is an integrity mechanism for the superannuation system. It creates a disincentive for withdrawing superannuation benefits in breach of the SISA and the Superannuation Industry (Supervision) Regulations 1994 (SISR) payment standards by ensuring members pay a higher rate of tax on those superannuation benefits. Subsection 304-10(4) allows the Commissioner to exercise a discretion that the amount not be included in the person's assessable income. If the discretion is exercised, the amount will be assessed under either Divisions 301, 302 or 303. Section 304-10 is intended to ensure that the payment of excessive or unauthorised benefits is subject to tax unless the Commissioner is satisfied this would be unreasonable in the circumstances. The Commissioner's discretion in subsection 304-10(4) should generally be exercised where: • there are no tax avoidance implications, and • 'the excessive benefit arose fortuitously or in other circumstances beyond the effective control of the recipient or the employer'. [8] • there are no tax avoidance implications, and • 'the excessive benefit arose fortuitously or in other circumstances beyond the effective control of the recipient or the employer'. [8] The legislative history of section 304-10 and its predecessor, section 26AFB of the ITAA 1936, was succinctly set out in Mason and Commissioner of Taxation [2012] AATA 133 (Mason) [9] . In particular, in considering the objects of the SISA, which provides for the supervision of superannuation funds by the relevant regulators, the Administrative Appeals Tribunal (AAT) noted that an important element of the scheme of regulation is the deterrent effect of legislative provisions, including section 304-10. The AAT also noted [10] three consequences that can flow from a breach of the SISA, being: • the superannuation fund can be made non-complying • the trustees of the fund can be disqualified, and/or • the benefit can be treated as assessable income in the hands of the taxpayer. • the superannuation fund can be made non-complying • the trustees of the fund can be disqualified, and/or • the benefit can be treated as assessable income in the hands of the taxpayer. The AAT concluded that these consequences are an integral part of the regulator regime which has the purpose of encouraging prudent investment to meet the policy objectives. [11] | 4. Principles for considering the discretion: You must consider all the relevant facts and circumstances surrounding the receipt of the superannuation benefit. Consider the circumstances as a whole, rather than each factor in isolation. To exercise the discretion, you need to be satisfied that it would, on balance, be unreasonable for the superannuation benefit to be included in the person's assessable income under Division 304. When exercising the discretion, subsection 304-10(4) requires you to consider: • the nature of the fund the superannuation benefit is paid from - different weighting may need to be given to particular factors depending on whether the fund from which the benefit was received is a self-managed superannuation fund (SMSF) or an Australian Prudential Regulation Authority (APRA)-regulated fund, and • any other matters the Commissioner considers relevant. • the nature of the fund the superannuation benefit is paid from - different weighting may need to be given to particular factors depending on whether the fund from which the benefit was received is a self-managed superannuation fund (SMSF) or an Australian Prudential Regulation Authority (APRA)-regulated fund, and • any other matters the Commissioner considers relevant. The following factors will help you to determine how to exercise the discretion. They are discussed in more detail (including case law) in the Appendix to this Practice Statement. Factors that may support exercising the discretion favourably The nature of the fund is a factor, as it affects how much effective control the recipient of a benefit has. If a benefit arises in circumstances that are genuinely out of the effective control of the person, this may support you exercising the discretion in their favour. SMSFs - All members of an SMSF are required to be trustees of the fund or directors of the fund's corporate trustee. We expect them to have effective control over the SMSF's management, and the amount and timing of all benefit payments paid from the SMSF. APRA-regulated funds - By contrast, these funds have trustees or administrators who are generally expected to be acting at arm's length from the members. This means the members are less likely to have effective control over the superannuation fund's management and payment of benefits. There may be some limited situations where an SMSF member does not have effective control over the amount paid from the SMSF. This would include, for example, where a bank made an error and paid more from a transition to retirement pension than was requested by the member. Factors that may not provide support for exercising the discretion favourably Factors that will have little or no weight when deciding whether to exercise the discretion include: • the person was suffering financial hardship or distress when accessing the benefit (for example, where the person borrows money from the superannuation fund to maintain their business or family home) • attempted rectification of the transaction by paying an amount equivalent to the superannuation benefit to the superannuation fund immediately or shortly after receiving the benefit [12] • disqualification of the person from being a superannuation fund trustee - this is a regulatory consequence resulting from the person not complying with the provisions of the SISA and/or being found to not be a fit and proper person to be a trustee [13] ; it should not be taken to be a penalty for the purposes of exercising the discretion • the tax consequences under Division 304 are undesirable or difficult for the person to meet - these are an important deterrent to ensure the integrity of the superannuation system. • the person was suffering financial hardship or distress when accessing the benefit (for example, where the person borrows money from the superannuation fund to maintain their business or family home) • attempted rectification of the transaction by paying an amount equivalent to the superannuation benefit to the superannuation fund immediately or shortly after receiving the benefit [12] • disqualification of the person from being a superannuation fund trustee - this is a regulatory consequence resulting from the person not complying with the provisions of the SISA and/or being found to not be a fit and proper person to be a trustee [13] ; it should not be taken to be a penalty for the purposes of exercising the discretion • the tax consequences under Division 304 are undesirable or difficult for the person to meet - these are an important deterrent to ensure the integrity of the superannuation system. If a superannuation benefit has been accessed under an illegal early release scheme, we generally would not exercise the discretion. This is the case even where the person loses the benefit of the funds due to fraudulent activity committed by another person (for example, the promoter of the scheme) after it has been released. In addition to these factors, you may consider any other factors present when the amount was paid, but give little weight to anything that occurs after that time. This includes factors that are unforeseen, or that are outside the person's control, such as a significant global financial downturn. This Appendix provides further background around factors that may provide, or may not provide, support for exercising the discretion in favour of a person. | 5. Factors that may provide support for exercising the discretion in favour of a person: Effective control and the nature of the fund A factor that may support exercising the discretion in favour of a person is where the benefit received arose in circumstances that were genuinely out of their effective control. [14] The nature of the fund will be relevant when considering the effective control of the recipient of the superannuation benefit. Section 17A of the SISA sets out the basic conditions that a fund must meet for it to be an SMSF. A key requirement of section 17A is that each member must be a trustee or a director of the corporate trustee of the fund. Accordingly, '... all SMSF members/trustees have 'effective control' over prudential management of their funds' assets and the amount and timing of all benefit payments emanating from their fund' (Mason at [34]). This may be contrasted with a member of a large APRA fund. This is consistent with the comments of Logan J in Raelene Vivian, suing in her capacity as the Deputy Commissioner of Taxation (Superannuation) v Fitzgeralds [2007] FCA 1602: 25. Our Parliament has deliberately constructed a scheme whereby, in return for submission to a regulatory regime found in the SISA, particular taxation benefits are given to the trustee of a superannuation fund and its members. The public policy that seems to underlie that particular concession is to encourage prudent provision by Australians for their retirement. In so doing, the burden on other Australian taxpayers in the provision of social security benefits for the aged is thereby lessened. I can, I believe, responsibly take judicial notice that a contemporary phenomenon is a recognition that Australia has, in terms of its demographics, a need for such provision to be encouraged. 26. Part of the scheme found in the legislation is to enable what one might term small funds or, at least, funds which have fewer than five members to be self-managed. That is a particular benefit conferred by the Parliament on those who would wish to make provision for their retirement. It enables self-management as opposed to becoming a member of a fund the management of which may be remote from membership. It is a privilege. It is a privilege that that [sic] should not be abused. It's quite plain to me that in this case that that privilege has been abused. I am in no doubt whatsoever that, in terms of the legislation, this particular case is one in respect of which I can be satisfied that there have been contraventions which are, in terms of section 196 subsection (4) of the SISA, serious. It is expected that all trustees of an SMSF will be aware of all the relevant requirements of the SISA and the SISR pertaining to the payment of benefits, including: • whether a member has met a condition of release • any cashing conditions attached to a particular condition of release • annual amounts required to be paid from a superannuation income stream, including any limits on the annual amount that may be paid • restrictions as to the commutation of various pension types, and • obligations with respect to release authorities. • whether a member has met a condition of release • any cashing conditions attached to a particular condition of release • annual amounts required to be paid from a superannuation income stream, including any limits on the annual amount that may be paid • restrictions as to the commutation of various pension types, and • obligations with respect to release authorities. It is in this context that you must consider whether circumstances are genuinely beyond the 'effective control' of the recipient of the benefit where the benefit is paid from an SMSF. An example of a benefit received genuinely beyond the recipient's effective control would be where the member is in receipt of a transition to retirement income stream and a transposition error by the SMSF's bank in responding to a request for payment leads to an amount in excess of the 10% annual limit being inadvertently paid. A member of a small APRA fund or a large APRA fund is less likely to have effective control where they have no involvement in the operation of the fund, such as where there is an arm's length relationship between the member and the trustee or administrator of the fund. [15] | 6. Factors that may not provide support for exercising the discretion in favour of a person: Factors that will have little or no weight when deciding whether to exercise the discretion are discussed in further detail below. Suffering financial hardship The fact the person may have been suffering from financial distress or hardship at the time they received the benefit is generally a factor that would be given little or no weight when deciding to exercise the discretion. This includes where a person borrows money from the fund to maintain their business or family home. The assets of a superannuation fund are not to be used as 'a lender of last resort'. [16] This is consistent with the view expressed by the AAT in Sinclair and Commissioner of Taxation [2012] AATA 634 at [73]: While the circumstances of the Applicant are clearly difficult, they are not sufficient to call into play the exercise of the discretion conferred on the Respondent by s 304-10(4). Preserving funds within the superannuation system and not having them accessed by members before retirement is the key driver behind the superannuation system, and the reason why early access possibilities are so carefully prescribed in Regulation 6.17(2) of the SISR and Schedule 1 of those Regulations. Mere financial difficulties experienced by members cannot be enough to bring the discretion into play. Other provisions in the law provide an avenue for those in financial hardship to access superannuation benefits, such as the 'severe financial hardship' or 'compassionate ground' conditions of release. [17] Individuals considering accessing their superannuation entitlements in these circumstances should consider whether they qualify under these grounds, and apply to access benefits under them if appropriate. However, if they have accessed superannuation benefits without meeting the requirements of those conditions of release, the fact they are suffering financial hardship is generally not a factor that would support exercising the discretion. Attempted rectification of the transaction A member's attempt to rectify a transaction by paying an amount equal to the superannuation benefit to the superannuation fund, immediately or shortly after receiving the benefit, is generally a factor that would be given little or no weight when considering whether to exercise the discretion. This includes where the payment is properly recorded as a concessional or non-concessional contribution. The payment of monies to a fund after an amount has been paid from the fund can have no effect on whether or not that amount was paid in breach of the SISA/SISR requirements. In particular, the payment to the fund does not unwind the original payment from the fund. Whether the discretion should be exercised should be based on considerations directly related to the payment itself. Disqualification of the person from being a trustee Disqualification [18] of the person should not be taken to be a penalty for the purpose of exercising the discretion. This is because disqualification is not a taxation consequence flowing from the person accessing superannuation benefits in breach of legislative requirements. It is a regulatory action resulting from the person not complying with the provisions in the SISA and/or otherwise not being a fit and proper person. [19] It is therefore not a factor that would generally give weight to exercising the discretion. The taxation consequences are difficult for the person to meet, or undesirable The fact that the taxation consequences of not exercising the discretion may be difficult for a person to meet or undesirable for that person is not a factor that should give weight to exercising the discretion. This is consistent with the view expressed by the AAT in Mason at [32]: However, it will not be ""unreasonable"" to include a superannuation benefit in a person's assessable income (to be taxed at marginal tax rates) merely because the taxation consequence prescribed by Parliament is difficult for the taxpayer to meet, or is regarded by the taxpayer as undesirable. If this were so, the important deterrent effect of section 304-10 of the ITAA 1997 would be undermined and an unintended taxation benefit would thereby be conferred on the recipient of the payment. Illegal early access schemes The involvement of a person in an illegal early access scheme will be a factor against exercising the discretion in subsection 304-10(4). This is the case even where the person loses the benefit of the funds due to fraudulent activity committed by another person (for example, the promoter of the scheme) after it has been released. Where the scheme involved the rollover of a benefit to another superannuation fund a person is required to make reasonable enquiries to ensure the receiving fund is a bona fide fund. This is consistent with the view expressed by the AAT in Brazil and Commissioner of Taxation [2012] AATA 192 at [34]: I do not accept that such an argument could apply in the applicant's case. Mr Brazil suspected (or should have suspected) that the Fund was not a bone fide superannuation fund. He made no effort to find out information about the Fund and why he could receive his superannuation benefit from the Fund, when he could not receive it from the AON Master Trust. He did not worry or care about this. As he said in his evidence, he needed the money and he was prepared to do anything to get it. Others had done it that way and received the early release of their superannuation benefits and he was content to proceed in the same way. He believed that tax had been deducted from the payment and remitted to the respondent. However, he had no evidence of this and did not seek to obtain any documentation to show what had been withheld and remitted. As Mr Cole submitted further, the exercise of the discretion in the applicant's favour would mean that the tax-paying community would be footing the tax bill in circumstances where there was no documentation to show that any tax had been paid. It is also consistent with the view expressed by the AAT in Vuong and Commissioner of Taxation [2014] AATA 402 (Vuong): 33. In this regard, the applicant contended that he intended to roll over his superannuation benefit to a complying superannuation fund. The respondent countered this by pointing to previous statements made by the applicant indicating that he intended to access his superannuation early. In the Tribunal's opinion, neither of these submissions is ultimately to the point. The Tribunal accepts that it was always the applicant's intention to access his superannuation early, but the Tribunal does not accept that he intended to do so unlawfully. 34. The applicant was ignorant as to the law and was led to believe that if he rolled over his superannuation from one fund to another, a consequence would be that he would have a lawful entitlement to access it. His ultimate, albeit naïve, objective is not relevant in this context - the fact is that he received the payment when the Equipsuper cheque was deposited in the fraudulent bank account and, being a benefit received otherwise than in accordance with the SIS Regulations, the full amount of that deposit should have been included in his assessable income. Events that occur after the superannuation benefit has been received Generally, matters that occur after the superannuation benefit was accessed should be given little or no weight in determining whether to exercise the discretion. This includes where the event was unable to be foreseen, or was out of the control of the person; for example, a significant global financial downturn. [20] In Vuong, the applicant was unwittingly enticed into an arrangement to gain early release of his superannuation benefits from an APRA-regulated fund. Evidence was given of medical expenses incurred by the applicant in respect of his wife and parents. In considering whether this evidence supported a conclusion that the applicant actually qualified for the early release of his benefits under the compassionate grounds condition of release (table item 107 to Schedule 1 of the SISR), the AAT (in concluding that the evidence did not) observed at [40]: These circumstances are not relevant in the present context because it was acknowledged by the applicant under cross-examination that the events all occurred subsequent to his receipt of the benefit. The Commissioner considers that this view, as a matter of general principle, can apply equally in the context of a consideration whether to exercise the discretion in section 304-10(4). You are invited to comment on this draft Practice Statement, including the proposed date of effect. Please forward your comments to the contact officer by the due date. A compendium of comments is prepared when finalising this Practice Statement, and an edited version (with names and identifying information removed) may be published to the Legal database on ato.gov.au. Please advise if you do not want your comments included in the edited version of the compendium. Contact officer details have been removed Date of Issue: 15 December 2021 Date of Effect: When finalised, this Practice Statement will apply from the date of publication. [1] All later references to 'this Practice Statement' refer to the Practice Statement as it will read when finalised. Note that this Practice Statement will not take effect until finalised. [2] All legislative references in this Practice Statement are to the ITAA 1997, unless otherwise indicated. [3] See draft Taxation Determination TD 2021/D6 Income tax: tax treatment of a superannuation benefit when the Commissioner exercises the discretion in subsection 304-10(4) of the Income Tax Assessment Act 1997 . [4] Subsection 304-10(1). [5] Subsection 304-10(1). [6] Subsection 304-10(4). [7] See TD 2021/D6. If a superannuation income stream that commenced on or after 20 September 2007 is payable, but any of the requirements in the Superannuation Industry (Supervision) Regulations 1994 relating to payments from it are not met, the superannuation income stream will be taken to have ceased for income tax purposes at the start of the year. Any payments made in relation to it during the income year will be superannuation lump sums. See Taxation Ruling TR 2013/5 Income tax: when a superannuation income stream commences and ceases . [8] See the Explanatory Memorandum to the Taxation Laws Amendment Bill (No. 4) 1987, which provides context for the operation of former section 26AFB of the Income Tax Assessment Act 1936 (ITAA 1936), which was replaced by section 304-10. [9] Mason at [24-26]. [10] Mason at [30]. [11] Mason at [30]. [12] If the amount is paid back into the fund, it will be a contribution (see Taxation Ruling TR 2010/1 Income tax: Superannuation contributions). The ordinary rules will apply to determine if the contribution counts towards the concessional or non-concessional contribution caps. [13] See section 126A of the SISA. [14] Mason at [31]. [15] Mason at [34]. [16] See Smith and the Commissioner of Taxation [2011] AATA 563 at [21]; Raelene Vivian, suing in her capacity as the Deputy Commissioner of Taxation (Superannuation) v Fitzgeralds [2007] FCA 1602; ZDDD and Commissioner of Taxation [2011] AATA 3. [17] Superannuation benefits may be paid due to severe financial hardship under table item 105 to Schedule 1 of the SISR or due to compassionate grounds under table item 107 to Schedule 1 of the SISR. [18] Section 126A of the SISA. [19] Law Administration Practice Statement PS LA 2006/17 Self-managed superannuation funds - disqualification of individuals to prohibit them from acting as a trustee of a self-managed superannuation fund provides guidance on deciding whether to disqualify individuals. [20] Decision Impact Statement on Wainwright and Commissioner of Taxation [2019] AATA 333. File 1-I3B46VY ISSN 2651-9526 Related Rulings/Determinations: TR 2010/1 TR 2013/5 TD 2021/D6 Related Practice Statements: PS LA 2006/17 Other References: DIS on Wainwright and Commissioner of Taxation [2019] AATA 333 Explanatory Memorandum to the Taxation Laws Amendment Bill (No. 4) 1987",TD 2021/D6 | TR 2010/1 | TR 2013/5 | PS LA 2006/17 | DIS | Explanatory Memorandum | ITAA 1997 Div 301 | ITAA 1997 Div 302 | ITAA 1997 Div 303 | ITAA 1997 Div 304 | ITAA 1997 304-10 | ITAA 1997 304-10(1) | ITAA 1997 304-10(4) | ITAA 1936 former 26AFB | SISA 1993 17A | SISA 1993 31(1) | SISA 1993 62 | SISA 1993 126A | SISR 1994 6.17(2) | SISR 1994 Schedule 1 | SISR 1994 item 105 of Schedule 1 | SISR 1994 item 107 of Schedule 1 | 2012 ATC 10-244 | 2012 ATC 10-237 | 2007 ATC 5105 | 2012 ATC 10-275 | 2011 ATC 10-197 | 2014 ATC 10-367 | [2011] AATA 3,PS LA 2006/17,ITAA 1997 Div 301 | ITAA 1997 Div 302 | ITAA 1997 Div 303 | ITAA 1997 Div 304 | ITAA 1997 304-10 | ITAA 1997 304-10(1) | ITAA 1997 304-10(4) | ITAA 1936 former 26AFB | SISA 1993 17A | SISA 1993 31(1) | SISA 1993 62 | SISA 1993 126A | SISR 1994 6.17(2) | SISR 1994 Schedule 1 | SISR 1994 item 105 of Schedule 1 | SISR 1994 item 107 of Schedule 1,,DIS on Wainwright and Commissioner of Taxation [2019] AATA 333 Explanatory Memorandum to the Taxation Laws Amendment Bill (No. 4) 1987,True,False,https://www.ato.gov.au/law/view/document?docid=DPS/PSD20213/NAT/ATO/00001,"Finalisation of this draft Practice Statement and draft TD 2021/D6 is currently on hold due to higher priority work. We will finalise this product when the work is able to be reprioritised. | APPENDIX 2 - YOUR COMMENTS | Brazil and Commissioner of Taxation [2012] AATA 192 2012 ATC 10-244 (2012) 88 ATR 277 | Mason and Commissioner of Taxation [2012] AATA 133 2012 ATC 10-237 (2012) 87 ATR 326 | Raelene Vivian, suing in her capacity as the Deputy Commissioner of Taxation (Superannuation) v Fitzgeralds [2007] FCA 1602 2007 ATC 5105 (2007) 69 ATR 834 | Sinclair and Commissioner of Taxation [2012] AATA 634 2012 ATC 10-275 (2012) 90 ATR 719 | Smith and the Commissioner of Taxation [2011] AATA 563 2011 ATC 10-197 (2011) 84 ATR 667 | Vuong and Commissioner of Taxation [2014] AATA 402 2014 ATC 10-367 (2014) 98 ATR 910 | ZDDD and Commissioner of Taxation [2011] AATA 3 (2011) 81 ATR 872 (2011) 122 ALD 164"
PS LA 2026/D3,Payday Super: exceptional circumstances determinations,27 May 2026,,Law Administration Practice Statement,True,"What this draft Practice Statement is about: 1. This draft Practice Statement relates to the reforms to the Superannuation Guarantee (SG) framework made by the Treasury Laws Amendment (Payday Superannuation) Act 2025 and the Superannuation Guarantee Charge Amendment Act 2025. 2. These reforms, referred to as 'Payday Super' or 'the Payday Super reforms', apply from 1 July 2026. For an overview of the Payday Super reforms, see paragraphs 8 to 12 of draft Law Companion Ruling LCR 2026/D3 Payday Super: calculation and assessment of the superannuation guarantee charge. 3. This draft Practice Statement [1] provides guidance on what you need to consider when deciding whether to exercise the Commissioner's power to make a determination under subsection 18C(4) of the Superannuation Guarantee (Administration) Act 1992. 4. This Practice Statement explains: • the legislative context • which employers the determination applies to • what constitutes exceptional circumstances to enliven the Commissioner's power to make a determination • the relevant considerations in making a determination, and • the content of a determination. • the legislative context • which employers the determination applies to • what constitutes exceptional circumstances to enliven the Commissioner's power to make a determination • the relevant considerations in making a determination, and • the content of a determination. 5. All further legislative references in this Practice Statement are to the Superannuation Guarantee (Administration) Act 1992, unless otherwise indicated. | Legislative context: 6. An employer must pay sufficient, timely superannuation contributions (eligible contributions) [2] to their employee's superannuation fund for each day the employer pays qualifying earnings [3] to the employee (QE day) [4] to avoid incurring a superannuation guarantee (SG) charge liability. The eligible contributions must usually be received by the employee's superannuation fund and be able to be allocated to the employee's account within 7 business days after the QE day (the usual period) [5] . 7. There are certain situations where a longer period of time is allowed for contributions to be received by an employee's superannuation fund. These contributions are considered to be 'on-time' and an employer will not incur an SG charge liability if they are paid in full within that longer period. [6] 8. One of the situations referred to in paragraph 7 of this Practice Statement is where the Commissioner determines that one or more kinds of employers are affected by certain prescribed exceptional circumstances that impact the ability of the employer to make on-time eligible contributions during a specified period of time. 9. If a determination is made, it allows additional time for affected employers to make eligible contributions. If it is made before the relevant QE day, the employer has 20 business days after the QE day. If it is made on or after the QE day, the employer has 20 business days starting the day after the determination is made. 10. The existence of exceptional circumstances allows the Commissioner to decide whether or not to make a determination. In deciding whether to make a determination, the Commissioner must have regard to whether those circumstances meaningfully affect the ability of affected employers to make eligible contributions within the usual period. | Which employers the determination applies to: 11. Where the Commissioner makes a determination in response to exceptional circumstances, the determination will be published and will specify the relevant class, or classes, of employer and the period covered by the determination. 12. Determinations can only be made under subsection 18C(4) for one or more kinds of employer (also referred to as 'a class' or 'classes' of employer in this Practice Statement). They cannot be made for individual employers. 13. The kinds, or classes, of employer may include those defined by: • geographic location (such as declared disaster or Local Government Areas (LGAs)) • reliance on particular systems or platforms, or • industries or sectors uniquely affected. • geographic location (such as declared disaster or Local Government Areas (LGAs)) • reliance on particular systems or platforms, or • industries or sectors uniquely affected. 14. The class of employers specified for the purposes of a determination may also be defined by characteristics or conditions that describe how the exceptional circumstances affect the ability of the class to make eligible contributions within the usual period. 15. Whether an employer falls within the class of employers covered by a determination depends on the definition of the class specified in the determination. An employer that falls within the specified class is covered by the determination, regardless of whether the employer has the ability to make contributions within the usual period. | Exceptional circumstances: 16. There are 2 categories of exceptional circumstances capable of enlivening the Commissioner's power to make a determination, being [7] : • natural disasters, and • widespread outages of – information and communication technology (ICT) services, or – other technology services or platforms that facilitate or support employers to make contributions. • natural disasters, and • widespread outages of – information and communication technology (ICT) services, or – other technology services or platforms that facilitate or support employers to make contributions. – information and communication technology (ICT) services, or – other technology services or platforms that facilitate or support employers to make contributions. | Scope of exceptional circumstances: 17. Subsection 18C(4) is concerned with whether the ability of affected employers to make eligible contributions is affected by the occurrence of a prescribed exceptional circumstance. 18. Regard should be had to whether the exceptional circumstances disrupt the systems, infrastructure or processes required to calculate, authorise, transmit or settle contributions such that eligible contributions cannot be made within the usual period. This may include impacts on access to funds or financial systems where those impacts arise from disruption to the processes by which contributions are made (for example, where payment or banking systems are unavailable). 19. Cash flow or liquidity difficulties (including those arising from expenditure or financial pressures caused by the exceptional circumstances) do not, of themselves, mean that the ability of a class of employers to contribute is affected for the purposes of subsection 18C(4). The inability to fund a contribution, without any disruption to the processes required to make the contribution, is not sufficient. This distinction reflects that the provision is directed to the ability to complete the contribution process, rather than an employer's financial capacity to make eligible contributions. 20. The impacts on the employer must arise directly from the exceptional circumstances and materially affect the ability of employers, as a class, to make eligible contributions within the usual period. 21. Ordinary operational issues or disruptions that arise in the routine operation of payroll, business systems or compliance processes are not exceptional circumstances. These are part of the normal risks of operating a business. | Natural disasters: 22. Natural disasters are naturally occurring events that cause significant harm, destruction or damage, and often occur with rapid onset. They include bushfires, floods, cyclones, earthquakes or severe storms. 23. Factors relevant in determining whether a naturally occurring event may constitute a natural disaster for these purposes include the event: • affecting a wide geographical area or multiple industries • impacting a significant number of employers. • affecting a wide geographical area or multiple industries • impacting a significant number of employers. 24. Consistent with paragraphs 17 to 21 of this Practice Statement, a determination will be appropriate where a natural disaster meaningfully prevents the class, or classes, of employers from making contributions so that they are received, and able to be allocated, by their employees' funds within the usual period. This may happen when a natural disaster causes significant disruption to payroll, banking or contribution processing systems or infrastructure. This disruption may include: • long power or telecommunications outages • evacuations, exclusion zones or forced business closures • damage to, or inaccessibility of, business premises and business records, or • key personnel being unavailable due to emergency conditions. • long power or telecommunications outages • evacuations, exclusion zones or forced business closures • damage to, or inaccessibility of, business premises and business records, or • key personnel being unavailable due to emergency conditions. 25. A natural disaster does not automatically necessitate a determination. There must be a demonstrable causal connection between the disaster and the effect on the ability of the class of employer to make timely contributions. 26. The event does not have to be declared a natural disaster by the federal government for the purposes of issuing a determination. However, if such a declaration is issued, this would support any decision to do so. 27. You should liaise through appropriate incident response and service co-ordination channels, including with relevant government agencies and internal response areas, to confirm the disaster's scope, duration, geographic footprint and infrastructure impacts. Widespread outages of information and communication technology or other technology services that facilitate or support employers to make contributions 28. A widespread technology outage occurs when substantial issues impact the availability of technology services that employers use to make contributions to superannuation funds for their employees. A determination will be appropriate where the outage meaningfully prevents the class, or classes, of employers from making contributions so that they are received and able to be allocated to the member's account by their employees' funds within the usual period. 29. This may occur when there is a significant disruption of: • systems used by the class of employers to calculate or report qualifying earnings • platforms required to validate member or fund information • superannuation fund or fund administrator infrastructure that enables the receipt or processing of contributions, or • payment or settlement systems through which contributions are transmitted. • systems used by the class of employers to calculate or report qualifying earnings • platforms required to validate member or fund information • superannuation fund or fund administrator infrastructure that enables the receipt or processing of contributions, or • payment or settlement systems through which contributions are transmitted. 30. An outage for this purpose must generally be: • unplanned and unscheduled • outside the control of the owners and users of the system and impacting on the usual operation of the system, and • widespread (that is, system or platform wide and affecting an entire user base or sector, not a single or small number of employers). • unplanned and unscheduled • outside the control of the owners and users of the system and impacting on the usual operation of the system, and • widespread (that is, system or platform wide and affecting an entire user base or sector, not a single or small number of employers). 31. Impacts on the timeliness of contributions which are part of the design of the system used by the employer or a fund are not outages. 32. Relevant systems may include: • payroll systems used to calculate qualifying earnings and superannuation contributions • ATO superannuation enabling services that affect the making of eligible contributions (for example, the online service to request a stapled superannuation fund) • industry superannuation gateways or clearing platforms, and • banking or payment systems integral to contribution processing. • payroll systems used to calculate qualifying earnings and superannuation contributions • ATO superannuation enabling services that affect the making of eligible contributions (for example, the online service to request a stapled superannuation fund) • industry superannuation gateways or clearing platforms, and • banking or payment systems integral to contribution processing. 33. Possible causes may include: • damage to or failure of infrastructure of external service providers due to natural disasters or other unexpected events, and • cybersecurity incidents exploiting vulnerabilities in information technology products or services. • damage to or failure of infrastructure of external service providers due to natural disasters or other unexpected events, and • cybersecurity incidents exploiting vulnerabilities in information technology products or services. 34. You should liaise through appropriate incident response and service co-ordination channels (including with relevant government agencies, industry groups and service owners) to confirm the outage scope, system coverage and duration. When an information and communication technology outage is 'widespread' 35. An ICT outage is generally 'widespread' when: • it is system wide or platform wide (for example, incidents affecting most or all users of a payroll, clearing house, national payments network or banking service) • it arises from a shared external dependency (for example, an upstream service provider failure or national payments infrastructure issues), or • an employer's inability to comply arises from a shared system or dependency and is not attributable to employer-specific configurations or practices. • it is system wide or platform wide (for example, incidents affecting most or all users of a payroll, clearing house, national payments network or banking service) • it arises from a shared external dependency (for example, an upstream service provider failure or national payments infrastructure issues), or • an employer's inability to comply arises from a shared system or dependency and is not attributable to employer-specific configurations or practices. 36. Indicators of a widespread ICT outage include: • provider incident notices indicating tenant-wide [8] or all-user base impact • national payment system advisories [9] • coordinated government or industry notifications. • provider incident notices indicating tenant-wide [8] or all-user base impact • national payment system advisories [9] • coordinated government or industry notifications. 37. Planned maintenance or routine degradation will not ordinarily constitute a widespread outage. | Relevant considerations in making an exceptional circumstances determination: 38. In deciding whether to make a determination, you must balance competing considerations, including for the: • nature of the exceptional circumstances – whether they are sudden, external and beyond system user control – whether they disrupt the usual operation of essential systems or infrastructure used to make contributions, and – the expected duration of the circumstances, including whether the disruption is sufficiently sustained to justify making a determination • extent and significance of the impact, including – the scale and reach of the impact across employers – whether the impact affects an entire sector, region or system – the duration and severity of the impact relative to the 7 business days that is the usual period – whether the exceptional circumstances have materially affected the ability of employers, as a class, to make contributions, including through impacts on access to funds or financial resources • employee interest considerations – in considering whether to make a determination (and, in particular, the period of time to which a determination should apply), you should have regard to – employees' strong interest in having eligible contributions made as close as possible to the QE day – the policy intent of Payday Super to reduce unpaid and late superannuation contributions, and – the risk that providing an allowable longer period to make contributions may delay retirement savings or investment earnings • proportionality and appropriateness of making a determination in response to the exceptional circumstances – whether allowing a longer time to make eligible contributions is necessary in light of the nature, scale and duration of the disruption – whether a determination could be appropriately scoped by geography, platform, system or sector, and – whether the period that would be required to address the disruption would be proportionate, having regard to employees' interests in timely superannuation contributions. • nature of the exceptional circumstances – whether they are sudden, external and beyond system user control – whether they disrupt the usual operation of essential systems or infrastructure used to make contributions, and – the expected duration of the circumstances, including whether the disruption is sufficiently sustained to justify making a determination • extent and significance of the impact, including – the scale and reach of the impact across employers – whether the impact affects an entire sector, region or system – the duration and severity of the impact relative to the 7 business days that is the usual period – whether the exceptional circumstances have materially affected the ability of employers, as a class, to make contributions, including through impacts on access to funds or financial resources • employee interest considerations – in considering whether to make a determination (and, in particular, the period of time to which a determination should apply), you should have regard to – employees' strong interest in having eligible contributions made as close as possible to the QE day – the policy intent of Payday Super to reduce unpaid and late superannuation contributions, and – the risk that providing an allowable longer period to make contributions may delay retirement savings or investment earnings • proportionality and appropriateness of making a determination in response to the exceptional circumstances – whether allowing a longer time to make eligible contributions is necessary in light of the nature, scale and duration of the disruption – whether a determination could be appropriately scoped by geography, platform, system or sector, and – whether the period that would be required to address the disruption would be proportionate, having regard to employees' interests in timely superannuation contributions. – whether they are sudden, external and beyond system user control – whether they disrupt the usual operation of essential systems or infrastructure used to make contributions, and – the expected duration of the circumstances, including whether the disruption is sufficiently sustained to justify making a determination – the scale and reach of the impact across employers – whether the impact affects an entire sector, region or system – the duration and severity of the impact relative to the 7 business days that is the usual period – whether the exceptional circumstances have materially affected the ability of employers, as a class, to make contributions, including through impacts on access to funds or financial resources – employees' strong interest in having eligible contributions made as close as possible to the QE day – the policy intent of Payday Super to reduce unpaid and late superannuation contributions, and – the risk that providing an allowable longer period to make contributions may delay retirement savings or investment earnings – whether allowing a longer time to make eligible contributions is necessary in light of the nature, scale and duration of the disruption – whether a determination could be appropriately scoped by geography, platform, system or sector, and – whether the period that would be required to address the disruption would be proportionate, having regard to employees' interests in timely superannuation contributions. 39. In considering whether to make a determination, you should do so as soon as practicable once there is sufficient information to assess the nature, scope and impact of the exceptional circumstances. This may require allowing a reasonable period to understand the extent and duration of the disruption before making a determination. | Duration of the relevant event: 40. Determinations are not intended for incidents of relatively short duration (for example, several hours) but for more sustained events that meaningfully prevent affected employers from making eligible contributions within the usual period. [10] 41. The timeframes set out in paragraphs 42 to 48 of this Practice Statement provide guidance only. They are not rules or thresholds. You must consider all relevant circumstances. Extended (equal to or more than 4 business days) 42. A determination will usually be supported, subject to other factors, where the disruption persists for 4 or more business days. 43. Where a disruption persists for 4 business days or more, employers may have 3 business days or fewer remaining in the usual period once systems are restored. Having regard to the steps required for contributions to be received and able to be allocated (including payroll processing, validation, payment settlement and fund acceptance, as well as the fund's ability to reject contributions), this reduced timeframe may not provide a reasonable or reliable opportunity for affected employers, as a class, to make the contributions within the usual period. 44. In these circumstances, failure to allow a longer period to make contributions is more likely to result in systemic and unavoidable SG shortfalls, such that a determination may be a proportionate and appropriate response. Substantial (2 to 3 business days) 45. A determination may be supported where the disruption persists for 2 to 3 business days if, having regard to the circumstances, the disruption nonetheless meaningfully prevents the affected class of employers from making eligible contributions within the usual period. 46. This may occur, for example, where there is a complete and sustained outage of a critical dependency (such as a national payments network outage or essential validation service) or intermittent disruptions with no clear timeframe on restoration, and there are no practical alternatives reasonably available to the affected class as a whole. Short (hours) 47. A determination will not ordinarily be supported where the disruption persists for part of a day or several hours only, as these disruptions will not be expected to meaningfully prevent employers, as a class, from making eligible contributions within the usual period. Multiple or rolling disruptions 48. Sequential or rolling events should be assessed collectively. Where multiple disruptions together occur over several business days, they may support a determination where the cumulative effect meaningfully prevents timely compliance. This may be the case even where individual events causing disruptions are shorter in duration. | Content of a determination: 49. A determination must include: • the class (or classes) of employers covered by the determination • the date the determination is made • the period covered (which may include a period that commences prior to the date of the determination). • the class (or classes) of employers covered by the determination • the date the determination is made • the period covered (which may include a period that commences prior to the date of the determination). 50. In specifying the class (or classes) of employers for the purposes of a determination, you may include descriptive characteristics or conditions to ensure the class does not inadvertently cover employers who are not affected by the exceptional circumstances. This may include characteristics relating to how contributions are made, such as whether the systems, locations or functions used to make eligible superannuation contributions within the usual period are subject to the exceptional circumstances described in the determination (for example, where those functions are performed in an affected location or rely on affected systems). 51. These characteristics operate to define the class and do not require an assessment of each individual employer's ability to make contributions within the usual period. 52. It is the employer's responsibility to self-assess their inclusion in the relevant class of employer specified in the determination and maintain records to substantiate their eligibility. | Governance, record-keeping and authorisation: 53. You must document: • the exceptional circumstances identified • how the exceptional circumstances have impacted the ability of the class of employer to make on-time eligible contributions • consideration of employee interests in the class of employers making prompt eligible contributions • reasons for making or deciding not to make a determination under subsection 18C(4). • the exceptional circumstances identified • how the exceptional circumstances have impacted the ability of the class of employer to make on-time eligible contributions • consideration of employee interests in the class of employers making prompt eligible contributions • reasons for making or deciding not to make a determination under subsection 18C(4). 54. This information should be recorded in appropriate internal decision records. 55. Where relevant, you should also retain evidence supporting: • the class definition • verification of the outage or disaster • consultation with relevant stakeholders, and • any analysis of alternative options (such as deciding to not make a determination or limiting its scope). • the class definition • verification of the outage or disaster • consultation with relevant stakeholders, and • any analysis of alternative options (such as deciding to not make a determination or limiting its scope). 56. Decisions under subsection 18C(4) must be made by an officer who holds the appropriate delegation or authorisation to exercise this power. You must ensure you are acting within the scope of your delegation at the time the decision is made. 57. Where you do not hold the appropriate delegation or authorisation, the matter must be escalated for approval to an officer who does, in accordance with established governance arrangements. | Publication and communication: 58. Where the Commissioner makes a determination under subsection 18C(4), the determination must be published promptly and must clearly specify the period covered by the determination. 59. As a determination is a legislative instrument, it must be registered in accordance with the Legislation Act 2003. In addition, appropriate publication channels may also include: • our website (ato.gov.au) • ATO news and updates channels • relevant employer or industry stakeholder communication channels • other avenues as determined by stakeholders. • our website (ato.gov.au) • ATO news and updates channels • relevant employer or industry stakeholder communication channels • other avenues as determined by stakeholders. 60. The purpose of this communication is to ensure employers can easily determine their eligibility, understand their obligations and comply with the longer period allowed for payment of contributions. | Example 1 – natural disaster – severe flooding (determination made): 61. On 3 February 2027, severe flooding in the Riverside Heights and Lower Basin LGAs in western New South Wales triggers mandatory evacuation orders and causes prolonged electricity, telecommunications and road outages for approximately 10 days. 62. Lucia is a Senior Executive Services (SES) Band 1 Assistant Commissioner and has delegation to make an exceptional circumstances determination. She identifies that the flood was a natural disaster, as it was a naturally occurring event that caused significant destruction and damage. This conclusion is supported by a natural disaster declaration by the federal government. The flood, therefore, qualifies as an exceptional circumstance for the purposes of paragraph 18C(4)(a). 63. Lucia also identifies that all employers in these LGAs would be unable to access their payroll systems and banking services because of the electrical and telecommunications outages that the floods have caused and it will take 10 days for those services to be restored. 64. Lucia determines that employers whose principal place of business and payroll operations are in either of these 2 LGAs forms a class of employers that could not reasonably make eligible contributions within the usual period of 7 business days. 65. The determination is made on 7 February 2027. It applies to QE days that fell in the period from 3 February to 17 February 2027, inclusive of those days. 66. In making the determination, Lucia considers the inability of the class of employer to access payroll and banking systems and the length of time that employer systems would be down. This is weighed against employees' interests in having contributions that are paid in the usual period resume as soon as possible. | Example 2 – payroll service outage (determination not made): 67. A national outage at Where's My Pay Co, a payroll service provider, temporarily stops standard payroll processing for approximately 8,000 employers. The outage lasts for 24 hours. 68. Mariona is an SES Band 1 Assistant Commissioner and has delegation to make an exceptional circumstances determination. She identifies that the outage was widespread because it disrupted technology services for a significant number of employers. It constitutes an exceptional circumstance for the purposes of paragraph 18C(4)(a). 69. There is a class of employers affected by the outage, that is, the employers who use the payroll services of Where's My Pay Co. However, because the outage only lasts 24 hours, it does not meaningfully prevent that class of employers from making contributions within the usual period. 70. Although the outage may have resulted in some employers being unable to make contributions within the usual period, Mariona considers that the short duration of the disruption does not mean that the affected class of employers, taken as a whole, were meaningfully prevented from making contributions within the usual period. Providing a longer period in these circumstances would delay contributions for the majority of employees who would otherwise have had their contributions made within the usual period. 71. Based on these considerations, Mariona decides that it is not appropriate to make an exceptional circumstances determination. | Example 3 – localised power outage (not an exceptional circumstance): 72. A power interruption affects several streets in the Sydney central business district for approximately 10 hours. Although the power interruption means that employers in the affected areas are unable to access payroll and banking systems, it was of short duration and was not widespread – it only affected a small number of employers in a confined area. 73. Thiago is an SES Band 1 Assistant Commissioner and has delegation to make an exceptional circumstances determination. He concludes that this outage does not constitute a widespread outage of ICT technology or supporting technology services. It, therefore, does not amount to exceptional circumstances for the purposes of paragraph 18C(4)(a). Accordingly, Thiago decides that a determination should not be issued. | Example 4 – cyclone and cumulative service failures across a region (determination made): 74. A cyclone affects 4 coastal LGAs in Queensland, causing significant physical damage and ongoing disruptions to electricity, telecommunications and critical information technology infrastructure. In the following week, banking systems and superannuation fund gateways experience intermittent outages, preventing many employers from transmitting contributions within the usual period. 75. While some employers can partially operate using unaffected channels, many face repeated disruptions across multiple systems. 76. Miguel is an SES Band 1 Assistant Commissioner and has delegation to make an exceptional circumstances determination. He determines that the cyclone was a natural disaster as it caused physical damage. This conclusion is supported by a natural disaster declaration by the federal government. The cyclone also caused disruption to the information technology infrastructure and communications, which impacted employers' ability to make contributions. 77. Miguel identifies that the disruptions to systems that allowed for the transmission of contributions, although intermittent, persisted for more than 4 business days. Because of the cumulative and unpredictable nature of the disruptions across banking and gateways services, employers whose principal place of business or payroll operations, or both, are in any of the 4 LGAs comprises a class of employer that was meaningfully prevented from having their contributions received by the employees' funds within the usual period. Although some employers had better access to unaffected systems than others, it was not practicable to separately identify those employers given the variable and evolving nature of the service outages across the region. Miguel decides that, in these circumstances, a geographically defined class is appropriate. 78. Miguel makes a determination on 14 March 2027. It applies to QE days in the period from 4 to 19 March 2027, inclusive of those days. 79. In making the determination, Miguel considers the impact of ongoing and unpredictable disruptions on the employers' ability to make contributions and the length of time it may take to re-establish electricity and telecommunications services. This is weighed against the employees' interests in having contributions that are paid in the usual period resume as soon as possible. | Example 5 – cyber incident affecting super fund (determination made): 80. A cyber incident requires the I Want Retirement Trust, a large Australian Prudential Regulation Authority-regulated superannuation fund, to shut down key systems from 18 to 22 September 2027. Employers are unable to complete verification checks or transmit payments to the superannuation fund during this period, as the fund's infrastructure is offline for containment and unable to process transactions as usual. 81. Lionel is an SES Band 1 Assistant Commissioner and has delegation to make an exceptional circumstances determination. He determines that the cyber incident was a widespread ICT outage of fund infrastructure because it was unplanned and disrupts systems relied on by a class of employers. This results in an inability for many employers to make contributions during the outage. It, therefore, qualifies as an exceptional circumstance for the purposes of paragraph 18C(4)(a). 82. Lionel identifies that the class of employers affected by the outage are those employers who made contributions to the I Want Retirement Trust for the benefit of their employees. 83. Lionel determines that this class of employer is unable to make contributions within the usual period for QE days that fell within the period from 18 to 22 September 2027. 84. Lionel makes a determination on 24 September 2027. It applies to QE days from 18 to 22 September 2027, inclusive of those days. 85. In making the determination, Lionel takes into account the severity of the cyber attack on the fund's systems and the period of the disruption. This is weighed against employees' interests in having contributions that are paid in the usual period resume as soon as possible. 86. You are invited to provide comments on this draft Practice Statement. Forward your comments to the contact officer by the due date. 87. A compendium of comments is prepared as part of the finalisation of this Practice Statement. An edited version of the compendium (with names and identifying information removed) is published to the ATO Legal database on ato.gov.au. 88. Advise the contact officer if you do not wish for your comments to be included in the edited compendium. Due date: 26 June 2026 Contact officer: Bonita Tsang Email: PAGSPR@ato.gov.au Phone: 03 8632 4968 © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Date of Issue: 27 May 2026 Date of Effect: When finalised, this Practice Statement will apply from 1 July 2026 [1] All further references to 'this Practice Statement' refer to the Practice Statement as it will read when finalised. Note that this Practice Statement will not take effect until finalised. [2] An eligible contribution under section 18A is a contribution made to a complying superannuation fund for the benefit of an employee and which is able to be allocated within the fund for the benefit of the employee. [3] Section 10A. For more information on what constitutes qualifying earnings, see draft Law Companion Ruling LCR 2026/D1 Payday Super: qualifying earnings . [4] Sections 16A, 16B and 17A. [5] Subparagraph 18C(1)(c)(i). [6] For more information on the longer allowable periods, see draft Law Companion Ruling LCR 2026/D2 Payday Super: eligible contributions . [7] Section 13 of the Superannuation Guarantee (Administration) Regulations 2018 . [8] 'Tenant-wide' refers to an incident affecting all or substantially all users of a system or service (for example, all employers using a particular payroll or clearing platform). [9] National payment system advisories refer to formal notices of disruptions to major payment systems (for example, outages affecting interbank or real-time payment systems). [10] The Explanatory Statement to Treasury Laws Amendment (Payday Superannuation) Regulations 2026 , which prescribes the kinds of exceptional circumstances, provides that an outage of a key enabling service may be widespread and completely prevent contributions from being made but only persist for several hours, in which case a determination would not be appropriate. File 1-1AS6RUIE Related Rulings/Determinations: LCR 2026/D1 LCR 2026/D2 LCR 2026/D3",LCR 2026/D1 | LCR 2026/D2 | LCR 2026/D3 | SGAA 1992 10A | SGAA 1992 16A | SGAA 1992 16B | SGAA 1992 17A | SGAA 1992 18A | SGAA 1992 18C(1)(c)(i) | SGAA 1992 18C(4) | SGAR 2018 13 | Legislation Act 2003 | Treasury Laws Amendment (Payday Superannuation) Act 2025 | Superannuation Guarantee Charge Amendment Act 2025,,SGAA 1992 10A | SGAA 1992 16A | SGAA 1992 16B | SGAA 1992 17A | SGAA 1992 18A | SGAA 1992 18C(1)(c)(i) | SGAA 1992 18C(4) | SGAR 2018 13 | Legislation Act 2003 | Treasury Laws Amendment (Payday Superannuation) Act 2025 | Superannuation Guarantee Charge Amendment Act 2025,,,True,False,https://www.ato.gov.au/law/view/document?docid=DPS/PSD20263/NAT/ATO/00001,"For information about the status of this draft Practice Statement, see item 4253 on our Advice under development program | This Practice Statement is a draft for consultation purposes only. When the final Practice Statement issues, it will have the following preamble:"
PS LA 2019/D1 (Finalised),Remission of additional superannuation guarantee charge,10 September 2019,,Law Administration Practice Statement,True,"1. What this Practice statement is about: This Practice statement sets out what you need to consider in making a decision on the remission, in whole or part, of the additional super guarantee charge (SGC) imposed under subsection 59(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA). It also sets out when penalty relief is appropriate to be applied. | 2. What principles of the super guarantee regime should you consider when making decisions?: If you are making a decision concerning super guarantee (SG) matters, you should have regard to the overarching principles of the SG regime. These are summarised below. The SG regime is designed to encourage employers to provide their employees with a minimum level of super. This compulsory super is a fundamental pillar in Australia's retirement income system. Where an employer does not provide this minimum level of super, the employer is liable to pay a tax, the SGC. The SGC is collected from employers and is distributed primarily to the super interests of employees. For that reason, the SGC is unlike other taxes. The SG regime provides for penalties to encourage willing employer behaviour and to deter employers from failing to report their SGC liability by set due dates. This is by ensuring there are consequences for employers who do not comply with the law. We take non-compliance with employer obligations seriously. We have pay event reporting of SG accruals, and event-based reporting of contribution payments from funds regulated by the Australian Prudential Regulation Authority (APRA). Where an employer does not come forward voluntarily for late or non-payment of SG by the due date, we will engage with employers to get their obligations up to date. Non-payment of SG has severe impacts on several groups. Employees are deprived of super support, impairing their ability to save for retirement. Employers who meet their SG obligations may be disadvantaged in competing with others who do not comply. | 3. What is the additional SGC?: An additional SGC (referred to as the Part 7 penalty) is imposed under Part 7 of the SGAA when an employer fails to provide, when required: • a SG statement for a quarter, or • information relevant to assessing the employer's liability to pay SGC for a quarter. [1] • a SG statement for a quarter, or • information relevant to assessing the employer's liability to pay SGC for a quarter. [1] The Part 7 penalty arises in two situations: • where an employer lodges an SG statement for a quarter after the due date [2] , or • where we make a default assessment [3] of the employer's liability for the SGC because: - an employer has not lodged an SG statement for a quarter, and - we are of the opinion the employer is liable to pay SGC for the quarter. • where an employer lodges an SG statement for a quarter after the due date [2] , or • where we make a default assessment [3] of the employer's liability for the SGC because: - an employer has not lodged an SG statement for a quarter, and - we are of the opinion the employer is liable to pay SGC for the quarter. - an employer has not lodged an SG statement for a quarter, and - we are of the opinion the employer is liable to pay SGC for the quarter. The Part 7 penalty is automatically imposed on an employer by law. [4] The Part 7 penalty imposed is equal to double the SGC payable by the employer for the quarter (that is, 200% of the SGC). The Part 7 penalty is not imposed if we amend [5] an SGC assessment that was based on information provided by an employer to increase the employer's liability for the SGC. Instead, an administrative penalty for making a false or misleading statement will be imposed. [6] However, if we amend a default assessment to increase an employer's liability for the SGC and the original assessment was not based on information provided by the employer; further Part 7 penalty will be imposed. [7] | 4. When can you remit the Part 7 penalty?: You have the discretion to remit the Part 7 penalty, in full or in part. [8] This can be done as part of the assessment of the penalty (the original assessment stage) or after the penalty is assessed (through an objection decision). Employers have the right to object to an assessment of a Part 7 penalty. [9] Although there is no separate right to object to a decision on the remission of the Part 7 penalty, an objection against a penalty assessment includes a review of the penalty remission decision. | 5. What process should you follow to determine whether to remit the Part 7 penalty?: The Part 7 penalty is automatically imposed at a rate of 200% and you should consider whether the penalty should be remitted in all cases. Except in rare cases, where there is an employer engaging in egregious tax avoidance behaviour, you should consider remitting the Part 7 penalty either in part or in full. Your remission decision should take into account all the relevant facts and indicia outlined in the Three-step remission process contained in Appendix 2 of this Practice statement. You need to follow this three-step process when making a decision to remit the Part 7 penalty down from 200%. The three-step process is designed to accommodate the principles of this Practice statement and to ensure that employers in like circumstances receive like treatment as far as practicable. It is also important for you to understand that penalties are imposed to: • ensure employers pay super contributions for their employees correctly and on-time • change the decision-making behaviour of employers to ensure that employee SG entitlements are not put at risk of delay, compromise or loss, and • encourage employers to lodge SG statements by their due dates. • ensure employers pay super contributions for their employees correctly and on-time • change the decision-making behaviour of employers to ensure that employee SG entitlements are not put at risk of delay, compromise or loss, and • encourage employers to lodge SG statements by their due dates. You must have collected all relevant information and document the evidence and basis for any remission decision you make. | 6. When is it appropriate to provide penalty relief?: You may provide an employer with penalty relief in limited circumstances where it is considered education is a more effective option to positively influence behaviour. An employer is eligible for penalty relief where they have a turnover of less than $10 million and they: • do not have a history of lodging SG statements late • have lodged no more than four SG statements after the lodgment due date in the present case • have no previous SG audits where they were found to have not met their SG obligations, and • have not previously been provided with penalty relief. • do not have a history of lodging SG statements late • have lodged no more than four SG statements after the lodgment due date in the present case • have no previous SG audits where they were found to have not met their SG obligations, and • have not previously been provided with penalty relief. An employer cannot receive penalty relief where they: • have been issued with an SG default assessment • have lodged more than four SG statements after the lodgment due date in the present case, or • have previously been issued with an SG education direction. • have been issued with an SG default assessment • have lodged more than four SG statements after the lodgment due date in the present case, or • have previously been issued with an SG education direction. Penalty relief may be applied by remitting the residual penalty after applying the three-step process and instead providing the employer with education to help them meet their obligations in the future. This education should be by way of a formal SG education direction and may be supplemented with informal education. It should focus on making sufficient contributions to avoid an SG shortfall, and/or lodging SG statements on-time in the future, and should advise the client of the penalties for failing to lodge on-time. Penalty relief will be available to employers from the date this Practice statement is finalised. An employer should not be provided penalty relief at any point before the relevant SG assessments have been finalised and you are ready to finalise your remission decision. An employer cannot 'apply' for penalty relief, and an employer cannot specifically object to a decision not to apply penalty relief. Your decision to apply penalty relief forms part of your remission decision under the power to remit prescribed by the SGAA. [10] | 7. What should you do before finalising the remission decision?: In some circumstances, it may be appropriate to contact the employer to give notice of the anticipated penalty and the reasons for the remission decision before applying the Part 7 penalty. This may be appropriate if, for example, a significant residual penalty will remain after remission. You may give notice during an audit conversation or in writing. The purpose of this contact is to encourage full disclosure of relevant facts and circumstances to ensure the penalty strikes the right balance in the first instance. This is not an opportunity to negotiate the anticipated penalty. Rather, it is designed to draw out relevant facts or circumstances for your decision which were previously unknown. Example - tax officer notifies employer of anticipated penalty An employer is subject to an audit of their SG obligations for the quarters ended 31 March 2017 to 30 September 2017. The employer has authorised another person to handle the SG audit and the tax officer has been dealing with this authorised contact. The authorised contact provides SG statements on behalf of the employer for the full period under audit. The tax officer phones the authorised contact and notifies them of the anticipated penalty and the associated reasons. The tax officer also outlines the relevant facts and circumstances known to them. The authorised contact requests time to make contact with the employer to obtain any other facts or circumstances relevant to the decision. The employer then contacts the tax officer directly to explain further relevant facts. Considering these new facts, the tax officer decides to provide further remission of the penalty than was initially indicated. Example - tax officer notifies employer of anticipated penalty An employer is subject to an audit of their SG obligations for the quarters ended 31 March 2017 to 30 September 2017. The employer has authorised another person to handle the SG audit and the tax officer has been dealing with this authorised contact. The authorised contact provides SG statements on behalf of the employer for the full period under audit. The tax officer phones the authorised contact and notifies them of the anticipated penalty and the associated reasons. The tax officer also outlines the relevant facts and circumstances known to them. The authorised contact requests time to make contact with the employer to obtain any other facts or circumstances relevant to the decision. The employer then contacts the tax officer directly to explain further relevant facts. Considering these new facts, the tax officer decides to provide further remission of the penalty than was initially indicated. | 8. How does the Part 7 penalty interact with other administrative penalties?: An employer is also liable for an administrative penalty under the TAA where: • we determine a tax-related liability [11] without the assistance of a return, notice or other document • the document has not been provided by a specified time, and • the document is necessary to determine the tax-related liability. [12] • we determine a tax-related liability [11] without the assistance of a return, notice or other document • the document has not been provided by a specified time, and • the document is necessary to determine the tax-related liability. [12] This Practice statement refers to this penalty as the 'TAA default assessment penalty'. Where we make a default assessment of an employer's SGC liability, the Part 7 penalty and the TAA default assessment penalty may both apply. The base penalty amount of the TAA default assessment penalty is 75% of the tax-related liability. [13] You can remit the TAA default assessment penalty, in full or in part. [14] You should consider remitting in full the employer's liability to the TAA default assessment penalty. This is regardless of the extent to which the Part 7 penalty is remitted. The Part 7 penalty is the penalty specifically provided for by the SGAA and is generally the appropriate penalty to apply where both penalties are imposed. You are not required to give the employer written notice of a decision to remit the TAA default assessment penalty in full. However, if you do not remit the penalty in full, you must inform the employer of the reasons for that decision. [15] Employers can object to an assessment of the TAA default assessment penalty. [16] | 9. More information: For more information, see: • PS LA 2008/3 Provision of advice and guidance by the ATO • Archibald Dixon as Trustee for the Dixon Holdsworth Superannuation Fund v Commissioner of Taxation [2008] FCAFC 54 • PS LA 2008/3 Provision of advice and guidance by the ATO • Archibald Dixon as Trustee for the Dixon Holdsworth Superannuation Fund v Commissioner of Taxation [2008] FCAFC 54 YOUR COMMENTS You are invited to comment on this draft Practice statement. Please forward your comments to the contact mailbox by the due date. A compendium of comments is prepared for the consideration of the relevant Public Advice and Guidance Panel or relevant tax officers. An edited version (names and identifying information removed) of the compendium of comments may also be prepared to: • provide responses to persons providing comments, and • be published on ato.gov.au • provide responses to persons providing comments, and • be published on ato.gov.au Please advise if you do not want your comments included in the edited version of the compendium. Due date: 4 October 2019 Contact officer details have been removed following publication of the final document. THREE-STEP PENALTY REMISSION PROCESS Step 1a - determine the basic level of remission, based on the employer's attempt to comply with their SGC obligations The following table illustrates the level to which the Part 7 penalty might be remitted based on an employer's attempt to comply. Degree of attempt to comply Level of penalty remission Residual penalty Residual penalty is equivalent to: Default assessment - severe disengagement and phoenix arrangements A default assessment is made and the employer has either demonstrated repeat disengagement or we have formed an opinion that the employer has engaged in a 'phoenix' arrangement. 0% 100% 200% of the SGC Default assessment - information not provided by employer A default assessment is made where the employer has failed to lodge an SG statement or provide relevant information in response to ATO compliance action. 25% 75% 150% of the SGC Default assessment - information provided by employer A default assessment is made based on information provided by the employer after the lodgment due date in response to ATO compliance action. 50% 50% 100% of the SGC Enforced self-assessment An employer lodges an SG statement after the lodgment due date in response to ATO compliance action e.g. after an audit has commenced. 60% 40% 80% of the SGC Prompted self-assessment An employer lodges an SG statement after the lodgment due date and after initial ATO contact. 80% 20% 40% of the SGC Unprompted self-assessment An employer lodges an SG statement after the lodgment due date but before we make contact. 90% 10% 20% of the SGC A default assessment is made and the employer has either demonstrated repeat disengagement or we have formed an opinion that the employer has engaged in a 'phoenix' arrangement. A default assessment is made where the employer has failed to lodge an SG statement or provide relevant information in response to ATO compliance action. A default assessment is made based on information provided by the employer after the lodgment due date in response to ATO compliance action. An employer lodges an SG statement after the lodgment due date in response to ATO compliance action e.g. after an audit has commenced. An employer lodges an SG statement after the lodgment due date and after initial ATO contact. An employer lodges an SG statement after the lodgment due date but before we make contact. Step 1b - treatment of late payment offset claims The law requires that the Part 7 penalty is imposed as double the SGC regardless of any late payment offset (LPO) claims made by the employer that reduce their liability. [17] An LPO claim will generally reflect a positive attempt to comply, as they have already made super contributions for their employees prior to the SGC assessment. As such, where an employer has made an LPO claim, the level of remission can be increased at this step, up to 25% of the original penalty imposed. To determine whether to increase remission at this step, and whether to increase by 25% or a lesser amount, you should consider the amount of the LPO compared to the overall SGC, and whether the employer has given any evidence that the contributions were made for their employees prior to any ATO contact. Example - tax officer provides remission for LPO claim An employer lodges an SG statement for a quarter in response to ATO compliance action. The employer has an SGC liability of $10,000 for the quarter and has made an LPO claim of $7,000. The initial Part 7 penalty imposed is $20,000 (200% of the SGC). Applying Step 1a, the initial Part 7 penalty is remitted by 60% to $8,000. Applying Step 1b, the tax officer recognises the employers LPO claim of $7,000 and decides on balance that the employer's behaviour warrants a further remission of $4,000 (20% of the original penalty imposed). The residual Part 7 penalty after applying Steps 1a and 1b is $4,000 ($20,000 - $12,000 - $4,000). Example - tax officer provides remission for LPO claim An employer lodges an SG statement for a quarter in response to ATO compliance action. The employer has an SGC liability of $10,000 for the quarter and has made an LPO claim of $7,000. The initial Part 7 penalty imposed is $20,000 (200% of the SGC). Applying Step 1a, the initial Part 7 penalty is remitted by 60% to $8,000. Applying Step 1b, the tax officer recognises the employers LPO claim of $7,000 and decides on balance that the employer's behaviour warrants a further remission of $4,000 (20% of the original penalty imposed). The residual Part 7 penalty after applying Steps 1a and 1b is $4,000 ($20,000 - $12,000 - $4,000). Step 1 is the first step in the remission process, and all circumstances must be considered under Steps 2 and 3 before reaching a final view regarding the level of penalty remission. Steps 2 and 3 may lead to a decrease or increase depending on the circumstances of the case. Step 2 - determine a remission level based on the employer's compliance history You need to consider the employer's compliance history for both SG obligations and other taxation laws [18] for the three-year period leading up to the earlier of: • the day the self-assessment occurred, or • the day ATO compliance action commenced (either by phone or in writing). • the day the self-assessment occurred, or • the day ATO compliance action commenced (either by phone or in writing). You should evaluate their history by reviewing their ATO records as well as information supplied by the employer and any other parties. The employer's SG compliance history will be given more weight than their compliance history for other taxation laws. When reviewing an employer's SG compliance history you should focus on: • the number of quarters for which the employer has failed to lodge an SG statement by the due date, or for which we have made a default assessment • the degree of the employer's attempt to comply with their SG obligations previously (not including their attempts to comply for the period being considered) • any previous SG audits conducted on the employer including outcomes, and • any shift in behaviour by an employer that has been subject to a previous audit. This may be demonstrated by an improvement or deterioration in their level of engagement and cooperation with us during the compliance activity. • the number of quarters for which the employer has failed to lodge an SG statement by the due date, or for which we have made a default assessment • the degree of the employer's attempt to comply with their SG obligations previously (not including their attempts to comply for the period being considered) • any previous SG audits conducted on the employer including outcomes, and • any shift in behaviour by an employer that has been subject to a previous audit. This may be demonstrated by an improvement or deterioration in their level of engagement and cooperation with us during the compliance activity. If the employer has a good compliance history (noting that 'good' does not have to mean exceptional), the penalty remission may be increased. If the employer has neither a good nor poor compliance history, the level of remission may remain unchanged. If the employer has a poor compliance history, the remission may be reduced. The following examples illustrate common situations where the level of penalty remission may be reduced: • the employer has demonstrated a history or habit of lodging SG statements late • the employer has previously been issued with an SG education direction • the employer has previously been issued with an SGC default assessment and has shown no improvement in behaviour • the employer was not adequately addressing (through an active payment plan) an outstanding SGC debt, or other tax debt, prior to the current matter arising, or • the employer has several outstanding lodgments relating to other taxes. • the employer has demonstrated a history or habit of lodging SG statements late • the employer has previously been issued with an SG education direction • the employer has previously been issued with an SGC default assessment and has shown no improvement in behaviour • the employer was not adequately addressing (through an active payment plan) an outstanding SGC debt, or other tax debt, prior to the current matter arising, or • the employer has several outstanding lodgments relating to other taxes. Step 3 - consider all other relevant facts and circumstances You need to consider all other relevant facts and circumstances to ensure the resulting Part 7 penalty is appropriate. Where you have already taken into account the degree of the employer's attempt to comply (in Step 1) and the employer's compliance history (in Step 2), you should not consider them again for further remission at Step 3. For example, if an employer lodges an SG statement in response to an audit, they are given partial remission at Step 1. The fact an employer lodges an SG statement in response to an audit is therefore not an 'other' relevant fact or circumstance. Further, an employer may be found to have a good compliance history at Step 2 due to no previous SG audits or previously lodged SG statements. The fact an employer has not had a previous SG audit or lodged an SG statement before is likewise not an 'other' relevant fact or circumstance. Other relevant facts or circumstances include: • the employer has provided evidence [19] that they were affected by natural disasters, such as flood, bushfire, earthquake or the like [20] - consider increasing penalty remission to 100% • the ATO determines that individuals are engaged under a contract that is wholly or principally for their labour [21] , but the employer has a reasonably-held argument for not treating the individuals as employees for SG purposes - consider increasing penalty remission to 100% • the provision of incorrect advice or guidance by the ATO [22] - consider increasing penalty remission to 100% • the malfunction or outage of a key ATO system which the employer can demonstrate caused them to narrowly miss the SG payment or lodgment due date [23] - consider increasing penalty remission to 100% • ill health of the employer or a key employee of the employer - consider increasing remission of the residual penalty by up to 50% (or higher, including up to 100% depending on the nature of the business and the circumstances and severity of the ill health) • the employer has provided evidence that they have taken steps to mitigate the circumstances that contributed to their non-compliance with their SG obligations (noting that a promise or agreement to do so is not sufficient evidence) - consider increasing penalty remission based on the individual facts of the employer • the employer's non-compliance with their SG obligations occurred in their first year of operation, and their principals had no previous business experience - consider increasing penalty remission based on the individual facts of the employer, or • the employer is given penalty relief - increase penalty remission to 100%. Note: this list is not exhaustive. • the employer has provided evidence [19] that they were affected by natural disasters, such as flood, bushfire, earthquake or the like [20] - consider increasing penalty remission to 100% • the ATO determines that individuals are engaged under a contract that is wholly or principally for their labour [21] , but the employer has a reasonably-held argument for not treating the individuals as employees for SG purposes - consider increasing penalty remission to 100% • the provision of incorrect advice or guidance by the ATO [22] - consider increasing penalty remission to 100% • the malfunction or outage of a key ATO system which the employer can demonstrate caused them to narrowly miss the SG payment or lodgment due date [23] - consider increasing penalty remission to 100% • ill health of the employer or a key employee of the employer - consider increasing remission of the residual penalty by up to 50% (or higher, including up to 100% depending on the nature of the business and the circumstances and severity of the ill health) • the employer has provided evidence that they have taken steps to mitigate the circumstances that contributed to their non-compliance with their SG obligations (noting that a promise or agreement to do so is not sufficient evidence) - consider increasing penalty remission based on the individual facts of the employer • the employer's non-compliance with their SG obligations occurred in their first year of operation, and their principals had no previous business experience - consider increasing penalty remission based on the individual facts of the employer, or • the employer is given penalty relief - increase penalty remission to 100%. An employer's penalty should not be remitted at Step 3 merely because the penalty may be 'relatively small'. It may be appropriate, where there are additional mitigating factors to those considered at Steps 1 and 2, to consider increasing the level of penalty remission if the assessment would be considered harsh in the particular circumstances of the employer. [24] However, it would not be appropriate to consider further remission where the employer: • is reasonably expected to have fully understood their SG obligations (for example, where they have been previously subject to compliance action, or previously lodged an SG statement, or is a tax or super professional who should have a higher level of knowledge) • has a history of not meeting SG obligations on their other entities • took steps to prevent or obstruct us from determining their SGC liability. This would be more than not responding to an ATO letter. Examples would be where they repeatedly fail to keep appointments to supply information for no acceptable reason, or deliberately supply irrelevant, inadequate or misleading information, or engage in behaviour delaying the provision of information • have demonstrated a history of repeated disengagement, and • took steps to deliberately evade payment of their SG liability, such as through 'phoenix' activities. • is reasonably expected to have fully understood their SG obligations (for example, where they have been previously subject to compliance action, or previously lodged an SG statement, or is a tax or super professional who should have a higher level of knowledge) • has a history of not meeting SG obligations on their other entities • took steps to prevent or obstruct us from determining their SGC liability. This would be more than not responding to an ATO letter. Examples would be where they repeatedly fail to keep appointments to supply information for no acceptable reason, or deliberately supply irrelevant, inadequate or misleading information, or engage in behaviour delaying the provision of information • have demonstrated a history of repeated disengagement, and • took steps to deliberately evade payment of their SG liability, such as through 'phoenix' activities. These are regarded as serious cases, and a reduction in the level of remission, or no remission at all, may be appropriate. EXAMPLES Example 1 - no remission - default assessment with disengagement and phoenix arrangements Default assessments of an employer's SGC, were made on 20 March 2019 for the quarters ended 30 September 2018 to 31 December 2018. The employer has been subject to five previous audits, resulting in default SGC assessments being issued at the conclusion of each audit. Applying Step 1, the tax officer identifies that the director of the employer company is linked to four liquidated companies which have also had compliance issues, suggesting the director has engaged in phoenix activity. The tax officer determines the Part 7 penalty should not be remitted, as the employer did not provide information for the ATO to make an assessment of the employer's SGC, and has demonstrated severe disengagement. Applying Step 2, the tax officer notes that the employer has been subject to five previous audits and there has been no apparent shift in the employer's attitude to their SG obligations as they again did not cooperate or respond to requests for information. The tax officer determines that penalty should not be remitted under this step. Applying Step 3, the tax officer notes that there are no other factors to consider that would warrant remission of the penalty. After considering Steps 1, 2 and 3, the Part 7 penalty is not remitted at all. A Part 7 penalty assessment equivalent to 200% of the SGC is issued against the employer. The TAA default assessment penalty is fully remitted Example 2 - 15% remission - default assessment with no information provided Default assessments of an employer's SGC were made on 20 March 2019 for the quarters ended 30 September 2018 and 31 December 2018. The employer has been subject to two previous audits, resulting in default SGC assessments being issued at the conclusion of each audit. Applying Step 1, the tax officer determines the Part 7 penalty should be remitted by 25%, as the employer did not lodge an SG statement and did not provide information for the ATO to make an assessment of the employer's SGC. Applying Step 2, the tax officer notes that the employer has been subject to two previous compliance activities and there has been no apparent shift in the employer's attitude to their SG obligations as they again did not cooperate or respond to requests for information. The tax officer determines that a decrease in the level of penalty remission by 5% would be appropriate. Applying Step 3, the tax officer considers that based on the two previous audits, the employer should have fully understood their SG obligations. The tax officer determines that a further decrease by 5% would be appropriate. After considering Steps 1, 2 and 3, the Part 7 penalty is remitted by 15%, leaving a residual penalty of 85%. A Part 7 penalty assessment equivalent to 170% of the SGC is issued against the employer. The TAA default assessment penalty is fully remitted. Example 3 - 30% remission - default assessment with information unable to be provided Default assessments of an employer's SGC were made on 20 May 2019 for the quarters ended 30 September 2018 to 31 December 2018. During the compliance activity, the employer: • advised they have been unable to find the information that has been requested, but • acknowledged that they have SGC liabilities for the relevant quarters. • advised they have been unable to find the information that has been requested, but • acknowledged that they have SGC liabilities for the relevant quarters. Applying Step 1, the tax officer determines that the Part 7 penalty should be remitted by 25% as the employer did not provide information to the ATO to make an assessment of the employer's SGC. Applying Step 2, the tax officer notes that the employer has no outstanding lodgments or debts in relation to their other taxation law obligations and that this is the first time they have been subject to a compliance activity regarding their SG obligations. Based on their good compliance history, the level of penalty remission should be increased by 10%. Applying Step 3, the tax officer notes there are no other factors to consider. After considering Steps 1, 2 and 3, the Part 7 penalty is remitted by 35%, leaving a residual penalty of 65%. A Part 7 penalty assessment equivalent to 130% of the SGC is issued against the employer. The TAA default assessment penalty is fully remitted. Example 4 - 70% remission - default assessment with information provided - first year employer An employer has an SG shortfall amount for the quarter ended 31 March 2019, and in response to an ATO audit they do not lodge the required SG statement, but provide sufficient information for a default assessment to be raised. Applying Step 1, the tax officer determines that the employer made some attempt to comply with their SG obligations by providing information on which to assess the SG liability, and that the Part 7 penalty should be remitted by 50%. Applying Step 2, the tax officer notes that this is the first time the employer has not complied with their SG obligations, and that their compliance history in respect of their other taxation law obligations is good. The tax officer notes that, while the employer has a debt relating to another tax, the employer is complying with an approved payment plan. The tax officer determines that the level of penalty remission should be increased by 10%. Applying Step 3, the tax officer notes the employer is in their first year of operation. Therefore the tax officer determines the level of penalty remission should be increased by a further 10%. After considering Steps 1, 2 and 3, the Part 7 penalty is remitted by 70%, leaving a residual penalty of 30%. A Part 7 penalty assessment equivalent to 60% of the SGC is issued against the employer. The TAA default assessment penalty is fully remitted. Example 5 - 80% remission - unprompted self-assessment with poor compliance history An employer has SG shortfall amounts for the quarters ended 30 September 2018 and 31 December 2018 and on 20 May 2019 lodges the required SG statements for these quarters. Applying Step 1, the tax officer determines the employer lodged SG statements after the due date but prior to ATO contact. The Part 7 penalty should be remitted by 90%. Applying Step 2, the tax officer determines the employer's habitual lodgment of SG statements after the due date, illustrates the employer's behaviour to comply with their SG obligation is not improving. Based on the employer's poor compliance history the level of penalty remission should be reduced by 10%. Applying Step 3, the tax officer notes there are no other factors to consider. After considering Steps 1, 2, and 3, the Part 7 penalty is remitted by 80%, leaving a residual penalty of 20%. A Part 7 penalty assessment equivalent to 40% of the SGC is issued against the employer. Example 6 - 85% remission - SG statement provided with LPO claim for part of the SGC For the quarter ended 31 March 2019 an employer makes SG payments to the respective super funds of his employees. However the SG payments were not paid by the due date of 28 April 2019. In response to an audit notification letter issued on 14 June 2019, the employer lodged an SG statement on 20 June 2019; which created an SGC assessment for the quarter of $8,000 which included an LPO claim for $6,000. Applying Step 1a, the tax officer determines that the employer has provided an SG statement after the commencement of the audit. The Part 7 penalty should initially by remitted by 60%. Applying Step 1b, the tax officer identifies that the employer has claimed a partial LPO. The tax officer considers the amount of the LPO claim, and evidence that the late payments were made prior to ATO contact, and decides to increase the level of remission by 25%. Applying Step 2, the tax officer notes the employer's compliance history in respect of their other taxation law obligations is neither good nor poor and determines there are no grounds to adjust the remission at this step. Applying Step 3, the tax officer notes there are no other factors to consider. After considering Steps 1, 2 and 3, the Part 7 penalty is remitted by 85%, leaving a residual penalty of 15%. A Part 7 penalty assessment equivalent to 30% of the SGC is issued against the employer. Example 7 - penalty relief implied and SG direction imposed - full prompted self-assessment An employer has SG shortfall amounts for the quarter ended 30 September 2018. In response to a pre-audit letter issued on 14 June 2019, the employer lodged an SG statement. Applying Step 1, the tax officer determines that the employer lodged SG statements after the due date but in response to the pre-audit letter. The Part 7 penalty should be remitted by 80%. Applying Step 2, the tax officer notes the employer's compliance history in respect of their other taxation law obligations is good so the tax officer determines the level of penalty remission should be increased by 10%. Applying Step 3, the tax officer notes the employer is eligible for penalty relief, as this is the first time the employer has failed to meet their SG obligations and has lodged less than four SG statements in the present case. The tax officer decides to apply penalty relief. After considering Steps 1, 2, and 3, and applying penalty relief, the Part 7 penalty is fully remitted. In accordance with the penalty relief process the employer is issued with an SG education direction. Example 8 - full remission - employer affected by natural disaster An employer has an SG shortfall amount for the quarter ended 31 March 2019. A notification of audit letter was issued on 14 July 2019. In response to the ATO compliance action, the employer advises the tax officer that their SG obligations were not met because their business premises were badly damaged by floods which occurred on 15 April 2019. Applying Step 1, the tax officer determines that the Part 7 penalty should be remitted by 60% as the employer lodged an SG statement as requested after the compliance activity had commenced. Applying Step 2, the tax officer notes the employer neither has a good or poor compliance history, and that the level of penalty remission should remain unchanged. Applying Step 3, the tax officer determines that the employer's inability to lodge the SG statement for the quarter was due to the damage to their business premises caused by the floods. Further, it may not have been reasonable given the employer's circumstances for the employer to have made a request to defer the lodgment due date for the SG statement. The tax officer therefore decides that it would not be appropriate for the employer to pay the penalty. After considering Steps 1, 2 and 3, the Part 7 penalty is remitted in full. Example 9 - full remission - unprompted self-assessment with good compliance history An employer has SG shortfall amounts for the quarters ended 30 September 2018 to 31 March 2019. On 20 July 2019 the employer voluntarily discloses to the ATO that they have these shortfalls and lodges the required SG statements for these quarters. Applying Step 1, the tax officer determines the employer lodged SG statements after the due date but prior to any ATO contact. The Part 7 penalty is remitted by 90%. Applying Step 2, the tax officer identifies the employer has not previously lodged an SG statement and the employer's compliance with other taxation laws is good. The tax officer decides that based on the employer's good compliance history the level of penalty remission should be increased by 10%. Applying Step 3, the tax officer notes there are no other factors to consider. After considering Steps 1, 2, and 3, the Part 7 penalty is fully remitted. Example 10 - full or partial remission - employer contended worker was a contractor On 20 June 2019, default assessments of an employer's SGC were made for the quarters ended 30 September 2018 and 31 December 2018 in respect of an individual determined by the Commissioner to be an employee. Throughout the audit process, the employer contended that the individual was a contractor for the relevant quarters and not an employee. They submitted evidence and a detailed argument to support that contention. The individual who registered the complaint also provided evidence relating to their employment arrangements. The tax officer analysed the evidence provided by both parties and acknowledged the employer presented a well-constructed and cohesive argument. However, the tax officer disagreed with the employer's interpretations of critical common law tests relating to control and delegation relevant to whether the individual was a contractor. A position paper was provided to the employer explaining why the Commissioner had formed his view the individual was an employee and not a contractor. The employer was advised that unless they could supply additional evidence to support their contention, they were required to lodge an SG statement. The employer did not present any new information but maintained their original position. Accordingly, they advised the tax officer they would not be lodging SG statements. The employer also made it clear they intended to challenge the Commissioner's interpretations by lodging objections to the default SGC assessments. Applying Step 1, the tax officer determines the Part 7 penalty should be remitted by 25%, as the employer did not provide information on which to assess the SGC liability. Applying Step 2, the tax officer notes that apart from the periods covered by the default assessments, the employer has complied with their SG and other tax obligations. On that basis, the tax officer determines the employer has a good compliance history, and that the level of penalty should be further remitted by 5%. Applying Step 3, the tax officer determines the employer had a reasonably held argument that the individual was not an employee, and they would otherwise have complied with their SG obligations. After considering Steps 1, 2 and 3, the Part 7 penalty is fully remitted. The TAA default assessment penalty is also fully remitted. However, if the tax officer had determined that the employer had no reasonable argument that the employee was a contractor and there were no other unusual or extenuating circumstances, they would not have provided further remission at Step 3. In that case, after considering Steps 1, 2 and 3, the Part 7 penalty would be remitted by 30%, leaving a residual penalty of 70%. A Part 7 penalty assessment equivalent to 140% of the SGC would be issued against the employer. The TAA default assessment penalty would be fully remitted. Date of Issue: 10 September 2019 Date of Effect: [1] The SG statement or information may relate to an SGC arising from a failure to provide super support for an employer or a failure to fulfil the choice of fund obligations for an employee in Part 3A of the SGAA. [2] See subsection 33(1) of the SGAA for lodgment due dates. [3] Section 36 of the SGAA; PS LA 2007/10 Making default assessments: section 36 of the Superannuation Guarantee (Administration) Act 1992 . [4] Subsection 59(1) of the SGAA. [5] Section 37 of the SGAA. [6] Subsection 284-75(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA); PS LA 2012/5 Administration of the false or misleading statement penalty - where there is a shortfall amount . [7] The TAA default assessment administrative penalty is also applicable if the assessment was amended without the provision of information by the employer. [8] Subsection 62(3) of the SGAA. [9] Section 42 of the SGAA. [10] Subsection 62(3) of the SGAA. [11] The SGC is a tax-related liability per table item 60 in subsection 250-10(2) of Schedule 1 to the TAA. [12] Subsection 284-75(3) of Schedule 1 to the TAA. [13] Table item 7 in subsection 284-90(1) of Schedule 1 to the TAA. [14] Subsection 298-20(1) of Schedule 1 to the TAA. [15] Subsection 298-20(2) of Schedule 1 to the TAA. [16] Subsection 298-30(2) of Schedule 1 to the TAA. [17] Section 62A of the SGAA. [18] Taxation law is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 to mean an Act or part of an Act of which the Commissioner has the general administration, and legislative instruments made under such an Act or part of an Act. [19] The presence of an indicator on the employer's file alone will not be sufficient evidence. [20] Note that under subsection 33(1A) of the SGAA the Commissioner may allow an employer to lodge an SG statement on a later day. [21] The Commissioner's view on when an individual is considered to be an employee under section12 of the SGAA is contained in Super Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee ? [22] See PS LA 2008/3 Provision of advice and guidance by the ATO . [23] For example, if the employer attempted to use the Small Business Super Clearing House to make an SG payment on time but due to a system outage the payment was not processed until after the cut-off date. [24] See Archibald Dixon as Trustee for the Dixon Holdsworth Superannuation Fund v Commissioner of Taxation [2008] FCAFC 54. File 1-I1A48E2 Related Rulings/Determinations: SGR 2005/1 Related Practice Statements: PS LA 2007/10 PS LA 2008/3 PS LA 2012/5",PS LA 2019/1 | SGR 2005/1 | PS LA 2007/10 | PS LA 2008/3 | PS LA 2012/5 | ITAA 1997 995-1(1) | SGAA 1992 Part 3A | SGAA 1992 Part 7 | SGAA 1992 33(1) | SGAA 1992 33(1A) | SGAA 1992 36 | SGAA 1992 37 | SGAA 1992 42 | SGAA 1992 59(1) | SGAA 1992 62A | SGAA 1992 62(3) | TAA 1953 | TAA 1953 Sch 1 250-10(2) | TAA 1953 Sch 1 284-75(1) | TAA 1953 Sch 1 284-75(3) | TAA 1953 Sch 1 284-90(1) | TAA 1953 Sch 1 298-20(1) | TAA 1953 Sch 1 298-20(2) | TAA 1953 Sch 1 298-30(2) | 2008 ATC 20-015,PS LA 2007/10 PS LA 2008/3 PS LA 2012/5,ITAA 1997 995-1(1) | SGAA 1992 Part 3A | SGAA 1992 Part 7 | SGAA 1992 33(1) | SGAA 1992 33(1A) | SGAA 1992 36 | SGAA 1992 37 | SGAA 1992 42 | SGAA 1992 59(1) | SGAA 1992 62A | SGAA 1992 62(3) | TAA 1953 | TAA 1953 Sch 1 250-10(2) | TAA 1953 Sch 1 284-75(1) | TAA 1953 Sch 1 284-75(3) | TAA 1953 Sch 1 284-90(1) | TAA 1953 Sch 1 298-20(1) | TAA 1953 Sch 1 298-20(2) | TAA 1953 Sch 1 298-30(2),,,False,False,https://www.ato.gov.au/law/view/document?docid=DPS/PSD20191/NAT/ATO/00001,This document has been finalised by PS LA 2019/1 . | 1. What is this Practice statement about? | APPENDIX 1 - YOUR COMMENTS | APPENDIX 2 - THREE STEP PENALTY REMISSION PROCESS | Archibald Dixon as Trustee for the Dixon Holdsworth Superannuation Fund v Commissioner of Taxation [2008] FCAFC 54 (2008) 167 FCR 287 2008 ATC 20-015 (2008) 69 ATR 627
PS LA 2020/D1 (Finalised),Remission of additional superannuation guarantee charge,30 July 2020,,Law Administration Practice Statement,True,"1. What this draft Practice Statement is about: This draft Practice Statement [1] sets out what you need to consider in making a decision on the remission, in whole or part, of the additional super guarantee charge (SGC) imposed under subsection 59(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA) where an employer fails to lodge a super guarantee (SG) statement by the lodgment due date. This additional SGC is referred to as the Part 7 penalty. This Practice Statement also sets out when penalty relief is appropriate to be applied. | 2. What principles of the super guarantee regime should you consider when making decisions?: If you are making a decision concerning SG matters, you should have regard to the overarching principles of the SG regime. These are summarised below. The SG regime is designed to encourage employers to provide their employees with a minimum level of super. This compulsory super is a fundamental pillar in Australia's retirement income system. Where an employer does not provide this minimum level of super, the employer is liable to pay a tax, the SGC. The SGC is collected from employers and is distributed primarily to the super interests of employees. For that reason, the SGC is unlike other taxes. Non-payment of SG contributions has severe impacts on several groups. Employees are deprived of super support, impairing their ability to save for retirement. Employers who meet their SG obligations may be disadvantaged in competing with others who do not comply. We take non-compliance with employer obligations seriously. We have pay-event reporting of SG accruals, and event-based reporting of contribution payments from funds regulated by the Australian Prudential Regulation Authority. Where an employer does not come forward voluntarily for late or non-payment of SG contributions by the due date, we will engage with employers to get their obligations up to date. Between 24 May 2018 and 7 September 2020, employers were offered a one-off amnesty to disclose unpaid SG without Part 7 penalties. In legislating this amnesty, the Government has set clear expectations that employers who do not come forward voluntarily and only have SGC identified through ATO compliance action should be subject to significant penalties. This is reflected in the remission restrictions in the amnesty legislation itself, as well as the broader policy context. [2] Considering: • that an amnesty was offered for past periods • the increased reporting requirements for current and future periods, and • our willingness to work with employers who disclose SG shortfalls to us voluntarily, we will take a very strict approach to penalties where an employer could have come forward voluntarily to disclose an SG shortfall and failed to do so. • that an amnesty was offered for past periods • the increased reporting requirements for current and future periods, and • our willingness to work with employers who disclose SG shortfalls to us voluntarily, we will take a very strict approach to penalties where an employer could have come forward voluntarily to disclose an SG shortfall and failed to do so. We will generally expect remission not to exceed 50% (100% of the SGC) where an employer did not come forward voluntarily and it took ATO compliance action for them to disclose, even for quarters where there is no legislated restriction on remission. The Part 7 penalty is not a penalty on the employer for failing to meet their SG obligations - it is a penalty on the employer for not promptly disclosing to the Commissioner where they have an SG shortfall. No penalty applies where the SG statement is lodged before the lodgment due date. | 3. What is the Part 7 penalty?: An additional SGC (referred to as the Part 7 penalty) is imposed under Part 7 of the SGAA when an employer fails to provide when required: • an SG statement for a quarter, or • information relevant to assessing the employer's liability to pay the SGC for a quarter. [3] • an SG statement for a quarter, or • information relevant to assessing the employer's liability to pay the SGC for a quarter. [3] The Part 7 penalty arises in two situations: • where an employer lodges an SG statement for a quarter after the due date [4] , or • where we make a default assessment [5] of the employer's liability for the SGC because - an employer has not lodged an SG statement for a quarter, and - we are of the opinion the employer is liable to pay the SGC for the quarter. • where an employer lodges an SG statement for a quarter after the due date [4] , or • where we make a default assessment [5] of the employer's liability for the SGC because - an employer has not lodged an SG statement for a quarter, and - we are of the opinion the employer is liable to pay the SGC for the quarter. - an employer has not lodged an SG statement for a quarter, and - we are of the opinion the employer is liable to pay the SGC for the quarter. The Part 7 penalty is automatically imposed on an employer by law. [6] The Part 7 penalty imposed is equal to double the SGC payable by the employer for the quarter (that is, 200% of the SGC). The minimum amount of Part 7 penalty for a quarter is $20. [7] If you amend [8] an employer's SGC assessment for a quarter and a Part 7 penalty was imposed on the original SGC assessment, you must also amend the Part 7 penalty assessment for the quarter. On the other hand, if a Part 7 penalty was not imposed on the original SGC assessment for a quarter (for example, because the SG statement was lodged before the legislated due date), the Part 7 penalty is not imposed for any subsequent amendments. However, in either of these cases, an administrative penalty for making a false or misleading statement may be imposed. [9] SGC assessments covered by the SG amnesty The Treasury Laws Amendment (Recovering Unpaid Superannuation) Act 2020 introduced a one-off amnesty for employers who voluntarily disclose SGC liabilities for quarters from 1 January 1992 to 31 March 2018 (known as historical quarters). If an eligible employer lodges SG statements for relevant quarters within the amnesty period (from 24 May 2018 to 7 September 2020), the Part 7 penalty is not imposed on the SGC assessments. [10] However, an employer who is notified they are disqualified from the amnesty is treated as though they were never eligible for the amnesty. [11] In these cases the Part 7 penalty will be imposed and remission will need to be considered. | 4. When can you remit the Part 7 penalty?: You have the discretion to remit the Part 7 penalty, in full or in part. [12] This can be done as part of the assessment of the penalty (the original assessment stage) or after the penalty is assessed (through an objection decision). However, your ability to remit a Part 7 penalty imposed for a historical quarter will generally be limited. For more information see section 5 of this Practice Statement. Employers have the right to object to an assessment of a Part 7 penalty. [13] Although there is no separate right to object to a decision on the remission of the Part 7 penalty, an objection against a penalty assessment includes a review of the penalty remission decision. | 5. Restriction on remitting Part 7 penalty for historical quarters: For SGC assessments after 7 September 2020, the law generally limits your ability to remit Part 7 penalties for historical quarters. Where a historical quarter is assessed for SGC after 7 September 2020, you cannot remit the Part 7 penalty below 100% of the SGC unless: • the employer voluntarily came forward to lodge an SG statement prior to being notified of any ATO compliance action [14] , or • exceptional circumstances prevented the employer from lodging an SG statement either - during the amnesty period (24 March 2018 to 7 September 2020), or - before the employer was notified of any ATO compliance action. [15] • the employer voluntarily came forward to lodge an SG statement prior to being notified of any ATO compliance action [14] , or • exceptional circumstances prevented the employer from lodging an SG statement either - during the amnesty period (24 March 2018 to 7 September 2020), or - before the employer was notified of any ATO compliance action. [15] - during the amnesty period (24 March 2018 to 7 September 2020), or - before the employer was notified of any ATO compliance action. [15] Has the employer come forward voluntarily prior to being notified of any ATO compliance action? If you determine that the employer took Voluntary action prior to notice of compliance action at Step 1 of the four-step penalty remission process in Appendix 1 of this Practice Statement, they will satisfy this requirement and there will be no restriction on remission. Were there exceptional circumstances that prevented the employer from lodging an SG statement? If you identify exceptional circumstances at Step 4 of the four-step penalty remission process, this requirement will be satisfied and there will be no restriction on remission. How to remit if the restriction applies You should follow the four-step penalty remission process. Provided you follow this process correctly, the final penalty should not be below 100% of the SGC where the restriction applies. Note: if there is a previous SGC assessment for the quarter, the remission restriction only applies to the additional Part 7 penalty that is being imposed. You should document which quarters were affected by the remission restriction and the relevant amounts. | 6. What process should you follow to determine whether to remit the Part 7 penalty?: The Part 7 penalty is automatically imposed at a rate of 200% and you should consider whether the penalty should be remitted in all cases. Except in rare cases, where there is an employer engaging in egregious tax avoidance behaviour, you should consider remitting the Part 7 penalty either in part or in full. Your remission decision should take into account all the relevant facts and indicia. You must follow the four-step penalty remission process outlined in Appendix 1 of this Practice Statement when deciding whether it is appropriate to remit the Part 7 penalty down from 200%. Step 1: Set a base penalty based on the employer's attempt to comply with their SGC obligation Step 2: Determine any penalty uplift based on the employer's compliance history Step 3: Identify other mitigating facts and circumstances Step 4: Identify any exceptional circumstances that prevented lodgment of an SG statement prior to notice of ATO compliance action The four-step penalty remission process is designed to accommodate the principles of this Practice Statement and to ensure that employers in like circumstances receive like treatment as far as practicable. It is also important for you to understand that penalties are imposed to: • encourage employers to pay super contributions for their employees correctly and on time • change the decision-making behaviour of employers to ensure that employee SG entitlements are not put at risk of delay, compromise or loss, and • encourage employers to lodge SG statements by their due dates. • encourage employers to pay super contributions for their employees correctly and on time • change the decision-making behaviour of employers to ensure that employee SG entitlements are not put at risk of delay, compromise or loss, and • encourage employers to lodge SG statements by their due dates. You must have collected all relevant information and document the evidence and basis for any remission decision you make. | 7. When is it appropriate to provide penalty relief?: In some limited cases, it may be appropriate to provide additional remission to an employer in conjunction with a direction for education - this is known as a 'penalty relief' arrangement. You may provide an employer with a penalty relief arrangement where education is considered a more effective option to positively influence behaviour. This approach recognises that while we expect all employers to meet their SG obligations, an employer may have SG knowledge gaps that lead to non-compliance and these can be addressed through education. An employer should only be considered for a penalty relief arrangement where they have a turnover of less than $10 million and they: • took voluntary action to comply with their obligation to lodge SG statements • do not have a history of lodging SG statements late • have lodged no more than four SG statements after the lodgment due date in the present case • have no previous SG audits where they were found to have not met their SG obligations, and • have not previously been provided with penalty relief. • took voluntary action to comply with their obligation to lodge SG statements • do not have a history of lodging SG statements late • have lodged no more than four SG statements after the lodgment due date in the present case • have no previous SG audits where they were found to have not met their SG obligations, and • have not previously been provided with penalty relief. Penalty relief would not be appropriate where the employer has: • been issued with an SG default assessment • lodged more than four SG statements after the lodgment due date in the present case, or • previously been issued with an SG education direction. • been issued with an SG default assessment • lodged more than four SG statements after the lodgment due date in the present case, or • previously been issued with an SG education direction. Penalty relief may be applied by providing further remission of a residual penalty at Step 3 of the four-step penalty remission process and instead providing the employer with education to help them meet their obligations in the future. This education should be by way of a formal SG education direction and may be supplemented with informal education. It should focus on making sufficient contributions to avoid an SG shortfall, and/or lodging SG statements on time in the future. It should advise the client of the penalties for failing to lodge on time. An employer should not be provided penalty relief at any point before the relevant SG assessments have been finalised and you are ready to finalise your remission decision. An employer cannot 'apply' for penalty relief, and an employer cannot specifically object to a decision not to apply penalty relief. Your decision to apply penalty relief forms part of your exercise of the remission power provided by the SGAA. [16] | 8. What should you do before finalising the remission decision?: In some circumstances, it may be appropriate to contact the employer to give notice of the anticipated penalty and the reasons for the remission decision before applying the Part 7 penalty. This may be appropriate if, for example, a significant residual penalty will remain after remission. You may give notice during an audit conversation or in writing. The purpose of this contact is to encourage full disclosure of relevant facts and circumstances to ensure the penalty strikes the right balance in the first instance. This is not an opportunity to negotiate the anticipated penalty. Rather, it is designed to draw out relevant facts or circumstances for your decision which were previously unknown. Example - tax officer notifies employer of anticipated penalty An employer is subject to an audit of their SG obligations for the quarters ended 31 March 2017 to 30 September 2017. The employer has authorised another person to handle the SG audit and the tax officer has been dealing with this authorised contact. The authorised contact provides SG statements on behalf of the employer for the full period under audit. The tax officer phones the authorised contact and notifies them of the anticipated penalty and the associated reasons. The tax officer also outlines the relevant facts and circumstances known to them. The authorised contact requests time to make contact with the employer to obtain any other facts or circumstances relevant to the decision. The employer then contacts the tax officer directly to explain further relevant facts. Considering these new facts, the tax officer decides to provide further remission of the penalty than was initially indicated. Example - tax officer notifies employer of anticipated penalty An employer is subject to an audit of their SG obligations for the quarters ended 31 March 2017 to 30 September 2017. The employer has authorised another person to handle the SG audit and the tax officer has been dealing with this authorised contact. The authorised contact provides SG statements on behalf of the employer for the full period under audit. The tax officer phones the authorised contact and notifies them of the anticipated penalty and the associated reasons. The tax officer also outlines the relevant facts and circumstances known to them. The authorised contact requests time to make contact with the employer to obtain any other facts or circumstances relevant to the decision. The employer then contacts the tax officer directly to explain further relevant facts. Considering these new facts, the tax officer decides to provide further remission of the penalty than was initially indicated. | 9. How does the Part 7 penalty interact with other administrative penalties?: TAA default assessment penalty An employer is also liable to an administrative penalty under the TAA where: • we determine a tax-related liability [17] without the assistance of a return, notice or other document • the document has not been provided by a specified time, and • the document is necessary to determine the tax-related liability. [18] • we determine a tax-related liability [17] without the assistance of a return, notice or other document • the document has not been provided by a specified time, and • the document is necessary to determine the tax-related liability. [18] This Practice Statement refers to this penalty as the 'TAA default assessment penalty'. Where we make a default assessment of an employer's SGC liability, the Part 7 penalty and the TAA default assessment penalty may both apply. The base penalty amount of the TAA default assessment penalty is 75% of the tax-related liability. [19] You can remit the TAA default assessment penalty, in full or in part. [20] You should consider remitting in full the employer's liability to the TAA default assessment penalty. This is regardless of the extent to which the Part 7 penalty is remitted. The Part 7 penalty is the penalty specifically provided for by the SGAA and is generally the appropriate penalty to apply where both penalties are imposed. TAA false or misleading statement penalty Likewise, an employer is liable to an administrative penalty under the TAA where: • the employer makes a statement [21] to us under a taxation law [22] , and • the statement is false or misleading in a material particular, whether because of things in it or things omitted from it, and • the statement results in a shortfall amount. [23] • the employer makes a statement [21] to us under a taxation law [22] , and • the statement is false or misleading in a material particular, whether because of things in it or things omitted from it, and • the statement results in a shortfall amount. [23] This Practice Statement refers to this penalty as the 'TAA false or misleading statement penalty'. This penalty may be imposed where an employer is assessed for the SGC because they lodged an SG statement, and that assessment is subsequently amended because the SG statement stated an incorrect SG shortfall. You can remit the TAA false or misleading statement penalty, in full or in part. Consistent with the treatment of the TAA default assessment penalty, you should consider remitting in full the employer's liability to the TAA false or misleading statement penalty where the Part 7 penalty has also been imposed under the law for the same quarter. However, you should fully consider the application of the TAA false or misleading statement penalty to the employer's shortfall amount in situations where the law did not impose a Part 7 penalty. Administrative penalty remission decision and objections You are not required to give the employer written notice of a decision to remit in full the TAA default assessment penalty or the TAA false or misleading statement penalty. However, if you do not remit an administrative penalty in full, you must inform the employer of the reasons for that decision. [24] Employers can object to an assessment of the TAA default assessment penalty or the TAA false or misleading statement penalty. [25] | 10. More information: For more information, see: • Law Administration Practice Statement PS LA 2008/3 Provision of advice and guidance by the ATO • Archibald Dixon as Trustee for the Dixon Holdsworth Superannuation Fund v Commissioner of Taxation [2008] FCAFC 54 • Law Administration Practice Statement PS LA 2008/3 Provision of advice and guidance by the ATO • Archibald Dixon as Trustee for the Dixon Holdsworth Superannuation Fund v Commissioner of Taxation [2008] FCAFC 54 Step 1 - set a base penalty level based on the employer's attempt to comply with their SGC obligations Using the following table, remit to a minimum base penalty based on an employer's attempt to comply with their obligation to lodge their SG statement. Generally, it will not be appropriate to provide further remission below these base penalties except in limited circumstances. This recognises that there is a broad range of employer behaviours that lead to an SGC assessment, and it is appropriate to address them via a wide spread of remission relative to the full extent of the penalty imposed. It also recognises that base levels of penalty are appropriate where an SG shortfall is not disclosed by the due date for an SG statement. Before finalising your remission decision, you must evaluate: • the employer's compliance history (Step 2) • other mitigating facts or circumstances (Step 3), and • any exceptional circumstances (Step 4). Degree of attempt to comply Base penalty Base penalty is equivalent to: Employer actions in response to ATO compliance action A default assessment is made and the employer has either demonstrated repeat disengagement or we have formed an opinion that the employer has engaged in a 'phoenix' arrangement. 100% 200% of the SGC A default assessment is made where the employer has failed to lodge an SG statement or provide relevant information in response to ATO compliance action. 75% 150% of the SGC A default assessment is made based on information provided by the employer after the lodgment due date in response to ATO compliance action. 60% 120% of the SGC An employer lodges an SG statement after the lodgment due date in response to ATO compliance action, for example after an audit has commenced. 50% 100% of the SGC Voluntary actions prior to notice of ATO compliance action An employer lodges an SG statement after the lodgment due date and after initial ATO contact [26] but before any ATO compliance action. 20% 40% of the SGC An employer lodges an SG statement after the lodgment due date but before any ATO contact. 10% 20% of the SGC An employer lodges an SG statement on or before the lodgment due date (including an extended due date). 0% 0% of the SGC • the employer's compliance history (Step 2) • other mitigating facts or circumstances (Step 3), and • any exceptional circumstances (Step 4). Note: Often an employer will make initial contact with us to disclose that they have identified SG shortfalls but will not lodge an SG statement until after discussing matters with us. For the purpose of the above table, this should be considered the same as a lodgment prior to any ATO contact; the fact that an employer has voluntarily engaged with us on a preliminary basis rather than immediately lodging statements does not demonstrate any lower level of engagement. Step 2 - determine any penalty uplift based on the employer's compliance history You need to consider the employer's compliance history for both SG obligations and other taxation laws [27] for the three-year period leading up to the earlier of the day before: • the disclosure occurred, or • ATO compliance action commenced (either by phone or in writing). • the disclosure occurred, or • ATO compliance action commenced (either by phone or in writing). You should evaluate their history by reviewing their ATO records as well as information supplied by the employer [28] and any other parties. The employer's SG compliance history will be given more weight than their compliance history for other taxation laws. When reviewing an employer's SG compliance history, you should focus on: • the number of quarters for which the employer has failed to lodge an SG statement by the due date, or for which we have made a default assessment • the degree of the employer's attempt to comply with their SG obligations previously (not including their attempts to comply for the period being considered) • any previous SG audits conducted on the employer including outcomes, and • any shift in behaviour by an employer that has been subject to a previous audit. This may be demonstrated by an improvement or deterioration in their level of engagement and cooperation with us during the compliance activity. • the number of quarters for which the employer has failed to lodge an SG statement by the due date, or for which we have made a default assessment • the degree of the employer's attempt to comply with their SG obligations previously (not including their attempts to comply for the period being considered) • any previous SG audits conducted on the employer including outcomes, and • any shift in behaviour by an employer that has been subject to a previous audit. This may be demonstrated by an improvement or deterioration in their level of engagement and cooperation with us during the compliance activity. If the employer has a good compliance history (noting that 'good' does not have to mean exceptional), the penalty should remain at the base penalty level set in Step 1. If the employer has neither a good nor poor compliance history, apply an uplift to the base penalty level set in Step 1. Generally, the uplift should not exceed 5%. If the employer has a poor compliance history, apply a larger uplift to the base penalty level set in Step 1. Generally, this uplift should not exceed 10%. The following examples illustrate some of the common situations of poor compliance history where an uplift in the level of base penalty may be appropriate: • The employer has demonstrated a history or habit of lodging SG statements late. • The employer has previously been issued with an SG education direction, and their repeated behaviour indicates that they have not taken the lessons from that direction on-board. • The employer has previously been issued with an SGC default assessment and has shown no improvement in behaviour. • The employer was not adequately addressing (through an active payment plan) an outstanding SGC debt, or other tax debt, prior to the current matter arising. • The employer has several outstanding lodgments relating to other taxes. • The employer has demonstrated a history or habit of lodging SG statements late. • The employer has previously been issued with an SG education direction, and their repeated behaviour indicates that they have not taken the lessons from that direction on-board. • The employer has previously been issued with an SGC default assessment and has shown no improvement in behaviour. • The employer was not adequately addressing (through an active payment plan) an outstanding SGC debt, or other tax debt, prior to the current matter arising. • The employer has several outstanding lodgments relating to other taxes. Step 3 - identify other mitigating facts and circumstances Where an employer took voluntary actions prior to notice of ATO compliance action at Step 1 you need to consider all other relevant facts and circumstances to ensure the resulting Part 7 penalty is appropriate. Where you have already taken into account the degree of the employer's attempt to comply (in Step 1) and the employer's compliance history (in Step 2), you should not consider these circumstances again for further remission at Step 3. For example, an employer may be found to have a good compliance history at Step 2 due to no previous SG audits or previously lodged SG statements. The fact an employer has not had a previous SG audit or lodged an SG statement before is not an 'other mitigating fact or circumstance'. If an employer did not take voluntary action prior to notice of ATO compliance action at Step 1, it would generally not be considered appropriate to remit the penalty at this step any lower than the base penalty set at Step 1. Other mitigating facts or circumstances include: • the malfunction or outage of a key ATO system which the employer can demonstrate caused them to narrowly miss the lodgment due date [29] • ill health of the employer or a key employee of the employer • the employer has provided evidence that they have taken steps to mitigate the circumstances that contributed to their non-compliance with their SG obligations (noting that a promise or agreement to do so is not sufficient evidence) • the employer's non-compliance with their SG obligations occurred in their first year of operation, and their principals had no previous business experience • the employer has made an unprompted voluntary disclosure of their SGC liability for a quarter and the facts indicate the shortfall arose due to an error or honest mistake • the employer made all required contributions, but was late in paying by a small period, or • the employer participates in a penalty relief arrangement and is given an education direction as a more appropriate treatment for their behaviour. • the malfunction or outage of a key ATO system which the employer can demonstrate caused them to narrowly miss the lodgment due date [29] • ill health of the employer or a key employee of the employer • the employer has provided evidence that they have taken steps to mitigate the circumstances that contributed to their non-compliance with their SG obligations (noting that a promise or agreement to do so is not sufficient evidence) • the employer's non-compliance with their SG obligations occurred in their first year of operation, and their principals had no previous business experience • the employer has made an unprompted voluntary disclosure of their SGC liability for a quarter and the facts indicate the shortfall arose due to an error or honest mistake • the employer made all required contributions, but was late in paying by a small period, or • the employer participates in a penalty relief arrangement and is given an education direction as a more appropriate treatment for their behaviour. Note: This list is not exhaustive. An employer's penalty should not be remitted at Step 3 merely because the penalty may be 'relatively small'. It may be appropriate, where there are additional mitigating factors to those considered at Steps 1 and 2, to consider increasing the level of penalty remission if the assessment would be considered harsh in the particular circumstances of the employer. [30] However, it generally would not be appropriate to remit further where the employer: • is reasonably expected to have fully understood their SG obligations (for example, where they have been previously subject to compliance action, or previously lodged an SG statement, or is a tax or super professional who should have a higher level of knowledge) • has a history of not meeting SG obligations on their other entities • took steps to prevent or obstruct us from determining their SGC liability. This would be more than not responding to an ATO letter. Examples would be where they repeatedly failed to keep appointments to supply information for no acceptable reason, or deliberately supplied irrelevant, inadequate or misleading information, or engaged in behaviour delaying the provision of information • has demonstrated a history of repeated disengagement, and • took steps to deliberately evade payment of their SG liability, such as through 'phoenix' activities. • is reasonably expected to have fully understood their SG obligations (for example, where they have been previously subject to compliance action, or previously lodged an SG statement, or is a tax or super professional who should have a higher level of knowledge) • has a history of not meeting SG obligations on their other entities • took steps to prevent or obstruct us from determining their SGC liability. This would be more than not responding to an ATO letter. Examples would be where they repeatedly failed to keep appointments to supply information for no acceptable reason, or deliberately supplied irrelevant, inadequate or misleading information, or engaged in behaviour delaying the provision of information • has demonstrated a history of repeated disengagement, and • took steps to deliberately evade payment of their SG liability, such as through 'phoenix' activities. These are regarded as serious cases, and a reduction in the level of remission, or no remission at all, may be appropriate. Step 4 - Identify any exceptional circumstances that prevented lodgment of an SG statement prior to notice of ATO compliance action Where exceptional circumstances prevented an employer from lodging an SG statement, it may be appropriate to remit the penalty below the base penalty level set in Step 1. It is not possible to set precise rules for what constitutes exceptional circumstances. The core idea of exceptional circumstances and similar terms are that there is something unusual to take the case out of the ordinary course. [31] In addition, in determining whether exceptional circumstances exist, you should bear in mind the purpose of the discretion that is being exercised. [32] When considering a quarter that was covered by the SG amnesty and whether the Part 7 penalty remission restriction applies, you should also bear in mind the purpose of the remission restriction. [33] It is not enough for the employer to demonstrate exceptional circumstances that prevented them from meeting the due date to make SG contributions, or to make payment of an SGC liability after disclosing it. The exceptional circumstances must have prevented the employer from lodging their SG statement. Finding exceptional circumstances is a very high threshold and must be determined on a case-by-case basis depending on the particular facts of the case. Some examples of factors that are unlikely to constitute exceptional circumstances on their own are: • An employer facing financial difficulty (including financial difficulty arising from a natural disaster) - while these circumstances may impact an employer's capacity to meet their SG contribution obligations, it does not prevent them from lodging an SG statement and disclosing their shortfall to us. Employers who are unable to make contributions before the due date can lodge an SG statement with us and explore options for a payment arrangement to meet their liabilities. • An employer did not understand the law or their obligations - this includes if the employer has relied on poor advice from a third party. • An employer made a mistake or error in determining their SG obligations - for example if they unintentionally or inadvertently treated a payment as falling outside of 'ordinary time earnings' and therefore not forming part of their SG obligation. • An employer claimed that they failed to come forward during the SG Amnesty due to a lack of time between the SG amnesty being legislated and the SG amnesty period ending - this is not exceptional circumstances, and the employer always had the obligation to lodge SG statements regardless of the existence of the SG amnesty. • An employer facing financial difficulty (including financial difficulty arising from a natural disaster) - while these circumstances may impact an employer's capacity to meet their SG contribution obligations, it does not prevent them from lodging an SG statement and disclosing their shortfall to us. Employers who are unable to make contributions before the due date can lodge an SG statement with us and explore options for a payment arrangement to meet their liabilities. • An employer did not understand the law or their obligations - this includes if the employer has relied on poor advice from a third party. • An employer made a mistake or error in determining their SG obligations - for example if they unintentionally or inadvertently treated a payment as falling outside of 'ordinary time earnings' and therefore not forming part of their SG obligation. • An employer claimed that they failed to come forward during the SG Amnesty due to a lack of time between the SG amnesty being legislated and the SG amnesty period ending - this is not exceptional circumstances, and the employer always had the obligation to lodge SG statements regardless of the existence of the SG amnesty. Some factors that may point towards a finding of exceptional circumstances include: • An employer has been impacted by a natural disaster - however the natural disaster must have directly impacted an employer's ability to lodge; financial hardship or business downturn resulting from a natural disaster alone will not point to exceptional circumstances. • An employer's ability to lodge has been impacted by the COVID-19 pandemic - as with the above point, the pandemic would need to have directly impacted their ability to lodge, for example if the employer was displaced interstate or overseas and unable to access business records. The financial impact alone will not be sufficient. • An employer relied on ATO guidance that advised that they did not have an SG shortfall, and as such did not believe they had any obligation to lodge an SG statement. If the ATO guidance turned out to be incorrect, the employer could not have known they were required to lodge before they were advised of the revised position. [34] • An employer was suffering from severe illness or other affliction that rendered them incapable of lodging an SG statement. • An employer has been impacted by a natural disaster - however the natural disaster must have directly impacted an employer's ability to lodge; financial hardship or business downturn resulting from a natural disaster alone will not point to exceptional circumstances. • An employer's ability to lodge has been impacted by the COVID-19 pandemic - as with the above point, the pandemic would need to have directly impacted their ability to lodge, for example if the employer was displaced interstate or overseas and unable to access business records. The financial impact alone will not be sufficient. • An employer relied on ATO guidance that advised that they did not have an SG shortfall, and as such did not believe they had any obligation to lodge an SG statement. If the ATO guidance turned out to be incorrect, the employer could not have known they were required to lodge before they were advised of the revised position. [34] • An employer was suffering from severe illness or other affliction that rendered them incapable of lodging an SG statement. There may be some instances where the law or its application to particular facts is uncertain or unclear, such as complex cases of worker classification. The fact that an employer classified workers as contractors, and they were later found to be employees, will not of itself constitute an exceptional circumstance. In determining whether exceptional circumstances are present, you will need to consider the employer's position and all evidence provided, and whether it is reasonable to conclude that the employer could not have known that they needed to lodge an SG statement. Example 1 - no remission - default assessment with disengagement and phoenix arrangements Default assessments of an employer's SGC were made on 20 March 2021 for the quarters ended 30 September 2020 to 31 December 2020.The employer has been subject to two previous audits, resulting in default SGC assessments being issued at the conclusion of each audit. Applying Step 1, the tax officer identifies that the director of the employer company is linked to four liquidated companies which have also had compliance issues, suggesting the director has engaged in phoenix activity. The tax officer determines the Part 7 penalty should be set at a base penalty of 100% (that is, the full imposed penalty equivalent to 200% of the SGC). This is because the employer did not provide information for the ATO to make an assessment of the employer's SGC and has demonstrated severe disengagement. Applying Step 2, the tax officer notes that the employer has been subject to two previous audits and there has been no apparent shift in the employer's attitude to their SG obligations as they again did not cooperate or respond to requests for information. As the penalty is already at the maximum level, the tax officer does not change remission at this step. Applying Steps 3 and 4, the tax officer notes that there are no other factors to consider that would warrant remission of the penalty. After considering each of the steps, the Part 7 penalty is not remitted at all. A Part 7 penalty assessment equivalent to 200% of the SGC is issued against the employer. The TAA default assessment penalty is fully remitted. Example 2 - 15% remission - default assessment with no information provided Default assessments of an employer's SGC were made on 20 March 2021 for the quarters ended 30 September 2020 and 31 December 2020.The employer has been subject to two previous audits, resulting in default SGC assessments being issued at the conclusion of each audit. Applying Step 1, the tax officer determines the Part 7 penalty should be remitted by 25% to a base penalty of 75%, as the employer did not lodge an SG statement and did not provide information for the ATO to make an assessment of the employer's SGC. Applying Step 2, the tax officer notes that the employer has been subject to two previous audits and there has been no apparent shift in the employer's attitude to their SG obligations as they again did not cooperate or respond to requests for information. The tax officer determines that an uplift in the level of penalty of 10% would be appropriate. Applying Steps 3 and 4, the tax officer notes that there are no other factors that would warrant further remission of the penalty. After considering each of the steps, the Part 7 penalty is remitted by 15%, leaving a residual penalty of 85%. A Part 7 penalty assessment equivalent to 170% of the SGC is issued against the employer. The TAA default assessment penalty is fully remitted. Example 3 - 25% remission - default assessment with information unable to be provided Default assessments of an employer's SGC were made on 20 March 2021 for the quarters ended 30 September 2020 to 31 December 2020. During the compliance activity, the employer: • advised they have been unable to find the information that has been requested, but • acknowledged that they have SGC liabilities for the relevant quarters. • advised they have been unable to find the information that has been requested, but • acknowledged that they have SGC liabilities for the relevant quarters. Applying Step 1, the tax officer determines that the Part 7 penalty should be remitted by 25% to a base penalty of 75% as the employer did not provide information to the ATO to make an assessment of the employer's SGC. Applying Step 2, the tax officer notes that the employer has no outstanding lodgments or debts in relation to their other taxation law obligations and that this is the first time they have been subject to a compliance activity regarding their SG obligations. Based on their good compliance history, the level of penalty remission is unchanged. Applying Steps 3 and 4, the tax officer notes there are no other factors to consider. After considering each of the steps, the Part 7 penalty is remitted by 25%, leaving a residual penalty of 75%. A Part 7 penalty assessment equivalent to 150% of the SGC is issued against the employer. The TAA default assessment penalty is fully remitted. Example 4 - 80% remission - voluntary disclosure prior to ATO contact with poor compliance history An employer has SG shortfall amounts for the quarters ended 30 September 2020 and 31 December 2020 and on 20 May 2021 lodges the required SG statements for these quarters. Applying Step 1, the tax officer determines the employer lodged SG statements after the due date but prior to any ATO contact. The Part 7 penalty should be remitted by 90% to a base penalty of 10%. Applying Step 2, the tax officer determines the employer's habitual lodgment of SG statements after the due date, illustrates the employer's behaviour to comply with their SG obligation is not improving. Based on the employer's poor compliance history the level of penalty is uplifted by 10%. Applying Steps 3 and 4, the tax officer notes there are no other factors to consider. After considering each of the steps, the Part 7 penalty is remitted by 80%, leaving a residual penalty of 20%. A Part 7 penalty assessment equivalent to 40% of the SGC is issued against the employer. Example 5 - 50% remission - SG statement provided with late payment offset (LPO) claim for part of the SGC For the quarter ended 31 March 2020, an employer fails to make SG contributions to the respective super funds of his employees by the due date of 28 April 2020. However, the employer makes these contributions late, on 20 December 2020. The employer also fails to lodge an SG statement disclosing the SG shortfalls. In response to an audit notification letter issued on 14 June 2021, the employer lodged an SG statement on 20 June 2021; which created an SGC assessment for the quarter of $8,000 which included an LPO claim for $6,000. The employer indicates that it is their first year of operation and they did not understand their lodgment obligations. Applying Step 1, the tax officer determines that the employer has provided an SG statement after the commencement of the audit. The Part 7 penalty should initially be remitted by 50%, to a base penalty of 50%. Applying Step 2, the tax officer notes the employer's compliance history in respect of their other taxation law obligations is good, with no indication of any other failed lodgments or payments. The tax officer leaves the penalty unchanged at this step. Considering Step 3, the tax officer cannot remit the penalty further as the employer did not take voluntary action prior to being notified of ATO compliance action. Considering Step 4, the tax officer identifies that payments were eventually made late with an LPO claimed, and that the employer was in its first year of operation when the SG shortfall arose. However, these two circumstances on their own do not demonstrate that exceptional circumstances prevented the employer from disclosing the SG shortfalls. The level of penalty remission is unchanged. After considering each of the steps, the Part 7 penalty is remitted by 50%, leaving a residual penalty of 50%. A Part 7 penalty assessment equivalent to 100% of the SGC is issued against the employer. Example 6 - penalty relief applied and SG education direction imposed - voluntary disclosure after initial ATO contact An employer has SG shortfall amounts for the quarter ended 30 September 2019. In response to an initial early engagement contact by the ATO on 14 February 2021, the employer lodged an SG statement. Applying Step 1, the tax officer determines that the employer lodged SG statements after the due date and after initial ATO contact, but before any ATO compliance action. The Part 7 penalty should be remitted by 80% to a base penalty of 20%. Applying Step 2, the tax officer notes the employer's compliance history in respect of their other taxation law obligations is good, so the level of penalty remission remains unchanged. Applying Step 3, the tax officer notes the employer is eligible for penalty relief, as this is the first time the employer has failed to meet their SG obligations and has lodged less than four SG statements in the present case. The tax officer decides to apply penalty relief and fully remits the remaining penalty. After considering each of the steps, and applying penalty relief, the Part 7 penalty is fully remitted. In accordance with the penalty relief process the employer is issued with an SG education direction. Example 7 - full remission - voluntary disclosure prior to ATO contact and good compliance history An employer has SG shortfall amounts for the quarters ended 30 September 2020 to 31 March 2021. On 20 July 2021 the employer voluntarily discloses to the ATO that they have these shortfalls and lodges the required SG statements for these quarters. Applying Step 1, the tax officer determines the employer lodged SG statements after the due date but prior to any ATO contact. The Part 7 penalty is remitted by 90% to a base penalty of 10%. Applying Step 2, the tax officer identifies the employer has not previously lodged an SG statement and has otherwise met their SG obligations. The employer's compliance with other taxation laws is generally good, even though the employer lodged two tax returns late for the compliance history period under consideration. The tax officer decides that based on the employer's overall good compliance history the level of penalty remission should remain unchanged. Applying Step 3, the tax officer notes that the employer has explained the processes that they have put in place to mitigate the circumstances which led to the SG non-compliance. This includes upgrading the employer's payroll software to set up alerts for when SG payments are due. The tax officer determines that this is a mitigating circumstance and increases remission by 10%. After considering each of the steps, the Part 7 penalty is fully remitted. Example 8 - full remission - unprompted voluntary disclosure where an error or honest mistake was made An employer has SG shortfall amounts for the quarters ended 30 September 2018 to 30 June 2020.The employer identified during an internal review that the shortfalls had originated from within their payroll system, where a particular allowance was incorrectly classified as not attracting SG. The employer's SG shortfalls did not arise for any other reason. On 20 September 2020, the employer lodged SG statements for these quarters. Applying Step 1, the tax officer determines the employer lodged SG statements after the due date but prior to any ATO contact. The Part 7 penalty is remitted by 90% to a base penalty of 10%. Applying Step 2, the tax officer notes the employer has a good compliance history, and that the level of penalty remission should remain unchanged. Applying Step 3, the tax officer identifies the employer made the unprompted voluntary disclosure of their SG shortfalls which originated from an unintentional error in their payroll system and was an honest mistake. The tax officer decides, based on the particular facts of the employer, to remit the remaining penalty. After considering each of the steps, the Part 7 penalty is fully remitted. However, had the SG shortfalls arisen for any other reason, the tax officer would not have fully remitted the penalty. Example 9 - full remission with exceptional circumstances - ability to lodge impacted by natural disaster An employer has SG shortfall amounts for the quarters ended 30 December 2019 to 31 March 2020. A notification of audit letter was issued on 14 July 2021. In response to ATO compliance action, the employer advises the tax officer that they were unable to determine any SG shortfalls for the periods as their business premises were badly damaged by bushfires that occurred in early 2020. Applying Step 1, the tax officer determines that the Part 7 penalty should be remitted by 50% to a base penalty of 50%, as the employer lodged an SG statement after ATO compliance action commenced. Applying Step 2, the tax officer notes the employer's compliance history is good and leaves the penalty remission unchanged. Considering Step 3, the tax officer notes that the employer cannot receive remission at this step as they did not take voluntary action to comply. Applying Step 4, the tax officer determines that the employer was prevented from lodging SG statements due to the damage their business premises suffered. Further, given the difficult circumstances it may not have been reasonable to expect the employer to have made a request for deferral for lodging any potential SG statements. The tax officer determines that there are exceptional circumstances that prevented the employer from disclosing SG shortfalls, and fully remits the remaining penalty. After considering each of the steps, the Part 7 penalty is fully remitted. Example 10 - 50% remission with no exceptional circumstances - ability to lodge impacted by COVID-19 An employer has SG shortfall amounts for the quarters ended 31 October 2016 to 31 March 2017. A notification of audit letter was issued on 20 November 2020. In response to the ATO compliance action, the employer explains that they were unaware that they had SG shortfalls requiring them to lodge an SG statement. They explain that since March 2020 they have been unable to ascertain whether they have SG shortfalls as they: • were overseas when the COVID-19 pandemic began • were unable to return to Australia due to border lockdowns, and • could not access necessary business records to determine any shortfalls, as they are stored in Australia. • were overseas when the COVID-19 pandemic began • were unable to return to Australia due to border lockdowns, and • could not access necessary business records to determine any shortfalls, as they are stored in Australia. Applying Step 1, the tax officer determines that the Part 7 penalty should be remitted by 50% to a base penalty of 50%, as the employer lodged an SG statement after ATO compliance action commenced. Applying Step 2, the tax officer notes the employer's compliance history is good and leaves the penalty remission unchanged. Considering Step 3, the tax officer notes that the employer cannot receive remission at this step as they did not take voluntary action to comply. Applying Step 4, the tax officer determines that the COVID-19 pandemic impacted the employer's ability to disclose SG shortfalls from March 2020 onwards. However, the employer has not provided any evidence to suggest that they were prevented from identifying SG shortfalls and lodging SG statements between 24 May 2018 (the beginning of the SG amnesty period) and March 2020. While the unprecedented impacts of the pandemic would constitute exceptional circumstances from March 2020 onwards, the tax officer determines that further remission cannot be provided as exceptional circumstances did not prevent the employer from lodging SG statements from 24 May 2018. After considering each of the steps, the Part 7 penalty is remitted by 50%, leaving a residual penalty of 50%. A Part 7 penalty assessment equivalent to 100% of the SGC is issued against the employer. Example 11 - 80% remission with no exceptional circumstances - voluntary disclosure after initial ATO contact, business impacted by COVID-19 An employer has SG shortfall amounts for the quarters ended 30 June 2020 and 31 October 2020. In response to an initial early engagement contact by the ATO on 15 December 2020, the employer lodges SG statements. The employer indicates that they failed to make SG contributions for their employees in the two quarters as their business suffered significant downturn due to the COVID-19 pandemic, and they were facing financial difficulties. Applying Step 1, the tax officer determines that the Part 7 penalty should be remitted by 80% to a base penalty of 20%, as the employer lodged an SG statement after initial ATO contact, but before any ATO compliance action commenced. Applying Step 2, the tax officer notes the employer's compliance history is good and leaves the penalty remission unchanged. Applying Step 3, the tax officer does not identify any other mitigating circumstances warranting further remission. Applying Step 4, the tax officer notes that whilst the COVID-19 pandemic had an unprecedented financial impact on the employer's business, there is no indication that this impact prevented the employer from lodging SG statements before their due date. Therefore, absent further information, the tax officer determines that there were no exceptional circumstances warranting further remission. After considering each of the steps, the Part 7 penalty is remitted by 80% leaving a residual penalty of 20%. A Part 7 penalty assessment equivalent to 40% of the SGC is issued to the employer. You are invited to comment on this draft Practice Statement, including the proposed date of effect. Please forward your comments to the contact officer by the due date. A compendium of comments is prepared for when finalising this Practice Statement, and an edited version (with names and identifying information removed) is published to the Legal database on ato.gov.au. Please advise if you do not want your comments included in the edited version of the compendium. Due date 28 August 2020 Contact Benjamin.Murphy@ato.gov.au Date of Issue: 30 July 2020 Date of Effect: When finalised, this Practice Statement will apply from 8 September 2020. [1] All further references to 'this Practice Statement' refer to the Practice Statement as it will read when finalised. Note that this Practice Statement will not take effect until finalised. [2] Jane Hume MP, Second Reading Speech, Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019, Commonwealth of Australia, Senate, Hansard, 24 February 2020, page 1111. [3] Subsection 59(1) of the SGAA. The SG statement or information may relate to an SGC arising from a failure to provide super support for an employer or a failure to fulfil the choice of fund obligations for an employee in Part 3A of the SGAA. [4] See subsection 33(1) of the SGAA for lodgment due dates. [5] Section 36 of the SGAA; Law Administration Practice Statement PS LA 2007/10 Making default assessments: section 36 of the Superannuation Guarantee (Administration) Act 1992 . [6] Subsection 59(1) of the SGAA. [7] Subsection 59(3) of the SGAA. [8] Section 37 of the SGAA. [9] Subsection 284-75(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA); Law Administration Practice Statement PS LA 2012/5 Administration of the false misleading statement penalty - where there is a shortfall amount . See section 8 of this Practice Statement for more information. [10] Section 60 of the SGAA. [11] Subsection 74(4) of the SGAA. [12] Subsection 62(3) of the SGAA. [13] Section 42 of the SGAA. [14] Subsection 62(4) of the SGAA which takes effect from 16 September 2020 - as introduced by the Treasury Laws Amendment (Recovering Unpaid Superannuation) Act 2020 . See Miscellaneous Taxation Ruling MT 2012/3 Administrative penalties: voluntary disclosures for more information about ATO compliance action and an 'examination of [SG] affairs'. [15] Subsection 62(5) of the SGAA which takes effect from 16 September 2020. [16] Subsection 62(3) of the SGAA. [17] The SGC is a tax-related liability per table item 60 of subsection 250-10(2) of Schedule 1 to the TAA. [18] Subsection 284-75(3) of Schedule 1 to the TAA. [19] Table item 7 of subsection 284-90(1) of Schedule 1 to the TAA. [20] Subsection 298-20(1) of Schedule 1 to the TAA. [21] A statement is anything that is disclosed for a purpose connected with a taxation law orally or in writing and includes those made electronically. See section 284-20 of Schedule 1 to the TAA. [22] 'Taxation law' is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 and includes an Act of which the Commissioner has the general administration. The Commissioner has the general administration of the SGAA: section 43 of the SGAA. [23] Subsection 284-75(1) of Schedule 1 to the TAA. [24] Subsection 298-20(2) of Schedule 1 to the TAA. [25] Subsection 298-30(2) of Schedule 1 to the TAA. [26] This may include ATO activities, such as reminder letters, that are a preliminary ATO contact before any compliance action is considered. [27] Taxation law is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 to mean an Act or part of an Act of which the Commissioner has the general administration, and legislative instruments made under such an Act or part of an Act. [28] If an employer supplies you with information about their compliance history, the evidence should include details which this Practice Statement instructs you to focus on. [29] For example, if the employer attempted to use the Small Business Super Clearing House to make an SG payment on time but due to a system outage the payment was not able to be processed until after the cut-off date. [30] See Archibald Dixon as Trustee for the Dixon Holdsworth Superannuation Fund v Commissioner of Taxation [2008] FCAFC 54. [31] Ward v Commissioner of Taxation [2016] FCAFC 132 at [39-41] [32] Re Rosemarie Beadle and Director-General of Social Security [1984] AATA 176. [33] Paragraphs 1.81 to 1.90 of the Explanatory memorandum to the Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019. [34] See Law Administration Practice Statement PS LA 2008/3 Provision of advice and guidance by the ATO. See also Taxpayer's Charter - helping you to get things right. File 1-I1A48E2 ISSN 2651-9526 Related Rulings/Determinations: MT 2012/3 Related Practice Statements: PS LA 2007/10 PS LA 2008/3 PS LA 2012/5 Other References: Explanatory memorandum to the Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019 Treasury Laws Amendment (Recovering Unpaid Superannuation) Act 2020 Taxpayer's Charter - helping you to get things right",PS LA 2020/4 | PS LA 2008/3 | [2008] FCAFC 54 | MT 2012/3 | PS LA 2007/10 | PS LA 2012/5 | Explanatory memorandum | Treasury Laws Amendment (Recovering Unpaid Superannuation) Act 2020 | 33(1) | 36 | 37 | 42 | 43 | Part 7 | 59(1) | 59(3) | 60 | 62(3) | 62(4) | 62(5) | 74(4) | 250-10(2) | 284-20 | 284-75(1) | 284-75(3) | 284-90(1) | 298-20(1) | 298-20(2) | 298-30(2) | 995-1(1) | 2008 ATC 20-015 | (1984) 6 ALD 1 | (1984) 1 AAR 362 | 2016 ATC 20-583,PS LA 2007/10 PS LA 2008/3 PS LA 2012/5,SGAA 1992 | 33(1) | 36 | 37 | 42 | 43 | Part 7 | 59(1) | 59(3) | 60 | 62(3) | 62(4) | 62(5) | 74(4) | TAA 1953 | 250-10(2) | 284-20 | 284-75(1) | 284-75(3) | 284-90(1) | 298-20(1) | 298-20(2) | 298-30(2) | ITAA 1997 | 995-1(1),,Explanatory memorandum to the Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019 Treasury Laws Amendment (Recovering Unpaid Superannuation) Act 2020 Taxpayer's Charter - helping you to get things right,False,False,https://www.ato.gov.au/law/view/document?docid=DPS/PSD20201/NAT/ATO/00001,"This document has been finalised by PS LA 2020/4 . | APPENDIX 1 - FOUR STEP PENALTY REMISSION PROCESS | APPENDIX 3 - YOUR COMMENTS | When the final Practice Statement issues, it will have the following preamble: | Archibald Dixon as Trustee for the Dixon Holdsworth Superannuation Fund v Commissioner of Taxation [2008] FCAFC 54 (2008) 167 FCR 287 2008 ATC 20-015 (2008) 69 ATR 627 | Re Rosemarie Beadle and Director-General of Social Security [1984] AATA 176 (1984) 6 ALD 1 (1984) 1 AAR 362 | Ward v Commissioner of Taxation [2016] FCAFC 132 (2016) 247 FCR 372 2016 ATC 20-583 (2016) 103 ATR 823"
PS LA 2021/D1 (Finalised),Remission of additional superannuation guarantee charge,29 July 2021,,Law Administration Practice Statement,True,"1. What is this draft Practice Statement about?: This draft Practice Statement [1] sets out what you need to consider in making a decision on the remission, in whole or part, of the additional super guarantee charge (SGC) imposed under subsection 59(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA) where an employer fails to lodge a super guarantee (SG) statement by the lodgment due date. This additional SGC is referred to as the 'Part 7 penalty'. This Practice Statement also sets out when it is appropriate for penalty relief to be applied (refer to section 7 of this Practice Statement). | 2. What principles of the SG regime should you consider when making decisions?: The SG regime is designed to encourage employers to provide their employees with a minimum level of super. This compulsory super is a fundamental pillar in Australia's retirement income system. Where an employer does not provide this minimum level of super, the employer is liable to pay a tax (the SGC), which comprises: • the SG shortfall, calculated on salary and wages (including any overtime) • nominal interest of 10% per annum (accrues from the start of the relevant quarter), and • an administration fee of $20 per employee per quarter. • the SG shortfall, calculated on salary and wages (including any overtime) • nominal interest of 10% per annum (accrues from the start of the relevant quarter), and • an administration fee of $20 per employee per quarter. The SGC is collected from employers and is distributed primarily to the super interests of employees. For that reason, the SGC is unlike other taxes. Non-payment of SG contributions has severe impacts on several groups. Employees are deprived of super support, impairing their ability to save for retirement. Employers who meet their SG obligations may be disadvantaged in competing with others who do not comply. We take non-compliance with employer obligations seriously. We have pay-event reporting of SG accruals, and event-based reporting of contribution payments from funds regulated by the Australian Prudential Regulation Authority. This information provides us with end-to-end visibility of where an employer has not met their SG obligations for their employees. Where an employer does not come forward voluntarily for late or non-payment of SG contributions by the due date, we will engage with employers to get their obligations up to date. | 3. What is the Part 7 penalty?: The Part 7 penalty is an additional SGC imposed under Part 7 of the SGAA when an employer (when required to) fails to provide: • an SG statement for a quarter, or • information relevant to assessing the employer's liability to pay the SGC for a quarter. [2] • an SG statement for a quarter, or • information relevant to assessing the employer's liability to pay the SGC for a quarter. [2] The Part 7 penalty arises in two situations: • where an employer lodges an SG statement for a quarter after the due date [3] , or • where we make a default assessment [4] of the employer's liability for the SGC because - an employer has not lodged an SG statement for a quarter, and - we are of the opinion the employer is liable to pay the SGC for the quarter. • where an employer lodges an SG statement for a quarter after the due date [3] , or • where we make a default assessment [4] of the employer's liability for the SGC because - an employer has not lodged an SG statement for a quarter, and - we are of the opinion the employer is liable to pay the SGC for the quarter. - an employer has not lodged an SG statement for a quarter, and - we are of the opinion the employer is liable to pay the SGC for the quarter. The Part 7 penalty is automatically imposed on an employer by law. The Part 7 penalty imposed is equal to double the SGC payable by the employer for the quarter (that is, 200% of the SGC). [5] If an employer claims a late payment offset (LPO) to reduce their SGC payable, this reduction is disregarded for the purposes of calculating the amount of Part 7 penalty imposed. [6] In other words, the Part 7 penalty imposed is equal to double the total SGC for the quarter if no LPOs were claimed. The minimum amount of Part 7 penalty for a quarter is $20. [7] If you amend [8] an employer's SGC assessment for a quarter and a Part 7 penalty was imposed on the original SGC assessment, you must also amend the Part 7 penalty assessment for the quarter. On the other hand, if a Part 7 penalty was not imposed on the original SGC assessment for a quarter because the SG statement was lodged before the legislated due date, the Part 7 penalty is not imposed for any subsequent amendments. However, in either of these circumstances, an administrative penalty for making a false or misleading statement may be imposed. [9] SGC assessments covered by the SG amnesty The Treasury Laws Amendment (Recovering Unpaid Superannuation) Act 2020 introduced a one-off amnesty for employers who voluntarily disclosed SGC liabilities for quarters from 1 July 1992 to 31 March 2018 (known as 'historical quarters'). If an eligible employer lodged SG statements for historical quarters within the amnesty period (from 24 May 2018 to 7 September 2020), no Part 7 penalty is imposed on the SGC assessments. [10] However, an employer who is notified they are disqualified from the amnesty is treated as though they were never eligible for the amnesty. [11] In these cases, the Part 7 penalty will be imposed, and remission will need to be considered. If an employer had an SGC assessment that was covered by the SG amnesty, and they disclose new information after the end of the amnesty period that increases their SGC for the quarter, the new amounts will not receive the benefits of the amnesty. [12] As such, Part 7 penalty will be imposed on the new SGC and remission will need to be considered. Example - employer amends their SGC assessment in response to an audit after the SG amnesty An employer lodged SG statements on 1 July 2020 for ten employees for the quarters from 1 January 2015 to 31 December 2015. The employer was not liable for Part 7 penalty as their statements qualified for the SG amnesty. In February 2022, the employer is audited for the same period following an employee notification, and as a result, lodges SG statements for a further twenty employees. As this lodgment has been made after the end of the amnesty period, it does not qualify for the amnesty, and Part 7 penalty is imposed on the SGC corresponding to the twenty employees. | 4. When can you remit the Part 7 penalty?: You have the discretion to remit the Part 7 penalty, in full or in part. [13] This can be done as part of the assessment of the penalty (the original assessment stage) or after the penalty is assessed (through an objection decision). However, your ability to remit a Part 7 penalty imposed for a historical quarter may be restricted to a final penalty of at least 100% of the SGC. For more information on this restriction, and how to work out remission for a historical quarter, see Appendix 2 of this Practice Statement. Employers have the right to object to an assessment of a Part 7 penalty. [14] If an employer is dissatisfied with the level of remission of their Part 7 penalty, they should object to the Part 7 penalty assessment - while there is no separate right to object to the remission decision itself, an objection to the assessment encompasses the decision to remit. | 5. What process should you follow to determine whether to remit the Part 7 penalty?: The Part 7 penalty is automatically imposed at a rate of 200% and you should consider whether the penalty should be remitted in all cases. Except in rare cases where there is an employer engaging in egregious tax avoidance behaviour, you should remit the Part 7 penalty either in part or in full. Your remission decision should take into account all the relevant facts and indicia. You must follow the four-step penalty remission process outlined in Appendix 1 of this Practice Statement when deciding whether it is appropriate to remit the Part 7 penalty down from 200%. Step 1: Consider remission based on the employer's attempt to comply with their obligations through late payment. Step 2: Consider remission based on the employer's attempt to comply with their obligations by lodging an SG statement. Step 3: Consider any increase or reduction in penalty based on the employer's compliance history. Step 4: Consider any other mitigating facts or circumstances that warrant further remission. The four-step penalty remission process is designed to accommodate the principles of this Practice Statement and to ensure that employers in like circumstances receive like treatment as far as practicable. It is also important for you to understand that penalties are imposed to: • encourage employers to pay super contributions for their employees correctly and on time • change the decision-making behaviour of employers to ensure that employee SG entitlements are not put at risk of delay, compromise or loss, and • encourage employers to lodge SG statements by their due dates. • encourage employers to pay super contributions for their employees correctly and on time • change the decision-making behaviour of employers to ensure that employee SG entitlements are not put at risk of delay, compromise or loss, and • encourage employers to lodge SG statements by their due dates. You must have collected all relevant information and document the evidence and basis for any remission decision you make. Examples illustrating the penalty remission process can be found in Appendix 3 of this Practice Statement. | 6. How do you determine remission where an amendment increases the SGC and Part 7 penalty?: If you undertake compliance activity that identifies additional SGC for a quarter that has previously been assessed, you should follow the four-step remission process as normal in relation to the amendment. This is a new remission decision, unrelated to any previous decision that has previously been made for the quarter. When you have worked out this remission percentage, you will need to apply it to the additional Part 7 penalty imposed at amendment to determine the residual penalty for that component. This will be combined with the residual Part 7 penalty that was worked out in the original assessment to determine the overall penalty for the quarter, and the overall remission percentage. In effect, this means any Part 7 penalty which has already been remitted in a previous decision will not be affected (see Example 10 of this Practice Statement). Sometimes, the original assessment will also need to be amended in order to correct mistakes or small amounts of information missing when an SG statement is lodged. In these cases, a single remission decision can be made for the total assessment. | 7. When is it appropriate to provide penalty relief?: In some limited cases, it may be appropriate to provide additional remission to an employer in conjunction with a direction for education - this is known as a 'penalty relief' arrangement. You may provide an employer with a penalty relief arrangement where education is considered a more effective option to positively influence behaviour. This approach recognises that while we expect all employers to meet their SG obligations, an employer may have SG knowledge gaps that lead to non-compliance and these can be addressed through education. An employer should only be considered for a penalty relief arrangement where they have a turnover of less than $50 million and they: • took voluntary action to comply with their obligation to lodge SG statements • do not have a history of lodging SG statements late • have lodged no more than four SG statements after the lodgment due date in the present case • have no previous SG audits where they were found to have not met their SG obligations, and • have not previously been provided with penalty relief. • took voluntary action to comply with their obligation to lodge SG statements • do not have a history of lodging SG statements late • have lodged no more than four SG statements after the lodgment due date in the present case • have no previous SG audits where they were found to have not met their SG obligations, and • have not previously been provided with penalty relief. Penalty relief would not be appropriate where the employer has: • been issued with an SGC default assessment • lodged more than four SG statements after the lodgment due date in the present case, or • previously been issued with an SG education direction. • been issued with an SGC default assessment • lodged more than four SG statements after the lodgment due date in the present case, or • previously been issued with an SG education direction. Penalty relief may be applied by providing further remission of a residual penalty at Step 4 of the four-step penalty remission process and instead providing the employer with education to help them meet their obligations in the future. This education should be by way of a formal SG education direction and may be supplemented with informal education. Any education should focus on making enough contributions to avoid an SG shortfall, and/or lodging SG statements on time in the future. It should advise the client of the penalties for failing to lodge on time. An employer should not be provided penalty relief at any point before the relevant SG assessments have been finalised and you are ready to finalise your remission decision. An employer cannot apply for penalty relief, and an employer cannot specifically object to a decision not to apply penalty relief. Your decision to apply penalty relief forms part of your exercise of the remission power provided by the SGAA. [15] | 8. What should you do before finalising the remission decision?: In some circumstances, it may be appropriate to contact the employer to give notice of the anticipated penalty and the reasons for the remission decision before applying the Part 7 penalty. This may be appropriate if, for example, a significant residual penalty will remain after remission. You may give notice during an audit conversation or in writing. The purpose of this contact is to encourage full disclosure of relevant facts and circumstances to ensure the penalty strikes the right balance in the first instance. This is not an opportunity to negotiate the anticipated penalty. Rather, it is designed to draw out relevant facts or circumstances for your decision which were previously unknown. Example - tax officer notifies employer of anticipated penalty An employer is subject to an audit of their SG obligations for the quarters ended 31 March 2019 to 30 September 2019. The employer has authorised another person to handle the SG audit and the tax officer has been dealing with this authorised contact. The authorised contact provides SG statements on behalf of the employer for the full period under audit. The tax officer phones the authorised contact and notifies them of the anticipated penalty and the associated reasons. The tax officer also outlines the relevant facts and circumstances known to them. The authorised contact requests time to make contact with the employer to obtain any other facts or circumstances relevant to the decision. The employer then contacts the tax officer directly to explain further relevant facts. Considering these new facts, the tax officer decides to provide further remission of the penalty than was initially indicated. | 9. How does the Part 7 penalty interact with other administrative penalties?: TAA default assessment penalty An employer is also liable to an administrative penalty under the TAA where: • we determine a tax-related liability [16] without the assistance of a return, notice or other document • the document has not been provided by a specified time, and • the document is necessary to accurately determine the tax-related liability. [17] • we determine a tax-related liability [16] without the assistance of a return, notice or other document • the document has not been provided by a specified time, and • the document is necessary to accurately determine the tax-related liability. [17] This Practice Statement refers to this penalty as the 'TAA default assessment penalty'. Where we make a default assessment of an employer's SGC liability, the Part 7 penalty and the TAA default assessment penalty may both apply. The base penalty amount of the TAA default assessment penalty is 75% of the tax-related liability. [18] You can remit the TAA default assessment penalty, in full or in part. [19] You should consider remitting in full the employer's liability to the TAA default assessment penalty regardless of the extent to which the Part 7 penalty is remitted. The Part 7 penalty is the penalty specifically provided for by the SGAA and is generally the appropriate penalty to apply where both penalties are imposed. TAA false or misleading statement penalty Likewise, an employer is liable to an administrative penalty under the TAA where the employer makes a statement [20] to us under a taxation law [21] and the statement is false or misleading in a material particular, whether because of things in it or things omitted from it. [22] This Practice Statement refers to this penalty as the 'TAA false or misleading statement penalty'. This penalty may be imposed where an employer is assessed for the SGC because they lodged an SG statement, and that assessment is subsequently amended because the SG statement stated an incorrect SG shortfall. You can remit the TAA false or misleading statement penalty, in full or in part. Consistent with the treatment of the TAA default assessment penalty, you should consider remitting in full the employer's liability to the TAA false or misleading statement penalty where the Part 7 penalty has also been imposed under the law for the same quarter. However, you should fully consider the application of the TAA false or misleading statement penalty to the employer's shortfall amount in situations where the law did not impose a Part 7 penalty (generally where an SG statement was lodged on or before the due date). Administrative penalty remission decision and objections You are not required to give the employer written notice of a decision to remit in full the TAA default assessment penalty or the TAA false or misleading statement penalty. However, if you do not remit an administrative penalty in full, you must inform the employer of the reasons for that decision. [23] Employers can object to an assessment of the TAA default assessment penalty or the TAA false or misleading statement penalty. [24] | 10. More information: For more information, see: • Law Administration Practice Statement PS LA 2008/3 Provision of advice and guidance by the ATO • Archibald Dixon as Trustee for the Dixon Holdsworth Superannuation Fund v Commissioner of Taxation [2008] FCAFC 54 • Law Administration Practice Statement PS LA 2008/3 Provision of advice and guidance by the ATO • Archibald Dixon as Trustee for the Dixon Holdsworth Superannuation Fund v Commissioner of Taxation [2008] FCAFC 54 Step 1 - consider remission based on the employer's attempt to comply with their obligations through late payment Using the following table, consider an initial amount of remission based on an employer's attempt to comply with their SG obligations by making late payments to employees' super funds. Where an employer has made these late payments, they can claim an LPO when they lodge their SG statement. While this LPO does not reduce the amount of penalty that is imposed, it is appropriate to recognise that the employer has met their employees' entitlements (albeit late), and some remission is warranted compared to an employer who has not met their employees' entitlements. This step only considers late payments for which an LPO has been claimed in respect of the relevant quarters. It does not consider: • SG contributions that were made on-time [25] , as these did not give rise to an SGC liability or penalty. • Late payments where an employer has elected to count those payments towards their obligations in a different quarter, instead of claiming the LPO. • Payments of SGC (although these payments may be relevant when considering Step 4 of this decision-making process). Degree of attempt to comply Remission No late payments made for which an LPO has been claimed. 0% Late payment made in response to ATO compliance action, for example, after an audit has commenced. 10% Late payment made after initial ATO contact [26] but before any ATO compliance action. 15% Late payment made prior to ATO contact, and more than nine months after due date between six and nine months after due date between three and six months after due date less than three months after due date. 30% 33% 36% 40% • SG contributions that were made on-time [25] , as these did not give rise to an SGC liability or penalty. • Late payments where an employer has elected to count those payments towards their obligations in a different quarter, instead of claiming the LPO. • Payments of SGC (although these payments may be relevant when considering Step 4 of this decision-making process). Treatment of partial payments The remission amounts in this table are appropriate where the employer has paid the entire original SG obligation [27] for their employees but has an SGC liability due to paying late. If an employer has made late payments of a lesser amount, you should determine a remission percentage that is in proportion to how much has been paid. For example, if an employer made late payments equivalent to 80% of their SG obligations in response to ATO compliance action, an appropriate level of remission at this step would be 8% (that is, 80% of 10%). Treatment of payments with varying degrees of lateness Where payments have been made with varying degrees of delay in different quarters within a period that is being considered for remission, you do not need to make separate remission decisions for each quarter. It is appropriate to adopt a remission level corresponding to the greatest degree of attempt to comply that the employer has demonstrated across the period. Step 2 - consider remission based on the employer's attempt to comply with their obligations through lodgment of an SG statement Using the following table, consider an additional amount of remission based on the employer's attempt to comply through lodging an SG statement to self-assess their SGC liability. This recognises that there are a broad range of employer behaviours that lead to an SGC assessment, and it is appropriate to address them via a wide spread of remission relative to the full extent of the penalty imposed. Degree of attempt to comply Remission A default assessment, or a Commissioner-initiated amendment, is made to a prior SGC assessment, and the employer has either demonstrated repeat disengagement or we have formed an opinion that the employer has engaged in a 'phoenix' arrangement. 0% A default assessment, or a Commissioner-initiated amendment, is made to a prior SGC assessment, where the employer has failed to lodge an SG statement or provide relevant information in response to ATO compliance action. 25% A default assessment, or a Commissioner-initiated amendment, is made to a prior SGC assessment, based on information provided by the employer after the lodgment due date in response to ATO compliance action. 40% An employer lodges an SG statement or requests an amendment to a prior SGC assessment in response to ATO compliance action, for example, after an audit has commenced. 60% An employer lodges an SG statement or requests an amendment to a prior SGC assessment after the lodgment due date and after initial ATO contact [28] but before any ATO compliance action. 80% An employer lodges an SG statement or requests an amendment to a prior SGC assessment after the SG statement lodgment due date [29] but before any ATO contact. 90% An employer lodges an SG statement on or before the lodgment due date (including an extended due date). [30] 100% Often an employer will make initial contact with us to disclose that they have identified SG shortfalls but will not lodge an SG statement until after discussing matters with us. For the purposes of this table, this should be considered the same as a lodgment prior to any ATO contact; the fact that an employer has voluntarily engaged with us on a preliminary basis rather than immediately lodging statements does not demonstrate any lower level of engagement. Note: Even if you have calculated a remission amount of 100% or greater after considering Steps 1 and 2, you must still consider the remaining steps as the remission may be reduced at Step 3. If you have calculated an amount greater than 100%, treat it as being 100% prior to considering Step 3. Step 3 - consider any increase or reduction in remission based on the employer's compliance history You should consider the employer's compliance history for both SG obligations and other taxation laws [31] for the three-year period leading up to the earlier of the day before: • the disclosure occurred, or • ATO compliance action commenced (either by phone or in writing). • the disclosure occurred, or • ATO compliance action commenced (either by phone or in writing). You should evaluate their history by reviewing their ATO records as well as information supplied by the employer [32] and any other parties. The employer's SG compliance history will be given more weight than their compliance history for other taxation laws. When reviewing an employer's SG compliance history, you should focus on: • the number of quarters for which the employer previously failed to lodge an SG statement by the due date, or for which we made a default assessment • the degree of the employer's attempt to comply with their SG obligations previously (not including their attempts to comply for the period being considered) • any previous SG audits conducted on the employer that resulted in an SGC liability being assessed, and • any shift in behaviour by an employer that has been subject to a previous audit. This may be demonstrated by an improvement or deterioration in their level of engagement and cooperation with us during the compliance activity. • the number of quarters for which the employer previously failed to lodge an SG statement by the due date, or for which we made a default assessment • the degree of the employer's attempt to comply with their SG obligations previously (not including their attempts to comply for the period being considered) • any previous SG audits conducted on the employer that resulted in an SGC liability being assessed, and • any shift in behaviour by an employer that has been subject to a previous audit. This may be demonstrated by an improvement or deterioration in their level of engagement and cooperation with us during the compliance activity. A previous SGC assessment that arose due to ATO compliance action will reflect a poorer compliance history than an SGC assessment that came via a voluntary disclosure. Depending on an employer's compliance history, you may provide additional remission or may reduce the level of remission provided by the other steps in this remission process. Generally, the amount of additional remission or reduced remission should not exceed the amounts in the following table: Level of compliance history Remission Good compliance history (noting that 'good' does not have to mean flawless or exceptional) 15% Neither good nor poor compliance history No change Poor compliance history -15% Extremely poor compliance history -30% The following examples illustrate some of the common situations of poor compliance history where a reduction in remission may be appropriate: • The employer has demonstrated a history or habit of lodging SG statements late. • The employer has previously been issued with an SG education direction, and their repeated failure to comply indicates that they have not modified their behaviour in response to that direction. • The employer has previously been issued with an SGC default assessment and has shown no improvement in behaviour. • The employer was not adequately addressing (through an active payment plan) an outstanding SGC debt, or other tax debt, prior to the current matter arising. • The employer has several outstanding lodgments relating to other taxes. • Evidence indicates that the employer has previously been disingenuous or deceptive with the information disclosed in an SG statement (for example, by deliberately disclosing only part of their known SG shortfall for the quarter). • The employer has demonstrated a history or habit of lodging SG statements late. • The employer has previously been issued with an SG education direction, and their repeated failure to comply indicates that they have not modified their behaviour in response to that direction. • The employer has previously been issued with an SGC default assessment and has shown no improvement in behaviour. • The employer was not adequately addressing (through an active payment plan) an outstanding SGC debt, or other tax debt, prior to the current matter arising. • The employer has several outstanding lodgments relating to other taxes. • Evidence indicates that the employer has previously been disingenuous or deceptive with the information disclosed in an SG statement (for example, by deliberately disclosing only part of their known SG shortfall for the quarter). The following examples illustrate some of the situations where compliance history is considered extremely poor: • The employer has repeatedly failed to meet their obligations even after multiple ATO compliance actions (for example, where they have been audited for SG more than three times previously and were found to have failed to meet their SG obligations each time). • The employer has repeatedly attempted to obstruct or hinder compliance action or provided false and misleading statements during compliance action on multiple occasions. • The employer has repeatedly failed to meet their obligations even after multiple ATO compliance actions (for example, where they have been audited for SG more than three times previously and were found to have failed to meet their SG obligations each time). • The employer has repeatedly attempted to obstruct or hinder compliance action or provided false and misleading statements during compliance action on multiple occasions. Step 4 - consider any other mitigating facts and circumstances that may warrant further remission You need to consider all other relevant facts and circumstances to ensure the resulting Part 7 penalty is appropriate. Where you have already taken into account the degree of the employer's attempt to comply (in Steps 1 and 2) and the employer's compliance history (in Step 3), you should not consider these circumstances again for further remission at Step 4. For example, an employer may be found to have a good compliance history at Step 3 due to no previous SG audits or previously-lodged SG statements. The fact an employer has not had a previous SG audit or lodged an SG statement before is not also an 'other mitigating fact or circumstance'. An employer's penalty should not be remitted at Step 4 merely because the penalty may be 'relatively small'. Different mitigating facts or circumstances may warrant different levels of further remission, depending on their significance in contributing to the employer's non-compliance. Where there are multiple mitigating circumstances present, they should each be considered for remission. Mitigating facts or circumstances that only warrant very minor further remission (generally not exceeding 5%) include: • the facts indicate the employer's SG shortfall arose due to an error or honest mistake • you are satisfied that the employer has addressed the issue that led to their SG shortfalls and/or failure to lodge SG statements, or • the employer has entered into a payment arrangement to pay their SGC. • the facts indicate the employer's SG shortfall arose due to an error or honest mistake • you are satisfied that the employer has addressed the issue that led to their SG shortfalls and/or failure to lodge SG statements, or • the employer has entered into a payment arrangement to pay their SGC. Mitigating facts or circumstances warranting minor further remission (generally not exceeding 10%) include: • the employer has fully paid their SGC - a lesser amount of remission may be given if the employer has paid part of their SGC, or • the employer's non-compliance with their SG obligations occurred in their first year of operation, and their principals had no previous business experience. • the employer has fully paid their SGC - a lesser amount of remission may be given if the employer has paid part of their SGC, or • the employer's non-compliance with their SG obligations occurred in their first year of operation, and their principals had no previous business experience. Mitigating facts or circumstances that may warrant moderate further remission (generally not exceeding 20%) include: • the employer's ability to comply was impacted by the ill health of the employer or a key employee of the employer • the employer did make a significant proportion of their SG contributions on time, and the SG shortfalls represent a small portion of their overall SG obligations for the quarter(s) [33] , or • the employer took reasonable steps to ensure that contributions were made on time, but a third-party issue or error led to the contributions being late by a small amount. This could include payments made to a clearing house other than the ATO-administered, where payments were made before the due date. [34] • the employer's ability to comply was impacted by the ill health of the employer or a key employee of the employer • the employer did make a significant proportion of their SG contributions on time, and the SG shortfalls represent a small portion of their overall SG obligations for the quarter(s) [33] , or • the employer took reasonable steps to ensure that contributions were made on time, but a third-party issue or error led to the contributions being late by a small amount. This could include payments made to a clearing house other than the ATO-administered, where payments were made before the due date. [34] Mitigating facts or circumstances that may warrant a larger additional remission (generally not exceeding 50%) include: • the malfunction or outage of a key ATO system which the employer can demonstrate caused them to narrowly miss the lodgment due date [35] • a natural disaster, emergency or other similar event has significantly impacted the employer's ability to comply with their obligations, either in terms of making contributions or lodging SG statements • the employer's SG shortfalls are due to them correctly classifying their workers as not being employees under the ordinary meaning of employee, but failing to identify that they were employees for SG purposes under the extended definition in the SGAA [36] • the employer's SG shortfalls are due to them misclassifying their workers, and you are satisfied that they took reasonable steps to get their workers' classifications right prior to the period being considered [37] , or • the employer participates in a penalty relief arrangement and is given an education direction as a more appropriate treatment for their behaviour. • the malfunction or outage of a key ATO system which the employer can demonstrate caused them to narrowly miss the lodgment due date [35] • a natural disaster, emergency or other similar event has significantly impacted the employer's ability to comply with their obligations, either in terms of making contributions or lodging SG statements • the employer's SG shortfalls are due to them correctly classifying their workers as not being employees under the ordinary meaning of employee, but failing to identify that they were employees for SG purposes under the extended definition in the SGAA [36] • the employer's SG shortfalls are due to them misclassifying their workers, and you are satisfied that they took reasonable steps to get their workers' classifications right prior to the period being considered [37] , or • the employer participates in a penalty relief arrangement and is given an education direction as a more appropriate treatment for their behaviour. Note: These lists are not exhaustive. It may be appropriate, where there are additional mitigating factors to those considered at Steps 1 and 2, to consider increasing the level of penalty remission if the assessment would be considered harsh in the particular circumstances of the employer. [38] However, it generally would not be appropriate to remit further where the employer: • is reasonably expected to have fully understood their SG lodgment obligations (for example, where they have been previously subject to SG compliance action, have repeatedly lodged SG statements after their due date, or are a tax or super professional who should have a higher level of knowledge) • has a history of not meeting SG obligations on other entities, such as a previous company run by the same individuals • took steps to prevent or obstruct us from determining their SGC liability. This would be more than not responding to an ATO letter. Examples would be where they repeatedly failed to meet agreed timeframes to supply information for no acceptable reason, or deliberately supplied irrelevant, inadequate or misleading information, or engaged in behaviour delaying the provision of information • has demonstrated a history of repeated disengagement, and • took steps to deliberately evade payment of their SG liability, such as through 'phoenix' activities. • is reasonably expected to have fully understood their SG lodgment obligations (for example, where they have been previously subject to SG compliance action, have repeatedly lodged SG statements after their due date, or are a tax or super professional who should have a higher level of knowledge) • has a history of not meeting SG obligations on other entities, such as a previous company run by the same individuals • took steps to prevent or obstruct us from determining their SGC liability. This would be more than not responding to an ATO letter. Examples would be where they repeatedly failed to meet agreed timeframes to supply information for no acceptable reason, or deliberately supplied irrelevant, inadequate or misleading information, or engaged in behaviour delaying the provision of information • has demonstrated a history of repeated disengagement, and • took steps to deliberately evade payment of their SG liability, such as through 'phoenix' activities. These are regarded as serious cases, and a reduction in the level of remission, or no remission at all, may be appropriate. When does the remission restriction apply? For SGC assessments made after 7 September 2020, the law generally limits your ability to remit Part 7 penalties for historical quarters (quarters from 1 July 1992 to 31 March 2018). Where a historical quarter is assessed for SGC after 7 September 2020, you cannot remit the Part 7 penalty below 100% of the SGC unless: • the employer voluntarily came forward to lodge an SG statement prior to being notified of any ATO compliance action [39] , or • exceptional circumstances prevented the employer from lodging an SG statement, either - during the amnesty period (24 May 2018 to 7 September 2020), or - before the employer was notified of any ATO compliance action. [40] • the employer voluntarily came forward to lodge an SG statement prior to being notified of any ATO compliance action [39] , or • exceptional circumstances prevented the employer from lodging an SG statement, either - during the amnesty period (24 May 2018 to 7 September 2020), or - before the employer was notified of any ATO compliance action. [40] - during the amnesty period (24 May 2018 to 7 September 2020), or - before the employer was notified of any ATO compliance action. [40] If you are considering remission for a historical quarter, the employer did not lodge prior to being notified of ATO compliance action, and there are no exceptional circumstances, you must not remit the penalty beyond 50% (that is, the final penalty must be at least 100% of the SGC) even if it would be lower after you consider Steps 1 to 4 of the penalty remission process in Appendix 1 of this Practice Statement. You should still follow the penalty remission process to ascertain a level of remission but reduce your remission to 50% if it exceeds that level. Has the employer come forward voluntarily prior to being notified of any ATO compliance action? Considering the table at Step 2 of the four-step penalty remission process in Appendix 1 of this Practice Statement, if the employer has lodged an SG statement before any ATO contact, or after initial ATO contact but before any ATO compliance action, they will satisfy this requirement and there will be no restriction on remission. This will be the case even if an employer was previously notified of ATO compliance action for the quarter in question, where that compliance action was completed and the current lodgment is a disclosure of new information that was not identified during the previous compliance action. [41] Are there exceptional circumstances that prevented the employer from lodging an SG statement Where exceptional circumstances prevented an employer from lodging an SG statement, your ability to remit is not restricted. Exceptional circumstances need to have prevented the employer from lodging the SG statement continuously from the start of the amnesty period (24 May 2018) until the date of lodgment or notification of ATO compliance action (whichever is earlier). [42] It is not possible to set precise rules for what constitutes exceptional circumstances. The core idea of exceptional circumstances and similar terms is that there is something unusual to take the case out of the ordinary course. [43] In addition, in determining whether exceptional circumstances exist, you should bear in mind the purpose of the discretion that is being exercised. [44] When considering a quarter that was covered by the SG amnesty and whether the Part 7 penalty remission restriction applies, you should also bear in mind the purpose of the remission restriction. [45] It is not enough for the employer to demonstrate exceptional circumstances that prevented them from meeting the due date to make SG contributions, or to make payment of an SGC liability after disclosing it. The exceptional circumstances must have prevented the employer from lodging their SG statement. Finding exceptional circumstances is a very high threshold and must be determined on a case-by-case basis depending on the particular facts of the case. Some examples of factors that are unlikely to constitute exceptional circumstances on their own are: • An employer facing financial difficulty (including financial difficulty arising from a natural disaster) - while these circumstances may impact an employer's capacity to meet their SG contribution obligations, it does not prevent them from lodging an SG statement and disclosing their shortfall to us. Employers who are unable to make contributions before the due date can lodge an SG statement with us and explore options for a payment arrangement to meet their liabilities. • An employer did not understand the law or their obligations - this includes if the employer has relied on poor advice from a third party. • An employer made a mistake or error in determining their SG obligations - for example, if they unintentionally or inadvertently treated a payment as falling outside of 'ordinary time earnings' and therefore not forming part of their SG obligation. • An employer claimed that they failed to come forward during the SG amnesty due to a lack of time between the SG amnesty being legislated and the SG amnesty period ending - this is not exceptional circumstances, and the employer always had the obligation to lodge SG statements regardless of the existence of the SG amnesty. • An employer facing financial difficulty (including financial difficulty arising from a natural disaster) - while these circumstances may impact an employer's capacity to meet their SG contribution obligations, it does not prevent them from lodging an SG statement and disclosing their shortfall to us. Employers who are unable to make contributions before the due date can lodge an SG statement with us and explore options for a payment arrangement to meet their liabilities. • An employer did not understand the law or their obligations - this includes if the employer has relied on poor advice from a third party. • An employer made a mistake or error in determining their SG obligations - for example, if they unintentionally or inadvertently treated a payment as falling outside of 'ordinary time earnings' and therefore not forming part of their SG obligation. • An employer claimed that they failed to come forward during the SG amnesty due to a lack of time between the SG amnesty being legislated and the SG amnesty period ending - this is not exceptional circumstances, and the employer always had the obligation to lodge SG statements regardless of the existence of the SG amnesty. Some factors that may point towards a finding of exceptional circumstances include: • An employer has been impacted by a natural disaster - however the natural disaster must have directly impacted an employer's ability to lodge; financial hardship or business downturn resulting from a natural disaster alone will not point to exceptional circumstances. • An employer's ability to lodge has been impacted by the COVID-19 pandemic - as with the previous point, the pandemic would need to have directly impacted their ability to lodge, for example, if the employer was displaced interstate or overseas and unable to access business records. The financial impact alone will not be sufficient unless that impact significantly reduced the employer's capacity to ascertain shortfalls and lodge SGC statements. • An employer relied on ATO guidance that advised that they did not have an SG shortfall, and as such did not believe they had any obligation to lodge an SG statement. If the ATO guidance turned out to be incorrect, the employer could not have known they were required to lodge before they were advised of the revised position. [46] • An employer was suffering from severe illness or other affliction that rendered them incapable of lodging an SG statement. • An employer has been impacted by a natural disaster - however the natural disaster must have directly impacted an employer's ability to lodge; financial hardship or business downturn resulting from a natural disaster alone will not point to exceptional circumstances. • An employer's ability to lodge has been impacted by the COVID-19 pandemic - as with the previous point, the pandemic would need to have directly impacted their ability to lodge, for example, if the employer was displaced interstate or overseas and unable to access business records. The financial impact alone will not be sufficient unless that impact significantly reduced the employer's capacity to ascertain shortfalls and lodge SGC statements. • An employer relied on ATO guidance that advised that they did not have an SG shortfall, and as such did not believe they had any obligation to lodge an SG statement. If the ATO guidance turned out to be incorrect, the employer could not have known they were required to lodge before they were advised of the revised position. [46] • An employer was suffering from severe illness or other affliction that rendered them incapable of lodging an SG statement. There may be some instances where the law or its application to particular facts is uncertain or unclear, such as complex cases of worker classification. The fact that an employer classified workers as contractors, and they were later found to be employees, will not of itself constitute an exceptional circumstance. In determining whether exceptional circumstances are present, you will need to consider the employer's position and all evidence provided, and whether it is reasonable to conclude that the employer could not have known that they needed to lodge an SG statement. Example 1 - no remission - default assessment with disengagement and phoenix arrangements Default assessments of an employer's SGC were made on 22 July 2021 for the quarters ended 30 September 2020 and 31 December 2020.The employer has been subject to two previous audits, resulting in default SGC assessments being issued at the conclusion of each audit. The tax officer also identifies that the director of the employer company is linked to four liquidated companies which have also had compliance issues, suggesting the director has engaged in phoenix activity. Considering the four-step penalty remission process: • Step 1: the employer has not made any late payments for which they have claimed an LPO - No remission • Step 2: the employer did not provide information for the ATO to make an assessment of the employer's SGC and has demonstrated severe disengagement - No remission • Step 3: the employer has been subject to two previous audits and there has been no apparent shift in the employer's attitude to their SG obligations as they again did not cooperate or respond to requests for information. The employer's compliance history is poor - No remission (the case officer cannot reduce the remission level as it is already at no remission) • Step 4: no other mitigating circumstances have been identified - No remission • Step 1: the employer has not made any late payments for which they have claimed an LPO - No remission • Step 2: the employer did not provide information for the ATO to make an assessment of the employer's SGC and has demonstrated severe disengagement - No remission • Step 3: the employer has been subject to two previous audits and there has been no apparent shift in the employer's attitude to their SG obligations as they again did not cooperate or respond to requests for information. The employer's compliance history is poor - No remission (the case officer cannot reduce the remission level as it is already at no remission) • Step 4: no other mitigating circumstances have been identified - No remission After considering each of the steps, the Part 7 penalty is not remitted at all. A Part 7 penalty assessment equivalent to 200% of the SGC is issued against the employer. The TAA default assessment penalty is fully remitted. Example 2 - 40% remission - default assessment with information unable to be provided Default assessments of an employer's SGC were made on 22 March 2021 for the quarters ended 30 September 2020 and 31 December 2020. During the compliance activity, the employer: • advised they have been unable to find the information that has been requested, but • acknowledged that they have SGC liabilities for the relevant quarters. • advised they have been unable to find the information that has been requested, but • acknowledged that they have SGC liabilities for the relevant quarters. Considering the four-step penalty remission process: • Step 1: the employer has not made any late payments for which they have claimed an LPO - No remission • Step 2: the employer did not provide information to the ATO to make an assessment of the employer's SGC, but did not display severe disengagement - 25% remission • Step 3: the employer has no outstanding lodgments or debts in relation to their other taxation law obligations and this is the first time they have been subject to a compliance activity regarding their SG obligations. The employer's compliance history is good - 15% remission • Step 4: no mitigating facts or circumstance have been identified - No remission • Step 1: the employer has not made any late payments for which they have claimed an LPO - No remission • Step 2: the employer did not provide information to the ATO to make an assessment of the employer's SGC, but did not display severe disengagement - 25% remission • Step 3: the employer has no outstanding lodgments or debts in relation to their other taxation law obligations and this is the first time they have been subject to a compliance activity regarding their SG obligations. The employer's compliance history is good - 15% remission • Step 4: no mitigating facts or circumstance have been identified - No remission After considering each of the steps, the Part 7 penalty is remitted by 40% [25% +15%], leaving a residual penalty of 60%. A Part 7 penalty assessment equivalent to 120% (that is, 60% × 200%) of the SGC is issued against the employer. The TAA default assessment penalty is fully remitted. Example 3 - 75% remission - voluntary disclosure prior to ATO contact with poor compliance history An employer has SG shortfall amounts for the quarters ended 30 September 2020 and 31 December 2020, and on 20 May 2021 lodges the required SG statements for these quarters. This is the third time in the past two years that the employer has lodged SG statements due to failing to meet their SG obligations. Considering the four-step penalty remission process: • Step 1: the employer has not made any late payments for which they have claimed an LPO - No remission • Step 2: the employer lodged SG statements after the due date but prior to any ATO contact - 90% remission • Step 3: the employer's habitual lodgment of SG statements after the due date illustrates the employer's behaviour to comply with their SG obligation is not improving. The employer's compliance history is poor - 15% reduction in remission • Step 4: no mitigating facts or circumstance have been identified - No remission • Step 1: the employer has not made any late payments for which they have claimed an LPO - No remission • Step 2: the employer lodged SG statements after the due date but prior to any ATO contact - 90% remission • Step 3: the employer's habitual lodgment of SG statements after the due date illustrates the employer's behaviour to comply with their SG obligation is not improving. The employer's compliance history is poor - 15% reduction in remission • Step 4: no mitigating facts or circumstance have been identified - No remission After considering each of the steps, the Part 7 penalty is remitted by 75% [90% - 15%], leaving a residual penalty of 25%. A Part 7 penalty assessment equivalent to 50% (that is, 25% × 200%) of the SGC is issued against the employer. Example 4 - full remission - SG statement provided with full LPO claim For the quarters ended 31 March 2020 to 30 September 2020, an employer fails to make SG contributions to the respective super funds of their employees by the due date for each quarter. The employer makes contributions equivalent to the total amount they were originally required to contribute for all three quarters, within three months after the due date for each quarter. The employer also fails to lodge an SG statement disclosing the SG shortfalls. In response to an audit notification letter issued on 14 November 2021, the employer lodges SG statements on 10 December 2021. In these statements, they claim LPOs for the late payments they made. The employer indicates that it is their first year of operation and they did not understand their lodgment obligations. Considering the four-step penalty remission process: • Step 1: the employer made full late payment, prior to ATO contact and within three months of the due date - 40% remission • Step 2: the employer lodged SG statements in response to ATO compliance action - 60% remission • Step 3: the employer's compliance history is neither good nor poor - No remission • Step 4: the shortfalls occurred during the business' first year of operation - 10% remission • Step 1: the employer made full late payment, prior to ATO contact and within three months of the due date - 40% remission • Step 2: the employer lodged SG statements in response to ATO compliance action - 60% remission • Step 3: the employer's compliance history is neither good nor poor - No remission • Step 4: the shortfalls occurred during the business' first year of operation - 10% remission After considering each of the steps, it is reasonable for the Part 7 penalty to be fully remitted. The tax officer determined a remission percentage of 110% [40% + 60% + 10%], however remission cannot exceed 100%. Example 5 - 78% remission - SG statement provided with partial LPO claim For the quarters ended 31 March 2020 to 31 December 2020, an employer fails to make SG contributions to the respective super funds of their employees by the due date for each quarter. The employer makes some late contributions: Quarter ending Amount of late contribution Total amount they were originally required to contribute Timing of late contribution 31 March 2020 $6,000 $6,000 seven months late 30 June 2020 $5,000 $8,000 five months late 30 September 2020 $4,000 $7,000 four months late 31 December 2020 None $9,000 not applicable Total $15,000 $30,000 The employer also fails to lodge an SG statement disclosing the SG shortfalls. In response to an audit notification letter issued on 15 January 2022, the employer lodges SG statements on 28 January 2022. In these statements they claim LPOs for the late payments they made. Considering the four-step penalty remission process: • Step 1: the employer made partial late payment with differing circumstances across quarters - the timeliest payments were made between three and six months after the due date, for the quarters ended 30 June 2020 and 30 September 2020 - remission of 36% as per step 1 (refer to the table in Step 1 of Appendix 1 of this Practice Statement) - their payments were equivalent to 50% of the total amounts they were originally required to contribute across the four quarters. The tax officer adjusts the remission they attribute to this attempt to comply proportionately - 18% remission [50% × 36%]. • Step 2: the employer lodged SG statements in response to ATO compliance action - 60% remission • Step 3: the employer's compliance history is neither good nor poor - No remission • Step 4: no mitigating circumstances identified - No remission • Step 1: the employer made partial late payment with differing circumstances across quarters - the timeliest payments were made between three and six months after the due date, for the quarters ended 30 June 2020 and 30 September 2020 - remission of 36% as per step 1 (refer to the table in Step 1 of Appendix 1 of this Practice Statement) - their payments were equivalent to 50% of the total amounts they were originally required to contribute across the four quarters. The tax officer adjusts the remission they attribute to this attempt to comply proportionately - 18% remission [50% × 36%]. • Step 2: the employer lodged SG statements in response to ATO compliance action - 60% remission • Step 3: the employer's compliance history is neither good nor poor - No remission • Step 4: no mitigating circumstances identified - No remission - the timeliest payments were made between three and six months after the due date, for the quarters ended 30 June 2020 and 30 September 2020 - remission of 36% as per step 1 (refer to the table in Step 1 of Appendix 1 of this Practice Statement) - their payments were equivalent to 50% of the total amounts they were originally required to contribute across the four quarters. After considering each of the steps, the Part 7 penalty is remitted by 78% [18% + 60%] leaving a residual penalty of 22%. A Part 7 penalty assessment equivalent to 44% (that is, 22% × 200%) of the SGC is issued against the employer. Example 6 - penalty relief applied and SG education direction imposed - voluntary disclosure after initial ATO contact An employer has SG shortfall amounts for the quarter ended 30 September 2019. In response to an early engagement letter from the ATO on 15 February 2021, the employer lodged an SG statement. Although the employer has previously voluntarily lodged an SG statement and has some outstanding income tax debts, this is the first time the employer has been contacted by the ATO regarding their SG obligations. The tax officer notes that the employer is eligible for penalty relief. The tax officer believes education will be a more effective tool to improve the employer's compliance and decides to apply penalty relief, offering further remission in conjunction with an education direction. Considering the four-step penalty remission process: • Step 1: the employer has not made any late payments for which they have claimed an LPO - No remission • Step 2: the employer lodged SG statements in response to ATO compliance action - 80% remission • Step 3: the employer's compliance history is neither good nor poor - No remission • Step 4: the tax officer remits the remaining penalty in line with their application of penalty relief - 20% remission • Step 1: the employer has not made any late payments for which they have claimed an LPO - No remission • Step 2: the employer lodged SG statements in response to ATO compliance action - 80% remission • Step 3: the employer's compliance history is neither good nor poor - No remission • Step 4: the tax officer remits the remaining penalty in line with their application of penalty relief - 20% remission After considering each of the steps, and applying penalty relief, the Part 7 penalty is fully remitted. In accordance with the penalty relief process, the employer is issued with an SG education direction. Example 7 - 95% remission - disclosure after initial ATO contact - multiple mitigating circumstances An employer has SG shortfall amounts for the quarters ended 30 September 2019 to 31 March 2021. On 20 July 2021, in response to an initial early engagement letter from the ATO, the employer voluntarily discloses to the ATO that they have these shortfalls and lodges the required SG statements for these quarters. After lodging SG statements, the employer pays the full SGC liability to the ATO (not including any potential Part 7 penalty). They cannot claim an LPO. The employer indicates that the shortfalls arose because their payroll system had been disorganised and ineffective, and that they have since updated their processes. Considering the four-step penalty remission process: • Step 1: the employer has not made any late payments to the employee funds for which they could claim an LPO - No remission • Step 2: the employer lodged SG statements in response to initial ATO contact - 80% remission • Step 3: the employer's compliance history is neither good nor poor (they had previously lodged SG statements for paid SGC for two quarters) - No remission • Step 4: the SGC has been paid, and the employer has taken steps to rectify the issue that led to the shortfalls - 15% remission [10% + 5%] • Step 1: the employer has not made any late payments to the employee funds for which they could claim an LPO - No remission • Step 2: the employer lodged SG statements in response to initial ATO contact - 80% remission • Step 3: the employer's compliance history is neither good nor poor (they had previously lodged SG statements for paid SGC for two quarters) - No remission • Step 4: the SGC has been paid, and the employer has taken steps to rectify the issue that led to the shortfalls - 15% remission [10% + 5%] After considering each of the steps, the Part 7 penalty is remitted by 95% [80% + 15%] leaving a residual penalty of 5%. A Part 7 penalty assessment equivalent to 10% (that is, 5% × 200%) of the SGC is issued against the employer. Example 8 - full remission - voluntary disclosure prior to ATO contact - proportionality of shortfalls An employer has SG shortfall amounts for the quarters ended 30 September 2019 to 31 March 2021. On 20 July 2021, the employer voluntarily discloses to the ATO that they have these shortfalls and lodges the required SG statements for these quarters. The employer explains that they had made what they believed to be the full required contributions for their employees on time, but had mistakenly believed a particular allowance was not part of ordinary time earnings. As such, there were small shortfalls for several of their employees across the period. Considering the four-step penalty remission process: • Step 1: the employer has not made any late payments for which they have claimed an LPO - No remission • Step 2: the employer lodged SG statements before any ATO contact - 90% remission • Step 3: the employer's compliance history is neither good nor poor (they had previously lodged SG statements and paid SGC for two quarters) - No remission • Step 4: the shortfalls represented a small proportion of the SG obligations that the employer had for the quarters in question - 10% remission • Step 1: the employer has not made any late payments for which they have claimed an LPO - No remission • Step 2: the employer lodged SG statements before any ATO contact - 90% remission • Step 3: the employer's compliance history is neither good nor poor (they had previously lodged SG statements and paid SGC for two quarters) - No remission • Step 4: the shortfalls represented a small proportion of the SG obligations that the employer had for the quarters in question - 10% remission After considering each of the steps, the Part 7 penalty is fully remitted. Example 9 - full remission - mitigating circumstances - employer's ability to comply impacted by COVID-19 An employer has SG shortfall amounts for the quarters ended 31 March 2020 and 30 June 2020. The employer does not respond to an initial early engagement letter from the ATO, and compliance action is commenced on 8 October 2021. In response to this compliance action, the employer lodges SG statements for the quarters. The employer explains that they had discovered they had SG shortfalls for the quarters, but that COVID-19-impacts delayed their ability to lodge SG statements as: • they had not received the initial early engagement letter as it was posted to their business premises, which was closed at the time due to COVID-19 restrictions • a significant portion of their payroll staff had been stood down, which contributed to their failure to correctly make SG contributions, and increased the length of time it took to ascertain the shortfall amounts and complete SG statements, and • they could not attend the office of their tax agent due to COVID-19 restrictions, and instead needed to mail paper copies of their signed declarations to their agent. • they had not received the initial early engagement letter as it was posted to their business premises, which was closed at the time due to COVID-19 restrictions • a significant portion of their payroll staff had been stood down, which contributed to their failure to correctly make SG contributions, and increased the length of time it took to ascertain the shortfall amounts and complete SG statements, and • they could not attend the office of their tax agent due to COVID-19 restrictions, and instead needed to mail paper copies of their signed declarations to their agent. Considering the four-step penalty remission process: • Step 1: the employer has not made any late payments for which they have claimed an LPO - No remission • Step 2: the employer lodged SG statements in response to ATO compliance action - 60% remission • Step 3: the employer has no outstanding lodgments or debts in relation to their other taxation law obligations and this is the first time they have been subject to a compliance activity regarding their SG obligations - 15% remission • Step 4: the COVID-19-impacts significantly impacted the employer's ability to comply with their SG obligations - 25% remission • Step 1: the employer has not made any late payments for which they have claimed an LPO - No remission • Step 2: the employer lodged SG statements in response to ATO compliance action - 60% remission • Step 3: the employer has no outstanding lodgments or debts in relation to their other taxation law obligations and this is the first time they have been subject to a compliance activity regarding their SG obligations - 15% remission • Step 4: the COVID-19-impacts significantly impacted the employer's ability to comply with their SG obligations - 25% remission After considering each of the steps, the Part 7 penalty is fully remitted. Example 10 - amended SGC assessment - 45% remission of new Part 7 penalty imposed at amendment On 1 January 2021, in response to an initial early engagement contact by the ATO, an employer lodges SG statements to disclose SG shortfalls for the quarters ended 30 June 2020 and 30 September 2020,. Considering each of the steps in the four-step penalty remission process, the Part 7 penalty was remitted by 95% leaving a residual penalty of 5%. A Part 7 penalty assessment equivalent to 10% (that is, 5% × 200%) of the SGC was issued to the employer. After receiving a further employee notification regarding the same quarters, the ATO commenced an audit. In response to this compliance activity, the employer lodged amended SG statements for the quarters disclosing significant additional SG shortfalls that were not originally disclosed. The employer does not provide any reasonable explanation for why these additional shortfalls were not disclosed originally. The tax officer needs to determine a new level of remission for the additional SGC that is assessed at amendment. Considering the four-step penalty remission process: • Step 1: the employer has not made any late payments for which they have claimed an LPO - No remission • Step 2: the employer lodged the amendments in response to ATO compliance action - 60% remission • Step 3: the employer's compliance history is considered poor, as the evidence suggests the employer knowingly failed to disclose the amounts - 15% reduction in remission • Step 4: no mitigating circumstances identified - No remission • Step 1: the employer has not made any late payments for which they have claimed an LPO - No remission • Step 2: the employer lodged the amendments in response to ATO compliance action - 60% remission • Step 3: the employer's compliance history is considered poor, as the evidence suggests the employer knowingly failed to disclose the amounts - 15% reduction in remission • Step 4: no mitigating circumstances identified - No remission After considering each of the steps, the Part 7 penalty is remitted by 45% [60% - 15%], leaving a residual penalty of 55%. The tax officer determines a total remission percentage for the quarters that is equivalent to a remission percentage of 95% for the Part 7 penalty that was imposed with the original SGC, and 45% of the Part 7 penalty that was imposed with the further SGC assessed at amendment. The TAA false or misleading statement penalty is fully remitted, as the Part 7 penalty has already been imposed as a consequence of the same statement. Example 11 - historical quarter example 1 - exceptional circumstances - ability to lodge impacted by natural disaster An employer has SG shortfall amounts for the quarters ended 31 December 2017 and 31 March 2018. A notification of audit letter was issued on 14 July 2021. In response to ATO compliance action, the employer advises the tax officer that they had been unable to determine any SG shortfalls for the periods as their business premises were badly damaged by floods that occurred in early 2018. The employer provides estimates of their liability which the tax officer uses to raise default assessments. As these are historical quarters and the SG shortfalls were not disclosed prior to notification of compliance action, the tax officer's ability to remit will be restricted unless there were exceptional circumstances that prevented the employer from lodging. The tax officer determines that the employer was prevented from lodging SG statements due to the damage their business premises suffered. Further, given the difficult circumstances it may not have been reasonable to expect the employer to have made a request for deferral for lodging any potential SG statements. The tax officer determines that there are exceptional circumstances that prevented the employer from disclosing SG shortfalls. The tax officer can consider the four-step penalty process without any restriction. Example 12 - historical quarter example 2 - no exceptional circumstances - ability to lodge impacted by COVID-19 An employer has SG shortfall amounts for the quarters ended 31 March 2017 to 30 September 2017. A notification of audit letter was issued on 20 October 2021. In response to the ATO compliance action, the employer explains that they were unaware that they had SG shortfalls requiring them to lodge an SG statement. They explain that from March 2020, they were unable to ascertain whether they have SG shortfalls as they: • were overseas when the COVID-19 pandemic began • were unable to return to Australia due to border lockdowns, and • could not access necessary business records to determine any shortfalls as they are stored in Australia. • were overseas when the COVID-19 pandemic began • were unable to return to Australia due to border lockdowns, and • could not access necessary business records to determine any shortfalls as they are stored in Australia. The employer has subsequently gained access to their business records and lodges SG statements. As these are historical quarters and the SG shortfalls were not disclosed prior to notification of compliance action, the tax officer's ability to remit will be restricted unless there were exceptional circumstances that prevented the employer from lodging The tax officer determines that the COVID-19 pandemic impacted the employer's ability to disclose SG shortfalls from March 2020 onwards. However, the employer had not provided any evidence to suggest that they were prevented from identifying SG shortfalls and lodging SG statements between 24 May 2018 (the beginning of the SG amnesty period) and March 2020. While the unprecedented impacts of the pandemic would constitute exceptional circumstances from March 2020 onwards, the tax officer determines that exceptional circumstances did not prevent the employer from lodging SG statements from 24 May 2018. Therefore, the tax officer must ensure that their remission does not exceed 50%, even if the four-step penalty process would lead to a greater amount of remission. [47] You are invited to comment on this draft Practice Statement, including the proposed date of effect. Please forward your comments to the contact officer by the due date. A compendium of comments is prepared when finalising this Practice Statement, and an edited version (with names and identifying information removed) may be published to the Legal database on ato.gov.au. Please advise if you do not want your comments included in the edited version of the compendium. Due date: 27 August 2021 Contact officer: Benjamin.Murphy@ato.gov.au Phone: (03) 9937 9977 Date of Issue: 29 July 2021 Date of Effect: When finalised, this Practice Statement will apply from date of publication. [1] All further references to 'this Practice Statement' refer to the Practice Statement as it will read when finalised. Note that the Practice Statement will not take effect until finalised. [2] Subsection 59(1) of the SGAA. The SG statement or information may relate to an SGC arising from a failure to provide super support for an employer or a failure to fulfil the choice of fund obligations for an employee in Part 3A of the SGAA. [3] See subsection 33(1) of the SGAA for lodgment due dates. [4] Section 36 of the SGAA. See also Law Administration Practice Statement PS LA 2007/10 Making default assessments: section 36 of the Superannuation Guarantee (Administration)Act 1992 . [5] Subsection 59(1) of the SGAA. [6] Section 62A of the SGAA. [7] Subsection 59(3) of the SGAA. [8] Section 37 of the SGAA. [9] Subsection 284-75(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA). See also section 10 of Law Administration Practice Statement PS LA 2012/5 Administration of the false or misleading statement penalty - where there is a shortfall amount for more information. [10] Section 60 of the SGAA. [11] Subsection 74(4) of the SGAA. [12] Subsection 74(2) of the SGAA. [13] Subsection 62(3) of the SGAA. [14] Section 42 of the SGAA. [15] Subsection 62(3) of the SGAA. [16] The SGC is a tax-related liability per table item 60 of subsection 250-10(2) of Schedule 1 to the TAA. [17] Subsection 284-75(3) of Schedule 1 to the TAA. [18] Table item 7 of subsection 284-90(1) of Schedule 1 to the TAA. [19] Subsection 298-20(1) of Schedule 1 to the TAA. [20] A statement is anything that is disclosed, for a purpose connected with a taxation law, orally or in writing and includes those made electronically. See section 284-20 of Schedule 1 to the TAA. [21] 'Taxation law' is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 and includes an Act of which the Commissioner has the general administration. The Commissioner has the general administration of section 43 of the SGAA. [22] Subsection 284-75(1) of Schedule 1 to the TAA. [23] Subsection 298-20(2) of Schedule 1 to the TAA. [24] Subsection 298-30(2) of Schedule 1 to the TAA. [25] The contributions must have also satisfied the 'choice of fund' requirements in Part 3A of the SGAA, otherwise the employer may still have an SGC liability. [26] This may include ATO activities, such as reminder letters, that are a preliminary ATO contact before any compliance action is considered. [27] The amount of contributions required to reduce their charge percentage to zero for a quarter and avoid having a liability to SGC; generally this is a set percentage of the employees' ordinary time earnings. See subsection 23(1) of the SGAA. [28] This may include ATO activities, such as reminder letters, that are a preliminary ATO contact before any compliance action is considered. [29] See subsection 33(1) of the SGAA for lodgment due dates. [30] If the employer lodges the SG statement prior to the due date, no Part 7 penalty is imposed - see section 59 of the SGAA. [31] Taxation law is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 to mean an Act or part of an Act of which the Commissioner has the general administration, and legislative instruments made under such an Act or part of an Act. [32] If an employer supplies you with information about their compliance history, the evidence should include details which this Practice Statement instructs you to focus on. [33] This could occur, for example, because the employer miscalculated the required amount of contributions for the quarter, or because a particular kind of payment was not included in their calculation of their employees' ordinary time earnings. [34] In some circumstances, where an employer took all reasonable steps to ensure contributions would be made on time, an assessment of SGC may not be made (see Law Administration Practice Statement (General Administration) PS LA 2007/1 (GA) Assessing superannuation guarantee charge where the employers have done what they could reasonably be expected to do to comply with the law by the due date ). [35] For example, if the employer attempted to use the Small Business Super Clearing House to make an SG payment on time but due to a system issue the clearing house was unable to accept the payment, and an accepted payment was not able to be processed until after the cut-off date. [36] Section 12 of the SGAA. [37] Reasonable steps may include getting legal advice on the workers' classification, seeking advice from the ATO or using the employee/contractor decision tool with accurate information. [38] See Archibald Dixon as Trustee for the Dixon Holdsworth Superannuation Fund v Commissioner of Taxation [2008] FCAFC 54. [39] Subsection 62(4) of the SGAA. [40] Subsection 62(5) of the SGAA. [41] See paragraph 57 of Miscellaneous Tax Ruling MT 2012/3 Administrative penalties: voluntary disclosures . [42] Paragraph 62(4)(c) and subsection 62(5) of the SGAA. [43] Ward v Commissioner of Taxation [2016] FCAFC 132 at [39-41]. [44] Re Rosemarie Beadle and Director-General of Social Security [1984] AATA 176. [45] Paragraphs 1.81 to 1.90 of the Explanatory Memorandum to the Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019. [46] See Law Administration Practice Statement PS LA 2008/3 Provision of advice and guidance by the ATO. See also Taxpayer's Charter - helping you to get things right. [47] See subsection 62(4) of the SGAA for legislative restrictions for Part 7 penalty remission for historical SG quarters. File 1-I1A48E2 ISSN 2651-9526 Related Rulings/Determinations: MT 2012/3 Related Practice Statements: PS LA 2007/1 (GA) PS LA 2007/10 PS LA 2008/3 PS LA 2012/5 PS LA 2019/1 (withdrawn) PS LA 2020/4 (withdrawn) Other References: Explanatory memorandum to the Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019 Treasury Laws Amendment (Recovering Unpaid Superannuation) Act 2020 Taxpayer's Charter - helping you to get things right",PS LA 2021/3 | PS LA 2008/3 | MT 2012/3 | PS LA 2007/1 (GA) | PS LA 2007/10 | PS LA 2012/5 | PS LA 2019/1 (withdrawn) | PS LA 2020/4 (withdrawn) | Explanatory memorandum | Treasury Laws Amendment (Recovering Unpaid Superannuation) Act 2020 | SGAA 1992 12 | SGAA 1992 23(1) | SGAA 1992 Part 3A | SGAA 1992 33(1) | SGAA 1992 36 | SGAA 1992 37 | SGAA 1992 42 | SGAA 1992 43 | SGAA 1992 Part 7 | SGAA 1992 59(1) | SGAA 1992 59(3) | SGAA 1992 60 | SGAA 1992 62(3) | SGAA 1992 62(4) | SGAA 1992 62(4)(c) | SGAA 1992 62(5) | SGAA 1992 62A | SGAA 1992 74(2) | SGAA 1992 74(4) | TAA 1953 250-10(2) | TAA 1953 284-20 | TAA 1953 284-75(1) | TAA 1953 284-75(3) | TAA 1953 284-90(1) | TAA 1953 298-20(1) | TAA 1953 298-20(2) | TAA 1953 298-30(2) | ITAA 1997 995-1(1) | 2008 ATC 20-015 | (1984) 6 ALD 1 | (1984) 1 AAR 362 | 2016 ATC 20-583,PS LA 2007/1 (GA) PS LA 2007/10 PS LA 2008/3 PS LA 2012/5 PS LA 2019/1 (withdrawn) PS LA 2020/4 (withdrawn),SGAA 1992 12 | SGAA 1992 23(1) | SGAA 1992 Part 3A | SGAA 1992 33(1) | SGAA 1992 36 | SGAA 1992 37 | SGAA 1992 42 | SGAA 1992 43 | SGAA 1992 Part 7 | SGAA 1992 59(1) | SGAA 1992 59(3) | SGAA 1992 60 | SGAA 1992 62(3) | SGAA 1992 62(4) | SGAA 1992 62(4)(c) | SGAA 1992 62(5) | SGAA 1992 62A | SGAA 1992 74(2) | SGAA 1992 74(4) | TAA 1953 250-10(2) | TAA 1953 284-20 | TAA 1953 284-75(1) | TAA 1953 284-75(3) | TAA 1953 284-90(1) | TAA 1953 298-20(1) | TAA 1953 298-20(2) | TAA 1953 298-30(2) | ITAA 1997 995-1(1),,Explanatory memorandum to the Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019 Treasury Laws Amendment (Recovering Unpaid Superannuation) Act 2020 Taxpayer's Charter - helping you to get things right,False,True,https://www.ato.gov.au/law/view/document?docid=DPS/PSD20211/NAT/ATO/00001,This document has been finalised by PS LA 2021/3 . | APPENDIX 1 - FOUR STEP PENALTY REMISSION PROCESS | APPENDIX 2 - TREATMENT OF HISTORICAL QUARTERS WHERE REMISSION MAY BE RESTRICTED | APPENDIX 4 - YOUR COMMENTS | Archibald Dixon as Trustee for the Dixon Holdsworth Superannuation Fund v Commissioner of Taxation [2008] FCAFC 54 (2008) 167 FCR 287 2008 ATC 20-015 (2008) 69 ATR 627 | Re Rosemarie Beadle and Director-General of Social Security [1984] AATA 176 (1984) 6 ALD 1 (1984) 1 AAR 362 | Ward v Commissioner of Taxation [2016] FCAFC 132 (2016) 247 FCR 372 2016 ATC 20-583 (2016) 103 ATR 823
PS LA 2025/D1 (Finalised),Public country-by-country reporting exemptions,3 July 2025,,Law Administration Practice Statement,True,"What this draft Practice Statement is about: 1. Multinational entities subject to the Public country-by-country (CBC) reporting regime must publish selected tax information [1] for Australia, specified countries and the remainder of their global operations. [2] 2. Reporting obligations apply to Public CBC entities for reporting periods commencing on or after 1 July 2024, unless they have been granted an exemption. 3. This draft Practice Statement [3] provides you with context about the obligations imposed by the Public CBC reporting regime and guidance about the authority that the law provides to the Commissioner to exempt an entity from those obligations under subsections 3DB(5) or (6) of the Taxation Administration Act 1953 (TAA). [4] 4. The Public CBC reporting regime is separate from and additional to the reporting requirements imposed by Subdivision 815-E of the Income Tax Assessment Act 1997 (ITAA 1997), which is sometimes called private or confidential CBC, that applies to income years starting on or after 1 January 2016. 5. All legislative references in this Practice Statement are to the TAA, unless otherwise indicated. | Scope of this Practice Statement: 6. This Practice Statement outlines: • considerations relevant to the exercise of the discretion • the process for seeking an exemption from Public CBC reporting obligations • the information that applicants should provide with the application for exemption. • considerations relevant to the exercise of the discretion • the process for seeking an exemption from Public CBC reporting obligations • the information that applicants should provide with the application for exemption. 7. As decision-maker for an exemption application, you must follow the principles and guidance outlined in this Practice Statement [5] when exercising the Commissioner's discretion under subsections 3DB(5) or (6). However, this Practice Statement does not direct or restrict the discretion to exempt; each case must be decided on its facts and circumstances. 8. This Practice Statement does not apply to the exclusion from Public CBC reporting for government-related entities. [6] 9. This Practice Statement does not apply to the exemption provided in the law for classes of entities to be exempted by regulation or specified in a legislative instrument. [7] While the principles in this Practice Statement may be relevant and informative to the Commissioner in considering whether to exempt a class of entities by legislative instrument, that is a separate exercise of authority. [8] | Entities within the Public CBC reporting regime: 10. The Public CBC reporting regime applies to an entity (reporting entity) if: • it is a constitutional corporation, a partnership (in which each partner is a constitutional corporation) or a trust (of which each trustee is a constitutional corporation) [9] • it is a member of a CBC reporting group at any time during the reporting period [10] (that is, a group which is consolidated for accounting purposes as a single group or is a notional listed company group) [11] , and • during the previous reporting period, it was a 'CBC reporting parent' [12] (an entity with annual global income for the period of A$1 billion or more, which was not controlled by another group member). • it is a constitutional corporation, a partnership (in which each partner is a constitutional corporation) or a trust (of which each trustee is a constitutional corporation) [9] • it is a member of a CBC reporting group at any time during the reporting period [10] (that is, a group which is consolidated for accounting purposes as a single group or is a notional listed company group) [11] , and • during the previous reporting period, it was a 'CBC reporting parent' [12] (an entity with annual global income for the period of A$1 billion or more, which was not controlled by another group member). 11. If a subsidiary of a global group is not included in their global parent entity's consolidated financial statements, they may not meet the membership requirement [13] of that group and therefore not be within that group's Public CBC reporting obligations. However, that entity may still be subject to the Public CBC reporting regime if it qualifies separately (that is, it has sufficient annual global income and meets the other requirements). | When Public CBC reporting obligations apply: 12. A reporting entity has Public CBC reporting obligations for a period if the following requirements are met in that period: • they, or a member of their CBC reporting group, are an Australian resident or a foreign resident operating an Australian permanent establishment [14] • their aggregated turnover [15] for the reporting period includes Australian-sourced income of $10 million or more [16] , and • they do not have a full exemption. [17] • they, or a member of their CBC reporting group, are an Australian resident or a foreign resident operating an Australian permanent establishment [14] • their aggregated turnover [15] for the reporting period includes Australian-sourced income of $10 million or more [16] , and • they do not have a full exemption. [17] 13. If they meet all of the requirements outlined in paragraph 12 of this Practice Statement, reporting entities are required to publish under the Public CBC regime, even if they do not have foreign operations. [18] | Publishing the Public CBC report: 14. Entities publish by giving their Public CBC report to us in the approved form within 12 months after the end of the reporting period and we facilitate publication on an Australian government website. [19] | Public CBC reporting regime exemptions: 15. Australia's Public CBC reporting regime is designed to enhance multinational tax transparency by improving the quality of information disclosed by multinationals in and about the jurisdictions in which they operate. This information – when consolidated and reported in a consistent, standardised way – better indicates the scale of activity of an entity in a country, and its commensurate tax contribution. [20] 16. Australia's Public CBC regime builds on the Global Reporting Initiative's Tax Standard (GRI-207: Tax 2019) [21] , which was informed by the confidential Organisation for Economic Co-operation and Development (OECD) CBC reporting model [22] , to establish 'one of the world's most comprehensive' Public CBC regimes. [23] It does this by requiring 'enhanced reporting granularity to provide greater insights into the operational structure of an entity'. [24] 17. Better corporate tax transparency helps address inconsistencies and difficulties in interpreting and comparing tax disclosures. This information improves the public debate on the appropriateness of current taxation settings by providing the community with a better understanding of an entity's operations and how much tax multinationals pay relative to their activities. [25] 18. Such public reporting enables investors and capital providers (for example, shareholders) to assess risk and inform their investment strategies, based on accurate information gathered from the public disclosures. [26] 19. The law gives the Commissioner the power to exempt an entity from some, or all, of its Public CBC reporting obligations for one reporting period at a time. The ability to give a Public CBC reporting exemption is discretionary. [27] The law provides the 'exemption powers to respond to exceptional circumstances where disclosure of information ... would be inappropriate'. [28] | Full or partial exemption: 20. The law provides discretion for the Commissioner to exempt an entity from publishing information or from publishing information 'of a particular kin d'. The existence of both options in the Public CBC law supports the policy intent that an entity should comply with the reporting requirements to the greatest extent possible. [29] 21. For present purposes, 'full exemption' refers to an entity being released from all publishing obligations for a single reporting period. 22. 'Partial exemption' refers to a release from some of the reporting obligations of an entity for a single reporting period – for example, one or more but not all of the pieces of information that are otherwise required to be published, or all information, but for only particular jurisdiction or jurisdictions. 23. Where an applicant has applied for an exemption, you must consider the information in support of the application and decide whether to give a full, partial or no exemption. Where an applicant has applied for a full exemption, you may decide to give only a partial exemption instead. 24. When you grant a partial exemption, you must decide which particular kinds of information to exempt. See Appendix 3 to the Practice Statement for the list of information required to be disclosed. 25. If the information provided by the applicant does not support the exemption and further information is required on matters relevant to the exemption request, you should give the applicant the opportunity to provide that information before making your decision. 26. As the law does not provide for us to re-make a decision for a reporting period [30] , engaging with the applicant before an unfavourable decision is made is important as they may decide to withdraw their request before we make a decision. | Principles to consider when assessing an exemption application: 27. A discretionary decision requires the consideration of various factors and combinations of factors. If the factors to be considered by a decision-maker are not specified in law, they must be determined by implication from the subject matter, scope and purpose of the law. [31] 28. The vesting of a discretion in an official does not give that official authority to ignore policy in the exercise of that discretion. [32] Policy is a relevant consideration. [33] It guides [34] administrative decision-making. As the decision-maker, it is proper that you consider the policy of the law. 29. In exercising the Commissioner's discretion to grant an exemption, the purpose of the public disclosure regime should be considered; being to enhance tax transparency [35] to help the public better assess an entity's economic presence in a jurisdiction and how this aligns with the entity's tax position in that jurisdiction. [36] The result of granting exemptions should not undermine the transparency and accountability aims of this disclosure regime, the integrity of the tax system, nor the public's trust in the Commissioner's administration and stewardship of the system. 30. During the law design process, extensive consultation was conducted on the proposed Public CBC regime (including 2 Treasury consultations [37] and a Senate Committee Inquiry [38] ). Issues raised in submissions to each were considered and some changes were made to earlier proposals. It is noted that certain aspects of the Public CBC regime design were not changed. Importantly, private groups were not excluded from this public transparency regime, a carve-out for commercially sensitive information was not legislated, nor was any exemption by self-assessment. These design choices indicate that the parliamentary pursuit of transparency outweighed broad commercial sensitivity concerns and that the government intended businesses to engage with us to have their specific circumstances considered. 31. Similarly, submissions calling for reducing the compliance burden by, for example, adopting the European Union regime or increasing certainty for entities by allowing for exemption periods longer than one year were considered. Some revisions [39] were made – for example, the initial policy setting was to require disaggregated CBC disclosures for all jurisdictions, but this was changed to allow aggregated reporting for jurisdictions other than Australia and the specified countries. Where differences remain, that is by design. 32. Granting an exemption will result in an entity not being required to publicly disclose some, or all, of the information specifically listed in the law, in the consistent format that the Public CBC regime enables (for a particular reporting period). 33. In considering an application, you should consider whether granting an exemption is consistent with the objectives of the Public CBC reporting regime – that is, whether there are circumstances (exceptional circumstances) that warrant the information not being published, even though the purpose of the regime is to deliver a meaningful enhancement to corporate tax transparency. | Exceptional circumstances: 34. An administrative discretion of this kind is not limited, except by the subject matter, scope and purpose of the law, and its exercise should not be approached with preconceptions. However, the mandatory language, specificity and granularity of the reporting obligations imposed by the law indicate that the discretion is not to be exercised lightly. This is supported by observations in the EM that the power exists to enable the Commissioner to respond to 'exceptional circumstances' [40] , that the exemption powers are expected to be exercised in 'limited circumstances' [41] and the nature of the examples in paragraph 4.23 of the EM. 35. There must be something unusual or different to take the subject of the exemption out of the ordinary course. This may be particular harm or consequences caused by public disclosure (to the applicant or another party), which is disproportionate to the transparency intent (and not already considered by parliament). 36. The circumstances need not be unique or unprecedented or very rare, but cannot be circumstances that are regularly, routinely or normally encountered, nor will it suffice just to show that circumstances are out of the ordinary course. Rather, what is unusual must exhibit something that takes it outside the circumstances in which disclosure is expected. For example, an assertion that complying with the reporting obligations is too onerous or costly is not likely to be a circumstance sufficient to justify an exemption. 37. A reporting entity may seek a reporting exemption on any ground, which you will consider holistically based on the facts and circumstances set out in their application. Examples of the kind of matters that would be appropriate to consider, given in the EM, are: • impact on national security • breach of Australian law • breaching the laws of another jurisdiction, or • revealing commercially sensitive information. • impact on national security • breach of Australian law • breaching the laws of another jurisdiction, or • revealing commercially sensitive information. 38. The existence of these matters does not automatically entitle any entity to an exemption and the absence of them does not preclude the discretion being exercised. You must give primary effect to the statutory language, read in context, in considering exercising the discretion. [42] 39. A relevant factor in this consideration may include whether the information would be aggregated with other information and effectively disguised. 40. If the information is already in the public domain (or will be), can be readily obtained by the public (for example, by payment of an access fee) or could be deduced from such information, it is unlikely to warrant an exemption. This would include: • financial reports • stock exchange disclosures • court or litigation documents • Hansard • leaked information • freedom of information disclosures or disclosures in other jurisdictions • submissions to parliamentary committees • information in the Corporate Tax Transparency Report • information available on government websites, such as AusTender or data.gov.au, or published research and development expenditure information. • financial reports • stock exchange disclosures • court or litigation documents • Hansard • leaked information • freedom of information disclosures or disclosures in other jurisdictions • submissions to parliamentary committees • information in the Corporate Tax Transparency Report • information available on government websites, such as AusTender or data.gov.au, or published research and development expenditure information. | National security: 41. A factor in favour of granting a reporting exemption is if disclosure of the information would impact national security. 42. Australian law defines 'national security' as Australia's defence, security, international relations or law enforcement interests. [43] For the purposes of the Public CBC reporting regime, the national security of other jurisdictions may also be a relevant consideration. 43. Security is the [44] : • protection of the Commonwealth and states and territories, and the people of, from espionage, sabotage, politically motivated violence, promotion of communal violence, attacks on Australia's defence system or acts of foreign interference • protection of Australia's territorial and border integrity from serious threats, and • carrying out of Australia's responsibilities to any foreign country in relation to any of the aforementioned matters. • protection of the Commonwealth and states and territories, and the people of, from espionage, sabotage, politically motivated violence, promotion of communal violence, attacks on Australia's defence system or acts of foreign interference • protection of Australia's territorial and border integrity from serious threats, and • carrying out of Australia's responsibilities to any foreign country in relation to any of the aforementioned matters. 44. International relations are the political, military and economic relations with foreign governments and international organisations. [45] 45. Law enforcement includes interests in [46] : • avoiding disruption to national and international efforts relating to law enforcement, criminal intelligence and security intelligence • protecting the technologies and methods used to collect, analyse, secure or otherwise deal with, criminal intelligence, foreign intelligence or security intelligence • the protection and safety of informants and of persons associated with informants • ensuring that intelligence and law enforcement agencies are not discouraged from giving information to a nation's government and government agencies. • avoiding disruption to national and international efforts relating to law enforcement, criminal intelligence and security intelligence • protecting the technologies and methods used to collect, analyse, secure or otherwise deal with, criminal intelligence, foreign intelligence or security intelligence • the protection and safety of informants and of persons associated with informants • ensuring that intelligence and law enforcement agencies are not discouraged from giving information to a nation's government and government agencies. 46. The following types of information, for example, are matters which we would not expect to be publicly disclosed due to national security: • information that could reveal where secret defence, intelligence, security or law enforcement-related assets are placed around the world (by Australia, countries we are allied with or have cooperative relationships with) • information that could reveal where defence, intelligence, security or law enforcement personnel or contractors have been placed, if that placement is secret or ongoing, as it may put them in danger • information exposing contracts with Australian defence, intelligence, security or law enforcement agencies which the Australian government has imposed strict secrecy requirements upon, has not publicly acknowledged and will not be sufficiently disguised by aggregation in the Public CBC report. • information that could reveal where secret defence, intelligence, security or law enforcement-related assets are placed around the world (by Australia, countries we are allied with or have cooperative relationships with) • information that could reveal where defence, intelligence, security or law enforcement personnel or contractors have been placed, if that placement is secret or ongoing, as it may put them in danger • information exposing contracts with Australian defence, intelligence, security or law enforcement agencies which the Australian government has imposed strict secrecy requirements upon, has not publicly acknowledged and will not be sufficiently disguised by aggregation in the Public CBC report. 47. The fact that a CBC reporting group operates in or with the defence, intelligence, security or law enforcement industries or sectors is not likely sufficient, on its own, to warrant an exemption. Much information about those entities may be publicly available anyway – particularly via their financial statements and contract notices on government websites such as the AusTender website. 48. Contracts between these businesses and the government are not always related to national security. Public (AusTender) information shows a wide variety of contracts, from the likely non-sensitive (air conditioners and office equipment) through to arms and ammunition, weapons, explosives, vehicles and surveillance and detection equipment. Where a reporting group has a significant proportion of commercial activities or activities which are not related to national security, the sensitive information may be effectively disguised among the rest, therefore a reporting exemption is less likely to be warranted. 49. The Public CBC reporting of the specified jurisdictions may particularly expose information such as that outlined in paragraph 46 of this Practice Statement because it is reported on a stand-alone disaggregated basis. 50. The applicant should explain whether the impact on national security comes from all the obligations imposed by Public CBC reporting or from particular pieces of information being reported, and how that being reported would adversely impact national security. | Breach of Australian law: 51. A factor in favour of granting a reporting exemption is if public disclosure of the information breaches an Australian law. The exemption application must specify the relevant law and the particular reporting obligation and explain how the disclosure of that information breaches that law. 52. If public disclosure of the information conflicts with a law of a state or territory, the disclosure requirements of the TAA will prevail. However, the reasons for prohibition of disclosure under those laws should be taken into account in considering an exemption. 53. If a conflict appears between the TAA and another law of the Commonwealth, the matter should not be progressed before seeking advice as to which law prevails. | Breach of law of another jurisdiction: 54. A factor in favour of granting a reporting exemption is if public disclosure of the information breaches the law of another jurisdiction. 55. However, you must take into account whether the design of that foreign law may have been to frustrate the operation of Australia's Public CBC reporting regime. Such a purpose would detract from whether exceptional circumstances genuinely exist to deviate from parliament's intention to enhance multinational transparency. 56. If another jurisdiction has given an entity an exemption from their Public CBC regime (in that other jurisdiction), that does not necessarily mean that we will or should also grant that CBC reporting entity an exemption on that basis alone. 57. The exemption application must specify the law and explain whether it impacts all of their reporting obligations or which particular kinds of information. A general reference to non-disclosure law for a subject matter, for example, will unlikely be sufficient to justify a reporting exemption. | Commercial sensitivity: 58. A factor in favour of granting a reporting exemption is if the information is commercially sensitive and public disclosure of the information would result in severe consequences (by an objective standard) for the entity. 59. Commercially sensitive information is information which would undermine or disadvantage a business or entity if shared. Factors indicating that information is commercially sensitive include: • the nature of the information • the value or cost for its development • whether the information's value would be diminished or destroyed by disclosure • its importance to the business • measures taken to keep the information secret. • the nature of the information • the value or cost for its development • whether the information's value would be diminished or destroyed by disclosure • its importance to the business • measures taken to keep the information secret. 60. You are not required to investigate these indicators; the onus is on the applicant to provide their reasons and evidence. Expert or specialist advice is not required to be sought (by us or the applicant). These indicators are provided for your guidance when considering the material the applicant has provided. 61. We appreciate that information which is novel or particular, especially about operations, product process or strategy of the business, is commercially sensitive. However, the relevant question is whether the information which the Public CBC regime requires to be disclosed is commercially sensitive. For example, is the business's number of employees in Australia or in a specified jurisdiction commercially sensitive? See Appendix 3 to this Practice Statement for the information required to be disclosed. 62. It may be a relevant consideration if a compilation of information (in the Public CBC report or combined with other information) has commercial value or significance, independent of the individual data points. A general assertion that Public CBC disclosures will enable competitors to reverse-engineer decisions or insights into the business will not likely be sufficient, whereas an explanation of how particular pieces of information could be used against the business will be more compelling. 63. Noting the policy rationale and law design choices that were made (see paragraphs 30 and 31 of this Practice Statement), the disclosure of the information must rise beyond the level of harm already contemplated by parliament in implementing the reporting regime. That is, the fact that a reporting entity or group is privately held, or does not have any other public reporting obligations, will not be sufficient. 64. It is a relevant consideration that Public CBC reports are published retrospectively. That is, the information in the report is about a period that has ended up to a year before the report is lodged. This will likely impact the sensitivity and value of the information in the report and reduce the consequences of it being made public. Forward-looking or general statements about revealing insights into planned actions or undermining opportunities will not likely be sufficient, whereas an explanation of how particular information from a year prior could be used against the business will be more compelling. 65. Detriment being real or actual weighs in favour of a reporting exemption; remote or hypothetical detriment weighs against a reporting exemption. A measurable or quantifiable detriment that is commercially significant will carry more weight. A detriment that is trivial or commercially insignificant, even where measurable, will unlikely be sufficient to justify a reporting exemption. 66. The exemption application must explain the adverse impacts and whether it relates to all of their Public CBC reporting obligations or which particular kinds of information in the report. 67. It is unlikely that exceptional circumstances will be established based on a claim there is potential for detriment based on a reader misinterpreting or misunderstanding information in a Public CBC report. If CBC reporting entities wish to contextualise their information, they may do so outside of the Public CBC report, such as on their website or in their annual report. | Public CBC threshold in other jurisdictions: 68. Australia's Public CBC regime adopts the A$1 billion annual global income threshold [47] enacted as a near equivalent [48] amount, as at January 2015, to the OECD/G20 BEPS Project CBC reporting annual global income threshold which was EUR750 million. [49] 69. We will give positive weight to an exemption request where an entity, subject to a public CBC regime in their 'home' jurisdiction, is brought within the Australian regime merely due to fluctuations in foreign currencies and does not satisfy the revenue reporting threshold in any other public CBC regime globally for the reporting period. That is, if the applicant's income is below the revenue reporting threshold in the parent entity's jurisdiction and, accordingly, is not within scope of their 'home' public CBC regime in that reporting period, but by virtue of exchange rate fluctuation they are within Australia's regime that period. 70. This consideration has regard for the point-in-time international agreement about the size of entities that should be subject to increased tax transparency obligations. [50] | Application for exemption: 71. Entities are encouraged to register with us for Public CBC reporting prior to lodging an application for an exemption. Registration improves administrative efficiency; it does not change the obligations imposed by the law on Public CBC reporting entities. 72. Entities seeking an exemption from Public CBC reporting (applicants) should apply by submitting a written request to us with supporting information. Instructions for applying for an exemption will be provided on ato.gov.au . | Explanation and evidence: 73. The application must include an explanation for the reporting exemption. The onus is on the entity to justify why it should be granted an exemption. The application should be supported by relevant documents, legislative and legal references and, where applicable, an analysis of the potential adverse impacts that public disclosure of the information would have. There must be a logical connection between the information provided and the exemption requested. 74. Applications will be considered on a case-by-case basis, based on the information provided. 75. Only one application for exemption from an entity will be decided for each reporting period. In considering an exemption application, consider whether: • the application contains sufficient information and is supported by sufficient evidence • further information is required, and • there are any anomalies or errors that require addressing. • the application contains sufficient information and is supported by sufficient evidence • further information is required, and • there are any anomalies or errors that require addressing. 76. As per paragraphs 25 and 26 of this Practice Statement, prior to an application being declined, you must endeavour to contact the applicant and give them an opportunity to correct any such shortcomings. 77. See Appendix 2 to this Practice Statement for examples of the types of evidence required. 78. The confidentiality of information provided to us in support of an exemption request is protected by statute. [51] | Timing of the application: 79. Entities may apply for an exemption before the reporting period ends. We recommend that applicants consider their circumstances and supporting evidence available to them, to decide when is appropriate for them to apply. Some applicants will be in a position to provide reasons and evidence based on what actually occurred during the relevant reporting period only after the period has ended. 80. As per paragraph 26 of this Practice Statement, once an exemption application has been decided for a reporting period, that period cannot be reconsidered. [52] 81. Until an entity is notified that a full or partial exemption has been granted, the reporting obligations imposed by the law remain in effect. If notification of the exemption decision is not received by the statutory due date for publishing, applicants should discuss with us an extension of time to report. [53] Each request for an extension of time will be assessed on its merits. It will be viewed favourably if the entity has lodged their exemption application with reasonable time for consideration before the due date and is actively engaging with us (in resolving that application and in responding to queries and requests for further information promptly). | Exemption per reporting period: 82. The Commissioner's discretion to give exemptions to applicants applies for one reporting period at a time. [54] 83. If an entity has been exempted from their reporting obligations, or part of, in a prior year and they want the same exemption again, they must apply for that later exemption. 84. In making an application for a subsequent period: • Where there are changes from the previous reporting period to some or all of the information previously provided – the entity should provide the relevant updated reasoning and information for the reporting period for which they are seeking the exemption. This includes providing affected documents, such as agreements or contracts and updated financial statements. • Where there are no changes from the previous reporting period – the entity may choose to provide a written statement advising there has been no change from the previous reporting period and supporting updated financial reports (where relevant to their exemption), and request that we consider their exemption request on the same reasoning and pre-provided evidence. We will consider this type of request for up to 2 reporting periods after the first exemption is given. • Where there are changes from the previous reporting period to some or all of the information previously provided – the entity should provide the relevant updated reasoning and information for the reporting period for which they are seeking the exemption. This includes providing affected documents, such as agreements or contracts and updated financial statements. • Where there are no changes from the previous reporting period – the entity may choose to provide a written statement advising there has been no change from the previous reporting period and supporting updated financial reports (where relevant to their exemption), and request that we consider their exemption request on the same reasoning and pre-provided evidence. We will consider this type of request for up to 2 reporting periods after the first exemption is given. 85. If the circumstances that justified a prior exemption no longer exist (for example, the circumstances were temporary), the prior rationale would no longer apply. 86. If you are concerned about the continuing accuracy and applicability of the reasons and evidence, including on the basis of the passage of time since they were originally provided, you may give less weight to the information in deciding the discretion. You should engage with the applicant and allow an opportunity to supply updated information before you make an unfavourable decision. 87. Subsequent period applications are assessed with the same rigor as the initial application. You do not have to follow a decision from a previous year. The discretion requires the decision-maker to take into account the facts and circumstances relevant to the period, which may have changed from prior periods. | Notification of outcome of exemption application: 88. You will notify the applicant in writing either of the decision to grant an exemption, to partially grant an exemption or not to grant an exemption. [55] 89. Reasons for the decision must be provided for cases where the exemption granted covers only part of the application or no exemption is granted. [56] | Penalties: 90. A CBC reporting entity is liable to an administrative penalty if the entity is required to publish information and fails to do so on time. [57] 91. A CBC reporting entity is liable to an administrative penalty if the entity is required to publish information to correct a material error and fails to do so on time. [58] 92. The administrative penalty for failing to publish or failing to correct information is 500 penalty units [59] for each period of 28 days, up to a maxium of 2,500 penalty units. [60] At the current value of a penalty unit, the minimum penalty is $165,000 and the maximum is $825,000 (per failure). 93. These penalties only become payable after we give the entity notice of its liability to pay the penalty and reasons why the entity is liable. [61] 94. A person who refuses or fails to publish information as required by the tax law commits a civil offence. [62] | Rights of review: 95. A Public CBC reporting exemption decision is not a 'reviewable objection decision'. [63] This means entities do not have the right to lodge an objection with us or, subsequently, have the exemption decision reviewed by the Administrative Review Tribunal. 96. If an entity is not satisfied with the exemption decision, they may appeal to the Federal Court of Australia for a review of administrative decision under the Administrative Decisions (Judicial Review) Act 1977 or section 39B of the Judiciary Act 1903 . 97. A judicial review of an administrative decision of this kind involves the court reviewing whether the process by which the decision was made was flawed or whether the decision involves an error of law. The court cannot remake the decision but may remit the decision back to us to remake according to law. [64] | Application: 98. When finalised, this Practice Statement will apply from the date of publication. The granting of either a partial or full Public CBC reporting exemption for a reporting period depends on the facts and circumstances of each case. The examples which follow: • do not fetter the exercise of the Commissioner's discretion; they are for illustrative purposes only • have been simplified to illustrate various aspects of the Commissioner's discretion • are not intended to prescribe the level of information required to properly determine whether or not the discretion should be exercised. • do not fetter the exercise of the Commissioner's discretion; they are for illustrative purposes only • have been simplified to illustrate various aspects of the Commissioner's discretion • are not intended to prescribe the level of information required to properly determine whether or not the discretion should be exercised. In practice, more information will be needed to reach a conclusion on whether the information in question should be exempted from public disclosure. Example 1 – national security Plane Servicing Company (PSC) is a company that provides aircraft maintenance services to the airfleet operated by the Royal Australian Air Force and Royal Australian Navy. The company manages aircraft and helicopter servicing hangars, including equipment and onsite employees, in multiple locations where the Australian military operates, both in Australia and overseas. PSC has no other business operations. PSC lodges an application for a full exemption from Australian Public CBC reporting for the period that has just ended. In its application, PSC specifies the reporting period for which it is seeking an exemption and that a full exemption is sought. PSC seeks exemption on the basis that they are exclusively a defence contracting enterprise and that public disclosure of their information could breach their government (client) contracts and compromise Australian national security by revealing strategic locations, operations, and defence capabilities. They are of the view that harm may arise from the public disclosure of the information required for the Public CBC report. The ATO officer requests information about what information is already publicly available. PSC acknowledges that it lodges financial reports with the Australian Securities and Investment Commission which are publicly accessible, some of its government contracts have been publicly acknowledged (by the government and on the AusTender website) and it has disclosed some of the relevant information on its website. As information is already in the public domain or is discernable from public information about the entity's Australian business, the officer forms the view that a full exemption is not appropriate. The ATO officer contacts PSC to discuss the rest of the information before making a final decision (whether to give a partial exemption or decline the exemption request) for the period. PSC provides a statement that the disclosure of information about their operations in 'Specified Country X' would compromise national security, as it would expose the fact that a business known to be an Australian government defence contractor has undertaken activity in that jurisdiction, and provides evidence that the Australian Government has imposed secrecy on PSC on the grounds of national security. PSC provides a statement that the disclosure of certain information about their operations in 'Specified Country Y' would compromise national security, as it would expose the size of operations in that jurisdiction. While it is public knowledge that the Australian Government has some presence in Country Y, PSC provides evidence that the Australian Government has imposed secrecy on PSC on the grounds of national security that the public CBC reporting information – particularly employee numbers, revenue, asset and tax information – would expose (either directly or by inference). PSC provides evidence that the Australian Government has imposed secrecy on PSC on the grounds of national security in relation to the number of employees they have in Australia. As a result, the ATO officer decides to exercise the Commissioner's discretion to: • exempt PSC from reporting any information about Specified Country X • exempt PSC from reporting particular information fields regarding Specified Country Y, and • exempt PSC from reporting the number of employees as part of their Australian information. This outcome is reasonable and appropriate in the circumstances; balancing the transparency intention of the Public CBC regime and the requirement for secrecy which the government has imposed on its contractor. Note: if PSC was a private company that had multiple other sources of revenue in Australia, the outcome may be different. That is, if the compromise of national security was not identifiable from the public CBC disclosures, the discretion may not need to be exercised to meet both the transparency and secrecy objectives. Example 1 – national security Plane Servicing Company (PSC) is a company that provides aircraft maintenance services to the airfleet operated by the Royal Australian Air Force and Royal Australian Navy. The company manages aircraft and helicopter servicing hangars, including equipment and onsite employees, in multiple locations where the Australian military operates, both in Australia and overseas. PSC has no other business operations. PSC lodges an application for a full exemption from Australian Public CBC reporting for the period that has just ended. In its application, PSC specifies the reporting period for which it is seeking an exemption and that a full exemption is sought. PSC seeks exemption on the basis that they are exclusively a defence contracting enterprise and that public disclosure of their information could breach their government (client) contracts and compromise Australian national security by revealing strategic locations, operations, and defence capabilities. They are of the view that harm may arise from the public disclosure of the information required for the Public CBC report. The ATO officer requests information about what information is already publicly available. PSC acknowledges that it lodges financial reports with the Australian Securities and Investment Commission which are publicly accessible, some of its government contracts have been publicly acknowledged (by the government and on the AusTender website) and it has disclosed some of the relevant information on its website. As information is already in the public domain or is discernable from public information about the entity's Australian business, the officer forms the view that a full exemption is not appropriate. The ATO officer contacts PSC to discuss the rest of the information before making a final decision (whether to give a partial exemption or decline the exemption request) for the period. PSC provides a statement that the disclosure of information about their operations in 'Specified Country X' would compromise national security, as it would expose the fact that a business known to be an Australian government defence contractor has undertaken activity in that jurisdiction, and provides evidence that the Australian Government has imposed secrecy on PSC on the grounds of national security. PSC provides a statement that the disclosure of certain information about their operations in 'Specified Country Y' would compromise national security, as it would expose the size of operations in that jurisdiction. While it is public knowledge that the Australian Government has some presence in Country Y, PSC provides evidence that the Australian Government has imposed secrecy on PSC on the grounds of national security that the public CBC reporting information – particularly employee numbers, revenue, asset and tax information – would expose (either directly or by inference). PSC provides evidence that the Australian Government has imposed secrecy on PSC on the grounds of national security in relation to the number of employees they have in Australia. As a result, the ATO officer decides to exercise the Commissioner's discretion to: • exempt PSC from reporting any information about Specified Country X • exempt PSC from reporting particular information fields regarding Specified Country Y, and • exempt PSC from reporting the number of employees as part of their Australian information. This outcome is reasonable and appropriate in the circumstances; balancing the transparency intention of the Public CBC regime and the requirement for secrecy which the government has imposed on its contractor. Note: if PSC was a private company that had multiple other sources of revenue in Australia, the outcome may be different. That is, if the compromise of national security was not identifiable from the public CBC disclosures, the discretion may not need to be exercised to meet both the transparency and secrecy objectives. • exempt PSC from reporting any information about Specified Country X • exempt PSC from reporting particular information fields regarding Specified Country Y, and • exempt PSC from reporting the number of employees as part of their Australian information. Example 2 – breach of a foreign law Worldwide Employment Services Inc (WES) is headquartered in the United Kingdom and has operations in Australia, New Zealand, Japan and Foreign Country. Foreign Country is a specified country in the Minister's determination. Foreign Country has government procurement laws in place which require: • tenderers to maintain confidentiality in respect of tenders that they submit • successful parties that are awarded contracts to not disclose the details and quantums of payments that they receive in return for performing the tasks for which they have been contracted. WES is providing employment services in Foreign Country under a government contract. It has no other sources of revenue in Foreign Country. WES lodges an application for a partial exemption from Australian Public CBC reporting for a reporting period for the following information in relation to Foreign Country: • revenue from unrelated parties (paragraph 3DA(3)(d)) • profit or loss before income tax (paragraph 3DA(3)(f)) • income tax paid (on a cash basis) (paragraph 3DA(3)(h)) • income tax accrued (current year) (paragraph 3DA(3)(i)) • the reasons for the difference between the income tax accrued and the amount of income tax due if the income tax rate applicable in the jurisdiction was applied to the profit or loss before income tax (paragraph 3DA(3)(j)). The ATO officer considers the link between the particular information and Foreign Country's law. They identify that that law pre-dated the Australian Public CBC regime and international agreements about tax transparency. The ATO officer decides to grant a partial exemption to exclude the information WES has requested not to publish in respect of Foreign Country. WES is still required to publish Public CBC information, disaggregated for its Australian operations and its aggregated information for the rest of the world pertaining to its Japanese and New Zealand operations. It is also required to publish partial disaggregated information for Foreign Country, being the labels that are not covered by the partial exemption. Example 2 – breach of a foreign law Worldwide Employment Services Inc (WES) is headquartered in the United Kingdom and has operations in Australia, New Zealand, Japan and Foreign Country. Foreign Country is a specified country in the Minister's determination. Foreign Country has government procurement laws in place which require: • tenderers to maintain confidentiality in respect of tenders that they submit • successful parties that are awarded contracts to not disclose the details and quantums of payments that they receive in return for performing the tasks for which they have been contracted. WES is providing employment services in Foreign Country under a government contract. It has no other sources of revenue in Foreign Country. WES lodges an application for a partial exemption from Australian Public CBC reporting for a reporting period for the following information in relation to Foreign Country: • revenue from unrelated parties (paragraph 3DA(3)(d)) • profit or loss before income tax (paragraph 3DA(3)(f)) • income tax paid (on a cash basis) (paragraph 3DA(3)(h)) • income tax accrued (current year) (paragraph 3DA(3)(i)) • the reasons for the difference between the income tax accrued and the amount of income tax due if the income tax rate applicable in the jurisdiction was applied to the profit or loss before income tax (paragraph 3DA(3)(j)). The ATO officer considers the link between the particular information and Foreign Country's law. They identify that that law pre-dated the Australian Public CBC regime and international agreements about tax transparency. The ATO officer decides to grant a partial exemption to exclude the information WES has requested not to publish in respect of Foreign Country. WES is still required to publish Public CBC information, disaggregated for its Australian operations and its aggregated information for the rest of the world pertaining to its Japanese and New Zealand operations. It is also required to publish partial disaggregated information for Foreign Country, being the labels that are not covered by the partial exemption. • tenderers to maintain confidentiality in respect of tenders that they submit • successful parties that are awarded contracts to not disclose the details and quantums of payments that they receive in return for performing the tasks for which they have been contracted. • revenue from unrelated parties (paragraph 3DA(3)(d)) • profit or loss before income tax (paragraph 3DA(3)(f)) • income tax paid (on a cash basis) (paragraph 3DA(3)(h)) • income tax accrued (current year) (paragraph 3DA(3)(i)) • the reasons for the difference between the income tax accrued and the amount of income tax due if the income tax rate applicable in the jurisdiction was applied to the profit or loss before income tax (paragraph 3DA(3)(j)). Example 3 – commercial sensitivity Widget Limited is an Australian-headquartered public company that designs and manufactures widgets (protected by patent and trademark). The widgets are a new product and Widget Limited is seeking to break into a market it has not operated in before and expects to cause disruption to existing market participants. In addition to Australia, Widget Limited operates in Singapore, Germany, the United Kingdom, France, the United States of America and Canada, and is considering expanding. It has a 5-year strategy to launch its business in a new jurisdiction. The launch is a capital and labour-intensive effort (the existence of which is not publicly disclosed) that is only expected to lead to substantial revenues in the fourth and fifth year, at which time its competitors would be aware of the breadth of its operations. The disclosure of the capital and labour figures in year 3 (that is, disclosure of year one, 12 months after it ends) would provide competitors with information about their business strategy a year earlier than their competitors would otherwise obtain it and give them time to undertake practices designed to effectively deny Widget Limited access to the jurisdictions' markets. Widget Limited provides evidence of similar behaviour in relation to other recent attempts of new entrants to enter the market. Widget Limited seeks a full exemption from Public CBC reporting for the period on the basis of the commercial sensitivity it faces. Widget Limited provides evidence to demonstrate: • their 5-year strategy and costs already incurred which align with it • that information pertaining to the widgets and its business operations is restricted (both within the company and not publicly available) • their links to 3 specified countries. The ATO officer is of the view that the information and reasoning submitted does not support non-disclosure of revenues, profits before tax and tax amounts. These pieces of information do not reveal details of its business strategy (on the information provided). The ATO officer is of the view that the public disclosure of the capital and labour information in the Public CBC report would reveal information likely to cause severe adverse ramifications if it was revealed, so decides to give a partial exemption for those kinds of information. In contrast, publication of the information about its Australian business practices would not cause such harm and much of the information would be publicly available via the company's Australian Securities Exchange disclosures and financial reports filed with the Australian Securities and Investment Commission. The ATO officer contacts Widget Limited before the (partial) exemption decision is made for the reporting period to provide an opportunity to send any further information. Example 3 – commercial sensitivity Widget Limited is an Australian-headquartered public company that designs and manufactures widgets (protected by patent and trademark). The widgets are a new product and Widget Limited is seeking to break into a market it has not operated in before and expects to cause disruption to existing market participants. In addition to Australia, Widget Limited operates in Singapore, Germany, the United Kingdom, France, the United States of America and Canada, and is considering expanding. It has a 5-year strategy to launch its business in a new jurisdiction. The launch is a capital and labour-intensive effort (the existence of which is not publicly disclosed) that is only expected to lead to substantial revenues in the fourth and fifth year, at which time its competitors would be aware of the breadth of its operations. The disclosure of the capital and labour figures in year 3 (that is, disclosure of year one, 12 months after it ends) would provide competitors with information about their business strategy a year earlier than their competitors would otherwise obtain it and give them time to undertake practices designed to effectively deny Widget Limited access to the jurisdictions' markets. Widget Limited provides evidence of similar behaviour in relation to other recent attempts of new entrants to enter the market. Widget Limited seeks a full exemption from Public CBC reporting for the period on the basis of the commercial sensitivity it faces. Widget Limited provides evidence to demonstrate: • their 5-year strategy and costs already incurred which align with it • that information pertaining to the widgets and its business operations is restricted (both within the company and not publicly available) • their links to 3 specified countries. The ATO officer is of the view that the information and reasoning submitted does not support non-disclosure of revenues, profits before tax and tax amounts. These pieces of information do not reveal details of its business strategy (on the information provided). The ATO officer is of the view that the public disclosure of the capital and labour information in the Public CBC report would reveal information likely to cause severe adverse ramifications if it was revealed, so decides to give a partial exemption for those kinds of information. In contrast, publication of the information about its Australian business practices would not cause such harm and much of the information would be publicly available via the company's Australian Securities Exchange disclosures and financial reports filed with the Australian Securities and Investment Commission. The ATO officer contacts Widget Limited before the (partial) exemption decision is made for the reporting period to provide an opportunity to send any further information. • their 5-year strategy and costs already incurred which align with it • that information pertaining to the widgets and its business operations is restricted (both within the company and not publicly available) • their links to 3 specified countries. Example 4 – commercial sensitivity AM Co is a private business entity providing professional services which has Public CBC reporting obligations. It seeks a reporting exemption on the basis that it earns the majority of its revenue in a single jurisdiction outside of Australia and that jurisdiction is not one of the specified countries listed in the legislative instrument. It asserts that the reporting obligations would effectively disclose information about its operations in that jurisdiction and that was clearly not intended. AM Co reasons that it is a professional services business which has consciously been structured privately to be more competitive and they have sacrified access to capital markets for that. The ATO officer explains that the business' private structure and its lack of public accountability or reporting obligations elsewhere are not, on their own, reasons for us to give an exemption (see paragraphs 29 to 31 of this Practice Statement). AM Co argues that disclosing revenue from unrelated parties, when they are so exposed in a single jurisdiction, will provide those parties increased bargaining power to charge them higher fees. That may be true, depending on what other information is amalgamated in their Public CBC report, but the ATO officer considers that is not an exceptional circumstance. Example 4 – commercial sensitivity AM Co is a private business entity providing professional services which has Public CBC reporting obligations. It seeks a reporting exemption on the basis that it earns the majority of its revenue in a single jurisdiction outside of Australia and that jurisdiction is not one of the specified countries listed in the legislative instrument. It asserts that the reporting obligations would effectively disclose information about its operations in that jurisdiction and that was clearly not intended. AM Co reasons that it is a professional services business which has consciously been structured privately to be more competitive and they have sacrified access to capital markets for that. The ATO officer explains that the business' private structure and its lack of public accountability or reporting obligations elsewhere are not, on their own, reasons for us to give an exemption (see paragraphs 29 to 31 of this Practice Statement). AM Co argues that disclosing revenue from unrelated parties, when they are so exposed in a single jurisdiction, will provide those parties increased bargaining power to charge them higher fees. That may be true, depending on what other information is amalgamated in their Public CBC report, but the ATO officer considers that is not an exceptional circumstance. Example 5 – foreign jurisdiction with Public CBC reporting regime Global Manufacturing GMBH is a Public CBC reporting entity headquartered in Germany. It has manufacturing operations in several countries, including in Australia. Global Manufacturing GMBH has a Euro functional currency for taxation purposes in Australia. It has an annual turnover of EUR684.75 million for the relevant reporting period, equivalent to $1.1 billion (converted at the rate 0.6225, being the exchange rate applicable for the last day of the Public CBC reporting period). In Germany, under Sections 342-342p of Handelsgesetzbuch (HGB – German Commercial Code), Public CBC reporting applies to entities with a turnover of at least EUR750 million in 2 consecutive financial years. Global Manufacturing GMBH lodges an application for a full exemption from Australian Public CBC reporting, reasoning that it does not meet the minimum threshold for Public CBC reporting in its home jurisdiction nor in any other jurisdiction in which it operates. To support their exemption application, Global Manufacturing GMBH provides: • independently audited short-form financial statements for the relevant financial year showing their global turnover • proof of domicile in Germany • a statement confirming they are not required to prepare or submit a public CBC report in Germany, including reference to the relevant law in the jurisdiction, the HGB, and a calculation showing the global turnover of the parent compared to the CBC threshold. The ATO officer considers the facts and circumstances. The non-alignment of the CBC reporting threshhold arises from the depreciation of the Australian dollar against the Euro and Global Manufacturing GMBH has no public CBC reporting obligations elsewhere globally. The officer decides to give Global Manufacturing GMBH a full exemption from Public CBC reporting for the reporting period. Example 5 – foreign jurisdiction with Public CBC reporting regime Global Manufacturing GMBH is a Public CBC reporting entity headquartered in Germany. It has manufacturing operations in several countries, including in Australia. Global Manufacturing GMBH has a Euro functional currency for taxation purposes in Australia. It has an annual turnover of EUR684.75 million for the relevant reporting period, equivalent to $1.1 billion (converted at the rate 0.6225, being the exchange rate applicable for the last day of the Public CBC reporting period). In Germany, under Sections 342-342p of Handelsgesetzbuch (HGB – German Commercial Code), Public CBC reporting applies to entities with a turnover of at least EUR750 million in 2 consecutive financial years. Global Manufacturing GMBH lodges an application for a full exemption from Australian Public CBC reporting, reasoning that it does not meet the minimum threshold for Public CBC reporting in its home jurisdiction nor in any other jurisdiction in which it operates. To support their exemption application, Global Manufacturing GMBH provides: • independently audited short-form financial statements for the relevant financial year showing their global turnover • proof of domicile in Germany • a statement confirming they are not required to prepare or submit a public CBC report in Germany, including reference to the relevant law in the jurisdiction, the HGB, and a calculation showing the global turnover of the parent compared to the CBC threshold. The ATO officer considers the facts and circumstances. The non-alignment of the CBC reporting threshhold arises from the depreciation of the Australian dollar against the Euro and Global Manufacturing GMBH has no public CBC reporting obligations elsewhere globally. The officer decides to give Global Manufacturing GMBH a full exemption from Public CBC reporting for the reporting period. • independently audited short-form financial statements for the relevant financial year showing their global turnover • proof of domicile in Germany • a statement confirming they are not required to prepare or submit a public CBC report in Germany, including reference to the relevant law in the jurisdiction, the HGB, and a calculation showing the global turnover of the parent compared to the CBC threshold. | Subsequent period: In the following period, the size of Global Manufacturing GMBH remains below the public CBC threshold in Germany and other jurisdictions in which it operates, so it applies to the ATO to renew its exemption. It provides a statement advising that it remains below the relevant threshold and a copy of the short-form financial statements for that period. The ATO officer grants a full exemption from public CBC reporting for that period. This outcome is reasonable and appropriate in the circumstances; balancing the transparency intention of the Public CBC regime and the effect of currency fluctuation. It is reasonable to delay an entity's Australian tax transparency obligation if they are under the monetary threshold in their home jurisdiction and all other jurisdictions in which they operate. The same reasoning does not extend to materiality thresholds or deferrals (or other variances in Australia's law which were considered during consultation and design of the regime). Note: Australia's threshold is 'annual global income' but other jurisdictions may calculate the revenues differently. For present purposes, the ATO does not require that revenue is calculated identically in the other jurisdiction. The following non-exhaustive list outlines the documents we envisage entities may provide to support their application for an exemption and substantiate their claim: • information about the parent CBC reporting entity, the CBC group, its structure and membership as relevant to the application • annual reports • general purpose financial statements • global financial statements • Australian Securities and Investments Commission Financial Statements (for Australian-resident entities) • balance sheets • tax reconciliation statements • contracts and agreements • documents from financial institutions • memorandum of understanding • tender agreements • valuations • policy documents related to contracts • information about foreign laws that are relevant (if they have been relied upon) • reports or analysis about the impact of public disclosure • all other source documents relied upon. • information about the parent CBC reporting entity, the CBC group, its structure and membership as relevant to the application • annual reports • general purpose financial statements • global financial statements • Australian Securities and Investments Commission Financial Statements (for Australian-resident entities) • balance sheets • tax reconciliation statements • contracts and agreements • documents from financial institutions • memorandum of understanding • tender agreements • valuations • policy documents related to contracts • information about foreign laws that are relevant (if they have been relied upon) • reports or analysis about the impact of public disclosure • all other source documents relied upon. Where an entity is seeking an exemption on the basis of the Foreign Currency threshold, they should provide: • their home jurisdiction • the law of the jurisidiction for public CBC reporting or private CBC reporting as relevant • if the language of the jurisdiction is not English, a translation into English of the relevant provisions of the law • the quantum of the global annual turnover for public CBC reporting or private CBC reporting as relevant • their global annual turnover in the unit of currency in the home jurisdiction • the currency conversion rate of the home jurisdiction threshhold and information setting out the source of that rate. • their home jurisdiction • the law of the jurisidiction for public CBC reporting or private CBC reporting as relevant • if the language of the jurisdiction is not English, a translation into English of the relevant provisions of the law • the quantum of the global annual turnover for public CBC reporting or private CBC reporting as relevant • their global annual turnover in the unit of currency in the home jurisdiction • the currency conversion rate of the home jurisdiction threshhold and information setting out the source of that rate. Table 1: Information required by the Australian Public CBC regime and alignment with other regimes Information required by Australian Public CBC regime Alignment with other regimes Statement on approach to tax The approach an entity takes to engaging with stakeholders, including how it engages with tax authorities, is important information for stakeholders and investors to assess an entity's reputational risk. Consistent with (GRI-207). Name of reporting entities in the CBC reporting group Consistent with GRI-207 and OECD, European Union (EU) public CBC. Description of main business activities Consistent with GRI-207 and OECD, EU public CBC. Number of employees Consistent with GRI-207 and OECD, EU public CBC. Revenue from unrelated parties (third-party transactions) Transactions with unrelated parties are an indicator of an entity's scale of activity in a jurisdiction – read with related party revenues (below), it is a more granular disclosure than aggregated revenues. Consistent with GRI-207 and OECD. Revenue from related parties (intra-group transactions) Transactions within a group (related party or intra-group) that take place between jurisdictions (that is, cross-border) can influence the tax base of an entity by manipulating an entity's tax presence in a jurisdiction. Consistent with GRI-207 and OECD. Book value of tangible assets Indicative of an entity's presence and scale of activity in a jurisdiction (for example, where real economic activity and investment take place versus where profits may be shifted for tax purposes). Consistent with GRI-207 and OECD. Profit or loss before income tax Consistent with GRI-207 and OECD, EU public CBC. Income tax paid (cash basis) Consistent with GRI-207 and OECD, EU public CBC. Income tax accrued (current year) Consistent with GRI-207 and OECD, EU public CBC. Reasons for difference between income tax accrued and tax due (reconciliation) Provides more detailed information on an entity's tax structure, to support investor's capital allocation decisions. Consistent with GRI-207. Currency used for the report Consistent with GRI-207 and OECD, EU public CBC. Consistent with (GRI-207). activities Consistent with GRI-207 and OECD. Consistent with GRI-207 and OECD. Consistent with GRI-207 and OECD. Consistent with GRI-207. You are invited to comment on this Practice Statement, in particular: • any further detail needed about the exercise of the discretion to exempt • any further exemption considerations that should be included • any further exceptional circumstances that should be included • any further examples that could be usefully included in the final Practice Statement • suggestions for the non-exhaustive evidence and document list in Appendix 2 of this Practice Statement. • any further detail needed about the exercise of the discretion to exempt • any further exemption considerations that should be included • any further exceptional circumstances that should be included • any further examples that could be usefully included in the final Practice Statement • suggestions for the non-exhaustive evidence and document list in Appendix 2 of this Practice Statement. Please forward your comments to the contact officer by the due date. A compendium of comments is prepared when finalising this Practice Statement and an edited version (with names and identifying information removed) may be published to the Legal database on ato.gov.au. Please advise if you do not want your comments included in the edited version of the compendium. Due date: 5 September 2025 Contact officer details have been removed as the comments period has ended. © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Date of Issue: 3 July 2025 Date of Effect: When finalised, this Practice Statement will apply from the date of publication. [1] Section 3DA of the Taxation Administration Act 1953 (TAA). [2] Schedule 4 of the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Act 2024 inserted sections 3D, 3DA and 3DB (with penalty provisions and minor other amendments) into the TAA, with effect from 1 July 2024. [3] For readability, all further references to 'this Practice Statement' refer to the Practice Statement as it will read when finalised. Note that this Practice Statement will not take effect until finalised. [4] This Practice Statement is part of the Commissioner's guidance called for by paragraph 4.24 of the Explanatory Memorandum to the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 (EM). [5] Law Administration Practice Statement PS LA 1998/1 Law administration practice statements . [6] Contained in subsections 3D(5) and (6). [7] Paragraph 3D(1)(f) and subsection 3DB(4). [8] See subsection 3DB(4). [9] Paragraph 3D(1)(a). [10] Paragraph 3D(1)(c). [11] Subsection 815-380(1) of the ITAA 1997. [12] Within the meaning provided by section 815-375 of the ITAA 1997. [13] Paragraph 815-380(1)(b) of the ITAA 1997. [14] Paragraph 3D(1)(d). [15] 'Aggregated turnover' has the meaning given by section 328-115 of the ITAA 1997. [16] Paragraph 3D(1)(e). Also see paragraphs 4.16 to 4.17 of the EM for discussion of the small Australian presence exclusion. [17] Paragraphs 3D(1)(f) and (g). [18] See paragraph 4.14 of the EM. [19] By publishing the Public CBC report on Data.gov.au ; see subsections 3D(3) and (4). [20] Senate Standing Committee on Economics (July 2024) Department of Treasury – Answers to Questions on Notice – Inquiry into Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 , aph.gov.au; Stephen Jones MP, Second Reading Speech, Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024, Commonwealth of Australia, House of Representatives, Official Hansard , 5 June 2024, page 3724. [21] Global Reporting Institute (2019) GRI 207: Tax 2019 , https://www.globalreporting.org/how-to-use-the-gri-standards/gri-standards-english-language/ , disclosures 207-1 and 207-4. See also paragraph 3DA(7)(a). [22] Senate Standing Committee on Economics (July 2024) Department of Treasury – Answers to Questions on Notice – Inquiry into Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 , aph.gov.au; Jones, S (Assistant Treasurer and Minister for Financial Services), Chalmers, J (Treasurer) and Leigh, A (Assistant Minister for Competition, Charities and Treasury) 2024, Multinational tax transparency, Buy Now Pay Later and philanthropic laws pass Parliament , media release, Canberra, 24 November. [23] Stephen Jones MP, Second Reading Speech, Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024, Commonwealth of Australia, House of Representatives, Official Hansard , 5 June 2024, page 3724. [24] Senate Standing Committee on Economics (July 2024) Department of Treasury – Answers to Questions on Notice – Inquiry into Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 , aph.gov.au. [25] See Chapter 4 of the EM; the Explanatory Statement to the Taxation Administration (Country by Country Reporting Jurisdictions) Determination 2024 and Stephen Jones MP, Second Reading Speech, Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024, Commonwealth of Australia, House of Representatives, Official Hansard , 5 June 2024, page 3724. [26] Senate Standing Committee on Economics (July 2024) Department of Treasury – Answers to Questions on Notice – Inquiry into Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 , aph.gov.au. [27] Subsections 3DB(5) and (6) use 'may', which signifies discretion (subject to contrary intention): subsection 33(2A) of the Acts Interpretation Act 1901 . [28] Subsections 3DB(5) and (6) and paragraph 4.18 of the EM. [29] Paragraph 4.21 of the EM. [30] The Commissioner will be functus officio (in the same way as other decisions which may be made only once; compare with paragraphs 183 to 195 of Taxation Ruling TR 2011/5 Income tax: objections against income tax assessments ). [31] Minister for Aboriginal Affairs v Peko-Wallsend Ltd [1986] HCA 40; 62 CLR 24 at [39-40] and [308-310] and Hyder v Commissioner of Taxation [2022] FCA 264. [32] Ansett Transport Industries (Operations) Pty Ltd v Commonwealth [1977] HCA 71; 139 CLR 54 at [61], per Barwick CJ. [33] Nikac, S. v Minister for Immigration, Local Govt & Ethnic Affairs [1988] FCA 670; 16 ALD 611 at [625], per Wilcox J; BHP Direct Reduced Iron Pty Ltd v Chief Executive Officer , Australian Customs Service [1998] FCA 1346; 55 ALD 665 at [682], per Carr J. [34] Giris Pty Ltd v Commissioner of Taxation (Cth) [1969] HCA 5, per Windeyer J. [35] Paragraph 4.23 of the EM. [36] Paragraphs 4.1 to 4.9 of the EM. [37] The Treasury (April 2023) Public country-by-country reporting – April 2023 [website] accessed 26 June 2025 and The Treasury (February 2024) Public country-by-country reporting - February 2024 [website] accessed 26 June 2025. [38] Refer Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 [website] from the Senate Standing Committee on Economics. [39] The revised policy settings are summarised in Appendix 3: Impact Analysis of the EM. [40] Paragraph 4.18 of the EM. [41] Paragraph 4.22 of the EM. [42] Commissioner of Taxation v Apted [2021] FCAFC 45. [43] Section 8 of the National Security Information (Criminal and Civil Proceedings) Act 2004 . [44] Section 4 of the Australian Security Intelligence Organisation Act 1979 and section 9 of the National Security Information (Criminal and Civil Proceedings) Act 2004 . [45] Section 10 of the National Security Information (Criminal and Civil Proceedings) Act 2004 . [46] Section 11 of the National Security Information (Criminal and Civil Proceedings) Act 2004 . [47] Paragraph 815-375(1)(c) of the ITAA 1997 in the definition of country-by-country reporting parent which was adopted for Public CBC in paragraph 3D(1)(b). [48] Article 1 of the OECD Model legislation related to country-by-country reporting and Chapter 2 of the Explanatory Memorandum to the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015. [49] Paragraph 52 of Chapter IV of the Transfer Pricing Documentation and Country-by-Country Reporting, OECD (2015) Transfer Pricing Documentation and Country - by - Country Reporting , Action 13 - 2015 Final Report , OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris, https://doi.org/10.1787/9789264241480-en . [50] Section 1.1 of Chapter 4 of the OECD (2024) Guidance on the Implementation of Country-by-Country Reporting: BEPS Action 13 , OECD, Paris, https://www.oecd.org/en/topics/sub-issues/country-by-country-reporting-for-tax-purposes/guidance-handbooks.html (BEPS Guidance Report). [51] Division 355 of Schedule 1. [52] The Commissioner will be functus officio . [53] As the Public CBC Report is an approved form, the Commissioner may grant an extension of time to lodge under section 388-55 of Schedule 1. [54] Subsection 3DB(7). [55] Subsections 3DB(5) and (6). [56] Law Administration Practice Statement PS LA 2013/1 Statements of reasons pursuant to section 13 of the Administrative Decision (Judicial Review) Act 1977 . [57] Section 288-140 of Schedule 1. [58] Section 288-140 of Schedule 1. [59] The value of a penalty unit is in section 4AA of the Crimes Act 1914 and is indexed regularly. The dollar amount of a penalty unit is available at Penalties . [60] Section 288-140 of Schedule 1. [61] Section 298-10 of Schedule 1. [62] Paragraph 8C(1)(ab). Section 8E specifies the penalties for the offence. [63] The provisions enabling the Commissioner to grant an exemption from Public CBC reporting are not within the scope of Part IVC. [64] Refer to paragraphs 93 to 110 of Law Administration Practice Statement PS LA 2009/9 Conduct of ATO litigation and engagement of ATO Dispute Resolution for further information. File 1-11DH9DET Related Rulings/Determinations: TR 2011/5 Related Practice Statements: PS LA 1998/1 PS LA 2009/9 PS LA 2013/1 Other References: Explanatory Memorandum to the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015 Explanatory Memorandum to the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 Explanatory Statement to the Taxation Administration (Country by Country Reporting Jurisdictions) Determination 2024 Global Reporting Institute (2019) GRI 207: Tax 2019, https://www.globalreporting.org/how-to-use-the-gri-standards/gri-standards-english-language/ Jones, S (Assistant Treasurer and Minister for Financial Services), Chalmers, J (Treasurer) and Leigh, A (Assistant Minister for Competition, Charities and Treasury) 2024, Multinational tax transparency, Buy Now Pay Later and philanthropic laws pass Parliament, media release, Canberra, 24 November. OECD (2024) Guidance on the Implementation of Country-by-Country Reporting: BEPS Action 13, OECD, Paris, https://www.oecd.org/en/topics/sub-issues/country-by-country-reporting-for-tax-purposes/guidance-handbooks.html OECD (2015) Transfer Pricing Documentation and Country-by-Country Reporting, Action 13 – 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris, https://doi.org/10.1787/9789264241480-en Senate Standing Committee on Economics (July 2024) Department of Treasury - Answers to Questions on Notice – Inquiry into Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024, aph.gov.au Senate Standing Committee on Economics (2025) Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 [website] aph.gov.au accessed 26 June 2025Stephen Jones MP, Second Reading Speech, Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024, Commonwealth of Australia, House of Representatives, Official Hansard, 5 June 2024 The Treasury (April 2023) Public country-by-country reporting – April 2023 [website] accessed 26 June 2025 The Treasury (February 2024) Public country-by-country reporting – February 2024 [website] accessed 26 June 2025.",PS LA 2025/2 | TR 2011/5 | PS LA 1998/1 | PS LA 2009/9 | PS LA 2013/1 | Explanatory Memorandum | Explanatory Statement | ITAA 1997 SubDiv 815-E | ITAA 1997 815-375(1)(c) | ITAA 1997 815-380(1) | ITAA 1997 815-380(1)(b) | TAA 1953 3D | TAA 1953 3D(1)(a) | TAA 1953 3D(1)(b) | TAA 1953 3D(1)(c) | TAA 1953 3D(1)(d) | TAA 1953 3D(1)(e) | TAA 1953 3D(1)(f) | TAA 1953 3D(1)(g) | TAA 1953 3D(3) | TAA 1953 3D(4) | TAA 1953 3D(5) | TAA 1953 3D(6) | TAA 1953 3DA | TAA 1953 3DB | TAA 1953 3DB(4) | TAA 1953 3DB(5) | TAA 1953 3DB(6) | TAA 1953 3DB(7) | TAA 1953 8C(1)(ab) | TAA 1953 8E | TAA 1953 Pt IVC | TAA 1953 Sch 1 288-140 | TAA 1953 Sch 1 298-10 | TAA 1953 Sch 1 Div 355 | TAA 1953 Sch 1 388-55 | Acts Interpretation Act 1901 33(2A) | Administrative Decisions (Judicial Review) Act 1977 11(3) | Crimes Act 1914 4AA | Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Act 2024 Sch 4 | [1977] HCA 71 | 139 CLR 54 | [1998] FCA 1346 | 55 ALD 665 | 2021 ATC 20-784 | 69 ATC 4015 | [2022] FCA 264 | 2022 ATC 20-820 | 162 CLR 24 | (1986) 66 ALR 299 | [1988] FCA 670 | 20 FCR 65 | (1988) 92 ALR 167 | 16 ALD 611,PS LA 1998/1 PS LA 2009/9 PS LA 2013/1,ITAA 1997 SubDiv 815-E | ITAA 1997 815-375(1)(c) | ITAA 1997 815-380(1) | ITAA 1997 815-380(1)(b) | TAA 1953 3D | TAA 1953 3D(1)(a) | TAA 1953 3D(1)(b) | TAA 1953 3D(1)(c) | TAA 1953 3D(1)(d) | TAA 1953 3D(1)(e) | TAA 1953 3D(1)(f) | TAA 1953 3D(1)(g) | TAA 1953 3D(3) | TAA 1953 3D(4) | TAA 1953 3D(5) | TAA 1953 3D(6) | TAA 1953 3DA | TAA 1953 3DB | TAA 1953 3DB(4) | TAA 1953 3DB(5) | TAA 1953 3DB(6) | TAA 1953 3DB(7) | TAA 1953 8C(1)(ab) | TAA 1953 8E | TAA 1953 Pt IVC | TAA 1953 Sch 1 288-140 | TAA 1953 Sch 1 298-10 | TAA 1953 Sch 1 Div 355 | TAA 1953 Sch 1 388-55 | Acts Interpretation Act 1901 33(2A) | Administrative Decisions (Judicial Review) Act 1977 11(3) | Australian Security Intelligence Organisation Act 1979 4 | Crimes Act 1914 4AA | Judiciary Act 1903 39B | National Security Information (Criminal and Civil Proceedings) Act 2004 8 | National Security Information (Criminal and Civil Proceedings) Act 2004 9 | National Security Information (Criminal and Civil Proceedings) Act 2004 10 | National Security Information (Criminal and Civil Proceedings) Act 2004 11 | Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Act 2024 Sch 4,,"Explanatory Memorandum to the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015 Explanatory Memorandum to the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 Explanatory Statement to the Taxation Administration (Country by Country Reporting Jurisdictions) Determination 2024 Global Reporting Institute (2019) GRI 207: Tax 2019, https://www.globalreporting.org/how-to-use-the-gri-standards/gri-standards-english-language/ Jones, S (Assistant Treasurer and Minister for Financial Services), Chalmers, J (Treasurer) and Leigh, A (Assistant Minister for Competition, Charities and Treasury) 2024, Multinational tax transparency, Buy Now Pay Later and philanthropic laws pass Parliament, media release, Canberra, 24 November. OECD (2024) Guidance on the Implementation of Country-by-Country Reporting: BEPS Action 13, OECD, Paris, https://www.oecd.org/en/topics/sub-issues/country-by-country-reporting-for-tax-purposes/guidance-handbooks.html OECD (2015) Transfer Pricing Documentation and Country-by-Country Reporting, Action 13 – 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris, https://doi.org/10.1787/9789264241480-en Senate Standing Committee on Economics (July 2024) Department of Treasury - Answers to Questions on Notice – Inquiry into Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024, aph.gov.au Senate Standing Committee on Economics (2025) Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 [website] aph.gov.au accessed 26 June 2025Stephen Jones MP, Second Reading Speech, Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024, Commonwealth of Australia, House of Representatives, Official Hansard, 5 June 2024 The Treasury (April 2023) Public country-by-country reporting – April 2023 [website] accessed 26 June 2025 The Treasury (February 2024) Public country-by-country reporting – February 2024 [website] accessed 26 June 2025.",False,False,https://www.ato.gov.au/law/view/document?docid=DPS/PSD20251/NAT/ATO/00001,"This document has been finalised by PS LA 2025/2 . | APPENDIX 2 – Evidentiary list | APPENDIX 3 – Public CBC report information | APPENDIX 4 – Your comments | Ansett Transport Industries (Operations) Pty Ltd v Commonwealth [1977] HCA 71 139 CLR 54 52 ALJR 254 17 ALR 513 | BHP Direct Reduced Iron Pty Ltd v Chief Executive Officer, Australian Customs Service [1998] FCA 1346 55 ALD 665 1998 WL 1671940 | Commissioner of Taxation v Apted [2021] FCAFC 45 284 FCR 93 2021 ATC 20-784 112 ATR 882 [2022] ALMD 935 172 ALD 435 | Giris Pty Ltd v Commissioner of Taxation (Cth) [1969] HCA 5 119 CLR 365 69 ATC 4015 1 ATR 3 43 ALJR 99 | Hyder v Commissioner of Taxation [2022] FCA 264 2022 ATC 20-820 114 ATR 516 175 ALD 473 | Minister for Aboriginal Affairs v Peko-Wallsend Ltd [1986] HCA 40 162 CLR 24 60 ALJR 560 (1986) 66 ALR 299 | Nikac, S. v Minister for Immigration, Local Govt & Ethnic Affairs [1988] FCA 670 20 FCR 65 (1988) 92 ALR 167 16 ALD 611"
PS LA 2019/D2 (Finalised),"Administering general anti-abuse rules, such as a principal or main purposes test, included in any of Australia's tax treaties",16 December 2019,,Law Administration Practice Statement,True,"1. What is this Practice Statement about?: This Practice Statement helps you to apply a principal or main purposes test in any of Australia's tax treaties, including for a private ruling, a public ruling (including a product or class ruling) or any other document setting out the ATO view. In this Practice Statement, we use 'purpose test' as a term of convenience to cover the tests it applies to. These are: • the principal purposes test (PPT) under paragraph 1 of Article 7 of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting [1] (MLI) as it applies to a Covered Tax Agreement (CTA) [2] (the MLI PPT) • a PPT in an Australian tax treaty that is not a CTA [3] (a PPT), and • a main purposes test (MPT) [4] in an Australian tax treaty that is yet to be or will not be modified by the MLI. • the principal purposes test (PPT) under paragraph 1 of Article 7 of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting [1] (MLI) as it applies to a Covered Tax Agreement (CTA) [2] (the MLI PPT) • a PPT in an Australian tax treaty that is not a CTA [3] (a PPT), and • a main purposes test (MPT) [4] in an Australian tax treaty that is yet to be or will not be modified by the MLI. Unless otherwise stated, a reference to a purpose test is a reference to any or all of these tests. This Practice Statement is divided into the following sections: (a) what to do when considering applying a purpose test (b) framing questions and documents that may be relevant when you are considering applying a purpose test, and (c) background and relevant considerations in applying the MLI PPT. (a) what to do when considering applying a purpose test (b) framing questions and documents that may be relevant when you are considering applying a purpose test, and (c) background and relevant considerations in applying the MLI PPT. This Practice Statement has been developed in recognition that applying a purpose test to deny a benefit under a tax treaty is a serious matter. | 2. What should you do if you consider that a purpose test may apply?: Before deciding that a purpose test applies to deny a treaty benefit, you must first: • notify the appropriate specialist in the International specialist team • refer the matter to the Tax Counsel Network (TCN) business line in certain circumstances • refer the matter to the General Anti-Avoidance Rules (GAAR) Panel, and • consider possible requests under paragraph 4 of Article 7 of the MLI. • notify the appropriate specialist in the International specialist team • refer the matter to the Tax Counsel Network (TCN) business line in certain circumstances • refer the matter to the General Anti-Avoidance Rules (GAAR) Panel, and • consider possible requests under paragraph 4 of Article 7 of the MLI. Notify the International specialist team If you consider that a purpose test may apply, you must present the relevant facts and circumstances to the appropriate International specialist team [5] , as soon as possible. You may also engage other relevant technical experts in your business line (for example, the Technical Leadership and Advice stream of the Private Wealth business line). The International specialist team and technical experts may help you decide whether the matter should be referred to TCN. Refer the matter to the Tax Counsel Network You must refer a purpose test matter to TCN, in the following circumstances: • before applying a purpose test to deny a benefit under an Australian tax treaty. [6] In the usual case, the matter will be referred to TCN before issuing an ATO position paper indicating that a purpose test may apply. • before giving a private ruling, product ruling or class ruling, or issuing any other ATO product that states that a purpose test applies to an arrangement or transaction. (See section 3 of this Practice Statement for more information on giving a private ruling, including where the taxpayer has not requested a ruling on whether a purpose test applies.) • where a request for a class ruling includes the application of a purpose test, including where it is considered that it would not apply. • before applying a purpose test to deny a benefit under an Australian tax treaty. [6] In the usual case, the matter will be referred to TCN before issuing an ATO position paper indicating that a purpose test may apply. • before giving a private ruling, product ruling or class ruling, or issuing any other ATO product that states that a purpose test applies to an arrangement or transaction. (See section 3 of this Practice Statement for more information on giving a private ruling, including where the taxpayer has not requested a ruling on whether a purpose test applies.) • where a request for a class ruling includes the application of a purpose test, including where it is considered that it would not apply. However, a decision that a purpose test would not apply in response to an application for a private ruling or a product ruling does not always require referral to TCN. Similarly, a decision not to apply a purpose test in the context of an audit does not always require referral to TCN. In such cases, the business line will make a judgment about whether the matter needs to be referred to TCN, depending on whether the application of a purpose test is seriously contemplated. Where the application of a purpose test is not seriously contemplated, the matter need not be referred to TCN. When TCN confirms a decision not to apply a purpose test, the matter is returned to the decision maker in the business line as a preliminary step to the making of the decision. If, however, the TCN officer is of the view that a purpose test may apply to the matter, they will provide interim advice to the decision maker and arrange for that advice and relevant papers to be provided to a Deputy Chief Tax Counsel (DCTC) for further consideration before the decision is made. Further, the decision maker will be required to refer the matter to the GAAR Panel. A decision on review or objection or in the course of litigation to reverse a decision to apply a purpose test must not be made without first referring the matter to a DCTC or the Chief Tax Counsel (CTC). Further guidance for ATO staff on escalating matters to TCN can be found in Law Administration Practice Statement PS LA 2012/1 Engagement of Tax Counsel Network on high risk technical issues. Refer the matter to the General Anti-Avoidance Rules Panel The application of a GAAR is a serious matter. As such, the Commissioner established the GAAR Panel to advise on the application of GAARs to particular arrangements. Due to the seriousness of applying a purpose test to deny a benefit under an Australian tax treaty, we use the GAAR Panel to provide advice on particular arrangements. [7] The GAAR Panel provides advice to the decision maker to ensure that decisions in relation to the purpose tests are objective and consistent in approach. The role and procedures of the GAAR Panel, as detailed in paragraphs 18 to 41 of PS LA 2005/24, apply to purpose test matters. Unless otherwise indicated, matters for which a decision maker is proposing to apply a purpose test must be referred to the GAAR Panel by the decision maker before a final decision is made. In the usual case, a matter will be referred to the GAAR Panel after the TCN officer to whom it has been referred has fully considered the matter. A competent authority sits on the GAAR Panel for all purpose test matters. The role of the competent authority is to provide specialist advice to the GAAR Panel on the provisions of the relevant Australian tax treaty. Consider possible requests under paragraph 4 of Article 7 of the MLI When considering the application of the MLI PPT to a particular arrangement, the possibility of a request under paragraph 4 of Article 7 of the MLI should also be contemplated. Refer to section 7 of this Practice Statement for more detail. | 3. Purpose tests in rulings, advance pricing arrangements and settlements: Private ruling applications The process for considering the application of a purpose test for the purposes of a private ruling is consistent with normal practice for GAAR matters as detailed in paragraphs 9 to 13 of PS LA 2005/24. Advance pricing arrangements program In most cases, it is not expected that the potential application of a purpose test to an arrangement or transaction would affect the outcome of an advance pricing arrangement (APA). However, where it does represent such a risk you should seek to address and resolve a purpose test risk as a collateral issue in parallel with the development of the APA. The normal practice for addressing and resolving collateral issues is detailed in section 22 of Law Administration Practice Statement PS LA 2015/4 Advance Pricing Arrangements. Where it is not possible to resolve a purpose test risk during the APA process, you must, in accordance with PS LA 2015/4: • consult with the appropriate internal stakeholders on whether it is appropriate for us to proceed with the APA, and • ensure that the matter is referred in accordance with the guidance in this Practice Statement. • consult with the appropriate internal stakeholders on whether it is appropriate for us to proceed with the APA, and • ensure that the matter is referred in accordance with the guidance in this Practice Statement. Settlements If there is a risk that a purpose test may deny a treaty benefit arising from an arrangement or transaction covered by a proposed settlement, you should ensure the matter is referred in accordance with the guidance in this Practice Statement before deciding whether to proceed with the settlement. | 4. Denial of a benefit under a purpose test: The purpose tests are self-executing in the sense that they apply of their own force, without the Commissioner being required to first make a determination in order to give them effect. [8] After a decision is made that a purpose test applies to an arrangement or transaction, and a benefit or relief under the Australian tax treaty is denied, follow the correct procedure for the type of benefit denied. For example, making or amending an assessment, varying the foreign resident withholding amount, or raising a withholding tax liability on dividend, interest or royalty payments. When a benefit or relief is denied the taxpayer's position will revert to the position under Australian domestic tax law. For example, where the limitation on a withholding tax rate is denied, the withholding tax rates under Australian domestic tax law will be applicable. The mutual agreement procedures (MAP) under the Australian tax treaty may also be relevant - general guidance on MAP can be found at https://www.ato.gov.au/Business/International-tax-for-business/In-detail/Mutual-agreement-procedure/ | 5. Requests under paragraph 4 of Article 7 of the MLI: Only a competent authority can make a decision under paragraph 4 of Article 7 of the MLI to grant a benefit that is otherwise denied under the MLI PPT (or to grant different benefits). If you receive a request from a person under paragraph 4 of Article 7 of the MLI, you must refer it to: • the Competent Authority Network (CAN) [9] • the appropriate specialist in International, and • TCN. • the Competent Authority Network (CAN) [9] • the appropriate specialist in International, and • TCN. Where possible, the officers that were involved in the original matter should be assigned to the request to grant a benefit under paragraph 4 of Article 7 of the MLI. Further, as outlined in section 2 of this Practice Statement when considering the application of the MLI PPT in the first instance, the possibility of a request under paragraph 4 of Article 7 of the MLI should be contemplated. The Australian competent authority must consult the competent authority of the other Contracting Jurisdiction before rejecting a request to grant benefits. This does not apply if the Australian competent authority decides to grant the benefit according to the taxpayer's request. | 6. Framing questions and documents: This section outlines framing questions and documentation that may be relevant when you are considering the application of a purpose test. They are intended to serve as a general guide only and should not be treated as an exhaustive list outlining every matter you may take into account. You must consider whatever additional matters are relevant to the particular purpose test and the circumstances of each case. The questions and documentation that may be relevant will depend on which purpose test is being considered and whether the relevant arrangement or transaction (which for convenience is referred to hereafter as the 'arrangement') involves: • treaty shopping [10] where you would need to consider why an entity was established or why a taxpayer moved their residence to a particular jurisdiction, or • the conversion of one type of income into another, or other changes in the circumstances in which income is derived in order to obtain a treaty benefit. • treaty shopping [10] where you would need to consider why an entity was established or why a taxpayer moved their residence to a particular jurisdiction, or • the conversion of one type of income into another, or other changes in the circumstances in which income is derived in order to obtain a treaty benefit. Framing questions Preliminary questions specific to MLI PPT and PPT • What is the arrangement? • Does that arrangement result in the taxpayer obtaining a benefit under the relevant treaty? • Has the taxpayer satisfied the requirements under the relevant provisions of the treaty in order to obtain that benefit? • Have the specific requirements of the purpose test in the relevant treaty been satisfied? • What is the arrangement? • Does that arrangement result in the taxpayer obtaining a benefit under the relevant treaty? • Has the taxpayer satisfied the requirements under the relevant provisions of the treaty in order to obtain that benefit? • Have the specific requirements of the purpose test in the relevant treaty been satisfied? Preliminary questions specific to MPT • Does the arrangement result in the taxpayer obtaining a benefit under an article in the relevant treaty that includes a MPT (or to which a MPT applies)? • Does the arrangement involve the creation or assignment of the shares, debt claim or other rights in respect of which the relevant income is derived or paid? • Has the taxpayer satisfied the specific requirements of the MPT in the relevant treaty? • Does the arrangement result in the taxpayer obtaining a benefit under an article in the relevant treaty that includes a MPT (or to which a MPT applies)? • Does the arrangement involve the creation or assignment of the shares, debt claim or other rights in respect of which the relevant income is derived or paid? • Has the taxpayer satisfied the specific requirements of the MPT in the relevant treaty? Framing questions relevant to determining purposes The following questions may be relevant to allow you to understand and consider the objective purposes of the arrangement: • What is the broader business context in which the arrangement has been implemented? • What are the objective effects of the arrangement? That is, what are the results which it produces or is capable of producing? • How does the arrangement go about achieving its results? • What are the terms of the arrangement? • What are the overt acts by which the arrangement was carried into effect? • What do the terms and circumstances of the arrangement indicate about the characteristics of the arrangement and the results it was intended to produce? • What does how the arrangement was implemented indicate about the characteristics of the arrangement and the results it was intended to produce? • What does what the arrangement was intended to effect indicate about the characteristics of the arrangement? • Is there an alternative way that the non-tax objectives of the arrangement could be achieved? • Is the arrangement more complex or does it contain more steps than is necessary to achieve the non-tax objectives? For example, is there a more convenient, commercial or cost-effective way of achieving the same non-tax objectives? • What are the non-tax benefits and drivers for establishing each of the relevant entities in each relevant jurisdiction? • Is the role of any entity in the arrangement explicable solely or principally by tax reasons or for obtaining the relevant benefit? • What are the quantifiable non-tax financial benefits of the arrangement? • Is there a discrepancy between the substance of what is being achieved under the arrangement and the legal form it takes? • Does the arrangement involve the transfer or effective transfer of valuable intangible assets and/or centralisation of risks? • Does the arrangement involve the change in character of payments or a mischaracterisation of payments? For example, service fees rather than royalties, interest rather than business profits? • What are the functions, assets and risks of each entity in the arrangement? Does each entity possess the necessary competencies and capacity to manage its functions, assets and risks? • Does the arrangement avoid the existence of a permanent establishment in one of the jurisdictions? • Does the arrangement involve the change of residence of an entity or taxpayer? • Does the arrangement involve the use of hybrid entities or instruments? • Is there evidence of market conduct / industry practice that resembles the arrangement? If so, what are the commercial drivers for that practice? • Does the arrangement include the use of back-to-back or flow-through arrangements? • What is the broader business context in which the arrangement has been implemented? • What are the objective effects of the arrangement? That is, what are the results which it produces or is capable of producing? • How does the arrangement go about achieving its results? • What are the terms of the arrangement? • What are the overt acts by which the arrangement was carried into effect? • What do the terms and circumstances of the arrangement indicate about the characteristics of the arrangement and the results it was intended to produce? • What does how the arrangement was implemented indicate about the characteristics of the arrangement and the results it was intended to produce? • What does what the arrangement was intended to effect indicate about the characteristics of the arrangement? • Is there an alternative way that the non-tax objectives of the arrangement could be achieved? • Is the arrangement more complex or does it contain more steps than is necessary to achieve the non-tax objectives? For example, is there a more convenient, commercial or cost-effective way of achieving the same non-tax objectives? • What are the non-tax benefits and drivers for establishing each of the relevant entities in each relevant jurisdiction? • Is the role of any entity in the arrangement explicable solely or principally by tax reasons or for obtaining the relevant benefit? • What are the quantifiable non-tax financial benefits of the arrangement? • Is there a discrepancy between the substance of what is being achieved under the arrangement and the legal form it takes? • Does the arrangement involve the transfer or effective transfer of valuable intangible assets and/or centralisation of risks? • Does the arrangement involve the change in character of payments or a mischaracterisation of payments? For example, service fees rather than royalties, interest rather than business profits? • What are the functions, assets and risks of each entity in the arrangement? Does each entity possess the necessary competencies and capacity to manage its functions, assets and risks? • Does the arrangement avoid the existence of a permanent establishment in one of the jurisdictions? • Does the arrangement involve the change of residence of an entity or taxpayer? • Does the arrangement involve the use of hybrid entities or instruments? • Is there evidence of market conduct / industry practice that resembles the arrangement? If so, what are the commercial drivers for that practice? • Does the arrangement include the use of back-to-back or flow-through arrangements? Additional framing questions specific to determining purposes for MPT • What objective evidence exists regarding the consideration and rejection of possible alternative ways of implementing the arrangement? • Does the arrangement alter the circumstances in which the relevant income is derived in order to obtain a benefit or a more favourable benefit than was previously available? • What steps were undertaken by the taxpayer or related person to give effect to the creation or assignment (or other relevant arrangement)? • What is the nature of any connection between the relevant taxpayer and any other person concerned with the creation or assignment of the shares, debt-claim or other rights in respect of which the relevant income is derived or paid? • What objective evidence exists regarding the consideration and rejection of possible alternative ways of implementing the arrangement? • Does the arrangement alter the circumstances in which the relevant income is derived in order to obtain a benefit or a more favourable benefit than was previously available? • What steps were undertaken by the taxpayer or related person to give effect to the creation or assignment (or other relevant arrangement)? • What is the nature of any connection between the relevant taxpayer and any other person concerned with the creation or assignment of the shares, debt-claim or other rights in respect of which the relevant income is derived or paid? Framing questions - paragraph 4 of Article 7 of the MLI The following framing questions may be relevant to your consideration of a possible request under paragraph 4 of Article 7 of the MLI for the relevant arrangement. In the absence of the arrangement: • would the same benefit that was denied by the application of the MLI PPT have been granted under the CTA? • would a different benefit have been granted under the CTA? • would the granting of that benefit be in accordance with the object and purpose of the CTA? • would the same benefit that was denied by the application of the MLI PPT have been granted under the CTA? • would a different benefit have been granted under the CTA? • would the granting of that benefit be in accordance with the object and purpose of the CTA? Documents There is no specific record-keeping requirement for purpose tests on top of those set out under Australia's tax laws. The following types of documents may be relevant when you are establishing the relevant facts and circumstances and considering the application of a purpose test. This is intended as a general guide only and is not an exhaustive list of every document you may need to take into account. The relevance of particular documents will depend on the circumstances and the arrangement. Documents in our possession You should generally consider information in our possession, which may include: • lodged Australian tax returns • international dealings schedules (IDS) • reportable tax position (RTP) schedules • Australian notices of assessment • Country-by-Country reporting data exchanged automatically or by exchange of information request • information obtained from foreign jurisdictions through exchange of information processes • information provided previously under other compliance activities, and • other relevant information from third-party sources. • lodged Australian tax returns • international dealings schedules (IDS) • reportable tax position (RTP) schedules • Australian notices of assessment • Country-by-Country reporting data exchanged automatically or by exchange of information request • information obtained from foreign jurisdictions through exchange of information processes • information provided previously under other compliance activities, and • other relevant information from third-party sources. Documents that we may request You may ask the taxpayer to provide the following information: • a general submission outlining their views about the application of the purpose test • IDS working papers • annual reports or general purpose financial statements • contemporaneous transfer pricing documents, and • inter-company agreements and relevant company policies regarding such dealings. • a general submission outlining their views about the application of the purpose test • IDS working papers • annual reports or general purpose financial statements • contemporaneous transfer pricing documents, and • inter-company agreements and relevant company policies regarding such dealings. Source documents You may also consider source documents, including but not limited to: • source documents relating to the arrangement such as agreements between the relevant entities • presentations and other papers relating to the arrangement or transaction as disseminated to the taxpayer's senior management team and board of directors • physical or electronic documents that evidence an intention, election, choice or rule for the taxpayer's management team and board of directors to meet in a specific country and/or countries • minutes of board and other meetings at which the arrangement or transaction was considered • internal cost-benefit analyses - this could include quantifiable productivity gains, cost savings, synergistic benefits, location specific benefits, reduction of non-income tax costs, provision of government incentives and any other relevant costs and benefits associated with the arrangement, and • commercial, regulatory and tax advice relating to the arrangement or transaction and details of the people involved in putting that arrangement or transaction in place. • source documents relating to the arrangement such as agreements between the relevant entities • presentations and other papers relating to the arrangement or transaction as disseminated to the taxpayer's senior management team and board of directors • physical or electronic documents that evidence an intention, election, choice or rule for the taxpayer's management team and board of directors to meet in a specific country and/or countries • minutes of board and other meetings at which the arrangement or transaction was considered • internal cost-benefit analyses - this could include quantifiable productivity gains, cost savings, synergistic benefits, location specific benefits, reduction of non-income tax costs, provision of government incentives and any other relevant costs and benefits associated with the arrangement, and • commercial, regulatory and tax advice relating to the arrangement or transaction and details of the people involved in putting that arrangement or transaction in place. | 7. MLI PPT - background and relevant considerations: This section focuses on the PPT in the MLI. It does not deal with other purpose tests included in our bilateral tax treaties. Background to the MLI and the MLI PPT The MLI is a key outcome of the Organisation for Economic Co-operation and Development (OECD) / G20 Base Erosion and Profit Shifting (BEPS) project. [11] It enables countries to swiftly modify the operation of their tax treaties to implement a series of measures that were developed in the course of the BEPS project. Jurisdictions that sign the MLI are required to nominate which tax treaties they want the MLI to apply to. The MLI only modifies the operation of an agreement if each party to the agreement specifically identifies it in a notification to the OECD Depositary. [12] A CTA is a double-tax agreement that will have its operation modified by the MLI. The date of effect of the MLI for each CTA depends on when it has come into force in both jurisdictions. The MLI came into force for Australia on 1 January 2019. Therefore, the earliest the MLI may take effect for Australia is: • for withholding taxes, on income derived on or after 1 January 2019 • for all other taxes, for income years starting on or after 1 July 2019, and • for dispute resolution, generally on or after 1 January 2019. • for withholding taxes, on income derived on or after 1 January 2019 • for all other taxes, for income years starting on or after 1 July 2019, and • for dispute resolution, generally on or after 1 January 2019. Given the flexibility provided by the MLI, the extent to which the operation of each CTA is modified depends on the choices, notifications and reservations of each jurisdiction. However, certain articles of the MLI enable jurisdictions to meet minimum standards under various BEPS project Actions. Those articles must be adopted by members of the OECD/G20 BEPS project. In particular, BEPS Action 6 [13] identified treaty abuse, including treaty shopping, as a significant cause of concern. The minimum standard for the prevention of treaty abuse under BEPS Action 6 requires jurisdictions to include an express statement in their tax treaties: ' that their common intention is to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance, including through treaty-shopping arrangements. ' [14] Paragraph 1 of Article 6 of the MLI modifies the operation of Australia's CTAs to include new preamble text which meets this standard. The minimum standard under BEPS Action 6 also requires that jurisdictions include in their tax treaties: • a PPT only • a PPT and either a simplified or detailed Limitation on Benefits provision, or • a detailed Limitation on Benefits provision supplemented by a mechanism that deals with conduit financing arrangements not already addressed in their tax treaties. [15] • a PPT only • a PPT and either a simplified or detailed Limitation on Benefits provision, or • a detailed Limitation on Benefits provision supplemented by a mechanism that deals with conduit financing arrangements not already addressed in their tax treaties. [15] Because a PPT is the only approach that can satisfy the minimum standard on its own, it is presented as the default option in the MLI. Australia has adopted the PPT under the MLI. The MLI PPT is set out in paragraph 1 of Article 7 of the MLI: Notwithstanding any provisions of a Covered Tax Agreement, a benefit under the Covered Tax Agreement shall not be granted in respect of an item of income or capital if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the Covered Tax Agreement. Australia has also adopted the associated rule provided for under paragraph 4 of Article 7 of the MLI which enables treaty benefits to be granted in certain circumstances, notwithstanding the application of the MLI PPT: Where a benefit under a Covered Tax Agreement is denied to a person under provisions of the Covered Tax Agreement (as it may be modified by this Convention) that deny all or part of the benefits that would otherwise be provided under the Covered Tax Agreement where the principal purpose or one of the principal purposes of any arrangement or transaction, or of any person concerned with an arrangement or transaction, was to obtain those benefits, the competent authority of the Contracting Jurisdiction that would otherwise have granted this benefit shall nevertheless treat that person as being entitled to this benefit, or to different benefits with respect to a specific item of income or capital, if such competent authority, upon request from that person and after consideration of the relevant facts and circumstances, determines that such benefits would have been granted to that person in the absence of the transaction or arrangement. The competent authority of the Contracting Jurisdiction to which a request has been made under this paragraph by a resident of the other Contracting Jurisdiction shall consult with the competent authority of that other Contracting Jurisdiction before rejecting the request. The application of paragraph 4 of Article 7 of the MLI to a particular CTA will depend on whether the other Contracting Jurisdiction has also chosen to adopt it. Considerations that may be relevant when considering the application of the MLI PPT Some of the considerations that may be relevant when you are considering the application of the MLI PPT include: • ATO's views on interpreting double tax agreements • benefits to which the MLI PPT may apply • one of the principal purposes - obtaining a benefit contrary to the object and purpose of a CTA, and • granting a benefit under the discretion in paragraph 4 of Article 7 of the MLI. • ATO's views on interpreting double tax agreements • benefits to which the MLI PPT may apply • one of the principal purposes - obtaining a benefit contrary to the object and purpose of a CTA, and • granting a benefit under the discretion in paragraph 4 of Article 7 of the MLI. The matters discussed are not exhaustive and are intended to serve as a general guide only. You must consider whatever additional matters are relevant to the circumstances of each case. ATO's views on interpreting double tax agreements The ATO's views on interpreting double tax agreements, including general treaty interpretation rules, are provided in Taxation Ruling TR 2001/13 Income tax: Interpreting Australia's Double Tax Agreements . In accordance with the principles outlined in TR 2001/13, the MLI (including the MLI PPT) is interpreted in good faith in accordance with the ordinary meaning of the terms of the treaty in their context and in light of its object and purpose. The object and purpose of the MLI is to implement the tax treaty related BEPS measures. [16] Therefore, the commentary in the final BEPS package, including the Action 6 Report, is relevant guidance material. [17] The Commentaries on the OECD Model Tax Convention (MTC) are also relevant for interpreting Australia's CTAs to the extent that they are based on the MTC. [18] The Action 6 Report acknowledges that implementation of the final BEPS package requires changes to existing bilateral tax conventions, as well as changes to the MTC. To the extent the provisions are equivalent, the Commentary on the PPT in the MTC [19] can be used as a supplementary means of interpretation for the MLI PPT. [20] The MTC commentary and the Action 6 Report include examples. [21] These may be useful in assessing whether the MLI PPT applies to an arrangement or transaction. However the examples are explicitly stated to be purely illustrative and should not be interpreted as providing conditions or requirements for similar transactions to satisfy in order to avoid the application of the MLI PPT. You must consider whether the MLI PPT applies to deny a treaty benefit under an arrangement having regard to all relevant facts and circumstances. Benefits to which the MLI PPT may apply The MLI PPT can potentially apply to any 'benefit' under a CTA. Depending on the relevant arrangement being considered, it may include a limitation on the taxing rights of a source jurisdiction (such as a tax reduction, exemption, deferral or refund), or the relief from double taxation provided to residents. It may also include the protection afforded to residents and nationals of a jurisdiction under non-discrimination articles or any other similar limitations. Some examples of limitations on Australia's source country taxing rights under a CTA are the limited tax rates that apply in respect of dividends, interest and royalties and the restriction on taxing business profits of an enterprise of another jurisdiction (unless such profits are attributable to a permanent establishment in Australia). Unlike the basis for establishing whether there is a tax benefit for the purpose of Part IVA, the identification of a 'benefit' for the purpose of applying the MLI PPT does not require consideration of an alternative postulate. [22] One of the principal purposes - obtaining a benefit contrary to the object and purpose of the CTA The MLI PPT does not list specific matters to be considered in drawing a conclusion about purpose. The purposes of the arrangement are to be determined having regard to 'all relevant facts and circumstances'. [23] Relevantly, it must be reasonable to conclude after an objective analysis of the relevant facts and circumstances that one of the principal purposes of the arrangement was to obtain a benefit under the CTA. The test is an examination of the arrangement itself, including the overt acts by which it was implemented, in order to ascertain its objective purposes. [24] An analysis is required to determine whether the arrangement exhibits (by contrivance, lack of substance, or otherwise) the requisite purpose of obtaining the relevant benefit, the granting of which would not be in accordance with the object and purpose of the CTA. A review of the objective evidence is necessary, having regard to: • the arrangement itself • its terms • what it achieves • what it was intended to effect • how it was implemented • the results which it is capable of producing • other possible ways of implementing the arrangement, and • other relevant facts and circumstances. • the arrangement itself • its terms • what it achieves • what it was intended to effect • how it was implemented • the results which it is capable of producing • other possible ways of implementing the arrangement, and • other relevant facts and circumstances. The reference to 'one of the principal purposes' means that obtaining the benefit under the CTA need not be the sole or dominant purpose of a particular arrangement. An arrangement may have more than one principal purpose and it is sufficient that at least one was to obtain the benefit, even if that was not the dominant purpose. This means that an arrangement may attract the operation of the MLI PPT even where it attains commercial objectives and is consistent with commercial gain. It is not necessary to show that the arrangement has no commercial substance or that its only effect is to obtain the benefit that arises under the CTA. Also, where an arrangement has both a principal purpose of obtaining the relevant treaty benefit and a principal purpose of achieving a particular commercial objective, the test will be met, without the need to determine which purpose is dominant. [25] Where the arrangement may be fairly described as an ordinary commercial dealing [26] and its form has not been driven by considerations of obtaining a treaty benefit, the arrangement will not have the requisite purpose even though its effect is to obtain a treaty benefit. Where, however, it is reasonable to conclude that the arrangement was implemented in a particular way so as to obtain a treaty benefit, it may then be concluded that one of the principal purposes of the arrangement was to obtain that benefit. [27] Like other anti-avoidance rules, the MLI PPT seeks to distinguish arrangements entered into or carried out for the purpose of obtaining treaty benefits that are consistent with the object of the treaty, from arrangements used to secure treaty benefits by a means that amounts to an improper use of the treaty, or treaty abuse. Both the text of the MLI and its Commentary express this important distinction. Thus the MLI PPT will not operate to deny a benefit if granting that benefit in the relevant circumstances 'would be in accordance with the object and purpose' of the CTA. This ensures that the treaty applies in accordance with the purpose for which it was entered into, that is, to provide benefits in respect of bona fide exchanges of goods and services, and movements of capital and persons, as opposed to arrangements, a principal objective of which is to secure a more favourable tax treatment. [28] It also makes clear that the MLI PPT will not apply where an arrangement has been adopted merely with an eye to its tax advantages, unless it amounts to an abuse of the treaty. In applying the MLI PPT, the tests relating to the 'principal purposes' of an arrangement and the 'object and purpose' of the CTA should be read together. Although the MLI PPT expresses the distinction between arrangements that amount to treaty abuse and those that do not, it should be understood that in practice: • obtaining a treaty benefit by a means consistent with the purpose for which it is conferred will not exhibit the requisite purpose to attract the MLI PPT, and • conversely, granting a treaty benefit resulting from an arrangement which exhibits on its face the requisite purpose would not accord with the object and purpose of the provisions of the CTA. • obtaining a treaty benefit by a means consistent with the purpose for which it is conferred will not exhibit the requisite purpose to attract the MLI PPT, and • conversely, granting a treaty benefit resulting from an arrangement which exhibits on its face the requisite purpose would not accord with the object and purpose of the provisions of the CTA. The preamble to the relevant CTA (as modified by the MLI), in which the Contracting States express their intention not to create ' opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements ... ) ', will be important in determining whether it would be contrary to the object and purpose of the provisions of the CTA to grant a benefit. Where the MLI PPT applies to deny a treaty benefit in a particular case, Part IVA may still apply either: • in the alternative to the application of the MLI PPT, or • in addition to the MLI PPT - that is, to cancel any tax benefit remaining after the application of the MLI PPT. [29] • in the alternative to the application of the MLI PPT, or • in addition to the MLI PPT - that is, to cancel any tax benefit remaining after the application of the MLI PPT. [29] Discretion in paragraph 4 of Article 7 of the MLI Where a person is denied a benefit under the MLI PPT, paragraph 4 of Article 7 of the MLI provides that person shall nevertheless be treated as being entitled to the benefit, or to different benefits under the CTA, if, upon request and after consideration of the relevant facts and circumstances, the relevant competent authority determines that such benefits would have been granted to the person in the absence of the relevant transaction or arrangement. Although the provision provides a broad discretion to the competent authority, it has notable limitations. It does not enable the competent authority to grant benefits to any person other than the taxpayer, or to grant benefits that may have been available under a different treaty. Further, it does not provide a general power of reconstruction. Determining what benefits would have been granted to the person under the CTA in the 'absence of' the relevant arrangement requires a consideration of the actual facts but for the impugned arrangement. The discretion is not available to grant a treaty benefit that might have resulted from a different arrangement. However, it may be possible to identify an 'arrangement' for the purposes of the MLI PPT in such a way that, if disregarded, leaves standing other facts that would give rise to a treaty benefit. In other words, it may be possible to shear an underlying larger arrangement of its objectionable features. The discretion will also be available where the impugned arrangement replaced an existing arrangement between the same parties in the same jurisdiction where a benefit would have been granted to the person under the CTA. It can then be said that the benefit would have been available if the impugned arrangement had not been entered into, and the original arrangement had remained in place. In determining what benefits would have been granted in the absence of the impugned arrangement, you must take into account whether the MLI PPT would have also applied to the remaining facts. | 8. More information: For more information, see: • Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting • Explanatory Statement to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting • Treasury Laws Amendment (OECD Multilateral Instrument) Bill 2018 (first reading) • Explanatory Memorandum to Treasury Laws Amendment (OECD Multilateral Instrument) Bill 2018 • Model Tax Convention on Income and on Capital 2017 - condensed version • Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting • Explanatory Statement to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting • Treasury Laws Amendment (OECD Multilateral Instrument) Bill 2018 (first reading) • Explanatory Memorandum to Treasury Laws Amendment (OECD Multilateral Instrument) Bill 2018 • Model Tax Convention on Income and on Capital 2017 - condensed version You are invited to comment on this draft Practice Statement. Please forward your comments to the contact mailbox by the due date. A compendium of comments is prepared for the consideration of the relevant Public Advice and Guidance Panel or relevant tax officers. An edited version (names and identifying information removed) of the compendium of comments may also be prepared to: • provide responses to persons providing comments, and • be published on ato.gov.au • provide responses to persons providing comments, and • be published on ato.gov.au Please advise if you do not want your comments included in the edited version of the compendium. Due date: 14 February 2020 Contact Treaties Consultation Unit taxtreaties@ato.gov.au Date of Issue: 16 December 2019 Date of Effect: [1] [2019] ATS 1. [2] A CTA is a double tax agreement that has its operation modified by the MLI. [3] For example, paragraph 2 of Article 23 of the Agreement between Australia and the Federal Republic of Germany for the Elimination of Double Taxation with respect to Taxes on Income and on Capital and the Prevention of Fiscal Evasion and Avoidance [2016] ATS 23 (German Agreement). [4] A MPT has the effect of denying the benefits of a specific Article of a tax treaty (generally in relation to dividends, interest or royalties) that restricts source taxation where obtaining those benefits was the main purpose (or one of the main purposes) of any person concerned with the creation or assignment of the property or rights in respect of which the relevant income is paid. For example, paragraph 7 of Article 10, paragraph 9 of Article 11 and paragraph 7 of Article 12 of the Convention between the Government of Australia and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital Gains [2003] ATS 22, prior to the modifications by the MLI. [5] Currently, the Treaties Consultation Unit - email taxtreaties@ato.gov.au [6] Refer to Law Administration Practice Statement PS LA 2005/24 Application of General Anti-Avoidance Rules . [7] Refer to PS LA 2005/24. [8] Unlike, for example, Part IVA of the Income Tax Assessment Act 1936 (Part IVA). All legislative references are to the Income Tax Assessment Act 1936 unless otherwise indicated. [9] InternationalsGatekeeper@ato.gov.au [10] Treaty shopping is a type of treaty abuse. It involves arrangements through which a person who is not a resident of a State might transfer its residence to that State, or establish another entity as a resident of that State, in order to reduce or eliminate taxation in another State through the benefits of a treaty concluded between the two States. [11] Actions which have been developed in the context of this project are available at oecd.org/ctp/beps-actions.htm . Details of the Group of Twenty (G20) is available at g20.org/ . [12] Article 1 and subparagraph 1(a) of Article 2 of the MLI. [13] Action 6 culminated in the following report: OECD, 2015, Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 - 2015 Final Report , OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris (Action 6 report). Action 6 of the BEPS project aims to prevent the granting of benefits in situations where those benefits were not intended to be granted, which includes treaty abuse and treaty shopping (see the Executive Summary of the Action 6 report, p. 9). [14] Executive Summary of the Action 6 Report, p. 10. [15] Executive Summary of the Action 6 Report, p. 10. [16] As reflected in the preamble to the MLI. [17] Paragraph 12 of the Explanatory Statement to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting. [18] TR 2001/13 provides guidance on when subsequent changes to OECD Commentaries could be used as an aid to interpretation. [19] Paragraph 9 of Article 29 (Entitlement to Benefits) of the MTC, which was inserted to give effect to the Action 6 Report. The Commentary on paragraph 9 of Article 29 of the MTC largely reflects the content of the Action 6 Report. Hereafter, instead of referencing both the Action 6 Report and the Commentary of the MTC, for convenience only the Commentary is referenced. Where paragraph references are provided these are to the 2017 version of the Commentary. [20] The Commentary on paragraph 9 of Article 29 of the MTC is of particular relevance. [21] The examples commence at paragraph 182 of the Commentary on paragraph 9 of Article 29 of the MTC. [22] Also referred to as an 'alternative hypothesis' or 'counterfactual', paragraph 75 of PS LA 2005/24. [23] This is unlike sections 177D, 177DA and 177J in Part IVA, which require that the purpose of person(s) be objectively ascertained having regard to specified matters. [24] In relation to the purpose of an arrangement see, for example, Newton v Federal Commissioner of Taxation (1958) 98 CLR 1 at [8]; Commissioner of Taxation v Gulland ; Watson v Commissioner of Taxation (Cth) ; Pincus v Commissioner of Taxation [1985] HCA 83. [25] Refer to paragraphs 11 to 16 of Law Companion Ruling LCR 2015/2 Section 177DA of the Income Tax Assessment Act 1936: schemes that limit a taxable presence in Australia for guidance on a similar test 'a principal purpose of, or for more than one principal purpose that includes a purpose of'. [26] That is, one that is not contrived, has economic substance, forms part of a presence in the jurisdiction that is involved in carrying on the core business activities of the entity or group that adds economic value. [27] As noted in ' Benefits to which the MLI PPT may apply ' section of this Practice Statement, there is no requirement to consider an alternative postulate in determining whether there is a benefit for the purposes of applying the MLI PPT. However, it may be useful to consider other possible ways of implementing the relevant arrangement as this may cast light on its objective purpose(s). [28] Paragraph 174 of the Commentary on paragraph 9 of Article 29 of the MTC. [29] See subsection 177B(1) and subsection 4(2) of the International Tax Agreements Act 1953 . File 1-K113R7S Related Rulings/Determinations: TR 2001/13 LCR 2015/2 Related Practice Statements: PS LA 2005/24 PS LA 2012/1 PS LA 2015/4",PS LA 2020/2 | oecd.org/ctp/beps-actions.htm | g20.org/ | TR 2001/13 | LCR 2015/2 | PS LA 2005/24 | PS LA 2012/1 | PS LA 2015/4 | ITAA 1936 Part IVA | ITAA 1936 177B(1) | ITAA 1936 177D | ITAA 1936 177DA | ITAA 1936 177J | International Tax Agreements Act 1953 4(2) | 85 ATC 4765 | 98 CLR 1 | 37 ATC 245,PS LA 2005/24 PS LA 2012/1 PS LA 2015/4,ITAA 1936 Part IVA | ITAA 1936 177B(1) | ITAA 1936 177D | ITAA 1936 177DA | ITAA 1936 177J | International Tax Agreements Act 1953 4(2),,,False,False,https://www.ato.gov.au/law/view/document?docid=DPS/PSD20192/NAT/ATO/00001,"This document has been finalised by PS LA 2020/2 . | Federal Commissioner of Taxation v Gulland, Watson v Commissioner of Taxation and Pincus v Commissioner of Taxation [1985] HCA 83 85 ATC 4765 17 ATR 1 | Newton v Federal Commissioner of Taxation [1958] UKPCHCA 1 98 CLR 1 37 ATC 245"
PS LA 2020/D2 (Finalised),The ATO's administrative approach to the extension of the Commissioner's discretion to retain tax refunds,13 November 2020,,Law Administration Practice Statement,True,"1. What this draft Practice Statement is about?: As part of the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (the Amending Act), changes were made to extend the Commissioner's discretion to retain a refund where a taxpayer has an outstanding notification (other than a notification under the business activity statement (BAS) or petroleum resource rent tax (PRRT) provisions) that: • is required to be given to the Commissioner under a taxation law [1] (for example, an income tax return), and • affects or may affect the amount of the refund. [2] • is required to be given to the Commissioner under a taxation law [1] (for example, an income tax return), and • affects or may affect the amount of the refund. [2] The law does not limit the application of the extension to the discretion. However, this draft Practice Statement [3] recognises that the Commissioner's exercise of this extended discretion will not be taken lightly. In particular, the exercise of the discretion will be considered in circumstances where taxpayers are identified as engaged in high-risk behaviour (including those engaging in illegal phoenix activity). [4] This Practice Statement provides you with guidance on when you may exercise the Commissioner's discretion to retain a taxpayer's refund. However, this Practice Statement does not apply to the exercise of the Commissioner's discretion to retain a taxpayer's running balance account (RBA) surplus or credit where: • a notification under the BAS provisions, the PRRT provisions or Single Touch Payroll is outstanding [5] , or • the Commissioner requires verification of information contained in a notification. [6] • a notification under the BAS provisions, the PRRT provisions or Single Touch Payroll is outstanding [5] , or • the Commissioner requires verification of information contained in a notification. [6] For guidance on exercising the discretion to retain a taxpayer's refund where a notification under the BAS and PRRT provisions is outstanding or the Commissioner requires verification of information contained in a notification, refer to Law Administration Practice Statements PS LA 2011/22 Refunds of running balance account surpluses and credits - Commissioner's discretion to retain refunds and the discretion to pay refunds in a different way and PS LA 2012/6 Exercise of Commissioner's discretion to retain a refund. | 2. What approval is needed to exercise the discretion on behalf of the Commissioner?: You must obtain approval from an Executive Level 2 officer (or higher) in the Client Engagement Group to exercise this discretion. | 3. How will the Commissioner apply the discretion?: Having regard to the nature of the legislative change and the context in which it was introduced, the Commissioner will only apply this discretion to taxpayers identified as engaging in high-risk behaviour (including those engaging in what is considered to be phoenix-type activity). [7] Recognising the particular concern with phoenix behaviour, in the first year after Schedule 4 of the Amending Act commences (1 April 2020), the Commissioner will consider exercising the discretion to retain refunds where there are reasonable grounds to believe the taxpayer is, or the controller or associates of the taxpayer are, engaged in phoenix behaviour. During this first year, the Commissioner will not be dedicating resources to investigating whether there is other high-risk behaviour that justifies the exercise of the discretion. | 4. When should you consider exercising the discretion?: You should consider exercising the discretion to retain a refund where there are reasonable grounds to believe that the: • taxpayer has an RBA surplus or other credit that has not been applied against a tax debt of the taxpayer • taxpayer has an outstanding notification that they are required to give under a taxation law (other than the BAS or PRRT provisions) • outstanding notification affects or may affect the amount of the refund, and • taxpayer (including associates or controllers) is engaged in phoenix behaviour (during the first year after commencement of the Amending Act), or the taxpayer is engaged in high-risk behaviour (including phoenix behaviour) (after the first year following commencement of the Amending Act). • taxpayer has an RBA surplus or other credit that has not been applied against a tax debt of the taxpayer • taxpayer has an outstanding notification that they are required to give under a taxation law (other than the BAS or PRRT provisions) • outstanding notification affects or may affect the amount of the refund, and • taxpayer (including associates or controllers) is engaged in phoenix behaviour (during the first year after commencement of the Amending Act), or the taxpayer is engaged in high-risk behaviour (including phoenix behaviour) (after the first year following commencement of the Amending Act). | 5. What may be considered as 'phoenix' or high-risk behaviour?: When deciding whether a refund should be retained, you need to weigh the seriousness of that behaviour against the potentially adverse consequences for the taxpayer. Indicators of phoenix behaviour by the taxpayer, and its associates or controllers, include (but are not limited to): • cyclically establishing, abandoning or deregistering companies to avoid paying taxes, creditors or employee entitlements • assets being dissipated with the intention to defeat creditors, or other action being taken to defeat creditors (which may be a precursor to phoenixing) • a director associated with prior liquidations and/or deregistrations • a director associated with prior instances of insolvency • stripping or transfer of assets from a company, ahead of its abandonment, winding-up or deregistration • transfer of company assets at an undervaluation (often to a related party) to defeat creditors • the transfer of employees to a new company under the same effective control as the previous company to defeat tax obligations and employee entitlements • backdating of the resignation of a director, appointment of 'straw' directors, or abandonment of a company without a resident director • the concealment of the role of a shadow or de facto director • the concealment or destruction of company records. • cyclically establishing, abandoning or deregistering companies to avoid paying taxes, creditors or employee entitlements • assets being dissipated with the intention to defeat creditors, or other action being taken to defeat creditors (which may be a precursor to phoenixing) • a director associated with prior liquidations and/or deregistrations • a director associated with prior instances of insolvency • stripping or transfer of assets from a company, ahead of its abandonment, winding-up or deregistration • transfer of company assets at an undervaluation (often to a related party) to defeat creditors • the transfer of employees to a new company under the same effective control as the previous company to defeat tax obligations and employee entitlements • backdating of the resignation of a director, appointment of 'straw' directors, or abandonment of a company without a resident director • the concealment of the role of a shadow or de facto director • the concealment or destruction of company records. These factors, either alone or in combination, may not point to phoenix behaviour. It is the totality of the circumstances that must be considered in deciding whether to exercise the discretion to retain a refund. Indicators of high-risk behaviour include but are not limited to: • poor past and current compliance with taxation and superannuation obligations, including registration, lodgment, accuracy of reporting, record keeping and making on-time payments • poor behaviours and governance in managing tax and superannuation risks • the number of, and the circumstances around, any bankruptcies or insolvencies • tax-related penalties and sanctions imposed, such as a taxpayer being subject to director penalty notices or having committed an offence in failing to give security as required by us • connection with advisers who are subject to disciplinary actions or sanctions relating to taxation and superannuation laws, such as penalties relating to promoting or implementing schemes • past information provided which reasonably indicated - fraud or evasion - intentional disregard of a taxation law - recklessness as to the operation of a taxation law • the likelihood of participation in or promotion of - aggressive tax planning arrangements - schemes to obtain a tax benefit (tax avoidance schemes) - fraud or evasion - criminal activity. • poor past and current compliance with taxation and superannuation obligations, including registration, lodgment, accuracy of reporting, record keeping and making on-time payments • poor behaviours and governance in managing tax and superannuation risks • the number of, and the circumstances around, any bankruptcies or insolvencies • tax-related penalties and sanctions imposed, such as a taxpayer being subject to director penalty notices or having committed an offence in failing to give security as required by us • connection with advisers who are subject to disciplinary actions or sanctions relating to taxation and superannuation laws, such as penalties relating to promoting or implementing schemes • past information provided which reasonably indicated - fraud or evasion - intentional disregard of a taxation law - recklessness as to the operation of a taxation law • the likelihood of participation in or promotion of - aggressive tax planning arrangements - schemes to obtain a tax benefit (tax avoidance schemes) - fraud or evasion - criminal activity. - fraud or evasion - intentional disregard of a taxation law - recklessness as to the operation of a taxation law - aggressive tax planning arrangements - schemes to obtain a tax benefit (tax avoidance schemes) - fraud or evasion - criminal activity. | 6. How long can the Commissioner retain a refund?: The refund can be retained under this discretion until the taxpayer has given the outstanding notification or an assessment of the amount is made, whichever happens first. Where a new tax liability arises before the outstanding notification is provided or an assessment of an amount is made, the amount that would otherwise have been refunded can be applied against the new liability. This ensures taxpayers satisfy their tax obligations and pay outstanding amounts of tax before being entitled to a tax refund. Delayed refund interest will not apply on any RBA surplus or credit retained under this measure. [8] Once the notification has been provided, delayed refund interest will be payable on the RBA surplus if more than 14 days is taken to refund the amount. However, interest on overpayments is payable where an income tax credit is retained [9] under this discretion and the Commissioner takes 30 days or more to refund an amount of that credit. [10] | 7. Will the taxpayer be advised that their refund is retained for an outstanding notification?: Although it is not required by law, written communication will be sent explaining that the refund has been retained, the amount retained, and the outstanding notification(s) required to be lodged. The communication will also explain to the taxpayer why this action was considered necessary and the reasons why the decision to retain the refund has been made. This explanation will make it clear to the taxpayer that we did not come to this position lightly and will explain what actions the taxpayer can take to prevent this from happening in the future. | 8. When can the Commissioner consider refunding the amount?: Where a notification is outstanding, you may refund an amount if the taxpayer can demonstrate (or you can confirm based on available information): • for an individual - that the retention of the refund will cause serious financial hardship, that is the individual will not be able to afford the basic necessities of life • for non-individuals - the inability to give the outstanding notification by the original due date is directly caused by circumstances beyond the taxpayer's control. • for an individual - that the retention of the refund will cause serious financial hardship, that is the individual will not be able to afford the basic necessities of life • for non-individuals - the inability to give the outstanding notification by the original due date is directly caused by circumstances beyond the taxpayer's control. This decision must be approved by the Executive Level 2 officer (or higher) who approved the decision to retain the refund. [11] | 9. Does a taxpayer have review rights to the decision to exercise the discretion?: Yes, a decision to exercise this discretion to retain a refund is externally reviewable. [12] If the Commissioner makes an assessment of the underlying amount, the taxpayer may object to the assessment. [13] | 10. Examples: Example 1 - high-risk behaviour and phoenix behaviour indicated; refund retained Michelle is a director of a construction company that employs 15 individuals. This company has not lodged their 2017 and 2018 income tax returns. The company has also not complied with its superannuation obligations. The company has also recently transferred assets to another entity, indicating a reduction in available assets to meet liabilities. Michelle was a director of three other construction companies, each of which employed some of the same staff as her current company, and each of which was liquidated with unpaid tax liabilities. The company lodges their 2019 income tax return which results in a $120,000 refund while their other lodgments remain outstanding. The Commissioner exercises the discretion to retain the $120,000 refund because Michelle is in control of the company and is engaged in behaviours that present a phoenix risk. The refund will be retained until the company lodges the remaining outstanding income tax returns or an assessment of an amount in relation to the outstanding returns is made. Example 2 - high-risk behaviour indicated; refund retained Daniel is the sole director of Daily Dollars, a financial services company. As a result of Daniel's actions, Daily Dollars has poor past and current compliance with its taxation and superannuation obligations. This has resulted in multiple penalties for false and misleading statements and director penalties for both pay as you go withholding and superannuation guarantee charge. Daily Dollars has an outstanding income tax return that is anticipated to result in an income tax liability of $250,000. Daniel lodges Daily Dollars' BAS for the June quarter in 2021 which results in an $80,000 credit. Daniel does not lodge Daily Dollars' outstanding income tax return. Rather than refunding the credit, the Commissioner exercises the discretion to retain the $80,000. The refund will be retained until Daniel lodges Daily Dollars' outstanding income tax return or an assessment of an amount in relation to the outstanding income tax return is made. Example 3 - no high-risk indicators; refund not retained Carl is a sole trader carpenter. Carl self-prepares his BAS but has a tax agent prepare his income tax return. He has a good compliance history, generally lodging on time and paying any tax-related liabilities as they are due. As Carl has not visited his tax agent recently, his income tax return has not been lodged and is now overdue. Carl lodges a BAS resulting in a $10,000 credit. Despite the outstanding income tax return, there are no indicators of phoenix or high-risk behaviour and therefore the discretion to retain the $10,000 refund is not exercised. Example 4 - no high-risk or phoenix indicators; refund not retained Angus and his wife Cherie have been running a successful specialty coffee shop for the last six years. They decided to incorporate their business in 2016 and became directors. Their company, BeanOne Pty Ltd, had no employees until late-2018 when a new tram stop built near their shop caused their business to thrive. The company had to employ two people on a casual basis as a result. Until 2018, the company had never missed a BAS lodgment or an income tax return lodgment. In 2018, Angus suffered a long-term illness and could no longer be involved in the business. Cherie continued to operate the business but struggled to keep on top of the company's records. As a result, the company's quarterly BAS for the 2018 financial year were outstanding. Cherie engaged a BAS agent to complete the outstanding BAS which resulted in a $55,000 refund. In focusing on keeping the business operating, Cherie forgot to lodge the company's income tax return. Despite having previously missed BAS lodgments (which were eventually lodged), there is no indication of high-risk, or phoenix behaviour from Cherie and Angus or of assets being dissipated with the intention to defeat creditors. Therefore, the discretion to retain the $55,000 refund is not exercised despite the company having an outstanding income tax return. | 11. More information: For more information, see: • PS LA 2011/16 Insolvency - collection, recovery and enforcement issues for entities under external administration • PS LA 2011/22 Refunds of running balance account surpluses and credits - Commissioner's discretion to retain refunds and the discretion to pay refunds in a different way • PS LA 2012/6 Exercise of Commissioner's discretion to retain a refund • The economic impacts of potential illegal phoenix activity report • PS LA 2011/16 Insolvency - collection, recovery and enforcement issues for entities under external administration • PS LA 2011/22 Refunds of running balance account surpluses and credits - Commissioner's discretion to retain refunds and the discretion to pay refunds in a different way • PS LA 2012/6 Exercise of Commissioner's discretion to retain a refund • The economic impacts of potential illegal phoenix activity report You are invited to comment on this draft Practice Statement, including the proposed date of effect. Please forward your comments to the contact officer by the due date. A compendium of comments is prepared when finalising this Practice Statement, and an edited version (with names and identifying information removed) is published to the Legal database on ato.gov.au. Please advise if you do not want your comments included in the edited version of the compendium. Due date: 11 December 2020 Contact: SD Practice Statement Consultation Date of Issue: 13 November 2020 Date of Effect: When finalised, this Practice Statement will apply from 1 April 2020. [1] 'Taxation law' is defined under subsection 995-1(1) of the Income Tax Assessment Act 1997 . [2] Subparagraph 8AAZLG(1)(b)(iii) of the Taxation Administration Act 1953 (TAA). [3] All further references to 'this Practice Statement' refer to the Practice Statement as it will read when finalised. Note that this Practice Statement will not take effect until finalised. [4] Paragraph 5.20 of the Explanatory Memorandum to the Treasury Law Amendment (Combating Illegal Phoenixing) Bill 2019. [5] Sections 8AAZLG and 8AAZLGB of the TAA. [6] Section 8AAZLGA of the TAA. [7] Paragraph 5.20 of the Explanatory Memorandum to the Treasury Law Amendment (Combating Illegal Phoenixing) Bill 2019. [8] Subparagraph 12AF(b)(i) of the Taxation (Interest on Overpayments and Early Payments) Act 1983 (T(IOEP) Act). [9] Part IIB of the T(IOEP) Act. [10] T(IOEP) Act. [11] Where that Executive Level 2 officer (or higher) who made the decision is not available to make the decision, an officer in their position or in a similar role can make the decision. [12] Under the Administrative Decision (Judicial Review) Act 1977 and the Judiciary Act 1903 . [13] In the manner set out in Part IVC of the TAA. File 1-MN40UPS ISSN 2651-9526 Related Practice Statements: PS LA 2011/16 PS LA 2011/22 PS LA 2012/6 Other References: Explanatory memorandum to the Treasury Law Amendment (Combating Illegal Phoenixing) Bill 2019",PS LA 2021/2 | PS LA 2011/22 | PS LA 2012/6 | PS LA 2011/16 | Explanatory memorandum | ITAA 1997 995-1(1) | TAA 1953 Pt IVC | TAA 1953 8AAZLF | TAA 1953 8AAZLG | TAA 1953 8AAZLG(1)(b)(iii) | TAA 1953 8AAZLGA | TAA 1953 8AAZLGB | ADJR Act 1977 | T(IOEP)A 1983 Pt IIB | T(IOEP)A 1983 12AF(b)(i) | Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020,PS LA 2011/16 PS LA 2011/22 PS LA 2012/6,ITAA 1997 995-1(1) | TAA 1953 Pt IVC | TAA 1953 8AAZLF | TAA 1953 8AAZLG | TAA 1953 8AAZLG(1)(b)(iii) | TAA 1953 8AAZLGA | TAA 1953 8AAZLGB | ADJR Act 1977 | Judiciary Act 1903 | T(IOEP)A 1983 Pt IIB | T(IOEP)A 1983 12AF(b)(i) | Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020,,Explanatory memorandum to the Treasury Law Amendment (Combating Illegal Phoenixing) Bill 2019,False,False,https://www.ato.gov.au/law/view/document?docid=DPS/PSD20202/NAT/ATO/00001,This document has been finalised by PS LA 2021/2 .
PS LA 2021/D2 (Finalised),Administrative penalties for electronic sales suppression tools,30 September 2021,,Law Administration Practice Statement,True,"1. What is this draft Practice Statement about?: This draft Practice Statement [1] provides guidance on the application and remission of administrative penalties for the production, supply, possession and use of an electronic sales suppression tool (ESST). It includes: • what is an ESST? • when an ESST penalty applies • factors to consider when deciding whether to remit an ESST penalty • notifying a taxpayer of their penalty. • what is an ESST? • when an ESST penalty applies • factors to consider when deciding whether to remit an ESST penalty • notifying a taxpayer of their penalty. | 2. What is an ESST?: ESSTs are designed to interfere with electronic sales records; that is, they can falsify, manipulate, hide, obfuscate, destroy or prevent the creation of electronic sales records, often without an audit trail showing the interference. [2] They can take various forms and are constantly evolving, but some examples include: • software that deletes or modifies point of sale (POS) records • storage devices (such as back-up drives) containing software that deletes or modifies records • POS devices with software that deletes or modifies records. • software that deletes or modifies point of sale (POS) records • storage devices (such as back-up drives) containing software that deletes or modifies records • POS devices with software that deletes or modifies records. An ESST may be a device, software program or other thing, a part of any such thing, or a combination of any such things or parts that has the capability and a principal function of interfering with sales records electronically. [3] Penalties apply for producing, supplying, possessing, and incorrectly keeping records using ESSTs, as well as aiding or abetting another to do so. If you discover an entity has possession of or is using an ESST, in addition to considering if a penalty applies, you should work with the entity to ensure that the ESST is removed so the entity will no longer engage in conduct that can attract a penalty. | 3. Deciding whether something is an ESST: To be an ESST, the tool must both be capable of interfering with a record and one of its principal functions must be to interfere with sales records. A modification or additional features added to a legitimate sales system can be an ESST, even if the device or program as a whole is not. [4] Records are information in any format that explain an entity's transactions or other actions. Precisely what they are and what form they take depends on the circumstances. They generally include tax invoices, receipts and records of sales and all business transaction information. [5] An ESST must be capable of interfering with records. Typically, a tool can interfere with records if it can: • manipulate, falsify or delete the record of transactions • renumber or recharacterise transactions • interfere with records without showing an audit trail of the changes. • manipulate, falsify or delete the record of transactions • renumber or recharacterise transactions • interfere with records without showing an audit trail of the changes. A tool passes the capability test for an ESST if it can interfere with a record that: • an entity is required by a taxation law [6] to keep or make, and • has been, or could be, created by a POS system which creates or feeds data into an entity's tax records. [7] • an entity is required by a taxation law [6] to keep or make, and • has been, or could be, created by a POS system which creates or feeds data into an entity's tax records. [7] You do not need evidence that the tool has been used to interfere with a record, just that it is 'capable' of doing so. In addition to the capability test, a tool must pass the principal function test. It passes this test if a reasonable person would conclude that one of its principal functions is interfering with records that an entity is required to keep under a taxation law. The ability to interfere with records does not have to be the sole function of the tool, merely one of its principal functions. For example, a tool which provides storage or record-keeping functionality and also has a capability to interfere with records would meet the principal function test, even if that capability is not currently being used. A tool can be stored and encoded in the POS system or could be located separately. The principal function test operates in conjunction with the capability test to ensure that it does not capture legitimate features of POS systems. For example, standard POS systems may allow the user to modify transactions to correct mistakes or to train staff and keep a history log to record all the modifications made. A system would not be an ESST solely because of that function. See Example 1 in Appendix A of this Practice Statement for further guidance. | 4. When does an ESST penalty apply?: An administrative penalty (ESST penalty) applies if an entity engages in the following ESST conduct: • manufactures, develops, or publishes an ESST [8] • supplies or makes an ESST available for use (or a right to use an ESST) [9] • provides a service to an entity that involves the use of an ESST [10] • acquires, has possession or control of an ESST (or a right to use an ESST) [11] • uses an ESST to keep, make or alter a record, or uses it to prevent a record being kept, made or altered [12] • aids, abets, counsels or procures any of the above conduct. [13] • manufactures, develops, or publishes an ESST [8] • supplies or makes an ESST available for use (or a right to use an ESST) [9] • provides a service to an entity that involves the use of an ESST [10] • acquires, has possession or control of an ESST (or a right to use an ESST) [11] • uses an ESST to keep, make or alter a record, or uses it to prevent a record being kept, made or altered [12] • aids, abets, counsels or procures any of the above conduct. [13] There are different matters to consider for each penalty (including different penalty unit amounts that apply) [14] , which are set out separately in this Practice Statement. Penalties for producing an ESST A penalty applies to each instance an entity manufactures, develops or publishes an ESST. [15] You should consider the following when determining if a penalty applies for producing an ESST: • An ESST penalty applies each time an entity manufactures, develops or publishes an ESST. For example, if an entity has published two ESSTs, they may be liable to two penalties. • An ESST penalty applies when an entity modifies something into an ESST or upgrades an existing ESST (such as a 'software patch'). For example, if an entity has manufactured an ESST then develops an upgrade for it, they may be liable for two penalties. • It is not necessary that the manufacturer knows or intends for the ESST to be used on records required under Australian taxation law. All that is required is that there is evidence that the ESST meets the capability and the principal function tests. • An ESST penalty applies each time an entity manufactures, develops or publishes an ESST. For example, if an entity has published two ESSTs, they may be liable to two penalties. • An ESST penalty applies when an entity modifies something into an ESST or upgrades an existing ESST (such as a 'software patch'). For example, if an entity has manufactured an ESST then develops an upgrade for it, they may be liable for two penalties. • It is not necessary that the manufacturer knows or intends for the ESST to be used on records required under Australian taxation law. All that is required is that there is evidence that the ESST meets the capability and the principal function tests. An entity is liable to 60 penalty units for each instance a penalty applies. See Example 5 in Appendix A of this Practice Statement for further guidance. Penalties for supplying an ESST A penalty applies to each instance an entity: • supplies, or makes an ESST available, or grants a right to use an ESST [16] , or • provides a service to an entity that involves the use of an ESST. [17] • supplies, or makes an ESST available, or grants a right to use an ESST [16] , or • provides a service to an entity that involves the use of an ESST. [17] You should consider the following when determining if a penalty applies for supplying an ESST: • 'Supply' means any form of supply and includes both goods and services. [18] • An entity may be penalised more than once if they supply more than one ESST or provide a service to more than one entity. • Supplying upgrades or modifications (for example, a software patch) to an ESST is a supply of an ESST. This may also be penalised. For example, if an entity has supplied an ESST and then a later upgrade, they may be liable for two penalties. • It is not necessary to show the supplier knows or intends for the ESST to be used on records required under Australian taxation law. • 'Supply' means any form of supply and includes both goods and services. [18] • An entity may be penalised more than once if they supply more than one ESST or provide a service to more than one entity. • Supplying upgrades or modifications (for example, a software patch) to an ESST is a supply of an ESST. This may also be penalised. For example, if an entity has supplied an ESST and then a later upgrade, they may be liable for two penalties. • It is not necessary to show the supplier knows or intends for the ESST to be used on records required under Australian taxation law. An entity is liable to 60 penalty units for each instance a penalty applies. See Example 5 in Appendix A of this Practice Statement for further guidance. Penalties for possessing an ESST A penalty applies if an entity: • is required to keep or make a record under a taxation law [19] (other than an Excise Act [20] ), and • acquires, or has possession or control of an ESST or a right to use an ESST. [21] • is required to keep or make a record under a taxation law [19] (other than an Excise Act [20] ), and • acquires, or has possession or control of an ESST or a right to use an ESST. [21] You should consider the following when determining if a penalty applies for possessing an ESST: • A penalty can only be applied where the entity has record-keeping obligations under a taxation law (see section 3 of this Practice Statement). • A penalty applies for each different ESST an entity acquires, possesses or controls. • It is not necessary for the entity to have knowledge that they possess the ESST. • A penalty can only be applied where the entity has record-keeping obligations under a taxation law (see section 3 of this Practice Statement). • A penalty applies for each different ESST an entity acquires, possesses or controls. • It is not necessary for the entity to have knowledge that they possess the ESST. An entity is liable to 30 penalty units for each instance a penalty applies. See Examples 2 to 5 in Appendix A of this Practice Statement for further guidance. Penalties for incorrectly keeping records using an ESST An entity is liable to an administrative penalty where: • the entity is required under a taxation law (other than an Excise Act) to keep or make a record [22] • the record is - kept, made, altered with the use of an ESST, or - prevented by the use of an ESST from being kept, made or altered, and • as a result of the use, the record does not correctly record and explain the thing it relates to or is not kept or made in accordance with Australian taxation law. [23] • the entity is required under a taxation law (other than an Excise Act) to keep or make a record [22] • the record is - kept, made, altered with the use of an ESST, or - prevented by the use of an ESST from being kept, made or altered, and • as a result of the use, the record does not correctly record and explain the thing it relates to or is not kept or made in accordance with Australian taxation law. [23] - kept, made, altered with the use of an ESST, or - prevented by the use of an ESST from being kept, made or altered, and 'Use' in this context means that the ESST has interfered with the functions or features of accounting or business systems (which would otherwise produce accurate tax records or accurate inputs to tax records). [24] This includes where an ESST is used to alter records after they were originally recorded or alters the record as it is first made. You should consider the following when determining if a penalty applies for incorrectly keeping records using an ESST: • A penalty can only apply where an entity has record-keeping obligations under a taxation law. • Penalties apply to an entity even if they did not use the tool themselves to alter their records, including where a third party used the tool to make the alterations (for example, a tax agent or other service provider). • A penalty can only apply where an entity has record-keeping obligations under a taxation law. • Penalties apply to an entity even if they did not use the tool themselves to alter their records, including where a third party used the tool to make the alterations (for example, a tax agent or other service provider). Where an ESST is used to alter a group of related records, separate penalties should not be applied for each and every record altered. Rather, it would be appropriate to apply a penalty in relation to the alterations of the records over a relevant period of time. For instance, where sales records are altered that are taken into account in a business activity statement (BAS), a penalty could be applied to the altered records relating to that BAS. It may be appropriate to apply a further penalty if the behaviour extends into periods for which another BAS will be lodged. An entity is liable to 60 penalty units for each instance a penalty applies. See Examples 3 and 4 in Appendix A of this Practice Statement for further guidance. Penalties for aiding and abetting ESST conduct An entity that aids, abets, counsels or procures another entity to engage in ESST conduct is liable for: • 60 penalty units if the other entity engages in manufacturing, developing or publishing an ESST • 60 penalty units if the other entity engages in supplying an ESST, or providing a service to an entity that involves the use of an ESST • 30 penalty units if the other entity engages in the possession of an ESST • 60 penalty units if the other entity engages in the incorrect keeping of records using an ESST. [25] • 60 penalty units if the other entity engages in manufacturing, developing or publishing an ESST • 60 penalty units if the other entity engages in supplying an ESST, or providing a service to an entity that involves the use of an ESST • 30 penalty units if the other entity engages in the possession of an ESST • 60 penalty units if the other entity engages in the incorrect keeping of records using an ESST. [25] You should consider the following in determining if a penalty applies for aiding and abetting another entity to engage in ESST conduct: • The penalty for aiding, abetting, counselling or procuring conduct is designed to capture the actions of an entity which result in another entity becoming liable to a penalty. • You must have evidence that the entity has actually aided, abetted, counselled or procured another entity to engage in the conduct before imposing a penalty on the entity. • The penalty for aiding, abetting, counselling or procuring conduct is designed to capture the actions of an entity which result in another entity becoming liable to a penalty. • You must have evidence that the entity has actually aided, abetted, counselled or procured another entity to engage in the conduct before imposing a penalty on the entity. For example, a director of a company in their capacity as an individual may be liable to this penalty where their decisions have resulted in the company procuring an ESST for use. See Example 6 in Appendix A of this Practice Statement for further guidance. | 5. When ESST penalties do not apply: Entities who produce, supply or possess an ESST or aid or abet another entity to produce, supply or possess an ESST are not liable to an administrative penalty if the conduct is undertaken for the purpose of preventing or deterring tax evasion or enforcing a taxation law. [26] For example, researchers developing an ESST to assist them understanding and conducting training on how the tools function will not be liable to an administrative penalty when they do so for a law enforcement agency. An entity will not be liable to an administrative penalty where criminal prosecution has commenced for the same conduct. See section 10 of this Practice Statement for more information. | 6. Remitting penalties: When an ESST penalty applies, you must consider whether it is appropriate to remit any of the penalty. [27] This is done by deciding whether the penalty outcome is just and reasonable having regard to the facts and circumstances of the case. When making this decision, you may consider whether remission meets: • the objectives of administrative penalties generally; that is, to encourage entities to take reasonable care in complying with their tax obligations and to promote consistent treatment between all taxpayers, and • the objectives of the ESST penalty regime in deterring the production, supply, possession and use of ESSTs, which facilitate systemic tax evasion and undermine the integrity of the tax system. • the objectives of administrative penalties generally; that is, to encourage entities to take reasonable care in complying with their tax obligations and to promote consistent treatment between all taxpayers, and • the objectives of the ESST penalty regime in deterring the production, supply, possession and use of ESSTs, which facilitate systemic tax evasion and undermine the integrity of the tax system. As such, it may not generally be appropriate to remit a penalty for incorrectly keeping records using an ESST where an entity has deliberately destroyed or omitted records within the period during which they are required to be kept. [28] Factors that may also be relevant to your remission decision, include but are not limited to: • whether the entity expected any benefit as a result of the ESST • the compliance history of the entity, including whether they have previously engaged in any tax evasion-type behaviour • whether the entity had taken any remedial action and when this occurred (for example, before or after ATO interaction) and whether they cooperated with our investigations • whether the entity was aware or should have been aware of the existence of the ESST • whether multiple penalties have arisen from substantially similar conduct • whether the entity has engaged in more than one instance of prohibited ESST conduct • whether the imposition of the penalty or penalties provides an unintended or unjust result, such as the total penalty imposed is disproportionate to the conduct. The amount of the penalty alone, without specific reasons why it would be unjust in the taxpayer's particular circumstances, is not considered to be unjust. • whether the entity expected any benefit as a result of the ESST • the compliance history of the entity, including whether they have previously engaged in any tax evasion-type behaviour • whether the entity had taken any remedial action and when this occurred (for example, before or after ATO interaction) and whether they cooperated with our investigations • whether the entity was aware or should have been aware of the existence of the ESST • whether multiple penalties have arisen from substantially similar conduct • whether the entity has engaged in more than one instance of prohibited ESST conduct • whether the imposition of the penalty or penalties provides an unintended or unjust result, such as the total penalty imposed is disproportionate to the conduct. The amount of the penalty alone, without specific reasons why it would be unjust in the taxpayer's particular circumstances, is not considered to be unjust. See Examples 2 to 6 in Appendix A of this Practice Statement for further guidance. | 7. How do ESST penalties interact with other administrative penalties?: When more than one administrative penalty applies to an entity, you should consider whether each penalty results from the same act when making your remission decision. This is because, generally, a person should not be punished more than once for the same act. You should consider the facts of the case with care. While in some circumstances it may appear that the penalties result from the same conduct, the conduct may, in fact, consist of separate acts that each result in different penalties. For example, when an entity uses an ESST to delete records from their POS system, then uses the falsified records to understate their income on their income tax return, it is not just one act but three separate acts. Possessing an ESST is an act that attracts the penalty for possessing an ESST. The subsequent use of the ESST to delete records is a separate act that attracts the penalty for incorrectly keeping records using the ESST. The use of the falsified records to understate income on the income tax return attracts the penalty for making a false or misleading statement. Consequently, the three administrative penalties are for different acts. See Example 4 in Appendix A of this Practice Statement for further guidance. | 8. Notifying taxpayers of their penalty: You must give the entity written notice of the penalty and the reasons for the decision where the penalty has not been remitted or where it has been partially remitted. [29] You must provide the reasons for the decision at the same time or as soon as possible after you give written notice of the penalty. You do not have to give notice or reasons for the penalty decision where the penalty has been remitted to nil. | 9. Rights of review: An entity cannot object to the imposition of an ESST penalty; however, it may object to the remission decision if the penalty payable after the remission decision is more than two penalty units. [30] If it is two penalty units or less, the entity may seek judicial review of the decision. [31] | 10. Criminal prosecutions: An entity that produces, supplies or possesses an ESST or uses an ESST to incorrectly keep taxation records may be liable for criminal prosecution. [32] The ATO may seek prosecution of an offence by conducting a criminal investigation and referring the matter to the Commonwealth Director of Public Prosecutions. This Practice Statement only covers administrative penalties relating to ESSTs. If you have a case that may be suitable for prosecution, you must follow Chief Executive Instruction Tax Crime and External Fraud CEI and should engage your team leader or technical leader early to discuss the appropriate action. Where the ATO initiates a criminal prosecution for an offence, the entity is not liable for an administrative penalty for the same conduct, even if the prosecution is later withdrawn. [33] | 11. More information: For more information, see: • Taxation Ruling TR 96/7 Income tax: record keeping - section 262A - general principles • Taxation Ruling TR 2018/2 Income tax: record keeping and access - electronic records • Law Administration Practice Statement PS LA 2005/2 Penalty for failure to keep or retain records • Law Administration Practice Statement PS LA 2008/14 Record keeping when using commercial off the shelf software • Law Administration Practice Statement PS LA 2011/30 Remission of administrative penalties relating to schemes imposed by subsection 284-145(1) of Schedule 1 to the Taxation Administration Act 1953 • Law Administration Practice Statement PS LA 2012/4 Administration of the false or misleading statements penalty - where there is no shortfall amount • Law Administration Practice Statement PS LA 2012/5 Administration of the false or misleading statement penalty - where there is a shortfall amount • Tax Crime and External Fraud CEI (link available internally only) • Taxation Ruling TR 96/7 Income tax: record keeping - section 262A - general principles • Taxation Ruling TR 2018/2 Income tax: record keeping and access - electronic records • Law Administration Practice Statement PS LA 2005/2 Penalty for failure to keep or retain records • Law Administration Practice Statement PS LA 2008/14 Record keeping when using commercial off the shelf software • Law Administration Practice Statement PS LA 2011/30 Remission of administrative penalties relating to schemes imposed by subsection 284-145(1) of Schedule 1 to the Taxation Administration Act 1953 • Law Administration Practice Statement PS LA 2012/4 Administration of the false or misleading statements penalty - where there is no shortfall amount • Law Administration Practice Statement PS LA 2012/5 Administration of the false or misleading statement penalty - where there is a shortfall amount • Tax Crime and External Fraud CEI (link available internally only) Example 1 - not an ESST - changes are recorded Bellissima Beans Café Ltd buys a POS system for their new café. This POS system includes a function to reverse and void transactions. The manufacturer states that this function is for correcting mistakes and generating refunds. The POS system records all changes to transactions in its history log. It produces a receipt and marks it as a void transaction. All receipts have sequential transaction numbers so any void transactions with missing receipts can be identified. Although this function gives Bellissima Beans Café Ltd the ability to delete and reverse transactions, the POS system creates an audit trail, so a reasonable person would not conclude that one of its principal functions is interfering with records. The POS system is not an ESST. Example 2 - possession of an ESST - full remission The ATO conducts a routine audit of a bookstore owned by Book Worms Pty Ltd (Book Worms). Bob is the director of this company and runs the bookstore. During the audit, a hidden function within the system allows sales transactions to be deleted or manipulated without leaving a record of the original transaction. As a reasonable person would conclude that one of the primary functions of this system is to interfere with sales records, it is an ESST. Bob is surprised to discover that his system has an ESST and explains that he had no idea that it was there. He had bought the bookstore from Keanu in March 2017, who had not mentioned that there was anything unusual about the business or the equipment. He explains that he had not used the ESST and contacts his POS system supplier immediately to ensure ESST capabilities are removed. At the conclusion of the audit, no evidence was found that the ESST had been used to alter any of Book Worms' business records. The audit did not result in any amendments to Book Worms' income tax returns or BASs. Book Worms has a good compliance history. Notwithstanding the above, Book Worms is liable to an administrative penalty of 30 units for possessing an ESST. It does not matter that Book Worms came into possession of the ESST before the legislation was enacted. The case officer considers whether it would be appropriate to remit the penalty in full or in part by taking into account the following facts: • Book Worms was unaware that it was in possession of an ESST • Book Worms complied with all requests made by the audit team and has taken prompt remedial action to remove the ESST after the discovery of the ESST • Book Worms has a good compliance history. • Book Worms was unaware that it was in possession of an ESST • Book Worms complied with all requests made by the audit team and has taken prompt remedial action to remove the ESST after the discovery of the ESST • Book Worms has a good compliance history. Based on these facts, the case officer considers it appropriate to remit the administrative penalty in full. Example 3 - possessing and using an ESST - partial remission Jack purchases a POS system with an ESST function and alters his records every day for three months to underreport his sales income. He relies on these altered records to complete and lodge one BAS. Jack subsequently disposes of his ESST-enabled POS system and purchases a legitimate POS system. Jack requests that the Commissioner amends his BAS to reflect his actual sales income and pays the resulting debt on time. The ATO then initiates an audit of Jack's business affairs, and the case officer finds evidence of both Jack's possession and use of the ESST. Jack is liable to ESST penalties for: • possessing an ESST (30 penalty units), and • one instance of incorrectly keeping records using an ESST (60 penalty units). • possessing an ESST (30 penalty units), and • one instance of incorrectly keeping records using an ESST (60 penalty units). The case officer takes into account the following facts and circumstances and considers it would be appropriate to remit the possession penalty by 50%: • There were no legitimate reasons for Jack to have possessed the ESST. • Jack undertook remedial action by disposing of the ESST before the ATO initiated any audit action. • The object of the ESST penalty regime is to deter the possession of ESSTs, which facilitates systemic tax evasion and undermines the integrity of the tax system. Remitting the penalty by 50% is appropriate in the circumstances and is proportionate to the seriousness of the conduct. • There were no legitimate reasons for Jack to have possessed the ESST. • Jack undertook remedial action by disposing of the ESST before the ATO initiated any audit action. • The object of the ESST penalty regime is to deter the possession of ESSTs, which facilitates systemic tax evasion and undermines the integrity of the tax system. Remitting the penalty by 50% is appropriate in the circumstances and is proportionate to the seriousness of the conduct. The case officer also considers it appropriate to remit the use penalty by 50%, based on the following facts and circumstances: • Jack undertook remedial action by requesting an amendment of his BAS before the ATO initiated any audit action. • While Jack received a financial benefit from the use of the ESST, this was reversed when he requested an amendment on his BAS based on his actual sales income. • The object of the ESST penalty regime is to deter the use of ESSTs, which facilitates systemic tax evasion and undermines the integrity of the tax system. Applying the penalty acts as a deterrent and is proportionate to the seriousness of the conduct. • Jack undertook remedial action by requesting an amendment of his BAS before the ATO initiated any audit action. • While Jack received a financial benefit from the use of the ESST, this was reversed when he requested an amendment on his BAS based on his actual sales income. • The object of the ESST penalty regime is to deter the use of ESSTs, which facilitates systemic tax evasion and undermines the integrity of the tax system. Applying the penalty acts as a deterrent and is proportionate to the seriousness of the conduct. The case officer considers this to be an appropriate remission decision as it reflects the seriousness of the conduct and does not produce an unjust outcome. Example 4 - possessing and using an ESST, and making false and misleading statements Roberta owns the Hazelnut Cafe. She buys a new POS system from POSsibilities Pty Ltd, which contains an extra feature allowing Roberta to delete or change the value of completed sales without an audit trail. This feature is coded directly into the POS system and can be accessed by a secret menu. The hidden program is part of the POS system itself and is an ESST, as a reasonable person would consider that one of its principal functions is to falsify the user's records. Roberta uses the ESST to alter her records every day for three months from July 2020. She relies on these altered records to complete and lodge her September quarter BAS. Roberta is liable to ESST penalties for: • possessing an ESST (30 penalty units), and • incorrectly keeping records using an ESST (60 penalty units). • possessing an ESST (30 penalty units), and • incorrectly keeping records using an ESST (60 penalty units). Roberta's September BAS is amended based on evidence that the Commissioner holds of what her income and sales were. She is liable to pay the additional tax shortfall and general interest charges. She is also liable to a penalty for making statements which were false or misleading to the Commissioner, based on the records she altered using the ESST. The quantum of the penalty imposed for making statements which were false or misleading is determined separately based on the behaviour involved. [34] The case officer takes into account the following facts and circumstances when considering whether it would be appropriate to remit the ESST penalties in full or in part: • Roberta has obtained a benefit from using the ESST as the records she relied on (that had been altered using the ESST) resulted in contrived refunds. • The penalties do not result from the same conduct, as possessing an ESST and using an ESST are two separate acts. • The total penalty amount imposed on the entity is not disproportionate to Roberta's circumstances. Roberta possessed and used an ESST to alter records and thereby facilitated tax evasion. Roberta used the records to deliberately make statements to the Commissioner which she knew were false and misleading. • Roberta has obtained a benefit from using the ESST as the records she relied on (that had been altered using the ESST) resulted in contrived refunds. • The penalties do not result from the same conduct, as possessing an ESST and using an ESST are two separate acts. • The total penalty amount imposed on the entity is not disproportionate to Roberta's circumstances. Roberta possessed and used an ESST to alter records and thereby facilitated tax evasion. Roberta used the records to deliberately make statements to the Commissioner which she knew were false and misleading. The case officer considers it appropriate to not remit either penalty, as they reflect the seriousness of the conduct and do not produce an unjust outcome. Example 5 - producing and supplying an ESST Edith is a sole trader who has manufactured an ESST (the first ESST) and sells it to five separate entities. A year later, Edith develops a software patch to improve and upgrade the ESST and provide new features. The software patch is an ESST in its own right. Producing the patch is an act separate to the conduct of producing the first ESST. The case officer does not find any evidence that the software patch has been sold to other entities. Edith is liable to 480 penalty units for: • producing the first ESST (60 penalty units) • producing the software patch (60 penalty units) • possessing two ESSTs (60 penalty units), and • supplying the first ESST to five entities (300 penalty units). • producing the first ESST (60 penalty units) • producing the software patch (60 penalty units) • possessing two ESSTs (60 penalty units), and • supplying the first ESST to five entities (300 penalty units). Producing, possessing and supplying the ESST are separate acts. The manufacture of an ESST involves the actual design and creation of an ESST, possession involves ownership or control, and the supply involves making an ESST available for others to use. In this case: • The production penalties did not arise from the same conduct. Two separate ESSTs were developed at different times and for different purposes (that is, the original software, then the software patch which was in effect an ESST upgrade). • The possession penalties did not arise from the same conduct. Two separate ESSTs are in Edith's control. • The supply penalties did not arise from the same conduct. Edith engaged in five separate acts of supply by selling the first ESST to five different entities. • The production penalties did not arise from the same conduct. Two separate ESSTs were developed at different times and for different purposes (that is, the original software, then the software patch which was in effect an ESST upgrade). • The possession penalties did not arise from the same conduct. Two separate ESSTs are in Edith's control. • The supply penalties did not arise from the same conduct. Edith engaged in five separate acts of supply by selling the first ESST to five different entities. The case officer takes into account the following facts and circumstances when considering whether it would be appropriate to remit the penalties in full or in part: • Edith does not have any history of tax evasion behaviour. • Edith has benefited financially from the supply of the ESST. She sold each ESST for $2,000 (totalling $10,000). • The object of the ESST penalty regime is to deter the production, supply and possession of ESSTs, which facilitates systemic tax evasion and undermines the integrity of the tax system. • Edith does not have any history of tax evasion behaviour. • Edith has benefited financially from the supply of the ESST. She sold each ESST for $2,000 (totalling $10,000). • The object of the ESST penalty regime is to deter the production, supply and possession of ESSTs, which facilitates systemic tax evasion and undermines the integrity of the tax system. The case officer does not consider it appropriate to remit the penalties relating to the production and possession of the two ESSTs. This is because the penalty outcomes are not disproportionate to Edith's actions and will act as a deterrence, consistent with the object of the ESST penalty regime. She has also financially benefitted from her conduct as there was no reason (apart from to facilitate tax evasion) for the production, possession or supply of these ESSTs. The case officer does not consider it appropriate to remit the penalties for the supply of five ESSTs, as while it is a substantial penalty outcome, Edith has received significant financial benefit from the supply. The case officer also considers that supplying an ESST facilitates tax evasion and that the penalties in this case provide effective deterrence. Example 6 - aiding and abetting the possession and use of an ESST An audit of the tax affairs of Poppy Flowers Ltd (Poppy Flowers) identifies that it possessed an ESST and used it to alter records relied on in preparing two BASs. The case team determines that administrative penalties apply to Poppy Flowers for possessing an ESST, and for incorrectly keeping records twice using an ESST. The case team also discovers emails that indicate that Poppy Flowers' tax agent, Doug, is involved in the acquisition of the ESST and commenced an audit of Doug's business tax affairs. They find evidence showing that Doug has: • encouraged Poppy Flowers' directors to obtain and use the ESST • helped them source the ESST • provided ongoing support, including how to use the ESST, for the first six months, and • received a financial benefit from the company for sourcing and providing ongoing support on the use of the ESST. • encouraged Poppy Flowers' directors to obtain and use the ESST • helped them source the ESST • provided ongoing support, including how to use the ESST, for the first six months, and • received a financial benefit from the company for sourcing and providing ongoing support on the use of the ESST. Doug is a separate entity to Poppy Flowers. As there is sufficient evidence to show that Doug has aided Poppy Flowers to engage in conduct that gave rise to Poppy Flowers' liability to ESST penalties, Doug is liable to 150 penalty units for aiding Poppy Flowers to: • possess an ESST (30 penalty units for), and • use the ESST to incorrectly keep records for two BAS lodgments (120 penalty units). • possess an ESST (30 penalty units for), and • use the ESST to incorrectly keep records for two BAS lodgments (120 penalty units). In addition, Doug is referred to the Tax Practitioners Board for investigation. The case officer takes into account the following facts and circumstances when considering whether it would be appropriate to remit the ESST penalties in full or in part: • Doug has benefitted from aiding Poppy Flowers to possess and use the ESST as he received payment from the company for sourcing the ESST and the ongoing support he gave them in connection with its use. • The penalties do not result from the same conduct, as aiding possession and aiding use of the ESST are two separate acts. • The total penalty amount imposed on Doug is not disproportionate in the circumstances. Doug's conduct in aiding the possession and use of an ESST encouraged and facilitated tax evasion. • Doug has benefitted from aiding Poppy Flowers to possess and use the ESST as he received payment from the company for sourcing the ESST and the ongoing support he gave them in connection with its use. • The penalties do not result from the same conduct, as aiding possession and aiding use of the ESST are two separate acts. • The total penalty amount imposed on Doug is not disproportionate in the circumstances. Doug's conduct in aiding the possession and use of an ESST encouraged and facilitated tax evasion. The case officer considers it appropriate to not remit either penalty, as they reflect the seriousness of the conduct and do not produce an unjust outcome. You are invited to comment on this draft Practice Statement, including the proposed date of effect. Please forward your comments to the email address below by the due date. A compendium of comments is prepared when finalising this Practice Statement, and an edited version (with names and identifying information removed) may be published to the Legal database on ato.gov.au. Please advise if you do not want your comments included in the edited version of the compendium. Due date: 29 October 2021 Contact officer: OperationalPolicyAssuranceandLawWorkManagement@ato.gov.au Date of Issue: 30 September 2021 Date of Effect: When finalised, this Practice Statement will apply from the date of publication. [1] All further references to 'this Practice Statement' refer to the Practice Statement as it will read when finalised. Note that this Practice Statement will not take effect until finalised. [2] Future use of the terms 'interfere' or 'interfering' should be taken to include 'falsifying, manipulating, hiding, obfuscating, destroying, or preventing the creation of a record'. [3] Section 8WAB of the Taxation Administration Act 1953 (TAA). [4] Paragraph 1.27 of the Explanatory Memorandum to the Treasury Laws Amendment (Black Economy Taskforce Measures No.1) Bill 2018. [5] Section 262A of the Income Tax Assessment Act 1936 and section 382-5 of Schedule 1 to the TAA. All legislative references in this Practice Statement are to Schedule 1 to the TAA unless otherwise specified. For further information, see Law Administration Practice Statement PS LA 2005/2 Penalty for failure to keep or retain records . [6] See Appendix 1 of PS LA 2005/2 for a list of record-keeping obligations required by taxation law. [7] Paragraph 1.34 of the Explanatory Memorandum to the Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018. [8] Paragraph 288-125(1)(a). [9] Paragraph 288-125(1)(b). [10] Paragraph 288-125(1)(c). [11] Paragraph 288-130(1)(b). [12] Subsection 288-135(1). [13] Subsections 288-125(2), 288-130(2) and 288-135(2). [14] The value of a penalty unit is contained in section 4AA of the Crimes Act 1914 and is indexed regularly. A table containing penalty unit values can be found by searching for 'penalty unit' on ato.gov.au [15] Subsection 288-125(1). [16] Paragraph 288-125(1)(b). [17] Paragraph 288-125(1)(c). [18] Section 8WAB of the TAA provides that 'supply' has the meaning given by section 9-10 of the A New Tax System (Goods and Services Tax) Act 1999 . [19] 'Taxation law' is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 . [20] 'Excise Act' is defined in subsection 4(1) of the Excise Act 1901 . [21] Subsection 288-130(1). [22] The term 'record' has been outlined in section 3 of this Practice Statement. [23] Subsection 288-135(1). [24] 'Use' is not defined in the legislation and takes its ordinary meaning as 'to employ for some purpose' or 'put into service'; Macmillan Publishers Australia, The Macquarie Dictionary online , www.macquariedictionary.com.au , accessed 8 September 2021. [25] Subsections 288-125(2), 288-130(2) and 288-135(2). [26] Subsections 288-125(3) and 288-130(3). [27] Section 298-20. [28] This is consistent with the penalty for failure to keep or retain records remission principles in paragraph 9 of PS LA 2005/2. [29] Section 298-20. [30] Subsection 298-20(3). [31] A judicial review application is made in the Federal Court or Federal Circuit Court. [32] Subdivision BAA of Division 2 of Part III of the TAA. [33] Section 8ZE of the TAA. [34] This should be determined in accordance with the principles in Division 284, PS LA 2012/4 and PS LA 2012/5. File 1-EVY7VUI ISSN 2651-9526 Related Rulings/Determinations: TR 96/7 TR 2018/2 Related Practice Statements: PS LA 2005/2 PS LA 2008/14 PS LA 2011/30 PS LA 2012/4 PS LA 2012/5 Other References: Explanatory memorandum to the Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018Macmillan Publishers Australia, The Macquarie Dictionary Online, www.macquariedictionary.com.au",PS LA 2022/1 | Taxation Ruling TR 96/7 | Taxation Ruling TR 2018/2 | Law Administration Practice Statement PS LA 2005/2 | Law Administration Practice Statement PS LA 2008/14 | Law Administration Practice Statement PS LA 2011/30 | Law Administration Practice Statement PS LA 2012/4 | Law Administration Practice Statement PS LA 2012/5 | TR 96/7 | TR 2018/2 | PS LA 2005/2 | PS LA 2008/14 | PS LA 2011/30 | PS LA 2012/4 | PS LA 2012/5 | Explanatory memorandum | ANTS(GST)A 1999 9-10 | ITAA 1936 262A | ITAA 1997 995-1(1) | TAA 1953 8WAB | TAA 1953 8ZE | TAA 1953 288-125(1) | TAA 1953 288-125(1)(a) | TAA 1953 288-125(1)(b) | TAA 1953 288-125(1)(c) | TAA 1953 288-125(2) | TAA 1953 288-125(3) | TAA 1953 288-130(1) | TAA 1953 288-130(2) | TAA 1953 288-130(3) | TAA 1953 288-135(1) | TAA 1953 288-135(2) | TAA 1953 298-20 | TAA 1953 298-20(3) | TAA 1953 382-5 | Crimes Act 1914 4AA | Excise Act 1901 4(1),PS LA 2005/2 PS LA 2008/14 PS LA 2011/30 PS LA 2012/4 PS LA 2012/5,ANTS(GST)A 1999 9-10 | ITAA 1936 262A | ITAA 1997 995-1(1) | TAA 1953 8WAB | TAA 1953 8ZE | TAA 1953 288-125(1) | TAA 1953 288-125(1)(a) | TAA 1953 288-125(1)(b) | TAA 1953 288-125(1)(c) | TAA 1953 288-125(2) | TAA 1953 288-125(3) | TAA 1953 288-130(1) | TAA 1953 288-130(2) | TAA 1953 288-130(3) | TAA 1953 288-135(1) | TAA 1953 288-135(2) | TAA 1953 298-20 | TAA 1953 298-20(3) | TAA 1953 382-5 | Crimes Act 1914 4AA | Excise Act 1901 4(1),,"Explanatory memorandum to the Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018Macmillan Publishers Australia, The Macquarie Dictionary Online, www.macquariedictionary.com.au",False,True,https://www.ato.gov.au/law/view/document?docid=DPS/PSD20212/NAT/ATO/00001,This document has been finalised by PS LA 2022/1 . | APPENDIX B - YOUR COMMENTS
PS LA 2025/D2 (Finalised),Self-managed superannuation funds - education directions for contraventions of the Superannuation Industry (Supervision) Act 1993,2 October 2025,,Law Administration Practice Statement,True,"1. What this draft Practice Statement is about: This draft Practice Statement [1] sets out what you need to consider when deciding whether to give a trustee, or a director of a corporate trustee of a self-managed superannuation fund (SMSF), an education direction under section 160 of the Superannuation Industry (Supervision) Act 1993 (SISA). All further legislative references in this Practice Statement are to the SISA, unless otherwise indicated. | 2. Compliance treatments – general principles: We are responsible for ensuring SMSF trustees comply with relevant tax and super laws as well as dealing effectively with those who fail to do so. This role is fundamental in ensuring the preservation of retirement benefits and protecting the integrity of the superannuation system. Our role also ensures tax concessions available within superannuation are appropriately targeted towards those who choose to operate within the regulatory framework. In carrying out this role, the SISA provides a range of compliance options to deal with conduct which has resulted in contraventions of the SISA or the Superannuation Industry (Supervision) Regulations 1994 (SISR). One such option is to give an education direction. Generally, giving an education direction will play an essential role in cases where the person's lack of knowledge or understanding of their obligations contributed to the contraventions. There are important and positive benefits to giving an education direction, including [2] : • correcting knowledge gaps which led to past contraventions • improving and refreshing overall trustee knowledge, thereby reducing the likelihood of any future contraventions occurring. • correcting knowledge gaps which led to past contraventions • improving and refreshing overall trustee knowledge, thereby reducing the likelihood of any future contraventions occurring. You may also use other compliance options alongside an education direction. The appropriateness of any additional compliance options you choose will depend on the circumstances of each case and the nature and seriousness of the conduct giving rise to the contraventions. The compliance options you might commonly use in combination with an education direction include: • imposing administrative penalties [3] • giving a rectification direction [4] • accepting a written undertaking from the trustee to rectify the contravention. [5] • imposing administrative penalties [3] • giving a rectification direction [4] • accepting a written undertaking from the trustee to rectify the contravention. [5] | 3. What an education direction is: An education direction is a written notice we give to a person which, within a specified period, requires them to [6] : • undertake an approved SMSF trustee education course, and • provide us evidence that the course was completed. • undertake an approved SMSF trustee education course, and • provide us evidence that the course was completed. A person given an education direction must also sign (or re-sign) an SMSF trustee declaration form within 21 days of completing the education course. [7] This is to confirm that they understand their obligations and duties as a trustee of an SMSF. | 4. Circumstances in which an education direction can be given: You may give an education direction to a person where, on or after 1 July 2014, there has been a contravention of a provision in the SISA (other than Part 3B) or the SISR. [8] You can only give an education direction to [9] : • an individual trustee of an SMSF, where you reasonably believe the trustee has contravened a provision of the SISA (other than Part 3B) or the SISR, or • a director of a body corporate that is trustee of an SMSF, where you reasonably believe that the: - director has contravened a provision of the SISA (other than Part 3B) or the SISR, or - body corporate, as trustee of the SMSF, has contravened a provision of the SISA (other than Part 3B) or the SISR. • an individual trustee of an SMSF, where you reasonably believe the trustee has contravened a provision of the SISA (other than Part 3B) or the SISR, or • a director of a body corporate that is trustee of an SMSF, where you reasonably believe that the: - director has contravened a provision of the SISA (other than Part 3B) or the SISR, or - body corporate, as trustee of the SMSF, has contravened a provision of the SISA (other than Part 3B) or the SISR. - director has contravened a provision of the SISA (other than Part 3B) or the SISR, or - body corporate, as trustee of the SMSF, has contravened a provision of the SISA (other than Part 3B) or the SISR. You may reasonably believe a contravention of the SISA or the SISR has occurred if someone closely connected to the fund (such as a trustee or approved auditor) has reported it to us. However, a mere suspicion that a contravention has occurred is not sufficient. In such cases, you would need to gather more information before you can conclude a contravention has occurred. You cannot give a direction to a person who: • is no longer an individual trustee or director of the corporate trustee of an SMSF at the time you are deciding whether to issue a direction • became a trustee or director of the corporate trustee of an SMSF after the contravention occurred. • is no longer an individual trustee or director of the corporate trustee of an SMSF at the time you are deciding whether to issue a direction • became a trustee or director of the corporate trustee of an SMSF after the contravention occurred. | 5. Considerations when deciding whether to give an education direction: You should consider both case-specific factors and the ATO's general decision-making principles when deciding whether to give an education direction. General principles You should complete your decision by considering the following general principles in the: • ATO Charter – which requires that taxpayers be treated fairly and reasonably • Compliance model – which helps in choosing the most appropriate compliance response, depending on the trustee's behaviour and circumstances, and • Good decision-making model (link available internally only) – which requires that our decision be legal, ethical, equitable, overt, sensible, timely, consistent with the principles of natural justice and environmentally sustainable. • ATO Charter – which requires that taxpayers be treated fairly and reasonably • Compliance model – which helps in choosing the most appropriate compliance response, depending on the trustee's behaviour and circumstances, and • Good decision-making model (link available internally only) – which requires that our decision be legal, ethical, equitable, overt, sensible, timely, consistent with the principles of natural justice and environmentally sustainable. Case-specific factors Generally, an education direction will be an appropriate compliance tool where gaps in a person's trustee knowledge or understanding of those duties and obligations have contributed to the contraventions. [10] Case-specific factors which are likely to indicate it is not appropriate to give an education direction include: • the person has previously been given an SMSF education direction • the person would already be expected to have the necessary skills and knowledge, such as an experienced or accredited SMSF adviser • the person already has a good level of knowledge of their obligations and were aware their conduct would be likely to result in a contravention • the person has already voluntarily undertaken an education course after the contravention occurred and prior to us considering issuing an education direction • you determine the circumstances would warrant the person being removed from that position, such as by disqualification. [11] • the person has previously been given an SMSF education direction • the person would already be expected to have the necessary skills and knowledge, such as an experienced or accredited SMSF adviser • the person already has a good level of knowledge of their obligations and were aware their conduct would be likely to result in a contravention • the person has already voluntarily undertaken an education course after the contravention occurred and prior to us considering issuing an education direction • you determine the circumstances would warrant the person being removed from that position, such as by disqualification. [11] As all trustees and directors of corporate trustees are responsible for ensuring the provisions of the SISA and the SISR are complied with, a person may still 'contravene' one of the provisions even if they: • do not take an active role in managing the fund • were not directly involved in the conduct that gave rise to the contravention. • do not take an active role in managing the fund • were not directly involved in the conduct that gave rise to the contravention. However, the trustee or director's level of involvement in the contravention will still be a relevant factor when deciding whether it is appropriate to give a direction. Depending on the circumstances of the case, where you identify general principles and case-specific factors which would rule out a decision to give an education direction, you may consider other compliance options. | 6. Time to comply with an education direction: The period of time you give to comply with an education direction must be reasonable in the circumstances. [12] This will require an understanding of the trustee's particular circumstances. A period of at least 28 days to comply with the direction will normally be reasonable. However, if you believe a period of 28 days would not be reasonable in the trustee's circumstances, you should allow a longer period. | 7. Varying or revoking an education direction: An education direction may be varied upon request or on your own initiative, however it can only be revoked on your own initiative. [13] A variation would usually be confined to giving further time to undertake an approved course and provide evidence of completion. The principles discussed in section 5 of this Practice Statement should be relied upon for all such decisions. Variation requests You can vary an education direction where the person given the direction [14] : • makes a written request before the timeframe allowed for complying with the direction has expired, and • sets out the reasons for the request. • makes a written request before the timeframe allowed for complying with the direction has expired, and • sets out the reasons for the request. A request to vary an education direction will extend the time the person has to comply with it. [15] However, if you do not make a decision on the request within 28 days after the request was made, the request is taken to have been refused. [16] If you decide to vary the direction in any way, you must notify the person and give them a copy of the varied direction. Additionally, if you decide to refuse the request, or vary it in a way otherwise than requested, you must give the person written reasons for the decision. [17] On your own initiative Alternatively, you are able to revoke or vary an education direction on your own initiative. You do so by giving the relevant person a written notice either revoking or varying the terms of the education direction. [18] Although you can revoke or vary an education direction at any time, it would generally not be appropriate to do so merely where the person given the direction failed to comply with it. | 8. Applying administrative penalties for failing to comply with an education direction: An administrative penalty of 5 penalty units [19] is imposed for failing to comply with the terms of an education direction. [20] The penalty may be remitted in part or in full. [21] In addition, if the person does not comply with the direction by the end of the specified period, the person commits an offence of strict liability which carries a maximum of 10 penalty units. [22] | 9. Objecting to our decisions: A person may object to a decision in the manner set out in Part IVC of the Taxation Administration Act 1953 if they are dissatisfied with our decision to [23] : • give an education direction • refuse to vary the direction (including a deemed refusal) • vary the direction but not in accordance with the request. • give an education direction • refuse to vary the direction (including a deemed refusal) • vary the direction but not in accordance with the request. | 10. More information: For more information, see: • Law Administration Practice Statement PS LA 2023/1 Self-managed superannuation funds – rectification directions for contraventions of the Superannuation Industry (Supervision) Act 1993 • Law Administration Practice Statement PS LA 2020/3 Self-managed superannuation funds – administrative penalties imposed under subsection 166(1) of the Superannuation Industry (Supervision) Act 1993 • Law Administration Practice Statement PS LA 2008/3 Provision of advice and guidance by the ATO • Law Administration Practice Statement PS LA 2006/19 Self-managed superannuation funds – issuing a notice of non-compliance • Law Administration Practice Statement PS LA 2006/18 Self-managed superannuation funds – enforceable undertakings • Law Administration Practice Statement PS LA 2006/17 Self-managed superannuation funds – disqualification of individuals to prohibit them from acting as a trustee of a self-managed superannuation fund. • Law Administration Practice Statement PS LA 2023/1 Self-managed superannuation funds – rectification directions for contraventions of the Superannuation Industry (Supervision) Act 1993 • Law Administration Practice Statement PS LA 2020/3 Self-managed superannuation funds – administrative penalties imposed under subsection 166(1) of the Superannuation Industry (Supervision) Act 1993 • Law Administration Practice Statement PS LA 2008/3 Provision of advice and guidance by the ATO • Law Administration Practice Statement PS LA 2006/19 Self-managed superannuation funds – issuing a notice of non-compliance • Law Administration Practice Statement PS LA 2006/18 Self-managed superannuation funds – enforceable undertakings • Law Administration Practice Statement PS LA 2006/17 Self-managed superannuation funds – disqualification of individuals to prohibit them from acting as a trustee of a self-managed superannuation fund. Example 1 – education direction given – new fund with minor contraventions An SMSF has been operating for 2 years. For the second income year, the approved SMSF auditor reports contraventions of the SISA. The contraventions are relatively minor and involve a small proportion of fund assets. The trustees advise that they have been relying on an adviser to assist them in their role as they find the super laws governing SMSFs complex. The case officer establishes that the contraventions have been rectified. They apply the general principles and determine there are no case-specific factors present which would rule out a decision to give an education direction. In addition, the case officer determines it is fair and reasonable to give an education direction and the trustees will benefit from improving and refreshing their overall trustee knowledge. Outcome: in addition to applying an administrative penalty and remitting it in full for the contravention, the case officer gives the trustees an education direction allowing 28 days to undertake an approved course of education to improve their knowledge of the law and their role as trustees of an SMSF. Example 1 – education direction given – new fund with minor contraventions An SMSF has been operating for 2 years. For the second income year, the approved SMSF auditor reports contraventions of the SISA. The contraventions are relatively minor and involve a small proportion of fund assets. The trustees advise that they have been relying on an adviser to assist them in their role as they find the super laws governing SMSFs complex. The case officer establishes that the contraventions have been rectified. They apply the general principles and determine there are no case-specific factors present which would rule out a decision to give an education direction. In addition, the case officer determines it is fair and reasonable to give an education direction and the trustees will benefit from improving and refreshing their overall trustee knowledge. Outcome: in addition to applying an administrative penalty and remitting it in full for the contravention, the case officer gives the trustees an education direction allowing 28 days to undertake an approved course of education to improve their knowledge of the law and their role as trustees of an SMSF. Example 2 – education direction given – established fund and trustees make a mistake An SMSF has been operating for 5 years. For the latest income year, the approved SMSF auditor reports a contravention after the fund invests considerably more than 5% of the fund's assets in in-house assets. The case officer identifies the trustees do not have any past contraventions and after discussing the matter with them, determines the contravention resulted from a mistake arising from deficient trustee knowledge. The case officer applies the general principles and determines there are no case-specific factors that would rule out a decision to give an education direction, and that giving one would be fair and reasonable. Further, the trustees will also benefit by correcting trustee knowledge gaps which had contributed to them making the mistake. Outcome: in addition to applying an administrative penalty for the contravention, the case officer gives the trustees an education direction allowing 28 days to undertake an approved course of education to remedy trustee knowledge gaps. Example 2 – education direction given – established fund and trustees make a mistake An SMSF has been operating for 5 years. For the latest income year, the approved SMSF auditor reports a contravention after the fund invests considerably more than 5% of the fund's assets in in-house assets. The case officer identifies the trustees do not have any past contraventions and after discussing the matter with them, determines the contravention resulted from a mistake arising from deficient trustee knowledge. The case officer applies the general principles and determines there are no case-specific factors that would rule out a decision to give an education direction, and that giving one would be fair and reasonable. Further, the trustees will also benefit by correcting trustee knowledge gaps which had contributed to them making the mistake. Outcome: in addition to applying an administrative penalty for the contravention, the case officer gives the trustees an education direction allowing 28 days to undertake an approved course of education to remedy trustee knowledge gaps. Example 3 – education direction not given – established fund and trustee already understands obligations An SMSF has been operating for 6 years. The fund has a complex structure with significant assets. During the annual audit for each of the past 2 years, the fund's approved auditor reports that a loan and financial assistance was provided to a member of the fund. Although the loan was repaid with interest in the earlier year, the contravention in the latter year remains unrectified. The trustees also concede they knew their conduct would result in a contravention. The case officer considers if it is appropriate to give the trustees an education direction in order to refresh their overall knowledge. However, the facts show the trustees have a good level of trustee knowledge and skills and knew at the time their conduct would result in a contravention. Outcome: the case officer rules out giving an education direction as the trustees already have the required level of knowledge. Instead, the case officer considers what other compliance options may be more appropriate. Example 3 – education direction not given – established fund and trustee already understands obligations An SMSF has been operating for 6 years. The fund has a complex structure with significant assets. During the annual audit for each of the past 2 years, the fund's approved auditor reports that a loan and financial assistance was provided to a member of the fund. Although the loan was repaid with interest in the earlier year, the contravention in the latter year remains unrectified. The trustees also concede they knew their conduct would result in a contravention. The case officer considers if it is appropriate to give the trustees an education direction in order to refresh their overall knowledge. However, the facts show the trustees have a good level of trustee knowledge and skills and knew at the time their conduct would result in a contravention. Outcome: the case officer rules out giving an education direction as the trustees already have the required level of knowledge. Instead, the case officer considers what other compliance options may be more appropriate. Example 4 – education direction not given – established fund and trustee removed An SMSF has been operating for 7 years and has 2 overdue SMSF annual returns. The fund eventually lodges the returns and, in the process, the approved SMSF auditor also reports several serious contraventions. Among those contraventions, the trustees are found to have paid out a majority of the super benefits in the fund where no condition of release was met. The case officer identifies the trustees knowingly contravened the law in order to alleviate financial distress they were facing. The case officer also determines the trustees are not fit and proper to be trustees of an SMSF in accordance with PS LA 2006/17. Outcome: the case officer rules out giving an education direction in this case because the circumstances warrant removal of the trustees from the position. Therefore, the case officer instead proceeds with action to disqualify the trustees of the SMSF. Example 4 – education direction not given – established fund and trustee removed An SMSF has been operating for 7 years and has 2 overdue SMSF annual returns. The fund eventually lodges the returns and, in the process, the approved SMSF auditor also reports several serious contraventions. Among those contraventions, the trustees are found to have paid out a majority of the super benefits in the fund where no condition of release was met. The case officer identifies the trustees knowingly contravened the law in order to alleviate financial distress they were facing. The case officer also determines the trustees are not fit and proper to be trustees of an SMSF in accordance with PS LA 2006/17. Outcome: the case officer rules out giving an education direction in this case because the circumstances warrant removal of the trustees from the position. Therefore, the case officer instead proceeds with action to disqualify the trustees of the SMSF. You are invited to comment on this draft Practice Statement, including the proposed date of effect. Please forward your comments to the contact officer by the due date. A compendium of comments is prepared when finalising this Practice Statement, and an edited version (with names and identifying information removed) is published to the Legal database on ato.gov.au. Please advise if you do not want your comments included in the edited version of the compendium. Due date: 31 October 2025 Contact officer details have been removed as the comments period has ended. © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Date of Issue: 2 October 2025 Date of Effect: When finalised, it is proposed that this Practice Statement will apply from 2 October 2025. [1] All further references to 'this Practice Statement' refer to the Practice Statement as it will read when finalised. Note that this Practice Statement will not take effect until finalised. [2] See paragraphs 2.54 and 2.55 of the Explanatory Memorandum to the Tax and Superannuation Laws Amendment (2014 Measures No. 1) Bill 2014. [3] See subsection 166(1). [4] See section 159. [5] See section 262A. [6] See subsections 160(2) and (3). [7] See section 104A. [8] See history note to section 160. A contravention which is unrectified immediately prior to 1 July 2014 might result in an additional, separate contravention at the start of the following financial year. [9] See subsection 160(1). [10] See section 2 of this Practice Statement. [11] See section 126A about disqualifying a person. [12] See subsection 160(3). [13] See section 163. [14] See subsections 164(1) to (3). [15] See subsection 164(7). [16] See subsection 164(5). [17] See subsection 164(6). [18] See section 163. [19] The value of a penalty unit is contained in section 4AA of the Crimes Act 1914 and is indexed regularly. The dollar amount of a penalty unit is available at Penalties . [20] See subsections 166(1) and 160(4). [21] See subsection 298-20(1) of Schedule 1 to the Taxation Administration Act 1953 . See Law Administration Practice Statement PS LA 2020/3 Self-managed superannuation funds - administrative penalties imposed under subsection 166 ( 1 ) of the Superannuation Industry ( Supervision ) Act 1993 . [22] See subsection 160(5). [23] See section 165. File 1-HS1R3MF Related Practice Statements: PS LA 2023/1 PS LA 2020/3 PS LA 2008/3 PS LA 2006/17 PS LA 2006/18 PS LA 2006/19 Other References: Explanatory Memorandum to the Tax and Superannuation Laws Amendment (2014 Measures No. 1) Bill 2014 ATO Charter Compliance model Good decision-making model (link available internally only)",PS LA 2026/1 | PS LA 2023/1 | PS LA 2020/3 | PS LA 2008/3 | PS LA 2006/19 | PS LA 2006/18 | PS LA 2006/17 | Explanatory Memorandum | SISA 1993 | SISA 1993 Pt 3B | SISA 1993 104A | SISA 1993 126A | SISA 1993 159 | SISA 1993 160 | SISA 1993 160(1) | SISA 1993 160(2) | SISA 1993 160(3) | SISA 1993 160(4) | SISA 1993 163 | SISA 1993 164(1) | SISA 1993 164(2) | SISA 1993 164(3) | SISA 1993 164(5) | SISA 1993 164(6) | SISA 1993 164(7) | SISA 1993 165 | SISA 1993 166(1) | SISA 1993 262A | SISR 1994 | TAA 1953 Pt IVC | TAA 1953 Sch 1 298-20(1) | Crimes Act 1914 4AA,PS LA 2023/1 PS LA 2020/3 PS LA 2008/3 PS LA 2006/17 PS LA 2006/18 PS LA 2006/19,SISA 1993 | SISA 1993 Pt 3B | SISA 1993 104A | SISA 1993 126A | SISA 1993 159 | SISA 1993 160 | SISA 1993 160(1) | SISA 1993 160(2) | SISA 1993 160(3) | SISA 1993 160(4) | SISA 1993 163 | SISA 1993 164(1) | SISA 1993 164(2) | SISA 1993 164(3) | SISA 1993 164(5) | SISA 1993 164(6) | SISA 1993 164(7) | SISA 1993 165 | SISA 1993 166(1) | SISA 1993 262A | SISR 1994 | TAA 1953 Pt IVC | TAA 1953 Sch 1 298-20(1) | Crimes Act 1914 4AA,,Explanatory Memorandum to the Tax and Superannuation Laws Amendment (2014 Measures No. 1) Bill 2014 ATO Charter Compliance model Good decision-making model (link available internally only),False,False,https://www.ato.gov.au/law/view/document?docid=DPS/PSD20252/NAT/ATO/00001,This document has been finalised by PS LA 2026/1 . | APPENDIX 2 – Your comments
PS LA 2005/24DC (Finalised),"SUBJECT: Application of General Anti-Avoidance Rules PURPOSE: This practice statement provides instruction and practical guidance to Tax officers on the application of Part IVA and other General Anti-Avoidance Rules (GAARs). Officers proposing to make a determination under section 177F (including for deemed tax benefits under section 177E), subsections 177EA(5) or 177EB(5) of the Income Tax Assessment Act 1936, to make a determination under subsection 67(1) of the Fringe Benefits Assessment Act 1986, to make a declaration under section 165-40 of the A New Tax System (Goods and Services Tax) Act 1999, or to rule on the application of Part IVA or other GAARs in a private ruling, Class Ruling or Product Ruling should follow this practice statement. This practice statement also outlines the role and operation of the GAAR Panel of the Tax Office. This practice statement will be subject to review from time to time in light of judicial or other consideration of the GAARs.",13 December 2005,13 December 2005,Law Administration Practice Statement,False,"1. This practice statement is designed to assist Tax officers who are contemplating the application of Part IVA or other GAARs to an arrangement, including in a private ruling, Public Ruling (including a Product Ruling or a Class Ruling) or other document setting out the ATO view. 2. All references to legislation within this practice statement are to the Income Tax Assessment Act 1936 (ITAA 1936) unless otherwise specified. 3. The first part of this practice statement contains the rules about referring GAAR matters to the Tax Counsel Network (TCN) and the GAAR Panel. The role and procedures of the Panel are contained in paragraphs 12 to 33. 4. The second part of this practice statement on the GAAR provisions (commencing at paragraph 37) discusses the operation of key aspects of Part IVA and other GAARs, covering scheme, tax benefit or GST benefit, purpose, determinations or declarations, assessments, compensating adjustments, time limits and penalties. 5. The guidance on the operation of • Part IVA is contained in paragraphs 37 to 173. • section 67 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) is contained in paragraphs 174 to 180. • Division 165 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) is contained in paragraphs 181 to 230. • the general anti-avoidance rule for the Luxury Car Tax is contained in paragraph 231. • the general anti-avoidance rule for the Wine Equalisation Tax is contained in paragraph 232. • Part IVA is contained in paragraphs 37 to 173. • section 67 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) is contained in paragraphs 174 to 180. • Division 165 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) is contained in paragraphs 181 to 230. • the general anti-avoidance rule for the Luxury Car Tax is contained in paragraph 231. • the general anti-avoidance rule for the Wine Equalisation Tax is contained in paragraph 232. 6. Further resources on the application of Part IVA can be found on the TCN SharePoint. 7. This practice statement replaces PS LA 2000/10 which is withdrawn. | Proper application of GAARs: 8. The application of a GAAR is a serious matter. Its potential application should not be raised lightly. It should be made clear to a taxpayer or advisor that a careful analysis of the facts will be undertaken before a decision is taken to apply a GAAR. The process leading to a decision, including consideration by the GAAR Panel, should also be explained. As explained in this practice statement, the application of a GAAR is based on an objective analysis of an arrangement against a set of factors specified in the relevant provisions of the law. It is not a test of a taxpayer's motives and care should be taken to avoid any implication that a decision to apply a GAAR is a judgment on a taxpayer's ethics. | Referral to the Tax Counsel Network: 9. Where officers seek to apply a GAAR, including sections 177E, 177EA and 177EB, they must, before making a determination or declaration cancelling a tax benefit or a GST benefit, refer the matter to the TCN. In the usual case, the matter will be referred to the TCN prior to the issue of a Tax Office position paper indicating that Part IVA may apply. Also, where officers propose to give a private ruling, Product Ruling or Class Ruling that a GAAR applies to an arrangement, they must refer the matter to the TCN using the same escalation processes, before issuing the ruling. 10. Where a request for a Class Ruling includes the application of a GAAR the matter must be referred to the TCN, including where it is proposed that the GAAR would not apply. However, a decision that a GAAR would not apply in response to an application for a private ruling or a Product Ruling does not always require referral to the TCN. Similarly, a decision not to apply a GAAR in the context of an audit does not always require referral to the TCN. The business line will make a judgment about whether such matters need to be referred to the TCN depending on whether the application of the GAAR could be seriously contemplated. 11. When a matter is referred to the TCN before a decision not to apply a GAAR is made and a member of the TCN confirms the Commissioner should not seek to apply the GAAR, the matter is returned to the decision-maker in the business line as a preliminary step to the making of the decision. If, however, the TCN officer is of the view that the GAAR may apply to the matter, the TCN officer will provide interim advice to the decision-maker and arrange for that advice and relevant papers to be provided to a Deputy Chief Tax Counsel (DCTC) for further consideration before the decision is made. 12. The Commissioner has established the GAAR Panel (the Panel) to advise on the application of GAARs to particular arrangements. 13. Unless indicated otherwise below, matters for which a decision-maker is proposing to apply a GAAR must be referred to the Panel before a final decision is made. In the usual case a matter will be referred to the Panel after the TCN officer, to whom it has been referred under the rules in paragraphs 9 to 11 above, has fully considered the matter. 14. Applications for private rulings, Class Rulings and Product Rulings in respect of the application of a GAAR are not generally referred to the Panel for advice. Referral to the Panel would delay the issue of a ruling. However, a private ruling or Class Ruling application must be referred to the Panel for advice where the applicant requests the referral and by doing so agrees to a delay in the issue of the ruling. Any ruling that a GAAR applies to a particular transaction must be approved by a TCN officer. 15. A taxpayer who receives a private ruling that a GAAR applies may request that the matter be referred to the Panel for advice as part of seeking a review of the ruling. This may be done before the lodgment of an objection against the private ruling or at the same time as, or after, the lodgment of the objection. 16. Matters considered to raise substantially identical issues on facts essentially comparable with a matter previously referred to the Panel are not referred to the Panel again. However any decision to apply a GAAR without referring the matter to the Panel must receive clearance from the Chair of the Panel or a DCTC. It is not expected that there will be many matters in this category and, where there is any doubt, the matter will be referred to the Panel. 17. Upon a matter being referred to the Panel, the Chair of the Panel has a discretion whether or not to put that matter to the Panel for its consideration. The Commissioner or the Chief Tax Counsel (CTC) may also direct that a matter shall be decided without reference to the Panel. However, a decision to apply a GAAR will not generally be made without first obtaining advice from the Panel. | Role of the Panel: 18. The primary purpose of the Panel is to assist the Tax Office in its administration of the GAARs in the sense that decisions made on the application of GAARs are objectively based and there is a consistency in approach to various issues that arise from time to time in the application of the GAARs. The Panel does this by providing independent advice to a GAAR decision-maker in those matters which are referred to it. This includes advice regarding the appropriate imposition of penalties. The Panel is made up of business and professional people chosen for their ability to provide expert and informed advice, with the other members of the Panel being senior Tax officers. The Chair of the Panel is a senior Tax officer. 19. The Panel has no statutory basis; its role is purely consultative. The relevant decision under a GAAR is that of the decision-maker; the Panel does not make a decision but its advice is taken into account by the Tax Office decision maker. The Panel does not investigate or find facts, or arbitrate disputed contentions. Rather, the Panel provides its advice on the basis of the contentions of fact which have been put forward by the officers of the Tax Office and by the taxpayer. In providing advice the Panel is able to advise on any differences between the Tax Office and taxpayer on conclusions or inferences to be drawn from the facts. If there is a dispute as to the facts, the Panel may suggest that the Tax officers make additional enquiries or may indicate whether the difference would, in its opinion, change its advice. Where a matter referred to the Panel arises from an application for a private ruling, the Panel has regard to the arrangement in relation to which the Commissioner is asked to rule. 20. Upon a matter being referred to the Panel, a decision-maker will not (other than in exceptional circumstances) make a decision before receiving advice from the Panel. Where exceptional circumstances are considered to exist, any decision is not to be made without first discussing the matter with the Chair of the Panel. A decision-maker is not obliged to follow the advice of the Panel one way or the other; the decision to apply or not to apply the GAAR is that of the decision-maker. However, a decision to apply a GAAR contrary to the advice of the Panel is not to be made without first escalating the matter to the Chair of the Panel or the CTC. 21. A member of the TCN must provide interim advice in respect of a matter that is to be referred to the Panel. A TCN member will be present at the Panel meeting when the case is discussed. | When matters are referred to the Panel: 22. A matter is generally referred to the Panel following the issue of the Tax Office's position paper and a consideration by the decision-maker of all available information, including any responses by the taxpayer to the position paper. However, important, sensitive, novel or complex cases may be referred to the Panel at an earlier time for preliminary advice. While there is no requirement to do so, a Tax officer may inform a taxpayer that he or she is seeking preliminary advice from the Panel in relation to a matter. It is important for officers to ensure that sufficient time is allowed in the conduct of an audit for referral to, and consideration of advice from, the Panel before the date allowed for amendment of an assessment to give effect to a decision to apply a GAAR. 23. Apart from private rulings and Class Rulings and cases where preliminary advice is sought, a case will not generally be referred to the Panel until after the issue of a Tax Office position paper and the receipt of the taxpayer's response (if any) to the paper. The position paper represents the Tax Office's preliminary view of the facts and the law applying to those facts. 24. Matters initially referred to the Panel for preliminary advice should be referred again to the Panel following the consideration of a taxpayer's response to the Tax Office's position paper and any other information before a decision is made to apply a GAAR. | Attendance by taxpayers at Panel meetings: 25. To assist the deliberative process of the Panel in providing advice to the decision-maker, a taxpayer (and/or a representative of the taxpayer at the taxpayer's election) will usually be invited to attend a Panel meeting and address the Panel. (No such invitation will be extended to a taxpayer in relation to matters which are referred to the Panel at an early stage for preliminary advice.) 26. The Panel generally meets on a monthly basis. The dates for Panel meetings are decided in advance in order to facilitate the orderly working of the Panel. Panel meetings are not rescheduled other than in exceptional circumstances. The unavailability of a taxpayer's preferred representative on a particular date will not usually constitute exceptional circumstances that would justify the rescheduling of a Panel meeting. 27. An invitation given to a taxpayer to attend a Panel meeting and address the Panel is not extended on the basis that it will provide a platform for a hearing as part of a quasi-judicial process of review. This is not the function of the Panel, nor in any event does it have power to undertake a review process; it is there merely to provide advice to decision-makers so as to assist in the making of objective decisions by decision-makers and to ensure consistency in the approach to various issues that arise in the application of the GAARs. Of course, the decision-maker is always available to receive and address any submissions that a taxpayer may wish to put to the decision-maker at any time. 28. Where an arrangement involves numerous taxpayers in essentially similar circumstances only one representative taxpayer will ordinarily be invited to address the Panel. On occasions, promoters or facilitators of the arrangement may also be invited in such cases to address the Panel. 29. Generally, the decision-maker will (if possible) attend the Panel meeting to which the taxpayer is invited to attend. A taxpayer may accept or decline the invitation as the taxpayer sees fit. No adverse inference will be drawn against the taxpayer should the taxpayer decline to attend the Panel meeting. A taxpayer who accepts an invitation to attend must do so on the basis that the Chair has the control of the Panel meeting. If a taxpayer who has been invited to attend the Panel meeting fails to provide a written submission (referred to in paragraph 31), the invitation may be withdrawn. 30. A taxpayer invited to attend the Panel meeting will, by a reasonable time prior to the meeting, be informed of the contentions of fact giving rise to the issue referred to the Panel, and of the substance of the Tax Office's proposed approach to the application of the GAAR. Generally, this advice will be by way of reference to a position paper already provided to the taxpayer or by an updated paper prepared following consideration of a response by the taxpayer to the position paper. | Written submission by taxpayer to Panel: 31. In extending an invitation to a taxpayer, the Chair will request the taxpayer to provide a written submission (unless the taxpayer chooses to rely upon a written submission already made to the Tax Office). If in relying upon an earlier submission the taxpayer wishes to add to or correct some part of an earlier submission, the taxpayer may do so. Written submissions should be concise. The appropriate timeframe for a written submission to the Panel will depend on the circumstances of each case. As a general guide, a taxpayer can expect to be given around 28 days notice of a Panel meeting and will be asked to make any written submission no later than 14 days before that meeting. | Oral submissions by a taxpayer to Panel: 32. Ordinarily, the Panel will have had an opportunity to review the papers before the meeting and may wish to question or hear an oral submission by Tax officers, or discuss the matter, before hearing from the taxpayer. This will occur in the absence of the taxpayer. The taxpayer will then be given an opportunity to address the Panel. The Chair will set the time for this address as appropriate in each case, but it is expected that in most cases it would be no more than one hour. This oral submission should seek to emphasise or elaborate upon the key points of the taxpayer's written submission. While the Panel is not open for questioning or debate about the application of the GAAR, Panel members may ask questions and discuss issues with the taxpayer to ensure the Panel has a clear understanding of the taxpayer's submission. Other Tax officers (that is, in addition to Panel members and the decision-maker) will usually be present during the meeting but they will not (nor will the decision-maker) be available for questioning. However, the taxpayer will be offered the option of making its submissions in the absence of such other Tax officers, if the taxpayer prefers. 33. Taxpayers attending a Panel meeting should address or be prepared to respond to questions relating particularly to the tax benefit and the objective factors in subsection 177D(2) of Part IVA or equivalent provisions in other GAARs. | Recording GAAR decisions: 34. Tax officers should refer to PS LA 2002/16 in relation to the obligation of officers involved in interpretative work to use mandatory reporting systems. 35. If a determination cancelling a tax benefit or declaration negating a GST benefit is made, the reasons for making the determination or declaration should be documented separately. 36. A taxation ruling or determination or an ATO Interpretative Decision (ATOID) could be prepared after a decision is made about the application of a GAAR in a matter. In accordance with PS LA 2001/8, the decision whether an ATOID should be prepared for an interpretative decision involving Part IVA or other GAAR must be made by a TCN officer. 37. Part IVA contains a number of anti-avoidance provisions. The discussion in relation to Part IVA below focuses on the application of sections 177A, 177C, 177CB, 177D and 177G. A reference to Part IVA in the following paragraphs should therefore be read as a reference to these sections. However, while this practice statement does not contain specific guidance on the operation of sections 177E (stripping of company profits), 177EA (creation of franking debit or cancellation of franking credits), 177EB (cancellation of franking credits for head company of consolidated group) or 177H, the following guidance is useful as a background reference for officers exercising powers in respect of those provisions. | Background to Part IVA: 38. Part IVA of the ITAA 1936 is a general anti-avoidance provision. It replaced former section 260 of the ITAA 1936 and should be construed and applied according to its terms, not under the influence of 'muffled echoes of old arguments' concerning other legislation, such as section 260: Federal Commissioner of Taxation v. Spotless Services Ltd (1996) 186 CLR 404 at 414; 141 ALR 92 at 96; 96 ATC 5201 at 5205; 34 ATR 183 at 186; Federal Commissioner of Taxation v. Hart [2004] HCA 26; 217 CLR 216; 206 ALR 207; 2004 ATC 4599; 55 ATR 712 at [51]. 39. Part IVA gives the Commissioner the power to cancel a 'tax benefit' that has been obtained, or would, but for section 177F, be obtained, by a taxpayer in connection with a scheme to which Part IVA applies. This power is found in subsection 177F(1). 40. Before the Commissioner can exercise the power in subsection 177F(1), the requirements of Part IVA must be satisfied. These requirements are that: (i) a 'tax benefit', as identified in section 177C, was or would, but for subsection 177F(1), have been obtained; (ii) the tax benefit was or would have been obtained in connection with a 'scheme' as defined in section 177A; and (iii) having regard to section 177D, the scheme is one to which Part IVA applies. (i) a 'tax benefit', as identified in section 177C, was or would, but for subsection 177F(1), have been obtained; (ii) the tax benefit was or would have been obtained in connection with a 'scheme' as defined in section 177A; and (iii) having regard to section 177D, the scheme is one to which Part IVA applies. 41. Regard must be had to the individual circumstances of each case in making a determination under section 177F to cancel a tax benefit. 42. The word 'may' in subsection 177F(1) refers to the exercise of a power which arises when it is found that there is a tax benefit obtained in connection with a scheme to which section 177D applies. There is no over-arching or final discretion independent of the exercise of this power: Cumins v. Federal Commissioner of Taxation (2007) 66 ATR 57; 2007 ATC 4303; [2007] FCAFC 21 at [41]. That case demonstrates that, if the objective criteria for the application of Part IVA are present, the Commissioner's decision to go ahead and cancel the tax benefit under section 177F is not open to challenge on the basis that the Commissioner ought not to have exercised that power because, for example, he has in doing so failed to take into account some further matter that is said to be relevant. See also the remarks of Hill J (Carr and Hely JJ agreeing) in Federal Commissioner of Taxation v. Sleight (2004) 136 FCR 211; 2004 ATC 4477; (2004) 55 ATR 555; [2004] FCAFC 94 at [103] to [110] and [114]. 43. The same view is taken of the power to negate a GST benefit under Division 165 of the A New Tax System (Goods and Services Tax) Act 1999. 44. Where the Commissioner exercises the discretion in subsection 177F(1) to make a determination, 'he shall take such action as he considers necessary to give effect to that determination': subsection 177F(1). 45. Part IVA is a general anti-avoidance provision and there are specific provisions which may or may not apply in a particular case. Subsections 177B(3) and (4) reflect the last resort character of Part IVA. 46. Part IVA is not limited by provisions in the ITAA 1936 or Income Tax Assessment Act 1997 (ITAA 1997) or by the International Tax Agreements Act 1953 or the Petroleum (Timor Sea Treaty) Act 2003: subsection 177B(1). 47. Part IVA was inserted into the ITAA 1936 in 1981 and it applies to schemes entered into after 27 May 1981. It applies whether a scheme is carried out in Australia or abroad: section 177D. 48. Part IVA was significantly amended in 2013.1 The amendments apply to schemes entered into, or commenced to be carried out, on or after 16 November 2012. For discussion on the 'alternative postulate' under these amendments, please refer to paragraphs 70 to 87. Unless specified otherwise, the concepts in this document apply equally to the legislation as it stood before and after these amendments. | Part IVA must be construed as a whole: 49. Focussing on the various elements of Part IVA should not obscure the way in which the Part as a whole is intended to operate. What constitutes a scheme is ultimately meaningful only in relation to the tax benefit that has been obtained since the tax benefit must be obtained in connection with the scheme. Likewise, the dominant purpose of a person in entering into or carrying out the scheme, and the existence of the tax benefit, must both be considered against a comparison with an alternative. Relevant case law Federal Commissioner of Taxation v. Hart [2004] HCA 26; 217 CLR 216; 206 ALR 207; 2004 ATC 4599; 55 ATR 712 at [6] per Gleeson CJ and McHugh J, at [36], [37] and [54] per Gummow and Hayne JJ, and at [89] per Callinan J. | Scheme - section 177A: 50. For Part IVA to apply, the identified scheme must fall within the wide definition of 'scheme' in subsection 177A(1). Relevant case law Federal Commissioner of Taxation v. Hart [2004] HCA 26; 217 CLR 216; 206 ALR 207; 2004 ATC 4599; 55 ATR 712 at [43] per Gummow and Hayne JJ: Th[e] definition is very broad. It encompasses not only a series of steps which together can be said to constitute a ""scheme"" or a ""plan"" but also (by its reference to ""action"" in the singular) the taking of but one step. Federal Commissioner of Taxation v. Hart [2004] HCA 26; 217 CLR 216; 206 ALR 207; 2004 ATC 4599; 55 ATR 712 at [89] per Callinan J: The use of the singular, narrow words, proposal, action or course of action in s177A(1)(b) in juxtaposition with, for example, agreement or arrangement in s177A(1)(a) indicates that something done which is less than the whole of an arrangement or agreement may be capable of itself being a scheme. This view is I think not only consistent with, and a true reflection of the statutory language, but also with the legislative intention discernible from the Explanatory Memorandum. 51. The definition of scheme includes a unilateral scheme, plan etcetera: subsection 177A(3). Example An example of a unilateral action constituting a scheme could be an action taken solely by a trustee of a discretionary trust. Example An example of a unilateral action constituting a scheme could be an action taken solely by a trustee of a discretionary trust. 52. The definition of scheme can include the failure to do something. Relevant case law Corporate Initiatives Pty Ltd v. Commissioner of Taxation [2005] FCAFC 62; 142 FCR 279; 219 ALR 339; 2005 ATC 4392; 59 ATR 351 at [26]: Part of the statutory definition of ""scheme"" is ""any ... course of action or course of conduct"". This conveys the notion of a series of interrelated acts by a person or persons over a period of time. The non-doing of an act can form part of such a course, as for example where it is said that a student regularly fails to hand in essays. 53. The Commissioner may advance alternative schemes including a narrower scheme within a wider scheme in support of a Part IVA determination. Relevant case law Federal Commissioner of Taxation v. Peabody (1994) 181 CLR 359 at 382; 123 ALR 451 at 459; 94 ATC 4663 at 4670; 28 ATR 344 at 351: But the Commissioner is entitled to put his case in alternative ways. If, within a wider scheme which has been identified, the Commissioner seeks also to rely upon a narrower scheme as meeting the requirement of Pt IVA, then in our view there is no reason why the Commissioner should not be permitted to do so, provided it causes no undue embarrassment or surprise to the other side. If it does, the situation may be cured by amendment, provided the interests of justice allow such a course. 54. The need for the Commissioner to identify the scheme is simply an aspect of the requirement for a party to legal proceedings to particularise the case the other party or parties will have to meet. A reformulation of the scheme in connection with which the tax benefit is obtained after the close of evidence will be impermissible only if it affects the evidence that the other party might have led. Relevant case law Federal Commissioner of Taxation v. Hart [2004] HCA 26; 217 CLR 216; 206 ALR 207; 2004 ATC 4599; 55 ATR 712 at [44] per Gummow and Hayne JJ. 55. Section 177D, which identifies schemes to which Part IVA applies, allows the objectively determined purpose or dominant purpose to be tested against a person who entered into or carried out the scheme or any part of the scheme. Hence, Part IVA will apply to a scheme if a person enters into or carries out only a part of the scheme for the dominant purpose of enabling the taxpayer to obtain a tax benefit in connection with the scheme. This is important where the scheme is complex and involves a number of parties and connected transactions. This does not, however, affect the identification of a 'scheme' under subsection 177A(1). Whether a scheme is wider or narrower should not be relevant in determining if the test in section 177D is met with respect to the scheme, as long as the tax benefit in question is sufficiently connected with the scheme. Relevant case law Federal Commissioner of Taxation v. Consolidated Press Holdings Ltd [2001] HCA 32; 207 CLR 235; 179 ALR 625; 2001 ATC 4343; 47 ATR 229 at [96]: Objection was also taken to what was said to be the artificiality of the selection of part of the overall transaction as the scheme. This, it was said, was not warranted by Peabody or Spotless. The artificiality was said to result from the fact that the overall transaction was for the clearly commercial purpose of financing the Group's participation in the takeover bid for BAT. However, as was held in Spotless, a person may enter into or carry out a scheme, within the meaning of Pt IVA, for the dominant purpose of enabling the relevant taxpayer to obtain a tax benefit where that dominant purpose is consistent with the pursuit of commercial gain in the course of carrying on a business. The fact that the overall transaction was aimed at a profit making does not make it artificial and inappropriate to observe that part of the structure of the transaction is to be explained by reference to a s 177D purpose. Federal Commissioner of Taxation v. Hart [2004] HCA 26; 217 CLR 216; 206 ALR 207; 2004 ATC 4599; 55 ATR 712 at [47] per Gummow and Hayne JJ: There is no reference to a scheme having some commercial or other coherence. Far from the Part requiring reference only to the purpose of those who carry out all of what is identified as the scheme, s 177D specifically refers to it being concluded ""that the person, or one of the persons, who entered into or carried out ... any part of the scheme"" did so for the purpose of enabling the relevant taxpayer (alone or with others) to obtain a tax benefit in connection with the scheme (emphasis added). See also Federal Commissioner of Taxation v. Hart [2004] HCA 26; 217 CLR 216; 206 ALR 207; 2004 ATC 4599; 55 ATR 712 at [55], [68] and [69] per Gummow and Hayne JJ, and at [89] per Callinan J and the discussion commencing at paragraph 57 below concerning deciding whether a tax benefit has been obtained in connection with a scheme. 56. If the Commissioner erroneously identifies a scheme, this will not usually result in the wrongful exercise of the discretion conferred by subsection 177F(1). The discretion will only be wrongfully exercised if the identified tax benefit is not in fact a tax benefit within the meaning of Part IVA. Relevant case law Federal Commissioner of Taxation v. Peabody (1994) 181 CLR 359 at 382; 123 ALR 451 at 458-459; 94 ATC 4663 at 4669; 28 ATR 344 at 351: The erroneous identification by the Commissioner of a scheme as being one to which Pt IVA applies or a misconception on his part as to the connexion of a tax benefit with such a scheme will result in the wrongful exercise of the discretion conferred by s. 177F(1) only if in the event the tax benefit which the Commissioner purports to cancel is not a tax benefit within the meaning of Pt IVA. That is unlikely to be the case if the error goes to the mere detail of a scheme relied upon by the Commissioner. | Tax benefit - section 177C: 57. The breadth of what may constitute a scheme reflects the objective nature of the inquiry to be made under Part IVA. The scheme ultimately matters only in the context of whether there is a tax benefit obtained by the taxpayer in connection with the scheme for which the conclusion in subsection 177D(2) can be reached. Relevant case law Federal Commissioner of Taxation v. Hart [2004] HCA 26; 217 CLR 216; 206 ALR 207; 2004 ATC 4599; 55 ATR 712 at [43] and [44] per Gummow and Hayne JJ, and at [87] and [88] per Callinan J. 58. Part IVA cannot apply unless a taxpayer has obtained, or would, but for section 177F obtain, a tax benefit in connection with a scheme. Subsection 177C(1) defines six kinds of tax benefit, relating broadly to: (i) an amount not being included in the assessable income of the taxpayer of a year of income; (ii) a deduction being allowable to the taxpayer in relation to a year of income; (iii) a capital loss being incurred by the taxpayer during a year of income; (iv) a loss carry back offset being allowable to the taxpayer in relation to a year of income; (v) a foreign income tax offset being allowable to the taxpayer; (vi) an amount of withholding tax not being incurred by the taxpayer in a year of income. (i) an amount not being included in the assessable income of the taxpayer of a year of income; (ii) a deduction being allowable to the taxpayer in relation to a year of income; (iii) a capital loss being incurred by the taxpayer during a year of income; (iv) a loss carry back offset being allowable to the taxpayer in relation to a year of income; (v) a foreign income tax offset being allowable to the taxpayer; (vi) an amount of withholding tax not being incurred by the taxpayer in a year of income. 59. The reference in paragraph 177C(1)(a) to 'an amount not being included in the assessable income of the taxpayer' is a reference to an amount not being included that would be or might reasonably be expected to be included in the taxpayer's assessable income by reference to the relevant alternative postulate: refer to paragraphs 69, 81, 89 to 93, and 144. The ATO view, which is consistent with the full Federal Court's finding in FCT v. Lenzo [2008] FCAFC 50; (2008) 167 FCR 255, was that the fact that an amount was included in the assessable income of the taxpayer under the scheme by virtue of a different provision or circumstance does not affect the amount of a tax benefit, nor the provision by virtue of which it is to be included. Paragraph 177C(1)(a) focuses on what has been left out of assessable income by the scheme - not on what has been included: refer to Taxation Ruling IT 2456. 60. A differently constituted Full Federal Court did not follow Lenzo in Federal Commissioner of Taxation v. Trail Bros Steel & Plastics Pty Ltd (2009) 75 ATR 916; 2009 ATC 20-141. In this case, the court held that the relevant enquiry is simply as to the difference in amount between the effect of the scheme and the alternative postulate, regardless of whether any deduction that would have been allowable without the scheme would have been of the same kind as the deduction under the scheme. | Exclusions from tax benefit - subsections 177C(2) and 177C(2A): 61. Subsection 177C(2) excludes a tax benefit from Part IVA where: (i) the tax benefit is attributable to the making of a declaration, agreement, election, selection or choice, the giving of a notice or the exercise of an option by any person expressly provided for under the ITAA 1936 or the ITAA 1997 (other than an agreement or election specifically dealt with by subsection 177C(2A): refer to paragraph 64); and (ii) the relevant scheme was not entered into or carried out by any person for the purpose of creating any circumstance or state of affairs the existence of which is necessary to enable the election or choice etcetera to be made. (i) the tax benefit is attributable to the making of a declaration, agreement, election, selection or choice, the giving of a notice or the exercise of an option by any person expressly provided for under the ITAA 1936 or the ITAA 1997 (other than an agreement or election specifically dealt with by subsection 177C(2A): refer to paragraph 64); and (ii) the relevant scheme was not entered into or carried out by any person for the purpose of creating any circumstance or state of affairs the existence of which is necessary to enable the election or choice etcetera to be made. 62. It follows that the relevant tax benefit will not be excluded under subsection 177C(2) if it was obtained in connection with a scheme that was entered into or carried out by any person for the sole or dominant purpose of enabling that person or any other person to make the election or choice etcetera. | Meaning of 'attributable to': 63. The first condition in subsection 177C(2), for the exclusion to apply, uses the phrase 'attributable to'. The phrase means that there must be a direct relationship between the obtaining of the tax benefit and the making of the relevant 'declaration ... election ... or choice'. Where the obtaining of the tax benefit is attributable to 'a sequence of integrated and inter-dependent steps making up the scheme', only one of which involves the making of the declaration, etcetera, in question, it cannot be said that the first condition is satisfied. Relevant case law Walters v. Federal Commissioner of Taxation (2007) 162 FCR 421; 67 ATR 156; 2007 ATC 4973; [2007] FCA 1270, per Greenwood J at [83] to [85]. 64. Subsection 177C(2A) excludes from Part IVA a tax benefit that is the non-inclusion of assessable income or is the incurring of a capital loss where: (i) these tax benefits are attributable to making a CGT rollover election or agreement under Subdivision 126-B of the ITAA 1997 or making a net capital loss transfer agreement under Subdivision 170-B of the ITAA 1997; and (ii) the relevant scheme consisted solely of the making of the agreement or election. (i) these tax benefits are attributable to making a CGT rollover election or agreement under Subdivision 126-B of the ITAA 1997 or making a net capital loss transfer agreement under Subdivision 170-B of the ITAA 1997; and (ii) the relevant scheme consisted solely of the making of the agreement or election. | Meaning of 'the scheme consisted solely of the making of the agreement or election': 65. The limitation to the subsection 177C(2A) exclusion in subparagraph (a)(ii) requires the relevant scheme to consist solely of the making of the agreement or election, and will not be satisfied where this scheme is found to consist of other steps. Relevant case law British American Tobacco Australia Services Ltd v. Federal Commissioner of Taxation (2010) 189 FCR 151; 2010 ATC 20-222; [2010] FCAFC 130 per Dowsett, Jessup & Gordon JJ at [32] to [38]. 66. Subsection 177C(3) provides that a particular tax benefit will be 'attributable' to an election or choice etcetera for the purpose of subparagraph (i) of paragraphs 177C(2)(a), (b), (c) and (d) and subparagraph (i) of paragraphs 177C(2A)(a) and (b) if, but for the election or choice etcetera, the tax benefit would not have been obtained. This will be the case if, for example, the non-inclusion of assessable income for a tax benefit under paragraph 177C(1)(a) necessarily results from the making of the election or choice etcetera. | Alternative postulate: 67. The identification of a tax benefit necessarily requires consideration of the income tax consequences, but for the operation of Part IVA, of an 'alternative hypothesis' or an 'alternative postulate'. This is what would have happened or might reasonably be expected to have happened if the particular scheme had not been entered into or carried out. This alternative hypothesis or postulate also forms the background against which the objective ascertainment of the dominant purpose of a person occurs in accordance with section 177D. The alternative hypothesis(es) or postulate(s) is referred to in this practice statement as the 'counterfactual(s)'. 68. This is not to suggest that the enquiry concerning dominant purpose is necessarily always the same as that to do with whether a tax benefit under section 177C has been obtained. The former may involve a consideration of the 'particular way' the transaction in question was structured or of the 'particular features' of the transaction giving rise to the tax benefit, and a comparison of how the scheme achieves particular commercial objectives with alternative ways of achieving those same objectives. Relevant law Federal Commissioner of Taxation v. Hart [2004] HCA 26; (2004) 217 CLR 216; 206 ALR 207;; 2004 ATC 4599; 55 ATR 712, per Gleeson CJ and McHugh J at [6], [12], and [16]-[18]; and per Gummow and Hayne JJ at [65]-[68]; Noza Holdings Pty Ltd v. Federal Commissioner of Taxation [2011] FCA 46; 2011 ATC 20-241 per Gordon J at [296]. 69. The eight factors that must be considered in applying the purpose test in former paragraph 177D(b) (now subsection 177D(2)) are considered against the background of the counterfactual(s): refer to paragraph 120. | Alternative postulate under post-2013 amendment law: 70. Part IVA was significantly amended in 2013. [1] The amendments apply to schemes entered into, or commenced to be carried out, on or after 16 November 2012. The focus of the amendments is mostly on the concept of tax benefit. 71. It is not possible at present to make many authoritative statements about the correct interpretation of the Part as amended. The other statements about interpretation in this practice statement are mostly grounded in the case law on Part IVA. There is no case law on the amendments at time of publication. The ATO has very little practical experience in applying the amendments in real cases. We have received very few enquiries from practitioners about actual transactions (whether carried out or merely proposed). 72. In 2013 a 'workshop' was held between the ATO and some interested practitioners under the auspices of the National Tax Liaison Group. Practitioners provided some practical examples which raised questions under Part IVA, and the ATO sought to offer indicative views about the examples, having first had the benefit of discussing them with the group. Despite the intended purpose of the workshop, few if any of the examples supplied raised questions about the effect of the amendments. Their resolution depended chiefly on an analysis of dominant purpose under section 177D in much the same way as they would have under the previous version of Part IVA. The outcomes of the workshop have, nonetheless, been published. [2] 73. In these circumstances, the only sure source of 'guidance' is the text of the provisions themselves and the extrinsic materials that accompanied the introduction of the amendments, in so far as the latter are a legitimate aid to the task of interpretation. It would not be helpful simply to repeat the text of those documents here. The following discussion assumes knowledge of what is said about the amendments in the Explanatory Memorandum for the Bill that became the amending Act. 74. Some external commentary on the amendments has been published since their enactment. [3] This commentary has raised some questions that are perhaps not clearly answered by the legislation or the extrinsic materials. The following sets out some of the questions that emerge from that material together with an indication of how the ATO would likely apply the law and what submissions we would likely make if any of these issues ever arise in litigation. | Is all of the case law on the concept of tax benefit still authoritative following the amendments?: 75. No. New section 177CB so significantly alters the conceptual framework of the tax benefit test that cases such as Federal Commissioner of Taxation v. RCI Pty Ltd (2011) 2011 ATC 20-075; (2011) 84 ATR 785; [2011] FCAFC 105 and Federal Commissioner of Taxation v. Futuris Corporation Ltd (2012) 205 FCR 274; 2012 ATC 20-306; [2012] FCAFC 32, can no longer be regarded as representing the law, so far as the tax benefit concept is concerned. That this was Parliament's intention in enacting the amendments is clear from the legislative history and the extrinsic materials. Does section 177CB merely provide a further limit on the concept of tax benefit, while leaving the operation of section 177C, as previously understood, intact? 76. No. The amending Act left the text of section 177C largely intact but inserted a new section 177CB that substantially affects its operation. It could therefore be suggested that the previous law on section 177C still holds and the sole effect of new section 177CB is to provide a further restriction, or condition, on what can be a tax benefit. 77. This reading of the provisions might just be literally open. But it is also open to read subsections 177CB(2) and (3) as replacing (rather than adding to) the 'prediction' approach which the previous case law established as the correct approach to the interpretation of section 177C. In so far as the text is ambiguous on this point, recourse to the extrinsic materials is permitted. These make it clear that the 'replacement' approach is correct. Having regard to the evident purpose of the amendments, it would be odd to suggest that Parliament only intended to restrict the previous operation of Part IVA by these amendments. Does the amended tax benefit test require a two-step process by which one first finds a 'postulate' under section 177CB, then feeds that postulate into the expression set out in section 177C? 78. No. The concepts in section 177CB elucidate, and to the extent of any inconsistency replace, the test that the ordinary meaning of the expression 'would or might reasonably be expected' in subsection 177C(1) would otherwise require. For the 'would' limb, this much is plain on the face of the legislation. The 'reasonably expected' limb should be interpreted correspondingly. Having identified a postulate that meets the requirements of subsections 177CB(3) and (4), a tax benefit can be immediately calculated. There is no requirement to conduct a further enquiry by attempting somehow to shoehorn this postulate back into a separate test of reasonable expectation, as that expression had been interpreted in the previous cases. The concept of reasonable expectation is now to be understood in light of subsections 177CB(3) and (4), rather than in addition to those provisions. 79. This approach is consistent with paragraph 1.88 of the Explanatory Memorandum to the Taxation Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Bill 2013. 80. It is not clear how the opposite approach could be made to work without defeating the evident purpose of section 177CB. | Are the 'would' limb and the 'might reasonably be expected limb' true alternatives?: 81. Yes. This stems from the ordinary meaning of the word 'or' in subsection 177C(1). In this respect, the law has not changed, although the content of the two limbs has of course been significantly affected by the insertion of section 177CB. Can there be more than one reasonable postulate that satisfies subsections 177CB(3) and (4) in a given case? 82. The text of the legislation appears to leave this possibility open: note the use of the indefinite article in subsection 177CB(3). Whether or not the answer to this question will matter in many practical situations is not known at this stage. Do the amendments require taxpayers to pay the highest possible amount of tax they could have incurred, had a scheme not been entered into or carried out? 83. No. Section 177CB says nothing to this effect. 84. In theory, the following scenario might arise. A scheme results in a certain commercial objective being met without incurring any tax liability. Absent the scheme, the same non-tax objective might have been met in two different ways: one resulting in a $100 tax liability and the other in a $200 tax liability. Assume that neither alternative would itself have attracted Part IVA, had it been carried out. Under the pre-amendment law, the question would be, as a matter of reasonable prediction, which of those two alternatives (if either of them) is it most reasonable to predict would have happened absent the scheme? The taxpayer would be entitled to suggest that the lower tax liability for the first alternative is a reason to expect that course would have been taken rather than the second. Other things being equal, a court may well have agreed with this. 85. Under the new law, the identification of a reasonable alternative to the scheme must be done disregarding these hypothetical tax effects. As between the two possible alternatives, it is not permissible to give weight to their relative tax costs. 86. In this somewhat theoretical scenario, section 177CB does not require the higher or the lower of the two hypothetical tax liabilities necessarily to be chosen. If the two truly were equally 'reasonable' by the lights of section 177CB, the law does not say which to choose. On the other hand, it behoves the Commissioner to administer Part IVA (and indeed the whole of the tax law) with common sense and reasonableness. Besides, the Commissioner's case under section 177D might well be more attractive to a court in practice if the lower of the two is the correct reference point. For the enquiry as to purpose under section 177D requires consideration of what other possibilities existed, and the tax effects of the scheme are still relevant to that enquiry: paragraph 177D(2)(d). 87. In any event, the Commissioner may choose to cancel only part of a tax benefit in appropriate cases. And, in the final analysis, the compensating adjustment mechanism in subsection 177F(3) remains available to ameliorate any unfair or unreasonable result. | Alternative postulate under pre-2013 amendment law: 88. The following discussion applies only to Part IVA in the form in which it stood before the amendments made in 2013. (See above at paragraph 48). It consists of the relevant passages from the original version of this Practice Statement, as now updated to reflect developments in the case law on the original version of Part IVA, that occurred between 2005 and the time of the amendments. | What might reasonably be expected: 89. A reasonable expectation requires more than a possibility. Relevant case law Federal Commissioner of Taxation v. Peabody (1994) 181 CLR 359 at 385; 123 ALR 451 at 461; 94 ATC 4663 at 4671; 28 ATR 344 at 353: A reasonable expectation requires more than a possibility. It involves a prediction as to events which would have taken place if the relevant scheme had not been entered into or carried out and the prediction must be sufficiently reliable for it to be regarded as reasonable. 90. The full Federal Court in Federal Commissioner of Taxation v. Consolidated Press Holdings (No. 1) (1999) 91 FCR 524 at 549; 99 ATC 4945 at 4964; 42 ATR 575 at 599, referring to Federal Commissioner of Taxation v. Spotless Services Ltd (1996) 186 CLR 404; 141 ALR 92; 96 ATC 5201 at 5211; 34 ATR 183 stated: The language [in Spotless] suggests less of a predictive and more of a reasonable hypothesis approach than the passage earlier quoted from Peabody. 91. The following propositions concerning section 177C (in its pre-2013 form) have been stated by the Full Federal Court per Edmonds J (Bennett and Middleton JJ agreeing): Relevant case law Federal Commissioner of Taxation v. Ashwick (Qld) No. 127 Pty Ltd & ors [2011] FCAFC 49; 2011 ATC 20-255 at [153]: The following general propositions can be stated as to the analysis required to establish the relevant counterfactual: Objective prediction (1) The focus of s 177C is the identification of an activity - the prediction of events that would have or might reasonably be expected to have taken place in the absence of the scheme: Trail Bros [4] at [47]; AXA Asia Pacific Holdings [5] at [131]. (2) In the case of a deduction, s 177C(1)(b) provides that it is an objective inquiry as to what would have been allowed or might reasonably be expected to have been allowed as a deduction had the scheme not been entered into or carried out: Epov v Federal Commissioner of Taxation 2007 ATC 4092; (2007) 65 ATR 399 at [62]; Peabody at 385-386; Trail Bros at [24]. It is an objective fact whether a taxpayer obtained a tax benefit in relation to a scheme to which Pr IVA applies: Peabody at 382; Hart at [37]; Trail Bros at [23]; AXA Asia Pacific Holdings at [126]. (3) When predicting the events which would or might have taken place, that question is assessed on the assumption that the scheme had not been entered into or carried out: Federal Commissioner of Taxation v Lenzo 2008 ATC 20-014 167 FCR 255 at [121]. Section 177C requires the entirety of the scheme to be ignored: Trail Bros at [28]; see also Peabody, cf. Lenzo at [121] and [136]. (4) But that is not the entire question posed by s 177C. The rest of the question involves the objective enquiry of predicting the particular activity or the events that would or might reasonably be expected to have taken place in the absence of the scheme. The identification of the activity or events does not necessarily preclude any element of the scheme: AXA Asia Pacific Holdings at [131]-[133]. Of course, it cannot be the same complete set of events giving rise to the scheme: Trail Bros at [28]-[29]. (5) The integers relevant to the objective enquiry are not limited, and will be different in each case: Trail Bros at [30]. (6) A fact is not disqualified from consideration merely by reason of it having been an element of the scheme which was in place. To the contrary, what the taxpayer in fact did in the commercial circumstances which existed is likely to shed much light on what they would have done in the absence of the scheme, and in some cases to, as a matter of prediction, elements of that counterfactual: AXA Asia Pacific Holdings at [132]. Relevance of evidence from taxpayer (7) How the taxpayer establishes that there is no tax benefit is a matter for it: Trail Bros at [36]. (8) It is conceivable that a taxpayer may not lead positive evidence of an alternative postulate because, for example, the result of any objective enquiry of the alternative postulate is inevitable: AXA Asia Pacific Holdings at [139]. Futuris Corporation Limited v Federal Commissioner of Taxation 2010 ATC 20-206 provides an example of a case where the taxpayer did not lead any direct evidence but established the alternative postulate through expert evidence. (9) It is relevant to have regard to the evidence of the taxpayer as to the steps it says it would have undertaken or would have been likely to undertake in the absence of the scheme: Federal Commissioner of Taxation v Spotless Services Limited 96 ATC 5201; (1996) 186 CLR 404 at 423-424. (10) The taxpayer may lead evidence that it would have undertaken a particular activity, or adopted a particular course in lieu of the scheme. If a taxpayer has given evidence of what he or she would have done but for entering the scheme, the evidence will be relevant and useful to the extent to which it reveals facts or matters that bear upon the objective determination of the alternative postulate: Trail Bros at [36]; AXA Asia Pacific Holdings at [139]; Federal Commissioner of Taxation v Mochkin 2003 ATC 4272; (2003) 127 FCR 185 at 209-210. (11) The taxpayer can give evidence as to what it would have done in the absence of the scheme, provided foundation facts are given to support what would otherwise be a bald speculative statement: McCutcheon v Federal Commissioner of Taxation (2008) 168 FCR 149 at 163-164; AXA Asia Pacific Holdings at [140]. The actual rejection of some alternatives is relevant (12) The taxpayer's actual rejection of an alternative at the relevant time will be important evidence in determining what would have been expected to have occurred: Spotless Services at 422; 424; Federal Commissioner of Taxation v Spotless Services Limited 95 ATC 4775; (1995) 62 FCR 244 at 284-285. In Spotless Services, the [Full Federal] Court considered that the taxpayer's actual rejection of one alternative to the scheme to be relevant to its conclusion that only one alternative remained open to the taxpayer. Deduction does not need to be of the ""same kind"" (13) In a deduction case, if it can be predicted that, if the relevant scheme had not been entered into or carried out, the taxpayer would have done something which would give rise to a deduction being allowable to it of an equivalent amount, and the prediction is sufficiently reliable as to be regarded as reasonable, there will be no tax benefit: CPH Property [6] at 32 and 40 (see Corrigenda to 139 FCR); (1998) 98 ATC 4983 at 4998 per Hill J. See also Essenbourne [7] at [45] per Kiefel J. (14) The allowable deduction identified in the alternative postulate does not need to be of the ""same kind"" as that claimed as a deduction under the scheme: Trail Bros at [44], [52], [65], despite a suggestion to the contrary in earlier authorities (e.g., Lenzo at first instance (per French J) and Full Court); Trail Bros at [52], [65]. The comparison does not assume, let alone require, that if the scheme had not been effected, the taxpayer would have ordered its affairs in a way that engaged the same provisions of the Act (or engaged the same provisions in the same way) as were said to be applicable to the events and transactions comprising the scheme: Trail Bros at [48], [65]. (15) That does not mean that the taxpayer is at large in pointing to some alternative allowable deduction, having no relevance to the impugned scheme: it is the alternative postulate that provides the limitation: Trail Bros at [65]. Quantitative analysis (16) If it is determined that the relevant activity would give rise to tax deductions, then the tax benefit is any differential between the amount claimed and the deductions arising from the counterfactual: Trail Bros at [54] and [67]. Objective prediction (1) The focus of s 177C is the identification of an activity - the prediction of events that would have or might reasonably be expected to have taken place in the absence of the scheme: Trail Bros [4] at [47]; AXA Asia Pacific Holdings [5] at [131]. (2) In the case of a deduction, s 177C(1)(b) provides that it is an objective inquiry as to what would have been allowed or might reasonably be expected to have been allowed as a deduction had the scheme not been entered into or carried out: Epov v Federal Commissioner of Taxation 2007 ATC 4092; (2007) 65 ATR 399 at [62]; Peabody at 385-386; Trail Bros at [24]. It is an objective fact whether a taxpayer obtained a tax benefit in relation to a scheme to which Pr IVA applies: Peabody at 382; Hart at [37]; Trail Bros at [23]; AXA Asia Pacific Holdings at [126]. (3) When predicting the events which would or might have taken place, that question is assessed on the assumption that the scheme had not been entered into or carried out: Federal Commissioner of Taxation v Lenzo 2008 ATC 20-014 167 FCR 255 at [121]. Section 177C requires the entirety of the scheme to be ignored: Trail Bros at [28]; see also Peabody, cf. Lenzo at [121] and [136]. (4) But that is not the entire question posed by s 177C. The rest of the question involves the objective enquiry of predicting the particular activity or the events that would or might reasonably be expected to have taken place in the absence of the scheme. The identification of the activity or events does not necessarily preclude any element of the scheme: AXA Asia Pacific Holdings at [131]-[133]. Of course, it cannot be the same complete set of events giving rise to the scheme: Trail Bros at [28]-[29]. (5) The integers relevant to the objective enquiry are not limited, and will be different in each case: Trail Bros at [30]. (6) A fact is not disqualified from consideration merely by reason of it having been an element of the scheme which was in place. To the contrary, what the taxpayer in fact did in the commercial circumstances which existed is likely to shed much light on what they would have done in the absence of the scheme, and in some cases to, as a matter of prediction, elements of that counterfactual: AXA Asia Pacific Holdings at [132]. Relevance of evidence from taxpayer (7) How the taxpayer establishes that there is no tax benefit is a matter for it: Trail Bros at [36]. (8) It is conceivable that a taxpayer may not lead positive evidence of an alternative postulate because, for example, the result of any objective enquiry of the alternative postulate is inevitable: AXA Asia Pacific Holdings at [139]. Futuris Corporation Limited v Federal Commissioner of Taxation 2010 ATC 20-206 provides an example of a case where the taxpayer did not lead any direct evidence but established the alternative postulate through expert evidence. (9) It is relevant to have regard to the evidence of the taxpayer as to the steps it says it would have undertaken or would have been likely to undertake in the absence of the scheme: Federal Commissioner of Taxation v Spotless Services Limited 96 ATC 5201; (1996) 186 CLR 404 at 423-424. (10) The taxpayer may lead evidence that it would have undertaken a particular activity, or adopted a particular course in lieu of the scheme. If a taxpayer has given evidence of what he or she would have done but for entering the scheme, the evidence will be relevant and useful to the extent to which it reveals facts or matters that bear upon the objective determination of the alternative postulate: Trail Bros at [36]; AXA Asia Pacific Holdings at [139]; Federal Commissioner of Taxation v Mochkin 2003 ATC 4272; (2003) 127 FCR 185 at 209-210. (11) The taxpayer can give evidence as to what it would have done in the absence of the scheme, provided foundation facts are given to support what would otherwise be a bald speculative statement: McCutcheon v Federal Commissioner of Taxation (2008) 168 FCR 149 at 163-164; AXA Asia Pacific Holdings at [140]. The actual rejection of some alternatives is relevant (12) The taxpayer's actual rejection of an alternative at the relevant time will be important evidence in determining what would have been expected to have occurred: Spotless Services at 422; 424; Federal Commissioner of Taxation v Spotless Services Limited 95 ATC 4775; (1995) 62 FCR 244 at 284-285. In Spotless Services, the [Full Federal] Court considered that the taxpayer's actual rejection of one alternative to the scheme to be relevant to its conclusion that only one alternative remained open to the taxpayer. Deduction does not need to be of the ""same kind"" (13) In a deduction case, if it can be predicted that, if the relevant scheme had not been entered into or carried out, the taxpayer would have done something which would give rise to a deduction being allowable to it of an equivalent amount, and the prediction is sufficiently reliable as to be regarded as reasonable, there will be no tax benefit: CPH Property [6] at 32 and 40 (see Corrigenda to 139 FCR); (1998) 98 ATC 4983 at 4998 per Hill J. See also Essenbourne [7] at [45] per Kiefel J. (14) The allowable deduction identified in the alternative postulate does not need to be of the ""same kind"" as that claimed as a deduction under the scheme: Trail Bros at [44], [52], [65], despite a suggestion to the contrary in earlier authorities (e.g., Lenzo at first instance (per French J) and Full Court); Trail Bros at [52], [65]. The comparison does not assume, let alone require, that if the scheme had not been effected, the taxpayer would have ordered its affairs in a way that engaged the same provisions of the Act (or engaged the same provisions in the same way) as were said to be applicable to the events and transactions comprising the scheme: Trail Bros at [48], [65]. (15) That does not mean that the taxpayer is at large in pointing to some alternative allowable deduction, having no relevance to the impugned scheme: it is the alternative postulate that provides the limitation: Trail Bros at [65]. Quantitative analysis (16) If it is determined that the relevant activity would give rise to tax deductions, then the tax benefit is any differential between the amount claimed and the deductions arising from the counterfactual: Trail Bros at [54] and [67]. 92. Propositions 14 and 16 require a comment. While the weight of authority provided by the judgments in Trail Bros, AXA and Ashwick is noted, it is not yet clear that the view in Lenzo is certainly to be rejected (see paragraphs 59 and 60). 93. It is possible for different conclusions to be reached as to what might reasonably be expected to have happened if the particular scheme had not been entered into or carried out. In that event, the Commissioner may rely on both or all the reasonable expectations in the alternative, and therefore on more than one counterfactual, to support a determination made under subsection 177F(1). See paragraph 148 in relation to making determinations where there are alternative counterfactuals. | Significance of implementation costs: 94. The identification of what, as a hypothetical alternative, might reasonably be expected to have happened if the scheme did not occur can be affected by the cost of implementing that alternative. For example, the size of the 'tax cost' of carrying out a possible alternative scheme may show the relevant persons would not, or could not reasonably be expected to, have carried out that scheme. This may be especially so where there is evidence pointing to a range of other alternatives that might have been adopted, in which this cost would not have arisen. Relevant case law Federal Commissioner of Taxation v. RCI Pty Ltd (2011) 2011 ATC 20-075; (2011) 84 ATR 785; [2011] FCAFC 105 at [141] to [150] | Discharging the onus: 95. It is not correct that the taxpayer can only succeed by establishing that the Commissioner's counterfactual is unreasonable. It is for the court to determine objectively, on all of the relevant evidence, 'including inferences open on the evidence, as well as the apparent logic of events', what alternative would, or might reasonably be expected to, have occurred if the scheme had not been entered into or carried out. 96. The taxpayer might discharge its onus by leading evidence that it would have carried out a particular activity, or adopted a particular course, or not carried out a particular activity, or adopted a particular course, as the case may be. Such evidence is to be tested against the objective facts surrounding the relevant transaction. Relevant case law Federal Commissioner of Taxation v. RCI Pty Ltd (2011) 2011 ATC 20-075; (2011) 84 ATR 785; [2011] FCAFC 105 at [130]; [134]: ... Generally, such evidence is unlikely to be sufficient to discharge the onus unless it is supported by objective indicia to be gleaned from the context and matrix of underlying or 'foundation facts', as they have been called: see McCutcheon v FCT (2008) 168 FCR 149 at 163-164 [37]-[39]; 69 ATR 607 at 621-622 [37]-[39]; 2008 ATC 20-009 at 8112-8113 [37]-[39] per Greenwood J, as well as the logic of the taxpayer's counterfactual having regard to the commercial or financial aspirations and limitations of the parties to the scheme; without such support, such evidence is likely to be regarded as no more than purely speculative. 97. The fact that the taxpayer leads no direct evidence on what would, or might reasonably be expected, to have happened, if the scheme did not, will not automatically lead to the taxpayer failing to discharge the onus. Relevant case law Federal Commissioner of Taxation v. RCI Pty Ltd (2011) 2011 ATC 20-075; (2011) 84 ATR 785; [2011] FCAFC 105 at [135]-[136]; Federal Commissioner of Taxation v. Futuris Corporation Ltd (2012) 205 FCR 274; 2012 ATC 20-306; [2012] FCAFC 32 | Identifying reasonable alternatives: 98. The following paragraphs are relevant to both the pre-2013 and post-2013 versions of Part IVA. 99. In applying the reasonable expectation test to identify the counterfactual(s), it may be useful to consider the following [8] : • the most straightforward and usual way of achieving the commercial and practical outcome of the scheme (disregarding the tax benefit); • commercial norms, for example, standard industry behaviour; • social norms, for example, family obligations; • behaviour of relevant parties before/after the scheme compared with the period of operation of the scheme; and • the actual cash flow. • the most straightforward and usual way of achieving the commercial and practical outcome of the scheme (disregarding the tax benefit); • commercial norms, for example, standard industry behaviour; • social norms, for example, family obligations; • behaviour of relevant parties before/after the scheme compared with the period of operation of the scheme; and • the actual cash flow. 100. If the scheme had no effect or outcome other than the obtaining of the relevant tax benefit(s), it will be reasonable to assume that nothing would have happened if the scheme had not been entered into or carried out. 101. Conversely, if a tax benefit is obtained in connection with a scheme that also achieves a wider commercial objective (disregarding the tax benefit), then it is reasonable to expect that in the absence of the scheme the wider commercial objective would still have been pursued by the means of a transaction or dealing with a different form or shape. Relevant case law Federal Commissioner of Taxation v. Spotless Services Ltd (1996) 186 CLR 404 at 424; 141 ALR 92 at 103-104; 96 ATC 5201 at 5211; 34 ATR 183 at 193: The [taxpayer's] submission is that the reference in this case is to the amount of interest actually received from EPBCL after the imposition of withholding tax. It is said that without the scheme there would have been no investment in EPBCL, that amount would not have existed, and par (a) of s 177C(1) would have had no subject-matter upon which to operate. In our view, the amount to which [paragraph 177C(1)(a)] refers as not being included in the assessable income of the taxpayer is identified more generally than the taxpayers would have it. The paragraph speaks of the amount produced from a particular source or activity. In the present case, this is the investment of $40 million and its employment to generate a return to the taxpayers. It is sufficient that at least the amount in question might reasonably have been included in the assessable income had the scheme not been entered into or carried out. 102. It may be difficult for a Tax officer to obtain evidence to support the counterfactual, that is, the reconstructed version of events. In applying the reasonable expectation test in situations where there is a lack of information, reasonable inferences may be drawn, and reasonable assumptions may be made. For example, care needs to be taken in applying the reasonable expectation test to a scheme involving a trust. Officers may need to consider whether it was reasonable to expect that a particular beneficiary of a trust would, but for the scheme, have received a trust distribution (see paragraphs 151 and 152 and also Federal Commissioner of Taxation v. Peabody (1994) 181 CLR 359; 123 ALR 451; 94 ATC 4663; 28 ATR 344). 103. Where the relevant taxpayer is a non-resident, the question of source must also be considered in determining whether there is a tax benefit. | Consolidated Groups: 104. If a scheme involves a company joining a consolidated group, the fact that the scheme has resulted in the company becoming a subsidiary member of that group is no bar to finding that the company has obtained a tax benefit consisting of the non-inclusion of an amount in the company's assessable income, despite the single entity rule in section 701-1 of the ITAA 1997. The Commissioner may issue a section 177F determination to that company and may give effect to the determination by issuing an assessment (or an amended assessment) to that company, even though it is in fact a subsidiary member of a consolidated group. The Commissioner may not however assess the head company in these circumstances. Relevant case law Channel Pastoral Holdings Pty Ltd v. Commissioner of Taxation [2015] FCAFC 57; (2015) 2015 ATC 20-503 105. On the other hand, if a scheme involves a company joining a consolidated group, and without the scheme the head company of the group would not have been entitled to a certain deduction from its assessable income, then it is the head company that has obtained the tax benefit. The Commissioner may issue a section 177F determination to the head company and assess it accordingly. (This situation has not yet been considered by a court but, by contrast with the omission of income situation, there seems to be reason to doubt that the law would apply in this way.) | The counterfactual must not be a scheme to which Part IVA applies: 106. The counterfactual must not itself be a scheme entered into or carried out with the sole or dominant purpose of obtaining a tax benefit. Although the cases supporting this proposition were decided by reference to the pre-amendment version of Part IVA, there is no reason to think the proposition would not apply equally under the amended version. Relevant case law Federal Commissioner of Taxation v. Trail Bros Steel & Plastics Pty Ltd (2009) 75 ATR 916; 2009 ATC 20-141; [2009] FCA 1210 at [52[; Futuris Corporation Limited v. Federal Commissioner of Taxation (2010) 2010 ATC 20-206; [2010] FCA 935 at [113] | Section 177D - the core of Part IVA - objective purpose: 107. Section 177D provides that Part IVA applies to a scheme in connection with which the taxpayer has obtained a tax benefit if, after having regard to eight specified factors, it would be concluded that a person who entered into or carried out the scheme, or any part of it, did so for the purpose of enabling the taxpayer to obtain the tax benefit. 108. The objective test in subsection 177D(2) is the core of Part IVA and has been described by the High Court as the 'pivot' or 'fulcrum' on which Part IVA turns. It is frequently referred to as the 'statutory predication test'. 109. Section 177D refers to 'the purpose' of the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme. The person need not be the taxpayer. Subsection 177A(5) clarifies that the 'purpose' includes the dominant purpose where there are two or more purposes. 110. The dominant of two or more purposes is the ruling, prevailing or most influential purpose. Relevant case law Federal Commissioner of Taxation v. Spotless Services Ltd (1996) 186 CLR 404 at 416; 141 ALR 92 at 98; 96 ATC 5201 at 5206; 34 ATR 183 at 188: Much turns upon the identification, among various purposes, of that which is ""dominant"". In its ordinary meaning, dominant indicates that purpose which was the ruling, prevailing, or most influential purpose. 111. It is possible for Part IVA to apply notwithstanding that the dominant purpose of obtaining the tax benefit was consistent with the pursuit of commercial gain. The key issue under Part IVA is whether the particular scheme, or any part of it, was entered into or carried out by any person for the relevant purpose having regard to the objective factors in subsection 177D(2). Relevant case law Federal Commissioner of Taxation v. Spotless Services Ltd (1996) 186 CLR 404 at 415 and 416; 141 ALR 92 at 97 and 98; 96 ATC 5201 at 5206; 34 ATR 183 at 187 and 188: A person may enter into or carry out a scheme, within the meaning of Pt IVA, for the dominant purpose of enabling the relevant taxpayer to obtain a tax benefit where that dominant purpose is consistent with the pursuit of commercial gain in the course of carrying on a business. ... A particular course of action may be, to use a phrase found in the Full Court judgments, both ""tax driven"" and bear the character of a rational commercial decision. The presence of the latter characteristic does not determine the answer to the question whether, within the meaning of Pt IVA, a person entered into or carried out a ""scheme"" for the ""dominant purpose"" of enabling the taxpayer to obtain a ""tax benefit"". Federal Commissioner of Taxation v. Consolidated Press Holdings Ltd [2001] HCA 32; 207 CLR 235; 179 ALR 625; 2001 ATC 4343; 47 ATR 229 at [96]: Objection was also taken to what was said to be the artificiality of the selection of part of the overall transaction as the scheme. This, it was said, was not warranted by Peabody or Spotless. The artificiality was said to result from the fact that the overall transaction was for the clearly commercial purpose of financing the Group's participation in the takeover bid for BAT. However, as was held in Spotless, a person may enter into or carry out a scheme, within the meaning of Pt IVA, for the dominant purpose of enabling the relevant taxpayer to obtain a tax benefit where that dominant purpose is consistent with the pursuit of a commercial gain in the course of carrying on a business. The fact that the overall transaction was aimed at a profit making does not make it artificial and inappropriate to observe that part of the structure of the transaction is to be explained by reference to a s 177D purpose Federal Commissioner of Taxation v. Hart [2004] HCA 26; 217 CLR 216; 206 ALR 207; 2004 ATC 4599; 55 ATR 712 at [16] per Gleeson CJ and McHugh J: Even so, the transaction may take such a form that there is a particular scheme in respect of which a conclusion of the kind described in s 177D is required, even though the particular scheme also advances a wider commercial objective. Federal Commissioner of Taxation v. Hart [2004] HCA 26; 217 CLR 216; 206 ALR 207; 2004 ATC 4599; 55 ATR 712 at [64] per Gummow and Hayne JJ: But so too, as was held in Spotless, there is a false dichotomy between a ""rational commercial decision"" and ""the obtaining of a tax benefit as 'the dominant purpose of the taxpayers in making the investment'"". Pointing to the ""commercial end"" of the scheme reveals the adoption of the same, or at least a substantially similar, false dichotomy. The presence of a discernible commercial end does not determine the answer to the question posed by s177D. See also Federal Commissioner of Taxation v. Hart [2004] HCA 26; 217 CLR 216; 206 ALR 207; 2004 ATC 4599; 55 ATR 712 at [6] and [12] per Gleeson CJ and McHugh J, and [68] per Gummow and Hayne JJ. 112. The conclusion to be reached under section 177D is the conclusion of a reasonable person. Relevant case law Federal Commissioner of Taxation v. Spotless Services Ltd (1996) 186 CLR 404 at 422; 141 ALR 92 at 102; 96 ATC 5201 at 5210; 34 ATR 183 at 192: [T]he conclusion reached, having regard to the matters in par (b) as to the dominant purpose of a person or one of the persons who entered into or carried out the scheme or any part thereof, is the conclusion of a reasonable person. 113. The consideration of purpose or dominant purpose under subsection 177D(2) requires an objective conclusion to be drawn. The conclusion required by section 177D is not about a person's actual, that is, subjective, dominant purpose or motive. Section 177D requires an objective conclusion as to purpose to be reached having regard to objective facts. The actual subjective purpose of any relevant person is not a matter to which regard may be had in drawing the conclusion under section 177D. In other words, a conclusion about a relevant person's purpose for section 177D is the conclusion of a reasonable person based on all the facts and evidence that are relevant to considering the eight factors for the scheme (see paragraphs 107 and 115 to 139). Tax officers must therefore focus on these facts and not on what a relevant person actually intended or what the taxpayer's motivations were for entering into the scheme. Relevant case law Federal Commissioner of Taxation v. Spotless Services Ltd (1996) 186 CLR 404 at 421; 141 ALR 102; 96 ATC 5201 at 5210; 34 ATR 183 at 192: The eight categories set out in par (b) of s 177D as matters to which regard is to be had ""are posited as objective facts"", [citing FC of T v. Peabody (1994) 181 CLR 359 at 382]. Federal Commissioner of Taxation v. Consolidated Press Holdings Ltd [2001] HCA 32; 207 CLR 235; 179 ALR 625; 2001 ATC 4343; 47 ATR 229 at [89] and [95] Federal Commissioner of Taxation v. Hart [2004] HCA 26; 217 CLR 216; 206 ALR 207; 2004 ATC 4599; 55 ATR 712 at [65] per Gummow and Hayne JJ: Of course the loan was structured in the way it was in order to achieve the most desirable taxation result. But those are statements about why the respondents acted as they did or about why the lender (or its agent) structured the loan in the way it was. They are not statements which provide an answer to the question posed by s 177D(b). That provision requires the drawing of a conclusion about purpose from the eight identified objective matters; it does not require, or even permit, any inquiry into the subjective motives of the relevant taxpayers or others who entered into or carried out the scheme or any part of it. [italics not added] 114. It may be relevant in determining what objectively was the purpose of any person entering into or carrying out the scheme, or any part of the scheme, to have regard to the purposes of the advisers or other agents of any of those persons. This, of course, will be appropriate only where a person acts on professional advice and what was done on professional advice is relevant to considering the eight matters required to be considered in applying the purpose test in subsection 177D(2) - refer to paragraphs 115 to 139. Relevant case law Federal Commissioner of Taxation v. Consolidated Press Holdings Ltd [2001] HCA 32; 207 CLR 235; 179 ALR 625; 2001 ATC 4343; 47 ATR 229 at [95]: [I]t is expected that those who participate in a complex, international, commercial transaction will be concerned about its tax implications, and will seek expert advice. Attributing the purpose of a professional advisor to one or more of the corporate parties in the present case is both possible and appropriate. In some cases, the actual parties to a scheme subjectively may not have any purpose, independent of that of a professional advisor, in relation to the scheme or part of the scheme, but that does not defeat the operation of s 177D. If, in the present case, there had been evidence which showed that no director or employee of the Group had ever heard of s 79D, that would not conclude the matter in favour of the taxpayer. One of the reasons for making s 177D turn upon the objective matters listed in the section, it may be inferred, was to avoid the consequence that the operation of Pt IVA depends upon the fiscal awareness of the taxpayer. 115. The section requires the Commissioner to have regard to each of the eight matters in subsection 177D(2) in reaching an objective conclusion about purpose. However, not all of the matters will be equally relevant in every case. Relevant case law Peabody v. Federal Commissioner of Taxation (1993) 40 FCR 531 at 543; 112 ALR 247 at 258; 93 ATC 4104 at 4113-4114; 25 ATR 32 at 42: In arriving at his conclusion, the Commissioner must have regard to each and every one of the matters referred to in s177D(b). This does not mean that each of those matters must point to the necessary purpose referred to in s177D. Some of the matters may point in one direction and others may point in another direction. It is the evaluation of these matters, alone or in combination, some for, some against, that s177D requires in order to reach the conclusion to which 177D refers. Federal Commissioner of Taxation v. Hart [2004] HCA 26; 217 CLR 216; 206 ALR 207; 2004 ATC 4599; 55 ATR 712 at [70] per Gummow and Hayne JJ. 116. The eight matters in subsection 177D(2) are to be each individually taken into account for the scheme having regard to all the relevant evidence, and then weighed together, in arriving at the conclusion as to dominant purpose. Relevant case law Federal Commissioner of Taxation v. Hart [2004] HCA 26; 217 CLR 216; 206 ALR 207; 2004 ATC 4599; 55 ATR 712 at [92] per Callinan J: The next question, which is of purpose, is whether under s 177D the scheme is one to which Pt IVA applies. This will, in my view, in most cases be the critical question. The answer to it, both as a matter of statutory interpretation and as the Explanatory Memorandum indicates, was intended to be the fulcrum upon which most Pt IVA cases will turn, because the definition of a scheme, being as wide as it is, will relatively easily be satisfied, and the presence or absence of the tax advantage will also usually be readily apparent. The Act requires the questions raised by s 177D be answered by reference to the indicia stated in the section. It is not necessary of course that every one of them be relevant to every scheme. Indeed, the presence or overwhelming weight of one factor alone may of itself in an appropriate case be of such significance as to expose a relevant dominant purpose. 117. The eight matters listed in subsection 177D(2) enable consideration of the context in which the particular scheme occurs. Relevant case law Federal Commissioner of Taxation v. Consolidated Press Holdings Ltd [2001] HCA 32; 207 CLR 235; 179 ALR 625; 2001 ATC 4343; 47 ATR 229 at [96]: Nor is there any inconsistency involved, as was submitted, in looking to the wider transaction in order to understand and explain the scheme, and the eight matters listed in s 177D. 118. Provided the eight matters identified in subsection 177D(2) are each taken into account, it is possible to arrive at the conclusion as to purpose by making a global assessment of purpose. Relevant Case Law Federal Commissioner of Taxation v. Consolidated Press Holdings Ltd [2001] HCA 32; 207 CLR 235; 179 ALR 625; 2001 ATC 4343; 47 ATR 229 at [94]: In the Full Court, the taxpayer argued that Hill J's reasoning did not refer to, or pay regard to, the eight matters listed in s 177D(b). This argument was rejected. It was pointed out, correctly, that it was not necessary for the judge to refer to the matters individually, and that an examination of the whole of his reasons for judgment showed that he took all the specified matters into account in forming ""a global assessment of purpose"". 119. The eight factors in subsection 177D(2) consist of three overlapping sets. The first set is about how the scheme was implemented: how its results were obtained. It comprises the first three factors in paragraphs (a), (b) and (c) of subsection 177D(2) and deals with manner, form and substance, and timing. The second set comprises the next four factors in paragraphs (d), (e), (f) and (g) of subsection 177D(2) and deals with the effects of the scheme: the tax results, financial changes, and other consequences of the scheme. The third set is the eighth factor in paragraph (h) of subsection 177D(2) which deals with the nature of any connection between the taxpayer and other parties. | The eight factors are considered against the background of the counterfactual: 120. Consideration of the eight factors involves comparison of the scheme with the 'alternative hypothesis', that is, the counterfactual: refer to paragraphs 67 to 106. In other words, the conclusion about the dominant purpose of a person entering into or carrying out the scheme, or any part of it, necessarily requires consideration of what may otherwise have occurred. Relevant case law Federal Commissioner of Taxation v. Hart [2004] HCA 26; 217 CLR 216; 206 ALR 207; 2004 ATC 4599; 55 ATR 712 at [66] per Gummow and Hayne JJ: When that [i.e. s 177C(1)] is read with s 177D(b) it becomes apparent that the inquiry directed by Pt IVA requires comparison between the scheme in question and an alternative postulate. To draw a conclusion about purpose from the eight matters identified in s 177D(b) will require consideration of what other possibilities existed. Federal Commissioner of Taxation v. Hart [2004] HCA 26; 217 CLR 216; 206 ALR 207; 2004 ATC 4599; 55 ATR 712 at [94] per Callinan J: An aspect of the question to which s 177D(b)(ii) gives rise, is whether the substance of the transaction (tax implications apart) could more conveniently, or commercially, or frugally have been achieved by a different transaction or form of transaction. See also Federal Commissioner of Taxation v. Hart [2004] HCA 26; 217 CLR 216; 206 ALR 207; 2004 ATC 4599; 55 ATR 712 at [69] per Gummow and Hayne JJ. | The first three factors - how the scheme was implemented: 121. These first three factors are very important because they examine exactly how a scheme achieves its effects. The first factor which examines 'the manner in which the scheme was entered into or carried out' enables contrivance and artificiality to be identified by comparing the manner in which the scheme was entered into or carried out with the manner in which the counterfactual would have been implemented, for example, by the presence of a step or steps in a relevant transaction or arrangement that would not be expected to be present in a more straightforward or ordinary method of achieving the outcome of the transaction or arrangement. Conversely, if a scheme is entered into and carried out in the manner in which ordinary business or family dealings are conducted, the manner of the scheme will not indicate the purpose of obtaining the tax benefit. 122. The identification of any step or aspect of the scheme that is apparently explicable for no purpose but a tax purpose will go to the manner in which the scheme was entered into or carried out. To illustrate from the decided cases, in Federal Commissioner of Taxation v. Peabody (1994) 181 CLR 359; 28 ATR 344; 94 ATC 4663; 123 ALR 451 there was a share devaluation with no non-tax rationale; in Federal Commissioner of Taxation v. Consolidated Press Holdings Ltd [2001] HCA 32; 207 CLR 235; 179 ALR 625; 2001 ATC 4343; 47 ATR 229 there was a company which lacked any non-tax reason for being in the corporate structure; in Federal Commissioner of Taxation v. Hart [2004] HCA 26; 217 CLR 216; 206 ALR 207; 2004 ATC 4599; 55 ATR 712 there was an election to split the loan to permit all repayments to be allocated to the private residence and the capitalisation and compounding of interest on the part of the loan allocated to the investment property; and, in the area of mass marketed schemes, in Federal Commissioner of Taxation v. Sleight [2004] FCAFC 94; 136 FCR 211; 206 ALR 511; 2004 ATC 4477; 55 ATR 555 there was a round-robin exchange of cheques. 123. The second factor, which examines 'the form and substance of the scheme', requires that substance, rather than form, be the subject of inquiry. Put simply the factor directs attention to whether there is a discrepancy between the form of the scheme and its substance, meaning its commercial and economic substance. A discrepancy between the business and practical effect of a scheme on the one hand, and its legal form on the other, may well indicate the scheme has been implemented in a particular form as the means to obtain a tax benefit if the substance of the scheme may be achieved or available by some other more straightforward or commercial transaction or dealing. 124. In practice these first two factors are likely to be related. For example, a divergence between form and substance could involve a roundabout way of implementing the scheme by steps that have no effect on the substance of what is achieved but lead directly to the obtaining of the tax benefit. 125. In considering the second factor for the split loan scheme in Federal Commissioner of Taxation v. Hart [2004] HCA 26; 217 CLR 216; 206 ALR 207; 2004 ATC 4599; 55 ATR 712, Gummow and Hayne JJ said at [71]: As Hill J rightly pointed out, the form and substance of the scheme (s 177D(b)(ii)) also point to the purpose of a relevant person obtaining a tax advantage. What was one advance, to be repaid by 300 instalments, was treated as if it were 2 separate loans. The only persons obtaining any advantage from the treatment were the ... [taxpayers]. And the only advantages which they obtained depended upon the taxation treatment resulting from the application of payments and accumulation of interest for which the scheme (however identified) provided. 126. In considering the second factor in relation to the tea tree oil scheme in Federal Commissioner of Taxation v. Sleight [2004] FCAFC 94; 136 FCR 211; 206 ALR 511; 2004 ATC 4477; 55 ATR 555, Hill J said at [81] and [82]: There is a difference between the form and the substance of the present scheme. In form there is an option whether to farm alone or to employ the management company. There is a management agreement and financing and interest payments. The form, involving pre-payment of management fee and interest is, it may be concluded readily, designed to increase the taxation deductions available to an investor. The substance is, however, quite different. As senior counsel for the Commissioner put it, in substance the investor is a mere passive investor in what, once the tax features are removed, is a managed fund where no deduction would be available, or perhaps an alternative characterisation of the substance of the scheme is an investment in shares in the land company which at the expiration of 15 years is to own the tea tree plantation. With respect to the learned primary judge it is not correct to say that form and substance are the same. Rather the particular shape the investment took was clearly fashioned in a way that would maximise the tax deductions. They were geared up by the loan agreement with up front interest payments. But for the tax deductions the form the investment might be expected to take would clearly relate more to the substance of what happened. 127. The first two factors in relation to a scheme enable the particular 'shape' of the transaction or arrangement to be identified for the purpose of determining whether that particular shape is the means by which the tax benefit is obtained. The first two factors require consideration of any elements or aspects of how the particular scheme is implemented that make the scheme more complicated than a straightforward or ordinary commercial or family arrangement that achieves the same overall effect, disregarding the tax effects. 128. The presence of material steps in a scheme consistent with no other explanation than the purpose of obtaining a tax benefit will be critical in characterizing the purposes of the persons who entered into or carried out the scheme. It will be they which lend an air of artifice and contrivance to the manner in which the scheme is carried out, and usually it will be they which separate form from substance. 129. The third factor draws attention to particular 'timing' aspects of the manner in which a scheme is entered into or carried out. It will include consideration of the time the scheme, or any part of it, was entered into or carried out, and the length of the period during which it was carried out. This factor will enable consideration of the extent to which the timing and duration of the scheme go towards delivering the relevant tax benefit or are related to commercial opportunities or requirements. For example, this factor will identify whether the scheme is entered into shortly before the end of a financial year (or other tax sensitive date such as the date of a change in the rate of tax), or carried out for only a brief period. It is noted that a taxpayer is able to benefit from a scheme entered into well before the end of a year by having Pay-As-You-Go tax instalments varied. It follows that a scheme entered into well before the end of a year does not necessarily mean that timing would point to a neutral or non-tax purpose. It may also be relevant to note that the time at which a scheme is entered into is not proximate to any commercial occasion; that is, the timing of the scheme does not seem to be associated with an opportunity or need that might point to a non-tax purpose. In other circumstances timing and duration is more likely to be neutral or point to a non-tax purpose. 130. In considering the third factor for the tea tree oil scheme in Federal Commissioner of Taxation v. Sleight [2004] FCAFC 94; 136 FCR 211; 206 ALR 511; 2004 ATC 4477; 55 ATR 555, Hill J said at [83]: This factor clearly points to taxation as a predominating purpose. The scheme was entered into on the last day of the year of income. This was not accidental as it was necessary for a large portion of the deductions to be incurred in the 1995 year of income. If what may be called the tea tree or investment purpose predominated, then there would be no need for a ""flurry of activity"" to occur, as it did, at the end of the year of income. The investment could be entered into at any time. 131. In considering the third factor for the employee bonus scheme in Pridecraft Pty Ltd v. Commissioner of Taxation [2004] FCAFC 339; 213 ALR 450; 2005 ATC 4001; 58 ATR 210, Sackville J (with whom Sundberg J and Ryan J agreed) said at [90]: His Honour [Merkel J at first instance] correctly found that there was no commercial need or advantage for any contribution to be made in the 1996/1997 year of income, let alone on the last day of the financial year. The post-1997 scheme could have achieved its (non-tax related) commercial objectives without any contribution having been made to the Incentive Trust in the 1996/1997 year of income. When the timing of the contribution of $15,000,000 is taken into account, the contribution is inexplicable except as a means of Spotlight obtaining a tax deduction for the whole of that amount in the 1996/1997 year. It is true that had the Pt IVA scheme not been entered into, Spotlight would have made a small contribution to the trust fund in the next year of income and would have paid out, or set aside, about $15,000,000 in bonuses over a 5 year period. But an integral element of the Pt IVA scheme, in effect, constituted a means of deferring a very large amount of tax that otherwise would have been payable by Spotlight in the 1996/1997 year of income. [Original emphasis] | The next four factors - the effect of the scheme: 132. The second set of factors focuses on the tax, financial and any other consequences or effect of carrying out the scheme. These factors require consideration of the tax result, financial change and any other consequences of the scheme for the taxpayer and for related parties. 133. The fourth factor expressly focuses on the tax benefit and any other tax consequence resulting from the scheme. 134. The fifth, sixth and seventh factors focus on the non-tax effects of the scheme, not only for the relevant taxpayer, but also for all connected parties. These factors look to the practical financial, legal, economic and any other outcomes achieved by the scheme for the taxpayer and connected parties. For example, the change in the position of a taxpayer may mean little if there is an inverse change in the position of another person as a result of the scheme, and that other person is an associate or alter ego of the taxpayer such as a spouse or a wholly-owned company. It may also be relevant to observe that an allowable deduction is, or is not, matched by a corresponding amount of assessable income among the other parties who are affected by the scheme. These factors will often require consideration in conjunction with the second factor. 135. The fifth, sixth and seventh factors involve identifying changes in financial position or any other consequences that may be reasonably expected to result from the scheme, not just changes that have resulted or will result. In Federal Commissioner of Taxation v. Hart & Anor [2004] HCA 26; 217 CLR 216; 206 ALR 207; 2004 ATC 4599; 55 ATR 712, the fact that there was a 'very real chance' over the life of the split loan entered into by the taxpayers that the amount owing on their investment property would exceed its value (due to the compounding of interest on the investment portion) and that their private residence would remain as security for the debt was considered by Callinan J at [94] in the context of the second set of factors. 136. The absence of any practical change in the overall financial, legal or economic position of a taxpayer and connected parties that are affected by the scheme is likely to add weight to the dominance of the tax purpose when all the subsection 177D(2) factors are weighed together. For example, in Pridecraft Pty Ltd v. Commissioner of Taxation [2004] FCAFC 339; 213 ALR 450; 2005 ATC 4001; 58 ATR 210, the 'round robin' of funds was relevant in considering the fifth factor for the employee bonus scheme. Sackville J (with whom Sundberg J and Ryan J agreed) said at [91]: These conclusions are reinforced by the ""round robin"" arrangement (s 177D(b)(i), (ii) and (v)). As [counsel for the taxpayer] ... pointed out, the secured advance to Spotlight had a commercial benefit for the Incentive Trust, in that interest was payable on the loan. But the fact remains that Spotlight was able to obtain a very large and immediate tax benefit - amounting to several million dollars - without having to part with any more than $200,000 in the 1996/1997 year of income and relatively modest amounts in the succeeding years. (By 30 June 2003, only $9.7 million of the $15,000,000 contribution had actually been paid out as bonuses to or for the benefit of employees.) The obtaining of a large tax benefit without any substantial change in Spotlight's cash position suggests that its ""most influential and prevailing or ruling"" purpose in entering into or carrying out the Pt IVA scheme, or part of that scheme, was to obtain a tax benefit. 137. In considering the second set of factors it should be kept in mind that the application of Part IVA turns on an objective determination of the purpose of a person entering into a scheme, not the effect or purpose of the scheme. The fourth to seventh factors cannot simply be compared and weighed to determine purpose for to do so is to ignore the other factors. The bare fact that a taxpayer pays less tax if one form of the transaction rather than another is adopted, does not by itself demonstrate that Part IVA applies. Nevertheless, the effect of the scheme can contribute to a conclusion about the objective purpose of a person in entering into the scheme. | The eighth factor - the nature of the connection between the taxpayer and any other person: 138. The eighth factor inquires into the nature of the connection between the taxpayer and any other person whose financial position is reasonably expected to change as a result of the scheme or for whom there are any other consequences from the scheme. The existence of any connection between the taxpayer and these other persons is relevant to the identification of the other factors, such as the manner of the scheme, the form and substance of the scheme, and the tax, financial and other consequences of the scheme. This factor requires the circumstance that parties are not dealing with each other at arm's length in connection with the scheme to be taken into account. For example, a transaction having the form of a loss-making transaction when only the taxpayer's position is considered may not produce a loss in substance if an associate of the taxpayer makes a corresponding non-taxable gain. In CC (NSW) Pty Ltd (In Liq.) v. Federal Commissioner of Taxation (1997) 97 ATC 4123; 34 ATR 604, the fact that the income injection scheme, if it had been effective for income tax purposes, would have transferred the right to income from the taxpayer to a unit trust with tax losses in the same corporate group, was considered by Sackville J in the context of the eighth factor at 97 ATC 4149; 34 ATR 632: The shares in both CC NSW [i.e., the taxpayer company] and QAPL were held by companies within the CC Group. All units in the QUT were held by CC PL, the parent of CC NSW. The effect of the principal-agent arrangement, if implemented, was to transfer assessable income from CC NSW to the QUT, where it was available to be offset against losses. Conversely, in some cases this factor may permit consideration of offsetting tax liabilities incurred by associates as a result of the scheme to demonstrate absence of the relevant purpose. Conversely, in some cases this factor may permit consideration of offsetting tax liabilities incurred by associates as a result of the scheme to demonstrate absence of the relevant purpose. 139. This factor requires attention to be paid to the existence of any family relationship between the taxpayer and the persons who are affected in any way by the scheme. This could assist a taxpayer in some cases. Many dealings which would be decidedly odd between strangers may be entirely explicable between family members. For example, a businessman who gives assets to strangers for less than they are worth may be subject to suspicion but a gift to his family could stand in a different light. Of course, it would be a different matter again if the family members do not benefit in substance from the arrangement. | Part IVA Warning Signs: 140. The presence of any of the following features whether alone or in combination in an arrangement means that Part IVA may apply to the arrangement. These features represent warning signs that the arrangement may be 'tax driven' and lead to a conclusion that the arrangement was entered into for the dominant purpose of enabling a taxpayer to obtain a tax benefit. The list of features is not meant to be exhaustive or exclusive and is provided only by way of guidance to officers who must consider and apply the provisions of Part IVA. The purpose in subsection 177D(2) can only be objectively ascertained by reference to the eight factors. Where any of the following features are present officers must consider the possible application of Part IVA in undertaking audits or issuing rulings to taxpayers: • the arrangement (or any part of the arrangement) is out of step with ordinary family dealings or the sort of arrangements ordinarily used to achieve the relevant commercial objective; • the arrangement seems more complex than is necessary to achieve the relevant family or commercial objective, or includes a step or a series of steps that appear to serve no real purpose other than to gain a tax advantage, for example: • transactions which interpose an entity to access a tax benefit; • intra-group or related party dealings that merely produce a tax result; • arrangements involving a circularity of funds or no real money; • the tax result of the arrangement appears at odds with its commercial or economic result, for example: • a tax loss is claimed for what was a profitable commercial venture or transaction; • the arrangement results in little or no risk in circumstances where significant risks would normally be expected, for example: • use of non-recourse or limited recourse loans which limit the parties' risk or actual detriment in relation to debts/investments; • arrangements where the taxpayer's risk is significantly limited because of the existence, for example, of a 'put' option; • the parties to the arrangement are operating on non-commercial terms or in a non-arm's length manner, for example: • financial arrangements made on unusual terms, such as interest rates above or below market rates, insufficient security, or deferment of repayment of the loan until the end of a lengthy repayment period; • transactions which do not occur at market rates/value; • there is a gap between the substance of what is being achieved under the arrangement (or any part of it) and the legal form it takes, for example: • arrangements where a series of transactions taken together produce no economic gain or loss, such as where the whole scheme is self-cancelling. • the arrangement (or any part of the arrangement) is out of step with ordinary family dealings or the sort of arrangements ordinarily used to achieve the relevant commercial objective; • the arrangement seems more complex than is necessary to achieve the relevant family or commercial objective, or includes a step or a series of steps that appear to serve no real purpose other than to gain a tax advantage, for example: • transactions which interpose an entity to access a tax benefit; • intra-group or related party dealings that merely produce a tax result; • arrangements involving a circularity of funds or no real money; • the tax result of the arrangement appears at odds with its commercial or economic result, for example: • a tax loss is claimed for what was a profitable commercial venture or transaction; • the arrangement results in little or no risk in circumstances where significant risks would normally be expected, for example: • use of non-recourse or limited recourse loans which limit the parties' risk or actual detriment in relation to debts/investments; • arrangements where the taxpayer's risk is significantly limited because of the existence, for example, of a 'put' option; • the parties to the arrangement are operating on non-commercial terms or in a non-arm's length manner, for example: • financial arrangements made on unusual terms, such as interest rates above or below market rates, insufficient security, or deferment of repayment of the loan until the end of a lengthy repayment period; • transactions which do not occur at market rates/value; • there is a gap between the substance of what is being achieved under the arrangement (or any part of it) and the legal form it takes, for example: • arrangements where a series of transactions taken together produce no economic gain or loss, such as where the whole scheme is self-cancelling. • transactions which interpose an entity to access a tax benefit; • intra-group or related party dealings that merely produce a tax result; • arrangements involving a circularity of funds or no real money; • a tax loss is claimed for what was a profitable commercial venture or transaction; • use of non-recourse or limited recourse loans which limit the parties' risk or actual detriment in relation to debts/investments; • arrangements where the taxpayer's risk is significantly limited because of the existence, for example, of a 'put' option; • financial arrangements made on unusual terms, such as interest rates above or below market rates, insufficient security, or deferment of repayment of the loan until the end of a lengthy repayment period; • transactions which do not occur at market rates/value; • arrangements where a series of transactions taken together produce no economic gain or loss, such as where the whole scheme is self-cancelling. | Determinations and Assessments - section 177F: 141. Subsection 177F(1) gives the Commissioner a power to make a determination cancelling a tax benefit that has been obtained, or would but for section 177F be obtained, in connection with a scheme to which Part IVA applies. The power can only be exercised where a tax benefit has been obtained, or would but for the section be obtained, by a taxpayer in connection with a scheme to which Part IVA applies. 142. Regard must be had to the individual circumstances of each case in applying Part IVA. However, where two or more taxpayers participate on the same terms in a single scheme, or in identical schemes, for example, in the case of mass marketed schemes, the individual circumstances of the case will have features in common, and there may be no further distinguishing circumstances. 143. In all cases a determination should be evidenced in writing and provided to the taxpayer concerned. 144. Where the Commissioner cancels a tax benefit that is omitted assessable income under paragraph 177F(1)(a), the relevant amount is deemed to be included in assessable income by virtue of such provision of the Act as the Commissioner determines: refer to subsection 177F(2). Therefore a provision should be specified in the determination. 145. Where a determination is made, subsection 177F(1) directs the Commissioner to take such action as he considers necessary to give effect to that determination: refer to paragraphs 153 to 157. | Making one or more determinations in particular scenarios: 146. In the discussion of particular scenarios below, a reference to: • a 'single scheme' is intended to include both wider and narrower 'alternative' schemes in connection with which the same tax benefit is obtained; and • 'multiple schemes' is to be read as a reference to different schemes in connection with which different tax benefits are obtained. This use of the term 'single scheme' is appropriate because a conclusion as to dominant purpose under subsection 177D(2) is made in the broader context of the relevant scheme in any event. In those cases where the same tax benefit arises in connection with both wider and narrower alternative schemes, the application of Part IVA should be unaffected by whether a wider or narrower scheme is examined: see paragraphs 54 to 55 and 117. • a 'single scheme' is intended to include both wider and narrower 'alternative' schemes in connection with which the same tax benefit is obtained; and • 'multiple schemes' is to be read as a reference to different schemes in connection with which different tax benefits are obtained. This use of the term 'single scheme' is appropriate because a conclusion as to dominant purpose under subsection 177D(2) is made in the broader context of the relevant scheme in any event. In those cases where the same tax benefit arises in connection with both wider and narrower alternative schemes, the application of Part IVA should be unaffected by whether a wider or narrower scheme is examined: see paragraphs 54 to 55 and 117. Single scheme, multiple tax benefits (but not alternative counterfactuals) - same taxpayer and same income year 147. If a taxpayer obtains two or more separate 'tax benefits' under Part IVA in the same counterfactual scenario, i.e., if the 'tax benefits' do not all come within the same paragraph in subsection 177C(1) (for example, assessable income is omitted, and either excessive deductions are claimed or a capital loss is incurred), a separate determination should be made for each kind of tax benefit that is obtained in connection with the scheme. However, it is only necessary to issue a single amended assessment that takes into account the cumulative effect of all the individual tax benefits being cancelled. | Single scheme, alternative counterfactuals - same taxpayer and same income year: 148. If a taxpayer obtains a different amount of the same kind of tax benefit in different counterfactual scenarios in connection with a single scheme to which Part IVA would apply in a particular year, the correct approach is to make a single determination under subsection 177F(1) for the kind of 'tax benefit' that is obtained. The highest 'tax benefit' of the same kind for the counterfactual scenarios should be used in the determination, unless there are special circumstances (for example, the highest tax benefit would result in juridical double taxation). If a tax benefit obtained in connection with the scheme includes a tax benefit of the kind specified in paragraph 177C(1)(a), that is, an amount that was not included in assessable income, then for the purposes of subsection 177F(2), the determination cancelling the omitted income tax benefit should state the provisions of the Act, for all the alternative counterfactuals, under which the amount is deemed to be included in assessable income. | Multiple schemes, multiple tax benefits - same taxpayer and same income year: 149. If a taxpayer can be assessed to two or more 'tax benefits' under Part IVA from more than one scheme in a particular year, it will be necessary to issue determinations in respect of each scheme, and if relevant, for each different kind of tax benefit obtained in connection with each scheme. However, it may only be necessary to issue a single amended assessment that takes into account all of the tax benefits being cancelled for each of the schemes in appropriate cases. | Single scheme and tax benefit - different taxpayers: 150. The Commissioner has power to make subsection 177F(1) determinations, and to issue assessments to give effect to the determinations, to more than one taxpayer in respect of the same tax benefit. This can occur where the Commissioner forms the view that each determination and consequent assessment could be correct, based on what is known by the Commissioner at the time. This situation commonly arises in relation to a scheme involving a trust where the trustee or any one or more of its beneficiaries may be ultimately taxable on a tax benefit obtained in connection with the scheme. However, although it is possible for multiple concurrent assessments in respect of the same amounts to co-exist, the Act does not authorise double taxation of the same income, and tax must only be collected from the taxpayer ultimately held to be liable. Relevant case law Deputy Commissioner of Taxation v. Richard Walter Pty Ltd (1995) 183 CLR 168 at 201-203; 127 ALR 21 at 42-44; 95 ATC 4067 at 4082-4084; 29 ATR 644 at 663-665. Dan v. Federal Commissioner of Taxation (No. 2) [2000] FCA 752; 2000 ATC 4350; 44 ATR 338 at [48]-[51]. Kordan Pty Limited v. Federal Commissioner of Taxation [2000] FCA 1807; 2000 ATC 4812; 46 ATR 191 at [33]: Bad faith is not to be inferred merely because the Commissioner issued assessments charging to tax more than one taxpayer in respect of the same income. His Honour [at first instance] noted that while this is so it did not follow from Richard Walter, or the earlier case of Richardson v FCT (1932) (1932) 48 CLR 192, that in every case it was necessarily open and appropriate for the Commissioner to do so. It would be necessary to examine all of the circumstances. It will be different if none of the multiple assessments could as in Darrell Lea be correct for, as was said by the full Court in that case [(1996) 72 FCR 175; 141 ALR 713; 97 ATC 4040; 34 ATR 491] at FCR 186; ATR 501; ATC 4049: ""[I]t was critical in Richard Walter that at the time the Commissioner made each of the two assessments he was bona fide able to form the view that each could be correct. While it is true that both could not stand together, it was equally true that one or other of them could be completely correct. Which one, if either, was completely correct, of course, was not at that stage known by the Commissioner."" (Original emphasis.) | Single scheme, incorrect counterfactuals - different taxpayer: 151. In some cases courts have found that the taxpayer who obtained a tax benefit is not the taxpayer to which the relevant section 177F determination(s) apply. Officers should be alert to this possibility and consider the need to make determinations and raise corresponding assessments for not only the taxpayer considered most likely to have obtained a tax benefit, but for different taxpayers under different alternative postulates. Again, care should be exercised in such cases to see that double taxation does not occur. Relevant law Futuris Corporation Limited v. Federal Commissioner of Taxation 2010 ATC 20-206; [2010] FCA 935 at [112]; Federal Commissioner of Taxation v. AXA Asia Pacific Holdings Ltd 2010 ATC 20-224; [2010] FCAFC 134 [9] 152. If the tax benefit was taken into account in calculating the 'net income of the trust estate' under section 95, the standard approach is to make Part IVA determinations cancelling the relevant tax benefits in respect of both the trustee and the beneficiaries since the objective facts will usually support a conclusion that both the trustee and the beneficiaries obtained a tax benefit in connection with the scheme. However, there is nothing to prevent the Commissioner in appropriate cases from simply cancelling the tax benefit obtained by the trustee and then relying upon Division 6 of Part III to assess the recalculated net income of the trust to the relevant beneficiaries under section 97, or to assess some or all of the recalculated amount to the trustee under section 99A. A similar approach is taken to making Part IVA determinations in relation to partnerships: refer to paragraphs 159 to 161. | Give effect to a determination: 153. To give effect to a determination under section 177F, an assessment should be issued under section 166 if no assessment has been issued previously in respect of the relevant year to the taxpayer. 154. If an assessment has been issued prior to making the determination but the 'tax benefit' was not included, it is necessary to issue an amended assessment under section 170 to give effect to the determination. 155. If prior to making the determination under section 177F, the 'tax benefit' was included in an assessment (including an amended assessment) under sections of the Act other than Part IVA (for example, section 6-5 of the ITAA 1997), it will not be necessary to issue an amended assessment if the determination was made in connection with the consideration of an objection. When an objection to an assessment is decided, a determination under subsection 177F(1) made in connection with the consideration of the objection will be deemed to have been made when the assessment was made: subsection 169A(3). Consequently, it will be unnecessary to amend an assessment to give effect to the Part IVA determination if no change to taxable income or tax payable results. However it will still be necessary to issue and serve on the taxpayer a copy of the determination in order for Part IVA to be applied in the event that there is a tax benefit. Relevant case law Kordan Pty Limited v. Commissioner of Taxation [2000] FCA 1807; 2000 ATC 4812; 46 ATR 191 at [32]: In the case of Ryde Homes [Pty Ltd], while the two determinations under challenge did not give rise to the issue of any notice of further amended assessment, the consequence of s 169A of the ITAA 1936 when read together with s 173 was that the determinations, having been made in connection with the Commissioner's consideration of the objection lodged by that company on 31 May 1999 against the amended assessment notified on 30 March 1999, were to be treated as part of the making of the amended assessment notified on 30 March 1999 and likewise afforded the protection of s 177(1), but subject to the Hickman principle. 156. Where the determination is not made in connection with the consideration of an objection, officers should give effect to a determination by an amended assessment. Officers should refer to the Full Federal Court decisions in Federal Commissioner of Taxation v. Jackson (1990) 27 FCR 1; 96 ALR 586; 90 ATC 4990; 21 ATR 1012, Federal Commissioner of Taxation v. Stokes (1996) 72 FCR 160; 141 ALR 653; 97 ATC 4001, 34 ATR 478; and Puzey v. Commissioner of Taxation [2003] FCAFC 197; 131 FCR 244; 201 ALR 302; 2003 ATC 4782; 53 ATR 614 at [87] to [93]. 157. An assessment can be defended on the following alternative bases: • the relevant amount is included in the assessable income of the taxpayer/is not deductible to the taxpayer under the provisions of the Income Tax Assessment Acts other than Part IVA; and • Part IVA operates to include the amount in the assessable income of the taxpayer/cancels the deduction of the amount by the taxpayer under the Income Tax Assessment Acts. Relevant case law Puzey v. Commissioner of Taxation [2003] FCAFC 197; 131 FCR 244; 201 ALR 302; 2003 ATC 4782; 53 ATR 614 at [94] Spassked Pty Limited v. Commissioner of Taxation [2003] FCAFC 282; 136 FCR 441; 203 ALR 515; 2003 ATC 5099; 54 ATR 546 at [118] Australia & New Zealand Banking Group Ltd v. Federal Commissioner of Taxation [2003] FCA 1410; 137 FCR 1; 203 ALR 644; 2003 ATC 5041; 54 ATR 449 at [70] • the relevant amount is included in the assessable income of the taxpayer/is not deductible to the taxpayer under the provisions of the Income Tax Assessment Acts other than Part IVA; and • Part IVA operates to include the amount in the assessable income of the taxpayer/cancels the deduction of the amount by the taxpayer under the Income Tax Assessment Acts. | Schemes involving trusts: 158. Where the scheme involves the 'net income of a trust estate' under Division 6 of Part III of the ITAA 1936, care should be taken to ensure that an assessment or amended assessment that gives effect to the Part IVA determination(s) issues in respect of all the appropriate taxpayers (for example, trustee and beneficiary). In this respect, refer to paragraphs 151 and 152 of this practice statement which deal with making Part IVA determinations in respect of different taxpayers for the same tax benefit in connection with the same scheme. | Schemes involving partnerships: 159. Care should be taken when making a Part IVA determination involving a partnership. 160. If a tax benefit obtained in connection with a scheme to which Part IVA applies had the effect of reducing the 'net income' of the partnership or increasing the 'partnership loss' that is calculated for the purposes of Division 5 of Part III of the ITAA 1936, then Part IVA determinations cancelling the relevant tax benefits should be made in respect of both the partnership and each individual partner. A determination cancelling each relevant kind of tax benefit obtained by the partnership should be provided to either the managing partner or another senior partner. A determination cancelling the omission of assessable income by each partner which corresponds with the reduction of their share of net income under section 92 obtained by them in connection with the scheme should be provided to each partner. 161. If a tax benefit obtained in connection with a scheme to which Part IVA applies has resulted in a 'partnership loss' being calculated for the partnership for the purposes of Division 5 of Part III of the ITAA 1936, and a partner is entitled to claim a share of that partnership loss as a deduction under section 92 (disregarding Part IVA), then Tax officers may need to consider if more than one Part IVA determination needs to be made for each partner. Two determinations for each partner will generally be necessary where, under the counterfactual, a 'net income' amount would have been calculated for the partnership. In such a scenario, one determination would be required to cancel the deduction obtained by the partner under section 92 for their share of the partnership loss, while the other determination would include in the assessable income of the partner under section 92 the partner's share of the net income under the counterfactual. | Other situations not specifically dealt with: 162. Where a determination is proposed to be made in situations other than described in paragraphs 146 to 161, officers should follow the referral procedure referred to at paragraph 9 of this practice statement. | Compensating adjustments - subsection 177F(3): 163. Where the Commissioner has made a determination under subsection 177F(1) or (2A), he may, if in his opinion it is fair and reasonable, make another determination under subsection 177F(3) adjusting the taxation situation of any taxpayer. A subsection 177F(3) determination is known as a 'compensating adjustment'. There is no time limit for making a compensating adjustment. 164. A compensating adjustment must generally be made where the application of Part IVA causes double taxation of the same income. Example A scheme involves the diversion of personal services income to a family trust. The income has been distributed to the beneficiaries (family members) who were taxed accordingly. The Commissioner makes a determination under subsection 177F(1) with respect to the scheme. The determination includes the whole of the personal services income in the assessable income of the taxpayer (the personal services income earner). Compensating adjustments are made in favour of the taxpayer's family members (the beneficiaries), such that the individual beneficiaries' income from the trust is determined not to have been included in their assessable incomes. 165. Any action to make or give effect to compensating adjustments (for example, amendment of assessments) should not as a general rule be undertaken while the application of Part IVA is subject to objection or review. Such an approach does not make the assessment giving effect to the relevant Part IVA determination(s) tentative or other than bona fide. The Commissioner will be in a position to determine whether it is 'fair and reasonable' that a compensating adjustment be made when the application of Part IVA is finally established. Any decision to make a compensating adjustment at a prior stage must be approved by a DCTC or the CTC. Where it is clear that a particular compensating adjustment is expected to be made when the application of Part IVA is established, the taxpayer should be informed of the expected compensating adjustment. Relevant case law Australia & New Zealand Banking Group Ltd v. Federal Commissioner of Taxation [2003] FCA 1410; 137 FCR 1; 203 ALR 644; 2003 ATC 5041; 54 ATR 449 | Time limits for amending assessments - section 177G: 166. Section 177G was amended in relation to assessments for the 2004-05 year of income and later years. It now provides only that nothing in section 170 prevents the amendment of an assessment at any time if the purpose of the amendment is to give effect to a compensating adjustment under subsection 177F(3). Amendments to give effect to determinations made under subsection 177F(1) for these years are therefore covered by the general power of amendment in section 170. Item 4 in subsection 170(1) limits the time for this to within 4 years from the day on which the relevant notice of assessment is given. For income years before the 2004-05 income year, the 6 year limit in former subsection 177G(1) applies. However, in respect of these years the Federal Court decision in Vincent v. Commissioner of Taxation [2002] FCAFC 291; 2002 ATC 4742; 51 ATR 18 at [88] to [94] means that the six year period for amending assessments under Part IVA cannot be relied upon where the claimed tax benefit is unavailable under the general provisions of the income tax law. In such cases, Part IVA has no application because there was no tax benefit within the meaning of section 177C. 167. Where there has been avoidance of tax, paragraph 170(2)(a) allows the Commissioner to amend an assessment at any time if he is of the opinion that the avoidance of tax is due to fraud or evasion. Such an amended assessment may give effect to a determination under subsection 177F(1). However, any such amended assessment must be approved by a DCTC or the CTC. | Penalties: 168. Where Part IVA applies to cancel a tax benefit, the taxpayer is liable to pay an administrative penalty of 50% of the scheme shortfall amount, or 25% of the scheme shortfall amount if it is reasonably arguable that Part IVA does not apply: sections 284-145, 284-155 and 284-160 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953). The scheme shortfall amount is the reduction in tax that the taxpayer would have got from the scheme if Part IVA did not apply: section 284-150 of Schedule 1 to the TAA 1953. 169. It will be reasonably arguable within the meaning of section 284-15 of Schedule 1 to the TAA 1953 that Part IVA does not apply if it would be concluded in all of the circumstances, having regard to relevant authorities, that what is argued for by the taxpayer is about as likely to be correct as incorrect, or is more likely to be correct than incorrect. Relevant case law Pridecraft Pty Ltd v. Commissioner of Taxation [2004] FCAFC 339; 213 ALR 450; 2005 ATC 4001; 58 ATR 210 at [107] to [110] per Sackville J (with whom Sundberg J and Ryan J agreed). 170. The imposition of an administrative penalty under section 284-145 of Schedule 1 to the TAA 1953 may raise issues where a general anti-avoidance provision is relied on in the alternative (see for example., Federal Commissioner of Taxation v. Star City Pty Ltd (No.2) [2009] FCAFC 122; (2009) 74 ATR 447; 2009 ATC 20-129). See Practice Statement PS LA 2008/18 Interaction between Subdivisions 284-B and 284-C of Schedule 1 to the Taxation Administration Act 1953 for guidance in such cases (as well as to the Decision Impact Statement on Star City (No.2)). 171. Paragraph 284-145(1)(b) of Schedule 1 to the TAA requires that it be 'reasonable to conclude' that an entity entering into or carrying out the scheme 'did so with the sole or dominant purpose of that entity or another entity getting a scheme benefit from the scheme', where 'scheme benefit' is defined in subsection 284-150(1). The nature of the 'purpose' spoken of in paragraph 284-150(1)(b) has been discussed in Lawrence v. Federal Commissioner of Taxation [2008] FCA 1497; (2008) 70 ATR 376; 2008 ATC 20-052 per Jessup J (not needing to decide the point), and Federal Commissioner of Taxation v. Star City Pty Ltd (No.2) [2009] FCAFC 122; (2009) 74 ATR 447; 2009 ATC 20-129 per Dowsett J at [74]. 172. In the Decision Impact Statement for Lawrence the Commissioner says that the views of Dowsett J in Star City (No.2) are those which will be followed. In the latter case Dowsett J said at [74] that the language of paragraph 284-145(1)(b) of Schedule 1 to the TAA 'is not apposite to require an actual decision as to purpose. It rather addresses the availability of an inference'. In the same paragraph his Honour said that he was inclined to the view that paragraph 284-145(1)(b) posed the question 'whether a reasonable person could conclude that the relevant entity had the identified purpose'. 173. The Commissioner has a discretion to remit all or part of the additional tax or administrative penalty - see section 298-20 of Schedule 1 to the TAA 1953. Officers should refer to other practice statements or Taxation Rulings for guidance on the circumstances in which the Commissioner may exercise his discretion to remit the whole or part of a penalty. Officers must also take into account the advice of the GAAR Panel in deciding the level of penalties to be imposed. 174. Section 67 is the general anti-avoidance provision in the FBTAA. The operation of section 67 is comparable to Part IVA, in that the section requires the identification of an arrangement and a tax benefit, includes a sole or dominant purpose test and is activated by the making of a determination by the Commissioner. The definition of 'arrangement' in subsection 136(1) of the FBTAA is virtually identical to the definition of 'scheme' in section 177A of Part IVA. 175. Subsection 67(1) of the FBTAA is satisfied where a person or one of the persons who entered into or carried out an arrangement or part of an arrangement under which a benefit is or was provided to a person, did so for the sole or dominant purpose of enabling an eligible employer or the eligible employer and another employer(s) to obtain a tax benefit. 176. An objective review of the transaction and the surrounding circumstances should be undertaken in determining a person's sole or dominant purpose in carrying out the arrangement or part of the arrangement. Section 67 of the FBTAA differs from subsection 177D(2) in Part IVA in that it does not explicitly list the factors that should be taken into account in determining a person's sole or dominant purpose. 177. Subsection 67(2) of the FBTAA provides that a tax benefit arises in respect of a year of tax in connection with an arrangement if under the arrangement: (i) a benefit is provided to a person; (ii) an amount is not included in the aggregate fringe benefits amount of the employer; and (iii) that amount would have been included or could reasonably be expected to have been included in the aggregate fringe benefits amount, if the arrangement had not been entered into. (i) a benefit is provided to a person; (ii) an amount is not included in the aggregate fringe benefits amount of the employer; and (iii) that amount would have been included or could reasonably be expected to have been included in the aggregate fringe benefits amount, if the arrangement had not been entered into. 178. In circumstances where the Commissioner is satisfied that section 67 of the FBTAA should apply, paragraph 67(1)(c) authorises the Commissioner to cancel the tax benefit by determining that the aggregate fringe benefits amount of the eligible employer shall be increased by the amount of the tax benefit. Paragraph 67(1)(d) of the FBTAA provides the Commissioner with the authority to determine appropriate adjustments to the aggregate fringe benefits amount of the eligible employer or another employer in respect of any year of tax. 179. After the tax benefit has been cancelled, adjustments may be appropriate to restore the situation to what it would have been if the arrangement had not been carried out. Under subsection 67(4) of the FBTAA an employer may make a written request to the Commissioner to make a determination under paragraph 67(1)(d) of the FBTAA. The process in paragraph 67(1)(d) and in subsection 67(4) is similar to the compensating adjustment process in Part IVA (refer to paragraphs 163 to 165). 180. The approach outlined in this practice statement (refer to paragraphs 67 to 139) to the counterfactual and the sole or dominant purpose test in Part IVA is relevant (except that amendments corresponding to the 2013 amendments of Part IVA have not been made to section 67) and should be taken into account by Tax officers who are considering the application of section 67 of the FBTAA. 181. Division 165 of the GST Act is a general anti-avoidance provision. It is modelled on Part IVA (except that amendments corresponding to the 2013 amendments of Part IVA have not been made to Division 165). 182. It gives the Commissioner the discretion to negate a 'GST benefit' that an entity gets or got from a scheme to which Division 165 of the GST Act applies. This discretion is contained in section 165-40 of the GST Act. 183. Before the Commissioner can exercise the discretion in section 165-40 of the GST Act, the elements of Division 165 of the GST Act must be satisfied. These may be summarised as follows: (i) the existence of a 'scheme'; (ii) an entity ('the avoider') must have obtained a 'GST benefit' from the scheme; and (iii) it must be reasonable to conclude that the sole or dominant purpose of any entity entering into or carrying out the scheme, or part of the scheme, or that the principal effect of the scheme, or part of the scheme, was the obtaining of a GST benefit from the scheme. (i) the existence of a 'scheme'; (ii) an entity ('the avoider') must have obtained a 'GST benefit' from the scheme; and (iii) it must be reasonable to conclude that the sole or dominant purpose of any entity entering into or carrying out the scheme, or part of the scheme, or that the principal effect of the scheme, or part of the scheme, was the obtaining of a GST benefit from the scheme. 184. Regard must be had to the individual circumstances of each case in determining whether to make a declaration under section 165-40 of the GST Act to negate a GST benefit. 185. Division 165 of the GST Act applies whether the scheme, or any part of the scheme, was entered into or carried out inside or outside Australia: subsection 165-5(2) of the GST Act. Additionally, it only applies to schemes entered into on or after 2 December 1998 or carried out or commenced on or after that date; however, it does not apply to schemes carried out or commenced on or after that day that were entered into before that day: paragraph 165-5(1)(d) of the GST Act. 186. Division 165 of the GST Act and Part IVA are generally similar in their objects, structure and operation. However, there are key differences between Part IVA and Division 165 of the GST Act, and Division 165 has special features. These are highlighted in the following summary of the main provisions of Division 165 of the GST Act. 187. An analysis of the Part IVA cases referred to above will not be repeated. However, until any case authority on Division 165 of the GST Act develops, these cases are a useful guide to the interpretation and application of Division 165 of the GST Act, particularly where the provisions of Division 165 of the GST Act are similar to provisions of Part IVA. | Scheme - subsection 165-10(2): 188. For Division 165 of the GST Act to operate, the identified scheme must fall within the definition of 'scheme' in subsection 165-10(2) of the GST Act. The definition in this subsection is virtually identical to the one in the comparable Part IVA provisions (subsections 177A(1) and 177A(3)). Accordingly, paragraphs 50 to 56, in relation to the definition of a scheme in Part IVA, apply equally to the definition of a scheme in Division 165 of the GST Act. 189. Given the very wide definition of 'scheme' in subsection 165-10(2) of the GST Act, this element will in most cases be easily satisfied. | GST benefit - subsections 165-10(1) and 165-10(3): 190. Division 165 of the GST Act requires that an entity gets a 'GST benefit' from a scheme. Subsection 165-10(1) of the GST Act provides that an entity gets a 'GST benefit' if apart from Division 165: (a) an amount payable by an entity under the GST Act is, or could reasonably be expected to be, smaller than it would be apart from the scheme or a part of the scheme; (b) an amount payable to an entity under the GST Act is, or could reasonably be expected to be, larger than it would be apart from the scheme or a part of the scheme; (c) all or part of an amount payable by an entity under the GST Act is, or could reasonably be expected to be, payable later than it would have been apart from the scheme or a part of the scheme; or (d) all or part of an amount payable to an entity under the GST Act is, or could reasonably be expected to be, payable earlier than it would have been apart from the scheme or a part of the scheme. (a) an amount payable by an entity under the GST Act is, or could reasonably be expected to be, smaller than it would be apart from the scheme or a part of the scheme; (b) an amount payable to an entity under the GST Act is, or could reasonably be expected to be, larger than it would be apart from the scheme or a part of the scheme; (c) all or part of an amount payable by an entity under the GST Act is, or could reasonably be expected to be, payable later than it would have been apart from the scheme or a part of the scheme; or (d) all or part of an amount payable to an entity under the GST Act is, or could reasonably be expected to be, payable earlier than it would have been apart from the scheme or a part of the scheme. | Counterfactual: 191. Consideration of the GST consequences, but for the operation of Division 165 of the GST Act, of an alternative hypothesis or postulate - what would have happened or might reasonably be expected to have happened if the scheme (or part of the scheme) had not been carried out - is required. For guidance, refer to paragraph 67 and following paragraphs above regarding counterfactuals in the Part IVA context. | No economic alternative: 192. A special feature of Division 165 of the GST Act, absent from Part IVA, is that Division 165 expressly provides that a GST benefit can arise even if there is no economic alternative to the scheme which produced the benefit. Subsection 165-10(3) of the GST Act provides that a GST benefit can arise even if an entity could not have engaged economically in activities other than the scheme activities. In this way, an entity will not be able to argue against the existence of a GST benefit on the basis that it would not have entered into any type of transaction had the actual scheme not been entered into: Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1999 at paragraph 6.335. | Timing benefits: 193. Subsection 165-10(1) of the GST Act is not directed only at liabilities (permanent differences) but is additionally directed at timing benefits. The benefit in paragraph 165-10(1)(c) of the GST Act concerns the deferral of attribution of a liability to GST or an increasing adjustment, and the benefit in paragraph 165-10(1)(d) of the GST Act concerns the acceleration of attribution of entitlement to an input tax credit or decreasing adjustment: refer to paragraph 190. | Net amounts: 194. The GST benefits referred to in subsection 165-10(1) of the GST Act operate in relation to net amounts payable by and to a taxpayer for a particular tax period, such as a particular month or quarter: sections 33-3 and 35-5 of the GST Act. Accordingly, in addressing the existence of a GST benefit, officers must determine the effect of a scheme or part of a scheme on net amounts on a tax period by tax period basis. 195. This may mean that a GST benefit could be obtained from a scheme even though a greater amount of GST would be payable under the GST Act over a period of time as a result of the scheme. | Causal nexus - paragraph 165-5(1)(a) of the GST Act: 196. For Division 165 of the GST Act to operate, it is also necessary that a sufficient causal nexus between the GST benefit and the identified scheme exists. Paragraph 165-5(1)(a) of the GST Act provides that the GST benefit must be obtained 'from' the scheme. Subsection 165-10(1) of the GST Act provides that the GST benefit may also be obtained from 'part of a scheme'. | GST benefits disregarded - paragraph 165-5(1)(b) of the GST Act: 197. Paragraph 165-5(1)(b) of the GST Act essentially constitutes an exclusion from the definition of GST benefit. It provides that Division 165 of the GST Act will only operate if the GST benefit that has otherwise arisen is not attributable to the making of a choice, election, application or agreement expressly provided for by the GST law. This requires a consideration of how the entity obtained the GST benefit. In Federal Commissioner of Taxation v. Unit Trend Services Pty Ltd [2013] HCA 16 the High Court said at [60]: The identified GST benefit is not attributable to the making of a choice by the entity or some other entity if: (a) the GST Act or another relevant law does not operate to confer the identified GST benefit by reference to that choice: or (b) the choice made in fact as part of the scheme would have been made in any event without the scheme. 198. An exception to the exclusion in paragraph 165-5(1)(b) now exists in subsection 165-5(3). Although not applicable to the proceedings in Unit Trend the High Court indicated by way of obiter that the subsection would only be called into play where it had first been found that the relevant GST was attributable to an eligible statutory choice. The Court said at [67]: The insertion of s 165-5(3) in Div 165 cannot be regarded as an acknowledgement by the Parliament that, without it, Div 165 would not have encompassed a situation such as that of present concern. Section 165-5(3) ensures the application of Div 165 to the case where the scheme was entered into for the purpose of generating the statutory choice relied upon by the avoider. Section 165-5(1)(b) may apply without the need to invoke s 165-5(3) where the statutory choice arises as a step in a scheme. There may be cases where the avoider has not manipulated circumstances to confect the occasion for the making of the statutory choice, but nevertheless the GST benefit can be seen as not attributable to that choice. ... | Tax avoidance conclusion - paragraph 165-5(1)(c) and section 165-15 of the GST Act: 199. For Division 165 of the GST Act to operate, the drawing of a conclusion about purpose and effect is necessary. Specifically, paragraph 165-5(1)(c) of the GST Act provides that, taking account of the matters listed in section 165-15, it must be reasonable to conclude that either: (i) an entity entered into or carried out the identified scheme, or a part of the scheme, with the sole or dominant purpose of that entity or another entity getting a GST benefit from the scheme; or (ii) the principal effect of the identified scheme, or a part of the scheme, is that the avoider gets the GST benefit from the scheme directly or indirectly. For ease of reference, a conclusion that either of these is the case will be referred to in this practice statement below as a 'tax avoidance' conclusion. (i) an entity entered into or carried out the identified scheme, or a part of the scheme, with the sole or dominant purpose of that entity or another entity getting a GST benefit from the scheme; or (ii) the principal effect of the identified scheme, or a part of the scheme, is that the avoider gets the GST benefit from the scheme directly or indirectly. For ease of reference, a conclusion that either of these is the case will be referred to in this practice statement below as a 'tax avoidance' conclusion. 200. Accordingly, Division 165 of the GST Act requires the drawing of a conclusion as to either purpose or effect. A determination as to whether either conclusion would be reasonable must be arrived at by taking into account the same twelve matters set out in subsection 165-15(1) of the GST Act. | Dominant purpose test: 201. The dominant purpose test in Part IVA, found in section 177D (see also subsection 177A(5)), is essentially mirrored in the test in subparagraph 165-5(1)(c)(i) of the GST Act. Accordingly, the propositions contained in paragraphs 107 to 139 are equally applicable to the dominant purpose test in Division 165 of the GST Act. 202. However, the application of the dominant purpose test in Division 165 of the GST Act requires consideration of the twelve matters in subsection 165-15(1). Subsection 177D(2) only requires consideration of eight factors. This difference in the matters to be considered in determining purpose (and effect) is addressed separately below. | Principal effect test: 203. Division 165 of the GST Act contains an alternative basis for a tax avoidance conclusion, being the principal effect test in subparagraph 165-5(1)(c)(ii) of the GST Act. There is no Part IVA equivalent to this test. Part IVA applies to a scheme only on the basis of it being concluded that a relevant person has the requisite dominant purpose. 204. This principal effect test focuses on the result of a scheme rather than on the purpose attributed to those entering into or carrying out the scheme. Both purpose and effect are ascertained objectively by a consideration of the matters listed in subsection 165-15(1) of the GST Act. However, the enquiry to be undertaken in relation to the principal effect test is directed to the outcome of the scheme, without regard to the imputed purpose of those entering into or carrying out the scheme. The test specifically applies to the avoider and the GST benefit obtained by the avoider: Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1999 at paragraph 6.344. 205. The effect produced by the scheme must also be 'the principal' effect. This means that the most significant or main effect of the scheme must be the securing of a GST benefit by the avoider. It is not sufficient for the GST benefit to be one of several main effects. It must be the most significant or main effect: Senate Supplementary Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1999 at paragraph 1.121. 206. The test may be satisfied even if a GST benefit, which is the principal effect of the scheme, is obtained in an indirect way. It is not confined to GST benefits directly obtained. That is, it will be satisfied even if the principal effect of the identified scheme is that the avoider got the GST benefit from the scheme 'indirectly'. 207. While the principal effect test is an alternative test, the criteria for its consideration mirror the objective analysis required to distinguish ordinary commercial dealings from tax avoidance arrangements. | The 12 matters to be considered in determining purpose or effect: 208. The propositions contained in paragraphs 107 to 119 concern the correct approach to the consideration and weighing up of the eight factors in subsection 177D(2) in determining purpose. Where context permits, and with due allowance being made for the absence of the principal effect test in Part IVA, these propositions will generally be equally applicable to a consideration and weighing up of the twelve matters in subsection 165-15(1) of the GST Act in determining purpose or effect. 209. As indicated above, subsection 177D(2) in Part IVA requires regard to be had to eight factors in considering whether it can be concluded that a relevant person has the requisite purpose, whereas subsection 165-15(1) in Division 165 of the GST Act requires regard to be had to twelve matters. 210. The matters in paragraphs (a), (b), (f), (g), (h), (i) and (j) of subsection 165-15(1) of the GST Act correspond to the factors in paragraphs (a), (b), (d), (e), (f), (g) and (h) of subsection 177D(2). Paragraph 165-15(1)(b) of the GST Act also refers to the form and substance of a scheme but, in addition to paragraph 177D(2)(b), elaborates on the meaning of the 'form and substance' of a scheme by indicating that this includes 'the legal rights and obligations involved in the scheme' and 'the economic and commercial substance of the scheme'. 211. The matters in paragraphs (d) and (e) of subsection 165-15(1) of the GST Act together correspond to the factor in paragraph (c) of subsection 177D(2). That is, the timing and period of a scheme are combined into one factor in Part IVA whereas the timing and period of a scheme are separate matters in Division 165 of the GST Act. 212. Accordingly, paragraphs (c), (k) and (l) of subsection 165-15(1) of the GST Act are the only matters in subsection 165-15(1) for which there are no equivalents in subsection 177D(2) of Part IVA. 213. The matter in paragraph 165-15(1)(c) of the GST Act is 'the purpose or object' of the relevant Acts. This matter requires that regard be had not only to the legislative purpose of the GST Act and the Customs Act 1901 but also to any relevant provision of these Acts. If a scheme frustrates the legislative purpose (that is, the legislative scheme), this matter will point in the direction of tax avoidance; if the outcome of the scheme is consistent with the object of the legislation, this will point against a tax avoidance conclusion. In considering legislative purpose officers should have regard to the legislative scheme provided by the legislation together with relevant extraneous material such as explanatory memoranda as appropriate. 214. The matters in paragraphs (k) and (l) of subsection 165-15(1) of the GST Act are, respectively, 'the circumstances surrounding the scheme' and 'any other relevant circumstances'. This requires officers considering Division 165 of the GST Act to consider the surrounding circumstances or any factor that is relevant to the question of whether the arrangement has the purpose or effect of tax avoidance. For example, in determining purpose or effect, officers could have regard to prevailing economic conditions or industry practice attending the scheme. 215. The propositions contained in paragraphs 120 to 139 explain the nature and meaning of the eight factors in subsection 177D(2). These propositions will be equally applicable to a consideration of the nature and meaning of the equivalent matters in subsection 165-15(1) of the GST Act. | Matters apply to part of a scheme as if it were the entire scheme: 216. Subsection 165-15(2) of the GST Act provides that the matters in subsection 165-15(1) of the GST Act apply to part of a scheme as if the part were the entire identified scheme from which the GST benefit was obtained: Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1999 at paragraph 6.347. | Declaration to negate GST benefit - sections 165-40, 165-50 and 165-60 of the GST Act: 217. If the foregoing elements are satisfied, the Commissioner may exercise the section 165-40 discretion to negate the GST benefit obtained. Section 165-40 of the GST Act provides that the Commissioner may negate a GST benefit by making a declaration stating the net amount payable for a particular tax period or the GST payable on an importation to be a higher amount. It also allows for reductions in net amounts for other tax periods which may be required if the GST benefit is a timing benefit. 218. As is the case with the comparable Part IVA provision, subsection 177F(1), the discretion in section 165-40 of the GST Act must be exercised in good faith. Single scheme, multiple GST benefits (but not alternative counterfactuals) - same avoider, same tax period(s) 219. If an avoider has obtained two or more separate GST benefits under Division 165 of the GST Act in the same counterfactual scenario (for example, a permanent benefit and a timing benefit), a single declaration identifying each GST benefit and stating the avoider's net amount for the tax period should be made. | Single scheme, alternative counterfactuals - same avoider and same tax period(s): 220. The correct approach in the case of alternative counterfactuals in respect of a single scheme is to make a single declaration identifying each GST benefit obtained by the avoider and stating the avoider's net amount for the tax period using the highest 'GST benefit'. | Multiple schemes, multiple GST benefits - same avoider and same tax period(s): 221. If an avoider has obtained more than one GST benefit from more than one scheme in a particular tax period, a single declaration should be made. This declaration must identify each GST benefit from each scheme and state the avoider's net amount for the tax period. | Declaration formerly self-executing: 222. The word 'determination' is used in section 177F in Part IVA for the decision to cancel a tax benefit. Apart from terminology, another difference between Part IVA and Division 165 of the GST Act was that under subsection 177F(1), to give effect to a determination, the Commissioner must issue an assessment or amended assessment in the usual case. For tax periods commencing before 1 July 2012, no such requirement existed in Division 165 of the GST Act as a declaration was self-executing: section 165-50 of the GST Act provides that a declaration under section 165-40 of the GST Act has effect according to its terms for the purposes of Division 33 and Division 35 of the GST Act, despite the provisions of the GST Act outside those Divisions and Division 165. 223. Accordingly, the comments concerning the issue of assessments and amended assessments to give effect to Part IVA determinations, in paragraphs 153 to 157, are inapplicable in relation to tax periods commencing before 1 July 2012. Nevertheless, it is the Tax Office's practice, in the absence of extraordinary circumstances, to issue assessments. This is consistent with the Tax Office's usual practice of issuing assessments at the conclusion of GST audits where a shortfall is found to exist, even though for GST purposes the liability for GST exists independently of and without the need for an assessment. | Post 30 June 2012 tax periods: 224. For tax periods commencing on or after 1 July 2012 an assessment is deemed to be made when an activity statement or relevant document is lodged or received. These changes also included changes to Division 165. Subsection 165-40(1) of the GST Act now provides that the Commissioner may negate a GST benefit by making a declaration stating the net amount payable for a particular tax period, or the GST payable on an importation to be a higher amount. New subsection 165-40(2) provides that the Commissioner must take such action as is considered necessary to give effect to the declaration. This means in the usual case, that when a declaration is made in relation to a tax period commencing on or after 1 July 2012, that an amended assessment will be issued to give effect to it. | Declaration may cover several tax periods and importations: 225. A single declaration can relate to net amounts for several tax periods and several taxable importations: section 165-60 of the GST Act. | Compensatory adjustments - section 165-45: 226. Section 165-45 of the GST Act provides that where an entity gets a GST disadvantage due to another entity getting a GST benefit, the Commissioner may make an adjustment to compensate the disadvantaged entity. The section operates if the following conditions are met: (a) the Commissioner has made a declaration under section 165-40 of the GST Act; (b) the Commissioner considers that another entity (the loser) gets a GST disadvantage; and (c) the Commissioner considers it fair and reasonable that the loser's GST disadvantage be negated or reduced. (a) the Commissioner has made a declaration under section 165-40 of the GST Act; (b) the Commissioner considers that another entity (the loser) gets a GST disadvantage; and (c) the Commissioner considers it fair and reasonable that the loser's GST disadvantage be negated or reduced. 227. The comments in relation to the comparable provision in Part IVA, subsection 177F(3), in paragraphs 163 to 165, are equally applicable. There are now no substantive differences between section 165-45 of the GST Act and subsection 177F(3). [10] | Time limits - sections 105-5 and 105-50 of Schedule 1 to the TAA: 228. In the absence of fraud or evasion, the effective time limit for the Commissioner to make a declaration under section 165-40 of the GST Act for tax periods commencing before 1 July 2012, was within 4 years after the time GST became payable by an entity. A declaration may be able to be made outside that period if the Commissioner has required payment of the relevant net amount of GST by giving a notice to the avoider within the period, but generally officers should make declarations within the 4 year period: section 105-50 in Schedule 1 to the TAA. However, any declaration made after 4 years because there has been fraud or evasion must be approved by a DCTC or the CTC. | Time limits - section 155-5 of Schedule 1 to the TAA: 229. Where a declaration is made under subsection 165-45(3) of the GST Act, for a tax period commencing on or after 1 July 2012, to give a compensating adjustment, no time limit applies to give effect to that declaration. | Penalties: 230. The same penalty regime applies to both Division 165 of the GST Act and Part IVA. Accordingly, paragraphs 168 to 173 are equally applicable. 231. Under the A New Tax System (Luxury Car Tax) Act 1999 (LCT Act), Division 165 of the GST Act applies to amounts payable under the LCT Act as if they were amounts payable under the GST Act: section 13-5 and section 13-30 of the LCT Act. Accordingly, the comments in this practice statement concerning GST apply with necessary changes to LCT. 232. Under the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act), Division 165 of the GST Act applies to amounts payable under the WET Act as if they were amounts payable under the GST Act: section 21-5 and section 23-10 of the WET Act. Accordingly, the comments in this practice statement concerning GST apply with necessary changes to WET. 233. We invite you to comment on this draft practice statement. Please forward your comments to the contact officer by the due date. Due date: 25 September 2015 Contact officer details have been removed following publication of the final document. Date of amendment 13 August 2015 Re-write and public consultation following legislative amendment 8 July 2009 Contact officer details updated. 13 February 2009 Contact officer details updated. 1 July 2006 Update reference to section 22 of the TAA to section 105-5 of Schedule 1 to the TAA Update reference to section 35 of the TAA to section 105-50 of Schedule 1 to the TAA Update reference to section 35 of the TAA to section 105-50 of Schedule 1 to the TAA Date of Issue: 13 December 2005 Date of Effect: 13 December 2005 [1] Taxation Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Act 2013, Sch 1. [2] https://www.ato.gov.au/General/Consultation/In-detail/Technical-and-special-purpose-working-groups---minutes/Part-IVA-amendments/NTLG-consultative-workshop-on-Part-IVA-amendments/ [3] See for example: Mark Brabazon, 'The Hatter's watch: Tax benefit in Part IVA' (2014) 43 AT Rev 150; Brendan Sullivan, 'The new Pt IVA - interpretation and litigation issues' (2014)18 The Tax Specialist 1; Tim Kyle, 'Practical application of the New Part IVA' (Paper presented at the Corporate Tax Masterclass, Sydney, 11 September 2014); Greg Travers, The Tax Adviser's Guide to Part IVA: A Practical Guide to the Application of the General Anti-avoidance Rule (2014); Stuart Dall, Part IVA amendments: Be just, and fear not (2013) KPMG Australia http://www.kpmg.com/au/en/issuesandinsights/articlespublications/tax-insights/pages/part-iva-amendments-be-just-and-fear-not-14-august-2013.aspx at 19 June 2015. [4] Federal Commissioner of Taxation v. Trail Bros Steel & Plastics Pty Ltd (2010) 186 FCR 410 [5] Federal Commissioner of Taxation v. AXA Asia Pacific Holdings Ltd (2010) 189 FCR 204 [6] CPH Property Pty Ltd v. Federal Commissioner of Taxation (1998) 88 FCR 21; 98 ATC 4983; (1998) 40 ATR 151 [7] Essenbourne Pty Ltd v. Federal Commissioner of Taxation 2002 ATC 5201; (2002) 51 ATR 629 [8] This list includes examples only and is not intended to be exhaustive. [9] These cases were decided under Part IVA as it was in force before the amendments of 2013, and might have been decided differently under the amended Part IVA. However, the general point made here remains valid. [10] For tax periods commencing before 1 July 2012, declarations under Division 165 were self executing. File 1-6UYXLYA Related Rulings/Determinations: IT 2456 Related Practice Statements: PS LA 1998/1 PS LA 2000/10 PS LA 2001/8 PS LA 2002/16 PS LA 2008/18 PS LA 2012/1 Other References: Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1999 Explanatory Memorandum to the Taxation Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Bill 2013",IT 2456 | PS LA 1998/1 | PS LA 2000/10 | PS LA 2001/8 | PS LA 2002/16 | PS LA 2008/18 | PS LA 2012/1 | Explanatory Memorandum | ANTS(GST)A 1999 | ANTS(GST)A 1999 Div 33 | ANTS(GST)A 1999 33-3 | ANTS(GST)A 1999 Div 35 | ANTS(GST)A 1999 35-5 | ANTS(GST)A 1999 Div 165 | ANTS(GST)A 1999 165-5(1)(a) | ANTS(GST)A 1999 165-5(1)(b) | ANTS(GST)A 1999 165-5(1)(c) | ANTS(GST)A 1999 165-5(1)(c)(i) | ANTS(GST)A 1999 165-5(1)(c)(ii) | ANTS(GST)A 1999 165-5(1)(d) | ANTS(GST)A 1999 165-5(2) | ANTS(GST)A 1999 165-5(3) | ANTS(GST)A 1999 165-10(1) | ANTS(GST)A 1999 165-10(1)(c) | ANTS(GST)A 1999 165-10(1)(d) | ANTS(GST)A 1999 165-10(2) | ANTS(GST)A 1999 165-10(3) | ANTS(GST)A 1999 165-15 | ANTS(GST)A 1999 165-15(1) | ANTS(GST)A 1999 165-15(1)(a) | ANTS(GST)A 1999 165-15(1)(b) | ANTS(GST)A 1999 165-15(1)(c) | ANTS(GST)A 1999 165-15(1)(d) | ANTS(GST)A 1999 165-15(1)(e) | ANTS(GST)A 1999 165-15(1)(f) | ANTS(GST)A 1999 165-15(1)(g) | ANTS(GST)A 1999 165-15(1)(h) | ANTS(GST)A 1999 165-15(1)(i) | ANTS(GST)A 1999 165-15(1)(j) | ANTS(GST)A 1999 165-15(1)(k) | ANTS(GST)A 1999 165-15(1)(l) | ANTS(GST)A 1999 165-15(2) | ANTS(GST)A 1999 165-40 | ANTS(GST)A 1999 165-40(1) | ANTS(GST)A 1999 165-40(2) | ANTS(GST)A 1999 165-45 | ANTS(GST)A 1999 165-45(3) | ANTS(GST)A 1999 165-50 | ANTS(GST)A 1999 165-60 | ANTS(LCT)A 1999 | ANTS(LCT)A 1999 13-5 | ANTS(LCT)A 1999 13-30 | ANTS(WET)A 1999 | ANTS(WET)A 1999 21-5 | ANTS(WET)A 1999 23-10 | FBTAA 1986 | FBTAA 1986 67 | FBTAA 1986 67(1) | FBTAA 1986 67(1)(c) | FBTAA 1986 67(1)(d) | FBTAA 1986 67(2) | FBTAA 1986 67(4) | FBTAA 1986 136(1) | ITAA 1936 | ITAA 1936 Pt III Div 5 | ITAA 1936 92 | ITAA 1936 Pt III Div 6 | ITAA 1936 95 | ITAA 1936 97 | ITAA 1936 99A | ITAA 1936 166 | ITAA 1936 169A | ITAA 1936 169A(3) | ITAA 1936 170 | ITAA 1936 170(1) | ITAA 1936 173 | ITAA 1936 Pt IVA | ITAA 1936 177A | ITAA 1936 177A(1) | ITAA 1936 177A(3) | ITAA 1936 177A(5) | ITAA 1936 177B | ITAA 1936 177B(1) | ITAA 1936 177B(3) | ITAA 1936 177B(4) | ITAA 1936 177C | ITAA 1936 177C(1) | ITAA 1936 177C(1)(a) | ITAA 1936 177C(1)(b) | ITAA 1936 177C(2) | ITAA 1936 177C(2A) | ITAA 1936 177C(3) | ITAA 1936 177CB | ITAA 1936 177CB(2) | ITAA 1936 177CB(3) | ITAA 1936 177CB(4) | ITAA 1936 177D | ITAA 1936 177D(2) | ITAA 1936 177D(2)(a) | ITAA 1936 177D(2)(b) | ITAA 1936 177D(2)(c) | ITAA 1936 177D(2)(d) | ITAA 1936 177D(2)(e) | ITAA 1936 177D(2)(f) | ITAA 1936 177D(2)(g) | ITAA 1936 177D(2)(h) | ITAA 1936 177E | ITAA 1936 177EA | ITAA 1936 177EA(5) | ITAA 1936 177EB | ITAA 1936 177EB(5) | ITAA 1936 177F | ITAA 1936 177F(1) | ITAA 1936 177F(1)(a) | ITAA 1936 177F(2) | ITAA 1936 177F(2A) | ITAA 1936 177F(3) | ITAA 1936 177G | ITAA 1936 177H | ITAA 1936 260 | ITAA 1997 | ITAA 1997 6-5 | ITAA 1997 Subdiv 126-B | ITAA 1997 Subdiv 170-B | ITAA 1997 701-1 | TAA 1953 | TAA 1953 Sch 1 155-5 | TAA 1953 Sch 1 284-15 | TAA 1953 Sch 1 284-145 | TAA 1953 Sch 1 284-145(1)(b) | TAA 1953 Sch 1 284-150 | TAA 1953 Sch 1 284-150(1) | TAA 1953 Sch 1 284-150(1)(b) | TAA 1953 Sch 1 284-155 | TAA 1953 Sch 1 284-160 | TAA 1953 Sch 1 298-20 | International Tax Agreements Act 1953 | Petroleum (Timor Sea Treaty) Act 2003 | Taxation Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Act 2013 | 2003 ATC 5041 | 2010 ATC 20-222 | (1997) 97 ATC 4123 | (2015) 2015 ATC 20-503 | 2003 ATC 4272 | 2005 ATC 4392 | 98 ATC 4983 | 2007 ATC 4303 | 2000 ATC 4350 | 97 ATC 4040 | 95 ATC 4067 | 2007 ATC 4092 | 2002 ATC 5201 | 2011 ATC 20-255 | 2010 ATC 20-224 | 99 ATC 4945 | 2001 ATC 4343 | 2012 ATC 20-306 | 2004 ATC 4599 | 90 ATC 4990 | 94 ATC 4663 | 2004 ATC 4477 | 96 ATC 5201 | 2009 ATC 20-129 | 97 ATC 4001 | 2009 ATC 20-141 | (2010) 2010 ATC 20-206 | [2013] HCA 16 | 2000 ATC 4812 | 2008 ATC 20-052 | 2011 ATC 20-241 | 2005 ATC 4001 | 2003 ATC 4782 | (1932) 48 CLR 192 | 2003 ATC 5099 | 2002 ATC 4742 | 2007 ATC 4973,PS LA 1998/1 PS LA 2000/10 PS LA 2001/8 PS LA 2002/16 PS LA 2008/18 PS LA 2012/1,ANTS(GST)A 1999 | ANTS(GST)A 1999 Div 33 | ANTS(GST)A 1999 33-3 | ANTS(GST)A 1999 Div 35 | ANTS(GST)A 1999 35-5 | ANTS(GST)A 1999 Div 165 | ANTS(GST)A 1999 165-5(1)(a) | ANTS(GST)A 1999 165-5(1)(b) | ANTS(GST)A 1999 165-5(1)(c) | ANTS(GST)A 1999 165-5(1)(c)(i) | ANTS(GST)A 1999 165-5(1)(c)(ii) | ANTS(GST)A 1999 165-5(1)(d) | ANTS(GST)A 1999 165-5(2) | ANTS(GST)A 1999 165-5(3) | ANTS(GST)A 1999 165-10(1) | ANTS(GST)A 1999 165-10(1)(c) | ANTS(GST)A 1999 165-10(1)(d) | ANTS(GST)A 1999 165-10(2) | ANTS(GST)A 1999 165-10(3) | ANTS(GST)A 1999 165-15 | ANTS(GST)A 1999 165-15(1) | ANTS(GST)A 1999 165-15(1)(a) | ANTS(GST)A 1999 165-15(1)(b) | ANTS(GST)A 1999 165-15(1)(c) | ANTS(GST)A 1999 165-15(1)(d) | ANTS(GST)A 1999 165-15(1)(e) | ANTS(GST)A 1999 165-15(1)(f) | ANTS(GST)A 1999 165-15(1)(g) | ANTS(GST)A 1999 165-15(1)(h) | ANTS(GST)A 1999 165-15(1)(i) | ANTS(GST)A 1999 165-15(1)(j) | ANTS(GST)A 1999 165-15(1)(k) | ANTS(GST)A 1999 165-15(1)(l) | ANTS(GST)A 1999 165-15(2) | ANTS(GST)A 1999 165-40 | ANTS(GST)A 1999 165-40(1) | ANTS(GST)A 1999 165-40(2) | ANTS(GST)A 1999 165-45 | ANTS(GST)A 1999 165-45(3) | ANTS(GST)A 1999 165-50 | ANTS(GST)A 1999 165-60 | ANTS(LCT)A 1999 | ANTS(LCT)A 1999 13-5 | ANTS(LCT)A 1999 13-30 | ANTS(WET)A 1999 | ANTS(WET)A 1999 21-5 | ANTS(WET)A 1999 23-10 | FBTAA 1986 | FBTAA 1986 67 | FBTAA 1986 67(1) | FBTAA 1986 67(1)(c) | FBTAA 1986 67(1)(d) | FBTAA 1986 67(2) | FBTAA 1986 67(4) | FBTAA 1986 136(1) | ITAA 1936 | ITAA 1936 Pt III Div 5 | ITAA 1936 92 | ITAA 1936 Pt III Div 6 | ITAA 1936 95 | ITAA 1936 97 | ITAA 1936 99A | ITAA 1936 166 | ITAA 1936 169A | ITAA 1936 169A(3) | ITAA 1936 170 | ITAA 1936 170(1) | ITAA 1936 170(2)(a) | ITAA 1936 173 | ITAA 1936 177(1) | ITAA 1936 Pt IVA | ITAA 1936 177A | ITAA 1936 177A(1) | ITAA 1936 177A(1)(a) | ITAA 1936 177A(1)(b) | ITAA 1936 177A(3) | ITAA 1936 177A(5) | ITAA 1936 177B | ITAA 1936 177B(1) | ITAA 1936 177B(3) | ITAA 1936 177B(4) | ITAA 1936 177C | ITAA 1936 177C(1) | ITAA 1936 177C(1)(a) | ITAA 1936 177C(1)(b) | ITAA 1936 177C(2) | ITAA 1936 177C(2)(a)(i) | ITAA 1936 177C(2)(b)(i) | ITAA 1936 177C(2)(c)(i) | ITAA 1936 177C(2)(d)(i) | ITAA 1936 177C(2A) | ITAA 1936 177C(2A)(a)(i) | ITAA 1936 177C(2A)(b)(i) | ITAA 1936 177C(3) | ITAA 1936 177CB | ITAA 1936 177CB(2) | ITAA 1936 177CB(3) | ITAA 1936 177CB(4) | ITAA 1936 177D | ITAA 1936 177D(b) | ITAA 1936 177D(b)(i) | ITAA 1936 177D(b)(ii) | ITAA 1936 177D(b)(iii) | ITAA 1936 177D(b)(iv) | ITAA 1936 177D(b)(v) | ITAA 1936 177D(b)(vi) | ITAA 1936 177D(b)(vii) | ITAA 1936 177D(b)(viii) | ITAA 1936 177D(2) | ITAA 1936 177D(2)(a) | ITAA 1936 177D(2)(b) | ITAA 1936 177D(2)(c) | ITAA 1936 177D(2)(d) | ITAA 1936 177D(2)(e) | ITAA 1936 177D(2)(f) | ITAA 1936 177D(2)(g) | ITAA 1936 177D(2)(h) | ITAA 1936 177E | ITAA 1936 177EA | ITAA 1936 177EA(5) | ITAA 1936 177EB | ITAA 1936 177EB(5) | ITAA 1936 177F | ITAA 1936 177F(1) | ITAA 1936 177F(1)(a) | ITAA 1936 177F(2) | ITAA 1936 177F(2A) | ITAA 1936 177F(3) | ITAA 1936 177G | ITAA 1936 177G(1) | ITAA 1936 177H | ITAA 1936 260 | ITAA 1997 | ITAA 1997 6-5 | ITAA 1997 Subdiv 126-B | ITAA 1997 Subdiv 170-B | ITAA 1997 701-1 | TAA 1953 | TAA 1953 Sch 1 105-5 | TAA 1953 Sch 1 105-50 | TAA 1953 Sch 1 155-5 | TAA 1953 Sch 1 284-15 | TAA 1953 Sch 1 284-145 | TAA 1953 Sch 1 284-145(1)(b) | TAA 1953 Sch 1 284-150 | TAA 1953 Sch 1 284-150(1) | TAA 1953 Sch 1 284-150(1)(b) | TAA 1953 Sch 1 284-155 | TAA 1953 Sch 1 284-155-5 | TAA 1953 Sch 1 284-160 | TAA 1953 Sch 1 298-20 | Customs Act 1901 | International Tax Agreements Act 1953 | Petroleum (Timor Sea Treaty) Act 2003 | Taxation Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Act 2013,"anti avoidance measures anti avoidance penalties avoidance & evasion escalation processes general anti avoidance provisions tax avoidance tax benefits under tax avoidance schemes tax planning tax planning, avoidance and evasion",Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1999 Explanatory Memorandum to the Taxation Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Bill 2013,False,True,https://www.ato.gov.au/law/view/document?docid=DPS/PSD200524/NAT/ATO/00001,Note: readers can view tracked changes to the original document on the PDF version. | HOW TO USE THIS LAW ADMINISTRATION PRACTICE STATEMENT | THE GENERAL ANTI-AVOIDANCE RULES PANEL | SECTION 67 OF THE FBTAA - FBT | DIVISION 165 OF THE GST ACT - GST | Commissioner of Taxation v Mochkin [2003] FCAFC 15 127 FCR 185 2003 ATC 4272 52 ATR 198 | Darrell Lea Chocolate Shops Pty Ltd v Federal Commissioner of Taxation (1996) 72 FCR 175 141 ALR 713 97 ATC 4040 34 ATR 491 | Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1995) 183 CLR 168 127 ALR 21 95 ATC 4067 29 ATR 644 | Federal Commissioner of Taxation v Consolidated Press Holdings (No 1) (1999) 91 FCR 524 99 ATC 4945 42 ATR 575 | Federal Commissioner of Taxation v Lenzo [2008] FCAFC 50 (2008) 167 FCR 255 | Federal Commissioner of Taxation v Spotless Services Ltd (1996) 186 CLR 404 141 ALR 92 96 ATC 5201 34 ATR 183 | Federal Commissioner of Taxation v Trail Bros Steel & Plastics Pty Ltd (2010) 186 FCR 410 (2009) 75 ATR 916 2009 ATC 20-141 | Richardson v Federal Commissioner of Taxation (1932) 48 CLR 192 2 ATD 19
PS LA 2026/1,Self-managed superannuation funds - education directions for contraventions of the Superannuation Industry (Supervision) Act 1993,15 January 2026,2 October 2025,Law Administration Practice Statement,True,"1. What this Practice Statement is about: This Practice Statement sets out what you need to consider when deciding whether to give a trustee or a director of a corporate trustee of a self-managed superannuation fund (SMSF), an education direction under section 160 of the Superannuation Industry (Supervision) Act 1993 (SISA). All further legislative references in this Practice Statement are to the SISA, unless otherwise indicated. | 2. Compliance treatments – general principles: We are responsible for ensuring SMSF trustees comply with relevant tax and super laws as well as dealing effectively with those who fail to do so. This role is fundamental in ensuring the preservation of retirement benefits and protecting the integrity of the superannuation system. Our role also ensures tax concessions available within superannuation are appropriately targeted towards those who choose to operate within the regulatory framework. In carrying out this role, the SISA provides a range of compliance options to deal with conduct which has resulted in contraventions of the SISA or the Superannuation Industry (Supervision) Regulations 1994 (SISR). One such option is to give an education direction. Generally, giving an education direction will play an essential role in cases where the person's lack of knowledge or understanding of their obligations contributed to the contraventions. There are important and positive benefits to giving an education direction, including [1] : • correcting knowledge gaps which led to past contraventions • improving and refreshing overall trustee knowledge, thereby reducing the likelihood of any future contraventions occurring. • correcting knowledge gaps which led to past contraventions • improving and refreshing overall trustee knowledge, thereby reducing the likelihood of any future contraventions occurring. You may also use other compliance options alongside an education direction. The appropriateness of any additional compliance options you choose will depend on the circumstances of each case and the nature and seriousness of the conduct giving rise to the contraventions. The compliance options you might commonly use in combination with an education direction include: • imposing administrative penalties [2] • giving a rectification direction [3] • accepting a written undertaking from the trustee to rectify the contravention. [4] • imposing administrative penalties [2] • giving a rectification direction [3] • accepting a written undertaking from the trustee to rectify the contravention. [4] | 3. What an education direction is: An education direction is a written notice we give to a person which, within a specified period, requires them to [5] : • undertake an approved SMSF trustee education course, and • provide us evidence that the course was completed. • undertake an approved SMSF trustee education course, and • provide us evidence that the course was completed. A person given an education direction must also sign (or re-sign) an SMSF trustee declaration form within 21 days of completing the education course. [6] This is to confirm that they understand their obligations and duties as a trustee of an SMSF. | 4. Circumstances in which an education direction can be given: You may give an education direction to a person where, on or after 1 July 2014, there has been a contravention of a provision in the SISA (other than Part 3B) or the SISR. [7] You can only give an education direction to [8] : • an individual trustee of an SMSF, where you reasonably believe the trustee has contravened a provision of the SISA (other than Part 3B) or the SISR, or • a director of a body corporate that is trustee of an SMSF, where you reasonably believe that the – director has contravened a provision of the SISA (other than Part 3B) or the SISR, or – body corporate, as trustee of the SMSF, has contravened a provision of the SISA (other than Part 3B) or the SISR. • an individual trustee of an SMSF, where you reasonably believe the trustee has contravened a provision of the SISA (other than Part 3B) or the SISR, or • a director of a body corporate that is trustee of an SMSF, where you reasonably believe that the – director has contravened a provision of the SISA (other than Part 3B) or the SISR, or – body corporate, as trustee of the SMSF, has contravened a provision of the SISA (other than Part 3B) or the SISR. – director has contravened a provision of the SISA (other than Part 3B) or the SISR, or – body corporate, as trustee of the SMSF, has contravened a provision of the SISA (other than Part 3B) or the SISR. You may reasonably believe a contravention of the SISA or the SISR has occurred if someone closely connected to the fund (such as a trustee or approved auditor) has reported it to us and your understanding of the relevant facts and evidence is consistent with what has been reported. However, a mere suspicion that a contravention has occurred is not sufficient. In such cases, you would need to gather more information before you can conclude a contravention has occurred. You cannot give a direction to a person who: • is no longer an individual trustee or director of the corporate trustee of an SMSF at the time you are deciding whether to issue a direction • became a trustee or director of the corporate trustee of an SMSF after the contravention occurred. • is no longer an individual trustee or director of the corporate trustee of an SMSF at the time you are deciding whether to issue a direction • became a trustee or director of the corporate trustee of an SMSF after the contravention occurred. | 5. Considerations when deciding whether to give an education direction: You should consider both case-specific factors and the ATO's general decision-making principles when deciding whether to give an education direction. General principles You should complete your decision by considering the following general principles in the: • ATO Charter – which requires that taxpayers be treated fairly and reasonably • Compliance model – which helps in choosing the most appropriate compliance response, depending on the trustee's behaviour and circumstances, and • Good decision-making model (link available internally only) – which requires that our decision be legal, ethical, equitable, overt, sensible, timely, consistent with the principles of natural justice and environmentally sustainable. • ATO Charter – which requires that taxpayers be treated fairly and reasonably • Compliance model – which helps in choosing the most appropriate compliance response, depending on the trustee's behaviour and circumstances, and • Good decision-making model (link available internally only) – which requires that our decision be legal, ethical, equitable, overt, sensible, timely, consistent with the principles of natural justice and environmentally sustainable. Case-specific factors Generally, an education direction will be an appropriate compliance tool where gaps in a person's trustee knowledge or understanding of those duties and obligations have contributed to the contraventions. [9] Case-specific factors which are likely to indicate it is not appropriate to give an education direction include: • the person has previously been given an SMSF education direction • the person would already be expected to have the necessary skills and knowledge, such as an experienced SMSF adviser • the person already has a good level of knowledge of their obligations and were aware their conduct would be likely to result in a contravention • the person has already voluntarily undertaken an education course after the contravention occurred and prior to us considering issuing an education direction • you determine the circumstances would warrant the person being removed from that position, such as by disqualification. [10] • the person has previously been given an SMSF education direction • the person would already be expected to have the necessary skills and knowledge, such as an experienced SMSF adviser • the person already has a good level of knowledge of their obligations and were aware their conduct would be likely to result in a contravention • the person has already voluntarily undertaken an education course after the contravention occurred and prior to us considering issuing an education direction • you determine the circumstances would warrant the person being removed from that position, such as by disqualification. [10] As all trustees and directors of corporate trustees are responsible for ensuring the provisions of the SISA and the SISR are complied with, a person may still 'contravene' one of the provisions even if they: • do not take an active role in managing the fund • were not directly involved in the conduct that gave rise to the contravention. • do not take an active role in managing the fund • were not directly involved in the conduct that gave rise to the contravention. However, the trustee or director's level of involvement in the contravention will still be a relevant factor when deciding whether it is appropriate to give a direction. Depending on the circumstances of the case, where you identify general principles and case-specific factors which would rule out a decision to give an education direction, you may consider other compliance options. | 6. Time to comply with an education direction: The period of time you give to comply with an education direction must be reasonable in the circumstances. [11] This will require an understanding of the trustee's particular circumstances. A period of no less than 28 days to comply with the direction will, in most circumstances, be reasonable. However, if you believe a period of 28 days would not be reasonable in the trustee's circumstances, you should allow a longer period. | 7. Varying or revoking an education direction: An education direction may be varied upon request or on your own initiative, however it can only be revoked on your own initiative. [12] A variation would usually be confined to giving further time to undertake an approved course and provide evidence of completion. The principles discussed in section 5 of this Practice Statement should be relied upon for all such decisions. Variation requests You can vary an education direction where the person given the direction [13] : • makes a written request before the timeframe allowed for complying with the direction has expired, and • sets out the reasons for the request. • makes a written request before the timeframe allowed for complying with the direction has expired, and • sets out the reasons for the request. A request to vary an education direction will extend the time the person has to comply with it. [14] However, if you do not make a decision on the request within 28 days after the request was made, the request is taken to have been refused. [15] If you decide to vary the direction in any way, you must notify the person and give them a copy of the varied direction. Additionally, if you decide to refuse the request, or vary it in a way otherwise than requested, you must give the person written reasons for the decision. [16] On your own initiative Alternatively, you are able to revoke or vary an education direction on your own initiative. You do so by giving the relevant person a written notice either revoking or varying the terms of the education direction. [17] Although you can revoke or vary an education direction at any time, it would generally not be appropriate to do so merely where the person given the direction failed to comply with it. | 8. Applying administrative penalties for failing to comply with an education direction: An administrative penalty of 5 penalty units [18] is imposed for failing to comply with the terms of an education direction. [19] The penalty may be remitted in part or in full. [20] In addition, if the person does not comply with the direction by the end of the specified period, the person commits an offence of strict liability which carries a maximum of 10 penalty units. [21] | 9. Objecting to our decisions: A person may object to a decision in the manner set out in Part IVC of the Taxation Administration Act 1953 if they are dissatisfied with our decision to [22] : • give an education direction • refuse to vary the direction (including a deemed refusal) • vary the direction but not in accordance with the request. • give an education direction • refuse to vary the direction (including a deemed refusal) • vary the direction but not in accordance with the request. | 10. More information: For more information, see: • Law Administration Practice Statement PS LA 2023/1 Self-managed superannuation funds – rectification directions for contraventions of the Superannuation Industry (Supervision) Act 1993 • Law Administration Practice Statement PS LA 2020/3 Self-managed superannuation funds – administrative penalties imposed under subsection 166(1) of the Superannuation Industry (Supervision) Act 1993 • Law Administration Practice Statement PS LA 2008/3 Provision of advice and guidance by the ATO • Law Administration Practice Statement PS LA 2006/19 Self-managed superannuation funds – issuing a notice of non-compliance • Law Administration Practice Statement PS LA 2006/18 Self-managed superannuation funds – enforceable undertakings • Law Administration Practice Statement PS LA 2006/17 Self-managed superannuation funds – disqualification of individuals to prohibit them from acting as a trustee of a self-managed superannuation fund. • Law Administration Practice Statement PS LA 2023/1 Self-managed superannuation funds – rectification directions for contraventions of the Superannuation Industry (Supervision) Act 1993 • Law Administration Practice Statement PS LA 2020/3 Self-managed superannuation funds – administrative penalties imposed under subsection 166(1) of the Superannuation Industry (Supervision) Act 1993 • Law Administration Practice Statement PS LA 2008/3 Provision of advice and guidance by the ATO • Law Administration Practice Statement PS LA 2006/19 Self-managed superannuation funds – issuing a notice of non-compliance • Law Administration Practice Statement PS LA 2006/18 Self-managed superannuation funds – enforceable undertakings • Law Administration Practice Statement PS LA 2006/17 Self-managed superannuation funds – disqualification of individuals to prohibit them from acting as a trustee of a self-managed superannuation fund. | APPENDIX – Examples: Example 1 – education direction given – new fund with minor contraventions An SMSF has been operating for 2 years. For the second income year, the approved SMSF auditor reports contraventions of the SISA. The contraventions are relatively minor and involve a small proportion of fund assets. The trustees advise that they have been relying on an adviser to assist them in their role as they find the super laws governing SMSFs complex. The case officer establishes that the contraventions have been rectified. They apply the general principles and determine there are no case-specific factors present which would rule out a decision to give an education direction. In addition, the case officer determines it is fair and reasonable to give an education direction and the trustees will benefit from improving and refreshing their overall trustee knowledge. Outcome: in addition to applying an administrative penalty and remitting it in full for the contravention, the case officer gives the trustees an education direction allowing 28 days to undertake an approved course of education to improve their knowledge of the law and their role as trustees of an SMSF. Example 2 – education direction given – established fund and trustees make a mistake An SMSF has been operating for 5 years. For the latest income year, the approved SMSF auditor reports a contravention after the fund invests considerably more than 5% of the fund's assets in in-house assets. The case officer identifies the trustees do not have any past contraventions and after discussing the matter with them, determines the contravention resulted from a mistake arising from deficient trustee knowledge. The case officer applies the general principles and determines there are no case-specific factors that would rule out a decision to give an education direction, and that giving one would be fair and reasonable. Further, the trustees will also benefit by correcting trustee knowledge gaps which had contributed to them making the mistake. Outcome: in addition to applying an administrative penalty for the contravention, the case officer gives the trustees an education direction allowing 28 days to undertake an approved course of education to remedy trustee knowledge gaps. Example 3 – education direction not given – established fund and trustee already understand obligations An SMSF has been operating for 6 years. The fund has a complex structure with significant assets. During the annual audit for each of the past 2 years, the fund's approved auditor reports that a loan and financial assistance was provided to a member of the fund. Although the loan was repaid with interest in the earlier year, the contravention in the latter year remains unrectified. The trustees also concede they knew their conduct would result in a contravention. The case officer considers if it is appropriate to give the trustees an education direction in order to refresh their overall knowledge. However, the facts show the trustees have a good level of trustee knowledge and skills and knew at the time their conduct would result in a contravention. Outcome: the case officer rules out giving an education direction as the trustees already have the required level of knowledge. Instead, the case officer considers what other compliance options may be more appropriate. Example 4 – education direction not given – established fund and trustee removed An SMSF has been operating for 7 years and has 2 overdue SMSF annual returns. The fund eventually lodges the returns and, in the process, the approved SMSF auditor also reports several serious contraventions. Among those contraventions, the trustees are found to have paid out a majority of the super benefits in the fund where no condition of release was met. The case officer identifies the trustees knowingly contravened the law in order to alleviate financial distress they were facing. The case officer also determines the trustees are not fit and proper to be trustees of an SMSF in accordance with PS LA 2006/17. Outcome: the case officer rules out giving an education direction in this case because the circumstances warrant removal of the trustees from the position. Therefore, the case officer instead proceeds with action to disqualify the trustees of the SMSF. © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Date of Issue: 15 January 2026 Date of Effect: 2 October 2025 [1] See paragraphs 2.54 and 2.55 of the Explanatory Memorandum to the Tax and Superannuation Laws Amendment (2014 Measures No. 1) Bill 2014. [2] See subsection 166(1). [3] See section 159. [4] See section 262A. [5] See subsections 160(2) and (3). [6] See section 104A. [7] See history note to section 160. A contravention which is unrectified immediately prior to 1 July 2014 might result in an additional, separate contravention at the start of the following financial year. [8] See subsection 160(1). [9] See section 2 of this Practice Statement. [10] See section 126A about disqualifying a person. [11] See subsection 160(3). [12] See section 163. [13] See subsections 164(1) to (3). [14] See subsection 164(7). [15] See subsection 164(5). [16] See subsection 164(6). [17] See section 163. [18] The value of a penalty unit is contained in section 4AA of the Crimes Act 1914 and is indexed regularly. The dollar amount of a penalty unit is available at Penalties . [19] See subsections 166(1) and 160(4). [20] See subsection 298-20(1) of Schedule 1 to the Taxation Administration Act 1953 . See Law Administration Practice Statement PS LA 2020/3 Self-managed superannuation funds -– administrative penalties imposed under subsection 166(1) of the Superannuation Industry (Supervision<) Act 1993 . [21] See subsection 160(5). [22] See section 165. File 1-HS1R3MF Related Practice Statements: PS LA 2023/1 PS LA 2020/3 PS LA 2008/3 PS LA 2006/19 PS LA 2006/18 PS LA 2006/17 Other References: Explanatory Memorandum to the Tax and Superannuation Laws Amendment (2014 Measures No. 1) Bill 2014 ATO Charter Compliance model Good decision-making model (link available internally only)",PS LA 2026/1EC | PS LA 2023/1 | PS LA 2020/3 | PS LA 2008/3 | PS LA 2006/19 | PS LA 2006/18 | PS LA 2006/17 | history note | Explanatory Memorandum | SISA 1993 | SISA 1993 Pt 3B | SISA 1993 104A | SISA 1993 126A | SISA 1993 159 | SISA 1993 160 | SISA 1993 160(1) | SISA 1993 160(2) | SISA 1993 160(3) | SISA 1993 160(4) | SISA 1993 160(5) | SISA 1993 163 | SISA 1993 164(1) | SISA 1993 164(2) | SISA 1993 164(3) | SISA 1993 164(5) | SISA 1993 164(6) | SISA 1993 164(7) | SISA 1993 165 | SISA 1993 166(1) | SISA 1993 262A | SISR 1994 | TAA 1953 Part IVC | TAA 1953 Sch 1 298-20(1) | Crimes Act 1914 4AA,PS LA 2023/1 PS LA 2020/3 PS LA 2008/3 PS LA 2006/19 PS LA 2006/18 PS LA 2006/17,SISA 1993 | SISA 1993 Pt 3B | SISA 1993 104A | SISA 1993 126A | SISA 1993 159 | SISA 1993 160 | SISA 1993 160(1) | SISA 1993 160(2) | SISA 1993 160(3) | SISA 1993 160(4) | SISA 1993 160(5) | SISA 1993 163 | SISA 1993 164(1) | SISA 1993 164(2) | SISA 1993 164(3) | SISA 1993 164(5) | SISA 1993 164(6) | SISA 1993 164(7) | SISA 1993 165 | SISA 1993 166(1) | SISA 1993 262A | SISR 1994 | TAA 1953 Part IVC | TAA 1953 Sch 1 298-20(1) | Crimes Act 1914 4AA,,Explanatory Memorandum to the Tax and Superannuation Laws Amendment (2014 Measures No. 1) Bill 2014 ATO Charter Compliance model Good decision-making model (link available internally only),False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20261/NAT/ATO/00001,There is a compendium for this document PS LA 2026/1EC .
PS LA 2025/1,Extension of time to apply for a director identification number,28 February 2025,28 February 2025,Law Administration Practice Statement,False,"1. What this Practice Statement is about: This Practice Statement sets out: • director identification number (director ID) obligations • the time by which a person must have a director ID • information about extensions of time to apply for a director ID. • director identification number (director ID) obligations • the time by which a person must have a director ID • information about extensions of time to apply for a director ID. | 2. A person's director identification number obligations: A person: • must have a director ID at the time they become an eligible officer [1] , [2] • needs to apply for their director ID prior to being appointed as a director to ensure they are compliant with their obligations [3] • may apply for a director ID if they intend to become a director within the next 12 months. [4] • must have a director ID at the time they become an eligible officer [1] , [2] • needs to apply for their director ID prior to being appointed as a director to ensure they are compliant with their obligations [3] • may apply for a director ID if they intend to become a director within the next 12 months. [4] | 3. Extending the time to apply for a director identification number: It is an offence to not have a director ID when required. However, the law enables the Registrar [5] to extend the time for an eligible officer to apply for their director ID. [6] The Registrar cannot proactively extend an eligible officer's time to apply – an eligible officer must apply to the Registrar for an extension. [7] The power to extend an eligible officer's time to apply is discretionary. This discretion allows the Registrar to extend an eligible officer's time to apply where warranted in the circumstances. The purpose of extending the time to apply for a director ID is to allow a greater period of time for an eligible officer to apply for a director ID where circumstances have prevented, or can reasonably be attributed to preventing the eligible officer from applying for their director ID. | 4. Extension of time requests: A request for an extension of time to apply should be made before a person applies for their director ID. | 5. Requesting an extension of time and the information needed: A request for an extension of time to apply for a director ID should be made in writing. A request must include: • the eligible officer's details • details of the circumstances that have prevented or are preventing the eligible officer from applying for their director ID • the proposed extended due date. • the eligible officer's details • details of the circumstances that have prevented or are preventing the eligible officer from applying for their director ID • the proposed extended due date. | 6. Extending the time to apply: We can grant an extension of time to apply for a director ID when it is reasonable to do so, taking into account all relevant circumstances. This approach seeks to balance our obligations to administer the director ID regime and its purpose [8] consistently and fairly but also consider an eligible officer's individual circumstances. Matters we should consider when deciding whether to grant an extension of time include: • the reasons why the eligible officer did not apply before their appointment • the length of time the eligible officer needs to apply for their director ID (an extension of time will usually be granted where the timeframe is less than 90 days from the appointment date, but longer periods may be considered if appropriate) • the eligible officer's director ID compliance history (for example, where there have been prior extensions) • the circumstances which reasonably prevented or are preventing the eligible officer from applying for their director ID • the purpose of the director ID regime • whether the eligible officer is subject to enforcement action. [9] • the reasons why the eligible officer did not apply before their appointment • the length of time the eligible officer needs to apply for their director ID (an extension of time will usually be granted where the timeframe is less than 90 days from the appointment date, but longer periods may be considered if appropriate) • the eligible officer's director ID compliance history (for example, where there have been prior extensions) • the circumstances which reasonably prevented or are preventing the eligible officer from applying for their director ID • the purpose of the director ID regime • whether the eligible officer is subject to enforcement action. [9] It would generally be considered appropriate to grant an extension of time to apply to eligible officers where the inability to apply is reasonably attributed to exceptional or unforeseen circumstances. Exceptional or unforeseen circumstances include but are not limited to: • the serious illness or death of a family member • system issues, such as outages in our online services • impeded access to records (for example, records seized during a police search or retained as evidence in a court matter). • the serious illness or death of a family member • system issues, such as outages in our online services • impeded access to records (for example, records seized during a police search or retained as evidence in a court matter). We generally will not grant an application for an extension of time to apply for a director ID where a person already has a director ID. Each request should be considered on its merits and the extension of time to apply determined considering the eligible officer's particular circumstances. | 7. Communicating extension to apply decisions: If a request is made for an extension of time to apply for a director ID, we must document all factors considered and the reasons for the decision (either to grant the extension or to deny the request) and communicate the decision and reasons to the eligible officer. | 8. Reviewing extension of time decisions: If the eligible officer is not satisfied with the extension of time decision, they may request an internal review. If the eligible officer or their agent is not satisfied with the internal review decision, they may appeal to the Federal Circuit Court of Australia or the Federal Court of Australia for a review of the decision under the Administrative Decisions (Judicial Review) Act 1977. © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Date of Issue: 28 February 2025 Date of Effect: 28 February 2025 [1] 'Eligible officer' takes its meaning from section 1272B of the Corporation Act 2001 (Corporations Act) and section 308-15 of the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (CATSI Act). [2] Subsection 1272C(1) of the Corporations Act; subsection 308-20(1) of the CATSI Act. [3] Paragraph 2.35 of the Explanatory Memorandum to the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019. [4] Subsection 1272A(3) of the Corporations Act; subsection 308-10(3) of the CATSI Act. [5] 'Registrar' takes its meaning from section 9 of the Corporations Act and is defined as the 'Commonwealth Registrar' under section 694-120 of the CATSI Act. [6] Section 1272E of the Corporations Act; section 308-30 of the CATSI Act. [7] Subsection 1272E(1) of the Corporations Act; subsection 308-30(1) of the CATSI Act. [8] For further information, refer to About director ID . [9] Enforcement action includes but is not limited to direction notices, Australian Securities and Investments Commission investigations and prosecution. Other References: About director ID Explanatory Memorandum to the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019",Explanatory Memorandum | Administrative Decisions (Judicial Review) Act 1977 | Corporations Act 2001 9 | Corporations Act 2001 70 | Corporations Act 2001 1272A(3) | Corporations Act 2001 1272B | Corporations Act 2001 1272C(1) | Corporations Act 2001 1272C(2)(a)(iii) | Corporations Act 2001 1272E | Corporations Act 2001 1272E(1) | Corporations (Aboriginal and Torres Strait Islander) Act 2006 308-10(3) | Corporations (Aboriginal and Torres Strait Islander) Act 2006 308-15 | Corporations (Aboriginal and Torres Strait Islander) Act 2006 308-20(1) | Corporations (Aboriginal and Torres Strait Islander) Act 2006 308-20(2)(a)(iii) | Corporations (Aboriginal and Torres Strait Islander) Act 2006 308-30 | Corporations (Aboriginal and Torres Strait Islander) Act 2006 308-30(1) | Corporations (Aboriginal and Torres Strait Islander) Act 2006 694-50 | Corporations (Aboriginal and Torres Strait Islander) Act 2006 694-120,,Administrative Decisions (Judicial Review) Act 1977 | Corporations Act 2001 9 | Corporations Act 2001 70 | Corporations Act 2001 1272A(3) | Corporations Act 2001 1272B | Corporations Act 2001 1272C(1) | Corporations Act 2001 1272C(2)(a)(iii) | Corporations Act 2001 1272E | Corporations Act 2001 1272E(1) | Corporations (Aboriginal and Torres Strait Islander) Act 2006 308-10(3) | Corporations (Aboriginal and Torres Strait Islander) Act 2006 308-15 | Corporations (Aboriginal and Torres Strait Islander) Act 2006 308-20(1) | Corporations (Aboriginal and Torres Strait Islander) Act 2006 308-20(2)(a)(iii) | Corporations (Aboriginal and Torres Strait Islander) Act 2006 308-30 | Corporations (Aboriginal and Torres Strait Islander) Act 2006 308-30(1) | Corporations (Aboriginal and Torres Strait Islander) Act 2006 694-50 | Corporations (Aboriginal and Torres Strait Islander) Act 2006 694-120,,About director ID Explanatory Memorandum to the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20251/NAT/ATO/00001,
PS LA 2025/2,Public country-by-country reporting exemptions,5 December 2025,5 December 2025,Law Administration Practice Statement,True,"APPENDIX 1 – Examples: The granting of either a partial or full Public CBC reporting exemption for a reporting period depends on the holistic facts and circumstances of each case. The examples which follow: • do not fetter the exercise of the Commissioner's discretion, they are for illustrative purposes only • have been simplified to illustrate various aspects of the Commissioner's discretion • are not intended to prescribe the level of information required to properly determine whether or not the discretion should be exercised. • do not fetter the exercise of the Commissioner's discretion, they are for illustrative purposes only • have been simplified to illustrate various aspects of the Commissioner's discretion • are not intended to prescribe the level of information required to properly determine whether or not the discretion should be exercised. In practice, more information will be needed to reach a conclusion on whether the information in question should be exempted from public disclosure. Example 1 – national security Plane Servicing Company (PSC) is a company that provides aircraft maintenance services to the airfleet operated by the Royal Australian Air Force and Royal Australian Navy. The company manages aircraft and helicopter servicing hangars, including equipment and onsite employees, in multiple locations where the Australian military operates, both in Australia and overseas. PSC has no other business operations. PSC lodges an application for a full exemption from Australian Public CBC reporting for the period that has just ended. PSC seeks a full exemption on the basis that they are exclusively a defence contracting enterprise and that public disclosure of their information could breach their government (client) contracts and compromise Australian national security by revealing strategic locations, operations, and defence capabilities. They are of the view that harm may arise from the public disclosure of the information required for the Public CBC report. The ATO officer requests information about what information is already publicly available. PSC acknowledges that it lodges financial reports with the Australian Securities and Investment Commission, which are publicly accessible, some of its government contracts have been publicly acknowledged (by the government and on the AusTender website) and it has disclosed some of the relevant information on its website. As information is already in the public domain or is discernible from public sources about the entity's Australian business, the officer forms the view that a full exemption is not appropriate. The ATO officer contacts PSC to indicate that the decision about granting a full exemption would be unfavourable and to discuss whether they want a partial exemption to be considered. PSC changes their request to a partial exemption request for the period. PSC provides a statement that the disclosure of information about their operations in 'Specified Country X' would compromise national security, as it would expose the fact that a business known to be an Australian Government defence contractor has undertaken activity in that jurisdiction, and provides evidence that the Australian Government has imposed secrecy on PSC on the grounds of national security. PSC provides a statement that the disclosure of certain information about their operations in 'Specified Country Y' would compromise national security, as it would expose the size of operations in that jurisdiction. While it is public knowledge that the Australian Government has some presence in Country Y, PSC provides evidence that the Australian Government has imposed secrecy on PSC on the grounds of national security, and that the Public CBC report – particularly employee numbers, revenue, asset and tax information – would reveal, either directly or by inference, the scale of its operations in that jurisdiction. PSC provides evidence that the Australian Government has imposed secrecy on PSC on the grounds of national security in relation to the number of employees they have in Australia. As a result, the ATO officer decides to exercise the Commissioner's discretion by granting a partial exemption to exempt PSC from reporting: • any information about Specified Country X • particular information fields regarding Specified Country Y, and • the number of employees as part of their Australian information. This outcome is reasonable and appropriate in the circumstances, balancing the transparency intention of the Public CBC reporting regime and the requirement for secrecy which the government has imposed on its contractor. Note: if PSC was a private company that had multiple other sources of revenue in Australia, the outcome may be different. That is, if the compromise of national security was not identifiable from the Public CBC disclosures, the discretion may not need to be exercised to meet both the transparency and secrecy objectives. Example 1 – national security Plane Servicing Company (PSC) is a company that provides aircraft maintenance services to the airfleet operated by the Royal Australian Air Force and Royal Australian Navy. The company manages aircraft and helicopter servicing hangars, including equipment and onsite employees, in multiple locations where the Australian military operates, both in Australia and overseas. PSC has no other business operations. PSC lodges an application for a full exemption from Australian Public CBC reporting for the period that has just ended. PSC seeks a full exemption on the basis that they are exclusively a defence contracting enterprise and that public disclosure of their information could breach their government (client) contracts and compromise Australian national security by revealing strategic locations, operations, and defence capabilities. They are of the view that harm may arise from the public disclosure of the information required for the Public CBC report. The ATO officer requests information about what information is already publicly available. PSC acknowledges that it lodges financial reports with the Australian Securities and Investment Commission, which are publicly accessible, some of its government contracts have been publicly acknowledged (by the government and on the AusTender website) and it has disclosed some of the relevant information on its website. As information is already in the public domain or is discernible from public sources about the entity's Australian business, the officer forms the view that a full exemption is not appropriate. The ATO officer contacts PSC to indicate that the decision about granting a full exemption would be unfavourable and to discuss whether they want a partial exemption to be considered. PSC changes their request to a partial exemption request for the period. PSC provides a statement that the disclosure of information about their operations in 'Specified Country X' would compromise national security, as it would expose the fact that a business known to be an Australian Government defence contractor has undertaken activity in that jurisdiction, and provides evidence that the Australian Government has imposed secrecy on PSC on the grounds of national security. PSC provides a statement that the disclosure of certain information about their operations in 'Specified Country Y' would compromise national security, as it would expose the size of operations in that jurisdiction. While it is public knowledge that the Australian Government has some presence in Country Y, PSC provides evidence that the Australian Government has imposed secrecy on PSC on the grounds of national security, and that the Public CBC report – particularly employee numbers, revenue, asset and tax information – would reveal, either directly or by inference, the scale of its operations in that jurisdiction. PSC provides evidence that the Australian Government has imposed secrecy on PSC on the grounds of national security in relation to the number of employees they have in Australia. As a result, the ATO officer decides to exercise the Commissioner's discretion by granting a partial exemption to exempt PSC from reporting: • any information about Specified Country X • particular information fields regarding Specified Country Y, and • the number of employees as part of their Australian information. This outcome is reasonable and appropriate in the circumstances, balancing the transparency intention of the Public CBC reporting regime and the requirement for secrecy which the government has imposed on its contractor. Note: if PSC was a private company that had multiple other sources of revenue in Australia, the outcome may be different. That is, if the compromise of national security was not identifiable from the Public CBC disclosures, the discretion may not need to be exercised to meet both the transparency and secrecy objectives. • any information about Specified Country X • particular information fields regarding Specified Country Y, and • the number of employees as part of their Australian information. Example 2 – breach of a foreign law Worldwide Employment Services Inc (WES) is headquartered in the United Kingdom and has operations in Australia, New Zealand, Japan and Foreign Country. Foreign Country is a specified country in the Minister's determination. Foreign Country has government procurement laws in place, which require: • tenderers to maintain confidentiality with respect to tenders that they submit • successful parties that are awarded contracts not to disclose the details and quantums of payments that they receive in return for performing the tasks for which they have been contracted. WES is providing employment services in Foreign Country under a government contract. It has no other source of revenue in Foreign Country. WES lodges an application for a partial exemption from Australian Public CBC reporting for a reporting period for the following information in relation to Foreign Country: • revenue from unrelated parties (paragraph 3DA(3)(d)) • profit or loss before income tax (paragraph 3DA(3)(f)) • income tax paid (on a cash basis) (paragraph 3DA(3)(h)) • income tax accrued (current year) (paragraph 3DA(3)(i)) • the reasons for the difference between the income tax accrued and the amount of income tax due if the income tax rate applicable in the jurisdiction was applied to the profit or loss before income tax (paragraph 3DA(3)(j)). The ATO officer considers the link between the particular information and Foreign Country's law. The ATO officer decides to grant a partial exemption to exclude the information WES has requested not to publish in respect of Foreign Country. WES is still required to publish Public CBC information, disaggregated for its Australian operations, and its aggregated information for the rest of the world pertaining to its Japanese and New Zealand operations. It is also required to publish partial disaggregated information for Foreign Country, being the labels that are not covered by the partial exemption. Example 2 – breach of a foreign law Worldwide Employment Services Inc (WES) is headquartered in the United Kingdom and has operations in Australia, New Zealand, Japan and Foreign Country. Foreign Country is a specified country in the Minister's determination. Foreign Country has government procurement laws in place, which require: • tenderers to maintain confidentiality with respect to tenders that they submit • successful parties that are awarded contracts not to disclose the details and quantums of payments that they receive in return for performing the tasks for which they have been contracted. WES is providing employment services in Foreign Country under a government contract. It has no other source of revenue in Foreign Country. WES lodges an application for a partial exemption from Australian Public CBC reporting for a reporting period for the following information in relation to Foreign Country: • revenue from unrelated parties (paragraph 3DA(3)(d)) • profit or loss before income tax (paragraph 3DA(3)(f)) • income tax paid (on a cash basis) (paragraph 3DA(3)(h)) • income tax accrued (current year) (paragraph 3DA(3)(i)) • the reasons for the difference between the income tax accrued and the amount of income tax due if the income tax rate applicable in the jurisdiction was applied to the profit or loss before income tax (paragraph 3DA(3)(j)). The ATO officer considers the link between the particular information and Foreign Country's law. The ATO officer decides to grant a partial exemption to exclude the information WES has requested not to publish in respect of Foreign Country. WES is still required to publish Public CBC information, disaggregated for its Australian operations, and its aggregated information for the rest of the world pertaining to its Japanese and New Zealand operations. It is also required to publish partial disaggregated information for Foreign Country, being the labels that are not covered by the partial exemption. • tenderers to maintain confidentiality with respect to tenders that they submit • successful parties that are awarded contracts not to disclose the details and quantums of payments that they receive in return for performing the tasks for which they have been contracted. • revenue from unrelated parties (paragraph 3DA(3)(d)) • profit or loss before income tax (paragraph 3DA(3)(f)) • income tax paid (on a cash basis) (paragraph 3DA(3)(h)) • income tax accrued (current year) (paragraph 3DA(3)(i)) • the reasons for the difference between the income tax accrued and the amount of income tax due if the income tax rate applicable in the jurisdiction was applied to the profit or loss before income tax (paragraph 3DA(3)(j)). Example 3 – commercial sensitivity Widget Co is an Australian-headquartered public company that designs and manufactures widgets (protected by patent and trademark). The widgets are a new product and Widget Co is seeking to break into a market it has not operated in before, and expects to cause disruption to existing market participants. In addition to Australia, Widget Co operates in Singapore, Germany, the United Kingdom, France, the United States of America and Canada, and is considering expanding. It has a 5-year strategy to launch its business in a new jurisdiction. The launch is a capital and employee-intensive effort (the existence of which is not publicly disclosed) that is only expected to lead to substantial revenues in the fourth and fifth year, at which time its competitors would be aware of the breadth of its operations. Widget Co states that the disclosure of tangible asset and employee figures in year 3 in particular jurisdictions (that is, disclosure of year 1 information, 12 months after it ends) will provide competitors with information about their business strategy a year earlier than their competitors would otherwise obtain it, giving them time to undertake practices designed to effectively deny Widget Co access to the jurisdictions' markets. Widget Co provides evidence of similar behaviour in relation to other recent attempts of new entrants to enter the market. Widget Co seeks a full exemption from Public CBC reporting for the period on the basis of commercial sensitivity and its circumstances. Widget Co provides evidence to demonstrate: • their 5-year strategy and costs already incurred in line with this strategy • that information pertaining to the widgets and its business operations is restricted (both within the company and not publicly available) • their links to 3 specified countries. The ATO officer is of the view that the information and reasoning submitted does not support non-disclosure of revenues, profits before income tax and income tax amounts. These pieces of information do not reveal details of its business strategy (on the information provided). The ATO officer is of the view that the public disclosure of the tangible asset and employee information in the Public CBC report for particular jurisdictions would reveal information likely to cause substantial adverse ramifications for Widget Co. In contrast, publication of the information about its Australian business practices would not cause such harm, and much of the information would be publicly available via the company's Australian Securities Exchange disclosures and financial reports filed with the Australian Securities and Investment Commission. The ATO officer contacts Widget Co to indicate that a full exemption does not seem justified, and to discuss whether they want to seek a partial exemption. The discussion is held before a decision is made for the reporting period to provide an opportunity to send any further information. Example 3 – commercial sensitivity Widget Co is an Australian-headquartered public company that designs and manufactures widgets (protected by patent and trademark). The widgets are a new product and Widget Co is seeking to break into a market it has not operated in before, and expects to cause disruption to existing market participants. In addition to Australia, Widget Co operates in Singapore, Germany, the United Kingdom, France, the United States of America and Canada, and is considering expanding. It has a 5-year strategy to launch its business in a new jurisdiction. The launch is a capital and employee-intensive effort (the existence of which is not publicly disclosed) that is only expected to lead to substantial revenues in the fourth and fifth year, at which time its competitors would be aware of the breadth of its operations. Widget Co states that the disclosure of tangible asset and employee figures in year 3 in particular jurisdictions (that is, disclosure of year 1 information, 12 months after it ends) will provide competitors with information about their business strategy a year earlier than their competitors would otherwise obtain it, giving them time to undertake practices designed to effectively deny Widget Co access to the jurisdictions' markets. Widget Co provides evidence of similar behaviour in relation to other recent attempts of new entrants to enter the market. Widget Co seeks a full exemption from Public CBC reporting for the period on the basis of commercial sensitivity and its circumstances. Widget Co provides evidence to demonstrate: • their 5-year strategy and costs already incurred in line with this strategy • that information pertaining to the widgets and its business operations is restricted (both within the company and not publicly available) • their links to 3 specified countries. The ATO officer is of the view that the information and reasoning submitted does not support non-disclosure of revenues, profits before income tax and income tax amounts. These pieces of information do not reveal details of its business strategy (on the information provided). The ATO officer is of the view that the public disclosure of the tangible asset and employee information in the Public CBC report for particular jurisdictions would reveal information likely to cause substantial adverse ramifications for Widget Co. In contrast, publication of the information about its Australian business practices would not cause such harm, and much of the information would be publicly available via the company's Australian Securities Exchange disclosures and financial reports filed with the Australian Securities and Investment Commission. The ATO officer contacts Widget Co to indicate that a full exemption does not seem justified, and to discuss whether they want to seek a partial exemption. The discussion is held before a decision is made for the reporting period to provide an opportunity to send any further information. • their 5-year strategy and costs already incurred in line with this strategy • that information pertaining to the widgets and its business operations is restricted (both within the company and not publicly available) • their links to 3 specified countries. Example 4 – commercial sensitivity AM Co is a private business entity providing professional services, which has Public CBC reporting obligations. It seeks a partial exemption from reporting any information about its operations outside Australia on the basis that it earns the majority of its revenue in a single jurisdiction outside of Australia, and that jurisdiction is not a specified country. It asserts that the aggregated reporting obligations would effectively disclose information about its operations in that jurisdiction, and that was clearly not intended. AM Co reasons that it is a professional services business which has consciously been structured privately to be more competitive. The ATO officer explains that the business' private structure and its lack of public accountability or reporting obligations elsewhere are not, on their own, reasons for us to give an exemption (see paragraphs 25 to 29 of this Practice Statement). AM Co is concerned that disclosing revenue from unrelated parties, when they are so exposed in a single jurisdiction, will provide those parties increased bargaining power to charge them higher fees. However, AM Co is unable to explain how the disclosure could be used in this way in its circumstances. The ATO officer discusses this with AM Co and asks for any further submissions and evidence. AM Co provides further submissions that explain that disclosure of profit before income tax has a real risk of causing substantial ramifications to its business. It will allow competitors to gain new, important information that will enable them to target pricing strategies in a way to take market share from AM Co in circumstances where AM Co will be unable to respond. The evidence demonstrates how disclosure has real consequences for AM Co's ability to sustain its long-standing business model. The ATO officer reviews this evidence together with the explanations provided by AM Co and is satisfied there is a logical connection between the disclosure and the potential harm to AM Co's business. The ATO officer concludes a partial exemption is warranted in the circumstances as the disclosure would result in substantial ramifications for AM Co (applying an objective standard). Example 4 – commercial sensitivity AM Co is a private business entity providing professional services, which has Public CBC reporting obligations. It seeks a partial exemption from reporting any information about its operations outside Australia on the basis that it earns the majority of its revenue in a single jurisdiction outside of Australia, and that jurisdiction is not a specified country. It asserts that the aggregated reporting obligations would effectively disclose information about its operations in that jurisdiction, and that was clearly not intended. AM Co reasons that it is a professional services business which has consciously been structured privately to be more competitive. The ATO officer explains that the business' private structure and its lack of public accountability or reporting obligations elsewhere are not, on their own, reasons for us to give an exemption (see paragraphs 25 to 29 of this Practice Statement). AM Co is concerned that disclosing revenue from unrelated parties, when they are so exposed in a single jurisdiction, will provide those parties increased bargaining power to charge them higher fees. However, AM Co is unable to explain how the disclosure could be used in this way in its circumstances. The ATO officer discusses this with AM Co and asks for any further submissions and evidence. AM Co provides further submissions that explain that disclosure of profit before income tax has a real risk of causing substantial ramifications to its business. It will allow competitors to gain new, important information that will enable them to target pricing strategies in a way to take market share from AM Co in circumstances where AM Co will be unable to respond. The evidence demonstrates how disclosure has real consequences for AM Co's ability to sustain its long-standing business model. The ATO officer reviews this evidence together with the explanations provided by AM Co and is satisfied there is a logical connection between the disclosure and the potential harm to AM Co's business. The ATO officer concludes a partial exemption is warranted in the circumstances as the disclosure would result in substantial ramifications for AM Co (applying an objective standard). Example 5 – foreign jurisdiction with Public CBC reporting regime Global Manufacturing GMBH is a Public CBC reporting entity headquartered in Germany. It has manufacturing operations in several countries, including Australia. Global Manufacturing GMBH has a Euro functional currency for taxation purposes in Australia. It has an annual turnover of EUR684.75 million for the relevant reporting period, equivalent to $1.1 billion (converted at the rate 0.6225, being the exchange rate applicable for the last day of the Public CBC reporting period). In Germany, under Sections 342 to 342p of Handelsgesetzbuch (HGB – German Commercial Code), Public CBC reporting applies to entities with a turnover of at least EUR750 million in 2 consecutive financial years. Global Manufacturing GMBH lodges an application for a full exemption from Australian Public CBC reporting, reasoning that it does not meet the minimum threshold for Public CBC reporting in its home jurisdiction, nor in any other jurisdiction in which it operates. To support their exemption application, Global Manufacturing GMBH provides: • independently audited short-form financial statements for the relevant financial year showing their global turnover • proof of domicile in Germany • a statement confirming they are not required to prepare or submit a Public CBC report in Germany, including reference to the relevant law in the jurisdiction, the HGB, and a calculation showing the global turnover of the parent compared to the Public CBC threshold. The ATO officer considers the facts and circumstances, including the cost of compliance for Global Manufacturing GMBH in the circumstances. The non-alignment of the Public CBC reporting threshhold arises from the depreciation of the Australian dollar against the Euro, and Global Manufacturing GMBH has no Public CBC reporting obligations elsewhere globally. The officer decides to give Global Manufacturing GMBH a full exemption from Public CBC reporting for the reporting period. Subsequent period In the following period, the size of Global Manufacturing GMBH remains below the Public CBC threshold in Germany and other jurisdictions in which it operates, so it applies to the ATO for a further exemption for a subsequent period. It provides a statement advising that it remains below the relevant threshold and a copy of the short-form financial statements for that period. The ATO officer grants a full exemption from Public CBC reporting for that period. This outcome is reasonable and appropriate in the circumstances, balancing the transparency intent of the Public CBC reporting regime and the effect of currency fluctuation. It is reasonable to grant the request if the reporting entity is under the monetary threshold in their home jurisdiction and all other jurisdictions in which they operate. The same reasoning does not extend to other materiality thresholds or deferrals (or other variances in Australia's law which were considered during consultation and design of the regime). Note: Australia's threshold is 'annual global income' but other jurisdictions may calculate relevant revenues differently. For present purposes, the ATO does not require that revenue is calculated identically in the other jurisdiction. Example 5 – foreign jurisdiction with Public CBC reporting regime Global Manufacturing GMBH is a Public CBC reporting entity headquartered in Germany. It has manufacturing operations in several countries, including Australia. Global Manufacturing GMBH has a Euro functional currency for taxation purposes in Australia. It has an annual turnover of EUR684.75 million for the relevant reporting period, equivalent to $1.1 billion (converted at the rate 0.6225, being the exchange rate applicable for the last day of the Public CBC reporting period). In Germany, under Sections 342 to 342p of Handelsgesetzbuch (HGB – German Commercial Code), Public CBC reporting applies to entities with a turnover of at least EUR750 million in 2 consecutive financial years. Global Manufacturing GMBH lodges an application for a full exemption from Australian Public CBC reporting, reasoning that it does not meet the minimum threshold for Public CBC reporting in its home jurisdiction, nor in any other jurisdiction in which it operates. To support their exemption application, Global Manufacturing GMBH provides: • independently audited short-form financial statements for the relevant financial year showing their global turnover • proof of domicile in Germany • a statement confirming they are not required to prepare or submit a Public CBC report in Germany, including reference to the relevant law in the jurisdiction, the HGB, and a calculation showing the global turnover of the parent compared to the Public CBC threshold. The ATO officer considers the facts and circumstances, including the cost of compliance for Global Manufacturing GMBH in the circumstances. The non-alignment of the Public CBC reporting threshhold arises from the depreciation of the Australian dollar against the Euro, and Global Manufacturing GMBH has no Public CBC reporting obligations elsewhere globally. The officer decides to give Global Manufacturing GMBH a full exemption from Public CBC reporting for the reporting period. Subsequent period In the following period, the size of Global Manufacturing GMBH remains below the Public CBC threshold in Germany and other jurisdictions in which it operates, so it applies to the ATO for a further exemption for a subsequent period. It provides a statement advising that it remains below the relevant threshold and a copy of the short-form financial statements for that period. The ATO officer grants a full exemption from Public CBC reporting for that period. This outcome is reasonable and appropriate in the circumstances, balancing the transparency intent of the Public CBC reporting regime and the effect of currency fluctuation. It is reasonable to grant the request if the reporting entity is under the monetary threshold in their home jurisdiction and all other jurisdictions in which they operate. The same reasoning does not extend to other materiality thresholds or deferrals (or other variances in Australia's law which were considered during consultation and design of the regime). Note: Australia's threshold is 'annual global income' but other jurisdictions may calculate relevant revenues differently. For present purposes, the ATO does not require that revenue is calculated identically in the other jurisdiction. • independently audited short-form financial statements for the relevant financial year showing their global turnover • proof of domicile in Germany • a statement confirming they are not required to prepare or submit a Public CBC report in Germany, including reference to the relevant law in the jurisdiction, the HGB, and a calculation showing the global turnover of the parent compared to the Public CBC threshold. | APPENDIX 2 – Evidentiary list: The following is a non-exhaustive list of the documents entities may provide to support their application for an exemption. This list does not limit the documents that may be provided to substantiate an exemption request: • information about the parent CBC reporting entity, the CBC group, its structure and membership as relevant to the application • annual reports • general purpose financial statements • global financial statements • Australian Securities and Investments Commission financial statements (for Australian-resident entities) • balance sheets • tax reconciliation statements • contracts and agreements • documents from financial institutions • memorandum of understanding • tender agreements • valuations • policy documents related to contracts • information about foreign laws that are relevant (if they have been relied upon) • reports or analysis about the impact of public disclosure • all other source documents relied upon. • information about the parent CBC reporting entity, the CBC group, its structure and membership as relevant to the application • annual reports • general purpose financial statements • global financial statements • Australian Securities and Investments Commission financial statements (for Australian-resident entities) • balance sheets • tax reconciliation statements • contracts and agreements • documents from financial institutions • memorandum of understanding • tender agreements • valuations • policy documents related to contracts • information about foreign laws that are relevant (if they have been relied upon) • reports or analysis about the impact of public disclosure • all other source documents relied upon. Where an entity is seeking an exemption on the basis of the foreign currency threshold, they should provide: • their home jurisdiction • the law of the jurisidiction (if relevant) in English • information about reporting thresholds of other reporting regimes (if relevant) • their global annual turnover in the unit of currency in the home jurisdiction • the currency conversion rate of the home jurisdiction threshhold and information setting out the source of that rate. • their home jurisdiction • the law of the jurisidiction (if relevant) in English • information about reporting thresholds of other reporting regimes (if relevant) • their global annual turnover in the unit of currency in the home jurisdiction • the currency conversion rate of the home jurisdiction threshhold and information setting out the source of that rate. © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Date of Issue: 5 December 2025 Date of Effect: 5 December 2025 [1] Section 3DA of the Taxation Administration Act 1953 (TAA). [2] Schedule 4 of the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Act 2024 inserted sections 3D, 3DA and 3DB (with penalty provisions and minor other amendments) into the TAA, with effect from 1 July 2024. [3] This Practice Statement is part of the Commissioner's guidance called for by paragraph 4.24 of the Explanatory Memorandum to the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 (EM). [4] How to apply for a Public CBC reporting exemption. [5] Law Administration Practice Statement PS LA 1998/1 Law administration practice statements . [6] Contained in subsections 3D(5) and (6). [7] Paragraph 3D(1)(f) and subsection 3DB(4). [8] See subsection 3DB(4). [9] Paragraph 3D(1)(a). [10] Paragraph 3D(1)(c). [11] Subsection 815-380(1) of the ITAA 1997. [12] Within the meaning provided by section 815-375 of the ITAA 1997. [13] Paragraph 815-380(1)(b) of the ITAA 1997. [14] Paragraph 3D(1)(d). [15] 'Aggregated turnover' has the meaning given by section 328-115 of the ITAA 1997. [16] Paragraph 3D(1)(e). Also see paragraphs 4.16 to 4.17 of the EM for discussion of the 'small Australian presence' exclusion. [17] Paragraphs 3D(1)(f) and (g). [18] See paragraph 4.14 of the EM. [19] By publishing the Public CBC report on data.gov.au , see subsections 3D(3) and (4). [20] Senate Standing Committee on Economics (July 2024) Department of Treasury – Answers to Questions on Notice – Inquiry into Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 , aph.gov.au; Stephen Jones MP, Second Reading Speech, Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024, Commonwealth of Australia, House of Representatives, Official Hansard , 5 June 2024, pages 3724-6. [21] Global Reporting Institute (2019) GRI 207: Tax 2019 , https://www.globalreporting.org/how-to-use-the-gri-standards/gri-standards-english-language/ , disclosures 207-1 and 207-4. See also, paragraph 3DA(7)(a). [22] Senate Standing Committee on Economics (July 2024) Department of Treasury – Answers to Questions on Notice – Inquiry into Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 , aph.gov.au; Jones, S (Assistant Treasurer and Minister for Financial Services), Chalmers, J (Treasurer) and Leigh, A (Assistant Minister for Competition, Charities and Treasury) 2024, Multinational tax transparency, Buy Now Pay Later and philanthropic laws pass Parliament , media release, Canberra, 24 November. [23] Stephen Jones MP, Second Reading Speech, Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024, Commonwealth of Australia, House of Representatives, Official Hansard , 5 June 2024, pages 3724–6. [24] Senate Standing Committee on Economics (July 2024) Department of Treasury – Answers to Questions on Notice – Inquiry into Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 , aph.gov.au. [25] See Chapter 4 of the EM; the Explanatory Statement to the Taxation Administration (Country by Country Reporting Jurisdictions Determination 2024 and Stephen Jones MP, Second Reading Speech, Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024, Commonwealth of Australia, House of Representatives, Official Hansard , 5 June 2024, pages 3724–6. [26] Senate Standing Committee on Economics (July 2024) Department of Treasury – Answers to Questions on Notice – Inquiry into Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 , aph.gov.au. [27] Subsections 3DB(5) and (6) use 'may', which signifies discretion (subject to contrary intention): subsection 33(2A) of the Acts Interpretation Act 1901 . [28] Subsections 3DB(5) and (6) and paragraph 4.18 of the EM. [29] Subsection 3DB(5). [30] Subsection 3DB(6). [31] Paragraph 4.21 of the EM. [32] Minister for Aboriginal Affairs v Peko-Wallsend Ltd [1986] HCA 40; 162 CLR 24 at [39–40] and [308–310] and Hyder v Commissioner of Taxation [2022] FCA 264. [33] Ansett Transport Industries (Operations) Pty Ltd v Commonwealth [1977] HCA 71; 139 CLR 54 at [61], per Barwick CJ. [34] Nikac, S. v Minister for Immigration, Local Govt & Ethnic Affairs [1988] FCA 670; 16 ALD 611 at [625], per Wilcox J; BHP Direct Reduced Iron Pty Ltd v Chief Executive Officer, Australian Customs Service [1998] FCA 1346; 55 ALD 665 at [682], per Carr J. [35] Giris Pty Ltd v Commissioner of Taxation (Cth) [1969] HCA 5, per Windeyer J. [36] Paragraph 4.23 of the EM. [37] Paragraphs 4.1 to 4.9 of the EM. [38] Public country-by-country reporting – April 2023 and Public country-by-country reporting – February 2024 . [39] Refer Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 from the Senate Standing Committee on Economics. [40] The revised policy settings are summarised in the EM at Attachment 3: Impact Analysis. [41] Paragraph 4.18 of the EM. [42] Paragraph 4.22 of the EM. [43] Paragraph 3DA(1)(e) and subsection 3DA(2). [44] See content about currency fluctuation (paragraphs 84 to 85 of this Practice Statement) and changes in ownership (paragraphs 86 to 88 of this Practice Statement). [45] Commissioner of Taxation v Apted [2021] FCAFC 45 at [83–84], [105] and [109]. [46] Section 8 of the National Security Information (Criminal and Civil Proceedings) Act 2004 . [47] Section 4 of the Australian Security Intelligence Organisation Act 1979 and section 9 of the National Security Information (Criminal and Civil Proceedings) Act 2004 . [48] Section 10 of the National Security Information (Criminal and Civil Proceedings) Act 2004 . [49] Section 11 of the National Security Information (Criminal and Civil Proceedings) Act 2004 . [50] Paragraph 815-375(1)(c) of the ITAA 1997 in the definition of country by country reporting parent which was adopted for Public CBC in paragraph 3D(1)(b). [51] Division 355 of Schedule 1. [52] The Commissioner will be functus officio (in the same way as other decisions which may be made only once; compare with paragraphs 183 to 195 of Taxation Ruling TR 2011/5 Income tax: objections against income tax assessments ). [53] As the Public CBC Report is an approved form, the Commissioner may grant an extension of time to lodge under section 388-55 of Schedule 1. [54] Subsection 3DB(7). [55] Subsections 3DB(5) and (6). [56] Law Administration Practice Statement PS LA 2013/1 Statements of reasons pursuant to section 13 of the Administrative Decision (Judicial Review) Act 1977 . [57] The provisions enabling the Commissioner to grant an exemption from Public CBC reporting are not within the scope of Part IVC. [58] Under the Administrative Decisions (Judicial Review) Act 1977 or section 39B of the Judiciary Act 1903 . [59] Refer to paragraphs 93 to 110 of Law Administration Practice Statement PS LA 2009/9 Conduct of ATO litigation and engagement of ATO Dispute Resolution for further information. Related Rulings/Determinations: TR 2011/5 Related Practice Statements: PS LA 1998/1 PS LA 2009/9 PS LA 2013/1 Other References: Explanatory Memorandum to the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 Explanatory Statement to the Taxation Administration (Country by Country Reporting Jurisdictions) Determination 2024Global Reporting Institute (2019) GRI 207: Tax 2019, https://www.globalreporting.org/how-to-use-the-gri-standards/gri-standards-english-language/ Jones, S (Assistant Treasurer and Minister for Financial Services), Chalmers, J (Treasurer) and Leigh, A (Assistant Minister for Competition, Charities and Treasury) 2024, Multinational tax transparency, Buy Now Pay Later and philanthropic laws pass Parliament, media release, Canberra, 24 November.Senate Standing Committee on Economics (July 2024) Department of Treasury – Answers to Questions on Notice – Inquiry into Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024, aph.gov.auStephen Jones MP, Second Reading Speech, Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024, Commonwealth of Australia, House of Representatives, Official Hansard, 5 June 2024The Treasury, Public country-by-country reporting – April 2023 , Treasury website, 2023, accessed 25 November 2025.The Treasury Public country-by-country reporting – February 2024 , Treasury website, 2024, accessed 25 November 2025.",PS LA 2025/2EC | TR 2011/5 | PS LA 1998/1 | PS LA 2009/9 | PS LA 2013/1 | Explanatory Memorandum | Explanatory Statement | ITAA 1997 SubDiv 815-E | ITAA 1997 815-375 | ITAA 1997 815-375(1)(c) | ITAA 1997 815-380(1) | ITAA 1997 815-380(1)(b) | TAA 1953 3D | TAA 1953 3D(1)(a) | TAA 1953 3D(1)(b) | TAA 1953 3D(1)(c) | TAA 1953 3D(1)(d) | TAA 1953 3D(1)(e) | TAA 1953 3D(1)(f) | TAA 1953 3D(1)(g) | TAA 1953 3D(3) | TAA 1953 3D(4) | TAA 1953 3D(5) | TAA 1953 3D(6) | TAA 1953 3DA | TAA 1953 3DA(1)(e) | TAA 1953 3DA(2) | TAA 1953 3DA(7)(a) | TAA 1953 3DB | TAA 1953 3DB(4) | TAA 1953 3DB(5) | TAA 1953 3DB(6) | TAA 1953 3DB(7) | TAA 1953 8C(1)(ab) | TAA 1953 Pt IVC | TAA 1953 Sch 1 Div 355 | TAA 1953 Sch 1 388-55 | Acts Interpretation Act 1901 33(2A) | Administrative Decisions (Judicial Review) Act 1977 | Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Act 2024 Sch 4 | [1977] HCA 71 | 139 CLR 54 | [1998] FCA 1346 | 55 ALD 665 | 2021 ATC 20-784 | 69 ATC 4015 | [2022] FCA 264 | 2022 ATC 20-820 | 162 CLR 24 | (1986) 66 ALR 299 | [1988] FCA 670 | 20 FCR 65 | (1988) 92 ALR 167 | 16 ALD 611,PS LA 1998/1 PS LA 2009/9 PS LA 2013/1,ITAA 1997 328-115 | ITAA 1997 SubDiv 815-E | ITAA 1997 815-375 | ITAA 1997 815-375(1)(c) | ITAA 1997 815-380(1) | ITAA 1997 815-380(1)(b) | TAA 1953 3D | TAA 1953 3D(1)(a) | TAA 1953 3D(1)(b) | TAA 1953 3D(1)(c) | TAA 1953 3D(1)(d) | TAA 1953 3D(1)(e) | TAA 1953 3D(1)(f) | TAA 1953 3D(1)(g) | TAA 1953 3D(3) | TAA 1953 3D(4) | TAA 1953 3D(5) | TAA 1953 3D(6) | TAA 1953 3DA | TAA 1953 3DA(1)(e) | TAA 1953 3DA(2) | TAA 1953 3DA(7)(a) | TAA 1953 3DB | TAA 1953 3DB(4) | TAA 1953 3DB(5) | TAA 1953 3DB(6) | TAA 1953 3DB(7) | TAA 1953 8C(1)(ab) | TAA 1953 Pt IVC | TAA 1953 Sch 1 Div 355 | TAA 1953 Sch 1 388-55 | Acts Interpretation Act 1901 33(2A) | Administrative Decisions (Judicial Review) Act 1977 | Australian Security Intelligence Organisation Act 1979 4 | Judiciary Act 1903 39B | National Security Information (Criminal and Civil Proceedings) Act 2004 8 | National Security Information (Criminal and Civil Proceedings) Act 2004 9 | National Security Information (Criminal and Civil Proceedings) Act 2004 10 | National Security Information (Criminal and Civil Proceedings) Act 2004 11 | Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Act 2024 Sch 4,,"Explanatory Memorandum to the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 Explanatory Statement to the Taxation Administration (Country by Country Reporting Jurisdictions) Determination 2024Global Reporting Institute (2019) GRI 207: Tax 2019, https://www.globalreporting.org/how-to-use-the-gri-standards/gri-standards-english-language/ Jones, S (Assistant Treasurer and Minister for Financial Services), Chalmers, J (Treasurer) and Leigh, A (Assistant Minister for Competition, Charities and Treasury) 2024, Multinational tax transparency, Buy Now Pay Later and philanthropic laws pass Parliament, media release, Canberra, 24 November.Senate Standing Committee on Economics (July 2024) Department of Treasury – Answers to Questions on Notice – Inquiry into Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024, aph.gov.auStephen Jones MP, Second Reading Speech, Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024, Commonwealth of Australia, House of Representatives, Official Hansard, 5 June 2024The Treasury, Public country-by-country reporting – April 2023 , Treasury website, 2023, accessed 25 November 2025.The Treasury Public country-by-country reporting – February 2024 , Treasury website, 2024, accessed 25 November 2025.",False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20252/NAT/ATO/00001,"There is a compendium for this document PS LA 2025/2EC . | What this Practice Statement is about | Scope of this Practice Statement | Background to the Public CBC reporting regime | Entities within the Public CBC reporting regime | When Public CBC reporting obligations apply | Public CBC reporting regime exemptions | Full or partial exemption | Considerations relevant to the exercise of the discretion | Timing of the application | Exemption per reporting period | Steps before making an unfavourable decision | Notification of exemption application outcome | Rights of judicial review | What this Practice Statement is about: 1. Multinational entities subject to the Public country-by-country (CBC) reporting regime must publish selected tax information [1] for Australia, specified countries and the remainder of their global operations. [2] | 2. Reporting obligations apply to Public CBC entities for reporting periods commencing on or after 1 July 2024, unless they have been granted an exemption. | 3. This Practice Statement provides context about the obligations imposed by the Public CBC reporting regime and guidance on the authority the law provides to the Commissioner to exempt an entity from those obligations under subsection 3DB(5) or (6) of the Taxation Administration Act 1953 (TAA). [3] | 4. The Public CBC reporting regime is separate from, and additional to, the reporting requirements imposed by Subdivision 815-E of the Income Tax Assessment Act 1997 (ITAA 1997), which is sometimes called private or confidential CBC. Private CBC obligations apply to income years starting on or after 1 January 2016. | 5. All further legislative references in this Practice Statement are to the TAA, unless otherwise indicated. | Scope of this Practice Statement: • background on the Public CBC reporting regime and exemptions • considerations relevant to exercising the discretion • the process for seeking an exemption from Public CBC reporting obligations • the information that reporting entities (applicants) should provide with the exemption application [4] , and • guidance about timeframes and review options. | 7. As decision-maker for an exemption application, you must follow the principles and guidance outlined in this Practice Statement [5] when exercising the Commissioner's discretion under subsection 3DB(5) or (6). However, this Practice Statement does not direct or restrict the discretion to exempt; each case must be decided on its own facts and circumstances. | 8. This Practice Statement does not apply to the exclusion from the Public CBC reporting regime for government-related entities. [6] | 9. This Practice Statement does not apply to the authority provided in the law for classes of entities to be exempted by regulation or legislative instrument. [7] While the principles in this Practice Statement may be relevant and informative to the Commissioner in considering whether to exempt a class of entities by legislative instrument, that is a separate exercise of authority. [8] | Entities within the Public CBC reporting regime: • it is a constitutional corporation, a partnership (in which each partner is a constitutional corporation) or a trust (of which each trustee is a constitutional corporation) [9] • it is a member of a CBC reporting group at any time during the reporting period [10] (that is, a group consolidated for accounting purposes as a single group or a notional listed company group) [11] , and • during the previous reporting period, it was a 'CBC reporting parent' [12] (an entity with annual global income for the period of A$1 billion or more, which was not controlled by another group member). | 11. If a subsidiary of a global group is not included in its global parent entity's consolidated financial statements, it may not meet the membership requirement [13] of that group and therefore may not be within that group's Public CBC reporting obligations. However, the entity may still be subject to the Public CBC reporting regime if it qualifies separately (that is, it has sufficient annual global income and meets the other requirements). | When Public CBC reporting obligations apply: • they, or a member of their CBC reporting group, are an Australian resident or a foreign resident operating an Australian permanent establishment [14] • their aggregated turnover [15] for the reporting period includes Australian-sourced income of $10 million or more [16] , and • they do not have a full exemption. [17] | 13. If they meet all of the requirements outlined in paragraph 12 of this Practice Statement, reporting entities are required to publish under the Public CBC reporting regime, even if they do not have foreign operations. [18] | 14. Entities publish by giving their Public CBC report to us in the approved form within 12 months after the end of the reporting period, and we facilitate its publication on an Australian Government website. [19] | Public CBC reporting regime exemptions: 15. Australia's Public CBC reporting regime is designed to enhance tax transparency by improving the quality of information disclosed by reporting entities in and about the jurisdictions in which they operate. This information – when consolidated and reported in a consistent, standardised way – better indicates the scale of an entity's activity in a country, and its commensurate tax contribution. [20] | 16. Australia's Public CBC reporting regime builds on the Global Reporting Initiative's Tax Standard (GRI 207: Tax 2019) [21] , which was informed by the confidential Organisation for Economic Co-operation and Development (OECD) CBC reporting model [22] , to establish 'one of the world's most comprehensive' Public CBC reporting regimes. [23] It does this by requiring 'enhanced reporting granularity to provide greater insights into the operational structure of an entity'. [24] | 17. Better corporate tax transparency helps address inconsistencies and difficulties in interpreting and comparing tax disclosures. This information improves the public debate on the appropriateness of current taxation settings by providing the community with a better understanding of an entity's operations and how much tax reporting entities pay relative to their activities. [25] | 18. Such public reporting enables investors and capital providers (for example, shareholders) to assess risk and inform their investment strategies, based on accurate information gathered from the public disclosures. [26] | 19. The law gives the Commissioner the power to exempt a reporting entity from some, or all, of its Public CBC reporting obligations for one reporting period at a time. The ability to grant a Public CBC reporting exemption is discretionary. [27] The law provides the 'exemption powers to respond to exceptional circumstances where disclosure of information … would be inappropriate'. [28] | Full or partial exemption: 20. The law provides discretion for the Commissioner to exempt a reporting entity from publishing information [29] or from publishing information 'of a particular kin d' [30] . The existence of both exemptions in the Public CBC reporting law supports the policy intent that a reporting entity should comply with the reporting requirements to the greatest extent possible. [31] | 21. For present purposes, 'full exemption' refers to an entity being released from all publishing obligations for a single reporting period under subsection 3DB(5). | 22. 'Partial exemption' refers to a release from some of the reporting obligations of an entity for a single reporting period under subsection 3DB(6). For example, one or more – but not all – of the pieces of information that are otherwise required to be published, or all information, but only for a particular jurisdiction or jurisdictions. | Considerations relevant to the exercise of the discretion: 23. A discretionary decision requires consideration of relevant factors. If the factors to be considered by a decision-maker are not specified in law, they must be determined by implication from the subject matter, scope and purpose of the law. [32] | 24. The vesting of a discretion in an official does not give that official authority to ignore policy in exercising that discretion. [33] Policy is a relevant consideration. [34] It guides administrative decision-making. [35] As the decision-maker, it is proper that you consider the policy of the law. | Purpose of the Public CBC reporting regime | 25. In exercising the Commissioner's discretion to grant an exemption, the purpose of the Public CBC reporting regime should be considered; being to enhance tax transparency [36] to help the public better assess an entity's economic presence in a jurisdiction and how this aligns with the entity's tax position in that jurisdiction. [37] The result of granting exemptions should not undermine the transparency and accountability aims of this disclosure regime, the integrity of the tax system, or the public's trust in our administration and stewardship of the system. | 26. During the law design process, extensive consultation was conducted on the proposed Public CBC reporting regime (including 2 Treasury consultations [38] and a Senate Committee Inquiry [39] ). Issues raised in submissions to each were considered, and some changes were made to earlier proposals. It is noted that certain aspects of the Public CBC reporting regime design were not changed. Importantly, private groups were not excluded from this public transparency regime, a carve-out for commercially sensitive information was not legislated, nor was any exemption by self-assessment. These design choices indicate that the parliamentary pursuit of transparency outweighed broad commercial sensitivity concerns and that the government intended businesses to engage with us to have their specific circumstances considered. | 27. Similarly, submissions calling for reducing the compliance burden by, for example, adopting the European Union regime or increasing certainty for entities by allowing exemption periods longer than one year were considered. Some revisions [40] were made – for example, the initial policy setting was to require disaggregated CBC disclosures for all jurisdictions, but this was changed to allow aggregated reporting for jurisdictions other than Australia and specified countries. Where differences remain, that is by design. | 28. Granting an exemption will result in a reporting entity not being required to publicly disclose some, or all, of the information specifically listed in the law, in the consistent format that the Public CBC reporting regime enables (for a particular reporting period). | 29. In deciding whether to exercise the discretion, you should consider whether the circumstances warrant the information not being published, even though the purpose of the regime is to deliver a meaningful enhancement to tax transparency. | Exceptional circumstances | 30. An administrative discretion of this kind is not limited, except by the subject matter, scope and purpose of the law, and its exercise should not be approached with preconceptions. However, the mandatory language, specificity and granularity of the reporting obligations imposed by the law indicate that the discretion is not to be exercised lightly. This is supported by observations in the EM that the power exists to enable us to respond to 'exceptional circumstances' [41] , that the exemption powers are expected to be exercised in 'limited circumstances' [42] and the nature of the examples in paragraph 4.23 of the EM. | 31. You should consider the extent to which the circumstances are unusual or different enough to take the subject of the exemption out of the ordinary course where disclosure is expected. | 32. Circumstances that are regularly, routinely or normally encountered are unlikely to be exceptional enough to justify an exemption. However, the circumstances need not be unique, unprecedented or very rare. | Expected consequences of disclosure | 33. In considering an exemption application, you should have regard to the potential ramifications of disclosure (to the applicant or another party) and whether they are disproportionate to the transparency and accountability aims of the Public CBC reporting regime. | 34. The exemption application should explain the adverse ramifications the disclosures may cause, with reference to the particular information that the Public CBC reporting regime requires to be disclosed. | 35. You should consider both the magnitude of the potential consequences and the likelihood of them eventuating. | 36. Consequences that are trivial or insignificant are unlikely to weigh towards granting an exemption. Consequences which are substantial (by an objective standard) will weigh towards the discretion being exercised. | 37. Generally, it will not be known whether the consequences that underpin an exemption request will eventuate before the exemption decision needs to be made. In making the exemption decision, you will need to consider the likelihood of those potential consequences arising. | 38. Where the potential consequences raised have a logical basis, supported by objective evidence, those future consequences should weigh towards the exercise of the discretion. To the extent the consequences are speculative or fanciful, they should be given less weight. | 39. Some exemption requests might identify potential consequences that are very severe, while their likelihood may be slim. You should still consider these very severe consequences despite their low likelihood, due to the potential irreversibility of harm if the information were published and those consequences arise. | Disclosure to the greatest extent possible | • a full exemption results in the least transparency, and detracts most from the purpose of the Public CBC reporting regime • a partial exemption results in some information being published, and detracts to a lesser extent from the purposes of the regime. | 41. In practice, this means that a partial exemption, where the disclosures to be made and not made reflect the applicant's circumstances, is more likely to be appropriate than a full exemption. | Information disguised by aggregation | 42. A relevant consideration is whether the information a reporting entity is concerned about disclosing is disguised in the Public CBC report. | 43. This could be because the disclosure at a jurisdiction level relates to several things. For example, the group may have multiple entities, business operations, transactions or contracts in the jurisdiction. Therefore, when grouped together, the disclosure might be too general or opaque regarding the matter that is sensitive. This would weigh against exercising the discretion. | 44. Similarly, the Public CBC reporting regime allows for reporting entities to aggregate their report for jurisdictions other than Australia and specified countries. [43] You should clarify with an applicant whether they intend to disclose information about these jurisdictions on an aggregated or disaggregated (country-by-country) basis. Depending on their circumstances, such as the number of countries the group operates in and the size and diversity of operations across those countries, disclosure on an aggregated basis could effectively disguise the matter of concern. This would weigh against exercising the discretion. | 45. The extent to which aggregation may mitigate an entity's concerns will depend on their facts and circumstances. For example, if an entity has a significant portion of their operations in one jurisdiction (which is not Australia or a specified jurisdiction), aggregation may be less effective at disguising their matter of concern. | 46. The ineffectiveness of aggregation to disguise information is not of itself a sufficient basis for granting an exemption. The reporting entity must still explain the circumstances and how disclosure of the aggregated information would cause substantial ramifications. | Publicly available information | • financial reports • stock exchange disclosures • court or litigation documents • Hansard • leaked information • freedom of information disclosures or disclosures in other jurisdictions • submissions to parliamentary committees • information in the Corporate Tax Transparency Report • information available on government websites, such as AusTender or data.gov.au, or published research and development expenditure information. | 48. You should consider the timing implications of the exemption sought. It is a relevant consideration that Public CBC reports are published retrospectively, that is, the information in the report concerns a period that has ended up to a year before the report is published. This may impact the sensitivity and value of the information in the report and may alter the consequences of it being made public. | 49. However, depending on the circumstances, disclosure of information relating to a period that ended more than a year ago could still be harmful to the reporting entity. In these cases, applicants should explain why the retrospectivity of the report does not diminish the harm the relevant disclosures may cause. | 50. Any application requesting an exemption on the basis that the information in the Public CBC report would mislead readers, would need to demonstrate something exceptional to show the applicant's disclosure would be relevantly misleading. | 51. The disclosure would need to detract from the transparency intent and frustrate the purpose of the Public CBC reporting regime. General concerns, such as the ability of readers at large to interpret the Public CBC report, do not justify an exemption as such concerns do not address how the information to be disclosed is misleading. | 52. You should also consider that reporting entities may mitigate or address any potential misunderstanding by contextualising information in the free-text fields of the report. They may also have the ability to contextualise information in other places, such as on their website or annual report. | 53. As noted at paragraph 27 of this Practice Statement, the costs associated with producing Public CBC reports were contemplated by parliament in the design of the Public CBC regime. Consequently, the cost of compliance alone is unlikely to justify an exemption. However, compliance costs in combination with other factors may carry more weight. [44] | 54. A reporting entity may seek an exemption on any basis. You must consider exemption applications holistically based on the facts and circumstances, and all reasons for the exemption set out in the application. | • impact on national security • breach of Australian law • breach of the laws of another jurisdiction • revealing commercially sensitive information. | • Public CBC reporting thresholds in other jurisdictions • currency fluctuations • the impact of changes in ownership. | 57. The existence of these matters does not automatically entitle a reporting entity to an exemption, and their absence does not preclude the discretion being exercised. You must give primary effect to the legislation when exercising the discretion. [45] | Impact on national security | 58. A factor in favour of granting a reporting exemption is if disclosure of the information would impact national security. | 59. Australian law defines 'national security' as Australia's defence, security, international relations, or law enforcement interests. [46] For the purposes of the Public CBC reporting regime, the national security of other jurisdictions may also be a relevant consideration. | • protection of the Commonwealth, states and territories (and their people) from espionage, sabotage, politically motivated violence, promotion of communal violence, attacks on Australia's defence system or acts of foreign interference – whether these threats originate from Australia or overseas • protection of Australia's territorial and border integrity from serious threats, and • carrying out of Australia's responsibilities to any foreign country in relation to any of the aforementioned matters. | 61. International relations refers to the political, military and economic relations with foreign governments and international organisations. [48] | • avoiding disruption to national and international efforts relating to law enforcement, criminal intelligence and security intelligence • protecting the technologies and methods used to collect, analyse, secure or otherwise deal with, criminal intelligence, foreign intelligence or security intelligence • the protection and safety of informants and of persons associated with informants • ensuring that intelligence and law enforcement agencies are not discouraged from giving information to a nation's government and government agencies. | • information that could reveal where secret defence, intelligence, security or law enforcement-related assets are placed around the world (by Australia or countries with which we are allied or have cooperative relationships) • information that could reveal where defence, intelligence, security or law enforcement personnel or contractors have been placed, if that placement is secret or ongoing, as it may put them in danger • information exposing contracts with Australian (or countries with which we are allied or have cooperative relationships) defence, intelligence, security or law enforcement agencies which the Australian Government (or countries with which we are allied or have cooperative relationships) has imposed strict secrecy requirements upon, has not publicly acknowledged and will not be sufficiently disguised by aggregation in the Public CBC report. | 64. The fact that a Public CBC reporting group operates in or with the defence, intelligence, security or law enforcement industries or sectors is not likely sufficient, on its own, to warrant an exemption. Much information about those entities may already be publicly available – particularly via their financial statements and contract notices on government websites such as the AusTender website. | 65. Contracts between these businesses and the government are not always related to national security. Public information (for example, available on AusTender) shows a wide variety of contracts, from the likely non-sensitive (air conditioners and office equipment) through to arms and ammunition, weapons, explosives, vehicles and surveillance and detection equipment. Where a reporting group has a significant proportion of commercial activities or activities that are not related to national security, the sensitive information may be effectively disguised among the rest, therefore a reporting exemption is less likely to be warranted. | 66. Public CBC reporting for specified jurisdictions may particularly expose information such as that outlined in paragraph 63 of this Practice Statement, because it is reported on a stand-alone, disaggregated basis. | 67. The applicant should explain whether the impact on national security arises from all the obligations imposed by the Public CBC reporting regime or from particular information being reported, and how publication of that information would adversely impact national security. | 68. You should consider consulting with the Department of Defence to obtain advice regarding the applicant's request. | 69. A factor in favour of granting a reporting exemption is if public disclosure of the information breaches an Australian law. This includes circumstances where disclosure would conflict with Australian legal or regulatory obligations, for example, statutory licences. The exemption application must specify the relevant law and reporting obligation and explain how the disclosure of that information breaches that law. | 70. If public disclosure of the information conflicts with a law of a state or territory, the disclosure requirements of the TAA will prevail. However, the reasons for prohibiting disclosure under those laws should be taken into account when considering an exemption application. | 71. If a conflict arises between the TAA and another law of the Commonwealth, the matter should not be progressed before seeking advice on which law prevails. | Breach of law of another jurisdiction | 72. A relevant factor in exercising the discretion to grant an exemption is whether public disclosure of the information breaches the law of another jurisdiction and the reasons for that prohibition from disclosure. | 73. The exemption application must specify the foreign law and explain whether it affects all of the reporting obligations or which particular kinds of information. A general reference to non-disclosure law for a subject matter, for example, is unlikely to be sufficient to justify a reporting exemption. | Revealing commercially sensitive information | 74. A factor in favour of granting a reporting exemption is if the information is commercially sensitive and public disclosure of the information would result in substantial ramifications (by an objective standard) for the entity. | 75. In determining whether disclosure would result in substantial ramifications for a reporting entity, you should consider whether the disclosure is reasonably likely to produce material consequences for the group's business. Substantial ramifications could include significant and widespread disruption to business practices, revenue streams or strategies (by an objective standard). Disruptions that are isolated in impact, implausible, or solely related to the cost of producing the report, are likely to be less compelling. | 76. Evaluating the ramifications of disclosure may involve an assessment of any evidence concerning how the reporting entity manages risks associated with the relevant commercially sensitive information – for example, if they have taken steps to keep such information confidential. | • the nature of the information • the value or cost of its development • whether the information's value would be diminished or destroyed by disclosure • its importance to the business • measures taken to keep the information secret. | 78. You are not required to investigate these indicators, the onus is on the applicant to provide their reasons and evidence. Expert or specialist advice is not required to be sought (by us or the applicant). These indicators are provided for your guidance when considering the material the applicant has provided. | 79. Information that is novel or specific, especially about operations, product process or strategy of the business, is likely commercially sensitive. However, the relevant question is whether the information required to be disclosed by the Public CBC reporting regime is commercially sensitive (and whether its publication would be harmful). For example, whether the number of employees the business has in Australia or in a specified jurisdiction is commercially sensitive. | 80. It may be a relevant consideration that a compilation of information (in the Public CBC report or combined with other sources) has commercial value or significance, independent of the individual data points. A general assertion that Public CBC disclosures will enable competitors to reverse-engineer decisions or insights into the business is unlikely to be sufficient, whereas an explanation of how particular pieces of information could be used against the business will be more compelling. | 81. Noting the policy rationale and law design choices that were made (see paragraphs 26 and 27 of this Practice Statement), the disclosure of the information must rise above the level of harm already contemplated by parliament in designing the reporting regime. For example, the fact a reporting entity is privately held or does not have any other public reporting obligations will not be sufficient on its own. | Public CBC reporting thresholds in other jurisdictions | 82. Australia's Public CBC reporting regime adopts a A$1 billion annual global income threshold. [50] Public CBC reporting regimes in other jurisdictions adopt different revenue thresholds in their local currency. | 83. You should give positive weight to an exemption request if a reporting entity is brought within Australia's Public CBC reporting regime for a period, solely due to fluctuations in foreign currency. For example, if the reporting entity is a resident in a jurisdiction with a Public CBC reporting regime but does not satisfy the revenue threshold of that regime (so is not within scope of their 'home' Public CBC reporting regime in that reporting period), but by virtue of exchange rate fluctuation they are within Australia's regime for that period. | 84. As explained in paragraph 53 of this Practice Statement, an exemption request based on the compliance burden of preparing CBC information is unlikely to be compelling on its own. In combination with other factors though, it may carry more weight. For example, if a reporting entity does not otherwise prepare the information that is required for Public CBC reporting, and they are only brought within scope of the Australian regime by virtue of foreign currency fluctuation, that combination of factors would produce a relatively greater compliance impost on the reporting entity. This may support the discretion being exercised. | 85. In contrast if, over multiple years the reporting entity is within scope, that will indicate that the group is of a scale that was intended to be within scope of the Australia Public CBC reporting regime, and it is not mere currency fluctuation that has brought them within scope as a one-off occasion. This would not support the discretion being exercised. | Impact of changes in ownership | 86. Changes to a reporting entity's ownership or structure, and their timing, may produce extraordinary outcomes under the Public CBC reporting regime. | 87. If an applicant's circumstances include a change in ownership structure, it is first necessary to consider if the entity has a Public CBC reporting obligation for the relevant reporting period. | 88. Where a reporting entity requests an exemption in connection with changes in ownership, you should consider their circumstances alongside any impact on the accuracy of information published, and the transparency that would not be achieved as a result of granting the exemption. This may include requests relating to transitional reporting periods, the acquisition of a reporting entity by another reporting entity in the preceding reporting period, or where a reporting entity has disposed of all entities in its group that were an Australian resident or a foreign resident operating an Australian permanent establishment during the reporting period. | Registration: 89. Entities are encouraged to register with us for Public CBC reporting before lodging an application for an exemption. Registration improves administrative efficiency, it does not change the obligations imposed by law on reporting entities. | 90. Entities seeking an exemption from Public CBC reporting should apply by submitting a written request to us with supporting information. Instructions for applying for an exemption are available at How to apply for a Public CBC reporting exemption . | 91. The exemption application should specify whether the reporting entity is requesting a full or partial exemption from Public CBC reporting obligations, or both. For partial exemptions, details should be provided about the particular information for which the exemption is sought. | 92. A reporting entity need not submit separate applications for a full exemption and a partial exemption, however you must separately consider the merits of each request, as these relate to the exercise of 2 separate powers in the TAA. | 93. When considering an application for a full exemption, if you consider a partial exemption is more suitable, you should discuss a partial exemption with the applicant. You should work with the relevant entity to progress any revised exemption request via the existing engagement. | Explanation and evidence: 94. The exemption application must include an explanation for the reporting exemption. The onus is on the reporting entity to justify why it should be granted an exemption. The application should be supported by relevant documents, legislative and legal references and an analysis of the potential adverse impacts that public disclosure of the information would have. There must be a logical connection between the information provided and the exemption requested. | 95. Applications will be considered on a case-by-case basis, based on the information provided. | • the application contains sufficient information and is supported by an appropriate level of evidence • further information is required, and • there are any anomalies or errors that require addressing. | 97. As per paragraph 110 of this Practice Statement, the law does not allow us to re-make a decision for a reporting period once an exemption application has been decided for that period. As such, you must endeavour to contact the applicant and give them an opportunity to correct any such shortcomings. | 98. If the information provided by the applicant does not support the exemption, and further information is required on matters relevant to the exemption request, you should give the applicant the opportunity to provide that information before making your decision. | 99. See Appendix 2 to this Practice Statement for examples of the types of evidence that may be provided. Applicants may also provide other documents as evidence as they see fit. | 100. The confidentiality of information provided in support of an exemption request is protected by statute. [51] | Timing of the application: 101. Reporting entities may apply for an exemption before the reporting period ends. We recommend that applicants consider their circumstances and supporting evidence available to them, to decide when it is appropriate to apply. Some applicants will only be in a position to provide reasons and evidence based on what actually occurred during the relevant reporting period after the period has ended. | 102. As per paragraph 110 of this Practice Statement, once an exemption application has been decided for a reporting period, that decision cannot be reconsidered. [52] | 103. Until an entity is notified that a full or partial exemption has been granted, the reporting obligations imposed by law remain in effect. If notification of the exemption decision is not received by the statutory due date for publishing, applicants should discuss with us an extension of time to report. [53] Each request for an extension of time will be assessed on its merits. It will be viewed favourably if the entity has provided its exemption application with reasonable time for consideration before the due date and is actively engaging with us in resolving that application. | Exemption per reporting period: 104. The Commissioner's discretion to grant exemptions to applicants applies to one reporting period at a time. [54] | 105. If an entity has been exempted from its reporting obligations, in whole or in part, for a prior reporting period and it wants the same exemption again, it must apply for that later reporting period. | • Where there are changes from the previous reporting period to some or all of the information previously provided – the entity should provide updated reasoning and information relevant to the reporting period for which the exemption is sought. • Where there are no changes from the previous reporting period – the entity may choose to provide a written statement confirming no changes have occurred from the previous reporting period and provide updated financial reports (where relevant to the exemption), and request that we consider the exemption request based on the same reasoning and evidence as the prior application. We will consider this type of streamlined request for up to 2 reporting periods after the first exemption is granted. Note: exemptions are not limited to 3 reporting periods, but after 3 periods, a full application will be required. | 107. If the circumstances that justified a prior exemption no longer exist (for example, the circumstances were temporary), the previous rationale would no longer apply. | 108. If you are concerned about the continuing accuracy and relevance of the reasons and evidence, particularly, due to the passage of time since they were originally provided, you may give less weight to the information when considering exercising the discretion. You should engage with the applicant and allow an opportunity to supply updated information before making an unfavourable decision. | 109. Applications for a subsequent period are assessed with the same rigour as the initial application. You are not required to follow a decision from a previous reporting period. The discretion requires the decision-maker to take into account the facts and circumstances raised and relevant to the period, which may have changed from prior periods. | Steps before making an unfavourable decision: 110. You must engage with the applicant before making an unfavourable decision. This is important as the law does not allow us to reconsider a decision for a reporting period, once an exemption application has been decided for that period. | • an applicant is dissatisfied with a pending unfavourable decision • the issue cannot be resolved by the parties, and • the applicant asks for a second opinion. | 112. The senior officer will review the exemption request and supporting material, then advise the decision-maker of their opinion on whether the proposed decision is reasonable. | 113. You should consider this opinion and discuss it with the applicant before reaching a final decision. | Notification of exemption application outcome: 114. In accordance with service standards, you will aim to provide a response to an application for an exemption within 28 days of receiving all necessary information, unless the application is complex – in which case you may negotiate additional time to respond. If all necessary information has not been supplied in the application, you should aim to contact the applicant within 14 days of receiving the application to request the required information or, where the issues are complex, to negotiate a suitable timeframe to request the required information. | 115. You are required to notify the applicant of your decision in writing. [55] Where an entity requests both a full exemption and partial exemption, you must notify the applicant of your decision in respect of each request. Reasons must be provided for unfavourable decisions. [56] | Rights of judicial review: 116. A Public CBC reporting exemption decision is not a 'reviewable objection decision'. [57] This means entities do not have the right to lodge an objection with us or, subsequently, have the exemption decision reviewed by the Administrative Review Tribunal. | 117. If an entity is not satisfied with an exemption decision, it may appeal to the Federal Court of Australia for a review of the administrative decision. [58] | 118. A judicial review of an administrative decision of this kind involves the court reviewing whether the process by which the decision was made was flawed or whether the decision involves an error of law. The court cannot remake the decision but may remit the decision back to us to remake according to law. [59] | Ansett Transport Industries (Operations) Pty Ltd v Commonwealth [1977] HCA 71 139 CLR 54 52 ALJR 254 17 ALR 513 | BHP Direct Reduced Iron Pty Ltd v Chief Executive Officer, Australian Customs Service [1998] FCA 1346 55 ALD 665 1998 WL 1671940 | Commissioner of Taxation v Apted [2021] FCAFC 45 284 FCR 93 2021 ATC 20-784 112 ATR 882 [2022] ALMD 935 172 ALD 435 | Giris Pty Ltd v Commissioner of Taxation (Cth) [1969] HCA 5 119 CLR 365 69 ATC 4015 1 ATR 3 43 ALJR 99 | Hyder v Commissioner of Taxation [2022] FCA 264 2022 ATC 20-820 114 ATR 516 175 ALD 473 | Minister for Aboriginal Affairs v Peko-Wallsend Ltd [1986] HCA 40 162 CLR 24 60 ALJR 560 (1986) 66 ALR 299 | Nikac, S. v Minister for Immigration, Local Govt & Ethnic Affairs [1988] FCA 670 20 FCR 65 (1988) 92 ALR 167 16 ALD 611"
PS LA 2024/1,Suspected fraud involving unconnected third parties,12 December 2024,12 December 2024,Law Administration Practice Statement,False,"1. What this Practice Statement is about: 1A. This Practice Statement sets out our policy on the steps to take where there is suspected fraud [1] affecting a taxpayer by an entity (or entities) other than the taxpayer and not connected with the taxpayer. That is, the steps to take where we have reasonable grounds to suspect that: • the entity who committed the fraud acted without any authority to represent the taxpayer, and • the taxpayer has not contributed to or enabled or benefited from the entity's actions. • the entity who committed the fraud acted without any authority to represent the taxpayer, and • the taxpayer has not contributed to or enabled or benefited from the entity's actions. 1B. This Practice Statement does not apply where the suspected fraud is committed by: • a connected entity (including an authorised representative), or • the taxpayer. • a connected entity (including an authorised representative), or • the taxpayer. 1C. Under our duties of good administration [2] , we must: • maintain the integrity of accounts and ensure they reflect a taxpayer's correct tax position, and • pursue amounts of collectable debt. • maintain the integrity of accounts and ensure they reflect a taxpayer's correct tax position, and • pursue amounts of collectable debt. 1D. 'Suspected' fraud does not require a formal finding of fraud. [3] | 2. Suspected unconnected third-party fraud: 2A. Possible indicators that a third party may have acted without the taxpayer's authority include: • The taxpayer's personal details have been accessed or stolen and have been reported as stolen. • Lodgment, registration or updates to financial account details appear to have been made by someone other than - the taxpayer, or - someone to whom the taxpayer gave system access. • A financial institution confirms that the account receiving payment is in the name of a third party and transactions show the funds being used by that party. • The account the refund is paid into also receives multiple refunds in respect of different taxpayers. • The taxpayer's personal details have been accessed or stolen and have been reported as stolen. • Lodgment, registration or updates to financial account details appear to have been made by someone other than - the taxpayer, or - someone to whom the taxpayer gave system access. • A financial institution confirms that the account receiving payment is in the name of a third party and transactions show the funds being used by that party. • The account the refund is paid into also receives multiple refunds in respect of different taxpayers. - the taxpayer, or - someone to whom the taxpayer gave system access. 2B. The following situations are not cases involving suspected fraud by an unconnected third party: • The taxpayer is involved in, contributes to or benefits from the actions of the third party. This includes situations where the taxpayer has facilitated or otherwise enabled the third party's actions. Example 1 A taxpayer has someone lodge a return on their behalf that the taxpayer knows contains incorrect information. The taxpayer was involved in that person's actions and is responsible for them. Example 2 A taxpayer gives a person or entity their myGov login details or mobile phone to lodge a return. The taxpayer contributed to the person or entity's actions and is responsible for them. • A taxpayer provided the wrong account details, resulting in a refund going to that nominated account. Example 3 A taxpayer lodges a return with an incorrect digit in their account details, resulting in the refund being directed into a third party's account. The return of the misdirected payment into the third party's account must be resolved between the taxpayer and the third party. • A taxpayer directs us to pay a refund into an authorised representative's [4] account, and that person fails to pass on the refund to the taxpayer. Example 4 A taxpayer agrees to use an authorised representative's account to receive an income tax refund and updates their details through their return. The authorised representative doesn't pass on the income tax refund to the taxpayer. The authorised representative is a connected entity because it was engaged by the taxpayer. This Practice Statement only covers fraud by entities that are not connected with the taxpayer. This is a private matter between the taxpayer and the authorised representative. • An authorised representative alters the account details of the taxpayer held by us without the taxpayer's knowledge and the taxpayer's refunds are paid into the authorised representative's personal account. The authorised representative fails to pass on the refund to the taxpayer. Example 5 Christina, a sole trader, engages tax agent Alex to complete her activity statement. Christina supplies all the relevant information and signs a declaration authorising Alex to lodge the statement on her behalf. Alex sees Christina is entitled to a refund of $1,000 but alters the statement to increase the amount of refund to $5,000 and lodges it. Alex updates Christina's account details to Alex's own personal bank account. The refund is paid to Alex's personal account. Alex passes the refund amount based on the true information ($1,000) on to Christina but keeps the remainder. As Christina engaged Alex, they are connected entities. This Practice Statement only covers fraud by entities that are not connected with the taxpayer. • The taxpayer is involved in, contributes to or benefits from the actions of the third party. This includes situations where the taxpayer has facilitated or otherwise enabled the third party's actions. Example 1 A taxpayer has someone lodge a return on their behalf that the taxpayer knows contains incorrect information. The taxpayer was involved in that person's actions and is responsible for them. Example 2 A taxpayer gives a person or entity their myGov login details or mobile phone to lodge a return. The taxpayer contributed to the person or entity's actions and is responsible for them. • A taxpayer provided the wrong account details, resulting in a refund going to that nominated account. Example 3 A taxpayer lodges a return with an incorrect digit in their account details, resulting in the refund being directed into a third party's account. The return of the misdirected payment into the third party's account must be resolved between the taxpayer and the third party. • A taxpayer directs us to pay a refund into an authorised representative's [4] account, and that person fails to pass on the refund to the taxpayer. Example 4 A taxpayer agrees to use an authorised representative's account to receive an income tax refund and updates their details through their return. The authorised representative doesn't pass on the income tax refund to the taxpayer. The authorised representative is a connected entity because it was engaged by the taxpayer. This Practice Statement only covers fraud by entities that are not connected with the taxpayer. This is a private matter between the taxpayer and the authorised representative. • An authorised representative alters the account details of the taxpayer held by us without the taxpayer's knowledge and the taxpayer's refunds are paid into the authorised representative's personal account. The authorised representative fails to pass on the refund to the taxpayer. Example 5 Christina, a sole trader, engages tax agent Alex to complete her activity statement. Christina supplies all the relevant information and signs a declaration authorising Alex to lodge the statement on her behalf. Alex sees Christina is entitled to a refund of $1,000 but alters the statement to increase the amount of refund to $5,000 and lodges it. Alex updates Christina's account details to Alex's own personal bank account. The refund is paid to Alex's personal account. Alex passes the refund amount based on the true information ($1,000) on to Christina but keeps the remainder. As Christina engaged Alex, they are connected entities. This Practice Statement only covers fraud by entities that are not connected with the taxpayer. | 3. Steps in cases of suspected fraud: 3A. In a case where there may be fraud, the following needs to be done: • Step 1: Identify the circumstances that may indicate fraud. • Step 2: Arrange additional account protections. • Step 3: Engage Fraud and Criminal Behaviours (FCB). • Step 4: FCB or Frontline Operations (FO) makes finding on whether or not the case is one of suspected fraud and documents that finding. • Step 5: If warranted, undertake corrective actions. • Step 1: Identify the circumstances that may indicate fraud. • Step 2: Arrange additional account protections. • Step 3: Engage Fraud and Criminal Behaviours (FCB). • Step 4: FCB or Frontline Operations (FO) makes finding on whether or not the case is one of suspected fraud and documents that finding. • Step 5: If warranted, undertake corrective actions. Step 1: Identify the circumstances that may indicate fraud 3B. Ask questions and gather information to identify the facts and evidence surrounding the potential fraud. This includes: • how the fraud came about • the nature of any interactions (or relationship) between parties, and • the connection (if any) between the taxpayer and the fraudulent activities. • how the fraud came about • the nature of any interactions (or relationship) between parties, and • the connection (if any) between the taxpayer and the fraudulent activities. Step 2: Arrange additional account protections 3C. Where the circumstances and information gathered in Step 1 indicate that fraud may have taken place, contact FO to apply appropriate account protection measures to the account. These may include: • updating authorised contacts and correcting account details • additional security measures to restrict access to online services • adding 'compromised' indicators or account activity suppressions (or both). • updating authorised contacts and correcting account details • additional security measures to restrict access to online services • adding 'compromised' indicators or account activity suppressions (or both). Step 3: Engage Fraud and Criminal Behaviours 3D. In all cases of possible fraud, a report must be made to FCB: see Chief Executive Instruction External fraud (link available internally only). 3E. FCB will determine if cases are suitable for further investigation and prosecution. 3F. FO should also be engaged early to manage the recovery of liabilities, including: • providing strategic advice and assistance during the course of audits or investigations, and • taking recovery action. • providing strategic advice and assistance during the course of audits or investigations, and • taking recovery action. Step 4: Fraud and Criminal Behaviours and Frontline Operations makes and documents finding on whether or not the case is one of suspected fraud 3G. FO and FCB must make a finding on whether or not there is suspected unconnected third-party fraud (as defined in paragraphs 1A to 1B and 2A to 2B of this Practice Statement). This is to be done taking into account the facts and circumstances of the case. 3H. The finding must be documented in accordance with business line case decision procedures. 3I. If a finding is made that: • there is suspected unconnected third-party fraud – progress to Step 5, or • there was no fraud, any account protections put in place in Step 2 should be reviewed and, if considered appropriate, removed. • there is suspected unconnected third-party fraud – progress to Step 5, or • there was no fraud, any account protections put in place in Step 2 should be reviewed and, if considered appropriate, removed. Step 5: If warranted, undertake corrective actions 3J. If a finding is made in Step 4 that there is suspected unconnected third-party fraud, consider what corrective actions are warranted. This will be determined on the facts and circumstances of the case by FO. This may include: • either - cancelling lodgments if available, or - facilitating amendments (either taxpayer or Commissioner initiated) to reflect the correct account position – that is, restoring the taxpayer's tax account to the position as if the suspected fraud had not occurred, and • other account actions if appropriate. • either - cancelling lodgments if available, or - facilitating amendments (either taxpayer or Commissioner initiated) to reflect the correct account position – that is, restoring the taxpayer's tax account to the position as if the suspected fraud had not occurred, and • other account actions if appropriate. - cancelling lodgments if available, or - facilitating amendments (either taxpayer or Commissioner initiated) to reflect the correct account position – that is, restoring the taxpayer's tax account to the position as if the suspected fraud had not occurred, and | 4. Lodgment corrections: Tax returns Cancel if there is no assessment 4A. We can only 'cancel' a tax return – that is, disregard 'the return', accepting that it has no effect – if an assessment has not yet been made. 4B. An assessment has not been made if: • return processing stops before a notice of assessment is served, or • a company (or another full self-assessment taxpayer [5] ) has an original tax return lodged by an unconnected or unauthorised person. [6] • return processing stops before a notice of assessment is served, or • a company (or another full self-assessment taxpayer [5] ) has an original tax return lodged by an unconnected or unauthorised person. [6] 4C. In those circumstances there is no assessment yet and we can cancel the return. If the taxpayer is required to lodge a return for that period, they must lodge an original return. Amend if assessment has been served 4D. In all other circumstances, once an assessment has been served [7] , it is valid at law and cannot be cancelled. [8] Instead, the assessment needs to be amended to correct the tax position. Activity statements Cancel if there is no assessment 4E. An activity statement lodgment may be cancelled if there hasn't been a deemed assessment (or amended assessment) and service. [9] 4F. Only an activity statement lodged by the taxpayer or their authorised representative results in a deemed assessment under self-assessment. Example 6 John, an unconnected third party, fraudulently lodges a business activity statement for XYZ Co. The activity statement John lodges doesn't give rise to a deemed assessment for XYZ Co. It hasn't been lodged by the taxpayer or someone with authority to act on behalf of the taxpayer. We can cancel the business activity statement John lodged. XYZ Co may need to lodge a replacement activity statement for that period. Amend if assessment has been served 4G. However, if we have issued and served a notice of assessment, there is an assessment that cannot be cancelled (regardless of whether there has been suspected fraud). [10] In these circumstances the assessment needs to be amended. Tax account corrections 4H. If an incorrect refund amount is identified quickly, or is held in a frozen account, it may be possible to retrieve the funds using the Reserve Bank's electronic funds transfer recall facilities or via arrangement with the financial institution. 4I. If it cannot be retrieved, then consideration can be given as to whether a fraud credit should be placed on the taxpayer's account and if it is, the posting of a recovery of overpayment debit (see paragraphs 4M to 4O of this Practice Statement). Fraud credits 4J. The lodgment correction activities outlined in paragraphs 4A to 4I of this Practice Statement (cancelling or amending) will generally result in a posting of a liability on the taxpayer's account. This liability rests with the taxpayer unless a fraud credit is applied (or the funds are recovered as per paragraph 4H of this Practice Statement). 4K. A fraud credit can only be placed on a taxpayer's account where we are taken to have never paid the taxpayer under the law. 4L. This occurs when we are satisfied that there was unconnected third-party fraud resulting in a refund being paid into an account that does not belong to the taxpayer and the account was nominated by a person who was not authorised by the taxpayer, and the taxpayer did not otherwise contribute to, or enable, the person to make such a nomination. Example 7 Continuing on from Example 6 of this Practice Statement, we cancel the business activity statement lodged by John. This results in a debit arising on XYZ Co's account. We consider, and are satisfied, that the amount was paid to John who was not authorised, enabled by or connected with the taxpayer in any way. We subsequently make a fraud credit to XYZ Co's account, offsetting the liability arising from the amendment. Recovery of overpayment debit 4M. If we are satisfied that there is unconnected third-party fraud and we know with sufficient certainty who received the fraudulent refund, then we may raise a liability on that entity's account for the amount overpaid. [11] The resulting liability will be subject to our debt recovery process. 4N. If there is uncertainty about the identity of the unconnected third party that received the refund, FO may account for the overpayment on a Miscellaneous Amounts – Administered Account. 4O. If the responsible party is later identified, FO can transfer that liability to that party's account. | 5. More information: For more information, see: • PS LA 2008/6 Fraud or evasion • PS LA 2011/5 Recovery of administrative overpayments • PS LA 2011/10 Waiver of tax-related liabilities in proceeds of crime matters • PS LA 2011/14 General debt collection powers and principles • PS LA 2011/18 Enforcement measures used for the collection and recovery of tax-related liabilities and other amounts • PS LA 2008/6 Fraud or evasion • PS LA 2011/5 Recovery of administrative overpayments • PS LA 2011/10 Waiver of tax-related liabilities in proceeds of crime matters • PS LA 2011/14 General debt collection powers and principles • PS LA 2011/18 Enforcement measures used for the collection and recovery of tax-related liabilities and other amounts © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Date of Issue: 12 December 2024 Date of Effect: 12 December 2024 [1] In this Practice Statement, we adopt paragraph 17 of Law Administration Practice Statement PS LA 2011/6 Risk management in the enforcement of lodgment obligations and debt collection activities for the meaning of fraud: 'dishonestly obtaining (including attempting to obtain) a gain or benefit, or causing a loss, or risk of loss, by deception or other means'. [2] Including section 1-7 of the Income Tax Assessment Act 1997 , section 8 of the Income Tax Assessment Act 1936 (ITAA 1936) and sections 3A of, and Division 356 of Schedule 1 to, the Taxation Administration Act 1953 (TAA). Note also financial accountability obligations imposed on the Commissioner by the Public Governance, Performance and Accountability Act 2013 . [3] Findings of fraud or evasion by the Commissioner in the context of seeking payment of underpaid tax are considered in Law Administration Practice Statement PS LA 2008/6 Fraud or evasion . [4] Authorised representatives may include tax agents, employee of the authorised representative (even if the employee was acting without the representative's knowledge), or persons otherwise engaged by the taxpayer to act on their behalf in respect of their tax affairs. [5] Individuals are not full self-assessment taxpayers. [6] Subsection 166A(3) of the ITAA 1936 (which deems there to be an assessment upon lodgment of the return by the taxpayer) is not enlivened. This is because subsection 166A(3) requires the taxpayer to have lodged the return before any assessment is deemed to have been made or served. There is no similar deeming which applies to other taxpayers – see section 166 of the ITAA 1936. [7] Section 174 of the ITAA 1936, table item 1 of subsection 155-15(1) of Schedule 1 to the TAA. [8] Section 175 of the ITAA 1936, section 155-85 of Schedule 1 to the TAA. [9] Table item 1 of subsection 155-15(1) of Schedule 1 to the TAA. [10] Section 155-85 of Schedule 1 to the TAA. [11] For example, under sections 8AAZN or 15C of the TAA. Related Practice Statements: PS LA 2008/6 PS LA 2011/5 PS LA 2011/6 PS LA 2011/10 PS LA 2011/14 PS LA 2011/18 Other References: Chief Executive Instruction External fraud (link available internally only)","PS LA 2008/6 | PS LA 2011/5 | PS LA 2011/10 | PS LA 2011/14 | PS LA 2011/18 | PS LA 2011/6 | ITAA 1936 8 | ITAA 1936 166 | ITAA 1936 166A(3) | ITAA 1936 174 | ITAA 1936 175 | ITAA 1997 1-7 | TAA 1953 8AAZN | TAA 1953 15C | TAA 1953 Sch 1 155-15(1) | TAA 1953 Sch 1 155-85 | TAA 1953 Sch 1 Div 356 | TAA 1953 Sch 1 3A | Public Governance, Performance and Accountability Act 2013",PS LA 2008/6 PS LA 2011/5 PS LA 2011/6 PS LA 2011/10 PS LA 2011/14 PS LA 2011/18,"ITAA 1936 8 | ITAA 1936 166 | ITAA 1936 166A(3) | ITAA 1936 174 | ITAA 1936 175 | ITAA 1997 1-7 | TAA 1953 8AAZN | TAA 1953 15C | TAA 1953 Sch 1 155-15(1) | TAA 1953 Sch 1 155-85 | TAA 1953 Sch 1 Div 356 | TAA 1953 Sch 1 3A | Public Governance, Performance and Accountability Act 2013",,Chief Executive Instruction External fraud (link available internally only),False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20241/NAT/ATO/00001,
PS LA 2023/1,Self-managed superannuation funds - rectification directions for contraventions of the Superannuation Industry (Supervision) Act 1993,30 March 2023,30 March 2023,Law Administration Practice Statement,False,"1. What this Practice Statement is about: This Practice Statement sets out what you need to consider when deciding whether to give a trustee, or a director of a corporate trustee, of a self-managed superannuation fund (SMSF) a rectification direction under section 159 of the Superannuation Industry (Supervision) Act 1993 (SISA). All legislative references in this Practice Statement are to the SISA, unless otherwise indicated. | 2. Compliance treatments - general principles: The Commissioner is responsible for ensuring SMSF trustees comply with relevant tax and super laws as well as dealing effectively with those who fail to do so. This role is fundamental in safeguarding the integrity of the superannuation system and the preservation of members' benefits. Our role also ensures tax concessions available within superannuation are appropriately targeted towards those who choose to operate within the regulatory framework. In carrying out this role, the SISA provides a range of compliance options to deal with conduct which has resulted in a contravention of the SISA or Superannuation Industry (Supervision) Regulations 1994 (SISR). One such option is to give a rectification direction. You can use other compliance options alongside a rectification direction. The appropriateness of any additional compliance option you choose will depend on the circumstances of each case. The compliance options you might commonly use in combination with a rectification direction include: • giving an education direction [1] • charging administrative penalties. [2] • giving an education direction [1] • charging administrative penalties. [2] However, you would not give a rectification direction where you will be: • disqualifying an individual and prohibiting them from acting as a trustee of an SMSF or as a responsible officer of a body corporate that is trustee of an SMSF [3] • issuing a notice of non-compliance to the fund [4] • taking action to wind-up the fund. • disqualifying an individual and prohibiting them from acting as a trustee of an SMSF or as a responsible officer of a body corporate that is trustee of an SMSF [3] • issuing a notice of non-compliance to the fund [4] • taking action to wind-up the fund. In addition, you must not give a rectification direction where: • we have accepted an enforceable undertaking which covers the contravention, and • the undertaking has not been withdrawn or varied in a way that means the contravention is no longer covered by it. [5] • we have accepted an enforceable undertaking which covers the contravention, and • the undertaking has not been withdrawn or varied in a way that means the contravention is no longer covered by it. [5] | 3. What is a rectification direction?: A rectification direction is a written notice the Commissioner gives to a person and within a stated period requires them to: • take specified action to rectify the contravention such as repay a loan or borrowing, dispose of an asset or lodge a return, and • provide us evidence showing they have complied with the direction. [6] • take specified action to rectify the contravention such as repay a loan or borrowing, dispose of an asset or lodge a return, and • provide us evidence showing they have complied with the direction. [6] The term 'rectify' includes putting in place managerial or administrative arrangements that could reasonably be expected to ensure there will be no further contraventions of a similar kind. [7] Therefore, a rectification direction may also require establishing preventative measures and controls so that a contravention is not repeated. It may also require corrective action. | 4. What are the circumstances in which a rectification direction can be given?: You may give a rectification direction where you reasonably believe a person has, on or after 1 July 2014, contravened a provision of the SISA (other than Part 3B) or the SISR. You can only give a rectification direction to a person who is: • an individual trustee of an SMSF, or • a director of a body corporate that is trustee of an SMSF. [8] • an individual trustee of an SMSF, or • a director of a body corporate that is trustee of an SMSF. [8] You may reasonably believe a person has contravened the SISA or SISR if someone closely connected to the fund (such as a trustee or approved auditor) has reported a contravention to us. However, a mere suspicion that a contravention has occurred is not sufficient. In such cases, you would need to gather more information before you can conclude a contravention has occurred. | 5. What should you consider when deciding whether to give a rectification direction?: When deciding whether to give a rectification direction, you should consider the general principles and case specific factors which include all of the following: • any financial detriment that might reasonably be expected to be suffered by the fund as a result of the person complying with the direction • the nature and seriousness of the person's contravention • any other relevant circumstance. [9] • any financial detriment that might reasonably be expected to be suffered by the fund as a result of the person complying with the direction • the nature and seriousness of the person's contravention • any other relevant circumstance. [9] You need to consider each factor. The weight you give to a particular factor will vary depending on the circumstances of the case. General principles You should complete your decision by considering the following general principles in the: • Taxpayers' Charter - which requires that taxpayers be treated fairly and reasonably • ATO Compliance model - which helps in choosing the most appropriate compliance response, depending on the person's behaviour and circumstances • Good decision-making model - which requires that the decision be legal, ethical, equitable, overt, sensible, timely and consistent with the principles of natural justice. • Taxpayers' Charter - which requires that taxpayers be treated fairly and reasonably • ATO Compliance model - which helps in choosing the most appropriate compliance response, depending on the person's behaviour and circumstances • Good decision-making model - which requires that the decision be legal, ethical, equitable, overt, sensible, timely and consistent with the principles of natural justice. Case-specific factors Financial detriment A fund will often experience some level of financial detriment as a result of complying with a rectification direction. This is because potential exposure to financial costs or losses is a natural consequence of unwinding a commercial arrangement. When weighing up any expected financial detriment, you should focus on: • the significance and degree of that detriment • the proportion of the fund's assets involved in the contravention • reasonable estimates or opinions the fund may have provided about the expected financial costs or losses in complying with a direction. • the significance and degree of that detriment • the proportion of the fund's assets involved in the contravention • reasonable estimates or opinions the fund may have provided about the expected financial costs or losses in complying with a direction. Some types of financial detriment would not usually bear much weight on your decision. For example, this could include situations where the fund would be required to: • dispose of an asset and would incur typical transaction costs for disposal or experience adverse market fluctuations • rectify a prohibited borrowing and would incur costs in clearing the loan early or restructuring the arrangement. • dispose of an asset and would incur typical transaction costs for disposal or experience adverse market fluctuations • rectify a prohibited borrowing and would incur costs in clearing the loan early or restructuring the arrangement. Nature and seriousness of the contravention You should evaluate the nature and seriousness of the contravention based on the established facts. The following points expand on this factor. The type and nature of contravention A rectification direction may be considered appropriate for certain types of contraventions. However, a rectification direction may become less appropriate depending on the inherent nature or severity of the contravention. In addition, certain contraventions cannot be rectified and, therefore, you could not issue a rectification direction. For example, where a fund has paid super benefits to a member without meeting a condition of release, it is not possible to rectify this because any returned amounts are considered new contributions, rather than repayments. The person's behaviour, circumstances and compliance history A rectification direction will generally be appropriate where the person's behaviour and circumstances which gave rise to the contravention involved mistakes due to insufficient trustee knowledge or failing to take sufficient care in their duties. However, it may become less appropriate as the person's behaviour and circumstances approaches or involves recklessness, or intentional disregard of trustee obligations. [10] As all trustees and directors of corporate trustees are responsible for ensuring the provisions of the SISA and SISR are complied with, a person may still 'contravene' one of the provisions even if they: • do not take an active role in managing the fund • were not directly involved in the conduct that gave rise to the contravention. • do not take an active role in managing the fund • were not directly involved in the conduct that gave rise to the contravention. However, the person's level of involvement in the contravention will still be a relevant factor when deciding whether it is appropriate to give a direction. When considering compliance history, it may be appropriate to take other compliance action, such as issuing a notice of non-compliance, if there have been a number of contraventions over an extended period of time. A rectification direction may be appropriate for a fund with a good compliance history and no prior contraventions. If a fund has a poor compliance history, this will likely increase the seriousness of the latest contravention. A fund may demonstrate poor compliance history by repeating a past contravention or later contravening other provisions. Value of assets involved in the contravention A contravention is likely to be more serious as the value and proportion of the fund's assets involved in the contravention increases. [11] Further, a contravention may be serious if it results in a significant proportion of the fund's assets being put at risk, even if no loss eventuated. [12] While a rectification direction may be less appropriate where the contravention involves multiple assets which combined represent a substantial proportion of the fund's assets, it does not prevent such a direction from being issued in this instance. The number of contraventions during the income year For an income year, a single contravention on its own may not be serious, but a number of contraventions taken together may be serious. While a rectification direction may become less appropriate as the number and range of contraventions increases, it does not preclude such a direction from being issued. Other relevant circumstances If you identify other circumstances which are relevant to your decision, those circumstances should also be taken into account. This gives you the flexibility to work out the best course of action for a broad range of situations. Person takes proactive steps to rectify A person may have taken steps to rectify a contravention before we started to investigate, or as part of a voluntary disclosure to us. While these types of actions are constructive, they should not prevent you giving a rectification direction. If you identify a person has already taken timely steps to rectify a minor contravention, a rectification direction may not be required. Capability of trustees to carry out required actions The actions required to rectify a contravention will often involve several steps, some of which may be complex. You should be satisfied the person given the direction is capable of carrying out those actions or steps. If the person is unlikely to have the means or the willingness to do so, a rectification direction will not be appropriate. If a contravention is relatively straightforward to rectify, it may still be appropriate to give a direction despite that person not wanting to engage with us. This ensures a person who should be able to carry out the required steps is directed to do so under a formal written direction. Previously given an education direction A person who has been given an education direction [13] for a previous matter, may be given a rectification direction if they subsequently contravene a regulatory provision. However, it may be more appropriate to take firmer compliance action if there has been no change in the trustee's non-compliant behaviour. ATO compliance action A person is more likely to be given a rectification direction if an ATO review or audit confirms the trustee has not rectified (or attempted to rectify) a reported contravention. | 6. How much time should you give to comply with a rectification direction?: The period of time you give to comply with a rectification direction must be reasonable in the circumstances. [14] In deciding on a reasonable period of time, you should have regard to factors including but not limited to: • the circumstances, abilities and constraints of the person to whom you will be giving the direction • the likely period required to carry out the type of actions specified in the direction and, if there are a number of steps involved, whether those steps need to occur in sequence • whether the person given the direction will be relying on the availability and expertise of professional advisors. • the circumstances, abilities and constraints of the person to whom you will be giving the direction • the likely period required to carry out the type of actions specified in the direction and, if there are a number of steps involved, whether those steps need to occur in sequence • whether the person given the direction will be relying on the availability and expertise of professional advisors. Generally, a period of up to 6 months will be sufficient to rectify most contraventions, with up to 12 months in extreme cases. If you give a direction and later determine the period given was not reasonable, you can vary the direction - see section 7 of this Practice Statement. | 7. Can you vary or revoke a rectification direction after it has been given?: A rectification direction may be varied upon request or on your own initiative; however, it can only be revoked on your own initiative. The principles discussed in section 5 of this Practice Statement should be relied upon for all such decisions. Variation requests You can vary a rectification direction where the person given the direction: • makes a written request before the timeframe allowed for complying with the direction has expired, and • sets out the reasons for the request. [15] • makes a written request before the timeframe allowed for complying with the direction has expired, and • sets out the reasons for the request. [15] A valid request to vary a direction will extend the time the person has to comply with it from the day the request was made until you notify the trustee of your decision. [16] If you do not make a decision on the request within 28 days after the request was made, the request is taken to have been refused and you should send written notification of the deemed decision to the trustee. [17] If you decide to vary the direction in any way, you must notify the person and give them a copy of the varied direction. Additionally, if you decide to refuse the request, or vary it in a way otherwise than requested, you must give the person written reasons for the decision. [18] On your own initiative You are able to revoke or vary a rectification direction on your own initiative. You do so by giving the relevant person a written notice either revoking or varying the terms of the rectification direction. [19] Although you can revoke or vary a rectification direction at any time, it would generally not be appropriate to do so merely where the person given the direction failed to comply with it. | 8. Does an administrative penalty apply where a person fails to comply with a rectification direction?: An administrative penalty is not imposed for failing to comply with a rectification direction. However, you can explore other compliance options, including firmer action. However, if the person fails to comply with a rectification direction by the specified period of time, the person commits an offence of strict liability which carries a maximum of 10 penalty units. [20] | 9. Can a person object to the decision to give a rectification direction or to not vary a direction?: A person may object to a decision in the manner set out in Part IVC of the Taxation Administration Act 1953 if they are dissatisfied with our decision to: • give a rectification direction • refuse to vary the direction (including a deemed refusal) • vary the direction but not in accordance with the request. [21] • give a rectification direction • refuse to vary the direction (including a deemed refusal) • vary the direction but not in accordance with the request. [21] | 10. More information: For more information, see: • PS LA 2020/3 Self-managed superannuation funds - administrative penalties imposed under subsection 166(1) of the Superannuation Industry (Supervision) Act 1993 • PS LA 2012/5 Administration of penalties for making false or misleading statements that result in shortfall amounts • PS LA 2008/3 Provision of advice and guidance by the ATO • PS LA 2006/19 Self-managed superannuation funds - notice of non-compliance • PS LA 2006/18 Self-managed superannuation funds - enforceable undertakings • PS LA 2006/17 Self-managed superannuation funds - disqualification of individuals to prohibit them from acting as a trustee of a self-managed superannuation fund • MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard • PS LA 2020/3 Self-managed superannuation funds - administrative penalties imposed under subsection 166(1) of the Superannuation Industry (Supervision) Act 1993 • PS LA 2012/5 Administration of penalties for making false or misleading statements that result in shortfall amounts • PS LA 2008/3 Provision of advice and guidance by the ATO • PS LA 2006/19 Self-managed superannuation funds - notice of non-compliance • PS LA 2006/18 Self-managed superannuation funds - enforceable undertakings • PS LA 2006/17 Self-managed superannuation funds - disqualification of individuals to prohibit them from acting as a trustee of a self-managed superannuation fund • MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard ATTACHMENT - EXAMPLES Example 1 - rectification direction not given - enforceable undertaking a more suitable option An SMSF has been operating for 8 years. The trustees of the SMSF contravened the SISA after loaning money to a related company which exceeded the 5% limit on in-house assets. The contravention is considered serious. The ATO started a review of the SMSF and the case officer asked the trustees whether the contravention had been rectified. The trustees provided a written plan to divest the in-house asset and advised they have not carried out the plan within the designated timeframe. After considering their options, the trustees presented a written undertaking to divest the in-house asset as set out in the plan and proposed a revised period of a further 3 months to do so. In considering whether to issue a rectification direction, the case officer determines: • the fund is unlikely to experience financial detriment by recalling the loan early, and little weight should be placed on any financial detriment to the related company in refinancing to a suitable lender • while the contravention is serious, the value of the assets put at unauthorised risk due to the prohibited lending is not extreme, and the fund has a good compliance history • the trustees are capable and committed to carrying out the written plan, and both the proposed undertaking and the revised period specified are reasonable. • the fund is unlikely to experience financial detriment by recalling the loan early, and little weight should be placed on any financial detriment to the related company in refinancing to a suitable lender • while the contravention is serious, the value of the assets put at unauthorised risk due to the prohibited lending is not extreme, and the fund has a good compliance history • the trustees are capable and committed to carrying out the written plan, and both the proposed undertaking and the revised period specified are reasonable. Outcome After considering general principles and case-specific factors, the case officer considers a rectification direction would be a suitable option. However, the case officer instead accepts the undertaking by following the principles in Law Administration Practice Statement PS LA 2006/18 Self-managed superannuation funds - enforceable undertakings. This is because the enforceable undertaking would achieve the same desired outcome as a rectification direction. However, if the revised period in the proposed undertaking had been too great, the case officer would not have accepted it. Instead, the case officer would have given a rectification direction to each of the individual trustees granting a shorter rectification period. Example 2 - rectification direction given - disposal of a non-liquid asset An SMSF has been operating for 3 years. The approved auditor reported the corporate trustee of the SMSF borrowed money from a fund member to finance the fund's residential property purchase. The property was held directly by the fund and was not structured as a limited recourse borrowing arrangement. The contravention is considered serious. The ATO started an audit of the SMSF. The case officer asked about the circumstances of the contravention. The director of the corporate trustee explained the fund borrowed money from a member because the fund's assets could not cover the minimum deposit required by the bank. Further, the director did not get adequate advice about correctly setting up the arrangement. Nevertheless, the director does not want to sell under the weak market conditions for vendors as well as incur further legal and agent's fees. The director also acknowledged the property would sell within weeks if it was put on the market, but the fund would make a loss on the sale. In considering whether to issue a rectification direction, the case officer determines • the fund will likely experience some financial detriment to unwind the arrangement, although weak market conditions in itself is not sufficient to preclude giving a direction and transaction costs are to be expected • the contravention is serious and involves a significant portion of the fund's assets, although the errors made by the director of the corporate trustee can be attributed to inexperience, insufficient knowledge and carelessness • the fund does not have the ability to repay the borrowing from other means • the unrectified contravention was confirmed during an ATO audit and the director is competent and capable of selling the asset, even in the current market conditions. • the fund will likely experience some financial detriment to unwind the arrangement, although weak market conditions in itself is not sufficient to preclude giving a direction and transaction costs are to be expected • the contravention is serious and involves a significant portion of the fund's assets, although the errors made by the director of the corporate trustee can be attributed to inexperience, insufficient knowledge and carelessness • the fund does not have the ability to repay the borrowing from other means • the unrectified contravention was confirmed during an ATO audit and the director is competent and capable of selling the asset, even in the current market conditions. Outcome The case officer gives the director of the corporate trustee a rectification direction requiring the fund to dispose of the property within 3 months. The decision is also consistent with the ATO's general decision-making principles. The case officer also considers giving an education direction and determines the level of any remission on the administrative penalty imposed. Example 3 - rectification direction not given - notice of non-compliance issued An SMSF has been operating for 3 years. The fund failed to lodge annual returns for each of those years despite requests from the ATO. When the annual returns are received, the approved auditor reports a number of contraventions that had taken place over each of those years. The ATO commences an audit and the facts and evidence show that besides the non-lodgment of annual returns by the due date the trustees also: • had not formulated an investment strategy • failed to keep accounting records to explain the transactions and financial position of the fund, and • loaned a substantial amount of money to one of the members of the fund. • had not formulated an investment strategy • failed to keep accounting records to explain the transactions and financial position of the fund, and • loaned a substantial amount of money to one of the members of the fund. Due to the nature and seriousness of the contraventions, and the amount of fund assets that were put at risk and the trustees disregard to requests to lodge the annual returns, the case officer, having regard to the relevant Practice Statements, considers that it is more appropriate to issue a notice of non-compliance in this case. © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Date of Issue: 30 March 2023 Date of Effect: 30 March 2023 [1] See section 160. [2] See subsection 166(1). [3] See section 126A. [4] See subsection 40(1). [5] See subsection 159(5). For enforceable undertakings, see section 262A. Breach of an enforceable undertaking on its own does not mean the contravention is no longer covered. [6] See subsections 159(2) and (4). [7] See definition of 'rectify' under subsection 10(1). [8] See subsection 159(1). [9] See subsection 159(3). You are not limited to considering these factors only. [10] Law Administration Practice Statement PS LA 2012/5 Administration of penalties for making false or misleading statements that result in shortfall amounts and Miscellaneous Taxation Ruling MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard discuss the concepts of 'recklessness' and 'intentional disregard'. [11] See Re Insurance and Superannuation Commissioner [1994] AATA 248. [12] See ""QX971"" and Australian Prudential Regulation Authority [1999] AATA 6. [13] See section 160. [14] See subsection 159(4). [15] See subsections 164(1) to (3). [16] See subsection 164(7). [17] See subsection 164(5). [18] See subsection 164(6). [19] See section 163 [20] See subsection 159(7). [21] See section 165. File 1-HRR4W9J Related Rulings/Determinations: MT 2008/1 Related Practice Statements: PS LA 2020/3 PS LA 2012/5 PS LA 2006/17 PS LA 2006/18 PS LA 2006/19",PS LA 2020/3 | PS LA 2012/5 | PS LA 2008/3 | PS LA 2006/19 | PS LA 2006/18 | PS LA 2006/17 | MT 2008/1 | SISA 1993 Pt 3B | SISA 1993 10(1) | SISA 1993 40(1) | SISA 1993 126A | SISA 1993 159(1) | SISA 1993 159(2) | SISA 1993 159(3) | SISA 1993 159(4) | SISA 1993 159(5) | SISA 1993 159(6) | SISA 1993 159(7) | SISA 1993 160 | SISA 1993 163 | SISA 1993 164(1) | SISA 1993 164(2) | SISA 1993 164(3) | SISA 1993 164(5) | SISA 1993 164(6) | SISA 1993 164(7) | SISA 1993 165 | SISA 1993 166(1) | SISA 1993 262A | SISR 1994 | TAA 1953 Pt IVC | 94 ATC 417 | [1999] AATA 6,PS LA 2020/3 PS LA 2012/5 PS LA 2006/17 PS LA 2006/18 PS LA 2006/19,SISA 1993 Pt 3B | SISA 1993 10(1) | SISA 1993 40(1) | SISA 1993 126A | SISA 1993 159(1) | SISA 1993 159(2) | SISA 1993 159(3) | SISA 1993 159(4) | SISA 1993 159(5) | SISA 1993 159(6) | SISA 1993 159(7) | SISA 1993 160 | SISA 1993 163 | SISA 1993 164(1) | SISA 1993 164(2) | SISA 1993 164(3) | SISA 1993 164(5) | SISA 1993 164(6) | SISA 1993 164(7) | SISA 1993 165 | SISA 1993 166(1) | SISA 1993 262A | SISR 1994 | TAA 1953 Pt IVC,,,False,True,https://www.ato.gov.au/law/view/document?docid=PSR/PS20231/NAT/ATO/00001,Re Insurance and Superannuation Commissioner [1994] AATA 248 94 ATC 417 29 ATR 1086
PS LA 2023/2,Communication protocols governing ATO objections,13 September 2023,13 September 2023,Law Administration Practice Statement,False,"1. What is this Practice Statement about?: This Practice Statement sets out the framework governing the communications between objection officers and officers involved in making the original decision. | 2. What are the overarching principles?: The ATO is committed to treating all taxpayers fairly and improving their experience with us when they lodge an objection. This includes objection officers being open and transparent about their decisions and decision-making processes, and providing a fair, objective and impartial review. An objection process involves the objective and impartial reconsideration of how the law applies to the taxpayer's circumstances. This involves a balance of ensuring that decisions are made independently from the original decision-maker and that the objection officer is fully informed in coming to their decision. In making an objection decision, the objection officer must ensure consistency and coherency in interpreting and applying the law and administration of the tax and superannuation system. Better objection decisions are made when objection officers are fully informed through open and transparent communications. Objection officers are expected to take steps to be as informed as possible on the relevant facts, circumstances and supporting evidence. This may include engagement with the original decision-makers. The objection officer must seek to understand the basis of the original decision and the reason it has been objected to. This should include an appropriate appreciation of the broader context of the case, including any relevant ATO strategies and risks. | 3. What are the objection officer's responsibilities?: Where the objection is a review of an earlier ATO decision, the objection officer will: • not have had any involvement in the original decision-making process • maintain independence – this means the objection officer may discuss the original decision with the original decision-maker (where required), but the original decision-maker must not interfere in the resolution of the objection • consult within the ATO, if needed, to draw on appropriate knowledge and expertise in forming an objection decision consistent with the Commissioner's view, and • manage communication and engagement with other ATO officers who have been involved in the original decision in accordance with this Practice Statement, to ensure independence of the objection decision-making process. • not have had any involvement in the original decision-making process • maintain independence – this means the objection officer may discuss the original decision with the original decision-maker (where required), but the original decision-maker must not interfere in the resolution of the objection • consult within the ATO, if needed, to draw on appropriate knowledge and expertise in forming an objection decision consistent with the Commissioner's view, and • manage communication and engagement with other ATO officers who have been involved in the original decision in accordance with this Practice Statement, to ensure independence of the objection decision-making process. | 4. What are open and transparent communications?: It is expected that the evidence and reasons supporting the original decision will have already been provided or explained to the taxpayer as part of the original decision-making process. This should form part of the case records of the original decision and will be accessible to the objection officer from the outset of the objection. Often, the case records, along with information provided by the taxpayer, will be sufficient for the objection officer to understand the context and reasons for the original decision. However, the objection officer may contact the original decision-maker or other ATO officers involved in making the original decision (including internal advisors) to better understand the facts, evidence and reasons supporting the original decision. Where new information or evidence is provided for the first time at objection, the objection officer should seek to understand the reason for the provision of the new information or evidence at the objection stage (rather than during the audit process). The objection officer may share that new information or evidence with the original decision-maker. In general, discussions between the objection officer and original decision-makers concerning that new information or evidence should involve how it would have been taken into account if it had been available at the time of the original decision, and whether that new information or evidence would have resulted in a different original decision had it been taken into account. In determining the objection, the objection officer may seek or rely upon advice within the ATO, including from the Tax Counsel Network (in compliance with Law Administration Practice Statement PS LA 2012/1 Engagement of Tax Counsel Network on high risk technical issues) and any internal advisory panel or panels with external membership, such as the General Anti-Avoidance Rules Panel. In relation to external advice, the objection officer may rely on existing advice or seek new advice. The objection officer should advise the taxpayer of the general nature of any discussions with the original decision-makers, unless the circumstances of the matter are such that it is inappropriate to do so. In considering opportunities for early and alternative dispute resolution (including initiating settlement discussions or the use of alternative dispute resolution or considering any taxpayer proposals for earlier resolution), it would be appropriate to consider whether the original decision-maker should also be involved in the resolution process. | 5. What are the responsibilities of an officer involved in the original decision-making process?: The original decision-maker and other officers who have had substantive involvement in the original decision-making process will: • engage as necessary with the objection officer, but not attempt to influence the objection decision • ensure the relevant case records are up-to-date and complete, and if there is any other relevant documentation or evidence supporting the original decision, provide it to the objection officer • discuss the basis and context of the original decision when required to do so by the objection officer • ensure that information provided to the objection officer is fair, objective and supported by evidence and is complete, and • make themselves available to the objection officer but not otherwise contact the objection officer. • engage as necessary with the objection officer, but not attempt to influence the objection decision • ensure the relevant case records are up-to-date and complete, and if there is any other relevant documentation or evidence supporting the original decision, provide it to the objection officer • discuss the basis and context of the original decision when required to do so by the objection officer • ensure that information provided to the objection officer is fair, objective and supported by evidence and is complete, and • make themselves available to the objection officer but not otherwise contact the objection officer. | 6. What are the circumstances where we modify our approach to the communication protocols?: Limited circumstances that justify a modified approach to the communication protocols between objection officers and officers involved in making the original decision include: • where the objection is not in relation to an earlier ATO decision (a 'self-objection') – as there has been no original decision, this Practice Statement does not apply • if, on receipt of a notice issued under section 14ZYA of the Taxation Administration Act 1953 (and given the complexity of the case and the timeframes required), involvement of original decision-makers is considered necessary to reach a decision within the timeframe of the notice • if the taxpayer requests continued involvement of original decision-makers – for instance, to expedite objection decision-making, and • when a new audit is commenced in respect of the taxpayer's later years, on the same issue and arrangement that is the subject of the objection – additional collaboration between objection officers and those involved in the new audit may be appropriate. • where the objection is not in relation to an earlier ATO decision (a 'self-objection') – as there has been no original decision, this Practice Statement does not apply • if, on receipt of a notice issued under section 14ZYA of the Taxation Administration Act 1953 (and given the complexity of the case and the timeframes required), involvement of original decision-makers is considered necessary to reach a decision within the timeframe of the notice • if the taxpayer requests continued involvement of original decision-makers – for instance, to expedite objection decision-making, and • when a new audit is commenced in respect of the taxpayer's later years, on the same issue and arrangement that is the subject of the objection – additional collaboration between objection officers and those involved in the new audit may be appropriate. If the objection officer considers that another variation from the approach in this Practice Statement is appropriate, approval must be sought from an Objections and Review SES officer. | 7. More information: For more information, see: • Object to an ATO decision • Our commitment to you in resolving your dispute • PS LA 2012/1 Engagement of Tax Counsel Network on high risk technical issues • Object to an ATO decision • Our commitment to you in resolving your dispute • PS LA 2012/1 Engagement of Tax Counsel Network on high risk technical issues © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Date of Issue: 13 September 2023 Date of Effect: 13 September 2023 Related Practice Statements: PS LA 2012/1",PS LA 2012/1 | TAA 1953 14ZYA,PS LA 2012/1,TAA 1953 14ZYA,,,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20232/NAT/ATO/00001,
PS LA 2022/1,Administrative penalties for electronic sales suppression tools,24 February 2022,24 February 2022,Law Administration Practice Statement,False,"1. What is this Practice Statement about?: This Practice Statement provides guidance on the application and remission of administrative penalties for the production, supply, possession and use of an electronic sales suppression tool (ESST). It includes: • what is an ESST? • when an ESST penalty applies • factors to consider when deciding whether to remit an ESST penalty • notifying a taxpayer of their penalty. • what is an ESST? • when an ESST penalty applies • factors to consider when deciding whether to remit an ESST penalty • notifying a taxpayer of their penalty. | 2. What is an ESST?: ESSTs are designed to interfere with electronic sales records; that is, they can falsify, manipulate, hide, obfuscate, destroy or prevent the creation of electronic sales records, often without an audit trail showing the interference. [1] They can take various forms and are constantly evolving, but some examples include: • software that deletes or modifies point of sale (POS) records • storage devices (such as back-up drives) containing software that deletes or modifies records • POS devices with software that deletes or modifies records. • software that deletes or modifies point of sale (POS) records • storage devices (such as back-up drives) containing software that deletes or modifies records • POS devices with software that deletes or modifies records. An ESST may be a device, software program or other thing, a part of any such thing, or a combination of any such things or parts that has the capability and a principal function of interfering with sales records electronically. [2] Penalties apply for producing, supplying, possessing, and incorrectly keeping records using ESSTs, as well as aiding or abetting another to do so. If you discover an entity has possession of or is using an ESST, in addition to considering if a penalty applies, you should work with the entity to ensure that the ESST is removed so the entity will no longer engage in conduct that can attract a penalty. | 3. Deciding whether something is an ESST: To be an ESST, the tool must both be capable of interfering with a record and one of its principal functions must be to interfere with sales records. A modification or additional features added to a legitimate sales system can be an ESST, even if the device or program as a whole is not. [3] Records are information in any format that explain an entity's transactions or other actions. Precisely what they are and what form they take depends on the circumstances. They generally include tax invoices, receipts and records of sales and all business transaction information. [4] An ESST must be capable of interfering with records. Typically, a tool can interfere with records if it can: • manipulate, falsify or delete the record of transactions • renumber or recharacterise transactions • interfere with records without showing an audit trail of the changes. • manipulate, falsify or delete the record of transactions • renumber or recharacterise transactions • interfere with records without showing an audit trail of the changes. A tool passes the capability test for an ESST if it can interfere with a record that: • an entity is required by a taxation law [5] to keep or make, and • has been, or could be, created by a POS system which creates or feeds data into an entity's tax records. [6] • an entity is required by a taxation law [5] to keep or make, and • has been, or could be, created by a POS system which creates or feeds data into an entity's tax records. [6] You do not need evidence that the tool has been used to interfere with a record, just that it is 'capable' of doing so. In addition to the capability test, a tool must pass the principal function test. It passes this test if a reasonable person would conclude that one of its principal functions is interfering with records that an entity is required to keep under a taxation law. The ability to interfere with records does not have to be the sole function of the tool, merely one of its principal functions. For example, a tool which provides storage or record-keeping functionality and also has a capability to interfere with records would meet the principal function test, even if that capability is not currently being used. A tool can be stored and encoded in the POS system or could be located separately. The principal function test operates in conjunction with the capability test to ensure that it does not capture legitimate features of POS systems. For example, standard POS systems may allow the user to modify transactions to correct mistakes or to train staff and keep a history log to record all the modifications made. A system would not be an ESST solely because of that function. See Example 1 in Appendix A of this Practice Statement for further guidance. | 4. When does an ESST penalty apply?: An administrative penalty (ESST penalty) applies if an entity engages in the following ESST conduct: • manufactures, develops, or publishes an ESST [7] • supplies or makes an ESST available for use (or a right to use an ESST) [8] • provides a service to an entity that involves the use of an ESST [9] • acquires, has possession or control of an ESST (or a right to use an ESST) [10] • uses an ESST to keep, make or alter a record, or uses it to prevent a record being kept, made or altered [11] • aids, abets, counsels or procures any of the above conduct. [12] • manufactures, develops, or publishes an ESST [7] • supplies or makes an ESST available for use (or a right to use an ESST) [8] • provides a service to an entity that involves the use of an ESST [9] • acquires, has possession or control of an ESST (or a right to use an ESST) [10] • uses an ESST to keep, make or alter a record, or uses it to prevent a record being kept, made or altered [11] • aids, abets, counsels or procures any of the above conduct. [12] There are different matters to consider for each penalty (including different penalty unit amounts that apply) [13] , which are set out separately in this Practice Statement. Penalties for producing an ESST A penalty applies to each instance an entity manufactures, develops or publishes an ESST. [14] You should consider the following when determining if a penalty applies for producing an ESST: • An ESST penalty applies each time an entity manufactures, develops or publishes an ESST. For example, if an entity has published two ESSTs, they may be liable to two penalties. • An ESST penalty applies when an entity modifies something into an ESST or upgrades an existing ESST (such as a 'software patch'). For example, if an entity has manufactured an ESST then develops an upgrade for it, they may be liable for two penalties. • It is not necessary that the manufacturer knows or intends for the ESST to be used on records required under Australian taxation law. All that is required is that there is evidence that the ESST meets the capability and the principal function tests. • An ESST penalty applies each time an entity manufactures, develops or publishes an ESST. For example, if an entity has published two ESSTs, they may be liable to two penalties. • An ESST penalty applies when an entity modifies something into an ESST or upgrades an existing ESST (such as a 'software patch'). For example, if an entity has manufactured an ESST then develops an upgrade for it, they may be liable for two penalties. • It is not necessary that the manufacturer knows or intends for the ESST to be used on records required under Australian taxation law. All that is required is that there is evidence that the ESST meets the capability and the principal function tests. An entity is liable to 60 penalty units for each instance a penalty applies. See Example 5 in Appendix A of this Practice Statement for further guidance. Penalties for supplying an ESST A penalty applies to each instance an entity: • supplies, or makes an ESST available, or grants a right to use an ESST [15] , or • provides a service to an entity that involves the use of an ESST. [16] • supplies, or makes an ESST available, or grants a right to use an ESST [15] , or • provides a service to an entity that involves the use of an ESST. [16] You should consider the following when determining if a penalty applies for supplying an ESST: • 'Supply' means any form of supply and includes both goods and services. [17] • An entity may be penalised more than once if they supply more than one ESST or provide a service to more than one entity. • Supplying upgrades or modifications (for example, a software patch) to an ESST is a supply of an ESST. This may also be penalised. For example, if an entity has supplied an ESST and then a later upgrade, they may be liable for two penalties. • It is not necessary to show the supplier knows or intends for the ESST to be used on records required under Australian taxation law. • 'Supply' means any form of supply and includes both goods and services. [17] • An entity may be penalised more than once if they supply more than one ESST or provide a service to more than one entity. • Supplying upgrades or modifications (for example, a software patch) to an ESST is a supply of an ESST. This may also be penalised. For example, if an entity has supplied an ESST and then a later upgrade, they may be liable for two penalties. • It is not necessary to show the supplier knows or intends for the ESST to be used on records required under Australian taxation law. An entity is liable to 60 penalty units for each instance a penalty applies. See Example 5 in Appendix A of this Practice Statement for further guidance. Penalties for possessing an ESST A penalty applies if an entity: • is required to keep or make a record under a taxation law [18] (other than an Excise Act [19] ), and • acquires, or has possession or control of an ESST or a right to use an ESST. [20] • is required to keep or make a record under a taxation law [18] (other than an Excise Act [19] ), and • acquires, or has possession or control of an ESST or a right to use an ESST. [20] You should consider the following when determining if a penalty applies for possessing an ESST: • A penalty can only be applied where the entity has record-keeping obligations under a taxation law (see section 3 of this Practice Statement). • A penalty applies for each different ESST an entity acquires, possesses or controls. • It is not necessary for the entity to have knowledge that they possess the ESST. • A penalty can only be applied where the entity has record-keeping obligations under a taxation law (see section 3 of this Practice Statement). • A penalty applies for each different ESST an entity acquires, possesses or controls. • It is not necessary for the entity to have knowledge that they possess the ESST. An entity is liable to 30 penalty units for each instance a penalty applies. See Examples 2 to 5 in Appendix A of this Practice Statement for further guidance. Penalties for incorrectly keeping records using an ESST A penalty applies to an entity where: • the entity is required under a taxation law (other than an Excise Act) to keep or make a record [21] • the record is - kept, made, altered with the use of an ESST, or - prevented by the use of an ESST from being kept, made or altered, and • as a result of the use, the record does not correctly record and explain the thing it relates to or is not kept or made in accordance with Australian taxation law. [22] • the entity is required under a taxation law (other than an Excise Act) to keep or make a record [21] • the record is - kept, made, altered with the use of an ESST, or - prevented by the use of an ESST from being kept, made or altered, and • as a result of the use, the record does not correctly record and explain the thing it relates to or is not kept or made in accordance with Australian taxation law. [22] - kept, made, altered with the use of an ESST, or - prevented by the use of an ESST from being kept, made or altered, and 'Use' in this context means that the ESST has interfered with the functions or features of accounting or business systems (which would otherwise produce accurate tax records or accurate inputs to tax records). [23] This includes where an ESST is used to alter records after they were originally recorded or alters the record as it is first made. You should consider the following when determining if a penalty applies for incorrectly keeping records using an ESST: • A penalty can only apply where an entity has record-keeping obligations under a taxation law. • Penalties apply to an entity even if they did not use the tool themselves to alter their records, including where a third party used the tool to make the alterations (for example, a tax agent or other service provider). • A penalty can only apply where an entity has record-keeping obligations under a taxation law. • Penalties apply to an entity even if they did not use the tool themselves to alter their records, including where a third party used the tool to make the alterations (for example, a tax agent or other service provider). Where an ESST is used to alter a group of related records, separate penalties should not be applied for each and every record altered. Rather, it would be appropriate to apply a penalty in relation to the alterations of the records over a relevant period of time. For instance, where sales records are altered that are taken into account in a business activity statement (BAS), a penalty could be applied to the altered records relating to that BAS. It may be appropriate to apply a further penalty if the behaviour extends into periods for which another BAS will be lodged. An entity is liable to 60 penalty units for each instance a penalty applies. See Examples 3 and 4 in Appendix A of this Practice Statement for further guidance. Penalties for aiding and abetting ESST conduct An entity that aids, abets, counsels or procures another entity to engage in ESST conduct is liable for: • 60 penalty units if the other entity engages in manufacturing, developing or publishing an ESST • 60 penalty units if the other entity engages in supplying an ESST, or providing a service to an entity that involves the use of an ESST • 30 penalty units if the other entity engages in the possession of an ESST • 60 penalty units if the other entity engages in the incorrect keeping of records using an ESST. [24] • 60 penalty units if the other entity engages in manufacturing, developing or publishing an ESST • 60 penalty units if the other entity engages in supplying an ESST, or providing a service to an entity that involves the use of an ESST • 30 penalty units if the other entity engages in the possession of an ESST • 60 penalty units if the other entity engages in the incorrect keeping of records using an ESST. [24] You should consider the following in determining if a penalty applies for aiding and abetting another entity to engage in ESST conduct: • The penalty for aiding, abetting, counselling or procuring conduct is designed to capture the actions of an entity which result in another entity becoming liable to a penalty. • You must have evidence that the entity has actually aided, abetted, counselled or procured another entity to engage in the conduct before imposing a penalty on the entity. • The penalty for aiding, abetting, counselling or procuring conduct is designed to capture the actions of an entity which result in another entity becoming liable to a penalty. • You must have evidence that the entity has actually aided, abetted, counselled or procured another entity to engage in the conduct before imposing a penalty on the entity. For example, a director of a company in their capacity as an individual may be liable to this penalty where their decisions have resulted in the company procuring an ESST for use. See Example 6 in Appendix A of this Practice Statement for further guidance. | 5. When ESST penalties do not apply: Entities who produce, supply or possess an ESST or aid or abet another entity to produce, supply or possess an ESST are not liable to an administrative penalty if the conduct is undertaken for the purpose of preventing or deterring tax evasion or enforcing a taxation law. [25] For example, researchers developing an ESST to assist them understanding and conducting training on how the tools function will not be liable to an administrative penalty when they do so for a law enforcement agency. An entity will not be liable to an administrative penalty where criminal prosecution has commenced for the same conduct. See section 10 of this Practice Statement for more information. | 6. Remitting penalties: When an ESST penalty applies, you must consider whether it is appropriate to remit any of the penalty. [26] This is done by deciding whether the penalty outcome is just and reasonable having regard to the facts and circumstances of the case. When making this decision, you may consider whether remission meets: • the objectives of administrative penalties generally; that is, to encourage entities to take reasonable care in complying with their tax obligations and to promote consistent treatment between all taxpayers, and • the objectives of the ESST penalty regime in deterring the production, supply, possession and use of ESSTs, which facilitate systemic tax evasion and undermine the integrity of the tax system. • the objectives of administrative penalties generally; that is, to encourage entities to take reasonable care in complying with their tax obligations and to promote consistent treatment between all taxpayers, and • the objectives of the ESST penalty regime in deterring the production, supply, possession and use of ESSTs, which facilitate systemic tax evasion and undermine the integrity of the tax system. As such, it may not generally be appropriate to remit a penalty for incorrectly keeping records using an ESST where an entity has deliberately destroyed or omitted records within the period during which they are required to be kept. [27] Factors that may also be relevant to your remission decision, include but are not limited to: • whether the entity expected any benefit as a result of the ESST • the compliance history of the entity, including whether they have previously engaged in any tax evasion-type behaviour • whether the entity had taken any remedial action and when this occurred (for example, before or after ATO interaction) and whether they cooperated with our investigations • whether the entity was aware or should have been aware of the existence of the ESST • whether multiple penalties have arisen from substantially similar conduct • whether the entity has engaged in more than one instance of prohibited ESST conduct • whether the imposition of the penalty or penalties provides an unintended or unjust result, such as the total penalty imposed is disproportionate to the conduct. The amount of the penalty alone, without specific reasons why it would be unjust in the taxpayer's particular circumstances, is not considered to be unjust. • whether the entity expected any benefit as a result of the ESST • the compliance history of the entity, including whether they have previously engaged in any tax evasion-type behaviour • whether the entity had taken any remedial action and when this occurred (for example, before or after ATO interaction) and whether they cooperated with our investigations • whether the entity was aware or should have been aware of the existence of the ESST • whether multiple penalties have arisen from substantially similar conduct • whether the entity has engaged in more than one instance of prohibited ESST conduct • whether the imposition of the penalty or penalties provides an unintended or unjust result, such as the total penalty imposed is disproportionate to the conduct. The amount of the penalty alone, without specific reasons why it would be unjust in the taxpayer's particular circumstances, is not considered to be unjust. See Examples 2 to 6 in Appendix A of this Practice Statement for further guidance. | 7. How do ESST penalties interact with other administrative penalties?: When more than one administrative penalty applies to an entity, you should consider whether each penalty results from the same act when making your remission decision. This is because, generally, a person should not be punished more than once for the same act. You should consider the facts of the case with care. While in some circumstances it may appear that the penalties result from the same conduct, the conduct may, in fact, consist of separate acts that each result in different penalties. For example, when an entity uses an ESST to delete records from their POS system, then uses the falsified records to understate their income on their income tax return, it is not just one act but three separate acts. Possessing an ESST is an act that attracts the penalty for possessing an ESST. The subsequent use of the ESST to delete records is a separate act that attracts the penalty for incorrectly keeping records using the ESST. The use of the falsified records to understate income on the income tax return attracts the penalty for making a false or misleading statement. Consequently, the three administrative penalties are for different acts. See Example 4 in Appendix A of this Practice Statement for further guidance. | 8. Notifying taxpayers of their penalty: You must give the entity written notice of the penalty and the reasons for the decision where the penalty has not been remitted or where it has been partially remitted. [28] You must provide the reasons for the decision at the same time or as soon as possible after you give written notice of the penalty. You do not have to give notice or reasons for the penalty decision where the penalty has been remitted to nil. | 9. Rights of review: An entity cannot object to the imposition of an ESST penalty; however, it may object to the remission decision if the penalty payable after the remission decision is more than two penalty units. [29] The entity may also seek judicial review of the decision if the penalty is not wholly remitted. [30] | 10. Criminal prosecutions: An entity that produces, supplies or possesses an ESST or uses an ESST to incorrectly keep taxation records may be liable for criminal prosecution. [31] The ATO may seek prosecution of an offence by conducting a criminal investigation and referring the matter to the Commonwealth Director of Public Prosecutions. This Practice Statement only covers administrative penalties relating to ESSTs. If you have a case that may be suitable for prosecution, you must follow Chief Executive Instruction External Fraud and should engage your team leader or technical leader early to discuss the appropriate action. Where the ATO initiates a criminal prosecution for an offence, the entity is not liable for an administrative penalty for the same conduct, even if the prosecution is later withdrawn. [32] | 11. More information: For more information, see: • Taxation Ruling TR 96/7 Income tax: record keeping - section 262A - general principles • Taxation Ruling TR 2018/2 Income tax: record keeping and access - electronic records • Law Administration Practice Statement PS LA 2005/2 Penalty for failure to keep or retain records • Law Administration Practice Statement PS LA 2008/14 Record keeping when using commercial off the shelf software • Law Administration Practice Statement PS LA 2011/30 Remission of administrative penalties relating to schemes imposed by subsection 284-145(1) of Schedule 1 to the Taxation Administration Act 1953 • Law Administration Practice Statement PS LA 2012/4 Administration of the false or misleading statements penalty - where there is no shortfall amount • Law Administration Practice Statement PS LA 2012/5 Administration of the false or misleading statement penalty - where there is a shortfall amount • Chief Executive Instruction External fraud (link available internally only) • Taxation Ruling TR 96/7 Income tax: record keeping - section 262A - general principles • Taxation Ruling TR 2018/2 Income tax: record keeping and access - electronic records • Law Administration Practice Statement PS LA 2005/2 Penalty for failure to keep or retain records • Law Administration Practice Statement PS LA 2008/14 Record keeping when using commercial off the shelf software • Law Administration Practice Statement PS LA 2011/30 Remission of administrative penalties relating to schemes imposed by subsection 284-145(1) of Schedule 1 to the Taxation Administration Act 1953 • Law Administration Practice Statement PS LA 2012/4 Administration of the false or misleading statements penalty - where there is no shortfall amount • Law Administration Practice Statement PS LA 2012/5 Administration of the false or misleading statement penalty - where there is a shortfall amount • Chief Executive Instruction External fraud (link available internally only) Example 1 - not an ESST - changes are recorded Bellissima Beans Café Ltd buys a POS system for their new café. This POS system includes a function to reverse and void transactions. The manufacturer states that this function is for correcting mistakes and generating refunds. The POS system records all changes to transactions in its history log. It produces a receipt and marks it as a void transaction. All receipts have sequential transaction numbers so any void transactions with missing receipts can be identified. Although this function gives Bellissima Beans Café Ltd the ability to delete and reverse transactions, the POS system creates an audit trail, so a reasonable person would not conclude that one of its principal functions is interfering with records. The POS system is not an ESST. Example 2 - possession of an ESST - full remission The ATO conducts a routine audit of a bookstore owned by Book Worms Pty Ltd (Book Worms). Bob is the director of this company and runs the bookstore. During the audit, a hidden function within the system allows sales transactions to be deleted or manipulated without leaving a record of the original transaction. As a reasonable person would conclude that one of the primary functions of this system is to interfere with sales records, it is an ESST. Bob is surprised to discover that his system has an ESST and explains that he had no idea that it was there. He had bought the bookstore from Keanu in March 2017, who had not mentioned that there was anything unusual about the business or the equipment. He explains that he had not used the ESST and contacts his POS system supplier immediately to ensure ESST capabilities are removed. At the conclusion of the audit, no evidence was found that the ESST had been used to alter any of Book Worms' business records. The audit did not result in any amendments to Book Worms' income tax returns or BASs. Book Worms has a good compliance history. Notwithstanding the above, Book Worms is liable to an administrative penalty of 30 units for possessing an ESST. It does not matter that Book Worms came into possession of the ESST before the legislation was enacted. The case officer considers whether it would be appropriate to remit the penalty in full or in part by taking into account the following facts: • Book Worms was unaware that it was in possession of an ESST. • Book Worms complied with all requests made by the audit team and has taken prompt remedial action to remove the ESST after the discovery of the ESST. • Book Worms has a good compliance history. • Book Worms was unaware that it was in possession of an ESST. • Book Worms complied with all requests made by the audit team and has taken prompt remedial action to remove the ESST after the discovery of the ESST. • Book Worms has a good compliance history. Based on these facts, the case officer considers it appropriate to remit the administrative penalty in full. Example 3 - possessing and using an ESST - partial remission Jack purchases a POS system with an ESST function and alters his records every day for three months to underreport his sales income. He relies on these altered records to complete and lodge one BAS. Jack subsequently disposes of his ESST-enabled POS system and purchases a legitimate POS system. Jack requests that the Commissioner amends his BAS to reflect his actual sales income and pays the resulting debt on time. The ATO then initiates an audit of Jack's business affairs, and the case officer finds evidence of both Jack's possession and use of the ESST. Jack is liable to ESST penalties for: • possessing an ESST (30 penalty units), and • one instance of incorrectly keeping records using an ESST (60 penalty units). • possessing an ESST (30 penalty units), and • one instance of incorrectly keeping records using an ESST (60 penalty units). The case officer takes into account the following facts and circumstances and considers it would be appropriate to remit the possession penalty by 50%: • There were no legitimate reasons for Jack to have possessed the ESST. • Jack undertook remedial action by disposing of the ESST before the ATO initiated any audit action. • The object of the ESST penalty regime is to deter the possession of ESSTs, which facilitates systemic tax evasion and undermines the integrity of the tax system. Remitting the penalty by 50% is appropriate in the circumstances and is proportionate to the seriousness of the conduct. • There were no legitimate reasons for Jack to have possessed the ESST. • Jack undertook remedial action by disposing of the ESST before the ATO initiated any audit action. • The object of the ESST penalty regime is to deter the possession of ESSTs, which facilitates systemic tax evasion and undermines the integrity of the tax system. Remitting the penalty by 50% is appropriate in the circumstances and is proportionate to the seriousness of the conduct. The case officer also considers it appropriate to remit the use penalty by 50%, based on the following facts and circumstances: • Jack undertook remedial action by requesting an amendment of his BAS before the ATO initiated any audit action. • While Jack received a financial benefit from the use of the ESST, this was reversed when he requested an amendment on his BAS based on his actual sales income. • The object of the ESST penalty regime is to deter the use of ESSTs, which facilitates systemic tax evasion and undermines the integrity of the tax system. Applying the penalty acts as a deterrent and is proportionate to the seriousness of the conduct. • Jack undertook remedial action by requesting an amendment of his BAS before the ATO initiated any audit action. • While Jack received a financial benefit from the use of the ESST, this was reversed when he requested an amendment on his BAS based on his actual sales income. • The object of the ESST penalty regime is to deter the use of ESSTs, which facilitates systemic tax evasion and undermines the integrity of the tax system. Applying the penalty acts as a deterrent and is proportionate to the seriousness of the conduct. The case officer considers this to be an appropriate remission decision as it reflects the seriousness of the conduct and does not produce an unjust outcome. Example 4 - possessing and using an ESST, and making false or misleading statements Roberta owns the Hazelnut Cafe. She buys a new POS system from POSsibilities Pty Ltd, which contains an extra feature allowing Roberta to delete or change the value of completed sales without an audit trail. This feature is coded directly into the POS system and can be accessed by a secret menu. The hidden program is part of the POS system itself and is an ESST, as a reasonable person would consider that one of its principal functions is to falsify the user's records. Roberta uses the ESST to alter her records every day for three months from July 2020. She relies on these altered records to complete and lodge her September quarter BAS. Roberta is liable to ESST penalties for: • possessing an ESST (30 penalty units), and • incorrectly keeping records using an ESST (60 penalty units). • possessing an ESST (30 penalty units), and • incorrectly keeping records using an ESST (60 penalty units). Roberta's September BAS is amended based on evidence that the Commissioner holds of what her income and sales were. She is liable to pay the additional tax shortfall and general interest charges. She is also liable to a penalty for making statements which were false or misleading to the Commissioner, based on the records she altered using the ESST. The quantum of the penalty imposed for making statements which were false or misleading is determined separately based on the behaviour involved. [33] The case officer takes into account the following facts and circumstances when considering whether it would be appropriate to remit the ESST penalties in full or in part: • Roberta has obtained a benefit from using the ESST as the records she relied on (that had been altered using the ESST) resulted in contrived refunds. • The penalties do not result from the same conduct, as possessing an ESST and using an ESST are two separate acts. • The total penalty amount imposed on the entity is not disproportionate to Roberta's circumstances. Roberta possessed and used an ESST to alter records and thereby facilitated tax evasion. Roberta used the records to deliberately make statements to the Commissioner which she knew were false and misleading. • Roberta has obtained a benefit from using the ESST as the records she relied on (that had been altered using the ESST) resulted in contrived refunds. • The penalties do not result from the same conduct, as possessing an ESST and using an ESST are two separate acts. • The total penalty amount imposed on the entity is not disproportionate to Roberta's circumstances. Roberta possessed and used an ESST to alter records and thereby facilitated tax evasion. Roberta used the records to deliberately make statements to the Commissioner which she knew were false and misleading. The case officer considers it appropriate to not remit either penalty, as they reflect the seriousness of the conduct and do not produce an unjust outcome. Example 5 - producing and supplying an ESST Edith is a sole trader who has manufactured an ESST (the first ESST) and sells it to five separate entities. A year later, Edith develops a software patch to improve and upgrade the ESST and provide new features. The software patch is an ESST in its own right. Producing the patch is an act separate to the conduct of producing the first ESST. The case officer does not find any evidence that the software patch has been sold to other entities. Edith is liable to 480 penalty units for: • producing the first ESST (60 penalty units) • producing the software patch (60 penalty units) • possessing two ESSTs (60 penalty units), and • supplying the first ESST to five entities (300 penalty units). • producing the first ESST (60 penalty units) • producing the software patch (60 penalty units) • possessing two ESSTs (60 penalty units), and • supplying the first ESST to five entities (300 penalty units). Producing, possessing and supplying the ESST are separate acts. The manufacture of an ESST involves the actual design and creation of an ESST, possession involves ownership or control, and the supply involves making an ESST available for others to use. In this case: • The production penalties did not arise from the same conduct. Two separate ESSTs were developed at different times and for different purposes (that is, the original software, then the software patch which was in effect an ESST upgrade). • The possession penalties did not arise from the same conduct. Two separate ESSTs are in Edith's control. • The supply penalties did not arise from the same conduct. Edith engaged in five separate acts of supply by selling the first ESST to five different entities. • The production penalties did not arise from the same conduct. Two separate ESSTs were developed at different times and for different purposes (that is, the original software, then the software patch which was in effect an ESST upgrade). • The possession penalties did not arise from the same conduct. Two separate ESSTs are in Edith's control. • The supply penalties did not arise from the same conduct. Edith engaged in five separate acts of supply by selling the first ESST to five different entities. The case officer takes into account the following facts and circumstances when considering whether it would be appropriate to remit the penalties in full or in part: • Edith does not have any history of tax evasion behaviour. • Edith has benefited financially from the supply of the ESST. She sold each ESST for $2,000 (totalling $10,000). • The object of the ESST penalty regime is to deter the production, supply and possession of ESSTs, which facilitates systemic tax evasion and undermines the integrity of the tax system. • Edith does not have any history of tax evasion behaviour. • Edith has benefited financially from the supply of the ESST. She sold each ESST for $2,000 (totalling $10,000). • The object of the ESST penalty regime is to deter the production, supply and possession of ESSTs, which facilitates systemic tax evasion and undermines the integrity of the tax system. The case officer does not consider it appropriate to remit the penalties relating to the production and possession of the two ESSTs. This is because the penalty outcomes are not disproportionate to Edith's actions and will act as a deterrence, consistent with the object of the ESST penalty regime. She has also financially benefitted from her conduct as there was no reason (apart from to facilitate tax evasion) for the production, possession or supply of these ESSTs. The case officer does not consider it appropriate to remit the penalties for the supply of five ESSTs, as while it is a substantial penalty outcome, Edith has received significant financial benefit from the supply. The case officer also considers that supplying an ESST facilitates tax evasion and that the penalties in this case provide effective deterrence. Example 6 - aiding and abetting the possession and use of an ESST An audit of the tax affairs of Poppy Flowers Ltd (Poppy Flowers) identifies that it possessed an ESST and used it to alter records relied on in preparing two BASs. The case team determines that administrative penalties apply to Poppy Flowers for possessing an ESST, and for incorrectly keeping records twice using an ESST. The case team also discovers emails that indicate that Poppy Flowers' tax agent, Doug, is involved in the acquisition of the ESST and commenced an audit of Doug's business tax affairs. They find evidence showing that Doug has: • encouraged Poppy Flowers' directors to obtain and use the ESST • helped them source the ESST • provided ongoing support, including how to use the ESST, for the first six months, and • received a financial benefit from the company for sourcing and providing ongoing support on the use of the ESST. • encouraged Poppy Flowers' directors to obtain and use the ESST • helped them source the ESST • provided ongoing support, including how to use the ESST, for the first six months, and • received a financial benefit from the company for sourcing and providing ongoing support on the use of the ESST. Doug is a separate entity to Poppy Flowers. As there is sufficient evidence to show that Doug has aided Poppy Flowers to engage in conduct that gave rise to Poppy Flowers' liability to ESST penalties, Doug is liable to 150 penalty units for aiding Poppy Flowers to: • possess an ESST (30 penalty units), and • use the ESST to incorrectly keep records for two BAS lodgments (120 penalty units). • possess an ESST (30 penalty units), and • use the ESST to incorrectly keep records for two BAS lodgments (120 penalty units). In addition, Doug is referred to the Tax Practitioners Board for investigation. The case officer takes into account the following facts and circumstances when considering whether it would be appropriate to remit the ESST penalties in full or in part: • Doug has benefitted from aiding Poppy Flowers to possess and use the ESST as he received payment from the company for sourcing the ESST and the ongoing support he gave them in connection with its use. • The penalties do not result from the same conduct, as aiding possession and aiding use of the ESST are two separate acts. • The total penalty amount imposed on Doug is not disproportionate in the circumstances. Doug's conduct in aiding the possession and use of an ESST encouraged and facilitated tax evasion. • Doug has benefitted from aiding Poppy Flowers to possess and use the ESST as he received payment from the company for sourcing the ESST and the ongoing support he gave them in connection with its use. • The penalties do not result from the same conduct, as aiding possession and aiding use of the ESST are two separate acts. • The total penalty amount imposed on Doug is not disproportionate in the circumstances. Doug's conduct in aiding the possession and use of an ESST encouraged and facilitated tax evasion. The case officer considers it appropriate to not remit either penalty, as they reflect the seriousness of the conduct and do not produce an unjust outcome.",Taxation Ruling TR 96/7 | Taxation Ruling TR 2018/2 | Law Administration Practice Statement PS LA 2005/2 | Law Administration Practice Statement PS LA 2008/14 | Law Administration Practice Statement PS LA 2011/30 | Law Administration Practice Statement PS LA 2012/4 | Law Administration Practice Statement PS LA 2012/5 | TR 96/7 | TR 2018/2 | PS LA 2005/2 | PS LA 2008/14 | PS LA 2011/30 | PS LA 2012/4 | PS LA 2012/5 | Explanatory Memorandum | ANTS(GST)A 1999 9-10 | ITAA 1936 262A | ITAA 1997 995-1(1) | TAA 1953 Pt III Div 2 | TAA 1953 8WAB | TAA 1953 8ZE | TAA 1953 Sch 1 284-145(1) | TAA 1953 Sch 1 288-125(1) | TAA 1953 Sch 1 288-125(1)(a) | TAA 1953 Sch 1 288-125(1)(b) | TAA 1953 Sch 1 288-125(1)(c) | TAA 1953 Sch 1 288-125(2) | TAA 1953 Sch 1 288-125(3) | TAA 1953 Sch 1 288-130(1) | TAA 1953 Sch 1 288-130(1)(b) | TAA 1953 Sch 1 288-130(2) | TAA 1953 Sch 1 288-130(3) | TAA 1953 Sch 1 288-135(1) | TAA 1953 Sch 1 288-135(2) | TAA 1953 Sch 1 298-20 | TAA 1953 Sch 1 298-20(3) | TAA 1953 Sch 1 382-5 | Crimes Act 1914 4AA | Excise Act 1901 4(1),PS LA 2005/2 PS LA 2008/14 PS LA 2011/30 PS LA 2012/4 PS LA 2012/5,ANTS(GST)A 1999 9-10 | ITAA 1936 262A | ITAA 1997 995-1(1) | TAA 1953 Pt III Div 2 | TAA 1953 8WAB | TAA 1953 8ZE | TAA 1953 Sch 1 284-145(1) | TAA 1953 Sch 1 288-125(1) | TAA 1953 Sch 1 288-125(1)(a) | TAA 1953 Sch 1 288-125(1)(b) | TAA 1953 Sch 1 288-125(1)(c) | TAA 1953 Sch 1 288-125(2) | TAA 1953 Sch 1 288-125(3) | TAA 1953 Sch 1 288-130(1) | TAA 1953 Sch 1 288-130(1)(b) | TAA 1953 Sch 1 288-130(2) | TAA 1953 Sch 1 288-130(3) | TAA 1953 Sch 1 288-135(1) | TAA 1953 Sch 1 288-135(2) | TAA 1953 Sch 1 298-20 | TAA 1953 Sch 1 298-20(3) | TAA 1953 Sch 1 382-5 | Crimes Act 1914 4AA | Excise Act 1901 4(1) | Judiciary Act 1903 39B,,"Chief Executive Instruction External fraud Explanatory Memorandum to the Treasury Laws Amendment (Black Economy Taskforce Measures No.1) Bill 2018Macmillan Publishers Australia, The Macquarie Dictionary online, www.macquariedictionary.com.au",False,True,https://www.ato.gov.au/law/view/document?docid=PSR/PS20221/NAT/ATO/00001,"Remove the word 'proposed'. | Fix the broken link to PS LA 2008/14. | [1] Future use of the terms 'interfere' or 'interfering' should be taken to include 'falsifying, manipulating, hiding, obfuscating, destroying, or preventing the creation of a record'. | [2] Section 8WAB of the Taxation Administration Act 1953 (TAA). | [3] Paragraph 1.27 of the Explanatory Memorandum to the Treasury Laws Amendment (Black Economy Taskforce Measures No.1) Bill 2018. | [4] Section 262A of the Income Tax Assessment Act 1936 and section 382-5 of Schedule 1 to the TAA. All legislative references in this Practice Statement are to Schedule 1 to the TAA unless otherwise specified. For further information, see Law Administration Practice Statement PS LA 2005/2 Penalty for failure to keep or retain records. | [5] See Appendix 1 of PS LA 2005/2 for a list of record-keeping obligations required by taxation law. | [6] Paragraph 1.34 of the Explanatory Memorandum to the Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018. | [7] Paragraph 288-125(1)(a). | [8] Paragraph 288-125(1)(b). | [9] Paragraph 288-125(1)(c). | [10] Paragraph 288-130(1)(b). | [11] Subsection 288-135(1). | [12] Subsections 288-125(2), 288-130(2) and 288-135(2). | [13] The value of a penalty unit is contained in section 4AA of the Crimes Act 1914 and is indexed regularly. A table containing penalty unit values can be found by searching for 'penalty unit' on ato.gov.au | [14] Subsection 288-125(1). | [15] Paragraph 288-125(1)(b). | [16] Paragraph 288-125(1)(c). | [17] Section 8WAB of the TAA provides that 'supply' has the meaning given by section 9-10 of the A New Tax System (Goods and Services Tax) Act 1999. | [18] 'Taxation law' is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997. | [19] 'Excise Act' is defined in subsection 4(1) of the Excise Act 1901. | [20] Subsection 288-130(1). | [21] The term 'record' has been outlined in section 3 of this Practice Statement. | [22] Subsection 288-135(1). | [23] 'Use' is not defined in the legislation and takes its ordinary meaning as 'to employ for some purpose' or 'put into service'; Macmillan Publishers Australia, The Macquarie Dictionary online, www.macquariedictionary.com.au, accessed 8 September 2021. | [24] Subsections 288-125(2), 288-130(2) and 288-135(2). | [25] Subsections 288-125(3) and 288-130(3). | [27] This is consistent with the penalty for failure to keep or retain records remission principles in paragraph 9 of PS LA 2005/2. | [29] Subsection 298-20(3). | [30] A judicial review application may be made in the Federal Court or the Federal Circuit and Family Court under the Administrative Decisions (Judicial Review) Act 1977 or to the Federal Court under section 39B of the Judiciary Act 1903. | [31] Subdivision BAA of Division 2 of Part III of the TAA. | [32] Section 8ZE of the TAA. | [33] This should be determined in accordance with the principles in Division 284, PS LA 2012/4 and PS LA 2012/5."
PS LA 2021/1,Application of the promoter penalty laws,8 April 2021,8 April 2021,Law Administration Practice Statement,False,"1. What this practice statement is about: This Practice Statement provides guidance on the application of Division 290 of Schedule 1 to the Taxation Administration Act 1953 and section 68B of the Superannuation Industry (Supervision) Act 1993 (SISA). Together, these are the promoter penalty laws. All legislative references in this Practice Statement are to Schedule 1 to the Taxation Administration Act 1953, unless otherwise indicated. This Practice Statement discusses: • some of the indicators of potential promoter behaviour • the process for making decisions about the promoter penalty laws, covering the roles of the Promoters and Tax Exploitation Program (Promoters Program), the promoter penalty decision-maker (Decision-Maker) and the Promoter Penalty Review Panel (Panel) • application of the promoter penalty laws, in particular, the sanctions and remedies available. • some of the indicators of potential promoter behaviour • the process for making decisions about the promoter penalty laws, covering the roles of the Promoters and Tax Exploitation Program (Promoters Program), the promoter penalty decision-maker (Decision-Maker) and the Promoter Penalty Review Panel (Panel) • application of the promoter penalty laws, in particular, the sanctions and remedies available. | 2. What are some of the indicators of potential promoter behaviour?: If you become aware of information suggesting that someone has been involved in the promotion of a tax or superannuation scheme in a way that may breach the promoter penalty laws, a referral must be made to the Promoters Program. This should happen even where consideration of the substantive tax law has not yet concluded. The referral should be made as soon as possible, as time limits apply to Federal Court applications under the relevant laws. Timely referrals will also assist to ensure that the proper evidence is gathered to satisfy the legal burden of proof, which rests on the ATO in these matters. What should be referred? All matters where the promoter penalty laws might apply must be referred to the Promoters Program. Some factors that may indicate promoter behaviour include: • advisers who have encouraged one or more taxpayers to seek a tax or superannuation benefit to which they are not entitled • advertisements or marketing for tax or superannuation schemes that seem 'too good to be true' • tax agents, consultants or other advisers (whether registered or unregistered) offering tax savings or early access to superannuation in return for a percentage of the tax saved, or amount of superannuation accessed • tax agents, consultants or other advisers marketing a scheme that was developed by others • tax agents, consultants or other advisers promoting or implementing a scheme that they claim conforms with a public, private or oral ruling made by the ATO where there is a material difference between the scheme and the ruling • multiple clients of the same adviser engaging in similar arrangements that are unnecessarily complex or seem designed primarily to get a tax or superannuation benefit • schemes where we have applied the anti-avoidance provisions (for example, in Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936)) which were marketed by an adviser • tax agents, consultants or other advisers (whether registered or unregistered) offering or encouraging early access to superannuation before a condition of release has been met. • advisers who have encouraged one or more taxpayers to seek a tax or superannuation benefit to which they are not entitled • advertisements or marketing for tax or superannuation schemes that seem 'too good to be true' • tax agents, consultants or other advisers (whether registered or unregistered) offering tax savings or early access to superannuation in return for a percentage of the tax saved, or amount of superannuation accessed • tax agents, consultants or other advisers marketing a scheme that was developed by others • tax agents, consultants or other advisers promoting or implementing a scheme that they claim conforms with a public, private or oral ruling made by the ATO where there is a material difference between the scheme and the ruling • multiple clients of the same adviser engaging in similar arrangements that are unnecessarily complex or seem designed primarily to get a tax or superannuation benefit • schemes where we have applied the anti-avoidance provisions (for example, in Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936)) which were marketed by an adviser • tax agents, consultants or other advisers (whether registered or unregistered) offering or encouraging early access to superannuation before a condition of release has been met. How can a referral be made to the Promoters Program? You should refer information to the Promoters Program by using the process described on the Promoters and Tax Exploitation Program SharePoint page (link available internally only). A member of the public can call 1800 060 062, use the form at ato.gov.au/tipoffform or use the ATO app. | 3. How are decisions about the promoter penalty laws made?: The Promoters Program is part of the Behaviours of Concern stream of the Private Wealth business line. Its objective is to address the behaviours of those intermediaries that promote or encourage tax avoidance in the tax and superannuation systems, including consideration of remedies or sanctions that can be imposed under the promoter penalty laws. Proper application of promoter penalty laws The application of the promoter penalty laws is a serious matter. Their potential application should not be raised lightly. Heavy sanctions are associated with a finding of a breach of the promoter penalty laws. In addition, there are other potentially negative consequences including reputational damage and impacts on tax agent registration. Promoter penalty decision-maker Senior Executive Service officers are delegated the power to make applications to the Federal Court or accept a voluntary undertaking under the promoter penalty laws. Generally, the Decision-Maker will be the Assistant Commissioner of the Promoters Program. For matters involving the exercise of the Commissioner's self-managed superannuation fund (SMSF) regulatory powers pursuant to section 68B of the SISA, the Assistant Commissioner of the Promoters Program will consult with the Assistant Commissioner in Superannuation and Employment Obligations responsible for SMSFs prior to making a decision. Promoter Penalty Review Panel We established the Panel to advise the Decision-Maker on the application of the promoter penalty laws to particular circumstances. The Panel is chaired by the Deputy Commissioner of the Behaviours of Concern stream of the Private Wealth business line and consists of senior ATO staff, as well as external experts. When must a matter be referred to the Promoter Penalty Review Panel? In considering a remedy or sanction under the promoter penalty laws, the Decision-Maker will refer all matters to the Panel for advice prior to making a decision. In exceptional circumstances (for example, when seeking an urgent injunction), the Decision-Maker can make a decision after consulting only the chair of the Panel. Where the Decision-Maker is considering accepting an undertaking offered by an entity, the Decision-Maker may seek the advice of the Panel but is not required to do so. What is the role of the Promoter Penalty Review Panel? The Panel is governed by the Promoter Penalty Review Panel Charter. The Panel will consider submissions made to the Decision-Maker about recommended actions under the promoter penalty laws. The Panel has no statutory basis; its role is purely advisory. The Panel will not investigate or find facts. Instead, it will examine submissions and provide independent advice on the strengths and weaknesses of each case, the appropriateness of the recommended action and the strength of the evidence provided. The referring ATO officers and relevant risk owners may be invited to attend the Panel's session to provide input into the Panel's discussions. The Decision-Maker is not obliged to follow the Panel's advice, but a decision that is contrary to the advice of the Panel must only be made after discussion with the chair of the Panel. The decision process The Promoters Program will form a recommendation based on available information as to whether a breach of the promoter penalty laws has occurred, as well as to which entity or entities the promoter penalty laws might apply. A Promoters Program case officer will, in consultation with other ATO stakeholders, make a written submission to the Decision-Maker. The submission should include a recommendation of which promoter penalty laws apply and recommend appropriate action. There may be circumstances where it will be appropriate to seek more than one action to effectively address the behaviour. The Decision-Maker, in consultation with the Panel, will consider the written submission, determine the most appropriate response and decide whether there is sufficient evidence to support the recommended action. | 4. How do the promoter penalty laws in Division 290 work?: What is the purpose of Division 290? Division 290 is designed to deter the: • promotion of tax exploitation schemes (TES) (the first limb) [1] • promotion of schemes on the basis of conformity with a public, private or oral ruling if the scheme is materially different from that described in the ruling (the second limb) [2] , and • implementation of schemes, that have been promoted on the basis of conformity with a public, private or oral ruling, in a way that is materially different from that described in the ruling (the third limb). [3] • promotion of tax exploitation schemes (TES) (the first limb) [1] • promotion of schemes on the basis of conformity with a public, private or oral ruling if the scheme is materially different from that described in the ruling (the second limb) [2] , and • implementation of schemes, that have been promoted on the basis of conformity with a public, private or oral ruling, in a way that is materially different from that described in the ruling (the third limb). [3] When does Division 290 apply? Division 290 applies to conduct within Australia occurring on or after 6 April 2006 [4] and to conduct outside Australia occurring on or after 28 June 2013. [5] Apart from conduct in relation to a product ruling under the third limb, the second and third limbs of Division 290 only apply to conduct engaged in on or after 1 July 2024. [6] What conduct is subject to Division 290? An entity must not engage in prohibited conduct that results in [7] : • that entity or another entity being a promoter of a TES • a scheme that is materially different from that described in a public, private or oral ruling being promoted on the basis of conformity with that ruling, or • a scheme that has been promoted on the basis of conformity with a public, private or oral ruling being implemented in way that is materially different from that described in the ruling. • that entity or another entity being a promoter of a TES • a scheme that is materially different from that described in a public, private or oral ruling being promoted on the basis of conformity with that ruling, or • a scheme that has been promoted on the basis of conformity with a public, private or oral ruling being implemented in way that is materially different from that described in the ruling. What is a tax exploitation scheme? If the scheme has been implemented, a TES arises where [8] it is reasonable to conclude that an entity that entered into or carried out the scheme did so with the sole or dominant purpose of that entity, or another entity, getting a scheme benefit from the scheme. It must also not be 'reasonably arguable' [9] that the scheme benefit is available at law. If the scheme has not been implemented, a TES arises where it is reasonable to conclude that the entity (that would have entered into or carried out the scheme) would have done so with the sole or dominant purpose of that entity, or another entity, getting a scheme benefit from the scheme. It must also not be reasonably arguable that the scheme benefit would be available at law if the scheme were implemented. A scheme is also a TES [10] if it has been implemented and Part IVA of the ITAA 1936 applies to the scheme because of section 177DA [11] or 177J [12] of that Act, and it is reasonable to conclude the scheme was entered with a principal purpose of an entity obtaining a scheme benefit and it is not reasonably arguable the benefit is available at law. If the scheme has not been implemented, a TES also arises where it is reasonable to conclude that had the scheme been implemented, Part IVA of ITAA 1936 would apply to the scheme because of section 177DA or 177J of that Act, there would have been a principal purpose for an entity obtaining a scheme benefit and it is not reasonably arguable the benefit is available at law. What is a 'scheme' and a 'scheme benefit'? A 'scheme' is any arrangement, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise. [13] An entity gets a 'scheme benefit' from a scheme if [14] : • a tax-related liability of the entity for an accounting period is, or could reasonably be expected to be, less than it would be apart from the scheme or part of the scheme, or • an amount that we must pay or credit to the entity under a taxation law for an accounting period is, or could reasonably be expected to be, more than it would be apart from the scheme or a part of scheme. • a tax-related liability of the entity for an accounting period is, or could reasonably be expected to be, less than it would be apart from the scheme or part of the scheme, or • an amount that we must pay or credit to the entity under a taxation law for an accounting period is, or could reasonably be expected to be, more than it would be apart from the scheme or a part of scheme. The first limb – what is a promoter of a tax exploitation scheme? An entity is a promoter of a TES if [15] : • the entity markets the TES, or otherwise encourages the growth of, or interest in, the TES • the entity or an associate directly or indirectly receives a benefit in respect of that marketing or encouragement, and • having regard to all matters, it is reasonable to conclude that the entity has a substantial role in the marketing or encouragement. • the entity markets the TES, or otherwise encourages the growth of, or interest in, the TES • the entity or an associate directly or indirectly receives a benefit in respect of that marketing or encouragement, and • having regard to all matters, it is reasonable to conclude that the entity has a substantial role in the marketing or encouragement. An entity can be a promoter regardless of whether the TES is tailored and marketed to one client or to a broad population. [16] An entity that merely provides advice about the TES, or an employee that merely distributes information or materials prepared by another, is not a promoter. [17] Whether or not an entity has a substantial role in the marketing or encouragement is a question of fact, and you must assess the role played by all parties involved in the design and implementation of a TES. The second limb – what is promoting a scheme otherwise than in accordance with a ruling? The second limb is concerned with an entity causing a scheme to be promoted on the basis that it conforms to a public private or oral ruling when the scheme promoted is materially different to that described in the ruling. [18] This limb will apply whether or not the promoted scheme is ultimately implemented. It covers the promotion of schemes before, during or after implementation. It also covers situations where a scheme is not yet implemented. [19] The third limb – what is implementing a scheme otherwise than in accordance with a ruling? The third limb is concerned with an entity causing a scheme that has been promoted on the basis of conformity with a public, private or oral ruling being implemented in a way that is materially different from that described in the ruling. [20] Unlike the first and second limbs of Division 290, the third limb is concerned with implementation rather than promotion. [21] The scheme that is promoted on the basis of conformity with a ruling does not actually need to be the subject of that ruling. [22] Material differences between schemes and the relevant ruling For the second and third limbs of Division 290, a scheme will be materially different from that described in a ruling if the tax outcome for participants in the scheme is not the same as that described in the ruling. [23] What sanctions and remedies are available under Division 290? The sanctions and remedies available under Division 290 are: • voluntary undertakings, enforceable by the Federal Court • statutory injunctions • civil penalties. • voluntary undertakings, enforceable by the Federal Court • statutory injunctions • civil penalties. The appropriate sanctions or remedies will depend on the particular facts and circumstances for each case. More than one remedy may apply (for example, a civil penalty accompanied by a statutory injunction). If a civil penalty is imposed by the Federal Court on: • a partnership – all the partners in a partnership are jointly and severally liable to pay the civil penalty [24] • one of the trustees of a trust – all the trustees of a trust are jointly and severally liable to pay the civil penalty. [25] • a partnership – all the partners in a partnership are jointly and severally liable to pay the civil penalty [24] • one of the trustees of a trust – all the trustees of a trust are jointly and severally liable to pay the civil penalty. [25] However, the breach of the promoter penalty laws by one partner does not, by itself, affect the continued registration as a registered tax agent or BAS agent of another partner. [26] What factors should be considered before accepting a voluntary undertaking? We may accept a written voluntary undertaking [27] from an entity. Once an undertaking is accepted, it may only be varied or withdrawn with our consent. If an entity breaches its undertaking, we may apply to the Federal Court for an order directing the entity to comply with the undertaking, or any other order the Court considers appropriate. [28] The advantages of an undertaking are the: • matter may be finalised more quickly • undertaking terms may be more flexible • parties save costs, as the matter is not presented before the Court in a civil penalty application • undertaking may also be used to agree future behaviour. • matter may be finalised more quickly • undertaking terms may be more flexible • parties save costs, as the matter is not presented before the Court in a civil penalty application • undertaking may also be used to agree future behaviour. While all relevant considerations should be taken into account, factors that might weigh in favour of an undertaking as the appropriate remedy include the: • entity is willing to provide full disclosure about its own activities and the activities of others involved in the scheme • entity is willing to rectify its conduct including by recompensing participants • entity was lower in the chain of command or decision-making structure than other entities involved in the scheme • risk to revenue is low. • entity is willing to provide full disclosure about its own activities and the activities of others involved in the scheme • entity is willing to rectify its conduct including by recompensing participants • entity was lower in the chain of command or decision-making structure than other entities involved in the scheme • risk to revenue is low. The Promoters Program will monitor compliance with voluntary undertakings. What factors should be considered before applying for a statutory injunction? Where there is evidence of contemplated or ongoing prohibited conduct, we may apply to the Federal Court for relief in the form of a restraining injunction (an order to refrain from doing something) or a performance injunction (an order to do something). The Court may grant an: • injunction [29] against an entity on such terms as it considers appropriate, and may discharge or vary an injunction granted at any time, or • interim injunction against an entity restraining it from engaging in prohibited conduct prior to full consideration of our application for an injunction. • injunction [29] against an entity on such terms as it considers appropriate, and may discharge or vary an injunction granted at any time, or • interim injunction against an entity restraining it from engaging in prohibited conduct prior to full consideration of our application for an injunction. While all relevant considerations should be taken into account, the following factors might weigh in favour of an injunction application as the appropriate strategy includes where: • there is potential for further participation in the scheme as a result of future prohibited conduct • there is a significant ongoing level of risk to revenue or the superannuation savings of participants • the entity has an adequate degree of control over whether the prohibited conduct occurs • the entity is not willing to assist us in resolving the issue or to modify its conduct without compulsion or it has breached or circumvented undertakings • there is a need for urgency in addressing prohibited conduct (such as forthcoming promotional seminars) or other promotional activities. • there is potential for further participation in the scheme as a result of future prohibited conduct • there is a significant ongoing level of risk to revenue or the superannuation savings of participants • the entity has an adequate degree of control over whether the prohibited conduct occurs • the entity is not willing to assist us in resolving the issue or to modify its conduct without compulsion or it has breached or circumvented undertakings • there is a need for urgency in addressing prohibited conduct (such as forthcoming promotional seminars) or other promotional activities. The Promoters Program will monitor compliance with injunctions. What factors should be considered before applying to impose a civil penalty? We may also apply to the Federal Court for the imposition of civil penalties. [30] The Court can order an entity to pay a civil penalty [31] if it is satisfied that an entity has engaged in prohibited conduct and that no exception or exclusion applies. Factors that might weigh in favour of a civil penalty application as the appropriate remedy include where the entity: • is knowingly engaging in conduct that is likely to be prohibited and evidence indicates that the entity is unwilling to modify its behaviour • has a history of prohibited conduct as a major source of income • has a large degree of control or influence over whether the prohibited conduct occurred • deliberately frustrates the progression of our investigation • has engaged in prohibited conduct on a significant scale in terms of the number of entities or amounts involved • has promoted a TES for which participants that have implemented the scheme have or will become liable to administrative penalty. • is knowingly engaging in conduct that is likely to be prohibited and evidence indicates that the entity is unwilling to modify its behaviour • has a history of prohibited conduct as a major source of income • has a large degree of control or influence over whether the prohibited conduct occurred • deliberately frustrates the progression of our investigation • has engaged in prohibited conduct on a significant scale in terms of the number of entities or amounts involved • has promoted a TES for which participants that have implemented the scheme have or will become liable to administrative penalty. When will civil penalties not be imposed? Civil penalties cannot be imposed on an entity under Division 290 where the prohibited conduct was due to [32] : • a reasonable mistake of fact • another entity's role or actions, an accident or some other cause which was beyond the entity's control and where the entity took reasonable precautions and exercised due diligence to avoid the conduct (but not if the other entity was an employee or agent of the entity, director of the entity, another partner in a partnership or another trustee of a trust when the alleged conduct occurred), or • where the scheme in question treats the taxation law as applying in a way that agrees with • advice given to the entity or the entity's agent by or on behalf of the Commissioner, or • a statement in a publication approved in writing by the Commissioner. • a reasonable mistake of fact • another entity's role or actions, an accident or some other cause which was beyond the entity's control and where the entity took reasonable precautions and exercised due diligence to avoid the conduct (but not if the other entity was an employee or agent of the entity, director of the entity, another partner in a partnership or another trustee of a trust when the alleged conduct occurred), or • where the scheme in question treats the taxation law as applying in a way that agrees with • advice given to the entity or the entity's agent by or on behalf of the Commissioner, or • a statement in a publication approved in writing by the Commissioner. • advice given to the entity or the entity's agent by or on behalf of the Commissioner, or • a statement in a publication approved in writing by the Commissioner. Recommending the amount of civil penalty to be imposed The Federal Court decides the amount of civil penalty. In doing so, the Court may have regard to all matters it considers relevant, including those specifically mentioned in the law. [33] We can make submissions to the Court on an appropriate level of penalty and, as laid out under Division 290, will lead evidence on the following relevant factors: • the benefit received or receivable (directly or indirectly) by the entity and associates of the entity in respect of the scheme • the deterrent effect that any penalty may have • the amount of loss or damage incurred by participants • the nature and extent of the contravention • the circumstances in which the contravention took place, including the entity's conduct and whether there was an honest and reasonable mistake of law • the period over which the conduct extended • whether the entity took any steps to avoid the contravention • whether the entity has previously been found by the Court to have engaged in the same or similar conduct • the degree of the entity's cooperation with us. • the benefit received or receivable (directly or indirectly) by the entity and associates of the entity in respect of the scheme • the deterrent effect that any penalty may have • the amount of loss or damage incurred by participants • the nature and extent of the contravention • the circumstances in which the contravention took place, including the entity's conduct and whether there was an honest and reasonable mistake of law • the period over which the conduct extended • whether the entity took any steps to avoid the contravention • whether the entity has previously been found by the Court to have engaged in the same or similar conduct • the degree of the entity's cooperation with us. Time limitation An application for a civil penalty under Division 290 must be made within 6 years of an entity engaging in the prohibited conduct unless the scheme involved tax evasion. [34] Schemes involving tax evasion Where a scheme involves tax evasion or would involve evasion if implemented, there is no period of limitation for when we may make an application for a civil penalty. [35] Where tax evasion exists, Promoters Program case officers may also refer this intelligence to the Criminal Law Program. | 5. How do the promoter penalty laws in section 68B of the SISA work?: What is the purpose of section 68B of the SISA? Section 68B of the SISA is specifically designed to deter the promotion of a scheme that has resulted, or is likely to result, in a payment being made from a regulated superannuation fund otherwise than in accordance with the payment standards prescribed under subsection 31(1) of the SISA (referred to as illegal early release schemes). Who does section 68B of the SISA apply to? Section 68B of the SISA applies to a person who promotes a scheme that has resulted, or is likely to result, in a payment being made from a regulated superannuation fund otherwise than in accordance with payment standards prescribed in subsection 31(1) of the SISA (which refers to the regulations). It applies to conduct on or after 18 March 2014. A person who has promoted an illegal early release scheme is taken to have contravened section 68B of the SISA. The term 'person' is not defined in the SISA and applies to body corporates as well as other natural persons. [36] What does 'promote' mean for the purposes of the SISA? For the purposes of the SISA, the term 'promote', in relation to a scheme, includes [37] : • entering into the scheme • inducing another person to enter into the scheme • carrying out the scheme • commencing to carry out the scheme • facilitating entry into, or the carrying out of, the scheme. • entering into the scheme • inducing another person to enter into the scheme • carrying out the scheme • commencing to carry out the scheme • facilitating entry into, or the carrying out of, the scheme. What is a 'scheme' for the purposes of the SISA? For the purposes of the SISA, the term 'scheme' means [38] : • any agreement, arrangement, understanding, promise or undertaking - whether express or implied, or - whether or not enforceable, or intended to be enforceable, by legal proceedings, or • any scheme, plan, proposal action, course of action or course of conduct, whether unilateral or otherwise. • any agreement, arrangement, understanding, promise or undertaking - whether express or implied, or - whether or not enforceable, or intended to be enforceable, by legal proceedings, or • any scheme, plan, proposal action, course of action or course of conduct, whether unilateral or otherwise. - whether express or implied, or - whether or not enforceable, or intended to be enforceable, by legal proceedings, or What sanctions and remedies can be applied under section 68B of the SISA? The sanctions and remedies available under section 68B of the SISA are: • voluntary undertakings, enforceable by the Federal Court • statutory injunctions • civil penalty applications • criminal consequences. • voluntary undertakings, enforceable by the Federal Court • statutory injunctions • civil penalty applications • criminal consequences. Enforceable undertakings We may accept a written undertaking [39] from individuals or entities, enforceable by the Federal Court, known as an 'enforceable undertaking'. Once an undertaking is accepted, it may only be varied or withdrawn with our consent. If an entity breaches its undertaking, we may apply to the Court to issue an order instructing the entity to comply with the undertaking, pay an amount up to any financial benefit obtained in relation to the breach, compensate any other person who has suffered loss or make any other order the Court considers appropriate. The advantages of an undertaking are: • the matter may be finalised more quickly • undertaking terms may be more flexible • parties save costs, as the matter is not presented before the Court in a civil penalty application • the undertaking may also be used to agree future behaviour. • the matter may be finalised more quickly • undertaking terms may be more flexible • parties save costs, as the matter is not presented before the Court in a civil penalty application • the undertaking may also be used to agree future behaviour. Factors that might weigh in favour of undertakings as the appropriate remedy under Division 290 include those listed for voluntary undertaking in section 4 of this Practice Statement. Statutory injunctions Statutory injunctions [40] allow us to take immediate action where there is evidence of conduct, contemplated conduct or ongoing prohibited conduct. We may apply to the Federal Court for relief in the form of a restraining injunction (an order to refrain from doing something) or a performance injunction (an order to do something). The Federal Court may: • grant a restraining or performance injunction against an entity on such terms as it considers appropriate • discharge or vary an injunction granted at any time • grant an injunction with consent of the parties, or • grant an interim injunction against an entity restraining it from engaging in prohibited conduct or requiring certain performances prior to full consideration of our application for an injunction. [41] • grant a restraining or performance injunction against an entity on such terms as it considers appropriate • discharge or vary an injunction granted at any time • grant an injunction with consent of the parties, or • grant an interim injunction against an entity restraining it from engaging in prohibited conduct or requiring certain performances prior to full consideration of our application for an injunction. [41] In considering whether a statutory injunction is appropriate, you should consider the factors listed in relation to statutory injunction in section 4 of this Practice Statement. Civil penalty applications We may also apply to the Federal Court for the imposition of civil penalties. [42] The Court must be satisfied that a person has been involved in a serious contravention of section 68B of the SISA, otherwise the Court will not make a monetary penalty order. [43] The Court will also not make a monetary penalty order if it is satisfied that an Australian Court has already ordered the person to pay punitive damages because of the contravening act or omission. [44] Recommending the amount of civil penalty to be imposed The Federal Court may request that we provide guidance on the appropriate recommended penalty. In making this recommendation, you should consider all relevant matters, including those listed in relation recommending the amount of civil penalty in section 4 of this Practice Statement. Time limitation An application for a civil penalty must be made within 6 years [45] of the contravention taking place. Relief from liability for contravention The Federal Court may relieve a person in part or in full from a liability that the person has, or may have, because of contravention of section 68B of the SISA if the person: • has acted honestly, and • ought fairly to be excused from the contravention. [46] • has acted honestly, and • ought fairly to be excused from the contravention. [46] In addition, there is a defence available to persons who can establish that the contravention was due to: • a reasonable mistake • a reasonable reliance on information supplied by another person [47] , or • the act or default of another, or an accident or other cause beyond their control, where they took reasonable precautions and exercised due diligence to avoid the contravention. [48] • a reasonable mistake • a reasonable reliance on information supplied by another person [47] , or • the act or default of another, or an accident or other cause beyond their control, where they took reasonable precautions and exercised due diligence to avoid the contravention. [48] Compensation In addition to civil and criminal penalties, the Court may order a person who has contravened section 68B of the SISA to pay compensation to an entity, or trustee of an entity, affected by the breach that has suffered loss as a result of the contravention. [49] | 6. How does action under the promoter penalty laws interact with other criminal or regulatory action?: Is the behaviour potentially criminal? Where criminal behaviour is identified, it will usually be appropriate for Promoters Program case officers to refer the matter to the Criminal Law Program. This can include tax evasion or fraud, which may be a criminal matter. For cases concerning superannuation schemes, Promoters Program case officers will, in consultation with the Superannuation and Employer Obligations business line, consider whether the conduct involves an entity [50] : • dishonestly, and intending to gain, whether directly or indirectly, an advantage for that, or any other person, or • intending to deceive or defraud someone. • dishonestly, and intending to gain, whether directly or indirectly, an advantage for that, or any other person, or • intending to deceive or defraud someone. Where these elements are present, the matter should be referred for criminal investigation. Interaction between the promoter penalty laws and the criminal law The promoter penalty laws contain provisions governing the interaction between civil (promoter penalty) proceedings and criminal proceedings. [51] Prior to seeking both criminal and civil sanctions for substantially the same conduct, you should give careful consideration to these provisions. Can a criminal proceeding be started after a civil penalty application? A criminal proceeding can be started against an entity, irrespective of whether a civil penalty application or court order has been made in relation to substantially the same conduct. [52] However, if a criminal proceeding commences during a civil proceeding for substantially the same conduct, the civil proceeding would be stayed until the criminal proceeding has been completed. [53] Criminal proceedings cannot be started against an entity in relation to section 68B of the SISA if the conduct has already been the subject of a civil penalty application, even if the civil penalty application has been finally determined or otherwise disposed of. [54] Can a civil penalty application be started during criminal proceedings? A civil penalty application can be made against an entity for the same conduct that is subject to criminal proceedings. This applies to both civil penalty applications for section 68B of the SISA and Division 290. [55] If civil penalty and criminal proceedings have both commenced, or are under way for substantially the same conduct, the civil proceedings would be stayed pending the outcome of the criminal proceedings. [56] Can a civil penalty be made or recommended after conclusion of criminal proceedings? If a criminal conviction is obtained in relation to conduct, a civil penalty order cannot be made in relation to the same or substantially the same conduct under either Division 290, or in relation to section 68B of the SISA. [57] Any civil penalty proceedings under way would be dismissed. Where criminal proceedings in relation to section 68B of the SISA do not result in a conviction, depending on the circumstances we may still be precluded from seeking civil penalties. The procedural rules in Division 4 of the SISA and in section 8ZE of the TAA must be closely considered in all circumstances where both criminal and civil proceedings are contemplated or under way. [58] Interactions with other agencies Where civil or criminal proceedings are being considered or are under way as instituted by other government agencies in relation to substantially the same factual circumstances, these proceedings should be considered as part of the decision of what action we will undertake. Where possible, you should seek to address the underlying risks holistically in coordination with the other agency or agencies. | 7. More information: The promoter penalty laws were considered in the following cases: • Commissioner of Taxation v Rowntree [2020] FCA 1322 • Commissioner of Taxation v Bogiatto [2020] FCA 1139 • Commissioner of Taxation v Pavihi [2019] FCA 2056 • Commissioner of Taxation v International Indigenous Football Foundation Australia Pty Ltd [2018] FCA 528 • Commissioner of Taxation v Arnold (No 2) [2015] FCA 34 • Commissioner of Taxation of the Commonwealth of Australia v Barossa Vines Ltd [2014] FCA 20 • Commissioner of Taxation v Ludekens [2013] FCAFC 100 • Commissioner of Taxation v Rowntree [2020] FCA 1322 • Commissioner of Taxation v Bogiatto [2020] FCA 1139 • Commissioner of Taxation v Pavihi [2019] FCA 2056 • Commissioner of Taxation v International Indigenous Football Foundation Australia Pty Ltd [2018] FCA 528 • Commissioner of Taxation v Arnold (No 2) [2015] FCA 34 • Commissioner of Taxation of the Commonwealth of Australia v Barossa Vines Ltd [2014] FCA 20 • Commissioner of Taxation v Ludekens [2013] FCAFC 100 Additional resources are available on the Promoters and Tax Exploitation Program SharePoint page (link available internally only).",MT 2008/2 | PR 2007/71 | PS LA 1998/1 | PS LA 2005/24 | Explanatory memorandum | TAA 1953 8ZE | TAA 1953 Sch 1 | TAA 1953 Sch 1 284-15 | TAA 1953 Sch 1 284-150 | TAA 1953 Sch 1 Div 290 | TAA 1953 Sch 1 290-5(a) | TAA 1953 Sch 1 290-5(aa) | TAA 1953 Sch 1 290-5(b) | TAA 1953 Sch 1 290-50 | TAA 1953 Sch 1 290-50(1) | TAA 1953 Sch 1 290-50(1A) | TAA 1953 Sch 1 290-50(2) | TAA 1953 Sch 1 290-50(3) | TAA 1953 Sch 1 290-50(5) | TAA 1953 Sch 1 290-55 | TAA 1953 Sch 1 290-55(4) | TAA 1953 Sch 1 290-55(5) | TAA 1953 Sch 1 290-55(6) | TAA 1953 Sch 1 290-60 | TAA 1953 Sch 1 290-60(2) | TAA 1953 Sch 1 290-60(3) | TAA 1953 Sch 1 290-65 | TAA 1953 Sch 1 290-65(1) | TAA 1953 Sch 1 290-65(1A) | TAA 1953 Sch 1 290-125 | TAA 1953 Sch 1 Subdiv 290-D | TAA 1953 Sch 1 290-200(4) | TAA 1953 Sch 1 Subdiv 298-B | TAA 1953 Sch 1 298-90 | TAA 1953 Sch 1 298-95 | TAA 1953 Sch 1 298-95(1) | TAA 1953 Sch 1 298-100 | TAA 1953 Sch 1 444-30 | TAA 1953 Sch 1 444-120 | ITAA 1936 Pt IVA | ITAA 1936 177DA | ITAA 1936 177J | ITAA 1997 995-1 | SISA 1993 Div 4 | SISA 1993 31(1) | SISA 1993 68B | SISA 1993 68B(3) | SISA 1993 Part 21 | SISA 1993 196(3) | SISA 1993 196(4) | SISA 1993 196(5) | SISA 1993 197 | SISA 1993 198 | SISA 1993 202(1) | SISA 1993 203 | SISA 1993 205 | SISA 1993 205(2) | SISA 1993 206 | SISA 1993 215 | SISA 1993 216 | SISA 1993 217 | SISA 1993 218 | SISA 1993 221 | SISA 1993 262A | SISA 1993 315 | SISA 1993 315(5) | SISA 1993 323 | SISA 1993 323(4) | Crimes Act 1914 4AA(1) | Acts Interpretation Act 1901 2C | Tax Laws Amendment (2006 Measures No. 1) Act 2006 2 | Tax Laws Amendment (2006 Measures No. 1) Act 2006 Sch 3 | Tax Laws Amendment (2012 Measures No. 6) Act 2013 2 | Tax Laws Amendment (2012 Measures No. 6) Act 2013 Sch 8 | Treasury Laws Amendment (Tax Accountability and Fairness) Act 2024 2 | Treasury Laws Amendment (Tax Accountability and Fairness) Act 2024 Sch 1 | 2020 ATC 20-757 | [2019] FCA 2056 | 2018 ATC 20-652 | 2015 ATC 20-486 | 2014 ATC 20-436 | 2013 ATC 20-415,PS LA 1998/1 PS LA 2005/24,TAA 1953 8ZE | TAA 1953 Sch 1 | TAA 1953 Sch 1 284-15 | TAA 1953 Sch 1 284-150 | TAA 1953 Sch 1 Div 290 | TAA 1953 Sch 1 290-5(a) | TAA 1953 Sch 1 290-5(aa) | TAA 1953 Sch 1 290-5(b) | TAA 1953 Sch 1 290-50 | TAA 1953 Sch 1 290-50(1) | TAA 1953 Sch 1 290-50(1A) | TAA 1953 Sch 1 290-50(2) | TAA 1953 Sch 1 290-50(3) | TAA 1953 Sch 1 290-50(5) | TAA 1953 Sch 1 290-55 | TAA 1953 Sch 1 290-55(4) | TAA 1953 Sch 1 290-55(5) | TAA 1953 Sch 1 290-55(6) | TAA 1953 Sch 1 290-60 | TAA 1953 Sch 1 290-60(2) | TAA 1953 Sch 1 290-60(3) | TAA 1953 Sch 1 290-65 | TAA 1953 Sch 1 290-65(1) | TAA 1953 Sch 1 290-65(1A) | TAA 1953 Sch 1 290-125 | TAA 1953 Sch 1 Subdiv 290-D | TAA 1953 Sch 1 290-200(4) | TAA 1953 Sch 1 Subdiv 298-B | TAA 1953 Sch 1 298-90 | TAA 1953 Sch 1 298-95 | TAA 1953 Sch 1 298-95(1) | TAA 1953 Sch 1 298-100 | TAA 1953 Sch 1 444-30 | TAA 1953 Sch 1 444-120 | ITAA 1936 Pt IVA | ITAA 1936 177DA | ITAA 1936 177J | ITAA 1997 995-1 | SISA 1993 Div 4 | SISA 1993 31(1) | SISA 1993 68B | SISA 1993 68B(3) | SISA 1993 Part 21 | SISA 1993 196(3) | SISA 1993 196(4) | SISA 1993 196(5) | SISA 1993 197 | SISA 1993 198 | SISA 1993 202(1) | SISA 1993 203 | SISA 1993 205 | SISA 1993 205(2) | SISA 1993 206 | SISA 1993 215 | SISA 1993 216 | SISA 1993 217 | SISA 1993 218 | SISA 1993 221 | SISA 1993 262A | SISA 1993 315 | SISA 1993 315(5) | SISA 1993 323 | SISA 1993 323(4) | Crimes Act 1914 4AA(1) | Acts Interpretation Act 1901 2C | Tax Laws Amendment (2006 Measures No. 1) Act 2006 2 | Tax Laws Amendment (2006 Measures No. 1) Act 2006 Sch 3 | Tax Laws Amendment (2012 Measures No. 6) Act 2013 2 | Tax Laws Amendment (2012 Measures No. 6) Act 2013 Sch 8 | Treasury Laws Amendment (Tax Accountability and Fairness) Act 2024 2 | Treasury Laws Amendment (Tax Accountability and Fairness) Act 2024 Sch 1 | Tax Agent Service Act 2009 2C,,Explanatory memorandum to the Treasury Laws Amendment (Tax Accountability and Fairness) Bill 2023,False,True,https://www.ato.gov.au/law/view/document?docid=PSR/PS20211/NAT/ATO/00001,"New indicator of promoter behaviour relating to schemes claimed to be conforming with a public, private or oral ruling added. | Updates made to reflect the amendments to promoter penalty laws in Division 290 made by Treasury Laws Amendment (Tax Accountability and Fairness) Act 2024. | Minor stylistic updates made. | Update to include link to penalty information on ato.gov.au | Scope updated to include section 68B of the Superannuation Industry (Supervision) Act 1993, concerning the promotion of illegal early release schemes. | [1] Paragraph 290-5(a) – tax avoidance schemes and tax evasion schemes referred to as tax exploitation schemes. | [4] Section 2 and item 17 of Schedule 3 to the Tax Laws Amendment (2006 Measures No. 1) Act 2006 . | [5] Section 2 and item 36 of Schedule 8 to the Tax Laws Amendment (2012 Measures No. 6) Act 2013 . | [6] Section 2 and item 37 of Schedule 1 to the Treasury Laws Amendment (Tax Accountability and Fairness) Act 2024 . | [7] Subsections 290-50(1), (1A) and (2). | [8] Subsection 290-65(1). | [9] A matter is reasonably arguable if it would be concluded in the circumstances, having regard to relevant authorities, that what is argued for is about as likely to be correct as incorrect, or is more likely to be correct than incorrect (section 284-15). For further explanation of what is 'reasonably arguable', refer to Miscellaneous Taxation Ruling MT 2008/2 Shortfall penalties : administrative penalty for taking a position that is not reasonably arguable . In deciding whether it is reasonably arguable that a scheme benefit would be available at law, section 290-65 requires taking into account anything that the Commissioner can do under a taxation law. | [10] Subsection 290-65(1A). | [11] Concerning the multinational anti-avoidance law. | [12] Concerning the diverted profits tax. | [13] Section 995-1 of the Income Tax Assessment Act 1997 . | [16] Commissioner of Taxation v International Indigenous Football Foundation Australia Pty Ltd [2018] FCA 528. | [17] Subsections 290-60(2) and (3). | [18] Subsection 290-50(1A). | [19] Paragraph 1.55 of the Explanatory Memorandum to the Treasury Laws Amendment (Tax Accountability and Fairness) Bill 2023 (Explanatory Memorandum). | [20] Subsection 290-50(2). | [21] Commissioner of Taxation v Ludekens [2013] FCAFC 100. | [22] Paragraph 1.56 of the Explanatory Memorandum. | [23] See the note in subsection 290-50(2). | [26] Section 20-45 of the Tax Agent Service Act 2009 . | [28] Subsection 290-200(4). | [31] Subsection 290-50(3). | [33] Subsection 290-50(5). | [34] Subsections 290-55(4) to (6). | [35] Subsection 290-55(6). | [36] Section 2C of the Acts Interpretation Act 1901 . | [37] Subsection 68B(3) of the SISA. | [38] Subsection 68B(3) of the SISA. | [39] Section 262A of the SISA. | [40] Section 315 of the SISA. | [41] Commissioner of Taxation v Pavihi [2018] FCA 1603. | [42] Section 197 and subsection 315(5) of the SISA. | [43] Subsections 196(3) and (4) of the SISA; the maximum penalty is set out in subsection 196(3) of the SISA. Penalty units are stipulated in subsection 4AA(1) of the Crimes Act 1914 . The dollar amount of a penalty unit is available at Penalty units . | [44] Subsection 196(5) of the SISA. | [45] Section 198 of the SISA. | [46] Section 221 of the SISA. | [47] This defence is limited by subsection 323(4) of the SISA. There is no entitlement to rely on this defence unless the Court grants leave or certain written notice within 7 days before the day on which the hearing begins. | [48] Section 323 of the SISA. | [49] Sections 215 to 218 of the SISA. | [50] Subsection 202(1) of the SISA. | [51] For Division 290, the relevant provisions are in Subdivision 298-B of Schedule 1. For section 68B of the SISA, these provisions are in Division 4 of Part 21 of that Act. | [54] Section 203 of the SISA. | [55] Section 205 of the SISA and section 298-95. | [56] Subsection 298-95(1) and subsection 205(2) of the SISA. | [57] Section 298-90 and section 206 of the SISA. | [58] Division 4 of the SISA. | File 1-9HAX1OS; 1-10BBXOK6 | Commissioner of Taxation v Bogiatto [2020] FCA 1139 2020 ATC 20-757 | Commissioner of Taxation v International Indigenous Football Foundation Australia Pty Ltd [2018] FCA 528 2018 ATC 20-652 107 ATR 769 | Commissioner of Taxation v Arnold (No 2) [2015] FCA 34 2015 ATC 20-486 100 ATR 529 [2015] ALMD 2219 324 ALR 59 | Commissioner of Taxation of the Commonwealth of Australia v Barossa Vines Ltd [2014] FCA 20 2014 ATC 20-436 94 ATR 1 [2014] ALMD 2117 | Commissioner of Taxation v Ludekens [2013] FCAFC 100 214 FCR 149 2013 ATC 20-415 93 ATR 33 [2013] ALMD 6030"
PS LA 2021/2,The ATO's administrative approach to the extension of the Commissioner's discretion to retain tax refunds,22 April 2021,22 April 2021,Law Administration Practice Statement,False,"1. What this Practice Statement is about: As part of the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (Amending Act), changes were made to extend the Commissioner's discretion to retain a refund where a taxpayer has an outstanding notification (other than a notification under the business activity statement (BAS) or petroleum resource rent tax (PRRT) provisions) that: • is required to be given to us under a taxation law (for example, a tax return), and • affects or may affect the amount of the refund. [1] • is required to be given to us under a taxation law (for example, a tax return), and • affects or may affect the amount of the refund. [1] The law does not limit the application of the extension to the discretion. However, this Practice Statement recognises that the Commissioner's exercise of this extended discretion will not be taken lightly. In particular, the exercise of the discretion will be considered in circumstances where taxpayers are identified as engaged in high-risk behaviour (including those engaging in illegal phoenix activity). [2] This Practice Statement provides guidance on when you may exercise the Commissioner's discretion to retain a taxpayer's refund. However, this Practice Statement does not apply to the exercise of the Commissioner's discretion to retain a taxpayer's running balance account (RBA) surplus or credit where: • a notification under the BAS provisions, the PRRT provisions is outstanding [3] • a Single Touch Payroll notification is outstanding [4] , or • we require verification of information contained in a notification. [5] • a notification under the BAS provisions, the PRRT provisions is outstanding [3] • a Single Touch Payroll notification is outstanding [4] , or • we require verification of information contained in a notification. [5] For guidance on exercising these discretions to retain a taxpayer's refund, refer to Law Administration Practice Statement PS LA 2011/22 Commissioner's discretion to retain a refund . | 2. Authority to exercise the discretion to retain the refund: Only Executive Level 2 (EL2) officers or Senior Executive Service officers in Client Engagement Group are to exercise the discretion to retain the refund. Other staff should refer recommendations to exercise the discretion to an appropriate EL2 in their business line, in the first instance. | 3. How the Commissioner applies the discretion: Having regard to the nature of the legislative change and the context in which it was introduced, the Commissioner will only consider applying this discretion to taxpayers identified as engaging in high-risk behaviour (including those engaging in what is considered to be phoenix-type activity). [6] | 4. When you should consider exercising the discretion: You should consider exercising the discretion to retain a refund where there are reasonable grounds to believe that the: • taxpayer has an RBA surplus or other credit that has not been applied against a tax debt of the taxpayer • taxpayer has an outstanding notification that they are required to give under a taxation law (other than the BAS or PRRT provisions) • outstanding notification affects or may affect the amount of the refund, and • taxpayer (including associates or controllers) is engaged in – phoenix behaviour (during the first year after commencement of the Amending Act), or – high-risk (including phoenix) behaviour (after the first year following commencement of the Amending Act). • taxpayer has an RBA surplus or other credit that has not been applied against a tax debt of the taxpayer • taxpayer has an outstanding notification that they are required to give under a taxation law (other than the BAS or PRRT provisions) • outstanding notification affects or may affect the amount of the refund, and • taxpayer (including associates or controllers) is engaged in – phoenix behaviour (during the first year after commencement of the Amending Act), or – high-risk (including phoenix) behaviour (after the first year following commencement of the Amending Act). – phoenix behaviour (during the first year after commencement of the Amending Act), or – high-risk (including phoenix) behaviour (after the first year following commencement of the Amending Act). | 5. Phoenix or high-risk behaviour: When deciding whether a refund should be retained, you need to weigh the seriousness of the behaviour demonstrated by the taxpayer (or its associates or controllers) against the potentially adverse consequences for the taxpayer. Indicators of phoenix behaviour Indicators of phoenix behaviour by the taxpayer, its associates or controllers include (but are not limited to): • cyclically establishing, abandoning or deregistering companies to avoid paying taxes, creditors or employee entitlements • assets being dissipated with the intention to defeat creditors or other action being taken to defeat creditors (which may be a precursor to phoenixing) • a director associated with prior liquidations or deregistrations • a director associated with prior instances of insolvency • stripping or transfer of assets from a company, ahead of its abandonment, winding-up or deregistration • transfer of company assets at an undervaluation (often to a related party) to defeat creditors • the transfer of employees to a new company under the same effective control as the previous company to defeat tax obligations and employee entitlements • backdating of the resignation of a director, appointment of 'straw' directors or abandonment of a company without a resident director • the concealment of the role of a shadow or de facto director • the concealment or destruction of company records. • cyclically establishing, abandoning or deregistering companies to avoid paying taxes, creditors or employee entitlements • assets being dissipated with the intention to defeat creditors or other action being taken to defeat creditors (which may be a precursor to phoenixing) • a director associated with prior liquidations or deregistrations • a director associated with prior instances of insolvency • stripping or transfer of assets from a company, ahead of its abandonment, winding-up or deregistration • transfer of company assets at an undervaluation (often to a related party) to defeat creditors • the transfer of employees to a new company under the same effective control as the previous company to defeat tax obligations and employee entitlements • backdating of the resignation of a director, appointment of 'straw' directors or abandonment of a company without a resident director • the concealment of the role of a shadow or de facto director • the concealment or destruction of company records. These factors, either alone or in combination, may not point to phoenix behaviour. It is the totality of the circumstances that must be considered in deciding whether to exercise the discretion to retain a refund. Indicators of high-risk behaviour Indicators of high-risk behaviour by the taxpayer, its associates or controllers include (but are not limited to): • poor past and current compliance with taxation and superannuation obligations, including – registration – lodgment – accuracy of reporting – record keeping, and – making on-time payments. • poor behaviours and governance in managing tax and superannuation risks • the number of, and the circumstances around, any bankruptcies or insolvencies • tax-related penalties and sanctions imposed, such as a taxpayer being subject to director penalty notices or having committed an offence in failing to give security as required by us • connection with advisers who are subject to disciplinary actions or sanctions relating to taxation and superannuation laws, such as penalties relating to promoting or implementing schemes • past information provided which reasonably indicated – fraud or evasion – intentional disregard of a taxation law – recklessness as to the operation of a taxation law • the likelihood of participation in or promotion of – aggressive tax planning arrangements – schemes to obtain a tax benefit (tax avoidance schemes) – fraud or evasion – criminal activity. • poor past and current compliance with taxation and superannuation obligations, including – registration – lodgment – accuracy of reporting – record keeping, and – making on-time payments. • poor behaviours and governance in managing tax and superannuation risks • the number of, and the circumstances around, any bankruptcies or insolvencies • tax-related penalties and sanctions imposed, such as a taxpayer being subject to director penalty notices or having committed an offence in failing to give security as required by us • connection with advisers who are subject to disciplinary actions or sanctions relating to taxation and superannuation laws, such as penalties relating to promoting or implementing schemes • past information provided which reasonably indicated – fraud or evasion – intentional disregard of a taxation law – recklessness as to the operation of a taxation law • the likelihood of participation in or promotion of – aggressive tax planning arrangements – schemes to obtain a tax benefit (tax avoidance schemes) – fraud or evasion – criminal activity. – registration – lodgment – accuracy of reporting – record keeping, and – making on-time payments. – fraud or evasion – intentional disregard of a taxation law – recklessness as to the operation of a taxation law – aggressive tax planning arrangements – schemes to obtain a tax benefit (tax avoidance schemes) – fraud or evasion – criminal activity. | 6. Length of time we can retain a refund: The refund can be retained under this discretion until the taxpayer has given the outstanding notification or an assessment of the amount is made, whichever happens first. Where a new tax liability arises before the outstanding notification is provided or an assessment of an amount is made, the amount that would otherwise have been refunded can be applied against the new liability. This ensures taxpayers satisfy their tax obligations and pay outstanding amounts of tax before being entitled to a tax refund. Delayed refund interest will not apply on any RBA surplus or credit retained under this measure. [7] Once the notification has been provided, delayed refund interest will be payable on the RBA surplus if more than 14 days is taken to refund the amount. However, interest on overpayments is payable where an income tax credit is retained [8] under this discretion and we take 30 days or more to refund an amount of that credit. [9] | 7. Advising the taxpayer that their refund is retained for an outstanding notification: Although not required by law, it is expected that you will send written communication to the taxpayer explaining: • that the refund has been retained • the amount retained • why the refund was retained • the outstanding notification or notifications required to be lodged, and • how the taxpayer can prevent refunds being retained in the future. • that the refund has been retained • the amount retained • why the refund was retained • the outstanding notification or notifications required to be lodged, and • how the taxpayer can prevent refunds being retained in the future. | 8. Refunding an amount: Where a notification is outstanding, you may refund an amount if the taxpayer can demonstrate (or you can confirm based on available information): • for an individual – that the retention of the refund will cause serious financial hardship, that is, the individual will not be able to afford the basic necessities of life • for non-individuals – the inability to give the outstanding notification by the original due date is directly caused by circumstances beyond the taxpayer's control. • for an individual – that the retention of the refund will cause serious financial hardship, that is, the individual will not be able to afford the basic necessities of life • for non-individuals – the inability to give the outstanding notification by the original due date is directly caused by circumstances beyond the taxpayer's control. This decision must be approved by the EL2 officer (or higher) who approved the decision to retain the refund. [10] | 9. Review rights available to the taxpayer: A decision to exercise this discretion to retain a refund is externally reviewable. [11] If we make an assessment of the underlying amount, the taxpayer may object to the assessment. [12] | 10. Examples: Example 1 – high-risk behaviour and phoenix behaviour indicated; refund retained Michelle is a director of a construction company that employs 15 individuals. This company does not lodge their 2021–22 and 2022–23 tax returns. The company also does not comply with its superannuation obligations. The company has also recently transferred assets to another entity, indicating a reduction in available assets to meet liabilities. Michelle was a director of 3 other construction companies, each of which employed some of the same staff as her current company and were liquidated with unpaid tax liabilities. The company lodges their 2023–24 tax return, which results in a $120,000 refund while their other lodgments remain outstanding. The Commissioner exercises the discretion to retain the $120,000 refund because Michelle is in control of the company and is engaged in high-risk behaviours that present a phoenix risk. The refund will be retained until the company lodges the remaining outstanding tax returns or an assessment of an amount in relation to the outstanding returns is made. Example 2 – high-risk behaviour indicated; refund retained Daniel is the sole director of Daily Dollars, a financial services company. As a result of Daniel's actions, Daily Dollars has poor past and current compliance with its taxation and superannuation obligations. This has resulted in multiple penalties for false and misleading statements and director penalties for both pay as you go withholding and superannuation guarantee charge. Daily Dollars has an outstanding tax return that is anticipated to result in an income tax liability of $250,000. Daniel lodges Daily Dollars' BAS for the June 2023 quarter, which results in an $80,000 credit. Daniel does not lodge Daily Dollars' outstanding tax return. Rather than refunding the credit, the Commissioner exercises the discretion to retain the $80,000. The refund will be retained until Daniel lodges Daily Dollars' outstanding tax return or an assessment of an amount in relation to the outstanding tax return is made. Example 3 – no high-risk or phoenix indicators; refund not retained Carl is a sole trader carpenter who self-prepares his BAS but has a tax agent prepare his tax return. He has a good compliance history, generally lodging on time and paying any tax-related liabilities as they are due. As Carl has not visited his tax agent recently, his tax return has not been lodged and is now overdue. Carl lodges a BAS resulting in a $10,000 credit. Despite the outstanding tax return, there are no indicators of phoenix or high-risk behaviour and therefore the discretion to retain the $10,000 refund is not exercised. Example 4 – no high-risk or phoenix indicators; refund not retained Angus and his wife Cherie have been running a successful specialty coffee shop for the last 6 years. They decide to incorporate their business in 2016 and become directors. Their company has no employees until late 2023, when a new tram stop built near their shop causes their business to thrive. The company employs 2 people on a casual basis as a result. Until 2023, the company never misses a BAS lodgment or a tax return lodgment. In 2023, Angus suffers a long-term illness and can no longer be involved in the business. Cherie continues to operate the business but struggles to keep on top of the company's records. As a result, the company's quarterly BAS for the 2022–23 financial year is outstanding. Cherie engages a BAS agent to complete the outstanding BAS, which results in a $55,000 refund. In focusing on keeping the business operating, Cherie forgets to lodge the company's tax return. Despite having previously missed BAS lodgments (which were eventually lodged), there is no indication of high-risk or phoenix behaviour from Cherie and Angus or of assets being dissipated with the intention to defeat creditors. Therefore, the discretion to retain the $55,000 refund is not exercised despite the company having an outstanding tax return. | 11. More information: For more information, see: • Law Administration Practice Statement PS LA 2011/16 Insolvency – collection, recovery and enforcement issues for entities under external administration • Law Administration Practice Statement PS LA 2011/22 Commissioner's discretion to retain a refund . • Law Administration Practice Statement PS LA 2011/16 Insolvency – collection, recovery and enforcement issues for entities under external administration • Law Administration Practice Statement PS LA 2011/22 Commissioner's discretion to retain a refund .",PS LA 2011/16 | PS LA 2011/22 | Explanatory Memorandum | ITAA 1997 995-1(1) | TAA 1953 Pt IVC | TAA 1953 8AAZLG | TAA 1953 8AAZLGA | TAA 1953 8AAZLGB | ADJR Act 1977 | T(IOEP)A 1983 Pt IIB | T(IOEP)A 1983 12AF | Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020,PS LA 2011/16 PS LA 2011/22,ITAA 1997 995-1(1) | TAA 1953 Pt IVC | TAA 1953 8AAZLG | TAA 1953 8AAZLGA | TAA 1953 8AAZLGB | ADJR Act 1977 | Judiciary Act 1903 | T(IOEP)A 1983 Pt IIB | T(IOEP)A 1983 12AF | Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020,,Explanatory Memorandum to the Treasury Law Amendment (Combating Illegal Phoenixing) Bill 2019,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20212/NAT/ATO/00001,"Content checked for technical accuracy and currency. Updated in line with current ATO style and accessibility requirements. | [1] Section 8AAZLG of the Taxation Administration Act 1953 (TAA). When determining if a notification is required under taxation law refer to the definition under subsection 995-1(1) of the Income Tax Assessment Act 1997 . | [2] Paragraph 5.20 of the Explanatory Memorandum to the Treasury Law Amendment (Combating Illegal Phoenixing) Bill 2019. | [3] Section 8AAZLG of the TAA. | [4] Section 8AAZLGB of the TAA. | [5] Section 8AAZLGA of the TAA. | [6] Paragraph 5.20 of the Explanatory Memorandum to the Treasury Law Amendment (Combating Illegal Phoenixing) Bill 2019. | [7] Paragraph (b) of the definition of 'RBA interest day' in section 12AF of the Taxation (Interest on Overpayments and Early Payments) Act 1983 (T(IOEP) Act). | [8] Part IIB of the T(IOEP) Act. | [10] Where that EL2 officer (or higher) who made the decision is not available to make the decision, an officer in their position or in a similar role can make the decision. | [11] Under the Administrative Decision (Judicial Review) Act 1977 and the Judiciary Act 1903 . | [12] In the manner set out in Part IVC of the TAA. | File 1-MN40UPS; 1-14E5UUA8"
PS LA 2021/3,Remission of additional superannuation guarantee charge,25 November 2021,25 November 2021,Law Administration Practice Statement,False,"1. What this Practice Statement is about: This Practice Statement sets out what you need to consider in making a decision on the remission, in whole or part, of the additional super guarantee charge (SGC) imposed under subsection 59(1) of the Superannuation Guarantee (Administration) Act 1992 (SGAA) where an employer fails to lodge a super guarantee (SG) statement by the lodgment due date. This additional SGC is referred to as the 'Part 7 penalty'. This Practice Statement also sets out when it is appropriate for penalty relief to be applied (refer to section 7 of this Practice Statement). All legislative references in this Practice Statement are to the SGAA, unless otherwise indicated. | 2. Principles of the super guarantee regime you should consider when making decisions: The SG regime is designed to ensure that employers provide their employees with a minimum level of super support. This compulsory super is a fundamental pillar in Australia's retirement income system. Where an employer does not provide this minimum level of super, the employer is liable to pay a tax (the SGC), which comprises: • the SG shortfall, calculated on salary and wages (including any overtime) • nominal interest of 10% per annum (accrues from the start of the relevant quarter), and • an administration fee of $20 per employee per quarter. • the SG shortfall, calculated on salary and wages (including any overtime) • nominal interest of 10% per annum (accrues from the start of the relevant quarter), and • an administration fee of $20 per employee per quarter. The SGC is collected from employers and is distributed primarily to the super interests of employees. For that reason, the SGC is unlike other taxes. Non-payment of SG contributions has severe impacts on several groups. Employees are deprived of super support, impairing their ability to save for retirement. Employers who meet their SG obligations may be disadvantaged in competing with others who do not comply. We take non-compliance with employer obligations seriously. We have pay-event reporting of SG accruals and event-based reporting of contribution payments from funds regulated by the Australian Prudential Regulation Authority. This information provides us with end-to-end visibility of where an employer has not met their SG obligations for their employees. Where an employer does not come forward voluntarily for late or non-payment of SG contributions by the due date, we will engage with employers to get their obligations up to date. | 3. The Part 7 penalty: The Part 7 penalty is an additional SGC imposed under Part 7 when an employer (when required to) fails to provide: • an SG statement for a quarter, or • information relevant to assessing the employer's liability to pay the SGC for a quarter. [1] • an SG statement for a quarter, or • information relevant to assessing the employer's liability to pay the SGC for a quarter. [1] The Part 7 penalty arises in 2 situations: • where an employer lodges an SG statement for a quarter after the due date [2] , or • where we make a default assessment [3] of the employer's liability for the SGC because - an employer has not lodged an SG statement for a quarter, and - we are of the opinion the employer is liable to pay the SGC for the quarter. • where an employer lodges an SG statement for a quarter after the due date [2] , or • where we make a default assessment [3] of the employer's liability for the SGC because - an employer has not lodged an SG statement for a quarter, and - we are of the opinion the employer is liable to pay the SGC for the quarter. - an employer has not lodged an SG statement for a quarter, and - we are of the opinion the employer is liable to pay the SGC for the quarter. The Part 7 penalty is automatically imposed on an employer by law. It is equal to double the SGC payable by the employer for the quarter (that is, 200% of the SGC). [4] No Part 7 penalty is imposed if an employer lodges an SG statement on or before the lodgment due date, including an extended due date. [5] If an employer claims a late payment offset (LPO) to reduce their SGC payable, this reduction is disregarded for the purposes of calculating the amount of Part 7 penalty imposed. [6] In other words, the Part 7 penalty imposed is equal to double the total SGC for the quarter if no LPOs were claimed. The minimum amount of Part 7 penalty for a quarter is $20. [7] If you amend [8] an employer's SGC assessment for a quarter and a Part 7 penalty was imposed on the original SGC assessment, you must also amend the Part 7 penalty assessment for the quarter. On the other hand, if a Part 7 penalty was not imposed on the original SGC assessment for a quarter because the SG statement was lodged before the legislated due date, the Part 7 penalty is not imposed for any subsequent amendments. However, in either of these circumstances, an administrative penalty for making a false or misleading statement may be imposed. [9] Super guarantee charge assessments covered by the super guarantee amnesty The Treasury Laws Amendment (Recovering Unpaid Superannuation) Act 2020 introduced a one-off amnesty for employers who voluntarily disclosed SGC liabilities for quarters from 1 July 1992 to 31 March 2018 (known as historical quarters). If an eligible employer lodged SG statements for historical quarters within the amnesty period (from 24 May 2018 to 7 September 2020), no Part 7 penalty is imposed on the SGC assessments. [10] However, an employer who is notified they are disqualified from the amnesty is treated as though they were never eligible for the amnesty. [11] In these cases, the Part 7 penalty will be imposed and remission will need to be considered. If an employer had an SGC assessment that was covered by the SG amnesty and they disclose new information after the end of the amnesty period that increases their SGC for the quarter, the new amounts will not receive the benefits of the amnesty. [12] As such, Part 7 penalty will be imposed on the new SGC and remission will need to be considered. Example 1 – employer amends their super guarantee charge assessment in response to an audit after the super guarantee amnesty An employer lodges SG statements on 1 July 2020 for 10 employees for the quarters from 1 January 2015 to 31 December 2015. The employer is not liable for Part 7 penalty as their statements qualified for the SG amnesty. In February 2022, the employer is audited for the same period following an employee notification and, as a result, lodges SG statements for a further 20 employees. As this lodgment has been made after the end of the amnesty period, it does not qualify for the amnesty, and Part 7 penalty is imposed on the SGC corresponding to the 20 employees. | 4. When you can remit the Part 7 penalty: You have the discretion to remit the Part 7 penalty, in full or in part. [13] This can be done as part of the assessment of the penalty (the original assessment stage) or after the penalty is assessed (through an objection decision). However, your ability to remit a Part 7 penalty imposed for a historical quarter may be restricted to a final penalty of at least 100% of the SGC. For more information on this restriction and how to work out remission for a historical quarter, see Appendix 2 to this Practice Statement. Employers have the right to object to an assessment of a Part 7 penalty. [14] If an employer is dissatisfied with the level of remission of their Part 7 penalty, they should object to the Part 7 penalty assessment – while there is no separate right to object to the remission decision itself, an objection to the assessment encompasses the decision to remit. | 5. The process to follow to determine whether to remit the Part 7 penalty: The Part 7 penalty is automatically imposed at a rate of 200% of the SGC, meaning there is a wide range of potential final penalty amounts after full or partial remission. This reflects the wide variety of circumstances that can lead to an SG shortfall or failure to lodge an SG statement or both. While many cases warrant some amount of penalty, the maximum 200% penalty should be reserved for rare cases where there is an employer engaging in egregious tax avoidance behaviour. For all other cases, you should consider remitting the Part 7 penalty either in part or in full. Your remission decision should take into account all the relevant facts and indicia. You must follow the 4-step penalty remission process outlined in Appendix 1 to this Practice Statement when deciding whether it is appropriate to remit the Part 7 penalty down from 200%. Step 1: Consider remission based on the employer's attempt to comply with their obligations through late payment. Step 2: Consider remission based on the employer's attempt to comply with their obligations by lodging an SG statement. Step 3: Consider any increase or reduction in penalty based on the employer's compliance history. Step 4: Consider any other mitigating facts or circumstances that warrant further remission. The 4-step penalty remission process is designed to accommodate the principles of this Practice Statement and to ensure that employers in like circumstances receive like treatment as far as practicable. It is also important for you to understand that penalties are imposed to: • ensure there are appropriate consequences for employers for failing to pay super contributions for their employees correctly and on time • change the decision-making behaviour of employers to ensure that employee SG entitlements are not put at risk of delay, compromise or loss, and • encourage employers who fail to pay super on time to take corrective action and lodge SG statements by their due dates. • ensure there are appropriate consequences for employers for failing to pay super contributions for their employees correctly and on time • change the decision-making behaviour of employers to ensure that employee SG entitlements are not put at risk of delay, compromise or loss, and • encourage employers who fail to pay super on time to take corrective action and lodge SG statements by their due dates. You must have collected all relevant information and document the evidence and basis for any remission decision you make. Examples illustrating the penalty remission process can be found in Appendix 3 to this Practice Statement. | 6. Determining remission where an amendment increases the SGC and Part 7 penalty: If you undertake compliance activity that identifies additional SGC for a quarter that has previously been assessed, you should follow the 4-step remission process as normal in relation to the amendment. [15] This is a new remission decision, unrelated to any previous decision that has previously been made for the quarter. When you have worked out this remission percentage, you will need to apply it to the additional Part 7 penalty imposed at amendment to determine the residual penalty for that component. This will be combined with the residual Part 7 penalty that was worked out in the original assessment to determine the overall penalty for the quarter and the overall remission percentage. In effect, this means any Part 7 penalty which has already been remitted in a previous decision will not be affected (see Example 12 of this Practice Statement). Sometimes, the original assessment will also need to be amended in order to correct mistakes or small amounts of information missing when an SG statement is lodged. In these cases, a single remission decision can be made for the total assessment. | 7. Penalty relief: In some limited cases, it may be appropriate to provide additional remission to an employer in conjunction with a direction for education – this is known as a 'penalty relief' arrangement. You may provide an employer with a penalty relief arrangement where education is considered a more effective option to positively influence behaviour. This approach recognises that while we expect all employers to meet their SG obligations, an employer may have SG knowledge gaps that lead to non-compliance and these can be addressed through education. An employer should only be considered for a penalty relief arrangement where they have a turnover of less than $50 million and they: • took voluntary action to comply with their obligation to lodge SG statements • do not have a history of lodging SG statements late • have lodged no more than 4 SG statements after the lodgment due date in the present case • have no previous SG audits where they were found to have not met their SG obligations, and • have not previously been provided with penalty relief. • took voluntary action to comply with their obligation to lodge SG statements • do not have a history of lodging SG statements late • have lodged no more than 4 SG statements after the lodgment due date in the present case • have no previous SG audits where they were found to have not met their SG obligations, and • have not previously been provided with penalty relief. Penalty relief would not be appropriate where the employer has: • been issued with an SGC default assessment • lodged more than 4 SG statements after the lodgment due date in the present case, or • previously been issued with an SG education direction. • been issued with an SGC default assessment • lodged more than 4 SG statements after the lodgment due date in the present case, or • previously been issued with an SG education direction. Penalty relief may be applied by providing further remission of a residual penalty at Step 4 of the 4-step penalty remission process and instead providing the employer with education to help them meet their obligations in the future. This education should be by way of a formal SG education direction and may be supplemented with informal education. Any education should focus on providing: • the appropriate superannuation support to employees to ensure the employer does not have an SG shortfall, and • the importance of taking corrective action and lodging SG statements on time if the employer fails to comply in the future. • the appropriate superannuation support to employees to ensure the employer does not have an SG shortfall, and • the importance of taking corrective action and lodging SG statements on time if the employer fails to comply in the future. It should advise the employer of the penalties for failing to lodge on time. An employer should not be provided penalty relief at any point before the relevant SG assessments have been finalised and you are ready to finalise your remission decision. An employer cannot apply for penalty relief and an employer cannot specifically object to a decision not to apply penalty relief. Your decision to apply penalty relief forms part of your exercise of the remission power provided by the SGAA. [16] | 8. What you should do before finalising the remission decision: In some circumstances, it may be appropriate to contact the employer to give notice of the anticipated penalty and the reasons for the remission decision before applying the Part 7 penalty. This may be appropriate if, for example, a significant residual penalty will remain after remission. You may give notice during an audit conversation or in writing. The purpose of this contact is to encourage full disclosure of relevant facts and circumstances to ensure the penalty remission is appropriately determined for the individual case in the first instance. This is not an opportunity to negotiate the anticipated penalty. Rather, it is designed to draw out relevant facts or circumstances for your decision which were previously unknown. Example 2 – we notify employer of anticipated penalty An employer is subject to an audit of their SG obligations for the quarters ended 31 March 2019 to 30 September 2019. The employer has authorised another person to handle the SG audit and we have been dealing with this authorised contact. The authorised contact provides SG statements on behalf of the employer for the full period under audit. We phone the authorised contact and notify them of the anticipated penalty and the associated reasons. We also outline the relevant facts and circumstances known to us. The authorised contact requests time to make contact with the employer to obtain any other facts or circumstances relevant to the decision. The employer then contacts us directly to explain further relevant facts. Considering these new facts, we decide to provide further remission of the penalty than was initially indicated. | 9. How Part 7 penalty interacts with other administrative penalties: TAA default assessment penalty An employer is also liable to an administrative penalty under the TAA where: • we determine a tax-related liability [17] without the assistance of a return, notice or other document • the document has not been provided by a specified time, and • the document is necessary to accurately determine the tax-related liability. [18] • we determine a tax-related liability [17] without the assistance of a return, notice or other document • the document has not been provided by a specified time, and • the document is necessary to accurately determine the tax-related liability. [18] This Practice Statement refers to this penalty as the 'TAA default assessment penalty'. Where we make a default assessment of an employer's SGC liability, the Part 7 penalty and the TAA default assessment penalty may both apply. The base penalty amount of the TAA default assessment penalty is 75% of the tax-related liability. [19] You can remit the TAA default assessment penalty, in full or in part. [20] You should consider remitting in full the employer's liability to the TAA default assessment penalty regardless of the extent to which the Part 7 penalty is remitted. The Part 7 penalty is the penalty specifically provided for by the SGAA and is generally the appropriate penalty to apply where both penalties are imposed. TAA false or misleading statement penalty Likewise, an employer is liable to an administrative penalty under the TAA where: • the employer makes a statement [21] to us under a taxation law [22] , and • the statement is false or misleading in a material particular, whether because of things in it or things omitted from it. [23] • the employer makes a statement [21] to us under a taxation law [22] , and • the statement is false or misleading in a material particular, whether because of things in it or things omitted from it. [23] This Practice Statement refers to this penalty as the 'TAA false or misleading statement penalty'. This penalty may be imposed where an employer is assessed for the SGC because they lodged an SG statement and that assessment is subsequently amended because the SG statement stated an incorrect SG shortfall. You can remit the TAA false or misleading statement penalty, in full or in part. Consistent with the treatment of the TAA default assessment penalty, you should consider remitting in full the employer's liability to the TAA false or misleading statement penalty where the Part 7 penalty has also been imposed under the law for the same quarter. However, you should fully consider the application of the TAA false or misleading statement penalty to the employer's shortfall amount in situations where the law did not impose a Part 7 penalty (generally where an SG statement was lodged on or before the due date). Administrative penalty remission decision and objections You are not required to give the employer written notice of a decision to remit in full the TAA default assessment penalty or the TAA false or misleading statement penalty. However, if you do not remit an administrative penalty in full, you must inform the employer of the reasons for that decision. [24] Employers can object to an assessment of the TAA default assessment penalty or the TAA false or misleading statement penalty. [25] | 10. More information: For more information, see: • Law Administration Practice Statement PS LA 2008/3 Provision of advice and guidance by the ATO • Archibald Dixon as Trustee for the Dixon Holdsworth Superannuation Fund v Commissioner of Taxation [2008] FCAFC 54 • Delbake Pty Ltd and Commissioner of Taxation [2024] AATA 449 (Delbake) • Geelong Turf Company Pty Ltd and Commissioner of Taxation [2023] AATA 1718 (Geelong Turf). • Law Administration Practice Statement PS LA 2008/3 Provision of advice and guidance by the ATO • Archibald Dixon as Trustee for the Dixon Holdsworth Superannuation Fund v Commissioner of Taxation [2008] FCAFC 54 • Delbake Pty Ltd and Commissioner of Taxation [2024] AATA 449 (Delbake) • Geelong Turf Company Pty Ltd and Commissioner of Taxation [2023] AATA 1718 (Geelong Turf). Step 1: consider remission based on the employer's attempt to comply with their obligations through late payment Using Table 1 of this Appendix, consider an initial amount of remission based on an employer's attempt to comply with their SG obligations by making late payments to employees' super funds. Where an employer has made these late payments, they can claim an LPO when they lodge their SG statement. While this LPO does not reduce the amount of penalty that is imposed, it is appropriate to recognise that the employer has met their employees' entitlements (albeit late), and some remission is warranted compared to an employer who has not met their employees' entitlements. This step only considers late payments for which an LPO has been claimed in respect of the relevant quarters. It does not consider: • SG contributions that were made on-time [26] , as these did not give rise to an SGC liability or penalty • late payments where an employer has elected to count those payments towards their obligations in a different quarter, instead of claiming the LPO, and • payments of SGC (although these payments may be relevant when considering Step 4 of this decision-making process). Table 1: Degree of attempt to comply with SG late payment Degree of attempt to comply Remission No late payments made for which an LPO has been claimed. 0% Late payment made in response to our compliance action; for example, after an audit has commenced. 10% Late payment made after our initial contact [27] but before any compliance action. 15% Late payment made prior to our contact, and more than 9 months after due date. 30% Late payment made prior to our contact, and between 6 and 9 months after due date. 33% Late payment made prior to our contact, and between 3 and 6 months after due date. 36% Late payment made prior to our contact, and less than 3 months after due date. 40% • SG contributions that were made on-time [26] , as these did not give rise to an SGC liability or penalty • late payments where an employer has elected to count those payments towards their obligations in a different quarter, instead of claiming the LPO, and • payments of SGC (although these payments may be relevant when considering Step 4 of this decision-making process). Treatment of partial payments The remission amounts in Table 1 of this Appendix are appropriate where the employer has paid the entire original SG obligation [28] for their employees but has an SGC liability due to paying late. If an employer has made late payments of a lesser amount, you should determine a remission percentage that is in proportion to how much has been paid. For example, if an employer made late payments equivalent to 80% of their SG obligations in response to our compliance action, an appropriate level of remission at this step would be 8% (that is, 80% of 10%). Treatment of payments with varying degrees of lateness Where payments have been made with varying degrees of delay in different quarters within a period that is being considered for remission, you do not need to make separate remission decisions for each quarter. It is appropriate to adopt a remission level corresponding to the greatest degree of attempt to comply that the employer has demonstrated across the period. Step 2: consider remission based on the employer's attempt to comply with their obligations through lodgment of an SG statement Using Table 2 of this Appendix, consider an additional amount of remission based on the employer's attempt to comply through lodging an SG statement to self-assess their SGC liability. This recognises that there are a broad range of employer behaviours that lead to an SGC assessment and it is appropriate to address them via a wide spread of remission relative to the full extent of the penalty imposed. Table 2: Degree of attempt to comply with lodging of SC statement Degree of attempt to comply Remission The Commissioner makes a default assessment or a Commissioner-initiated amendment to a prior SGC assessment and the employer has either demonstrated repeat disengagement or we have formed an opinion that the employer has engaged in a 'phoenix' arrangement. 0% The Commissioner makes a default assessment or a Commissioner-initiated amendment to a prior SGC assessment where the employer has failed to lodge an SG statement or provide relevant information in response to our compliance action. 25% The Commissioner makes a default assessment or a Commissioner-initiated amendment to a prior SGC assessment based on information provided by the employer after the lodgment due date in response to our compliance action. 40% An employer lodges an SG statement or requests an amendment to a prior SGC assessment in response to our compliance action; for example, after an audit has commenced. 60% An employer lodges an SG statement or requests an amendment to a prior SGC assessment after the lodgment due date and after our initial contact [29] but before any our compliance action. 80% An employer lodges an SG statement or requests an amendment to a prior SGC assessment after the SG statement lodgment due date [30] but before any contact by us. 90% You do not need to consider remission if an employer lodges an SG statement on or before the lodgment due date, including an extended due date, as no Part 7 penalty is imposed. Often an employer will make initial contact with us to disclose that they have identified SG shortfalls but will not lodge an SG statement until after discussing matters with us. For the purposes of Table 2 of this Appendix, this should be considered the same as a lodgment prior to any contact by us; the fact that an employer has voluntarily engaged with us on a preliminary basis rather than immediately lodging statements does not demonstrate any lower level of engagement. Note: Even if you have calculated a remission amount of 100% or greater after considering Steps 1 and 2, you must still consider the remaining steps as the remission may be reduced at Step 3. As you cannot remit more than the penalty, if you have calculated an amount greater than 100%, treat it as being 100% prior to considering Step 3. Step 3: consider any increase or reduction in remission based on the employer's compliance history You should consider the employer's compliance history for both SG obligations and other taxation laws [31] for the 3-year period leading up to the earlier of the day before: • the disclosure occurred, or • we commenced compliance action (either by phone or in writing). • the disclosure occurred, or • we commenced compliance action (either by phone or in writing). You should evaluate their history by reviewing their ATO records, as well as information supplied by the employer [32] and any other parties. The employer's SG compliance history will be given more weight than their compliance history for other taxation laws. When reviewing an employer's SG compliance history, you should focus on: • the number of quarters for which the employer previously failed to lodge an SG statement by the due date or for which we made a default assessment • the degree of the employer's attempt to comply with their SG obligations previously (not including their attempts to comply for the period being considered) • any previous SG audits conducted on the employer that resulted in an SGC liability being assessed, and • any shift in behaviour by an employer that has been subject to a previous audit (this may be demonstrated by an improvement or deterioration in their level of engagement and cooperation with us during the compliance activity). • the number of quarters for which the employer previously failed to lodge an SG statement by the due date or for which we made a default assessment • the degree of the employer's attempt to comply with their SG obligations previously (not including their attempts to comply for the period being considered) • any previous SG audits conducted on the employer that resulted in an SGC liability being assessed, and • any shift in behaviour by an employer that has been subject to a previous audit (this may be demonstrated by an improvement or deterioration in their level of engagement and cooperation with us during the compliance activity). A previous SGC assessment that arose due to our compliance action will reflect a poorer compliance history than an SGC assessment that came via a voluntary disclosure. Depending on an employer's compliance history, you may provide additional remission or may reduce the level of remission provided by the other steps in this remission process. Generally, the amount of additional remission or reduced remission should not exceed the amounts in the following table: Table 3: Level of compliance history Level of compliance history Remission Good compliance history (noting that 'good' does not have to mean flawless or exceptional) 15% Neither good nor poor compliance history No change Poor compliance history -15% Extremely poor compliance history -30% The following examples illustrate some of the common situations of poor compliance history where a reduction in remission may be appropriate: • The employer has demonstrated a history or habit of lodging SG statements late. • The employer has previously been issued with an SG education direction and their repeated failure to comply indicates that they have not modified their behaviour in response to that direction. • The employer has previously been issued with an SGC default assessment and has shown no improvement in behaviour. • The employer was not adequately addressing (through an active payment plan) an outstanding SGC debt or other tax debt prior to the current matter arising. • The employer has several outstanding lodgments relating to other taxes. • Evidence indicates that the employer has previously been disingenuous or deceptive with the information disclosed in an SG statement (for example, by deliberately disclosing only part of their known SG shortfall for the quarter). • The employer has demonstrated a history or habit of lodging SG statements late. • The employer has previously been issued with an SG education direction and their repeated failure to comply indicates that they have not modified their behaviour in response to that direction. • The employer has previously been issued with an SGC default assessment and has shown no improvement in behaviour. • The employer was not adequately addressing (through an active payment plan) an outstanding SGC debt or other tax debt prior to the current matter arising. • The employer has several outstanding lodgments relating to other taxes. • Evidence indicates that the employer has previously been disingenuous or deceptive with the information disclosed in an SG statement (for example, by deliberately disclosing only part of their known SG shortfall for the quarter). The following examples illustrate some of the situations where compliance history is considered extremely poor: • The employer has repeatedly failed to meet their obligations even after multiple compliance actions by us (for example, where they have been audited for SG more than 3 times previously and were found to have failed to meet their SG obligations each time). • The employer has repeatedly attempted to obstruct or hinder compliance action or provided false and misleading statements during compliance action on multiple occasions. • The employer has repeatedly failed to meet their obligations even after multiple compliance actions by us (for example, where they have been audited for SG more than 3 times previously and were found to have failed to meet their SG obligations each time). • The employer has repeatedly attempted to obstruct or hinder compliance action or provided false and misleading statements during compliance action on multiple occasions. Step 4: consider any other mitigating facts and circumstances that may warrant further remission You need to consider all other relevant facts and circumstances to ensure the resulting Part 7 penalty is appropriate. Where you have already taken into account the degree of the employer's attempt to comply (in Steps 1 and 2) and the employer's compliance history (in Step 3), you should not consider these circumstances again for further remission at Step 4. For example, an employer may be found to have a good compliance history at Step 3 due to no previous SG audits or previously lodged SG statements. The fact an employer has not had a previous SG audit or lodged an SG statement before is not also an 'other mitigating fact or circumstance'. An employer's penalty should not be remitted at Step 4 merely because the penalty may be 'relatively small'. Different mitigating facts or circumstances may warrant different levels of further remission, depending on their significance in contributing to the employer's non-compliance. Where there are multiple mitigating circumstances present, they should each be considered for remission. Mitigating facts or circumstances that only warrant very minor further remission (generally not exceeding 5%) include: • the facts indicate the employer's SG shortfall arose due to an error or honest mistake • you are satisfied that the employer has addressed the issue that led to their SG shortfalls or failure to lodge SG statements or both, or • the employer has entered into a payment arrangement to pay their SGC. • the facts indicate the employer's SG shortfall arose due to an error or honest mistake • you are satisfied that the employer has addressed the issue that led to their SG shortfalls or failure to lodge SG statements or both, or • the employer has entered into a payment arrangement to pay their SGC. Mitigating facts or circumstances warranting minor further remission (generally not exceeding 10%) include: • the employer has fully paid their SGC – a lesser amount of remission may be given if the employer has paid part of their SGC, or • the employer's non-compliance with their SG obligations occurred in their first year of operation and their principals had no previous business experience. • the employer has fully paid their SGC – a lesser amount of remission may be given if the employer has paid part of their SGC, or • the employer's non-compliance with their SG obligations occurred in their first year of operation and their principals had no previous business experience. Mitigating facts or circumstances that may warrant moderate further remission (generally not exceeding 20%) include: • the employer's ability to comply was impacted by the ill health of the employer or a key employee of the employer • the employer did make a significant proportion of their SG contributions on time and the SG shortfalls represent a small portion of their overall SG obligations for the quarters [33] • the employer miscalculated the amount that they needed to contribute for an employee in a quarter due to complex legal interpretative issues [34] , or • the employer took reasonable steps to ensure that contributions were made on time, but a third-party issue or error led to the contributions being late by a small amount. This could include payments made to a non-ATO-administered clearing house, where payments were made to the clearing house before the due date. [35] • the employer's ability to comply was impacted by the ill health of the employer or a key employee of the employer • the employer did make a significant proportion of their SG contributions on time and the SG shortfalls represent a small portion of their overall SG obligations for the quarters [33] • the employer miscalculated the amount that they needed to contribute for an employee in a quarter due to complex legal interpretative issues [34] , or • the employer took reasonable steps to ensure that contributions were made on time, but a third-party issue or error led to the contributions being late by a small amount. This could include payments made to a non-ATO-administered clearing house, where payments were made to the clearing house before the due date. [35] Mitigating facts or circumstances that may warrant a larger additional remission (generally not exceeding 50%) include: • the malfunction or outage of a key ATO system which the employer can demonstrate caused them to narrowly miss the lodgment due date [36] • a natural disaster, emergency or other similar event has significantly impacted the employer's ability to comply with their obligations, either in terms of making contributions or lodging SG statements • the employer's SG shortfalls are due to them correctly classifying their workers as not being employees under the ordinary meaning of employee, but failing to identify that they were employees for SG purposes under the extended definition in the SGAA [37] • the employer's SG shortfalls are due to them misclassifying their workers and you are satisfied that they took reasonable steps to get their workers' classifications right prior to the period being considered [38] , or • the employer participates in a penalty relief arrangement and is given an education direction as a more appropriate treatment for their behaviour. • the malfunction or outage of a key ATO system which the employer can demonstrate caused them to narrowly miss the lodgment due date [36] • a natural disaster, emergency or other similar event has significantly impacted the employer's ability to comply with their obligations, either in terms of making contributions or lodging SG statements • the employer's SG shortfalls are due to them correctly classifying their workers as not being employees under the ordinary meaning of employee, but failing to identify that they were employees for SG purposes under the extended definition in the SGAA [37] • the employer's SG shortfalls are due to them misclassifying their workers and you are satisfied that they took reasonable steps to get their workers' classifications right prior to the period being considered [38] , or • the employer participates in a penalty relief arrangement and is given an education direction as a more appropriate treatment for their behaviour. Note: These lists are not exhaustive. It may be appropriate, where there are additional mitigating factors to those considered at Steps 1 and 2, to consider increasing the level of penalty remission if the assessment would be considered harsh in the particular circumstances of the employer. [39] However, it generally would not be appropriate to remit further where the employer: • is reasonably expected to have fully understood their SG lodgment obligations (for example, where they have been previously subject to SG compliance action, have repeatedly lodged SG statements after their due date or are a tax or super professional who should have a higher level of knowledge) • has a history of not meeting SG obligations on other entities, such as a previous company run by the same individuals • took steps to prevent or obstruct us from determining their SGC liability. This would be more than not responding to our letter. Examples would be where they repeatedly failed to meet agreed timeframes to supply information for no acceptable reason, deliberately supplied irrelevant, inadequate or misleading information, or engaged in behaviour delaying the provision of information • has demonstrated a history of repeated disengagement, or • took steps to deliberately evade payment of their SG liability, such as through 'phoenix' activities. • is reasonably expected to have fully understood their SG lodgment obligations (for example, where they have been previously subject to SG compliance action, have repeatedly lodged SG statements after their due date or are a tax or super professional who should have a higher level of knowledge) • has a history of not meeting SG obligations on other entities, such as a previous company run by the same individuals • took steps to prevent or obstruct us from determining their SGC liability. This would be more than not responding to our letter. Examples would be where they repeatedly failed to meet agreed timeframes to supply information for no acceptable reason, deliberately supplied irrelevant, inadequate or misleading information, or engaged in behaviour delaying the provision of information • has demonstrated a history of repeated disengagement, or • took steps to deliberately evade payment of their SG liability, such as through 'phoenix' activities. These are regarded as serious cases, and a reduction in the level of remission, or no remission at all, may be appropriate. When the remission restriction applies For SGC assessments made after 7 September 2020, the law generally limits your ability to remit Part 7 penalties for historical quarters (quarters from 1 July 1992 to 31 March 2018). Where a historical quarter is assessed for SGC after 7 September 2020, you cannot remit the Part 7 penalty below 100% of the SGC unless: • the employer voluntarily came forward to lodge an SG statement prior to being notified of our compliance action [40] , or • exceptional circumstances prevented the employer from lodging an SG statement, either - during the amnesty period (24 May 2018 to 7 September 2020), or - before the employer was notified of our compliance action. [41] • the employer voluntarily came forward to lodge an SG statement prior to being notified of our compliance action [40] , or • exceptional circumstances prevented the employer from lodging an SG statement, either - during the amnesty period (24 May 2018 to 7 September 2020), or - before the employer was notified of our compliance action. [41] - during the amnesty period (24 May 2018 to 7 September 2020), or - before the employer was notified of our compliance action. [41] If you are considering remission for a historical quarter, the employer did not lodge prior to being notified of our compliance action and there are no exceptional circumstances, you must not remit the penalty beyond 50% (that is, the final penalty must be at least 100% of the SGC) even if it would be lower after you consider Steps 1 to 4 of the penalty remission process in Appendix 1 to this Practice Statement. You should still follow the penalty remission process to ascertain a level of remission but reduce your remission to 50% if it exceeds that level. Employer comes forward voluntarily prior to being notified of any compliance action by us Considering the table at Step 2 of the 4-step penalty remission process in Appendix 1 to this Practice Statement, if the employer has lodged an SG statement before any contact by us or after our initial contact but before any compliance action, they will satisfy this requirement and there will be no restriction on remission. This will be the case even if an employer was previously notified of our compliance action for the quarter in question, where that compliance action was completed and the current lodgment is a disclosure of new information that was not identified during the previous compliance action. [42] Exceptional circumstances that prevented the employer from lodging an SG statement Where exceptional circumstances prevented an employer from disclosing information by lodging an SG statement, your ability to remit is not restricted. Exceptional circumstances need to have prevented the employer from lodging the SG statement continuously from the start of the amnesty period (24 May 2018) until the date of lodgment or notification of our compliance action (whichever is earlier). [43] The Commissioner's position in the foregoing paragraphs regarding the temporal application of exceptional circumstances has been affirmed by the decisions in Geelong Turf and Delbake. [44] It is not possible to set precise rules for what constitutes exceptional circumstances. The core idea of exceptional circumstances and similar terms is that there is something unusual to take the case out of the ordinary course. [45] In addition, in determining whether exceptional circumstances exist, you should bear in mind the purpose of the discretion that is being exercised. [46] When considering a quarter that was covered by the SG amnesty and whether the Part 7 penalty remission restriction applies, you should also bear in mind the purpose of the remission restriction. [47] It is not enough for the employer to demonstrate exceptional circumstances that prevented them from meeting the due date to make SG contributions, or to make payment of an SGC liability after disclosing it. The exceptional circumstances must have prevented the employer from lodging their SG statement. Finding exceptional circumstances is a very high threshold and must be determined on a case-by-case basis depending on the particular facts of the case. Some examples of factors that are unlikely to constitute exceptional circumstances on their own are: • An employer facing financial difficulty (including financial difficulty arising from a natural disaster) – while these circumstances may impact an employer's capacity to meet their SG contribution obligations, it does not prevent them from lodging an SG statement and disclosing their shortfall to us. Employers who are unable to make contributions before the due date can lodge an SG statement with us and explore options for a payment arrangement to meet their liabilities. [48] • An employer did not understand the law or their obligations – this includes if the employer has relied on poor advice from a third party. [49] • An employer made a mistake or error in determining their SG obligations – for example, if they unintentionally or inadvertently treated a payment as falling outside of 'ordinary time earnings' and therefore not forming part of their SG obligation. • An employer claimed that they failed to come forward during the SG amnesty due to a lack of time between the SG amnesty being legislated and the SG amnesty period ending – this is not exceptional circumstances, and the employer always had the obligation to lodge SG statements regardless of the existence of the SG amnesty. • An employer facing financial difficulty (including financial difficulty arising from a natural disaster) – while these circumstances may impact an employer's capacity to meet their SG contribution obligations, it does not prevent them from lodging an SG statement and disclosing their shortfall to us. Employers who are unable to make contributions before the due date can lodge an SG statement with us and explore options for a payment arrangement to meet their liabilities. [48] • An employer did not understand the law or their obligations – this includes if the employer has relied on poor advice from a third party. [49] • An employer made a mistake or error in determining their SG obligations – for example, if they unintentionally or inadvertently treated a payment as falling outside of 'ordinary time earnings' and therefore not forming part of their SG obligation. • An employer claimed that they failed to come forward during the SG amnesty due to a lack of time between the SG amnesty being legislated and the SG amnesty period ending – this is not exceptional circumstances, and the employer always had the obligation to lodge SG statements regardless of the existence of the SG amnesty. Some factors that may point towards a finding of exceptional circumstances include: • An employer has been impacted by a natural disaster – however, the natural disaster must have directly impacted an employer's ability to lodge; financial hardship or business downturn resulting from a natural disaster alone will not point to exceptional circumstances. • An employer's ability to lodge has been impacted by the COVID-19 pandemic – as with the previous point, the pandemic would need to have directly impacted their ability to lodge; for example, if the employer was displaced interstate or overseas and unable to access business records. The financial impact alone will not be sufficient unless that impact significantly reduced the employer's capacity to ascertain shortfalls and lodge SGC statements. • An employer relied on our guidance that advised that they did not have an SG shortfall and as such did not believe they had any obligation to lodge an SG statement. If our guidance turned out to be incorrect, the employer could not have known they were required to lodge before they were advised of the revised position. [50] • An employer was suffering from severe illness or other affliction that rendered them incapable of lodging an SG statement. • An employer has been impacted by a natural disaster – however, the natural disaster must have directly impacted an employer's ability to lodge; financial hardship or business downturn resulting from a natural disaster alone will not point to exceptional circumstances. • An employer's ability to lodge has been impacted by the COVID-19 pandemic – as with the previous point, the pandemic would need to have directly impacted their ability to lodge; for example, if the employer was displaced interstate or overseas and unable to access business records. The financial impact alone will not be sufficient unless that impact significantly reduced the employer's capacity to ascertain shortfalls and lodge SGC statements. • An employer relied on our guidance that advised that they did not have an SG shortfall and as such did not believe they had any obligation to lodge an SG statement. If our guidance turned out to be incorrect, the employer could not have known they were required to lodge before they were advised of the revised position. [50] • An employer was suffering from severe illness or other affliction that rendered them incapable of lodging an SG statement. There may be some instances where the law or its application to particular facts is uncertain or unclear, such as complex cases of worker classification. The fact that an employer classified workers as contractors and they were later found to be employees will not of itself constitute an exceptional circumstance. In determining whether exceptional circumstances are present, you will need to consider the employer's position and all evidence provided and whether it is reasonable to conclude that the employer could not have known that they needed to lodge an SG statement. Example 3 – no remission – default assessment with disengagement and phoenix arrangements Default assessments of an employer's SGC are made on 22 July 2021 for the quarters ending 30 September 2020 and 31 December 2020.The employer has been subject to 2 previous audits, resulting in default SGC assessments being issued at the conclusion of each audit. We also identify that the director of the employer company is linked to 4 liquidated companies which have also had compliance issues, suggesting the director has engaged in phoenix activity. Considering the 4-step penalty remission process: • Step 1: the employer has not made any late payments for which they have claimed an LPO – No remission. • Step 2: the employer did not provide information for us to make an assessment of the employer's SGC and has demonstrated severe disengagement – No remission. • Step 3: the employer has been subject to 2 previous audits and there has been no apparent shift in the employer's attitude to their SG obligations as they again did not cooperate or respond to requests for information. The employer's compliance history is poor – No remission (you cannot reduce the remission level as it is already at no remission). • Step 4: no other mitigating circumstances have been identified – No remission. • Step 1: the employer has not made any late payments for which they have claimed an LPO – No remission. • Step 2: the employer did not provide information for us to make an assessment of the employer's SGC and has demonstrated severe disengagement – No remission. • Step 3: the employer has been subject to 2 previous audits and there has been no apparent shift in the employer's attitude to their SG obligations as they again did not cooperate or respond to requests for information. The employer's compliance history is poor – No remission (you cannot reduce the remission level as it is already at no remission). • Step 4: no other mitigating circumstances have been identified – No remission. After considering each of the steps, the Part 7 penalty is not remitted at all. A Part 7 penalty assessment equivalent to 200% of the SGC is issued against the employer. The TAA default assessment penalty is fully remitted. Example 4 – 40% remission – default assessment with information unable to be provided Default assessments of an employer's SGC are made on 22 March 2021 for the quarters ending 30 September 2020 and 31 December 2020. During the compliance activity, the employer: • advises they have been unable to find the information that has been requested, but • acknowledges that they have SGC liabilities for the relevant quarters. • advises they have been unable to find the information that has been requested, but • acknowledges that they have SGC liabilities for the relevant quarters. Considering the 4-step penalty remission process: • Step 1: the employer has not made any late payments for which they have claimed an LPO – No remission. • Step 2: the employer did not provide information to us to make an assessment of the employer's SGC but did not display severe disengagement – 25% remission. • Step 3: the employer has no outstanding lodgments or debts in relation to their other taxation law obligations and this is the first time they have been subject to a compliance activity regarding their SG obligations. The employer's compliance history is good – 15% remission. • Step 4: no mitigating facts or circumstance have been identified – No remission. • Step 1: the employer has not made any late payments for which they have claimed an LPO – No remission. • Step 2: the employer did not provide information to us to make an assessment of the employer's SGC but did not display severe disengagement – 25% remission. • Step 3: the employer has no outstanding lodgments or debts in relation to their other taxation law obligations and this is the first time they have been subject to a compliance activity regarding their SG obligations. The employer's compliance history is good – 15% remission. • Step 4: no mitigating facts or circumstance have been identified – No remission. After considering each of the steps, the Part 7 penalty is remitted by 40% [25% + 15%], leaving a residual penalty of 60%. A Part 7 penalty assessment equivalent to 120% (that is, 60% × 200%) of the SGC is issued against the employer. The TAA default assessment penalty is fully remitted. Example 5 – 75% remission – voluntary disclosure prior to our contact with poor compliance history An employer has SG shortfall amounts for the quarters ending 30 September 2020 and 31 December 2020, and on 20 May 2021 lodges the required SG statements for these quarters. This is the third time in the past 2 years that the employer lodges SG statements after the lodgment due date. Considering the 4-step penalty remission process: • Step 1: the employer has not made any late payments for which they have claimed an LPO – No remission. • Step 2: the employer lodged SG statements after the due date but prior to any ATO contact – 90% remission. • Step 3: the employer's habitual lodgment of SG statements after the due date illustrates the employer's behaviour to comply with their SG obligation is not improving. The employer's compliance history is poor – 15% reduction in remission. • Step 4: no mitigating facts or circumstance have been identified – No remission. • Step 1: the employer has not made any late payments for which they have claimed an LPO – No remission. • Step 2: the employer lodged SG statements after the due date but prior to any ATO contact – 90% remission. • Step 3: the employer's habitual lodgment of SG statements after the due date illustrates the employer's behaviour to comply with their SG obligation is not improving. The employer's compliance history is poor – 15% reduction in remission. • Step 4: no mitigating facts or circumstance have been identified – No remission. After considering each of the steps, the Part 7 penalty is remitted by 75% (90% - 15%), leaving a residual penalty of 25%. A Part 7 penalty assessment equivalent to 50% (that is, 25% × 200%) of the SGC is issued against the employer. Example 6 – full remission – SG statement provided with full LPO claim For the quarters ending 31 March 2020 to 30 September 2020, an employer fails to make SG contributions to the respective super funds of their employees by the due date for each quarter. The employer makes contributions equivalent to the total amount they were originally required to contribute for all 3 quarters, within 3 months after the due date for each quarter. The employer also fails to lodge an SG statement disclosing the SG shortfalls. In response to an audit notification letter issued on 14 November 2021, the employer lodges SG statements on 10 December 2021. In these statements, they claim LPOs for the late payments they made. The employer indicates that it is their first year of operation and they did not understand their lodgment obligations. Considering the 4-step penalty remission process: • Step 1: the employer made full late payment, prior to our contact and within 3 months of the due date – 40% remission. • Step 2: the employer lodged SG statements in response to our compliance action – 60% remission. • Step 3: the employer's compliance history is neither good nor poor – No remission. • Step 4: the shortfalls occurred during the business' first year of operation – 10% remission. • Step 1: the employer made full late payment, prior to our contact and within 3 months of the due date – 40% remission. • Step 2: the employer lodged SG statements in response to our compliance action – 60% remission. • Step 3: the employer's compliance history is neither good nor poor – No remission. • Step 4: the shortfalls occurred during the business' first year of operation – 10% remission. After considering each of the steps, it is reasonable for the Part 7 penalty to be fully remitted. We determined a remission percentage of 110% [40% + 60% + 10%], however remission cannot exceed 100%. Example 7 – 78% remission – SG statement provided with partial LPO claim For the quarters ending 31 March 2020 to 31 December 2020, an employer fails to make SG contributions to the respective super funds of their employees by the due date for each quarter. The employer makes some late contributions: Table 4: Late contributions Quarter ending Amount of late contribution Total amount they were originally required to contribute Timing of late contribution 31 March 2020 $6,000 $6,000 7 months late 30 June 2020 $5,000 $8,000 5 months late 30 September 2020 $4,000 $7,000 4 months late 31 December 2020 None $9,000 not applicable Total $15,000 $30,000 not applicable The employer also fails to lodge an SG statement disclosing the SG shortfalls. In response to an audit notification letter issued on 15 January 2022, the employer lodges SG statements on 28 January 2022. In these statements they claim LPOs for the late payments they made. Considering the 4-step penalty remission process: • Step 1: the employer made partial late payment with differing circumstances across quarters - the timeliest payments were made between 3 and 6 months after the due date, for the quarters ending 30 June 2020 and 30 September 2020 – remission of 36% as per step 1 (refer to the table in Step 1 of Appendix 1 to this Practice Statement) - their payments were equivalent to 50% of the total amounts they were originally required to contribute across the 4 quarters. We adjust the remission they attribute to this attempt to comply proportionately – 18% remission [50% × 36%]. • Step 2: the employer lodged SG statements in response to our compliance action – 60% remission. • Step 3: the employer's compliance history is neither good nor poor – No remission. • Step 4: no mitigating circumstances identified – No remission. • Step 1: the employer made partial late payment with differing circumstances across quarters - the timeliest payments were made between 3 and 6 months after the due date, for the quarters ending 30 June 2020 and 30 September 2020 – remission of 36% as per step 1 (refer to the table in Step 1 of Appendix 1 to this Practice Statement) - their payments were equivalent to 50% of the total amounts they were originally required to contribute across the 4 quarters. We adjust the remission they attribute to this attempt to comply proportionately – 18% remission [50% × 36%]. • Step 2: the employer lodged SG statements in response to our compliance action – 60% remission. • Step 3: the employer's compliance history is neither good nor poor – No remission. • Step 4: no mitigating circumstances identified – No remission. - the timeliest payments were made between 3 and 6 months after the due date, for the quarters ending 30 June 2020 and 30 September 2020 – remission of 36% as per step 1 (refer to the table in Step 1 of Appendix 1 to this Practice Statement) - their payments were equivalent to 50% of the total amounts they were originally required to contribute across the 4 quarters. After considering each of the steps, the Part 7 penalty is remitted by 78% (18% + 60%) leaving a residual penalty of 22%. A Part 7 penalty assessment equivalent to 44% (that is, 22% × 200%) of the SGC is issued against the employer. Example 8 – penalty relief applied and SG education direction imposed – voluntary disclosure after our initial contact An employer has SG shortfall amounts for the quarter ending 30 September 2019. In response to an early engagement letter from us on 15 February 2021, the employer lodges an SG statement. Although the employer has previously voluntarily lodged an SG statement and has some outstanding income tax debts, this is the first time the employer has been contacted by us regarding their SG obligations. We note that the employer is eligible for penalty relief. We believe education will be a more effective tool to improve the employer's compliance and decide to apply penalty relief, offering further remission in conjunction with an education direction. Considering the 4-step penalty remission process: • Step 1: the employer has not made any late payments for which they have claimed an LPO – No remission. • Step 2: the employer lodged SG statements in response to our initial contact – 80% remission. • Step 3: the employer's compliance history is neither good nor poor – No remission. • Step 4: we remit the remaining penalty in line with their application of penalty relief – 20% remission. • Step 1: the employer has not made any late payments for which they have claimed an LPO – No remission. • Step 2: the employer lodged SG statements in response to our initial contact – 80% remission. • Step 3: the employer's compliance history is neither good nor poor – No remission. • Step 4: we remit the remaining penalty in line with their application of penalty relief – 20% remission. After considering each of the steps, and applying penalty relief, the Part 7 penalty is fully remitted. In accordance with the penalty relief process, the employer is issued with an SG education direction. Example 9 – 95% remission – disclosure after our initial contact – multiple mitigating circumstances An employer has SG shortfall amounts for the quarters ending 30 September 2019 to 31 March 2021. On 20 July 2021, in response to an initial early engagement letter from us, the employer voluntarily discloses to us that they have these shortfalls and lodges the required SG statements for these quarters. After lodging SG statements, the employer pays the full SGC liability to us (not including any potential Part 7 penalty). They cannot claim an LPO. The employer indicates that the shortfalls arose because their payroll system had been disorganised and ineffective, and that they have since updated their processes. Considering the 4-step penalty remission process: • Step 1: the employer has not made any late payments to the employee funds for which they could claim an LPO – No remission. • Step 2: the employer lodges SG statements in response to our initial contact – 80% remission. • Step 3: the employer's compliance history is neither good nor poor (they had previously lodged SG statements for paid SGC for 2 quarters) – No remission. • Step 4: the SGC has been paid, and the employer has taken steps to rectify the issue that led to the shortfalls – 15% remission (10% + 5%). • Step 1: the employer has not made any late payments to the employee funds for which they could claim an LPO – No remission. • Step 2: the employer lodges SG statements in response to our initial contact – 80% remission. • Step 3: the employer's compliance history is neither good nor poor (they had previously lodged SG statements for paid SGC for 2 quarters) – No remission. • Step 4: the SGC has been paid, and the employer has taken steps to rectify the issue that led to the shortfalls – 15% remission (10% + 5%). After considering each of the steps, the Part 7 penalty is remitted by 95% (80% + 15%) leaving a residual penalty of 5%. A Part 7 penalty assessment equivalent to 10% (that is, 5% × 200%) of the SGC is issued against the employer. Example 10 – full remission – voluntary disclosure prior to our contact – proportionality of shortfalls An employer has SG shortfall amounts for the quarters ending 30 September 2019 to 31 March 2021. On 20 July 2021, the employer voluntarily discloses to us that they have these shortfalls and lodges the required SG statements for these quarters. The employer explains that they had made what they believed to be the full required contributions for their employees on time but had mistakenly believed a particular allowance was not part of ordinary time earnings. As such, there were small shortfalls for several of their employees across the period. Considering the 4-step penalty remission process: • Step 1: the employer has not made any late payments for which they have claimed an LPO – No remission. • Step 2: the employer lodges SG statements before any contact by us – 90% remission. • Step 3: the employer's compliance history is neither good nor poor (they had previously lodged SG statements and paid SGC for 2 quarters) – No remission. • Step 4: the shortfalls represented a small proportion of the SG obligations that the employer had for the quarters in question – 10% remission. • Step 1: the employer has not made any late payments for which they have claimed an LPO – No remission. • Step 2: the employer lodges SG statements before any contact by us – 90% remission. • Step 3: the employer's compliance history is neither good nor poor (they had previously lodged SG statements and paid SGC for 2 quarters) – No remission. • Step 4: the shortfalls represented a small proportion of the SG obligations that the employer had for the quarters in question – 10% remission. After considering each of the steps, the Part 7 penalty is fully remitted. We could have determined a remission percentage of up to 20% at Step 4; however, the total remission cannot exceed 100%. Example 11 – full remission – mitigating circumstances – employer's ability to comply impacted by COVID-19 An employer has SG shortfall amounts for the quarters ending 31 March 2020 and 30 June 2020. The employer does not respond to an initial early engagement letter from us and compliance action is commenced on 8 October 2021. In response to this compliance action, the employer lodges SG statements for the quarters. The employer explains that they had discovered they had SG shortfalls for the quarters, but that COVID-19-impacts delayed their ability to lodge SG statements as: • they had not received the initial early engagement letter as it was posted to their business premises, which was closed at the time due to COVID-19 restrictions • a significant portion of their payroll staff had been stood down, which contributed to their failure to correctly make SG contributions and increased the length of time it took to ascertain the shortfall amounts and complete SG statements, and • they could not attend the office of their tax agent due to COVID-19 restrictions and instead needed to mail paper copies of their signed declarations to their agent. • they had not received the initial early engagement letter as it was posted to their business premises, which was closed at the time due to COVID-19 restrictions • a significant portion of their payroll staff had been stood down, which contributed to their failure to correctly make SG contributions and increased the length of time it took to ascertain the shortfall amounts and complete SG statements, and • they could not attend the office of their tax agent due to COVID-19 restrictions and instead needed to mail paper copies of their signed declarations to their agent. Considering the 4-step penalty remission process: • Step 1: the employer has not made any late payments for which they have claimed an LPO – No remission. • Step 2: the employer lodges SG statements in response to our compliance action – 60% remission. • Step 3: the employer has no outstanding lodgments or debts in relation to their other taxation law obligations and this is the first time they have been subject to a compliance activity regarding their SG obligations – 15% remission. • Step 4: the COVID-19 impacts significantly impacted the employer's ability to comply with their SG obligations – 25% remission. • Step 1: the employer has not made any late payments for which they have claimed an LPO – No remission. • Step 2: the employer lodges SG statements in response to our compliance action – 60% remission. • Step 3: the employer has no outstanding lodgments or debts in relation to their other taxation law obligations and this is the first time they have been subject to a compliance activity regarding their SG obligations – 15% remission. • Step 4: the COVID-19 impacts significantly impacted the employer's ability to comply with their SG obligations – 25% remission. After considering each of the steps, the Part 7 penalty is fully remitted. We could have determined a remission percentage of up to 50% at Step 4; however, the total remission cannot exceed 100%. Example 12 – amended SGC assessment – 45% remission of new Part 7 penalty imposed at amendment On 1 January 2021, in response to an initial early engagement contact by us, an employer lodges SG statements to disclose SG shortfalls for the quarters ending 30 June 2020 and 30 September 2020. Considering each of the steps in the 4-step penalty remission process, the Part 7 penalty was remitted by 95% leaving a residual penalty of 5%. A Part 7 penalty assessment equivalent to 10% (that is, 5% × 200%) of the SGC was issued to the employer. After receiving a further employee notification regarding the same quarters, we commence an audit. In response to this compliance activity, the employer lodges amended SG statements for the quarters disclosing significant additional SG shortfalls that were not originally disclosed. The employer does not provide any reasonable explanation for why these additional shortfalls were not disclosed originally. We need to determine a new level of remission for the additional SGC that is assessed at amendment. Considering the 4-step penalty remission process: • Step 1: the employer has not made any late payments for which they have claimed an LPO – No remission. • Step 2: the employer lodges the amendments in response to our compliance action – 60% remission. • Step 3: the employer's compliance history is considered poor, as the evidence suggests the employer knowingly failed to disclose the amounts – 15% reduction in remission. • Step 4: no mitigating circumstances identified – No remission. • Step 1: the employer has not made any late payments for which they have claimed an LPO – No remission. • Step 2: the employer lodges the amendments in response to our compliance action – 60% remission. • Step 3: the employer's compliance history is considered poor, as the evidence suggests the employer knowingly failed to disclose the amounts – 15% reduction in remission. • Step 4: no mitigating circumstances identified – No remission. After considering each of the steps, the Part 7 penalty is remitted by 45% (60% - 15%), leaving a residual penalty of 55%. We determine a total remission percentage for the quarters that is equivalent to a remission percentage of 95% for the Part 7 penalty that was imposed with the original SGC and 45% of the Part 7 penalty that was imposed with the further SGC assessed at amendment. The TAA false or misleading statement penalty is fully remitted, as the Part 7 penalty has already been imposed as a consequence of the same statement. Example 13 – historical quarter example 3 – exceptional circumstances – ability to lodge impacted by natural disaster An employer has SG shortfall amounts for the quarters ending 31 December 2017 and 31 March 2018. A notification of audit letter is issued on 14 July 2021. In response to our compliance action, the employer advises us that they had been unable to determine any SG shortfalls for the periods as their business premises were badly damaged by floods that occurred in early 2018. The employer provides estimates of their liability which we use to raise default assessments. As these are historical quarters and the SG shortfalls were not disclosed prior to notification of compliance action, our ability to remit will be restricted unless there were exceptional circumstances that prevented the employer from lodging. We determine that the employer was prevented from lodging SG statements due to the damage their business premises suffered. Further, given the difficult circumstances, it may not have been reasonable to expect the employer to have made a request for deferral for lodging any potential SG statements. We determine that there are exceptional circumstances that prevented the employer from disclosing SG shortfalls. We can consider the 4-step penalty process without any restriction. Example 14 – historical quarter example 4 – no exceptional circumstances – ability to lodge impacted by COVID-19 An employer has SG shortfall amounts for the quarters ended 31 March 2017 to 30 September 2017. A notification of audit letter is issued on 20 October 2021. In response to our compliance action, the employer explains that they were unaware that they had SG shortfalls requiring them to lodge an SG statement. They explain that from March 2020, they were unable to ascertain whether they have SG shortfalls as they: • were overseas when the COVID-19 pandemic began • were unable to return to Australia due to border lockdowns, and • could not access necessary business records to determine any shortfalls as they are stored in Australia. • were overseas when the COVID-19 pandemic began • were unable to return to Australia due to border lockdowns, and • could not access necessary business records to determine any shortfalls as they are stored in Australia. The employer has subsequently gained access to their business records and lodges SG statements. As these are historical quarters and the SG shortfalls were not disclosed prior to notification of compliance action, our ability to remit will be restricted unless there were exceptional circumstances that prevented the employer from lodging. We determine that the COVID-19 pandemic impacted the employer's ability to disclose SG shortfalls from March 2020 onwards. However, the employer had not provided any evidence to suggest that they were prevented from identifying SG shortfalls and lodging SG statements between 24 May 2018 (the beginning of the SG amnesty period) and March 2020. While the unprecedented impacts of the pandemic would constitute exceptional circumstances from March 2020 onwards, we determine that exceptional circumstances did not prevent the employer from lodging SG statements from 24 May 2018. Therefore, we must ensure that their remission does not exceed 50%, even if the 4-step penalty process would lead to a greater amount of remission. [51]",PS LA 2008/3 | MT 2012/3 | PS LA 2007/1 (GA) | PS LA 2007/10 | PS LA 2012/5 | Explanatory memorandum | SGAA 1992 12 | SGAA 1992 23(2) | SGAA 1992 Pt 3A | SGAA 1992 33(1) | SGAA 1992 36 | SGAA 1992 37 | SGAA 1992 37(2) | SGAA 1992 42 | SGAA 1992 43 | SGAA 1992 Pt 7 | SGAA 1992 59 | SGAA 1992 59(1) | SGAA 1992 59(3) | SGAA 1992 60 | SGAA 1992 62(3) | SGAA 1992 62(4) | SGAA 1992 62(4)(c) | SGAA 1992 62(5) | SGAA 1992 62A | SGAA 1992 74(2) | SGAA 1992 74(4) | TAA 1953 250-10(2) | TAA 1953 284-20 | TAA 1953 284-75(1) | TAA 1953 284-75(3) | TAA 1953 284-90(1) | TAA 1953 298-20(1) | TAA 1953 298-20(2) | TAA 1953 298-30(2) | ITAA 1997 995-1(1) | Treasury Laws Amendment (Recovering Unpaid Superannuation) Act 2020 | 2008 ATC 20-015 | 2024 ATC 10-716 | (1984) 6 ALD 1 | (1984) 1 AAR 362 | 2016 ATC 20-583,PS LA 2007/1 (GA) PS LA 2007/10 PS LA 2008/3 PS LA 2012/5,SGAA 1992 12 | SGAA 1992 23(2) | SGAA 1992 Pt 3A | SGAA 1992 33(1) | SGAA 1992 36 | SGAA 1992 37 | SGAA 1992 37(2) | SGAA 1992 42 | SGAA 1992 43 | SGAA 1992 Pt 7 | SGAA 1992 59 | SGAA 1992 59(1) | SGAA 1992 59(3) | SGAA 1992 60 | SGAA 1992 62(3) | SGAA 1992 62(4) | SGAA 1992 62(4)(c) | SGAA 1992 62(5) | SGAA 1992 62A | SGAA 1992 74(2) | SGAA 1992 74(4) | TAA 1953 250-10(2) | TAA 1953 284-20 | TAA 1953 284-75(1) | TAA 1953 284-75(3) | TAA 1953 284-90(1) | TAA 1953 298-20(1) | TAA 1953 298-20(2) | TAA 1953 298-30(2) | ITAA 1997 995-1(1) | Treasury Laws Amendment (Recovering Unpaid Superannuation) Act 2020,,Employee or independent contractor Explanatory memorandum to the Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019 Our Charter,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20213/NAT/ATO/00001,"APPENDIX 1 - 4-step penalty remission process | APPENDIX 2 - Treatment of historical quarters where remission may be restricted | Updated in line with current ATO style and accessibility requirements. | [1] Subsection 59(1). The SG statement or information may relate to an SGC arising from a failure to provide super support for an employer or a failure to fulfil the choice of fund obligations for an employee in Part 3A. | [2] See subsection 33(1) for lodgment due dates. | [3] Section 36. See also Law Administration Practice Statement PS LA 2007/10 Making default assessments: section 36 of the Superannuation Guarantee (Administration) Act 1992 . | [9] Subsection 284-75(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA). See also section 10 of Law Administration Practice Statement PS LA 2012/5 Administration of the false or misleading statement penalty - where there is a shortfall amount for more information. | [15] An amendment can only be made within 4 years of the original assessment for the quarter unless you are of the opinion that there is an avoidance of the SGC due to fraud or evasion (subsection 37(2)). | [17] The SGC is a tax-related liability per table item 60 of subsection 250-10(2) of Schedule 1 to the TAA. | [18] Subsection 284-75(3) of Schedule 1 to the TAA. | [19] Table item 7 of subsection 284-90(1) of Schedule 1 to the TAA. | [20] Subsection 298-20(1) of Schedule 1 to the TAA. | [21] A statement is anything that is disclosed, for a purpose connected with a taxation law, orally or in writing and includes those made electronically. See section 284-20 of Schedule 1 to the TAA. | [22] 'Taxation law' is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 and includes an Act of which the Commissioner has the general administration. The Commissioner has the general administration of section 43 of the SGAA. | [23] Subsection 284-75(1) of Schedule 1 to the TAA. | [24] Subsection 298-20(2) of Schedule 1 to the TAA. | [25] Subsection 298-30(2) of Schedule 1 to the TAA. | [26] The contributions must have also satisfied the 'choice of fund' requirements in Part 3A, otherwise the employer may still have an SGC liability. | [27] This may include activities, such as reminder letters, that are a preliminary ATO contact before any compliance action is considered. | [28] The amount of contributions required to reduce their charge percentage to zero for a quarter and avoid having a liability to SGC; generally, this is a set percentage of the employees' ordinary time earnings. See subsection 23(2). | [29] This may include ATO activities, such as reminder letters, that are a preliminary ATO contact before any compliance action is considered. | [30] See subsection 33(1) for lodgment due dates. | [31] Taxation law is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 to mean an Act or part of an Act of which the Commissioner has the general administration, and legislative instruments made under such an Act or part of an Act. | [32] If an employer supplies you with information about their compliance history, the evidence should include details which this Practice Statement instructs you to focus on. | [33] This could occur, for example, because the employer miscalculated the required amount of contributions for the quarter, or because a particular kind of payment was not included in their calculation of their employees' ordinary time earnings. | [34] This could be, for example, complexities in the interpretation of payments as being ordinary time earnings as compared to salary and wages, or complex interactions between the SGAA provisions and an applicable industrial award or agreement. | [35] In some circumstances, where an employer took all reasonable steps to ensure contributions would be made on time, an assessment of SGC may not be made (see Law Administration Practice Statement (General Administration) PS LA 2007/1 (GA) Assessing superannuation guarantee charge where the employers have done what they could reasonably be expected to do to comply with the law by the due date ). | [36] For example, if the employer attempted to use the Small Business Super Clearing House to make an SG payment on time but due to a system issue the clearing house was unable to accept the payment, and an accepted payment was not able to be processed until after the cut-off date. | [38] Reasonable steps may include getting legal advice on the workers' classification, seeking advice from us or using the Employee or independent contractor decision tool with accurate information. | [39] See Archibald Dixon as Trustee for the Dixon Holdsworth Superannuation Fund v Commissioner of Taxation [2008] FCAFC 54. | [42] See paragraph 57 of Miscellaneous Tax Ruling MT 2012/3 Administrative penalties: voluntary disclosures . | [43] Paragraph 62(4)(c) and subsection 62(5). | [44] In Geelong Turf , while Senior Member Lazanas agreed at [45] that exceptional circumstances must have prevented an employer from disclosing information by lodging an SG statement, and noted the Commissioner's argument that such circumstances must have continuously existed throughout the period mentioned in paragraph 62(4)(c), the latter was an issue that she ultimately found did not arise for determination in that matter given the relevant factual context. However, in the subsequent decision of Delbake , Member Reitano made findings at [36] that are consistent with our view that the exceptional circumstances need to apply continuously throughout the period mentioned in paragraph 62(4)(c) in order to exercise the remission power in subsection 62(5). | [45] Ward v Commissioner of Taxation [2016] FCAFC 132 at [39-41]. | [46] Re Rosemarie Beadle and Director-General of Social Security [1984] AATA 176. | [47] Paragraphs 1.81 to 1.90 of the Explanatory Memorandum to the Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019. | [48] See Geelong Turf at [44], affirming that an employer's financial difficulties do not constitute exceptional circumstances. Also refer to Member Reitano's comments in Delbake at [15], to the effect that any unjust, unintended or unfair repercussions of the penalties are not relevant considerations for the purposes of applying remission in accordance with subsection 62(5). | [49] See Geelong Turf at [44], affirming that a lack of knowledge on behalf of the employer or their agent as to accounting and tax matters does not constitute exceptional circumstances. | [50] See PS LA 2008/3. See also Our Charter . | [51] See subsection 62(4) for legislative restrictions for Part 7 penalty remission for historical SG quarters. | File 1-I1A48E2; 1-13XPCOE5 | Archibald Dixon as Trustee for the Dixon Holdsworth Superannuation Fund v Commissioner of Taxation [2008] FCAFC 54 (2008) 167 FCR 287 2008 ATC 20-015 (2008) 69 ATR 627 | Delbake Pty Ltd and Commissioner of Taxation [2024] AATA 449 2024 ATC 10-716 | Re Rosemarie Beadle and Director-General of Social Security [1984] AATA 176 (1984) 6 ALD 1 (1984) 1 AAR 362 | Ward v Commissioner of Taxation [2016] FCAFC 132 (2016) 247 FCR 372 2016 ATC 20-583 (2016) 103 ATR 823"
PS LA 2020/2,"Administering general anti-abuse rules, such as a principal or main purposes test, included in any of Australia's tax treaties",1 October 2020,16 December 2019,Law Administration Practice Statement,False,"1. What this Practice Statement is about: This Practice Statement helps you to apply a principal or main purposes test in any of Australia's tax treaties, including for a private ruling, a public ruling (including a product or class ruling) or any other document setting out the ATO view. In this Practice Statement, we use 'purpose test' as a term of convenience to cover the tests it applies to. These are: • the principal purposes test under paragraph 1 of Article 7 of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting [1] (MLI) as it applies to a Covered Tax Agreement (CTA) [2] (MLI PPT) • a principal purposes test in an Australian tax treaty that is not a CTA [3] (PPT), and • a main purposes test (MPT) [4] in an Australian tax treaty that is yet to be or will not be modified by the MLI. • the principal purposes test under paragraph 1 of Article 7 of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting [1] (MLI) as it applies to a Covered Tax Agreement (CTA) [2] (MLI PPT) • a principal purposes test in an Australian tax treaty that is not a CTA [3] (PPT), and • a main purposes test (MPT) [4] in an Australian tax treaty that is yet to be or will not be modified by the MLI. Unless otherwise stated, a reference to a purpose test is a reference to any or all of these tests. This Practice Statement is divided into the following sections: • what to do when considering applying a purpose test • framing questions and documents that may be relevant when you are considering applying a purpose test, and • background and relevant considerations in applying the MLI PPT. • what to do when considering applying a purpose test • framing questions and documents that may be relevant when you are considering applying a purpose test, and • background and relevant considerations in applying the MLI PPT. This Practice Statement has been developed in recognition that applying a purpose test to deny a benefit under a tax treaty is a serious matter. | 2. What you should do if you consider that a purpose test may apply: Before deciding that a purpose test applies to deny a treaty benefit, you must: • notify the appropriate International specialist team • refer the matter to the Tax Counsel Network (TCN) in the Office of the Chief Tax Counsel business line • refer the matter to the General Anti-Avoidance Rules (GAAR) Panel, and • consider possible requests under paragraph 4 of Article 7 of the MLI. • notify the appropriate International specialist team • refer the matter to the Tax Counsel Network (TCN) in the Office of the Chief Tax Counsel business line • refer the matter to the General Anti-Avoidance Rules (GAAR) Panel, and • consider possible requests under paragraph 4 of Article 7 of the MLI. Notify the International specialist team If you consider that a purpose test may apply, you must present the relevant facts and circumstances to the appropriate International specialist team [5] as soon as possible. You may also engage other relevant technical experts in your business line (for example, the Technical Leadership and Advice stream of the Private Wealth business line). The International specialist team and technical experts may help you decide whether the matter should be referred to TCN. Refer the matter to the Tax Counsel Network You must refer a purpose test matter to TCN: • before applying a purpose test to deny a benefit under an Australian tax treaty [6] – in the usual case, the matter will be referred to TCN before issuing an ATO position paper indicating that a purpose test may apply • before giving a private ruling, product or class ruling or issuing any other ATO product that states that a purpose test applies to an arrangement or transaction (see Section 3 of this Practice Statement for more information on giving a private ruling, including where the taxpayer has not requested a ruling on whether a purpose test applies) • where a request for a class ruling includes the application of a purpose test, including where it is considered that it would not apply. • before applying a purpose test to deny a benefit under an Australian tax treaty [6] – in the usual case, the matter will be referred to TCN before issuing an ATO position paper indicating that a purpose test may apply • before giving a private ruling, product or class ruling or issuing any other ATO product that states that a purpose test applies to an arrangement or transaction (see Section 3 of this Practice Statement for more information on giving a private ruling, including where the taxpayer has not requested a ruling on whether a purpose test applies) • where a request for a class ruling includes the application of a purpose test, including where it is considered that it would not apply. However, a decision that a purpose test would not apply in response to an application for a private ruling or a product ruling does not always require referral to TCN. Similarly, a decision not to apply a purpose test in the context of an audit does not always require referral to TCN. In such cases, the business line will make a judgment about whether the matter needs to be referred to TCN, depending on whether the application of a purpose test is seriously contemplated. Where the application of a purpose test is not seriously contemplated, the matter need not be referred to TCN. When TCN confirms a decision not to apply a purpose test, the matter is returned to the decision-maker in the business line as a preliminary step to the making of the decision. If, however, the TCN officer is of the view that a purpose test may apply to the matter, they will provide interim advice to the decision-maker and arrange for that advice and relevant papers to be provided to a Deputy Chief Tax Counsel for further consideration before the decision is made. Further, the decision-maker will be required to refer the matter to the GAAR Panel. A decision on review or objection, or in the course of litigation, to reverse a decision to apply a purpose test must not be made without first referring the matter to a Deputy Chief Tax Counsel or the Chief Tax Counsel. Further guidance for ATO staff on escalating matters to TCN can be found in Law Administration Practice Statement PS LA 2012/1 Engaging Tax Counsel Network on tax technical issues . Refer the matter to the General Anti-Avoidance Rules Panel The application of a GAAR is a serious matter. As such, we established the GAAR Panel to advise on the application of GAARs to particular arrangements. Due to the seriousness of applying a purpose test to deny a benefit under an Australian tax treaty, we use the GAAR Panel to provide advice on particular arrangements. [7] The GAAR Panel provides advice to the decision-maker to ensure that decisions in relation to the purpose tests are objective and consistent in approach. The role and procedures of the GAAR Panel, as detailed in PS LA 2005/24, apply to purpose test matters. Unless otherwise indicated, matters for which a decision-maker is proposing to apply a purpose test must be referred to the GAAR Panel by the decision-maker before a final decision is made. In the usual case, a matter will be referred to the GAAR Panel after the TCN officer to whom it has been referred has fully considered the matter. A competent authority will attend the GAAR Panel meeting for all purpose test matters. The role of the Australian competent authority is to provide specialist advice to the GAAR Panel on the provisions of the relevant Australian tax treaty and to ensure that the application of any purpose test is not in conflict with Australia's treaty obligations. Consider possible requests under paragraph 4 of Article 7 of the MLI to grant a benefit denied under the MLI PPT When considering the application of the MLI PPT to a particular arrangement, the possibility of a request under paragraph 4 of Article 7 of the MLI should also be contemplated. Refer to Section 7 of this Practice Statement for more detail. | 3. Purpose tests in rulings, advance pricing arrangements and settlements: Private ruling applications The process for considering the application of a purpose test for the purposes of a private ruling is consistent with normal practice for GAAR matters as detailed in PS LA 2005/24. Advance pricing arrangements program In most cases, it is not expected that the potential application of a purpose test to an arrangement or transaction would affect the outcome of an advance pricing arrangement (APA). However, where it does represent such a risk, you should seek to address and resolve a purpose test risk as a collateral issue in parallel with the development of the APA. The normal practice for addressing and resolving collateral issues is detailed in section 13 of Law Administration Practice Statement PS LA 2015/4 Advance Pricing Arrangements . Where it is not possible to resolve a purpose test risk during the APA process, you must: • in accordance with PS LA 2015/4, consult with the appropriate internal stakeholders on whether it is appropriate for us to proceed with the APA, and • ensure that the matter is referred in accordance with the guidance in this Practice Statement. • in accordance with PS LA 2015/4, consult with the appropriate internal stakeholders on whether it is appropriate for us to proceed with the APA, and • ensure that the matter is referred in accordance with the guidance in this Practice Statement. Settlements If there is a risk that a purpose test may deny a treaty benefit arising from an arrangement or transaction covered by a proposed settlement, you should ensure the matter is referred in accordance with the guidance in this Practice Statement before deciding whether to proceed with the settlement. | 4. Denial of a benefit under a purpose test: A purpose test is self-executing in the sense that we do not need to first make a determination in order to give effect to a decision that it applies. [8] After a decision is made that a purpose test applies to an arrangement or transaction, and a benefit or relief under the Australian tax treaty is denied, follow the correct procedure for the type of benefit denied. For example, making or amending an assessment or raising a withholding tax liability on dividend, interest or royalty payments. When a benefit or relief is denied, the taxpayer's position will revert to the position under Australian domestic tax law. For example, where the limitation on a withholding tax rate is denied, the withholding tax rates under Australian domestic tax law will be applicable. The mutual agreement procedure under the Australian tax treaty may also be relevant. Our website provides general guidance, see Mutual agreement procedure . | 5. Requests under paragraph 4 of Article 7 of the MLI: Only a competent authority can make a decision under paragraph 4 of Article 7 of the MLI to grant a benefit that is otherwise denied under the MLI PPT (or to grant different benefits). If you receive a request from a person under paragraph 4 of Article 7 of the MLI, you must refer it to: • the Competent Authority Network [9] • the appropriate specialist in the International specialist team, and • TCN. • the Competent Authority Network [9] • the appropriate specialist in the International specialist team, and • TCN. Where possible, the officers involved in the original matter should be assigned to the request to grant a benefit under paragraph 4 of Article 7 of the MLI for the purposes of providing relevant facts and documentation to the Australian competent authority. The Australian competent authority must consult the competent authority of the other Contracting Jurisdiction before rejecting a request to grant benefits. This does not apply if the Australian competent authority decides to grant the benefit according to the taxpayer's request. | 6. Framing questions and documents: This section outlines framing questions and documentation that may be relevant when you are considering the application of a purpose test. In relation to the MLI PPT, this section should be read in conjunction with Section 7 of this Practice Statement. The questions and documentation set out in this section are intended to serve as a general guide only and should not be treated as an exhaustive list outlining every matter you may take into account. You must consider whatever additional matters are relevant to the particular purpose test and the circumstances of each case. The questions and documentation that may be relevant will depend on which purpose test is being considered and whether the relevant arrangement or transaction (referred to hereafter as the 'arrangement') involves: • treaty shopping [10] , where you would need to consider why an entity was established or why a taxpayer moved their residence to a particular jurisdiction, or • the conversion of one type of income into another, or other changes in the circumstances in which income is derived in order to obtain a treaty benefit. • treaty shopping [10] , where you would need to consider why an entity was established or why a taxpayer moved their residence to a particular jurisdiction, or • the conversion of one type of income into another, or other changes in the circumstances in which income is derived in order to obtain a treaty benefit. Framing questions Preliminary questions specific to the MLI PPT and a principal purposes test The following preliminary questions are specific to the MLI PPT and a PPT: • What is the arrangement? • Does that arrangement result in the taxpayer obtaining a benefit under the relevant treaty? • Has the taxpayer satisfied the requirements under the relevant provisions of the treaty in order to obtain that benefit? • Have the specific requirements of the purpose test in the relevant treaty been satisfied? • What is the arrangement? • Does that arrangement result in the taxpayer obtaining a benefit under the relevant treaty? • Has the taxpayer satisfied the requirements under the relevant provisions of the treaty in order to obtain that benefit? • Have the specific requirements of the purpose test in the relevant treaty been satisfied? Preliminary questions specific to a main purposes test The following preliminary questions are specific to an MPT: • Does the arrangement result in the taxpayer obtaining a benefit under an article in the relevant treaty that includes an MPT (or to which an MPT applies)? • Does the arrangement involve the creation or assignment of the shares, debt claim or other rights in respect of which the relevant income is derived or paid? • Has the taxpayer satisfied the specific requirements of the MPT in the relevant treaty? • Does the arrangement result in the taxpayer obtaining a benefit under an article in the relevant treaty that includes an MPT (or to which an MPT applies)? • Does the arrangement involve the creation or assignment of the shares, debt claim or other rights in respect of which the relevant income is derived or paid? • Has the taxpayer satisfied the specific requirements of the MPT in the relevant treaty? Framing questions relevant to determining purposes The following questions may be relevant to allow you to understand and consider the objective purposes of the arrangement: • What is the broader business context in which the arrangement has been implemented? • What are the objective effects of the arrangement? That is, what are the results which it produces or is capable of producing? • How does the arrangement go about achieving its results? • What are the terms of the arrangement? • What are the overt acts by which the arrangement was carried into effect? • What do the terms and circumstances of the arrangement indicate about the characteristics of the arrangement and the results it was intended to produce? • What does the way in which the arrangement was implemented indicate about the characteristics of the arrangement and the results it was intended to produce? • What does what the arrangement was intended to effect indicate about the characteristics of the arrangement? • Is there an alternative way that the non-tax objectives of the arrangement could be achieved? • Is the arrangement more complex or does it contain more steps than is necessary to achieve the non-tax objectives? For example, is there a more convenient, commercial or cost-effective way of achieving the same non-tax objectives? • What are the non-tax benefits and drivers for establishing each of the relevant entities in each relevant jurisdiction? • Is the role of any entity in the arrangement explicable solely or principally by tax reasons or for obtaining the relevant benefit? • What are the quantifiable non-tax financial benefits of the arrangement? • Is there a discrepancy between the substance of what is being achieved under the arrangement and the legal form it takes? • Does the arrangement involve the transfer or effective transfer of valuable intangible assets, the centralisation of risks, or both? • Does the arrangement involve the change in character of payments or a mischaracterisation of payments? For example, service fees rather than royalties or interest rather than business profits? • What are the functions, assets and risks of each entity in the arrangement? Does each entity possess the necessary competencies and capacity to manage its functions, assets and risks? • Does the arrangement avoid the existence of a permanent establishment in one of the jurisdictions? • Does the arrangement involve the change of residence of an entity or taxpayer? • Does the arrangement involve the use of hybrid entities or instruments? • Is there evidence of market conduct or industry practice that resembles the arrangement? If so, what are the commercial drivers for that practice? • Does the arrangement include the use of back-to-back or flow-through arrangements? • What is the broader business context in which the arrangement has been implemented? • What are the objective effects of the arrangement? That is, what are the results which it produces or is capable of producing? • How does the arrangement go about achieving its results? • What are the terms of the arrangement? • What are the overt acts by which the arrangement was carried into effect? • What do the terms and circumstances of the arrangement indicate about the characteristics of the arrangement and the results it was intended to produce? • What does the way in which the arrangement was implemented indicate about the characteristics of the arrangement and the results it was intended to produce? • What does what the arrangement was intended to effect indicate about the characteristics of the arrangement? • Is there an alternative way that the non-tax objectives of the arrangement could be achieved? • Is the arrangement more complex or does it contain more steps than is necessary to achieve the non-tax objectives? For example, is there a more convenient, commercial or cost-effective way of achieving the same non-tax objectives? • What are the non-tax benefits and drivers for establishing each of the relevant entities in each relevant jurisdiction? • Is the role of any entity in the arrangement explicable solely or principally by tax reasons or for obtaining the relevant benefit? • What are the quantifiable non-tax financial benefits of the arrangement? • Is there a discrepancy between the substance of what is being achieved under the arrangement and the legal form it takes? • Does the arrangement involve the transfer or effective transfer of valuable intangible assets, the centralisation of risks, or both? • Does the arrangement involve the change in character of payments or a mischaracterisation of payments? For example, service fees rather than royalties or interest rather than business profits? • What are the functions, assets and risks of each entity in the arrangement? Does each entity possess the necessary competencies and capacity to manage its functions, assets and risks? • Does the arrangement avoid the existence of a permanent establishment in one of the jurisdictions? • Does the arrangement involve the change of residence of an entity or taxpayer? • Does the arrangement involve the use of hybrid entities or instruments? • Is there evidence of market conduct or industry practice that resembles the arrangement? If so, what are the commercial drivers for that practice? • Does the arrangement include the use of back-to-back or flow-through arrangements? Additional framing questions specific to determining purposes for a main purposes test The following additional questions are specific to determining purposes for an MPT: • What objective evidence exists regarding the consideration and rejection of possible alternative ways of implementing the arrangement? • Does the arrangement alter the circumstances in which the relevant income is derived in order to obtain a benefit or a more favourable benefit than was previously available? • What steps were undertaken by the taxpayer or related person to give effect to the creation or assignment (or other relevant arrangement)? • What is the nature of any connection between the relevant taxpayer and any other person concerned with the creation or assignment of the shares, debt-claim or other rights in respect of which the relevant income is derived or paid? • What objective evidence exists regarding the consideration and rejection of possible alternative ways of implementing the arrangement? • Does the arrangement alter the circumstances in which the relevant income is derived in order to obtain a benefit or a more favourable benefit than was previously available? • What steps were undertaken by the taxpayer or related person to give effect to the creation or assignment (or other relevant arrangement)? • What is the nature of any connection between the relevant taxpayer and any other person concerned with the creation or assignment of the shares, debt-claim or other rights in respect of which the relevant income is derived or paid? Framing questions – paragraph 4 of Article 7 of the MLI The following framing questions may be relevant to your consideration of a possible request under paragraph 4 of Article 7 of the MLI for the relevant arrangement. In the absence of the arrangement, would: • the same benefit that was denied by the application of the MLI PPT have been granted under the CTA? • a different benefit have been granted under the CTA? • the granting of that benefit be in accordance with the object and purpose of the CTA? • the same benefit that was denied by the application of the MLI PPT have been granted under the CTA? • a different benefit have been granted under the CTA? • the granting of that benefit be in accordance with the object and purpose of the CTA? Documents There is no specific record-keeping requirement for purpose tests on top of those set out under Australia's tax laws. The following types of documents may be relevant when you are establishing the relevant facts and circumstances and considering the application of a purpose test. This is intended as a general guide only and is not an exhaustive list of every document you may need to take into account. The relevance of particular documents will depend on the circumstances and the arrangement. Documents in our possession You should generally consider information in our possession, which may include: • lodged Australian tax returns • international dealings schedules • reportable tax position schedules • Australian notices of assessment • country-by-country reporting data exchanged automatically or by exchange of information request • information obtained from foreign jurisdictions through exchange of information processes • information provided previously under other compliance activities, and • other relevant information from third-party sources. • lodged Australian tax returns • international dealings schedules • reportable tax position schedules • Australian notices of assessment • country-by-country reporting data exchanged automatically or by exchange of information request • information obtained from foreign jurisdictions through exchange of information processes • information provided previously under other compliance activities, and • other relevant information from third-party sources. Documents that we may request You may ask the taxpayer to provide the following information: • a general submission outlining their views about the application of the purpose test • international dealings schedules working papers • annual reports or general-purpose financial statements • contemporaneous transfer pricing documents, and • inter-company agreements and relevant company policies regarding such dealings. • a general submission outlining their views about the application of the purpose test • international dealings schedules working papers • annual reports or general-purpose financial statements • contemporaneous transfer pricing documents, and • inter-company agreements and relevant company policies regarding such dealings. Source documents You may consider source documents, including but not limited to: • agreements between the relevant entities in relation to the arrangement (such as product agreements, service agreements and shareholder agreements) • documents relating to the flow of payments between the relevant entities (such as documentation regarding dividend distributions or royalties) • documents relating to the funding of the arrangement (such as intra-group loan agreements) • written communications (including emails) between the key personnel involved in the establishment of the arrangement • presentations and other papers relating to the arrangement or transaction as disseminated to the taxpayer's senior management team and board of directors • physical or electronic documents that evidence an intention, election, choice or rule for the taxpayer's management team and board of directors to meet in a specific country or countries • minutes of board and other meetings at which the arrangement or transaction was considered • internal cost-benefit analyses – this could include quantifiable productivity gains, cost savings, synergistic benefits, location-specific benefits, reduction of non-income tax costs, provision of government incentives and any other relevant costs and benefits associated with the arrangement, and • commercial, regulatory and tax advice relating to the arrangement or transaction and details of the people involved in putting that arrangement or transaction in place. • agreements between the relevant entities in relation to the arrangement (such as product agreements, service agreements and shareholder agreements) • documents relating to the flow of payments between the relevant entities (such as documentation regarding dividend distributions or royalties) • documents relating to the funding of the arrangement (such as intra-group loan agreements) • written communications (including emails) between the key personnel involved in the establishment of the arrangement • presentations and other papers relating to the arrangement or transaction as disseminated to the taxpayer's senior management team and board of directors • physical or electronic documents that evidence an intention, election, choice or rule for the taxpayer's management team and board of directors to meet in a specific country or countries • minutes of board and other meetings at which the arrangement or transaction was considered • internal cost-benefit analyses – this could include quantifiable productivity gains, cost savings, synergistic benefits, location-specific benefits, reduction of non-income tax costs, provision of government incentives and any other relevant costs and benefits associated with the arrangement, and • commercial, regulatory and tax advice relating to the arrangement or transaction and details of the people involved in putting that arrangement or transaction in place. | 7. MLI PPT – background and relevant considerations: This section focuses on the PPT in the MLI. It does not deal with other purpose tests included in our bilateral tax treaties. Background to the MLI and the MLI PPT The MLI is a key outcome of the Organisation for Economic Co-operation and Development (OECD)/G20 Base Erosion and Profit Shifting (BEPS) project. [11] It enables countries to swiftly modify the operation of their tax treaties to implement a series of measures that were developed in the course of the BEPS project. Jurisdictions that sign the MLI are required to nominate which tax treaties they want the MLI to apply to. The MLI only modifies the operation of an agreement if each party to the agreement specifically identifies it in a notification to the OECD Depositary. [12] A CTA is a double-tax agreement that will have its operation modified by the MLI. The date of effect of the MLI for each CTA depends on when it has come into force in both jurisdictions. The MLI came into force for Australia on 1 January 2019. Therefore, the earliest the MLI may take effect for Australia is: • for withholding taxes, on income derived on or after 1 January 2019 • for all other taxes, for income years starting on or after 1 July 2019, and • for dispute resolution, generally on or after 1 January 2019. • for withholding taxes, on income derived on or after 1 January 2019 • for all other taxes, for income years starting on or after 1 July 2019, and • for dispute resolution, generally on or after 1 January 2019. Given the flexibility provided by the MLI, the extent to which the operation of each CTA is modified depends on the choices, notifications and reservations of each jurisdiction. However, certain articles of the MLI enable jurisdictions to meet minimum standards under various OECD/G20 BEPS project actions. Those articles must be adopted by members of the OECD/G20 BEPS project. In particular, OECD/G20 BEPS project Action 6 (BEPS Action 6) [13] identified treaty abuse, including treaty shopping, as a significant cause of concern. The minimum standard for the prevention of treaty abuse under BEPS Action 6 requires jurisdictions to include an express statement in their tax treaties [14] : ... that their common intention is to eliminate double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance, including through treaty-shopping arrangements. Paragraph 1 of Article 6 of the MLI modifies the operation of Australia's CTAs to include preamble text which meets this standard. The minimum standard under BEPS Action 6 also requires that jurisdictions include in their tax treaties: • a PPT only • a PPT and either a simplified or detailed limitation on benefits provision, or • a detailed limitation on benefits provision supplemented by a mechanism that deals with conduit financing arrangements not already addressed in their tax treaties. [15] • a PPT only • a PPT and either a simplified or detailed limitation on benefits provision, or • a detailed limitation on benefits provision supplemented by a mechanism that deals with conduit financing arrangements not already addressed in their tax treaties. [15] Because a PPT is the only approach that can satisfy the minimum standard on its own, it is presented as the default option in the MLI. Australia has adopted the PPT under the MLI. The MLI PPT is set out in paragraph 1 of Article 7 of the MLI: Notwithstanding any provisions of a Covered Tax Agreement, a benefit under the Covered Tax Agreement shall not be granted in respect of an item of income or capital if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the Covered Tax Agreement. Australia has also adopted the associated rule provided for under paragraph 4 of Article 7 of the MLI which enables treaty benefits to be granted in certain circumstances, notwithstanding the application of the MLI PPT: Where a benefit under a Covered Tax Agreement is denied to a person under provisions of the Covered Tax Agreement (as it may be modified by this Convention) that deny all or part of the benefits that would otherwise be provided under the Covered Tax Agreement where the principal purpose or one of the principal purposes of any arrangement or transaction, or of any person concerned with an arrangement or transaction, was to obtain those benefits, the competent authority of the Contracting Jurisdiction that would otherwise have granted this benefit shall nevertheless treat that person as being entitled to this benefit, or to different benefits with respect to a specific item of income or capital, if such competent authority, upon request from that person and after consideration of the relevant facts and circumstances, determines that such benefits would have been granted to that person in the absence of the transaction or arrangement. The competent authority of the Contracting Jurisdiction to which a request has been made under this paragraph by a resident of the other Contracting Jurisdiction shall consult with the competent authority of that other Contracting Jurisdiction before rejecting the request. The application of paragraph 4 of Article 7 of the MLI to a particular CTA will depend on whether the other Contracting Jurisdiction has also chosen to adopt it. Considerations that may be relevant when considering the application of the MLI PPT Some of the considerations that may be relevant when you are considering the application of the MLI PPT include: • the ATO's views on interpreting double-tax agreements • benefits to which the MLI PPT may apply • one of the principal purposes – obtaining a benefit contrary to the object and purpose of the relevant provisions of the CTA, and • granting a benefit under the discretion in paragraph 4 of Article 7 of the MLI. • the ATO's views on interpreting double-tax agreements • benefits to which the MLI PPT may apply • one of the principal purposes – obtaining a benefit contrary to the object and purpose of the relevant provisions of the CTA, and • granting a benefit under the discretion in paragraph 4 of Article 7 of the MLI. The matters discussed are not exhaustive and are intended to serve as a general guide only. You must consider whatever additional matters are relevant to the circumstances of each case. ATO's views on interpreting double-tax agreements The ATO's views on interpreting double-tax agreements, including general treaty interpretation rules, are provided in Taxation Ruling TR 2001/13 Income tax: Interpreting Australia's Double Tax Agreements . In accordance with the principles outlined in TR 2001/13, the MLI (including the MLI PPT) is interpreted in good faith in accordance with the ordinary meaning of the terms of the treaty in their context and in light of its object and purpose. The object and purpose of the MLI is to implement the tax treaty-related BEPS measures. [16] Therefore, the commentary in the final OECD/G20 BEPS package, including the Action 6 Report, is relevant guidance material. [17] The Commentaries on the OECD Model Tax Convention on Income and on Capital [18] (MTC) are also relevant for interpreting Australia's CTAs to the extent that they are based on the MTC. [19] The Action 6 Report acknowledges that implementation of the final OECD/G20 BEPS package requires changes to existing bilateral tax conventions, as well as changes to the MTC. To the extent the provisions are equivalent, the Commentary on the PPT in the MTC [20] can be used as a supplementary means of interpretation for the MLI PPT. [21] The MTC commentary and the Action 6 Report include examples. [22] These may be useful in assessing whether the MLI PPT applies to an arrangement or transaction. However, the examples are explicitly stated to be purely illustrative and should not be interpreted as providing conditions or requirements for similar transactions to satisfy in order to avoid the application of the MLI PPT. You must consider whether the MLI PPT applies to deny a treaty benefit under an arrangement having regard to all relevant facts and circumstances. Benefits to which the MLI PPT may apply The MLI PPT can potentially apply to any 'benefit' under a CTA. Depending on the relevant arrangement being considered, it may include a limitation on the taxing rights of a source jurisdiction (such as a tax reduction, exemption, deferral or refund), or the relief from double taxation provided to residents. It may also include the protection afforded to residents and nationals of a jurisdiction under non-discrimination articles or any other similar limitations. Some examples of limitations on Australia's source-country taxing rights under a CTA are the limited tax rates that apply in respect of dividends, interest and royalties and the restriction on taxing business profits of an enterprise of another jurisdiction (unless such profits are attributable to a permanent establishment in Australia). Unlike the basis for establishing whether there is a tax benefit for the purpose of Part IVA, the identification of a benefit for the purpose of applying the MLI PPT does not require consideration of an alternative postulate. [23] One of the principal purposes – obtaining a benefit contrary to the object and purpose of the Covered Tax Agreement The MLI PPT does not list specific matters to be considered in drawing a conclusion about purpose. The purposes of the arrangement are to be determined having regard to 'all relevant facts and circumstances'. [24] Relevantly, it must be reasonable to conclude after an objective analysis of the relevant facts and circumstances that one of the principal purposes of the arrangement was to obtain a benefit under the CTA. The test is an examination of the arrangement itself, including the overt acts by which it was implemented, in order to ascertain its objective purposes. [25] An analysis is required to determine whether the arrangement exhibits (by contrivance, lack of substance, or otherwise) the requisite purpose of obtaining the relevant benefit, the granting of which would not be in accordance with the object and purpose of the CTA. A review of the objective evidence is necessary, having regard to: • the arrangement itself • its terms • what it achieves • what it was intended to effect • how it was implemented • the results which it is capable of producing • other possible ways of implementing the arrangement, and • other relevant facts and circumstances. • the arrangement itself • its terms • what it achieves • what it was intended to effect • how it was implemented • the results which it is capable of producing • other possible ways of implementing the arrangement, and • other relevant facts and circumstances. An arrangement may be reasonably explained by a number of purposes and it may have more than one principal purpose. In this context, 'principal' does not mean strictly 'first or highest in rank', but rather 'among the most important, prominent, leading, main'. [26] The reference to 'one of the principal purposes' means that obtaining the benefit under the CTA need not be the sole, or even the dominant, purpose of the particular arrangement. It is sufficient that at least one of the principal purposes was to obtain the treaty benefit, even if that was not the dominant purpose. This means that an arrangement may attract the operation of the MLI PPT even where it attains commercial objectives and is consistent with commercial gain. It is not necessary to show that the arrangement has no commercial substance or that its only effect is to obtain the benefit that arises under the CTA (obtaining the treaty benefit need not be the only reasonable explanation of the arrangement). Also, where one of the principal purposes of an arrangement is to obtain the relevant treaty benefit and another of its principal purposes is to achieve a particular commercial objective, the test will be met, without the need to determine which purpose is dominant. The text, context and purpose of the MLI PPT make clear that it is not a sole, dominant or primary purpose test. Where the arrangement may be fairly described as an ordinary commercial dealing [27] and no aspect of its form can only be explained by the obtaining of a treaty benefit, the arrangement will not have the requisite purpose even though its effect may be to obtain a treaty benefit. Where, however, it is reasonable to conclude that the arrangement was implemented in a particular way so as to obtain a treaty benefit, it may then be concluded that one of the principal purposes of the arrangement was to obtain that benefit, regardless of the existence of any other commercial purposes of the arrangement. As noted under ' Benefits to which the MLI PPT may apply ' in Section 7 of this Practice Statement, there is no requirement to consider an alternative postulate in determining whether there is a benefit for the purposes of applying the MLI PPT. However, it may be useful to consider other possible ways of implementing the relevant arrangement as this may cast light on its objective purposes. Like other anti-avoidance rules, the MLI PPT seeks to distinguish arrangements entered into or carried out for the purpose of obtaining treaty benefits that are consistent with the object of the treaty, from arrangements used to secure treaty benefits by a means that amounts to an improper use of the treaty, or treaty abuse. Both the text of the MLI and its commentary express this important distinction. Thus, the MLI PPT will not operate to deny a benefit if granting that benefit in the relevant circumstances 'would be in accordance with the object and purpose' of the CTA. This ensures that the treaty applies in accordance with the purpose for which it was entered into, that is, to provide benefits in respect of bona fide exchanges of goods and services, and movements of capital and persons, as opposed to arrangements whose principal objective is to secure a more favourable tax treatment. [28] It also makes clear that the MLI PPT will not apply where an arrangement has been adopted merely with an eye to its tax advantages, unless it amounts to an abuse of the treaty. In applying the MLI PPT, the tests relating to the 'principal purposes' of an arrangement and the 'object and purpose' of the CTA should be read together. Although the MLI PPT expresses the distinction between arrangements that amount to treaty abuse and those that do not, it should be understood that in practice: • obtaining a treaty benefit by a means consistent with the purpose for which it is conferred will not exhibit the requisite purpose to attract the MLI PPT, and • conversely, granting a treaty benefit resulting from an arrangement which exhibits on its face the requisite purpose would not accord with the object and purpose of the provisions of the CTA. • obtaining a treaty benefit by a means consistent with the purpose for which it is conferred will not exhibit the requisite purpose to attract the MLI PPT, and • conversely, granting a treaty benefit resulting from an arrangement which exhibits on its face the requisite purpose would not accord with the object and purpose of the provisions of the CTA. The preamble to the relevant CTA (as modified by the MLI), in which the Contracting States express their intention not to create '... opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements ...)', will be important in determining whether it would be contrary to the object and purpose of the provisions of the CTA to grant a benefit. Where the MLI PPT applies to deny a treaty benefit in a particular case, Part IVA may still apply either: • in the alternative to the application of the MLI PPT, or • in addition to the MLI PPT – that is, to cancel any tax benefit remaining after the application of the MLI PPT. [29] • in the alternative to the application of the MLI PPT, or • in addition to the MLI PPT – that is, to cancel any tax benefit remaining after the application of the MLI PPT. [29] Discretion in paragraph 4 of Article 7 of the MLI Where a person is denied a benefit under the MLI PPT, paragraph 4 of Article 7 of the MLI provides that person shall nevertheless be treated as being entitled to the benefit, or to different benefits under the CTA, if, upon request and after consideration of the relevant facts and circumstances, the relevant competent authority determines that such benefits would have been granted to the person in the absence of the relevant transaction or arrangement. Although the provision provides a broad discretion to the competent authority, it has notable limitations. It does not enable the competent authority to grant benefits to any person other than the taxpayer, or to grant benefits that may have been available under a different treaty. Further, it does not provide a general power of reconstruction. Determining what benefits would have been granted to the person under the CTA in the 'absence of' the relevant arrangement requires a consideration of the actual facts but for the impugned arrangement. The discretion is not available to grant a treaty benefit that might have resulted from a different arrangement. However, it may be possible to identify an 'arrangement' for the purposes of the MLI PPT in such a way that, if disregarded, leaves standing other facts that would give rise to a treaty benefit. In other words, it may be possible to shear an underlying larger arrangement of its objectionable features. The discretion will also be available where the impugned arrangement replaced an existing arrangement between the same parties in the same jurisdiction where a benefit would have been granted to the person under the CTA. It can then be said that the benefit would have been available if the impugned arrangement had not been entered into, and the original arrangement had remained in place. In determining what benefits would have been granted in the absence of the impugned arrangement, you must take into account whether the MLI PPT would have also applied to the remaining facts. | 8. More information: For more information, see: • Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting • Explanatory Statement to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting • Treasury Laws Amendment (OECD Multilateral Instrument) Act 2018 • Explanatory Memorandum to the Treasury Laws Amendment (OECD Multilateral Instrument) Bill 2018 • Model Tax Convention on Income and on Capital: Condensed Version 2017 . • Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting • Explanatory Statement to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting • Treasury Laws Amendment (OECD Multilateral Instrument) Act 2018 • Explanatory Memorandum to the Treasury Laws Amendment (OECD Multilateral Instrument) Bill 2018 • Model Tax Convention on Income and on Capital: Condensed Version 2017 .",Treasury Laws Amendment (OECD Multilateral Instrument) Act 2018 | Explanatory Memorandum to the Treasury Laws Amendment (OECD Multilateral Instrument) Bill 2018 | TR 2001/13 | LCR 2015/2 | PS LA 2005/24 | PS LA 2012/1 | PS LA 2015/4 | Agreement between Australia and the Federal Republic of Germany for the Elimination of Double Taxation with respect to Taxes on Income and on Capital and the Prevention of Fiscal Evasion and Avoidance [2016] ATS 23 | Convention between the Government of Australia and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital Gains [2003] ATS 22 | ITAA 1936 Pt IVA | ITAA 1936 177B(1) | ITAA 1936 177D | ITAA 1936 177DA | ITAA 1936 177J | International Tax Agreements Act 1953 4(2) | 85 ATC 4765 | 98 CLR 1 | 37 ATC 245 | [1958] AC 450 | [1958] ALR 833,PS LA 2005/24 PS LA 2012/1 PS LA 2015/4,ITAA 1936 Pt IVA | ITAA 1936 177B(1) | ITAA 1936 177D | ITAA 1936 177DA | ITAA 1936 177J | International Tax Agreements Act 1953 4(2),,"Agreement between Australia and the Federal Republic of Germany for the Elimination of Double Taxation with respect to Taxes on Income and on Capital and the Prevention of Fiscal Evasion and Avoidance [2016] ATS 23 Base erosion and profit shifting (BEPS) Convention between the Government of Australia and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital Gains [2003] ATS 22 Treasury Laws Amendment (OECD Multilateral Instrument) Act 2018 Explanatory Memorandum to the Treasury Laws Amendment (OECD Multilateral Instrument) Bill 2018 Explanatory Statement to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting Model Tax Convention on Income and on Capital: Condensed Version 2017 Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting Mutual agreement procedure OECD (2017) Model Tax Convention on Income and on Capital: Condensed Version 2017, OECD Publishing, Paris, https://doi.org/10.1787/mtc_cond-2017-en OECD (2015) Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 – 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris, https://doi.org/10.1787/9789264241695-en Treaties Consultation Unit (link available internally only)",False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20202/NAT/ATO/00001,"2. What should you do if you consider that a purpose test may apply? | Updated in line with current ATO style and accessibility requirements. | Delete 'varying the foreign resident withholding amount' | [2] A CTA is a double-tax agreement that has its operation modified by the MLI. | [3] For example, paragraph 2 of Article 23 of the Agreement between Australia and the Federal Republic of Germany for the Elimination of Double Taxation with respect to Taxes on Income and on Capital and the Prevention of Fiscal Evasion and Avoidance [2016] ATS 23. | [4] An MPT has the effect of denying the benefits of a specific Article of a tax treaty (generally in relation to dividends, interest or royalties) that restricts source taxation where obtaining those benefits was the main purpose (or one of the main purposes) of any person concerned with the creation or assignment of the property or rights in respect of which the relevant income is paid. For example, paragraph 7 of Article 10, paragraph 9 of Article11 and paragraph 7 of Article12 of the Convention between the Government of Australia and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital Gains [2003] ATS 22, prior to the modifications by the MLI. | [5] The Treaties Consultation Unit in the International, Support and Programs business line. | [6] Refer to Law Administration Practice Statement PS LA 2005/24 Application of General Anti-Avoidance Rules . | [7] Refer to PS LA 2005/24. | [8] Unlike, for example, Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936). | [9] InternationalsGatekeeper@ato.gov.au . | [10] Treaty shopping is a type of treaty abuse. It involves arrangements through which a person who is not a resident of a State might transfer its residence to that State or establish another entity as a resident of that State, in order to reduce or eliminate taxation in another State through the benefits of a treaty concluded between the 2 States. | [11] Actions which have been developed in the context of this project are available at Base erosion and profit shifting (BEPS) . Details of the Group of Twenty (G20) is available at Overview – G20 . | [12] Article 1 and subparagraph 1(a) of Article 2 of the MLI. | [13] Refer Base erosion and profit shifting (BEPS) . Action 6 culminated in the following report: OECD (2015) Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, Action 6 – 2015 Final Report , OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris, https://doi.org/10.1787/9789264241695-en (Action 6 report). Action 6 of the OECD/G20 BEPS project aims to prevent the granting of benefits in situations where those benefits were not intended to be granted, which includes treaty abuse and treaty shopping (see the Executive Summary of the Action 6 report, p. 9). | [14] Executive Summary of the Action 6 Report, p. 10. | [15] Executive Summary of the Action 6 Report, p. 10. | [16] As reflected in the preamble to the MLI. | [17] Paragraph 12 of the Explanatory Statement to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting . | [18] OECD (2017) Model Tax Convention on Income and on Capital: Condensed Version 2017 , OECD Publishing, Paris, https://doi.org/10.1787/mtc_cond-2017-en . | [19] TR 2001/13 provides guidance on when subsequent changes to OECD Commentaries could be used as an aid to interpretation. | [20] Paragraph 9 of Article 29 (Entitlement to Benefits) of the MTC, which was inserted to give effect to the Action 6 Report. The Commentary on paragraph 9 of Article 29 of the MTC largely reflects the content of the Action 6 Report. Hereafter, instead of referencing both the Action 6 Report and the Commentary of the MTC, for convenience only the Commentary is referenced. Where paragraph references are provided, these are to the 2017 version of the Commentary. | [21] The Commentary on paragraph 9 of Article 29 of the MTC is of particular relevance. | [22] The examples commence at paragraph 182 of the Commentary on paragraph 9 of Article 29 of the MTC. | [23] Also referred to as an 'alternative hypothesis' or 'counterfactual' in PS LA 2005/24. | [24] This is unlike sections 177D, 177DA and 177J in Part IVA of the ITAA 1936, which require that the purpose of the person or persons be objectively ascertained having regard to specified matters. | [25] In relation to the purpose of an arrangement see, for example, Newton v Federal Commissioner of Taxation [1958] UKPCHCA 1 at [8] and Commissioner of Taxation (Cth) v Gulland; Watson v Commissioner of Taxation (Cth); Pincus v Commissioner of Taxation (Cth) [1985] HCA 83. | [26] Refer to paragraphs 11 to 16 of Law Companion Ruling LCR 2015/2 Section 177DA of the Income Tax Assessment Act 1936: schemes that limit a taxable presence in Australia for guidance on a similar test 'a principal purpose of, or for more than one principal purpose that includes a purpose of'. | [27] That is, one that is not contrived, has economic substance, forms part of a presence in the jurisdiction that is involved in carrying on the core business activities of the entity or group that adds economic value. | [28] Paragraph 174 of the Commentary on paragraph 9 of Article 29 of the MTC. | [29] See subsection 177B(1) of the ITAA 1936, and subsection 4(2) of the International Tax Agreements Act 1953 . | File 1-K113R7S; 1-15RE083B | Commissioner of Taxation (Cth) v Gulland; Watson v Commissioner of Taxation (Cth); Pincus v Commissioner of Taxation (Cth) [1985] HCA 83 160 CLR 55 60 ALJR 150 62 ALR 545 17 ATR 1 85 ATC 4765 | Newton v Federal Commissioner of Taxation [1958] UKPCHCA 1 98 CLR 1 37 ATC 245 [1958] AC 450 [1958] ALR 833"
PS LA 2020/3,Self-managed superannuation funds - administrative penalties imposed under subsection 166(1) of the Superannuation Industry (Supervision) Act 1993,15 October 2020,15 October 2020,Law Administration Practice Statement,False,"1. What this Practice Statement is about: The purpose of this Practice Statement is to provide guidance on: • when an entity becomes liable to one or more administrative penalties under the Superannuation Industry (Supervision) Act 1993 (SISA) • which entities are liable to pay the administrative penalty • the Commissioner of Taxation's remission considerations, and • objection, review and appeal rights relating to the remission decision. • when an entity becomes liable to one or more administrative penalties under the Superannuation Industry (Supervision) Act 1993 (SISA) • which entities are liable to pay the administrative penalty • the Commissioner of Taxation's remission considerations, and • objection, review and appeal rights relating to the remission decision. All legislative references in this Practice Statement are to the SISA, unless otherwise indicated. The SISA provides rules that the trustees of self-managed superannuation funds (SMSF) must comply with. Division 3 of Part 20 sets out the general rules for imposition of the administrative penalties. The imposition of administrative penalties If a trustee contravenes a provision listed in section 166, an administrative penalty [1] is imposed by the law. Administrative penalties apply to contraventions which occur on or after 1 July 2014. Contraventions which occur prior to 1 July 2014 may constitute an offence which has criminal or civil consequences. A contravention occurs at a point in time. There is no one continuing contravention which carries over successive financial years. There may, however, be circumstances when a contravention remains unrectified at the end of a financial year. For some contraventions, this causes an additional separate contravention at the start of the following financial year. You must identify the contraventions that occur on or after 1 July 2014. The SISA sets out who is liable to the penalty, noting that the liability cannot be reimbursed from the SMSF. The penalty is imposed at the time of the contravention on the following persons: • a current or former individual trustee of an SMSF • a director of a body corporate that is or was a trustee of an SMSF. • a current or former individual trustee of an SMSF • a director of a body corporate that is or was a trustee of an SMSF. The Commissioner has the discretion to remit an administrative penalty imposed under section 166. [2] You may decide that full remission, partial remission or no remission of the penalty is appropriate based on the individual circumstances of the case. | 2. Compliance treatments – general principles: The penalties, in conjunction with other compliance treatments under the SISA, give us effective, flexible and cost-effective mechanisms for applying appropriate sanctions. You are not precluded from applying one or more compliance treatments within the one case. The appropriate compliance treatment depends on the circumstances of each case. Any one or more of the following compliance treatments may also be appropriate: • issuing a direction to educate [3] • accepting an enforceable undertaking [4] • issuing a direction to rectify [5] • disqualifying an individual and prohibiting them from acting as a trustee of a super fund or as a responsible officer of a corporate trustee of a super fund [6] • issuing a notice of non-compliance to the fund [7] • seeking civil or criminal penalties through the courts. [8] • issuing a direction to educate [3] • accepting an enforceable undertaking [4] • issuing a direction to rectify [5] • disqualifying an individual and prohibiting them from acting as a trustee of a super fund or as a responsible officer of a corporate trustee of a super fund [6] • issuing a notice of non-compliance to the fund [7] • seeking civil or criminal penalties through the courts. [8] The following are relevant when administering these penalties (including in any review process undertaken): • The principles underpinning the Compliance model require us to be fair to those trustees wanting to do the right thing and being firm but fair with those choosing to disengage and avoid their taxation obligations. • Our Charter requires us to treat a trustee as being honest. We accept that what they have told us is the truth and the information they have provided is complete and accurate unless we have reason to think otherwise. • Decisions must be supported by the available facts and evidence. Conclusions about the trustee's actions or behaviour should only be made where they are supported by facts or can be reasonably inferred from those facts. • The trustee will be invited to explain their actions before the remission decision is finalised and they may exercise their right to object to our penalty decision. • We need to be mindful of our commitment to avoid or resolve disputes as early as possible in accordance with the Disputes policy and annual Dispute management plan. [9] • The principles underpinning the Compliance model require us to be fair to those trustees wanting to do the right thing and being firm but fair with those choosing to disengage and avoid their taxation obligations. • Our Charter requires us to treat a trustee as being honest. We accept that what they have told us is the truth and the information they have provided is complete and accurate unless we have reason to think otherwise. • Decisions must be supported by the available facts and evidence. Conclusions about the trustee's actions or behaviour should only be made where they are supported by facts or can be reasonably inferred from those facts. • The trustee will be invited to explain their actions before the remission decision is finalised and they may exercise their right to object to our penalty decision. • We need to be mindful of our commitment to avoid or resolve disputes as early as possible in accordance with the Disputes policy and annual Dispute management plan. [9] | 3. Administering the penalty: There are 4 basic steps in administering the penalty imposed under section 166: • step 1: determine if a penalty is imposed by law • step 2: determine who is liable to the penalty • step 3: determine if remission is appropriate • step 4: notify each trustee or each director of the corporate trustee of the liability to pay the penalty. • step 1: determine if a penalty is imposed by law • step 2: determine who is liable to the penalty • step 3: determine if remission is appropriate • step 4: notify each trustee or each director of the corporate trustee of the liability to pay the penalty. | 4. Our approach to administering the penalty: Step 1: determine if a penalty has been imposed by law Once a contravention of a relevant provision listed in section 166 occurs, the law imposes a penalty. Section 166 sets out the amount of the penalty imposed each time a listed provision is contravened. Step 2: determine who is liable to the penalty The penalty cannot be paid using the SMSF's resources. You need to work out who is liable to pay the penalty. This will be determined by the type of trustee the fund has and who the penalty was imposed on. Corporate trustee If a penalty is imposed on a trustee that is a body corporate, then the directors of that body corporate are jointly and severally liable to pay the penalty. [10] This means that any amount paid by one of the directors will reduce the amount that the other directors need to pay by the same extent. The penalty is paid when one or more of the directors make payments totalling the full amount. Where the corporate trustee has been deregistered or wound up, the director's obligations to pay the penalty persists, separately and independently of the existence of the corporate trustee. Individual as trustee If the SMSF has individual trustees, separate penalties are imposed on each individual trustee. Each trustee is personally liable to pay any penalty imposed. If an individual trustee joins an SMSF after the relevant contraventions have occurred, that trustee is not responsible for the contravention and the administrative penalty will not be imposed. Individual as director A penalty may be imposed on an individual as a director for contraventions of paragraph 103(2)(a), subsection 104A(2) and subsection 160(4). If the penalty has been imposed on an individual director, that director is personally liable to pay the penalty. Step 3: determine if remission is appropriate You must make a remission decision whenever penalties are imposed and the remission decision must be made separately for each trustee on whom a penalty is imposed. You have discretion to remit all, part or none of a penalty imposed under section 166. This discretion is 'unfettered', meaning that there is no legal restriction on when you can and cannot remit. Remission provides the administrative flexibility to ensure that the penalty imposed is appropriate for the observed behaviour. You need to consider the following factors when making your remission decision. These are not exhaustive and are not intended to prescribe the only relevant factors.They are intended to encourage an analytical approach to each case and the application of sound judgment in making a remission decision. The purpose of the penalty provision You must have regard to the purpose of the provision. The main objectives of the provision are to: • encourage greater levels of voluntary compliance by ensuring that there are consequences for non-compliance appropriate to the conduct • promote consistent treatment by specifying the amount of penalty for each relevant contravention • shift the behaviour of trustees so they do not contravene again. • encourage greater levels of voluntary compliance by ensuring that there are consequences for non-compliance appropriate to the conduct • promote consistent treatment by specifying the amount of penalty for each relevant contravention • shift the behaviour of trustees so they do not contravene again. These objectives would be compromised if the amount of penalties specified in the law were remitted without just cause, arbitrarily or as a matter of course. Trustee behaviour and circumstances You should consider if the trustee has acted in a way that would reasonably be expected of another trustee in the same circumstances. The fact that the trustee genuinely tried to act with care and diligence is not the test. A trustee who acted in accordance with paragraph 52B(2)(b) by exercising the same degree of care, skill and diligence as an ordinary, prudent person would exercise in dealing with property of another for whom the person felt morally bound to provide, would be considered to be acting reasonably. Your decision should take into account the individual circumstances of each case, giving appropriate consideration to the background and experience of the trustees and directors, as well as their intentions surrounding the circumstances of the contravention. In considering this factor, it should be acknowledged that all trustees and directors of corporate trustees of SMSFs are required to sign a declaration upon setting up their SMSF that they understand their duties. Furthermore, all trustees are subject to other covenants under section 52B and fiduciary duties and obligations under general trust law. Each trustee is ultimately personally responsible for ensuring their fund complies with the SISA and other relevant legislation. With respect to the trustee's behaviour or circumstances, you may also consider the following as relevant factors: • the compliance history of the trustee or director of a corporate trustee of an SMSF, in their capacity as trustee • whether rectification has occurred or the trustee is in the process of rectifying before any contact by us • whether the trustees made a voluntary disclosure before any contact by us • whether there were circumstances beyond the trustee's control that - caused the contravention - affected their ability to comply with their regulatory obligations, or - impacted on their capacity to rectify any contraventions. • the compliance history of the trustee or director of a corporate trustee of an SMSF, in their capacity as trustee • whether rectification has occurred or the trustee is in the process of rectifying before any contact by us • whether the trustees made a voluntary disclosure before any contact by us • whether there were circumstances beyond the trustee's control that - caused the contravention - affected their ability to comply with their regulatory obligations, or - impacted on their capacity to rectify any contraventions. - caused the contravention - affected their ability to comply with their regulatory obligations, or - impacted on their capacity to rectify any contraventions. Seriousness of the contravention When considering whether to remit in full, in part or not at all, you should consider the scale and impact of the contravention on the SMSF. The following are examples of factors that could be considered: • To what extent were the fund's assets affected? • Over what period of time did the contraventions occur? • To what extent were the fund's assets affected? • Over what period of time did the contraventions occur? Multiple penalties In some circumstances, the trustee's behaviour may result in more than one administrative penalty applying under the law. Consider whether the cumulative penalty is defensible, proper and just, having regard to the overall circumstances of the case. For example, did the multiple penalties arise from a single course of conduct or a particular event? Multiple breaches of the same provision In some cases, a single course of conduct or behaviour may result in multiple penalties being imposed from multiple contraventions of the same provision. Such circumstances may warrant penalty remission if the cumulative penalty is considered otherwise inappropriate (refer to Example 8 of this Practice Statement). Multiple provisions breached An unjust result may also occur in situations where multiple administrative penalties are imposed when a particular event results in contraventions of more than one provision. Table 1 of this Practice Statement lists examples of possible circumstances where multiple penalties could arise under more than one provision due to a particular event, noting this is not an exhaustive list: Table 1: Example – multiple penalties may apply Circumstances or event Contravening provisions Primary contravening provision A loan to member or relative that was greater than 5% of the fund's assets Subsection 65(1) for the loan and subsection 84(1) for the in-house asset Subsection 65(1) Access to member benefits without meeting a condition of release Subsection 34(1) for operating standards and subsection 65(1) for financial assistance Subsection 34(1) If one particular event results in multiple penalties under more than one provision, we would generally remit to a level reflecting the primary contravention. The primary contravention is determined by considering the behaviour and intention of the trustees. Referring to Table 1 of this Practice Statement, in the first example of a loan, the in-house asset breach is considered the secondary breach as it only occurs because of the primary contravention of loaning money to a member or relative. In the second example, financial assistance is considered to be the secondary breach as it only occurred because of the primary contravention of the operating standards when member benefit payments did not meet a condition of release, that is, illegal early release occurred. However, this depends on the circumstances of the case. For example, a remission should generally not be granted simply on the basis that multiple penalties exist, particularly in instances of fraud, evasion or egregious contraventions. Any further remission of the penalty in relation to the primary contravention could then be assessed against the remaining penalty in line with the considerations outlined in this section (refer to Example 7 of this Practice Statement). Unintended or unjust results Your decision needs to be fair and reasonable and ensure that the prescribed amount of penalty does not cause unintended or unjust results. You must ensure the cumulative penalty imposed on a trustee or director is appropriate. For example, a penalty may be considered unjust where it is so large as to be excessive in light of the purpose of the penalty provision, the circumstances and behaviour of the trustee, the seriousness of the contravention and the size of the fund. Step 4: notify each trustee and director of the liability to pay the penalty You must give a written notice to the trustee or director informing them of their liability to pay the penalty and of the reason they are liable to pay the penalty. If the penalty has not been remitted in full, you must also provide an explanation of why this has not occurred either before, or at the same time. You must ensure the reasons are supplied at or before the time the trustee or director receives the written notice. | 5. Review rights available to the trustee or director: A trustee or director who is dissatisfied with a decision to refuse to remit, in full or in part, an amount of penalty may object in the manner set out in Part IVC of the TAA if the amount of penalty remaining after the decision is more than 2 penalty units. If dissatisfied with an objection decision by the Commissioner, the trustee may apply to the Administrative Review Tribunal for review of the objection decision or appeal to the Federal Court of Australia against the objection decision. [11] Where a remission decision cannot be reviewed by objection (for example, if the amount of penalty that remains payable after the remission decision is 2 penalty units or less), the entity may seek a review of the decision under the Administrative Decisions (Judicial Review) Act 1977. | 6. More information: For more information, see: • PS LA 2006/18 Self-managed superannuation funds – enforceable undertakings • PS LA 2006/19 Self-managed superannuation funds – issuing a notice of non-compliance • PS LA 2008/3 Provision of advice and guidance by the ATO • PS LA 2013/3 Alternative Dispute Resolution (ADR) in ATO disputes • Resolving disputes • Our service principles • Eligibility to lodge an objection • Our Charter . • PS LA 2006/18 Self-managed superannuation funds – enforceable undertakings • PS LA 2006/19 Self-managed superannuation funds – issuing a notice of non-compliance • PS LA 2008/3 Provision of advice and guidance by the ATO • PS LA 2013/3 Alternative Dispute Resolution (ADR) in ATO disputes • Resolving disputes • Our service principles • Eligibility to lodge an objection • Our Charter . When considering these examples, remember that you may apply more than one compliance treatment in each case. Depending on the circumstances, it may be appropriate for you to apply a combination of enforcement responses. The following examples of administrative penalty considerations are indicative only. Other regulatory and income tax consequences may also arise in some of these examples and should be considered separately. These examples only address the treatment of administrative penalties under the SISA. Examples – imposition of administrative penalty Administrative penalties under section 166 can only apply to contraventions which occur on or after 1 July 2014. Contraventions which occur prior to 1 July 2014 may constitute an offence which has criminal or civil consequences. Example 1 – loan to a member and financial assistance given An SMSF makes a loan to a member on 31 December 2013 in contravention of paragraph 65(1)(a). The loan remains fully outstanding as at 1 June 2015, when an ATO audit commences. The contravention relating to the loan occurred before 1 July 2014, so no administrative penalty can be imposed for this breach. The trustee does not seek repayment of the loan during the 2013–14 or 2014–15 financial years. From documentation provided, the case officer is satisfied that a loan is still in place. By delaying any recovery action, the trustee is considered to have provided financial assistance and therefore contravened paragraph 65(1)(b). From 1 July 2014, every occasion where the trustee fails to follow up a loan repayment, in accordance with the loan repayment schedule, constitutes a contravention of paragraph 65(1)(b). That is, if the loan repayment schedule illustrated that 6 repayments were not followed up from 1 July 2014, then an administrative penalty of 360 penalty units is imposed (6 × 60 penalty units). As noted in Example 8 of this Practice Statement, it may be appropriate to consider remission of those multiple penalties on the basis the paragraph 65(1)(b) contraventions were the result of a single course of conduct or behaviour. Example 2 – loan to a member and no financial assistance given Similar to Example 1, an SMSF made a loan to a member on 31 December 2013 in contravention of paragraph 65(1)(a). An audit commences on 1 June 2015 and the trustees provide a copy of the loan repayment schedule, which illustrates the loan was to be repaid including appropriate interest over a 24-month period starting in January 2014, with a final repayment due in December 2015. Even though a portion of the loan remains outstanding at the time of the audit, all the required payments were made on time. In this situation, there has not been a contravention of paragraph 65(1)(b) as the repayments were in accordance with the loan repayment schedule. Therefore, no administrative penalties will apply in the 2014–15 financial year. Example 3 – borrowing and maintaining a borrowing The trustee of an SMSF borrows money on 1 January 2013 in contravention of paragraph 67(1)(a). The borrowing agreement requires the SMSF to repay the borrowing including appropriate interest by 31 December 2013. No repayments have been made to the lender, therefore the borrowing remains outstanding. No administrative penalty can be applied for the original contravention as it occurred prior to 1 July 2014. The fund is audited on 7 July 2015. The case officer notes the fund is still maintaining the borrowing which occurred in the 2013–14 financial year. By failing to make repayments in accordance with the terms of the borrowing agreement, the trustees have contravened paragraph 67(1)(b) for maintaining an existing borrowing in both the 2014–15 and 2015–16 financial years. Administrative penalties under section 166 of 60 penalty units are imposed for each year, resulting in a total imposed penalty of 120 units. Example 4 – joint and several liability, corporate trustee John and Christine are members of the JC SMSF and directors of the corporate trustee of the fund. In the 2018–19 financial year, the corporate trustee contravenes subsection 67(1) by allowing the fund to enter into a prohibited borrowing with John and Christine in their individual capacities. As a result, an administrative penalty of 60 penalty units is imposed on the corporate trustee. As directors of the corporate trustee, John and Christine are jointly and severally liable for payment of the penalty. Example 5 – personal liability, individual trustees Larry and Adam are members and trustees of the Redrock SMSF. In the 2019–20 financial year, an auditor contravention report finds that the trustees of the SMSF have contravened subsection 84(1) by providing a loan to a related company in excess of the in-house asset limits. Each trustee of the Redrock SMSF is individually liable for the full administrative penalty. The administrative penalty for this contravention is 60 penalty units. Larry and Adam are each issued a separate penalty notice for 60 penalty units. Example 6 – personal liability, directors of a corporate trustee Jim and Pete are members of the JP SMSF and directors of the body corporate that is the trustee of the fund, which is established in the 2017–18 financial year. Pete signs a declaration as required by paragraph 104A(2)(a) but Jim fails to do so. The administrative penalty for this contravention is 10 penalty units. Jim is issued with a penalty notice and is personally liable to pay the full amount. Example 6A – personal liability, directors of a deregistered corporate trustee JA SMSF is established in the 2020–21 financial year. Julie and Andrea are members of JA SMSF and are directors of the body corporate that was the trustee of the fund and which was deregistered in 2022–23 financial year. The fund contravened section 34 when most of the monies were illegally accessed by the members in the 2021–22 financial year. The administrative penalty for this contravention is 20 penalty units. Julie and Andrea are each issued with a penalty notice and are personally liable to pay the full amount. Examples – remission of administrative penalty Every remission decision must consider the specific circumstances of each case. Example 7 – illegal early release and financial assistance The trustees and members of the Jones Family Super Fund are Patrick Jones (47 years old) and Alicia Jones (43 years old). The fund has been in existence since 2005 and is a regulated SMSF. As at 30 June 2015, the fund's total assets were $150,000. An ATO audit reveals that the trustees authorised a single lump sum withdrawal of $50,000 from the fund's bank account in the 2015–16 financial year. This was the first time that a withdrawal was made from the fund and no other contraventions have been identified. The members had not met a condition of release and did not expect to repay the amount withdrawn. [12] The members have advised that the withdrawal was used to buy a new car. The trustees were aware of their obligations under the SISA; however, they stated they needed immediate accessible finance and could not obtain finance elsewhere. The trustees are liable to pay penalties for the 2015–16 financial year for: • contravening subsection 34(1) by paying super benefits to the members of the fund where a condition of release had not been met (20 penalty units), and • contravening paragraph 65(1)(b) by providing financial assistance to the members (60 penalty units). • contravening subsection 34(1) by paying super benefits to the members of the fund where a condition of release had not been met (20 penalty units), and • contravening paragraph 65(1)(b) by providing financial assistance to the members (60 penalty units). Identify the primary contravention As multiple penalties arose under different provisions from a particular event, the case officer determines the primary contravention occurs under subsection 34(1) (payment of super benefits to members where a condition of release has not been met). Accordingly, using the principles in Step 3 of this Practice Statement, the case officer remits the total penalty by 60 penalty units, which is an amount equivalent to that imposed under the secondary contravention of paragraph 65(1)(b) for the provision of financial assistance to members. Consider further remission The case officer then considers whether any further remission of the remaining 20 penalty units (equivalent to the penalty for the primary contravention under subsection 34(1)) is warranted. The case officer considers that the trustees' good compliance before the contravention is a factor that supports remission, but they consider this to be outweighed by the following factors: • the trustees were aware of the rules and knew they should not have withdrawn the money • the withdrawal was within the trustees' control • there are no events that affected the trustees' capacity to comply with their obligations • the trustees and members gained a benefit through a deliberate act • the seriousness of the contravention as the fund's assets were significantly affected. • the trustees were aware of the rules and knew they should not have withdrawn the money • the withdrawal was within the trustees' control • there are no events that affected the trustees' capacity to comply with their obligations • the trustees and members gained a benefit through a deliberate act • the seriousness of the contravention as the fund's assets were significantly affected. In coming to their decision, the case officer acknowledges that the penalty amounts are set within the SISA to promote consistent treatment of parties liable to the contravention. There were no mitigating factors which could be said to have caused the trustee's contravention and a reasonable trustee in this situation who was aware of the rules would not have paid a benefit where a condition of release was not met. Given this, the case officer decides that further remission is not appropriate. Example 8 – illegal early release and financial assistance (multiple withdrawals) The trustees of the PS Family Super Fund (established in 2007) authorise 10 withdrawals of $5,000 each from the fund's bank account in the 2015–16 financial year. The members advise that the withdrawals were used to buy a new car. They arranged to finance their purchase over 10 monthly payments commencing 1 August 2015. Each trustee is liable to pay administrative penalties of a total of 800 penalty units for the 2015–16 financial year for: • contravening subsection 34(1) by paying super benefits to the members of the fund where a condition of release had not been met 10 times (200 penalty units), and • contravening subsection 65(1) by providing financial assistance to the members 10 times (600 penalty units). Table 2: Penalty units and amount for contravention Contravention Penalty units Penalty amount Subsection 34(1) 10 × 20 = 200 $36,000 Subsection 65(1) 10 × 60 = 600 $108,000 TOTAL 800 $144,000 [13] • contravening subsection 34(1) by paying super benefits to the members of the fund where a condition of release had not been met 10 times (200 penalty units), and • contravening subsection 65(1) by providing financial assistance to the members 10 times (600 penalty units). Identify the primary contravention As multiple penalties arose from a particular event, the case officer determines the primary contravention occurs under subsection 34(1) – payment of super benefits to members where a condition of release has not been met. Accordingly, using the principles in Step 2 of this Practice Statement, the case officer remits the total penalty by 600 penalty units, which is an amount equivalent to that imposed under the secondary contravention of subsection 65(1) for the provision of financial assistance to members. Consider further remission The case officer then considers whether any further remission of the remaining 200 penalty units (equivalent to the cumulative penalty applied for the primary contravention under subsection 34(1)) is warranted. Because of the multiple withdrawals, the case officer considers the intention of the trustees at the time they made the withdrawals. They also consider the other factors of the case – similarly to Example 7 of this Practice Statement. In this case, the trustees withdrew $50,000 (to buy a car) over a number of transactions rather than one withdrawal, triggering multiple penalties from a single course of conduct or behaviour; that is, the purchase of a car. In circumstances such as this, further remission would be warranted to ensure that the cumulative penalty is fair and just by aligning the remission to a level equivalent to the penalty applied in Example 7 of this Practice Statement for a single contravention. This scenario must be distinguished from situations where the trustees' knowledge, actions and intentions clearly demonstrate a different level of culpability. For example, it is not appropriate to apply the approach in the previous paragraph when a trustee authorises access to money from their SMSF multiple times for separate courses of conduct. Example 9 – loans to members and in-house assets The trustees and members of the Smith Super Fund are John Smith (46 years old) and Jane Smith (41 years old). The fund has been in existence since 2004 and is a regulated SMSF with a previously good compliance history. Jane does not have a member balance; however, she was appointed as a trustee in 2013–14 when their son removed himself from the fund. John makes all decisions when it comes to the fund; he is aware of his trustee obligations and acknowledges full culpability for the course of conduct. During an ATO audit, John provided information to us advising of the following withdrawals from the fund's bank account: Table 3: Withdrawals from fund's bank account Financial year Date withdrawn Amount 2016–17 31 December 2016 $30,000 2017–18 31 July 2017 $50,000 TOTAL Not applicable $80,000 The fund's financial statements report the amounts withdrawn as loans to John. Each withdrawal from the fund was documented in a separate loan agreement, which included interest payments; those loan agreements were provided during audit. The following repayments of the principal loan amounts have been made over the course of the 2 financial years in accordance with the respective loan agreements and repayment schedules: Table 4: Repayments Financial year Terms of loan agreement Amount 2016–17 The loan started on 31 December 2016 and is to be repaid across the 2016–17 and 2017–18 financial years $15,000 2017–18 The loan started on 31 July 2017 and is to be repaid prior to the end of the 2017–18 financial year $65,000 TOTAL Not applicable $80,000 As a consequence of the loans, the fund's in-house asset percentage (IHA %) at the end of the relevant financial years were as follows: Table 5: In-house assets percentages Financial year In-house assets Total fund assets IHA % 2016–17 $15,000 $100,000 15% 2017–18 Nil $120,000 0% The trustees have multiple contraventions covering the 2016–17 and 2017–18 financial years. 2016–17 financial year Firstly, paragraph 65(1)(a) was contravened by lending money to a member of the fund. The case officer also determined the trustees have contravened subsection 84(1) by making the loan in the 2016–17 financial year, which exceeded the in-house assets limits (specific to subsection 83(3)). Each trustee is liable to a total of 120 penalty units (2 contraventions × 60 penalty units). See Table 6 of this Practice Statement for the penalty applied per trustee. Table 6: Trustee penalties Contravention Penalty units per contravention 2016–17 penalties Subsection 65(1) 60 1 × $10,800 Subsection 84(1) 60 1 × $10,800 TOTAL 120 $21,600 [14] Identify the primary contravention for the 2016–17 financial year As multiple penalties arise under different provisions from a particular event, the case officer determines the primary contravention occurs under paragraph 65(1)(a). Accordingly, using the principles in Step 3 of this Practice Statement, the case officer remits the total penalty applied by 60 penalty units ($10,800), which is an amount equivalent to the secondary contravention of the in-house asset rules. 2017–18 financial year Paragraph 65(1)(a) was again contravened when the fund loaned a further $50,000 to a member of the fund. The case officer again determines the trustees have contravened subsection 84(1) by making the loan when the fund's in-house assets already exceeded the 5% limits (specific to subsection 83(2)). Each trustee is liable to a total of 120 penalty units (2 contraventions × 60 penalty units). See Table 7 of this Practice Statement for the penalty applied per trustee. Table 7: Trustee penalties Contravention Penalty units per contravention 2017–18 penalties Subsection 65(1) 60 1 × $12,600 Subsection 84(1) 60 1 × $12,600 TOTAL 120 $25,200 [15] The circumstances for the 2017–18 financial year are identical to the 2016–17 financial year in regard to determining a primary and secondary contravention. The act of entering into a new loan to a member on 31 July 2017 results in a primary contravention of paragraph 65(1)(a) and, because that loan was made when the fund's in-house assets already exceeded the 5% limit, a secondary contravention of subsection 84(1) (specific to subsection 83(2)) occurred from the same event. Accordingly, using the principles in Step 2 of this Practice Statement, the case officer remits the total penalty applied by 60 penalty units ($12,600), which is an amount equivalent to the secondary contravention of the in-house asset rules. Consider further remission The case officer then considers whether any further remission of the remaining 120 penalty units per trustee, is appropriate. That is: • the remaining 60 penalty units ($10,800) equivalent to the penalty applied for the subsection 65(1) contravention in the 2016–17 financial year, and • the remaining 60 penalty units ($12,600) equivalent to the penalty applied for the subsection 65(1) contravention in the 2017–18 financial year. • the remaining 60 penalty units ($10,800) equivalent to the penalty applied for the subsection 65(1) contravention in the 2016–17 financial year, and • the remaining 60 penalty units ($12,600) equivalent to the penalty applied for the subsection 65(1) contravention in the 2017–18 financial year. The case officer considers that these 2 factors support remission: • The contraventions were rectified before the audit. • The trustees had a good compliance history before making the loans. • The contraventions were rectified before the audit. • The trustees had a good compliance history before making the loans. However, they consider these factors weigh against further remission: • John was aware of the rules and knew he should not have made loans to himself. • The loans made to the member were within the trustees' control. • No events affected the trustees' capacity to comply with their obligations. • The member gained a benefit through a deliberate act. • The penalty imposed, per trustee, is not unjust in light of the circumstances, including the amount of the residual penalty ($23,400) versus the value of the contravention ($80,000). • The contravention is not a one-off occurrence. There has been repeated poor behaviour, as multiple loans were made from the fund. The contraventions significantly impacted the fund assets. • John was aware of the rules and knew he should not have made loans to himself. • The loans made to the member were within the trustees' control. • No events affected the trustees' capacity to comply with their obligations. • The member gained a benefit through a deliberate act. • The penalty imposed, per trustee, is not unjust in light of the circumstances, including the amount of the residual penalty ($23,400) versus the value of the contravention ($80,000). • The contravention is not a one-off occurrence. There has been repeated poor behaviour, as multiple loans were made from the fund. The contraventions significantly impacted the fund assets. The rectification of the contravention before the audit should be acknowledged with some remission for both trustees; however, as both trustees were aware of their obligations prior to contravening the SISA multiple times, the case officer decides there are no grounds for further remission. Passivity is not an excuse and both trustees are equally responsible for ensuring appropriate controls are in place to mitigate contraventions and to ensure they are fully informed about the actions of the other trustee. Example 10 – loan to a member and financial assistance Katy and Jason are members of the Shamrock SMSF and directors of the corporate trustee of the fund. In June 2018, the SMSF makes a loan of $150,000 to Katy in contravention of section 65(1). The loan was made on arm's length terms, with a repayment schedule that determined that repayments were to be made on a monthly basis, with the loan scheduled to be repaid by the end of June 2020. The amount of the loan was less than 5% of the market value of the assets of the fund. An ATO audit commences in May 2019 and the case officer identifies that Katy had not adhered to the schedule of repayments on 4 occasions: • the repayment for July 2018 was made one week late • the repayment for November 2018 was made over 3 months late • the repayments for March 2019 and April 2019 have not been made and remain outstanding. • the repayment for July 2018 was made one week late • the repayment for November 2018 was made over 3 months late • the repayments for March 2019 and April 2019 have not been made and remain outstanding. In this case, there are 2 primary contraventions across multiple years. The act of entering into a loan to a member in June 2018 results in the first contravention (of paragraph 65(1)(a)) and the failure to seek recovery of the repayments of the loan in the subsequent year is the second contravention (of paragraph 65(1)(b)). 2017–18 financial year The making of the loan to Katy results in a contravention of paragraph 65(1)(a) and a penalty of 60 penalty units ($12,600 [16] ) in the 2017–18 financial year. 2018–19 financial year The case officer determines that, in relation to the repayments due in November 2018 and March 2019, there was a delay in taking recovery action when compared to usual commercial practices for collecting a debt of this type from an arm's length party. Each of these delays amounted to a separate provision of financial assistance in contravention of paragraph 65(1)(b). The case officer determines that there was no contravention in relation to the July 2018 repayment or the April 2019 repayment which has just become overdue, as it is within normal commercial practice not to pursue repayment within the first few weeks of a payment becoming overdue. As a result, the corporate trustee is liable to 180 (3 × 60) penalty units ($37,800) for the one contravention of paragraph 65(1)(a) and 2 contraventions of paragraph 65(1)(b); that is, November 2018 and March 2019. Consider remission in relation to each separate primary contravention The case officer determines that making the loan and delaying recovery action regarding the repayments are separate events. Therefore, there is no secondary contravention principle to be considered in relation to the remission of penalties. The trustees did not provide any reason or explanation to the case officer to justify any grounds for remission of penalties in relation to the first primary contravention. However, using the principles in Step 3 of this Practice Statement, the case officer identifies that it is appropriate to consider further remission in relation to the second primary contravention on the basis that there were multiple paragraph 65(1)(b) contraventions arising from the single overarching course of conduct of failing to pursue repayment. The trustees agree to implement processes to follow up overdue payments on a timelier basis. Accordingly, the case officer remits the overall penalty to 120 penalty units ($25,200), which is the level equivalent for one contravention of paragraph 65(1)(a) and one contravention of paragraph 65(1)(b). Table 8: Penalties incurred and remitted Financial year Primary contraventions Initial penalty Penalty after remission 2017–18 65(1)(a) 60 units 60 units 2018–19 65(1)(b) 120 units 60 units Example 11 – borrowing and voluntary disclosure Willow and Daniel are members and trustees of the Theme SMSF. The fund has been in existence since 2010 and is a regulated SMSF. In February 2019, Willow determines that the Theme SMSF should acquire an asset as part of the fund's investment strategy. Rather than sell an existing SMSF asset when prices were not optimal, Willow decides to advance the required money to the SMSF which would repay the amount once SMSF assets could be disposed of more advantageously. In March 2019, Willow receives advice from the accountant that an SMSF may not borrow outside limited exceptions and made a voluntary disclosure of a contravention of subsection 67(1) to us. When contacted, the trustees provide all required information to us and agree to repay the borrowing before the end of the 2018–19 financial year. Each trustee is liable to pay administrative penalties of 60 penalty units for the contravention of subsection 67(1). Consider remission During the investigation, the trustees inform the case officer that Daniel was temporarily incapacitated in hospital during the majority of February and March 2019 and provide supporting documents. Willow provides a statement that she acknowledged full culpability for the course of conduct. The case officer determines that the borrowing was within the trustees' control, no events affected the trustees' capacity to comply with their obligations and the level of penalty is appropriate in relation to the size of the fund and amount of the contravention. However, as the trustees acted as soon as they became aware of the contravention by immediately repaying the borrowing and promptly engaging with us by lodging a voluntary disclosure of the contravention, these factors and their previous good compliance history warrant significant remission of penalties for the trustees. Daniel, as a trustee of the SMSF, is equally responsible for ensuring appropriate controls are in place to mitigate contraventions and ensure he is fully informed about the actions of the other trustee. However, as Willow acted on her own and claimed full responsibility for the contraventions, and we have evidence that circumstances beyond his control affected Daniel's ability to fulfil his duties, the case officer decides that there are grounds for further remission for Daniel. Example 12 – failure to prepare accounts and statements and obtain asset valuations The trustees and members of the Thomas Family Super Fund are Jack Thomas (69 years old) and Ira Thomas (67 years old). The fund has been in existence since 2002 and is a regulated SMSF. The fund has a history of late lodgment and at the commencement of an audit the 2017–18 and 2018–19 SMSF annual returns (SAR) were not lodged. In a reply to an audit letter, the trustees advised that they have not prepared their financial statements or obtained valuations for the fund's assets in the 2017–18 and 2018–19 financial years. However, they have now engaged a new tax agent to get the lodgments up to date. The trustees believed that because the fund was in full pension phase and expected to receive refunds for the 2017–18 and 2018–19 financial years, we would have no issues with the late lodgment of the SAR. The fund's total assets as at 30 June 2017 were $1.5 million. The case officer decides to accept an enforceable undertaking from the trustees, in accordance with PS LA 2006/18, to lodge the outstanding SAR within 3 months. The trustees have contravened section 35B by not preparing financial statements and not obtaining asset valuations. As a result, each trustee is liable for administrative penalties of 10 penalty units for the 2017–18 financial year and for the 2018–19 financial year. To support the remission, the case officer considers that the trustees' behaviour was not a deliberate act to obtain a personal gain. However, the case officer decides that this is outweighed by the following factors: • the trustees have a history of late lodgment and the contravention is not a one-off occurrence • no events prevented the trustees from complying with their regulatory obligations • they did not seek advice about their lodgment obligations, and committed to rectify only after an ATO audit had commenced. • the trustees have a history of late lodgment and the contravention is not a one-off occurrence • no events prevented the trustees from complying with their regulatory obligations • they did not seek advice about their lodgment obligations, and committed to rectify only after an ATO audit had commenced. The case officer more broadly considers that the timely lodgment of SAR is a central pillar to the regulation of the SMSF system. SMSF that do not comply with their reporting obligations may gain inappropriate access to tax concessions and therefore undermine the integrity of the system as a whole. The case officer decides that there are no grounds for remission. The apparent misunderstanding of their lodgment obligations does not reconcile with the evidence of their established poor compliance history. Trustees are expected to understand their obligations and comply with them, or seek advice regarding how to comply where it is reasonable to do so.",PS LA 2006/18 | PS LA 2006/19 | PS LA 2008/3 | PS LA 2013/3 | SISA 1993 34 | SISA 1993 34(1) | SISA 1993 35B | SISA 1993 40(1) | SISA 1993 52B | SISA 1993 52B(2)(b) | SISA 1993 65(1) | SISA 1993 65(1)(a) | SISA 1993 65(1)(b) | SISA 1993 67(1) | SISA 1993 67(1)(a) | SISA 1993 67(1)(b) | SISA 1993 83(2) | SISA 1993 83(3) | SISA 1993 84(1) | SISA 1993 103(2)(a) | SISA 1993 104A(2) | SISA 1993 104A(2)(a) | SISA 1993 126A | SISA 1993 159 | SISA 1993 160 | SISA 1993 160(4) | SISA 1993 166 | SISA 1993 166(1) | SISA 1993 169 | SISA 1993 262A | SISA 1993 Pt 20 Div 3 | SISA 1993 Pt 21 | ITAA 1997 304-10 | TAA 1953 Pt IVC | TAA 1953 14ZZ | TAA 1953 Sch 1 298-20 | Administrative Decisions (Judicial Review) Act 1977 | Crimes Act 1914 4AA,PS LA 2006/18 PS LA 2006/19 PS LA 2008/3 PS LA 2013/3,SISA 1993 34 | SISA 1993 34(1) | SISA 1993 35B | SISA 1993 40(1) | SISA 1993 52B | SISA 1993 52B(2)(b) | SISA 1993 65(1) | SISA 1993 65(1)(a) | SISA 1993 65(1)(b) | SISA 1993 67(1) | SISA 1993 67(1)(a) | SISA 1993 67(1)(b) | SISA 1993 83(2) | SISA 1993 83(3) | SISA 1993 84(1) | SISA 1993 103(2)(a) | SISA 1993 104A(2) | SISA 1993 104A(2)(a) | SISA 1993 126A | SISA 1993 159 | SISA 1993 160 | SISA 1993 160(4) | SISA 1993 166 | SISA 1993 166(1) | SISA 1993 169 | SISA 1993 262A | SISA 1993 Pt 20 Div 3 | SISA 1993 Pt 21 | ITAA 1997 304-10 | TAA 1953 Pt IVC | TAA 1953 14ZZ | TAA 1953 Sch 1 298-20 | Administrative Decisions (Judicial Review) Act 1977 | Crimes Act 1914 4AA,,Compliance model Eligibility to lodge an objection Our Charter Our service principles Resolving disputes,False,True,https://www.ato.gov.au/law/view/document?docid=PSR/PS20203/NAT/ATO/00001,"Updated in line with current ATO style and accessibility requirements. | [1] A list of sections and corresponding penalty units is set out in section 166. The value of a penalty unit is contained in section 4AA of the Crimes Act 1914 , and is indexed regularly. The dollar amount of a penalty unit is available at Penalties . | [2] Section 298-20 of Schedule 1 to the Taxation Administration Act 1953 (TAA). | [7] See subsection 40(1). | [9] For further information on the Disputes policy and Dispute management plan, refer to Law Administration Practice Statement PS LA 2013/3 Alternative Dispute Resolution ( ADR ) in ATO disputes . | [11] Section 14ZZ of the TAA. | [12] The amounts may also be included in the individual's assessable income (section 304-10 of the Income Tax Assessment Act 1997 ). | [13] The value of each penalty unit from 31 July 2015 to 30 June 2017 was $180. | [14] The value of each penalty unit from 31 July 2015 to 30 June 2017 was $180. | [15] The value of each penalty unit from 1 July 2017 to 30 June 2020 was $210. | [16] The value of each penalty unit from 1 July 2017 to 30 June 2020 was $210. | File 1-HTDX0ZL; 1-13LAOZCT"
PS LA 2018/1,Self-managed superannuation funds - referral of approved SMSF auditors to ASIC,18 October 2018,18 October 2018,Law Administration Practice Statement,False,"1. What this Practice Statement is about: This Practice Statement sets out what you need to consider in determining whether matters concerning approved SMSF auditors should be referred to ASIC. [1] All legislative references in this Practice Statement are to the Superannuation Industry (Supervision) Act 1993 (SISA), unless otherwise indicated. | 2. Background: There is a registration regime for approved SMSF auditors, effective from 31 January 2013. [2] ASIC is the registration body for approved SMSF auditors. The registration of SMSF auditors is intended to raise the standard of SMSF auditor competency and ensure there is a set of minimum standards of competency that apply across the entire sector. [3] The Commissioner is provided with powers to monitor auditors' compliance with relevant standards and refer any non compliant auditors to ASIC for enforcement action consideration. [4] ASIC is responsible for taking enforcement action against auditors who have not met their ongoing obligations. Any action ASIC may take when the Commissioner refers details of a matter to it is not pertinent to the considerations in this Practice Statement. | 3. When matters concerning an approved SMSF auditor can be referred to ASIC: You may refer the details of the matter to ASIC if you are of the opinion that: • an approved SMSF auditor [5] is not a fit and proper person to be an approved SMSF auditor, or • in relation to the conduct of an audit of an SMSF, an auditor has contravened the SISA or the Superannuation Industry (Supervision) Regulations 1994 (SISR) or has failed to carry out or perform adequately and properly - the duties of an auditor under the SISA or the SISR - the duties required by a law of the Commonwealth, a state or a territory to be carried out or performed by an auditor, or - any function an auditor performs in relation to the SISA, the SISR or the Financial Sector (Collection of Data) Act 2001 . • an approved SMSF auditor [5] is not a fit and proper person to be an approved SMSF auditor, or • in relation to the conduct of an audit of an SMSF, an auditor has contravened the SISA or the Superannuation Industry (Supervision) Regulations 1994 (SISR) or has failed to carry out or perform adequately and properly - the duties of an auditor under the SISA or the SISR - the duties required by a law of the Commonwealth, a state or a territory to be carried out or performed by an auditor, or - any function an auditor performs in relation to the SISA, the SISR or the Financial Sector (Collection of Data) Act 2001 . - the duties of an auditor under the SISA or the SISR - the duties required by a law of the Commonwealth, a state or a territory to be carried out or performed by an auditor, or - any function an auditor performs in relation to the SISA, the SISR or the Financial Sector (Collection of Data) Act 2001 . The Commissioner may exercise the power in relation to an approved SMSF auditor whether or not an order disqualifying or suspending the approved SMSF auditor has been made. [6] Note: A person is guilty of an offence if the person holds themself out as an approved SMSF auditor and the person is not an approved SMSF auditor. [7] | 4. Considerations you will take into account in forming the opinion that an approved SMSF auditor is not a fit and proper person to be an approved SMSF auditor: The expression 'fit and proper person' is not defined in the SISA. However the expression has been considered by the courts on a number of occasions. The following were considered when looking at whether a person is fit and proper: • their character or reputation • the qualities of honesty, knowledge (or professional competency) and ability (that is, the ability to act appropriately) • the failure to perform any of their duties and functions adequately and properly, including auditing funds they were a member of or failing to obtain sufficient evidence or having inadequate documentation in support of an audit. [8] • their character or reputation • the qualities of honesty, knowledge (or professional competency) and ability (that is, the ability to act appropriately) • the failure to perform any of their duties and functions adequately and properly, including auditing funds they were a member of or failing to obtain sufficient evidence or having inadequate documentation in support of an audit. [8] These are not the only considerations that you need to take into account; an evaluation of all the relevant particulars of each case will need to be made. Whether an approved SMSF auditor in another role, such as a trustee of an SMSF, has complied with their SISA obligations would also be a relevant consideration as to whether they were a fit and proper person to be an approved SMSF auditor. | 5. ASIC's considerations when determining whether a person is a fit and proper person to be an approved SMSF auditor: Paragraph 243.38 of ASIC's Regulatory Guide 243 Registration of self-managed superannuation fund auditors provides the following considerations for ASIC to determine whether a person is a fit and proper person to be an approved SMSF auditor. If any of these matters come to your attention in the course of actioning a relevant case, these too should be considered and will assist ASIC to make its determination. That is, whether the person: • has not carried out or performed adequately and properly the duties and functions of an approved SMSF auditor • has been or is currently subject to disciplinary action including, but not limited to, suspension and exclusion from practice by a regulatory body or a professional association • has been or is currently disqualified or banned under provisions of an Act or legislative instrument under Commonwealth, state or territory law • has been or is currently the subject of administrative, civil or enforcement action, which was determined adversely (including consenting to an order or direction, or given an undertaking to not engage in unlawful or improper conduct) in any country • has been convicted or has legal proceedings pending for any criminal offences, any acts of dishonesty (such as theft or fraud), any breach of trust or fiduciary duty, any professional misconduct or other misconduct • has served a term of imprisonment • has been obstructive, misleading or untruthful in dealing with regulatory bodies, or a court • has failed to deal with conflicts of interest appropriately, or • has or has had the status of undischarged bankrupt or there is any such action pending. • has not carried out or performed adequately and properly the duties and functions of an approved SMSF auditor • has been or is currently subject to disciplinary action including, but not limited to, suspension and exclusion from practice by a regulatory body or a professional association • has been or is currently disqualified or banned under provisions of an Act or legislative instrument under Commonwealth, state or territory law • has been or is currently the subject of administrative, civil or enforcement action, which was determined adversely (including consenting to an order or direction, or given an undertaking to not engage in unlawful or improper conduct) in any country • has been convicted or has legal proceedings pending for any criminal offences, any acts of dishonesty (such as theft or fraud), any breach of trust or fiduciary duty, any professional misconduct or other misconduct • has served a term of imprisonment • has been obstructive, misleading or untruthful in dealing with regulatory bodies, or a court • has failed to deal with conflicts of interest appropriately, or • has or has had the status of undischarged bankrupt or there is any such action pending. 6. Considerations you will take into account in forming the opinion that an approved SMSF auditor, in conducting an audit of an SMSF, has contravened the SISA or the SISR or has failed to perform adequately and properly any of their required duties and functions Generally, you would only form an opinion that an approved SMSF auditor has failed to properly discharge their duties or functions after reviewing one or more audits of SMSFs conducted by the auditor. It is not necessarily the case that where an approved SMSF auditor has failed to identify or report a single contravention during an audit of an SMSF that the Commissioner would consider that they have failed to properly discharge the duties or functions required in the conduct of an audit of an SMSF. The failure to identify or report the contravention may be trivial in the context of the particular audit, so the decision will depend on the facts in the particular case. [9] For each audit conducted, you will consider the auditor's compliance with the SISA and the SISR, including the obligations outlined in this Practice Statement. Professional obligations An approved SMSF auditor must comply with their professional obligations, which include the requirement to: • complete the continuing professional development requirements prescribed by regulation 9A.04 of the SISR • hold a current policy of professional indemnity insurance, of a level prescribed by the regulations, for claims that may be made against the auditor in connection with audits of SMSFs [10] • comply with - any competency standards that the Regulator [ASIC] determines [11] - any auditing standards, made by the Auditing and Assurance Standards Board (AUASB), that are applicable to the duties of an approved SMSF auditor under the Corporations Act 2001 - any auditing and assurance standards, formulated by the AUASB under section 227B of the Australian Securities and Investments Commission Act 2001 , that are applicable to those duties [12] , and - the auditor independence requirements. [13] • complete the continuing professional development requirements prescribed by regulation 9A.04 of the SISR • hold a current policy of professional indemnity insurance, of a level prescribed by the regulations, for claims that may be made against the auditor in connection with audits of SMSFs [10] • comply with - any competency standards that the Regulator [ASIC] determines [11] - any auditing standards, made by the Auditing and Assurance Standards Board (AUASB), that are applicable to the duties of an approved SMSF auditor under the Corporations Act 2001 - any auditing and assurance standards, formulated by the AUASB under section 227B of the Australian Securities and Investments Commission Act 2001 , that are applicable to those duties [12] , and - the auditor independence requirements. [13] - any competency standards that the Regulator [ASIC] determines [11] - any auditing standards, made by the Auditing and Assurance Standards Board (AUASB), that are applicable to the duties of an approved SMSF auditor under the Corporations Act 2001 - any auditing and assurance standards, formulated by the AUASB under section 227B of the Australian Securities and Investments Commission Act 2001 , that are applicable to those duties [12] , and - the auditor independence requirements. [13] Reporting obligations An approved SMSF auditor must be appointed by the trustees to give the trustees an audit report in the approved form (the Self managed superannuation fund independent auditor's report ). [14] If an approved SMSF auditor forms an opinion that it is likely that a contravention of the SISA or SISR may have occurred, may be occurring or may occur, the auditor must immediately tell: • the trustee about the matter in writing, and • the Commissioner about the matter in the Auditor/actuary contravention report (ACR) (the approved form) if the matter is specified in that approved form. [15] • the trustee about the matter in writing, and • the Commissioner about the matter in the Auditor/actuary contravention report (ACR) (the approved form) if the matter is specified in that approved form. [15] We provide criteria that auditors must apply to determine what contraventions of the SISA and the SISR must be reported on the ACR. [16] The auditor may also have to report other important information on the ACR as required. Advising the Commissioner of the financial position of SMSF The approved SMSF auditor must advise the Commissioner and the trustee when they form an opinion that the financial position of the SMSF may be, or may be about to become, unsatisfactory. Failure to comply with requests for information When monitoring an approved SMSF auditor, you may by written notice require the auditor to provide access to information relating to an SMSF (for example, books). If the auditor fails to comply with such a notice, then the auditor may, if they have intentionally or recklessly refused or failed to comply with such a requirement, be prosecuted and convicted of a criminal offence. This non compliance would be a relevant consideration in any decision to refer details of the matter to ASIC. | 7. Examples: The following are examples of when you may consider that an approved SMSF auditor has failed to adequately and properly discharge the duties or functions required in the conduct of an audit of an SMSF. Example 1 - audit documentation not adequate to evidence that an audit has been undertaken Where the auditor has not prepared any documentation such as audit working papers to evidence that an actual audit has been undertaken, it would be reasonable to believe that they have not properly discharged the duties or functions required in relation to the conduct of an audit of an SMSF. Documentation of an SMSF audit is necessary to determine that the audit has been properly conducted. This is the case even though the trustee may not have contravened the SISA or the SISR. Example 2 - approved SMSF auditor is trustee of the fund they are auditing An auditor may have audit working papers adequate to evidence that an actual audit of an SMSF has been undertaken, however, the auditor is a trustee of that fund. This is a breach of the auditor independence requirements prescribed by regulation 9A.06 of the SISR [17] , which a reasonable person would consider a failure by the auditor to properly discharge the duties or functions required of an approved SMSF auditor. Example 3 - non-reporting to the trustee or the Commissioner of material contravention A trustee of an SMSF withdrew a significant amount of money from the fund. The withdrawal did not satisfy a condition of release and the auditor did not qualify the audit report or lodge an ACR as required. It would be reasonable to expect that an auditor performing their duties properly would have identified the withdrawal, determined it did not satisfy a condition of release and report appropriately. The failure to qualify the audit report and lodge the ACR where a reporting test had been met is a material dereliction of duty. Example 4 - non-reporting to the trustee or the Commissioner of material contravention The trustee of an SMSF made a large cash loan to a relative of a member of the SMSF. The making of the loan resulted in a number of contraventions of the SISA. The approved SMSF auditor did not qualify the audit report identifying the material contravention nor was the contravention reported to the Commissioner on an ACR, as required. A reasonable person would form the opinion that the audit had not been carried out adequately and properly. Example 5 - non-reporting of material contravention to the Commissioner It was identified during an audit of an SMSF that the approved SMSF auditor had formed an opinion that a contravention of the SISA had occurred in relation to the SMSF. [18] The auditor had told the trustee of the SMSF about the matter in the annual audit report, however, the Commissioner was not told about the matter in an ACR as required. The auditor is guilty of an offence and may be prosecuted. [19] Example 6 - approved SMSF auditor has carried out duties and functions adequately and properly An approved SMSF auditor (a sole practitioner) has been auditing several SMSFs annually for the past 10 years. We reviewed the auditor's audits in the past and consistently found that they had performed the audits diligently and thoroughly. During a recent ATO audit of one of the SMSFs that the auditor had audited, it was discovered that they had not identified and reported a contravention in respect of the most recent income year. As the SMSF had a high volume of investment transactions, the auditor had used an audit sampling method that did not include the transaction; consequently, the contravention was not identified. The auditor was able to provide documentation to satisfy the tax officer conducting the case that the audit sampling method used was in accordance with the appropriate professional standards but, in this case, as the transaction was not significant, it was not included in the sample and the contravention was not identified by the auditor. Note: If the contravention involved a significant transaction, it would be expected that the auditor's sampling method should have been such that the event would have been selected for check and the contravention identified. In this scenario, you would not consider that the audit had been conducted satisfactorily. | 8. Review of the Commissioner's decision to refer the auditor to ASIC: Referral of details of matters to ASIC is not a reviewable decision and therefore is not subject to the formal review procedures. A decision to refer details of matters to ASIC should be fair and reasonable and be made in accordance with the principles contained in the Good decision making model (link available internally only). Therefore, applying the principles of natural justice, before you refer a person to ASIC, the auditor will be given an opportunity to provide reasons as to why details of the matter should not be referred. | 9. More information: For more information, see: • Self-managed superannuation fund independent auditor's report • instructions for SMSF auditors and actuaries - Completing the auditor contravention report . • Self-managed superannuation fund independent auditor's report • instructions for SMSF auditors and actuaries - Completing the auditor contravention report . | Appendix: Sample of court cases that have considered whether someone is a 'fit and proper person' [20] Australian Broadcasting Tribunal v Bond [1990] HCA 33 In the High Court decision, it was observed by Toohey and Gaudron JJ (170 CLR 321 at [380]) that: [t]he expression ""fit and proper person"", standing alone, carries no precise meaning. It takes its meaning from its context, from the activities in which the person is or will be engaged and the ends to be served by those activities. Consideration of the characteristics and qualities taken into account in this court case, such as a person's: • character (because it provides indication of likely future conduct), or • reputation (because it provides indication of public perception as to likely future conduct) • character (because it provides indication of likely future conduct), or • reputation (because it provides indication of public perception as to likely future conduct) are relevant in the context of forming an opinion about the fitness and propriety of an approved SMSF auditor. Hughes & Vale Pty Ltd v New South Wales [No 2] [1955] HCA 28 The concept of a 'fit and proper person' was considered by the High Court in this case. Dixon CJ and McTiernan and Webb JJ observed that the purpose of the fit and proper person test was 'to give the widest scope for judgment and indeed for rejection'. They also stated at (93 CLR 127 at [156-7]) that 'Fit' with respect to an office is said to involve 3 things: • honesty to execute the office truly, without malice affection or partiality • knowledge to know what needs to be done in the office, and • ability to act appropriately (intends to and actually executes office diligently; not neglect duties). • honesty to execute the office truly, without malice affection or partiality • knowledge to know what needs to be done in the office, and • ability to act appropriately (intends to and actually executes office diligently; not neglect duties). Confidential and Commissioner of Taxation [2011] AATA 403 The qualities of honesty, knowledge (or professional competency) and ability (that is, the ability to act appropriately) were also considered in this case where Senior Member (SM) Walsh reviewed a decision by the Commissioner to refuse to revoke the disqualification order of the approved auditor of various SMSFs. SM Walsh affirmed the decision under review and observed that approved SMSF auditors should possess these qualities to be a 'fit and proper' person, similar to those qualities considered relevant for tax agents in previous cases. Two of the cases SM Walsh referred to are Stasos , M. v Tax Agents Board [1990] FCA 545 and Re Stephen Tien-Ping Su and Tax Agents' Board, South Australia [1982] AATA 127. Samuel and Australian Securities and Investments Commission [2016] AATA 696 The Administrative Appeals Tribunal (AAT) upheld a decision by ASIC to disqualify an SMSF auditor who audited funds in which he was a member and who failed to obtain sufficient evidence and had inadequate documentation in support of his SMSF audits. The AAT found the auditor failed to 'comply with two fundamental aspects of auditing: independence and diligence' and 'also failed to demonstrate insight into his critical deficiencies' with conduct falling 'far below the standards expected and required of an approved SMSF auditor'. The AAT was satisfied that the auditor failed to carry out or perform adequately and properly the duties of an auditor and, furthermore or alternatively, the auditor was 'not a fit and proper person to be an approved SMSF auditor'. Fearon and Australian Prudential Regulation Authority [2006] AATA 918 SM Constance upheld the Australian Prudential Regulation Authority's decision to disqualify Mr Fearon from being an approved auditor, for not only failing to carry out the obligations of an approved auditor under the SISA adequately or properly, but breaching the standards set by the professional association of which he was a member. Also, at [43], it was stated that '... Mr Fearon's conduct was such as to require action to protect the public and the integrity of the superannuation system'.",Explanatory Memorandum (EM) to the Superannuation Laws Amendment (Capital Gains Tax Relief and Other Efficiency Measures) Bill 2012 | SISA 1993 10(1) | SISA 1993 35C(5) | SISA 1993 128P | SISA 1993 128P(2) | SISA 1993 129(1) | SISA 1993 129(2) | SISA 1993 129(5) | SISA 1993 131B(2) | SISR 1994 9A.04 | SISR 1994 9A.05 | SISR 1994 9A.06 | Corporations Act 2001 | Superannuation Laws Amendment (Capital Gains Tax Relief and Other Efficiency Measures) Act 2012 | 170 CLR 321 | [2011] AATA 403 | 82 ATC 4284 | 90 ATC 4950,,SISA 1993 10(1) | SISA 1993 35C(5) | SISA 1993 128P | SISA 1993 128P(2) | SISA 1993 129(1) | SISA 1993 129(2) | SISA 1993 129(5) | SISA 1993 131B(2) | SISR 1994 9A.04 | SISR 1994 9A.05 | SISR 1994 9A.06 | Australian Securities and Investments Commission Act 2001 227B | Corporations Act 2001 | Financial Sector (Collection of Data) Act 2001 | Superannuation Laws Amendment (Capital Gains Tax Relief and Other Efficiency Measures) Act 2012,,"Accounting Professional and Ethical Standards Board (2023) Compiled APES 110 Code of Ethics for Professional Accountants (including Independence Standards), https://apesb.org.au/standards-guidance/apes-110-code-of-ethics/ ASIC Class Order [ CO 12/1687 ] Competency standards for approved SMSF auditors In force 17 December 2012-20 April 2023ASIC (2019) Regulatory Guide 243 Registration of self-managed superannuation fund auditors, https://asic.gov.au/regulatory-resources/find-a-document/regulatory-guides/ Explanatory Memorandum (EM) to the Superannuation Laws Amendment (Capital Gains Tax Relief and Other Efficiency Measures) Bill 2012",False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20181/NAT/ATO/00001,"Replaced reference to Explanatory Memorandum with ASIC Regulatory Guide 243 and included additional criterion. | Updated to indicate that ASIC Class Order CO 12/1687 is no longer in force. | Addition of footnote to Henley and Australian Securities and Investments Commission [2024] AATA 82. | Sections 3, 4, 7 and Appendix | Removal of minor extraneous or incorrect language. | Updated in line with current ATO style, citation and accessibility requirements. | [1] See section 128P of the Superannuation Industry (Supervision) Act 1993. | [2] Superannuation Laws Amendment (Capital Gains Tax Relief and Other Efficiency Measures) Act 2012. | [3] See the Explanatory Memorandum to the Superannuation Laws Amendment (Capital Gains Tax Relief and Other Efficiency Measures) Bill 2012. | [4] See the General outline and financial impact section of the Explanatory Memorandum to the Superannuation Laws Amendment (Capital Gains Tax Relief and Other Efficiency Measures) Bill 2012. | [5] See subsection 10(1) for the definition of 'approved SMSF auditor', which came into effect on 31 January 2013. In this Practice Statement, reference to an auditor may be taken to be a reference to an approved SMSF auditor, unless otherwise indicated. | [6] See subsection 128P(2). | [7] See subsection 131B(2). | [8] See the Appendix to this Practice Statement for more information on court cases that have considered 'fit and proper person'. | [9] In the context of this Practice Statement, 'case' relates to any case involving an approved SMSF auditor specifically, or a case involving an audit of an SMSF. | [10] See regulation 9A.05 of the SISR. | [11] See ASIC Class Order [ CO 12/1687 ] Competency standards for approved SMSF auditors (in force from 17 December 2012 to 20 April 2023). | [12] AUASB - Standards on assurance engagements (ASAEs). | [13] For assistance, refer to the Accounting Professional and Ethical Standards (APES) Board Compiled APES 110 Code of Ethics for Professional Accountants (including Independence Standards) . | [14] See subsection 35C(5). | [15] See the exception in subsection 129(2). | [16] See Instructions for SMSF auditors and actuaries - Completing the auditor contravention report . | [17] See Compiled APES 110 Code of Ethics for Professional Accountants (including Independence Standards) . | [18] See subsection 129(1). | [19] See subsection 129(5). | [20] See also Henley and Australian Securities and Investments Commission [2024] AATA 82. | Australian Broadcasting Tribunal v Bond [1990] HCA 33 170 CLR 321 94 ALR 11 | Confidential and Commissioner of Taxation [2011] AATA 403 84 ATR 282 (2011) 122 ALD 592 | Fearon and Australian Prudential Regulation Authority [2006] AATA 918 64 ATR 1161 | Henley and Australian Securities and Investments Commission [2024] AATA 82 | Hughes & Vale Pty Ltd v New South Wales [No 2] [1955] HCA 28 93 CLR 127 [1955] ALR 525 | Re Stephen Tien-Ping Su and Tax Agents' Board, South Australia [1982] AATA 127 82 ATC 4284 | Stasos, M. v Tax Agents Board [1990] FCA 545 90 ATC 4950 21 ATR 974"
PS LA 2017/1,Petroleum resource rent tax: amendment period for transfers of exploration expenditure,8 November 2017,8 November 2017,Law Administration Practice Statement,False,"1. What this Practice Statement is about: This Practice Statement sets out the time limits in which a petroleum resource rent tax (PRRT) assessment may be amended to correct an error in the transfer of transferrable exploration expenditure (TEE). All legislative references in this Practice Statement are to the Petroleum Resource Rent Tax Assessment Act 1987 (PRRTAA), unless otherwise indicated. Where a person in respect of a financial year has TEE, they are required to transfer as much of that expenditure as can be transferred in accordance with the rules set out in Part 5 of Schedule 1. [1] A transfer of TEE is made by lodging a transfer notice 'not later than 60 days after the end of the financial year or such later day as the Commissioner allows'. [2] A purported transfer has no effect if it is not in accordance with the rules. [3] Section 45B contains equivalent provisions in relation to the transfer of TEE between group companies. Where a person fails to transfer TEE as required under sections 45A or 45B, the Commissioner may make the transfer under section 45C. When the PRRT law was changed in 1991 to allow for the transfer of exploration expenditure, the Commissioner was given the power to amend an assessment at any time to give effect to the provisions of, among other things, sections 45A, 45B or 45C (see former paragraph 64(7)(c)). This power to amend at any time relates only to amounts of TEE that have not (or not properly) been transferred, as opposed to amounts purportedly transferred that were not TEE in the first place (for example, amounts properly classified as general project expenditure). Upon the adoption of self-assessment in 2006, a number of changes were made to the amendment provisions in the PRRTAA to replace 3 and 6-year periods with a standardised 4 years. The unlimited amendment period remained in relation to sections 45A, 45B and 45C with minor changes in wording (see paragraph 67(2)(e), and paragraph 4.25 of the Explanatory Memorandum to the Petroleum Resource Rent Tax Assessment Amendment Bill 2006). With these changes, reference was made to particular subsections, rather than sections, of the provisions [4] and the words 'to give effect to' became 'to take account of the operation of'. There is no indication in the explanatory materials that any change was intended to affect the amendment power. However, the effect of the amendments is that an unlimited period of amendment is not available under the current law where the Commissioner transfers (under subsection 45C(2)) an amount a person has failed to transfer, even though that transfer is taken to be a transfer under section 45A or 45B as the case requires (subsection 45C(4)). The reference in paragraph 67(2)(e) to subsection 45A(3) can only apply to taxpayer-requested transfers and not to a transfer by the Commissioner, even though it is taken to be a transfer under section 45A. We consider, if there is an extension of time to lodge a transfer notice outside the 4-year period, and an amount has wrongly been transferred previously, the relevant assessment can be amended to correct that error on the basis that to do so is part of taking 'account of the operation of' the relevant subsection (that is, subsection 45A(3) or 45B(3)). | 2. When you can issue an amended assessment: Except in the situations covered in sections 3, 4 or 5 of this Practice Statement, you should issue an amended assessment to correct an error in the transfer of TEE no later than 4 years after the relevant return has been lodged. [5] | 3. When the 4-year limit does not apply: The 4-year time limit on issuing an amended assessment to correct an error in the transfer of TEE doesn't apply where any of the following occurs: • an extension of time is granted to lodge a transfer notice outside of the 4-year period (see section 4 of this Practice Statement) • the Commissioner revokes a transfer of TEE under section 45C outside of the 4-year period (see section 5 of this Practice Statement) • we are of the opinion that there has been fraud or evasion [6] • an unlimited amendment period otherwise applies [7] , or • the time limit is extended. [8] • an extension of time is granted to lodge a transfer notice outside of the 4-year period (see section 4 of this Practice Statement) • the Commissioner revokes a transfer of TEE under section 45C outside of the 4-year period (see section 5 of this Practice Statement) • we are of the opinion that there has been fraud or evasion [6] • an unlimited amendment period otherwise applies [7] , or • the time limit is extended. [8] | 4. Extension of time to lodge a transfer notice: You can amend an assessment at any time where all of the following conditions apply: • a taxpayer has failed to transfer TEE in an earlier year of tax • the taxpayer requests an extension of time to lodge a transfer notice under paragraphs 45A(3)(a) or 45B(3)(a), and • you grant an extension of time. [9] • a taxpayer has failed to transfer TEE in an earlier year of tax • the taxpayer requests an extension of time to lodge a transfer notice under paragraphs 45A(3)(a) or 45B(3)(a), and • you grant an extension of time. [9] | 5. Revocation of a section 45C transfer: You can amend an assessment to correct an error in the transfer of TEE at any time where all of the following conditions are met: • there has been a failure to transfer TEE as required by sections 45A or 45B • a transfer of TEE was made under subsection 45C(2) within the original 4-year period to remedy that failure • you receive information not available at the time the transfer of TEE was made under subsection 45C(2) and, had that information been available at that time, the transfer would not have been made in the same way, and • you revoke the transfer of TEE made under subsection 45C(2) and, if appropriate, make another transfer under subsection 45C(6). [10] • there has been a failure to transfer TEE as required by sections 45A or 45B • a transfer of TEE was made under subsection 45C(2) within the original 4-year period to remedy that failure • you receive information not available at the time the transfer of TEE was made under subsection 45C(2) and, had that information been available at that time, the transfer would not have been made in the same way, and • you revoke the transfer of TEE made under subsection 45C(2) and, if appropriate, make another transfer under subsection 45C(6). [10] | 6. Examples: Example 1 – group company fails to transfer transferrable exploration expenditure Taxpayer A is assessed for the 2009–10 year when they lodge their PRRT return for Project A on 30 August 2010. On 14 August 2015, another group company discovers that it had $100,000 of TEE that it failed to transfer to Taxpayer A in relation to Project A under section 45B in the 2009–10 year. We can amend the assessment if we allow an extension of time to lodge a transfer notice. Without an extension of time to lodge a transfer notice, the usual 4-year amendment period applies. Example 2 – purported transfer of excluded expenditure and transferrable exploration expenditure Taxpayer A lodges its 2009–10 PRRT return for Project X, together with a transfer notice under section 45A for $1 million of TEE, on 30 August 2010. Five years later, you discover that $100,000 of the $1 million was excluded expenditure under paragraph 44(1)(j) and not TEE. Section 45A applies to the extent that Taxpayer A transferred its TEE (that is, $900,000). None of the circumstances in section 3 of this Practice Statement apply. Therefore, the 4-year time limit applies and you cannot amend the assessment under section 67 to correct the $100,000 error in the transfer. Example 3 – purported transfer of excluded expenditure and no transferrable exploration expenditure Taxpayer A lodges its 2009–10 PRRT return for Project X, together with a transfer notice under section 45A for $100,000 of TEE on 30 August 2010. Five years later, you discover that the whole $100,000 was actually general project expenditure under subsection 38(1) and not TEE. As Taxpayer A has no TEE in respect of the 2009–10 year, section 45A has no application and the taxpayer cannot take steps to rectify the incorrect transfer. Also, as none of the circumstances in section 3 of this Practice Statement apply, you cannot amend the assessment for Project X for the 2009–10 year to correct the error. Example 4 – purported transfer is not in accordance with the rules in Part 5 of Schedule 1 Taxpayer A has $100,000 of TEE that it purports to transfer to Project X pursuant to section 45A in the 2009–10 year. The original assessment for Project X was made on 30 August 2010. Five years later, Taxpayer A discovers that the transfer was not in accordance with the rules in Part 5 of Schedule 1. The TEE should have instead been transferred to Project Y. The original assessment for Project Y for the 2009–10 year was also made on 30 August 2010. Taxpayer A requests that it be allowed to lodge a transfer notice late to transfer the TEE to Project Y to correct the error. Pursuant to subsection 45A(4), the purported transfer to Project X is of no effect. You may accept the late lodgment of the transfer notice. You can amend the 2009–10 year assessments for both Project X and Project Y to take account of the operation of subsection 45A(3). Example 5 – correct an error in a transfer made by the Commissioner Taxpayer A lodges its 2007–08 PRRT return for Project X on 28 August 2008. In August 2010, you discover that Taxpayer A has failed to transfer what you believe to be TEE of $100,000 to Project X. You make a transfer of $100,000 under subsection 45C(2) to correct Taxpayer A's failure to transfer TEE and issue an amended assessment to Taxpayer A for Project X. In August 2015, you discover that $10,000 of the $100,000 was in fact excluded expenditure and not TEE. Had you been aware of this information at the time you made the transfer in August 2010, you would have transferred $90,000 and not $100,000. You can revoke the original transfer and make a transfer of $90,000 to Project X and issue an amended assessment for the 2007–08 year to reduce the TEE by $10,000, to take account of the operation of subsection 45C(6).",Explanatory Memorandum | PRRTAA 1987 | PRRTAA 1987 Sch 1 Pt 5 | PRRTAA 1987 38(1) | PRRTAA 1987 44(1)(j) | PRRTAA 1987 45A | PRRTAA 1987 45A(3) | PRRTAA 1987 45A(3)(a) | PRRTAA 1987 45A(4) | PRRTAA 1987 45B | PRRTAA 1987 45B(3) | PRRTAA 1987 45B(3)(a) | PRRTAA 1987 45C | PRRTAA 1987 45C(2) | PRRTAA 1987 45C(4) | PRRTAA 1987 45C(6) | PRRTAA 1987 62(3) | PRRTAA 1987 62(4) | PRRTAA 1987 former 64(7)(c) | PRRTAA 1987 67 | PRRTAA 1987 67(1) | PRRTAA 1987 67(2)(a) | PRRTAA 1987 67(2)(b) | PRRTAA 1987 67(2)(c) | PRRTAA 1987 67(2)(d) | PRRTAA 1987 67(2)(e) | PRRTAA 1987 70 | PRRTAA 1987 71,,PRRTAA 1987 | PRRTAA 1987 Sch 1 Pt 5 | PRRTAA 1987 38(1) | PRRTAA 1987 44(1)(j) | PRRTAA 1987 45A | PRRTAA 1987 45A(3) | PRRTAA 1987 45A(3)(a) | PRRTAA 1987 45A(4) | PRRTAA 1987 45B | PRRTAA 1987 45B(3) | PRRTAA 1987 45B(3)(a) | PRRTAA 1987 45C | PRRTAA 1987 45C(2) | PRRTAA 1987 45C(4) | PRRTAA 1987 45C(6) | PRRTAA 1987 62(3) | PRRTAA 1987 62(4) | PRRTAA 1987 former 64(7)(c) | PRRTAA 1987 67 | PRRTAA 1987 67(1) | PRRTAA 1987 67(2)(a) | PRRTAA 1987 67(2)(b) | PRRTAA 1987 67(2)(c) | PRRTAA 1987 67(2)(d) | PRRTAA 1987 67(2)(e) | PRRTAA 1987 70 | PRRTAA 1987 71,,Explanatory Memorandum to the Petroleum Resource Rent Tax Assessment Amendment Bill 2006,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20171/NAT/ATO/00001,"Updated in line with current ATO style and accessibility requirements. | [2] See paragraph 45A(3)(a). | [3] See subsection 45A(4). | [4] Specifically, subsections 45A(3), 45B(3) or 45C(6). | [5] See subsection 67(1). Where a person lodges a PRRT return, the Commissioner is taken to have made an assessment on the day the return is lodged and the return is taken to be a notice of the assessment given to the person. See subsections 62(3) and (4). | [6] See paragraph 67(2)(a). | [7] For example, see paragraphs 67(2)(b), (c) and (d). | [8] See sections 70 and 71. | [9] To take account of the operation of subsection 45A(3) or 45B(3). See paragraph 67(2)(e). | [10] To take account of the operation of subsection 45C(6). See paragraph 67(2)(e). | File 1-AUT73F8; 1-13VUG03S"
PS LA 2017/2,Diverted profits tax assessments,18 December 2017,18 December 2017,Law Administration Practice Statement,False,"What this Practice Statement is about: 1. This Practice Statement provides guidance to ATO staff on the administrative process for making a diverted profits tax (DPT) assessment under section 155-5 of Schedule 1 to the Taxation Administration Act 1953 through ATO-initiated action, and the processes that follow after such an assessment is made. 2. This Practice Statement and the processes outlined in it have been developed in recognition of the seriousness of making a DPT assessment. 3. All further legislative references in this Practice Statement are to Schedule 1 to the Taxation Administration Act 1953, unless otherwise indicated. | What you should do if you consider that the diverted profits tax may apply: 4. If you consider the DPT may apply, you should inform the taxpayer that the DPT is a risk being considered during the audit process. | Consideration of the diverted profits tax: 5. With the assistance of Tax Counsel Network (TCN), you should engage with the taxpayer to obtain information and discuss issues as appropriate. In conjunction with TCN, you should then form a view as to whether the DPT applies based on the information available to you. 6. Where you form the view that the DPT applies, you must ensure that TCN's engagement is formalised in accordance with the usual procedures regarding the application of the rules in Part IVA of the Income Tax Assessment Act 1936. [1] 7. There are 2 steps which must be taken prior to making a DPT assessment (unless it is an exceptional case). You must: • seek advice from the General Anti-Avoidance Rules (GAAR) Panel at an initial hearing [2] , and • obtain Deputy Commissioner endorsement on the decision to make a DPT assessment. • seek advice from the General Anti-Avoidance Rules (GAAR) Panel at an initial hearing [2] , and • obtain Deputy Commissioner endorsement on the decision to make a DPT assessment. 8. Each of these 2 steps is discussed further in this Practice Statement. 9. It is not a requirement to provide the taxpayer with a position paper at any time prior to issuing DPT assessments. At the discretion of the case team, a position paper may be provided and the taxpayer invited to respond. A failure to respond or delay in responding will not prevent the matter progressing under this administrative process. | Initial General Anti-Avoidance Rules Panel hearing: 10. The GAAR Panel provides advice to decision-makers in order to ensure that decisions made on the application of the DPT are objectively based and there is a consistency in approach to the various issues that arise in relation to the application of the DPT. [3] 11. The GAAR Panel may consider any aspect of the application of the DPT. 12. However, the GAAR Panel may be practically limited to the extent to which it can advise on issues involving complex or extensive evidentiary material. These limitations will be dealt with by the GAAR Panel Chair on a case-by-case basis, in line with normal practice. 13. The GAAR Panel will ordinarily include at least one non-ATO member, in line with normal practice. 14. Consistent with the preliminary GAAR Panel process, the taxpayer (or a representative of the taxpayer) will not be invited to attend the initial GAAR Panel hearing. [4] 15. The GAAR Panel Chair can decide not to have a referred matter considered by the GAAR Panel. However, they would usually consult the GAAR Panel before making that decision. [5] | Deputy Commissioner endorsement: 16. Based on advice from the GAAR Panel, you must, in consultation with TCN, decide whether to make a DPT assessment. 17. If you decide to make a DPT assessment contrary to the advice of the GAAR Panel, you must first escalate the matter to the GAAR Panel Chair or the Chief Tax Counsel (CTC), in accordance with usual procedure. [6] 18. The decision to make a DPT assessment is subject to endorsement by a Deputy Commissioner in your business line. 19. Once your Deputy Commissioner has provided endorsement, you must arrange for the notice of assessment to be issued to the taxpayer and also ensure that the liability is recorded on the appropriate system. | Streamlined process in exceptional cases: 20. You and your Deputy Commissioner may consider that exceptional circumstances exist such that a DPT assessment should be made without requiring all or some of the steps in this Practice Statement. This may be the case where delay could frustrate the application of the DPT to a particular taxpayer or could result in a DPT assessment being unenforceable. For example, if there is a risk that a taxpayer will move assets offshore or liquidate an entity with the purpose of frustrating the DPT collection and recovery process, it may be necessary to act expeditiously. 21. A Deputy Commissioner will only authorise departure from the normal procedure after consultation with the GAAR Panel Chair or the CTC, in accordance with existing GAAR Panel practice. [7] 22. If you believe a streamlined process is appropriate in your case, you should speak to TCN in the first instance. | Recovering the tax payable to us: 23. The DPT is due and payable 21 days after you have given the taxpayer the relevant DPT notice of assessment. [8] 24. You should refer the matter to Frontline Operations to instigate the commencement of debt collection procedures for any amounts that remain owing after the due date. | Issuing a diverted profits tax statement: 25. You should issue a written statement outlining the basis upon which you have applied the DPT to the taxpayer no later than 7 days after you have given the taxpayer the relevant DPT notice of assessment. | Period of review of diverted profits tax assessments: 26. The period of review for a DPT assessment is 12 months from the day after the day the notice of the DPT assessment is given to the taxpayer, unless shortened or extended. [9] 27. The period of review gives the taxpayer a further opportunity to provide information to you relevant to their DPT assessment. 28. If you have not already done so, you should consider whether it is appropriate to refer your case to an officer from Litigation and Legal Services (LLS), who may provide support on evidence and appeals processes, particularly if your case is likely to result in litigation. | General Anti-Avoidance Rules Panel: 29. During the period of review, you must refer your matter to the GAAR Panel for further hearing. [10] This must be done, whether or not you referred the matter to the GAAR Panel for an initial hearing before making the DPT assessment. 30. In accordance with normal GAAR Panel procedure, the taxpayer will usually be invited to attend the hearing and address the GAAR Panel. However, an invitation to attend the hearing may not be extended if the taxpayer has not cooperated and given us the requisite information. 31. In extending an invitation to the taxpayer, the GAAR Panel Chair will request that the taxpayer provide a written submission (unless the taxpayer chooses to rely upon a written submission already made to us). 32. Usually, the GAAR Panel hearing will take place towards the end of the 12-month review period when you have sufficiently considered all information provided by the taxpayer. You should contact the GAAR Panel Secretariat after issuing a DPT assessment to schedule a suitable time and notify the taxpayer accordingly. 33. Where a taxpayer notifies us of a shorter period of review that ends before the date of any scheduled GAAR Panel hearing for the matter, you must reschedule the GAAR Panel hearing unless it is not possible to do so. | Amending a diverted profits tax assessment: 34. Based on the information available to you and any advice provided by the GAAR Panel, you must decide, in consultation with TCN, whether or not to amend the taxpayer's DPT assessment. [11] 35. If the matter is not able to be considered by the GAAR Panel because of a shortened period of review, you must seek advice from the GAAR Panel Chair prior to amending the DPT assessment. 36. If you decide that an amendment is appropriate, you have until the end of the period of review to amend the DPT assessment. You must obtain your Deputy Commissioner's approval before you amend a DPT assessment. 37. If you decide not to amend a DPT assessment, you should notify the taxpayer in writing of your decision. You must obtain your Deputy Commissioner's endorsement to issue this notification. 38. Where a taxpayer has appealed a DPT assessment to the Federal Court, you may amend the DPT assessment at any time pending the appeal. [12] | Extending the period of review: 39. If you do not consider you can complete your examination of the taxpayer's circumstances within the period of review, you can seek an extension by: • requesting the taxpayer's consent to extend the period of review [13] , or • applying to the Federal Court for an order to extend the period of review. [14] • requesting the taxpayer's consent to extend the period of review [13] , or • applying to the Federal Court for an order to extend the period of review. [14] 40. You must seek the extension before the period of review has ended. 41. Refer your case to an LLS officer for assistance in applying for the order. 42. An extension of the period of review for a DPT assessment, by either obtaining the taxpayer's consent or by applying to the Federal Court for an order, can be made only once. [15] | Shortened period of review: 43. A taxpayer can shorten the period of review for a DPT assessment by giving us written notice specifying a shorter period. [16] The shorter period must end at least 30 days after the day on which the written notice is given to us. [17] 44. If you are given such a notice and you have not yet completed your review of the taxpayer's DPT assessment, you must consider, in consultation with TCN, whether to apply to the Federal Court for an order to maintain the full period of review. 45. The Federal Court will only grant such an order if it is satisfied that it was not reasonably practicable or it was inappropriate for you to complete the examination within the shorter period specified in the taxpayer's notice because of [18] : • any action taken by the taxpayer, or • any failure by the taxpayer to take reasonable action. • any action taken by the taxpayer, or • any failure by the taxpayer to take reasonable action. 46. You must apply for the order within 30 days of receiving written notice from the taxpayer. [19] 47. You should, as a matter of priority, refer your case to an LLS officer for assistance in applying for the order. | Objection and appeal rights: 48. A taxpayer cannot object to a DPT assessment. [20] 49. After the period of review has ended, a taxpayer may appeal a DPT assessment to the Federal Court. [21] An appeal must be lodged with the Federal Court within 60 days after the end of the period of review. [22] 50. Special rules apply regarding what evidence is admissible in a Federal Court appeal in relation to a DPT assessment. For further guidance, refer to paragraphs 1.195 to 1.202 of the revised Explanatory Memorandum to the Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017. The interaction between a diverted profits tax assessment and an income tax assessment for the same period 51. DPT is a separate tax liability to income tax. A taxpayer may have a DPT assessment and an income tax assessment in respect of the same period. These assessments are not 'alternative assessments' as described in section 1 of Law Administration Practice Statement PS LA 2006/7 Alternative assessments. 52. Before issuing a DPT assessment and during the period of review, you should monitor the progress of any related income tax assessment and, specifically, whether the taxpayer has exercised any review or objection rights in respect of that assessment. If there is a review or objection on foot, coordinate with the relevant case officer to ensure there is a mutual understanding of the taxpayer's overall tax position. | More information: 53. For more information, see: • PS LA 2005/24 • Revised Explanatory Memorandum to the Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017 . • PS LA 2005/24 • Revised Explanatory Memorandum to the Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017 .",PS LA 2005/24 | Revised Explanatory Memorandum to the Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017 | PS 2005/24 | PS 2006/7 | Revised Explanatory Memorandum | ITAA 1936 Pt IVA | ITAA 1936 177P(3) | TAA 1953 Sch 1 | TAA 1953 Sch 1 145-15 | TAA 1953 Sch 1 145-15(1)(b) | TAA 1953 Sch 1 145-15(2)(b) | TAA 1953 Sch 1 145-15(3) | TAA 1953 Sch 1 145-15(3)(c) | TAA 1953 Sch 1 145-15(4) | TAA 1953 Sch 1 145-20(1) | TAA 1953 Sch 1 145-20(4)(b) | TAA 1953 Sch 1 145-20(4)(c) | TAA 1953 Sch 1 155-5 | TAA 1953 Sch 1 155-35(3) | TAA 1953 Sch 1 155-35(4) | TAA 1953 Sch 1 155-60,PS 2005/24 PS 2006/7,ITAA 1936 Pt IVA | ITAA 1936 177P(3) | TAA 1953 Sch 1 | TAA 1953 Sch 1 145-15 | TAA 1953 Sch 1 145-15(1)(b) | TAA 1953 Sch 1 145-15(2)(b) | TAA 1953 Sch 1 145-15(3) | TAA 1953 Sch 1 145-15(3)(c) | TAA 1953 Sch 1 145-15(4) | TAA 1953 Sch 1 145-20(1) | TAA 1953 Sch 1 145-20(4)(b) | TAA 1953 Sch 1 145-20(4)(c) | TAA 1953 Sch 1 155-5 | TAA 1953 Sch 1 155-35(3) | TAA 1953 Sch 1 155-35(4) | TAA 1953 Sch 1 155-60,,Revised Explanatory Memorandum to the Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20172/NAT/ATO/00001,"What to do after a diverted profits tax assessment is made | Content checked for technical accuracy and currency. | Updated to align with amended Practice Statement style and formatting requirements. | Updated in line with current ATO style and accessibility requirements. | [1] Paragraphs 14 to 17 of Law Administration Practice Statement PS LA 2005/24 Application of General Anti-Avoidance Rules . | [2] Paragraph 28 of PS LA 2005/24. | [3] Paragraph 24 of PS LA 2005/24. | [4] Paragraph 31 of PS LA 2005/24. Relevantly, paragraph 33 of PS LA 2005/24 makes it clear that the GAAR Panel process does not provide a platform for a hearing as part of a quasi-judicial process of review. | [5] Paragraph 23 of PS LA 2005/24. | [6] Paragraph 26 of PS LA 2005/24. | [7] Paragraph 26 of PS LA 2005/24. | [8] Subsection 177P(3) of the Income Tax Assessment Act 1936 . | [10] Subject to the GAAR Panel Chair's discretion: see paragraph 23 of PS LA 2005/24. | [11] If you wish to amend a DPT assessment contrary to the advice of the GAAR Panel, you must first escalate the matter to the Chair of the GAAR Panel or the CTC, in accordance with usual procedure. | [13] Subsection 155-35(4). | [14] Subsection 155-35(3). | [15] Subsection 145-15(4). | [16] Paragraph 145-15(1)(b). | [17] Paragraph 145-15(2)(b). | [18] Subsection 145-15(3). | [19] Paragraph 145-15(3)(c). | [20] Subsection 145-20(1). | [21] Paragraph 145-20(4)(b). | [22] Paragraph 145-20(4)(c). | File 1-AN371U0; 1-14DAI645"
PS LA 2016/1,Transfer pricing adjustments with potential customs implications,14 April 2016,14 April 2016,Law Administration Practice Statement,False,"1. What this Practice Statement is about: This Practice Statement provides guidance to ATO staff when making transfer pricing adjustments under Subdivision 815-B of the Income Tax Assessment Act 1997 (ITAA 1997) in respect of an entity's purchases of imported goods upon which customs duty has been levied. | 2. When adjustments might be made: The type of adjustments specified within section 1 of this Practice Statement may have been made: • in an audit • in a settlement, or • where the entity has objected to an amended assessment or as part of an advance pricing arrangement (APA) or mutual agreement procedure (MAP). • in an audit • in a settlement, or • where the entity has objected to an amended assessment or as part of an advance pricing arrangement (APA) or mutual agreement procedure (MAP). | 3. Entity's concerns when we make these adjustments: Where an entity gets a transfer pricing benefit and you adjust the entity's amount of taxable income or loss of a particular sort but do not attribute it to the individual components of the purchases relating to the value of the imported goods, the entity can experience difficulties in obtaining refunds of customs duty or determining additional duty liabilities. In order to satisfy their responsibilities under the Customs Act 1901 , an entity may request our assistance to the extent the adjustments relate to imported goods. | 4. Context surrounding this Practice Statement: Subdivision 815-B of the ITAA 1997 does not contain any express requirement for the Commissioner to specify the amount of individual amounts that make up the transfer pricing benefit when making transfer pricing adjustments. For example, we do not need to attribute adjustments made to an entity's taxable income to individual components of the purchases that have been subject to customs duty. This is because the amount of an entity's taxable income is worked out on the basis that the arm's length conditions operated. However, paragraph 3.17 of the Explanatory Memorandum to the Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Bill 2013 (Explanatory Memorandum) states that the arm's length conditions must be attributed to the value of individual components that form part of the tax equation even if a profit-based method is used. To the extent possible, this Practice Statement is consistent with paragraph 3.17 of the Explanatory Memorandum so as to best facilitate an entity obtaining resultant refunds of customs duty or determining additional duty liabilities and to alleviate the concern referred to in section 3 of this Practice Statement. | 5. When an entity might seek assistance: An entity may request assistance from you in determining any revised amount of customs value or duty. Such a request can be made during or after the processes mentioned in section 2 of this Practice Statement. For example, you might receive a request for assistance after the determination of an objection if the imported purchase amounts have been adjusted downwards at the objection stage. | 6. Information to obtain when an entity seeks our assistance: When you get such a request, you are to confirm that you have sufficient and appropriate documentation for you to identify the component of the transfer pricing benefit relating to the imported purchases or request further information where necessary. | 7. Additional information you can provide to assist the entity: You are to populate an adjustment table in an audit position paper or in a subsequent revised adjustment table which is consistent with the audit outcome or agreed terms of a settlement, objection decision, APA or MAP outcome. To the extent possible, and for each income year that is the subject of an adjustment, you should include the following amounts in the adjustment table: • the cross-border purchases as returned • the cross-border purchases as amended (or after adjustment at objection stage) • the cross-border purchases as amended upon which customs duty has been levied. • the cross-border purchases as returned • the cross-border purchases as amended (or after adjustment at objection stage) • the cross-border purchases as amended upon which customs duty has been levied. This additional information will normally attribute the adjustment to the appropriate cross-border dealings. If you have attributed the amount of the transfer pricing benefit across all of the cross-border dealings (for example, by using a general economic allocation key), you are to prepare a note to accompany the adjustment table. You should indicate in the note that the table is: • prepared solely to assist the entity in informing the Australian Border Force (ABF) as to the arm's length value of the goods, and • not an aid to determine any liability under Subdivision 815-B of the ITAA 1997. • prepared solely to assist the entity in informing the Australian Border Force (ABF) as to the arm's length value of the goods, and • not an aid to determine any liability under Subdivision 815-B of the ITAA 1997. Such a note would be appropriate in instances where, for example, a profit-based method has been applied in making an adjustment to taxable income. An example of the general economic allocation key is the percentage share of the original total dollar value of the cross-border dealings to be adjusted. If the entity has not provided the evidence to enable you to determine the component of the purchases of imported goods that have been subject to customs duty, the adjustment table is to reflect the imported purchases in total. | 8. Contacting the Australian Border Force when making transfer pricing adjustments: You do not need to contact the ABF. Seeking a customs duty refund from, or reporting additional duty liabilities to, the ABF is a matter for the entity alone. Once you have provided the information specified in section 7 of this Practice Statement, the entity can approach the ABF with relevant documentation, including any adjustment table. [1]",Explanatory Memorandum to | Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Bill 2013 | ITAA 1997 Subdiv 815-B | Customs Act 1901 243T | Customs Act 1901 243U,,ITAA 1997 Subdiv 815-B | Customs Act 1901 243T | Customs Act 1901 243U,,Explanatory Memorandum to Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Bill 2013,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20161/NAT/ATO/00001,Updated in line with current ATO style and accessibility requirements. | [1] Further information about the refund and payment of additional customs import duties is available at Department of Home Affairs . Voluntary disclosure provisions exist under sections 243T and 243U of the Customs Act 1901 to avoid application of infringement penalties. Information regarding voluntary disclosures can be found at Australian Border Force web page – Voluntary Disclosures . | File 1-7IB1F6O; 1-1569VA3C
PS LA 2016/2,Administration of scheme penalties arising from the application of Subdivision 815-A for income years which started on or after 1 July 2004 and before 1 July 2012,5 May 2016,,Law Administration Practice Statement,False,"1. Scope: 1A. This Practice Statement explains how we will administer scheme penalties arising from the application of Subdivision 815-A of the Income Tax Assessment Act 1997 (ITAA 1997) and section 815-10 of the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A 1997) for income years commenced on or after 1 July 2004 and before 1 July 2012 (transition period). It deals with: • when liability for a transfer pricing scheme penalty arises • applying a scheme penalty • assessing an entity's scheme penalty, and • remission considerations – to ensure decisions to exercise the Commissioner's discretion to remit all or part of a scheme penalty are consistent. • when liability for a transfer pricing scheme penalty arises • applying a scheme penalty • assessing an entity's scheme penalty, and • remission considerations – to ensure decisions to exercise the Commissioner's discretion to remit all or part of a scheme penalty are consistent. 1B. All legislative references in this Practice Statement are to Schedule 1 to the Taxation Administration Act 1953, unless otherwise indicated. 1C. This Practice Statement does not deal with scheme penalties that arise from the application of: • Subdivisions 815-B and 815-C of the ITAA 1997 [1] , and • Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936). • Subdivisions 815-B and 815-C of the ITAA 1997 [1] , and • Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936). | 2. Background: 2A. For income years which commenced on or after 1 July 2004 and before 29 June 2013, Subdivision 815-A of the ITAA 1997 applies to bring to tax a 'transfer pricing benefit' [2] by empowering the Commissioner to make a determination under section 815-30 of the ITAA 1997 by increasing taxable income, decreasing tax losses or decreasing net capital losses, as appropriate (Subdivision 815-A Determination). 2B. Subdivision 815-A of the ITAA 1997 is only relevant to entities to which one of Australia's tax treaties containing the transfer pricing articles applies – that is, where the entity is a resident of one or both of the contracting states to the tax treaty. 2C. The references in Subdivision 815-A of the ITAA 1997 to international tax agreements, or to parts of them, ensures that if an entity gets a transfer pricing benefit, the benefit and the amount of that benefit is consistent with Australia's tax treaties. [3] 2D. Former Division 13 of the ITAA 1936 [4] can also apply during the transition period to allow the Commissioner to deem arm's length consideration to be given for tax purposes for certain international dealings. 2E. Importantly, section 815-40 of the ITAA 1997 ensures that an entity's transfer pricing benefit that is negated under Subdivision 815-A of the ITAA 1997 is not to be taken into account again under another provision. This includes former Division 13 of the ITAA 1936. 2F. If the Commissioner makes a Subdivision 815-A Determination to negate a transfer pricing benefit of an entity, subsection 284-145(2A) [5] applies a scheme penalty to an entity's scheme benefit for an income year which commenced on or after 1 July 2012 but before 29 June 2013. 2G. Similarly, if the Commissioner applies former Division 13 of the ITAA 1936, subsection 284-145(2) [6] applies a scheme penalty in relation to that entity's scheme benefit. 2H. Significantly, for income years which commenced within the transition period, section 815-10 of the IT(TP)A 1997 ensures that an entity will only be liable to a scheme penalty in relation to the scheme benefit which could have been denied by another provision of the tax law had Subdivision 815-A of the ITAA 1997 not been enacted. [7] 2I. In summary, the transfer pricing rules, including relevant scheme penalty provisions, apply as per Diagram 1 in Attachment A to this Practice Statement. 2J. Moreover, Diagram 1 in Attachment A to this Practice Statement highlights the transition period applicable to this Practice Statement. | 3. Statement: 3A. If the Commissioner makes a Subdivision 815-A Determination in respect of an income year commencing within the transition period, we are to exercise sound judgment in each instance in deciding whether we should allocate resources to assess a scheme penalty. In so deciding, we need to take into account whether: • extra complexity or costs arise in applying former Division 13 of the ITAA 1936, and • the scheme penalty, if assessed, would be remitted in full in accordance with the guidelines set out in this Practice Statement. • extra complexity or costs arise in applying former Division 13 of the ITAA 1936, and • the scheme penalty, if assessed, would be remitted in full in accordance with the guidelines set out in this Practice Statement. 3B. No further resources should be allocated to applying former Division 13 of the ITAA 1936 in order to impose a scheme penalty if we decide that: • applying former Division 13 will be overly complex or gives rise to unnecessary costs, and • it is appropriate to fully remit the scheme penalty that otherwise applies. • applying former Division 13 will be overly complex or gives rise to unnecessary costs, and • it is appropriate to fully remit the scheme penalty that otherwise applies. 3C. If you decide in appropriate circumstances that a scheme penalty should apply, you should: • apply former Division 13 of the ITAA 1936, including making former Division 13 Determinations, where the conditions for the application of former Division 13 have been satisfied, in assessing the scheme benefit (scheme shortfall amount), and • calculate the scheme penalty in accordance with Subdivision 284-C using the scheme shortfall amount. The scheme shortfall amount is the additional amount of income tax the entity is liable to pay as a result of the application of former Division 13 of the ITAA 1936. [8] • apply former Division 13 of the ITAA 1936, including making former Division 13 Determinations, where the conditions for the application of former Division 13 have been satisfied, in assessing the scheme benefit (scheme shortfall amount), and • calculate the scheme penalty in accordance with Subdivision 284-C using the scheme shortfall amount. The scheme shortfall amount is the additional amount of income tax the entity is liable to pay as a result of the application of former Division 13 of the ITAA 1936. [8] 3D. The effect of doing this in appropriate circumstances is that the entity will: • be liable to primary tax arising from us negating a transfer pricing benefit by making a Subdivision 815-A Determination (the entity's primary tax will be equal to the amount in the Subdivision 815-A Determination multiplied by the applicable tax rate) • not be liable to primary tax arising from the application of former Division 13 of the ITAA 1936 unless in extremely rare instances the amount determined under that Division is greater than the amount determined under Subdivision 815-A of the ITAA 1997, and • only be liable to a scheme penalty under subsection 284-145(2) arising because of the application of former Division 13 of the ITAA 1936. • be liable to primary tax arising from us negating a transfer pricing benefit by making a Subdivision 815-A Determination (the entity's primary tax will be equal to the amount in the Subdivision 815-A Determination multiplied by the applicable tax rate) • not be liable to primary tax arising from the application of former Division 13 of the ITAA 1936 unless in extremely rare instances the amount determined under that Division is greater than the amount determined under Subdivision 815-A of the ITAA 1997, and • only be liable to a scheme penalty under subsection 284-145(2) arising because of the application of former Division 13 of the ITAA 1936. 3E. In the majority of instances, the amount of the transfer pricing benefit negated under Subdivision 815-A of the ITAA 1997 will be the same as the difference between the arm's length and actual consideration under former Division 13 of the ITAA 1936 for the same cross-border dealings. In such instances, the scheme shortfall and scheme penalty amounts applicable will also be the same. However, Example 1 of this Practice Statement deals with a scenario where these amounts are different and, for illustration purposes, does not take into account the extra complexity or costs that may arise and the penalty remission guidelines. 3F. Importantly, section 815-10 of the IT(TP)A 1997 does not apply to income years commencing after 30 June 2012. Diagram 2 in Attachment A to this Practice Statement summarises in a flow chart the process for determining the type of scheme penalty we can impose. Example 1 – transfer pricing scheme penalties for income years commenced within the transition period 3G. For the 2010–11 income year, we make a Subdivision 815-A Determination in respect of Australian resident Lachlan Co's cross-border dealings with its parent company Jessica Co, a resident of a tax treaty partner country. We determine that Lachlan Co gets a transfer pricing benefit equivalent to the difference between what would have been its taxable income had arm's length conditions applied and its actual taxable income. The transfer pricing benefit in respect of the Subdivision 815-A Determination is $40 million. The primary tax payable in respect of this transfer pricing benefit is $12 million ($40 million × 30%). 3H. We also determine that the actual consideration for the cross-border dealings differs from the arm's length consideration and apply former Division 13 of the ITAA 1936. The difference between the actual consideration received and the arm's length consideration under former Division 13 is $30 million. 3I. Lachlan Co does not have a sole or dominant purpose of getting a scheme benefit from a scheme but does not have a reasonably arguable position. [9] 3J. Lachlan Co's scheme shortfall amount is $12 million in relation to the Subdivision 815-A Determination and $9 million ($30 million × 30%) in relation to the former Division 13 Determination. 3K. Lachlan Co is liable to tax of $12 million on the transfer pricing benefit. Lachlan Co is also liable under former paragraph 284-160(b)(i) [10] to a scheme penalty of $2.25 million ($9 million × 25%). | 4. Remission of transfer pricing scheme penalties: 4A. When making remission decisions concerning transfer pricing penalties for income years commencing within the transition period, you must ensure that the Commissioner's discretion under subsection 298-20(1) is exercised in accordance with the principles set out in this Practice Statement. [11] 4B. You should exercise the Commissioner's discretion regarding transfer pricing penalties to reduce the base penalty amount otherwise applying from 10% to nil where the taxpayer: • has genuinely made a reasonable attempt in good faith to comply with the arm's length principle in preparing the tax return, having regard to what a reasonable business person in the taxpayer's circumstances would do • has used their best endeavours to document the process of selecting and applying an arm's length method at the time the transaction was negotiated, or at the time the relevant tax return was prepared, on the basis of the information in their possession and any other information that was reasonably available to them at the time • can satisfy us that there was no tax avoidance intention or purpose in adopting the pricing outcomes arrived at from performing the process mentioned in the prior dot point, and • has fully cooperated with us (where the transfer pricing adjustment is made as a result of audit action), including providing all relevant information in their possession or reasonably available to them so as to achieve an expeditious conclusion of the audit. • has genuinely made a reasonable attempt in good faith to comply with the arm's length principle in preparing the tax return, having regard to what a reasonable business person in the taxpayer's circumstances would do • has used their best endeavours to document the process of selecting and applying an arm's length method at the time the transaction was negotiated, or at the time the relevant tax return was prepared, on the basis of the information in their possession and any other information that was reasonably available to them at the time • can satisfy us that there was no tax avoidance intention or purpose in adopting the pricing outcomes arrived at from performing the process mentioned in the prior dot point, and • has fully cooperated with us (where the transfer pricing adjustment is made as a result of audit action), including providing all relevant information in their possession or reasonably available to them so as to achieve an expeditious conclusion of the audit. 4C. Full remission will not be granted in instances where a transfer pricing adjustment has been made because of the failure by the taxpayer to furnish the tax return in accordance with the terms of any relevant advance pricing arrangement that the taxpayer has with us. 4D. The following matters are relevant to our discretion to remit: • the quality of a taxpayer's process and the adequacy and relevancy of documentation created and maintained in applying the arm's length principle, and • the reasonable availability of guidance to taxpayers on transfer pricing at the relevant time. • the quality of a taxpayer's process and the adequacy and relevancy of documentation created and maintained in applying the arm's length principle, and • the reasonable availability of guidance to taxpayers on transfer pricing at the relevant time. 4E. In relation to the first point in paragraph 4D of this Practice Statement, taxpayers assessed as falling in the medium-high quality and high quality categories under Chapter 4 of Taxation Ruling TR 98/11 Income tax: documentation and practical issues associated with setting and reviewing transfer pricing in international dealings will be regarded as having satisfied the requirements of the first 2 dot points of paragraph 4B. ATTACHMENT A Diagram 1: Transition period applicable to this Practice Statement Diagram 2: Which scheme penalty applies?",TR 98/16 (Withdrawn) | TR 98/11 | PS LA 2014/2 | Explanatory Memorandum | ITAA 1936 Pt IVA | ITAA 1997 Subdiv 815-A | ITAA 1997 Subdiv 815-B | ITAA 1997 815-15 | ITAA 1997 815-30 | ITAA 1997 815-40 | ITAA 1997 Subdiv 815-C | IT(TP)A 1997 815-10 | TAA 1953 Sch 1 Subdiv 284-C | TAA 1953 Sch 1 284-145(1)(b)(i) | TAA 1953 Sch 1 284-145(2A) | TAA 1953 Sch 1 284-145(2A)(a) | TAA 1953 Sch 1 284-150 | TAA 1953 Sch 1 284-160(3) | TAA 1953 Sch 1 284-220(1) | TAA 1953 Sch 1 284-225 | TAA 1953 Sch 1 298-20(1) | Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Act 2013,PS LA 2014/2,ITAA 1936 Pt IVA | ITAA 1936 Div 13 | ITAA 1997 Subdiv 815-A | ITAA 1997 Subdiv 815-B | ITAA 1997 815-15 | ITAA 1997 815-30 | ITAA 1997 815-40 | ITAA 1997 Subdiv 815-C | IT(TP)A 1997 815-10 | TAA 1953 Sch 1 Subdiv 284-C | TAA 1953 Sch 1 284-145(1)(b)(i) | TAA 1953 Sch 1 284-145(2) | TAA 1953 Sch 1 284-145(2)(a) | TAA 1953 Sch 1 284-145(2A) | TAA 1953 Sch 1 284-145(2A)(a) | TAA 1953 Sch 1 284-150 | TAA 1953 Sch 1 284-160(b)(i) | TAA 1953 Sch 1 284-160(3) | TAA 1953 Sch 1 284-220(1) | TAA 1953 Sch 1 284-225 | TAA 1953 Sch 1 298-20(1) | Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Act 2013,,Explanatory Memorandum to the Tax Laws Amendment (Cross-Border Transfer Pricing) Bill (No. 1) 2012,False,True,https://www.ato.gov.au/law/view/document?docid=PSR/PS20162/NAT/ATO/00001,"Updated in line with current ATO style and accessibility requirements. | Date of Effect: Income years that commenced on or after 1 July 2004 and before 1 July 2012 | [1] Guidance on scheme penalties arising from these rules is found in Law Administration Practice Statement PS LA 2014/2 Administration of transfer pricing penalties for income years commencing on or after 29 June 2013 . | [2] Section 815-15 of the ITAA 1997 defines the term 'transfer pricing benefit' as essentially an amount of profit which but for non-arm's length conditions operating between an Australian-resident entity and an associated entity might have been expected to accrue to the Australian entity. | [3] Paragraph 1.18 of the Explanatory Memorandum to the Tax Laws Amendment (Cross-Border Transfer Pricing) Bill (No. 1) 2012. | [4] Division 13 of the ITAA 1936 was repealed by the Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Act 2013 . | [5] Provided that the entity would have got a scheme benefit from a scheme but for the Commissioner making a Subdivision 815-A Determination (paragraph 284-145(2A)(a)) and provided that subparagraph 284-145(1)(b)(i) does not apply in respect of the scheme. | [6] Provided that the entity would have got a scheme benefit from a scheme but for the Commissioner applying former Division 13 of the ITAA 1936 (paragraph 284-145(2)(a)) and provided that subparagraph 284-145(1)(b)(i) does not apply in respect of the scheme. Subsection 284-145(2) was repealed by the Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Act 2013 . | [7] Paragraphs 1.142 and 1.143 of the Explanatory Memorandum to the Tax Laws Amendment (Cross-Border Transfer Pricing) Bill (No. 1) 2012. | [8] See subsection 284-145(2) and section 284-150. | [9] Nor do subsections 284-160(3), subsection 284-220(1) or section 284-225 apply. | [11] For consistency, these principles have been drawn from paragraphs 36 to 40 of former Taxation Ruling 98/16 Income tax: international transfer pricing - penalty tax guidelines (withdrawn). These principles also apply to remission decisions concerning transfer pricing scheme penalties imposed under subsections 284-145(2) and (2A) for income years starting on or after 1 July 2012 and before 29 June 2013. | File 1-5ICHRTK; 1-1569VA3C"
PS LA 2016/3,The cancellation of registrations in the Australian Business Register,10 June 2016,10 June 2016,Law Administration Practice Statement,False,"1. What is this Practice Statement about?: This practice statement outlines the Registrar's policy about how and when the registration of entities in the Australian Business Register (ABR) can be cancelled. | 2. Who can make a decision to cancel an entity that is registered in the Australian Business Register?: The Registrar can make decisions about cancelling an entity's registration. An entity's [1] registration can be cancelled: • on the Registrar's initiative [2] • following a request by the entity or the entity's authorised contact. [3] • on the Registrar's initiative [2] • following a request by the entity or the entity's authorised contact. [3] | 3. Under what circumstances can the Registrar cancel an entity's registration?: The Registrar can cancel an entity's registration if satisfied that the entity is not entitled to have an Australian business number (ABN). [4] An entity is not entitled to an ABN where it is not carrying on an enterprise [5] in Australia or in the course of carrying on an enterprise it is not making supplies connected with the indirect tax zone. [6] Carrying on an enterprise includes activities done in the course of terminating the enterprise. Whether those activities have a connection with the termination is a question of fact and degree and will depend on the circumstances of each particular case. [7] The Registrar can also cancel an entity's registration where they are satisfied that the entity, or its associates, are registered under an identity that is not their true identity. [8] | 4. Our policy about Registrar-initiated cancellation: The value of the ABR as a whole of government database relies on the integrity of the ABR records. The Registrar cancels registrations as an administrative action taken to ensure the integrity of the information recorded in the ABR. The Registrar can make a decision about an entity's entitlement to be registered in the ABR by using available information. This information can come from a variety of sources and can either be solicited or unsolicited. These sources include: • information from the entity itself • information from the Commissioner of Taxation • information from other government agencies • requests from third parties • information from other available sources. • information from the entity itself • information from the Commissioner of Taxation • information from other government agencies • requests from third parties • information from other available sources. In making a decision, the Registrar must be reasonably satisfied that a particular fact is more likely than not to be true, based on the evidence and information provided. The information must be persuasive, reliable and sufficient enough to demonstrate that the entity is no longer entitled to be registered in the ABR. Information from the entity To assist in making a decision the Registrar can request information and evidence from an entity that is relevant to its entitlement to an ABN, or confirming its identity or the identity of any associates whose details are recorded in the ABR. [9] The Registrar may also take into account other information about the entity that is readily available and accessible. For example, the entity's website, advertising in the Yellow Pages or local business directory. Information from the Commissioner of Taxation The Registrar may use information from the Commissioner of Taxation along with information held in the ABR or other sources to be satisfied about an entity's entitlement to be registered in the ABR. For example the Registrar can use information disclosed from the Commissioner that an entity has not reported income or is not showing any other evidence of conducting an enterprise for a period of time. This satisfies the Registrar that the entity is no longer carrying on an enterprise and is not entitled to an ABN. The Registrar cancels the registration of the entity. Information from other government agencies Information from various government agencies can be used by the Registrar to assist in making a decision about an entity's entitlement to be registered in the ABR. For example, Australian Securities and Investment Commission (ASIC) will deregister a company where its annual renewal fee has not been paid in full at least 12 months after the due date for payment. The Registrar can cancel the registration in the ABR based on notification about de-registration from ASIC. [10] Requests from third parties The Registrar may consider a request to cancel an entity's registration in the ABR from a third party. For example, where the Commissioner of Taxation has concluded that the entity is not carrying on an enterprise for GST purposes, or where it is not operating under the structure or entity type for which it is registered in the ABR. | 5. Our policy about client-initiated cancellation: An entity or their authorised contact can apply at any time to have the entity's registration cancelled in the ABR. An entity should cancel its registration when it is no longer entitled to an ABN. The entity must make the request in the approved form. [11] The Registrar will accept the date of cancellation that an entity specifies in their application, unless satisfied that the date of cancellation is different. Refusal to cancel The Registrar can refuse to cancel an entity's registration in the ABR, even where the entity has applied in the approved form. For example the entity may have outstanding tax obligations that they need to finalise prior to the ABN being cancelled by the Registrar. Changes to an enterprise An entity is not required to cancel their registration if they change the enterprise they are carrying on. Where the entity is carrying on multiple enterprises and one or more of those are ceased, they are not required to cancel their registration providing they continue to carry on at least one enterprise. Seasonal enterprises If the enterprise is seasonal, the ABN remains active in the ABR. This is because a seasonal enterprise continues to carry on an enterprise even where they are not physically trading. | 6. What is the date of effect of a cancellation in the ABR?: The Registrar generally gives the entity a date of effect of cancellation as: • the date of the written notice of cancellation [12] • a specified date in the future [13] • a date before the date of the notice of cancellation. [14] For example, this could be the date of registration where the Registrar is satisfied that - the entity was never entitled to an ABN - the date the entity ceased carrying on an enterprise - the date the entity ceased to exist, for example, the date a company is deregistered by ASIC - the date that the Registrar made a decision about the entity's entitlement - the date the cancellation is actioned in the ABR. • the date of the written notice of cancellation [12] • a specified date in the future [13] • a date before the date of the notice of cancellation. [14] For example, this could be the date of registration where the Registrar is satisfied that - the entity was never entitled to an ABN - the date the entity ceased carrying on an enterprise - the date the entity ceased to exist, for example, the date a company is deregistered by ASIC - the date that the Registrar made a decision about the entity's entitlement - the date the cancellation is actioned in the ABR. - the entity was never entitled to an ABN - the date the entity ceased carrying on an enterprise - the date the entity ceased to exist, for example, the date a company is deregistered by ASIC - the date that the Registrar made a decision about the entity's entitlement - the date the cancellation is actioned in the ABR. | 7. Written notice of cancellation: The Registrar must send a written notice of a decision to cancel or refuse to cancel a registration in the ABR. The notice must state: • the date of effect of cancellation [15] • the reasons for the cancellation where the cancellation is on the Registrar's initiative [16] • the reasons for refusing to cancel the registration on application [17] , and • the entity's review rights. • the date of effect of cancellation [15] • the reasons for the cancellation where the cancellation is on the Registrar's initiative [16] • the reasons for refusing to cancel the registration on application [17] , and • the entity's review rights. The Registrar will send the notice as soon as it is practicable after an entity's registration in the ABR is cancelled. Returned unclaimed mail indicator Where an entity has a returned unclaimed mail indicator on their account, a cancellation notice will not be sent until the Registrar is satisfied another address relating to the entity (whether or not a physical address) is likely to be effective. | 8. What are the consequences of cancelling the registration in the ABR?: When an entity's registration is cancelled in the ABR, regardless of the reason, the entity ceases to have an active ABN. The previously active ABN must not be quoted by the entity after the date of effect of the cancellation of the registration. Where an entity or its associate misuses an ABN by holding themselves out and identifying themselves by using a cancelled ABN [18] they commit an offence under the A New Tax System (Australian Business Number) Act 1999, which carries a penalty of 2 years imprisonment. [19] | 9. Can an entity's registration be reinstated where it should not have been cancelled?: Reinstating an entity's registration The Registrar can reinstate an entity's registration where satisfied that the registration should not have been cancelled. [20] These circumstances include: • where an internal administrative error has occurred • the entity has made an error in requesting cancellation of its registration • where ASIC has reinstated a company's registration. • where an internal administrative error has occurred • the entity has made an error in requesting cancellation of its registration • where ASIC has reinstated a company's registration. Date of effect of reinstatement The reinstatement has the date of effect on and from the day the registration was cancelled, not the date of the reinstatement. The registration will appear on the ABR as if it was never cancelled once it is reinstated. [21] Written notice of reinstatement The Registrar must provide the entity with a written notice of the reinstatement as soon as practicable after an entity is reinstated in the ABR. [22] | 10. Review rights: An entity can lodge an objection [23] against the following decisions: • cancelling its registration in the ABR [24] • refusing to cancel its registration in the ABR [25] • setting the date of cancellation of their registration. [26] • cancelling its registration in the ABR [24] • refusing to cancel its registration in the ABR [25] • setting the date of cancellation of their registration. [26] | 11. More information: For more information, see: • Cancel your ABN • PS LA 2011/9 The registration of entities in the Australian Business Register • MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number • Proving your identity • Cancel your ABN • PS LA 2011/9 The registration of entities in the Australian Business Register • MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number • Proving your identity",PS LA 2011/9 | MT 2006/1 | ANTS(ABN)A 1999 15 | ANTS(ABN)A 1999 18(1) | ANTS(ABN)A 1999 18(1)(a) | ANTS(ABN)A 1999 18(1)(b) | ANTS(ABN)A 1999 18(1)(c) | ANTS(ABN)A 1999 18(2) | ANTS(ABN)A 1999 18(2)(a) | ANTS(ABN)A 1999 18(2)(b) | ANTS(ABN)A 1999 18(3)(a) | ANTS(ABN)A 1999 18(3)(b) | ANTS(ABN)A 1999 18(3)(c) | ANTS(ABN)A 1999 18(4) | ANTS(ABN)A 1999 18(4)(a) | ANTS(ABN)A 1999 18(5) | ANTS(ABN)A 1999 19(1) | ANTS(ABN)A 1999 19(2) | ANTS(ABN)A 1999 19(3) | ANTS(ABN)A 1999 21(2) | ANTS(ABN)A 1999 23(1) | ANTS(ABN)A 1999 23(2) | ANTS(ABN)A 1999 23(3) | ANTS(ABN)A 1999 41 | ANTS(GST)A 1999 9-20 | ANTS(GST)A 1999 184-1 | Corporations Act 2001 601AD(1),PS LA 2011/9,ANTS(ABN)A 1999 15 | ANTS(ABN)A 1999 18(1) | ANTS(ABN)A 1999 18(1)(a) | ANTS(ABN)A 1999 18(1)(b) | ANTS(ABN)A 1999 18(1)(c) | ANTS(ABN)A 1999 18(2) | ANTS(ABN)A 1999 18(2)(a) | ANTS(ABN)A 1999 18(2)(b) | ANTS(ABN)A 1999 18(3)(a) | ANTS(ABN)A 1999 18(3)(b) | ANTS(ABN)A 1999 18(3)(c) | ANTS(ABN)A 1999 18(4) | ANTS(ABN)A 1999 18(4)(a) | ANTS(ABN)A 1999 18(5) | ANTS(ABN)A 1999 19(1) | ANTS(ABN)A 1999 19(2) | ANTS(ABN)A 1999 19(3) | ANTS(ABN)A 1999 21(2) | ANTS(ABN)A 1999 23(1) | ANTS(ABN)A 1999 23(2) | ANTS(ABN)A 1999 23(3) | ANTS(ABN)A 1999 41 | ANTS(GST)A 1999 9-20 | ANTS(GST)A 1999 184-1 | Corporations Act 2001 601AD(1),,,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20163/NAT/ATO/00001,"Minor content changes made for clarity and style. | Minor adjustments to formatting and some phrases | [1] The term 'entity' is defined in section 41 of the A New Tax System (Australian Business Number) Act 1999 (ABN Act) to have the meaning given by section 184-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). For further information about entities refer to Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number. Note: All legislative references in this practice statement are to the ABN Act, unless otherwise stated. | [4] Paragraphs 18(1)(b) and (c). | [5] The term enterprise is defined in section 41 to have the meaning given by section 9-20 of the GST Act. | [6] The indirect tax zone means the geographical part of Australia in which the goods and services tax, the wine equalisation tax and luxury car tax operate. This excludes all the external territories and certain offshore installations. | [7] Paragraphs 140 to 148 of MT 2006/1 further discusses termination of enterprise. | [10] Subsection 601AD(1) of the Corporations Act 2001 states that a company ceases to exist on deregistration. | [15] Paragraph 18(2)(b) and subsection 18(5). | [18] Subsections 23(1) and (2). | [23] An entity may object, in the manner set out in Part IVC of the Taxation Administration Act 1953 , against a decision it is dissatisfied with that is a reviewable ABN decision. Part IVC applies in relation to a reviewable ABN decision as if references in that Part to the Commissioner of Taxation were references to the Registrar. | [24] Subsection 21(2) item 3 is a reviewable ABN decision made under subsection 18(1). | [25] Subsection 21(2) item 5 is a reviewable ABN decision made under subsection 18(4). | [26] Subsection 21(2) item 6 is a reviewable ABN decision made under subsections 18(2) or (5)."
PS LA 2016/4,Maintaining the Australian Business Register,23 June 2016,23 June 2016,Law Administration Practice Statement,False,"1. What this Practice Statement is about: This Practice Statement outlines the Registrar's policy on how the Australian Business Register (ABR) is maintained. [1] The Registrar has adopted a broad interpretation of the meaning of 'maintain'. It includes the following activities: • entering and keeping up-to-date details about an entity that must be entered in the ABR under specific provisions of the – A New Tax System (Australian Business Number) Act 1999 (ABN Act) – A New Tax System (Australian Business Number) Regulations 2020 (ABN Regulations 2020) – A New Tax System (Goods and Services Tax) Act 1999 (GST Act) – Taxation Administration Act 1953 (TAA) • collecting and keeping up-to-date additional details about an entity for the purpose of administering specific provisions of the ABN Act, and • collecting other details that are publicly available about an entity that are considered necessary to facilitate service delivery functions in a whole-of-government context. • entering and keeping up-to-date details about an entity that must be entered in the ABR under specific provisions of the – A New Tax System (Australian Business Number) Act 1999 (ABN Act) – A New Tax System (Australian Business Number) Regulations 2020 (ABN Regulations 2020) – A New Tax System (Goods and Services Tax) Act 1999 (GST Act) – Taxation Administration Act 1953 (TAA) • collecting and keeping up-to-date additional details about an entity for the purpose of administering specific provisions of the ABN Act, and • collecting other details that are publicly available about an entity that are considered necessary to facilitate service delivery functions in a whole-of-government context. – A New Tax System (Australian Business Number) Act 1999 (ABN Act) – A New Tax System (Australian Business Number) Regulations 2020 (ABN Regulations 2020) – A New Tax System (Goods and Services Tax) Act 1999 (GST Act) – Taxation Administration Act 1953 (TAA) | 2. Details to enter in the Australian Business Register: There are details that the Registrar must enter about an entity in the ABR. [2] These details are listed in the Appendix to this Practice Statement. | 3. Ensuring the details are correct: The Registrar keeps details entered in the ABR correct by: • updating details entered in the ABR when notified by an entity that their details have changed • requesting information from entities about their entitlement, identity or other details entered in the ABR in relation to the entity • requesting information from third parties about an entity's entitlement, identity or other details entered in the ABR in relation to the entity, and • adjusting details in the ABR where the Registrar is satisfied the details in the ABR about an entity are incorrect or for other administrative purposes. • updating details entered in the ABR when notified by an entity that their details have changed • requesting information from entities about their entitlement, identity or other details entered in the ABR in relation to the entity • requesting information from third parties about an entity's entitlement, identity or other details entered in the ABR in relation to the entity, and • adjusting details in the ABR where the Registrar is satisfied the details in the ABR about an entity are incorrect or for other administrative purposes. | 4. Change of details notifications: An entity must notify the Registrar in the approved form [3] of any change to its details recorded in the ABR. It must do so within 28 days of becoming aware of the change. [4] The Registrar is not obliged to update an entity's details in the ABR. The details will be adjusted where the Registrar considers that it is appropriate to do so. For example, where an entity notifies the Registrar of a change of address details, the Registrar will update the entity's address details in the ABR. However, where an entity requests backdating of its date of effect of registration, the Registrar will only adjust the date if satisfied that the entity was in fact entitled to an ABN from the earlier date. | 5. Requesting information from the entity: Informal requests for information The Registrar can request information from an entity about its entitlement to be registered, identity or any other details entered in the ABR in relation to the entity. Such requests will usually be made informally by phone contact. If an entity refuses to provide information on an informal basis, the Registrar can make a formal request for the information. Formal requests for information The Registrar has the power to formally request information from an entity [5] that is relevant to its entitlement to be registered, its identity, the identity of its associates, the identity of its representative [6] or any details entered in the ABR about the entity or its representative. A formal request for information must be made in writing to the entity. The request may ask the entity to give the information in writing or in any other form that the Registrar considers appropriate. For example, the Registrar may request that the entity give information by phone. The notice must also give the entity at least 14 days in which to provide the Registrar with the information. [7] | 6. Requesting information from a third party: Informal requests The ABN Act does not give the Registrar the formal power to seek information about registered entities from a third party. However, the Registrar can ask for information from a third party on a voluntary basis where the Registrar considers that the information would assist in making a decision in relation to the entity's entitlement to be registered in the ABR or in relation to any other detail about the entity entered in the ABR. Where information is requested from a third party informally, the Registrar must make it clear that the party is not compelled to provide it. The Registrar is not required to obtain consent from the entity when requesting information about it from the third party. Formal requests Where a third party does not provide the Registrar information that he has requested informally, the Registrar may use the formal powers available to them under the TAA [8] to obtain the information. The Registrar must only use these formal powers where it is considered that the information will assist to carry out the Registrar's functions under the ABN Act. For example, the Registrar may seek information from a third party that relates to the relationship between that party and a registered entity. The Registrar may use this information to determine the entity's entitlement to an ABN. | 7. Adjusting details in the Australian Business Register: The Registrar can adjust details in the ABR in the following circumstances: • to correct administrative errors relating to details entered in the ABR • where satisfied that details entered in the ABR about an entity are incorrect and the Registrar has access to details that they believe to be correct [9] • to change the ABN of an entity where it is considered appropriate to do so [10] • to accommodate requests made by the Commissioner of Taxation to allow the effective administration of other taxation laws. • to correct administrative errors relating to details entered in the ABR • where satisfied that details entered in the ABR about an entity are incorrect and the Registrar has access to details that they believe to be correct [9] • to change the ABN of an entity where it is considered appropriate to do so [10] • to accommodate requests made by the Commissioner of Taxation to allow the effective administration of other taxation laws. Correcting administrative errors Where an administrative error has been made in recording an entry about an entity in the ABR, the Registrar may adjust the record to reflect the correct details. Adjusting incorrect details The Registrar is able to adjust details about an entity registered in the ABR where reasonably satisfied [11] that those details entered in the ABR are incorrect and the Registrar has access to details believed to be correct and that are fit for purpose. [12] For example, where the Registrar receives correspondence returned unclaimed from an entity it is more likely than not that the address detail in the ABR is no longer correct. The Registrar may use information from various sources to adjust an entity's details. The following are some examples of such situations. Other taxation laws Information obtained under other taxation laws by the Commissioner and disclosed to the Registrar for the purposes of administering the ABN Act may be used by the Registrar to adjust details about an entity in the ABR. Publicly available sources The Registrar may adjust details about an entity using information obtained from public sources, for example, the Yellow Pages or a business directory available on a local council's website. Other government entities The Registrar may adjust details about an entity using information received from other government agencies. This information may be solicited or unsolicited. The Registrar will need to consider if the information is subject to the other agency's secrecy provisions before using the information to update details entered in the ABR. Changing an entity's ABN The Registrar has the discretion to change the ABN of an entity registered in the ABR at any time. [13] This can be done at the entity's request or on the Registrar's initiative. Some of the circumstances where the Registrar can change an ABN include: • an incorrect Australian company number (ACN) [14] or Australian Registered Body Number (ARBN) [15] was used to generate the ABN • a company has received an ABN without their ACN or ARBN embedded in it [16] • where the entity's data has been compromised [17] • the entity has requested a different number based on cultural or religious beliefs • an error was made in the initial registration, such as the entity was registered as an incorrect entity type. • an incorrect Australian company number (ACN) [14] or Australian Registered Body Number (ARBN) [15] was used to generate the ABN • a company has received an ABN without their ACN or ARBN embedded in it [16] • where the entity's data has been compromised [17] • the entity has requested a different number based on cultural or religious beliefs • an error was made in the initial registration, such as the entity was registered as an incorrect entity type. The Registrar must give the entity written notice of the new ABN stating the date that the new ABN takes effect. [18] Requests from the Commissioner The Commissioner may request the Registrar to make adjustments to details about an entity registered in the ABR to assist in the administration of other taxation laws. For example, the Commissioner may request a change to the date of effect of a registration of an entity in the ABR for a number of reasons including: • as a result of compliance activity • to allow compliance with tax obligations • to allow compliance with superannuation obligations. • as a result of compliance activity • to allow compliance with tax obligations • to allow compliance with superannuation obligations. The Registrar has the discretion to accommodate these requests where satisfied it is appropriate to do so. | 8. Deleting details: The Registrar cannot delete ABR records as there are restrictions in place limiting their ability to delete Commonwealth records under the Archives Act 1983. [19] The Registrar may suppress details from the ABR where those details are unable to be deleted but are not appropriate to continue to be viewed publicly or shared with other government agencies. [20] | 9. Collecting other details: The Registrar may collect other details about an entity where the details are: • for the purpose of administering a specific provision of the ABN Act, or • publicly available and are considered necessary to facilitate service delivery functions for whole-of-government purposes. • for the purpose of administering a specific provision of the ABN Act, or • publicly available and are considered necessary to facilitate service delivery functions for whole-of-government purposes. Collecting details for the purpose of administering the ABN Act The Registrar can collect other details which are considered necessary for the purpose of administering a specific provision of the ABN Act. These details will be protected by the secrecy provisions in the ABN Act as they will have been obtained under or in relation to the ABN Act. The Registrar will be responsible for keeping these details up to date as the ABN Act only places an obligation on entities to inform the Registrar of any changes to the details listed in the Appendix to this Practice Statement. Where there is any uncertainty regarding the Registrar's ability to collect a particular detail, regard should be given to the objects of the ABN Act in order to determine whether the purpose of collecting the detail falls within the purposes of the ABN Act more broadly. The objects do not give the Registrar any powers but set out how the ABN Act is intended to operate to achieve its purpose. The objects enable businesses to meet their reporting and registration obligations at a whole-of-government level, by reliably identifying themselves with a unique number for taxation law purposes, thereby reducing administrative burdens faced by businesses having to provide the same information through multiple channels. Collecting details for whole-of-government purposes The Registrar can also collect other details that are publicly available about an entity and enter them in the ABR where they are considered necessary to facilitate service delivery functions for whole-of-government purposes. Because these details are not being collected for the purpose of administering a specific provision of the ABN Act, they are not protected information within the meaning of that Act. The Registrar will be responsible for keeping these details up to date as the ABN Act only places an obligation on entities to inform the Registrar of any changes to the details listed in the Appendix to this Practice Statement. | 10. More information: For more information, see: • Law Administration Practice Statement PS LA 2011/9 The registration of entities in the Australian Business Register • Law Administration Practice Statement PS LA 2016/3 The cancellation of registration in the Australian Business Register • Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number . • Law Administration Practice Statement PS LA 2011/9 The registration of entities in the Australian Business Register • Law Administration Practice Statement PS LA 2016/3 The cancellation of registration in the Australian Business Register • Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number . Appendix: Australian Business Register information The Registrar must enter the details into the ABR found in Tables 1 to 7 of this Practice Statement where the relevant information is applicable. Table 1: Details to enter into the ABR for a registered entity Detail Legislative reference The entity's name Paragraph 25(1)(a) of the ABN Act The entity's ABN Paragraph 25(1)(b) of the ABN Act The date of effect of the registration of the entity in the ABR Paragraph 25(1)(c) of the ABN Act An address for service of notices under the ABN Act Paragraph 25(2)(a) of the ABN Act Details of the entity's associates that were requested in the approved form for registration in the ABR Paragraph 25(2)(b) of the ABN Act Any business name registered to the entity on the Business Names Register that is established and maintained under section 22 of the Business Names Registration Act 2011 Paragraph 6(a) of the ABN Regulations The entity's principal place of business Paragraph 6(b) of the ABN Regulations The kind of entity that is being registered Paragraph 6(c) of the ABN Regulations The Australian and New Zealand Standard Industrial Classification code for the business being conducted by the entity Paragraph 6(d) of the ABN Regulations The entity's email address Subparagraph 6(e)(v) of the ABN Regulations The date of effect of any change to the entity's ABN Subparagraph 6(e)(vi) of the ABN Regulations The date of effect of the cancellation of the entity's registration in the ABR Subparagraph 6(e)(vii) of the ABN Regulations Table 2: Details to enter into the ABR for the entity when a nominated representative is engaged Detail Legislative reference The representative's name Paragraph 25(3)(a) of the ABN Act The representative's email address Paragraph 25(3)(b) of the ABN Act The date of effect of the representative's registration in the ABR Paragraph 25(3)(c) of the ABN Act Table 3: Details to enter into the ABR if the entity is registered under the Corporations Act Detail Legislative reference The entity's ACN Subparagraph 6(e)(i) of the ABN Regulations The entity's ARBN Subparagraph 6(e)(ii) of the ABN Regulations The name of the entity's public officer Subparagraph 6(e)(iii) of the ABN Regulations Table 4: Details to enter into the ABR if the entity is a trust Detail Legislative reference The name of the entity's trustee or trustees Subparagraph 6(e)(iv) of the ABN Regulations Table 5: Details to enter into the ABR if the entity is a registrable superannuation entity (RSE) licensee Detail Legislative reference The class of licence held by the licensee Subparagraph 26(3)(ja)(i) of the ABN Act The address of the licensee recorded by the Australian Prudential Regulation Authority for the purposes of the Superannuation Industry (Supervision) Act 1993 (SISA) Subparagraph 26(3)(ja)(ii) of the ABN Act The licensee's postal address Subparagraph 26(3)(ja)(iii) of the ABN Act The licensee's phone number Subparagraph 26(3)(ja)(iv) of the ABN Act Table 6: Details to enter into the ABR if the entity is an RSE Detail Legislative reference The address for the entity recorded by the Australian Prudential Regulation Authority for the purposes of the SISA Subparagraph 26(3)(jb)(i) of the ABN Act The entity's postal address Subparagraph 26(3)(jb)(ii) of the ABN Act The entity's phone number Subparagraph 26(3)(jb)(iii) of the ABN Act The entity's contact person Subparagraph 26(3)(jb)(iv) of the ABN Act The RSE licensee of the entity Subparagraph 26(3)(jb)(v) of the ABN Act Table 7: Details to enter into the ABR in relation to a registered entity Detail Legislative reference The date of effect of any GST registration of the entity Section 25-10 of the GST Act The date of effect of any GST cancellation of the entity Section 25-60 of the GST Act If the entity is endorsed as a deductible gift recipient, a statement that it is so endorsed for a specified period Section 30-229 of the Income Tax Assessment Act 1997 (ITAA 1997) If the entity is endorsed as a charity under subsection 176-1 of the GST Act, a statement that the entity is so endorsed for a specified period Paragraph 426-65(1)(a) of Schedule 1 to TAA If the entity is endorsed as an approved worker entitlement fund under subsection 58PB(3) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), a statement that the entity is so endorsed for a specified period Paragraph 426-65(1)(ba) of Schedule 1 to the TAA If the entity is endorsed for the operation of an approved worker entitlement fund under subsection 58PB(3A) of the FBTAA, a statement that the entity is so endorsed for a specified period Paragraph 426-65(1)(bb) of Schedule 1 to the TAA If the entity is endorsed as a public benevolent institution under subsection 123C(1) of the FBTAA, a statement that the entity is so endorsed for a specified period Paragraph 426-65(1)(c) of Schedule 1 to the TAA If the entity is endorsed as a health promotion charity under subsection 123D(1) of the FBTAA, a statement that the entity is so endorsed for a specified period Paragraph 426-65(1)(e) of Schedule 1 to the TAA If the entity is endorsed as a registered charity under section 123E of the FBTAA, a statement that the entity is so endorsed for a specified period Paragraph 426-65(1)(f) of Schedule 1 to the TAA If the entity is endorsed as being exempt from income tax under section 50-105 of the ITAA 1997, a statement that the entity is so endorsed for a specified period Paragraph 426-65(1)(g) of Schedule 1 to the TAA If the endorsed entity is also registered under the Australian Charities and Not-for-profits Commission Act 2012 as an entity of a particular type or subtype, a statement that the entity is registered and a statement as to the date of effect of registration Paragraph 426-65(2A) of Schedule 1 to the TAA If the entity is a public ancillary fund, a statement that it is a public ancillary fund Subsection 426-104(1) of Schedule 1 to the TAA If the entity is a private ancillary fund, a statement that it is a private ancillary fund Subsection 426-115(1) of Schedule 1 to the TAA If the entity is a community charity trust, a statement that it is a community charity trust Subsection 426-119(1) of Schedule 1 to the TAA If the entity is a community charity corporation, a statement that it is a community charity corporation Subsection 426-190(1) of Schedule 1 to the TAA If the entity is registered as an employer of working holiday makers, a statement to that effect and the day on which the registration takes effect Subsection 16-147(5) of Schedule 1 to the TAA If an entity's registration as a working holiday maker is cancelled, a statement to that effect and the day on which the cancellation takes effect Subsection 16-148(7) of Schedule 1 to the TAA If a corporate collective investment vehicle sub-fund trust has an ABN, a statement that indicates that the trust is taken to exist for tax purposes because of section 195-110 of the ITAA 1997 and the sub-fund's Australian Registered Fund Number Subsection 195–140(1) of the ITAA 1997 Table 2: Details to enter into the ABR for the entity when a nominated representative is engaged Detail Legislative reference The representative's name Paragraph 25(3)(a) of the ABN Act The representative's email address Paragraph 25(3)(b) of the ABN Act The date of effect of the representative's registration in the ABR Paragraph 25(3)(c) of the ABN Act Table 3: Details to enter into the ABR if the entity is registered under the Corporations Act Detail Legislative reference The entity's ACN Subparagraph 6(e)(i) of the ABN Regulations The entity's ARBN Subparagraph 6(e)(ii) of the ABN Regulations The name of the entity's public officer Subparagraph 6(e)(iii) of the ABN Regulations Table 4: Details to enter into the ABR if the entity is a trust Detail Legislative reference The name of the entity's trustee or trustees Subparagraph 6(e)(iv) of the ABN Regulations Table 5: Details to enter into the ABR if the entity is a registrable superannuation entity (RSE) licensee Detail Legislative reference The class of licence held by the licensee Subparagraph 26(3)(ja)(i) of the ABN Act The address of the licensee recorded by the Australian Prudential Regulation Authority for the purposes of the Superannuation Industry (Supervision) Act 1993 (SISA) Subparagraph 26(3)(ja)(ii) of the ABN Act The licensee's postal address Subparagraph 26(3)(ja)(iii) of the ABN Act The licensee's phone number Subparagraph 26(3)(ja)(iv) of the ABN Act Table 6: Details to enter into the ABR if the entity is an RSE Detail Legislative reference The address for the entity recorded by the Australian Prudential Regulation Authority for the purposes of the SISA Subparagraph 26(3)(jb)(i) of the ABN Act The entity's postal address Subparagraph 26(3)(jb)(ii) of the ABN Act The entity's phone number Subparagraph 26(3)(jb)(iii) of the ABN Act The entity's contact person Subparagraph 26(3)(jb)(iv) of the ABN Act The RSE licensee of the entity Subparagraph 26(3)(jb)(v) of the ABN Act Table 7: Details to enter into the ABR in relation to a registered entity Detail Legislative reference The date of effect of any GST registration of the entity Section 25-10 of the GST Act The date of effect of any GST cancellation of the entity Section 25-60 of the GST Act If the entity is endorsed as a deductible gift recipient, a statement that it is so endorsed for a specified period Section 30-229 of the Income Tax Assessment Act 1997 (ITAA 1997) If the entity is endorsed as a charity under subsection 176-1 of the GST Act, a statement that the entity is so endorsed for a specified period Paragraph 426-65(1)(a) of Schedule 1 to TAA If the entity is endorsed as an approved worker entitlement fund under subsection 58PB(3) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), a statement that the entity is so endorsed for a specified period Paragraph 426-65(1)(ba) of Schedule 1 to the TAA If the entity is endorsed for the operation of an approved worker entitlement fund under subsection 58PB(3A) of the FBTAA, a statement that the entity is so endorsed for a specified period Paragraph 426-65(1)(bb) of Schedule 1 to the TAA If the entity is endorsed as a public benevolent institution under subsection 123C(1) of the FBTAA, a statement that the entity is so endorsed for a specified period Paragraph 426-65(1)(c) of Schedule 1 to the TAA If the entity is endorsed as a health promotion charity under subsection 123D(1) of the FBTAA, a statement that the entity is so endorsed for a specified period Paragraph 426-65(1)(e) of Schedule 1 to the TAA If the entity is endorsed as a registered charity under section 123E of the FBTAA, a statement that the entity is so endorsed for a specified period Paragraph 426-65(1)(f) of Schedule 1 to the TAA If the entity is endorsed as being exempt from income tax under section 50-105 of the ITAA 1997, a statement that the entity is so endorsed for a specified period Paragraph 426-65(1)(g) of Schedule 1 to the TAA If the endorsed entity is also registered under the Australian Charities and Not-for-profits Commission Act 2012 as an entity of a particular type or subtype, a statement that the entity is registered and a statement as to the date of effect of registration Paragraph 426-65(2A) of Schedule 1 to the TAA If the entity is a public ancillary fund, a statement that it is a public ancillary fund Subsection 426-104(1) of Schedule 1 to the TAA If the entity is a private ancillary fund, a statement that it is a private ancillary fund Subsection 426-115(1) of Schedule 1 to the TAA If the entity is a community charity trust, a statement that it is a community charity trust Subsection 426-119(1) of Schedule 1 to the TAA If the entity is a community charity corporation, a statement that it is a community charity corporation Subsection 426-190(1) of Schedule 1 to the TAA If the entity is registered as an employer of working holiday makers, a statement to that effect and the day on which the registration takes effect Subsection 16-147(5) of Schedule 1 to the TAA If an entity's registration as a working holiday maker is cancelled, a statement to that effect and the day on which the cancellation takes effect Subsection 16-148(7) of Schedule 1 to the TAA If a corporate collective investment vehicle sub-fund trust has an ABN, a statement that indicates that the trust is taken to exist for tax purposes because of section 195-110 of the ITAA 1997 and the sub-fund's Australian Registered Fund Number Subsection 195–140(1) of the ITAA 1997",PS LA 2011/9 | PS LA 2016/3 | MT 2006/1 | PS LA 2005/19 | ANTS(ABN)Act 1999 9A | ANTS(ABN)A 1999 14(1) | ANTS(ABN)A 1999 15(1) | ANTS(ABN)A 1999 15(2) | ANTS(ABN)A 1999 17 | ANTS(ABN)A 1999 17(1) | ANTS(ABN)A 1999 17(1)(b) | ANTS(ABN)A 1999 24(1) | ANTS(ABN)A 1999 25 | ANTS(ABN)A 1999 25(1)(a) | ANTS(ABN)A 1999 25(1)(b) | ANTS(ABN)A 1999 25(1)(c) | ANTS(ABN)A 1999 25(2)(a) | ANTS(ABN)A 1999 25(2)(b) | ANTS(ABN)A 1999 25(3)(a) | ANTS(ABN)A 1999 25(3)(b) | ANTS(ABN)A 1999 25(3)(c) | ANTS(ABN)A 1999 26(3)(ja)(i) | ANTS(ABN)A 1999 26(3)(ja)(ii) | ANTS(ABN)A 1999 26(3)(ja)(iii) | ANTS(ABN)A 1999 26(3)(ja)(iv) | ANTS(ABN)A 1999 26(3)(jb)(i) | ANTS(ABN)A 1999 26(3)(jb)(ii) | ANTS(ABN)A 1999 26(3)(jb)(iii) | ANTS(ABN)A 1999 26(3)(jb)(iv) | ANTS(ABN)A 1999 26(3)(jb)(v) | ANTS(ABN)A 1999 26(4) | ANTS(ABN)A 1999 29A | ANTS(ABN)R 2020 6 | ANTS(ABN)R 2020 6(a) | ANTS(ABN)R 2020 6(b) | ANTS(ABN)R 2020 6(c) | ANTS(ABN)R 2020 6(d) | ANTS(ABN)R 2020 6(e)(i) | ANTS(ABN)R 2020 6(e)(ii) | ANTS(ABN)R 2020 6(e)(iii) | ANTS(ABN)R 2020 6(e)(iv) | ANTS(ABN)R 2020 6(e)(v) | ANTS(ABN)R 2020 6(e)(vi) | ANTS(ABN)R 2020 6(e)(vii) | ANTS(ABN)R 2020 8 | ANTS(GST)A 1999 25-10 | ANTS(GST)A 1999 25-60 | ANTS(GST)A 1999 176-1 | TAA 1953 Sch 1 16-147(5) | TAA 1953 Sch 1 16-148(7) | TAA 1953 Sch 1 353-10 | TAA 1953 Sch 1 426-65(1)(a) | TAA 1953 Sch 1 426-65(1)(ba) | TAA 1953 Sch 1 426-65(1)(bb) | TAA 1953 Sch 1 426-65(1)(c) | TAA 1953 Sch 1 426-65(1)(e) | TAA 1953 Sch 1 426-65(1)(f) | TAA 1953 Sch 1 426-65(1)(g) | TAA 1953 Sch 1 426-104(1) | TAA 1953 Sch 1 426-115(1) | TAA 1953 Sch 1 426-119(1) | TAA 1953 Sch 1 426-190(1) | Corporations Act 2001 118(1) | Corporations Act 2001 601CB(h) | Corporations Act 2001 601CE(j) | Corporations Act 2001 1344 | FBTAA 1986 58PB(3) | FBTAA 1986 58PB(3)(a) | FBTAA 1986 123C(1) | FBTAA 1986 123D(1) | FBTAA 1986 123E | ITAA 1997 30-229 | ITAA 1997 50-105 | SISA 1993,PS LA 2005/19 PS LA 2011/9 PS LA 2016/3,ANTS(ABN)Act 1999 9A | ANTS(ABN)A 1999 14(1) | ANTS(ABN)A 1999 15(1) | ANTS(ABN)A 1999 15(2) | ANTS(ABN)A 1999 17 | ANTS(ABN)A 1999 17(1) | ANTS(ABN)A 1999 17(1)(b) | ANTS(ABN)A 1999 24(1) | ANTS(ABN)A 1999 25 | ANTS(ABN)A 1999 25(1)(a) | ANTS(ABN)A 1999 25(1)(b) | ANTS(ABN)A 1999 25(1)(c) | ANTS(ABN)A 1999 25(2)(a) | ANTS(ABN)A 1999 25(2)(b) | ANTS(ABN)A 1999 25(3)(a) | ANTS(ABN)A 1999 25(3)(b) | ANTS(ABN)A 1999 25(3)(c) | ANTS(ABN)A 1999 26(3)(ja)(i) | ANTS(ABN)A 1999 26(3)(ja)(ii) | ANTS(ABN)A 1999 26(3)(ja)(iii) | ANTS(ABN)A 1999 26(3)(ja)(iv) | ANTS(ABN)A 1999 26(3)(jb)(i) | ANTS(ABN)A 1999 26(3)(jb)(ii) | ANTS(ABN)A 1999 26(3)(jb)(iii) | ANTS(ABN)A 1999 26(3)(jb)(iv) | ANTS(ABN)A 1999 26(3)(jb)(v) | ANTS(ABN)A 1999 26(4) | ANTS(ABN)A 1999 29A | ANTS(ABN)R 2020 6 | ANTS(ABN)R 2020 6(a) | ANTS(ABN)R 2020 6(b) | ANTS(ABN)R 2020 6(c) | ANTS(ABN)R 2020 6(d) | ANTS(ABN)R 2020 6(e)(i) | ANTS(ABN)R 2020 6(e)(ii) | ANTS(ABN)R 2020 6(e)(iii) | ANTS(ABN)R 2020 6(e)(iv) | ANTS(ABN)R 2020 6(e)(v) | ANTS(ABN)R 2020 6(e)(vi) | ANTS(ABN)R 2020 6(e)(vii) | ANTS(ABN)R 2020 8 | ANTS(GST)A 1999 25-10 | ANTS(GST)A 1999 25-60 | ANTS(GST)A 1999 176-1 | TAA 1953 Sch 1 16-147(5) | TAA 1953 Sch 1 16-148(7) | TAA 1953 Sch 1 353-10 | TAA 1953 Sch 1 426-65(1)(a) | TAA 1953 Sch 1 426-65(1)(ba) | TAA 1953 Sch 1 426-65(1)(bb) | TAA 1953 Sch 1 426-65(1)(c) | TAA 1953 Sch 1 426-65(1)(e) | TAA 1953 Sch 1 426-65(1)(f) | TAA 1953 Sch 1 426-65(1)(g) | TAA 1953 Sch 1 426-104(1) | TAA 1953 Sch 1 426-115(1) | TAA 1953 Sch 1 426-119(1) | TAA 1953 Sch 1 426-190(1) | Archives Act 1983 24 | Corporations Act 2001 118(1) | Corporations Act 2001 601CB(h) | Corporations Act 2001 601CE(j) | Corporations Act 2001 1344 | FBTAA 1986 58PB(3) | FBTAA 1986 58PB(3)(a) | FBTAA 1986 123C(1) | FBTAA 1986 123D(1) | FBTAA 1986 123E | ITAA 1997 30-229 | ITAA 1997 50-105 | SISA 1993,,,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20164/NAT/ATO/00001,"Additional items added in Table 7 of this Practice Statement | Updated in line with current ATO style and accessibility requirements. Updated legislative references to reflect updates to legislation such as the ABN Regulations updated on 4 October 2025 | Minor content changes made for clarity and style. | Addition of row items 39 and 44 (and subsequent renumbering of other items) | Minor editorial adjustments; added paragraph on formal 3rd party requests and updated Appendix A to include legislative references. | Separated from PS LA 2011/9 and updated to new LAPS format and style. | [1] Subsection 24(1) of the A New Tax System (Australian Business Number) Act 1999 (ABN Act) sets out that the Registrar must establish and maintain an Australian Business Register. | [2] Section 25 of the ABN Act and sections 6 and 8 of the ABN Regulations. | [3] An approved form may be in paper or virtual form and can be, but is not limited to, a statement, application or other document in a form approved by the Commissioner in writing. Further information on approved forms is set out in PS LA 2005/19 Approved forms . | [4] Subsection 14(1) of the ABN Act. | [5] Subsection 15(1) of the ABN Act. | [6] A representative is an individual that the entity has nominated under section 9A of the ABN Act for the purpose of facilitating its electronic dealings with government entities. | [7] Subsection 15(2) of the ABN Act. | [8] Section 353-10 of Schedule 1 to the TAA provides the Commissioner with the power to require an entity to do any of the following: to give any information that the Commissioner requires for the purpose of the administration or operation of a taxation law; to attend and give evidence before the Commissioner (or an authorised person) for the purpose of the administration or operation of a taxation law; to produce any document to the Commissioner that are in the custody or under the control of the entity for the purpose of the administration or operation of a taxation law. | [9] Section 29A of the ABN Act. | [10] Section 17 of the ABN Act. | [11] The Registrar is reasonably satisfied where a fact is proved on the basis that it is more likely than not that the fact is true. | [12] Fit for purpose means that the details are reasonably fit for the purpose for which they are intended. For example, updating an entity's postal address with an address the entity has given to a government agency for a fishing licence may not be fit for purpose. | [13] Subsection 17(1) of the ABN Act. | [14] An Australian Company Number is a unique 9-digit number issued by the Australian Securities and Investment Commission (ASIC) to every company registered under subsection 118(1) of the Corporations Act 2001 (Corporations Act) as an identifier. | [15] An Australian Registered Body Number is a 9-digit number issued by ASIC under paragraphs 601CE(j) and 601CB(h) of the Corporations Act when a body is registered with them as an Australian registrable body, for example, foreign companies and registrable Australian bodies. | [16] Section 1344 of the Corporations Act provides that where the ACN of a company or the ARBN of a registered body is required or permitted to be used under a Commonwealth law administered by ASIC, the ABN of the company or body may be used instead if the last 9 digits of the ABN are the same and in the same order as the last 9 digits of the ACN or ARBN. | [17] An entity's data is compromised where the security or privacy of a client's ABN or ABR details have been breached by an unauthorised third party. This is usually caused through theft, fraud, accidental disclosure or error, that is identity theft. | [18] Paragraph 17(1)(b) of the ABN Act. | [19] Section 24 of the Archives Act 1983 . | [20] The power to not disclose publicly is given to the Registrar under subsection 26(4) of the ABN Act. Details on the ABR that are not disclosed publicly, are also not disclosed to eligible government agencies."
PS LA 2016/5,The disclosure of information and documents collected by the Registrar of the Australian Business Register,4 August 2016,4 August 2016,Law Administration Practice Statement,False,"1. What this Practice Statement is about: This Practice Statement outlines the Registrar's policy on when a disclosure of protected information and protected documents collected by the Registrar of the Australian Business Register (ABR) can be made, and to whom. All legislative references in this Practice Statement are to the A New Tax System (Australian Business Number) Act 1999 (ABN Act), unless otherwise indicated. | 2. Protected documents: 'Protected document' [1] means any document made or given under, or for the purposes of, the ABN Act. For example, a completed application for registration in the ABR is a protected document. | 3. Protected information: 'Protected information' [2] in the ABR is information that meets all the following conditions: • It relates to the affairs of a person other than the entrusted person. [3] • It was obtained by the entrusted person, or by another person, in the course of official employment. • It was disclosed or obtained under, or in relation to, the ABN Act. • It relates to the affairs of a person other than the entrusted person. [3] • It was obtained by the entrusted person, or by another person, in the course of official employment. • It was disclosed or obtained under, or in relation to, the ABN Act. Protected information includes details that the Registrar must enter in the ABR when an entity is registered. These details are listed in the Appendix to this Practice Statement. Protected information also includes information that is necessary or incidental to the Registrar carrying out the functions under the ABN Act. For example, the Registrar may request an entity to provide information that is relevant to the entity's entitlement to be registered. | 4. Information that is not protected: Public whole-of-government information The Registrar can collect additional details about an entity where the details are publicly available and are considered necessary to facilitate service delivery functions for whole-of-government purposes. As this information is not collected for a purpose of the ABN Act, it is not protected information and therefore not subject to the secrecy provisions in the ABN Act. Aggregate information The Registrar can consolidate information recorded in the ABR to produce aggregated data sets where the identity of entities and associates of those entities can no longer be ascertained because details such as the name and address have been removed or modified. Aggregated data sets cannot contain details where the identity of any entity can be estimated or derived. Aggregated information is not protected information and therefore not subject to the secrecy provisions in the ABN Act. | 5. The Registrar's obligations in relation to protected documents and protected information: The Registrar must protect the confidentiality of protected documents and protected information. They cannot be disclosed, unless the disclosure is permitted by the secrecy provisions in the ABN Act. [4] | 6. What disclosure of information is: Disclosure is the act of the Registrar divulging or communicating information and documents that are collected about an entity to other parties outside of the ATO. By doing so, the Registrar loses effective control of the information. | 7. Disclosing protected information: The Registrar has the discretion to disclose protected information where the disclosure: • is for the purposes of the ABN Act • happens in the course of the Registrar's official employment • is to other government agencies that are eligible to receive it • is to persons carrying out functions under a taxation law • is to the Administrative Review Tribunal. • is for the purposes of the ABN Act • happens in the course of the Registrar's official employment • is to other government agencies that are eligible to receive it • is to persons carrying out functions under a taxation law • is to the Administrative Review Tribunal. Disclosure for the purposes of the ABN Act The ABN Act gives the Registrar the discretion to disclose certain protected information about an entity publicly. These details are listed in the Appendix to this Practice Statement. The Registrar makes these details publicly available [5] through: • ABN Lookup at abr.business.gov.au • Super Fund Lookup at superfundlookup.gov.au (in relation to superannuation entities). • ABN Lookup at abr.business.gov.au • Super Fund Lookup at superfundlookup.gov.au (in relation to superannuation entities). The Registrar also makes these details available via bulk download through: • ABN Lookup web services at abr.business.gov.au [6] • requests of datasets at data.gov.au . [7] • ABN Lookup web services at abr.business.gov.au [6] • requests of datasets at data.gov.au . [7] Any details that the Registrar makes publicly available lose their character of confidentiality and therefore are no longer protected by the secrecy provisions in the ABN Act. Disclosure in the course of official employment The Registrar can disclose protected information where the disclosure happens in the course of the performance of the duties of the Registrar's official employment. For example, the Registrar can disclose protected information about an entity to an individual that has been nominated by that entity as their authorised representative. Disclosure to government agencies The Registrar can disclose protected information to: • an Agency Head for the purpose of carrying out functions of the Agency [8] • the accountable authority of a non-corporate Commonwealth entity within the meaning of the Public Governance, Performance and Accountability Act 2013 for the purpose of carrying out functions conferred on the entity by a law of the Commonwealth • the head of a Department of State of a state or territory for the purposes of carrying out functions of the Department • the head of a body established for a public purpose by or under a law of a state or territory for the purpose of carrying out functions conferred on the body by a law of the state or territory. • an Agency Head for the purpose of carrying out functions of the Agency [8] • the accountable authority of a non-corporate Commonwealth entity within the meaning of the Public Governance, Performance and Accountability Act 2013 for the purpose of carrying out functions conferred on the entity by a law of the Commonwealth • the head of a Department of State of a state or territory for the purposes of carrying out functions of the Department • the head of a body established for a public purpose by or under a law of a state or territory for the purpose of carrying out functions conferred on the body by a law of the state or territory. The Registrar generally discloses protected information to government agencies where: • a sufficient nexus exists between the use of the protected information and the furtherance of the function of the government entity, and • the government entity agrees to be party to a Terms and Conditions agreement with the Registrar. [9] • a sufficient nexus exists between the use of the protected information and the furtherance of the function of the government entity, and • the government entity agrees to be party to a Terms and Conditions agreement with the Registrar. [9] Disclosure to persons carrying out functions under a taxation law The Registrar may disclose protected information to another person for the purpose of carrying out functions under a taxation law. [10] Disclosure to the Administrative Review Tribunal The Registrar may disclose protected information to the Administrative Review Tribunal in connection with proceedings under a taxation law. [11] | 8. Restrictions on disclosure of protected information: Disclosure to Ministers and other elected members Protected information cannot be disclosed to a Commonwealth, state or territory minister or an elected member of a body established under a law of a state or territory. [12] Disclosure to a court An entrusted person is not required to produce a protected document or disclose protected information to a court except where it is necessary for the purpose of giving effect to a taxation law. [13] Disclosure to a government body with a commercial arm While the Registrar may be able to disclose protected information to a government body, the Registrar may choose not to, as the government body may receive a commercial advantage from accessing the ABR information. | 9. Other considerations for the Registrar: When making a decision about the disclosure of protected information, the Registrar must consider other Commonwealth laws as well as the ABN Act. Taxation laws Information that is protected for ABN Act purposes is also protected by the secrecy provisions contained in Division 355 of Schedule 1 to the Taxation Administration Act 1953 (TAA). These secrecy provisions allow the Commissioner to disclose protected information to various third parties for very specific purposes. There may be instances where the disclosure of ABR protected information cannot be made under the ABN Act but may be permissible under the TAA secrecy provisions. For example, a task force may request information that relates to the ABN Act. As the task force would not be eligible to receive the information from the Registrar under the ABN Act, the Commissioner would be able to disclose ABR protected information to the task force under the TAA secrecy provisions, as this disclosure is permissible. Privacy laws Any disclosure of information about individuals is also subject to the Privacy Act 1988 (Privacy Act), which regulates how personal information is handled. [14] The Registrar must comply with the Australian Privacy Principles provided for in the Privacy Act, as the ABR contains records that include the personal information of individuals. [15] Where the Registrar makes a disclosure of personal information under the secrecy provisions, the disclosure will be a lawful disclosure for the purposes of the Privacy Act. | 10. Disclosing information that is not protected: The Registrar is able to disclose, to any third party, information that has been collected or derived that is not subject to the secrecy provisions in the ABN Act. This information includes public ABR information, public whole-of-government information and aggregated ABR information. | 11. On-disclosure of protected information: Government agencies The heads of government agencies that receive protected information from the Registrar become the entrusted person. As such, the entrusted person is bound by the secrecy provisions in the ABN Act. An entrusted person, who is not the Registrar, may on-disclose that information in the course of their official employment. Government agencies that receive information about an entity from the Registrar that is not protected information and is publicly available may on-disclose that information. [16] Contractors of government agencies Government agencies may on-disclose protected information about an entity to any contractors they engage in the course of their official employment. Other third parties Third parties may on-disclose information that the Registrar has made publicly available about an entity. | 12. Whether an entity can choose not to have their details publicly available: A person can apply to the Registrar requesting a detail relating to an entity registered in the ABR not to be disclosed publicly. [17] The Registrar will consider the application for the non-disclosure of the details in the following circumstances: • where an individual's personal safety is at risk • where content is a risk to community confidence • where the details in the ABR are not consistent with the objects of the ABN Act. • where an individual's personal safety is at risk • where content is a risk to community confidence • where the details in the ABR are not consistent with the objects of the ABN Act. Where the Registrar does not disclose the details publicly, the details are also not disclosed to other government agencies. Personal safety The Registrar will be satisfied that it is not appropriate to publicly disclose a detail where the entity or their individual associates are at genuine risk of physical and mental harm, or harassment, and the disclosure of their details may: • cause or contribute to personal harm • have a detrimental effect on these individuals who, by virtue of their profile in the community, generate a high level of interest in their personal affairs. • cause or contribute to personal harm • have a detrimental effect on these individuals who, by virtue of their profile in the community, generate a high level of interest in their personal affairs. This includes those persons who: • are, or have been, affected by domestic violence • have an assumed identity and are registered as a participant in the National Witness Protection Program • are professionals (such as psychiatrists, the judiciary and senior public servants) who deal with dangerous individuals or groups • high-profile public individuals. • are, or have been, affected by domestic violence • have an assumed identity and are registered as a participant in the National Witness Protection Program • are professionals (such as psychiatrists, the judiciary and senior public servants) who deal with dangerous individuals or groups • high-profile public individuals. Community standards The Registrar will be satisfied that it is not appropriate to publicly disclose a detail where there is a risk to community confidence because certain details listed in the ABR may affect the promotion of ATO values in activities relating, but not limited, to: • fair administration • adherence to service standards • community values. • fair administration • adherence to service standards • community values. This may include words that are defamatory as they contain: • profanities • discriminatory connotations • obscene connotations. • profanities • discriminatory connotations • obscene connotations. Administrative remedy The Registrar will be satisfied that it is not appropriate to publicly disclose a detail where that detail may compromise other legislation or legitimise a name the entity is not entitled to use. This may include circumstances where: • a name used by the entity infringes copyright, a patent, a trademark, other intellectual property or a registered business name, or • a registration should not have taken place as the entity has been registered with an incorrect entity type. • a name used by the entity infringes copyright, a patent, a trademark, other intellectual property or a registered business name, or • a registration should not have taken place as the entity has been registered with an incorrect entity type. Review rights An entity can lodge an objection against a decision refusing an application not to disclose details about an entity registered in the ABR. [18] | 13. More information: For more information refer to: • Law Administration Practice Statement PSLA 2011/9 The registration of entities in the ABR • Law Administration Practice Statement PSLA 2016/3 The cancellation of registrations in the ABR • Law Administration Practice Statement PSLA 2016/4 Maintaining the ABR • Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number. • Law Administration Practice Statement PSLA 2011/9 The registration of entities in the ABR • Law Administration Practice Statement PSLA 2016/3 The cancellation of registrations in the ABR • Law Administration Practice Statement PSLA 2016/4 Maintaining the ABR • Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number. Appendix: information about entities held in the Australian Business Register Information about entities held in the Australian Business Register and whether it is publicly available can be found in Tables 1 to 7 of this Practice Statement Table 1: Information that must be entered in the ABR in relation to a registered entity Detail Publicly available The entity's name Yes – ABN Lookup The entity's ABN Yes – ABN Lookup The date of effect of the registration of the entity in the ABR Yes – ABN Lookup An address for service of notices under the ABN Act No Details of the entity's associates that were requested in the approved form for registration in the ABR No Any business name registered to the entity on the Business Names Register that is established and maintained under section 22 of the Business Names Registration Act 2011 Yes – ABN Lookup The entity's principal place of business No (except the postcode and the state or territory in which the principal place of business is located) The kind of entity that is being registered Yes – ABN Lookup The Australian and New Zealand Standard Industrial Classification code for the business being conducted by the entity No The entity's email address No The date of effect of any change to the entity's ABN Yes – ABN Lookup The date of effect of the cancellation of the entity's registration in the ABR Yes – ABN Lookup Table 2: Information that must be entered in the ABR if an entity has nominated a representative to facilitate their electronic dealing with Government Detail Publicly available The representative's name No The representative's email address No The date of effect of the representative's registration in the ABR No Table 3: Information that must be entered in the ABR if the entity is a company or body registered under the Corporations Act 2001 Detail Publicly available The entity's Australian Company Number Yes – ABN Lookup The entity's Australian Registered Body Number Yes – ABN Lookup The name of the entity's public officer No Table 4: Information that must be entered in the ABR if the entity is a trust Detail Publicly available The name of the entity's trustee or trustees No Table 5: Information that must be entered in the ABR if the entity is a registrable superannuation entity (RSE) licensee Detail Publicly available The class of licence held by the licensee Yes – Super Fund Lookup The address of the licensee recorded by the Australian Prudential Regulation Authority for the purposes of the Superannuation Industry (Supervision) Act 1993 (SISA) Yes – Super Fund Lookup The licensee's postal address Yes – Super Fund Lookup The licensee's phone number yes – Super Fund Lookup Table 6: Information that must be entered in the ABR if the entity is an RSE within the meaning of the SISA Detail Publicly available The address for the entity recorded by Australian Prudential Regulation Authority for the purposes of the SISA Yes – Super Fund Lookup The entity's postal address Yes – Super Fund Lookup The entity's phone number Yes – Super Fund Lookup The entity's contact person Yes – Super Fund Lookup The RSE licensee of the entity Yes – Super Fund Lookup Table 7: Information that must be entered in the ABR in relation to a registered entity, where applicable Detail Publicly available The date of effect of any goods and services tax (GST) registration of the entity Yes – ABN Lookup The date of effect of any GST cancellation of the entity Yes – ABN Lookup If the entity is endorsed as a deductible gift recipient, a statement that it is so endorsed for a specified period Yes – ABN Lookup If the entity is endorsed as a charity under subsection 176-1 of the A New Tax System (Goods and Services Tax) Act 1999, a statement that the entity is so endorsed for a specified period Yes – ABN Lookup If the entity is endorsed as an approved worker entitlement fund under subsection 58PB(3) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), a statement that the entity is so endorsed for a specified period Yes – ABN Lookup If the entity is endorsed for the operation of an approved worker entitlement fund under subsection 58PB(3A) of the FBTAA, a statement that the entity is so endorsed for a specified period Yes – ABN Lookup If the entity is endorsed as a public benevolent institution under subsection 123C(1) of the FBTAA, a statement that the entity is so endorsed for a specified period Yes – ABN Lookup If the entity is endorsed as a health promotion charity under subsection 123D(1) of the FBTAA, a statement that the entity is so endorsed for a specified period Yes – ABN Lookup If the entity is endorsed as a registered charity under section 123E of the FBTAA, a statement that the entity is so endorsed for a specified period Yes – ABN Lookup If the entity is endorsed as being exempt from income tax under section 50-105 of the Income Tax Assessment Act 1997, a statement that the entity is so endorsed for a specified period Yes – ABN Lookup If the entity is a public ancillary fund, a statement that it is a public ancillary fund Yes – ABN Lookup If the entity is a private ancillary fund, a statement that it is a private ancillary fund Yes – ABN Lookup If the entity is a community charity trust, a statement that it is a community charity trust Yes – ABN Lookup If the entity is a community charity corporation, a statement that it is a community charity corporation Yes – ABN Lookup If the entity is registered as an employer of working holiday makers, a statement to that effect and the day on which the registration takes effect No If an entity's registration as a working holiday maker is cancelled, a statement to that effect and the day on which the cancellation takes effect No If a corporate collective investment vehicle sub-fund trust has an ABN, a statement that indicates that the trust is taken to exist for tax purposes because of section 195-110 of the Income Tax Assessment Act 1997 and the sub-fund's Australian Registered Fund Number Yes If the endorsed entity is also registered under the Australian Charities and Not-for-profits Commission Act 2012 as an entity of a particular type or subtype, a statement that the entity is registered and a statement as to the date of effect of registration Yes","PSLA 2011/9 | PSLA 2016/3 | PSLA 2016/4 | MT 2006/1 | PS LA 2011/9 | PS LA 2016/3 | PS LA 2016/4 | ANTS(ABN)A 1999 21(2) | ANTS(ABN)A 1999 26(3) | ANTS(ABN)A 1999 26(4) | ANTS(ABN)A 1999 26(5) | ANTS(ABN)A 1999 27(7) | ANTS(ABN)A 1999 30 | ANTS(ABN)A 1999 30(3)(c)(iii) | ANTS(ABN)A 1999 30(3)(c)(iv) | ANTS(ABN)A 1999 30(4) | ANTS(ABN)A 1999 30(5) | ANTS(ABN)A 1999 41 | ANTS(GST)A 1999 176-1 | ITAA 1997 50-105 | ITAA 1997 195-110 | FBTAA 58PB(3) | FBTAA 58PB(3A) | FBTAA 123C(1) | FBTAA 123D(1) | FBTAA 123E | TAA 1953 Sch 1 Div 355 | Australian Charities and Not-for-profits Commission Act 2012 | Business Names Registration Act 2011 22 | Privacy Act 1988 6 | Public Governance, Performance and Accountability Act 2013",PS LA 2011/9 PS LA 2016/3 PS LA 2016/4,"ANTS(ABN)A 1999 21(2) | ANTS(ABN)A 1999 26(3) | ANTS(ABN)A 1999 26(4) | ANTS(ABN)A 1999 26(5) | ANTS(ABN)A 1999 27(7) | ANTS(ABN)A 1999 30 | ANTS(ABN)A 1999 30(3)(c)(iii) | ANTS(ABN)A 1999 30(3)(c)(iv) | ANTS(ABN)A 1999 30(4) | ANTS(ABN)A 1999 30(5) | ANTS(ABN)A 1999 41 | ANTS(GST)A 1999 176-1 | ITAA 1997 50-105 | ITAA 1997 195-110 | FBTAA 58PB(3) | FBTAA 58PB(3A) | FBTAA 123C(1) | FBTAA 123D(1) | FBTAA 123E | TAA 1953 Sch 1 Div 355 | Australian Charities and Not-for-profits Commission Act 2012 | Business Names Registration Act 2011 22 | Privacy Act 1988 6 | Public Governance, Performance and Accountability Act 2013 | Public Service Act 1999 7",,"Office of the Australian Information Commissioner (July 2019) https://www.oaic.gov.au/privacy/australian-privacy-principles/australian-privacy-principles-guidelines/chapter-6-app-6-use-or-disclosure-of-personal-information , accessed 17 December 2025",False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20165/NAT/ATO/00001,"Updated in line with current ATO style and accessibility requirements. | Additional items added in Table 7 of this Practice Statement. | 7. Disclosure to government agencies | Removed dot point 5 reference to 'a prescribed body for the prescribed purposes' and associated footnote. | Included addition of 'Australian Privacy Principle 6'. | Attachment A reformatted into accessible format with individually numbered tables and headings. | Table items 43 and 44 added. | Updated format in line with current ATO style. | Clarify information under 'Publicly available'. | All Adjustments to order of content; other minor adjustments to formatting. | Updated Attachment A to indicate category of entity and whether the detail is publicly available. | [1] 'Protected document' is defined in section 41 of the ABN Act. | [2] 'Protected information' is defined in section 41. | [3] A person who receives protected information or protected documents in the course of official employment is referred to as an 'entrusted person'. | [4] Section 30 provides for the protection of confidentiality of information. | [5] The Registrar may make publicly available limited details listed in subsection 26(3) in relation to an entity. | [6] The ABN Lookup web services allow an organisation to integrate ABN Lookup validation and data into their own applications. Web services can be used to pre-fill forms and keep ABN details stored in that organisation's database up to date. | [7] data.gov.au provides a central catalogue of government public datasets. | (a) the Secretary of a Department; or (b) the Head of an Executive Agency; or (c) the Head of a Statutory Agency. | [9] A Terms and Conditions agreement sets out the rules that are to be abided by between the Registrar and the agency head or accountable authority for access to ABR information. | [10] Subparagraph 30(3)(c)(iii). | [11] Subparagraph 30(3)(c)(iv). | (a) whether the information or opinion is true or not, and (b) whether the information or opinion is recorded in a material form or not. | [15] Australian Privacy Principle 6 outlines the circumstances when an Australian Privacy Principle entity can use or disclose personal information that it holds, refer to Chapter 6: APP 6 Use or disclosure of personal information . | [16] The government agency does not contravene section 30 by recording or disclosing information which has been made accessible to the public in accordance with subsection 26(5). | [17] The individual who may apply to the Registrar may be an individual associated with the entity or a third party. | [18] Table item 7 of subsection 21(2) is a reviewable ABN decision made under subsections 26(4) or 27(7)."
PS LA 2016/6,Exchange of information with foreign revenue authorities about indirect taxes,16 December 2016,16 December 2016,Law Administration Practice Statement,False,"1. What should you do if you receive a request for information from a foreign revenue authority?: The way requests for information from foreign revenue authorities are handled depends on whether the information requested is publicly available or specific to an individual or entity. • Publicly available information - publicly available information, such as that in taxation statistics, on ato.gov.au , Report of Entity Tax Information or from business' public websites can be shared without restriction. • Taxpayer-specific information - information specific to a taxpayer, either an individual or an entity such as a company, can only be exchanged if it is authorised by a legal instrument as set out in section 2 of this Practice Statement. • Publicly available information - publicly available information, such as that in taxation statistics, on ato.gov.au , Report of Entity Tax Information or from business' public websites can be shared without restriction. • Taxpayer-specific information - information specific to a taxpayer, either an individual or an entity such as a company, can only be exchanged if it is authorised by a legal instrument as set out in section 2 of this Practice Statement. Section 4 of this Practice Statement sets out who you should contact if you receive an exchange of information (EOI) request. | 2. How do we exchange information about indirect taxes with foreign revenue authorities?: We exchange information about indirect taxes with foreign revenue authorities under the following legal instruments. [1] Mutual Convention on the Mutual Administrative Assistance in Tax Matters The Convention is a multilateral agreement designed to promote international cooperation for a better operation of national tax laws, while respecting the fundamental rights of taxpayers. The Convention provides for all possible forms of administrative cooperation between the parties in the assessment and collection of taxes, in particular with a view to combating tax avoidance and evasion. While the convention is broad in application and includes goods and services tax (GST), the information that can be exchanged between Australia and other signatories will depend on a number of factors, including any reservations negotiated by signatories and when the convention was entered into by each of the signatories. Bilateral tax treaties Australia has tax treaties with more than 40 countries. [2] Tax treaties are also referred to as 'tax conventions' or 'double-tax agreements'. They prevent double taxation and fiscal evasion, and foster cooperation between Australia and other international tax authorities by enforcing their respective tax laws. Most tax treaties cover income tax matters and do not include GST. Bilateral tax treaties entered into prior to 2005 will be based on the 1977 version of the OECD Model Tax Convention and do not extend to indirect taxes. Australia has bilateral tax treaties with several countries that contain EOI clauses covering other taxes, such as GST or value-added tax. The exact EOI article for bilateral tax treaties will vary from country to country. The full list of our tax treaties is maintained by Treasury; a link to this list is provided in this Practice Statement under 'More information'. Tax information exchange agreements Tax information exchange agreements (TIEAs) aim to establish effective information exchange and improve transparency of taxpayers' financial arrangements/transactions for tax purposes. TIEAs also provide important momentum to achieve the aims of the OECD's harmful tax practices initiative. Many, but not all, of the TIEAs cover indirect taxes. The exact EOI article for TIEAs will vary from country to country - see 'More information' for a list of TIEAs. | 3. What exchange of information Instrument should be used?: The decision on the appropriate instrument to request information is made by the Competent Authority after considering all current bilateral tax treaties, any memorandum of understanding or other information-sharing agreements that are in place with a particular country and the type of information being requested. | 4. Who do you contact if you receive an exchange of information request from a foreign revenue authority or you are considering seeking information from a foreign revenue authority?: You should contact the Exchange of Information team () for all matters relating to the exchange of information. The team can provide you with general advice, including what avenues may be available within a particular jurisdiction, and coordinate the exchange process. The Exchange of Information Unit, International Engagement & Transparency Practice in Public Groups & Internationals (EOI Unit) is the conduit point for all exchanges of information with foreign revenue authorities. Tax treaties and agreements will generally allow countries to designate one or more Competent Authorities to deal directly with each other in tax-related matters. The Competent Authority is nominated by the government of each country. A Competent Authority, generally speaking, is any person that has the legally delegated or invested authority, capacity or power to perform a designated function. In Australia, the ATO has been designated as an Australian Competent Authority and has the legal responsibility under Australia's international tax treaties and agreements to support EOI with other overseas tax administrators. The Assistant Commissioner and Director of the EOI Unit are authorised Competent Authorities for receiving and sending requests to overseas tax authorities. | 5. How do the domestic privacy and taxpayer confidentiality laws apply in exchange of information requests?: Division 355 of Schedule 1 to the Taxation Administration Act 1953 (TAA) contains the provisions about confidentiality of taxpayer information and sets out the rules that we need to abide by when dealing with protected information. There is a general rule prohibiting taxation officers from disclosing information that would identify a taxpayer. This information includes that obtained under an indirect tax law and information obtained under a treaty. The penalty for breaching this division is up to 2 years imprisonment. It is not an offence for a taxation officer to disclose taxpayer information for the purpose of meeting the Commissioner's obligations to exchange information under an international agreement. If taxpayer information identifies any individual (either an individual taxpayer or some other individual such as an individual connected to the taxpayer), it will be 'personal information' that is protected by the Privacy Act 1988 (Privacy Act). Disclosure of personal information is limited by Information Privacy Principle 11 (IPP 11) in section 14 of the Privacy Act. If a disclosure is required or authorised by law, then it is lawful under IPP 11.1(d) of the Privacy Act. A disclosure of information under a treaty, consistent with section 23 of the International Tax Agreements Act 1953, will be authorised by law for the purposes of IPP 11.1(d). | 6. When should you seek information from foreign revenue authorities?: You should exhaust all domestic avenues to obtain the information before escalating the request for action by a foreign revenue authority. This may include: • contacting the taxpayer or their representative • having an informal meeting with the taxpayer or their representative • issuing a formal notice for documents, information or to give evidence under section 353-10 of Schedule 1 to the TAA • issuing a formal notice for information: section 353-10 of Schedule 1 to the TAA • issuing a formal notice to attend and give evidence: section 353-10 of Schedule 1 to the TAA, and • gaining access without notice: section 353-15 of Schedule 1 to the TAA. • contacting the taxpayer or their representative • having an informal meeting with the taxpayer or their representative • issuing a formal notice for documents, information or to give evidence under section 353-10 of Schedule 1 to the TAA • issuing a formal notice for information: section 353-10 of Schedule 1 to the TAA • issuing a formal notice to attend and give evidence: section 353-10 of Schedule 1 to the TAA, and • gaining access without notice: section 353-15 of Schedule 1 to the TAA. | 7. How should you handle information you receive from a foreign revenue authority?: Any information you receive should be treated as strictly confidential. All information-sharing instruments specify to whom the information can be disclosed (thus ensuring a minimum standard of confidentiality). Specifically: • the information received may be disclosed only to persons or authorities (including courts and administrative bodies; for example, the Inspector General of Taxation and Taxation Ombudsman) concerned with the assessment, collection and enforcement of the taxes covered by the agreement (including the prosecution or the determination of appeals), and • the information may be used only for the purposes for which it was obtained (that is, tax purposes only). • the information received may be disclosed only to persons or authorities (including courts and administrative bodies; for example, the Inspector General of Taxation and Taxation Ombudsman) concerned with the assessment, collection and enforcement of the taxes covered by the agreement (including the prosecution or the determination of appeals), and • the information may be used only for the purposes for which it was obtained (that is, tax purposes only). Information may not be disclosed to any other person or third jurisdiction without the express written consent of the Competent Authority of the country providing the information. | 8. What are the consequences of not following the EOI process?: There are significant consequences if you do not follow the EOI process, including: • breach of the confidentiality of taxpayer information provisions punishable by imprisonment for up to 2 years • imposition of civil penalties on the ATO for breaches of the Privacy Act, and • breach of a duty not to disclose confidential information is also a breach of the APS Code of Conduct. The sanctions that may be imposed for a breach of the Code of Conduct are detailed in section 15 of the Public Service Act 1999. • breach of the confidentiality of taxpayer information provisions punishable by imprisonment for up to 2 years • imposition of civil penalties on the ATO for breaches of the Privacy Act, and • breach of a duty not to disclose confidential information is also a breach of the APS Code of Conduct. The sanctions that may be imposed for a breach of the Code of Conduct are detailed in section 15 of the Public Service Act 1999. | 9. More information: For more information, see: • Convention on Mutual Administrative Assistance in Tax Matters • Convention Signatories • Australian Tax Treaties - for the full list of our tax treaties • List of Taxation Information Exchange Agreements • Convention on Mutual Administrative Assistance in Tax Matters • Convention Signatories • Australian Tax Treaties - for the full list of our tax treaties • List of Taxation Information Exchange Agreements",TAA 1953 | TAA 1953 Sch 1 353-10 | TAA 1953 Sch 1 353-15 | International Tax Agreements Act 1953 23 | Privacy Act 1988 14,,TAA 1953 TAA 1953 Sch 1 353-10 TAA 1953 Sch 1 353-15 TAA 1953 Sch 1 355-5 International Tax Agreements Act 1953 23 Privacy Act 1988 14 Public Service Act 1999 15,,,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20166/NAT/ATO/00001,8. What are the consequences of not following the exchange of information process? | Update of style and format. | [1] The application of domestic privacy provisions must also be considered - see section 5 of this Practice Statement. | [2] Australia's bilateral tax treaties are given the force of law by the International Tax Agreements Act 1953.
PS LA 2015/1,Code of settlement,15 January 2015,15 January 2015,Law Administration Practice Statement,False,"1. What this code is about: This code sets out the ATO policy on the settlement of taxation and superannuation disputes, including disputes involving debt. The ATO is committed to working with taxpayers to resolve disputes as early and cooperatively as possible. At all times ATO officers involved in settlements will act with integrity. | 2. What is a settlement: A settlement involves an agreement between parties to resolve matters in dispute where one or more parties make concessions on what they consider is the legally correct position. | 3. Settlement is part of good administration: The ATO has an obligation to administer the taxation and superannuation laws through assessing, collecting taxes and determining entitlements. The ATO also has an obligation to administer the taxation system in an efficient and effective way balancing competing considerations and applying discretion and good sense. Settlement is an important element of the administration of the tax system. | 4. Settlement negotiations: Settlement negotiations or offers can be initiated by any party to the dispute. They can occur at any stage including prior to assessments being raised. The nature of the dispute will determine who will participate in negotiations on behalf of the ATO. Alternative dispute resolution approaches, including mediation, may be used during settlement negotiations. Where there are multiple taxpayers involved in the same or similar arrangement the ATO would seek to ensure consistency of treatment for taxpayers in comparable circumstances. This may include developing a widely based settlement position. Statements made during settlement negotiations are not to be construed as an admission of liability and cannot be given in evidence. This is to ensure that, in the event that negotiations break down, parties are not prejudiced as a result of a position taken in the course of trying to resolve the matter. | 5. Settlement considerations: When deciding whether or not to settle, all of the following factors must be considered: • the relative strength of the parties' position • the cost versus the benefits of continuing the dispute • the impact on future compliance for the taxpayer and broader community. • the relative strength of the parties' position • the cost versus the benefits of continuing the dispute • the impact on future compliance for the taxpayer and broader community. Settlement would generally not be considered where: • there is a contentious point of law which requires clarification • it is in the public interest to litigate • the behaviour is such that we need to send a strong message to the community. • there is a contentious point of law which requires clarification • it is in the public interest to litigate • the behaviour is such that we need to send a strong message to the community. | 6. Settlement decision: The ATO decision to settle or not must be a fair, effective and efficient means of resolving the matters in dispute. A decision will be based on an informed understanding of the relevant facts and issues in dispute and any advice of a settlement advisory panel, or legal or other expert opinions relevant to the matter being considered. A settlement can only be approved by an officer who has delegation or authorisation to do so. | 7. Responsibilities: During settlement negotiation parties are expected to both: • act fairly, honestly and in good faith • disclose to their best knowledge and belief, relevant and material facts which relate to the matters in dispute. • act fairly, honestly and in good faith • disclose to their best knowledge and belief, relevant and material facts which relate to the matters in dispute. Parties must adhere to the terms of the settlement agreement unless it emerges that relevant and material facts were not disclosed. | 8. Settlement deed: Settlements must be finalised by the parties signing a written agreement which sets out the terms. The usual form of the agreement is a deed of settlement. A settlement agreement must reflect the final agreed position between the parties (including any payment or future obligations). Settlement agreements are intended to resolve the matters in dispute for both parties. A settlement agreement will only be varied in exceptional circumstances if requested by the taxpayer who is party to the agreement. The ATO has model deeds available to use as a basis for a deed of settlement. | 9. Future years: A settlement agreement provides a reasonable basis for treating similar issues in future years unless it is specifically stated that it is not to apply to future years or transactions, or: • the taxpayer's circumstances change materially • the application of the law remains unclear • there have been subsequent amendments to the law • a taxation ruling has been subsequently released on the issue • there has been a subsequent court or tribunal decision on the issue. • the taxpayer's circumstances change materially • the application of the law remains unclear • there have been subsequent amendments to the law • a taxation ruling has been subsequently released on the issue • there has been a subsequent court or tribunal decision on the issue. The ATO can provide greater certainty to a taxpayer for future years if required. | 10. More information: A practical guide to the ATO code of settlement provides examples and illustrations of how the code operates. For more information, see: • ATO Disputes policy • ATO Dispute management plan 2013-14 • ATO Disputes policy • ATO Dispute management plan 2013-14",PS LA 2013/3 | PS LA 2007/6 | PS LA 2009/9,PS LA 2013/3 PS LA 2007/6 PS LA 2009/9,,Code of settlement Settlement,,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20151/NAT/ATO/00001,"If taxpayers rely on this practice statement, they will be protected from interest and penalties in the following way. If a statement turns out to be incorrect and taxpayers underpay their tax as a result, they will not have to pay a penalty. Nor will they have to pay interest on the underpayment provided they reasonably relied on this practice statement in good faith. However, even if they don't have to pay a penalty or interest, taxpayers will have to pay the correct amount of tax provided the time limits under the law allow it."
PS LA 2015/2,Time limits for trustee assessments,19 February 2015,19 February 2015,Law Administration Practice Statement,False,"1. What is this Practice Statement about: Where a trust tax return shows no trustee tax liability (whether under sections 98, 99 or 99A of the Income Tax Assessment Act 1936 ), we do not, as a matter of course, issue any nil assessments to the trustee to reflect the position as returned. [1] All legislative references in this Practice Statement are to the Income Tax Assessment Act 1936, unless otherwise indicated. Strictly, this means that time does not begin to run for a period of review (in respect of any assessment) and the Commissioner has an unlimited period within which to review and assess the trustee's tax position. This is not consistent with the outcome contemplated by the Report on Aspects of Income Tax Self Assessment [2] , where taxpayers returning a nil liability should have a limited period of review. This Practice Statement outlines our practice of limiting the period within which we will raise an original trustee assessment where the trust tax return shows no trustee tax liability for that proposed assessment. The practice means that returns lodged by trustees are broadly exposed to similar time limits for review as other taxpayers. For any income year, a trustee may be issued separate assessments under section 98 for each relevant beneficiary and/or an assessment under sections 99A or 99. Our practice about time limits applies separately to the making of each of these original assessments. | 2. When should you not issue an original trustee assessment: Except in situations covered by sections 3 or 4 of this Practice Statement, you should not issue an original trustee assessment: • more than 4 years after the relevant trust tax return was lodged, or • for the 2013–14 income year and later income years, more than 2 years after lodgment if the trust is a small business entity [3] for that year and none of the qualifications in table item 3 of subsection 170(1) apply. • more than 4 years after the relevant trust tax return was lodged, or • for the 2013–14 income year and later income years, more than 2 years after lodgment if the trust is a small business entity [3] for that year and none of the qualifications in table item 3 of subsection 170(1) apply. | 3. When do these time limits not apply: The time limits on issuing assessments mentioned in section 2 of this Practice Statement do not apply: • if the trustee has not lodged a trust return for the year in question • if the Commissioner is of the opinion that there has been fraud or evasion • where an extended or unlimited amendment period would apply [4] , or • where the time limit is extended (see section 4 of this Practice Statement). • if the trustee has not lodged a trust return for the year in question • if the Commissioner is of the opinion that there has been fraud or evasion • where an extended or unlimited amendment period would apply [4] , or • where the time limit is extended (see section 4 of this Practice Statement). | 4. Can the time limits be extended: Yes. If you have started to examine the affairs of a trust (or that of a related entity which could affect the trust's tax affairs) and that examination will not be completed within the time limits mentioned in section 2 of this Practice Statement, you should seek the trustee's agreement to extend the period. [5] In some cases, it may not be reasonably practicable for you to ascertain that the trustee is liable to tax within the time limits mentioned in section 2 of this Practice Statement (or as extended) because of actions taken or statements made, or unreasonable omissions, by the trustee or a related entity. For example, the trust return may indicate that a beneficiary is assessable on some part of the trust's net income, but the beneficiary's return is later amended to exclude that amount on the basis that the trustee is instead properly assessable. (That is, relevant information is only provided to us after, or close to, the expiration of the period within which we would otherwise raise a trustee assessment). In these cases, you should escalate the case to a Senior Executive Service (SES) officer who, in consultation with the trustee, will determine a period within which an assessment is to be raised. Example 1 – time limit within which to raise an original trustee assessment The 2009–10 income tax return for the Oak Family Trust was lodged on 9 May 2011. The trust was not a small business entity for the 2009–10 income year. An audit of the trust reveals that some of the trust net income should be assessed to the trustee under section 99A. You must issue an assessment to the trustee by 9 May 2015 (unless the time limit is extended as discussed in section 4 of this Practice Statement). Example 2 – multiple trustee assessments A trust return for the Cedar Family Trust was lodged on 9 May 2011. The trust was not a small business entity for that income year. An assessment issued to the trustee under section 98 on 30 June 2011. As a result of audit activities, it is determined the trustee should instead be assessed under section 99A. You must make the section 99A assessment by 9 May 2015 (unless the time limit is extended as discussed in section 4 of this Practice Statement). [The section 99A assessment is an original, not an amended, assessment.] Similarly, if the result of the audit was that the trustee was assessable under section 98 in respect of a different beneficiary, that assessment must also be issued by 9 May 2015. Example 3 – time limits do not apply – unlimited amendment period A beneficiary has been assessed under section 97 on all of the net income of a trust for the 2007–08 income year. As a result of compliance action, it was established that the beneficiary's entitlement to trust income arose out of a reimbursement agreement. Consequently, the net income is assessable to the trustee under section 100A. While you can assess the trustee at any time (see subsection 170(10)), you should endeavour to do so as soon as practicable. Example 4 – extension of time limits A trust's taxation affairs are being reviewed but, due to the complexity of the arrangements, you do not expect to complete the review before the end of the time limits outlined in section 2 of this Practice Statement. (14 May 2014). You obtain the trustee's agreement to extend the time limit by a further 6 months. You have until 14 November 2014 to issue a trustee assessment (if required) unless you negotiate further time. Example 5 – extended time limits The 2008–09 return for the Pine Family Trust lodged on 9 May 2010 indicates that all the net income is assessable to an individual beneficiary. That beneficiary's assessment issued on 6 June 2010. On 1 June 2014, the beneficiary requests an amendment on the basis that the trustee's resolution appointing income was invalid. The default beneficiary (a minor) was instead presently entitled to all the income and the trustee should have been assessed under section 98 on all the net income. You should escalate the case to an SES officer who, having regard to all the facts, will determine in consultation with the trustee a period within which an assessment is to issue.",Explanatory Memorandum | ITAA 1936 97 | ITAA 1936 98 | ITAA 1936 99 | ITAA 1936 99A | ITAA 1936 100A | ITAA 1936 170(1) | ITAA 1936 170(6) | ITAA 1936 170(7) | ITAA 1936 170(9) | ITAA 1936 170(9D) | ITAA 1936 170(10) | ITAA 1936 170(10AA) | ITAA 1936 170(11) | ITAA 1997 328-110,,ITAA 1936 97 | ITAA 1936 98 | ITAA 1936 99 | ITAA 1936 99A | ITAA 1936 100A | ITAA 1936 170(1) | ITAA 1936 170(6) | ITAA 1936 170(7) | ITAA 1936 170(9) | ITAA 1936 170(9D) | ITAA 1936 170(10) | ITAA 1936 170(10AA) | ITAA 1936 170(11) | ITAA 1997 328-110,,Report on Aspects of Income Tax Self Assessment Explanatory Memorandum to the Tax Laws Amendment (Improvements to Self Assessment) Bill (No. 2) 2005,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20152/NAT/ATO/00001,"Amend title from 'Trustee assessments' to 'Time limits for trustee assessments'. | Content reviewed by PW for technical accuracy. Updated to apply current ATO style and accessibility guidance. | Amend first sentence in section 3. | First published in new format. | [1] Paragraph 2.3 of the Explanatory Memorandum to the Tax Laws Amendment (Improvements to Self Assessment) Bill (No. 2) 2005. | [2] The Treasury (August 2004) Report on Aspects of Income Tax Self Assessment , Commonwealth of Australia, Canberra | [3] A small business entity is one that satisfies the definition in section 328-110 of the Income Tax Assessment Act 1997 . | [4] For example, see subsections 170(6), (9), (9D), (10), (10AA) or (11). | [5] Such an agreement does not arise under subsection 170(7), which relates to a formal extension of the period for amending assessments."
PS LA 2015/3,SUBJECT: Approval process for the application of subsections 815-130(2) to 815-130(4) of the Income Tax Assessment Act 1997 PURPOSE: To provide guidance to ATO staff on this process.,26 February 2015,26 February 2015,Law Administration Practice Statement,False,"1. This Practice Statement provides guidance to ATO staff on the approval process specified where the Commissioner relies on subsections 815-130(2) to (4) of the Income Tax Assessment Act 1997 (ITAA 1997) to identify arm's length conditions in relation to cross-border transfer pricing. 2. All legislative references in this Practice Statement are to the ITAA 1997, unless otherwise indicated. 3. This Practice Statement should be read in conjunction with Taxation Ruling TR 2014/6 Income tax: transfer pricing – the application of section 815-130 of the Income Tax Assessment Act 1997 , which provides guidance in respect of the application of section 815-130. 4. This Practice Statement does not apply in instances where you are merely re-pricing an entity's actual conditions in accordance with the 'basic rule' in subsection 815-130(1) rather than seeking to rely on one of the exceptions at subsections 815-130(2) to 815-130(4). 5. Subdivision 815-B was introduced by the Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Act 2013 , which inserted Subdivisions 815-B, C and D into the ITAA 1997 and Subdivision 284-E into Schedule 1 to the Taxation Administration Act 1953, with effect from 29 June 2013. [1] These Subdivisions ensure that Australia's transfer pricing rules better align with the arm's length principle and the internationally consistent transfer pricing approaches as set out by the Organisation for Economic Co-operation and Development (OECD). [2] 6. Subsection 815-130(1) provides the 'basic rule' for the way in which an entity's arm's length conditions are to be identified, that is, that they be based on the commercial or financial relations in connection with which the actual conditions operate and have regard to both the form and substance of those relations. Subsections 815-130(2) to (4) ('the exceptions') provide exceptions to that rule depending on whether the form and substance of those relations is consistent or on what independent entities dealing wholly independently with one another in comparable circumstances would or would not have done. (See paragraph 29 of TR 2014/6.) 7. The operation of the basic rule, the exceptions to that rule, the meaning of the terms in section 815-130 and its interaction with other parts of Subdivision 815-B are discussed in TR 2014/6. 8. Paragraph 30 of TR 2014/6 states that these exceptions operate automatically. There is no discretion with their application if the circumstances described in the exceptions apply in relation to the actual commercial or financial relations. In particular, section 815-130 neither requires nor contemplates the existence of any other exceptional circumstances, nor any subjective analysis in this regard, before the exceptions apply. Rather, the exceptional circumstances required for their operation are strictly defined within these subsections. 9. In considering whether any of the exceptions to the basic rule in section 815-130 may apply to an entity in a particular instance, you must: • engage relevant internal technical experts as early as possible • notify the branch responsible for transfer pricing strategy within Public Groups (PG) • notify the Economist Practice. • engage relevant internal technical experts as early as possible • notify the branch responsible for transfer pricing strategy within Public Groups (PG) • notify the Economist Practice. 10. The notifications listed in paragraph 9 of this Practice Statement should occur before any views are communicated to the taxpayer that consider the potential or proposed application of the exceptions to the basic rule in section 815-130. 11. Engaging relevant technical experts and notifying the relevant branches as referred to in paragraph 9 of this Practice Statement as early as possible can assist you in: • ensuring that the facts obtained are probative of the elements of the exceptions to the basic rule in section 815-130, and • facilitating consideration of the matters so as not to cause delays. • ensuring that the facts obtained are probative of the elements of the exceptions to the basic rule in section 815-130, and • facilitating consideration of the matters so as not to cause delays. 12. Prior to the adoption of any view by the ATO that one of the exceptions should apply in relation to an entity's actual commercial or financial relations, including before communicating any position papers to the taxpayer (or other documents which adopt such views), you must seek approval to do so from a relevant Assistant Commissioner. The relevant Assistant Commissioners are: • an Assistant Commissioner in the Tax Counsel Network (TCN), Office of the Chief Tax Counsel, in instances where the case has been referred to TCN in accordance with PS LA 2012/1 Engaging Tax Counsel Network on tax technical issues and the Enterprise Risk Management Framework (link available internally only) • the Assistant Commissioner within the branch responsible for transfer pricing strategy within PG • for cases dealt with in Private Wealth, an Assistant Commissioner in Private Wealth. • an Assistant Commissioner in the Tax Counsel Network (TCN), Office of the Chief Tax Counsel, in instances where the case has been referred to TCN in accordance with PS LA 2012/1 Engaging Tax Counsel Network on tax technical issues and the Enterprise Risk Management Framework (link available internally only) • the Assistant Commissioner within the branch responsible for transfer pricing strategy within PG • for cases dealt with in Private Wealth, an Assistant Commissioner in Private Wealth. 13. In support of any request for approval, you must provide to the relevant Assistant Commissioner the draft position paper or other such document setting out the views proposed in relation to, among other things, the application of any of the exceptions. You are not required to prepare documents additional to those normally prepared in transfer pricing cases just to address these matters. 14. This document must contain a clear explanation of the reasons for the application of the exceptions, including how the conditions for the application of the exceptions apply to the entity. 15. This process has been implemented with a view to ensuring that the exceptions to the basic rule in subsection 815-130(1) are applied correctly, consistently and in appropriate instances.",TR 2014/6 | PS LA 2012/1 | Explanatory Memorandum | ITAA 1997 Subdiv 815-B | ITAA 1997 Subdiv 815-C | ITAA 1997 Subdiv 815-D | ITAA 1997 815-130 | ITAA 1997 815-130(1) | ITAA 1997 815-130(2) | ITAA 1997 815-130(3) | ITAA 1997 815-130(4) | ITTPA 1997 815-15 | TAA 1953 Sch 1 Subdiv 284-E | Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Act 2013,PS LA 2012/1,ITAA 1997 Subdiv 815-B | ITAA 1997 Subdiv 815-C | ITAA 1997 Subdiv 815-D | ITAA 1997 815-130 | ITAA 1997 815-130(1) | ITAA 1997 815-130(2) | ITAA 1997 815-130(3) | ITAA 1997 815-130(4) | ITTPA 1997 815-15 | TAA 1953 Sch 1 Subdiv 284-E | Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Act 2013,,Enterprise Risk Management Framework Explanatory Memorandum to the Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Bill 2013,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20153/NAT/ATO/00001,"Updated in line with current ATO style and accessibility requirements. Further amendments made to align with internal restructures and processes. | [1] Section 815-15 of the Income Tax (Transitional Provisions) Act 1997 provides that Subdivisions 815-B, 815-C and 815-D apply to income years starting on or after the earlier of 1 July 2013 and the day the Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Act 2013 received Royal Assent (being 29 June 2013). | [2] See paragraphs 2.1, 2.5, 2.16 and 3.2 of the Explanatory Memorandum to Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Bill 2013 (EM) which accompanied the Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Act 2013 ."
PS LA 2015/4,Advance Pricing Arrangements,23 July 2015,23 July 2015,Law Administration Practice Statement,False,"1. What this Practice Statement is about: 1A. This Practice Statement sets out the Commissioner of Taxation's practice and procedures and provides guidance to ATO staff in dealing with requests from taxpayers to enter into an advance pricing arrangement (APA). 1B. While this Practice Statement deals primarily with APA requests covering cross-border dealings between separate entities, we are also to apply the principles in this Practice Statement to requests for APAs involving the attribution of profits to permanent establishments. 1C. All legislative references in this Practice Statement are to the Income Tax Assessment Act 1997 , unless otherwise indicated. | 2. What is an advance pricing arrangement: 2A. An APA is [1] : … an arrangement that determines, in advance of controlled transactions, an appropriate set of criteria (e.g. method, comparables and appropriate adjustments thereto, critical assumptions as to future events) for the determination of the transfer pricing for those transactions over a fixed period of time. 2B. An APA is entered into by: • in the case of a unilateral APA, the ATO and the taxpayer • in the case of a bilateral APA, the competent authority (CA) of the relevant tax administration and the ATO CA • in the case of a multilateral APA, the CA of each of the relevant administrations and the ATO CA. • in the case of a unilateral APA, the ATO and the taxpayer • in the case of a bilateral APA, the competent authority (CA) of the relevant tax administration and the ATO CA • in the case of a multilateral APA, the CA of each of the relevant administrations and the ATO CA. 2C. An APA deals with conditions operating between entities that satisfy the cross-border test in subsection 815-120(3) (cross-border dealings). The term of an APA will usually be between 3 and 5 years. | 3. Context for entering into an advance pricing arrangement: 3A. Many Australian-based entities participate regularly in the ever-evolving dynamic market that is world trade. Multinational entities and cross-border dealings are critical to this global dynamic. As a necessary consequence, there has been an increasing focus and emphasis on transfer pricing and its impacts for revenue authorities. We recognise that taxpayers face transfer pricing risks internationally and domestically. In particular, Australian-based taxpayers face transfer pricing risks given Australia's transfer pricing rules are self-executing as part of the self-assessment regime. 3B. Charged with administering Australia's tax system, we also face risks posed by profit shifting and transfer pricing. By entering into APAs, we place an explicit emphasis on assuring Australia's tax base by working with Australian taxpayers to ensure transfer pricing outcomes are reflective of the true economic contribution made by the Australian-based enterprise. 3C. The ATO and most taxpayers will seek to manage and mitigate our respective transfer pricing risks. APAs provide an opportunity for all parties, on a prospective basis, to mutually manage and achieve certainty on transfer pricing risks. The APA should provide a pragmatic means to agree to an arm's length outcome for the Australian entity and for us having regard to the totality of the cross-border dealings between the entities involved, which is consistent with the transfer pricing legal framework. Staff are to be mindful of this context during the APA process, including reviews of annual compliance reports (ACR). | 4. Reasons for entering into an advance pricing arrangement: 4A. The core objective of an APA is to provide taxpayers who have a positive compliance record with a cooperative compliance program to attain tax certainty on transfer pricing outcomes for significant international related party dealings, where the risk of double taxation is high. In so doing, we commit to fostering constructive working relationships with mutual trust through early engagement, and full and frank disclosure. 4B. APAs provide tangible benefits by decreasing the costs of compliance over the term of an APA. 4C. APAs are a pragmatic strategy that foster cooperative tax compliance and prevent escalation of transfer pricing issues into disputes. An APA channels resources towards a preventative mechanism rather than a reactive one, such as an audit. Hence, an APA delivers further cost savings to the tax system. 4D. APAs are part of our: • focus on proper tax administration • program of providing taxpayers with advice, and • maintenance of tax system integrity through its assurance work. • focus on proper tax administration • program of providing taxpayers with advice, and • maintenance of tax system integrity through its assurance work. 4E. APAs give taxpayers the opportunity to reach agreement with us on the application of one or more transfer pricing methods to ensure consistency with the arm's length principle to their covered cross-border dealings on a prospective basis. APAs can assure us that the taxpayer's actual conditions, that operate in connection with their commercial or financial relations, are consistent with the arm's length conditions on a prospective basis. 4F. Entering into bilateral or multilateral APAs: • minimises the potential for double taxation • reduces the need to enter mutual agreement procedure (MAP) negotiations to eliminate economic double taxation • provides greater certainty, and • reduces the cost of compliance for all stakeholders. • minimises the potential for double taxation • reduces the need to enter mutual agreement procedure (MAP) negotiations to eliminate economic double taxation • provides greater certainty, and • reduces the cost of compliance for all stakeholders. 4G. During the course of an APA, other interconnected non-transfer pricing tax issues can be discussed, and where resolution of those tax issues is reached with the taxpayer, it will be formalised outside of the APA. | 5. Mutual expectations when developing advance pricing arrangements: 5A. The APA process is a cooperative one, requiring mutual trust between the parties to achieve an effective and efficient outcome and maximise future tax certainty, through professional, respectful and timely interactions. 5B. Taxpayers seeking to engage in the APA process can expect us to: • consider each APA application on its merits according to its own facts, and apply principles consistently to ensure fair and reasonable outcomes • adhere to the APA program scope, including providing clear and timely communication around concerns that may require the application of the exit principles • adhere to the APA program timeframes • facilitate regular and timely communication with taxpayers • facilitate regular and timely communication with treaty partner competent authorities • seek to coordinate the information-gathering process with treaty partners where possible to limit duplication • request information that is relevant to the proposed covered transactions or collateral issues • handle provided information in accordance with ATO secrecy obligations and principles • review information provided efficiently, with ongoing taxpayer engagement to ensure mutual understanding of information received • maintain mutual trust through full and frank disclosure, and negotiation in a cooperative environment. • consider each APA application on its merits according to its own facts, and apply principles consistently to ensure fair and reasonable outcomes • adhere to the APA program scope, including providing clear and timely communication around concerns that may require the application of the exit principles • adhere to the APA program timeframes • facilitate regular and timely communication with taxpayers • facilitate regular and timely communication with treaty partner competent authorities • seek to coordinate the information-gathering process with treaty partners where possible to limit duplication • request information that is relevant to the proposed covered transactions or collateral issues • handle provided information in accordance with ATO secrecy obligations and principles • review information provided efficiently, with ongoing taxpayer engagement to ensure mutual understanding of information received • maintain mutual trust through full and frank disclosure, and negotiation in a cooperative environment. 5C. Taxpayers seeking to engage in the APA process are expected to: • provide a full and complete early engagement form and APA submission, disclosing all relevant facts in all participating jurisdictions • adhere to the APA program timeframes • maintain regular, open communication with us • provide timely and complete responses to information requests and, where required, the relevant source documents • provide documents that meet the appropriate standard of evidence to substantiate transfer pricing analysis • for bilateral and multilateral APAs, provide information to both treaty partners contemporaneously and concurrently where possible • proactively disclose any change in circumstances during the APA process • maintain mutual trust through full and frank disclosure. • provide a full and complete early engagement form and APA submission, disclosing all relevant facts in all participating jurisdictions • adhere to the APA program timeframes • maintain regular, open communication with us • provide timely and complete responses to information requests and, where required, the relevant source documents • provide documents that meet the appropriate standard of evidence to substantiate transfer pricing analysis • for bilateral and multilateral APAs, provide information to both treaty partners contemporaneously and concurrently where possible • proactively disclose any change in circumstances during the APA process • maintain mutual trust through full and frank disclosure. 5D. While regular and open communication is required between the taxpayer and ATO, taxpayers are not directly involved in the preparation of position papers, interactions with panel members or competent authority negotiations. 5E. Staff are to approach APA requests on this basis. The mutual expectations in paragraphs 5B and 5C of this Practice Statement extend to the discussions on the appropriate resolution pathways for collateral issues (refer to Section 13 of this Practice Statement). 5F. If these mutual expectations are not met, it may be appropriate for us to withdraw from the APA process. | 6. When we are more likely to enter into an advance pricing arrangement: 6A. Staff are to consider each APA request having regard to all the relevant facts and circumstances in the context described in Section 3 of this Practice Statement. 6B. We may be more likely to enter into an APA where one or more of the following indicators are present: • The transfer pricing method proposed best achieves consistency with the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2017 (as amended and adopted as relevant guidance material under section 815-135). • The proposed arrangement is under serious contemplation [2] and the proposed actual conditions are unlikely to change significantly in the period of the APA. • The transfer pricing issues are complex and there is uncertainty as to how the transfer pricing rules apply. • The taxpayer is cooperative and has a good compliance record. • The probability of economic double taxation is high without an APA. • The value of the cross-border dealings proposed to be covered are of material significance to the taxpayer, being at least $5 million or 80% of assessable income or deductible expenditure, on average per annum. • The request is a renewal of an APA. • The proposed APA is with a jurisdiction where we have a focus on developing a treaty partner relationship, or the transaction addresses emerging trends, or the transactions are of economic significance to Australia's economy. • The transfer pricing method proposed best achieves consistency with the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2017 (as amended and adopted as relevant guidance material under section 815-135). • The proposed arrangement is under serious contemplation [2] and the proposed actual conditions are unlikely to change significantly in the period of the APA. • The transfer pricing issues are complex and there is uncertainty as to how the transfer pricing rules apply. • The taxpayer is cooperative and has a good compliance record. • The probability of economic double taxation is high without an APA. • The value of the cross-border dealings proposed to be covered are of material significance to the taxpayer, being at least $5 million or 80% of assessable income or deductible expenditure, on average per annum. • The request is a renewal of an APA. • The proposed APA is with a jurisdiction where we have a focus on developing a treaty partner relationship, or the transaction addresses emerging trends, or the transactions are of economic significance to Australia's economy. 6C. No one indicator is, of itself, determinative. However, transparency as to the material facts is essential. | 7. When we are less likely to enter into an advance pricing arrangement: 7A. Following on from Section 6 of this Practice Statement, we may be less likely to enter into an APA where one or more of the following indicators are present: • The actual conditions are simple or routine with arm's length conditions being relatively certain. • The cross-border dealings to be covered by the APA are only a small portion of value of the total cross-border dealings. • The proposed APA would not result in alignment between true economic activity and profit outcomes in Australia. • Collateral issues exist that affect our ability to enter into the proposed APA. • The arrangements proposed to be covered or the collateral issues exhibit features that are inconsistent with our publicly stated position on the matter. • We have concerns that the taxpayer is engaging in tax avoidance activities or schemes. • There are significant differences in views between the taxpayer and us on the transfer pricing approach, which are unlikely to be reconciled through an APA process. • The taxpayer requests a unilateral APA where a bilateral or multilateral APA may be more suitable. • Alternative avenues are available to provide tax certainty which represent a better use of resources or is more suitable than an APA (for example, a practical guideline or the justified trust program). • The actual conditions are simple or routine with arm's length conditions being relatively certain. • The cross-border dealings to be covered by the APA are only a small portion of value of the total cross-border dealings. • The proposed APA would not result in alignment between true economic activity and profit outcomes in Australia. • Collateral issues exist that affect our ability to enter into the proposed APA. • The arrangements proposed to be covered or the collateral issues exhibit features that are inconsistent with our publicly stated position on the matter. • We have concerns that the taxpayer is engaging in tax avoidance activities or schemes. • There are significant differences in views between the taxpayer and us on the transfer pricing approach, which are unlikely to be reconciled through an APA process. • The taxpayer requests a unilateral APA where a bilateral or multilateral APA may be more suitable. • Alternative avenues are available to provide tax certainty which represent a better use of resources or is more suitable than an APA (for example, a practical guideline or the justified trust program). 7B. Where a taxpayer meets the eligibility criteria in Practical Compliance Guideline PCG 2017/2 Simplified transfer pricing record-keeping options this does not preclude the ATO and the taxpayer from entering into an APA. 7C. The availability of carried forward losses also does not preclude the ATO and the taxpayer from entering into an APA. Where carry forward losses are available to a taxpayer, the APA team is to treat this aspect as a collateral issue (refer to Section 13 of this Practice Statement) and understand the reasons behind those losses being incurred prior to acceptance into the APA program. | 8. Potential application of the anti-avoidance provisions: 8A. In identifying arm's length conditions, consideration is to be given to factors in addition to pricing. This can include consideration of the global value chain, structures, functions, assets and risks, transfer pricing method, and other similar relevant factors. 8B. The APA team may need to consider whether the cross-border dealings to be covered by the proposed APA might lead to the application of: • the general anti-avoidance provisions contained in Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) [3] including the multinational anti-avoidance law (MAAL) and diverted profits tax (DPT), or • other specific anti-avoidance provisions, such as the anti-hybrid mismatch rules or a principal or main purposes test included in any of Australia's double-tax agreements. • the general anti-avoidance provisions contained in Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) [3] including the multinational anti-avoidance law (MAAL) and diverted profits tax (DPT), or • other specific anti-avoidance provisions, such as the anti-hybrid mismatch rules or a principal or main purposes test included in any of Australia's double-tax agreements. 8C. Where the possible application of Part IVA of the ITAA 1936 or other specific anti-avoidance provisions may arise, the APA team will make further enquiries in the early engagement stage to ascertain the likelihood of the risk. 8D. The APA team is to discuss the resolution of such issues with the taxpayer and factor it into the development of agreed plans (refer to paragraph 10E of this Practice Statement). 8E. Where it is not practicable to resolve a risk relating to an anti-avoidance provision that directly impacts on the covered transactions being considered in the APA: • during the early engagement stage, the taxpayer will not be invited to make a formal APA submission • during the APA application stage, we will not proceed with the APA and the matter may be referred internally for further consideration. • during the early engagement stage, the taxpayer will not be invited to make a formal APA submission • during the APA application stage, we will not proceed with the APA and the matter may be referred internally for further consideration. | 9. Stages of the advance pricing arrangement process: 9A. The APA process has 3 stages [4] : • Stage 1 – early engagement • Stage 2 – APA application • Stage 3 – monitoring compliance. • Stage 1 – early engagement • Stage 2 – APA application • Stage 3 – monitoring compliance. 9B. An APA request enters an early engagement stage before progressing to a formal APA application. Once the early engagement process is completed and the APA is approved to progress, the taxpayer is invited to make a formal APA application and the APA application stage commences. After the parties have agreed to the APA, there is a further stage of monitoring compliance. 9C. Stages 1 and 2 consist of a number of steps (refer to Sections 10 and 11 of this Practice Statement for the steps in these stages) and it may be necessary to repeat certain steps where insufficient information is provided to support the APA request. Flexibility of the advance pricing arrangement process 9D. The APA process does not have to be conducted in a linear manner. Steps may be combined or repeated where this is appropriate. However, whether a flexible approach is appropriate is to be determined by the APA team leader, in consultation with the APA Program Management Unit (APA PMU). | 10. Stage 1 – early engagement stage: 10A. Throughout the early engagement stage, staff are to build the cooperative relationship essential to the entire APA process in order to reach mutually agreed outcomes. In building this type of relationship, it is necessary to align taxpayer and our expectations as much as possible. 10B. For us, this stage involves a robust and holistic strategic-level review of the APA request and supporting documentation, including an examination of the relevant global value chain. In later steps of this stage, we will discuss the proposed APA with the taxpayer in more detail. 10C. The early engagement stage is initiated by the taxpayer's submission of a completed early engagement form (containing the APA request). Prior to making the submission, taxpayers may request an initial meeting with us to discuss the possibility of an APA. While informal discussions are possible to address general questions, we will not engage in formal discussions unless the parties are identified. 10D. Once the early engagement form is received, the APA PMU will allocate it to an Engagement and Assurance team in Public Groups (APA team) and a CA. 10E. In the early engagement stage, the APA team will: • explain the APA process to the taxpayer • provide feedback on the APA request • consider if collateral issues exist and appropriate pathways to address them • evaluate whether the taxpayer should be invited to apply formally for an APA • develop agreed plans with the taxpayer, one for the early engagement stage, and the other to conclude the APA itself. • explain the APA process to the taxpayer • provide feedback on the APA request • consider if collateral issues exist and appropriate pathways to address them • evaluate whether the taxpayer should be invited to apply formally for an APA • develop agreed plans with the taxpayer, one for the early engagement stage, and the other to conclude the APA itself. 10F. Stage 1 includes the following steps: • preliminary discussions (refer to paragraphs 10G to 10J of this Practice Statement) • APA Entry panel (refer to paragraphs 10K to 10S of this Practice Statement). • preliminary discussions (refer to paragraphs 10G to 10J of this Practice Statement) • APA Entry panel (refer to paragraphs 10K to 10S of this Practice Statement). Preliminary discussions 10G. Preliminary discussions are held with the taxpayer to explore avenues for the appropriate treatment of the covered cross-border dealings and any collateral issues. Both parties will then know what to expect if and when the taxpayer lodges a formal APA application. 10H. Openly discussing the taxpayer's APA request should stimulate a free flow of information between all parties and lead to a more robust review of the request and any supporting documentation. Such discussions should better facilitate lodgment of a formal APA application and subsequent agreement to a workable and practical APA. 10I. During preliminary discussions, the APA team should: • confirm the scope of the APA • classify the APA (unilateral, bilateral or multilateral) • ensure appropriate ATO stakeholders are involved in the APA process • review and confirm the relevant worldwide structure of the taxpayer group and the role of the Australian entity or entities within the global value chain • identify the preferred transfer pricing method, methods or combination thereof for each party • identify and confirm any collateral issues and agree with the taxpayer on the approaches to resolve those issues – for example, roll-back of the APA result to income years prior to those covered by the proposed APA (refer to Section 15 of this Practice Statement) • consider whether the taxpayer may need to address the exceptions to the basic rule in section 815-130. If the APA team considers that it is possible that one of the exceptions to the basic rule in section 815-130 might apply, the APA team needs to engage with the Senior Executive Service (SES) officer responsible for transfer pricing strategy within Public Groups • agree with the taxpayer or their representatives on an early engagement case plan up to lodgment of the formal APA application • agree with the taxpayer on a draft plan for completion of the APA after lodgment of the formal APA application • in a bilateral or multilateral APA, keep the taxpayer informed, to the extent possible, of any discussions held with CAs of the other tax authorities. • confirm the scope of the APA • classify the APA (unilateral, bilateral or multilateral) • ensure appropriate ATO stakeholders are involved in the APA process • review and confirm the relevant worldwide structure of the taxpayer group and the role of the Australian entity or entities within the global value chain • identify the preferred transfer pricing method, methods or combination thereof for each party • identify and confirm any collateral issues and agree with the taxpayer on the approaches to resolve those issues – for example, roll-back of the APA result to income years prior to those covered by the proposed APA (refer to Section 15 of this Practice Statement) • consider whether the taxpayer may need to address the exceptions to the basic rule in section 815-130. If the APA team considers that it is possible that one of the exceptions to the basic rule in section 815-130 might apply, the APA team needs to engage with the Senior Executive Service (SES) officer responsible for transfer pricing strategy within Public Groups • agree with the taxpayer or their representatives on an early engagement case plan up to lodgment of the formal APA application • agree with the taxpayer on a draft plan for completion of the APA after lodgment of the formal APA application • in a bilateral or multilateral APA, keep the taxpayer informed, to the extent possible, of any discussions held with CAs of the other tax authorities. 10J. Once the scope of an APA is agreed, staff are not to change it other than in exceptional circumstances, which may include one or more of the following: • changes to the taxpayer's cross-border dealings • identification of a new issue with significant tax risk • the need to interpret how the transfer pricing provisions apply to new cross-border dealings • new issues raised by the CA of a tax treaty partner. • changes to the taxpayer's cross-border dealings • identification of a new issue with significant tax risk • the need to interpret how the transfer pricing provisions apply to new cross-border dealings • new issues raised by the CA of a tax treaty partner. The APA team leader or CA, as appropriate, is to make any such change in consultation with the taxpayer. Advance pricing arrangement Entry panel 10K. The main purpose of the APA Entry panel (Entry panel) is to make a decision on whether the taxpayer will be invited to lodge a formal APA application. It is an assurance process that facilitates consistency of approach across all APA requests. The SES officer responsible for the APA PMU holds the decision-making authority for APA entry, but as the Chair of the Entry panel, delegates that authority to the Entry panel members. 10L. In order to appropriately assess whether a taxpayer will be invited to lodge a formal APA application, the Entry panel identifies whether there are material impediments to the ATO entering into an APA with the taxpayer by examining the information supplied by the taxpayer and the APA team (refer to paragraph 10N of this Practice Statement). Where necessary, the APA team may request further information, for example, where the APA team needs further clarification in respect of the cross-border dealings or the global value chain. 10M. In preparation for the Entry panel, the APA team allocated to the APA request undertakes preliminary research. The APA team analyse and collate this research and the information supplied in the APA request and during preliminary discussions [5] for the purpose of making a presentation to the Entry panel. 10N. The preliminary research is a profiling exercise which may include the following: • the tax and compliance history of the taxpayer • current interactions between us and the taxpayer • the taxpayer's performance under any prior APAs • the taxpayer's transfer pricing documentation for the latest income year or years lodged, including, if applicable, transfer pricing method, comparable prices or margins, or the expected range of results • the value of the taxpayer's total cross-border dealings • the value of the cross-border dealings proposed to be covered by the APA • other tax issues requiring consideration as part of the APA process. • the tax and compliance history of the taxpayer • current interactions between us and the taxpayer • the taxpayer's performance under any prior APAs • the taxpayer's transfer pricing documentation for the latest income year or years lodged, including, if applicable, transfer pricing method, comparable prices or margins, or the expected range of results • the value of the taxpayer's total cross-border dealings • the value of the cross-border dealings proposed to be covered by the APA • other tax issues requiring consideration as part of the APA process. 10O. The Entry panel members will be appointed by the SES officer responsible for the APA PMU. The panel will consist of: • an experienced officer from Economist Practice, International Support and Programs • an officer with international tax expertise within Public Groups • an officer with compliance expertise within Public Groups. • an experienced officer from Economist Practice, International Support and Programs • an officer with international tax expertise within Public Groups • an officer with compliance expertise within Public Groups. 10P. Other participants may be invited to the Entry panel, however, these participants are not decision-makers on the APA entry. These participants include: • a representative from the APA PMU • APA team members • the relevant CA assigned to the early engagement • any relevant risk managers, technical experts, or SES officers if required. • a representative from the APA PMU • APA team members • the relevant CA assigned to the early engagement • any relevant risk managers, technical experts, or SES officers if required. 10Q. As part of discussions with the APA team, the Entry panel members and participants may: • provide high-level technical and risk advice • examine preliminary technical analysis and review the related-party transactions, the collateral issues and any relevant existing precedential ATO view documents • identify issues that may require referral to specialists, such as domestic and international tax risk experts • identify other important considerations and provide intelligence to the APA team, including on any emerging risks or issues. • provide high-level technical and risk advice • examine preliminary technical analysis and review the related-party transactions, the collateral issues and any relevant existing precedential ATO view documents • identify issues that may require referral to specialists, such as domestic and international tax risk experts • identify other important considerations and provide intelligence to the APA team, including on any emerging risks or issues. 10R. The Entry panel will decide, by consensus, whether the taxpayer will be invited to make a formal APA application based upon the information provided and the position of the APA team. Where a consensus decision cannot be reached, the Chair will decide if the taxpayer will be invited into the APA program. 10S. Where the Entry panel decides that the request is not to proceed further, this decision is reviewed by the Chair and, if endorsed, the APA team leader will provide the taxpayer with written reasons for the decision, which may include steps for the taxpayer to reapply at a future point in time. Considerations by the Entry panel 10T. In determining whether the ATO will invite the taxpayer to submit a formal APA application, the Entry panel should consider the taxpayer's relevant facts and circumstances in the context of the global value chain and other arrangements with which they might be linked. 10U. The Entry panel should not restrict their analysis to the cross-border conditions that are the subject of the proposed APA but should also consider any other relevant matters, including the matters listed in paragraph 10V of this Practice Statement. 10V. In addition to the indicators in Sections 6 and 7 of this Practice Statement, the matters the Entry panel is to consider include whether: • the information provided allows for a full and proper consideration of the APA request by us • there is an explanation that demonstrates that the actual conditions are relevant and material to the taxpayer's business [6] • the transfer pricing risks and issues arising from the actual conditions warrant the allocation of resources required for an APA • an APA is a suitable product for the taxpayer, given their classification in the Action Differentiation Framework, the taxpayer's compliance history, and its performance under any previous APA • the transfer pricing method proposed under the APA is unlikely to result in the taxpayer getting a transfer pricing benefit and whether the method best achieves consistency with the guidance material for the purposes of section 815-135 • in the absence of an APA, there is a likelihood that the actual conditions may result in double taxation or in a dispute • we anticipate that the parties will agree on all aspects of the APA in a timely manner • collateral issues are capable of being resolved prior to or in parallel with the APA (refer to Section 13 of this Practice Statement). • the information provided allows for a full and proper consideration of the APA request by us • there is an explanation that demonstrates that the actual conditions are relevant and material to the taxpayer's business [6] • the transfer pricing risks and issues arising from the actual conditions warrant the allocation of resources required for an APA • an APA is a suitable product for the taxpayer, given their classification in the Action Differentiation Framework, the taxpayer's compliance history, and its performance under any previous APA • the transfer pricing method proposed under the APA is unlikely to result in the taxpayer getting a transfer pricing benefit and whether the method best achieves consistency with the guidance material for the purposes of section 815-135 • in the absence of an APA, there is a likelihood that the actual conditions may result in double taxation or in a dispute • we anticipate that the parties will agree on all aspects of the APA in a timely manner • collateral issues are capable of being resolved prior to or in parallel with the APA (refer to Section 13 of this Practice Statement). 10W. This list is not exhaustive. No one matter is determinative and one matter does not have any greater weighting relative to another. The Entry panel's decision is to be made on balance after considering all relevant circumstances. Entry panel decision 10X. If the decision by the Entry panel is to proceed to the next stage of the APA process, the APA team will extend a written invitation to the taxpayer to submit a formal APA application. 10Y. If it is decided by the Entry panel that the APA request should not proceed to submission of a formal application, the APA team will notify the taxpayer of that decision and provide written reasons for the decision. 10Z. The enhanced program governance removes the need for taxpayers to request a review of decisions on entry criteria and application requests. | 11. Stage 2 – advance pricing arrangement application stage: 11A. Once we invite the taxpayer to submit an APA application, the APA application stage commences. In this stage: • The APA team critically analyses and evaluates the APA application, including any associated documentation and comparability analysis. • The APA team develops an APA document containing the initial ATO position with which to enter negotiations. • The initial ATO position is quality-assured and endorsed by the APA panel (refer to paragraphs 11I to 11M of this Practice Statement). • The terms and conditions of the APA are negotiated with a view to reaching agreement (refer to paragraphs 11N to 11O of this Practice Statement). • Where agreement is reached, the relevant parties enter into an APA (refer to paragraphs 11AB to 11AH of this Practice Statement). • The APA team critically analyses and evaluates the APA application, including any associated documentation and comparability analysis. • The APA team develops an APA document containing the initial ATO position with which to enter negotiations. • The initial ATO position is quality-assured and endorsed by the APA panel (refer to paragraphs 11I to 11M of this Practice Statement). • The terms and conditions of the APA are negotiated with a view to reaching agreement (refer to paragraphs 11N to 11O of this Practice Statement). • Where agreement is reached, the relevant parties enter into an APA (refer to paragraphs 11AB to 11AH of this Practice Statement). 11B. Accordingly, the steps in Stage 2 are: • analysis and evaluation (refer to paragraphs 11D to 11M of this Practice Statement) • negotiation (refer to paragraphs 11N to 11AB of this Practice Statement) • agreement (refer to paragraphs 11AC to 11AI of this Practice Statement). • analysis and evaluation (refer to paragraphs 11D to 11M of this Practice Statement) • negotiation (refer to paragraphs 11N to 11AB of this Practice Statement) • agreement (refer to paragraphs 11AC to 11AI of this Practice Statement). 11C. The first 2 steps in Stage 2 are iterative in that any initial ATO position may be developed further through the APA panel review and the negotiation step. Also, multiple APA panels may need to take place. ANALYSIS AND EVALUATION Analysis and evaluation of the advance pricing arrangement application 11D. The APA team critically analyses and evaluates the APA application and the information in support [7] with the aim of verifying that: • The proposed APA results in arm's length outcomes for the cross-border dealings to be covered, thereby mitigating any transfer pricing risk. • There is sufficient information in support of the APA application to allow us to fully evaluate it. • The proposal in the APA application is consistent with the taxpayer's request and preliminary discussions in the early engagement stage. • The proposed APA results in arm's length outcomes for the cross-border dealings to be covered, thereby mitigating any transfer pricing risk. • There is sufficient information in support of the APA application to allow us to fully evaluate it. • The proposal in the APA application is consistent with the taxpayer's request and preliminary discussions in the early engagement stage. 11E. To verify that the aims stated in paragraph 1D of this Practice Statement are satisfied, the APA team, in consultation with the Economist Practice, checks the APA application in respect of the following matters: • transactions to be covered by the APA • structures and the allocation of functions within different parts of the global group • taxpayer's analysis of its functions, assets and risks • resultant characterisation of the relevant cross-border dealings • transfer pricing method proposed • comparability analysis • arm's length outcome proposed • critical assumptions proposed. • transactions to be covered by the APA • structures and the allocation of functions within different parts of the global group • taxpayer's analysis of its functions, assets and risks • resultant characterisation of the relevant cross-border dealings • transfer pricing method proposed • comparability analysis • arm's length outcome proposed • critical assumptions proposed. 11F. However, when verifying whether the proposed APA results in an arm's length outcome and having regard to the totality of the cross-border dealings between the entities, the APA team may need to make further enquiries of the taxpayer, such as: • additional information requests to the Australian business, offshore business, or both • interviews with key personnel of the taxpayer or the tested party. • additional information requests to the Australian business, offshore business, or both • interviews with key personnel of the taxpayer or the tested party. 11G. Where the proposal in the formal APA application is not consistent with details arising from preliminary discussions, the APA team may request from the taxpayer an explanation as to the differences. Where there is insufficient information for the APA team to conduct a full evaluation of the APA application, the APA team is to request the information it needs. 11H. The APA team reviews the taxpayer's functional analysis, comparability study and, where applicable, suggested arm's length range. In verifying that the outcomes arising from the APA application are consistent with the arm's length principle, the APA team may seek assistance from relevant specialists. Advance pricing arrangement panel 11I. The APA team is to request an APA panel when they are ready to enter into negotiations. The APA team will present their draft position to the APA panel, along with any relevant information gathered during the early engagement and APA application stages. APA panels can be organised at an earlier stage, if necessary, to seek advice from the panel and enable resolution of specific issues. 11J. The purpose of the APA panel is to assist the APA team to progress the APA request and to recommend negotiation parameters to the APA team leader. The APA panel members will be appointed by the SES officer responsible for the APA PMU and the respective panels will be jointly organised by the APA PMU and the APA team. An APA panel will comprise of one representative from each of the following areas, each of whom are independent from the APA team: • an experienced officer from one or both of the APA PMU and Transfer Pricing Strategy team within Public Groups • an officer with compliance expertise within Public Groups • an experienced officer from Economist Practice, International, Support and Programs. • an experienced officer from one or both of the APA PMU and Transfer Pricing Strategy team within Public Groups • an officer with compliance expertise within Public Groups • an experienced officer from Economist Practice, International, Support and Programs. 11K. The SES officer responsible for the APA PMU, as chair of the APA panel, has the authority to decide on the panel recommendations but this authority is delegated to the APA panel members. The APA panel will make a decision by consensus, but where consensus is not reached, the chair will make the decision on the recommendations to be made to the APA team. The APA panel will consider input from the APA team, the Economist Practice, the CA, and, if appropriate, other technical specialists. 11L. The APA panel will: • review the APA team's draft position and the information used by the team in the development of that position to verify that the content of the APA request demonstrates an arm's length outcome • accept the APA team's proposed negotiation parameters or recommend changes to the negotiation parameters • review progress on the resolution of collateral issues to ascertain whether these issues provide any impediment to entering into the APA. • review the APA team's draft position and the information used by the team in the development of that position to verify that the content of the APA request demonstrates an arm's length outcome • accept the APA team's proposed negotiation parameters or recommend changes to the negotiation parameters • review progress on the resolution of collateral issues to ascertain whether these issues provide any impediment to entering into the APA. 11M. If the APA team leader disagrees with the APA panel's recommendation, the APA team leader must escalate the matter to the APA team's SES officer for resolution. Where this SES officer endorses the APA team leader's decision to depart from the APA panel's recommendation, the APA team leader will provide written justification for this decision to the APA panel and proceed with negotiations on the basis of the endorsed position. NEGOTIATION Negotiation guidelines 11N. In negotiating the terms of the APA, the APA team or the CA are to apply the skills and attributes of an effective negotiator. These include: • full, frank and open communication • consideration in the sense of being able to appreciate the perspective of others • problem solving, being the ability to creatively generate possible solutions and assess their appropriateness for the actual situation • flexibility, in the sense of being open to adaptation or modification and having the willingness to yield at appropriate times, rather than having a fixed view or rigid attitude • planning and organising by becoming familiar with the relevant information and determining the objectives • acting professionally, including in particular exercising good judgment and appropriate discretion • assertiveness, being the willingness to state our objectives and strive to reach agreement in a constructive and positive way. • full, frank and open communication • consideration in the sense of being able to appreciate the perspective of others • problem solving, being the ability to creatively generate possible solutions and assess their appropriateness for the actual situation • flexibility, in the sense of being open to adaptation or modification and having the willingness to yield at appropriate times, rather than having a fixed view or rigid attitude • planning and organising by becoming familiar with the relevant information and determining the objectives • acting professionally, including in particular exercising good judgment and appropriate discretion • assertiveness, being the willingness to state our objectives and strive to reach agreement in a constructive and positive way. 11O. In negotiating an APA with each of the relevant parties, the APA team needs to have regard to the totality of the arrangements between the entities and the APA being: • one method by which a perceived risk of a transfer pricing benefit can be managed and mitigated in the self-assessment regime • an inherently commercial and practical outcome for the Australian entity to which we will commit. • one method by which a perceived risk of a transfer pricing benefit can be managed and mitigated in the self-assessment regime • an inherently commercial and practical outcome for the Australian entity to which we will commit. Responsibility for negotiating an advance pricing arrangement 11P. In the case of a unilateral APA, the APA team leader will negotiate with the taxpayer, endeavouring to reach agreement on the terms of the APA. A CA will also be assigned to assist with negotiations and to support general consistency of views and approaches. 11Q. In the case of a bilateral or multilateral APA, the CA, in consultation with the APA team leader, will negotiate with the CA of the tax treaty partner or partners. 11R. Any exchange of information between CAs during the course of their negotiations is conducted in accordance with the Exchange of Information Article of the relevant taxation treaty and is confidential. Exchanges between CAs of position papers in the course of negotiations are considered to be part of government-to-government business. Although the APA team will explain our position to the taxpayer, the ATO position paper or papers of the CA of the tax treaty partner will not be supplied to taxpayers. When agreement cannot be reached 11S. If agreement cannot be reached within the original negotiation parameters, the APA team leader or the CA, as appropriate, is to seek further guidance from the APA panel with a view to resetting the negotiation parameters (refer to paragraphs 11I to 11M of this Practice Statement). This includes where the APA team leader has proceeded on the basis of a position endorsed by their own SES officer. 11T. However, if the CAs cannot reach agreement on the terms of a bilateral or multilateral APA in a reasonable timeframe despite their best endeavours, the CAs may request review by a senior official of the respective tax authorities. Withdrawing from the advance pricing arrangement 11U. If the ATO and the taxpayer or the treaty partner do not reach agreement on the terms of the APA, despite our best endeavours, we will withdraw from the APA. 11V. We may also decide to withdraw from the APA in the following instances: • A viable resolution pathway cannot be agreed with the taxpayer or treaty partner that would result in the APA being finalised within a reasonable timeframe. • The taxpayer is uncooperative and causes unreasonable delays in the APA process, does not respond, or does not provide complete and accurate information when responding to information requests. This extends to the resolution of collateral issues. • Facts gathered through the early engagement or APA application stage significantly vary from the information provided in the taxpayer's submissions. • Concerns exist that there is a tax avoidance scheme or similar schemes are proliferating such that a consistent ATO approach is required, and it is not appropriate for agreements to be reached with taxpayers individually. • An agreement cannot be reached within 3 years of the APA commencement period. This is to ensure that APAs should be agreed having at least 2 prospective years out of the typical 5-year APA period. • A viable resolution pathway cannot be agreed with the taxpayer or treaty partner that would result in the APA being finalised within a reasonable timeframe. • The taxpayer is uncooperative and causes unreasonable delays in the APA process, does not respond, or does not provide complete and accurate information when responding to information requests. This extends to the resolution of collateral issues. • Facts gathered through the early engagement or APA application stage significantly vary from the information provided in the taxpayer's submissions. • Concerns exist that there is a tax avoidance scheme or similar schemes are proliferating such that a consistent ATO approach is required, and it is not appropriate for agreements to be reached with taxpayers individually. • An agreement cannot be reached within 3 years of the APA commencement period. This is to ensure that APAs should be agreed having at least 2 prospective years out of the typical 5-year APA period. 11W. Withdrawing from an APA should only be contemplated after all avenues to reach agreement on the APA in a timely fashion are exhausted. Where an exit from the APA is being considered, the APA team leader should first communicate this with the taxpayer before requesting a special APA Exit panel (Exit panel) to seek endorsement for their recommendation to withdraw from the APA process. A consensus decision by the Exit panel is required and ultimately the decision on withdrawing the APA must be endorsed by the SES officer responsible for the APA PMU and that decision will be made in consultation with the APA team's SES officer. 11X. An Exit panel is specially appointed on a case-by-case basis by the SES officer responsible for the APA PMU and comprises of: • an experienced officer from Economist Practice, International Support and Programs • an officer with international tax expertise within Public Groups • an officer with compliance expertise within Public Groups. • an experienced officer from Economist Practice, International Support and Programs • an officer with international tax expertise within Public Groups • an officer with compliance expertise within Public Groups. 11Y. Other participants may be invited to attend the Exit panel, including the APA PMU, but they do not make a decision on the withdrawal from the APA process. 11Z. In instances where an APA agreement is not reached, we may subsequently use the factual information disclosed during the APA process. Staff are not to use non-factual information provided by the taxpayer in the course of the APA process in any subsequent risk or compliance activity. This non-factual information includes opinions, lines of argument, judgments or conclusions about the operation and effect of the APA. If the taxpayer is dissatisfied with a decision made 11AA. Where a taxpayer is dissatisfied with a decision of the APA team leader or the APA panels and the issue cannot be resolved by the parties, the taxpayer may seek internal review. [8] For example, where the: • ATO withdraws from the APA (refer to paragraph 11V of this Practice Statement), or • ATO and the taxpayer reach a standstill in the APA process. • ATO withdraws from the APA (refer to paragraph 11V of this Practice Statement), or • ATO and the taxpayer reach a standstill in the APA process. 11AB. This review is undertaken by a senior officer with no prior involvement in that APA process. AGREEMENT Contents of the advance pricing arrangement 11AC. After negotiating the terms and conditions of a proposed APA, the parties will usually have reached agreement on the following matters: • the names, addresses and countries of residence for taxation purposes of the parties to the APA • terms of the APA • the cross-border dealings covered by the APA • the agreed transfer pricing method and how it is to be applied • the arm's length amount, rate, range or other arm's length outcome • critical assumptions, any breach of which need to be notified to us in writing • a definition of each of the key terms in the APA • a statement of the accounting standards on which the taxpayer's financial statements are based – for example, Australian International Financial Reporting Standards • procedures for making a compensating adjustment, if necessary. • the names, addresses and countries of residence for taxation purposes of the parties to the APA • terms of the APA • the cross-border dealings covered by the APA • the agreed transfer pricing method and how it is to be applied • the arm's length amount, rate, range or other arm's length outcome • critical assumptions, any breach of which need to be notified to us in writing • a definition of each of the key terms in the APA • a statement of the accounting standards on which the taxpayer's financial statements are based – for example, Australian International Financial Reporting Standards • procedures for making a compensating adjustment, if necessary. 11AD. This agreement is recorded in the APA. The APA or other associated agreements will also state the taxpayer's documentation obligations for its ACR (refer to Section 12 of this Practice Statement). 11AE. An APA will define in advance any factors or assumptions that are so significant that neither party to an arm's length situation would continue to be bound by the APA if any of them changed. A critical assumption can be a fact about the taxpayer, an affiliate, a third party, an industry, or general economic conditions that, if changed, would significantly affect the appropriateness of the substantive terms of the APA. 11AF. The APA team determines the suitability of a particular transfer pricing method and its application on the basis of the facts, including projected facts. 11AG. If the APA team considers that any changes in particular circumstances would materially affect the suitability of the transfer pricing method or its application under the APA, the APA team must include in the APA these circumstances as 'critical assumptions'. Critical assumptions should be included in the APA even where they are not within the taxpayer's or ATO's control. This may include the APA team using a range of 'profit level indicators' to test whether or not the level of profit implied by the application of the entity's transfer pricing method results in outcomes that are replicated by outcomes observed in the open market. In formulating or reviewing proposed critical assumptions, the APA team needs to have regard to the areas within the global group that contribute to its profit, including the profit forecasts over the APA term. 11AH. The APA needs to contain terms requiring a compensating adjustment where the tested party's actual results fall outside the agreed arm's length outcome, but otherwise there is no breach of any critical assumptions. These compensating adjustments are made to the tax position to achieve a price, point in the range or result that reflect the agreed arm's length outcomes. 11AI. Where necessary in the negotiation step, the APA team will have discussed with the taxpayer how a compensating adjustment is to be effected and the tax consequences of that adjustment. | 12. Stage 3 – monitoring compliance stage: 12A. Under the terms of the APA, the taxpayer prepares and lodges annually an ACR signed by the public officer for each income year covered by the APA. The ACR needs to contain only sufficient information to detail the actual results for the relevant year and to demonstrate compliance with the terms of the APA. This level of documentation should provide cost savings to taxpayers. 12B. The ACR is reviewed within a Public Groups Engagement and Assurance team (ACR reviewer). This review includes: • checking whether any of the critical assumptions listed in the APA have been breached • confirming that the terms of the APA have been met. • checking whether any of the critical assumptions listed in the APA have been breached • confirming that the terms of the APA have been met. 12C. Where we are of the opinion that one or more critical assumptions or terms of a bilateral or multilateral APA have been breached, the CA [9] will inform the tax treaty partner CA that the ATO is of that opinion. The CAs will discuss how to treat the breach under the mutual agreement procedure article of the relevant tax treaty. 12D. If a critical assumption or a term of a unilateral APA is breached, the ACR reviewer will inform the taxpayer and enter into discussions to obtain an explanation. The ACR reviewer determines how to treat the breach in consultation with the APA PMU. In appropriate instances, the APA may be modified, suspended or cancelled – for example, where the breach is a material one. 12E. The ACR reviewer should examine the ACR to determine: • if the taxpayer is reporting results below or at the low end of any ranges specified in the terms of the APA without sufficient evidence demonstrating that external factors have caused this to occur • whether the taxpayer has made compensating adjustments to effect a move to the agreed point, where their results are outside the agreed range. • if the taxpayer is reporting results below or at the low end of any ranges specified in the terms of the APA without sufficient evidence demonstrating that external factors have caused this to occur • whether the taxpayer has made compensating adjustments to effect a move to the agreed point, where their results are outside the agreed range. 12F. The ACR reviewer examines these compensating adjustments to verify they achieve a price, point in the range or result that is consistent with the agreed arm's length outcomes – for example, where profits fall outside the agreed arm's length range under the transactional net margin method. 12G. The ACR reviewer also needs to check whether the type of results specified in paragraph 12E of this Practice Statement are occurring consistently over the term of an APA. In such instances, the ACR reviewer is to note this for an APA team to take into account when dealing with any renewal request on similar terms. 12H. If the ACR reviewer believes that it is appropriate to modify, suspend or cancel the APA, the ACR reviewer is to request the APA PMU to organise an APA panel. 12I. The APA panel will provide a recommendation to the ACR reviewer on how to address the breach of the terms of the APA. If the ACR reviewer disagrees with this recommendation, they are to escalate the matter to their SES officer for a final decision. | 13. Collateral issues: 13A. A collateral issue is: • an administrative or tax issue in relation to the taxpayer's affairs • in addition to the cross-border dealings the subject of the APA. • an administrative or tax issue in relation to the taxpayer's affairs • in addition to the cross-border dealings the subject of the APA. 13B. Collateral issues can include both transfer pricing and non-transfer pricing issues. Some examples of collateral issues include, but are not limited to, concerns regarding: • the tax and transfer pricing-related structural arrangements – for example, business restructuring resulting in reduced profits in Australia, combined with interconnected tax structuring concerns • the characterisation of tax and transfer pricing arrangements • the substance of the arrangement relative to its form • the application of the exceptions to the basic rule in section 815-130 • the application of general or specific anti-avoidance provisions. • the tax and transfer pricing-related structural arrangements – for example, business restructuring resulting in reduced profits in Australia, combined with interconnected tax structuring concerns • the characterisation of tax and transfer pricing arrangements • the substance of the arrangement relative to its form • the application of the exceptions to the basic rule in section 815-130 • the application of general or specific anti-avoidance provisions. 13C. The existence of collateral issues may make it inappropriate for us to proceed with an APA. The approach will depend on the nature of the issue, the impact on the APA outcomes and the stage of the APA process in which the collateral issue is identified. Collateral issue identified in Stage 1 13D. If a collateral issue is identified in the early engagement stage and the collateral issue: • relates to the possible application of the anti-avoidance rules and directly impacts on the covered transaction, the taxpayer will not be invited to make a formal APA application and the APA process will cease • may impact on the pricing of the dealings proposed to be covered, the pathway to resolution of the collateral issue must be agreed before the taxpayer is invited to make a formal APA application • does not impact on the pricing of the dealings proposed to be covered, the taxpayer will be notified of the issue but may be invited to make a formal APA application. • relates to the possible application of the anti-avoidance rules and directly impacts on the covered transaction, the taxpayer will not be invited to make a formal APA application and the APA process will cease • may impact on the pricing of the dealings proposed to be covered, the pathway to resolution of the collateral issue must be agreed before the taxpayer is invited to make a formal APA application • does not impact on the pricing of the dealings proposed to be covered, the taxpayer will be notified of the issue but may be invited to make a formal APA application. Collateral issue identified in Stage 2 13E. If a collateral issue is identified during the APA application stage: • unless the collateral issue relates to the application of the anti-avoidance rules and directly impacts on the covered transaction, the APA process may continue and where appropriate, a pathway for resolution of the collateral issue will be agreed with the taxpayer and the treaty partner • if the collateral issue relates to the possible application of the anti-avoidance rules and directly impacts on the covered transaction, we will withdraw from the APA process. • unless the collateral issue relates to the application of the anti-avoidance rules and directly impacts on the covered transaction, the APA process may continue and where appropriate, a pathway for resolution of the collateral issue will be agreed with the taxpayer and the treaty partner • if the collateral issue relates to the possible application of the anti-avoidance rules and directly impacts on the covered transaction, we will withdraw from the APA process. Collateral issue identified in Stage 3 13F. If a collateral issue is identified during the monitoring compliance stage, we will consider if the collateral issue triggers a critical assumption. Where: • a critical assumption is not triggered, the APA will continue to apply • a critical assumption is triggered, we will seek to agree a resolution pathway with the taxpayer and treaty partner. • a critical assumption is not triggered, the APA will continue to apply • a critical assumption is triggered, we will seek to agree a resolution pathway with the taxpayer and treaty partner. Resolving collateral issues 13G. Where a collateral issue is identified during Stage 1 or Stage 2 of the APA process, the general process for the APA team to follow is as follows: • The taxpayer is informed about the collateral issue generally within 3 months of the risk being identified. The taxpayer must be given sufficient time to address questions before a decision is made by the APA panel. • An agreement is to be reached with the taxpayer on how to deal with the collateral issue, including mutual obligations, expectations of timeframes and the type of information that is to be provided by the taxpayer. • The appropriate information on the collateral issue is identified collaboratively with the taxpayer, so that the APA panel can come to a view if the APA application can be accepted or continue where it has already commenced. This decision is generally to be made by the APA panel within 6 months of the taxpayer agreeing on the resolution pathway for the collateral issue. • We should withdraw from the APA, following the principles expressed in paragraphs 11W to 11Y of this Practice Statement, if the taxpayer is not adhering to the resolution pathway agreed. • If the collateral issue is agreed to be dealt with outside of the APA, a separate review product on the collateral issue may be initiated. The timing of the separate review is subject to internal ATO considerations. • If the collateral issue is dealt with in the APA process, the APA timeframes may be extended, which is agreed with the taxpayer and treaty partner. • The taxpayer is informed about the collateral issue generally within 3 months of the risk being identified. The taxpayer must be given sufficient time to address questions before a decision is made by the APA panel. • An agreement is to be reached with the taxpayer on how to deal with the collateral issue, including mutual obligations, expectations of timeframes and the type of information that is to be provided by the taxpayer. • The appropriate information on the collateral issue is identified collaboratively with the taxpayer, so that the APA panel can come to a view if the APA application can be accepted or continue where it has already commenced. This decision is generally to be made by the APA panel within 6 months of the taxpayer agreeing on the resolution pathway for the collateral issue. • We should withdraw from the APA, following the principles expressed in paragraphs 11W to 11Y of this Practice Statement, if the taxpayer is not adhering to the resolution pathway agreed. • If the collateral issue is agreed to be dealt with outside of the APA, a separate review product on the collateral issue may be initiated. The timing of the separate review is subject to internal ATO considerations. • If the collateral issue is dealt with in the APA process, the APA timeframes may be extended, which is agreed with the taxpayer and treaty partner. 13H. Where a collateral issue is identified during Stage 3 of the APA process, the APA team will: • define the collateral issue • articulate the risk hypothesis and tax mischief • develop a resolution pathway in line with steps in paragraph 13G of this Practice Statement • consider how to resolve the collateral issue in line with the existing critical assumptions. • define the collateral issue • articulate the risk hypothesis and tax mischief • develop a resolution pathway in line with steps in paragraph 13G of this Practice Statement • consider how to resolve the collateral issue in line with the existing critical assumptions. 13I. The taxpayer and ATO will need to discuss how collateral issues are to be addressed at the preliminary discussion step or as early as possible after the issue is identified. Options for the APA team in getting collateral issues addressed may include: • recommending that a request for a private ruling or other advice and guidance product be lodged by the taxpayer • referral to Tax Counsel Network (TCN) • referral for risk assessment according to normal business line procedures. • recommending that a request for a private ruling or other advice and guidance product be lodged by the taxpayer • referral to Tax Counsel Network (TCN) • referral for risk assessment according to normal business line procedures. 13J. Where the taxpayer requests a private ruling in relation to a collateral issue, the APA team is to ensure they are aware of any implications the outcomes of the private ruling may have on the APA request. The APA team should consult with TCN on whether a private ruling is appropriate for issues relating to Part IVA of the ITAA 1936. 13K. Where there is no ATO view in respect of a collateral issue or that issue has implications beyond the APA under consideration, the APA team leader is to escalate the technical issues using normal business line procedures. 13L. Where possible, collateral issues should be addressed and resolved in parallel with, or as part of, the development of the APA. If the collateral issue impacts on the APA outcomes, they will need to be resolved before we enter into the APA. If this is not possible, the APA applicant will not be accepted into the program or we will withdraw from the process. | 14. Roles of ATO officers involved in developing an advance pricing arrangement: 14A. Many staff, who effectively form a multidisciplinary team, contribute to the development of APAs. In performing their role, each staff member needs to focus on using a pragmatic approach to develop an APA. Entering into an APA not only enables all parties to mitigate potential transfer pricing risks but also delivers mutual benefits such as cost savings and enhanced relationships over the term of the APA. 14B. In order to reach agreement, officers must build collaborative relationships with each of the relevant stakeholders based on mutual trust and transparency. 14C. A description of some of the roles of such officers is set out in paragraphs 14D to 14L of this Practice Statement. Advance pricing arrangement team leader 14D. The APA team leader has overall responsibility for the APA request. Specific roles and responsibilities of the APA team leader include: • analysing the APA proposal and seeking further information to support the APA request in the early engagement stage, if required • communicating our position, reasoning and status of the APA application to the taxpayer • determining if a flexible approach to the APA process is appropriate and developing a tailored APA case plan for the early engagement and APA application stages • being accountable for the APA team actively managing the request and application, ensuring milestones, timeframes and assurance and reporting requirements are met • involving and coordinating the input of technical specialists or other senior staff [10] , as required • undertaking analysis and evaluation of the taxpayer's APA request or application, including performing a functional analysis • requesting APA panels, as required, to consider the progress of the APA request • developing the negotiation parameters for consideration by the APA panel • negotiating the terms and conditions of unilateral APAs with the taxpayer and assisting the CA in negotiations of bilateral APAs, within the set parameters • providing written justification to the APA panel where the APA team leader has decided not to follow the APA panel's recommendation and this decision has been approved by the relevant SES • coordinating the resolution of collateral issues with the APA process • drafting the content of the APA for signing by the CA. • analysing the APA proposal and seeking further information to support the APA request in the early engagement stage, if required • communicating our position, reasoning and status of the APA application to the taxpayer • determining if a flexible approach to the APA process is appropriate and developing a tailored APA case plan for the early engagement and APA application stages • being accountable for the APA team actively managing the request and application, ensuring milestones, timeframes and assurance and reporting requirements are met • involving and coordinating the input of technical specialists or other senior staff [10] , as required • undertaking analysis and evaluation of the taxpayer's APA request or application, including performing a functional analysis • requesting APA panels, as required, to consider the progress of the APA request • developing the negotiation parameters for consideration by the APA panel • negotiating the terms and conditions of unilateral APAs with the taxpayer and assisting the CA in negotiations of bilateral APAs, within the set parameters • providing written justification to the APA panel where the APA team leader has decided not to follow the APA panel's recommendation and this decision has been approved by the relevant SES • coordinating the resolution of collateral issues with the APA process • drafting the content of the APA for signing by the CA. The advance pricing arrangement team 14E. The APA team performs the day-to-day activities of developing the APA. The members of the team assist the APA team leader in carrying out the tasks involved in developing an APA as listed in paragraphs 10E and 10G to 10I, 10M to 10N, and 14D of this Practice Statement. See also the tasks at paragraphs 10V to 10Y and 11D to 11I of this Practice Statement. The economist 14F. An economist from Economist Practice assists the APA team leader, the APA team and, where applicable, the CA to critically analyse whether the taxpayer's proposed actual conditions are likely to be consistent with arm's length conditions. 14G. More specifically, an economist may assist by: • evaluating the related-party transactions in the context of the taxpayer's business, industry and global value chain • analysing the arrangement's important functions, assets and risks and other factors of comparability that may affect arm's length conditions • advising on the transfer pricing method (and its application) that best achieves consistency with the OECD Guidelines • where necessary, selecting and applying the most appropriate transfer pricing method and performing related benchmarking analyses • identifying any other economic aspects that may affect the alignment of a taxpayer's Australian economic activity with its profit outcomes. • evaluating the related-party transactions in the context of the taxpayer's business, industry and global value chain • analysing the arrangement's important functions, assets and risks and other factors of comparability that may affect arm's length conditions • advising on the transfer pricing method (and its application) that best achieves consistency with the OECD Guidelines • where necessary, selecting and applying the most appropriate transfer pricing method and performing related benchmarking analyses • identifying any other economic aspects that may affect the alignment of a taxpayer's Australian economic activity with its profit outcomes. 14H. The extent of involvement of an economist is determined on a case-by-case basis in accordance with Law Administration Practice Statement PS LA 2013/2 Economic advice and the Economist Practice. The competent authority 14I. The CA is authorised to enter into a bilateral or multilateral APA. The CA negotiates the terms of the APA with the CA of the relevant tax treaty partner within the parameters set by the APA team leader. 14J. In a unilateral APA, a staff member, authorised as a CA, but acting in their capacity as an ATO employee, can endorse the decision of the APA team leader and sign the APA. The CA's role is to ensure the APA is consistent with the negotiation parameters and is otherwise an acceptable outcome. The CA will also support the APA team leader by providing analysis and advice on the resolution of the case, in particular the negotiation process. 14K. If there is disagreement between the APA team leader and the CA, rather than the endorsement referred to in paragraph 14J of this Practice Statement, the matter should be escalated to the APA team leader's SES officer for resolution. The advance pricing arrangement Program Management Unit 14L. The APA PMU has overarching responsibility for the administration of APAs. This includes: • allocating an APA request to an APA team and a CA • convening and attending, as an observer, the Entry and Exit panels for each APA request • convening and attending, as a panel member, the APA panel for each APA request • assisting the APA team to decide whether a case is suitable for a flexible approach • convening panels to monitor the progress of an APA request and to assist teams in resolving any issues or to make key decisions. • allocating an APA request to an APA team and a CA • convening and attending, as an observer, the Entry and Exit panels for each APA request • convening and attending, as a panel member, the APA panel for each APA request • assisting the APA team to decide whether a case is suitable for a flexible approach • convening panels to monitor the progress of an APA request and to assist teams in resolving any issues or to make key decisions. | 15. Applying the transfer pricing method used in an advance pricing arrangement to prior income years: 15A. Transfer pricing issues that arise in income years prior to the commencement of the APA should be treated as collateral issues (refer to Section 13 of this Practice Statement). 15B. Where the principles developed in concluding an APA provide a reasonable basis, one approach to dealing with such issues may be to apply the principles or method used in the APA to the prior income years (roll-back). The APA team leader should consider whether the principles developed in concluding an APA provide a reasonable basis for a roll-back. This would depend on the availability of all relevant information in respect of the prior years and whether there are any material changes in the taxpayer's circumstances in those years. 15C. Any decision on whether roll-back is available for years prior to an APA is made on a risk assessment basis. APA team leaders considering roll-back, subject to the facts and circumstances of the particular case, should: • not seek roll-back where the transfer pricing issues for prior years are rated as low risk under ATO risk assessment procedures • not seek roll-back for more than 3 years unless sufficient evidence has been obtained to verify that such years were not materially different to the 3 years of the APA. Where roll-back is greater than 3 years, the APA team leader should consult with the APA PMU • be more likely to seek roll-back for issues rated as high risk. • not seek roll-back where the transfer pricing issues for prior years are rated as low risk under ATO risk assessment procedures • not seek roll-back for more than 3 years unless sufficient evidence has been obtained to verify that such years were not materially different to the 3 years of the APA. Where roll-back is greater than 3 years, the APA team leader should consult with the APA PMU • be more likely to seek roll-back for issues rated as high risk. 15D. The APA team leader, the taxpayer and, where applicable, the audit team leader should agree how and when the prior years' issues should be resolved. 15E. Staff are to treat as a voluntary disclosure any amendment to prior years arising from roll-back where the following are satisfied: • we have not initiated compliance or risk activity with respect to the prior-year returns, and • there is a need to amend a prior-year return as a result of providing information for an APA. • we have not initiated compliance or risk activity with respect to the prior-year returns, and • there is a need to amend a prior-year return as a result of providing information for an APA. 15F. If there are unresolved non-transfer pricing related issues arising in prior years, these should be addressed through an active compliance product. | 16. Interactions between advance pricing arrangements and ATO audits: 16A. An APA does not preclude a taxpayer from a risk review or audit (active compliance product) of its business overall. Staff are to treat active compliance products and APA development separately, unless the taxpayer's facts and circumstances are sufficiently similar to enable the methodology used in the APA to be applied to the income years under active compliance review. 16B. However, leaving aside the annual compliance review process (refer to Section 12 of this Practice Statement), we will not undertake active compliance in relation to transfer pricing risk of the cross-border dealings which are the subject of an APA unless we have reason to believe that the taxpayer has omitted or provided incorrect information that is material and relevant. Furthermore, we will not duplicate in an active compliance product work already undertaken as part of the annual compliance review process. 16C. Where an APA does become part of the focus of an active compliance product, we may verify that the: • taxpayer has complied with the terms of the APA • agreed transfer pricing methodology has been correctly applied • taxpayer's APA application and associated documentation reflect appropriately the material facts. • taxpayer has complied with the terms of the APA • agreed transfer pricing methodology has been correctly applied • taxpayer's APA application and associated documentation reflect appropriately the material facts. 16D. Staff undertaking such active compliance products are not to consider the acceptability of the transfer pricing method agreed as part of an APA unless the omitted or incorrect information affects such matters. 16E. Staff are, generally, not to discontinue or postpone active compliance activity in respect of certain income years where the taxpayer applies for an APA in respect of subsequent income years. 16F. However, the active compliance product may be deferred or discontinued where all parties agree that the APA will assist in resolving these issues. 16G. The active compliance case manager, in consultation with the APA team leader, will make this decision after consideration of: • the taxpayer's facts and circumstances • any advice and recommendations from the APA team • the cooperation and assistance provided by the taxpayer • the stage of completion of the active compliance activity • the issues in question • the similarities between the facts and circumstances in respect of the income years under active compliance review and the APA request • the relevance of information supplied as part of the APA request to the prior income years • whether there is likely to be any significant differences between the outcomes under the active compliance activity and the APA and the reasons for any differences • whether it is possible to finalise part of the active compliance activity and leave the issues related to the APA in abeyance • whether entering into an APA will assist in resolving the issues in the active compliance activity. • the taxpayer's facts and circumstances • any advice and recommendations from the APA team • the cooperation and assistance provided by the taxpayer • the stage of completion of the active compliance activity • the issues in question • the similarities between the facts and circumstances in respect of the income years under active compliance review and the APA request • the relevance of information supplied as part of the APA request to the prior income years • whether there is likely to be any significant differences between the outcomes under the active compliance activity and the APA and the reasons for any differences • whether it is possible to finalise part of the active compliance activity and leave the issues related to the APA in abeyance • whether entering into an APA will assist in resolving the issues in the active compliance activity. | 17. Advance pricing arrangement renewal requests: 17A. While an APA renewal request goes through the same stages and steps outlined in this Practice Statement for an initial request, the APA team is, where appropriate and as much as possible, to streamline the process so as to reduce the time involved and documentation provided in dealing with such requests. 17B. The circumstances where it may be appropriate for the APA team to streamline an APA renewal process include when: • There have been no material changes to the covered cross-border dealings or the role of the Australian entity or entities within the global value chain. • There are no proposed changes to the terms of the APA. • It is unlikely there will be material changes to the dealings over the course of the period of the renewed APA. • There have been no material changes to the covered cross-border dealings or the role of the Australian entity or entities within the global value chain. • There are no proposed changes to the terms of the APA. • It is unlikely there will be material changes to the dealings over the course of the period of the renewed APA. 17C. In a streamlined process, generally the APA team would only need to assure itself that: • entering into an APA with the taxpayer is still appropriate, including the proposed APA producing arm's length outcomes • the previous APA produced arm's length outcomes • there have been no material changes to the covered dealings • the updated benchmarks are appropriate • the taxpayer has complied with the terms of the existing APA, as evidenced by our review of the ACRs lodged. • entering into an APA with the taxpayer is still appropriate, including the proposed APA producing arm's length outcomes • the previous APA produced arm's length outcomes • there have been no material changes to the covered dealings • the updated benchmarks are appropriate • the taxpayer has complied with the terms of the existing APA, as evidenced by our review of the ACRs lodged. | 18. Use of independent experts: 18A. Staff are to seek independent expert advice only in exceptional circumstances – for example, where all parties agree that a greater understanding of the relevant industry is needed. The APA team will discuss this aspect with the taxpayer in the early engagement or application stage. 18B. The APA team can share the expert's advice with the taxpayer. However, its release depends on finalisation of our position in respect of the expert's advice and any confidential third-party information in that advice. | 19. Revision or cancellation of an advance pricing arrangement: 19A. Despite the cooperative environment built on mutual trust being an essential part of the APA process, taxpayers may in rare instances omit or not provide correct information. 19B. Where we have reason to believe that the taxpayer has provided information or made statements in relation to material matters that are false or misleading or has omitted matters without which the information or statement is false or misleading, we are to review the APA with a view to determining whether it should be revised or cancelled. | 20. Authority for entering into an advance pricing arrangement: 20A. The Commissioner can enter into a unilateral APA by virtue of the general power of administration conferred on the Commissioner by section 1-7. 20B. An authorised CA signs and enters into a bilateral or multilateral APA under the MAP Article of the relevant tax treaty. 20C. The Commissioner has delegated his power to act as a CA to officers in specified positions under written instruments. Those delegated officers have also authorised nominated officers to exercise the power as CAs on their behalf. This power includes the ability of the CA to negotiate an APA directly with the CA of a tax treaty partner. | 21. Process map: 21A. An end-to-end map of the APA process is contained in Appendix 1 to this Practice Statement. | 22. More information: 22A. For further information, refer to Advance pricing arrangements . Attachment Diagram 1: APA process overview Diagram 2: APA process Stage 1 Diagram 2: APA process Stage 2 Diagram 2: APA process Stage 3",TR 2014/8 | PS LA 2012/1 | PS LA 2013/2 | PCG 2019/1 | PCG 2017/2 | ITAA 1997 1-7 | ITAA 1997 815-120(3) | ITAA 1997 815-130 | ITAA 1997 815-135 | ITAA 1936 Pt IVA,PS LA 2012/1 PS LA 2013/2,ITAA 1997 1-7 | ITAA 1997 815-120(3) | ITAA 1997 815-130 | ITAA 1997 815-135 | ITAA 1936 Pt IVA,,"Organisation for Economic Cooperation and Development (2017) OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2017, OECD Publishing, Paris. PCG 2019/1 PCG 2017/2",False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20154/NAT/ATO/00001,"Updated to reflect the recommendations resulting from the APA Program review. | Updated in line with current ATO style and accessibility requirements. | Updated second dot point to include a principal or main purposes test included in any of Australia's double-tax agreements. | Updates made to improve clarity of the process, enhance governance at decision making points, revise out-of-date references and make general improvements to readability | Updated reference to PCG 2017/2 | [1] Paragraph 4.134 of OECD (2017) OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2017 , OECD Publishing, Paris. | [2] That is, the proposed arrangement will be entered into at a future point. | [3] Decisions in relation to the application of Part IVA of the ITAA 1936 need to be made in consultation with the Tax Counsel Network (TCN). Refer to Law Administration Practice Statement PS LA 2012/1 Engaging Tax Counsel Network on tax technical issues. | [4] Refer to the process map at Appendix 1 of this Practice Statement. | [5] For details of the information that should be included in an APA request, refer to the content on APA on ato.gov.au . | [6] Refer to paragraphs 41 and 47 of Taxation Ruling TR 2014/8 Income tax: transfer pricing documentation and Subdivision 284-E for the meaning of the terms 'relevant' and 'material'. | [7] For the list of information to be provided, refer to Advance pricing arrangements . | [8] The decision by the Entry panel is not subject to the internal review, as noted in paragraph 10Z of this Practice Statement. | [9] The CA may consult the officer reviewing the ACR and, if necessary, the APA team, in coming to this opinion. | [10] For example, the Economist Practice, special advisors or TCN."
PS LA 2014/1,Administration of penalties for failure to comply with Ancillary Fund Guidelines,20 February 2014,20 February 2014,Law Administration Practice Statement,False,"1. What is this practice statement about?: The Private Ancillary Fund Guidelines 2009 and the Public Ancillary Fund Guidelines 2011 (Guidelines) provide the rules that ancillary funds and their trustees must comply with if the funds are to be, or are to remain, endorsed as Deductible Gift Recipients (DGR). If a fund breaches the Guidelines, an administrative penalty may be payable by the trustee of the fund. This practice statement provides guidance on the administration of these penalties, including their imposition and remission. [1] | 2. Administrative penalties - general rules: Section 426-120 of Schedule 1 to the Taxation Administration Act 1953 (TAA) sets out the general rules for the imposition of the penalties. The purpose of the penalty regime is to ensure that trustees are properly accountable and act in the manner expected of a trustee holding philanthropic funds for a broad public benefit. The persons liable for the penalty are: • The trustee of the ancillary fund, and/or • If the trustee is a constitutional corporation [2] from which the penalties cannot reasonably be recovered, the directors of that corporation. • The trustee of the ancillary fund, and/or • If the trustee is a constitutional corporation [2] from which the penalties cannot reasonably be recovered, the directors of that corporation. Liability to the penalty is joint and several, meaning that any amount paid by one trustee or director will reduce the amount that the other trustees and/or directors are liable to pay by the same extent. The liability cannot be reimbursed from the ancillary fund. | 3. Administration of the penalties: The following are relevant when administering the penalties (including in any review process undertaken): • The principles underpinning the compliance model, including being fair to those trustees wanting to do the right thing, and being firm but fair with those choosing to disengage and avoid their taxation obligations. • The statements and principles in the Taxpayer's Charter. This means a trustee should be presumed to have been honest, unless there is information which suggests otherwise. • Penalty decisions must be supported by the available facts and evidence. Conclusions about the trustee's actions or behaviour should only be made where they are supported by facts, or where reasonable inferences can be drawn from those facts. • The trustee should normally be contacted and given the opportunity to explain their actions before making a penalty decision. • The principles underpinning the compliance model, including being fair to those trustees wanting to do the right thing, and being firm but fair with those choosing to disengage and avoid their taxation obligations. • The statements and principles in the Taxpayer's Charter. This means a trustee should be presumed to have been honest, unless there is information which suggests otherwise. • Penalty decisions must be supported by the available facts and evidence. Conclusions about the trustee's actions or behaviour should only be made where they are supported by facts, or where reasonable inferences can be drawn from those facts. • The trustee should normally be contacted and given the opportunity to explain their actions before making a penalty decision. There are four basic steps which must be followed: Step 1 - Determine if a penalty is imposed by law Step 2 - Determine who should be liable for the penalty Step 3 - Determine if all or a part of the penalty should be remitted. Step 4 - Notify each trustee and/or each director of the corporate trustee of the liability to pay the penalty. These steps are explained in sections 4 to 7 of this practice statement. | 4. Step 1 - Determine if a penalty is imposed by law: Once a breach of a guideline is established, the relevant Guidelines set the amount of the penalty and this is tailored to the severity or consequence of the breach. A list of guidelines in each Ancillary Fund Guideline and the corresponding penalty for the breach are contained in Appendix 1 and Appendix 2 of this practice statement. | 5. Step 2 - Determine who should be liable to the penalty: Where an ancillary fund has a corporate trustee, you must determine whether, in addition to the corporate trustee, the directors of the corporate trustee are also liable to the administrative penalty. We can seek to recover from any or all of the directors of the corporate trustee if it is clear that the penalty, or part of it, cannot be recovered from the corporate trustee alone. In making this decision, you need to take into account • any potential defences available to the directors (explained further below) • the director's capacity to pay, and • other relevant factors including the director's history with other entities. • any potential defences available to the directors (explained further below) • the director's capacity to pay, and • other relevant factors including the director's history with other entities. If we have information regarding the financial position of the directors, we would usually take action against those directors from whom recovery would be expected to be achieved in the most timely way. However, if our knowledge of the directors is limited, it may be necessary to initiate action against all directors. Potential defences available to the directors in relation to the breach A statutory defence is available to directors [3] in the following instances. The director was not aware of the breach, and it would not have been reasonable to expect them to have been aware of the breach As a general principle, it is expected that the directors should be aware of the decisions being made by the corporation, as governed by the Corporations Act 2001. This defence needs to be decided by applying an objective test - viewing the facts as they would be by a reasonable and prudent director of reasonable ability, who in the proper discharge of duties as a director had reasonable grounds for expecting the breach. In the same circumstances, a director of the corporate trustee who is a 'responsible person' would also need to comply with the same degree of responsibility in the proper discharge of his or her duties. The meaning of the word 'expect' [4] is to be understood according to its ordinary use, that is 'to regard as likely to happen' or 'to expect to find'. Overall, the director must act in a manner consistent with a director of a constitutional corporation that is a trustee of a trust holding philanthropic funds for broad public benefit. The effort required is one commensurate with all the director's circumstances, including the director's knowledge, education, experience and skill. The director took all reasonable steps to ensure that the breach did not occur This means that the director acted with care and diligence in complying with the guidelines. In deciding what is 'reasonable' you need to have regard to all relevant circumstances, for example when and for how long the person was a director, what the director did in the context of his or her knowledge of the options available to the director, and the director's continuing efforts to achieve compliance with his statutory obligations. There were no such steps that the director could have taken The onus of proving that one of the defences applies to them is on the director, and a decision on whether they are able to meet the terms of that statutory defence will depend on the facts of each case. The power of the court under section 1318 of the Corporations Act 2001 to grant relief in case of breach of director's duty does not apply to a liability of a director for this administrative penalty. | 6. Step 3 - Determine if all or a part of the penalty should be remitted: The Commissioner has a discretion to remit all or part of the penalty imposed under section 426-120. [5] The decision to exercise the discretion needs to be made separately for each trustee or director liable to an administrative penalty. The following points need to be considered when making your remission decision - noting that your decision may result in no remission, partial remission or full remission of the penalty. These are not exhaustive and are not intended to prescribe the only factors. They are intended to encourage an analytical approach to each case and the application of sound judgment in making the remission decision. • As a starting point, the quantum of penalties prescribed is considered appropriate for the breaches of the Ancillary Fund Guidelines. • You need to undertake an objective analysis of all the relevant factors in a case • You must have regard to the purpose of the provision. Remember that: - a high level of care is expected of trustees of philanthropic funds - they are required to act with care, skill and diligence as they control funds donated for a broad public benefit. Breaches giving rise to private gain will be treated most seriously. - a major objective of the penalty regime is to promote consistent treatment by specifying the amount of penalty for the breach of each guideline. That objective would be compromised if the amount of penalties specified in the law were remitted without just cause, arbitrarily or as a matter of course. • You should consider if the trustee has acted as would reasonably be expected of a competent trustee in the same circumstances, and this needs to be based on an objective test. The fact that the trustee genuinely tried to act with care and diligence is not the test - what is relevant is whether, on an objective analysis, a trustee in the same position and circumstances would have acted in the same way as the trustee in question. • Your decision needs to be fair and reasonable, and ensure that the prescribed amount of penalty does not cause unintended or unjust results, having regard to all the relevant acts or omissions leading to the breach of the Guidelines. For example, an unjust result may occur in situations where multiple administrative penalties from various breaches of the Guidelines could arise. If this is the case, you should consider whether the cumulative penalty applied is defensible, proper and just having regard to the overall circumstances of the case. Were they connected, and the penalties arise from a single course of conduct, or a single error? If so, it would be unjust to apply multiple penalties and the administrative penalty that applies should be the one that is the most specific to the situation. • Guidelines 34 to 37 and 41 to 42 are integrity assurance measures to ensure appropriate practices and processes are in place to safeguard moneys donated to the ancillary fund, and that tax deductible donations are used for an appropriate approved purpose. Therefore, remission of the penalty in relation to breaches of these guidelines would only occur in exceptional cases. • As a starting point, the quantum of penalties prescribed is considered appropriate for the breaches of the Ancillary Fund Guidelines. • You need to undertake an objective analysis of all the relevant factors in a case • You must have regard to the purpose of the provision. Remember that: - a high level of care is expected of trustees of philanthropic funds - they are required to act with care, skill and diligence as they control funds donated for a broad public benefit. Breaches giving rise to private gain will be treated most seriously. - a major objective of the penalty regime is to promote consistent treatment by specifying the amount of penalty for the breach of each guideline. That objective would be compromised if the amount of penalties specified in the law were remitted without just cause, arbitrarily or as a matter of course. • You should consider if the trustee has acted as would reasonably be expected of a competent trustee in the same circumstances, and this needs to be based on an objective test. The fact that the trustee genuinely tried to act with care and diligence is not the test - what is relevant is whether, on an objective analysis, a trustee in the same position and circumstances would have acted in the same way as the trustee in question. • Your decision needs to be fair and reasonable, and ensure that the prescribed amount of penalty does not cause unintended or unjust results, having regard to all the relevant acts or omissions leading to the breach of the Guidelines. For example, an unjust result may occur in situations where multiple administrative penalties from various breaches of the Guidelines could arise. If this is the case, you should consider whether the cumulative penalty applied is defensible, proper and just having regard to the overall circumstances of the case. Were they connected, and the penalties arise from a single course of conduct, or a single error? If so, it would be unjust to apply multiple penalties and the administrative penalty that applies should be the one that is the most specific to the situation. • Guidelines 34 to 37 and 41 to 42 are integrity assurance measures to ensure appropriate practices and processes are in place to safeguard moneys donated to the ancillary fund, and that tax deductible donations are used for an appropriate approved purpose. Therefore, remission of the penalty in relation to breaches of these guidelines would only occur in exceptional cases. - a high level of care is expected of trustees of philanthropic funds - they are required to act with care, skill and diligence as they control funds donated for a broad public benefit. Breaches giving rise to private gain will be treated most seriously. - a major objective of the penalty regime is to promote consistent treatment by specifying the amount of penalty for the breach of each guideline. That objective would be compromised if the amount of penalties specified in the law were remitted without just cause, arbitrarily or as a matter of course. | 7. Step 4 - Notify each trustee and/or each director of the corporate trustee of the liability to pay the penalty: We must give a written notice to the trustee and/or director informing them of their liability to pay the penalty, and of the reason why they are liable to pay the penalty. If the penalty has not been remitted in full, we must also provide an explanation of why this has not occurred either before, or at the same time. We must ensure the reasons are supplied prior to or at the same time as the trustee and/or director are given the written notice. If there was a part payment made in respect of the administrative penalty, we also need to notify the remaining trustees and/or directors that their liabilities have been reduced to the extent of the payment. A trustee or director who is dissatisfied with a decision to refuse to remit, in full or in part, an amount of penalty may object in the manner set out in Part IVC of the TAA if the amount of penalty remaining after the decision is more than two penalty units. | 8. Examples: The following examples are indicative only. They also assume that the trustee of the ancillary fund is a constitutional corporation. Example 1 Guideline 19 requires a private ancillary fund to distribute at least 5 per cent of the market value of the fund's net assets (as at the end of the previous financial year) unless the Commissioner has reduced the minimum distribution rate upon an application under guidance 19.7. A private ancillary fund, prior to the start of a taxation audit, disclosed that it had failed to comply with guideline 19 in its second year of operation. The trustee had distributed 5 per cent of the fund's net assets, including a large distribution to a Children's Hospital Foundation in a major city. The trustee subsequently discovered that the Children's Hospital Foundation was a public ancillary fund, and was not eligible to receive a distribution from the private ancillary fund. The trustee rectified the mistake by arranging for training and education for those responsible for making grants on behalf of the private ancillary fund to ensure the same mistake would not reoccur. In this instance, a full penalty remission is warranted. The trust was in its second year of operation, and the trustee's actions in this case were in accordance with what is reasonably expected of a competent trustee in the same circumstances. Once the discrepancy was discovered, the trustee took steps to ensure it would not happen again. The trustee also voluntarily disclosed this breach to the ATO officer prior to the start of the audit. Example 2 A private ancillary fund applies to the Commissioner to exercise his discretion under guideline 19.7 to reduce the minimum annual distribution rate to 2% for the current year. The Fund has a very limited investment strategy. Its investments are not adequately diversified exposing the fund to increased risk. Due to changes in the general market conditions in Australia, the income from the fund's investment is not sufficient to meet the 5% minimum annual distribution rate required under guideline 19 for private ancillary funds. Guideline 30 requires a fund to prepare and maintain a current investment strategy. The strategy must have particular regard to, among other things, the composition of the fund's investments as a whole, including the extent to which the investments are diverse or involve the fund being exposed to risks from inadequate diversification. The fund's current investment strategy does not give sufficient regard to diversification of investments, leaving the fund exposed to increased risk. The Commissioner exercises the discretion and reduces the rate to 2% for the current year on the condition that the fund reviews its investment strategy within the next 12 months having regard to the appropriate level of diversification of the fund's investments in accordance with guideline 30 to be able to generate sufficient income to meet the minimum annual distribution rate for the following financial year. The fund does not comply with the conditions imposed by the Commissioner and fails to take action to review its investment strategy. As a result, the fund is again not able to meet the minimum annual distribution requirement the following financial year for the same reason. The variation to the minimum distribution rate is conditional. If conditions are imposed and the fund fails to comply with those conditions, then the variation to the distribution rate no longer applies. This means the reduced distribution rate no longer applies, and instead, the fund is required to distribute at least 5% in accordance with guideline 19. The fund has only distributed 2% of the market value of the fund's net assets. As the fund has not met the minimum distribution rate, the fund has failed to comply with guideline 19. A penalty for not having an investment strategy that complies with guideline 30 could also apply. As the trustee may be liable for penalties under both guideline 19 and guideline 30, consideration should be given to whether maintaining both penalties would produce an unjust result to justify a remission of one of the penalties. Example 3 Guideline 24 requires the maintenance of proper accounts in respect of all receipts and payments of the fund and all financial dealings connected with the fund, and must retain those accounts for a period of at least five years. The trustee did not maintain proper accounts for the public ancillary fund. For instance, the trustee did not always record the payments. Where receipts for a deductible contribution were issued, the trustee left out relevant details or issued receipts with incorrect details. The trustee admitted that several donors had queried the incomplete information in their receipts. The trustee promised to re-issue the receipts but had been continually engaged in big fund raising events, and had not found time to correct the errors and re-issue the receipts. The trustee had greatly neglected the accounting and financial administration of the ancillary fund. It was not inadvertent book-keeping errors only. It was also clear that the trustee was aware of the contravention, or should have been aware, and did not take steps to remedy the breach. There was no specific reason for the trustee not to pay attention to its proper record keeping. A busy professional role would not justify the application of a lower standard of care in meeting obligations nor compromise the trustee's capacity to comply with Guideline 24. A reasonable trustee in the same circumstances would be expected to devote sufficient time to maintaining proper accounts of receipts and payments. No remission of penalty was warranted. Example 4 For one financial year subject to a review, a trustee of a private ancillary fund was found not to have kept proper accounts in respect of all receipts and payments of the fund and all its financial dealings in contravention of guideline 24. The fund's net assets were not sizeable. A director of the corporate trustee advised he had a serious illness. He provided documentary evidence to show that he had two major surgeries in that financial year. The director's illness affected his ability to complete his duties. While recovering from both surgeries, the director depended on a part-time bookkeeper to manage the payments and receipts. The bookkeeper retained all documentation but did not use a proper accounting system to record transactions. The director provided all the receipts and invoices for that financial year to an ATO officer but the accounting of all the fund's dealings was not completed. During the audit, the director had to reconcile the records again to provide an accurate accounting of the fund for that financial year. Further evidence showed the director had properly administered the money in the fund (that is, consistent with its investment strategy and in accordance with other guidelines). Under these circumstances, the ATO was satisfied that the statutory defence was available to the director. The following matters were relevant to support his defence: The director's illness contributed to his failure to correctly record and manage the financial dealings of the private ancillary fund. Similarly, an appropriate conclusion is that a trustee in the same circumstances might not be as thorough or as organised in keeping records as a trustee who was not dealing with major health issues. Given his ill health and the size of the fund, it is also reasonable for the trustee to rely on a part-time book-keeper. Therefore, it was reasonable to form the view that the director took all reasonable steps to ensure that the breach did not occur. The same statutory defence would not apply to the other directors of the corporate trustee. The other directors may still be liable for the penalty and consideration of the facts should be conducted for each director's case. Example 5 Guideline 27 requires ancillary funds to make financial statements available to the ATO upon request unless the fund has already provided the Australian Charties and Not-for-profit Commission (ACNC) with its financial statements. The ATO requested various details from a public ancillary fund, including its last financial statement. The ancillary fund was large, and the funds at risk sizeable. The fund did not supply the requested financial statement to the Commissioner and had not already provided this information to the ACNC. No responses were forthcoming despite numerous attempts to contact the trustees. A decision was made not to remit the penalty imposed for breach of guideline 27, as the notices had not been complied with and there was no evidence to suggest the trustee was unable to provide the information requested. It is reasonable to expect that a competent trustee in the same circumstances would have made the financial statement available. A penalty for not preparing the financial statement under guideline 26 could also apply. If the evidence supported this conclusion, then the trustee would be liable for both penalties under guideline 27 and 26. Further, if the ancillary fund is registered with the ACNC then it must meet its reporting obligations under the Australian Charities and Not-for-profits Commission Act 2012 (ACNC Act). If the fund prepares a report in accordance with Subdivision 60-C of the ACNC Act, it will meet the requirements of guideline 26. However, if the ancillary fund fails to meet its obligations under the ACNC Act and fails to provide a financial statement to the ATO, then the ancillary fund may be liable to penalty under both the ACNC Act and guideline 26 Consideration should be given to whether maintaining both penalties would produce an unjust result. In this case, the penalties relating to the two breaches of Ancillary Fund Guidelines are from two separate actions (that is, failure to prepare a financial statement, and failure to comply with the ATO request). If the ancillary fund is not registered with the ANC and therefore not subject to a penalty under the ACNC Act there is no unjust result justifying any remission. Example 6 Following on from example 4 of this practice statement, it was clear from the facts that the corporate trustee had no available funds. The ATO, therefore, should seek to recover the penalty from the directors of the corporate trustee who are jointly and severally liable for the penalty. The facts showed the three directors of the corporate trustee had different special responsibilities: one director concentrated on organising fund-raising activities and dealing with charitable institutions; the other two directors were responsible for the financial management. Six months before the fund review, the fund-raising director became concerned that the two other directors were not performing their duties proficiently. The fund-raising director reviewed the accounting records and engaged an external professional accountant to help. However, the two other directors were uncooperative and did not provide the relevant information to allow the accountant to review the records. When considering whether to commence action against some or all of the directors, the ATO personnel should take into account the potential defences available to the directors, the directors' capacity to pay and other relevant factors. In this case, it was reasonable to form the view that the fund-raising director took all reasonable steps. To the extent that he did not take steps, there were no more effective steps available to him. He was faced with uncooperative co-directors. This strongly suggested that the statutory defence was available to the fund-raising director. The ATO considered it appropriate to commence actions against the two other directors only. Example 7 Guideline 40 states the fund must not carry on a business. A private ancillary fund held a small number of shares and rental properties for the purpose of deriving income to be distributed to deductible gift recipients. A couple of years after formation, the fund achieved good results from its investments and started to undertake more substantial investigation and investment activities to take advantage of the potential for even greater returns. The activities undertaken were planned, organised and carried out in a similar manner to those of other investment companies. The fund did not only manage rental properties to maximise returns, it also engaged in property development. The activities were of reasonable size and scale. The fund engaged consultants and employed staff to manage its property development function. After considering all the factors, it was determined that guideline 40 was breached and a penalty of 25% of the net profits for each financial year was imposed. Given the sizeable activities and the change in the nature of trade, it was concluded that the fund was no longer merely holding investments - it had started a business. There were no grounds for remission of the penalty, as the trustees did not act with care regarding guideline 40. It was considered that in the same circumstances, other trustees could be expected to have known that the activities undertaken by the fund constituted the carrying on of a business. The fund was in breach of Guideline 40. Example 8 A private ancillary fund provided interest-free loans to family members of the founder and paid an excessive salary to the founder incommensurate to the minimal activities undertaken by him on behalf of the fund. The trustee had also failed to make any payments in pursuit of its charitable purposes, and advised it did not have immediate plans to do so. There was evidence the fund had been set up to provide material tax and other benefits to the founder, and was not being maintained solely for charitable purposes. The fund had been in existence for some years. It had access to advice and had sizeable funds. Given the sophistication of technical resources available to the fund, it was clear the trustee was or should have been aware of the contraventions but chose to deliberately disregard its obligations. Under these circumstances, the trustee was potentially liable for penalties relating to breaches of: guideline 36 (loans and financial assistance); guideline 41 (uncommercial transactions); and guideline 42 (benefits to founder/donor). After further investigation, the trustee was also considered likely to have contravened: guideline 19 (not meeting minimum annual distributions); guideline 28 (not auditing the financial statements of the fund); guideline 31 (failure to implement and follow the investment strategy); and guideline 32 (investment strategy and decision-making processes not in writing). The ATO personnel followed the four main steps in sections 4 to 7 when assessing the administrative penalties for the trustee. The following factors were relevant in establishing the breaches of the Ancillary Fund Guidelines: • a high level of care is expected of a trustee of a philanthropic fund. There was no evidence showing the trustee made any attempt to comply with the obligations imposed by the guidelines. It is a reasonable conclusion that a trustee in the same circumstances was expected to have known it should not have provided these loans and financial assistance. • the related parties (that is, founder and its family members) gained a real benefit from the breaches of these guidelines. The evidence supported the conclusion that the trustee intended to provide a benefit to those parties, and chose to deliberately disregard its obligations. • the trustee's actions were contrary to a philanthropic fund's intent, which is providing for a broad public benefit. • a high level of care is expected of a trustee of a philanthropic fund. There was no evidence showing the trustee made any attempt to comply with the obligations imposed by the guidelines. It is a reasonable conclusion that a trustee in the same circumstances was expected to have known it should not have provided these loans and financial assistance. • the related parties (that is, founder and its family members) gained a real benefit from the breaches of these guidelines. The evidence supported the conclusion that the trustee intended to provide a benefit to those parties, and chose to deliberately disregard its obligations. • the trustee's actions were contrary to a philanthropic fund's intent, which is providing for a broad public benefit. Each of these are serious breaches and all relevant administrative penalties would be imposed without remission in respect of each breach. The Commissioner would also consider the suspension of the trustee under section 426-125 of the TAA. If the ancillary fund is a registered charity with the ACNC, consideration should also be given to referring the matter to the ACNC. Example 9 Following on from Example 8 of this practice statement, the ATO also sought to initiate action against all three directors of the corporate trustee. The ATO's knowledge about the directors was limited (for example, information regarding the financial position of the directors), however, the evidence showed the corporate trustee had limited funds. One director raised a defence after he was issued a notice to pay. He argued he was unaware of the breach, and it would not have been reasonable to expect him to have been aware of the breach. The director presented evidence that the two co-directors acted fraudulently and kept their actions from him. He was a newly appointed director. He was not a director when the co-directors made the pertinent decisions which resulted in the breaches. Furthermore, the co-directors made false representations and provided bogus financial statements to him. The director reviewed the financial statements and relied on them to be true and accurate. The facts pointed towards the director taking a proper responsible role in the management of the fund. It was found that the director had not been negligent, or failed to make inquiries, or otherwise participate in the decision-making processes of the fund, because he was not a director at the time and he later relied on the information provided by the co-directors. The director had no access to legitimate financial information, which could have otherwise led him to make further inquiry or seek clarification of the fund's activities. The ATO accepted the director's defence. Based on the available facts of this case, the director was not aware of the breaches and it is not reasonable to expect a prudent director of reasonable ability to have been aware of these breaches. The penalty was not therefore imposed on this director. Example 10 A private ancillary fund was established without a written investment strategy because the trustees thought it was obvious that the fund should have its assets in cash in the first year. The founder had an investment strategy in the first year of term deposits in Australian financial institutions. The following year, the trustees produced a written investment strategy that the composition of the fund's investment as a whole could only be blue-chip shares in Australian companies and term deposits in Australian financial institutions. At the urging of the founder, the trustees purchased speculative shares in a little known company overseas but there was no change in the fund's written investment strategy. The trustee failed to document any associated decision-making processes used in acquiring the international shares. Under these circumstances, the trustee was potentially liable for penalties relating to breaches of: guideline 31 (Implement the investment strategy) and guideline 32 (Written form). It was determined the trustee was liable for the penalties relating to breaches of guideline 32 in the first year of operation and guideline 31 in the subsequent year. The breaches arose from separate courses of conduct. Private Ancillary Fund Guidelines Description Penalty Units Guideline 17 Change to governing rules 17. The trustee must notify the Commissioner in the *approved form (within 21 days) of any change to the fund's governing rules. Note: Certain changes to the governing rules may require the fund to seek re-endorsement as a deductible gift recipient 17.1. However, the trustee does not need to notify the Commissioner under this guideline if the trustee is required to notify the Commissioner of the Australian Charities and Not-for-profits Commission of the same information under Division 65 of the Australian Charities and Not-for-profits Commission Act 2012. 5 penalty units Guideline 19 Minimum annual distribution 19. During each *financial year, a *private ancillary fund must distribute at least 5 per cent (minimum annual distribution rate) of the *market value of the fund's net assets (as at the end of the previous *financial year). Note 1: While net assets are used to determine the fund's minimum distribution, the amount of the distribution itself is not net of any amount (for example, expenses of the fund). Note 2: The minimum annual distribution rate may be lowered under Guidelines 19.2 and 19.7 for a financial year. 19.1 The fund must distribute at least $11,000 (or the remainder of the fund if that is worth less than $11,000) during that *financial year if any expenses of the fund in relation to that financial year are paid directly or indirectly from the fund's assets or income. Note: This means that if a fund's expenses are met from outside the fund, its minimum annual distribution is the amount calculated under Guideline 19. If any of a fund's expenses are paid out of the fund's assets or income, its minimum distribution is $11,000 or the amount calculated under Guideline 19, whichever is greater. 19.2 No distribution is required during the *financial year in which the fund is established. 19.3 A distribution includes the provision of money, property or benefits. If the fund provides property or benefits, the *market value of the property or benefit provided is to be used in determining whether the fund has complied with this guideline. Example 1: If a private ancillary fund makes a gift of land to a public benevolent institution, it would include the market value of the land in calculating how much it has distributed. Example 2: If a private ancillary fund leases office space to a deductible gift recipient at a discount to the market price, the fund is providing a benefit whose market value is equal to the discount. Example 3: If a private ancillary fund invests in a social impact bond issued by a deductible gift recipient with a return that is less than the market rate of return on a similar corporate bond issue, the fund is providing a benefit whose market value is equal to the interest saved in the financial year by the deductible gift recipient from issuing the bond at a discounted rate of return. Example 4: If a private ancillary fund lends money to a deductible gift recipient at a discount to the interest rate which would be charged on a comparable loan sourced from a financial institution at arm's length, the fund is providing a benefit whose market value is equal to the discount. Example 5: If a private ancillary fund guarantees a loan provided by a financial institution to a deductible gift recipient, the fund is providing a benefit whose market value is equal to the discount to the interest rate which would be charged on a comparable arm's length unsecured loan sourced from that financial institution. Example 6: Continuing example 5, if the deductible gift recipient defaults on the loan and the fund is called on under the guarantee to make a payment to the financial institution on behalf of the deductible gift recipient, the payment is a distribution (being the provision of money, property or benefits). Note 1: The Commissioner may approve safe harbour valuation methodologies to assist trustees in calculating the market value of a benefit provided to a deductible gift recipient - see Subdivision 960-M of the Income Tax Assessment Act 1997. 19.4 The penalty for a contravention of this guideline is 30 penalty units if the shortfall is greater than $1,000. 30 penalty units if the shortfall is greater than $1,000 19.5 If the Commissioner requests the trustee to rectify a shortfall in the distribution for a *financial year, the trustee must comply with the request within 60 days. If the trustee does not, the penalty is 10 per cent of the shortfall as at the end of the 60 days reduced by any penalty (but not below nil) under guideline 19.4. 19.6 A distribution made to rectify a contravention of this guideline does not count towards compliance with this guideline for the year of the rectification. 10% of shortfall reduced by penalty under Guideline 19.4 Guideline 24 Accounts 24. The trustee must keep, or cause to be kept, proper accounts in respect of all receipts and payments of the fund and all financial dealings connected with the fund, and must retain those accounts for a period of at least 5 years after the completion of the transactions or acts to which they relate. Note: See also Subdivision 382-B in Schedule 1 to the Taxation Administration Act 1953 for rules about record keeping obligations of deductible gift recipients. 10 penalty units Guideline 25 25. The trustee must make the accounts available to the Commissioner upon request. 10 penalty units Guideline 26 Financial statements 26. The trustee must prepare, or cause to be prepared, financial statements showing the financial position of the fund at the end of each *financial year. 26.1 The financial statements must be prepared in accordance with the *accounting standards. Note: If a fund is required to prepare, and does prepare, a financial report in accordance with Subdivision 60-C of the Australian Charities and Not-for-profits Commission Act 2012, it will meet this requirement. 26.2 All transactions between the fund and a founder of the fund, a donor to the fund, the trustee, a director, officer, *agent, *member or employee of the trustee, or an *associate of any of these entities must be disclosed in the financial statements. 26.3 The financial statements must be prepared before the fund is required to give to the Commissioner its *income tax return for the relevant *financial year. 10 penalty units Guideline 27 Request for financial statements 27. The trustee must make the financial statements available to the Commissioner upon request, unless the financial statements have already been given to the Commissioner of the Australian Charities and Not-for-profits Commission. 10 penalty units Guideline 28 Audit 28. Each *financial year the trustee must arrange for an auditor to audit: • the financial statements of the fund; and • compliance with these Guidelines by the fund and the trustee. 28.1 The auditor must be registered under Part 9.2 of the Corporations Act 2001. 28.1.1 The Public Trustee of a state or territory may have the Auditor-General of that state or territory undertake the audit. 28.1A. Unless the Commissioner, by written notice, provides otherwise, a *private ancillary fund with both revenue and assets of less than $1 million in relation to a particular financial year, may instead have its financial statements and compliance with these guidelines reviewed rather than audited. 28.1A.1 A reviewer must be a registered company auditor (within the meaning of the Corporations Act 2001). However, an individual who is taken to be a registered company auditor under section 324BE of the Corporations Act 2001 is taken to be a registered company auditor for the purpose of this guideline. Note: This has the effect of widening the class of individuals who can undertake a review. 28.2 The auditor must provide the fund with an audit report in accordance with the *auditing standards. 28.3 The audit must be finalised before the fund is required to give to the Commissioner its *income tax return for the relevant *financial year. 10 penalty units Guideline 29 Request for audit report 29. The trustee must make the report available to the Commissioner upon request, unless the report has already been given to the Commissioner of the Australian Charities and Not-for-profits Commission. 10 penalty units Guideline 30 Investment strategy 30. The trustee must prepare and maintain a current investment strategy for the fund. 30.1 An appropriate investment strategy should set out the investment objectives of the fund and detail the investment methods the trustee will adopt to achieve those objectives. 30.2 The strategy must reflect the purpose and circumstances of the fund and have particular regard to (but not be limited to): • the risk involved in making, holding and realising, and the likely return from, the fund's investments, having regard to the fund's objectives and its expected cash flow requirements (including distribution requirements); and • the composition of the fund's investments as a whole, including the extent to which the investments are diverse or involve the fund being exposed to risks from inadequate diversification; and • the liquidity of the fund's investments, having regard to its expected cash flow requirements (including distribution requirements); and • the ability of the fund to discharge its existing and prospective liabilities; and • the investment requirements imposed by *State laws or *Territory laws; and • status of the fund as a registered charity (where applicable); and • perceived or actual material conflicts of interest in holding particular investments (including those relating to individuals involved in the decision making of the fund); and • the terms and other circumstances relating to any gift to the fund under a will. 10 penalty units Guideline 31 Implement the investment strategy 31. The trustee must implement the investment strategy, and must ensure that all investment decisions are made in accordance with it. 15 penalty units Guideline 32 Written form 32. The investment strategy (and a record of the associated decision-making processes) must be available in a written form so that the trustee, an auditor, a reviewer, or the Commissioner can determine whether the fund has complied with these Guidelines and other *Australian laws. 10 penalty units Guideline 33 Investment limitations - borrowings 33. The trustee must not *borrow money or maintain an existing borrowing of money. 33.1 However, this guideline does not prohibit a trustee from *borrowing money if: • the purpose of the borrowing is to enable the trustee to make a distribution to a *deductible gift recipient, which the trustee must make under these guidelines and which, apart from the borrowing, the trustee would be unable to make; and • the period of the borrowing does not exceed 90 days; and • the borrowing, when made, would not result in total borrowings exceeding 10 per cent of the *market value of the fund's assets. 33.2 This guideline also does not prohibit a trustee from *borrowing money if: • the purpose of the borrowing is to enable the trustee to cover settlement of a transaction for the acquisition of a financial instrument; and • at the time the relevant investment decision was made, it was likely that the borrowing would not be needed; and • the period of the borrowing does not exceed 14 days; and • the borrowing, when made, would not result in total borrowings exceeding 10 per cent of the *market value of the fund's assets. 33.3 Guideline 33 also does not apply to the acquisition of a financial instrument excluded by the Commissioner from that guideline. 30 penalty units Guideline 34 Investment limitations - arms length 34. The fund's investments must be made and maintained on an *arm's length unless another guideline allows otherwise. 30 penalty units Guideline 35 Investment limitations - assets not to be offered as security 35. The trustee must not give a security over, or in relation to, an asset of the fund. 35.1 However, this guideline does not apply to: • the acquisition of a financial instrument excluded by the Commissioner from that guideline; or • an agreement to guarantee the repayment of any money lent by a creditor for the sole benefit of one or more *deductible gift recipients. 30 penalty units Guideline 36 Investment limitations - assets acquired at arms length 36. The fund must not acquire an asset (except by way of gift) from, and must not make a loan or provide any other kind of financial assistance to, a founder of the fund, a donor to the fund, the trustee, a director, officer, agent, *member or employee of the trustee, or an *associate of any of these entities except: • by way of an arms' length commercial transaction; or • on terms more favourable to the fund than would otherwise be expected under an arms' length transaction. 30 penalty units Guideline 37 Investment limitations - assets kept separate 37. The trustee must keep the assets of the fund separate from all other assets. 37.1 However, this guideline does not prevent a licensed trustee company or the Public Trustee of a state or territory from operating common funds for investment purposes. 30 penalty units Guideline 38 Investment limitations - Collectables 38. The fund must not acquire an asset (except by way of gift) if the asset is capable of being a *collectable. 38.1 If the fund acquires such an asset by way of gift, it must sell or distribute the asset within 12 months after acquiring it. 30 penalty units Guideline 40 Investment limitations - carrying on a business 40. The fund must not *carry on a *business. 40.1A However, a fund does not contravene this guideline merely because its investment activities, because of repetition, volume and regularity, mean that it is *carrying on a *business. Note: The holding of investments, such as shares or rental properties, for the purpose of deriving income that can be distributed to deductible gift recipients is not considered to be carrying on a business. 40.1 The penalty for a contravention of this guideline is an amount equal to 25 per cent of the net profits of the business for each *financial year during all or part of which the contravention continues. Penalty amount equal to 25% of the net profits of the business Guideline 41 Uncommercial transactions 41. The fund must not enter into any transaction that is uncommercial when entered into, unless the transaction is: • with a *deductible gift recipient covered by item 1 in the table in section 30-15 of the ITAA 1997; and • in the course or furtherance of the fund's purpose. 41.1 However, the fund may enter into an uncommercial transaction if it is on terms more favourable to the fund than would otherwise be expected under an arms' length transaction. 30 penalty units Guideline 42 Benefits to founder/donor or associates 42. The fund must not *provide any benefit (except as set out in guideline 43), directly or indirectly, to: • the trustee; or • a *member, director, employee, *agent or officer of the trustee; or • a donor to the fund; or • a founder of the fund; or • an *associate of any of those entities (other than a deductible gift recipient). Penalty amount equal to the amount or value of the benefit provided Guideline 45 Donors - public appeals 45. The fund must not solicit donations from the public. 30 penalty units Guideline 46 Donors - sources of donations 46. In any *financial year, the fund must not accept donations totalling more than 20 per cent (in total) of the *market value of its assets (determined at the end of the previous financial year) from entities other than: • a founder of the fund; or • *associates of the founder; or • employees of the founder; or • a deceased estate of any of those entities. 10 penalty units Change to governing rules Note: Certain changes to the governing rules may require the fund to seek re-endorsement as a deductible gift recipient 17.1. However, the trustee does not need to notify the Commissioner under this guideline if the trustee is required to notify the Commissioner of the Australian Charities and Not-for-profits Commission of the same information under Division 65 of the Australian Charities and Not-for-profits Commission Act 2012. Minimum annual distribution Note 1: While net assets are used to determine the fund's minimum distribution, the amount of the distribution itself is not net of any amount (for example, expenses of the fund). Note 2: The minimum annual distribution rate may be lowered under Guidelines 19.2 and 19.7 for a financial year. 19.1 The fund must distribute at least $11,000 (or the remainder of the fund if that is worth less than $11,000) during that *financial year if any expenses of the fund in relation to that financial year are paid directly or indirectly from the fund's assets or income. Note: This means that if a fund's expenses are met from outside the fund, its minimum annual distribution is the amount calculated under Guideline 19. If any of a fund's expenses are paid out of the fund's assets or income, its minimum distribution is $11,000 or the amount calculated under Guideline 19, whichever is greater. 19.2 No distribution is required during the *financial year in which the fund is established. 19.3 A distribution includes the provision of money, property or benefits. If the fund provides property or benefits, the *market value of the property or benefit provided is to be used in determining whether the fund has complied with this guideline. Example 1: If a private ancillary fund makes a gift of land to a public benevolent institution, it would include the market value of the land in calculating how much it has distributed. Example 2: If a private ancillary fund leases office space to a deductible gift recipient at a discount to the market price, the fund is providing a benefit whose market value is equal to the discount. Example 3: If a private ancillary fund invests in a social impact bond issued by a deductible gift recipient with a return that is less than the market rate of return on a similar corporate bond issue, the fund is providing a benefit whose market value is equal to the interest saved in the financial year by the deductible gift recipient from issuing the bond at a discounted rate of return. Example 4: If a private ancillary fund lends money to a deductible gift recipient at a discount to the interest rate which would be charged on a comparable loan sourced from a financial institution at arm's length, the fund is providing a benefit whose market value is equal to the discount. Example 5: If a private ancillary fund guarantees a loan provided by a financial institution to a deductible gift recipient, the fund is providing a benefit whose market value is equal to the discount to the interest rate which would be charged on a comparable arm's length unsecured loan sourced from that financial institution. Example 6: Continuing example 5, if the deductible gift recipient defaults on the loan and the fund is called on under the guarantee to make a payment to the financial institution on behalf of the deductible gift recipient, the payment is a distribution (being the provision of money, property or benefits). Note 1: The Commissioner may approve safe harbour valuation methodologies to assist trustees in calculating the market value of a benefit provided to a deductible gift recipient - see Subdivision 960-M of the Income Tax Assessment Act 1997. 19.4 The penalty for a contravention of this guideline is 30 penalty units if the shortfall is greater than $1,000. if the shortfall is greater than $1,000 19.6 A distribution made to rectify a contravention of this guideline does not count towards compliance with this guideline for the year of the rectification. Accounts Note: See also Subdivision 382-B in Schedule 1 to the Taxation Administration Act 1953 for rules about record keeping obligations of deductible gift recipients. Financial statements 26.1 The financial statements must be prepared in accordance with the *accounting standards. Note: If a fund is required to prepare, and does prepare, a financial report in accordance with Subdivision 60-C of the Australian Charities and Not-for-profits Commission Act 2012, it will meet this requirement. 26.2 All transactions between the fund and a founder of the fund, a donor to the fund, the trustee, a director, officer, *agent, *member or employee of the trustee, or an *associate of any of these entities must be disclosed in the financial statements. 26.3 The financial statements must be prepared before the fund is required to give to the Commissioner its *income tax return for the relevant *financial year. Request for financial statements Audit • the financial statements of the fund; and • compliance with these Guidelines by the fund and the trustee. 28.1 The auditor must be registered under Part 9.2 of the Corporations Act 2001. 28.1.1 The Public Trustee of a state or territory may have the Auditor-General of that state or territory undertake the audit. 28.1A. Unless the Commissioner, by written notice, provides otherwise, a *private ancillary fund with both revenue and assets of less than $1 million in relation to a particular financial year, may instead have its financial statements and compliance with these guidelines reviewed rather than audited. 28.1A.1 A reviewer must be a registered company auditor (within the meaning of the Corporations Act 2001). However, an individual who is taken to be a registered company auditor under section 324BE of the Corporations Act 2001 is taken to be a registered company auditor for the purpose of this guideline. Note: This has the effect of widening the class of individuals who can undertake a review. 28.2 The auditor must provide the fund with an audit report in accordance with the *auditing standards. 28.3 The audit must be finalised before the fund is required to give to the Commissioner its *income tax return for the relevant *financial year. Request for audit report Investment strategy 30.1 An appropriate investment strategy should set out the investment objectives of the fund and detail the investment methods the trustee will adopt to achieve those objectives. 30.2 The strategy must reflect the purpose and circumstances of the fund and have particular regard to (but not be limited to): • the risk involved in making, holding and realising, and the likely return from, the fund's investments, having regard to the fund's objectives and its expected cash flow requirements (including distribution requirements); and • the composition of the fund's investments as a whole, including the extent to which the investments are diverse or involve the fund being exposed to risks from inadequate diversification; and • the liquidity of the fund's investments, having regard to its expected cash flow requirements (including distribution requirements); and • the ability of the fund to discharge its existing and prospective liabilities; and • the investment requirements imposed by *State laws or *Territory laws; and • status of the fund as a registered charity (where applicable); and • perceived or actual material conflicts of interest in holding particular investments (including those relating to individuals involved in the decision making of the fund); and • the terms and other circumstances relating to any gift to the fund under a will. • the risk involved in making, holding and realising, and the likely return from, the fund's investments, having regard to the fund's objectives and its expected cash flow requirements (including distribution requirements); and • the composition of the fund's investments as a whole, including the extent to which the investments are diverse or involve the fund being exposed to risks from inadequate diversification; and • the liquidity of the fund's investments, having regard to its expected cash flow requirements (including distribution requirements); and • the ability of the fund to discharge its existing and prospective liabilities; and • the investment requirements imposed by *State laws or *Territory laws; and • status of the fund as a registered charity (where applicable); and • perceived or actual material conflicts of interest in holding particular investments (including those relating to individuals involved in the decision making of the fund); and • the terms and other circumstances relating to any gift to the fund under a will. Implement the investment strategy Written form Investment limitations - borrowings 33.1 However, this guideline does not prohibit a trustee from *borrowing money if: • the purpose of the borrowing is to enable the trustee to make a distribution to a *deductible gift recipient, which the trustee must make under these guidelines and which, apart from the borrowing, the trustee would be unable to make; and • the period of the borrowing does not exceed 90 days; and • the borrowing, when made, would not result in total borrowings exceeding 10 per cent of the *market value of the fund's assets. • the purpose of the borrowing is to enable the trustee to make a distribution to a *deductible gift recipient, which the trustee must make under these guidelines and which, apart from the borrowing, the trustee would be unable to make; and • the period of the borrowing does not exceed 90 days; and • the borrowing, when made, would not result in total borrowings exceeding 10 per cent of the *market value of the fund's assets. 33.2 This guideline also does not prohibit a trustee from *borrowing money if: • the purpose of the borrowing is to enable the trustee to cover settlement of a transaction for the acquisition of a financial instrument; and • at the time the relevant investment decision was made, it was likely that the borrowing would not be needed; and • the period of the borrowing does not exceed 14 days; and • the borrowing, when made, would not result in total borrowings exceeding 10 per cent of the *market value of the fund's assets. • the purpose of the borrowing is to enable the trustee to cover settlement of a transaction for the acquisition of a financial instrument; and • at the time the relevant investment decision was made, it was likely that the borrowing would not be needed; and • the period of the borrowing does not exceed 14 days; and • the borrowing, when made, would not result in total borrowings exceeding 10 per cent of the *market value of the fund's assets. 33.3 Guideline 33 also does not apply to the acquisition of a financial instrument excluded by the Commissioner from that guideline. Investment limitations - arms length Investment limitations - assets not to be offered as security 35.1 However, this guideline does not apply to: • the acquisition of a financial instrument excluded by the Commissioner from that guideline; or • an agreement to guarantee the repayment of any money lent by a creditor for the sole benefit of one or more *deductible gift recipients. • the acquisition of a financial instrument excluded by the Commissioner from that guideline; or • an agreement to guarantee the repayment of any money lent by a creditor for the sole benefit of one or more *deductible gift recipients. Investment limitations - assets acquired at arms length • by way of an arms' length commercial transaction; or • on terms more favourable to the fund than would otherwise be expected under an arms' length transaction. Investment limitations - assets kept separate 37.1 However, this guideline does not prevent a licensed trustee company or the Public Trustee of a state or territory from operating common funds for investment purposes. Investment limitations - Collectables 38.1 If the fund acquires such an asset by way of gift, it must sell or distribute the asset within 12 months after acquiring it. Investment limitations - carrying on a business 40.1A However, a fund does not contravene this guideline merely because its investment activities, because of repetition, volume and regularity, mean that it is *carrying on a *business. Note: The holding of investments, such as shares or rental properties, for the purpose of deriving income that can be distributed to deductible gift recipients is not considered to be carrying on a business. 40.1 The penalty for a contravention of this guideline is an amount equal to 25 per cent of the net profits of the business for each *financial year during all or part of which the contravention continues. Uncommercial transactions • with a *deductible gift recipient covered by item 1 in the table in section 30-15 of the ITAA 1997; and • in the course or furtherance of the fund's purpose. 41.1 However, the fund may enter into an uncommercial transaction if it is on terms more favourable to the fund than would otherwise be expected under an arms' length transaction. Benefits to founder/donor or associates • the trustee; or • a *member, director, employee, *agent or officer of the trustee; or • a donor to the fund; or • a founder of the fund; or • an *associate of any of those entities (other than a deductible gift recipient). Donors - public appeals Donors - sources of donations • a founder of the fund; or • *associates of the founder; or • employees of the founder; or • a deceased estate of any of those entities. Public Ancillary Fund Guidelines Description Penalty Units Guideline 17 Changes to governing rules 17. The trustee must notify the Commissioner in the *approved form (within 21 days) of any change to the fund's governing rules. Note: Certain changes to the governing rules may require the fund to seek re-endorsement as a deductible gift recipient. 17.1 However, the trustee does not need to notify the Commissioner under this guideline if the trustee is required to notify the Commissioner of the Australian Charities and Not-for-profits Commission of the same information under Division 65 of the Australian Charities and Not-for-profits Commission Act 2012. 5 penalty units Guideline 19 Minimum annual distribution 19. During each *financial year, a *public ancillary fund must distribute at least 4 per cent (minimum annual distribution rate) of the *market value of the fund's net assets (as at the end of the previous *financial year). Note 1: While net assets are used to determine the fund's minimum distribution, the amount of the distribution itself is not net of any amount (for example, expenses of the fund). Note 2: The minimum annual distribution rate may be lowered under Guidelines 19.2 and 19.7 for a financial year. 19.1 The fund must distribute at least $8,800 (or the remainder of the fund if that is worth less than $8,800) during that *financial year if any expenses of the fund in relation to that financial year are paid directly or indirectly from the fund's assets or income. Note: This means that if a fund's expenses are met from outside the fund, its minimum annual distribution is the amount calculated under Guideline 19. If any of a fund's expenses are paid out of the fund's assets or income, its minimum distribution is $8,800 or the amount calculated under Guideline 19 whichever is greater: 19.2 No distribution is required during the *financial year in which the fund is established or during the next 4 financial years. Note: While these guidelines do not set a minimum annual distribution for the first four financial years, the trustee should consider making an appropriate distribution each year in accordance with the purpose of the fund. 19.3 A distribution includes the provision of money, property or benefits. If the fund provides property or benefits, the *market value of the property or benefit provided is to be used in determining whether the fund has complied with this guideline. Example 1: If a public ancillary fund makes a gift of land to a public benevolent institution, it would include the market value of the land in calculating how much it has distributed. Example 2: If a public ancillary fund leases office space to a deductible gift recipient at a discount to the market price, the fund is providing a benefit whose market value is equal to the discount. Example 3: If a public ancillary fund invests in a social impact bond issued by a deductible gift recipient with a return that is less than the market rate of return on a similar corporate bond issue, the fund is providing a benefit whose market value is equal to the interest saved by the deductible gift recipient from issuing the bond at a discounted rate of return. Example 4: If a public ancillary fund lends money to a deductible gift recipient at a discount to the interest rate which would be charged on a comparable loan sourced from a financial institution at arm's length, the fund is providing a benefit whose market value is equal to the discount. Example 5: If a public ancillary fund guarantees a loan provided by a financial institution to a deductible gift recipient, the fund is providing a benefit whose market value is equal to the discount to the interest rate which would be charged on a comparable arm's length unsecured loan sourced from that financial institution. Example 6: Continuing example 5, if the deductible gift recipient defaults on the loan and the fund is called on under the guarantee to make a payment to the financial institution on behalf of the deductible gift recipient, the payment is a distribution (being the provision of money, property or benefits). Note 1: The Commissioner may approve safe harbour valuation methodologies to assist trustees in calculating the market value of a benefit provided to a deductible gift recipient - see Subdivision 960-M of the Income Tax Assessment Act 1997. 19.4 The penalty for a contravention of this guideline is 30 penalty units if the shortfall is greater than $1,000. 30 penalty units if the shortfall is greater than $1,000 Guideline 19 Failure to comply with a request under Guideline 19 19.5 If the Commissioner requests the trustee to rectify a shortfall in the distribution for a *financial year, the trustee must comply with the request within 60 days. If the trustee does not, the penalty is 10 per cent of the shortfall as at the end of the 60 days reduced by any penalty (but not below nil) under guideline 19.4. 19.6 A distribution made to rectify a contravention of this guideline does not count towards compliance with this guideline for the year of the rectification. 10% of shortfall reduced by penalty under Guideline 19.4 Guideline 24 Accounts 24. The trustee must keep, or cause to be kept, proper accounts in respect of all receipts and payments of the fund and all financial dealings connected with the fund, and must retain those accounts for a period of at least 5 years after the completion of the transactions or acts to which they relate. Note: See also Subdivision 382-B in Schedule 1 to the Taxation Administration Act 1953 for rules about record-keeping obligations of deductible gift recipients. 10 penalty units Guideline 25 Request for accounts 25 The trustee must make the accounts available to the Commissioner upon request. 10 penalty units Guideline 26 Financial statements 26. The trustee must prepare, or cause to be prepared, financial statements showing the financial position of the fund at the end of each *financial year. 26.1 The financial statements must be prepared in accordance with the *accounting standards. Note: If a fund is required to prepare, and does prepare, a financial report in accordance with Subdivision 60-C of the Australian Charities and Not-for-profits Commission Act 2012, it will meet this requirement. 26.2 All transactions (except for gifts) between the fund and a founder of the fund, a donor to the fund, the trustee, a director, officer, *agent, *member or employee of the trustee, or an *associate of any of these entities must be disclosed in the financial statements. 26.3 The financial statements must be prepared before the fund is required to give to the Commissioner its *income tax return for the relevant *financial year. 10 penalty units Guideline 27 Request for financial statements 27. The trustee must make the financial statements available to the Commissioner upon request, unless the financial statements have already been given to the Commissioner of the Australian Charities and Not-for-profits Commission 10 penalty units Guideline 28 Audit 28. Except as set out below, each *financial year the trustee must arrange for an auditor to audit: • the financial statements of the fund; and • compliance with these Guidelines by the fund and the trustee. 28.1 The auditor must be a registered company auditor (within the meaning of the Corporations Act 2001). 28.1.1 The Public Trustee of a state or territory may have the Auditor General of that state or territory undertake the audit. 28.2 Unless the Commissioner, by written notice, provides otherwise, a public ancillary fund with revenue and assets of less than $1 million in relation to a particular financial year, may instead have its financial statements and compliance with these guidelines reviewed rather than audited. 28.2.1 A reviewer must be a registered company auditor (within the meaning of the Corporations Act 2001). However, an individual who is taken to be a registered company auditor under section 324BE of the Corporations Act 2001 is taken to be a registered company auditor for the purpose of this guideline. Note: This has the effect of widening the class of individuals who can undertake a review. 28.3 The auditor or reviewer must undertake the review or audit, and provide the fund with a report, in accordance with the *auditing standards. 28.4 The audit or review must be finalised before the fund is required to give to the Commissioner its *income tax return for the relevant *financial year. 10 penalty units Guideline 29 Request for audit report 29. The trustee must make the report available to the Commissioner upon request, unless the report has already been given to the Commissioner of the Australian Charities and Not-for-profits Commission. 10 penalty units Guideline 30 Investment strategy 30. The trustee must prepare and maintain a current investment strategy for the fund. 30.1 An appropriate investment strategy should set out the investment objectives of the fund and detail the investment methods the trustee will adopt to achieve those objectives. 30.2 The strategy must reflect the purpose and circumstances of the fund and have particular regard to (but not be limited to): • the risk involved in making, holding and realising, and the likely return from, the fund's investments, having regard to the fund's objectives and its expected cash flow requirements (including distribution requirements); and • the composition of the fund's investments as a whole, including the extent to which the investments are diverse or involve the fund being exposed to risks from inadequate diversification; and • the liquidity of the fund's investments, having regard to its expected cash flow requirements (including distribution requirements); and • the ability of the fund to discharge its existing and prospective liabilities; and • the investment requirements imposed by *State laws or *Territory laws. • status of the fund as a *registered charity (where applicable); and • real or perceived material conflicts of interest in holding particular investments (including those relating to individuals involved in the decision-making of the fund); and • the terms and other circumstances relating to any gift to the fund under a will. 10 penalty units Guideline 31 Implement investment strategy 31. The trustee must implement the investment strategy, and must ensure that all investment decisions are made in accordance with it. 15 penalty units Guideline 32 Written form 32. The investment strategy (and a record of the associated decision-making processes) must be available in a written form so that the trustee, an auditor, a reviewer, or the Commissioner can determine whether the fund has complied with these Guidelines and other *Australian laws. 10 penalty units Guideline 33 Investment limitations - Borrowings 33. The trustee must not *borrow money or maintain an existing borrowing of money. 33.1 However, this guideline does not prohibit a trustee from *borrowing money if: • the purpose of the borrowing is to enable the trustee to make a distribution to a *deductible gift recipient, which the trustee must make under these guidelines and which, apart from the borrowing, the trustee would be unable to make; and • the period of the borrowing does not exceed 90 days; and • the borrowing, when made, would not result in total borrowings exceeding 10 per cent of the *market value of the fund's assets. 33.2 This guideline also does not prohibit a trustee from *borrowing money if: • the purpose of the borrowing is to enable the trustee to cover settlement of a transaction for the acquisition of a financial instrument; and at the time the relevant investment decision was made, it was likely that the borrowing would not be needed; and • the period of the borrowing does not exceed 14 days; and • the borrowing, when made, would not result in total borrowings exceeding 10 per cent of the *market value of the fund's assets. 33.3 Guideline 33 also does not apply to the acquisition of a financial instrument excluded by the Commissioner from that guideline. 30 penalty units Guideline 34 Investment limitations - arms length 34. The fund's investments must be made and maintained on an *arm's length Unless another guideline allows otherwise. 30 penalty units Guideline 35 Investment limitations - security over funds assets 35. The trustee must not give a security over, or in relation to, an asset of the fund. However, this guideline does not apply to: • the acquisition of a financial instrument excluded by the Commissioner from that guideline; or • an agreement to guarantee the repayment of any money lent by a creditor for the sole benefit of one or more *deductible gift recipients. 30 penalty units Guideline 36 Investment limitations - assets acquired at arms length 36. The fund must not acquire an asset (except by way of gift) from, and must not make a loan or provide any other kind of financial assistance to, a founder of the fund, a donor to the fund, the trustee, a director, officer, agent, *member or employee of the trustee, or an *associate of any of these entities except: • by way of an arm's length commercial transaction; • on terms more favourable to the fund than would otherwise be expected under an arm's length transaction. 30 penalty units Guideline 37 Investment limitations - assets kept separate 37. The trustee must keep the assets of the fund separate from all other assets. 37.1 However, this guideline does not prevent a licensed trustee company or the Public Trustee of a state or territory from operating common funds for investment purposes. 30 penalty units Guideline 38 Investment limitations - collectable 38. The fund must not acquire an asset (except by way of gift) if the asset is capable of being a *collectable. 38.1 If the fund acquires such an asset by way of gift, it must sell or distribute the asset within 12 months after acquiring it. 30 penalty units Guideline 40 Investment limitations - not carrying on a business 40. The fund must not *carry on a *business. 40.1 However, a fund does not contravene this guideline merely because its investment activities, because of repetition, volume and regularity, mean that it is *carrying on a *business. 40.2 A fund also does not contravene this guideline if it undertakes public fundraising appeals. Note 1: The holding of investments, such as bonds, shares or rental properties, for the purpose of deriving income that can be distributed to deductible gift recipients is not subject to the carrying on a business restrictions. Note 2: Fundraising appeals, such as public donation appeals, lamington drives, raffles, and charity balls, are not subject to the carrying on a business restrictions. 40.3 The penalty for a contravention of this guideline is an amount equal to 25 per cent of the net profits of the business for each *financial year during all or part of which the contravention continues. 25% of the net profits of the business for each *financial year during all or part of which the contravention continues. Guideline 41 Uncommercial transactions 41 The fund must not enter into any transaction that is uncommercial when entered into, unless the transaction is: • with a *deductible gift recipient covered by item 1 in the table in section 30-15 of the ITAA 1997; and • in the course or furtherance of the fund's purpose. 41.1 However, the fund may enter into an uncommercial transaction if it is on terms more favourable to the fund than would otherwise be expected under an arm's length transaction. 30 penalty units Guideline 42 Material benefits 42 The fund must not *provide any material benefit (except as set out in guideline 43) directly or indirectly, to: • the trustee; or • a *member, director, employee, *agent or officer of the trustee; or • a donor to the fund; or • a founder of the fund; or • an *associate of any of those entities (other than a *deductible gift recipient). Penalty amount equal to the amount or value of the benefit provided Changes to governing rules Note: Certain changes to the governing rules may require the fund to seek re-endorsement as a deductible gift recipient. 17.1 However, the trustee does not need to notify the Commissioner under this guideline if the trustee is required to notify the Commissioner of the Australian Charities and Not-for-profits Commission of the same information under Division 65 of the Australian Charities and Not-for-profits Commission Act 2012. Minimum annual distribution Note 1: While net assets are used to determine the fund's minimum distribution, the amount of the distribution itself is not net of any amount (for example, expenses of the fund). Note 2: The minimum annual distribution rate may be lowered under Guidelines 19.2 and 19.7 for a financial year. 19.1 The fund must distribute at least $8,800 (or the remainder of the fund if that is worth less than $8,800) during that *financial year if any expenses of the fund in relation to that financial year are paid directly or indirectly from the fund's assets or income. Note: This means that if a fund's expenses are met from outside the fund, its minimum annual distribution is the amount calculated under Guideline 19. If any of a fund's expenses are paid out of the fund's assets or income, its minimum distribution is $8,800 or the amount calculated under Guideline 19 whichever is greater: 19.2 No distribution is required during the *financial year in which the fund is established or during the next 4 financial years. Note: While these guidelines do not set a minimum annual distribution for the first four financial years, the trustee should consider making an appropriate distribution each year in accordance with the purpose of the fund. 19.3 A distribution includes the provision of money, property or benefits. If the fund provides property or benefits, the *market value of the property or benefit provided is to be used in determining whether the fund has complied with this guideline. Example 1: If a public ancillary fund makes a gift of land to a public benevolent institution, it would include the market value of the land in calculating how much it has distributed. Example 2: If a public ancillary fund leases office space to a deductible gift recipient at a discount to the market price, the fund is providing a benefit whose market value is equal to the discount. Example 3: If a public ancillary fund invests in a social impact bond issued by a deductible gift recipient with a return that is less than the market rate of return on a similar corporate bond issue, the fund is providing a benefit whose market value is equal to the interest saved by the deductible gift recipient from issuing the bond at a discounted rate of return. Example 4: If a public ancillary fund lends money to a deductible gift recipient at a discount to the interest rate which would be charged on a comparable loan sourced from a financial institution at arm's length, the fund is providing a benefit whose market value is equal to the discount. Example 5: If a public ancillary fund guarantees a loan provided by a financial institution to a deductible gift recipient, the fund is providing a benefit whose market value is equal to the discount to the interest rate which would be charged on a comparable arm's length unsecured loan sourced from that financial institution. Example 6: Continuing example 5, if the deductible gift recipient defaults on the loan and the fund is called on under the guarantee to make a payment to the financial institution on behalf of the deductible gift recipient, the payment is a distribution (being the provision of money, property or benefits). Note 1: The Commissioner may approve safe harbour valuation methodologies to assist trustees in calculating the market value of a benefit provided to a deductible gift recipient - see Subdivision 960-M of the Income Tax Assessment Act 1997. 19.4 The penalty for a contravention of this guideline is 30 penalty units if the shortfall is greater than $1,000. Failure to comply with a request under Guideline 19 19.6 A distribution made to rectify a contravention of this guideline does not count towards compliance with this guideline for the year of the rectification. Accounts Note: See also Subdivision 382-B in Schedule 1 to the Taxation Administration Act 1953 for rules about record-keeping obligations of deductible gift recipients. Request for accounts Financial statements 26.1 The financial statements must be prepared in accordance with the *accounting standards. Note: If a fund is required to prepare, and does prepare, a financial report in accordance with Subdivision 60-C of the Australian Charities and Not-for-profits Commission Act 2012, it will meet this requirement. 26.2 All transactions (except for gifts) between the fund and a founder of the fund, a donor to the fund, the trustee, a director, officer, *agent, *member or employee of the trustee, or an *associate of any of these entities must be disclosed in the financial statements. 26.3 The financial statements must be prepared before the fund is required to give to the Commissioner its *income tax return for the relevant *financial year. Request for financial statements Audit • the financial statements of the fund; and • compliance with these Guidelines by the fund and the trustee. 28.1 The auditor must be a registered company auditor (within the meaning of the Corporations Act 2001). 28.1.1 The Public Trustee of a state or territory may have the Auditor General of that state or territory undertake the audit. 28.2 Unless the Commissioner, by written notice, provides otherwise, a public ancillary fund with revenue and assets of less than $1 million in relation to a particular financial year, may instead have its financial statements and compliance with these guidelines reviewed rather than audited. 28.2.1 A reviewer must be a registered company auditor (within the meaning of the Corporations Act 2001). However, an individual who is taken to be a registered company auditor under section 324BE of the Corporations Act 2001 is taken to be a registered company auditor for the purpose of this guideline. Note: This has the effect of widening the class of individuals who can undertake a review. 28.3 The auditor or reviewer must undertake the review or audit, and provide the fund with a report, in accordance with the *auditing standards. 28.4 The audit or review must be finalised before the fund is required to give to the Commissioner its *income tax return for the relevant *financial year. Request for audit report Investment strategy 30.1 An appropriate investment strategy should set out the investment objectives of the fund and detail the investment methods the trustee will adopt to achieve those objectives. 30.2 The strategy must reflect the purpose and circumstances of the fund and have particular regard to (but not be limited to): • the risk involved in making, holding and realising, and the likely return from, the fund's investments, having regard to the fund's objectives and its expected cash flow requirements (including distribution requirements); and • the composition of the fund's investments as a whole, including the extent to which the investments are diverse or involve the fund being exposed to risks from inadequate diversification; and • the liquidity of the fund's investments, having regard to its expected cash flow requirements (including distribution requirements); and • the ability of the fund to discharge its existing and prospective liabilities; and • the investment requirements imposed by *State laws or *Territory laws. • status of the fund as a *registered charity (where applicable); and • real or perceived material conflicts of interest in holding particular investments (including those relating to individuals involved in the decision-making of the fund); and • the terms and other circumstances relating to any gift to the fund under a will. • the risk involved in making, holding and realising, and the likely return from, the fund's investments, having regard to the fund's objectives and its expected cash flow requirements (including distribution requirements); and • the composition of the fund's investments as a whole, including the extent to which the investments are diverse or involve the fund being exposed to risks from inadequate diversification; and • the liquidity of the fund's investments, having regard to its expected cash flow requirements (including distribution requirements); and • the ability of the fund to discharge its existing and prospective liabilities; and • the investment requirements imposed by *State laws or *Territory laws. • status of the fund as a *registered charity (where applicable); and • real or perceived material conflicts of interest in holding particular investments (including those relating to individuals involved in the decision-making of the fund); and • the terms and other circumstances relating to any gift to the fund under a will. Implement investment strategy Written form Investment limitations - Borrowings 33.1 However, this guideline does not prohibit a trustee from *borrowing money if: • the purpose of the borrowing is to enable the trustee to make a distribution to a *deductible gift recipient, which the trustee must make under these guidelines and which, apart from the borrowing, the trustee would be unable to make; and • the period of the borrowing does not exceed 90 days; and • the borrowing, when made, would not result in total borrowings exceeding 10 per cent of the *market value of the fund's assets. • the purpose of the borrowing is to enable the trustee to make a distribution to a *deductible gift recipient, which the trustee must make under these guidelines and which, apart from the borrowing, the trustee would be unable to make; and • the period of the borrowing does not exceed 90 days; and • the borrowing, when made, would not result in total borrowings exceeding 10 per cent of the *market value of the fund's assets. 33.2 This guideline also does not prohibit a trustee from *borrowing money if: • the purpose of the borrowing is to enable the trustee to cover settlement of a transaction for the acquisition of a financial instrument; and at the time the relevant investment decision was made, it was likely that the borrowing would not be needed; and • the period of the borrowing does not exceed 14 days; and • the borrowing, when made, would not result in total borrowings exceeding 10 per cent of the *market value of the fund's assets. • the purpose of the borrowing is to enable the trustee to cover settlement of a transaction for the acquisition of a financial instrument; and at the time the relevant investment decision was made, it was likely that the borrowing would not be needed; and • the period of the borrowing does not exceed 14 days; and • the borrowing, when made, would not result in total borrowings exceeding 10 per cent of the *market value of the fund's assets. 33.3 Guideline 33 also does not apply to the acquisition of a financial instrument excluded by the Commissioner from that guideline. Investment limitations - arms length Investment limitations - security over funds assets However, this guideline does not apply to: • the acquisition of a financial instrument excluded by the Commissioner from that guideline; or • an agreement to guarantee the repayment of any money lent by a creditor for the sole benefit of one or more *deductible gift recipients. • the acquisition of a financial instrument excluded by the Commissioner from that guideline; or • an agreement to guarantee the repayment of any money lent by a creditor for the sole benefit of one or more *deductible gift recipients. Investment limitations - assets acquired at arms length • by way of an arm's length commercial transaction; • on terms more favourable to the fund than would otherwise be expected under an arm's length transaction. Investment limitations - assets kept separate 37.1 However, this guideline does not prevent a licensed trustee company or the Public Trustee of a state or territory from operating common funds for investment purposes. Investment limitations - collectable 38.1 If the fund acquires such an asset by way of gift, it must sell or distribute the asset within 12 months after acquiring it. Investment limitations - not carrying on a business 40.1 However, a fund does not contravene this guideline merely because its investment activities, because of repetition, volume and regularity, mean that it is *carrying on a *business. 40.2 A fund also does not contravene this guideline if it undertakes public fundraising appeals. Note 1: The holding of investments, such as bonds, shares or rental properties, for the purpose of deriving income that can be distributed to deductible gift recipients is not subject to the carrying on a business restrictions. Note 2: Fundraising appeals, such as public donation appeals, lamington drives, raffles, and charity balls, are not subject to the carrying on a business restrictions. 40.3 The penalty for a contravention of this guideline is an amount equal to 25 per cent of the net profits of the business for each *financial year during all or part of which the contravention continues. Uncommercial transactions • with a *deductible gift recipient covered by item 1 in the table in section 30-15 of the ITAA 1997; and • in the course or furtherance of the fund's purpose. 41.1 However, the fund may enter into an uncommercial transaction if it is on terms more favourable to the fund than would otherwise be expected under an arm's length transaction. Material benefits • the trustee; or • a *member, director, employee, *agent or officer of the trustee; or • a donor to the fund; or • a founder of the fund; or • an *associate of any of those entities (other than a *deductible gift recipient). Private Ancillary Fund Guidelines 2009 Description Guideline 59 Governing Rules Inconsistent With These Guidelines 59. If a fund does not have a trustee that is a *constitutional corporation, then guideline 14.1 does not apply to the fund. Instead, at least one individual with a degree of responsibility to the Australian community as a whole must be a trustee of the fund. Guideline 60 Governing Rules Inconsistent With These Guidelines 60. If a fund has an existing borrowing as at 30 September 2009, the fund may maintain that borrowing despite guideline 33. However, the fund may not alter the terms of the borrowing without the prior agreement of the Commissioner. Public Ancillary Fund Guidelines 2011 Description Guideline 51 Transitional Rules for Public Ancillary Funds 51. These transitional rules apply to a *public ancillary fund that was a public fund endorsed as a *deductible gift recipient in item 2 in the table in section 30-15 of the ITAA 1997 at the end of 31 December 2011. 51.1. These transitional rules are intended to help a public ancillary fund make the transition into the new regime. Guideline 56 Governing Rules Inconsistent With These Guidelines 56. If a fund does not have a trustee that is a *constitutional corporation, then guideline 14 does not apply to the fund. Instead, at least a majority of individuals who are trustees of the fund must have a degree of responsibility to the Australian community as a whole. Guideline 57 Governing Rules Inconsistent With These Guidelines 57. If a fund has an existing borrowing as at 31 December 2011, the fund may maintain that borrowing despite guideline 33. However, the fund may not alter the terms of the borrowing without the prior agreement of the Commissioner. Governing Rules Inconsistent With These Guidelines Governing Rules Inconsistent With These Guidelines Transitional Rules for Public Ancillary Funds 51.1. These transitional rules are intended to help a public ancillary fund make the transition into the new regime. Governing Rules Inconsistent With These Guidelines Governing Rules Inconsistent With These Guidelines",MT 2012/3 | PS LA 2011/6 | Public Ancillary Fund Guidelines 2011 | Public Ancillary Fund Guidelines 2011 8 | Public Ancillary Fund Guidelines 2011 9 | Public Ancillary Fund Guidelines 2011 10 | Public Ancillary Fund Guidelines 2011 11 | Public Ancillary Fund Guidelines 2011 12 | Public Ancillary Fund Guidelines 2011 17 | Public Ancillary Fund Guidelines 2011 18 | Public Ancillary Fund Guidelines 2011 19 | Public Ancillary Fund Guidelines 2011 24 | Public Ancillary Fund Guidelines 2011 25 | Public Ancillary Fund Guidelines 2011 26 | Public Ancillary Fund Guidelines 2011 27 | Public Ancillary Fund Guidelines 2011 28 | Public Ancillary Fund Guidelines 2011 29 | Public Ancillary Fund Guidelines 2011 30 | Public Ancillary Fund Guidelines 2011 31 | Public Ancillary Fund Guidelines 2011 32 | Public Ancillary Fund Guidelines 2011 33 | Public Ancillary Fund Guidelines 2011 34 | Public Ancillary Fund Guidelines 2011 35 | Public Ancillary Fund Guidelines 2011 36 | Public Ancillary Fund Guidelines 2011 37 | Public Ancillary Fund Guidelines 2011 38 | Public Ancillary Fund Guidelines 2011 40 | Public Ancillary Fund Guidelines 2011 41 | Public Ancillary Fund Guidelines 2011 42 | Public Ancillary Fund Guidelines 2011 43 | TAA 1953 | TAA 1953 Pt IVC | TAA 1953 Sch 1 Div 298 | TAA 1953 Sch 1 298-5(c) | TAA 1953 Sch 1 298-20 | TAA 1953 Sch 1 298-20(2) | TAA 1953 Sch 1 Subdiv 382-B | TAA 1953 Sch 1 Subdiv 426-D | TAA 1953 Sch 1 426-102(1) | TAA 1953 Sch 1 426-103 | TAA 1953 Sch 1 426-103(b) | TAA 1953 Sch 1 426-105(1) | TAA 1953 Sch 1 426-110 | TAA 1953 Sch 1 426-110(b) | TAA 1953 Sch 1 426-120 | TAA 1953 Sch 1 426-120(1) | TAA 1953 Sch 1 426-120(1)(a) | TAA 1953 Sch 1 426-120(2)(b)(ii) | TAA 1953 Sch 1 426-120(4) | TAA 1953 Sch 1 426-120(5)(a) | TAA 1953 Sch 1 426-120(5)(b) | TAA 1953 Sch 1 426-120(5)(c) | TAA 1953 Sch 1 426-120(6) | TAA 1953 Sch 1 426-120(7) | TAA 1953 Sch 1 426-120(8) | TAA 1953 Sch 1 426-125 | ITAA 1997 | ITAA 1997 30-15 | ITAA 1997 30-15(2) | ITAA 1997 30-227 | ITAA 1997 995-1(1) | Corporations Act 2001 | Corporations Act 2001 324BE | Corporations Act 2001 1318 | Corporations Act 2001 Pt 9.2 | Tax Laws Amendment (2009 Measures No. 4) Act 2009 Sch 2 | Tax Laws Amendment (2011 Measures No. 7) Act 2011 Sch 8 | Taxation Administration Regulations 1976 | Crimes Act 1914 4AA(1),PS LA 2011/6,TAA 1953 | TAA 1953 Pt IVC | TAA 1953 Sch 1 Div 298 | TAA 1953 Sch 1 298-5(c) | TAA 1953 Sch 1 298-20 | TAA 1953 Sch 1 298-20(2) | TAA 1953 Sch 1 Subdiv 382-B | TAA 1953 Sch 1 Subdiv 426-D | TAA 1953 Sch 1 426-102(1) | TAA 1953 Sch 1 426-103 | TAA 1953 Sch 1 426-103(b) | TAA 1953 Sch 1 426-105(1) | TAA 1953 Sch 1 426-110 | TAA 1953 Sch 1 426-110(b) | TAA 1953 Sch 1 426-120 | TAA 1953 Sch 1 426-120(1) | TAA 1953 Sch 1 426-120(1)(a) | TAA 1953 Sch 1 426-120(2)(b)(ii) | TAA 1953 Sch 1 426-120(4) | TAA 1953 Sch 1 426-120(5)(a) | TAA 1953 Sch 1 426-120(5)(b) | TAA 1953 Sch 1 426-120(5)(c) | TAA 1953 Sch 1 426-120(6) | TAA 1953 Sch 1 426-120(7) | TAA 1953 Sch 1 426-120(8) | TAA 1953 Sch 1 426-125 | ITAA 1997 | ITAA 1997 30-15 | ITAA 1997 30-15(2) | ITAA 1997 30-227 | ITAA 1997 995-1(1) | Corporations Act 2001 | Corporations Act 2001 324BE | Corporations Act 2001 1318 | Corporations Act 2001 Pt 9.2 | Tax Laws Amendment (2009 Measures No. 4) Act 2009 Sch 2 | Tax Laws Amendment (2011 Measures No. 7) Act 2011 Sch 8 | Taxation Administration Regulations 1976 | Crimes Act 1914 4AA(1),,Private Ancillary Fund Guidelines 2009 Private Ancillary Fund Guidelines 2009 8 Private Ancillary Fund Guidelines 2009 9 Private Ancillary Fund Guidelines 2009 10 Private Ancillary Fund Guidelines 2009 11 Private Ancillary Fund Guidelines 2009 12 Private Ancillary Fund Guidelines 2009 17 Private Ancillary Fund Guidelines 2009 19 Private Ancillary Fund Guidelines 2009 24 Private Ancillary Fund Guidelines 2009 25 Private Ancillary Fund Guidelines 2009 26 Private Ancillary Fund Guidelines 2009 27 Private Ancillary Fund Guidelines 2009 28 Private Ancillary Fund Guidelines 2009 29 Private Ancillary Fund Guidelines 2009 30 Private Ancillary Fund Guidelines 2009 31 Private Ancillary Fund Guidelines 2009 32 Private Ancillary Fund Guidelines 2009 33 Private Ancillary Fund Guidelines 2009 34 Private Ancillary Fund Guidelines 2009 35 Private Ancillary Fund Guidelines 2009 36 Private Ancillary Fund Guidelines 2009 37 Private Ancillary Fund Guidelines 2009 38 Private Ancillary Fund Guidelines 2009 40 Private Ancillary Fund Guidelines 2009 41 Private Ancillary Fund Guidelines 2009 42 Private Ancillary Fund Guidelines 2009 45 Private Ancillary Fund Guidelines 2009 46 Public Ancillary Fund Guidelines 2011 Public Ancillary Fund Guidelines 2011 8 Public Ancillary Fund Guidelines 2011 9 Public Ancillary Fund Guidelines 2011 10 Public Ancillary Fund Guidelines 2011 11 Public Ancillary Fund Guidelines 2011 12 Public Ancillary Fund Guidelines 2011 17 Public Ancillary Fund Guidelines 2011 18 Public Ancillary Fund Guidelines 2011 19 Public Ancillary Fund Guidelines 2011 24 Public Ancillary Fund Guidelines 2011 25 Public Ancillary Fund Guidelines 2011 26 Public Ancillary Fund Guidelines 2011 27 Public Ancillary Fund Guidelines 2011 28 Public Ancillary Fund Guidelines 2011 29 Public Ancillary Fund Guidelines 2011 30 Public Ancillary Fund Guidelines 2011 31 Public Ancillary Fund Guidelines 2011 32 Public Ancillary Fund Guidelines 2011 33 Public Ancillary Fund Guidelines 2011 34 Public Ancillary Fund Guidelines 2011 35 Public Ancillary Fund Guidelines 2011 36 Public Ancillary Fund Guidelines 2011 37 Public Ancillary Fund Guidelines 2011 38 Public Ancillary Fund Guidelines 2011 40 Public Ancillary Fund Guidelines 2011 41 Public Ancillary Fund Guidelines 2011 42 Public Ancillary Fund Guidelines 2011 43,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20141/NAT/ATO/00001,"Appendix 1: Private Ancillary Fund Guidelines and Penalty Units | Appendix 2: Public Ancillary Fund Guidelines and Penalty Units | Appendix 3: Transitional Rulings for Ancillary Funds | Updated in accordance with Private Ancillary Fund and Public Ancillary Fund Amendment Guidelines 2016. | Updated to new LAPS format and style. | 'Tax Office' updated to ATO as per Style Guide recommendations. | Replaced publication with new publication | Dates updated to current income year | [1] For guidance on the transitional rules which were in place for the period when the Guidelines were introduced, refer to prior versions of this practice statement. | [2] Provided the constitutional corporation is not a licensed trustee company (under Chapter 5D of the Corporations Act 2001) nor the Public Trustee of a State or Territory. | [3] Paragraph 426-120(5). | [4] In paragraph 426-120(5)(a). | [5] Under section 298-20 of Schedule 1 to the TAA."
PS LA 2014/2,Administration of transfer pricing penalties for income years commencing on or after 29 June 2013,17 December 2014,29 June 2014,Law Administration Practice Statement,False,"1. Scope: 1A. This Practice Statement is published as part of a package dealing with transfer pricing documentation and should be read in conjunction with Taxation Ruling TR 2014/8 Income tax: transfer pricing documentation and Subdivision 284-E, which sets out the Commissioner of Taxation's views on the transfer pricing documentation requirements of Subdivision 284-E of Schedule 1 to the Taxation Administration Act 1953 (TAA). 1B. All legislative references in this Practice Statement are to Schedule 1 to the TAA, unless otherwise indicated. 1C. This Practice Statement explains how we administer scheme penalties arising from the application of the transfer pricing rules in Subdivisions 815-B and 815-C of the Income Tax Assessment Act 1997 (ITAA 1997). Liability to these penalties arises under subsection 284-145(2B). In this Practice Statement, these penalties are referred to as 'transfer pricing penalties'. 1D. This Practice Statement discusses: • when an entity will be liable for a transfer pricing penalty, and • how we will assess an entity's transfer pricing penalty, including determining remission. • when an entity will be liable for a transfer pricing penalty, and • how we will assess an entity's transfer pricing penalty, including determining remission. 1E. This Practice Statement does not provide guidance on an entity's liability to scheme penalties under: • subsection 284-145(1) that arise from the application of the anti-avoidance provisions in Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) • subsection 284-145(2) that arise from the application of former Division 13 of the ITAA 1936 and Australia's tax treaties, and • subsection 284-145(2A) that arise from the application of Subdivision 815-A of the ITAA 1997. • subsection 284-145(1) that arise from the application of the anti-avoidance provisions in Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) • subsection 284-145(2) that arise from the application of former Division 13 of the ITAA 1936 and Australia's tax treaties, and • subsection 284-145(2A) that arise from the application of Subdivision 815-A of the ITAA 1997. | 2. Background: 2A. An entity will be liable to a scheme penalty under subsection 284-145(2B) where either Subdivisions 815-B or 815-C [1] of the ITAA 1997 applies to impose a liability to pay additional income tax or withholding tax. 2B. Subsection 284-145(2B) was introduced by the Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Act 2013. This Act also introduced Subdivisions 815-B, 815-C and 815-D of the ITAA 1997 (collectively referred to as 'the transfer pricing rules' in this Practice Statement) and Subdivision 284-E. 2C. Subsection 284-145(2B) of Subdivision 284-C imposes administrative penalties on an entity that gets a benefit under a scheme within Subdivisions 815-B and 815-C of the ITAA 1997. Subdivision 284-C is part of the uniform administrative penalty regime that applies to entities for failing to satisfy their obligations under the taxation laws. 2D. Subdivision 815-B of the ITAA 1997 ensures that the amount of Australian tax from cross-border conditions between entities is consistent with the arm's length principle. Subdivision 815-C of the ITAA 1997 ensures that the amount of Australian tax from the attribution of profits by entities operating permanent establishments is consistent with the arm's length principle. Subdivision 815-D of the ITAA 1997 clarifies how Subdivisions 815-B and 815-C of that Act apply to trusts and partnerships. Subdivision 284-E sets out the special rules about unarguable positions for cross-border transfer pricing (including the documentation requirements). 2E. Under Subdivision 815-B of the ITAA 1997, an entity will get a transfer pricing benefit where: • the actual conditions that operate between the entities differ from the arm's length conditions, and • the other requirements of section 815-120 of the ITAA 1997 are satisfied. • the actual conditions that operate between the entities differ from the arm's length conditions, and • the other requirements of section 815-120 of the ITAA 1997 are satisfied. 2F. Under Subdivision 815-C of the ITAA 1997, an entity will get a transfer pricing benefit where: • the amount of profits attributed to the permanent establishment differs from the arm's length profits of the permanent establishment, and • the other requirements of section 815-220 of the ITAA 1997 are satisfied. • the amount of profits attributed to the permanent establishment differs from the arm's length profits of the permanent establishment, and • the other requirements of section 815-220 of the ITAA 1997 are satisfied. 2G. The entity is liable to a transfer pricing penalty based on the total additional amount of income tax or withholding tax [2] arising from the application of Subdivisions 815-B or 815-C of the ITAA 1997 as a result of an entity getting a transfer pricing benefit. 2H. The transfer pricing rules replace: • Division 13 of the ITAA 1936 and its associated scheme penalty provision of subsection 284-145(2) for income years commencing on or after 29 June 2013, and • Subdivision 815-A of the ITAA 1997 and its associated scheme penalty provision of subsection 284-145(2A) for income tax years commencing on or after 29 June 2013. • Division 13 of the ITAA 1936 and its associated scheme penalty provision of subsection 284-145(2) for income years commencing on or after 29 June 2013, and • Subdivision 815-A of the ITAA 1997 and its associated scheme penalty provision of subsection 284-145(2A) for income tax years commencing on or after 29 June 2013. | 3. Steps in the administration of scheme penalties: 3A. The administration of Subdivision 284-C scheme penalties involves 3 main steps [3] : • Step 1 – Determine whether the entity is liable for a penalty • Step 2 – Assess the amount of the penalty (a) determine the scheme shortfall amount (b) determine the base penalty amount (BPA) (c) increase or reduce the BPA, or both (d) decide whether to remit all or part of the penalty. • Step 3 – Notify the entity of the liability to pay the penalty. • Step 1 – Determine whether the entity is liable for a penalty • Step 2 – Assess the amount of the penalty (a) determine the scheme shortfall amount (b) determine the base penalty amount (BPA) (c) increase or reduce the BPA, or both (d) decide whether to remit all or part of the penalty. • Step 3 – Notify the entity of the liability to pay the penalty. (a) determine the scheme shortfall amount (b) determine the base penalty amount (BPA) (c) increase or reduce the BPA, or both (d) decide whether to remit all or part of the penalty. 3B. This Practice Statement provides guidance on these 3 steps in the order they occur in the administrative process. The steps must be completed in the order specified in paragraph 3A of this Practice Statement. A decision about remission of penalty will normally be made in the course of assessing the amount of any penalty, as both are part of Step 2. However, a decision about remission of penalty can also be made after an entity has been notified of its liability to pay the penalty. [4] | 4. Step 1 – determine whether the entity is liable for a penalty: 4A. An entity is liable to a transfer pricing penalty in relation to a scheme where [5] : (a) (i) the entity is liable to pay an additional amount of income tax for an income year under an assessment we amend, or (ii) the entity is liable to pay an additional amount of withholding tax under one or more withholding tax notices we serve [6] , or (iii) both (i) and (ii) of this paragraph apply (b) the amended assessment or withholding tax notice gives effect to Subdivisions 815-B or 815-C of the ITAA 1997, and (c) the additional amount of income tax or withholding tax the entity is liable to pay is more than its reasonably arguable threshold. [7] (a) (i) the entity is liable to pay an additional amount of income tax for an income year under an assessment we amend, or (ii) the entity is liable to pay an additional amount of withholding tax under one or more withholding tax notices we serve [6] , or (iii) both (i) and (ii) of this paragraph apply (b) the amended assessment or withholding tax notice gives effect to Subdivisions 815-B or 815-C of the ITAA 1997, and (c) the additional amount of income tax or withholding tax the entity is liable to pay is more than its reasonably arguable threshold. [7] (i) the entity is liable to pay an additional amount of income tax for an income year under an assessment we amend, or (ii) the entity is liable to pay an additional amount of withholding tax under one or more withholding tax notices we serve [6] , or (iii) both (i) and (ii) of this paragraph apply 4B. An entity will be liable to a transfer pricing penalty (under subsection 284-145(2B)) only where the amended assessment or withholding tax notice gives effect to Subdivisions 815-B or 815-C of the ITAA 1997 in relation to a scheme. Those Subdivisions apply to income years commencing on or after 29 June 2013. | 5. Meaning of reasonably arguable threshold: 5A. An entity will only be liable for a transfer pricing penalty where the entity's scheme shortfall amount is more than its reasonably arguable threshold. [8] 5B. An entity's scheme shortfall amount is the total amount of additional income tax and additional withholding tax it is liable to pay from the application of the transfer pricing rules. [9] Guidance on calculating an entity's scheme shortfall amount is found under Step 2(a) in section 7 of this Practice Statement. 5C. Subsection 284-90(3) provides that an entity's reasonably arguable threshold for an income year is: • if the entity is a trust or partnership, $20,000 or 2% of the entity's net income, whichever is the greater [10] , or • for all other entities, $10,000 or 1% of income tax payable, whichever is the greater. [11] • if the entity is a trust or partnership, $20,000 or 2% of the entity's net income, whichever is the greater [10] , or • for all other entities, $10,000 or 1% of income tax payable, whichever is the greater. [11] 5D. If the entity's scheme shortfall amount is equal to or less than the reasonably arguable threshold, the entity will not be liable to a transfer pricing penalty. 5E. If an entity's scheme shortfall amount is higher than the reasonably arguable threshold, (provided all other conditions in subsection 284-145(2B) are satisfied) the entity will be liable to a transfer pricing penalty and we must assess the amount of the penalty under Step 2. Example – scheme shortfall amount greater than threshold 5F. Matthew Co is liable to pay $20 million income tax based on its tax return for an income year. In that year, Matthew Co has received a transfer pricing benefit under Subdivision 815-B of the ITAA 1997 and has a scheme shortfall amount of $500,000. As Matthew Co is a company, the scheme shortfall amount must exceed the greater of $10,000 or 1% of the income tax payable by Matthew Co in that income year for a liability for an administrative penalty to apply. $200,000 is 1% of the income tax payable by Matthew Co. This is the reasonably arguable threshold. 5G. Matthew Co has a scheme shortfall amount of $500,000, which is greater than its reasonably arguable threshold of $200,000. Matthew Co is liable to an administrative penalty on the full $500,000. | 6. Step 2 – assess the amount of the transfer pricing penalty: 6A. Where, as a result of the application of Step 1, an entity is liable to a transfer pricing penalty, Step 2 requires that we assess the amount of the transfer pricing penalty. | 7. Step 2a – determine the transfer pricing shortfall amount: 7A. As noted in this Practice Statement, an entity's scheme shortfall amount is the total amount of additional income tax and additional withholding tax payable from the application of the transfer pricing rules (transfer pricing shortfall amount). [12] 7B. As it is necessary to calculate an entity's transfer pricing shortfall amount in Step 1 to ascertain whether the entity's transfer pricing shortfall amount is above or below its reasonably arguable threshold, the entity's transfer pricing shortfall amount should have already been calculated: • Where there is both an additional amount of income tax and an additional amount of withholding tax in relation to a particular income year, an entity's transfer pricing shortfall amount will be the total of these amounts it is liable to pay. [13] • A scheme benefit that an entity would have received from a scheme to which the anti-avoidance provisions in Part IVA of the ITAA 1936 apply is not included in the entity's scheme shortfall amount to the extent that it is already included in the transfer pricing shortfall amount under the transfer pricing rules. [14] • Where there is both an additional amount of income tax and an additional amount of withholding tax in relation to a particular income year, an entity's transfer pricing shortfall amount will be the total of these amounts it is liable to pay. [13] • A scheme benefit that an entity would have received from a scheme to which the anti-avoidance provisions in Part IVA of the ITAA 1936 apply is not included in the entity's scheme shortfall amount to the extent that it is already included in the transfer pricing shortfall amount under the transfer pricing rules. [14] | 8. Step 2b – determine the transfer pricing base penalty amount: 8A. The transfer pricing shortfall amount is then adjusted by a particular percentage. The result of this adjustment is the base penalty amount (BPA). 8B. The BPA is worked out by multiplying the transfer pricing shortfall amount by the relevant percentage. 8C. The relevant percentage in the formula reflects whether or not: • having regard to any relevant matters, it is reasonable to conclude that an entity that (alone or with others) entered into or carried out the scheme, or part of it, did so with the sole or dominant purpose of that entity or another entity getting a transfer pricing benefit from the scheme (sole or dominant purpose) [15] • the entity has a reasonably arguable position that the transfer pricing rules do not apply to a matter in a particular way (reasonably arguable position) [16] , and • the entity treated the law as applying in an accepted way. • having regard to any relevant matters, it is reasonable to conclude that an entity that (alone or with others) entered into or carried out the scheme, or part of it, did so with the sole or dominant purpose of that entity or another entity getting a transfer pricing benefit from the scheme (sole or dominant purpose) [15] • the entity has a reasonably arguable position that the transfer pricing rules do not apply to a matter in a particular way (reasonably arguable position) [16] , and • the entity treated the law as applying in an accepted way. Determining the BPA under subsection 284-160(3) 8D. Subsection 284-160(3) provides specific rules for determining the BPA for transfer pricing penalties. 8E. Under subsection 284-160(3), where an entity has a sole or dominant purpose and does not have a reasonably arguable position, the BPA will be equal to 50% of the transfer pricing shortfall amount. [17] 8F. Where an entity has a sole or dominant purpose and does have a reasonably arguable position, the BPA will be equal to 25% of the transfer pricing shortfall amount. [18] 8G. Where an entity does not have a sole or dominant purpose and does not have a reasonably arguable position, the BPA will be equal to 25% of the transfer pricing shortfall amount. [19] 8H. Where an entity does not have a sole or dominant purpose and has a reasonably arguable position, the BPA will be equal to 10% of the transfer pricing shortfall amount. [20] 8I. An entity cannot have a reasonably arguable position for the purposes of calculating the BPA where it has not met the documentation requirements specific to transfer pricing penalties arising from the transfer pricing rules. [21] See also paragraphs 8AM to 8AQ of this Practice Statement. 8J. The Attachment to this Practice Statement contains a flow chart on how to determine the BPA for transfer pricing penalties under subsection 284-160(3). Determining whether there is a 'sole or dominant purpose' 8K. Table item 1 of subsection 284-160(3) provides that to work out the BPA for transfer pricing penalties, we must consider whether: having regard to any relevant matters, it is reasonable to conclude that an entity that (alone or with others) entered into or carried out the scheme, or part of it, did so with the sole or dominant purpose of that entity or another entity getting a transfer pricing benefit from the scheme 8L. Where an entity has a sole or dominant purpose, the entity will be liable to a higher BPA. 8M. The following paragraphs of this Practice Statement set out guidelines to assist you in determining whether there is a sole or dominant purpose. Transfer pricing benefit 8N. Table item 1 of subsection 284-160(3) provides that an entity must have a sole or dominant purpose of getting a 'transfer pricing benefit from the schem e'. 8O. Subsection 995-1(1) of the ITAA 1997 states that 'transfer pricing benefit' has the meaning given by (among other things) sections 815-120 and 815-220 of the ITAA 1997. [22] 8P. Subsection 815-120 of the ITAA 1997 provides that an entity gets a transfer pricing benefit from conditions that operate between the entity and another entity in connection with their commercial or financial relations (referred to collectively as 'tax advantages') if: • the actual conditions differ from the arm's length conditions • the actual conditions satisfy the cross-border test, and • had the arm's length conditions operated instead of the actual conditions, the result would be one or more of the following - the entity's taxable income being greater - the entity's loss being less - the entity's tax offsets being less, or - the entity's withholding tax payable being greater. • the actual conditions differ from the arm's length conditions • the actual conditions satisfy the cross-border test, and • had the arm's length conditions operated instead of the actual conditions, the result would be one or more of the following - the entity's taxable income being greater - the entity's loss being less - the entity's tax offsets being less, or - the entity's withholding tax payable being greater. - the entity's taxable income being greater - the entity's loss being less - the entity's tax offsets being less, or - the entity's withholding tax payable being greater. 8Q. Where the transfer pricing penalty arises from the application of Subdivision 815-B of the ITAA 1997, the transfer pricing benefit will be equal to the total of the tax advantages listed in paragraph 8P of this Practice Statement. 8R. Section 815-220 of the ITAA 1997 provides when an entity gets a transfer pricing benefit for the purpose of Subdivision 815-C of the ITAA 1997. 8S. Subsection 815-220(1) of the ITAA 1997 provides that an entity gets a transfer pricing benefit from the attribution of profits to a permanent establishment if: • the actual profits attributed to the permanent establishment differ from the arm's length profits, and • had the arm's length profits been attributed, instead of the actual profits, the result would be one or more of the following (referred to collectively as 'tax advantages') - the entity's taxable income being greater - the entity's loss being less, or - the entity's tax offsets being greater. • the actual profits attributed to the permanent establishment differ from the arm's length profits, and • had the arm's length profits been attributed, instead of the actual profits, the result would be one or more of the following (referred to collectively as 'tax advantages') - the entity's taxable income being greater - the entity's loss being less, or - the entity's tax offsets being greater. - the entity's taxable income being greater - the entity's loss being less, or - the entity's tax offsets being greater. 8T. Where the transfer pricing penalty arises from the application of Subdivision 815-C of the ITAA 1997, the transfer pricing benefit will be equal to the total of the tax advantages listed in paragraph 8S of this Practice Statement. From a scheme 8U. In order for the test in table item 1 of subsection 284-160(3) to be satisfied, the transfer pricing benefit must come from a scheme. [23] Subsection 995-1(1) of the ITAA 1997 defines 'scheme' as: (a) any arrangement; or (b) any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise. (a) any arrangement; or (b) any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise. 8V. Subsection 995-1(1) of the ITAA 1997 states that 'arrangement': … means any arrangement, agreement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable (or intended to be enforceable) by legal proceedings. 8W. The meaning of 'scheme' in subsection 995-1(1) of the ITAA 1997 is substantively the same as the meaning of 'scheme' in subsection 177A(1) of the ITAA 1936. [24] 8X. The High Court considered the meaning of 'scheme' in subsection 177A(1) in Commissioner of Taxation v Hart [2004] HCA 26 (Hart) at [43], per Gummow and Hayne JJ: …Th[e] definition is very broad. It encompasses not only a series of steps which together can be said to constitute a ""scheme"" or a ""plan"" but also (by its reference to ""action"" in the singular) the taking of but one step. 8Y. You will need to identify the particulars of the scheme or schemes to which subsection 245-145(2B) applies in order to ascertain whether there is a sole or dominant purpose. 8Z. Given the broad scope of the definition of 'scheme', the whole or part of the commercial or financial relations in connection with which the actual conditions operate may well be relevant in identifying a 'scheme' as defined in subsection 995-1(1) of the ITAA 1997. As a result, the requirement in table item 1 of subsection 284-160(3) for the existence of a scheme will generally be satisfied. Sole or dominant purpose requirement 8AA. Where you have concluded that an entity has received a transfer pricing benefit from a scheme, you must then consider, having regard to any relevant matter s, whether it is reasonable to conclude that an entity that carried out the scheme did so with the sole or dominant purpose of that entity or another entity getting a transfer pricing benefit from the scheme. 8AB. The meaning of the phrase 'sole or dominant purpose' was considered in Commissioner of Taxation v Spotless Services Ltd [1996] HCA 34; 186 CLR 404 at [416] (Spotless). The High Court observed: Much turns upon the identification, among various purposes, of that which is ""dominant"". In its ordinary meaning, dominant indicates that purpose which was the ruling, prevailing, or most influential purpose. 8AC. Although Spotless was concerned with the application of the general anti-avoidance provisions in Part IVA of the ITAA 1936, there is no reason the word 'dominant' in table item 1 of subsection 284-160(3) should not take on this ordinary meaning. 8AD. In working out what matters are relevant for the purposes of table item 1 of subsection 284-160(3), the matters to which you can have regard are confined only to the extent that they are relevant to the question of whether an entity that entered into or carried out the scheme did so with the sole or dominant purpose of that entity, or another, getting a transfer pricing benefit from the scheme. Whether a matter is relevant to this question will depend on the facts and circumstances of the case. 8AE. In Commissioner of Taxation v Star City Pty Limited (No 2) [2009] FCAFC 122 (Star City) at [73], Dowsett J observed that paragraph 284-145(1)(b) (which is similar to table item 1 of subsection 284-160(3)) requires that, having regard to any relevant matters, '… it [is] ""reasonable to conclude"" that a relevant entity entered into, or carried out the scheme, or part of it, with the relevant purpose'. [25] 8AF. At [74] in Star City, Dowsett J held that: … the question posed by s 284-145(1)(b)(i) is whether a reasonable person could conclude that the relevant entity had the identified purpose. The language used in the section is not apposite to require an actual decision as to purpose. It rather addresses the availability of an inference. Had Parliament intended that the Commissioner form an actual opinion as to purpose, it would have said so. 8AG. At [73] in Star City, Dowsett J also stated that paragraph 284-145(1)(b) '… prescribes an assessment of the adequacy of available information to support an inference that the relevant purpose existed'. 8AH. Matters that may be relevant when assessing the adequacy of available information include: • the nature of the transfer pricing benefit that was obtained by the entity (or another entity) • the commercial or financial relations in connection with which the actual conditions operated • the form and substance of the scheme • the arm's length contribution made by an Australian operation through functions performed, assets used and risks assumed • any inconsistency between the way the entity has applied the transfer pricing rules and the guidance material [26] • the methods used, and • the comparable circumstances. • the nature of the transfer pricing benefit that was obtained by the entity (or another entity) • the commercial or financial relations in connection with which the actual conditions operated • the form and substance of the scheme • the arm's length contribution made by an Australian operation through functions performed, assets used and risks assumed • any inconsistency between the way the entity has applied the transfer pricing rules and the guidance material [26] • the methods used, and • the comparable circumstances. 8AI. You will need to consider carefully whether the evidence gathered in relation to the actual commercial or financial relations adopted by the entities or any other relevant matter would enable the requisite inference to be drawn. 8AJ. In doing so, just because an entity gets a transfer pricing benefit from a scheme does not mean that you should 'automatically assume that associated enterprises have sought to manipulate their profits'. [27] The fact that conditions adopted by entities under the actual transaction or arrangement are not the arm's length conditions is generally not, of itself, sufficient to conclude that the relevant entity had the identified purpose. The instances where there is a sole or dominant purpose in transfer pricing cases would be rare and would need to be supported by the particular facts and circumstances of that matter. 8AK. Where you conclude that an entity entered into the scheme with the sole or dominant purpose of that entity or another getting a transfer pricing benefit, the BPA of the entity that received the benefit will be either 50% or 25% of the transfer pricing shortfall amount, depending on whether the entity has a reasonably arguable position. 8AL. Where you conclude that an entity did not enter into the scheme with the sole or dominant purpose of getting a transfer pricing benefit, the entity's BPA will be either 25% or 10% of the transfer pricing shortfall amount, depending on whether the entity has a reasonably arguable position. When a transfer pricing treatment is not reasonably arguable 8AM. Section 284-250 states that if an entity does not have records explaining the particular way in which the transfer pricing rules apply (or do not apply) to a matter (or identical matters) (referred to as 'transfer pricing treatment'), the entity cannot take a reasonably arguable position for that treatment. 8AN. The specific requirements for documenting a transfer pricing treatment in a way so that an entity is eligible to take a reasonably arguable position are set out in section 284-255 (referred to as 'documentation requirements'). 8AO. Where the entity has not met the documentation requirements in relation to a transfer pricing treatment (referred to as an 'undocumented transfer pricing treatment'), the entity cannot take a reasonably arguable position, for administrative penalty purposes, concerning that treatment. 8AP. Where the entity has met the documentation requirements in relation to a transfer pricing treatment (referred to as a 'documented transfer pricing treatment'), the entity may be eligible to take a reasonably arguable position concerning that treatment. 8AQ. You therefore need to consider whether the entity has a documented transfer pricing treatment as part of deciding whether the entity has a reasonably arguable position for a particular treatment. Documenting a transfer pricing treatment 8AR. Section 284-255 sets out the documentation requirements specific to transfer pricing penalties. [28] 8AS. These requirements do not mandate the preparation or keeping of such documentation. However, an entity cannot have a reasonably arguable position for administrative penalty purposes where it does not meet the requirements. The result is that the entity will be liable to a higher BPA. 8AT. In order to have a documented transfer pricing treatment, the entity must have records that [29] : • are prepared before the time the entity lodges its tax return for the income year relevant to the matter (or matters) • are in English or readily accessible and convertible into English • explain the particular way in which Subdivision 815-B or 815-C of the ITAA 1997 apply (or do not apply) to the matter, and • explain why the application of Subdivisions 815-B or 815-C of the ITAA 1997 to the matter in that particular way best achieves the consistency with the relevant guidance material. • are prepared before the time the entity lodges its tax return for the income year relevant to the matter (or matters) • are in English or readily accessible and convertible into English • explain the particular way in which Subdivision 815-B or 815-C of the ITAA 1997 apply (or do not apply) to the matter, and • explain why the application of Subdivisions 815-B or 815-C of the ITAA 1997 to the matter in that particular way best achieves the consistency with the relevant guidance material. 8AU. Further, to have a documented transfer pricing treatment, the records must allow each of the following to be ascertained [30] : • the arm's length conditions relevant to the matter • the particulars of the method used and comparable circumstances relevant to identifying those arm's length conditions • where records explain the application (as opposed to the non-application) of Subdivisions 815-B or 815-C of the ITAA 1997, the records must also explain the result that the application in that particular way has, as compared to the non-application • for Subdivision 815-B of the ITAA 1997 – the actual conditions relevant to the matter (or matters), and • for Subdivision 815-C of the ITAA 1997 – the actual profits and the arm's length profits as well as the particulars of the activities and circumstances to the extent they are relevant to the matter (or matters). • the arm's length conditions relevant to the matter • the particulars of the method used and comparable circumstances relevant to identifying those arm's length conditions • where records explain the application (as opposed to the non-application) of Subdivisions 815-B or 815-C of the ITAA 1997, the records must also explain the result that the application in that particular way has, as compared to the non-application • for Subdivision 815-B of the ITAA 1997 – the actual conditions relevant to the matter (or matters), and • for Subdivision 815-C of the ITAA 1997 – the actual profits and the arm's length profits as well as the particulars of the activities and circumstances to the extent they are relevant to the matter (or matters). 8AV. You need to determine whether or not the entity has a documented or undocumented transfer pricing treatment. 8AW. Guidance on whether an entity has a documented or undocumented transfer pricing treatment can be found in TR 2014/8. 8AX. Where the entity is treated as having an undocumented transfer pricing treatment, there is no need to consider the general test for having a reasonably arguable position as the entity cannot have a reasonably arguable position in respect of that matter (or matters). This results in the entity being liable to a higher BPA. 8AY. Where the entity has a documented transfer pricing treatment, you will need to consider whether the entity has a reasonably arguable position. General test for having a reasonably arguable position 8AZ. To have a reasonably arguable position, an entity needs to have a documented transfer pricing treatment and satisfy the general reasonably arguable position test in subsection 284-15(1). 8BA. Subsection 284-15(1) provides when a matter will be reasonably arguable. It states that: A matter is reasonably arguable if it would be concluded in the circumstances, having regard to the relevant authorities, that what is argued for is about as likely to be correct as incorrect, or is more likely to be correct than incorrect. 8BB. In Walstern v Commissioner of Taxation [2003] FCA 1428 (Walstern) at [108] [31] , Hill J noted that (emphasis added): 4. The decision maker must then determine whether the taxpayer's argument, although considered wrong, is about as likely as not correct, when regard is had to 'the authorities'. 5. It is not necessary that the decision maker form the view that the taxpayer's argument in an objective sense is more likely to be right than wrong. … Nor can it be necessary that the decision maker form the view that it is just as likely that the taxpayer's argument is correct as the argument which the decision maker considers to be the correct argument for the decision maker has already formed the view that the taxpayer's argument is wrong. The standard is not as high as that. The word 'about' indicates the need for balancing the two arguments, with the consequence that there must be room for it to be argued which of the two positions is correct so that on balance the taxpayer's argument can objectively be said to be one that while wrong could be argued on rational grounds to be right. 8BC. You should refer to the guidance contained in Miscellaneous Taxation Ruling MT 2008/2 Shortfall penalties: administrative penalty for taking a position that is not reasonably arguable when applying this test. 8BD. You should determine, notwithstanding that the entity has a documented transfer pricing treatment, whether objectively (having regard to the relevant authorities) the entity's argument is about as, or more, likely to be correct as incorrect. 8BE. The test for having a reasonably arguable position is objective. You should be conscious that the ATO and the entity can differ on their view of the correct application of the transfer pricing rules to a particular set of facts. This difference in and of itself will not mean that the entity has not met the reasonably arguable test. 8BF. Where the entity has a documented transfer pricing treatment but does not satisfy the general reasonably arguable position test, the entity will not be entitled to a lower BPA. 8BG. Where the entity has a documented transfer pricing treatment and does satisfy the reasonably arguable position test, the entity will be entitled to a lower BPA. Treating the law in an accepted way 8BH. Subsection 284-160(3) provides that, where it is relevant, section 284-224 is also used when working out the BPA. Accordingly, you also need to consider whether the entity treated the law in an accepted way. 8BI. Section 284-224 applies to things done or statements made on or after 4 June 2010. Under section 284-224, an entity may have their BPA reduced to the extent that they or their agent treated a taxation law in a particular way that agreed with: • advice given to them or their agent by or on behalf of the Commissioner • general administrative practice under that law, or • a statement in a publication approved in writing by the Commissioner. • advice given to them or their agent by or on behalf of the Commissioner • general administrative practice under that law, or • a statement in a publication approved in writing by the Commissioner. 8BJ. Practical Compliance Guideline PCG 2017/2 Simplified transfer pricing record-keeping options, referred to in Law Administration Practice Statement PS LA 2014/3 Simplifying transfer pricing record keeping (collectively, the TP Guidelines), would be a statement in a publication approved in writing by the Commissioner. Where an entity falls within the TP Guidelines, subsection 284-160(3) will apply to reduce the entity's BPA to the extent that the entity has applied the TP Guidelines. 8BK. Guidance on the adjustment under section 284-224 is contained in paragraphs 111 to 117 of PS LA 2012/5. The process for determining the BPA in PS LA 2012/5 is identical to the process for determining the BPA for transfer pricing penalties. You should refer to PS LA 2012/5 when making decisions about adjusting the BPA. | 9. Step 2c – consider whether an increase or decrease of the BPA is required.: 9A. The BPA is then adjusted depending on the individual circumstances of the case. The adjustment formula is [32] : BPA + [BPA × (increase % − reduction %)] BPA + [BPA × (increase % − reduction %)] | 10. Increase in the BPA: 10A. Subsection 284-220(1) provides that the BPA is increased by 20% where the entity: • prevents or obstructs us from finding out about the transfer pricing shortfall amount • becomes aware of the transfer pricing shortfall amount after the statement is made and does not tell us within a reasonable time, or • had a BPA worked out for this type of penalty previously. • prevents or obstructs us from finding out about the transfer pricing shortfall amount • becomes aware of the transfer pricing shortfall amount after the statement is made and does not tell us within a reasonable time, or • had a BPA worked out for this type of penalty previously. 10B. The BPA is increased by 20% if one or more of the conditions apply. The increase in the BPA is not cumulative. 10C. Further guidance on the conditions that increase the BPA is found in paragraphs 119 to 134 of PS LA 2012/5. The process for increasing the BPA in this Practice Statement is identical to the process for increasing the BPA for transfer pricing penalties. [33] 10D. PS LA 2012/5 provides additional guidance, among other things, as to what taxpayer behaviour constitutes preventing or obstructing us from finding out about the shortfall amount. You should refer to PS LA 2012/5 when making decisions about increasing the BPA. | 11. Decrease in the BPA: 11A. Section 284-225 provides that the BPA is reduced in certain circumstances where an entity makes a voluntary disclosure, in the approved form, about the transfer pricing shortfall amount or part of it. 11B. The BPA is reduced by 20% if: • the entity tells us voluntarily in the approved form about a transfer pricing shortfall amount after being told by us that we will examine the entity's tax affairs, and • telling us can reasonably be estimated to have saved us significant time or significant resources. [34] • the entity tells us voluntarily in the approved form about a transfer pricing shortfall amount after being told by us that we will examine the entity's tax affairs, and • telling us can reasonably be estimated to have saved us significant time or significant resources. [34] 11C. The BPA is reduced by 80% where the entity voluntarily tells us in the approved form about a transfer pricing shortfall amount before the earlier of: • the day we tell the entity that we will examine the entity's tax affairs, or • if we make a public statement asking entities to make a voluntary disclosure by a particular day – that particular day. [35] • the day we tell the entity that we will examine the entity's tax affairs, or • if we make a public statement asking entities to make a voluntary disclosure by a particular day – that particular day. [35] 11D. The Commissioner has the discretion to treat an entity as having made a voluntary disclosure before being told of an examination of its affairs even though the disclosure was actually made after that day. [36] 11E. Further guidance on reducing the BPA is contained in Miscellaneous Taxation Ruling MT 2012/3 Administrative penalties: voluntary disclosures and paragraphs 135 to 140 of PS LA 2012/5. 11F. MT 2012/3 provides guidance on the meaning of key terms in section 284-225 and contains further guidance on reducing the BPA and the exercise of the discretion referred to in this Practice Statement. You should refer to MT 2012/3 when making decisions about reducing the BPA. Increase where the entity is a significant global entity 11G. Subsection 284-155(3) provides that the amount of penalty worked out using the adjustment formula in paragraph 8A of this Practice Statement is doubled where the entity is a significant global entity that does not have a reasonably arguable position. [37] 11H. Subsection 284-155(3) applies to scheme benefits that an entity gets in relation to an income year commencing on or after 1 July 2015. [38] 11I. The meaning of the term 'significant global entity' is set out in section 960-555 of the ITAA 1997. | 12. Step 2d – decide whether to remit all or part of the penalty: 12A. The Commissioner has the discretion to remit all or part of a transfer pricing penalty. [39] After Steps 2a to 2c have been applied correctly, a remission decision must be made. 12B. You must consider whether remission is appropriate whenever an entity is liable to a transfer pricing penalty under subsection 284-145(2B). In making an assessment of the penalty, you must determine in every case whether the BPA or adjusted BPA amount should be remitted in full or part. 12C. This Practice Statement provides guidance on how the discretion to remit the penalty may be exercised. It does not lay down conditions that may restrict the exercise of the Commissioner's discretion, nor does it represent a general exercise of the Commissioner's discretion. Rather, it is provided to: • guide you in the exercise of the Commissioner's discretion, and • ensure entities receive consistent treatment. • guide you in the exercise of the Commissioner's discretion, and • ensure entities receive consistent treatment. 12D. Subsection 298-20(1) states that 'the Commissioner may remit all or part of the penalty'. 12E. The Commissioner's discretion in subsection 298-20(1) is unconfined in that the subsection does not state the considerations that you must take into account when exercising the Commissioner's discretion. 12F. In Minister for Aboriginal Affairs v Peko-Wallsend Ltd [1986] HCA 40; 66 ALR 299 at [15], Mason J observed that [40] : … where a statute confers a discretion which in its terms is unconfined, the factors that may be taken into account in the exercise of the discretion are similarly unconfined, except in so far as there may be found in the subject-matter, scope and purpose of the statute some implied limitation on the factors to which the decision-maker may legitimately have regard. 12G. The guiding principles are that you should exercise the discretion: • taking into account the particular circumstances of the entity [41] • taking into account the purpose of the transfer pricing penalty provisions [42] • so there is consistent treatment of penalty rates – the penalty rate is set by law and remission without just cause, arbitrarily or as a matter of course may compromise consistent treatment of penalty rates • to avoid an outcome that is unreasonable or unjust [43] , and • to treat entities in like circumstances consistently in accordance with the commitments made in the ATO Charter . • taking into account the particular circumstances of the entity [41] • taking into account the purpose of the transfer pricing penalty provisions [42] • so there is consistent treatment of penalty rates – the penalty rate is set by law and remission without just cause, arbitrarily or as a matter of course may compromise consistent treatment of penalty rates • to avoid an outcome that is unreasonable or unjust [43] , and • to treat entities in like circumstances consistently in accordance with the commitments made in the ATO Charter . 12H. For example, where the entity has a BPA of 10% and: • has genuinely made a reasonable attempt in good faith to comply • has made its best efforts to have a documented transfer pricing treatment [44] , and • can satisfy us that it did not have a tax avoidance purpose, • has genuinely made a reasonable attempt in good faith to comply • has made its best efforts to have a documented transfer pricing treatment [44] , and • can satisfy us that it did not have a tax avoidance purpose, it is most likely that any penalty would be remitted to nil. 12I. The following general considerations should be borne in mind when considering whether or not to exercise the discretion to remit: • whether a calculation or mechanical process in the law results in an unintended or unjust outcome in the particular circumstances of the entity, and • whether the entity has made its best efforts to have a documented transfer pricing treatment having regard to efforts that would be considered reasonable in the particular facts and circumstances of the entity. • whether a calculation or mechanical process in the law results in an unintended or unjust outcome in the particular circumstances of the entity, and • whether the entity has made its best efforts to have a documented transfer pricing treatment having regard to efforts that would be considered reasonable in the particular facts and circumstances of the entity. 12J. In a self-assessment regime, an entity will have made its best efforts to have a documented transfer pricing treatment if (objectively considering its risk of not complying with arm's length principle and taking account of its relative resources) the entity has taken all reasonable steps, in its particular facts and circumstances, to ensure that it has a documented transfer pricing treatment. 12K. The following considerations are generally not relevant when considering remission: • the entity's capacity to pay, or whether payment of the penalty may cause financial hardship for the entity, except in exceptional situations [45] , or • the quantum of the penalty. This, of itself, is not a ground for remission as the penalty amount is a result of a calculation based on the transfer pricing shortfall amount and the rate set by parliament. 12L. The remission decision should be based on an objective analysis of all the relevant facts in the entity's particular circumstances. The considerations listed in this Practice Statement are not exhaustive and are not necessarily the only valid factors. Rather, they are designed to encourage an analytical approach to each case and the application of sound judgment in making the remission decision. 12M. A remission decision may result in no remission, partial remission or full remission of the penalty. • the entity's capacity to pay, or whether payment of the penalty may cause financial hardship for the entity, except in exceptional situations [45] , or • the quantum of the penalty. This, of itself, is not a ground for remission as the penalty amount is a result of a calculation based on the transfer pricing shortfall amount and the rate set by parliament. | 13. Step 3 – notify the entity of the liability to pay the transfer pricing penalty: 13A. We must make an assessment of the transfer pricing penalty. [46] In addition, where a transfer pricing penalty applies and has not been remitted in full, we are required by law to give written notice of the entity's liability to pay the penalty and our decision not to remit the penalty in full. [47] 13B. The written notice (or notices) are required by law to include: • the reasons why the entity is liable to pay the penalty [48] , and • the reasons for the remission decision. [49] • the reasons why the entity is liable to pay the penalty [48] , and • the reasons for the remission decision. [49] 13C. Where the entity is not liable to a penalty, or where the entity is liable to a penalty but that penalty has been remitted in full, the law does not require us to give reasons for our penalty decision. [50] However, in these situations, you should provide the entity with a summary of the reasons for decision. 13D. Where the entity is liable to a penalty which we have not remitted in full, we provide written reasons for the decisions made, setting out the findings on material questions of fact and referring to the evidence or other material on which those findings were based. 13E. The law does not specify when the explanation for the decision must be provided to the entity. However, you should ensure that the reasons are provided prior to, or at the same time as, the entity has been notified of the penalty. 13F. The entity should also be provided with an explanation of its review rights. An entity that is dissatisfied with an assessment of penalty may object to it in the manner set out in Part IVC of the TAA. The grounds of the objection may include all elements of the penalty assessment. In the usual situation, where a remission decision is made as part of an assessment of penalty, the affected entity that is dissatisfied with the assessment will need to include in their objection any grounds about their dissatisfaction with the remission. If a remission decision is made after an assessment of the penalty, the entity may object to the separate remission decision in the manner set out in Part IVC if the amount of penalty remaining after the decision is more than 2 penalty units. [51] Attachment Diagram 1: Determining base penalty amounts under table items 1 and 2 of subsection 284-160(3)",MT 2008/2 | MT 2012/3 | TR 2014/8 | PS LA 2011/30 | PS LA 2012/4 | PS LA 2012/5 | PS LA 2014/3 | PCG 2017/2 | Decision Impact Statement | ITAA 1936 128C(7) | ITAA 1936 177A(1) | ITAA 1936 177A(3) | ITAA 1936 Pt IVA | ITAA 1936 262A | ITAA 1997 Subdiv 815-A | ITAA 1997 815-15 | ITAA 1997 Subdiv 815-B | ITAA 1997 815-120 | ITAA 1997 815-135 | ITAA 1997 Subdiv 815-C | ITAA 1997 815-220 | ITAA 1997 815-220(1) | ITAA 1997 815-235 | ITAA 1997 Subdiv 815-D | ITAA 1997 Subdiv 815-E | ITAA 1997 995-1(1) | ITAA 1997 995-1(1)(b) | ITAA 1997 960-555 | TAA 1953 Part IVC | TAA 1953 Sch 1 Subdiv 284-B | TAA 1953 Sch 1 284-15 | TAA 1953 Sch 1 284-15(1) | TAA 1953 Sch 1 284-90(3) | TAA 1953 Sch 1 284-90(3)(a) | TAA 1953 Sch 1 284-90(3)(b) | TAA 1953 Sch 1 Subdiv 284-C | TAA 1953 Sch 1 284-145 | TAA 1953 Sch 1 284-145(1) | TAA 1953 Sch 1 284-145(1)(b) | TAA 1953 Sch 1 284-145(1)(b)(i) | TAA 1953 Sch 1 284-145(2A) | TAA 1953 Sch 1 284-145(2B) | TAA 1953 Sch 1 284-150(4) | TAA 1953 Sch 1 284-150(5) | TAA 1953 Sch 1 284-155(3) | TAA 1953 Sch 1 284-160(3) | TAA 1953 Sch 1 284-165 | TAA 1953 Sch 1 284-165(4) | TAA 1953 Sch 1 Subdiv 284-D | TAA 1953 Sch 1 284-220 | TAA 1953 Sch 1 284-220(1) | TAA 1953 Sch 1 284-224 | TAA 1953 Sch 1 284-225 | TAA 1953 Sch 1 284-225(1) | TAA 1953 Sch 1 284-225(2) | TAA 1953 Sch 1 284-225(3) | TAA 1953 Sch 1 284-225(4) | TAA 1953 Sch 1 284-225(4A) | TAA 1953 Sch 1 284-225(5) | TAA 1953 Sch 1 Subdiv 284-E | TAA 1953 Sch 1 284-250 | TAA 1953 Sch 1 284-255 | TAA 1953 Sch 1 284-255(1) | TAA 1953 Sch 1 284-255(2) | TAA 1953 Sch 1 298-10 | TAA 1953 Sch 1 298-20 | TAA 1953 Sch 1 298-20(1) | TAA 1953 Sch 1 298-30(1) | Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Act 2013 | Tax Laws Amendment (Combating Multinational Tax Avoidance) Act 2015 | Crimes Act 1914 4AA | 2008 ATC 10-047 | 2007 ATC 5071 | 2004 ATC 4599 | 2009 ATC 20-129 | 2009 ATC 20-135 | 96 ATC 5201 | 2002 ATC 4579 | 2008 ATC 20-052 | 162 CLR 24 | 66 ALR 299 | 2005 ATC 4001 | 2013 ATC 20-396 | 2003 ATC 5076,PS LA 2011/30 PS LA 2012/4 PS LA 2012/5 PS LA 2014/3,ITAA 1936 Pt III Div 13 | ITAA 1936 128C(7) | ITAA 1936 177A(1) | ITAA 1936 177A(3) | ITAA 1936 Pt IVA | ITAA 1936 222C(1) | ITAA 1936 262A | ITAA 1997 Subdiv 815-A | ITAA 1997 815-15 | ITAA 1997 Subdiv 815-B | ITAA 1997 815-120 | ITAA 1997 815-135 | ITAA 1997 Subdiv 815-C | ITAA 1997 815-220 | ITAA 1997 815-220(1) | ITAA 1997 815-235 | ITAA 1997 Subdiv 815-D | ITAA 1997 Subdiv 815-E | ITAA 1997 995-1(1) | ITAA 1997 995-1(1)(b) | ITAA 1997 960-555 | TAA 1953 Part IVC | TAA 1953 Sch 1 Subdiv 284-B | TAA 1953 Sch 1 284-15 | TAA 1953 Sch 1 284-15(1) | TAA 1953 Sch 1 284-90(3) | TAA 1953 Sch 1 284-90(3)(a) | TAA 1953 Sch 1 284-90(3)(b) | TAA 1953 Sch 1 Subdiv 284-C | TAA 1953 Sch 1 284-145 | TAA 1953 Sch 1 284-145(1) | TAA 1953 Sch 1 284-145(1)(b) | TAA 1953 Sch 1 284-145(1)(b)(i) | TAA 1953 Sch 1 284-145(2) | TAA 1953 Sch 1 284-145(2A) | TAA 1953 Sch 1 284-145(2B) | TAA 1953 Sch 1 284-150(4) | TAA 1953 Sch 1 284-150(5) | TAA 1953 Sch 1 284-155(3) | TAA 1953 Sch 1 284-160(3) | TAA 1953 Sch 1 284-165 | TAA 1953 Sch 1 284-165(4) | TAA 1953 Sch 1 Subdiv 284-D | TAA 1953 Sch 1 284-220 | TAA 1953 Sch 1 284-220(1) | TAA 1953 Sch 1 284-224 | TAA 1953 Sch 1 284-225 | TAA 1953 Sch 1 284-225(1) | TAA 1953 Sch 1 284-225(2) | TAA 1953 Sch 1 284-225(3) | TAA 1953 Sch 1 284-225(4) | TAA 1953 Sch 1 284-225(4A) | TAA 1953 Sch 1 284-225(5) | TAA 1953 Sch 1 Subdiv 284-E | TAA 1953 Sch 1 284-250 | TAA 1953 Sch 1 284-255 | TAA 1953 Sch 1 284-255(1) | TAA 1953 Sch 1 284-255(2) | TAA 1953 Sch 1 298-10 | TAA 1953 Sch 1 298-20 | TAA 1953 Sch 1 298-20(1) | TAA 1953 Sch 1 298-30(1) | Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Act 2013 | Tax Laws Amendment (Combating Multinational Tax Avoidance) Act 2015 | Crimes Act 1914 4AA,,"OECD (2010), OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2010 , OECD Publishing, Paris. ATO Charter Penalties PCG 2017/2 Decision Impact Statement Lawrence v Commissioner of Taxation",False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20142/NAT/ATO/00001,"Removed reference to Law Companion Ruling LCR 2015/3 Subdivision 815-E of the Income Tax Assessment Act 1997 : Country-by-Country reporting, given its withdrawal, effective 19 December 2025. | Updated in line with current ATO style and accessibility requirements. | Updated to reference PCG 2017/2. | Updated to new LAPS format and style. | [1] Note: Subdivision 815-D of the ITAA 1997 contains special rules for trusts and partnerships in relation to the application of Subdivisions 815-B and 815-C of that Act. | [2] Referred to in subsection 284-150(4) as the 'scheme shortfall amount'. | [3] These 3 steps are followed in Law Administration Practice Statement PS LA 2011/30 Remission of administrative penalties relating to schemes imposed by subsection 284-145(1) of Schedule 1 to the Taxation Administration Act 1953 . These steps are also followed in a Subdivision 284-B context in Law Administration Practice Statements PS LA 2012/4 Administration of the false or misleading statement penalty - where there is no shortfall amount and PS LA 2012/5 Administration of the false or misleading statement penalty - where there is a shortfall amount . | [4] Subsection 298-20(1). | [5] Subsection 284-145(2B). | [6] Issued under subsection 128C(7) of the ITAA 1936. | [9] The 'scheme shortfall amount' is for a scheme to which subsection 284-145(2B) applies (see subsection 284-150(4)). | [10] For the purpose of this calculation, treat a trust or partnership that has no net income for an income year or no tax loss or partnership loss for an income year as having an income or a loss of a nil amount (subsection 284-165(4)). | [11] Subsections 284-90(3)(a) and (b). | [12] Subsection 284-150(4). | [13] Subsection 284-150(4). Note that this situation would only arise in respect of 2 separate transactions. | [14] Subsection 284-150(5). This ensures that scheme penalties are not imposed twice on what is, in essence, the same shortfall amount. | [15] The meaning of the phrase 'sole or dominant purpose' is outlined at paragraphs 8AA to 8AL of this Practice Statement. | [16] The meaning of the phrase 'reasonably arguable' is outlined at paragraphs 8AM to 8BG of this Practice Statement. | [17] Table item 1 of subsection 284-160(3). | [18] Table item 1 of subsection 284-160(3). | [19] Table item 2 of subsection 284-160(3). | [20] Table item 2 of subsection 284-160(3). The transfer pricing shortfall amount may consist of amounts to which different BPAs may apply. For example, part of the transfer pricing shortfall amount may relate to a matter that has a reasonably arguable position and part of the transfer pricing shortfall amount may relate to another matter that does not have a reasonably arguable position (where there is no sole or dominant purpose). In this case, that part of the BPA for the transfer pricing shortfall amount would be 10% and the balance would be 25% to reflect the extent to which there is a reasonably arguable position. | [22] The definition of 'transfer pricing benefit' in subsection 995-1(1) also refers to section 815-15 in Subdivision 815-A of the ITAA 1997. | [23] Note: For a liability for a scheme penalty to arise under subsection 284-145(2B), the adjustment under Subdivisions 815-B or 815-C must be in 'relation to a scheme' (see paragraph 4A of this Practice Statement). | [24] The definition of 'arrangement' in subsection 995-1(1) of the ITAA 1997 contains the terms stated in the definition of scheme in subsection 177A(1) of the ITAA 1936. The definition of 'scheme' in paragraph 995-1(1)(b) of the ITAA 1997 contains the same terms as the definition of 'scheme' in subsection 177A(1) of the ITAA 1936 and incorporates subsection 177A(3) of the ITAA 1936. | [25] Dowsett J's judgment is the dissenting judgment. The majority of the court in Star City did not consider how subsection 284-145(1) should be construed as they considered that subsection 284-145(1) did not apply. However, in Lawrence v Commissioner of Taxation [2008] FCA 1497 (Lawrence) , Jessup J held at [105] that section 284-145 required a consideration of the entity's subjective rather than objective purpose in entering the scheme. This is at odds with Dowsett J's view that the section 284-145 refers to a reasonably drawn inference about whether the entity had the relevant purpose. The Decision Impact Statement on Lawrence states that we will follow the view of Dowsett J in Star City , rather than the view of Jessup J in Lawrence . | [26] Being the guidance material referred to in sections 815-135 and 815-235 of the ITAA 1997. | [27] Refer to paragraphs 1.2 and 1.11 of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations . | [28] Note that the general requirement for a person carrying on a business to keep records that explain transactions and other acts set out in section 262A of the ITAA 1936 continues to apply where the transfer pricing rules apply. | [29] Subsection 284-255(1). | [30] Subsection 284-255(2). | [31] The Full Federal Court in Pridecraft Pty Ltd v Commissioner of Taxation [2004] FCAFC 339 at [108] held that Hill J's test in Walstern was the correct approach to the imposition of penalties under subsection 226C(1) of the ITAA 1936. Subsection 222C(1) is the predecessor section to section 284-15 and states that a matter is reasonably arguable if, having regard to the relevant authorities ' ... it would be concluded that what is argued for is about as likely as not correct'. | [32] See Subdivision 284-D and paragraph 99 of PS LA 2012/5. | [33] See section 284-220. | [34] Subsection 284-225(1). | [35] Subsections 284-225(2), 284-225(3), 284-225(4) and 284-225(4A). | [36] Subsection 284-225(5). | [37] Paragraphs 8AZ to 8BG of this Practice Statement outline when an entity will not have a reasonably arguable position, including where an entity has an undocumented transfer pricing treatment. | [38] See table item 2 of Schedule 3 to the Tax Laws Amendment (Combating Multinational Tax Avoidance) Act 2015 . | [40] This principle has general application but it has been applied in a number of cases in the context of tax legislation - for example, in BHP Billiton Direct Reduced Iron Pty Ltd (ACN 058 025 960) v Duffus , Deputy Commissioner of Taxation [2007] FCA 1528 at [111], Elias v Commissioner of Taxation [2002] FCA 845 at [56-57] and Commissioner of Taxation v Burness (As Trustee for the Property of Bottazzi, A Bankrupt) [2009] FCA 1021 at [19]. In particular, this principle has been applied in the interpretation of subsection 298-20(1) in Archibald Dixon as Trustee for the Dixon Holdsworth Superannuation Fund v Commissioner of Taxation [2008] FCAFC 54 at [21] and Sanctuary Lakes Pty Ltd v Commissioner of Taxation [2013] FCAFC 50 ( Sanctuary Lakes ) at [227-229], per Griffiths J. | [41] Sanctuary Lakes at [251], per Griffiths J. | [42] Sanctuary Lakes at [227], per Griffiths J. | [43] Sanctuary Lakes at [249], per Griffiths J. | [44] When an entity will have made its best efforts to have a documented transfer pricing treatment is discussed in paragraph 11F of this Practice Statement. | [45] An entity's capacity to pay and hardship may be dealt with through payment arrangement, compromise, release and insolvency and under other taxation or insolvency provisions, and not remission of penalties. | [46] Subsection 298-30(1). | [47] Sections 298-10 and 298-20. | [51] The value of a penalty unit is contained in section 4AA of the Crimes Act 1914 and is indexed regularly. The dollar amount of a penalty unit is available at Penalties . | File 1-52J2RRC; 1-1569VA3C; 1-19TCD526 | Archibald Dixon as Trustee for the Dixon Holdsworth Superannuation Fund v Commissioner of Taxation [2008] FCAFC 54 167 FCR 287 2008 ATC 10-047 69 ATR 627 [2008] ALMD 6042 | BHP Billiton Direct Reduced Iron Pty Ltd (ACN 058 025 960) v Duffus, Deputy Commissioner of Taxation [2007] FCA 1528 2007 ATC 5071 67 ATR 578 99 ALD 149 | Commissioner of Taxation v Hart [2004] HCA 26 217 CLR 216 2004 ATC 4599 55 ATR 712 78 ALJR 875 206 ALR 207 | Commissioner of Taxation v Star City Pty Limited (No 2) [2009] FCAFC 122 180 FCR 447 2009 ATC 20-129 74 ATR 447 [2009] ALMD 6222 | Commissioner of Taxation v Burness (As Trustee for the Property of Bottazzi, A Bankrupt) [2009] FCA 1021 2009 ATC 20-135 77 ATR 61 [2010] ALMD 504 | Commissioner of Taxation v Spotless Services Ltd [1996] HCA 34 186 CLR 404 96 ATC 5201 34 ATR 183 141 ALR 92 71 ALJR 81 | Elias v Commissioner of Taxation [2002] FCA 845 123 FCR 499 2002 ATC 4579 50 ATR 253 | Lawrence v Commissioner of Taxation [2008] FCA 1497 2008 ATC 20-052 70 ATR 376 [2010] ALMD 2025 | Minister for Aboriginal Affairs v Peko-Wallsend Ltd [1986] HCA 40 162 CLR 24 66 ALR 299 60 ALJR 560 | Pridecraft Pty Ltd v Commissioner of Taxation [2004] FCAFC 339 2005 ATC 4001 58 ATR 210 213 ALR 450 [2005] ALMD 3107 | Sanctuary Lakes Pty Ltd v Commissioner of Taxation [2013] FCAFC 50 212 FCR 483 2013 ATC 20-396 90 ATR 762 [2013] ALMD 3545 | Walstern v Commissioner of Taxation [2003] FCA 1428 138 FCR 1 2003 ATC 5076 54 ATR 423"
PS LA 2014/3,Simplifying transfer pricing record keeping,17 December 2014,1 July 2013,Law Administration Practice Statement,False,"1. What this Practice Statement is about: This Practice Statement provides guidance when considering whether to undertake compliance action with respect to cross-border conditions between entities (CBCBE) for the purposes of Subdivisions 815-B and C of the Income Tax Assessment Act 1997 where entities have applied one or more of the simplified transfer pricing record-keeping options (simplification options) in Practical Compliance Guideline PCG 2017/2 Simplified transfer pricing record-keeping options . All legislative references in this Practice Statement are to Schedule 1 to the Taxation Administration Act 1953 , unless otherwise indicated. | 2. Context behind this Practice Statement: For income years commencing on or after 29 June 2013, Australia's modernised transfer pricing rules apply to CBCBE, including Subdivision 284-E, which deals with transfer pricing documentation. Subdivision 284-E does not mandate the preparation or keeping of documentation. However, if the requirements in section 284-255 are not met, it is presumed that the entity does not have a reasonably arguable position. As a direct result, a higher base penalty amount will apply. Documentation that satisfies the requirements of Subdivision 284-E can impose an administrative burden on an entity disproportionate to their risk of not complying with the transfer pricing rules. We have developed some simplification options that eligible entities can elect to apply to their relevant CBCBE to minimise their record-keeping costs. The application of these options to CBCBE does not limit or waive the operation of the law but acknowledges that the entity has demonstrated a willingness to comply by choosing to apply and disclose an option. PCG 2017/2 provides assurance that if an entity has elected to apply a simplification option, we will generally not allocate compliance resources or take other compliance action to review the covered transactions or arrangements that a simplification option is applied to for transfer pricing purposes, beyond confirming the entity's eligibility to elect to apply an option. This assurance applies for income years commencing: • on or after 29 June 2013 for the small taxpayers, distributors, low-value adding intra-group services and low-level inbound loans options • on or after 1 July 2015 for the materiality, technical services and low-level outbound loans options • on or after 1 July 2015 to the end of an entity's 2019 income year for the management and administration services option. • on or after 29 June 2013 for the small taxpayers, distributors, low-value adding intra-group services and low-level inbound loans options • on or after 1 July 2015 for the materiality, technical services and low-level outbound loans options • on or after 1 July 2015 to the end of an entity's 2019 income year for the management and administration services option. | 3. Ascertaining when a taxpayer has elected to apply a simplification option: You can ascertain whether an entity has elected to apply one of the simplification options by checking whether code 7 is shown for the 'percentage of dealings with documentation code' within the relevant labels on the entity's International Dealings Schedule (IDS). Entities can also elect to apply a simplification option in their country-by-country (CbC) reporting statements, where applicable. Entities may still have an opportunity (by way of an amendment) to elect to apply the simplification options after lodging their IDS or CbC reporting statements, as long as they meet the eligibility criteria for the options for the relevant income year. | 4. Taxpayer has elected to apply a simplification option: If an entity has elected to apply one or more simplification options (whether in the IDS or CbC reporting statements), you are generally not to review the relevant CBCBEs for the relevant covered transactions or arrangements for the income years that fall within the assurance for transfer pricing purposes, beyond conducting a check to confirm that entity's eligibility to elect the options they have. An entity is expected to have kept contemporaneous documents that evidences their eligibility, as a mere assertion will not suffice. The evidence does not have to be comprehensive but should simply and sensibly explain how and why they were eligible to apply an option or options. You should refer to PCG 2017/2 for details as to the relevant options, the eligibility requirements and their conditions of operation. | 5. More information: For more information, see: • PCG 2017/2 • Transfer pricing risk assessment . • PCG 2017/2 • Transfer pricing risk assessment .",PCG 2017/2 | ITAA 1997 Subdiv 815-B | ITAA 1997 Subdiv 815-C | TAA 1953 Sch 1 Subdiv 284-E | TAA 1953 Sch 1 284-255,,ITAA 1997 Subdiv 815-B | ITAA 1997 Subdiv 815-C | TAA 1953 Sch 1 Subdiv 284-E | TAA 1953 Sch 1 284-255,,Transfer pricing risk assessment,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20143/NAT/ATO/00001,Updated in line with current ATO style and accessibility requirements. | Updated to align with the changes to PCG 2017/2 published on 9 January 2019. | Updated to reference PCG 2017/2 | Inclusion of further options. | File 1-52IVB0G; 1-52J2RRC
PS LA 2014/4,Default assessment penalty,17 December 2014,26 June 2014,Law Administration Practice Statement,False,"What this Practice Statement is about: 1. This Practice Statement provides guidance on the administration of the penalty in subsection 284-75(3) of Schedule 1 to the Taxation Administration Act 1953 (TAA). This penalty applies when we make an assessment of an entity's [1] tax-related liability [2] without the assistance of a return, notice or other document [3] the entity was required to lodge for its tax liability to be accurately determined. It is called a 'default assessment penalty' or a 'penalty for failing to provide a document'. 2. This Practice Statement covers: • when the entity becomes liable to the penalty, and • how the penalty is assessed, including the factors we consider when making a remission decision. • when the entity becomes liable to the penalty, and • how the penalty is assessed, including the factors we consider when making a remission decision. 3. The penalty was introduced to ensure fairness. Otherwise, an entity that made a false or misleading statement, or one that was not reasonably arguable, was subject to a penalty, but an entity that made no statement was not. [4] The base penalty amount (BPA) for default assessments is set at 75% of the tax-related liability, which is the same percentage that is used for intentional disregard of a taxation law for a false or misleading statement penalty. [5] 4. This Practice Statement explains how we exercise the Commissioner's discretion to remit the penalty and ensure consistent treatment of entities with similar circumstances. These guidelines are not intended to restrict the exercise of that discretion. 5. This penalty does not apply to Crown entities. [6] 6. All further legislative references in this Practice Statement are to Schedule 1 to the TA A, unless otherwise indicated. | Administering the penalty: 7. We will administer this penalty in 3 steps, in the following order: • Step 1 – determine if a penalty is imposed by law • Step 2 – assess the amount of the penalty – determine the BPA – reduce or increase the BPA – determine if remission is appropriate • Step 3 – notify the entity of the liability to pay the penalty. • Step 1 – determine if a penalty is imposed by law • Step 2 – assess the amount of the penalty – determine the BPA – reduce or increase the BPA – determine if remission is appropriate • Step 3 – notify the entity of the liability to pay the penalty. – determine the BPA – reduce or increase the BPA – determine if remission is appropriate | General principles: 8. We consider these general principles when making decisions about this penalty: • The primary purpose of the penalty provisions is to encourage entities to take reasonable care to comply with their tax obligations. Generally, an entity will not be penalised where it has made a reasonable and genuine attempt to comply. • The penalty provisions aim to achieve a 'level playing field', ensuring there are consequences for not making a reasonable effort to comply correctly with tax obligations. • The compliance model requires us to be fair to entities wanting to do the right thing, but firm with those who are choosing to avoid their tax obligations. • The ATO Charter requires us to treat an entity as being honest. We accept that what an entity tells us is the truth and the information it has provided is complete and accurate unless we have good reason to think otherwise. • We must consider the individual circumstances of each case, including the background and experience of the entity. • Our decisions must be based on, and supported by, the available facts and evidence. • We will generally contact an entity and give it the opportunity to explain its actions before a penalty decision is made. Exceptions to this might include where the facts clearly show deliberate disengagement from the tax system. • The primary purpose of the penalty provisions is to encourage entities to take reasonable care to comply with their tax obligations. Generally, an entity will not be penalised where it has made a reasonable and genuine attempt to comply. • The penalty provisions aim to achieve a 'level playing field', ensuring there are consequences for not making a reasonable effort to comply correctly with tax obligations. • The compliance model requires us to be fair to entities wanting to do the right thing, but firm with those who are choosing to avoid their tax obligations. • The ATO Charter requires us to treat an entity as being honest. We accept that what an entity tells us is the truth and the information it has provided is complete and accurate unless we have good reason to think otherwise. • We must consider the individual circumstances of each case, including the background and experience of the entity. • Our decisions must be based on, and supported by, the available facts and evidence. • We will generally contact an entity and give it the opportunity to explain its actions before a penalty decision is made. Exceptions to this might include where the facts clearly show deliberate disengagement from the tax system. | When a penalty is imposed for determining a tax-related liability without the required document: 9. A penalty for determining a tax-related liability without the required document is imposed where: • an entity fails to give a document to us by the day it is required to be given • that document is necessary for us to determine a tax-related liability accurately, and • we determine the tax-related liability without the assistance of that document. [7] • an entity fails to give a document to us by the day it is required to be given • that document is necessary for us to determine a tax-related liability accurately, and • we determine the tax-related liability without the assistance of that document. [7] Fails to give a document 10. A required document is a document that a taxation law [8] requires an entity to give us so we can accurately determine the entity's tax-related liability. 11. The term 'document' is not defined and takes its ordinary meaning. In the context in which 'other document' appears in paragraph 284-75(3)(a), its meaning is limited to documents of the kind mentioned earlier in that paragraph – a return or notice. That is, documents in the approved form that are required to be lodged and are used by us to accurately determine the entity's tax-related liability. 12. 'Document' in subsection 284-75(3) does not extend to other documents, such as non-lodgment advices, tax invoices, fuel receipts or other business records or documents. It does not include documents an entity has to produce under statutory information-gathering powers. 13. An entity may be subject to the penalty even if it lodges a document, if that document does not provide the relevant information to be given. | Example 1 – Pay as you go withholding not reported and penalty remitted in full: 14. Jose runs a small business which is registered for goods and services tax. As the business grows, he hires employees and withholds the correct amount from their wages. He does not register for pay as you go withholding (PAYGW). He lodges an activity statement that does not report any PAYGW information, as there is no PAYGW section within the form. 15. Jose fails to give a document relating to his PAYGW, even though he lodges an activity statement. The penalty applies to the PAYGW amounts he withholds but fails to report. 16. We contact Jose, who has paid us the PAYGW he withheld but he says he was unsure how to report it. We assist him in registering for PAYGW and make sure he understands his lodgment and payment obligations. We decide to remit the penalty in full on this occasion. | By the required date: 17. Law Administration Practice Statement PS LA 2011/15 Lodgment obligations, due dates and deferrals provides guidelines on lodgment requirements, due dates and deferring a due date for lodgment. | Tax-related liability determined without the document: 18. Some taxation laws do not require an assessment to be made in order to raise a tax-related liability (such as PAYGW), whereas others (such as income tax laws) require an assessment to be made. A tax-related liability includes an estimated liability. The phrase 'determines the tax-related liability' is broad enough to include making an estimate of a liability under a taxation law. [9] 19. Determining a tax-related liability without the assistance of a required document usually occurs after we have: • contacted the entity • requested lodgment, and • given the entity a reasonable opportunity to provide the relevant document prior to or at the commencement of a tax examination. • contacted the entity • requested lodgment, and • given the entity a reasonable opportunity to provide the relevant document prior to or at the commencement of a tax examination. 20. Our usual practice is to engage with taxpayers who are not meeting their obligations and provide them with support to comply. We consider whether there are any circumstances we know of affecting the entity's ability to comply before deciding to make a default assessment. However, we may make an assessment or otherwise determine the tax-related liability without having contacted the entity. 21. An entity can also be liable for a default assessment penalty where a second examination results in an amendment increasing a tax-related liability, and the entity still has not given us the required document. 22. Where a default assessment penalty applies, we will not apply a penalty under subsection 284-75(1) if no statement was made. | Working out the penalty amount: 23. Once a tax-related liability has been determined without the assistance of a required document, we assess the penalty in 3 stages: • Stage 1 – work out the BPA • Stage 2 – reduce or increase the BPA • Stage 3 – consider whether to remit the penalty. • Stage 1 – work out the BPA • Stage 2 – reduce or increase the BPA • Stage 3 – consider whether to remit the penalty. Stage 1 – working out the base penalty amount 24. For this penalty, the BPA is 75% of the tax-related liability. [10] Stage 2 – reducing or increasing the base penalty amount Reducing the base penalty amount 25. For documents required to be lodged on or after 4 June 2010, the BPA is reduced to the extent that the entity (or their agent) treated a taxation law as applying in a way which was consistent with [11] : • advice we have given to the entity or its agent • general administrative practice under that law, or • a statement in a publication approved in writing by the Commissioner. • advice we have given to the entity or its agent • general administrative practice under that law, or • a statement in a publication approved in writing by the Commissioner. Increasing the base penalty amount 26. If an entity was previously liable to this penalty, the BPA is increased by 20%. [12] The term 'previously' is satisfied whenever that entity has an earlier liability to a default assessment penalty or where a tax examination is being undertaken for multiple accounting periods at the same time and a default assessment penalty applies to more than one period. There is no requirement that the entity was already notified of the earlier penalty liability for the increase to apply. [13] 27. It is not relevant whether the previous liability was for another tax type, was remitted in full or ceased to be payable under section 8ZE of the TAA. If the entity was previously liable to a default assessment penalty, then any BPA for a subsequent liability for the penalty is increased by 20%. 28. The increase does not apply if the entity was previously only liable to a different type of penalty, for example, a penalty under subsection 284-75(1) for making a false or misleading statement. 29. The formula to calculate the increased penalty is: BPA + (BPA × 20%) BPA + (BPA × 20%) 30. Reductions under section 284-225 for voluntary disclosures do not apply where no document has been lodged. Stage 3 – considering whether to remit the penalty 31. We have the discretion to remit all or part of the penalty. [14] Remission is not limited to the reasons listed in this Practice Statement and you should consider remission in any situation where the final penalty is not a just and reasonable outcome. 32. We consider remission every time a penalty is imposed, based on all of the relevant facts and circumstances of the entity's case and the purpose of the penalty provision. We may decide that there are no grounds for remission, or that there are grounds to remit in full or in part, based on the merits of the entity's case. 33. The remission decision should be approached in a fair and reasonable way. Remission, in full or in part, is generally appropriate when: • an entity has a genuine, yet mistaken, belief that lodgment was not required as opposed to an indifference to, or a rejection of, its obligation • an entity understood the obligation to lodge but circumstances beyond its control affected its ability to lodge • the amount of penalty imposed by law causes an unjust result in the circumstances, or • there were credits (such as PAYGW) available to offset the amount of the tax-related liability payable which have not been taken into account in determining the penalty. • an entity has a genuine, yet mistaken, belief that lodgment was not required as opposed to an indifference to, or a rejection of, its obligation • an entity understood the obligation to lodge but circumstances beyond its control affected its ability to lodge • the amount of penalty imposed by law causes an unjust result in the circumstances, or • there were credits (such as PAYGW) available to offset the amount of the tax-related liability payable which have not been taken into account in determining the penalty. 34. Remission may be appropriate where an entity went beyond what was asked or expected to assist us during an examination. 35. Generally, entities in the same circumstances should be treated consistently for remission purposes, particularly for entities involved in examinations relating to the same arrangement. However, this principle should be approached with care so that particular factors that make remission appropriate for an entity are not overlooked, and decisions later considered to be incorrect are not replicated in relation to another entity simply because it relates to the same arrangement. Understanding of obligation to lodge 36. In cases where an entity had a mistaken belief that lodgment was not required, we may remit some or all of the penalty, taking into account: • the entity's efforts to understand and comply with the obligation to lodge • whether there was some complexity surrounding the lodgment obligation, and • the entity's particular circumstances. • the entity's efforts to understand and comply with the obligation to lodge • whether there was some complexity surrounding the lodgment obligation, and • the entity's particular circumstances. 37. An entity may be considered to have made a genuine effort to understand its obligation to lodge if it: • did not just assume lodgment was not required, but sought advice [15] or undertook research about meeting its obligation, or • took reasonable care in its enquiries commensurate with the resources available to it, similar to the level of care that a reasonable person in a similar situation would take to understand their obligations. • did not just assume lodgment was not required, but sought advice [15] or undertook research about meeting its obligation, or • took reasonable care in its enquiries commensurate with the resources available to it, similar to the level of care that a reasonable person in a similar situation would take to understand their obligations. 38. We will differentiate between entities with an honest misunderstanding of their lodgment obligation, or where circumstances beyond their control precluded timely lodgment, and entities that ignore, disregard or fail to manage their lodgment obligation. 39. Remission will generally not be appropriate in the following circumstances: • the entity understood, or should have understood, its lodgment obligation, or • we have explained the entity's lodgment obligation to it, or have requested the entity to lodge the document, and after a reasonable time it has not lodged. • the entity understood, or should have understood, its lodgment obligation, or • we have explained the entity's lodgment obligation to it, or have requested the entity to lodge the document, and after a reasonable time it has not lodged. | Example 2 – Failure to lodge because of unknown trust distribution and penalty remitted in full: 40. Helen is a beneficiary of a discretionary trust. She does not lodge a tax return because her ordinary income is not enough to require lodgment. She is unaware that the trustee of the trust has distributed some trust income to her. 41. During an examination of Helen's taxation affairs, she explains she does not have any information relating to the trust distribution. She has unsuccessfully attempted to contact the trustee. Helen gives us the details of all her known income but is unwilling to lodge herself, and we therefore determine her taxable income. 42. Helen is liable to the penalty. However, we remit the penalty because she: • had a genuine and reasonable belief that lodgment was not required • attempted to obtain information in order to lodge, and • cooperated fully during the examination. • had a genuine and reasonable belief that lodgment was not required • attempted to obtain information in order to lodge, and • cooperated fully during the examination. Circumstances beyond the entity's control 43. Remission may be appropriate where the entity is unable to lodge because of circumstances beyond its control. Without limiting the Commissioner's discretion in relation to any particular case, this will include cases where the entity is unable to lodge because of: • a natural disaster, such as a fire or a flood • experiences of vulnerability, such as family violence, financial coercion, homelessness or serious mental health challenges • ill health, or the ill health or death of key personnel, or • impeded access to records. [16] • a natural disaster, such as a fire or a flood • experiences of vulnerability, such as family violence, financial coercion, homelessness or serious mental health challenges • ill health, or the ill health or death of key personnel, or • impeded access to records. [16] 44. In determining the extent to which the penalty should be remitted in these circumstances, we take into account all relevant circumstances, including: • what event (or events) occurred and the event's impact on the entity's capacity to prepare and lodge documents • when the event occurred and how long it lasted • whether the event has had a prolonged effect on the entity's capacity to lodge • whether the entity could have obtained assistance to lodge, and • the entity's efforts to prepare the document or assist us in accurately assessing the liability. • what event (or events) occurred and the event's impact on the entity's capacity to prepare and lodge documents • when the event occurred and how long it lasted • whether the event has had a prolonged effect on the entity's capacity to lodge • whether the entity could have obtained assistance to lodge, and • the entity's efforts to prepare the document or assist us in accurately assessing the liability. | Example 3 –Failure to lodge despite capacity to do so and partial penalty remission: 45. Glenn has not lodged tax returns for 3 years. When contacted, Glenn says he suffers from a medical condition and has been unable to attend to his tax affairs due to ill health. We give him a reasonable time to attend to his tax affairs and contact him on a number of occasions. However, he still does not lodge. We raise default assessments based on employer records. These records show Glenn held full-time employment with this employer for the past 3 years with minimal absence from work and had PAYGW amounts withheld from his earnings. 46. Glenn is liable to the penalty. The penalty is partially remitted to reflect the reduction in tax payable after the PAYGW credits are applied. 47. Although Glenn's illness may have affected his health, he was able to maintain full-time employment. There is no indication he could not also lodge his tax return. He has not sought assistance with his lodgment obligations, for example, from a registered agent, and he has not contacted the ATO or made an effort to lodge. No further remission is warranted. | Example 4 – Failure to lodge due to missing records and partial penalty remission: 48. Mohan has not lodged his tax return from 5 years ago. He worked for a number of companies on short-term contracts in that year and has not received payment summaries from some of them, and he did not want to lodge an incomplete return. He does not respond to our warning letter about his overdue return. When we contact him as part of an examination, he provides us with the income and employment information he had. We issue a default assessment. 49. Mohan is liable to the penalty, but it is partly remitted because he did not have access to some records and because he cooperated in the examination. However, the penalty is not fully remitted because he could have contacted the ATO or a tax agent to get assistance with his lodgment rather than waiting for us to commence an examination. | Unjust result: 50. There will be cases where penalties imposed may produce an unjust result for the entity. In such cases, we may remit the penalty in whole or in part. An unjust result may occur where the culpable behaviour of the entity associated with the failure to provide a document to the Commissioner is disproportionately insignificant to the amount of penalty and charges imposed. 51. The penalty rate of 75% (or 90% where the section 284-220 increase applies) was set by the Commonwealth Parliament and its imposition does not of itself amount to an unjust outcome. 52. An entity liable to the penalty may also be liable to a penalty under section 286-75 (penalty for failing to lodge documents on time). The remission treatment of the penalties will differ according to the penalties that apply and the actions that lead to each penalty. [17] An unjust result does not arise simply because both penalties apply. The penalties apply for different purposes and may be affected by different circumstances. However, the total amount of penalty and interest charge payable should be fair and reasonable in the circumstances. [18] | Example 5 – Failure to lodge due to lost records and penalty remitted in full due to unjust outcome: 53. Jayla has not lodged her tax return from 4 years ago but has lodged her subsequent returns. When contacted, Jayla says her relationship broke down in the missing year and she didn't take her records when she moved out. Her records were since thrown out by her ex-partner, so she doesn't have the information she needs to lodge that return. Jayla has had a failure to lodge on time (FTL) penalty imposed for the missing year. 54. We issue a default assessment on the basis of information provided by Jayla's employer and bank. After applying her PAYGW credits, her tax payable for the year is less than the FTL penalty already imposed. Jayla is also liable to the default assessment penalty, however, we decide that in the circumstances it is fair and reasonable to remit that penalty in full. To retain the default assessment penalty, in addition to an FTL which exceeded her underpaid tax, would be unjust in the circumstances. | Credits available to offset the amount of the tax-related liability payable: 55. Certain credits for pre-assessment payments of tax relating to an accounting period are not components of the tax-related liability under the assessment. [19] These include credits such as PAYGW, instalment credits, withholding amounts and tax file number withholding amounts. 56. Where some or all of the default assessment liability has been paid through such credits [20] , we will generally remit the penalty to the extent that those credits reduce the payable amount of the tax-related liability assessed. That is, the BPA will be remitted to 75% (or 90% if the uplift applies) of the amount of the tax-related liability that remains payable after those credits are applied. However, we may not remit for tax credits which have not been paid to us, such as PAYGW which was not remitted by a related-party employer. Example 6 – Failure to lodge despite pay as you go instalments being paid and partial penalty remission 57. Tyres Plus pays pay as you go instalments of $15,000 in the 2017–18 income year. A default assessment is issued, determining its 2017–18 income tax liability as $45,000. Because part of that liability is pre-paid by instalments, the penalty is remitted to 75% of the balance of tax payable of $30,000, resulting in a penalty of $22,500 prior to any other remission considerations. Tyres Plus has a BAS credit of $30,000 which is offset to pay the balance of the assessment, however, this was not a pre-payment of the 2017–18 income tax debt so it does not justify a remission of the balance of the penalty. Cooperation during an examination 58. We expect that entities and their representatives will cooperate during an examination by providing information and answering questions and doing so will not of itself result in a remission of penalties. 59. However, an entity which provides a level of cooperation that exceeds reasonable cooperation during an examination may be given remission. For example, providing information or records that we have not requested, and which saves us significant time or resources in our examination, may result in a remission of up to 20%. 60. Providing new information on issues which were outside the scope of the examination that assist in the accurate determination of an increased tax-related liability may be given up to an 80% remission of the related BPA. These remissions are comparable to reductions given for making a voluntary disclosure in shortfall penalty cases. [21] 61. Remission for cooperation will generally not be given where the entity knowingly failed to lodge the required documents when able to do so. 62. Where requested information was not supplied during an examination, supplying it at objection stage should usually not result in the remission of the penalty unless the entity was unaware of the original examination (such as if the audit was covert). This is because the entity did not take the opportunity to cooperate and provide the required documents before the penalty was imposed. | Example 7 – Failure to lodge and no penalty remission: 63. Richard, a sole trader, lodges activity statements reporting sales for the financial year and reports and pays goods and services tax quarterly. Richard does not lodge a tax return for the business by the due date for lodgment. We send him several reminders to lodge, but he does not comply. We give Richard notice that we are examining his affairs and intend to raise a default assessment, and we include a position paper outlining our intended assessment. 64. Richard does not respond to the position paper or lodge the return. We issue a default assessment and impose the penalty. 65. We decide that no remission is appropriate as: • there are no related credits available • lodgment of the return is not beyond Richard's control • Richard was reminded several times about the obligation to lodge, and • Richard did not cooperate during the tax examination. • there are no related credits available • lodgment of the return is not beyond Richard's control • Richard was reminded several times about the obligation to lodge, and • Richard did not cooperate during the tax examination. | Notifying the entity: 66. We must make an assessment of the amount of a default assessment penalty and, unless the penalty is remitted in full, we must give the entity: • a written notice of assessment of the entity's liability to the penalty, and • reasons for the decision, explaining why there is a liability to a penalty. • a written notice of assessment of the entity's liability to the penalty, and • reasons for the decision, explaining why there is a liability to a penalty. Reasons for decision 67. Where the entity is liable for a default assessment penalty, we must give the entity a written explanation [22] of: • the entity's liability to pay the penalty, after any reductions or remissions • why the entity is liable to the penalty, and • why the penalty has not been remitted in full. • the entity's liability to pay the penalty, after any reductions or remissions • why the entity is liable to the penalty, and • why the penalty has not been remitted in full. 68. The reasons for decision will explain: • the penalty decision • why we have made it • the law we applied • our findings on material questions of fact, and • the evidence or other material we used to make those findings. We will explain how the law applies in a manner appropriate to the entity's circumstances. • the penalty decision • why we have made it • the law we applied • our findings on material questions of fact, and • the evidence or other material we used to make those findings. We will explain how the law applies in a manner appropriate to the entity's circumstances. 69. If the penalty has been remitted in full, we are not required by law to give reasons for the decision. However, we will usually give a summary of the reasons for the decision unless there is some operational requirement making it impractical to do so. Where the penalty is remitted in full at assessment stage, we will not post the penalty on our accounts. 70. Complete reasons for the penalty decisions must be recorded on the appropriate ATO systems regardless of the level of explanation provided to the entity, although this could be done using a copy of the reasons for decision document sent to the entity if it contains the complete details. 71. The law does not specify when the explanation must be supplied. We will usually ensure the reasons for a liability to a penalty are given prior to, or at the same time as, giving the entity the notice of assessment of the penalty. Where this is not possible, we will provide them as soon as possible after issuing the notice of assessment of the penalty. | Notice of assessment: 72. We must make an assessment of the amount of the administrative penalty and give the entity a notice of that assessment if the penalty is not fully remitted. | Right of review: 73. If the entity is dissatisfied with an assessment of penalty, the entity may object to it. [23] The grounds of the objection should include all elements of the penalty assessment the entity is dissatisfied with, including any remission decision. 74. If a penalty has been remitted in full, there is no right of objection as there is no penalty left to dispute. 75. If a remission decision is made after an assessment of the penalty, the entity may object to the separate remission decision if the amount remaining after remission is more than 2 penalty units. [24] If 2 or fewer penalty units remain, the decision can be reviewed by judicial review in the Federal Court. 76. If we reduce the entity's assessed tax liability because the entity lodges a document after we made a default assessment, or because of its objection or a review of the default assessment, then the amount of the entity's penalty is proportionately reduced. This is not a remission decision and no separate objection rights attach to the recalculation of the penalty. | Prosecution: 77. Where an entity fails to comply with its lodgment obligation, the Commissioner can seek to have the offence prosecuted. 78. Where prosecution action is instituted, the entity is not liable to pay a civil or administrative penalty for the same offence. This is so, even if the prosecution is later withdrawn. [25] | More information: 79. For more information, see: • Miscellaneous Taxation Ruling MT 2012/3 Administrative penalties: voluntary disclosures • Taxation Determination TD 2011/19 Tax administration: what is a general administrative practice for the purposes of protection from administrative penalties and interest charges? • Law Administration Practice Statement PS LA 2007/24 Making default assessments: section 167 of the Income Tax Assessment Act 1936 • Law Administration Practice Statement PS LA 2011/15 Lodgment obligations, due dates and deferrals • Law Administration Practice Statement TD 2011/19 Administration of the penalty for failure to lodge on time • Law Administration Practice Statement PS LA 2021/1 Application of the promoter penalty laws • Miscellaneous Taxation Ruling MT 2012/3 Administrative penalties: voluntary disclosures • Taxation Determination TD 2011/19 Tax administration: what is a general administrative practice for the purposes of protection from administrative penalties and interest charges? • Law Administration Practice Statement PS LA 2007/24 Making default assessments: section 167 of the Income Tax Assessment Act 1936 • Law Administration Practice Statement PS LA 2011/15 Lodgment obligations, due dates and deferrals • Law Administration Practice Statement TD 2011/19 Administration of the penalty for failure to lodge on time • Law Administration Practice Statement PS LA 2021/1 Application of the promoter penalty laws",MT 2012/3 | TD 2011/19 | PS LA 2007/24 | PS LA 2011/15 | PS LA 2021/1 | PS LA 2011/19 | PS LA 2011/21 | Revised Explanatory Memorandum | TAA 1953 2(1) | TAA 1953 2B | TAA 1953 8ZE | TAA 1953 Pt IVC | TAA 1953 Sch 1 255-1 | TAA 1953 Sch 1 Div 268 | TAA 1953 Sch 1 Subdiv 284-B | TAA 1953 Sch 1 284-75(1) | TAA 1953 Sch 1 284-75(3) | TAA 1953 Sch 1 284-75(3)(a) | TAA 1953 Sch 1 284-90 | TAA 1953 Sch 1 284-90(1) | TAA 1953 Sch 1 284-220 | TAA 1953 Sch 1 284-220(1)(e) | TAA 1953 Sch 1 284-224 | TAA 1953 Sch 1 284-225 | TAA 1953 Sch 1 286-75 | TAA 1953 Sch 1 298-10 | TAA 1953 Sch 1 298-20 | TAA 1953 Sch 1 298-20(3) | ITAA 1997 960-100 | ITAA 1997 995-1(1) | Crimes Act 1914 4AA | [2019] FCAFC 116 | 2012 ATC 20-321 | 98 ATC 4323,PS LA 2007/24 PS LA 2011/15 PS LA 2011/19 PS LA 2011/21 PS LA 2021/1,TAA 1953 2(1) | TAA 1953 2B | TAA 1953 8ZE | TAA 1953 Pt IVC | TAA 1953 Sch 1 255-1 | TAA 1953 Sch 1 Div 268 | TAA 1953 Sch 1 Subdiv 284-B | TAA 1953 Sch 1 284-75(1) | TAA 1953 Sch 1 284-75(3) | TAA 1953 Sch 1 284-75(3)(a) | TAA 1953 Sch 1 284-90 | TAA 1953 Sch 1 284-90(1) | TAA 1953 Sch 1 284-220 | TAA 1953 Sch 1 284-220(1)(e) | TAA 1953 Sch 1 284-224 | TAA 1953 Sch 1 284-225 | TAA 1953 Sch 1 286-75 | TAA 1953 Sch 1 298-10 | TAA 1953 Sch 1 298-20 | TAA 1953 Sch 1 298-20(3) | ITAA 1997 960-100 | ITAA 1997 995-1(1) | Crimes Act 1914 4AA,,ATO Charter Revised Explanatory Memorandum to the A New Tax System (Tax Administration) Bill (No. 2) 2000,False,True,https://www.ato.gov.au/law/view/document?docid=PSR/PS20144/NAT/ATO/00001,"Step 2 – assessing the amount of the penalty | Step 3 – notify the entity of its liability | Included vulnerability as an example of circumstances beyond the entity's control. | Updated to align with amended Practice Statement style and formatting requirements. | Updated reference to the source of the penalty unit value. | Update of style and format. | Content updated to new PSLA format and update of style and format. | Content updated to new PSLA format – no policy change but removal of duplication, and update of style and format. | [1] 'Entity' includes an individual, a body corporate, a body politic, a partnership, any other unincorporated association or body of persons, a trust, a superannuation fund and an approved deposit fund (as per section 960-100 of the Income Tax Assessment Act 1997 (ITAA 1997). Any reference to an 'entity' in this Practice Statement should be read as including the entity's agent unless explicitly noted otherwise. | [2] A tax-related liability is a pecuniary liability to the Commonwealth arising directly under a taxation law (including one not yet due and payable), as per section 255-1 of Schedule 1 to the TAA. Excise Acts are excluded from the application of Subdivision 284-B of Schedule 1 to the TAA. | [3] In this Practice Statement, a return, notice or other document within the scope of subsection 284-75(3) of Schedule 1 to the TAA will be referred to as a 'required document'. | [4] See paragraph 1.49 of the Revised Explanatory Memorandum to the A New Tax System (Tax Administration) Bill (No. 2) 2000. | [5] An entity that lodges a required document but makes a false or misleading statement is subject to a penalty of up to 75% under section 284-75(1) of Schedule 1 to the TAA. | [6] Section 2B of the TAA. | [7] Subsection 284-75(3). | [8] Taxation law is defined in subsection 2(1) of the TAA as having the meaning given by the ITAA 1997. Subsection 995-1(1) of the ITAA 1997 defines 'taxation law' as an Act (or part thereof) of which the Commissioner has the general administration and any legislative instruments made under such an Act. | [9] For example, a PAYGW estimate under Division 268. | [10] Subsection 995-1(1) of the ITAA 1997 says the BPA for an administrative penalty is worked out under section 284-90. Table item 7 of subsection 284-90(1) provides the subsection 284-75(3) BPA. | [12] Paragraph 284-220(1)(e). | [13] Bosanac v Commissioner of Taxation [2019] FCAFC 116 at [149]. | [15] From the ATO or a tax professional. | [16] Access to records may also include access to technology. | [17] See Law Administration Practice Statement PS LA 2011/19 Administration of the penalty for failure to lodge on time for further guidance on remitting failure to lodge penalty. | [18] The Commissioner of Taxation of the Commonwealth of Australia v Traviati [2012] FCA 546 at [92-104], per Middleton J. | [19] The Commissioner of Taxation of the Commonwealth of Australia v Ryan, Gwenda Blanche [1998] FCA 320, per Merkel J. | [20] This principle does not apply to refunds or credits used to offset other tax-related liabilities as explained in Law Administration Practice Statement PS LA 2011/21 Offsetting of refunds and credits against taxation and other debts. | [22] Sections 298-10 and 298-20. | [23] Part IVC of the TAA contains the provisions on objecting to decisions. | [24] Subsection 298-20(3). The value of a penalty unit is contained in section 4AA of the Crimes Act 1914 and is indexed regularly. The dollar amount of a penalty unit is available at Penalties . | [25] Section 8ZE of the TAA. | Bosanac v Commissioner of Taxation [2019] FCAFC 116 267 FCR 169 | The Commissioner of Taxation of the Commonwealth of Australia v Traviati [2012] FCA 546 205 FCR 136 2012 ATC 20-321 (2012) 88 ATR 540 | The Commissioner of Taxation of the Commonwealth of Australia v Ryan, Gwenda Blanche [1998] FCA 320 82 FCR 345 98 ATC 4323 38 ATR 464"
PS LA 2013/1,SUBJECT: Statements of reasons pursuant to section 13 of the Administrative Decision (Judicial Review) Act 1977 PURPOSE: To outline guidelines to be followed by tax officers preparing statements of reasons pursuant to section 13 of the Administrative Decision (Judicial Review) Act 1977,31 January 2013,24 January 2013,Law Administration Practice Statement,False,"1. Access to reasons for decisions is fundamental to the scheme of administrative review provided for in the Administrative Decisions (Judicial Review) Act 1977 (ADJR Act) and is recognised as a fundamental component of fair procedure. 2. All legislative references in this Practice Statement are to the ADJR Act, unless otherwise indicated. 3. Section 13 imposes an obligation on decision-makers to provide a written statement of reasons in relation to certain decisions. 4. The underlying reasons for imposing the obligation in section 13 to furnish statements of reasons are: (a) from the point of view of a citizen seeking to resolve a grievance (i) to overcome any grievance a person might experience when they are not told why something affecting them has been done, and (ii) to enable a person affected by a decision to see what considerations were taken, or not taken, into account and whether an error has been made so that they are sufficiently informed to determine whether to challenge the decision and, if so, to adopt the most appropriate means for doing so, and (b) from the point of view of the administrative decision-maker (i) to encourage that person to consider carefully the correct and proper decision to be made in the circumstances and, thereby, to improve the quality of the decision-making, and (ii) to cause that person to identify the reasons which motivate the decision. (a) from the point of view of a citizen seeking to resolve a grievance (i) to overcome any grievance a person might experience when they are not told why something affecting them has been done, and (ii) to enable a person affected by a decision to see what considerations were taken, or not taken, into account and whether an error has been made so that they are sufficiently informed to determine whether to challenge the decision and, if so, to adopt the most appropriate means for doing so, and (b) from the point of view of the administrative decision-maker (i) to encourage that person to consider carefully the correct and proper decision to be made in the circumstances and, thereby, to improve the quality of the decision-making, and (ii) to cause that person to identify the reasons which motivate the decision. (i) to overcome any grievance a person might experience when they are not told why something affecting them has been done, and (ii) to enable a person affected by a decision to see what considerations were taken, or not taken, into account and whether an error has been made so that they are sufficiently informed to determine whether to challenge the decision and, if so, to adopt the most appropriate means for doing so, and (i) to encourage that person to consider carefully the correct and proper decision to be made in the circumstances and, thereby, to improve the quality of the decision-making, and (ii) to cause that person to identify the reasons which motivate the decision. 5. Subsection 13(1) provides that: Where a person makes a decision to which this section applies, any person who is entitled to make an application to the Federal Court or the Federal Circuit and Family Court of Australia (Division 2) under section 5 in relation to the decision may, by notice in writing given to the person who made the decision, request him or her to furnish a statement in writing setting out the findings on material questions of fact, referring to the evidence or other material on which those findings were based and giving the reasons for the decision. 6. There is no entitlement to a statement of reasons unless the requirements of subsection 13(1) are satisfied. These requirements are: (a) a decision to which section 13 applies, and (b) the person requesting the statement (the applicant) must be a person who is entitled to make an application to the Federal Court or the Federal Circuit and Family Court of Australia (the Court) under section 5 for review of the decision. (a) a decision to which section 13 applies, and (b) the person requesting the statement (the applicant) must be a person who is entitled to make an application to the Federal Court or the Federal Circuit and Family Court of Australia (the Court) under section 5 for review of the decision. | Decision to which section 13 applies: 7. Subsection 13(1) applies only where a person (for example, the Commissioner, the Registrar of the Australian Business Register) makes a 'decision to which this section applies' as defined in subsection 13(11). 8. Subsection 13(11) provides that a 'decision to which this section applies' means a 'decision to which this Act applies', subject to 3 specific exclusions. These specific exclusions and further exclusions are discussed at paragraphs 31 to 45 of this Practice Statement. 9. A 'decision to which this Act applies' is defined in subsection 3(1) to mean: ... a decision of an administrative character made, proposed to be made, or required to be made ... under an enactment ... other than ... a decision included in any of the classes of decisions set out in Schedule 1. The categories of decisions set out in Schedule 1 are discussed at paragraphs 36 to 37 of this Practice Statement. The categories of decisions set out in Schedule 1 are discussed at paragraphs 36 to 37 of this Practice Statement. | Decision: 10. A 'decision' for the purposes of review under the ADJR Act must be 'final or operative and determinative': Australian Broadcasting Tribunal v Bond [1990] HCA 33; 170 CLR 321 at [337], per Mason CJ. A conclusion reached along the way is not a reviewable decision. 11. The right to obtain reasons under section 13 only applies to decisions reviewable under section 5, not conduct leading to a decision or failure to make a decision (reviewable under sections 6 and 7 respectively). | Made under an enactment: 12. To be a decision made under an enactment, the decision must: (a) be expressly or impliedly authorised by the enactment, and (b) itself confer, alter or affect legal rights or obligations: Griffith University v Tang [2005] HCA 7. (a) be expressly or impliedly authorised by the enactment, and (b) itself confer, alter or affect legal rights or obligations: Griffith University v Tang [2005] HCA 7. 13. The definition of 'decision to which this Act applies' also excludes decisions not made under an enactment – for example, a decision by the Commissioner to vote at a meeting of a bankrupt's creditors: Hutchins, Peter Graeme v Deputy Commissioner of Taxation [1996] FCA 201. | Examples of reviewable and non-reviewable decisions: 14. The following are examples of decisions held to be reviewable under the ADJR Act: • decision not to remit general interest charge under section 8AAG of the Taxation Administration Act 1953 (TAA): Elias v Commissioner of Taxation [2002] FCA 1132 • decision to exercise access powers under section 263 of the Income Tax Assessment Act 1936 (ITAA 1936): Commissioner of Taxation & Ors v. Citibank Ltd [1989] FCA 161 • decision to issue a notice to produce documents under section 353-10 of Schedule 1 to the TAA: Waterhouse, R.W. v Commissioner of Taxation [1986] FCA 417, referring to section 264 of the ITAA 1936 (as it then was), and • decision under section 161 of the ITAA 1936 refusing to grant an extension of time for the lodgment of a tax return: Balnaves, P.J. v. The Deputy Commissioner of Taxation [1985] FCA 500. • decision not to remit general interest charge under section 8AAG of the Taxation Administration Act 1953 (TAA): Elias v Commissioner of Taxation [2002] FCA 1132 • decision to exercise access powers under section 263 of the Income Tax Assessment Act 1936 (ITAA 1936): Commissioner of Taxation & Ors v. Citibank Ltd [1989] FCA 161 • decision to issue a notice to produce documents under section 353-10 of Schedule 1 to the TAA: Waterhouse, R.W. v Commissioner of Taxation [1986] FCA 417, referring to section 264 of the ITAA 1936 (as it then was), and • decision under section 161 of the ITAA 1936 refusing to grant an extension of time for the lodgment of a tax return: Balnaves, P.J. v. The Deputy Commissioner of Taxation [1985] FCA 500. 15. The following are examples of decisions that have been held not to be reviewable under the ADJR Act: • decision to commence recovery proceedings and refusing to defer such proceedings: Rawson Finances Pty Limited v Deputy Commissioner of Taxation [2010] FCA 538 • decision not to accept a taxpayer's offer to compromise a debt: Bilborough v Deputy Commissioner of Taxation [2007] FCA 773, and • decision not to refund a company tax instalment and to apply it against outstanding tax liabilities: Golden City Car & Truck Centre Pty Ltd ACN 010 319 427 v Deputy Commissioner of Taxation [1999] FCA 29. • decision to commence recovery proceedings and refusing to defer such proceedings: Rawson Finances Pty Limited v Deputy Commissioner of Taxation [2010] FCA 538 • decision not to accept a taxpayer's offer to compromise a debt: Bilborough v Deputy Commissioner of Taxation [2007] FCA 773, and • decision not to refund a company tax instalment and to apply it against outstanding tax liabilities: Golden City Car & Truck Centre Pty Ltd ACN 010 319 427 v Deputy Commissioner of Taxation [1999] FCA 29. | Who can request a statement of reasons: 16. A person may request a statement under subsection 13(1) if they are entitled to make an application to the Court under section 5 in relation to the decision. 17. A person may apply to the court for review of a decision if they are 'a person who is aggrieved by a decision' to which the ADJR Act applies: subsection 5(1). 18. Under paragraph 3(4)(a), a person who is aggrieved by a decision includes a reference: (i) to a person whose interests are adversely affected by the decision; or (ii) in the case of a decision by way of the making of a report or recommendation – to a person whose interests would be adversely affected if a decision were, or were not, made in accordance with the report or recommendation ... (i) to a person whose interests are adversely affected by the decision; or (ii) in the case of a decision by way of the making of a report or recommendation – to a person whose interests would be adversely affected if a decision were, or were not, made in accordance with the report or recommendation ... 19. A person will be aggrieved by a decision if their 'interests', broadly defined, are affected by the decision: Trollope v The Honourable Justice Middleton [2008] FCA 564 (Trollope). 20. The nature of the particular decision and the extent to which the interests of an applicant rise above those of an ordinary member of the public are relevant: see Australian Institute of Marine & Power Engineers v. Secretary Department of Transport [1986] FCA 636. 21. A person with a right, interest or legitimate expectation which entitles them to be heard prior to a particular decision being made is more likely to be treated as being aggrieved by the decision: Trollope. 22. A person can obtain a section 13 statement independent of their right to make an application for review. However, they must be entitled to make such an application. The general right to be provided, on request, with a statement under section 13 may, therefore, be exercised independently of an application for judicial review of the decision. | Timeframe for making request: 23. There is no legislative time limit for requesting a statement. However, subsection 13(5) provides that a decision-maker may refuse to prepare and furnish a statement if in: (a) the case of a written decision provided to the applicant – the request was not made on or before the 28th day after the day on which the written decision was so furnished, or (b) any other case – the request was not made within a reasonable time after the decision was made. (a) the case of a written decision provided to the applicant – the request was not made on or before the 28th day after the day on which the written decision was so furnished, or (b) any other case – the request was not made within a reasonable time after the decision was made. 24. Subsection 13(6) provides that a request for a statement shall be deemed to have been made within a reasonable time after the decision was made if the Court, on application by the applicant, declares that the request was made within a reasonable time after the decision was made. 25. If the decision-maker intends to refuse the request for a statement on the basis that it was not made within: (a) 28 days of written notification of the decision, or (b) a reasonable time after the decision was made in any other case, the decision-maker must, within 14 days of receiving the request, notify the applicant that the statement will not be furnished to them and give the reason why the statement will not be provided: subsection 13(5). (a) 28 days of written notification of the decision, or (b) a reasonable time after the decision was made in any other case, the decision-maker must, within 14 days of receiving the request, notify the applicant that the statement will not be furnished to them and give the reason why the statement will not be provided: subsection 13(5). | Form and content of request: 26. The request under subsection 13(1) must be made by notice in writing given to the person who made the decision. 27. Beyond the requirement that it be in writing, no form of request for a statement of reasons is prescribed: Woodward J in Ansett Transport Industries (Operations) Pty Ltd & Anor v Wraith, Kenneth F. & Ors [1983] FCA 187 (Ansett). 28. The request may be: (a) in the form of an informal letter, and (b) made by an agent of the person entitled: Morling J in Becerra, Flor v Fowell, Ronald & Anor [1983] FCA 50. (a) in the form of an informal letter, and (b) made by an agent of the person entitled: Morling J in Becerra, Flor v Fowell, Ronald & Anor [1983] FCA 50. 29. The request does not have to: (a) use the wording of subsection 13(1) (b) state that it is being made pursuant to the ADJR Act: Woodward J in Ansett. (a) use the wording of subsection 13(1) (b) state that it is being made pursuant to the ADJR Act: Woodward J in Ansett. 30. A simple request for further information relating to a decision will not constitute a request for a statement of reasons: Soldatow, S. v Australian Council [1991] FCA 172. | Exclusions: 31. A request for a statement of reasons in relation to a decision may be declined on a number of bases, including that: (a) the person requesting the statement is not entitled to request a statement (b) the decision is not reviewable under section 5 (c) the decision is within a class of decisions excluded under Schedule 1 (d) the decision is within a class of decisions excluded under Schedule 2 (e) an entitlement exists to a statement of reasons under section 28 of the Administrative Appeals Tribunal Act 1975 (AAT Act) (f) the decision is excluded by regulation (g) a statement of reasons has already been provided, or (h) the request is made out of time. (a) the person requesting the statement is not entitled to request a statement (b) the decision is not reviewable under section 5 (c) the decision is within a class of decisions excluded under Schedule 1 (d) the decision is within a class of decisions excluded under Schedule 2 (e) an entitlement exists to a statement of reasons under section 28 of the Administrative Appeals Tribunal Act 1975 (AAT Act) (f) the decision is excluded by regulation (g) a statement of reasons has already been provided, or (h) the request is made out of time. 32. These exclusions are discussed further in this Practice Statement. | Person requesting statement of reasons not entitled: 33. A request for a statement of reasons may be refused where the applicant is not a person aggrieved by the decision for the purposes of section 5. 34. Alternatively, the decision-maker may apply to the Federal Court for an order declaring that the applicant was not entitled to make the request: paragraph 13(3)(b). | Decision is not reviewable under section 5: 35. Section 13 applies only in respect of decisions reviewable under section 5 – that is, decisions that have been made, not conduct leading to a decision or failure to make a decision (reviewable under sections 6 and 7 respectively). | Classes of decisions included in Schedule 1: 36. Schedule 1 sets out a list of classes of decisions that the ADJR Act does not apply to. 37. The classes of decisions listed in Schedule 1 which are the responsibility of the Commissioner are: ... (e) decisions making, or forming part of the process of making, or leading up to the making of, assessments or calculations of tax, charge or duty, or decisions disallowing objections to assessments or calculations of tax, charge or duty, or decisions amending, or refusing to amend, assessments or calculations of tax, charge or duty, under any of the following Acts: A New Tax System (Goods and Services Tax) Act 1999 A New Tax System (Luxury Car Tax) Act 1999 A New Tax System (Wine Equalisation Tax) Act 1999 Customs Act 1901 Customs Tariff Act 1995 Excise Act 1901 Fringe Benefits Tax Assessment Act 1986 Fuel Tax Act 2006 Income Tax Assessment Act 1936 Income Tax Assessment Act 1997 Petroleum Resource Rent Tax Assessment Act 1987 Superannuation Guarantee (Administration) Act 1992 Taxation Administration Act 1953, but only so far as the decisions are made under Part 2-35, 3-10, 3-30 or 4-1 in Schedule 1 to that Act Training Guarantee (Administration) Act 1990 Trust Recoupment Tax Assessment Act 1985 ... (ga) decisions under section 14ZY of the Taxation Administration Act 1953 disallowing objections to assessments or calculations of tax, charge or duty (gaa) decisions of the Commissioner of Taxation under Subdivision 268-B or section 268-35 in Schedule 1 to the Taxation Administration Act 1953 ... (e) decisions making, or forming part of the process of making, or leading up to the making of, assessments or calculations of tax, charge or duty, or decisions disallowing objections to assessments or calculations of tax, charge or duty, or decisions amending, or refusing to amend, assessments or calculations of tax, charge or duty, under any of the following Acts: A New Tax System (Goods and Services Tax) Act 1999 A New Tax System (Luxury Car Tax) Act 1999 A New Tax System (Wine Equalisation Tax) Act 1999 Customs Act 1901 Customs Tariff Act 1995 Excise Act 1901 Fringe Benefits Tax Assessment Act 1986 Fuel Tax Act 2006 Income Tax Assessment Act 1936 Income Tax Assessment Act 1997 Petroleum Resource Rent Tax Assessment Act 1987 Superannuation Guarantee (Administration) Act 1992 Taxation Administration Act 1953, but only so far as the decisions are made under Part 2-35, 3-10, 3-30 or 4-1 in Schedule 1 to that Act Training Guarantee (Administration) Act 1990 Trust Recoupment Tax Assessment Act 1985 (ga) decisions under section 14ZY of the Taxation Administration Act 1953 disallowing objections to assessments or calculations of tax, charge or duty (gaa) decisions of the Commissioner of Taxation under Subdivision 268-B or section 268-35 in Schedule 1 to the Taxation Administration Act 1953 ... | Classes of decisions included in Schedule 2: 38. Schedule 2 sets out a list of classes of decisions that are not decisions to which section 13 applies: paragraph 13(11)(c). 39. The decisions listed in Schedule 2 which may be made by the Commissioner include, but are not limited to, paragraphs: • (e) (decisions relating to the administration of criminal justice) • (f) (decisions in connection with civil proceedings • (m) (decisions in connection with the enforcement of judgments or orders for the recovery of monies), and • (q) (decisions in connection with personnel management). • (e) (decisions relating to the administration of criminal justice) • (f) (decisions in connection with civil proceedings • (m) (decisions in connection with the enforcement of judgments or orders for the recovery of monies), and • (q) (decisions in connection with personnel management). 40. These classes of decisions are still reviewable by the Court under the ADJR Act. | Entitlement to statement of reasons under section 28 of the AAT Act: 41. Section 13 of the ADJR Act excludes decisions for which a statement of reasons may be sought under section 28 of the AAT Act: paragraph 13(11)(a). 42. Section 28 of the AAT Act is a provision similar to section 13. It provides that [1] : ... if a person makes a decision in respect of which an application may be made to the Tribunal for a review, any person (in this section referred to as the applicant ) who is entitled to apply to the Tribunal for a review of the decision may, by notice in writing given to the person who made the decision, request that person to give to the applicant a statement in writing setting out the findings on material questions of fact, referring to the evidence or other material on which those findings were based and giving the reasons for the decision, and the person who made the decision shall, as soon as practicable but in any case within 28 days after receiving the request, prepare, and give to the applicant, such a statement. | By regulation: 43. Subsection 13(8) provides that the regulations to the ADJR Act may declare a class or classes of decisions to be decisions that are not decisions to which section 13 applies. 44. There are currently no decisions listed in the Administrative Decisions (Judicial Review) Regulations 2017 which are within the responsibility of the Commissioner. | Statement of reasons already provided: 45. Section 13 excludes decisions for which a statement setting out, findings of facts, a reference to the evidence or other material on which those findings were based and the reasons for the decision have already been provided: paragraph 13(11)(b). | Request made out of time: 46. There is no legislative timeframe for requesting a statement under section 13. However, a request may be refused on the basis that it is made more than 28 days after a written decision was provided or not made within a reasonable time for decisions not provided in writing: subsection 13(5). 47. If the decision-maker refuses to provide a statement on this basis, the decision-maker must give the applicant, within 14 days after receiving the request, notice in writing stating that the requested statement will not be furnished to them and giving the reason the statement will not be so furnished: subsection 13(5). 48. If a request for a statement is refused on this basis, there is no provision in the ADJR Act which allows the Court to extend the 28-day timeframe for requesting a statement. | Provision of statement of reasons if no entitlement exists: 49. In some circumstances, a request for a statement of reasons will be received where no entitlement under section 13 exists. In these circumstances, the decision-maker should consider whether it is appropriate to provide a statement setting out the reasons for the relevant decision to assist the person requesting the statement to better understand the decision. Provision of a statement of reasons in these circumstances would generally be consistent with our commitment under our Charter to explain our decisions and be accountable for our actions, and would align with the beneficial aims of the ADJR Act. However, the decision-maker should make it clear to the applicant that the statement of reasons has not been provided pursuant to section 13. | Obligation to provide statement of reasons personal to decision-maker: 50. It is important to note that the obligation to furnish the statement of reasons attaches personally to the decision-maker. Where a statement is to be provided, it must be the statement of the decision-maker. 51. Section 17 provides for situations where a decision-maker no longer holds the office they held at the time of making the decision or for some reason is not performing the duties of that office, for example, temporary absence due to illness, leave or overseas travel. See, for example, Pinchback, Brian Terence v Wilenski, Peter [1983] FCA 323. 52. In these circumstances, the notice should be directed to the person identified under paragraphs 17(c) and 17(d), that is, to the person then acting in the position of the decision-maker or, where there is no person acting in the position or the position no longer exists, to the relevant Minister or a person nominated by the relevant Minister for that purpose. | Timeframe for providing statement of reasons: 53. The statement must be prepared and provided to the applicant as soon as practicable and, in any event, within 28 days after receiving the request: subsection 13(2). 54. While section 13 of the ADJR Act does not provide a remedy for an applicant to compel the provision of a statement of reasons (though mandamus [2] could be sought under section 39B of the Judiciary Act 1903), the decision-maker should always work to ensure that the statement is provided within 28 days. Where delay is encountered, the decision-maker should contact the applicant to advise of the possible delay. | Form and content of statement of reasons: 55. There is no prescribed form of statement, other than the requirement that it be in writing. 56. The requirements of section 13 will be satisfied by: • a statement in writing setting out the findings on material questions of fact • referring to the evidence or other material on which those findings were based, and • giving the reasons for the decision. • a statement in writing setting out the findings on material questions of fact • referring to the evidence or other material on which those findings were based, and • giving the reasons for the decision. 57. The statement should be written using 'clear and unambiguous language', not 'vague generalities or the formal language of the legislation': Woodward J in Ansett. 58. In Ansett, Woodward J also noted that: The appropriate length of the statement ... will depend upon considerations such as the nature and importance of the decision, its complexity and the time available to formulate the statement. Often those factors may suggest a brief statement of one or two pages only. 59. Appendix A of this Practice Statement sets out suggestions for the form of statements to be prepared by ATO decision-makers. | Required content: Material facts 60. Material facts are those facts that can affect the decision. They are those facts that are necessary to support the decision. 61. The decision-maker should set out in the statement those facts that they took into account in making the decision. 62. The decision-maker should only set out their findings on the material facts and should not provide a chronology or list of all the facts of the matter (though non-material facts could be listed in a Background section). 63. The findings included in the statement must be those that the decision-maker actually did make and not those that the relevant provision requires the decision-maker to make: Minister for Immigration and Multicultural Affairs v Yusuf [2001] HCA 30. If a matter was regarded by the decision-maker as material and was considered by them, then the findings of fact in relation to the matter must be set out in the statement. 64. The decision-maker must include all findings on material facts. If the statement of reasons does not set out the material findings of fact relied on in making the decision, it is possible that on judicial review of the decision the court may infer that those facts not stated were considered to be immaterial. If the Court finds that those facts are material, it may follow that the decision-maker has erred in law: see Sullivan, Brian John v Delegate of the Secretary Department of Transport [1978] FCA 48; 20 ALR 323 at [348–349] and [352–353] and Public Service Board (NSW) v Osmond [1986] HCA 7; 4 Leg Rep 1 at [2]. 65. Findings on facts are distinguishable from subjective judgments or opinions. Where a subjective judgment or opinion is based on facts, it is desirable that those underlying facts should be set out as well as the judgment or opinion formed on the basis of them. Evidence or other material 66. A statement of reasons must refer to the evidence or other material on which the findings of material fact are based. 67. The decision-maker is not required to list all evidence they considered in making the decision. However, depending on any regulations made on judicial review of the decision, the court may have regard to all documents before the decision-maker (being all documents held by the government department): Canwest Global Communications Corp v Australian Broadcasting Authority [1997] FCA 540; Nestle Australia Ltd v. Commissioner of Taxation [1986] FCA 23. 68. The material relied on by the decision-maker can include ATO documents, such as rulings or practice statements. 69. There is no obligation to provide copies of material and evidence in addition to the statement: Chapman, T.L. & Ors v The Hon. Tickner, R. & Ors [1995] FCA 46; 37 ALD 1 at [11]. 70. On judicial review of the decision, the range of documents before the court will be likely to be wider than those referred to in the statement of reasons. The person to whom the decision relates may also be able to obtain the documents referred to in the statement and a wider range of documents through a freedom of information request. 71. Decision-makers frequently act upon recommendations, reports and results of investigations carried out by subordinate officers or appropriately qualified experts. Where these recommendations are considered in making a decision, the statement of reasons should incorporate the recommendation as well as the facts (and a reference to the evidence or other material on which they are based) and the reasons leading to the recommendation. Reasons for the decision 72. The statement should explain the steps of the reasoning process that led to the decision. 73. The actual reasons relied upon at the time the decision was made are to be set out in the statement and not other reasons or facts which may subsequently have come to light or appear to be more desirable: Palmer and Minister for the Capital Territory [1979] AATA 45. 74. The reasoning should identify any element of official policy or guidelines, such as a practice statement or ruling, which formed part of the justification for the decision made. Care must, however, be taken in attributing weight to criteria found in policies or guidelines and relied upon to justify the decision. An inflexible application of a policy or guideline is not a proper exercise of discretion. 75. Where an applicant has presented arguments, submissions or evidence to the decision-maker, it is desirable that the statement of reasons should refer to these and indicate the response or conclusion on these. 76. The decision-maker should prepare a record of the reasons for their decision at the time it is made. This will assist in preparing a statement fulfilling the requirements of section 13 if later requested. 77. Wherever practicable at the time a decision is made, it is advantageous for the decision to be accompanied by a statement setting out findings of facts, a reference to the evidence or other material on which those findings were based and the reasons for the decision. If this is done, paragraph 13(11)(b) would be satisfied, and this process would obviate the need to later furnish a statement of reasons under subsection 13(1). Further, this accords with the ATO's commitment in our Charter to explain our decisions. | Exclusion of certain information from a statement of reasons: 78. The requirement to provide a statement is subject to further exclusions set out in sections 13A and 14. Section 13A – third-party information 79. Certain information relating to the personal affairs or business affairs of a third party may be excluded from a statement: section 13A. 80. Subsections 13A(1) and (2) provide that the decision-maker is not required to include in the statement information that: (a) relates to the personal affairs or business affairs of a person, other than the applicant, and (b) is information (i) that was supplied in-confidence (ii) the publication of which would reveal a trade secret (iii) that was furnished in compliance with a duty imposed by an enactment, or (iv) the disclosure of which would contravene an enactment that expressly imposes on the decision-maker a duty not to divulge or communicate to any person other than a person included in a prescribed class of persons, or except in prescribed circumstances (for example, taxation officers' obligations under Subdivision 355-B of Schedule 1 to the TAA). (a) relates to the personal affairs or business affairs of a person, other than the applicant, and (b) is information (i) that was supplied in-confidence (ii) the publication of which would reveal a trade secret (iii) that was furnished in compliance with a duty imposed by an enactment, or (iv) the disclosure of which would contravene an enactment that expressly imposes on the decision-maker a duty not to divulge or communicate to any person other than a person included in a prescribed class of persons, or except in prescribed circumstances (for example, taxation officers' obligations under Subdivision 355-B of Schedule 1 to the TAA). (i) that was supplied in-confidence (ii) the publication of which would reveal a trade secret (iii) that was furnished in compliance with a duty imposed by an enactment, or (iv) the disclosure of which would contravene an enactment that expressly imposes on the decision-maker a duty not to divulge or communicate to any person other than a person included in a prescribed class of persons, or except in prescribed circumstances (for example, taxation officers' obligations under Subdivision 355-B of Schedule 1 to the TAA). 81. The decision-maker must notify the applicant in writing that the relevant information has not been included and give the reason for not including the information: paragraph 13A(3)(a). 82. Where the statement would be false or misleading without the relevant information, the decision-maker is not required to provide the statement: paragraph 13A(2)(b). In this case, the decision-maker must notify the applicant in writing that the statement will not be provided and give the reason for not providing the statement: paragraph 13A(3)(b). 83. Exclusion of the information, or non-provision of the statement because of this information, does not preclude the Court on review from making an order for discovery of documents or to require the giving of evidence or the production of documents to the Court: subsection 13A(4). Section 14 – where disclosure contrary to public interest 84. A decision-maker is not required to include certain information which the Attorney-General has certified would, if disclosed, be contrary to the public interest in a statement furnished under subsection 13(1): subsections 14(1) and (2). 85. Subsection 14(1) indicates the Attorney-General may certify that a disclosure of information concerning a specified matter would be contrary to public interest: (a) by reason that it would prejudice the security, defence or international relations of Australia; (b) by reason that it would involve the disclosure of deliberations or decisions of the Cabinet or of a Committee of the Cabinet; or (c) for any other reason specified in the certificate that could form the basis for a claim in a judicial proceeding that the information should not be disclosed ... (a) by reason that it would prejudice the security, defence or international relations of Australia; (b) by reason that it would involve the disclosure of deliberations or decisions of the Cabinet or of a Committee of the Cabinet; or (c) for any other reason specified in the certificate that could form the basis for a claim in a judicial proceeding that the information should not be disclosed ... 86. As with section 13A, the decision-maker is not required to include the relevant information in the statement: paragraph 14(2)(a). Further, the decision-maker must notify the applicant in writing that the relevant information has not been included and give the reason for not including the information: paragraph 14(3)(a). 87. Where the statement would be false or misleading without the relevant information, the decision-maker is not required to provide the statement: paragraph 14(2)(b). In this case, the decision-maker must notify the applicant in writing that the statement will not be provided and give the reason for not providing the statement: paragraph 14(3)(b). 88. Exclusion of the information, or non-provision of the statement because of this information, does not preclude the Court on review from making an order for discovery of documents or to require the giving of evidence or the production of documents to the Court: subsection 14(4). | Additional statement of reasons containing further and better particulars: 89. The applicant, on receiving the statement of reasons, may apply to the Court if they consider that the statement does not contain adequate: (a) particulars of findings of facts (b) reference to the evidence or other material on which those findings of fact were based, or (c) particulars of the reasons for the decision: subsection 13(7). (a) particulars of findings of facts (b) reference to the evidence or other material on which those findings of fact were based, or (c) particulars of the reasons for the decision: subsection 13(7). 90. If the Court considers that the statement does not contain adequate: (a) particulars of findings of facts (b) reference to the evidence or other material on which those findings of fact were based, or (c) particulars of the reasons for the decision, the Court may order the decision-maker to, within a specified time, provide an additional statement, or statements, containing further and better particulars in relation to matters specified in the order: subsection 13(7). (a) particulars of findings of facts (b) reference to the evidence or other material on which those findings of fact were based, or (c) particulars of the reasons for the decision, the Court may order the decision-maker to, within a specified time, provide an additional statement, or statements, containing further and better particulars in relation to matters specified in the order: subsection 13(7). | Use of statement of reasons: 91. The statement of reasons, unless effectively challenged, is evidence of the reasons for the decision to which it relates: Sezdirmezoglu, Ligor & Anor v Acting Minister for Immigration & Ethnic Affairs [1983] FCA 295; 51 ALR 561 at [570], per Smithers J. 92. The statement cannot be used as evidence of the facts underlying the decision itself but is evidence of the decision-maker's state of mind at the relevant time: Minister for Immigration and Ethnic Affairs & Anor v Arslan, Rafet & Anor [1984] FCA 241; 55 ALR 361 at [364]. 93. If a fact is not contained in the statement, then an inference can be drawn that the fact was not taken into account in reaching the decision. However, the decision-maker cannot rely on the statement to assert that the failure to mention a fact meant that it was not taken into account: Minister for Immigration Local Government & Ethnic Affairs v. Taveli, M.F. & Ors [1990] FCA 229. 94. Errors contained in a section 13 statement may lead to an inference that the decision-maker took irrelevant considerations into account and failed to take into account relevant considerations: Lally, D.J. v. The Minister for State for Immigration & Ethnic Affairs [1985] FCA 3. 95. The Court may also look at reasons provided by a decision-maker and conclude that they did not give any consideration at all to relevant matters: Tagle, Emma Estrada v The Minister for Immigration & Ethnic Affairs [1983] FCA 45; 46 ALR 379 at [386–387]. | Approach of the court to review of reasons: 96. In Smith, Richard Wayne & Ors v Minister of State for the Department of Immigration & Ethnic Affairs & Anor [1984] FCA 104; 53 ALR 551 at [554], Lockhart J indicated that: ... it is not legitimate to scrutinise reasons for decisions of government officers too finely or precisely. Such reasons should be studied carefully but sensibly, and not zealously in the pursuit of error. 97. In Powell, D.L. v. Evreniades, S. & Ors Commissioner of Taxation [1989] FCA 140; 87 ALR 117 at [122], Hill J, endorsing Lockhart J's comments, observed that: The court will not subject such a statement to a fine analysis with a view to finding through a microscopic study of it some error of law. 98. In Inglewood Olive Processors Limited v Chief Executive Officer of Customs [2005] FCAFC 101 at [26], Keifel, Weinberg and Edmonds JJ stated that: Where an administrative decision-maker both starts and ends their deliberations with the correct legal test, a court should not readily infer legal error as a consequence of infelicitous or loose language somewhere in between ... | Identifying and determining validity of a request: 99. ATO staff should identify requests for statements of reasons as soon as possible. [3] 100. Correspondence which appears to be requesting a statement of reasons should be referred immediately to both the: (a) decision-maker, and (b) pre-litigation legal services team in Litigation and Legal Services (LLS) by making a pre-litigation legal services request referral. See Request for pre-litigation legal services (link available internally only) for the referral process. (a) decision-maker, and (b) pre-litigation legal services team in Litigation and Legal Services (LLS) by making a pre-litigation legal services request referral. See Request for pre-litigation legal services (link available internally only) for the referral process. 101. When seeking to identify the decision-maker, note that the decision-maker will not always be the officer listed on the relevant correspondence. When unsure, send the request to the listed contact and raise the issue with the LLS pre-litigation legal services team. 102. An LLS officer will assist the decision-maker in reviewing the request for the statement of reasons. 103. The decision-maker will engage with the LLS officer to determine the validity of the request – including eligibility, jurisdiction and timing issues. 104. The validity of the request should be determined no later than 7 days from receipt of the request. 105. If the request is valid, the decision-maker is to prepare a draft statement and provide it to the LLS officer no later than 14 days from receipt of the request. 106. In conjunction with the LLS officer, the decision-maker will draft, finalise and serve a statement of reasons, within a total of 28 days of the office receiving the request. 107. If the request is not valid, the decision-maker will convey this view to the applicant, within the required timeframe (14 days where the request is declined on the basis that it is not made within time and 28 days where the request is not considered valid, for other reasons). 108. If the request relates to third parties, even if the applicant is entitled to request a statement, the decision-maker (in conjunction with the LLS officer) should consider whether privacy or secrecy obligations restrict the ability to respond. | Responding to a request for a statement of reasons: 109. In response to a request for a statement of reasons, a decision-maker may: (a) prepare and provide the statement as soon as practicable and in any event within 28 days after receiving the request: subsection 13(2), subject to exclusions under sections 13A and 14 (b) notify the applicant in writing within 14 days of request that they are not entitled to the reasons because the request was made out of time (either because the request was not made within 28 days of receiving the written decision or the request was not made within a reasonable time): subsection 13(5) (c) notify the applicant in writing within 28 days that they are not entitled to make the request: paragraph 13(3)(a) (note – the applicant may then apply to the Court for an order declaring they are entitled to a statement: subsection 13(4A)), or (d) apply to the Court within 28 days for an order that the applicant is not entitled to make the request: paragraph 13(3)(b). (a) prepare and provide the statement as soon as practicable and in any event within 28 days after receiving the request: subsection 13(2), subject to exclusions under sections 13A and 14 (b) notify the applicant in writing within 14 days of request that they are not entitled to the reasons because the request was made out of time (either because the request was not made within 28 days of receiving the written decision or the request was not made within a reasonable time): subsection 13(5) (c) notify the applicant in writing within 28 days that they are not entitled to make the request: paragraph 13(3)(a) (note – the applicant may then apply to the Court for an order declaring they are entitled to a statement: subsection 13(4A)), or (d) apply to the Court within 28 days for an order that the applicant is not entitled to make the request: paragraph 13(3)(b). | Preparing the statement of reasons: 110. Statements of reasons prepared by ATO staff should: (a) include the required content listed at paragraph 56 of this Practice Statement (b) identify the decision-maker and their authority to make the decision (c) refer to, and set out, the relevant law that authorises the decision to be made, and (d) state what the decision is. (a) include the required content listed at paragraph 56 of this Practice Statement (b) identify the decision-maker and their authority to make the decision (c) refer to, and set out, the relevant law that authorises the decision to be made, and (d) state what the decision is. 111. The statement should be written in plain language and use headings where possible (for a sample statement, see Appendix A of this Practice Statement). It should be written 'in terms which can be understood by the people affected by [the decision]': per Woodward J in The Commonwealth of Australia v. The Pharmacy Guild of Australia & Ors [1989] FCA 797. 112. The statement should not be too long. The appropriate length of the statement will depend on considerations such as the nature and importance of the decision and its complexity. 113. The decision-maker may draft the statement in the form of the sample statement provided in Appendix A of this Practice Statement or adapt the sample to suit the circumstances of the relevant decision. 114. Appendix B of this Practice Statement contains a checklist of matters to consider when preparing the statement. 115. If it appears that the reasons for the decision to which the request relates were inadequate or erroneous and render the decision unlawful, the decision-maker and LLS officer should consider whether the decision should be withdrawn and a new one rendered. 116. Similarly, if it appears that a different decision would be preferable, the decision-maker and LLS pre-litigation officer should consider whether the decision should be withdrawn and a new one rendered. If the original decision is the preferable one, but further or better reasons appear than those which actuated it, it will be necessary to either: (a) furnish separately from the actual reasons for the decision a statement of these further or better reasons, or (b) where the reasons are changed to such an extent that it would be better to withdraw the original decision, withdraw the decision, assuming there is power to do so, and render a new one. (a) furnish separately from the actual reasons for the decision a statement of these further or better reasons, or (b) where the reasons are changed to such an extent that it would be better to withdraw the original decision, withdraw the decision, assuming there is power to do so, and render a new one. 117. If a new decision is to be rendered, it is to be communicated to the person who made the request together with a statement of reasons for the new decision. | Sample template for statement of reasons: Request for statement of reasons pursuant to section 13 of the Administrative Decisions (Judicial Review) Act 1977 by [taxpayer name] • type of decision • section reference, and • name of legislation For example: Decision to approve access without prior notice pursuant to section 353-15 of Schedule 1 to the Taxation Administration Act 1953. • type of decision • section reference, and • name of legislation For example: Decision to approve access without prior notice pursuant to section 353-15 of Schedule 1 to the Taxation Administration Act 1953. | Background: • details of person making statement (the decision-maker) including name, position and relevant authorisation or delegation held For example: Example 1: I, Joseph Delegate, am a Senior Assistant Commissioner of Taxation and a Senior Executive Service officer of the Australian Taxation Office (ATO). I am a delegate of the Commissioner of Taxation of the Commonwealth of Australia, and may exercise, among other matters, the powers under section 353-15 of Schedule 1 to the Taxation Administration Act 1953 (TAA). Example 2: I, [NAME], [POSITION TITLE] in [BUSINESS LINE], am the decision maker in relation to the decision to issue the Notice. I was duly authorised by the Deputy Commissioner of Taxation, [BUSINESS LINE], a delegate of the Commissioner of Taxation (Commissioner), to exercise the powers under section 353-15 of Schedule 1 to the Taxation Administration Act 1953 (TAA). • details of the decision, including date the decision was made, the decision made, by reference to legislation and, where applicable, action taken pursuant to the decision For example: On 20 October 2012, I authorised access without prior notice, pursuant to section 353-15 of Schedule 1 to the TAA, to all buildings, places, books documents and other papers related, either directly or indirectly, to Green Pty Ltd. Pursuant to the authorisation I granted, access was undertaken at 123 Main Street, Sydney, New South Wales on 27 and 28 October 2012. During the course of the access, officers of the ATO identified various documents and product samples which accessed by officers of the ATO. • details of the request for a statement of reasons, including date and name of person requesting the statement For example: By letter dated 5 November 2012, Law Firm, solicitors for Green Pty Ltd requested a statement of reasons pursuant to section 13 of the Administrative Decisions (Judicial Review) Act 1977. • details of person making statement (the decision-maker) including name, position and relevant authorisation or delegation held For example: Example 1: I, Joseph Delegate, am a Senior Assistant Commissioner of Taxation and a Senior Executive Service officer of the Australian Taxation Office (ATO). I am a delegate of the Commissioner of Taxation of the Commonwealth of Australia, and may exercise, among other matters, the powers under section 353-15 of Schedule 1 to the Taxation Administration Act 1953 (TAA). Example 2: I, [NAME], [POSITION TITLE] in [BUSINESS LINE], am the decision maker in relation to the decision to issue the Notice. I was duly authorised by the Deputy Commissioner of Taxation, [BUSINESS LINE], a delegate of the Commissioner of Taxation (Commissioner), to exercise the powers under section 353-15 of Schedule 1 to the Taxation Administration Act 1953 (TAA). • details of the decision, including date the decision was made, the decision made, by reference to legislation and, where applicable, action taken pursuant to the decision For example: On 20 October 2012, I authorised access without prior notice, pursuant to section 353-15 of Schedule 1 to the TAA, to all buildings, places, books documents and other papers related, either directly or indirectly, to Green Pty Ltd. Pursuant to the authorisation I granted, access was undertaken at 123 Main Street, Sydney, New South Wales on 27 and 28 October 2012. During the course of the access, officers of the ATO identified various documents and product samples which accessed by officers of the ATO. • details of the request for a statement of reasons, including date and name of person requesting the statement For example: By letter dated 5 November 2012, Law Firm, solicitors for Green Pty Ltd requested a statement of reasons pursuant to section 13 of the Administrative Decisions (Judicial Review) Act 1977. | Findings on material questions of fact: • findings of fact on which decision was based, with reference to the source of the findings. • findings of fact on which decision was based, with reference to the source of the findings. | Evidence and other material on which these findings were based: Provide a list of documents and information on which findings of fact were based; for example: • reports • submissions prepared by taxpayer • submissions prepared by ATO staff or other government departments • policy or practice documents, including taxation rulings and practice statements as an example • documents obtained or submitted by taxpayer • ATO records • decision-maker's own understanding of relevant legislation, case law and public rulings For example: I based my foregoing findings on: 1. a written submission by Jane Case-Officer dated 11 October 2012 2. the ATO Access and Information Gathering Manual, in particular Chapters 1 and 7, and 3. my own understanding of the relevant legislation, case law and public rulings. • reports • submissions prepared by taxpayer • submissions prepared by ATO staff or other government departments • policy or practice documents, including taxation rulings and practice statements as an example • documents obtained or submitted by taxpayer • ATO records • decision-maker's own understanding of relevant legislation, case law and public rulings For example: I based my foregoing findings on: 1. a written submission by Jane Case-Officer dated 11 October 2012 2. the ATO Access and Information Gathering Manual, in particular Chapters 1 and 7, and 3. my own understanding of the relevant legislation, case law and public rulings. 1. a written submission by Jane Case-Officer dated 11 October 2012 2. the ATO Access and Information Gathering Manual, in particular Chapters 1 and 7, and 3. my own understanding of the relevant legislation, case law and public rulings. | Reasons for the decision: • reproduce relevant provision or section under which decision is made For example: the decision was made under subsection 353-15(1) of Schedule 1 to the TAA provides as follows: 353-15 ACCESS TO PREMISES, DOCUMENTS ETC. (1) For the purposes of a taxation law, the Commissioner, or an individual authorised by the Commissioner for the purposes of this section: (a) may at all reasonable times enter and remain on any land, premises or place; and (b) is entitled to full and free access at all reasonable times to any documents, goods or other property; and (c) may inspect, examine, make copies of, or take extracts from, any documents; and (d) may inspect, examine, count, measure, weigh, gauge, test or analyse any goods or other property and, to that end, take samples. • indicate why decision made was made, with reference to documents and findings of fact For example: The buildings, places, books, documents and other papers referred to in paragraph X of this statement that the Commissioner seeks access to are considered crucial in ascertaining whether the taxpayers have complied and are complying with their Australian tax obligations. Where appropriate, samples of product/materials are also considered crucial in ascertaining whether illicit manufacture and movement of excisable product has occurred ... • reproduce relevant provision or section under which decision is made For example: the decision was made under subsection 353-15(1) of Schedule 1 to the TAA provides as follows: 353-15 ACCESS TO PREMISES, DOCUMENTS ETC. (1) For the purposes of a taxation law, the Commissioner, or an individual authorised by the Commissioner for the purposes of this section: (a) may at all reasonable times enter and remain on any land, premises or place; and (b) is entitled to full and free access at all reasonable times to any documents, goods or other property; and (c) may inspect, examine, make copies of, or take extracts from, any documents; and (d) may inspect, examine, count, measure, weigh, gauge, test or analyse any goods or other property and, to that end, take samples. • indicate why decision made was made, with reference to documents and findings of fact For example: The buildings, places, books, documents and other papers referred to in paragraph X of this statement that the Commissioner seeks access to are considered crucial in ascertaining whether the taxpayers have complied and are complying with their Australian tax obligations. Where appropriate, samples of product/materials are also considered crucial in ascertaining whether illicit manufacture and movement of excisable product has occurred ... (1) For the purposes of a taxation law, the Commissioner, or an individual authorised by the Commissioner for the purposes of this section: (a) may at all reasonable times enter and remain on any land, premises or place; and (b) is entitled to full and free access at all reasonable times to any documents, goods or other property; and (c) may inspect, examine, make copies of, or take extracts from, any documents; and (d) may inspect, examine, count, measure, weigh, gauge, test or analyse any goods or other property and, to that end, take samples. (a) may at all reasonable times enter and remain on any land, premises or place; and (b) is entitled to full and free access at all reasonable times to any documents, goods or other property; and (c) may inspect, examine, make copies of, or take extracts from, any documents; and (d) may inspect, examine, count, measure, weigh, gauge, test or analyse any goods or other property and, to that end, take samples. | Conclusion: • summarise decision, and basis for decision For example: The records that the Commissioner seeks to access are considered crucial in ascertaining whether the taxpayers have complied with their Australian tax obligations. I authorised access without notice pursuant to section 263 of the ITAA 1936 on the basis that exceptional circumstances existed, as set out in paragraph X of this statement . • Signature • Name • Position title • Date of statement. • summarise decision, and basis for decision For example: The records that the Commissioner seeks to access are considered crucial in ascertaining whether the taxpayers have complied with their Australian tax obligations. I authorised access without notice pursuant to section 263 of the ITAA 1936 on the basis that exceptional circumstances existed, as set out in paragraph X of this statement . • Signature • Name • Position title • Date of statement. | Checklist of factors to consider in preparing a section 13 statement of reasons: The following factors should be taken into consideration when preparing the statement: (a) the decision and any related papers the subject of the request (b) any document setting out the terms of the decision furnished to the person who made the request (c) whether the decision-maker was properly authorised to make the decision (d) whether the decision was based on a report or recommendation of some other subordinate officer (e) the facts leading up to the decision, including any relevant correspondence with the applicant or related parties and any discussions or interviews held with them (f) any other considerations taken into account by the decision-maker at the time the decision was made (g) if there were procedures that were required by law to be observed in connexion with the making of the decision (whether by statute, regulations or otherwise), whether those procedures were observed by the decision-maker (h) whether the decision made is still regarded as a lawful decision and could be successfully defended on the basis of the reasons for decision and supporting material at the time the decision was made (i) whether on examination it appears to the decision-maker that a different decision would have been preferable and whether the original decision should be withdrawn and a new decision (based on more adequate or other reasons) made (j) whether the decision is regarded as lawful and could be successfully defended for reasons other than, or in addition to, those at the time the decision was made (k) relevant provisions of the appropriate taxation Act or regulations (or both), and relevant taxation rulings, practice statements and other guidance documents (l) the ATO view (if any) in the matter, whether the decision was made in accordance with that policy and, if so, whether and how the merits of the particular case were also taken into account (m) whether there are matters in prior or subsequent years or periods which affect the decision made, and (n) whether the decision, if an application for an order of review is made, will affect other taxpayers. (a) the decision and any related papers the subject of the request (b) any document setting out the terms of the decision furnished to the person who made the request (c) whether the decision-maker was properly authorised to make the decision (d) whether the decision was based on a report or recommendation of some other subordinate officer (e) the facts leading up to the decision, including any relevant correspondence with the applicant or related parties and any discussions or interviews held with them (f) any other considerations taken into account by the decision-maker at the time the decision was made (g) if there were procedures that were required by law to be observed in connexion with the making of the decision (whether by statute, regulations or otherwise), whether those procedures were observed by the decision-maker (h) whether the decision made is still regarded as a lawful decision and could be successfully defended on the basis of the reasons for decision and supporting material at the time the decision was made (i) whether on examination it appears to the decision-maker that a different decision would have been preferable and whether the original decision should be withdrawn and a new decision (based on more adequate or other reasons) made (j) whether the decision is regarded as lawful and could be successfully defended for reasons other than, or in addition to, those at the time the decision was made (k) relevant provisions of the appropriate taxation Act or regulations (or both), and relevant taxation rulings, practice statements and other guidance documents (l) the ATO view (if any) in the matter, whether the decision was made in accordance with that policy and, if so, whether and how the merits of the particular case were also taken into account (m) whether there are matters in prior or subsequent years or periods which affect the decision made, and (n) whether the decision, if an application for an order of review is made, will affect other taxpayers.",ADJR Act 1977 | ADJR Act 1977 3(1) | ADJR Act 1977 3(4)(a) | ADJR Act 1977 5 | ADJR Act 1977 5(1) | ADJR Act 1977 6 | ADJR Act 1977 7 | ADJR Act 1977 13 | ADJR Act 1977 13(1) | ADJR Act 1977 13(2) | ADJR Act 1977 13(3)(a) | ADJR Act 1977 13(3)(b) | ADJR Act 1977 13(4A) | ADJR Act 1977 13(5) | ADJR Act 1977 13(6) | ADJR Act 1977 13(7) | ADJR Act 1977 13(8) | ADJR Act 1977 13(11) | ADJR Act 1977 13(11)(a) | ADJR Act 1977 13(11)(b) | ADJR Act 1977 13(11)(c) | ADJR Act 1977 13A | ADJR Act 1977 13A(1) | ADJR Act 1977 13A(2) | ADJR Act 1977 13A(2)(b) | ADJR Act 1977 13A(3)(a) | ADJR Act 1977 13A(3)(b) | ADJR Act 1977 13A(4) | ADJR Act 1977 14 | ADJR Act 1977 14(1) | ADJR Act 1977 14(2) | ADJR Act 1977 14(2)(a) | ADJR Act 1977 14(2)(b) | ADJR Act 1977 14(3)(a) | ADJR Act 1977 14(3)(b) | ADJR Act 1977 14(4) | ADJR Act 1977 17 | ADJR Act 1977 17(c) | ADJR Act 1977 17(d) | ADJR Act 1977 Sch 1 | ADJR Act 1977 Sch 2 | TAA 1953 8AAG | TAA 1953 14ZZB(2) | TAA 1953 Pt IVC | TAA 1953 Sch 1 353-10 | TAA 1953 Sch 1 353-15 | TAA 1953 Sch 1 353-15(1) | TAA 1953 Sch 1 Subdiv 355-B | ITAA 1936 161 | 170 CLR 321 | 48 ALR 500 | 85 ATC 4592 | [1997] FCA 540 | 71 FCR 485 | 37 ALD 1 | 89 ATC 4268 | 2002 ATC 4761 | [2005] HCA 7 | 96 ATC 4967 | [2005] FCAFC 101 | [1985] FCA 3 | 55 ALR 361 | 23 FCR 162 | [2001] HCA 30 | 206 CLR 323 | 75 ALJR 1105 | 180 ALR 1 | 86 ATC 4130 | 2 ALD 209 | 6 IR 111 | 89 ATC 4415 | 51 ALR 561 | 53 ALR 551 | 20 ALR 323 | 46 ALR 379 | 91 ALR 65 | [2008] FCA 564 | 86 ATC 4639,,ADJR Act 1977 | ADJR Act 1977 3(1) | ADJR Act 1977 3(4)(a) | ADJR Act 1977 5 | ADJR Act 1977 5(1) | ADJR Act 1977 6 | ADJR Act 1977 7 | ADJR Act 1977 13 | ADJR Act 1977 13(1) | ADJR Act 1977 13(2) | ADJR Act 1977 13(3)(a) | ADJR Act 1977 13(3)(b) | ADJR Act 1977 13(4A) | ADJR Act 1977 13(5) | ADJR Act 1977 13(6) | ADJR Act 1977 13(7) | ADJR Act 1977 13(8) | ADJR Act 1977 13(11) | ADJR Act 1977 13(11)(a) | ADJR Act 1977 13(11)(b) | ADJR Act 1977 13(11)(c) | ADJR Act 1977 13A | ADJR Act 1977 13A(1) | ADJR Act 1977 13A(2) | ADJR Act 1977 13A(2)(b) | ADJR Act 1977 13A(3)(a) | ADJR Act 1977 13A(3)(b) | ADJR Act 1977 13A(4) | ADJR Act 1977 14 | ADJR Act 1977 14(1) | ADJR Act 1977 14(2) | ADJR Act 1977 14(2)(a) | ADJR Act 1977 14(2)(b) | ADJR Act 1977 14(3)(a) | ADJR Act 1977 14(3)(b) | ADJR Act 1977 14(4) | ADJR Act 1977 17 | ADJR Act 1977 17(c) | ADJR Act 1977 17(d) | ADJR Act 1977 Sch 1 | ADJR Act 1977 Sch 2 | TAA 1953 8AAG | TAA 1953 14ZZB(2) | TAA 1953 Pt IVC | TAA 1953 Sch 1 353-10 | TAA 1953 Sch 1 353-15 | TAA 1953 Sch 1 353-15(1) | TAA 1953 Sch 1 Subdiv 355-B | ITAA 1936 161 | AAT Act 1975 28 | Judiciary Act 1903 39B | Administrative Decisions (Judicial Review) Regulations 2017,,Our Charter Request for pre-litigation legal services (link available internally only),False,True,https://www.ato.gov.au/law/view/document?docid=PSR/PS20131/NAT/ATO/00001,"In this Practice Statement, a reference to a right to seek review of a reviewable objection decision or an extension of time refusal decision in the AAT should instead be read as a reference to a review in the ART. | ENTITLEMENT TO A SECTION 13 STATEMENT OF REASONS | PROVIDING A SECTION 13 STATEMENT OF REASONS | Minor changes including corrections to case citations. | Various corrections made. | Updated 2011 to 2012 in examples. Inserted reference to MRRT law. Updated reference to the Commissioner. | [1] Subsection 14ZZB(2) of the TAA provides that section 28 of the AAT Act does not apply in relation to a reviewable objection decision (being decisions reviewable under Part IVC of the TAA). | [2] 'Mandamus' is an order issued by the court against a tribunal, public body or official requiring it to perform a duty which it has failed to perform. | [3] ATO staff should refer to business line processes and policies regarding recording of requests on the Siebel. | Australian Broadcasting Tribunal v Bond [1990] HCA 33 170 CLR 321 64 ALJR 462 94 ALR 11 21 ALD 1 5 BR 137 | Ansett Transport Industries (Operations) Pty Ltd & Anor v Wraith, Kenneth F. & Ors [1983] FCA 187 48 ALR 500 5 ALN 290 | Australian Institute of Marine & Power Engineers v. Secretary Department of Transport [1986] FCA 636 71 ALR 73 | Balnaves, P.J. v. The Deputy Commissioner of Taxation [1985] FCA 500 8 FCR 589 61 ALR 509 85 ATC 4592 | Bilborough v Deputy Commissioner of Taxation [2007] FCA 773 95 ALD 371 162 FCR 160 240 ALR 588 | Canwest Global Communications Corp v Australian Broadcasting Authority [1997] FCA 540 24 ACSR 405 147 ALR 539 71 FCR 485 | Chapman, T.L. & Ors v The Hon. Tickner, R. & Ors [1995] FCA 46 55 FCR 316 37 ALD 1 133 ALR 74 87 LGERA 291 | Commissioner of Taxation & Ors v. Citibank Ltd [1989] FCA 161 89 ATC 4268 20 ATR 292 85 ALR 588 20 FCR 403 | Elias v Commissioner of Taxation [2002] FCA 1132 51 ATR 1 70 ALD 588 2002 ATC 4761 199 ALR 246 | Golden City Car & Truck Centre Pty Ltd ACN 010 319 427 v Deputy Commissioner of Taxation [1999] FCA 29 41 ATR 87 56 ALD 177 | Griffith University v Tang [2005] HCA 7 221 CLR 99 79 ALJR 627 213 ALR 724 | Hutchins, Peter Graeme v Deputy Commissioner of Taxation [1996] FCA 201 136 ALR 153 41 ALD 193 33 ATR 405 96 ATC 4967 65 FCR 269 | Minister for Immigration and Ethnic Affairs & Anor v Arslan, Rafet & Anor [1984] FCA 241 4 FCR 73 55 ALR 361 6 ALD 512 | Minister for Immigration Local Government & Ethnic Affairs v. Taveli, M.F. & Ors [1990] FCA 229 94 ALR 177 23 FCR 162 20 ALD 315 | Minister for Immigration and Multicultural Affairs v Yusuf [2001] HCA 30 206 CLR 323 75 ALJR 1105 180 ALR 1 | Nestle Australia Ltd v. Commissioner of Taxation [1986] FCA 23 10 FCR 78 86 ATC 4130 | Palmer and Minister for the Capital Territory [1979] AATA 45 2 ALD 209 | Pinchback, Brian Terence v Wilenski, Peter [1983] FCA 323 6 IR 111 | Powell, D.L. v. Evreniades, S. & Ors Commissioner of Taxation [1989] FCA 140 89 ATC 4415 20 ATR 472 87 ALR 117 21 FCR 252 | Public Service Board (NSW) v Osmond [1986] HCA 7 4 Leg Rep 1 159 CLR 656 60 ALJR 209 63 ALR 559 | Rawson Finances Pty Limited v Deputy Commissioner of Taxation [2010] FCA 538 268 ALR 362 189 FCR 189 | Sezdirmezoglu, Ligor & Anor v Acting Minister for Immigration & Ethnic Affairs [1983] FCA 295 51 ALR 561 5 ALN 358 74 FLR 348 | Soldatow, S. v. Australian Council [1991] FCA 172 28 FCR 1 22 ALD 750 103 ALR 723 | Tagle, Emma Estrada v The Minister for Immigration & Ethnic Affairs [1983] FCA 45 46 ALR 379 5 ALN 131 | The Commonwealth of Australia v. The Pharmacy Guild of Australia & Ors [1989] FCA 797 19 ALD 510 91 ALR 65 | Trollope v The Honourable Justice Middleton [2008] FCA 564 249 ALR 578 169 FCR 507 104 ALD 373 | Waterhouse, R.W. v Commissioner of Taxation [1986] FCA 417 86 ATC 4639"
PS LA 2013/2,Economic advice and the Economist Practice,20 June 2013,14 January 2013,Law Administration Practice Statement,False,"1. What is this Practice Statement about?: This Practice Statement outlines the role of the ATO's Economist Practice, the nature of economic advice it provides and the process for obtaining accredited economic advice. Within the ATO, only the Economist Practice can prepare accredited economic advice pertaining to taxpayers and the operation of all laws that the Commissioner administers. Accredited economic advice may be relied upon by the ATO as expert economic advice for the purposes of determining the ATO's view. ATO staff must follow the process outlined in this Practice Statement to obtain accredited economic advice. | 2. What is the Economist Practice?: The Economist Practice is the central area within the ATO responsible for the provision of economic advice relating to the laws that the Commissioner administers. This includes economic advice that supports the interpretation of income tax law. [1] Other areas of the ATO also employ economists, but they have different roles. [2] The Economist Practice is based in the International, Support and Programs business line within the Client Engagement Group. It provides independent economic advice [3] , technical leadership and oversight of economic advice within the ATO. Having a central area to provide quality-controlled expert economic advice improves consistency and enhances the professional reputation of the organisation. The Economist Practice works with stakeholders primarily within the Public Groups, Private Wealth, Objections and Review and Tax Counsel Network business lines when developing economic advice. | 3. How do economics and economic advice relate to the ATO?: Broadly, economics is the analysis of the choices made by individuals, firms, governments and other participants in markets and the economy. These choices affect the way resources are allocated (such as capital and labour) and outcomes are optimised (such as prices, profits or tax costs). Within the ATO, there is a significant focus on international tax risk associated with transfer pricing. Transfer pricing requires the application of the arm's length principle, which is an economic concept embedded in Australia's transfer pricing domestic laws [4] and network of tax treaties. [5] Other parts of income tax law with economic issues include aspects of anti-avoidance [6] , the arm's length debt test in the thin capitalisation framework [7] and the non-arm's length income rule applied to managed investment trusts. [8] Economic issues arise in both international and domestic tax arrangements. Economic advice provided by the Economist Practice varies depending on the advice required and the type of arrangement being analysed. For cross-border transfer pricing matters [9] , the Economist Practice may address: • identifying and analysing the actual conditions that operate (in connection with the commercial and financial relations) • identifying and analysing the arm's length conditions that might be expected to operate in comparable circumstances • identifying and analysing whether circumstances are comparable, by referring to the OECD's 5 factors of comparability • selecting and applying the most appropriate transfer pricing method or methods to determine arm's length outcomes. • identifying and analysing the actual conditions that operate (in connection with the commercial and financial relations) • identifying and analysing the arm's length conditions that might be expected to operate in comparable circumstances • identifying and analysing whether circumstances are comparable, by referring to the OECD's 5 factors of comparability • selecting and applying the most appropriate transfer pricing method or methods to determine arm's length outcomes. In all instances, economic advice developed by the Economist Practice will inform how the ATO applies the legislative context and answers the statutory question. | 4. What is accredited economic advice and when should I seek it?: Accredited economic advice is written advice and is prepared or quality assured (and labelled so) by the Economist Practice. You can rely on this expert economic advice to determine the ATO's view. For example, this would include advice provided by the Economist Practice to a decision-maker in a transfer pricing dispute with a taxpayer. Accredited economic advice is quality assured under the process outlined later in this Practice Statement. Seek accredited economic advice for matters that deal with complex economic issues. This includes audits, advance pricing arrangements, objections and litigation. [10] Accreditation of all economic advice is not mandated except where rulings, other practice statements or internal guidance need it. You should consider how any ATO public guidance applies to your risk or issue before engaging the Economist Practice. ATO public guidance is not accredited economic advice. If you are not sure whether you need accredited economic advice, discuss the issue with a senior staff member from the Economist Practice (EL2 or above). | 5. What is the process for obtaining accredited economic advice and engaging with the Economist Practice?: The Economist Practice is engaged through Siebel using the referral activity and escalation template (see 'More information' in this Practice Statement for a link to the referral procedure). The process for obtaining accredited economic advice is: (1) The business line identifies a need for economic advice. (2) The case officer completes the Economist Practice referral activity in Siebel. This triggers a triage and the referral is prioritised by the Economist Practice. (3) Accepted referrals are assigned to an economist with appropriate industry or technical expertise. The economist will consult with the case officer regarding the work priority and what additional information may be required. (4) The economic advice developed by the economist will be documented and quality assured by an appropriate senior economist (generally located in a different site). (5) Once approved by the Economist Practice quality assurance process, the accredited economic advice is provided to the referring business line. (1) The business line identifies a need for economic advice. (2) The case officer completes the Economist Practice referral activity in Siebel. This triggers a triage and the referral is prioritised by the Economist Practice. (3) Accepted referrals are assigned to an economist with appropriate industry or technical expertise. The economist will consult with the case officer regarding the work priority and what additional information may be required. (4) The economic advice developed by the economist will be documented and quality assured by an appropriate senior economist (generally located in a different site). (5) Once approved by the Economist Practice quality assurance process, the accredited economic advice is provided to the referring business line. All referrals received through Siebel are triaged to identify systemic issues and priorities and analyse patterns and trends. The Economist Practice works closely with internal stakeholders to align with business lines and corporate priorities. The Economist Practice accepts, prioritises and agrees the scope of work for referrals based on the following (in no particular order): • strategic priorities of the organisation • availability of economists • materiality and revenue impact • timing constraints • risk to the ATO reputation and the integrity of the system • technical complexity and precedential value. • strategic priorities of the organisation • availability of economists • materiality and revenue impact • timing constraints • risk to the ATO reputation and the integrity of the system • technical complexity and precedential value. Accepted referrals are allocated to an economist, who works with the referring area to develop an engagement plan, including the scope of work, deliverables and timeframes. The scope of the Economist Practice's engagement is negotiated case-by-case. It may include preparing written accredited economic advice, participating in workshops and taxpayer meetings, and communicating the ATO's economic position to internal and external stakeholders. If accredited economic advice is not necessary for your case, the Economist Practice will discuss options with you to resolve the issue. Options may include assistance through a case workshop or providing general economic advice and guidance. This process is designed to: • ensure the consistency and quality of economic advice across the ATO • reduce duplication and amplify insights • manage economic advice strategically • direct resources to best achieve ATO priorities. • ensure the consistency and quality of economic advice across the ATO • reduce duplication and amplify insights • manage economic advice strategically • direct resources to best achieve ATO priorities. The Economist Practice engages on specific taxpayer matters including: • assurance reviews • audits • advance pricing arrangements • settlements • objections • litigation support. • assurance reviews • audits • advance pricing arrangements • settlements • objections • litigation support. The Economist Practice also engages on broader issues including risk strategies and clusters, public guidance products and capability development. | 6. How is accredited economic advice prepared?: The economist working on the referral will discuss how to document facts and evidence relevant to the economic analysis. Timeframes to deliver advice depends on several factors. These include: • early engagement with the Economist Practice • receiving the relevant information • effectively identifying issues • the complexity of economic issues to be considered. • early engagement with the Economist Practice • receiving the relevant information • effectively identifying issues • the complexity of economic issues to be considered. By working together, we can efficiently gather information from the taxpayer and complete relevant advice in a timely manner. Accredited economic advice completed within the Economist Practice is subject to formal quality assurance. An EL2 economist (generally located in a different site to the lead economist) completes quality assurance of the work to ensure objectivity and consistency. Only advice that has been quality assured can be considered accredited economic advice. | 7. When is it appropriate to obtain external economic advice?: In certain circumstances, the ATO may seek external economic advice. You must first discuss resolution options with the Economist Practice. Generally, external economic advice is sought only where: • highly specialised expertise or knowledge of complex arrangements is required and is not available within the ATO • the materiality and precedential nature of the issues warrant further certainty. • highly specialised expertise or knowledge of complex arrangements is required and is not available within the ATO • the materiality and precedential nature of the issues warrant further certainty. This approach allows us to have strategic oversight of economic advice provided within the ATO and best achieves the requirements as set out in this Practice Statement. Discuss and agree with the Economist Practice the economic expert advice you need and the scope of their advice. The opinion should be restricted to matters within their subject of expertise. External economic advice may involve a specialist on specific industry issues, the arm's length conditions and pricing, or other issues relevant to economic outcomes. In some instances, more than one expert type may be needed. The administrative role of the Economist Practice varies, based upon the advice being sought. These engagements require support from the Economist Practice. For industry and other experts, the Economist Practice supports selecting and engaging the expert to ensure they meet ATO needs. For all types of external economic experts, final approval to engage rests with the business line budget holder. Economist Practice involvement must be sustained throughout the engagement of an external economic expert. This includes any decisions to rely on the expert advice. | 8. Can I engage the Economist Practice if a matter has gone to objections and litigation?: Yes, the Economist Practice support extends to matters formally objected to by a taxpayer as provided for under section 175A of the ITAA 1936 and Part IVC of the Taxation Administration Act 1953 . Use the Siebel referral activity and escalation template. Where support from the Economist Practice has been sought on these matters, the economist will assist in evaluating the positions of the taxpayer and the Commissioner. For objections, the economist will prioritise any new evidence or expert opinion the taxpayer has presented. For objections and litigation, the Economist Practice assists with identifying and briefing suitable experts, reviewing and evaluating any new evidence, and providing other forms of economic advice where required. External economic experts for litigation are engaged through an external panel firm. [11] The Economist Practice directly supports this engagement to ensure they meet ATO needs. More information For more information, see: • Economist Practice referrals (internal link only) • Economist Practice referrals (internal link only)",ITAA 1936 Pt IVA | ITAA 1936 175A | ITAA 1997 Subdiv 275-L | ITAA 1997 Div 815 | ITAA 1997 Div 820 | TAA 1953 Pt IVC | International Tax Agreements Act 1953,,ITAA 1936 Pt III former Div 13 | ITAA 1936 Pt IVA | ITAA 1936 175A | ITAA 1997 Subdiv 275-L | ITAA 1997 Div 815 | ITAA 1997 Div 820 | TAA 1953 Pt IVC | International Tax Agreements Act 1953,,Articles 7 and 9 of Australian tax treaties Economist Practice referrals (internal link only),False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20132/NAT/ATO/00001,"Paragraphs 2 and 7 and link to referral | Updated to reflect changes in business lines and remove requirements in paragraph 7 for approval and replace with support of Economist Practice, updated link to referral process. | Updated to new LAPS format and style. | Moved 12(a) after 12(d) and renumbered subparagraphs accordingly. Added coordination and support activities. | Clarified that the Economist Network is an informal network. | [1] The Income Tax Assessment Act 1936 (ITAA 1936), Income Tax Assessment Act 1997 (ITAA 1997) and Australian tax treaties through the International Tax Agreements Act 1953 . | [2] These areas include Revenue Analysis Branch (RAB) and Tax Gap. RAB prepares revenue forecasts and policy costings in conjunction with Treasury, and other revenue costings and advice to states and territories on GST matters and measurement of revenue impacts. Tax Gap estimates the gap between tax paid and tax that should be paid in the Australian taxation system. | [3] Economic advice is considered independent of the area requesting the advice. | [4] Division 815 of the ITAA 1997 and former Division 13 of Part III of the ITAA 1936 for legacy purposes. | [5] Commonly through Articles 7 and 9 of Australian tax treaties. | [6] In particular, the diverted profits tax within Part IVA of the ITAA 1936. | [7] Division 820 of the ITAA 1997. | [8] Subdivision 275-L of the ITAA 1997. | [9] Within Division 815 of the ITAA 1997. | [10] For objection and litigation work, it is likely that qualified external experts will also be engaged by the relevant decision-makers, where required. | [11] Responsibility for the appointment of independent external experts for objection and litigation cases ultimately rests with the relevant decision-makers."
PS LA 2013/3,SUBJECT: Alternative Dispute Resolution (ADR) in ATO disputes PURPOSE: To provide instruction to ATO personnel on what policies and guidelines must be followed when attempting to resolve or limit disputes by means of ADR,1 August 2013,1 August 2013,Law Administration Practice Statement,False,"ATO approach to disputes: 1. Most taxpayer interactions with the ATO do not end up in dispute. When disputes do occur, the ATO prefers to resolve them as soon as possible at minimal cost to the parties. Most disputes are resolved quickly and informally through direct negotiation and discussions between the ATO and taxpayers. 2. The ATO outlines its key principles to managing disputes in its Disputes Policy and annual Dispute Management Plan. The ATO is committed to work with taxpayers to: • avoid disputes where possible • resolve disputes as early as possible • resolve disputes in the simplest and most cost-effective manner taking into account the merits and the risks • clarify disputes by listening to each other's views and considering all resolution options, and • manage disputes in a courteous and fair manner. • avoid disputes where possible • resolve disputes as early as possible • resolve disputes in the simplest and most cost-effective manner taking into account the merits and the risks • clarify disputes by listening to each other's views and considering all resolution options, and • manage disputes in a courteous and fair manner. 3. Further information on the ATO approach to disputes and the Dispute Management Plan is provided in the documents listed as 'related practice statements' and 'other references' at the end of this practice statement and are available on www.ato.gov.au. | ATO approach to ADR: 4. For the purposes of this practice statement, ADR is an umbrella term for processes, other than judicial or tribunal determination, in which an impartial person, assists those in a dispute to resolve or narrow the issues between them. [1] This includes ADR processes run or initiated by courts or tribunals. For the purposes of this practice statement we refer to this impartial person as an ADR Practitioner and we provide some further information at paragraphs 31 to 33 of this practice statement. 5. When disputes cannot be resolved by early engagement and direct negotiation, the ATO is committed to using ADR where appropriate to resolve disputes. It is important to recognise though that not all cases are suitable for ADR. In cases where ADR is suitable, the ATO and the taxpayer should choose a process which is suited to the circumstances and the nature of the dispute. 6. Taxpayers and their representatives can expect that the ATO will: • identify opportunities for ADR • consider and respond to requests for ADR • suggest ADR where appropriate, and • speak with and write to the taxpayer before ADR to explain the process and what they can expect from it. • identify opportunities for ADR • consider and respond to requests for ADR • suggest ADR where appropriate, and • speak with and write to the taxpayer before ADR to explain the process and what they can expect from it. 7. By way of general observation, ADR may be appropriate when: • there are issues that are able to be negotiated • the ATO has something to give • the taxpayer has something to give • the dispute is capable of being settled within existing settlement policies and practices, and • early resolution is preferable to judicial determination. • there are issues that are able to be negotiated • the ATO has something to give • the taxpayer has something to give • the dispute is capable of being settled within existing settlement policies and practices, and • early resolution is preferable to judicial determination. 8. In practice, ADR may be appropriate where it will, for example: • achieve a quicker or cheaper resolution particularly when the cost of litigating is out of proportion to the possible benefits • narrow or clarify the facts and issues in dispute • minimise risks associated with evidentiary difficulties • facilitate a certain / earlier payment of tax, or • maintain or improve the relationship between the parties in dispute. • achieve a quicker or cheaper resolution particularly when the cost of litigating is out of proportion to the possible benefits • narrow or clarify the facts and issues in dispute • minimise risks associated with evidentiary difficulties • facilitate a certain / earlier payment of tax, or • maintain or improve the relationship between the parties in dispute. 9. ADR may be inappropriate where, for example: • resolution can only be achieved by departure from an established 'precedential ATO view' and there is no material difference between the facts in dispute and the facts which form the basis of the 'precedential ATO view' [2] • the cost and delay involved in ADR is disproportionate to the likely benefit • the dispute turns on genuine and fundamental issues of law or is otherwise straightforward and there is a clearly identified public benefit in having the matter judicially determined • The facts are clear and the application of the law is straightforward, or • there is a genuinely held concern that the case involves serious criminal fraud or evasion. • resolution can only be achieved by departure from an established 'precedential ATO view' and there is no material difference between the facts in dispute and the facts which form the basis of the 'precedential ATO view' [2] • the cost and delay involved in ADR is disproportionate to the likely benefit • the dispute turns on genuine and fundamental issues of law or is otherwise straightforward and there is a clearly identified public benefit in having the matter judicially determined • The facts are clear and the application of the law is straightforward, or • there is a genuinely held concern that the case involves serious criminal fraud or evasion. | Disputes to which this practice statement applies: 10. This practice statement is written in respect of taxation and superannuation disputes. However, many of the principles set out in this practice statement will apply to other disputes to which the ATO is a party. 11. This practice statement should be read in conjunction with Law Administration Practice Statements PS LA 2007/5 Settlements , PS LA 2007/6 Guidelines for settlement of widely-based tax disputes , and the Code of settlement practice . 12. When matters are in litigation, this practice statement should also be read in conjunction with Law Administration Practice Statement PS LA 2009/9 Conduct of ATO Litigation and engagement of Legal Services Branch . | ATO obligations with respect to ADR: 13. Commonwealth agencies and their legal services providers have an obligation under Appendix B to the Attorney-General's Legal Services Directions 2005 to act as model litigants in the conduct of litigation and in ADR. [3] The model litigant obligation requires agencies to endeavour where possible to avoid, prevent and limit the scope of legal proceedings by considering ADR before initiating legal proceedings and by participating in ADR where appropriate. The requirement to consider ADR is a continuing obligation from the time litigation is contemplated and throughout the course of litigation. [4] 14. When participating in ADR, government agencies must do so fully and effectively. An obstructive or uncooperative attitude indicates a failure to participate in good faith. [5] However, participation in good faith does not require a party to act other than in their self-interest. [6] 15. As a government agency, the ATO is required to approach ADR with 'good management' in mind. Good management requires that the ATO approach disputes in a way that promotes proper use of Commonwealth resources; that is, in a way that is efficient, effective, economical and ethical and not inconsistent with the policies of the Commonwealth. [7] Resolution of a dispute may therefore be appropriate as a matter of good management. 16. Parties to tax disputes under review in the Federal Court are obliged under the Civil Dispute Resolution Act 2011 to file 'genuine steps' statements outlining what steps they have taken to resolve their dispute or the reasons why they have not taken any. The Act encourages parties to take genuine steps to resolve a dispute (including in tax and superannuation disputes) before commencing legal proceedings in the Federal Court of Australia. | When to initiate ADR: 17. Although there is no optimal time for ADR, it may be appropriate: • after the ATO issues a position paper during an audit • during a review at the objection stage before a final decision is made by an ATO officer, or • during the litigation stage. • after the ATO issues a position paper during an audit • during a review at the objection stage before a final decision is made by an ATO officer, or • during the litigation stage. 18. Attempting ADR too early, before key elements of the dispute have crystallised, may mean there is a lesser likelihood of success as the parties may not be in an informed position to engage in discussions to clarify, narrow or resolve the issues in dispute, increasing the overall cost to the parties and causing unnecessary delay. | How to initiate ADR: 19. ADR is generally initiated by agreement between the parties. 20. ATO personnel involved in disputes should actively look for opportunities where ADR can help to resolve or progress the dispute. Any opportunities identified should be discussed with the relevant manager(s) and appropriate technical staff (including Review and Dispute Resolution (RDR) officers) before approaching the taxpayer or their advisors. 21. Taxpayers can also request ADR. Requests should usually be directed to the tax officer managing the dispute, who will discuss the request with the relevant manager(s) and appropriate technical staff (including RDR officers) before responding. 22. If ADR is requested by a taxpayer and the ATO considers that ADR is not appropriate, the ATO will clearly communicate the reasons to the taxpayer. | Types of ADR: 23. ADR processes are usually classified as facilitative, advisory or determinative: [8] • In a facilitative process, an ADR practitioner assists the parties to identify the issues in dispute, develop options, consider alternatives and endeavour to reach an agreement about part or all of the dispute. Mediation is an example of a facilitative process. • In an advisory process, an ADR practitioner considers and appraises the dispute and provides advice on possible or desirable outcomes. Neutral evaluation and case appraisal are examples of advisory processes. Advisory processes, by their nature, cannot be made to be binding on any party. • In a determinative process, an ADR practitioner evaluates the dispute and makes a decision. Arbitration and expert determination are examples of determinative processes. • In a blended process, the ADR practitioner plays multiple roles. For example in conciliation and conferencing, the ADR practitioner may facilitate discussions as well as provide advice on the merits of the dispute. • In a facilitative process, an ADR practitioner assists the parties to identify the issues in dispute, develop options, consider alternatives and endeavour to reach an agreement about part or all of the dispute. Mediation is an example of a facilitative process. • In an advisory process, an ADR practitioner considers and appraises the dispute and provides advice on possible or desirable outcomes. Neutral evaluation and case appraisal are examples of advisory processes. Advisory processes, by their nature, cannot be made to be binding on any party. • In a determinative process, an ADR practitioner evaluates the dispute and makes a decision. Arbitration and expert determination are examples of determinative processes. • In a blended process, the ADR practitioner plays multiple roles. For example in conciliation and conferencing, the ADR practitioner may facilitate discussions as well as provide advice on the merits of the dispute. 24. Arbitration is generally not appropriate for tax disputes because it can incur similar costs and delays as litigation, potentially conflicts with the statutory responsibilities of the Commissioner as decision-maker, and can lack the openness and transparency of court or tribunal decisions. 25. Independent experts may be engaged to provide specialist knowledge to help resolve certain unique types of dispute (including valuation disputes). Further information on engaging independent experts is available at Appendix B. | What can a taxpayer expect from the ATO in ADR: 26. When engaging in ADR, the ATO will: • be prepared • participate fully, effectively and in good faith • ensure the taxpayer has been provided with all relevant documents prior to the ADR process • be willing to negotiate and attempt to resolve all aspects of the dispute (if appropriate) • listen to the taxpayer and remain courteous at all times • ensure a decision maker is present; [9] in exceptional circumstances the decision maker may attend by video or telephone • if the ATO considers that final resolution of the dispute is not possible at ADR but there is still value in the ADR process going ahead, the ATO will advise the taxpayer before the ADR process proceeds of any limitation of the scope of the ADR, and • only resolve disputes in accordance with the law or published policy. • be prepared • participate fully, effectively and in good faith • ensure the taxpayer has been provided with all relevant documents prior to the ADR process • be willing to negotiate and attempt to resolve all aspects of the dispute (if appropriate) • listen to the taxpayer and remain courteous at all times • ensure a decision maker is present; [9] in exceptional circumstances the decision maker may attend by video or telephone • if the ATO considers that final resolution of the dispute is not possible at ADR but there is still value in the ADR process going ahead, the ATO will advise the taxpayer before the ADR process proceeds of any limitation of the scope of the ADR, and • only resolve disputes in accordance with the law or published policy. | ATO expectations of taxpayers in ADR: 27. The ATO expects taxpayers and their representatives to: • be prepared, including ensuring that all relevant people are participating or directly accessible • participate fully, effectively and in good faith • be authorised to discuss and resolve the dispute • provide the ATO with all relevant documents prior to the ADR process, and • be willing to negotiate and attempt to resolve all aspects of the dispute or clarify prior to the ADR process any limitation of the scope of the ADR process • be prepared, including ensuring that all relevant people are participating or directly accessible • participate fully, effectively and in good faith • be authorised to discuss and resolve the dispute • provide the ATO with all relevant documents prior to the ADR process, and • be willing to negotiate and attempt to resolve all aspects of the dispute or clarify prior to the ADR process any limitation of the scope of the ADR process | The ADR process: 28. If the parties choose to participate in ADR, they may need to consider various options for the conduct of the ADR process. 29. If a court or tribunal is conducting the process, it will usually consult and advise as to how the relevant ADR process will be conducted and what documents will need to be filed and exchanged between the parties. 30. For an ADR process which is not conducted by the Federal Court or the Administrative Appeals Tribunal the parties will need to consider and agree on: • the type of ADR process to be used • where the ADR process will be conducted • the terms and conditions of the engagement of the ADR practitioner, including payment of the ADR practitioner's fee, which is ordinarily shared between the parties. • the scope of the ADR process and the issues to be reviewed • what documents if any will be provided to the ADR practitioner and exchanged prior to the ADR process • what will be required of each party during the ADR process • confirming that all communications during the ADR process are ""without prejudice"" and not able to be used in other contexts or in litigation • who will attend the the ADR process for each party • ensuring a decision maker for each party will attend the ADR process, and • the circumstances in which an ADR process may be terminated early. • the type of ADR process to be used • where the ADR process will be conducted • the terms and conditions of the engagement of the ADR practitioner, including payment of the ADR practitioner's fee, which is ordinarily shared between the parties. • the scope of the ADR process and the issues to be reviewed • what documents if any will be provided to the ADR practitioner and exchanged prior to the ADR process • what will be required of each party during the ADR process • confirming that all communications during the ADR process are ""without prejudice"" and not able to be used in other contexts or in litigation • who will attend the the ADR process for each party • ensuring a decision maker for each party will attend the ADR process, and • the circumstances in which an ADR process may be terminated early. | Engagement of a Practitioner for ADR: 31. An ADR practitioner is an independent person who is trained to help parties in dispute to work towards a solution. The role of an ADR practitioner is different depending on the type of ADR process used. In some ADR processes, such as conciliation or early neutral evaluation, the ADR practitioner can provide advice to the parties in dispute, in others such as mediation the ADR practitioner will assist the parties to resolve some or all of the issues in dispute but will not provide advice to them. If the ADR process is not conducted by the Federal Court or the Administrative Appeals Tribunal the parties will need to consider which type of ADR process will best suit their needs and the context of the dispute. 32. ATO RDR can assist in the selection and engagement of ADR practitioners. 33. Annexure A of PS LA 2009/9 sets out further details on ATO policy in relation to seeking approval to engage and engaging ADR practitioners. | Participation in ADR: 34. ATO personnel attending an ADR process should be clear in advance about their respective roles. An RDR officer must attend if the dispute is in litigation. 35. Further information about roles and responsibilities of different ATO personnel during different stages of an ADR process is set out in Appendix A of this practice statement. 36. ATO personnel must prepare thoroughly and be familiar with all facts, issues, law and policy relevant to the dispute. They should also have regard to the underlying interests of both parties when identifying options for resolution of the dispute. 37. The ATO personnel attending the ADR should have authority to make decisions about the issues likely to be discussed, including the authority to settle or make decisions about payment of debt. In exceptional cases where it is not possible for the ATO decision maker to be present at the ADR process, they will be accessible by telephone or video-conference during the course of the ADR. 38. It is desirable to persist with negotiations at ADR while there is any likelihood of a successful outcome. 39. The ADR process should be brought to an end if it becomes clear that there is no likelihood of a successful outcome. 40. Successful outcomes may include: • resolution of the dispute, either in part or in full • clarification of the facts or issues • obtaining payment • improving the relationship between the parties to the dispute, or • agreeing on a way forward to progress the dispute towards resolution. • resolution of the dispute, either in part or in full • clarification of the facts or issues • obtaining payment • improving the relationship between the parties to the dispute, or • agreeing on a way forward to progress the dispute towards resolution. | Confidentiality of the ADR process: 41. Unless the parties agree otherwise, all ADR processes are conducted in a confidential and on a 'without prejudice' basis. 42. Any communications between parties for the purposes of an ADR process is privileged and cannot be used in legal proceedings without the consent of the other party. 43. The ATO Settlement Model Deed, at Appendix B of the Code of settlement practice , contains specific confidentiality clauses for formal settlement arrangements. 44. The ATO will seek feedback from participants in ADR to identify potential improvements to ATO processes and to provide community assurance. This will be sought independently of the ADR process, and will maintain the confidentiality of all participants. | Documenting an agreement: 45. Any settlement of a taxation dispute must be made in accordance with the Code of settlement practice which sets out guidelines for settlement of disputed taxation liabilities or entitlements. The Code of settlement practice applies to settlement of taxation disputes whether or not they occur in the course of an ADR process. 46. ATO personnel attending an ADR process must ensure that any settlement deed or agreement document is clear, unambiguous and fully reflects the agreed outcomes. 47. Sometimes parties will be unable to execute an enforceable agreement at the ADR process. In such circumstances a 'Heads of Agreement' should be drafted to record what has been agreed. Such a minute may or may not be enforceable depending on its terms. Accordingly, it is preferable for the parties to indicate whether they intend to be legally bound by the document. Alternatively, parties may wish to reserve the right to be bound only when an enforceable agreement is executed. 48. For the purposes of achieving certainty and finality for the parties, the agreement should take effect on its execution. Some courts and tribunals will have separate rules as to when an agreement becomes enforceable. | What can taxpayers do if their expectations are not met?: 49. In accordance with the Taxpayers' Charter , it is important for the ATO to meet the standards of service outlined in the Charter and this Practice Statement. The Legal Services Directions 2005 are a set of binding rules issued by the Attorney-General about the performance of legal work by Commonwealth agencies including their participation in alternative dispute resolution processes. If a taxpayer does not think the ATO has met those standards in an ADR process, the taxpayer has the right to make a complaint. 50. A taxpayer should first try to resolve the matter with the tax officer involved in the ADR process. If still unsatisfied, the taxpayer should talk to the tax officer's manager. 51. If a taxpayer is not satisfied with the way in which the complaint is being handled, the taxpayer may lodge a complaint using an online form which can be accessed on the ATO website. 52. A taxpayer's review and appeal rights will be unaffected by participating in ADR, subject to the terms of any settlement reached and compliance with the legislative timeframes. 53. The following table sets out the roles and responsibilities of the various ATO stakeholders in the course of an ADR process. Task Responsibility [pre-litigation stage] Responsibility [litigation stage] [10] Identifying and reviewing ADR opportunities Business Line (BSL) case officer BSL in consultation with RDR and/or Tax Counsel Network (TCN) Providing advice on ADR generally RDR RDR Agreeing to ADR BSL in consultation with RDR BSL and/or TCN in consultation with RDR Approval of expenditure on ADR practitioner RDR RDR Selecting ADR practitioner BSL and/or TCN with assistance of RDR BSL and/or TCN in consultation with RDR Engaging ADR practitioner [11] RDR or external solicitor RDR or external solicitor Agreeing the ADR process used [and if necessary a protocol for the process] BSL case officer with assistance of RDR and/or TCN as required RDR with assistance of BSL and/or TCN as required Preparing for and attending the ADR At least 2 ATO officers BSL and at least one other member of the litigation team Drafting documents at ADR [12] RDR / external solicitor (if engaged) otherwise BSL case officer RDR or external solicitor in consultation with BSL and/or TCN Agreeing terms of an agreement at ADR BSL delegate [13] in consultation with TCN and/or Debt BSL regarding payment BSL delegate in consultation with TCN and/or RDR in consultation with Debt BSL regarding payment Authorising a settlement arising out of ADR BSL delegate in consultation with TCN or RDR BSL delegate in consultation with TCN and/or RDR Ensuring settlement documentation is completed including entering data on case management system BSL case officer with assistance of RDR and/or TCN as required RDR case officer Ensuring the agreement is given effect, including raising any agreed amended assessment/s BSL case officer BSL case officer Completing ADR Register RDR officer RDR officer | Engaging independent experts to assist in resolving disputes including valuation issues: 54. There will be circumstances where engaging an independent expert will assist in resolving a dispute. The most obvious example of this may involve valuation-related issues. Where it becomes necessary, valuation-related disputes may be resolved where both the ATO and the taxpayer agree to an ADR process where both parties also commit to accepting the outcome of that agreed ADR process. Part of that ADR process may involve the parties jointly engaging an independent valuer. In appropriate cases, the ATO can agree to the appointment of a third party expert and the ATO may in fact nominate the third party expert(s) in the course of agreeing an acceptable ADR process. 55. As part of agreeing an ADR process involving independent experts, best practice indicates that the parties should also agree on acceptable aspects of the appointment(s) which may include, amongst other things, reference to: • the agreed independent expert to be retained • the requirements of the appointment • the issues for expert consideration • any agreed assumptions that will be made by the expert, or • a joint commitment to accept the outcome of the process. • the agreed independent expert to be retained • the requirements of the appointment • the issues for expert consideration • any agreed assumptions that will be made by the expert, or • a joint commitment to accept the outcome of the process. 56. Both parties need to agree the elements of the ADR process and commit to the outcome of that process, as soon as possible, having regard to the issues in dispute. | Expert valuer conferencing: 57. In disputes involving valuation-related matters, where both parties agree, the dispute may be resolved by each of the valuers meeting to discuss how their valuations were ascertained, that is, valuer conferencing. 58. The purpose of a valuer conference should be for the experts to explain the information and assumptions used in the methodology and the methodology that both parties have adopted. Even if the valuer conference does not result in agreement between the parties, the ATO personnel should ensure that the valuer conference results in establishing points of agreement and the areas that remain in dispute. 59. The points of agreement and issues remaining in dispute should be clearly documented and agreed together with any agreed processes or next steps which may lead to an early resolution of the dispute. | Referring valuation disputes to an ADR practitioner: 60. Where valuer conferencing fails to resolve the dispute, it may still be appropriate for the dispute to be referred to an ADR practitioner in appropriate cases. However, there will be circumstances where the taxpayer considers that ADR would be appropriate, but the ATO disagrees. 61. Where this occurs, then the ATO's decision to not participate in ADR must be reviewed and approved by a senior executive service officer who has had no involvement in the dispute. After fully considering the request, this officer must communicate the outcome of the review, and the reasons to the taxpayer.",PS LA 2003/3 Precedential ATO view | PS LA 2007/5 Settlements | PS LA 2007/6 Guidelines for settlement of widely-based tax disputes | PS LA 2009/9 Conduct of ATO Litigation and engagement of Legal Service Branch | (1991) 5 WAR 137,PS LA 2003/3 Precedential ATO view PS LA 2007/5 Settlements PS LA 2007/6 Guidelines for settlement of widely-based tax disputes PS LA 2009/9 Conduct of ATO Litigation and engagement of Legal Service Branch,Civil Dispute Resolution Act 2011 | Financial Management and Accountability Act 1997 44,Alternative Dispute Resolution ADR Litigation Settlement,Taxpayers charter - if you're subject to review or audit Disputes Policy Dispute management plan Code of settlement ATO plain English guide to alternative dispute resolution Legal Services Directions 2005 Alternative dispute resolution,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20133/NAT/ATO/00001,"In this Practice Statement, a reference to a right to seek review of a reviewable objection decision or an extension of time refusal decision in the AAT should instead be read as a reference to a review in the ART. | APPENDIX A: ATO ROLES AND RESPONSIBILITIES IN AN ADR PROCESS | This law administration practice statement is issued under the authority of the Commissioner and must be read in conjunction with Law Administration Practice Statement PS LA 1998/1. ATO personnel, including non ongoing staff and relevant contractors, must comply with this law administration practice statement, unless doing so creates unintended consequences or is considered incorrect. Where this occurs, ATO personnel must follow their business line's escalation process. | [1] See www.ag.gov.au and the ATO Plain English Guide to Alternative Dispute Resolution for more information about ADR. | [2] See PS LA 2003/3 Precedential ATO view, particularly paragraphs 8 to 15. | [3] Legal Services Directions 2005 Schedule Part 4 Dictionary section 15: litigation, unless otherwise indicated, includes proceedings before courts, tribunals, inquiries and in arbitration and other ADR processes, and the preparation for such proceedings. | [4] Legal Services Directions 2005 Appendix B section 5.1 and section 2(e)(iii). | [5] Capolingua v. Phylum Pty Ltd (as Trustee for the Gennoe Family Trust and Ors ) (1991) 5 WAR 137. | [6] Aiton Australia Pty Ltd v. Transfield Pty Ltd [1999] NSWSC 996 [156]. | [7] See section 44 of the Financial Management and Accountability Act 1997, which imposes an obligation on the Commissioner to manage the affairs of the ATO in a way that promotes the efficient, effective and ethical use of Commonwealth resources. | [8] ATO Plain English Guide to Alternative Dispute Resolution contains more detailed information about different ADR processes used by the ATO and some examples of situations when they might be used. | [9] See paragraph 37 of this practice statement. | [10] If a dispute is in litigation all decisions including the decision on whether to settle are made by the RDR business line. | [11] PS LA 2009/9; Code of settlement practice | [12] Documents should include a term as to whether they are intended to be admissible in any later proceedings. | [13] If it is not possible for a tax officer with authority to finalise the dispute or conclude a settlement to attend the ADR an authorised person should be available by phone so that an in-principle agreement can be made during the ADR. | Aiton Australia Pty Ltd v. Transfield Pty Ltd [1999] NSWSC 996 | Capolingua v. Phylum Pty Ltd (as Trustee for the Gennoe Family Trust and Ors) (1991) 5 WAR 137 | Other Business Lines consulted"
PS LA 2013/4,"SUBJECT: The ATO's role in the tax law design process PURPOSE: To explain the: • ATO's role in the law design of Australia's tax system and some aspects of the superannuation, foreign investment, and registry systems • participation of ATO personnel in tax law design, specifically as it relates to the administration of and how draft law might operate once enacted.",10 October 2013,10 October 2013,Law Administration Practice Statement,False,"Development of the modern approach to tax law design: 1. Since 2002, the Treasury has had responsibility for advising relevant government ministers on both tax policy and the design of tax laws, while the Office of Parliamentary Counsel (OPC) has responsibility for drafting legislation. We have responsibility for administering the tax law and bring our experience with that administration to assist the Treasury with the development of tax policy and law. 2. A high level of integration between the Treasury and ATO throughout policy and law development ensures that new laws can be administered in line with policy intent. An optimal law design process involves joint cooperation and collaboration between the Treasury, the ATO and the community. The level and type of community involvement in tax law design is tailored to each measure, with public or stakeholder consultation a common approach where appropriate. 3. This Practice Statement provides guidance for ATO personnel [1] participating in tax law design. Following the completion of the tax law design process, once draft law has been enacted, consultation and collaboration with the Treasury and the private sector continues, usually through different forums and representatives, such as the National Tax Liaison Group (NTLG). Diagram 1: Tax law design in context | The ATO – Treasury Protocol: 4. The ATO – Treasury Protocol (Protocol) describes each agency's roles and responsibilities in relation to the various aspects of the tax law design process and data sharing arrangements. The Protocol provides an agreed framework for working arrangements between us and the Treasury for delivering advice to government on tax policy and on the design and development of tax law. The Protocol was revised and updated in December 2023. 5. The Protocol seeks to ensure that our administrative, compliance and interpretative experience is considered as part of the policy and law design process, and that there is a high level of integration across the policy, law and administrative aspects of change to the laws that we administer. 6. ATO personnel working in tax law design teams must adhere to the Protocol. 7. For more information, see ATO – Treasury Protocol . | Our role in tax law design: 8. Within the framework set out in the Protocol, our role in tax law design is to provide high-quality input into the development of tax policy and law. We do this by contributing our views and experience, particularly in relation to the administrative impacts, risks and interpretative issues of proposed changes to the law. This recognises that tax policy and law design should take potential administrative issues into account. 9. In seeking our input on interpretative aspects of tax law, the Treasury provides us with the intended policy objective of a measure and we then provide our views as to whether the draft law achieves that objective. Ultimately, the OPC must be satisfied that draft law is legally effective to implement government policy. 10. Our input into the process may include commenting on drafting instructions, draft law and explanatory memorandums, and may occasionally involve direct discussions with the OPC, where appropriate. Our input into tax law design extends to the passage of the law through parliament. 11. We provide assurance on the final version of draft law before it is introduced into parliament so that the bill, as drafted, can be administered and interpreted in accordance with the underlying policy intent. | ATO personnel participation in tax law design: 12. We are fully supportive of and committed to tax law design whenever it occurs, as well as public and stakeholder consultation processes that are led by the Treasury on new tax policy and law proposals. 13. ATO personnel involved in tax law design will discuss issues throughout the design and the implementation of the new tax law to best ensure that the change to the law will operate as intended. 14. There are established processes in place to provide the Treasury with our views on the administration, compliance cost and revenue consequences of new tax policy and law at all stages of the tax law design process. [2] Our input into tax law design is developed through discussions, meetings and workshops of a core design team of relevant stakeholders and subject matter experts to identify any administrative risks or issues arising from the draft law. We provide the ATO view through comments to the Treasury on drafting instructions, draft law and explanatory memorandums. 15. All members of tax law design teams and parties that are involved in any consultative process should be aware that their views collectively establish an ATO perspective on the potential application of the draft law. Open discussions about interpretative issues during the law design process allow stakeholders to put forward their perspectives, which can influence our views about how the law is likely to operate. There will be some circumstances where our view about how the law as enacted operates will be different to the views about how the law is likely to operate on introduction to parliament. For example, this may arise where: • amendments to the law are made during the passage of the bill through parliament • court decisions that have a material impact on the interpretation of the enacted law are handed down following the introduction of the bill, or • there is a material difference in the facts of a case being considered under the enacted law relative to the circumstances that were contemplated by us when offering preliminary views as part of the tax law design process. • amendments to the law are made during the passage of the bill through parliament • court decisions that have a material impact on the interpretation of the enacted law are handed down following the introduction of the bill, or • there is a material difference in the facts of a case being considered under the enacted law relative to the circumstances that were contemplated by us when offering preliminary views as part of the tax law design process. 16. It is only after the law is enacted that we can provide binding advice on our interpretation of the law. 17. When providing input on interpretative issues, it is important that ATO personnel consider how the law can be designed to achieve the policy intent as naturally as possible for taxpayers and the community. 18. ATO personnel participating in the tax law design process should: • seek to ensure that the law and explanatory materials clearly state the policy intent or purpose of the law change • consider how the proposed change will interact with other parts of the tax law, and • consider the application date of the law change, our ability to implement by the start date and the need for any transitional provisions. • seek to ensure that the law and explanatory materials clearly state the policy intent or purpose of the law change • consider how the proposed change will interact with other parts of the tax law, and • consider the application date of the law change, our ability to implement by the start date and the need for any transitional provisions. 19. If preliminary views are expressed between us and private sector representatives, our representatives must ensure that the Treasury is aware of the views, to ensure that the Treasury can consider the views and instruct OPC appropriately. 20. Issues identified with tax laws that have been introduced into parliament should be communicated to the Treasury at the earliest possible time. 21. It is expected that ATO personnel and all other parties taking part in the law design process will be open and transparent to ensure the quality of the changes to the tax law. | Dealings with taxpayers and their representatives outside of the tax law design process: 22. ATO personnel dealings with private sector representatives in a tax law design process should be separate from dealings with taxpayers and their representatives in relation to unenacted tax laws. ATO personnel providing assistance to taxpayers and their representatives in relation to announced or unannounced changes to the tax law are required to follow Law Administration Practice Statement PS LA 2004/6 Giving advice on proposed changes to the tax law before royal assent or registration on the Federal Register of Legislation. 23. In particular, PS LA 2004/6 prohibits ATO personnel from providing indicative interpretative advice on tax law prior to it receiving royal assent or prior to registration for regulations. Any such advice may be misleading in the event that the law or regulations change prior to royal assent or registration. [3] 24. However, PS LA 2004/6 states that ATO personnel should gain a clear understanding of any issues or concerns raised by taxpayers or taxpayer representatives in relation to unenacted tax law. [4] While recognising the importance of not providing indicative interpretative advice to taxpayers or taxpayer representatives in this process, an open discussion about these issues or concerns, as well as possible responses to them, should inform the tax law design process. | Clarifying your role in the process: 25. If you are unsure about your role in the process, you should seek guidance from your manager or follow your business line's escalation process.",PS LA 2004/6,PS LA 2004/6,,,ATO – Treasury Protocol Chief Executive Instruction Engaging across the policy lifecycle CEI (link available internally only)Chief Executive Instruction Program and project management CEI (link available internally only),False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20134/NAT/ATO/00001,"Updated in line with current ATO style and accessibility requirements. | 'Treasury/ATO Protocol' updated to 'ATO – Treasury Protocol'. | Caption and alt text added. | Content revised and rewritten to be more succinct and clear. | Updated 'PS CM 2003/05' to CEI 2014/02/03'. | [1] ATO personnel includes staff, employees and officers. ATO personnel also includes contractors where their agreement or contract states that they will comply with ATO policies. | [2] Chief Executive Instructions Engaging across the policy lifecycle and Program and project management (links available internally only). | [3] Paragraph 2 of PS LA 2004/6. | [4] Paragraph 3 of PS LA 2004/6. | File 1-2JVGCK2; 1-15WEDRX2"
PS LA 2013/5,"SUBJECT: Collection of consolidated group liabilities PURPOSE: To outline the Commissioner's policy in relation to: • the collection of group liabilities from head companies of consolidated groups, member entities and entities that have left the group • tax-sharing agreements, including their form and basis of apportionment of group liabilities among members, and • requirements for an entity to leave the group clear of certain liabilities.",7 November 2013,7 November 2013,Law Administration Practice Statement,False,"1. This Practice Statement outlines our policy in relation to: • the collection of group liabilities from head companies of consolidated groups (which includes multiple entry consolidated (MEC) groups), member entities and entities that have left the group • the requirements of a tax-sharing agreement (TSA), and • the requirements for an entity to leave the group clear of certain group liabilities. • the collection of group liabilities from head companies of consolidated groups (which includes multiple entry consolidated (MEC) groups), member entities and entities that have left the group • the requirements of a tax-sharing agreement (TSA), and • the requirements for an entity to leave the group clear of certain group liabilities. 2. This Practice Statement should be read in conjunction with Law Administration Practice Statement PS LA 2011/14 General debt collection powers and principles. 3. All legislative references in this Practice Statement are to the Income Tax Assessment Act 1997, unless otherwise indicated. 4. Your decisions and actions must be consistent with the commitments made by the ATO in Our Charter . You are also expected to follow the directions of Chief Executive Instruction Respecting taxpayers' rights of review (link available internally only). 5. The following terms are used in this practice statement: Contributing member – is an entity that is a subsidiary member of a consolidated group for at least part of the period to which the group liability relates. Contribution amount – in respect of a particular group liability, is the amount allocated to a TSA contributing member under a TSA. Elimination entries – is an accounting tool or method which removes the effects of intercompany transactions such that transactions between the companies in a group are ignored for accounting purposes. Exited entity – is an entity that was a subsidiary member of a consolidated group that has left the group – that is, it has ceased to be a member of the group. Group liability – is one of the tax-related liabilities of the head company referred to in subsection 721-10(2). Head company – is a head company of a consolidated group as well as a head company of an MEC group. Head company's due time – is the time a group liability becomes due and payable by the head company. Leaving time – is the time a member ceased to be a member of a consolidated group. MEC group – is a multiple entry consolidated group. TSA – is a tax-sharing agreement. TSA contributing member – is a contributing member that is a party to a TSA. 6. The legislative rules dealing with the liability of the head company and subsidiary members of consolidated groups are contained in Division 721. 7. Liabilities of the head company and its subsidiaries are tax-related liabilities and recoverable using the general collection provisions contained in Part 4-15 of Schedule 1 to the Taxation Administration Act 1953 (TAA). 8. A reference to the head company of a consolidated group in this Practice Statement should also be taken to be a reference to a MEC group. | Professional advice: 9. Certain aspects of this Practice Statement relate to events that will generate relatively complex legal obligations between subsidiary members and impact on creditors, financiers of subsidiary members, as well as prospective purchasers of group companies and other third parties. We cannot provide legal or accounting advice on these issues and it is strongly suggested that appropriate professional advice be sought on these matters. | Groups: 10. From 1 July 2002, the head company of a wholly owned group of entities can elect to consolidate and thereafter be treated as a single entity for income tax purposes. Broadly, this means that the subsidiary entities lose their individual income tax identities and are treated as parts of the head company of the consolidated group for the purposes of determining income tax liability during the period in which they are members of the group. 11. From 1 July 2012 to 30 September 2014, the effect of consolidation also applied to liabilities incurred by the members of the group for minerals resource rent tax (MRRT) under the Minerals Resource Rent Tax Act 2012 (now repealed), provided that the head company exercised the choice to consolidate for MRRT purposes. This choice was only available to a group that had already been consolidated for income tax purposes. 12. From 1 July 2012 to 1 July 2019, the effect of consolidation also applied to liabilities incurred by the members of the group for petroleum resource rent tax (PRRT) under the Petroleum Resource Rent Tax Assessment Act 1987, provided that the head company exercised the choice to consolidate for PRRT purposes. This choice was only available to a group that had already been consolidated for income tax purposes. | Group liabilities – head companies and subsidiaries: 13. A head company is required to pay or otherwise discharge a group liability in full by the head company's due time. | Joint and several liability generally: 14. If the head company does not pay or otherwise discharge a group liability by the due date (head company's due time), all entities that were members of the group for a part of the liability period (contributing members) become jointly and severally liable for that group liability, unless that group liability is covered by a TSA. TSAs are examined in further detail in Part B of this Practice Statement. 15. The joint and several liability of a particular contributing member only becomes due and payable 14 days after we give written notice to that entity. We may give written notice to one or more, or all, of the contributing members, depending on the potential for recovery from those members. Notice may be given to different contributing members at different times. If, for example, we give a notice to 2 different contributing members on different days, the 2 contributing members will have different due and payable dates for the same liability. Once the full amount of the group liability and related GIC has been collected, recovery action would cease against all members in respect of that liability. | Limit on joint and several liability where group first comes into existence: 16. If a group comes into existence during a period to which a group liability relates, the joint and several liability of the contributing members is limited to the proportion of the group liability that is reasonably attributable to the consolidated period. 17. In most cases, we would expect the head company to be able to determine its taxable income for the pre-consolidated period and, from this, calculate the group liability attributable to the consolidated period. 18. If the head company refuses or otherwise fails to provide when requested, a reasonable attribution of the group liability, we will use whatever information is available to make a reasonable attribution and use this figure as the basis for any recovery action against the contributing members. 19. Pay as you go (PAYG) instalments payable by the head company for quarters prior to the head company being given its initial head company instalment rate are not taken to be group liabilities. Therefore, subsidiary members cannot become liable under Division 721 for all or part of these amounts. [1] The PAYG amounts of subsidiary members are, however, a liability of the subsidiaries. | Exclusion from joint and several liability: 20. A contributing member is excluded from being jointly and severally liable for a group liability if at the head company's due time it was prohibited according to the effect of an Australian law from entering into any arrangement under which it could become subject to such a liability. [2] 21. If an entity is, at the head company's due time, prohibited according to the effect of an Australian law from entering into any arrangement under which the entity becomes subject to a joint and several liability, that entity is (by operation of subsection 721-15(2)) excluded from the operation of the joint and several liability provisions. However, this statutory exclusion would not prevent such an entity entering into and being liable to an amount under a TSA. 22. An example of an entity that would be considered to fall within the exclusion is one that is prevented by statute or regulation from giving a cross guarantee or was a participant in a financial market or clearing and settlement facility licensed under Parts 7.2 or 7.3 of the Corporations Act 2001. 23. Further, certain assets that are regulated by law may not be available to us in recovery proceedings regardless of whether the entity is excluded or not. 24. The effect of the Life Insurance Act 1995 is that where a contributing member is a life insurance company, the assets of a statutory fund of the company are only available to meet liabilities or expenses (which includes tax liabilities) related to the business of the fund. 25. While a life insurance company may be a member of a consolidated group, the group liability of the group (being the collective tax liability of the head company and members) cannot be said to be attributable to the business of the life insurance company's statutory fund. Therefore, we may not be able to enforce the recovery of group liability against the assets of the statutory fund of the company but may enforce recovery against its other assets. 26. A contributing member's full joint and several liability does not become due and payable until 14 days after we give the entity written notice. [3] 27. When a group is created during a liability period (for example, part way through an instalment quarter) a contributing member's joint and several liability is limited to the proportion of the group liability that is reasonably attributable to the consolidation period. [4] | Possible rights of contribution between entities: 28. If we decide not to sue a subsidiary member of a consolidated group, the creditors of other subsidiary members of the consolidated group could be disadvantaged relative to the creditors of the excluded entity. However, this risk would be ameliorated to the extent that the other subsidiary members of the consolidated group who have paid an amount of the group liability would have a right of contribution under section 265-45 of Schedule 1 to the TAA against the excluded entity that was not sharing the burden for which it was jointly and severally liable as a matter of law. This statutory right would operate in addition to any common law rights of contribution. The fact that the joint and several liability was not assumed voluntarily but arose from a revenue law would not preclude a right of contribution from also arising under equitable principles (Armstrong v Commissioner of Stamp Duties (1967) 69 SR (NSW) 38). 29. Section 265-40 of Schedule 1 to the TAA would enable a contributing member, that could demonstrate that they have paid a joint and several liability for or on behalf of another entity in the group, to recover an appropriate amount from that other entity. 30. The risk of joint and several liability would be avoided if the group liability was covered by a valid TSA. [5] | Group liabilities – liability covered by a tax sharing agreement: 31. Joint and several liability is avoided by the contributing members if, just before the head company's due time, the particular group liability was covered by a TSA that reasonably allocated the liability among the parties to that agreement, and that agreement is produced when we request it . 32. Where a group liability is covered by a TSA, a particular contributing member may have no liability or be liable for only a portion of the group debt. 33. If we have determined that a particular group liability is not covered by a valid TSA (for example, the requirements of a TSA are not met) or the TSA is not produced as required under subsection 721-25(3), all the contributing members are jointly and severally liable for that debt, and one or more of those members may be pursued for payment of that group liability. 34. A contributing member's allocated liability under a TSA does not become due and payable until 14 days after we give the entity written notice. [6] 35. An entity that leaves a consolidated group can exit clear of a group liability that has not become due and payable if, before the time it ceases to be a member of the group (leaving time), it pays to the head company the amount, or a reasonable estimate of the amount, that would otherwise be payable under the relevant TSA. An exited entity, however, remains exposed to group liabilities that are due and payable by the head company prior to the date of exit. 36. Whereas a head company has a right to object, appeal or seek any other review under Part IVC of the TAA in regard to the ascertainment of a group liability, a contributing member has no such rights under Part IVC. 37. Further information regarding the particular statutory requirements of TSA is examined in Part B of this Practice Statement. 38. The information in this section of the Practice Statement is presented as follows: • Part A – concerns the Commissioner's general recovery policy in respect of the collection of group liabilities from the head company and subsidiary members. It also addresses the interaction between the collection of group liabilities and other collection policies. • Part B – concerns TSAs. • Part C – concerns exits by subsidiary members from a consolidated group. • Part A – concerns the Commissioner's general recovery policy in respect of the collection of group liabilities from the head company and subsidiary members. It also addresses the interaction between the collection of group liabilities and other collection policies. • Part B – concerns TSAs. • Part C – concerns exits by subsidiary members from a consolidated group. | Recovery action against a head company: 39. It is expected that a head company would pay its group liabilities by the relevant due time. If, for whatever reason, the head company cannot make payment by the due time the onus will remain with the head company to initiate contact with us in order to explain its situation and seek to come to an arrangement to pay. 40. If no contact is made or an acceptable arrangement is not entered into, we will, generally, initially pursue action against the head company. 41. In all situations, the head company remains liable for the full amount of the unpaid group liability and the time at which that amount was due and payable does not change. | Recovery action against subsidiary members: 42. Where it is clear that timely recovery from the head company is unlikely we may seek to recover from one or more subsidiary members immediately. Even where there is a reasonable possibility of eventually recovering from the head company, we may still seek to recover from one or more member entities in certain circumstances before exhausting all recovery avenues against the head company. These circumstances could include, but are not limited to: • a head company with a history of non-payment of tax debts • a consolidated group with a history of payment only being made after action is initiated against subsidiary member entities • where it is expected that action against the head company will not be successful in achieving full payment, will not be cost-effective or would result in undue delays • where it is known that assets are being dissipated by members of the group and this dissipation puts collection of unpaid group liabilities at risk, or • where we need to make a claim in an insolvency administration of a member entity. • a head company with a history of non-payment of tax debts • a consolidated group with a history of payment only being made after action is initiated against subsidiary member entities • where it is expected that action against the head company will not be successful in achieving full payment, will not be cost-effective or would result in undue delays • where it is known that assets are being dissipated by members of the group and this dissipation puts collection of unpaid group liabilities at risk, or • where we need to make a claim in an insolvency administration of a member entity. 43. If a notice is given to a member either in respect of a joint and several liability [7] or a contribution amount under a TSA [8] and that member is unable to make full payment by the due and payable date, the member should contact us to discuss alternative payment options. 44. Generally, the liability of the member would be treated as any other tax-related liability and this policy as it relates to the collection of liabilities would apply. When applying this policy, the member entity's circumstances would at first instance be considered in isolation. Submissions that other members of the group (including the head company) are in a better position to meet the liability would not be given great weight in reaching any decision regarding collection of the liability from a particular contributing member. 45. An arrangement to pay, a deferral of recovery action or any other agreement entered into with a particular contributing member does not affect our rights in respect of, nor prevent action being taken against, other members liable for all or part of the same group liability. 46. To simplify the negotiation process, it would be acceptable if representations were made on behalf of one or more contributing members through the head company, provided the head company is properly authorised in writing to do so. It is understood that for various reasons entities, particularly exited entities, may prefer to have separate representation. However: • we would need to ensure that the confidentiality concerns of all entities were addressed • the representatives would need to ensure that there was no conflict of interest, and • the entities may need to ensure that they have a legal right of access to the relevant records (for example, the records of the head company), for the purposes of negotiation. • we would need to ensure that the confidentiality concerns of all entities were addressed • the representatives would need to ensure that there was no conflict of interest, and • the entities may need to ensure that they have a legal right of access to the relevant records (for example, the records of the head company), for the purposes of negotiation. | Recovery action against exited entities: 47. Action to recover a group liability from an exited entity will depend on the circumstances in each case. Where an exited entity is liable to pay an amount under the joint and several liability provisions, recovery action would generally only commence after action against the head company and other current subsidiary members that were members of the group when the liability arose, had concluded or if we believe that action against those subsidiary members would not result in full payment of the liability. 48. Where an exited entity is liable to pay an amount under the TSA provisions, recovery action would generally only commence after action against the head company had concluded or if we believe that action against the head company would not result in full payment of the liability. 49. Where an exited entity enters into a formal insolvency administration, we will make a claim for any liability in that administration. | Deferring the payment time of a group liability: 50. We may defer the time for payment of a group liability in accordance with the policy outlined in PS LA 2011/14. It would be rare for us to grant a deferral because the group has not made adequate arrangements to ensure that the group liabilities are met on time. A deferral would not be available solely because a group has not completed a TSA relating to that particular debt. Where a deferral has been granted, GIC on any unpaid amount will begin to accrue from the deferred date. | Arrangements to pay tax-related liabilities by instalments: 51. We may grant an arrangement to pay the group liability by instalments in accordance with the policy in PS LA 2011/14. It would be unusual for us to grant such an arrangement where the group continually neglects to make adequate arrangements to ensure that the group liabilities are met on time. 52. When considering an arrangement proposal, we will look to the position of the entire group and the situation and actions of all the contributing members, as well as those of the head company. 53. Unlike a deferral of time to pay, an arrangement to pay by instalments does not alter the date from which GIC begins to accrue (that is, the head company's due time). The GIC component of the debt should be factored into any arrangement to pay by instalments. | Disputed debts: 54. Where a group liability is subject to a dispute and legal action for recovery against the head company has been deferred in accordance with an arrangement as detailed in Law Administration Practice Statement PS LA 2011/4 Collection and recovery of disputed debts, we will also defer commencing action against contributing members. 55. Even when a fifty-fifty arrangement has been accepted or any other agreement is in place to defer recovery action, it will be a condition that we may rescind that agreement and commence recovery action where it is considered that the associated risk requires such action (for example, dissipation of assets). [9] When considering the risk, we will look to the position of the entire group and the situation and actions of all the contributing members, as well as the head company. | Allocation of payments received by the Commissioner: 56. We may receive payments from the head company or, following a demand being issued to a subsidiary member, from that member. Payments in respect of group liabilities or TSA contribution amounts by the head company or subsidiary members will be allocated as follows: • a payment to us by a subsidiary member where an effective TSA exists will be offset against that subsidiary member's liability and the head company liability • a payment to us by a subsidiary member where members are jointly and severally liable will be offset against all subsidiary members' liabilities and the head company liability • a payment to us by the head company where members are jointly and severally liable will be offset against the head company liability and all the subsidiary members' liabilities, and • a payment to us by the head company where an effective TSA exists will be offset against the head company liability and the subsidiary members' liabilities, but only to the extent that it reduces each subsidiary member's liability to an amount equalling the (reduced) head company liability (that is, in some cases there will be no reduction in the subsidiary member's liability). • a payment to us by a subsidiary member where an effective TSA exists will be offset against that subsidiary member's liability and the head company liability • a payment to us by a subsidiary member where members are jointly and severally liable will be offset against all subsidiary members' liabilities and the head company liability • a payment to us by the head company where members are jointly and severally liable will be offset against the head company liability and all the subsidiary members' liabilities, and • a payment to us by the head company where an effective TSA exists will be offset against the head company liability and the subsidiary members' liabilities, but only to the extent that it reduces each subsidiary member's liability to an amount equalling the (reduced) head company liability (that is, in some cases there will be no reduction in the subsidiary member's liability). 57. The total amount recovered from the members of the group will be no more than the head company liability plus associated GIC. | General interest charge: 58. If the head company fails to pay a group liability by the due and payable date, GIC will accrue. For example, if a PAYG instalment is not paid by the due time, the combination of section 45-80 of Schedule 1 to the TAA and Part IIA of the TAA imposes the GIC on a daily basis up until the time the group liability and the GIC is paid in full. 59. Requests for remission of the GIC will be considered in accordance with the policy in Law Administration Practice Statement PS LA 2011/12 Remission of General Interest Charge. When considering requests for remission, the circumstances of the entire group may be taken into account. It would be unusual for us to grant such a remission where the group continually neglects to make adequate arrangements to ensure that the group's taxation liabilities are met on time. 60. Any GIC payable by the head company that is relevant to another group liability is a group liability itself. It follows that GIC can be subject to a TSA. Should the head company fail to pay the GIC and that GIC liability is not covered by a TSA, each contributing member would be jointly and severally liable for the GIC amount. 61. If we give a contributing member written notice under subsection 721-15(5) of a group liability that is GIC, the joint and several liability relating to the GIC becomes due and payable at the end of the day the written notice is given. (Note: For other types of group debts a joint and several liability does not become due and payable until 14 days after the subsection 721-15(5) notice is given.) 62. In addition, section 721-17 provides that the contributing member's joint and several liability relating to any GIC that the head company may continue to incur in respect of the same unpaid group liability becomes due and payable each subsequent day without the need for a further subsection 721-15(5) notice to be given. 63. Alternatively, if the GIC group liability is covered by a TSA, the liability of the TSA contributing members would be calculated in accordance with the terms of that TSA. 64. The liability of a TSA contributing member relating to a group liability that is GIC becomes due and payable at the end of the day on which we give the member written notice under subsection 721-30(5). (Note: For other types of group debts, the liability under a TSA does not become due and payable until 14 days after the subsection 721-30(5) notice is given.) 65. Further, section 721-32 provides that liabilities arising under a TSA in respect of GIC that the head company may continue to incur in respect of the same unpaid group liability become due and payable by a TSA contributing member each subsequent day without the need for a further subsection 721-15(5) notice to be given. 66. Should a remission of the head company's GIC occur, the liability of the contributing members will be reduced accordingly. 67. Special considerations apply to the remission of GIC and tax shortfall penalties where a group seeks an amendment to its 2003–04 and prior income tax assessments as a result of one of the following circumstances: • in respect of the 2002–03 financial year, the group has incorrectly applied law that was enacted by the time of lodgment of its original 2002–03 return • in respect of the 2002–03 financial year, the group has relied upon announced but unenacted changes when lodging its original 2002–03 return • the group has followed an ATO view provided in the Consolidation reference manual or similar product in its original return • the group has followed a ruling or determination in its original return, or • the group waited for a ruling or determination before lodging an amendment request. • in respect of the 2002–03 financial year, the group has incorrectly applied law that was enacted by the time of lodgment of its original 2002–03 return • in respect of the 2002–03 financial year, the group has relied upon announced but unenacted changes when lodging its original 2002–03 return • the group has followed an ATO view provided in the Consolidation reference manual or similar product in its original return • the group has followed a ruling or determination in its original return, or • the group waited for a ruling or determination before lodging an amendment request. 68. For more information, see: • Law Administration Practice Statement PS LA 2006/8 Remission of shortfall interest charge and general interest charge for shortfall periods • Law Administration Practice Statement PS LA 2007/11 Administrative treatment of taxpayers affected by announced but unenacted legislative measures which will apply retrospectively when enacted, and • Law Administration Practice Statement PS LA 2011/12 Remission of General Interest Charge. • Law Administration Practice Statement PS LA 2006/8 Remission of shortfall interest charge and general interest charge for shortfall periods • Law Administration Practice Statement PS LA 2007/11 Administrative treatment of taxpayers affected by announced but unenacted legislative measures which will apply retrospectively when enacted, and • Law Administration Practice Statement PS LA 2011/12 Remission of General Interest Charge. | Notification to liquidators and receivers: 69. When a company in liquidation is, or has been, a member of a consolidated group, we will include in the notification required to be given to the liquidator under subsection 260-45(3) of Schedule 1 to the TAA any liability the company has incurred as head company or as a contributing member under the joint and several liability and TSA liability provisions. 70. This notice will not be provided until we are satisfied that all liabilities to which the company may be exposed have been established or otherwise forms the view that no other liabilities will arise. 71. This also applies to the issue of a notice to receivers under subsection 260-75(3) of Schedule 1 to the TAA and to the lodgment of proofs of debt in insolvency administrations. 72. If a particular group liability is covered by a valid TSA, the law does not operate to make the head company and contributing members jointly and severally liable for that group liability. Instead, depending on the allocation of the group liability under the TSA, a contributing member may be liable for all, part or none of the group liability. Those subsidiary members not party to the TSA would also be excluded from being jointly and severally liable for the group liability covered by the TSA. 73. However, if a copy of a TSA covering a group liability is not provided in the approved form within 14 days of being requested by us in accordance with subsection 721-25(3), then the group liability is taken never to have been covered by a TSA. | Directors' responsibilities in relation to a tax sharing agreement: 74. Directors of contributing members would be aware that they need to consider their statutory and common law responsibilities as directors of that entity when becoming a party to a TSA. In particular, they would need to be aware of any obligation to the head company and us that may result from them entering into the agreement. 75. As the TSA is an agreement between the head company and subsidiary members (that is, we are not a party to the agreement), it is expected that the resolution of the content of the document and the finalisation of the arrangements to pay the head company's group liability by the due time will be resolved by the relevant directors. 76. Given the issues that may need consideration in compiling TSAs, it may be prudent for directors to seek legal and accounting advice in relation to all aspects of Division 721. | Group liabilities covered by a tax sharing agreement: 77. The table in subsection 721-10(2) outlines various group liabilities. Although the law deals with each liability of the head company as a separate group liability and for which a single TSA is required, we will also recognise a document that covers multiple group liabilities as a separate TSA for each group liability. Accordingly, even if one TSA is found to have an unreasonable allocation of the group liability to which it relates (and thus be invalid), this would not mean that other TSAs covered by the document would be invalid. 78. Similarly, we will recognise a document that covers multiple periods of group liabilities as a separate TSA for each period. For example, the document could refer to a class of group liabilities, such as all PAYG instalment group liabilities that become due and payable after 1 July 2002. The document would be considered to be a separate TSA for each group liability it purports to cover. Accordingly, even if one TSA is found to have an unreasonable allocation of the group liability for the period to which it relates (and thus be invalid), this would not mean that other TSAs covered by the document would be invalid. 79. In relation to TSAs that cover multiple periods, there is a possibility that the TSA will be 'updated' from time to time in relation to future liabilities. Considerable care will be required in drafting the TSA and amending a TSA. 80. As the TSA must make a reasonable allocation of an entire group liability, an unreasonable allocation of part of the group liability to one contributing member will invalidate the entire TSA. It is not the intended outcome of the law to have one or more members jointly and severally liable for the entire debt while others have group liabilities limited by the TSA. 81. The law imposes GIC for late payment on the head company debt and it is a distinct group liability and separate from the group liability upon which it accrues. Therefore, if it was intended that a TSA cover any potential GIC, this would need to be specified in the TSA, as well as how that GIC is to be allocated between the TSA contributing members. For example, a TSA might specify that any GIC incurred by the head company in relation to an unpaid group liability is allocated to contributing members in proportion to the allocation of the primary liability. As the rules relating to GIC vary slightly from those relating to other group liabilities, it is important to read the section on GIC commencing at paragraph 58 of this Practice Statement. 82. It is important to note that where an amended assessment is issued in respect of a group liability, both original and amended assessments relate to the same (single) liability. [10] However, where possible, we are prepared to distinguish between the debt arising under an assessment from another debt that results from an amendment of that assessment. | Amendment of a group liability: 83. The possibility of future amendments to group liabilities should be a consideration of all parties entering into a TSA, as well as prospective purchasers in due diligence considerations in company acquisitions. For further discussion on amended group liabilities, refer to paragraph 182 of this Practice Statement. | Single group liability not covered by multiple agreements: 84. The object of the TSA provisions is that there should be a reasonable allocation of a group liability among one or more subsidiary members in accordance with a single TSA. Where a group liability is dealt with in 2 or more TSAs, that liability cannot be considered to be covered by a TSA for the purposes of Division 721. [11] | Background: 85. If a TSA is required to be given to us pursuant to a notice under subsection 721-25(3), it must be given in the 'approved form' and within 14 days after the notice is given. Section 388-50 of Schedule 1 to the TAA allows us to specify the information to be provided in an 'approved form'. Further, paragraph 388-50(1)(c) of Schedule 1 to the TAA requires that the approved form contains not only the information we require but also 'any further information statement or document as the Commissioner requires, whether in the form or otherwise'. 86. However, in recognising that the TSA is primarily an agreement between the head company and subsidiary members of the group, we have only specified below the minimum requirements for a TSA to be produced in the 'approved form'. That is, the requirements listed in paragraph 87 of this Practice Statement must be met but the actual form of the agreement (for example, a deed) is open to the taxpayers and their advisers provided the TSA legally binds the parties concerned. | Production of a valid tax sharing agreement in the approved form – requirements to comply: 87. In order to comply, each TSA must: • be in writing • show the date of execution • specify the names of the head company and each TSA contributing member • specify what group liability or liabilities it covers • specify the method used to allocate that liability or those group liabilities which must provide for a reasonable allocation of the entire group liability or liabilities • be properly executed by or on behalf of the head company and each contributing member that is a party to the agreement (that is, the TSA contributing members) • either - specify the exact contribution amount for each TSA contributing member for the relevant liability, or - if and when required to be produced to us, include a schedule signed by the head company o specifying the relevant liability or liabilities and periods as specified in our notice to produce o stating the name and Australian business number or Australian company number of the head company and each TSA contributing member o stating the contribution amount of each TSA contributing member in respect of that liability or each of the liabilities, and o declaring that 'the schedule includes the names of all the TSA contributing members in relation to that liability or liabilities for those periods and the contribution amount or amounts as calculated under the TSA' • if and when required to be produced to us, include any deeds of assumption in relation to the particular liability or liabilities for the particular periods. • be in writing • show the date of execution • specify the names of the head company and each TSA contributing member • specify what group liability or liabilities it covers • specify the method used to allocate that liability or those group liabilities which must provide for a reasonable allocation of the entire group liability or liabilities • be properly executed by or on behalf of the head company and each contributing member that is a party to the agreement (that is, the TSA contributing members) • either - specify the exact contribution amount for each TSA contributing member for the relevant liability, or - if and when required to be produced to us, include a schedule signed by the head company o specifying the relevant liability or liabilities and periods as specified in our notice to produce o stating the name and Australian business number or Australian company number of the head company and each TSA contributing member o stating the contribution amount of each TSA contributing member in respect of that liability or each of the liabilities, and o declaring that 'the schedule includes the names of all the TSA contributing members in relation to that liability or liabilities for those periods and the contribution amount or amounts as calculated under the TSA' • if and when required to be produced to us, include any deeds of assumption in relation to the particular liability or liabilities for the particular periods. - specify the exact contribution amount for each TSA contributing member for the relevant liability, or - if and when required to be produced to us, include a schedule signed by the head company o specifying the relevant liability or liabilities and periods as specified in our notice to produce o stating the name and Australian business number or Australian company number of the head company and each TSA contributing member o stating the contribution amount of each TSA contributing member in respect of that liability or each of the liabilities, and o declaring that 'the schedule includes the names of all the TSA contributing members in relation to that liability or liabilities for those periods and the contribution amount or amounts as calculated under the TSA' o specifying the relevant liability or liabilities and periods as specified in our notice to produce o stating the name and Australian business number or Australian company number of the head company and each TSA contributing member o stating the contribution amount of each TSA contributing member in respect of that liability or each of the liabilities, and o declaring that 'the schedule includes the names of all the TSA contributing members in relation to that liability or liabilities for those periods and the contribution amount or amounts as calculated under the TSA' 88. For production of a TSA by an exited entity, refer to the discussion commencing at paragraph 153 of this Practice Statement. | Production of a valid tax sharing agreement in the approved form – explanation: 89. Execution of the TSA in the approved form by a person properly authorised or if appropriate, under a power of attorney, would be acceptable as per standard commercial practice provided it is legally binding. Section 127 of the Corporations Act 2001 may be relevant in certain cases. 90. Specific amounts (which can be 'nil' amounts if appropriate) can be shown in the TSA as being the relevant contribution amounts of each TSA contributing member for the relevant group liabilities. 91. However, if these specific amounts are not shown in the TSA then (if and when the TSA is produced to us) the head company must produce the TSA, the schedule and (if deeds of assumption or similar documents are used) those documents. The working papers used to calculate the contribution amounts do not have to be produced at that time but may be requested by us if necessary. To emphasise, the non-provision of the working papers when a TSA is requested does not impact on whether or not a group liability is covered by a TSA. However, the non-provision of the working papers following any formal request under section 353-10 of Schedule 1 to the TAA at a later date would be a prosecutable offence. 92. The schedule referred to in paragraph 87 of this Practice Statement does not have to be in existence just before the due time, (but groups may find it convenient to compile the schedule at that time). 93. The figures provided in the TSA or the schedule are to be definitive – that is, any discussions between the head company and TSA contributing members as to the correctness of the liability will need to be resolved prior to the production of the TSA and schedule. A deferral of time to lodge the TSA and schedule while these matters are resolved is unlikely to be granted. 94. While all members of a group do not have to be a TSA contributing member, it is suggested that groups review their TSAs regularly in case some adjustment is required due to members exiting or new members joining the group. These exits and entries may affect the reasonableness of an allocation methodology used in a pre-existing TSA. The question of whether all subsidiary members should enter into a TSA may also be of relevance to prospective purchasers of these group companies in their due diligence considerations. 95. Even if a subsidiary member does not trade or generate income during a particular period this may not preclude it from being a party to a TSA, nor would its participation in a TSA necessarily affect the reasonableness of the allocation of a group liability under that TSA. For example, a method based on each members contribution to the group liability that results in a 'nil' allocation to a non-trading entity would, of itself, have no bearing on whether the group liability was considered to have been reasonably allocated among the head company and all the TSA contributing members. | Timing: 96. For a group liability to be covered by a TSA, the TSA must be in place just before the head company's 'due time'. We have no power to allow execution of a TSA after this date. However, if we defer the head company's due time for payment, then the TSA must be in place at that later date. [12] 97. If a TSA in respect of a particular group liability is executed after the head company's due time for that liability, it has no effect. 98. The legislation does not allow for a TSA, executed on a particular date, to have effect from an earlier date. 99. However, a valid TSA that is finalised just before the head company's due time of a particular group liability covers that group liability for the entire liability period. 100. Further, a TSA that covers multiple periods which has been executed on a particular date – but purports to have effect from an earlier date – would not be acceptable in relation to any debt that was due and payable prior to the date of execution. That in itself will not prevent it being accepted in relation to relevant debts that became due and payable after the date of execution. | Amending tax sharing agreements: 101. A TSA may need to be amended for a number of reasons. Examples of situations necessitating the amendment of a TSA include: • the introduction of a new entity to the group • the introduction of new entities after former entities have exited • the interposition of a new head company, and • a change in the provisional head company of a MEC group. • the introduction of a new entity to the group • the introduction of new entities after former entities have exited • the interposition of a new head company, and • a change in the provisional head company of a MEC group. 102. The effect of 'amending' a document comprising various TSAs may be that a new or updated document replaces the previous document. Where a document covering multiple group liabilities (that is, multiple TSAs) is amended, taxpayers need to ensure that the 'old' document does not cease to have effect with respect to pre-existing liabilities. In other words, the TSAs covered by the 'old' document which apply to liabilities for which due times have already passed should continue to be maintained and to have operation in respect of those liabilities. Care should be taken to ensure that any amended document does not create adverse consequences with respect to pre-existing liabilities or clear exit arrangements which have already taken place. 103. Considerable care will be needed in drafting the original TSA if groups are to avoid (where possible) the necessity for all current and former TSA parties to sign all amendments and to ensure that the TSA remains valid. It will also be necessary to address (when drafting or redrafting) the impact of amended assessments on entities that were part of the group for a relevant tax period, even if not at the same time. 104. If it is intended to replace an existing TSA dealing with a particular group liability that has a future due time with a new TSA dealing with the same future liability, it should be clear that the new TSA completely voids the earlier TSA. Otherwise, it may be considered that the group liability is dealt with by 2 TSAs and so both would be void by operation of subsection 721-25(1B). 105. It is important to note that if we require a TSA to be produced in relation to a particular group liability, taxpayers will need to produce the TSA as it existed just prior to the head company's due time of that relevant liability for the relevant period. This will require careful attention to document controls. | Execution of tax sharing agreements by exited or liquidated members: 106. As discussed in this Practice Statement, for a TSA to be in the approved form, it needs to be legally executed by or on behalf of each contributing member that is a party to the agreement. 107. The failure of the exited entity to be a party to the TSA may potentially mean that the allocations in the TSA are considered unreasonable. As a result, all contributing members, including itself, may be jointly and severally liable for the group liability should it remain unpaid (that is, the group liability would not be covered by a TSA). 108. A difficulty arises if a TSA needs to be signed by a member that has been liquidated and thus no longer legally exists. Clearly that former member cannot sign the TSA nor can it authorise anyone to sign on its behalf. 109. The question arises as to whether the omission of that liquidated member as a party to the TSA might affect the reasonableness of the TSA allocation. Depending on the TSA methodology used and the financial position of the entity throughout the relevant tax period, this may not be an issue. For instance, if the notional taxable incomes methodology was used in the TSA for the annual assessment group liability and the former member had a notional tax loss, notional nil taxable income or was dormant for the period, then the failure of that liquidated member to be a party to the TSA may not affect the reasonableness of the TSA allocation. Note also that not every member of the group has to be a party to a TSA. | Determination of the contribution amount – the 'reasonable allocation': 110. The contribution amounts for each of the TSA contributing members in relation to the group liability must represent a reasonable allocation of the total amount of the group liability between the head company and the TSA contributing members 'just before the head company's due time'. [13] 111. This does not require the TSA to specify a 'particular amount'. It could show each TSA contributing member's contribution amount as: • a fixed or variable percentage of the group liability • an amount based on the 'notional' contributions to taxable income, or • an amount based on some other formula. • a fixed or variable percentage of the group liability • an amount based on the 'notional' contributions to taxable income, or • an amount based on some other formula. 112. However, if the TSA does not show each TSA contributing member's contribution amount as a specified sum, a schedule will need to be produced with a copy of the TSA, if and when required, showing the contribution amount for each TSA contributing member as determined by applying the method provided in the TSA relating to that group liability. 113. The ultimate determination of what is a 'reasonable allocation' rests with the Courts. However, without prescribing the method that a group may adopt for allocation of the group liability, examples of what we would consider as being possible bases of allocation are listed below: • Allocations of a proportion of unquantified group liabilities by using historical information if, at the time a TSA is put in place, the group liability or liabilities which it is intended to cover have not been determined (for example, a prospective TSA). For instance, the amount allocated to a TSA contributing member could be calculated using the average contribution of that entity to the group profits over the last 12 months. • Changes in the consolidated group's structure (for example, because of entries and exits, or changes to individual member's operations) may mean that the contribution amounts calculated under the method outlined in the first dot point of this paragraph would need to be adjusted to account for these movements. Depending on the timing and significance of these changes, a new TSA using a different methodology may need to be executed. • Allocations on the basis of each TSA contributing member's accounting profit as a percentage of the overall group accounting profit. Note that these accounting profits could be either before or after accounting consolidation elimination entries. Note also that accounting loss companies could receive a 'nil' allocation and accounting profit companies would receive an allocation in proportion to their accounting profits. • Allocations on the basis of each TSA contributing member's ability to pay that liability. For instance, this could be based on the shareholder equity in each contributing member. However, if at the time of allocation the directors were aware that events would occur that would severely affect one or more member's ability to pay their allocation, but the directors ignored that information, then the allocation may be viewed as unreasonable. • If it was the case that, at the head company's due time, the entire group lacked sufficient funds to meet the group liability, an allocation may be considered reasonable despite one or more TSA contributing members being incapable of paying their contribution amount (for example, the entire group was insolvent as opposed to only one or more contributing members being insolvent). • Allocations on the basis of each contributing member's actual or expected contribution to that group liability. Tax losses of members may be (notionally) transferred between subsidiary members so that the loss companies receive a 'nil' allocation and the profitable companies receive an allocation of a share of the exact group liability. This approach might be summarised as follows - determine the notional tax liability or notional taxable income for each TSA contributing member on the basis that the group was not a consolidated group - apportion any notional tax losses to notional taxable companies and allocate the notional loss companies 'Nil' liability under the TSA, and - allocate to each TSA contributing member (that still has a notional tax liability or taxable income) a portion of the group liability on a pro rata basis. • If the taxpayer has opted to use the PAYG instalments offset provisions in subsection 721-25(1A), the income tax liability net of PAYG instalments credits could be allocated in proportion to the notional tax payable of the contributing member after deducting its PAYG amounts allocated under the TSA in respect of the relevant income year. In situations where the contributing member has PAYG amounts allocated under the TSA greater than its notional tax payable, it would receive a nil allocation. • For PAYG instalments liabilities, it would be reasonable to use a proportional allocation of group PAYG instalments liabilities based on one-quarter of each entity's prior year notional tax liability (adjustments would be required to address entries and exits). • Another example of how to proportionately allocate PAYG instalments liabilities might be by using notional PAYG instalments for each entity for the quarter. • PAYG instalments liabilities might also be allocated by using actual PAYG instalment income for each entity for the relevant quarter. • Allocations of a proportion of unquantified group liabilities by using historical information if, at the time a TSA is put in place, the group liability or liabilities which it is intended to cover have not been determined (for example, a prospective TSA). For instance, the amount allocated to a TSA contributing member could be calculated using the average contribution of that entity to the group profits over the last 12 months. • Changes in the consolidated group's structure (for example, because of entries and exits, or changes to individual member's operations) may mean that the contribution amounts calculated under the method outlined in the first dot point of this paragraph would need to be adjusted to account for these movements. Depending on the timing and significance of these changes, a new TSA using a different methodology may need to be executed. • Allocations on the basis of each TSA contributing member's accounting profit as a percentage of the overall group accounting profit. Note that these accounting profits could be either before or after accounting consolidation elimination entries. Note also that accounting loss companies could receive a 'nil' allocation and accounting profit companies would receive an allocation in proportion to their accounting profits. • Allocations on the basis of each TSA contributing member's ability to pay that liability. For instance, this could be based on the shareholder equity in each contributing member. However, if at the time of allocation the directors were aware that events would occur that would severely affect one or more member's ability to pay their allocation, but the directors ignored that information, then the allocation may be viewed as unreasonable. • If it was the case that, at the head company's due time, the entire group lacked sufficient funds to meet the group liability, an allocation may be considered reasonable despite one or more TSA contributing members being incapable of paying their contribution amount (for example, the entire group was insolvent as opposed to only one or more contributing members being insolvent). • Allocations on the basis of each contributing member's actual or expected contribution to that group liability. Tax losses of members may be (notionally) transferred between subsidiary members so that the loss companies receive a 'nil' allocation and the profitable companies receive an allocation of a share of the exact group liability. This approach might be summarised as follows - determine the notional tax liability or notional taxable income for each TSA contributing member on the basis that the group was not a consolidated group - apportion any notional tax losses to notional taxable companies and allocate the notional loss companies 'Nil' liability under the TSA, and - allocate to each TSA contributing member (that still has a notional tax liability or taxable income) a portion of the group liability on a pro rata basis. • If the taxpayer has opted to use the PAYG instalments offset provisions in subsection 721-25(1A), the income tax liability net of PAYG instalments credits could be allocated in proportion to the notional tax payable of the contributing member after deducting its PAYG amounts allocated under the TSA in respect of the relevant income year. In situations where the contributing member has PAYG amounts allocated under the TSA greater than its notional tax payable, it would receive a nil allocation. • For PAYG instalments liabilities, it would be reasonable to use a proportional allocation of group PAYG instalments liabilities based on one-quarter of each entity's prior year notional tax liability (adjustments would be required to address entries and exits). • Another example of how to proportionately allocate PAYG instalments liabilities might be by using notional PAYG instalments for each entity for the quarter. • PAYG instalments liabilities might also be allocated by using actual PAYG instalment income for each entity for the relevant quarter. - determine the notional tax liability or notional taxable income for each TSA contributing member on the basis that the group was not a consolidated group - apportion any notional tax losses to notional taxable companies and allocate the notional loss companies 'Nil' liability under the TSA, and - allocate to each TSA contributing member (that still has a notional tax liability or taxable income) a portion of the group liability on a pro rata basis. 114. An allocation to a contributing member of 'nil' would be seen as 'reasonable' if the circumstances of that company warranted such an allocation – for example, 'tax loss' or 'accounting loss' companies, trustee companies of some super funds or employee share schemes. 115. These methods are not intended to be prescriptive and other methods using financial information normally available to the group may be acceptable. For example, unaudited profit figures could be used instead of notional tax liabilities. | Not a 'reasonable allocation' – example: 116. If a group decides to use a methodology of allocation based on contributions to group profit and certain members were excluded from the TSA, but those members were the major contributors to the group's profit, then the TSA would be seen as invalid in that it contains an unreasonable allocation of the group debt. | Consideration for head company's contribution towards group income: 117. In some cases (for example, where the head company is a contributor to the group's profits), the amount allocated to the TSA contributing members (other than the head company) may be less than 100% of the group liability because a portion of the group liability could be notionally attributable to the head company. | Intra-group transactions: 118. Generally, there is no need to adopt post-elimination entries in calculating the accounting profits on which a TSA may be based, but both pre and post-elimination entries may be used. 119. Post-elimination entries might be the better option to use in respect of dividends, but this is not mandatory. Dividend payments do not reduce the profit of the paying entity and these dividends could be streamed through a succession of companies. It may be necessary to notionally reduce profits by dividend receipts to ensure that the final liabilities match the final group liability. | The final liability (on assessment): 120. The head company's liability for assessed income tax is a group liability and therefore can be covered by a TSA. [14] 121. The quantum of income tax is determined by reference to the taxable income less tax offsets. [15] Although the entitlement to credit for PAYG instalments arises at the time of assessment of the relevant year's tax, as they are not a tax offset, they do not form part of the calculation of the assessed liability as such. That is, the credit entitlement and the assessed tax are separate and distinct sums. 122. However, when allocating an assessed liability under a TSA, a group can choose to either allocate the total amount of the assessed tax payable or that amount less the instalment credits available to the head company. [16] 123. Where it is decided to allocate the assessed tax liability without allowance for instalment credit entitlements, it is probable that the total of the TSA allocation of instalments plus the TSA allocation of the gross tax liability may exceed the net amount payable by a subsidiary. 124. However, the amount owing by the head company is the net amount of the final liability (that is, the tax payable less instalment and other credits) and we cannot recover an amount greater than that from the head company and the subsidiaries. Accordingly, we will only pursue that part of the gross tax TSA allocation to a subsidiary that is equal to or less than the net amount of the final group liability. If the TSA instalment allocations or any penalties are also unpaid, that amount will also be pursued. 125. It is also conceivable that an entity could be allocated a greater liability to instalments during a year under a TSA than its 'share' of gross tax on the final assessment under a TSA. In itself this would not constitute an unreasonable allocation, as the methodology used may be acceptable but the commercial fortunes of the company over time may have resulted in this scenario arising. For example, this could occur where the first 3 quarters of the year are extremely profitable and a sudden, severe loss occurs in the final quarter resulting in a refund on assessment to the head company because the instalment credits exceed the annual assessment. It is also conceivable that the methodology used in allocating instalments under the TSA differs from the methodology used for allocating the tax payable on assessment. | 'Entire liability': 126. References in this Practice Statement to the allocation of an 'entire liability' are references to the group liabilities as listed in the table in subsection 721-10(2). It is recognised that the financial position of individual companies may change between the date on which the TSA is executed and the date (if any) on which the contribution amount is pursued by us. Accordingly, and in particular where the contribution amount is pursued some years after the head company's due time, it is conceivable that a contributing member may not be able to pay the full contribution amount. 127. We will recognise the TSA as being valid and will not be entitled to seek to recover any of the unpaid TSA contribution amount of that subsidiary from other subsidiaries provided that: • the original allocation was in accordance with the methodology of the TSA • the original allocation was reasonable at the head company's due time • there are no adverse circumstances relating to the validity of the TSA (for example, the TSA was part of an arrangement to prejudice recovery), and • all other statutory requirements of a TSA are met. • the original allocation was in accordance with the methodology of the TSA • the original allocation was reasonable at the head company's due time • there are no adverse circumstances relating to the validity of the TSA (for example, the TSA was part of an arrangement to prejudice recovery), and • all other statutory requirements of a TSA are met. | Other contractual arrangements unrelated to a tax sharing agreement: 128. Groups may decide to include in the document containing a TSA various terms of an agreement that are unrelated to the TSA. Provided those do not affect the reasonableness of the allocation under the TSA or prejudice our rights to recover the group liability, this would be of no concern to us. For instance, terms governing the group's internal arrangements (set out below) are not relevant to determining whether there has been a 'reasonable allocation', but the group may choose to include them in a broader agreement containing the TSA. These terms include: • financing ongoing tax liabilities (even if this requires different contributions from subsidiary members than would be ascertained under the 'reasonable allocation' clauses) • the treatment of refunds received (see below), or • the requirements for balancing adjustments between the TSA liabilities and tax liabilities as shown in entities' accounts. • financing ongoing tax liabilities (even if this requires different contributions from subsidiary members than would be ascertained under the 'reasonable allocation' clauses) • the treatment of refunds received (see below), or • the requirements for balancing adjustments between the TSA liabilities and tax liabilities as shown in entities' accounts. 129. However, while these terms may have no bearing on the determination of whether there has been a 'reasonable allocation', if they are designed to frustrate the ability of a subsidiary to pay its TSA allocation, it would be seen to 'prejudice recovery' under subsection 721-25(2). This is discussed further in this Practice Statement. | Tax sharing agreement part of an arrangement to prejudice recovery: 130. As per subsection 721-25(2), a group liability is not covered by a TSA if: • the TSA was entered into as part of an arrangement, and • a purpose of the arrangement was to prejudice the recovery by us of some or the entire amount of the group liability or liabilities of that kind. • the TSA was entered into as part of an arrangement, and • a purpose of the arrangement was to prejudice the recovery by us of some or the entire amount of the group liability or liabilities of that kind. 131. Examples of such arrangements include where the allocation to a TSA contributing member was based on: • capacity to pay and seemed reasonable at the time the TSA was made and remained so at the head company's due time, but it was always known that by the time we may attempt to collect from that member, its circumstances would be such that it would not be in a position to meet its liability, or • notional tax liability but the individual amounts were artificially distorted by selective allocations of losses, unwarranted administration or management fees or interest payments or other intra group transactions that appeared designed to shift the TSA liabilities to entities which are less likely to be able to pay the liability. • capacity to pay and seemed reasonable at the time the TSA was made and remained so at the head company's due time, but it was always known that by the time we may attempt to collect from that member, its circumstances would be such that it would not be in a position to meet its liability, or • notional tax liability but the individual amounts were artificially distorted by selective allocations of losses, unwarranted administration or management fees or interest payments or other intra group transactions that appeared designed to shift the TSA liabilities to entities which are less likely to be able to pay the liability. 132. Some of the factors to be taken into account in determining whether an arrangement had a purpose of prejudicing recovery include but are not limited to: • disposing of interests (while retaining control) in solvent or asset-rich members of the group • allocation to members where a foreseeable event would cause it to become unable to pay (for example, litigation in progress), and • uncommercial sale of assets. • disposing of interests (while retaining control) in solvent or asset-rich members of the group • allocation to members where a foreseeable event would cause it to become unable to pay (for example, litigation in progress), and • uncommercial sale of assets. | Formal notice requesting a copy of a tax sharing agreement: 133. The notice to provide the TSA is issued to the head company and it is the head company's responsibility to provide the TSA. It is highly likely that the head company would be the only entity with the current TSA because previous versions may have been superseded and if it decides not to provide the TSA to us on request, that is an issue between the head company and the subsidiaries. 134. As the existence of a TSA has liability implications only at the head company's due time or the time an entity leaves the group, we will usually not issue a notice under subsection 721-25(3) that requires the head company to provide a copy of that TSA at a time before those aforementioned dates. This is because until those times (that is, the head company's due time or the leaving time) a TSA may not exist. 135. We may defer the time for lodgment of an approved form – in this case a TSA – through the operation of section 388-55 of Schedule 1 to the TAA. (For the policy on deferring the lodgment time, refer to Law Administration Practice Statement PS LA 2011/15 Lodgment obligations, due dates and deferrals.) In accordance with the principles outlined in PS LA 2011/15, if the head company's due time has passed, a deferral of time to lodge the TSA would be very unlikely, particularly if delays would exacerbate the recovery position or the group was non-cooperative in attending to its obligations. Generally, the granting of a deferral would be unlikely in cases other than where compliance could not be effected due to circumstances that were beyond the control of the head company and its officers. An example may be where a liquidator has been appointed and all the records of the group are unable to be located immediately. 136. It should be noted that a deferral of the time to provide a copy of a TSA does not alter the time that a TSA needs to be in place. 137. In some circumstances, such as when negotiating a payment arrangement, we may informally request a copy of any TSA to which an entity is a signatory, or request the TSA under section 353-10 of Schedule 1 to the TAA. These requests and the compliance or non-compliance by the requested party to provide a copy of a TSA under this provision have no impact on the liability status of the contributing members. | Commissioner's review of a tax sharing agreement: 138. As liabilities determined under a TSA are only enforced once a head company defaults on its obligations, we do not expect to require the production of a significant number of TSAs. Further, while a TSA could provide a reasonable allocation of a group liability at a particular point of time, depending on the allocation methodology used the reasonableness of the allocation may change due to later events. Accordingly, it would be of questionable benefit to taxpayers for us to review TSAs as they are compiled and it would be administratively impossible to review all TSAs in a meaningful way in a reasonably brief time. 139. Accordingly, the fact that we may have received a copy of a TSA (either informally or through a request under subsection 721-25(3)) and have taken no further action does not imply that we consider that the TSA is valid or provides a reasonable allocation of the relevant group liabilities. 140. Similarly, if we took steps for recovery on the basis that there was a TSA as per section 721-25, but at some future point it is concluded that the particular group liability was not covered by a TSA (for example, because the allocation of the group liability under the TSA was not reasonable) our previous actions do not prevent the law operating as if the group liability was not covered by a TSA. As such, all contributing members will be jointly and severally liable for the group liability. | Credits and refunds: 141. Credits may arise in a number of circumstances – for example, from amended assessments, variations to PAYG instalments and remission of penalties. As it is the head company which is primarily liable under the law to pay group liabilities, it follows that it is the entity entitled to receive such credits. Therefore, any excess credit not applied against other liabilities is refundable to the head company. 142. However, the original group liability may have been paid by subsidiary members, including exited subsidiary members, under the joint and several liability provisions or the TSA provisions. 143. Where, during a consolidation transitional year, a subsidiary member is directly entitled to a credit under the law (for example, under section 45-215 of Schedule 1 to the TAA as a result of a varied instalment rate) that credit can only be applied against liabilities of the subsidiary member and any excess will be refunded to that subsidiary member. | Payment by a subsidiary to head company not sufficient: 144. It should be noted that a payment made by a subsidiary to the head company does not extinguish the liability of a subsidiary to us – that is, the subsidiary could still be required to make a payment to us of their TSA contribution amount or of a joint and several liability. This applies even if the amount paid to the head company equals what would be required under the TSA. (However, also refer to later commentary in Part C of this Practice Statement.) 145. For this reason, the characterisation of payments (to head companies or otherwise) may need to be considered by subsidiaries, for example, whether it is a loan or paid in escrow. | Clear exit: 146. In accordance with section 721-35, an exiting entity is able to leave a group clear of a specific group liability if: • the actual liability was covered by a TSA to which it was a party • it ceased to be a member of the group on or before the head company's due time, and • before the leaving time, it had paid to the head company an amount equal to either the contribution amount or (if that amount could not be determined) a reasonable estimate of that amount. • the actual liability was covered by a TSA to which it was a party • it ceased to be a member of the group on or before the head company's due time, and • before the leaving time, it had paid to the head company an amount equal to either the contribution amount or (if that amount could not be determined) a reasonable estimate of that amount. 147. Therefore, the following liabilities cannot be subject to the clear exit rules: • a group liability not covered by a valid TSA, or • a group liability which has already become, or is considered to be, due and payable by the head company prior to the leaving time (for example, income tax under subsection 5-5(4)). • a group liability not covered by a valid TSA, or • a group liability which has already become, or is considered to be, due and payable by the head company prior to the leaving time (for example, income tax under subsection 5-5(4)). | Summary of ATO collection action against exited entities: 148. Collection action against exited entities is set out broadly below: • An exited entity which has a joint and several liability for a group debt or amended debt that was due and payable prior to its exit will generally be pursued as a 'last resort' – that is, if it is unlikely that the debt can be recovered from other entities. The law does not allow a clear exit in relation to this debt. • An exited entity which has a TSA liability for a group debt that was due and payable prior to its exit will probably need to be pursued to enable full collection of the group debt. The law does not allow a clear exit in relation to this debt. • An exited entity which has a joint and several liability for a group debt that was due and payable after its exit will generally be pursued as a 'last resort' if it has not exited 'clear'. • An exited entity which has a TSA liability for a group debt that was due and payable after its exit will need to be pursued to enable full collection of the group debt if it has not exited 'clear'. • An exited entity which has a TSA liability for a group debt that was due and payable after its exit will not be pursued if it has exited 'clear'. • An exited entity which has a TSA liability for a group debt arising entirely from an amendment issued and due and payable after its exit will generally not be pursued unless the circumstances are such that this affected its clear exit and: - its activities contributed to the need for the amendment - it had (notionally) used losses that were extinguished in whole or part by that amendment, or - it had expected, or should have expected, that an amended assessment would issue. • An exited entity which has a joint and several liability for a group debt or amended debt that was due and payable prior to its exit will generally be pursued as a 'last resort' – that is, if it is unlikely that the debt can be recovered from other entities. The law does not allow a clear exit in relation to this debt. • An exited entity which has a TSA liability for a group debt that was due and payable prior to its exit will probably need to be pursued to enable full collection of the group debt. The law does not allow a clear exit in relation to this debt. • An exited entity which has a joint and several liability for a group debt that was due and payable after its exit will generally be pursued as a 'last resort' if it has not exited 'clear'. • An exited entity which has a TSA liability for a group debt that was due and payable after its exit will need to be pursued to enable full collection of the group debt if it has not exited 'clear'. • An exited entity which has a TSA liability for a group debt that was due and payable after its exit will not be pursued if it has exited 'clear'. • An exited entity which has a TSA liability for a group debt arising entirely from an amendment issued and due and payable after its exit will generally not be pursued unless the circumstances are such that this affected its clear exit and: - its activities contributed to the need for the amendment - it had (notionally) used losses that were extinguished in whole or part by that amendment, or - it had expected, or should have expected, that an amended assessment would issue. - its activities contributed to the need for the amendment - it had (notionally) used losses that were extinguished in whole or part by that amendment, or - it had expected, or should have expected, that an amended assessment would issue. | Exit: 149. A member will have exited from a group when it no longer meets the eligibility requirements to be a member of a group. Often this will occur when the member is sold to an entity outside of the group. There may, however, be other circumstances in which members are considered to have exited from the group. 150. For example, when a group deconsolidates, all members of the group will effectively have 'ceased to be a member of the group'. If the time of the deconsolidation ('leaving time', in this case) occurs before the head company's due time of a group liability of that group, it is possible for the member to achieve a clear exit in respect of that liability by complying with the requirements of section 721-35. 151. In the scenario outlined in Subdivision 705-C, which concerns the acquisition or 'takeover' of a consolidated group by another, such an acquisition results in a deconsolidation of the acquired group, because the head company of that group no longer qualifies as a 'head company' after the takeover. 152. In these cases, it is possible for a subsidiary member of that acquired group to achieve a clear exit in respect of a group liability incurred by that group, where the due time of the liability has not yet passed at the date of the takeover. For the purposes of section 721-35, the 'leaving time' is the time of the takeover or deconsolidation and the member must have paid its contribution amount, or reasonable estimate thereof, to the former head company of the acquired group prior to this time. | Provision of a tax sharing agreement by exited entity: 153. If an exiting entity makes a payment of a reasonable estimate to the head company to cover its estimated liability under the TSA, that exiting company may still become jointly and severally liable for that group debt if the TSA is not provided by the head company as required under subsection 721-25(3). 154. However, under subsection 721-15(3A), the joint and several liability in respect of that particular contributing member is taken never to have arisen: • if a group liability is taken never to have been covered by a TSA due to the failure of the head company to give to us a copy of the agreement as required under subsection 721-25(3) • we give the exited entity a notice under subsection 721-15(5) in respect of the group liability (that is, a notice determining the day on which the joint and several liability of a member becomes due and payable) • apart from the operation of subsection 721-25(3) (the failure of the head company to give a copy of the TSA to us), the exited entity would have left the group clear of the group liability in accordance with section 721-35, and • the exited entity gives to us a copy of the relevant TSA in the approved form within 14 days of the notice under subsection 721-15(5) being given. • if a group liability is taken never to have been covered by a TSA due to the failure of the head company to give to us a copy of the agreement as required under subsection 721-25(3) • we give the exited entity a notice under subsection 721-15(5) in respect of the group liability (that is, a notice determining the day on which the joint and several liability of a member becomes due and payable) • apart from the operation of subsection 721-25(3) (the failure of the head company to give a copy of the TSA to us), the exited entity would have left the group clear of the group liability in accordance with section 721-35, and • the exited entity gives to us a copy of the relevant TSA in the approved form within 14 days of the notice under subsection 721-15(5) being given. 155. The provision by an exited entity of a copy of a TSA in the approved form in accordance with subsection 721-15(3A) does not affect the joint and several liability of other contributing members, including other exited contributing members. 156. The provision by an exited entity of a copy of a TSA in the approved form in accordance with subsection 721-15(3A) must meet the requirements set out in paragraph 87 of this Practice Statement adjusted as follows: • The schedule is to be signed by the exited entity only and must - specify the relevant liability or liabilities and periods as specified in our notice to pay - state the name and Australian business number or Australian company number of the head company and the exited entity - state its contribution amount or a reasonable estimate of the contribution amount in respect of that liability or each of the liabilities - make a declaration that 'the schedule includes the names of the head company and the exited entity in relation to that liability or liabilities for those periods and the exited entity's contribution amount or amounts as calculated under the TSA', and - the only deed of assumption required (if it exists) is the deed of assumption signed by or on behalf of the exited entity. • The schedule is to be signed by the exited entity only and must - specify the relevant liability or liabilities and periods as specified in our notice to pay - state the name and Australian business number or Australian company number of the head company and the exited entity - state its contribution amount or a reasonable estimate of the contribution amount in respect of that liability or each of the liabilities - make a declaration that 'the schedule includes the names of the head company and the exited entity in relation to that liability or liabilities for those periods and the exited entity's contribution amount or amounts as calculated under the TSA', and - the only deed of assumption required (if it exists) is the deed of assumption signed by or on behalf of the exited entity. - specify the relevant liability or liabilities and periods as specified in our notice to pay - state the name and Australian business number or Australian company number of the head company and the exited entity - state its contribution amount or a reasonable estimate of the contribution amount in respect of that liability or each of the liabilities - make a declaration that 'the schedule includes the names of the head company and the exited entity in relation to that liability or liabilities for those periods and the exited entity's contribution amount or amounts as calculated under the TSA', and - the only deed of assumption required (if it exists) is the deed of assumption signed by or on behalf of the exited entity. | Tax sharing agreement found to be invalid: 157. If the TSA in respect of the group liability to which the exited entity intended to leave clear of is found to be invalid (for example, because the allocation of the group liability was unreasonable), then the exited entity will be jointly and severally liable for the total of the group liability. 158. This joint and several liability will arise regardless of whether the allocation under the TSA to the exited entity itself was reasonable or the payment made in accordance with section 721-35 would otherwise have enabled the entity to leave clear of the group liability. | Clear exit not limited by tax sharing agreement methodology: 159. A clear exit is available to a TSA contributing entity regardless of the allocation methodology used provided that the allocation is reasonable and the other requirements of the law are met – that is, a payment of the relevant contributing amount or a reasonable estimate of that amount is made by the exiting entity to the head company prior to exit. | Reasonable estimate of contribution amount: 160. If an exiting entity wishes to leave the group clear of a particular group liability and, before the leaving time its contribution amount for that group liability cannot be determined, a reasonable estimate of that contribution amount must be made. The reasonableness of the estimate will be determined, and depends on the circumstances, at the time of the exit. 161. For a reasonable estimate of the contribution amount to be made, the estimate needs to relate to, and be based on, the relevant TSA. 162. Other methods could make use of actual income figures, projected cash flows or a combination of this data from group accounts or the member's own accounts. 163. Where a notional income methodology is used and there is prior knowledge of an event which may impact on the reasonableness of the amount, then this needs to be factored into the estimate calculation. Such events could include: • adjustments for taxable extraordinary or abnormal transactions • an audit (or notice of an intended audit) by us, the result of which would require that the subsidiary modify its treatment of certain transactions, or • pending court cases that may impact on the subsidiary's financial or taxation position. • adjustments for taxable extraordinary or abnormal transactions • an audit (or notice of an intended audit) by us, the result of which would require that the subsidiary modify its treatment of certain transactions, or • pending court cases that may impact on the subsidiary's financial or taxation position. 164. The contribution amount (or reasonable estimate of that contribution amount) required to be paid will in most cases need to be calculated in consultation with the head company. The head company will have access to group records and greater knowledge of the expected quantum of the relevant group liability as well as the exiting entity's likely allocation under a TSA. | Payment of contribution amount to head company on exit: 165. Documentary evidence that the leaving member had paid to the head company the contribution amount, or a reasonable estimate of that amount, would need to be retained by the leaving entity in the event that it is later needed to prove that it had left the group clear of a particular group liability. Generally, standard commercial documentation would suffice. 166. If a payment is meant to cover 2 liabilities (for example, the fourth quarter PAYG instalment and the final income tax liability), then accounting records should disclose the amount of each component. 167. If payment of an amount is made to the head company by the leaving entity as required by paragraph 721-35(c) and the head company subsequently fails to pay this amount to us, this alone does not affect the clear exit of the entity. 168. The payment of the reasonable estimate needs to be made by the 'leaving time' which, for the purposes of this provision, will mean that the transfer of the payment must be made prior to the date that the entity can no longer be a member of the group. 169. The term 'paid' has been considered in case law [17] and may mean: • an actual payment (that is, a sum of money or a bill of exchange) is handed over directly to a head company to extinguish a liability • a payment by agreed set-off where cross-liabilities in money exist [18] , or • a transfer of property other than money or a bill of exchange (that is, by a transfer in kind). • an actual payment (that is, a sum of money or a bill of exchange) is handed over directly to a head company to extinguish a liability • a payment by agreed set-off where cross-liabilities in money exist [18] , or • a transfer of property other than money or a bill of exchange (that is, by a transfer in kind). 170. In regard to the points in paragraph 169 of this Practice Statement, it must be remembered that paragraph 721-35(c) requires payment to be made by the leaving TSA contributing member to the head company. Therefore, where the leaving member is sold to an entity outside the group, payment made by the purchaser of that member or payment made to a vendor being an entity other than the head company would not meet the statutory requirement. 171. A 'mere' book entry is not considered a form of payment. Any such book entry must result from a clear contractual arrangement between the parties which establishes a debt. [19] The establishment and recording of a debt cannot be considered as payment. | Contribution amount 'nil': 172. If the contribution amount (or the reasonable estimate of that amount) that otherwise would be required to be paid to the head company under section 721-35 is determined to be 'nil', then no payment is necessary to allow the exiting entity to leave the group clear of the relevant group liability. However, documentation demonstrating the calculation of the 'nil' amount would need to be retained to support the assertion of a clear exit should that claim later need to be proved to us or a court. | Adjustment of contribution amount upon completion of sale: 173. Payment of the contribution amount to the head company must occur before the leaving time. However, it may not be until after the leaving time that all accounts relating to the sale of the exiting entity are completed. Only then may it be realised that the contribution paid to the head company was too much or too little, compared to the actual contribution amount as calculated under the TSA at a later date. 174. If the estimate of the contribution amount paid to the head company was found to be too much, a repayment by the head company to the exited entity (or the purchaser) can occur without impacting on any clear exit provided the resulting net amount paid to the head company still represents a reasonable estimate of that contribution amount. 175. As the contribution amount needs to be paid to the head company before the leaving time, any extra amounts paid by the exited entity after the leaving time cannot be taken into account when determining whether the amount paid was a reasonable estimate of the contribution amount. That is not to say that if an adjustment amount is required to be paid by the exited entity to the head company under their own contractual arrangements, that the original amount paid was not a reasonable estimate of the contribution amount. Reasonable estimate of contribution amount different to final contribution amount calculated under tax sharing agreement 176. If the 'reasonable estimate' of the contribution amount paid to the head company before the leaving time is less than the contribution amount that was later determined under the TSA just before the company's due time (for example, when all data is available for determination of the various contribution amounts), there is no need to make any compensatory adjustments to the contribution amounts of any other TSA contributing members to make up the shortfall. 177. For example, if the exiting entity leaves the group on 1 September and makes a reasonable estimate that its annual assessment contribution for the year under the TSA would be $125,000 but, upon completion of the yearly income tax return and applying the TSA the amount should have been $125,500, there is no need to reallocate the additional '$500' to other members. 178. No adjustment is necessary to the other TSA contributing members' contribution amounts as under the TSA an amount would still be allocated to the exited entity. However, a reallocation of this amount in the TSA to other members would not, in itself, invalidate the TSA. If this amount, (notwithstanding that it is more than the amount paid to the head company under the clear exit rules) and the other allocations represented a reasonable allocation of the total amount of the group liability, then the requirements in paragraph 721-25(1)(c) would be met. 179. On the other hand, one element of the clear exit test is that the amount paid to the head company is a reasonable estimate of the exiting entity's contribution amount. Therefore, providing the amount paid to the head company at the time of exit can be shown to be a reasonable estimate of the final contribution amount, then a clear exit is still possible. | If leaving the group prejudices recovery: 180. A TSA contributing member will not leave the group 'clear' of a group liability if the cessation of membership was part of an arrangement, a purpose of which was to prejudice the recovery by us of some or all of the amount of the group liability or liabilities. 181. An example of such an arrangement may be where an entity has been sold for less than its market value. The intent of the arrangement is the relevant consideration. 182. The sale of the business of a company for fair market value rather than a company itself is not, in itself, considered part of an arrangement designed to prejudice the recovery by us. | Amended liabilities – effect on exited entities: 183. An amended assessment can affect an exited entity: • by requiring a further payment towards a debt that is deemed due and payable before the member left the group, and • by affecting whether there has been a 'clear exit'. • by requiring a further payment towards a debt that is deemed due and payable before the member left the group, and • by affecting whether there has been a 'clear exit'. 184. For discussion on amended liabilities generally and the impact on clear exit, refer to paragraph 186 of this Practice Statement. | Commissioner's review of a clear exit: 185. We may at any time review claims that an entity has left the group clear of a group liability and, if necessary, take action against that entity if it is considered that it had not actually left clear of the liability. However, we are not in the position to review an exit on request of the entity or other interested parties to verify that an entity exited 'clear'. | Amendment of group liabilities: 186. If a group liability previously notified or assessed is found to be incorrect, it may be necessary to amend the amount payable. A common example is where an amended income tax assessment is issued following a request by the taxpayer or an audit by us. 187. The due time for amended income tax assessments is 21 days from when the taxpayer is given notification of the amendment. [20] 188. All contributing members (that is, entities who were members of the group during all or part of the period to which the liability relates which includes those entities that have since left the group) are potentially exposed to the amended liability. | Amended liability not covered by a tax sharing agreement: 189. Where the amended group liability is not covered by a TSA, all contributing members would be jointly and severally liable for the entire group liability. | Amended liability covered by a tax sharing agreement: 190. Despite the fact that an amended assessment has a different due time from the due time of the original assessment, both assessments relate to the same group liability. As such, there must be only one TSA dealing with the debts arising from both original and amended assessments. The TSA must be in existence before the due time of the original assessment. 191. A liability resulting from an amendment will be considered to be addressed by a TSA if the TSA refers to the underlying liability to which the amendment relates. For example, a reference to a 'group liability for income tax relating to the year ended 30 June 2003' would also encompass any amendment to that liability, provided fixed amounts were not specified elsewhere in the body of the TSA. 192. If, for example, the notional tax methodology outlined in the TSA section is used as the basis for allocation under a TSA, the effect would be to allocate the increased liability from the amendment to those entities whose transactions resulted in the amendment. This additional allocation may be an indirect allocation if losses are reduced in one company resulting in the increase in notional income of those companies that used those losses. 193. In such cases, it would not be considered unreasonable if a clause in a TSA provided that any amount of increased liability arising from an amendment is allocated to those entities whose allocations from the original assessment were understated. It is important to note 2 issues: • this would mean that if losses are disallowed in one company, those companies that 'used' those losses would be affected as well as the loss company itself, and • the TSA must be internally consistent – that is, this clause cannot contradict the other clauses allocating the original amount of liability. • this would mean that if losses are disallowed in one company, those companies that 'used' those losses would be affected as well as the loss company itself, and • the TSA must be internally consistent – that is, this clause cannot contradict the other clauses allocating the original amount of liability. 194. It is conceivable that we may have required the production of the TSA prior to issuing the amended assessment because the original assessment was also unpaid. Accordingly, it is unlikely that any schedule showing the actual TSA liabilities derived from the application of the TSA methodology to the original group liability would include the distribution of the amended liability. 195. We may require the production of the TSA with an amended schedule within 14 days of the (new) due time of the amended assessment. [21] | Amended liability and clear exit: 196. The effect of an amendment on a clear exit could be as follows: • the allocation under that TSA may no longer be considered reasonable thus invalidating the TSA (for example, if the original allocation was of a specific amount or based on the specific taxable income of the group), or • the payment made to the head company by an exiting entity of its contribution amount may fall short of its contribution amount as calculated on the basis of the amended assessment. • the allocation under that TSA may no longer be considered reasonable thus invalidating the TSA (for example, if the original allocation was of a specific amount or based on the specific taxable income of the group), or • the payment made to the head company by an exiting entity of its contribution amount may fall short of its contribution amount as calculated on the basis of the amended assessment. 197. A company which left the group between the due time of the original assessment and the due time of the amendment can achieve a clear exit in relation to the amount of the amended assessment, in certain limited circumstances: • If the entity leaves the group before the due time of both the original and amended assessments, any payment it made to the head company prior to its exit may not be sufficient to gain a clear exit if the amount paid falls short of its contribution amount as calculated on the basis of the amended assessment. • A clear exit can only be achieved in this case if the entity made - a payment of its contribution amount to the head company prior to its departure, and that amount paid is equal to the contribution amount as calculated on the basis of the amended assessment, or - a payment of a reasonable estimate of that contribution amount to the head company prior to its departure. • In considering whether a 'reasonable estimate' of the amount was paid, we may have regard to whether the entity could have expected that an amended assessment would issue at a later time and whether it contributed to, and could have expected, the increased amount arising from the amendment. • As to whether the entity could have expected an amended assessment, note paragraph 164 of this Practice Statement. Usually, the exiting entity will need to consult with the head company in calculating its contribution amount or a reasonable estimate of that amount. The head company will often be in a better position to anticipate any future amended assessments of the group liability and therefore to advise accordingly of any likely increase in the contribution amount. However, an unexpected amended assessment resulting, for example, from undisclosed activities of another subsidiary of which neither the exiting entity nor the head company were (at the time of exit) aware may not affect the 'reasonableness' of the entity's estimate of its contribution amount. • Conversely, a clear exit would not be obtained if the entity could have expected that an amended assessment would issue at a later time and does not make any contribution on exit towards the additional liability. • An entity that leaves the group after the due time of the original assessment, but before the amended assessment is due, may still have the benefit of the clear exit provisions in respect of amended assessments. - This is because the due time of an amended assessment for these years is prospective, such that the leaving time of an entity in this situation can be said to be 'before the head company's due time'. - A clear exit can be achieved in this case if the entity made a payment of its (anticipated) post-amendment contribution amount (that is, the contribution amount that takes into account the anticipated amended assessment) or a reasonable estimate of that amount, to the head company, prior to its departure. - However, if payment was not made of this amount before the leaving time of the entity, then clear exit would not be achieved in respect of that debt. • If the entity leaves the group before the due time of both the original and amended assessments, any payment it made to the head company prior to its exit may not be sufficient to gain a clear exit if the amount paid falls short of its contribution amount as calculated on the basis of the amended assessment. • A clear exit can only be achieved in this case if the entity made - a payment of its contribution amount to the head company prior to its departure, and that amount paid is equal to the contribution amount as calculated on the basis of the amended assessment, or - a payment of a reasonable estimate of that contribution amount to the head company prior to its departure. • In considering whether a 'reasonable estimate' of the amount was paid, we may have regard to whether the entity could have expected that an amended assessment would issue at a later time and whether it contributed to, and could have expected, the increased amount arising from the amendment. • As to whether the entity could have expected an amended assessment, note paragraph 164 of this Practice Statement. Usually, the exiting entity will need to consult with the head company in calculating its contribution amount or a reasonable estimate of that amount. The head company will often be in a better position to anticipate any future amended assessments of the group liability and therefore to advise accordingly of any likely increase in the contribution amount. However, an unexpected amended assessment resulting, for example, from undisclosed activities of another subsidiary of which neither the exiting entity nor the head company were (at the time of exit) aware may not affect the 'reasonableness' of the entity's estimate of its contribution amount. • Conversely, a clear exit would not be obtained if the entity could have expected that an amended assessment would issue at a later time and does not make any contribution on exit towards the additional liability. • An entity that leaves the group after the due time of the original assessment, but before the amended assessment is due, may still have the benefit of the clear exit provisions in respect of amended assessments. - This is because the due time of an amended assessment for these years is prospective, such that the leaving time of an entity in this situation can be said to be 'before the head company's due time'. - A clear exit can be achieved in this case if the entity made a payment of its (anticipated) post-amendment contribution amount (that is, the contribution amount that takes into account the anticipated amended assessment) or a reasonable estimate of that amount, to the head company, prior to its departure. - However, if payment was not made of this amount before the leaving time of the entity, then clear exit would not be achieved in respect of that debt. - a payment of its contribution amount to the head company prior to its departure, and that amount paid is equal to the contribution amount as calculated on the basis of the amended assessment, or - a payment of a reasonable estimate of that contribution amount to the head company prior to its departure. - This is because the due time of an amended assessment for these years is prospective, such that the leaving time of an entity in this situation can be said to be 'before the head company's due time'. - A clear exit can be achieved in this case if the entity made a payment of its (anticipated) post-amendment contribution amount (that is, the contribution amount that takes into account the anticipated amended assessment) or a reasonable estimate of that amount, to the head company, prior to its departure. - However, if payment was not made of this amount before the leaving time of the entity, then clear exit would not be achieved in respect of that debt. 198. Note the distinction drawn between 'liability' and 'debts' in paragraph 82 of this Practice Statement. Note also the discussion commencing at paragraph 146 of this Practice Statement for the other requirements to achieve a 'clear exit' and, in particular, paragraphs 159 to 182 of this Practice Statement for factors to be considered when calculating and making the payment of a reasonable estimate (of the exiting entities contribution to the amended assessment amount) on exit.",PS LA 2006/8 | PS LA 2007/11 | PS LA 2011/4 | PS LA 2011/6 | PS LA 2011/12 | PS LA 2011/14 | PS LA 2011/15 | ITAA 1997 4-10(3) | ITAA 1997 5-5(4) | ITAA 1997 5-5(7) | ITAA 1997 Subdiv 705-C | ITAA 1997 Div 721 | ITAA 1997 721-10(2) | ITAA 1997 721-10(3) | ITAA 1997 721-15(2) | ITAA 1997 721-15(3) | ITAA 1997 721-15(3A) | ITAA 1997 721-15(5) | ITAA 1997 721-17 | ITAA 1997 721-20 | ITAA 1997 721-25 | ITAA 1997 721-25(1) | ITAA 1997 721-25(1)(c) | ITAA 1997 721-25(1A) | ITAA 1997 721-25(1B) | ITAA 1997 721-25(2) | ITAA 1997 721-25(3) | ITAA 1997 721-30(5) | ITAA 1997 721-32 | ITAA 1997 721-35 | ITAA 1997 721-35(c) | TAA 1953 Pt IVC | TAA 1953 Sch 1 45-80 | TAA 1953 Sch 1 45-215 | TAA 1953 Sch 1 260-45(3) | TAA 1953 Sch 1 260-75(3) | TAA 1953 Sch 1 265-40 | TAA 1953 Sch 1 265-45 | TAA 1953 Sch 1 353-10 | TAA 1953 Sch 1 388-50 | TAA 1953 Sch 1 388-50(1)(c) | TAA 1953 Sch 1 388-55 | Corporations Act 2001 127 | Corporations Act 2001 Pt 7.2 | Corporations Act 2001 Pt 7.3 | Minerals Resource Rent Tax Act 2012 (repealed) | Petroleum Resource Rent Tax Assessment Act 1987 | 81 ATC 4346 | 82 CLR 408 | 19 ATR 365 | 132 CLR 671 | 7 ALR 685 | 56 CLR 63,PS LA 2006/8 PS LA 2007/11 PS LA 2011/4 PS LA 2011/6 PS LA 2011/12 PS LA 2011/14 PS LA 2011/15,ITAA 1997 4-10(3) | ITAA 1997 5-5(4) | ITAA 1997 5-5(7) | ITAA 1997 Subdiv 705-C | ITAA 1997 Div 721 | ITAA 1997 721-10(2) | ITAA 1997 721-10(3) | ITAA 1997 721-15(2) | ITAA 1997 721-15(3) | ITAA 1997 721-15(3A) | ITAA 1997 721-15(5) | ITAA 1997 721-17 | ITAA 1997 721-20 | ITAA 1997 721-25 | ITAA 1997 721-25(1) | ITAA 1997 721-25(1)(c) | ITAA 1997 721-25(1A) | ITAA 1997 721-25(1B) | ITAA 1997 721-25(2) | ITAA 1997 721-25(3) | ITAA 1997 721-30(5) | ITAA 1997 721-32 | ITAA 1997 721-35 | ITAA 1997 721-35(c) | TAA 1953 Pt IIA | TAA 1953 Pt IVC | TAA 1953 Sch 1 45-80 | TAA 1953 Sch 1 45-215 | TAA 1953 Sch 1 Pt 4-15 | TAA 1953 Sch 1 260-45(3) | TAA 1953 Sch 1 260-75(3) | TAA 1953 Sch 1 265-40 | TAA 1953 Sch 1 265-45 | TAA 1953 Sch 1 353-10 | TAA 1953 Sch 1 388-50 | TAA 1953 Sch 1 388-50(1)(c) | TAA 1953 Sch 1 388-55 | Corporations Act 2001 127 | Corporations Act 2001 Pt 7.2 | Corporations Act 2001 Pt 7.3 | Life Insurance Act 1995 | Minerals Resource Rent Tax Act 2012 (repealed) | Petroleum Resource Rent Tax Assessment Act 1987,,Consolidation reference manual Our Charter Chief Executive Instruction Respecting taxpayers' rights of review (link available internally only),False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20135/NAT/ATO/00001,"Group liabilities – joint and several liability | PART A: COMMISSIONER'S RECOVERY POLICY FOR CONSOLIDATED GROUPS | Interaction with other collection policies and issues | Form of a tax sharing agreement | PART C: EXITING FROM THE GROUP | Updated in line with current ATO style and accessibility requirements. | [1] See subsection 721-10(3). | [2] See subsection 721-15(2). | [3] See subsection 721-15(5). | [5] See subsection 721-15(3). | [6] See subsection 721-30(5). | [7] See subsection 721-15(5). | [8] See subsection 721-30(5). | [9] See Law Administration Practice Statement PS LA 2011/6 Risk management in the enforcement of lodgment obligations and debt collection activities . | [10] See Trautwein v Federal Commissioner of Taxation [1936] HCA 77 and Deputy Commissioner of Taxation v Faint [1988] 2 Qd R 494. | [11] See subsection 721-25(1B). | [13] See subsection 721-25(1). | [14] See table item 3 of subsection 721-10(2). | [15] See subsection 4-10(3). | [16] See subsections 721-25(1A). | [17] For example, Brookton Co-operative Society Ltd v Commissioner of Taxation [1981] HCA 28. | [18] See 'Spargo's case' ( Re Harmony and Montague Tin and Copper Mining Co. (1873) 8 Ch. App. 407) and Commissioner of Taxation (Cth) v Steeves Agnew & Co (Vic.) Pty Ltd [1951] HCA 26; (1951) 82 CLR 408 at [420-421]. | [19] See Manzi v Smith [1975] HCA 35; (1975) 49 ALJR 376 at [377]; 7 ALR 685 at [687-688]; Brookton Co-operative Society Ltd v Commissioner of Taxation [1981] HCA 28. | [20] See subsection 5-5(7). | [21] See subsection 721-25(3). | File 1-4JB25RY; 1-14BH6RF6; 1-14BFDO7Y | Armstrong v Commissioner of Stamp Duties (1967) 69 SR (NSW) 38 86 WN (Pt 2) (NSW) 259 | Brookton Co-operative Society Ltd v Commissioner of Taxation [1981] HCA 28 147 CLR 441 81 ATC 4346 11 ATR 880 | Commissioner of Taxation (Cth) v Steeves Agnew & Co (Vic.) Pty Ltd [1951] HCA 26 82 CLR 408 [1952] ALR 29 | Deputy Commissioner of Taxation v Faint [1988] 2 Qd R 494 19 ATR 365 | Manzi v Smith [1975] HCA 35 132 CLR 671 49 ALJR 376 7 ALR 685 | Re Harmony and Montague Tin and Copper Mining Co. (1873) LR 8 Ch App 407 | Trautwein v Federal Commissioner of Taxation [1936] HCA 77 56 CLR 63"
PS LA 2013/6,"SUBJECT: Collection from goods and services tax (GST) groups, GST joint ventures and other entities of debts arising from indirect tax laws PURPOSE: To outline the policy in relation to: • indirect tax sharing agreements for the collection from GST groups and GST joint ventures of debts arising from indirect tax laws including amounts arising under the GST law, the wine tax law, the luxury car tax law and the fuel tax law, and • the collection from other entities that are not GST groups or GST joint ventures of debts arising from indirect tax laws.",7 November 2013,7 November 2013,Law Administration Practice Statement,False,"1. This Practice Statement should be read in conjunction with Law Administration Practice Statement PS LA 2011/18 Enforcement measures used for the collection and recovery of tax-related liabilities and other amounts. 2. Your decisions and actions must be consistent with the commitments made by us in Our Charter . You are also expected to follow the directions of the Chief Executive Instruction Respecting taxpayers' rights of review (link available internally only). 3. This Practice Statement sets out the policy in relation to the collection from: • GST joint ventures and GST groups of debts arising from indirect tax laws, including amounts arising under the goods and services tax law, the wine tax law, the luxury car tax law and the fuel tax law, and in particular the use of indirect tax sharing agreements (ITXSA), and • other entities that are not GST joint ventures or GST groups of debts arising from indirect tax laws. • GST joint ventures and GST groups of debts arising from indirect tax laws, including amounts arising under the goods and services tax law, the wine tax law, the luxury car tax law and the fuel tax law, and in particular the use of indirect tax sharing agreements (ITXSA), and • other entities that are not GST joint ventures or GST groups of debts arising from indirect tax laws. 4. All legislative references in this Practice Statement are to Schedule 1 to the Taxation Administration Act 1953 (TAA), unless otherwise indicated. 5. The following terms are used in this Practice Statement: Clear exit – is the situation referred to in paragraphs 444-80(1A)(d) and 444-90(1A)(d), in which a contributing participant of a GST joint venture or a contributing member of a GST group leaves the GST joint venture or GST group respectively and is not liable to pay an indirect tax amount of the GST joint venture or GST group for the tax period in which the contributing participant or contributing member leaves the GST joint venture or GST group. Contributing member – is an entity that is a participant in a joint venture (other than the joint venture operator) or a member of a GST group for at least part of the period to which the joint venture or GST group liability relates. Exited member – refers to a member of a GST group that has left that GST group and a participant of a GST joint venture that has left the GST joint venture. Increasing adjustment – means an amount arising under one of the provisions listed in the table provided within the definition of 'increasing adjustment' in section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Indirect tax amount – is a reference to a debt under any of the following laws: • GST law as defined in section 195-1 of the GST Act • wine tax law as defined in section 33-1 of the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act) • luxury car tax law as defined in section 27-1 of the A New Tax System (Luxury Car Tax) Act 1999, and • the fuel tax law as defined in section 110-05 of the Fuel Tax Act 2006. Indirect tax sharing agreement (ITXSA) – refers to an indirect tax sharing agreement as referred to in subsections 444-80(1A) and 444-90(1A). ITXSA contributing member – is a contributing member that is a party to an ITXSA. Joint and several liability – means that 2 or more persons (including companies) are each liable for the full amount of a debt. They may be sued jointly in a single action or severally in separate actions. Tax period – is the period for which a GST net amount is calculated. Generally, it will be either a quarter ending 31 March, 30 June, 30 September or 31 December or alternatively an individual month. • GST law as defined in section 195-1 of the GST Act • wine tax law as defined in section 33-1 of the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act) • luxury car tax law as defined in section 27-1 of the A New Tax System (Luxury Car Tax) Act 1999, and • the fuel tax law as defined in section 110-05 of the Fuel Tax Act 2006. | Introduction: 6. The law that applies in respect of the obligations of both GST joint ventures and GST groups for indirect tax amounts incurred by the GST joint venture or the GST group are very similar. [1] Accordingly, much of the policy in relation to the recovery of these liabilities from GST joint ventures and GST groups is considered together in the following paragraphs of this Practice Statement. 7. For ease of reference, in this Practice Statement (unless specific reference is made to a GST joint venture, a joint venture operator or a participant of a GST joint venture): • a reference to 'group' includes reference to both a GST group and a GST joint venture • a reference to 'representative member' includes reference to both a representative member of a GST group and a joint venture operator of a GST joint venture, and • a reference to 'member' includes reference to a member of a GST group (excluding the representative member) and a participant of a GST joint venture. • a reference to 'group' includes reference to both a GST group and a GST joint venture • a reference to 'representative member' includes reference to both a representative member of a GST group and a joint venture operator of a GST joint venture, and • a reference to 'member' includes reference to a member of a GST group (excluding the representative member) and a participant of a GST joint venture. 8. The liabilities referred to in this Practice Statement include the indirect tax amounts of the GST group payable by the representative member of the GST group and the indirect tax amounts of the GST joint venture payable by the GST joint venture operator. | Recording and accounting for liabilities and credits: 9. A group's liability will be recorded on the representative member's integrated client account. When determining another member's indirect tax amount, consideration will be given to the tax period or periods for which that member was part of the group and whether or not it is excluded from the joint and several liability rules which are contained in subsections 444-80(1) and 444-90(1). See also Law Administration Practice Statement PS LA 2011/20 Payment and credit allocation. 10. The provisions in Division 3 of Part IIB of the TAA relating to the treatment of payments and credits extend to the allocation and application of such amounts between the members of a group. Refer also to PS LA 2011/20. | General rules – joint and several liability: 11. Although a representative member of a group takes on responsibility for payment of the group's indirect tax amounts, each member of the group is jointly and severally liable for those debts. [2] 12. We will initially pursue action against the representative member of the group. However, in appropriate circumstances, we will choose to pursue recovery action from one or more members of the group. It should be noted that subsections 444-80(1) and 444-90(1) do not apply to members who are prohibited from becoming liable for another entity's debts because of the operation of an Australian law – for example, some financial institutions. 13. We may decide to proceed against all members of the group or any particular member or members who are jointly and severally liable based on considerations of the most expedient means of recovery. 14. Relevant factors in deciding the most expedient means of recovery may include, but are not limited to, the following: • a representative member with a history of non-payment of tax debts • a group with a history of payment only being made after action is initiated against members • the ability to collect payment promptly from one or more particular members • where it is known that action against the representative member will not be successful in achieving full payment, will not be cost-effective or would result in undue delays • where it is known that assets are being dissipated by members of the group and this dissipation puts collection of unpaid group liabilities at risk • the opportunity to include the indirect tax law group debt in an action being initiated against a particular member for that member's other tax-related liabilities • where we need to prove in an insolvency administration of a member, that is, to make a claim in the insolvency administration, and • the opportunity to collect an amount due to a member from a third party. • a representative member with a history of non-payment of tax debts • a group with a history of payment only being made after action is initiated against members • the ability to collect payment promptly from one or more particular members • where it is known that action against the representative member will not be successful in achieving full payment, will not be cost-effective or would result in undue delays • where it is known that assets are being dissipated by members of the group and this dissipation puts collection of unpaid group liabilities at risk • the opportunity to include the indirect tax law group debt in an action being initiated against a particular member for that member's other tax-related liabilities • where we need to prove in an insolvency administration of a member, that is, to make a claim in the insolvency administration, and • the opportunity to collect an amount due to a member from a third party. | Deferring the payment time of a group liability: 15. We may defer the time for payment of an indirect tax amount in accordance with the policy outlined in Law Administration Practice Statement PS LA 2011/14 General debt collection powers and principles. 16. It would be rare for us to grant a deferral because the group has not made adequate arrangements to ensure that the group's indirect tax amounts are met on time. A deferral would not be available solely because a group has not completed an ITXSA relating to that particular debt. Where a deferral has been granted, general interest charge (GIC) on any unpaid amount will begin to accrue from the deferred date. | Arrangements to pay indirect tax amounts by instalments: 17. We may grant an arrangement to pay the indirect tax amounts by instalments in accordance with the policy in PS LA 2011/14. It would be rare for us to grant such an arrangement where the group continually neglects to make adequate arrangements to ensure that the group's indirect tax amounts are met on time. 18. When considering an arrangement proposal, we will look to the position of the entire group and the situation and actions of all the members as well as those of the representative member. 19. Unlike a deferral of time to pay, an arrangement to pay by instalments does not alter the date from which the GIC begins to accrue – that is, the due date of the liability. The GIC component of the debt should be factored into any arrangement to pay by instalments. | Contributing members' liabilities – general considerations: 20. If the representative member defaults in its payment obligations in respect of an indirect tax amount, a member which is jointly and severally liable for the full amount of that liability or liable to the extent of its contribution amount under an ITXSA (see discussion commencing at paragraph 26 of this Practice Statement) should contact us to discuss payment options if it is unable to make a full payment of its liability. 21. Generally, the liability of the member entity would be treated as any other tax-related liability and this Practice Statement (as it relates to the collection of liabilities) would apply. When applying this policy, the member's circumstances would at first instance be considered in isolation. Submissions that other members of the group (and the representative member) are in a better position to meet the liability would not be given great weight in reaching any decision regarding collection of the liability from a particular member. 22. An arrangement to pay, a deferral of recovery action or any other agreement entered into with a particular member does not affect our rights in respect of, nor prevent action being taken against, other members jointly and severally liable for all or part of the same group liability. 23. To simplify the negotiation process, it would be acceptable if representations were made on behalf of one or more members through the representative member, provided the representative member is properly authorised in writing to do so. It is understood that for various reasons, some entities, particularly exited members, may prefer to have separate representation. However: • we would need to ensure that the secrecy and privacy concerns of all entities were addressed • the representative members would need to ensure that there was no conflict of interest, and • the entities may need to ensure that they have a legal right of access to the relevant records (for example, of the representative member) for the purposes of negotiation. • we would need to ensure that the secrecy and privacy concerns of all entities were addressed • the representative members would need to ensure that there was no conflict of interest, and • the entities may need to ensure that they have a legal right of access to the relevant records (for example, of the representative member) for the purposes of negotiation. | Disputed debts: 24. Where a group liability is subject to a dispute and legal action for recovery against the representative member has been deferred in accordance with an arrangement as detailed in Law Administration Practice Statement PS LA 2011/4 Collection and recovery of disputed debts, we will also defer commencing action against members. 25. However, even when a fifty-fifty arrangement has been accepted or any other agreement is in place to defer recovery action, it will be a condition that we may rescind that agreement and commence recovery action where it is considered that the associated risk requires such action, for example, dissipation of assets (see Law Administration Practice Statement PS LA 2011/6 Risk management in the enforcement of lodgment obligations and debt collection activities). When considering the risk, we will look to the position of the entire group and the situation and actions of all the members as well as the representative member. | Indirect tax sharing agreements: General rules 26. For tax periods commencing on and after 1 July 2010, an ITXSA may be entered into between a representative member and one or more members to limit the exposure of one or more members to their joint and several liability for the indirect tax amount under subsection 444-80(1) or subsection 444-90(1). Note that the representative member's exposure to the group's indirect tax amount cannot be limited by an ITXSA. It remains liable to the full extent of the debt. 27. The exposure of each member to the indirect tax amount will depend on the terms of the ITXSA provided that all legislative requirements of an ITXSA are met. An ITXSA prescribes a contribution amount to one or more members. [3] This is an amount determined in accordance with the terms of the agreement which specifies the extent to which a member will be liable for the group's indirect tax law liability for the relevant period. 28. It is possible for a member to have a 'nil' or zero contribution amount. 29. A member which is not a party to the ITXSA will continue to be jointly and severally liable for the full indirect tax amount incurred on behalf of the group by the representative member. 30. If a member which is a party to an ITXSA leaves the group before the representative member is required to give us a GST return for a tax period covered by the ITXSA, it is able to have a clear exit provided that certain conditions are satisfied. This is discussed further at paragraph 99 of this Practice Statement. 31. In order to be valid, an ITXSA must also satisfy other requirements prescribed in the legislation under sections 444-80 and 444-90. These are also considered in further detail in this Practice Statement. Directors' responsibilities 32. Directors of members would be aware that they need to consider their statutory and common law responsibilities as directors of that entity when becoming a party to an ITXSA. In particular, they would need to be aware of any obligation to the representative member and us that may result from them entering into the ITXSA. 33. As the ITXSA is an agreement between the representative member and group members (that is, we are not a party to the agreement), it is expected that the resolution of the content of the document and the finalisation of the arrangements to pay the representative member's debt by the due date will be resolved by the directors. 34. Given the issues that may need consideration in compiling ITXSAs, it may be prudent for directors to seek legal and accounting advice in relation to all aspects of sections 444-80 and 444-90. Tax periods covered by an ITXSA 35. An ITXSA must cover the total of all such liabilities relating to a single tax period. 36. While subsections 444-80(1A) and 444-80(1B) prescribe a separate ITXSA for each single tax period, we will recognise a document that covers multiple tax periods as a separate ITXSA for each tax period. Accordingly, even if one ITXSA is found to be invalid, this would not mean that other ITXSAs covered by the document would be invalid. 37. In relation to a document that covers multiple periods, there is a possibility that the ITXSA will be 'updated' from time to time in relation to future liabilities. Considerable care will be required in drafting the ITXSA and amending an ITXSA (refer to the discussion commencing at paragraph 58 of this Practice Statement). Indirect tax amounts for a tax period must not be covered by multiple agreements 38. The object of the ITXSA provisions is that there should be a reasonable allocation of the total indirect tax amounts for a tax period among one or more members in accordance with a single agreement. Where that liability is dealt with in 2 or more agreements, that liability cannot be considered to be covered by an ITXSA for the purposes of sections 444-80 or 444-90. Amendment of an indirect tax amount 39. The possibility of future amendments to liabilities should be a consideration of all parties entering into an ITXSA, as well as prospective purchasers in due diligence considerations in company acquisitions. See further discussion of amended liabilities commencing at paragraph 132 of this Practice Statement. Form of an ITXSA 40. Under the terms of the legislation, a copy of an ITXSA must be given to us within 14 days of a written notice issued by us to the representative member requiring it to provide a copy of the agreement. Further, the copy of an ITXSA must be given to us in the 'approved form'. [4] 41. Failure to satisfy either of these requirements will render the ITXSA invalid. [5] 42. Section 388-50 allows us to specify the information to be provided in an 'approved form'. Further, paragraph 388-50(1)(c) requires that the approved form contains not only the information we require but also 'any further information, statement or document as the Commissioner requires, whether in the form or otherwise'. 43. However, in recognising that the ITXSA is primarily an agreement between members of the group, we have specified only the minimum requirements necessary for an ITXSA to be considered to be in the 'approved form'. Provided the ITXSA legally binds the parties concerned and the minimum requirements listed below are satisfied, the actual form of the ITXSA (for example, a deed) is up to the members of the group and their advisers. Approved form requirements 44. To meet the approved from requirements, each ITXSA must: • be in writing • show the date of execution • specify the names of the representative member and each contributing member • specify which indirect tax law liability or liabilities it covers • specify the tax period to which the indirect tax law liability or liabilities relate • specify the method used to allocate the group liability or liabilities, which must provide for a reasonable allocation of the total amount of the indirect tax law liabilities for that tax period • be properly executed by or on behalf of the representative member and each contributing member, and • either - specify the exact contribution amount for each contributing member for the relevant liability, or - if and when required to be produced to us, include a schedule signed by the representative member o specifying the relevant liabilities and periods as specified in our notice to produce o stating the name and Australian business number or Australian company number of the representative member and each contributing member o stating the contribution amount of each contributing member in respect of that liability or each of the liabilities o declaring that the schedule includes the names of all the ITXSA contributing members in relation to that liability or liabilities for the periods and the contribution amount or amounts as calculated under the ITXSA, and o if and when required to be produced to us, include any deeds of assumption in relation to the particular liability or liabilities for the particular periods. • be in writing • show the date of execution • specify the names of the representative member and each contributing member • specify which indirect tax law liability or liabilities it covers • specify the tax period to which the indirect tax law liability or liabilities relate • specify the method used to allocate the group liability or liabilities, which must provide for a reasonable allocation of the total amount of the indirect tax law liabilities for that tax period • be properly executed by or on behalf of the representative member and each contributing member, and • either - specify the exact contribution amount for each contributing member for the relevant liability, or - if and when required to be produced to us, include a schedule signed by the representative member o specifying the relevant liabilities and periods as specified in our notice to produce o stating the name and Australian business number or Australian company number of the representative member and each contributing member o stating the contribution amount of each contributing member in respect of that liability or each of the liabilities o declaring that the schedule includes the names of all the ITXSA contributing members in relation to that liability or liabilities for the periods and the contribution amount or amounts as calculated under the ITXSA, and o if and when required to be produced to us, include any deeds of assumption in relation to the particular liability or liabilities for the particular periods. - specify the exact contribution amount for each contributing member for the relevant liability, or - if and when required to be produced to us, include a schedule signed by the representative member o specifying the relevant liabilities and periods as specified in our notice to produce o stating the name and Australian business number or Australian company number of the representative member and each contributing member o stating the contribution amount of each contributing member in respect of that liability or each of the liabilities o declaring that the schedule includes the names of all the ITXSA contributing members in relation to that liability or liabilities for the periods and the contribution amount or amounts as calculated under the ITXSA, and o if and when required to be produced to us, include any deeds of assumption in relation to the particular liability or liabilities for the particular periods. o specifying the relevant liabilities and periods as specified in our notice to produce o stating the name and Australian business number or Australian company number of the representative member and each contributing member o stating the contribution amount of each contributing member in respect of that liability or each of the liabilities o declaring that the schedule includes the names of all the ITXSA contributing members in relation to that liability or liabilities for the periods and the contribution amount or amounts as calculated under the ITXSA, and o if and when required to be produced to us, include any deeds of assumption in relation to the particular liability or liabilities for the particular periods. Approved form requirements – explanation 45. It is acceptable that one document could cover multiple ITXSAs. (Refer to discussion commencing at paragraph 35 of this Practice Statement). 46. Execution of the ITXSA by a person properly authorised or, if appropriate, under a power of attorney would be acceptable as per standard commercial practice provided it is legally binding. Section 127 of the Corporations Act 2001 may be relevant in certain cases. 47. Specific amounts (which can be 'nil' amounts if appropriate) can be shown in the ITXSA as being the relevant contribution amounts of each contributing member for the relevant indirect tax amounts. 48. However, if these specific amounts are not shown in the body of the ITXSA itself, then, if and when the ITXSA is produced to us, the representative member must also produce the schedule and any deeds of assumption or similar documents used. The working papers used to calculate the contribution amounts do not have to be produced at that time but may be requested by us if necessary. The non-provision of the working papers when an ITXSA is requested does not impact on whether or not a group liability is covered by an ITXSA. However, the non-provision of the working papers following any formal request under section 353-10 at a later date would be a prosecutable offence. 49. To emphasise, the schedule referred to in paragraph 44 of this Practice Statement does not have to be in existence just before the time at which the representative member of the group is required to give us a GST return for a tax period (but groups may find it convenient to compile the schedule at that time). The fact that a schedule is not in existence just before this time does not impact on whether or not a group liability is covered by an ITXSA. 50. Secondly, a schedule would need to be provided in all cases except where specified amounts were allocated to each contributing member in the body of the ITXSA itself. 51. The figures provided in the ITXSA or in the schedule are to be definitive. That is, any discussions between the representative member and members as to the correctness of the figures will need to be resolved prior to the production of the ITXSA and schedule. A deferral of time to lodge the ITXSA and schedule while these matters are resolved is unlikely to be granted. 52. While all members do not have to be a contributing member, it is suggested that groups review their ITXSA regularly in case some adjustment is required due to members exiting or new members joining the group. These exits and entries may affect the reasonableness of an allocation methodology used in a pre-existing ITXSA. The question of whether all members should enter into an ITXSA may also be of relevance to prospective purchasers of these companies in their due diligence considerations. 53. Even if a member does not trade during a particular tax period, this may not preclude it from being a party to an ITXSA, nor would its participation in an ITXSA necessarily affect the reasonableness of the allocation of a group liability under that ITXSA. For example, a method that results in a 'nil' allocation to a non-trading entity would, of itself, have no bearing on whether the group liability was considered to have been reasonably allocated among the representative member and all the contributing members. Timing 54. In order that an indirect tax amount for a tax period may be covered by an ITXSA, the ITXSA must be in place before the representative member is required to give us a GST return for the tax period. 55. We have no power to allow execution of an ITXSA after this date. However, if we defer the representative member's due date for lodgment, then the ITXSA must be in place at that later date. It would be rare for us to grant a deferral because the group has not made adequate arrangements to ensure that the ITXSA was not in place before the due date for lodgment. A deferral would not be available solely because a group has not completed an ITXSA relating to that particular tax period. (Refer to Law Administration Practice Statement PS LA 2011/15 Lodgment obligations, due dates and deferrals). 56. If an ITXSA in respect of the liability for a tax period is executed after the due date of the relevant GST return, it is invalid and has no effect. We will not accept and the legislation does not allow an ITXSA executed on a particular date to have effect from an earlier date. 57. Further, a document covering multiple ITXSAs over multiple tax periods which has been executed on a particular date – but purports to have effect from an earlier date – would not be acceptable in relation to any debt relating to a GST return for which the lodgment date occurred prior to the date of execution. However, such a document may nevertheless be accepted in relation to relevant debts relating to GST returns which have a lodgment date after the date of execution. Amending an ITXSA 58. The effect of amending an ITXSA may be that a new or updated agreement replaces the previous agreement. Where an agreement covering liabilities for multiple tax periods (that is, multiple ITXSAs) is amended, members need to ensure that the original ITXSA does not cease to have effect with respect to pre-existing liabilities and that any amended ITXSA does not create adverse consequences with respect to pre-existing liabilities or clear exit arrangements which have already taken place. 59. ITXSAs may need to be amended for a number of reasons – for example: • the introduction of a new member or members to the group • the exit of a member or members from the group, and • the concurrent exit and introduction of members to the group. • the introduction of a new member or members to the group • the exit of a member or members from the group, and • the concurrent exit and introduction of members to the group. 60. Considerable care will be needed in drafting the original ITXSA if groups wish to ensure that the ITXSA remains valid and avoid (where possible) the necessity for all current and former ITXSA parties to sign all amendments. It will also be necessary to address (when drafting or redrafting) the impact of amended assessments on entities that were part of the group for a relevant tax period, even if not at the same time. 61. If it is intended to replace an existing ITXSA dealing with a particular group liability that has a future due date with a new ITXSA that deals with the same future liability, it should be clear that the new ITXSA completely voids the earlier ITXSA. If not, it may be considered that the liability is dealt with by 2 agreements, with the result that both would be void under the terms of the legislation. It should also be carefully noted that if the existing ITXSA is already dealing with pre-existing group liabilities, then the existing ITXSA is only void with respect to future liabilities, not with respect to pre-existing liabilities. 62. If we require an ITXSA to be produced in relation to the liability for a particular tax period, members will need to produce the ITXSA as it existed just prior to the due date of the relevant GST return for the relevant tax period. This will require careful attention to document controls. Execution of ITXSAs by exited members or liquidated members 63. As discussed at paragraph 44 of this Practice Statement, for an ITXSA to be in the approved form, it needs to be legally executed by or on behalf of each contributing member that is a party to the agreement. 64. There may arise situations in which, before the due date for lodgment of a GST return, an ITXSA must be entered into or amended after a member has left the group and that member needs to be a party to the ITXSA as otherwise: • the exited member could not obtain a clear exit, and • a reasonable allocation of the group liability could not be achieved. • the exited member could not obtain a clear exit, and • a reasonable allocation of the group liability could not be achieved. 65. The failure of the exited member to be a party to the ITXSA will potentially result in all contributing members, including it, being jointly and severally liable to the full extent of the indirect tax amount for the tax period (that is, the liability would not be covered by an ITXSA). Similarly, any change to the methodology used in an ITXSA could mean that an exiting member that had made a payment of what it had considered to be its contribution amount to the representative member may not have achieved a clear exit (if that contribution amount were to change as a result of the change in methodology). 66. A difficulty arises if an ITXSA needs to be signed by a member that has been deregistered and thus no longer legally exists. Clearly, that former member cannot sign the ITXSA, nor can it authorise anyone to sign on its behalf. 67. Depending on the ITXSA methodology used and the financial position of the entity throughout the relevant tax period, this may not be an issue. This is particularly in the event that the liquidated member is allocated a 'nil' liability (which is not unusual in periods during which an insolvent entity is under insolvency administration). Note also that not every member has to be a party to an ITXSA. 'Reasonable allocation' of contribution amounts under an ITXSA 68. In order for an ITXSA to apply to a group's indirect tax amounts for a particular tax period, the contribution amounts for each contributing member must represent a 'reasonable allocation', among the representative member and the contributing members, of the group's total indirect tax amounts for that period. [6] 69. An ITXSA may specify fixed contribution amounts for each contributing member. These contribution amounts must represent a 'reasonable allocation' among the representative member and the contributing members. Alternatively, an ITXSA may prescribe a method of allocation under which contribution amounts may be determined. In such cases, it will be necessary to ensure that any method of allocation prescribed under the ITXSA will ultimately produce contribution amounts that represent a 'reasonable allocation' among the representative member and contributing members. 70. Without prescribing the method that a group may adopt for allocation of the indirect tax law liability, examples of what we would consider as being possible bases of allocation are detailed in paragraphs 71 to 73 of this Practice Statement. 71. Allocations may be made on the basis of each contributing member's contribution to that liability. Under this method of allocation, each member's contribution amount is calculated as if that member were not part of a GST group. [7] • As most intra-group transactions are treated as if they are not taxable supplies (subsection 48-40(2) of the GST Act), the calculation of each member's contribution amount also ignores intra-group transactions. However, when applying this method of allocation to GST joint ventures, note that (in contrast to GST groups) only certain specified transactions between the joint venture operator and a participant are not treated as taxable supplies (subsection 51-30(2) of the GST Act). Transactions between participants in a GST joint venture, for example, would not be ignored for the purposes of calculating their contribution amounts under this methodology. • Calculations under this method of allocation may result in some members having a (notional) liability, while others may be in a net credit position (notional refund members). The credits which accrue to notional refund members (that is, the input tax credits that remain after offsetting amounts of GST) may be taken into account in 2 ways: • As most intra-group transactions are treated as if they are not taxable supplies (subsection 48-40(2) of the GST Act), the calculation of each member's contribution amount also ignores intra-group transactions. However, when applying this method of allocation to GST joint ventures, note that (in contrast to GST groups) only certain specified transactions between the joint venture operator and a participant are not treated as taxable supplies (subsection 51-30(2) of the GST Act). Transactions between participants in a GST joint venture, for example, would not be ignored for the purposes of calculating their contribution amounts under this methodology. • Calculations under this method of allocation may result in some members having a (notional) liability, while others may be in a net credit position (notional refund members). The credits which accrue to notional refund members (that is, the input tax credits that remain after offsetting amounts of GST) may be taken into account in 2 ways: Table 1: Methods for allocation of credits Credit transferred among group members Credit not transferred among group members Notional refund members may choose to have the amount of their credit transferred between group members so that the notional refund members receive a 'nil' allocation and the members in a net liability position receive an allocation of a share of the credit. This approach may be summarised as follows: • determine the notional indirect tax amount for each contributing member on the basis that it is not part of a group • allocate the notional refund members a 'nil' liability under the ITXSA, and • apportion the amount of any credits to members with a tax liability or allocate to each ITXSA contributing member (that still has a notional tax liability) a portion of the indirect tax law liability on a pro rata basis. Note that any increase in the group's liability following an amended assessment resulting from incorrectly overclaimed credits by a notional refund member should, in principle, increase the contribution amounts of the other members which had previously been reduced by the allocation of the (incorrectly claimed) credits. Although it was the notional refund member who incorrectly overclaimed the credits, the ITXSA allocation methodology spreads the adjustment across other members of the group. This does not jeopardise the reasonableness of the allocation. Refer to Example 1 of the Appendix to this Practice Statement for an illustration of how these types of allocations may work in practice. Alternatively, the methodology may dictate that the credits accrued by the notional refund members should not be used by the other group members. That is, the notional refund members will have a 'nil' contribution amount, but the amount of their credits will not be redistributed among the other members in the group. As the contribution amounts of the other members are not reduced by the notional refund members' credits, the total amount of the ITXSA contribution amounts payable by all contributing members will exceed the net amount payable by the group. However, this method of allocation may nonetheless be considered reasonable. Under this method of allocation, any increase in the group's liability following an amended assessment resulting from incorrectly overclaimed credits by a notional refund member will, in principle, be attributed to that member such that it will now have a contribution amount equal to the amount of the increased liability. The contribution amounts of the other members will not need to be amended. Refer to Example 2 of the Appendix to this Practice Statement for an illustration of how these types of allocations may work in practice. This approach may be summarised as follows: • determine the notional indirect tax amount for each contributing member on the basis that it is not part of a group • allocate the notional refund members a 'nil' liability under the ITXSA, and • apportion the amount of any credits to members with a tax liability or allocate to each ITXSA contributing member (that still has a notional tax liability) a portion of the indirect tax law liability on a pro rata basis. • determine the notional indirect tax amount for each contributing member on the basis that it is not part of a group • allocate the notional refund members a 'nil' liability under the ITXSA, and • apportion the amount of any credits to members with a tax liability or allocate to each ITXSA contributing member (that still has a notional tax liability) a portion of the indirect tax law liability on a pro rata basis. Note that any increase in the group's liability following an amended assessment resulting from incorrectly overclaimed credits by a notional refund member should, in principle, increase the contribution amounts of the other members which had previously been reduced by the allocation of the (incorrectly claimed) credits. Although it was the notional refund member who incorrectly overclaimed the credits, the ITXSA allocation methodology spreads the adjustment across other members of the group. This does not jeopardise the reasonableness of the allocation. Refer to Example 1 of the Appendix to this Practice Statement for an illustration of how these types of allocations may work in practice. As the contribution amounts of the other members are not reduced by the notional refund members' credits, the total amount of the ITXSA contribution amounts payable by all contributing members will exceed the net amount payable by the group. However, this method of allocation may nonetheless be considered reasonable. Under this method of allocation, any increase in the group's liability following an amended assessment resulting from incorrectly overclaimed credits by a notional refund member will, in principle, be attributed to that member such that it will now have a contribution amount equal to the amount of the increased liability. The contribution amounts of the other members will not need to be amended. Refer to Example 2 of the Appendix to this Practice Statement for an illustration of how these types of allocations may work in practice. 72. Allocations may be made of a proportion of unquantified indirect tax amounts by using historical information if, at the time an ITXSA is put in place, the quantum of the liabilities which it is intended to cover have not been determined. For instance, the amount allocated to an ITXSA contributing member could be calculated using the average contribution of that entity to the indirect tax law liabilities over the last 12 months. However, changes in the group's structure (for example, because of entries and exits) or changes to individual member's operations may mean that the contribution amounts calculated under this method would need to be adjusted to account for these movements. Depending on the timing and significance of these changes, a new ITXSA using a different methodology may need to be entered into. 73. Allocations may be made on the basis of each contributing member's ability to pay that liability. However, if (at the time of allocation) the directors were aware that events would occur that would severely affect one or more member's ability to pay their allocation, but the directors ignored that information, then the allocation may be viewed as unreasonable. If it was the case that, at the due date for lodgment of the GST return, the entire group lacked sufficient funds to meet the liability for that tax period, an allocation may be considered reasonable despite one or more contributing members being incapable of paying their contribution amount (for example, the entire group was insolvent as opposed to only one or more contributing members being insolvent). 74. It is assumed that all the methods of allocation outlined in paragraphs 71 to 73 of this Practice Statement are made on the basis of the sum of all indirect tax liabilities for that tax period, such that each contributing member receives an allocation based on a portion of the total amount of the liabilities. However, it is also possible for each indirect tax amount to be accounted for and apportioned separately. For example, a group may consider it appropriate to separate the GST, luxury car tax and wine equalisation tax component liabilities and apply the allocation method or methods to each individual component against the contributing members. It should be noted, however, that the legislation requires that ultimately there must be a single amount (a particular amount) that is determinable in respect of each contributing member. Further, it is this amount that must represent a reasonable allocation of the group's liability among the representative member and the contributing members. 75. The methods of allocation outlined in this Practice Statement are not intended to be prescriptive and other methods using financial information normally available to the group may be acceptable. This is provided that each contributing member's contribution amount can ultimately be considered to represent a reasonable allocation of the total indirect tax law liability of the group for that tax period. 76. It is also accepted that the methods of allocation outlined in paragraph 71 to 73 of this Practice Statement may result in certain entities being liable for less than, or more than, they would be if they were not members of a group. 77. As will be seen in the examples contained in the Appendix to this Practice Statement, there may be cases where the representative member is a contributor to the group's indirect tax law liability for a tax period and the amount allocated to the ITXSA contributing members (other than the representative member) is less than 100% of the total amount of the liability because a portion of the liability is a notional allocation to the representative member. This is acceptable as long as the requirements of the legislation (for example, the allocations represent a reasonable allocation of the total amount of indirect tax payable in relation to that tax period) are satisfied. 78. It is recognised that the financial position of individual members may change between the date on which the ITXSA is entered into and the date (if any) on which the contribution amount is pursued by us, particularly where the contribution amount is pursued some years after the due date. Accordingly, it is possible that a contributing member may not be able to pay its full contribution amount by the time we seek to recover that amount. However, provided that the original allocation was in accordance with the methodology of the ITXSA and was reasonable at the due date for lodgment of the GST return and also that there are no adverse circumstances relating to the validity of the ITXSA (for example, the ITXSA was part of an arrangement to prejudice recovery), we will recognise the ITXSA as being valid. Partially unreasonable allocation invalidates the entire ITXSA 79. As the ITXSA must make a reasonable allocation of the total amount payable under the indirect tax laws for that tax period, an unreasonable allocation of part of the total amount to one contributing member will invalidate the entire ITXSA. The law does not allow an ITXSA to be valid only in respect of some contributing members and not others. Arithmetic errors 80. Arithmetic errors in determining the actual contribution amount for a member, by applying the ITXSA to the indirect tax law liability would not of themselves make the allocation unreasonable. However, an adjustment would be required to the schedule to ensure that the correct liabilities and contribution amounts were reflected. In respect of non-arithmetic errors, we may also accept the ITXSA if the mistake is not material but this would also depend largely on the circumstances of the case. Other contractual arrangements between members and representative member 81. Groups may decide to use the ITXSA for other purposes. Provided these do not affect the reasonableness of the allocation under the ITXSA or prejudice our rights to recover the debt, this would be of no concern to us. For instance, the following internal arrangements are not relevant to determining whether there has been a 'reasonable allocation', even if they are included in the ITXSA: • financing of ongoing tax liabilities (even if this requires different contributions from group members than would be ascertained under the 'reasonable allocation' clauses) • the treatment of refunds received, or • the requirements for balancing adjustments between the ITXSA liabilities and other tax liabilities as shown in entities' accounts. • financing of ongoing tax liabilities (even if this requires different contributions from group members than would be ascertained under the 'reasonable allocation' clauses) • the treatment of refunds received, or • the requirements for balancing adjustments between the ITXSA liabilities and other tax liabilities as shown in entities' accounts. 82. A group may choose to incorporate the terms of the tax funding or other private contractual arrangements in a separate agreement. Again, these agreements are generally of no concern to us, subject to the 'prejudice recovery' provisions in the legislation. That is, while a tax funding or other arrangement may have no bearing on the determination of whether there has been a 'reasonable allocation', if it is designed to frustrate the ability of a member to pay its contribution amount, it would be seen to 'prejudice recovery' under paragraphs 444-80(1C)(b) and 444-90(1C)(b). Arrangement to prejudice recovery 83. The provisions relating to ITXSAs will not apply and the members will thereby be exposed to joint and several liability for the full amount of the group's indirect tax law liability for the tax period if: • the ITXSA was entered into as part of an arrangement, and • a purpose of the arrangement was to prejudice our recovery of the indirect tax amount. • the ITXSA was entered into as part of an arrangement, and • a purpose of the arrangement was to prejudice our recovery of the indirect tax amount. 84. Examples of such arrangements could be: • where the allocation to a contributing member was based on capacity to pay, seemed reasonable at the time the ITXSA was made and remained so at the due date for lodgment of the group's GST return, but it was always known that by the time we might attempt to collect from that member its circumstances would be such that it would not be in a position to meet its liability, and • where the allocation to a contributing member was based on notional tax liability, but the individual amounts were artificially distorted by selective allocations of credits or other measures that appeared designed to shift the liabilities to entities which are less likely to be able to meet them. • where the allocation to a contributing member was based on capacity to pay, seemed reasonable at the time the ITXSA was made and remained so at the due date for lodgment of the group's GST return, but it was always known that by the time we might attempt to collect from that member its circumstances would be such that it would not be in a position to meet its liability, and • where the allocation to a contributing member was based on notional tax liability, but the individual amounts were artificially distorted by selective allocations of credits or other measures that appeared designed to shift the liabilities to entities which are less likely to be able to meet them. 85. Some of the factors to be taken into account in determining whether an arrangement had a purpose of prejudicing recovery include: • the disposing of assets in solvent or asset-rich members of the group • the uncommercial sale of assets, including the sale of an exiting member. • the disposing of assets in solvent or asset-rich members of the group • the uncommercial sale of assets, including the sale of an exiting member. 86. The existence of an ITXSA in itself would not be seen as an arrangement to prejudice recovery. Formal notice requesting a copy of the ITXSA 87. The notice to provide the ITXSA under subsections 444-80(1D) or 444-90(1D) is issued to the representative member and it is the representative member's responsibility to provide the copy of the agreement in the approved form. If the representative member does not provide the ITXSA on request within the 14-day timeframe required under the legislation, the ITXSA will be considered not to apply to the liability and the members will be fully exposed, jointly and severally, to the full amount of the group's indirect tax amounts. 88. We will not issue a notice under subsections 444-80(1D) or 444-90(1D) requiring the provision of an ITXSA at a time before the due date for lodgment of the GST return. This is because, until that time, an ITXSA may not exist. 89. We may defer the time for lodgment of an approved form and, in this case, an ITXSA through the operation of section 388-55. For the policy on deferring the lodgment time, refer to PS LA 2011/15. 90. Generally, a deferral of time to lodge the ITXSA would be very unlikely if delays would exacerbate the recovery position or the group was non-cooperative in attending to its obligations. Generally, the granting of a deferral would be unlikely in cases other than where non-compliance was due to circumstances that were beyond the control of the representative member. An example may be where a liquidator has been appointed and all the records of the group are unable to be located immediately. 91. It should be noted that a deferral of the time to provide a copy of an ITXSA does not alter the time that an ITXSA needs to be in place. 92. In some circumstances, such as when negotiating a payment arrangement, we may informally request a copy of any ITXSA to which an entity is a signatory or request the ITXSA under section 353-10. These requests and the compliance or non-compliance by the requested party to provide a copy of an ITXSA have no impact on the liability status of the contributing members. Commissioner's review of an ITXSA 93. As amounts determined under an ITXSA are only enforced once a representative member defaults on its obligations, we do not expect to require the production of a significant number of ITXSAs. Further, while an ITXSA could provide a reasonable allocation of liability at a particular point of time, depending on the allocation methodology used, the reasonableness of the allocation may change due to later events. Accordingly, it would be of questionable benefit to taxpayers for us to review ITXSAs as they are compiled and it would be administratively impossible to review all ITXSAs in a meaningful way in a reasonably brief time. 94. Accordingly, the fact that we may have received a copy of an ITXSA (either informally or through a request under subsections 444-80(1D) or 444-90(1D)) and have taken no further action does not imply that we consider that the ITXSA is valid or provides a reasonable allocation of the relevant amounts. 95. Similarly, if we took steps for recovery on the basis that there was an ITXSA but at some future point it is concluded that the indirect tax amount was not covered by an ITXSA (for example, because the allocation of the liability under the ITXSA was not reasonable), then our previous actions would not prevent the law operating as if the debt is not covered by an ITXSA (that is, all contributing members are jointly and severally liable for the full amount of the group's indirect tax amounts). Payment by a member to a representative member not sufficient 96. A payment made by a member to the representative member does not automatically extinguish the liability of the member to us. That is, the member could still be required to make a payment to us of their contribution amount or of the full amount of the group's indirect tax amount (depending on whether an ITXSA applies). This is so even if the amount paid to the representative member is equal to what would be required under the ITXSA or is equal to the full amount of the group's liability. An exception to this rule is where a member makes a clear exit payment to the representative member – this is discussed at paragraph 99 of this Practice Statement. 97. For this reason, the characterisation of payments (to representative members or otherwise) may need to be considered by members – for example, whether it is a loan or paid in escrow. | Recovery from an exited member: Clear exit 98. A member that has left the group is referred to as an exited member. They remain liable for the GST group's indirect tax amounts incurred by the representative member for the period during which it was a member. 99. A member is able to make a clear exit if: • the liability for a tax period was covered by an ITXSA (that is, the ITXSA relates to the liability and satisfies all legislative requirements) • the contributing member leaves the group before the representative member is required to give us a GST return for that tax period, and • before the day on which the representative member is required to give us a GST return for that tax period, the contributing member pays to the representative member the contribution amount in relation to that tax period or an amount that is the reasonable estimate of the contribution amount. • the liability for a tax period was covered by an ITXSA (that is, the ITXSA relates to the liability and satisfies all legislative requirements) • the contributing member leaves the group before the representative member is required to give us a GST return for that tax period, and • before the day on which the representative member is required to give us a GST return for that tax period, the contributing member pays to the representative member the contribution amount in relation to that tax period or an amount that is the reasonable estimate of the contribution amount. 100. Therefore, the following debts cannot be subject to the clear exit rules: • an indirect tax amount for a tax period that is not covered by an ITXSA, or • an indirect tax amount for a tax period where the lodgment of the GST return to which it relates has already become due at the time of the exit. • an indirect tax amount for a tax period that is not covered by an ITXSA, or • an indirect tax amount for a tax period where the lodgment of the GST return to which it relates has already become due at the time of the exit. If leaving the group prejudices recovery 101. A member will not leave the group 'clear' of a group liability if the exit was part of an arrangement, a purpose of which was to prejudice the recovery by us of some or all of the amount of the group liability or liabilities. [8] 102. For example, an arrangement in which a member is deliberately transferred out of the group as part of a broader arrangement for the purpose of putting most of the group's assets out of the group would be regarded as prejudicial to the recovery of the liability. Summary of ATO collection action against exited members and exited participants 103. Broadly, ATO collection action against exited members and exited participants where the GST return is due prior to the time of the exit is as follows: • An exited member which has joint and several liability for the full amount of the group indirect tax amount where the lodgment of the GST return to which it relates was due prior to the time of the exit will generally be pursued as a 'last resort' – that is, if it is unlikely that the debt can be recovered from other members. (The law does not allow a clear exit in relation to this debt.) • An exited member which is allocated a contribution amount under an ITXSA for a group debt where the lodgment of the GST return to which it relates was due prior to the time of the exit may need to be pursued for its contribution amount to enable full collection of that debt. (The law does not allow a clear exit in relation to this debt.) • An exited member which is allocated a contribution amount under an ITXSA for a group debt arising entirely from an amendment after the exit but where the lodgment of the GST return to which it relates was due prior to the time of the exit will generally not be pursued unless its activities contributed to the need for the amendment or it had (notionally) used credits that were extinguished in whole or part by that amendment. This is, however, only a general rule to which there may be exceptions in which we will exercise the right to pursue the exited member. • An exited member which has joint and several liability for the full amount of the group indirect tax amount where the lodgment of the GST return to which it relates was due prior to the time of the exit will generally be pursued as a 'last resort' – that is, if it is unlikely that the debt can be recovered from other members. (The law does not allow a clear exit in relation to this debt.) • An exited member which is allocated a contribution amount under an ITXSA for a group debt where the lodgment of the GST return to which it relates was due prior to the time of the exit may need to be pursued for its contribution amount to enable full collection of that debt. (The law does not allow a clear exit in relation to this debt.) • An exited member which is allocated a contribution amount under an ITXSA for a group debt arising entirely from an amendment after the exit but where the lodgment of the GST return to which it relates was due prior to the time of the exit will generally not be pursued unless its activities contributed to the need for the amendment or it had (notionally) used credits that were extinguished in whole or part by that amendment. This is, however, only a general rule to which there may be exceptions in which we will exercise the right to pursue the exited member. 104. ATO collection action against exited members and exited participants in situations where the GST return is due after the time of the exit is as follows: • An exited member which is jointly and severally liable for the full amount of the group indirect tax amount where the due date for the lodgment of the GST return to which it relates was after the exit will generally be pursued as a 'last resort'. • An exited member which is allocated a contribution amount under an ITXSA for a group debt where the due date for lodgment of the GST return to which it relates was after its exit may need to be pursued for its contribution amount to enable full collection of that debt if it has not exited 'clear'. • An exited member which has an ITXSA liability for a group debt where the due date for lodgment of the GST return to which it relates was after its exit will not be pursued if it has exited 'clear'. An exited member may have exited 'clear' of the liability even where that liability is subsequently amended, so long as the clear exit payment it made to the representative member was sufficient to cover the ultimate (post-amendment) contribution amount. • Where a subsequent amendment to a liability results in an increased contribution amount to the exited member under the ITXSA which was not taken into account in its 'clear exit' payment to the representative member (that is, the 'clear exit' payment was not made of its ultimate, post-amendment contribution amount, or a reasonable estimate of that amount), the member is not taken to have exited 'clear' of that liability. In such cases, while the member remains liable for that debt, it will generally not be pursued. This is, however, only a general rule to which there may be exceptions. We will exercise the discretion to pursue this entity in certain circumstances which we deem appropriate, including, but not limited to, cases where - its activities contributed to the need for the amendment - it had (notionally) used credits that were extinguished in whole or part by that amendment, or - it had expected, or should have expected, that there would be an amended assessment. • An exited member which is jointly and severally liable for the full amount of the group indirect tax amount where the due date for the lodgment of the GST return to which it relates was after the exit will generally be pursued as a 'last resort'. • An exited member which is allocated a contribution amount under an ITXSA for a group debt where the due date for lodgment of the GST return to which it relates was after its exit may need to be pursued for its contribution amount to enable full collection of that debt if it has not exited 'clear'. • An exited member which has an ITXSA liability for a group debt where the due date for lodgment of the GST return to which it relates was after its exit will not be pursued if it has exited 'clear'. An exited member may have exited 'clear' of the liability even where that liability is subsequently amended, so long as the clear exit payment it made to the representative member was sufficient to cover the ultimate (post-amendment) contribution amount. • Where a subsequent amendment to a liability results in an increased contribution amount to the exited member under the ITXSA which was not taken into account in its 'clear exit' payment to the representative member (that is, the 'clear exit' payment was not made of its ultimate, post-amendment contribution amount, or a reasonable estimate of that amount), the member is not taken to have exited 'clear' of that liability. In such cases, while the member remains liable for that debt, it will generally not be pursued. This is, however, only a general rule to which there may be exceptions. We will exercise the discretion to pursue this entity in certain circumstances which we deem appropriate, including, but not limited to, cases where - its activities contributed to the need for the amendment - it had (notionally) used credits that were extinguished in whole or part by that amendment, or - it had expected, or should have expected, that there would be an amended assessment. - its activities contributed to the need for the amendment - it had (notionally) used credits that were extinguished in whole or part by that amendment, or - it had expected, or should have expected, that there would be an amended assessment. Exit upon dissolution of the group 105. If the group is dissolved under sections 48-70 or 51-70 of the GST Act, all members will each effectively have left the group. 106. The date of effect of the dissolution is the date of exit of the members from the group. If this date occurs before the due date for lodgment of the group's GST return, it is possible for members to achieve a clear exit in respect of the liability which relates to that return by complying with the clear exit requirements in subsections 444-80(1B) or 444-90(1B). ITXSA found to be invalid 107. Generally, if an exiting member exits and makes a payment to the representative member of its contribution amount relating to a tax period before the GST return's due date for lodgment for that period, it will exit 'clear' of the group's indirect tax amounts for that tax period. A 'clear exit' is available to a contributing entity regardless of the allocation methodology used provided that the allocation is reasonable and the other requirements of the law are met. 108. However, if the ITXSA under which that contribution amount was made is found to be invalid (for example, because the allocation of the liability was unreasonable), then the exited member will not be taken to have exited 'clear' of the liability. It will be jointly and severally liable for the full amount of the group's liability for that period. 109. Its exposure to full joint and several liability will arise regardless of whether the allocation under the ITXSA to the exited member itself was reasonable or the 'clear exit' payment to the representative member would otherwise have enabled the entity to leave clear of the group liability. Reasonable estimate of contribution amount 110. If an exiting member wishes to leave the group clear of a particular liability and its contribution amount for that group liability cannot be determined before the due date for lodgment of the relevant GST return, a reasonable estimate of that contribution amount must be made. [9] 111. For a reasonable estimate of the contribution amount to be made, the estimate needs to relate to and be based on the relevant ITXSA. 112. Depending on the method of allocation prescribed in the ITXSA, it may be possible to make use of various data from group accounts or the member's own accounts. 113. If there is prior knowledge of an event which may impact on the reasonableness of the amount, then this needs to be factored into the estimate calculation. Such events could include: • adjustments for taxable extraordinary or abnormal transactions • an audit (or notice of an intended audit) by us, the result of which would require that the member modify its treatment of certain transactions, or • pending court cases that may impact on the member's financial or taxation position. • adjustments for taxable extraordinary or abnormal transactions • an audit (or notice of an intended audit) by us, the result of which would require that the member modify its treatment of certain transactions, or • pending court cases that may impact on the member's financial or taxation position. 114. The contribution amount (or reasonable estimate of that contribution amount) required to be paid will in most cases need to be calculated in consultation with the representative member. The representative member will have access to group records and greater knowledge of the expected quantum of the relevant liability for the tax period as well as the exiting member's likely allocation under an ITXSA. Payment of contribution amount to representative member on exit 115. Documentary evidence that the exiting member had paid to the representative member the contribution amount, or a reasonable estimate of that amount, would need to be retained by the exiting member in the event that it is later needed to prove that it had left the group clear of a particular liability. Generally, standard commercial documentation would suffice. 116. If a payment is meant to cover 2 liabilities (for example, for 2 tax periods for which lodgment of GST returns have not yet become due), then accounting records should disclose the amount of each component. 117. If payment of the contribution amount is made to the representative member by the leaving entity and the representative member subsequently fails to pay this amount to us, this alone does not affect the clear exit of the entity, provided that all the requirements of a 'clear exit' payment in subsections 444-80(1B) and 444-90(1B) are met. 118. The payment of the contribution amount or its reasonable estimate needs to be made by the time the GST return to which it relates is due to be lodged by the representative member. 119. The term 'paid' has been considered in case law (for example, Brookton Co-operative Society Ltd v Commissioner of Taxation [1981] HCA 28) and may mean: • an actual payment, that is, a sum of money or a bill of exchange, is handed over directly to a representative member to extinguish a liability • a payment by agreed set-off where cross-liabilities in money exist [10] , or • a transfer of property other than money or a bill of exchange – that is, by a transfer in kind. • an actual payment, that is, a sum of money or a bill of exchange, is handed over directly to a representative member to extinguish a liability • a payment by agreed set-off where cross-liabilities in money exist [10] , or • a transfer of property other than money or a bill of exchange – that is, by a transfer in kind. 120. It must be remembered that subsections 444-80(1B) and 444-90(1B) require payment to be made by the leaving contributing member to the representative member. Therefore, payment made by the purchaser or payment made to a vendor, being an entity other than the representative member, would not meet the statutory requirement. 121. A 'mere book entry' is not considered a form of payment. Any such book entry must result from a clear contractual arrangement between the parties which establishes a debt. [11] The establishment and recording of a debt cannot be considered as payment. 122. It may be possible that the payment of the contribution amount by the exiting member is also made in satisfaction of the conditions of a private tax funding arrangement between the representative member and the exiting member. However, we are strictly concerned with the satisfaction of the 'clear exit' requirements under subsections 444-80(1B) and 444-90(1B). That is, whether the relevant legislative requirements for a 'clear exit' have been met and a 'clear exit' payment can be properly substantiated. Whether the payment by the member to the representative member is also made pursuant to a tax funding arrangement is largely irrelevant to the question of whether these requirements have been satisfied. Contribution amount 'nil' 123. If the contribution amount (or the reasonable estimate of that amount) that otherwise would be required to be paid to the representative member under subsections 444-80(1B) and 444-90(1B) is determined to be nil, then no payment is necessary to allow the exiting member to leave the group clear of the relevant group liability. However, documentation demonstrating the calculation of the 'nil' amount would need to be retained to support the assertion of a clear exit should that claim later need to be proven to us or a court. Adjustment of contribution amount after due date for lodgment of the GST return 124. It may sometimes be realised that the contribution amount paid by the leaving member to the representative member was too much or too little compared to the actual contribution amount as calculated under the ITXSA at a later date. 125. If the estimate of the contribution amount paid to the representative member was found to be too much, then a repayment by the representative member to the exited member (or the purchaser of the exited member) can occur without impacting on any clear exit, provided the resulting net amount paid to the representative member still represents a reasonable estimate of that contribution amount. 126. However, any extra amounts paid by the exited member after the due date for lodgment of the relevant GST return cannot be taken into account when determining whether the amount paid was a reasonable estimate of the contribution amount. That is not to say that if an adjustment amount is required to be paid by the exited member to the representative member under their own contractual arrangements the original amount paid was not a reasonable estimate of the contribution amount. Reasonable estimate of contribution amount different to final contribution amount calculated under an ITXSA 127. If the 'reasonable estimate' of the contribution amount paid to the representative member before the due date for lodgment is less than the contribution amount that was later determined under the ITXSA (for example, when all data is available for determination of the various contribution amounts), there is no need to make any compensatory adjustments to the contribution amounts of any other ITXSA contributing members to make up the shortfall. 128. For example, if the exiting member leaves the group on 1 September and makes a payment of a reasonable estimate that its monthly contribution for the August tax period under the ITXSA would be $25,000 but, upon a recalculation of monthly figures on or after 21 September and applying the ITXSA the amount should have been $25,500, there is no need to reallocate the additional '$500' to other members. 129. The reason that no adjustment is necessary to the other ITXSA contributing members' contribution amounts is that, under the ITXSA, an amount would still have been allocated to the exited contributing member. However, if the ITXSA provides for a reallocation of the $500 to other members, this would not in itself invalidate the ITXSA, as long as all amounts ultimately allocated among the members represented a reasonable allocation of the total amount of the group liability. 130. On the other hand, one element of the clear exit test is that the amount paid to the representative member is a reasonable estimate of the exiting member's contribution amount. Therefore, providing the amount paid to the representative member at the time of exit can be shown to be a reasonable estimate of the final contribution amount, then a clear exit is still possible. 131. It should be noted that, in any case, the representative member remains liable for 100% of the GST group's liability and will be responsible for any shortfall arising in the circumstances considered above. | Amended liabilities: Amended liabilities – general rules 132. In some cases, amendments to a member's liability may be taken into account in a GST return which is due prospectively (that is, a return for which due date for lodgment has not yet passed) even though they relate to transactions occurring in a previous tax period. For example, an increasing adjustment relating to a transaction in a previous tax period may be taken into account in a later tax period in which the taxpayer becomes aware of the adjustment. 133. However, there may be circumstances in which an amendment needs to be made to a return which was lodged in respect of an earlier tax period, causing a debt (or further debt) to arise in respect of that tax period. 134. Similarly, an amended assessment could issue in respect of an assessment we made of the representative member's net amount for an earlier tax period, resulting in an increased liability for that tax period. 135. All members will potentially be affected by an amended liability. The following discussion deals with cases in which an amendment needs to be made to a return lodged in respect of an earlier tax period. Amended liabilities and ITXSAs 136. If the amended liability is not covered by an ITXSA, all members will be jointly and severally liable for the full extent of the group's indirect tax amount for the tax period. 137. For an amended liability to be covered by an ITXSA, it must be covered by the same ITXSA that applies in respect of the original liability. 138. This is because there can only be one ITXSA in respect of a particular tax period. [12] 139. The ITXSA must be in existence before the due date of the GST return in respect of the period which it covers. 140. A liability resulting from the amendment will be considered to be addressed by the ITXSA provided that it is drafted in terms which are broad enough to cover amended liabilities. For example, it could prescribe a broad methodology under which the indirect tax law liability for that period can be ascertained, without specifying specific or fixed amounts that may be invalidated upon an amended assessment. 141. If, for example, a contribution-to-liability method is used as the basis for allocation under an ITXSA, the effect would be to allocate the increased liability from the amendment to those entities whose transactions resulted in the amendment. This additional allocation may be an indirect allocation if credits are reduced in one member and, therefore, those members that used those credits (under one variation of this methodology) will have their liabilities increased. 142. There may be other allocation methods in which the additional liability arising from the amended assessment is not allocated to members responsible for the increased debt. An example is where liability is apportioned on a 'capacity to pay' basis, under which the contributing members which have the greatest ability to pay the group debt continue to be responsible for the payment of the liability – and thereby have their allocations increased as a result of the amendment – notwithstanding that the increased liability arose from the activities of another member. 143. In all cases, however, the final (post amendment) liability must be reasonably allocated among the representative member and contributing members. 144. There may be situations in which we may have required the production of the ITXSA prior to the amended assessment because the original assessment was also unpaid. Accordingly, it is unlikely that any schedule showing the actual ITXSA liabilities from the application of the methodology to the original group liability would include the distribution of the amended liability. In these cases, we may require the production of the ITXSA with an amended schedule within 14 days of the amendment, reflecting the new apportionments to members from the application of the prescribed methodology to the amended assessment. Amended liabilities and clear exit 145. Where an exited member makes adjustments to supplies and acquisitions that were attributable in a period in which it was in the group but these adjustments are attributable to a period after it left the group, this will not result in an amended assessment for the group but is an amendment to the exited member. The following paragraphs of this Practice Statement relate only to the amendment of a liability for a tax period in which the exited member was part of the group, and for which it seeks to achieve a clear exit. 146. As a general principle, the effect of any amendment on a clear exit could be due to: • the allocation under that ITXSA no longer being considered reasonable and thus invalidating the ITXSA – for example, if the original allocation was of a specific amount, or • the amount paid by the exited member no longer being considered a reasonable estimate – for example, the allocation methodology is based on notional tax incurred by each member, the amendment was due to the exited member's activities and it ought to have been aware of the possible amendment at the time of leaving (that is, it was unlikely that the directors actually believed they were making a 'reasonable estimate' in view of other matters known to them but not to other relevant parties). • the allocation under that ITXSA no longer being considered reasonable and thus invalidating the ITXSA – for example, if the original allocation was of a specific amount, or • the amount paid by the exited member no longer being considered a reasonable estimate – for example, the allocation methodology is based on notional tax incurred by each member, the amendment was due to the exited member's activities and it ought to have been aware of the possible amendment at the time of leaving (that is, it was unlikely that the directors actually believed they were making a 'reasonable estimate' in view of other matters known to them but not to other relevant parties). 147. Note that if the exited member had no knowledge of other entities' activities that led to the amendment, then (depending on the method of allocation) its clear exit may be unaffected, that is, it still may have paid a reasonable estimate of its liability at the time of leaving. 148. An ITXSA will not be considered to have made an unreasonable allocation because it limits the exposure of an exited member under an amendment of the group's assessment to that part of the increased debt that arose from the exited member's own activities. 149. The position of an exited member in respect of its ability to achieve a clear exit in the event of a subsequently amended liability is as follows: • If the member exits before the due date of the relevant GST return, any payment it made to the representative member prior to its exit may not be sufficient to gain a clear exit if it does not take into account the increase in its contribution amount following the amended assessment. - A clear exit can only be achieved in this case if the entity made a payment of that contribution amount, or a reasonable estimate of that amount, to the representative member prior to its departure. - A clear exit may also be obtained if the entity could not have expected that an amended assessment would issue at a later time and makes a payment of its pre-amendment contribution amount, or a reasonable estimate of that amount – that is, it doesn't contribute to, and could not have expected, the increased amount arising from the amendment. - As to whether the entity could have anticipated an amended assessment, it is expected that usually, the exiting member will need to consult with the representative member in calculating its contribution amount or a reasonable estimate of that amount. The representative member will often be in a better position to anticipate any future amended assessments of the group liability and, therefore, to advise accordingly of any likely increase in the contribution amount. However, an unexpected amended assessment resulting, for example, from undisclosed activities of another member of which neither the exiting member nor the representative member were (at the time of exit) aware, may not affect the 'reasonableness' of the entity's pre-amendment contribution amount. - Conversely, a clear exit would not be obtained if the member could have expected that an amended assessment would issue at a later time and does not make any contribution on exit towards the additional liability. • If the member leaves the group at any time after the due date for lodgment of the GST return for the liability, the clear exit provisions will not apply to that liability. This is even if the amended assessment may not yet have issued at the time of departure. - This is because subsections 444-80(1B) and 444-90(1B) require the leaving time of the member to be before the day on which the representative member is required to give to us a GST return for that tax period. • If the contribution amount for the member is a fixed sum under the ITXSA and does not allow for a variation following the issue of an amended assessment, the allocation may not be considered to be 'reasonable' pursuant to paragraphs 444-80(1A)(c) and 444-90(1A)(c). The liability in question may therefore not be taken to be covered by the ITXSA. • If the member exits before the due date of the relevant GST return, any payment it made to the representative member prior to its exit may not be sufficient to gain a clear exit if it does not take into account the increase in its contribution amount following the amended assessment. - A clear exit can only be achieved in this case if the entity made a payment of that contribution amount, or a reasonable estimate of that amount, to the representative member prior to its departure. - A clear exit may also be obtained if the entity could not have expected that an amended assessment would issue at a later time and makes a payment of its pre-amendment contribution amount, or a reasonable estimate of that amount – that is, it doesn't contribute to, and could not have expected, the increased amount arising from the amendment. - As to whether the entity could have anticipated an amended assessment, it is expected that usually, the exiting member will need to consult with the representative member in calculating its contribution amount or a reasonable estimate of that amount. The representative member will often be in a better position to anticipate any future amended assessments of the group liability and, therefore, to advise accordingly of any likely increase in the contribution amount. However, an unexpected amended assessment resulting, for example, from undisclosed activities of another member of which neither the exiting member nor the representative member were (at the time of exit) aware, may not affect the 'reasonableness' of the entity's pre-amendment contribution amount. - Conversely, a clear exit would not be obtained if the member could have expected that an amended assessment would issue at a later time and does not make any contribution on exit towards the additional liability. • If the member leaves the group at any time after the due date for lodgment of the GST return for the liability, the clear exit provisions will not apply to that liability. This is even if the amended assessment may not yet have issued at the time of departure. - This is because subsections 444-80(1B) and 444-90(1B) require the leaving time of the member to be before the day on which the representative member is required to give to us a GST return for that tax period. • If the contribution amount for the member is a fixed sum under the ITXSA and does not allow for a variation following the issue of an amended assessment, the allocation may not be considered to be 'reasonable' pursuant to paragraphs 444-80(1A)(c) and 444-90(1A)(c). The liability in question may therefore not be taken to be covered by the ITXSA. - A clear exit can only be achieved in this case if the entity made a payment of that contribution amount, or a reasonable estimate of that amount, to the representative member prior to its departure. - A clear exit may also be obtained if the entity could not have expected that an amended assessment would issue at a later time and makes a payment of its pre-amendment contribution amount, or a reasonable estimate of that amount – that is, it doesn't contribute to, and could not have expected, the increased amount arising from the amendment. - As to whether the entity could have anticipated an amended assessment, it is expected that usually, the exiting member will need to consult with the representative member in calculating its contribution amount or a reasonable estimate of that amount. The representative member will often be in a better position to anticipate any future amended assessments of the group liability and, therefore, to advise accordingly of any likely increase in the contribution amount. However, an unexpected amended assessment resulting, for example, from undisclosed activities of another member of which neither the exiting member nor the representative member were (at the time of exit) aware, may not affect the 'reasonableness' of the entity's pre-amendment contribution amount. - Conversely, a clear exit would not be obtained if the member could have expected that an amended assessment would issue at a later time and does not make any contribution on exit towards the additional liability. - This is because subsections 444-80(1B) and 444-90(1B) require the leaving time of the member to be before the day on which the representative member is required to give to us a GST return for that tax period. | Allocation of payments received by the Commissioner: 150. We may receive payments from the representative member or, following a demand being issued to a member, from that member. Payments in respect of the group's liabilities or contribution amounts by the representative member or members will be allocated as follows: • A payment to us by the representative member where members are jointly and severally liable for the full amount of the group's liability will be offset against the representative member's liability and all the members' liabilities. • A payment to us by a member where members are jointly and severally liable for the full amount of the group's liability will be offset against all members' liabilities and the representative member's liability. • A payment to us by a member where an effective ITXSA exists will be offset against that member's liability and the representative member's liability. - This in turn may, depending on the way in which the liability is allocated under the ITXSA, reduce the liability of some or all of the other members. This is because all members are still jointly and severally liable for the debt. The joint and several liability of each member is limited under the ITXSA, but not entirely extinguished and replaced by it. In other words, the ITXSA does not create a separate and distinct liability from that which is jointly and severally owed, but limits the exposure of the contributing members to that liability. - Again, depending on the ITXSA allocation, the reduction in the representative member's liability from one member's payment may affect other members whose contribution amounts exceed the balance payable by the representative member after the offset. The joint and several liability of these entities will be reduced to equal the balance recoverable from the representative member after the offset. This means that in some cases, there may be no reduction in the member's liability (namely where their contribution amount is below this balance). • A payment to us by the representative member where an effective ITXSA exists will be offset against the representative member's liability. This may, depending on the way in which the liability is allocated under the ITXSA, reduce the liability owed by members whose contribution amount exceeds the balance payable by the representative member after the offset. The joint and several liability of these entities will be reduced to equal the balance recoverable from the representative member after the offset. This means that in some cases, there may be no reduction in the member's liability (namely where their contribution amount is below this balance). • A payment to us by the representative member where members are jointly and severally liable for the full amount of the group's liability will be offset against the representative member's liability and all the members' liabilities. • A payment to us by a member where members are jointly and severally liable for the full amount of the group's liability will be offset against all members' liabilities and the representative member's liability. • A payment to us by a member where an effective ITXSA exists will be offset against that member's liability and the representative member's liability. - This in turn may, depending on the way in which the liability is allocated under the ITXSA, reduce the liability of some or all of the other members. This is because all members are still jointly and severally liable for the debt. The joint and several liability of each member is limited under the ITXSA, but not entirely extinguished and replaced by it. In other words, the ITXSA does not create a separate and distinct liability from that which is jointly and severally owed, but limits the exposure of the contributing members to that liability. - Again, depending on the ITXSA allocation, the reduction in the representative member's liability from one member's payment may affect other members whose contribution amounts exceed the balance payable by the representative member after the offset. The joint and several liability of these entities will be reduced to equal the balance recoverable from the representative member after the offset. This means that in some cases, there may be no reduction in the member's liability (namely where their contribution amount is below this balance). • A payment to us by the representative member where an effective ITXSA exists will be offset against the representative member's liability. This may, depending on the way in which the liability is allocated under the ITXSA, reduce the liability owed by members whose contribution amount exceeds the balance payable by the representative member after the offset. The joint and several liability of these entities will be reduced to equal the balance recoverable from the representative member after the offset. This means that in some cases, there may be no reduction in the member's liability (namely where their contribution amount is below this balance). - This in turn may, depending on the way in which the liability is allocated under the ITXSA, reduce the liability of some or all of the other members. This is because all members are still jointly and severally liable for the debt. The joint and several liability of each member is limited under the ITXSA, but not entirely extinguished and replaced by it. In other words, the ITXSA does not create a separate and distinct liability from that which is jointly and severally owed, but limits the exposure of the contributing members to that liability. - Again, depending on the ITXSA allocation, the reduction in the representative member's liability from one member's payment may affect other members whose contribution amounts exceed the balance payable by the representative member after the offset. The joint and several liability of these entities will be reduced to equal the balance recoverable from the representative member after the offset. This means that in some cases, there may be no reduction in the member's liability (namely where their contribution amount is below this balance). 151. The total amount recovered from the representative member and members for the group's indirect tax amounts in that tax period will be no more than the total indirect tax law liability for that period. | General interest charge: 152. GIC accrues on any assessed net fuel amount or an assessed amount of indirect tax that remains unpaid after the time by which it is due to be paid. [13] 153. GIC arising from the group's indirect tax amounts is itself an amount payable under 'indirect tax law' under the terms of sections 444-80 and 444-90. It is therefore subject to the joint and several liability and ITXSA provisions prescribed under those sections. 154. As part of the legislative requirement that the ITXSA cover the 'total amount payable under indirect tax laws', the GIC must also be covered by the ITXSA . If not, the ITXSA will not be regarded as having satisfied all legislative requirements and consequently, all members will be jointly and severally liable for the full amount of the total indirect tax amounts for the tax period in question. 155. An ITXSA to which a particular debt relates could apportion a continually accruing amount of GIC among the members of the group. For example, it is possible that a member who is attributed 40% of the primary indirect tax law liability of the group may also, consistently, be attributed 40% of the GIC accruing on this liability. Another way of looking at it is to allocate 40% of the total amount of the indirect tax amounts of the group, inclusive of GIC, to the member, with any future accrual of GIC to continue to be attributed in the same proportion. 156. Requests for remission of GIC will be taken into account in accordance with the policy under Law Administration Practice Statement PS LA 2011/12 Remission of General Interest Charge. When considering requests for remission, the circumstances of the entire group may be taken into account. It would be rare for us to grant such a remission where the group continually neglects to make adequate arrangements to ensure that the group's taxation liabilities are met on time. 157. However, the submissions made by the representative member in supporting its application for GIC remission may take into account particular circumstances pertaining to individual members of the group. 158. Should a remission of the representative member's GIC occur, the liability of the contributing members will be reduced accordingly. | Representatives of incapacitated entities: 159. Representatives of incapacitated entities are required to lodge GST and fuel tax returns for tax periods during which they are registered in that capacity and are personally liable to pay any GST and fuel tax law debts they incur during that period. 160. For a more detailed examination of the responsibilities of representatives of incapacitated entities in respect of these liabilities refer to Law Administration Practice Statement PS LA 2011/16 Insolvency – collection, recovery and enforcement issues for entities under external administration. | GST religious groups: 161. Each GST religious group member is required to lodge GST returns for its own external transactions. Transactions with other GST religious group members are excluded from the calculation of the net amount returned. 162. GST religious group members are only liable for amounts payable on their own external transactions. That is, there is no joint and several liability for amounts payable by one or more of the GST religious group members. Similarly, there is no provision to allow for credits to be offset between GST religious group members. | GST branches: 163. As liabilities of a registered GST branch remain the responsibility of the parent entity, any recovery action will be taken against that parent entity. The liabilities of all branches should be included in such actions. | Non-profit sub-entities: 164. Obligations of a non-profit sub-entity (NPSE) under the GST law or fuel tax law are imposed under section 444-85 on each entity responsible for the management of the sub-entity. Subsection 444-85(2) imposes a joint and several liability on those persons for amounts payable under the GST law or fuel tax law by the NPSE. Alternatively, those persons may become jointly liable under common law. 165. The question of who is responsible for the management of a particular NPSE and when legal recovery action is appropriate will be determined by the facts of each case. 166. Before commencing legal action for the recovery of the GST or fuel tax law debts of a NPSE, advice must be obtained from the relevant technical area. | Supplies in satisfaction of debts: 167. Any GST payable under section 105-5 of the GST Act by a creditor, either registered or required to be registered, forms part of the creditor's net amount for the relevant tax period. 168. A creditor that is neither registered nor required to be registered and who makes a taxable supply under section 105-5 of the GST Act is required to lodge a GST return within 21 days after the end of the month in which the relevant supply was made. Payment of the GST is due by the same date. This liability is a distinct tax-related liability for recovery purposes. | Government entities: 169. A government entity registered for GST purposes is treated as if it were an entity responsible for all GST and fuel tax law obligations. 170. Liability to GST cannot extend to the Commonwealth or to its various departments and agencies. Instead, the Finance Minister [14] may direct that monies collected or notionally credited be transferred between accounts operated by the Commonwealth. 171. For state or territory government entities, liability would ultimately rest with the Crown in the right of the relevant state or territory. 172. Before commencing legal action to recover an amount due by a government entity, advice must be obtained from the relevant technical area. | Wine producer rebates – associated producers: 173. Division 19 of Part 4 of the WET Act provides an entitlement for a wine producer to claim a rebate of up to $350,000 in a financial year (subsection 19-15(2) of the WET Act). 174. An entity is liable to pay any excess claims of producer rebates (section 19-25 of the WET Act). An amount payable under that section is treated as if it were wine tax payable at the end of the financial year and is attributable to the last tax period of the financial year. For a registered entity, the liability would form part of the entity's net amount for that last tax period. 175. However, a group of associated producers are only entitled to claim between them the maximum rebate of $350,000 (subsection 19-15(3) of the WET Act). 176. As per section 19-20 of the WET Act, producers are associated producers if: • one is connected to the other pursuant to section 328-125 of the Income Tax Assessment Act 1997 (ITAA 1997) (that is, if one entity controls the other or if both entities are controlled by a third entity, but without the exception in subsection 328-125(8) of the ITAA 1997 that severs the link between producers where an intermediary is a public entity) • one is under an obligation to act, or might reasonably be expected to act, in accordance with the directions of the other in relation to their affairs • each of them is under an obligation to act, or might reasonably be expected to act, in accordance with the directions of the same third entity • a controller (within the meaning of section 9 of the Corporations Act 2001), or • one is under an obligation to act in accordance with the directions of a third producer and the third producer is under an obligation to act, or might reasonably be expected to act, in accordance with the directions of the second producer. • one is connected to the other pursuant to section 328-125 of the Income Tax Assessment Act 1997 (ITAA 1997) (that is, if one entity controls the other or if both entities are controlled by a third entity, but without the exception in subsection 328-125(8) of the ITAA 1997 that severs the link between producers where an intermediary is a public entity) • one is under an obligation to act, or might reasonably be expected to act, in accordance with the directions of the other in relation to their affairs • each of them is under an obligation to act, or might reasonably be expected to act, in accordance with the directions of the same third entity • a controller (within the meaning of section 9 of the Corporations Act 2001), or • one is under an obligation to act in accordance with the directions of a third producer and the third producer is under an obligation to act, or might reasonably be expected to act, in accordance with the directions of the second producer. 177. If a producer is an associated producer of one or more other producers for a financial year and the producer rebates claimed by those producers as a group of associated producers for the financial year is more than $350,000, then each producer member of the group of associated producers is jointly and severally liable to pay an amount equal to the excess. However, none of the individual producer members is liable to pay an amount that exceeds the sum of the amounts of producer rebates that that producer claimed for the financial year (subsections 19-25(2) and (3) of the WET Act). 178. In appropriate circumstances, we will choose to pursue recovery of excess rebates claimed by a group of associated producers from one or more of the associated producers. 179. We may decide to proceed against all associated producers or any particular producer or producers who are liable based on considerations of the most expedient means of recovery. 180. Relevant factors in deciding the most expedient means of recovery may include, but are not limited to, the following: • the ability to collect payment promptly from one or more particular producers • the opportunity to include the debt in an action being initiated against a particular producer for that producer's other tax-related liabilities • the need to prove in an insolvency administration of a producer, and • the opportunity to collect an amount due to a producer from a third party. • the ability to collect payment promptly from one or more particular producers • the opportunity to include the debt in an action being initiated against a particular producer for that producer's other tax-related liabilities • the need to prove in an insolvency administration of a producer, and • the opportunity to collect an amount due to a producer from a third party. 181. Given the limited nature of the joint and several liability created by subsection 19-25(3) of the WET Act, it will often be necessary to pursue the majority, if not all, associated producers to ensure that the entire debt is recoverable. | Example 1: Contribution to liability method where credits are allocated: 182. In this example, we make the following assumptions: • X Co is the representative member of the GST group (group). • A Co, B Co and C Co are also members of the group and enter into an ITXSA with X Co covering indirect tax amounts payable in respect of period Y. The ITXSA is entered into before X Co is required to give us a GST return for period Y. • The members ordinarily make supplies to, and acquisitions from, entities outside the group except for A Co which primarily makes supplies to the other members of the group. • The method of allocating the contribution amounts for each member of the group under the ITXSA is based on each member's individual contribution to the group's liability (contribution to liability method) taking GST, input tax credits (ITC) and adjustments into account. The contribution amounts are subsequently allocated on a pro rata basis. • For the purposes of applying the contribution to liability method, A Co's net indirect tax law liability is determined to be a credit as a result of primarily making supplies to other members of the group (which are treated as not being taxable supplies). This credit is applied to, and reduces, the indirect tax law liabilities payable by the group. • The group's indirect tax law liability for period Y remains unpaid and we commence recovery action against the members of the group. Table 2 of this Practice Statement summarises the information from the ITXSA that X Co as the representative member provides us with respect to period Y: • X Co is the representative member of the GST group (group). • A Co, B Co and C Co are also members of the group and enter into an ITXSA with X Co covering indirect tax amounts payable in respect of period Y. The ITXSA is entered into before X Co is required to give us a GST return for period Y. • The members ordinarily make supplies to, and acquisitions from, entities outside the group except for A Co which primarily makes supplies to the other members of the group. • The method of allocating the contribution amounts for each member of the group under the ITXSA is based on each member's individual contribution to the group's liability (contribution to liability method) taking GST, input tax credits (ITC) and adjustments into account. The contribution amounts are subsequently allocated on a pro rata basis. • For the purposes of applying the contribution to liability method, A Co's net indirect tax law liability is determined to be a credit as a result of primarily making supplies to other members of the group (which are treated as not being taxable supplies). This credit is applied to, and reduces, the indirect tax law liabilities payable by the group. • The group's indirect tax law liability for period Y remains unpaid and we commence recovery action against the members of the group. Table 2 of this Practice Statement summarises the information from the ITXSA that X Co as the representative member provides us with respect to period Y: Table 2: Example 1 – ITXSA applied Allocation type GST group X Co is the representative member Contributing members' liabilities, X Co Contributing members' liabilities, A Co Contributing members' liabilities, B Co Contributing members' liabilities, C Co Indirect tax law liabilities: GST – ITC $60,000 $50,000 ($40,000) $25,000 $25,000 % of liability 100% 50% 0% 25% 25% ITXSA contribution amounts $60,000 $30,000 (Note – for the representative member, this is a notional allocation) nil $15,000 $15,000 | X Co is the representative member: GST – ITC (Note – for the representative member, this is a notional allocation) Notes: • B Co and C Co's exposure to joint and several liability is limited each to $15,000. • Despite A Co having a 'nil' contribution amount it is still necessary for it to be a participant in the ITXSA to avoid joint and several liability. • While X Co as the representative member remains 100% liable for the group debt, it can be allocated an amount under the ITXSA in accordance with a methodology aimed at a reasonable allocation among the representative member and the contributing members. The result is that while X Co has a notional allocation of $30,000 under the ITXSA, it continues to be fully liable for the debt and the contributing members' liabilities are limited to the extent of their allocations pursuant to the ITXSA. • If an amended assessment issues, reversing A Co's credit and thereby increasing the group's indirect tax law liability by $40,000, the members' contribution amounts under the ITXSA will need to be amended. The contribution amounts would be increased, in accordance with the allocation method by the amounts shown in Table 3 of this Practice Statement. • B Co and C Co's exposure to joint and several liability is limited each to $15,000. • Despite A Co having a 'nil' contribution amount it is still necessary for it to be a participant in the ITXSA to avoid joint and several liability. • While X Co as the representative member remains 100% liable for the group debt, it can be allocated an amount under the ITXSA in accordance with a methodology aimed at a reasonable allocation among the representative member and the contributing members. The result is that while X Co has a notional allocation of $30,000 under the ITXSA, it continues to be fully liable for the debt and the contributing members' liabilities are limited to the extent of their allocations pursuant to the ITXSA. • If an amended assessment issues, reversing A Co's credit and thereby increasing the group's indirect tax law liability by $40,000, the members' contribution amounts under the ITXSA will need to be amended. The contribution amounts would be increased, in accordance with the allocation method by the amounts shown in Table 3 of this Practice Statement. Table 3: Example 1 – ITXSA applied after amendments Allocation type GST group (X Co is the representative member) Contributing members' liabilities, X Co Contributing members' liabilities, A Co Contributing members' liabilities, B Co Contributing members' liabilities, C Co Additional liability (over claimed credits) $40,000 Not applicable Not applicable Not applicable Not applicable % of liability 100% 50% 0% 25% 25% Increase to contribution amounts $40,000 $20,000 (Note – for the representative member, this is a notional allocation) nil $10,000 $10,000 | (X Co is the representative member): (Note – for the representative member, this is a notional allocation) | Example 2: Contribution to liability method where credits are not allocated: 183. In this example, we make the following assumptions: • X Co is the representative member of the GST group (group). • A Co, B Co and C Co are also members of the group and enter into an ITXSA with X Co covering indirect tax amounts payable in respect of period Y. The ITXSA is entered into before X Co is required to give us a GST return for period Y. • The members ordinarily make supplies to, and acquisitions from, entities outside the group except for A Co which primarily makes supplies to the other members of the group. • The method of allocating the contribution amounts for each member of the group under the ITXSA is based on each member's individual contribution to the group's liability (contribution to liability method). However, each member's allocation is not made on a pro rata basis. • For the purposes of applying the contribution to liability method, A Co's net indirect tax law liability is determined to be a credit as a result of primarily making supplies to other members of the group (which are treated as not being taxable supplies). This credit reduces the indirect tax law liabilities payable by the group. Note: When applying this method of allocation to GST joint ventures, be mindful that in contrast to GST groups, only certain specified transactions between the joint venture operator and a participant are not treated as taxable supplies (subsection 51-30(2) of the GST Act). Transactions between participants in a GST joint venture, for example, would not be ignored for the purposes of calculating their contribution amounts under this methodology. • The group's indirect tax law liability for period Y remains unpaid and we commence recovery action against the members of the group. Table 4 of this Practice Statement summarises the information from the ITXSA that X Co as the representative member provides us with respect to period Y. • X Co is the representative member of the GST group (group). • A Co, B Co and C Co are also members of the group and enter into an ITXSA with X Co covering indirect tax amounts payable in respect of period Y. The ITXSA is entered into before X Co is required to give us a GST return for period Y. • The members ordinarily make supplies to, and acquisitions from, entities outside the group except for A Co which primarily makes supplies to the other members of the group. • The method of allocating the contribution amounts for each member of the group under the ITXSA is based on each member's individual contribution to the group's liability (contribution to liability method). However, each member's allocation is not made on a pro rata basis. • For the purposes of applying the contribution to liability method, A Co's net indirect tax law liability is determined to be a credit as a result of primarily making supplies to other members of the group (which are treated as not being taxable supplies). This credit reduces the indirect tax law liabilities payable by the group. Note: When applying this method of allocation to GST joint ventures, be mindful that in contrast to GST groups, only certain specified transactions between the joint venture operator and a participant are not treated as taxable supplies (subsection 51-30(2) of the GST Act). Transactions between participants in a GST joint venture, for example, would not be ignored for the purposes of calculating their contribution amounts under this methodology. • The group's indirect tax law liability for period Y remains unpaid and we commence recovery action against the members of the group. Table 4 of this Practice Statement summarises the information from the ITXSA that X Co as the representative member provides us with respect to period Y. Table 4: Example 2 – ITXSA applied Allocation type GST group (X Co is the representative member) Contributing members' liabilities, X Co Contributing members' liabilities, A Co Contributing members' liabilities, B Co Contributing members' liabilities, C Co Indirect tax law liabilities: GST – ITC $80,000 $20,000 ($40,000) $50,000 $50,000 ITXSA contribution amounts $120,000 (but we cannot recover more than the total of $80,000) $20,000 (Note – for the representa-tive member, this is a notional allocation) nil $50,000 $50,000 | (X Co is the representative member): GST – ITC (but we cannot recover more than the total of $80,000) (Note – for the representa-tive member, this is a notional allocation) Notes: • While X Co as the representative member remains 100% liable for the group debt, it can be allocated an amount under the ITXSA in accordance with a methodology aimed at a reasonable allocation among the representative member and the contributing members. The result is that while X Co has a notional allocation of $20,000 under the ITXSA, it continues to be fully liable for the debt, and the contributing members' liabilities are limited to the extent of their allocations pursuant to the ITXSA. • As the contribution amount for each member is not calculated on a pro rata basis, B Co and C Co's liability remains at $50,000. This is the indirect tax law liability which B Co and C Co would have on their own if the representative member was not responsible for the obligations and entitlements of the group. • As a result, the sum of all the members' contribution amounts (including X Co's notional contribution amount) is more than the GST group's total indirect tax law liability. In this case, the sum of the members' contribution amounts is $120,000, while the GST group's total indirect tax laws liability is only $80,000. • However, we cannot recover more than the sum of the group's total indirect tax law liability of $80,000 from the group. That is, while we may recover the full amount of the contributing liability allocated to a member, they cannot recover more than $80,000 from the group in total. Therefore, if $50,000 is recovered from B Co, we can only recover the balance of $30,000 from the remaining members. Alternatively, we have the right to recover up to $50,000 from C Co, but if this debt is fully satisfied by C Co, we can only pursue the balance of $30,000 from X Co and B Co. • If an amended assessment issues, reversing A Co's credit and thereby increasing the group liability by $40,000, only A Co's contribution amount would need to be amended. In this case, A Co's contribution amount would be increased by $40,000, representing the amount which it had over claimed. The other members' contribution amounts under the ITXSA would not need to be amended. • While X Co as the representative member remains 100% liable for the group debt, it can be allocated an amount under the ITXSA in accordance with a methodology aimed at a reasonable allocation among the representative member and the contributing members. The result is that while X Co has a notional allocation of $20,000 under the ITXSA, it continues to be fully liable for the debt, and the contributing members' liabilities are limited to the extent of their allocations pursuant to the ITXSA. • As the contribution amount for each member is not calculated on a pro rata basis, B Co and C Co's liability remains at $50,000. This is the indirect tax law liability which B Co and C Co would have on their own if the representative member was not responsible for the obligations and entitlements of the group. • As a result, the sum of all the members' contribution amounts (including X Co's notional contribution amount) is more than the GST group's total indirect tax law liability. In this case, the sum of the members' contribution amounts is $120,000, while the GST group's total indirect tax laws liability is only $80,000. • However, we cannot recover more than the sum of the group's total indirect tax law liability of $80,000 from the group. That is, while we may recover the full amount of the contributing liability allocated to a member, they cannot recover more than $80,000 from the group in total. Therefore, if $50,000 is recovered from B Co, we can only recover the balance of $30,000 from the remaining members. Alternatively, we have the right to recover up to $50,000 from C Co, but if this debt is fully satisfied by C Co, we can only pursue the balance of $30,000 from X Co and B Co. • If an amended assessment issues, reversing A Co's credit and thereby increasing the group liability by $40,000, only A Co's contribution amount would need to be amended. In this case, A Co's contribution amount would be increased by $40,000, representing the amount which it had over claimed. The other members' contribution amounts under the ITXSA would not need to be amended. | Example 3: Chain supply scenario: Note: The scenario contemplated in this example does not apply to GST joint ventures, since it involves intra-group supplies which, under the law applying to GST groups, are not treated as taxable supplies. 184. In this example, we make the following assumptions: • X Co is the representative member of the group. • A Co, B Co and C Co are members of the group and enter into an ITXSA with X Co covering indirect tax amounts payable in respect of period Z. The ITXSA is entered into before X Co is required to give us a GST return for period Z. • The group manufactures and sells goods through a supply chain comprising the members. The goods are manufactured by X Co and supplied to A Co which in turn supplies to B Co, and then to C Co, which as the retailing entity supplies the goods to customers outside of the group. • As with Example 1 of this Practice Statement, the group uses the contribution to liability method under the ITXSA in which the member's contribution amount is based on its individual contribution to the group's liability. • The group's indirect tax law liability for period Z remains unpaid and we commence recovery action against the members of the group. Table 5 of this Practice Statement summarises the information from the ITXSA that X Co as the representative member provides us with respect to period Z. • X Co is the representative member of the group. • A Co, B Co and C Co are members of the group and enter into an ITXSA with X Co covering indirect tax amounts payable in respect of period Z. The ITXSA is entered into before X Co is required to give us a GST return for period Z. • The group manufactures and sells goods through a supply chain comprising the members. The goods are manufactured by X Co and supplied to A Co which in turn supplies to B Co, and then to C Co, which as the retailing entity supplies the goods to customers outside of the group. • As with Example 1 of this Practice Statement, the group uses the contribution to liability method under the ITXSA in which the member's contribution amount is based on its individual contribution to the group's liability. • The group's indirect tax law liability for period Z remains unpaid and we commence recovery action against the members of the group. Table 5 of this Practice Statement summarises the information from the ITXSA that X Co as the representative member provides us with respect to period Z. Table 5: Example 3 – ITXSA applied Allocation type GST group (X Co is the representative member) Contributing members' liabilities, X Co Contributing members' liabilities, A Co Contributing members' liabilities, B Co Contributing members' liabilities, C Co Indirect tax law liabilities: GST – ITC Not applicable nil nil nil $60,000 % of liability 100% 0% 0% 0% 100% ITXSA contribution amounts $60,000 nil nil nil $60,000 | (X Co is the representative member): GST – ITC Notes: • As intra-group supplies and acquisitions are not treated as taxable supplies or creditable acquisitions for GST purposes, the only entity that makes taxable supplies in period Z is C Co as the supplier of the goods to customers outside of the group. Consequently, 100% of the group's indirect tax law liability is attributed to C Co under the terms of the ITXSA. • Despite X Co having a 'nil' notional allocation under the ITXSA it continues to be responsible for 100% of the liability. • Despite A Co and B Co having a 'nil' contribution amounts it is still necessary for each entity to be a participant in the ITXSA to avoid joint and several liability. • This method of allocation may be considered reasonable provided there is no arrangement which has a purpose of prejudicing recovery of the liability. A greater degree of scrutiny will be given to the matter if, for example, C Co possesses insufficient assets to satisfy the liability. • As intra-group supplies and acquisitions are not treated as taxable supplies or creditable acquisitions for GST purposes, the only entity that makes taxable supplies in period Z is C Co as the supplier of the goods to customers outside of the group. Consequently, 100% of the group's indirect tax law liability is attributed to C Co under the terms of the ITXSA. • Despite X Co having a 'nil' notional allocation under the ITXSA it continues to be responsible for 100% of the liability. • Despite A Co and B Co having a 'nil' contribution amounts it is still necessary for each entity to be a participant in the ITXSA to avoid joint and several liability. • This method of allocation may be considered reasonable provided there is no arrangement which has a purpose of prejudicing recovery of the liability. A greater degree of scrutiny will be given to the matter if, for example, C Co possesses insufficient assets to satisfy the liability. | Example 4: Contribution to liability method – joint ventures: 185. As per paragraph 7 of this Practice Statement, reference to a GST group is also taken to include reference to GST joint ventures. As such, the contribution to liability methods outlined in Examples 1 and 2 of this Practice Statement have equal application to both GST groups and GST joint ventures. This example further illustrates the application of the methods to a specific scenario concerning GST joint ventures: • X Co, A Co, B Co and C Co enter into a joint venture to extract a mineral from a mining tenement which they own in specific shares. The joint venture agreement establishes that the purpose of the joint venture is to extract the mineral from the deposit. • Each of the participants receives a specific agreed share of the joint venture product. In this case, the product is the extracted mineral deposit. • The participants agree that the mineral deposits may then be sold by X Co on their behalf. • We approve the entities as participants of a GST joint venture, with X Co as the joint venture operator. • Where a GST joint venture is formed under Division 51 of the GST Act, the joint venture operator deals with the GST liabilities and entitlements arising from its dealings in the course of activities for which the joint venture was entered into on behalf of the participants in the joint venture. • If the joint venture operator makes a supply or acquisition on behalf of a participant in relation to joint venture activities, it is liable to pay any resulting GST and is entitled to any resulting input tax credit. [15] • The contribution to liability method attributes the GST liability to a participant arising from dealings made on its behalf by the joint venture operator. Under this method, each participant is liable for its own contribution to the joint venture's GST debt. • If the contribution to liability method is adopted in which credits notionally accrued to a participant are allocated among the other participants that have a notional debt, Table 6 of this Practice Statement illustrates the resulting allocation. • X Co, A Co, B Co and C Co enter into a joint venture to extract a mineral from a mining tenement which they own in specific shares. The joint venture agreement establishes that the purpose of the joint venture is to extract the mineral from the deposit. • Each of the participants receives a specific agreed share of the joint venture product. In this case, the product is the extracted mineral deposit. • The participants agree that the mineral deposits may then be sold by X Co on their behalf. • We approve the entities as participants of a GST joint venture, with X Co as the joint venture operator. • Where a GST joint venture is formed under Division 51 of the GST Act, the joint venture operator deals with the GST liabilities and entitlements arising from its dealings in the course of activities for which the joint venture was entered into on behalf of the participants in the joint venture. • If the joint venture operator makes a supply or acquisition on behalf of a participant in relation to joint venture activities, it is liable to pay any resulting GST and is entitled to any resulting input tax credit. [15] • The contribution to liability method attributes the GST liability to a participant arising from dealings made on its behalf by the joint venture operator. Under this method, each participant is liable for its own contribution to the joint venture's GST debt. • If the contribution to liability method is adopted in which credits notionally accrued to a participant are allocated among the other participants that have a notional debt, Table 6 of this Practice Statement illustrates the resulting allocation. Table 6: Example 4 – ITXSA applied Allocation type GST joint venture (X Co is the joint venture operator) Contributing partici-pants' liabilities, X Co Contributing partici-pants' liabilities, A Co Contributing partici-pants' liabilities, B Co Contributing partici-pants' liabilities, C Co Indirect tax law liabilities: GST – ITC $60,000 $50,000 ($40,000) $25,000 $25,000 % of liability 100% 50% 0% 25% 25% ITXSA contribution amounts $60,000 $30,000 (Note – for the joint venture operator, this is a notional allocation) nil $15,000 $15,000 | (X Co is the joint venture operator): GST – ITC (Note – for the joint venture operator, this is a notional allocation) Notes: • The sale of the mineral deposits from the joint venture by X Co results in a GST liability of $60,000 to the GST joint venture. • Of this amount, $25,000 represents the amount of GST incurred by X Co as a result of making supplies of mineral deposits on behalf of B Co, and a further $25,000 represents GST from supplies made by X Co on behalf of C Co. • A Co's GST liability is determined to be a credit as a result of a large number of creditable acquisitions made by X Co on its behalf. This credit is applied to and reduces the indirect tax law liabilities payable by the group. • As a result, B Co and C Co's exposure to joint and several liability is limited each to $15,000. • Despite A Co having a 'nil' contribution amount, it is still necessary for it to be a participant in the ITXSA to avoid joint and several liability. • While X Co as the joint venture operator remains 100% liable for the group debt, it can be allocated an amount under the ITXSA in accordance with a methodology aimed at a reasonable allocation among the joint venture operator and the participants. The result is that while X Co has a notional allocation of $30,000 under the ITXSA, it continues to be fully liable for the debt, and the participants' liabilities are limited to the extent of their allocations pursuant to the ITXSA. • The contribution to liability method used in Example 1 of this Practice Statement and outlined in Table 2 of Example 1 of this Practice Statement for GST groups is applicable to GST joint ventures. • The consequence of an amended assessment reversing A Co's credit is considered in Example 1 of this Practice Statement. • The sale of the mineral deposits from the joint venture by X Co results in a GST liability of $60,000 to the GST joint venture. • Of this amount, $25,000 represents the amount of GST incurred by X Co as a result of making supplies of mineral deposits on behalf of B Co, and a further $25,000 represents GST from supplies made by X Co on behalf of C Co. • A Co's GST liability is determined to be a credit as a result of a large number of creditable acquisitions made by X Co on its behalf. This credit is applied to and reduces the indirect tax law liabilities payable by the group. • As a result, B Co and C Co's exposure to joint and several liability is limited each to $15,000. • Despite A Co having a 'nil' contribution amount, it is still necessary for it to be a participant in the ITXSA to avoid joint and several liability. • While X Co as the joint venture operator remains 100% liable for the group debt, it can be allocated an amount under the ITXSA in accordance with a methodology aimed at a reasonable allocation among the joint venture operator and the participants. The result is that while X Co has a notional allocation of $30,000 under the ITXSA, it continues to be fully liable for the debt, and the participants' liabilities are limited to the extent of their allocations pursuant to the ITXSA. • The contribution to liability method used in Example 1 of this Practice Statement and outlined in Table 2 of Example 1 of this Practice Statement for GST groups is applicable to GST joint ventures. • The consequence of an amended assessment reversing A Co's credit is considered in Example 1 of this Practice Statement. | Example 5: Contribution to liability method – joint ventures – where credits are not allocated: 186. If the contribution to liability method is adopted in which credits notionally accrued to a participant are not allocated to the other participants, Table 7 of this Practice Statement illustrates the resulting allocation. Table 7: Example 5 – ITXSA applied Allocation type GST joint venture (X Co is the joint venture operator) Contributing partici-pants' liabilities, X Co Contributing partici-pants' liabilities, A Co Contributing partici-pants' liabilities, B Co Contributing partici-pants' liabilities, C Co Indirect tax law liabilities: GST – ITC $80,000 $20,000 ($40,000) $50,000 $50,000 ITXSA contribution amounts $120,000 (but we cannot recover more than the total of $80,000) $20,000 (Note – for the joint venture operator, this is a notional allocation) nil $50,000 $50,000 GST – ITC (but we cannot recover more than the total of $80,000) (Note – for the joint venture operator, this is a notional allocation) Notes: • The sale of the mineral deposits from the joint venture by X Co results in a GST liability of $80,000 to the GST joint venture. • Of this amount, $50,000 represents the amount of GST incurred by X Co as a result of making supplies of mineral deposits on behalf of B Co, and a further $50,000 represents GST from supplies made by X Co on behalf of C Co. • A Co's GST liability is determined to be a credit as a result of a large number of creditable acquisitions made by X Co on its behalf. This credit is not applied to the indirect tax law liabilities payable by the group. • While X Co as the joint venture operator remains 100% liable for the joint venture debt, it can be allocated an amount under the ITXSA in accordance with a methodology aimed at a reasonable allocation among the joint venture operator and the participants. The result is that while X Co has a notional allocation of $20,000 under the ITXSA, it continues to be fully liable for the debt, and the participants' liabilities are limited to the extent of their allocations pursuant to the ITXSA. • As the contribution amount for each participant is not calculated on a pro rata basis, B Co and C Co's liability remains at $50,000. This is the indirect tax law liability which B Co and C Co would have on their own if X Co was not responsible for the obligations and entitlements of the group. • As a result, the sum of all the participants' contribution amounts (including X Co's notional contribution amount) is more than the GST joint venture's total indirect tax law liability. In this case, the sum of the participants' contribution amounts is $120,000, while the GST joint venture's total indirect tax laws liability is only $80,000. • However, we cannot recover more than the sum of the joint venture's total indirect tax law liability of $80,000 from the joint venture. • That is, while we may recover the full amount of the contributing liability allocated to a participant, we cannot recover more than $80,000 from the joint venture in total. Therefore, if $50,000 is recovered from B Co, we can only recover the balance of $30,000 from the remaining participants. Alternatively, we have the right to recover up to $50,000 from C Co, but if this debt is fully satisfied by C Co, we can only pursue the balance of $30,000 from X Co and B Co. • The contribution to liability method used in Example 2 of this Practice Statement and outlined in Table 4 of Example 2 of this Practice Statement for GST groups is applicable to GST joint ventures. • The consequence of an amended assessment reversing A Co's credit is considered in Example 2 of this Practice Statement. • The sale of the mineral deposits from the joint venture by X Co results in a GST liability of $80,000 to the GST joint venture. • Of this amount, $50,000 represents the amount of GST incurred by X Co as a result of making supplies of mineral deposits on behalf of B Co, and a further $50,000 represents GST from supplies made by X Co on behalf of C Co. • A Co's GST liability is determined to be a credit as a result of a large number of creditable acquisitions made by X Co on its behalf. This credit is not applied to the indirect tax law liabilities payable by the group. • While X Co as the joint venture operator remains 100% liable for the joint venture debt, it can be allocated an amount under the ITXSA in accordance with a methodology aimed at a reasonable allocation among the joint venture operator and the participants. The result is that while X Co has a notional allocation of $20,000 under the ITXSA, it continues to be fully liable for the debt, and the participants' liabilities are limited to the extent of their allocations pursuant to the ITXSA. • As the contribution amount for each participant is not calculated on a pro rata basis, B Co and C Co's liability remains at $50,000. This is the indirect tax law liability which B Co and C Co would have on their own if X Co was not responsible for the obligations and entitlements of the group. • As a result, the sum of all the participants' contribution amounts (including X Co's notional contribution amount) is more than the GST joint venture's total indirect tax law liability. In this case, the sum of the participants' contribution amounts is $120,000, while the GST joint venture's total indirect tax laws liability is only $80,000. • However, we cannot recover more than the sum of the joint venture's total indirect tax law liability of $80,000 from the joint venture. • That is, while we may recover the full amount of the contributing liability allocated to a participant, we cannot recover more than $80,000 from the joint venture in total. Therefore, if $50,000 is recovered from B Co, we can only recover the balance of $30,000 from the remaining participants. Alternatively, we have the right to recover up to $50,000 from C Co, but if this debt is fully satisfied by C Co, we can only pursue the balance of $30,000 from X Co and B Co. • The contribution to liability method used in Example 2 of this Practice Statement and outlined in Table 4 of Example 2 of this Practice Statement for GST groups is applicable to GST joint ventures. • The consequence of an amended assessment reversing A Co's credit is considered in Example 2 of this Practice Statement.",PS LA 2011/4 | PS LA 2011/6 | PS LA 2011/12 | PS LA 2011/14 | PS LA 2011/15 | PS LA 2011/16 | PS LA 2011/18 | PS LA 2011/20 | ANTS(GST)A 1999 48-40(2) | ANTS(GST)A 1999 48-70 | ANTS(GST)A 1999 Div 51 | ANTS(GST)A 1999 51-30 | ANTS(GST)A 1999 51-30(2) | ANTS(GST)A 1999 51-35 | ANTS(GST)A 1999 51-70 | ANTS(GST)A 1999 105-5 | ANTS(GST)A 1999 195-1 | ANTS(LCT)A 1999 27-1 | ANTS(WET)A 1999 33-1 | ANTS(WET)A 1999 Pt 4 Div 19 | ANTS(WET)A 1999 19-15(2) | ANTS(WET)A 1999 19-15(3) | ANTS(WET)A 1999 19-20 | ANTS(WET)A 1999 19-25 | ANTS(WET)A 1999 19-25(2) | ANTS(WET)A 1999 19-25(3) | Corporations Act 2001 9 | Corporations Act 2001 127 | Fuel Tax Act 2006 110-5 | ITAA 1997 328-125 | ITAA 1997 328-125(8) | TAA 1953 Pt IIB Div 3 | TAA 1953 Sch1 105-80 | TAA 1953 Sch1 353-10 | TAA 1953 Sch1 388-50 | TAA 1953 Sch1 388-50(1)(c) | TAA 1953 Sch1 388-55 | TAA 1953 Sch1 444-80 | TAA 1953 Sch1 444-80(1) | TAA 1953 Sch1 444-80(1A) | TAA 1953 Sch1 444-80(1A)(b) | TAA 1953 Sch1 444-80(1A)(c) | TAA 1953 Sch1 444-80(1A)(d) | TAA 1953 Sch1 444-80(1B) | TAA 1953 Sch1 444-80(1B)(a) | TAA 1953 Sch1 444-80(1C)(b) | TAA 1953 Sch1 444-80(1D) | TAA 1953 Sch1 444-80(1E) | TAA 1953 Sch1 444-85 | TAA 1953 Sch1 444-85(2) | TAA 1953 Sch1 444-90 | TAA 1953 Sch1 444-90(1) | TAA 1953 Sch1 444-90(1A) | TAA 1953 Sch1 444-90(1A)(b) | TAA 1953 Sch1 444-90(1A)(c) | TAA 1953 Sch1 444-90(1A)(d) | TAA 1953 Sch1 444-90(1B) | TAA 1953 Sch1 444-90(1B)(a) | TAA 1953 Sch1 444-90(1C)(b) | TAA 1953 Sch1 444-90(1D) | TAA 1953 Sch1 444-90(1E) | 81 ATC 4346 | 82 CLR 408 | 132 CLR 671 | 7 ALR 685,PS LA 2011/4 PS LA 2011/6 PS LA 2011/12 PS LA 2011/14 PS LA 2011/15 PS LA 2011/16 PS LA 2011/18 PS LA 2011/20,ANTS(GST)A 1999 48-40(2) | ANTS(GST)A 1999 48-70 | ANTS(GST)A 1999 Div 51 | ANTS(GST)A 1999 51-30 | ANTS(GST)A 1999 51-30(2) | ANTS(GST)A 1999 51-35 | ANTS(GST)A 1999 51-70 | ANTS(GST)A 1999 105-5 | ANTS(GST)A 1999 195-1 | ANTS(LCT)A 1999 27-1 | ANTS(WET)A 1999 33-1 | ANTS(WET)A 1999 Pt 4 Div 19 | ANTS(WET)A 1999 19-15(2) | ANTS(WET)A 1999 19-15(3) | ANTS(WET)A 1999 19-20 | ANTS(WET)A 1999 19-25 | ANTS(WET)A 1999 19-25(2) | ANTS(WET)A 1999 19-25(3) | Corporations Act 2001 9 | Corporations Act 2001 127 | Fuel Tax Act 2006 110-5 | ITAA 1997 328-125 | ITAA 1997 328-125(8) | TAA 1953 Pt IIB Div 3 | TAA 1953 Sch1 105-80 | TAA 1953 Sch1 353-10 | TAA 1953 Sch1 388-50 | TAA 1953 Sch1 388-50(1)(c) | TAA 1953 Sch1 388-55 | TAA 1953 Sch1 444-80 | TAA 1953 Sch1 444-80(1) | TAA 1953 Sch1 444-80(1A) | TAA 1953 Sch1 444-80(1A)(b) | TAA 1953 Sch1 444-80(1A)(c) | TAA 1953 Sch1 444-80(1A)(d) | TAA 1953 Sch1 444-80(1B) | TAA 1953 Sch1 444-80(1B)(a) | TAA 1953 Sch1 444-80(1C)(b) | TAA 1953 Sch1 444-80(1D) | TAA 1953 Sch1 444-80(1E) | TAA 1953 Sch1 444-85 | TAA 1953 Sch1 444-85(2) | TAA 1953 Sch1 444-90 | TAA 1953 Sch1 444-90(1) | TAA 1953 Sch1 444-90(1A) | TAA 1953 Sch1 444-90(1A)(b) | TAA 1953 Sch1 444-90(1A)(c) | TAA 1953 Sch1 444-90(1A)(d) | TAA 1953 Sch1 444-90(1B) | TAA 1953 Sch1 444-90(1B)(a) | TAA 1953 Sch1 444-90(1C)(b) | TAA 1953 Sch1 444-90(1D) | TAA 1953 Sch1 444-90(1E),,Chief Executive Instruction Respecting taxpayers' rights of review (link available internally only) Our Charter,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20136/NAT/ATO/00001,"Summary of ATO collection action against exited entities and exited participants | Collecting from entities other than entities in GST groups and GST joint ventures | APPENDIX: EXAMPLES OF REASONABLE ALLOCATION UNDER AN ITXSA | Updated in line with current ATO style and accessibility requirements. | [1] See sections 444-80 and 444-90. | [2] See subsections 444-80(1) and 444-90(1). | [3] See paragraphs 444-80(1A)(b) and 444-90(1A)(b). | [4] Subsections 444-80(1D) and 444-90(1D). | [5] Subsections 444-80(1D) and 444-90(1D). | [6] See paragraphs 444-80(1A)(c) and 444-90(1A)(c). | [7] While reference in this Practice Statement to a GST group is taken to include reference to a GST joint venture (see paragraph 7 of this Practice Statement), we have also provided a specific illustration of the operation of this method of allocation to GST joint ventures in Example 4 of the Appendix to this Practice Statement. | [8] Paragraphs 444-80(1B)(a) and 444-90(1B)(a). | [9] See subsections 444-80(1B) and 444-90(1B). | [10] See 'Spargo's case' – Re Harmony and Montague Tin and Copper Mining Co. (1873) 8 Ch App 407; Commissioner of Taxation (Cth) v Steeves Agnew & Co (Vic) Pty Ltd [1951] HCA 26; (1951) 82 CLR 408 at [420-421]. | [11] Manzi v Smith [1975] HCA 35; (1975) 49 ALJR 376 at [377]; (1975) 7 ALR 685 at [687-688]; see also Brookton Co-operative Society Ltd v Commissioner of Taxation [1981] HCA 28. | [12] See subsections 444-80(1E) and 444-90(1E). | [14] As defined in section 195-1 of the GST Act. | [15] See sections 51-30 and 51-35 of the GST Act. | File 1-4JBCLHS; 1-14BO2X0M; 1-14BMLFR1 | Brookton Co-operative Society Ltd v Commissioner of Taxation [1981] HCA 28 147 CLR 441 81 ATC 4346 11 ATR 880 | Commissioner of Taxation (Cth) v Steeves Agnew & Co (Vic) Pty Ltd [1951] HCA 26 82 CLR 408 [1952] ALR 29 | Manzi v Smith [1975] HCA 35 132 CLR 671 [1976] CLC 28 49 ALJR 376 7 ALR 685 | Re Harmony and Montague Tin and Copper Mining Co. (1873) 8 Ch App 407"
PS LA 2012/1,Engaging Tax Counsel Network on tax technical issues,10 April 2012,10 April 2012,Law Administration Practice Statement,False,"1. What this Practice Statement is about: This Practice Statement sets out principles for when you must refer a tax technical issue to Tax Counsel Network (TCN) and how to do so. A 'tax technical issue' relates to the interpretation of a law administered by the Commissioner. | 2. When Tax Counsel Network engagement is mandatory: You must engage TCN as early as possible for: • the application of the general anti-avoidance provisions – that is, Part IVA or section 45B of the Income Tax Assessment Act 1936, or similar provisions in any other tax legislation • strategic litigation • all cases where we intend to seek tax technical advice from external counsel or a panel firm (not limited to litigation matters) • perceived U-turns – that is, matters where it is in issue whether the ATO view should be applied prospectively (see Law Administration Practice Statement PS LA 2011/27 Determining whether the ATO's views of the law should be applied prospectively only) • proposed public rulings and practical compliance guidelines or updates to these, except - care and maintenance (link available internally only) or annual product updates, and - class or product rulings covering low or very low-risk technical issues) • any technical issue rated with a medium or higher risk, including those arising in case work, non-strategic litigation and in other public advice or guidance (PAG) products, such as web content or practice statements. • the application of the general anti-avoidance provisions – that is, Part IVA or section 45B of the Income Tax Assessment Act 1936, or similar provisions in any other tax legislation • strategic litigation • all cases where we intend to seek tax technical advice from external counsel or a panel firm (not limited to litigation matters) • perceived U-turns – that is, matters where it is in issue whether the ATO view should be applied prospectively (see Law Administration Practice Statement PS LA 2011/27 Determining whether the ATO's views of the law should be applied prospectively only) • proposed public rulings and practical compliance guidelines or updates to these, except - care and maintenance (link available internally only) or annual product updates, and - class or product rulings covering low or very low-risk technical issues) • any technical issue rated with a medium or higher risk, including those arising in case work, non-strategic litigation and in other public advice or guidance (PAG) products, such as web content or practice statements. - care and maintenance (link available internally only) or annual product updates, and - class or product rulings covering low or very low-risk technical issues) | 3. Assessing the risk of an issue: Business lines assess the risk associated with technical issues using the ATO Risk Management Framework (RMF) (link available internally only). As technical matters may be an enterprise-level risk, the approach should employ the same 6 levels as the RMF (very low, low, medium, high, very high and extreme). The Guide to assessing technical issues for risk and priority (link available internally only) provides a method to help you to gauge the level of risk using the RMF. Where the risk is assessed as 'medium or above', you must engage TCN. | 4. How to engage Tax Counsel Network: The standard procedure for engaging TCN is through a Siebel referral, as set out in How to engage Tax Counsel Network (TCN) (link available internally only). Some work types (usually of lower priority or high volume) may have streamlined engagements. In these cases, referral remains mandatory but the process for the referral or for completing the engagement is streamlined. Streamlined engagements must be authorised by a Deputy Commissioner in TCN. For urgent matters, it may be appropriate for you to directly contact someone in TCN before following with a formal referral. While you may also contact someone in TCN for an informal discussion or assistance, you will need to complete a Siebel referral for any matter that requires more than a nominal investment of TCN time. | 5. Terms used and related information: The terms for risk levels have been updated in this Practice Statement to reflect the changes in the RMF from September 2024. Strategic litigation is defined in Law Administration Practice Statement PS LA 2009/9 Conduct of ATO litigation and engagement of ATO Dispute Resolution. For PAG: • You will need to follow PAG development procedures – end to end (link available internally only), regardless of whether TCN needs to be engaged. • Proposed updates to published PAG are considered care and maintenance when the work will not change any view or position expressed in the product, be it technical or administrative. Any change to an ATO view means the update is not care and maintenance. • You will need to follow PAG development procedures – end to end (link available internally only), regardless of whether TCN needs to be engaged. • Proposed updates to published PAG are considered care and maintenance when the work will not change any view or position expressed in the product, be it technical or administrative. Any change to an ATO view means the update is not care and maintenance. TCN involvement in objections must follow Law Administration Practice Statement PS LA 2023/2 Communication protocols governing ATO objections. Refer to the Risk management CEI for more on our obligation to follow the ERMF.",PS LA 2011/27 | PS LA 2009/9 | PS LA 2023/2 | ITAA 1936 Part IVA | ITAA 1936 45B,PS LA 2009/9 PS LA 2011/27 PS LA 2023/2,ITAA 1936 Part IVA | ITAA 1936 45B,,ATO Risk Management Framework (RMF) (link available internally only) Guide to assessing technical issues for risk and priority (link available internally only) How to engage Tax Counsel Network (TCN) (link available internally only) PAG development procedures – end to end (link available internally only),False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20121/NAT/ATO/00001,"1. What is this Practice Statement about | Updated in line with current ATO style and accessibility requirements. | Terms for risk levels updated to reflect the changes in the ATO Risk Management Framework, from September 2024. | Updated links to Law Administration Practice Statements and internal links to public advice and guidance information. | Updated to new LAPS format and style. | Inserted section on how to ensure TCN independence. | Updated Law and Practice to the Tax Counsel Network. | Removed footnote reference to Legal Services Branch. | Removed law design from the categories of work that are mandatory to come to TCN. | Inserted to acknowledge the role of Integrated Tax Design, and recognise tax design work as having a level of inherent risk sufficient to support engagement of Tax Counsel Network officers. | Revised content to indicate that oversight of TCN priorities will be through the Law Interpretation Forum. | Paragraphs 9 and 10, and other references | Updated name of work allocation, reporting and monitoring team."
PS LA 2012/2,SUBJECT: Change of trustee PURPOSE: To advise ATO staff of the approach to be taken in the raising and recovery of income tax and goods and services tax liabilities of a trust where there is a change of trustee during or following an income year or a tax period.,28 June 2012,28 June 2012,Law Administration Practice Statement,False,"1. Under trust law, all trustees, corporate or otherwise, are: • personally liable for the debts of the trusts they administer [1] , and • entitled to be indemnified out of the trust property for liabilities incurred in the proper exercise of the trustee's powers (except where a breach of trust has occurred). • personally liable for the debts of the trusts they administer [1] , and • entitled to be indemnified out of the trust property for liabilities incurred in the proper exercise of the trustee's powers (except where a breach of trust has occurred). 2. Similarly, for tax purposes, trustees are personally liable for tax debts assessed to them on behalf of a trust. [2] However, a question arises as to which trustee of a trust has a tax-related liability when a change of trustee occurs before or after the time at which the tax-related liability arose. 3. This issue has practical implications in terms of identifying the trustee to whom a notice of assessment should be issued and the form that the notice should take. It also affects the way in which we should seek to recover debts, including how litigation procedures are to apply. 4. Although the definitions of 'trustee' in various taxing Acts are broad enough to include a trustee appointed over the estate of an entity under the Bankruptcy Act 1966 or an external administrator under the Corporations Act 2001, this Practice Statement does not apply where such a trustee or external administrator is replaced due to death, disqualification or for any other reason. 5. In some instances, a former or successor trustee or external administrator may wish to seek our guidance on whether they are liable for a particular tax-related liability as a result of their appointment or otherwise. 6. Given the range of situations that can arise in practice, you should escalate enquiries of this nature to your business line's Technical Leadership and Advice (TLA) area in the first instance. 7. The trustee at the end of the income year or tax period is the entity that has the tax-related liability (as defined in section 255-1 of Schedule 1 to the Taxation Administration Act 1953 ) for income tax or goods and services tax (GST) for that period. This is the case even if there has been a change of trustee during, or after, the relevant income year or tax period. 8. All legislative references in this Practice Statement are to Schedule 1 to the Taxation Administration Act 1953 , unless otherwise indicated. 9. Any notice of assessment should be served on that trustee. | Example 1 – income tax – change of trustee after the end of an income year: 10. Joan Jones is the trustee of the Jones Family Trust (a discretionary trust). During the 2010–11 income year, as trustee she derives interest income. Joan does not appoint any of the income to any objects of the trust (and there are no beneficiaries who benefit as takers in default of appointment). As there are no beneficiaries presently entitled to the income of the trust for the 2010–11 income year, the net income of the trust will be assessed to the trustee. 11. On 2 July 2011, after the end of the 2010–11 income year, Joan retires as trustee and Jones Co becomes the trustee of the trust. The liability for tax in respect of the net income of the trust estate for the 2010–11 income year rests with Joan, although it only becomes payable at a time when she is no longer trustee. | Example 2 – income tax – change of trustee during an income year: 12. Assume the same facts as in Example 1 of this Practice Statement, except that Joan retires as trustee and is replaced by Jones Co on 29 June 2011, before the end of the 2010–11 income year. Neither Joan nor Jones Co is required to pay, pay as you go (PAYG) instalments under Division 45 in relation to the 2010–11 income year. 13. Jones Pty Ltd has the liability for tax in respect of the net income of the trust estate because it is the trustee at the end of the 2010–11 income year, notwithstanding that it was not the trustee when most of the interest income was derived. Jones Co has a tax-related liability in respect of the net income of the trust for the 2010–11 income year, because it was the trustee at the end of that year and no beneficiary was presently entitled to the income of the trust by that time. | Example 3 – GST: 14. The Arnold Family Trust accounts for GST on a quarterly basis. For the tax period ending 30 June 2011, it has a net amount payable and accordingly a tax-related liability arises at that time. Ants Co is the trustee of the trust at the end of the tax period but retires on 1 July 2011 and is replaced by Aardvark Co. Ants Co is the trustee liable for the net amount for the tax period ending 30 June 2011, even though the net amount is not due and payable until 28 July 2011. 15. The time at which any tax-related liability (other than income tax and GST) arises varies according to the legislative provision that imposes the particular liability, which may not be at the end of an income year or a tax period. The entity that is the trustee at the time the particular tax-related liability arises will have that liability. | Example 4 – PAYG withholding: 16. Assume the same facts as in Example 3 of this Practice Statement. Ants Co, in its capacity as trustee of the Arnold Family Trust, makes payments up to 30 June 2011 from which it is required to withhold PAYG amounts under Division 12. Ants Co is liable to pay the withheld amounts to us and is liable for any related penalty for failure to do so, even though the amount is not due to be paid until Aardvark Co has become trustee of the Arnold Family Trust. 17. You must follow the principles and guidelines outlined in this Practice Statement to ensure that a consistent approach is applied in the assessment and recovery of liabilities attributable to trustees. The advice set out in this Practice Statement should be applied in respect of income years and tax periods commencing both before and after its date of issue. 18. However, in cases where a former trustee contests its liability to pay tax on the grounds that its successor as trustee is liable and a time limit of some kind (whether or not it is in the tax law) might inhibit recovery from the succeeding trustee if no further action is taken until that contest is resolved, consideration should be given to joining the successor trustee or taking such other action as is necessary to protect the position of the revenue. 19. If you are uncertain about which trustee should be assessed in relation to tax-related liabilities (other than income tax, GST and PAYG withholding) or have other questions relating to the advice in this Practice Statement, you should escalate the issue to their business line's TLA area in the first instance. | Liability to income tax: 20. Only a legal person can owe a debt and be sued for it. A trust is not a legal person; it is a fiduciary relationship subject to which property is held. [3] It is the trustee of a trust, being a legal person that can incur legal obligations such as debts and other liabilities for the purposes of the trust. [4] 21. Section 255-1 provides that a tax-related liability is a pecuniary liability to the Commonwealth arising directly under a taxation law (including a liability the amount of which is yet to be determined). 22. In situations where a tax-related liability has arisen in respect of a trust but there has been a change of trustee during the year or period to which the liability relates, or following that year or period (before or after the liability becoming payable), a question arises as to which trustee or trustees have the particular tax-related liability. 23. Division 6 of Part III of the Income Tax Assessment Act 1936 (ITAA 1936) (Division 6) contains specific rules for the taxation of the income of trusts. The scheme of Division 6 is that 'net income' (which is broadly the taxable income of the trust) is calculated in respect of a trust estate for a year of income. Liability for income tax in respect of the net income may fall on either the trustee or the beneficiary depending on the extent to which there are beneficiaries presently entitled to the income of the trust estate at the end of the relevant income year. [5] 24. Under Division 6 [6] , a trustee is only liable to pay tax in respect of the net income of a trust estate if: • it is not assessed to a beneficiary (sections 99 and 99A of the ITAA 1936) [7] • a beneficiary who is otherwise assessable is under a legal disability or is a non-resident at the end of the income year (section 98 of the ITAA 1936), or • the trust can be revoked or altered or the trust is for an unmarried minor (section 102 of the ITAA 1936). • it is not assessed to a beneficiary (sections 99 and 99A of the ITAA 1936) [7] • a beneficiary who is otherwise assessable is under a legal disability or is a non-resident at the end of the income year (section 98 of the ITAA 1936), or • the trust can be revoked or altered or the trust is for an unmarried minor (section 102 of the ITAA 1936). 25. 'Net income' is a central concept in Division 6 and is the foundation for determining the liability to tax of either a beneficiary or the trustee. Net income as defined in subsection 95(1) of the ITAA 1936 is the total assessable income of the trust estate calculated as if the trustee were a resident taxpayer in respect of that income less (with some exceptions) all allowable deductions. 26. The net income of a trust estate as defined in section 95 of the ITAA 1936 can only be calculated as at the end of an income year, as it is only at that point in time that it is possible to determine all the assessable income and allowable deductions of the trust for that year. As Barwick CJ observed in Union Fidelity Trustee Co (Aust) Ltd v Commissioner of Taxation [1969] HCA 36 [8] : The time as at which to determine the assessable income of a taxpayer is in general the concluding day of the taxation year. There is no provision which takes the calculation under s. 95 in that respect out of the general scheme of the Act. 27. It is at that time, the close of the income year, when the net income of the trust estate can be assessed to beneficiaries, or to the trustee as described in paragraph 24 of this Practice Statement. [9] Not only is this consistent with the legislative scheme of Division 6, but also with the basic position under the income tax law that a taxpayer's obligation to pay tax comes into existence on 30 June of the year of income in which the income was derived – even though no amount is due and payable and enforceable as a debt until an assessment issues. [10] 28. Consistent with this legislative scheme and basic proposition, where Division 6 operates to impose a liability to tax on the trustee of a trust estate, it is the entity which held the office of trustee at the end of the relevant income year which is the entity to be assessed and liable to pay tax. | Liability to GST: 29. For GST purposes, every entity that is registered (or required to be registered) under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) has a tax period that applies to it. The trustee of a trust is taken to be an entity consisting of the person or persons who are the trustees at any given time. [11] The general rule set out in section 27-5 of the GST Act is that an entity has 3-month tax periods ending on 31 March, 30 June, 30 September and 31 December in any year. 30. Although GST is payable by an entity on its taxable supplies [12] , this does not create or fix a discrete liability at the time each supply is made. Rather, the sum of the GST payable on all taxable supplies attributable to a tax period is a component in the formula for working out the net amount for the tax period under section 17-5 of the GST Act. It is only at the close of the relevant tax period that amounts of GST on taxable supplies and input tax credits can be netted off so as to determine what the net amount for that period is. 31. Section 7-15 of the GST Act provides that the 'net amount' (generally being the difference between the sum of GST payable and any entitlements to input tax credits) [13] or, in the case of tax periods commencing on or after 1 July 2012, the assessed net amount which an entity has for a tax period is the amount that the entity must pay to the Commonwealth or the Commonwealth must refund to the entity in respect of that period. 32. It is also the net amount or (in the case of tax periods commencing on or after 1 July 2012) the amount assessed as being the net amount, and not whatever GST is payable on individual taxable supplies, which is listed in table item 5 of subsection 250-10(2) as being a tax-related liability arising under the GST Act. 33. It follows from this legislative scheme that a liability in respect of a net amount arises at the end of the relevant tax period and, consistent with the position that applies for income tax purposes, it is this liability which attaches to the trustee who was the trustee at that time. [14] | The indirect tax self-assessment regime: 34. The indirect tax self-assessment regime commenced on 1 July 2012. Under this regime, the Commissioner of Taxation is treated as having made an assessment of the net amount for a tax period when the GST return for that tax period is lodged. [15] 35. Section 31-5 of the GST Act requires that, if an entity is registered or required to be registered for GST purposes, it must give to us a GST return for each tax period. This provision imposes a lodgment obligation on each 'entity' as defined in section 184-1 of the GST Act, including each 'trust'. The legal obligation imposed on a trust to lodge GST returns falls to be performed by the person who is trustee of the trust at any given time. 36. It is the trustee who is in office at the end of the relevant tax period which is required to lodge the GST return for that period. It follows that it is that same trustee who is treated as having been given a notice of assessment of the net amount for that tax period. [16] It is that same trustee who becomes liable to pay the 'assessed net amount' for that tax period by the due date. | Summary of position for income tax and GST: 37. There is no basis to impose liability for income tax or GST on the person who is the trustee at some later time, including at the time when an assessment is issued or an amount becomes payable. Section 250-5 makes it clear that a tax-related liability may arise for an entity before it becomes due and payable. In an income tax context, the issue and service of a notice of assessment does not give rise to the obligation to pay income tax. A notice of assessment simply makes the obligation to pay income tax a debt due to the Commonwealth and payable to the Commissioner. For GST purposes, a liability arises at the end of a tax period notwithstanding that payment of a net amount becomes due and payable at a later time (generally on the 21st day of the month following the end of a tax period). 38. This approach is also generally consistent with the equitable principles that apply where there has been a change of trustee. As a matter of general trust law, the authorities establish that a trustee's right of indemnity does not cease upon retirement. [17] Accordingly, where a trustee retires and a new trustee is appointed (and holds all trust assets), except in cases where a breach of trust is concerned, the former trustee is entitled to be indemnified out of the assets of the trust fund in respect of liabilities it incurred as trustee. [18] In practice, a new trustee will often be required to acknowledge this indemnity as a condition of the transfer of the trust assets to itself as the new trustee. 39. A change in the trustee of a trust does not give rise to an assumption by the new trustee of outstanding liabilities that have arisen in relation to the trust. In the ordinary case, a new trustee is not personally subject to the liabilities incurred by the former trustee. [19] Even if a new trustee did become personally liable to pay an amount to the former trustee as a result of the way in which the new trustee dealt with the trust property that would not provide a statutory basis for us to impose a liability on the new trustee directly. Our rights are against the trustee who is liable and any rights against the new trustee will be only by way of enforcement of or subrogation to the rights of the liable trustee. 40. While the matter is not free from doubt, we do not consider that the trust entity provisions in the Income Tax Assessment Act 1997 [20] and the GST law [21] confer rights against a new trustee who has replaced a liable trustee. Those provisions are intended to ensure that a trust is treated as a continuous economic entity for the purpose of calculating the amount of tax payable in respect of that trust, and attributing it to the liable trustee, notwithstanding that there may have been a change of trustee. [22] We do not consider that those provisions change the incidence of any tax-related liability of a liable trustee or make a later trustee concurrently liable. [23] | Liability to PAYG withholding: 41. Where there is a change of trustee during a tax period, it will also be necessary to establish which trustee is liable for any PAYG withholding debt or any estimates of the amounts not remitted that we may have made. 42. Section 16-70 states that an entity that withholds an amount under Division 12 must pay the amount to us in accordance with Subdivision 16-B. Division 268 enables us to make estimates of amounts not remitted as required under the PAYG withholding provisions in Part 2-5 and to recover on the basis of the estimates. Section 268-20 states that an entity must pay us the amount of the estimate if we give a notice of the estimate in accordance with section 268-15. The amount of the estimate is due and payable when we give notice of the estimate to an entity. 43. Section 16-75 sets out the due date for payment of PAYG withholding. The due date differs depending on whether the entity is a large, medium or small withholder. However, for all classifications of withholders, the due date is determined by reference to an amount the entity withholds during a particular month. 44. It is the trustee who withheld an amount applicable to any particular withholding event during any month who has a liability in respect of the unremitted PAYG withholding. Any liability for amounts due under an estimate falls on the trustee who is believed to have withheld the unremitted PAYG withholding. 45. Notwithstanding that the liability for PAYG withholding is not imposed by the giving of a notice of assessment, it may be useful to serve a demand letter on the correct trustee as a prelude to any legal recovery action. A copy of such demand letter should also be given to the successor trustee (as the correct trustee may be entitled to indemnity by way of exoneration or recoupment from trust assets which the successor trustee holds). | Director penalties: 46. The object of Division 269 is to impose a duty on directors of companies to ensure that a company: • meets its obligations to remit amounts deducted under Subdivision 16-B or pay estimates of those liabilities under Division 268, or • has an administrator appointed (under sections 436A, 436B or 436C of the Corporations Act 2001) or begins to be wound up. [24] • meets its obligations to remit amounts deducted under Subdivision 16-B or pay estimates of those liabilities under Division 268, or • has an administrator appointed (under sections 436A, 436B or 436C of the Corporations Act 2001) or begins to be wound up. [24] 47. These duties are enforced by penalties equal to the unpaid amount of the company's obligations (section 269-20). The penalty amounts are then applied towards meeting the company's obligations. 48. In the context of a corporate trustee, where a change of trustee has occurred during a particular month, liability for the PAYG withholding amounts withheld would fall on the corporate trustee in office at the time the withholding event occurred. In terms of section 269-20, any director of the corporate trustee who was in office at any time between the date the withholding event occurred and the due date for payment of that amount who fails to meet the requisite obligations would be liable to a penalty. Further, any new director of the corporate trustee appointed after the due date for payment of the PAYG withholding amounts withheld would also become liable to a penalty under subsection 269-20(3) if they fail to comply with their obligations to remit those amounts within 14 days of the date of their appointment. | Styling and service of notices of assessments: 49. It is our standard practice to issue notices of income tax assessments to a trustee styled in the form 'The Trustee of XXX trust' and not in the name of the trustee. That approach is supported by the decision of the High Court in Commissioner of Taxation v Prestige Motors Pty Ltd [1994] HCA 39. 50. However, where there has been a change of trustee after the end of an income year and we are aware of the identity of both the former and successor trustee, the notice of assessment should be addressed to the trustee by name, as trustee of the relevant trust at the end of the relevant income year as follows: XYZ Co in its capacity as trustee as at 30 June XXXX of the XXX trust. 51. As the principal purpose of a notice of assessment is to bring to the attention of the person on whom it is served that such person is liable to pay on the due date the amount of tax assessed in the notice on the income stated in the notice [25] , this process will ensure that the correct person is made aware that the notice of assessment is intended for them and that service of the notice of assessment has occurred in accordance with subsection 174(1) of the ITAA 1936. 52. A copy of the notice of assessment served on the former trustee should also be given to the successor trustee with a covering letter advising that the original notice has been served on the former trustee. This will put the successor trustee on notice that the former trustee may have a claim against the trust property arising from their right of indemnity. To this end, you should exercise care in ensuring that the original and copy of any assessment to be served in those circumstances are posted to the respective trustee's correct address for service as prescribed by section 14 of the Taxation Administration Regulations 2017 . 53. The same process described for income tax should be followed in styling notices of assessment for GST. | System deficiency and work around: 54. Our computer systems may not always support the process prescribed in this Practice Statement for styling notices to current and former trustees. Accordingly, the styling of notices may need to be manually executed. | Recovery of tax liabilities from trustees: 55. Once the tax liability has been properly attributed or assessed to the correct trustee, recovery proceedings can be pursued in the normal course (see, for example, Direen v D.C.T [2007] FMCA 895). 56. As mentioned in this Practice Statement, a trustee is personally liable for debts incurred as trustee in the administration of a trust fund. A right of indemnity out of the trust estate arises concurrently with the incurring of such a liability. It may take the form of a right to reimburse itself for expenses reasonably and properly incurred ('a right of recoupment') or that of a right to pay expenses out of the trust fund ('a right of exoneration'). [26] For the purpose of enforcing the indemnity, the trustee possesses a charge or right of a lien over those assets. [27] The nature of a trustee's rights was explained by the High Court in Chief Commissioner of Stamp Duties (NSW) v Buckle [1998] HCA 4 at [50] (footnotes omitted): ... The term ""trust assets"" may be used to identify those held by the trustee upon the terms of the trust, but, in respect of such assets, there exist the respective proprietary rights, in order of priority, of the trustee and the beneficiaries. The interests of the beneficiaries are not ""encumbered"" by the trustee's right of exoneration or reimbursement. Rather, the trustee's right to exoneration or recoupment ""takes priority over the rights in or in reference to the assets of beneficiaries or others who stand in that situation"". A court of equity may authorise the sale of assets held by the trustee so as to satisfy the right to reimbursement or exoneration. In that sense, there is an equitable charge over the ""trust assets"" which may be enforced in the same way as any other equitable charge. However, the enforcement of the charge is an exercise of the prior rights conferred upon the trustee as a necessary incident of the office of trustee. It is not a security interest or right which has been created, whether consensually or by operation of law, over the interests of the beneficiaries so as to encumber them in the sense required by s 66(1) of the [Stamp Duties] Act. 57. The right of indemnity of a former trustee is not extinguished by replacement, resignation or retirement. [28] This right persists even after the trustee has lost possession of the trust assets. [29] The former trustee's right of indemnity may therefore be enforced by a liquidator of the former trustee or trustee in bankruptcy of the former trustee [30] on behalf of the creditors of the former trustee. 58. You should be mindful that a common law judgment against a trustee for a sum or debt, whether incurred personally or as trustee, cannot be enforced directly by common law execution levied by the judgment creditor upon trust assets. [31] However, we (along with other creditors of the trustee) are entitled to be subrogated to the rights of the trustee to indemnity out of the trust fund. 59. Accordingly, where the tax liability attaches to a former trustee, we are entitled to commence proceedings against the trustee and proceed to judgment and execution against the trustee's personal assets. If this proves fruitless, we may seek to be subrogated to the trustee's right of indemnity against the trust property. 60. As a general principle, recovery action should be initiated by way of issue of a letter of demand for payment of the relevant tax liability to the former trustee with a copy being served on the successor trustee. 61. Non-compliance with the letter of demand should lead to the issue of a summons or writ in civil proceedings against the former trustee. Legal action should then proceed to judgment and execution against the former trustee's personal assets. Where the trustee does not have sufficient assets to satisfy the debt, we should seek to be subrogated to the trustee's right of indemnity either through his own application or through the agency of a liquidator or trustee in bankruptcy. | When subrogation is available: 62. Subrogation is an equitable remedy by which rights are transferred from one person to another by operation of law. As an equitable remedy, it will only be granted in appropriate circumstances. [32] 63. The effect of the grant of a remedy of subrogation to us in a trust context is that we, along with other unsecured trust creditors of the former trustee, would stand in the shoes of the former trustee. We can, therefore, have no higher right than the former trustee's right of indemnity as secured by the equitable lien or charge, and can claim no greater amount than the trustee can claim. 64. Accordingly, where the balance of account between trustee and beneficiary turns out to be not in favour of the trustee, we may have no right of subrogation. [33] 65. It is not necessary for a trust creditor to pursue their common law or other rights to judgment before they can be subrogated to the trustee's indemnity against the estate. If the creditor has demanded payment from the trustee and has failed to receive payment and the circumstances are such as to lead to the reasonable conclusion that a judgment, if obtained, would be fruitless, then a subrogatory remedy may be granted. 66. The principal way of establishing that a judgment against the trustee, if obtained, would be fruitless is to show that: (a) we have demanded payment from the trustee but has failed to receive payment, and (b) the trustee's personal assets would be insufficient to meet the tax debt. (a) we have demanded payment from the trustee but has failed to receive payment, and (b) the trustee's personal assets would be insufficient to meet the tax debt. 67. The value of the trust assets is not to be taken into account in this analysis; the question is whether a judgment against the trustee can be met without recourse to those assets. The value of the trustee's right of indemnity is also not to be taken into account for this purpose, given that it is the right in relation to which we seek subrogation. 68. Alternatively, if the trustee is insolvent, it would also follow that an attempt to recover the debt would be fruitless. There may also be other circumstances in which a judgment against a trustee might be considered fruitless, therefore each case will have to be considered on its own particular facts. 69. Where liability for the tax debt falls on a former trustee, the originating process for subrogation would require us to issue proceedings in their own name in the Equity Division of the relevant court of competent jurisdiction against the former trustee, seeking declaratory relief by way of subrogation to the right of the former trustee to be indemnified out of the trust assets. The current trustee (who is the legal owner of the trust assets) is also a necessary respondent in such a proceeding (see Jacobs' Law [34] at [2112], cited with approval by McMurdo J in Arkmill Pty Ltd v Tippers & Co Pty Ltd [2006] QSC 248). 70. It would not be strictly necessary to join the beneficiaries of the trust or other creditors of the trust in such a proceeding, although there may be cases where it will be appropriate to join those parties (or a representative party to ensure their interests are represented). 71. In Jacobs' Law [35] at [2112], it is said that the better view is that the subrogation should be enforced only in proceedings to which creditor, trustee and beneficiary are parties. The rationale is that a creditor can be no better off than the trustee and where the final balance of account between the trustee and beneficiary has not been ascertained, subrogation should only be enforced in proceedings to which the beneficiary is a party. In those circumstances, it would therefore be proper to join the beneficiary, or a representative party, where there are numerous beneficiaries in the same interest. 72. It is expected that, in such proceedings, the court would make the appropriate orders with respect to the subrogation of the right to the indemnity to ensure that the equitable remedy of subrogation is shared by the unsecured creditors of the trustee so that, in effect, we are not given a priority over other unsecured creditors of the trustee. While a trustee's right of recoupment gives rise to a 'priority in the further administration of the trust' [36] , it is not a priority over other creditors; it is only a priority over the right of the beneficiaries to receive trust assets. [37] 73. In some high-risk cases, it may be necessary for us to also seek the appointment of a receiver or a provisional liquidator to protect the trust assets. 74. Accordingly, where the trustee is already bankrupt or in liquidation, it may be cost-effective for the trustee in bankruptcy or liquidator to claim subrogation of the trustee's right of indemnity on behalf of all the creditors of the trustee. The High Court observed in Octavo that in the event of the trustee's bankruptcy, the creditors will be subrogated to the beneficial interest enjoyed by the trustee. It followed that the beneficial interests which, by subrogation, the creditors have in the assets held by a bankrupt trustee form part of the property of the bankrupt divisible among his creditors. 75. Given the complexity of the matters outlined in this Practice Statement, it is recommended that staff dealing with the recovery of tax liabilities from a former trustee seek advice from their business line's TLA area in the first instance.",ANTS(GST)A 1999 7-1 | ANTS(GST)A 1999 7-15 | ANTS(GST)A 1999 17-5 | ANTS(GST)A 1999 17-5(1) | ANTS(GST)A 1999 27-5 | ANTS(GST)A 1999 31-5 | ANTS(GST)A 1999 184-1 | ANTS(GST)A 1999 184-1(2) | ITAA 1936 Pt III Div 6 | ITAA 1936 Pt III Div 6E | ITAA 1936 95 | ITAA 1936 95(1) | ITAA 1936 95A | ITAA 1936 98 | ITAA 1936 99 | ITAA 1936 99A | ITAA 1936 101 | ITAA 1936 102 | ITAA 1936 174(1) | ITAA 1936 254 | ITAA 1997 115-228(1)(c) | ITAA 1997 960-100(2) | TAA 1953 Sch 1 Div 12 | TAA 1953 Sch 1 Subdiv 16-B | TAA 1953 Sch 1 16-70 | TAA 1953 Sch 1 16-75 | TAA 1953 Sch 1 Div 45 | TAA 1953 Sch 1 155-15(1) | TAA 1953 Sch 1 155-15(4) | TAA 1953 Sch 1 250-5 | TAA 1953 Sch 1 250-10(2) | TAA 1953 Sch 1 255-1 | TAA 1953 Sch 1 Div 268 | TAA 1953 Sch 1 268-15 | TAA 1953 Sch 1 268-20 | TAA 1953 Sch 1 Div 269 | TAA 1953 Sch 1 269-20 | TAA 1953 Sch 1 269-20(3) | Taxation Administration Regulations 2017 14 | Bankruptcy Act 1966 | Corporations Act 2001 | Corporations Act 2001 436A | Corporations Act 2001 436B | Corporations Act 2001 436C | Corporations Act 2001 Pt 5.6 Div 1A | Stamp Duties Act (NSW) 1920 66(1) | Trusts Act 1973 (Qld) 15 | [2006] QSC 248 | 2008 ATC 20-074 | 98 ATC 4097 | 94 ATC 4774 | 86 ATC 4885 | 94 ATC 4570 | (1992) 7 WAR 537 | (1992) 6 ACSR 748 | 2005 ATC 2009 | [2007] WASC 304 | [2013] FCA 1125 | [1984] 1 Qd R 388 | 2007 ATC 2794 | 68 FCR 39 | 149 ALR 113 | 144 CLR 360 | (1979) 27 ALR 129 | (1979) 54 ALJR 87 | (1979) 4 ACLR 575 | (1987) 12 ACLR 54 | (1996) 134 FLR 368 | [2012] NSWSC 616 | 86 CLR 506 | 10 ATD 9 | 69 ATC 4084 | [1945] HCA 37,,ANTS(GST)A 1999 7-1 | ANTS(GST)A 1999 7-15 | ANTS(GST)A 1999 17-5 | ANTS(GST)A 1999 17-5(1) | ANTS(GST)A 1999 27-5 | ANTS(GST)A 1999 31-5 | ANTS(GST)A 1999 184-1 | ANTS(GST)A 1999 184-1(2) | ITAA 1936 Pt III Div 6 | ITAA 1936 Pt III Div 6E | ITAA 1936 95 | ITAA 1936 95(1) | ITAA 1936 95A | ITAA 1936 98 | ITAA 1936 99 | ITAA 1936 99A | ITAA 1936 101 | ITAA 1936 102 | ITAA 1936 174(1) | ITAA 1936 254 | ITAA 1997 115-228(1)(c) | ITAA 1997 960-100(2) | TAA 1953 Sch 1 Pt 2-5 | TAA 1953 Sch 1 Div 12 | TAA 1953 Sch 1 Subdiv 16-B | TAA 1953 Sch 1 16-70 | TAA 1953 Sch 1 16-75 | TAA 1953 Sch 1 Div 45 | TAA 1953 Sch 1 155-15(1) | TAA 1953 Sch 1 155-15(4) | TAA 1953 Sch 1 250-5 | TAA 1953 Sch 1 250-10(2) | TAA 1953 Sch 1 255-1 | TAA 1953 Sch 1 Div 268 | TAA 1953 Sch 1 268-15 | TAA 1953 Sch 1 268-20 | TAA 1953 Sch 1 Div 269 | TAA 1953 Sch 1 269-20 | TAA 1953 Sch 1 269-20(3) | Taxation Administration Regulations 2017 14 | Bankruptcy Act 1966 | Corporations Act 2001 | Corporations Act 2001 436A | Corporations Act 2001 436B | Corporations Act 2001 436C | Corporations Act 2001 Pt 5.6 Div 1A | Stamp Duties Act (NSW) 1920 66(1) | Trusts Act 1973 (Qld) 15,,"Hayton, D, Matthews, P, Mitchell, C (2007) Underhill and Hayton Law relating to trusts, LexisNexis Butterworths, AustraliaMeagher, RP, McGummow, W (1997) Jacobs' Law of Trusts in Australia, 6th edn Butterworths, AustraliaParkinson, P (1996) The Principles of Equity, 1st edn, Law Book Co of Australasia, AustraliaParkinson, P (2003) The Principles of Equity 2nd edn, Thomson Reuters, Australia",False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20122/NAT/ATO/00001,"Content checked for technical accuracy and currency. Updated in line with current ATO style and accessibility requirements. | Amended to articulate the ATO position under the indirect taxes self-assessment regime. | [1] Vacuum Oil Company Pty Ltd v Wiltshire [1945] HCA 37 ( Vacuum Oil ); Octavo Investments Pty Ltd v Knight [1979] HCA 61. | [2] Section 254 of the Income Tax Assessment Act 1936 . | [3] See Hayton, D, Matthews, P, Mitchell, C (2007) Underhill and Hayton Law relating to trusts , LexisNexis Butterworths, Australia p. 2; Commissioner of State Taxation v Merifield Cooksey Holdings Pty Ltd & Anor [1994] WASC 600 at [26]; David Christie as Trustee for the Moreton Bay Trading Company and Commissioner of Taxation [2004] AATA 1396 at [22-23]. | [4] See, for example, Labouchere v Tupper (1857) 14 ER 670, Deancrest Nominees Pty Ltd v Nixon [2007] WASC 304 in particular at [5] and [36], per Newnes J. | [5] See Colonial First State Investments Limited v Commissioner of Taxation [2011] FCA 16 at [32], together with sections 95A and 101 of the ITAA 1936. | [6] Subject to Division 6E of Part III of the ITAA 1936. | [7] With appropriate modifications for so much of the net income as is not attributable to sources in Australia in respect of which a non-resident beneficiary (or the trustee in respect of a non-resident beneficiary) would otherwise be assessed. | [8] This observation is also consistent with the High Court's reasoning in Commissioner of Taxation v Galland [1986] HCA 83. | [9] An obligation generally arises under Division 6 at this time, even though in some cases the quantification of that obligation may be altered by the operation of Division 6E of Part III of the ITAA 1936. However, in some cases, whether or not the trustee has a liability at all cannot be determined until after the end of the income year. For example, where the net income of the trust estate for an income year is less than or equal to the net capital gain of the trust estate in that year, the operation of Division 6E and paragraph (c) of the definition of 'share of net financial benefit' in subsection 115-228(1) of the Income Tax Assessment Act 1997 may mean that whether or not the trustee has a liability at all cannot be determined until 2 months after the end of the income year. Such cases should be escalated to the relevant business line's TLA area in the first instance. | [10] In Commissioner of Taxation v H [2010] FCAFC 128, the Full Federal Court found that an obligation to pay tax is a present legal obligation as at the end of the financial year and arises independently of the issue of a notice of assessment (see [39-41]). | [11] Subsection 184-1(2) of the GST Act. | [12] See section 7-1 of the GST Act. | [13] Subsection 17-5(1) of the GST Act. | [14] See also Eskdale South Cattle Company Pty Ltd v Deputy Commissioner of Taxation [2013] FCA 1125 at [21], where Logan J said that a trustee's GST liability for tax a period crystallised at the end of that period. | [15] Subsection 155-15(1). | [16] Subsection 155-15(4). | [17] Heerey J in Leo Dimos trading as Leo Dimos & Associates v Dikeakos Nominees Pty Ltd [1996] FCA 590; 68 FCR 39 at [43]. | [18] See, for example, Re Indopal Pty Ltd (1987) 12 ACLR 54 at [58]; 5 ACLC 278 at [280-281]. | [19] McMurdo J in Arkmill Pty Ltd v Tippers & Co Pty Ltd [2006] QSC 248. | [20] Subsection 960-100(2) of the Income Tax Assessment Act 1997 . | [21] Subsection 184-1(2) of the GST Act. | [22] See, for example, AXA Asia Pacific Holdings Limited v Commissioner of Taxation [2008] FCA 1834 at [110]. | [23] However, compare Keenhilt Pty Ltd as trustee for the CHC Services Trust and Commissioner of Taxation [2007] AATA 2095 at [5]. | [24] See Part 5.6 of Division 1A of the Corporations Act 2001 . | [25] Taxation , Commissioner of v Bayly [1952] HCA 31. | [26] See Vacuum Oil ; Custom Credit Corporation Limited v Ravi Nominees Pty Ltd (1992) 8 WAR 42 at [52]. | [27] See Octavo Investments Pty Ltd v Knight [1979] HCA 61; 144 CLR 360 at [367]. | [28] Leo Dimos trading as Leo Dimos & Associates v Dikeakos Nominees Pty Ltd [1996] FCA 590; 68 FCR 39 at [43], per Heerey J, citing Coates v McInerney (1992) 6 ACSR 748. | [29] Whether because they have vested in the new trustee by operation of the relevant state legislation (for example, section 15 of the Trusts Act 1973 (Qld)) or because they have been effectively transferred or assigned to the new trustee (for example, Statewide Developments Pty Ltd v Azure Property Group (Holdings) Pty Ltd [2012] NSWSC 616). | [30] See Octavo Investments Pty Ltd v Knight [1979] HCA 61; 144 CLR 360 at [369-370]. | [31] Re Morgan ; Pillgrem v Pillgrem (1881) 18 Ch D 93 at [101]; Jennings v Maher [1901] 1 KB 108; General Credits Ltd. v Tawilla Pty. Ltd. [1984] 1 QD R 388. | [32] See Parkinson, P (1996) The Principles of Equity , 1st edn, Law Book Co of Australasia, Australia, p.551 and Parkinson, P (2003) The Principles of Equity 2nd edn, Thomson Reuters, Australia, p.557 for a list of situations where equity will not grant a subrogatory remedy; the former cited with approval by Young J in Re Trivan Pty Ltd (1996) 134 FLR 368. | [33] Meagher, RP, McGummow, W (1997) Jacobs' Law of Trusts in Australia , 6th edn, Butterworths, Australia, p.2112. | [34] Meagher, RP, McGummow, W (1997) Jacobs' Law of Trusts in Australia , 6th edn, Butterworths, Australia. | [35] Meagher, RP, McGummow, W (1997) Jacobs' Law of Trusts in Australia , 6th edn, Butterworths, Australia. | [36] Chief Commissioner of Stamp Duties (NSW) v Buckle [1998] HCA 4; 192 CLR 226 at [246]. | [37] Vacuum Oil 72 CLR 319 at [335]; Octavo Investments Pty Ltd v Knight [1979] HCA 61; 144 CLR 360 at [369-370]. | File 1-3UMPMKZ; 1-54SA6AO; 1-145HH20Q; 1-HCEPMON | AXA Asia Pacific Holdings Limited v Commissioner of Taxation [2008] FCA 1834 173 FCA 1834 2008 ATC 20-074 71 ATR 1 | Chief Commissioner of Stamp Duties (NSW) v Buckle [1998] HCA 4 192 CLR 226 98 ATC 4097 37 ATR 393 | Colonial First State Investments Limited v Commissioner of Taxation [2011] FCA 16 192 FCR 298 2011 ATC 20-235 81 ATR 772 | Commissioner of State Taxation (WA) v Merifield Cooksey Holdings Pty Ltd & Anor 94 ATC 4774 30 ATR 21 | Commissioner of Taxation v Galland [1986] HCA 83 162 CLR 408 86 ATC 4885 18 ATR 33 | Commissioner of Taxation v H [2010] FCAFC 128 188 FCR 440 2010 ATC 20-128 | Commissioner of Taxation v Prestige Motors Pty Ltd [1994] HCA 39 181 CLR 1 94 ATC 4570 28 ATR 336 | Coates v McInerney (1992) 7 WAR 537 (1992) 6 ACSR 748 (1992) 10 ACLC 616 | Custom Credit Corporation Limited v Ravi Nominees Pty Ltd (1992) 8 WAR 42 | David Christie as Trustee for the Moreton Bay Trading Company and Commissioner of Taxation [2004] AATA 1396 2005 ATC 2009 58 ATR 1142 | Deancrest Nominees Pty Ltd v Nixon [2007] WASC 304 25 ACLC 1681 | Eskdale South Cattle Company Pty Ltd v Deputy Commissioner of Taxation [2013] FCA 1125 | General Credits Ltd. v Tawilla Pty. Ltd. [1984] 1 Qd R 388 | Jennings v Maher [1901] 1 KB 108 | Keenhilt Pty Ltd as trustee for the CHC Services Trust [2007] AATA 2095 2007 ATC 2794 67 ATR 988 | Labouchere v Tupper (1857) 14 ER 670 (1857) 11 Mood CC 198 | Leo Dimos trading as Leo Dimos & Associates v Dikeakos Nominees Pty Ltd [1996] FCA 590 68 FCR 39 149 ALR 113 | Octavo Investments Pty Ltd v Knight [1979] HCA 61 144 CLR 360 (1979) 27 ALR 129 (1979) 54 ALJR 87 (1979) 4 ACLR 575 | Re Indopal Pty Ltd (1987) 12 ACLR 54 (1987) 5 ACLC 278 | Re Morgan; Pillgrem v Pillgrem (1881) 18 Ch D 93 | Re Trivan Pty Ltd (1996) 134 FLR 368 (1996) 14 ACLC 1654 | Statewide Developments Pty Ltd v Azure Property Group (Holdings) Pty Ltd [2012] NSWSC 616 | Taxation, Commissioner of v Bayly [1952] HCA 31 86 CLR 506 [1952] ALR 519 10 ATD 9 | Union Fidelity Trustee Co (Aust) Ltd v Commissioner of Taxation [1969] HCA 36 119 CLR 177 69 ATC 4084 1 ATR 200 | Vacuum Oil Company Pty Ltd v Wiltshire [1945] HCA 37 72 CLR 319 14 ABC 79 [1946] ALR 50"
PS LA 2012/3,Determining and applying quotas under the Excise Act 1901,19 July 2012,19 July 2012,Law Administration Practice Statement,False,"1. What this Practice Statement is about: Under section 59 of the Excise Act 1901 (Excise Act), a licensed manufacturer or owner of excisable goods pays duty on goods they enter for home consumption at the rate in force on the earlier of the day: • the goods are delivered into home consumption, or • the duty is paid. • the goods are delivered into home consumption, or • the duty is paid. However, in some instances, people may seek to reduce their duty liability by anticipating increases in the rate of excise duty and entering more excisable goods in a period than they otherwise would. Therefore, to protect the revenue and to prevent competitive advantages being obtained in those instances, the Commissioner [1] is provided discretion under section 59A of the Excise Act to: • declare that a period is a declared period during which quotas can be imposed, and • make a quota order (during that declared period) that specifies the amount of excisable goods that a person may enter for home consumption. • declare that a period is a declared period during which quotas can be imposed, and • make a quota order (during that declared period) that specifies the amount of excisable goods that a person may enter for home consumption. If a person exceeds their quota amount during a declared period, the rate of duty they pay on the excess goods is the rate in force on the day after the end of the declared period. [2] This Practice Statement provides guidelines on exercising this discretion and how the quota orders are administered. All legislative references in this Practice Statement are to the Excise Act, unless otherwise indicated. | 2. Method for imposition of a quota order: The imposition of a quota order is a 2-step process, as follows: • We publish a notice in the Commonwealth of Australia Gazette [3] (published on the Federal Register of Legislation) specifying the declared period, the kind of goods to which the declared period relates and a base period. [4] • We make quota orders specifying the amount of quota for specified people for the declared period. The amount can be a specified quantity or a nil amount. • We publish a notice in the Commonwealth of Australia Gazette [3] (published on the Federal Register of Legislation) specifying the declared period, the kind of goods to which the declared period relates and a base period. [4] • We make quota orders specifying the amount of quota for specified people for the declared period. The amount can be a specified quantity or a nil amount. Recommending imposition of a quota order Only Deputy Commissioners or Assistant Commissioners in the Small Business – Excise Experience business line are delegated to make the declaration. A written recommendation should be prepared for the delegate, setting out all the relevant facts and circumstances to enable an objective assessment. See section 7 of this Practice Statement for the types of factors that should be considered. Service of a quota order As soon as practicable after making a quota order applicable to a person, we must serve a copy of the quota order on that person. [5] In doing so, remember that quota orders contain commercially sensitive information, so you must ensure appropriate procedures for handling sensitive information are followed. In the case of a natural person, service can be made by: • personally delivering a copy of the quota order, or • leaving a copy of the quota order at, or sending the quota order by prepaid post to, the address of the person's last known place of residence or place of business. [6] • personally delivering a copy of the quota order, or • leaving a copy of the quota order at, or sending the quota order by prepaid post to, the address of the person's last known place of residence or place of business. [6] In the case of a company, service can be made by leaving a copy of the quota order at or sending it by prepaid post to: • the head office • a registered office, or • a principal office of the company. [7] • the head office • a registered office, or • a principal office of the company. [7] While the service of the quota order must be by one of those methods, the quota order can be brought to the attention of the person by other means, such as phone or email. Record keeping Full records of the decision-making process must be maintained. This includes the date of service and the date the quota order was brought to the attention of the person, if this was done. | 3. Providing advice on declarations and quota orders: You are permitted to provide impacted taxpayers with an indication that a declared period will be notified or a quota order made. The information should be qualified as not being a final decision and taxpayers should be informed that anyone who acts inappropriately in the interim may have any quota amount reduced to account for excess deliveries. | 4. Taking security: Although it is not our general practice to do so, if a person exceeds their quota amount during a declared period, we have the right to require a security before passing an entry for home consumption. [8] We will normally only do this if it is considered necessary in particular circumstances. The amount of such a security is the amount of duty payable on the goods or on the excess goods (over their quota) on the day that they are entered. [9] Any security taken applies in addition to the duty that is payable on the goods. | 5. Varying or revoking a quota order: A quota order can be varied or revoked at any time before the later of [10] : • the end of the declared period, or • 60 days after the quota order is served on the person. • the end of the declared period, or • 60 days after the quota order is served on the person. The variation or revocation can be either at the request of the person or made on our own initiative. A request for a variation or revocation by a person for straightforward issues such as calculation errors can be made verbally. However, if the request is complex, you should require it to be in writing. Any complex requests for variation or revocation should be escalated to a delegated decision-maker (see section 2 of this Practice Statement) as a written recommendation that sets out the relevant facts and circumstances that are needed to enable an objective assessment. The factors that may be relevant in making the recommendation include (but are not limited to): • the quantity of goods (if any) of the kind to which the quota order relates that were entered for home consumption during the base period (or other relevant period) • changes in delivery patterns • changes in the market • increases in client base • changes in business structure • potential errors in calculations, and • risks to revenue. • the quantity of goods (if any) of the kind to which the quota order relates that were entered for home consumption during the base period (or other relevant period) • changes in delivery patterns • changes in the market • increases in client base • changes in business structure • potential errors in calculations, and • risks to revenue. A variation or revocation of a quota order needs to be in writing and served in the same way as the original quota order (see section 2 of this Practice Statement). Full records of the variation or revocation need to be maintained. | 6. Reconciliation of duty payments: When the declared period is in advance of an indexation increase The following reconciliation needs to take place when the declared period is in advance of an indexation increase. [11] At the end of the declared period, the amount of goods entered for home consumption during the declared period needs to be compared to the quota amount. Where a person has entered excess goods, we must contact the person and advise them of the amount of excess goods and the additional duty payable. The additional duty is calculated according to the following formula [12] : Additional duty = (quantity of excess goods × new duty rate) – (quantity of excess goods × old duty rate) Additional duty = (quantity of excess goods × new duty rate) – (quantity of excess goods × old duty rate) An alternative method of calculating the additional duty is: Additional duty = (quantity of goods delivered over quota) × (new duty rate – old duty rate) Additional duty = (quantity of goods delivered over quota) × (new duty rate – old duty rate) The person should be advised to pay the additional duty via electronic funds transfer by the end of the next settlement period of their period settlement permission (PSP). This additional duty payment is usually combined with the person's normal duty payment under their PSP. [13] If the payment is not made, the amount can be recovered as a debt under subsection 255-5(1) of Schedule 1 to the Taxation Administration Act 1953. When the declared period is other than in advance of an indexation increase The following reconciliation needs to take place when the declared period is other than in advance of an indexation increase. Any increases in duty rates, other than increases in advance of indexation, are generally announced by an excise tariff proposal. [14] It is our practice to protect the revenue by collecting amounts in accordance with the excise tariff proposal, pending the passing of amending legislation. [15] In these cases, we will reconcile and require payment of the excess amount as if it were excise duty in the same manner as outlined in this Practice Statement in relation to indexation increases. If a person does not make the requested payment and a security was not taken during the declared period, we should consider taking further action to protect the revenue pending the passage of amending legislation. Such action might be: • revoking the person's PSP, and • refusing to pass an entry until the correct amount is paid. • revoking the person's PSP, and • refusing to pass an entry until the correct amount is paid. However, these examples do not limit the action that might be taken and consideration always needs to be given to the circumstances of each person in making a decision on further action. | 7. Factors to consider before publishing a notice of a declared period: There are no specific statutory factors to take into account before making a decision to publish a notice in the Commonwealth of Australia Gazette. However, we need to be of the opinion that people are anticipating or may anticipate an increase in the rate of duty and that this may cause more goods to be entered for home consumption than would otherwise be the case. This requires an objective assessment of the particular circumstances. Relevant considerations would be: • public statements or announced changes to government policy • media speculation about excise rate rises • for alcohol and fuel products, analysis of consumer price index (CPI) forecasts • for tobacco products, analysis of average weekly ordinary time earnings (AWOTE) forecasts • the size of any increase in the rate of duty that may be anticipated based on the four points immediately above • the manufacturing capacity and storage potential of persons subject to duty on excisable goods • trends indicating stockpiling among affected persons, and • trends indicating unusual levels of clearances of excisable goods by affected persons. • public statements or announced changes to government policy • media speculation about excise rate rises • for alcohol and fuel products, analysis of consumer price index (CPI) forecasts • for tobacco products, analysis of average weekly ordinary time earnings (AWOTE) forecasts • the size of any increase in the rate of duty that may be anticipated based on the four points immediately above • the manufacturing capacity and storage potential of persons subject to duty on excisable goods • trends indicating stockpiling among affected persons, and • trends indicating unusual levels of clearances of excisable goods by affected persons. Key government agencies, such as the Department of Home Affairs or The Treasury, should be consulted when relevant, as part of the decision-making process. [16] However, these departments are not able to direct the decision of the delegate on how or when to make a declaration. Example 1 – consideration before publishing a notice of a declared period for tobacco goods Under section 6AA of the Excise Tariff Act 1921, the rate of duty applicable to excisable tobacco goods is automatically subject to indexation in March and September each year, based on upward movements in the full-time adult AWOTE estimates. This is a feature of excise law and is therefore readily anticipated. It is a matter of judgment whether an AWOTE-based increase in the duty rate is likely to be large enough to cause an increase in the quantity of goods entered for home consumption. As a guide, if the analysis indicates that movement in the AWOTE is likely to result in a material increase in the rate of duty, this is considered to be a basis for recommending that the delegate consider imposing quotas. Timeframe for the declared period The declared period should encompass the whole period during which the rate rise may be anticipated, up to the date when the rate rise is likely to happen. For example, where an increase is expected in the federal budget, this would be up to the day of the federal budget. Where the increase is due to indexation (either AWOTE or CPI-based), the period would extend to the day before the increase takes effect (usually 28 February and 31 August for AWOTE and 31 January or 31 July for CPI). [17] The length of the declared period is often determined by the type of rate rise. For indexation increases, a period of 4 to 6 weeks before the indexation is suggested. [18] If the rate rise is announced by way of an excise tariff proposal (see footnote 14 of this Practice Statement) and a declared period is not already in place, the declared period may start when the announcement is made and finish when the announcement states that the new rate will apply. | 8. Factors to consider in determining the amount of a person's quota: To determine the amount of a person's quota, we must consider [19] : • the quantity of the relevant goods the person has entered for home consumption during the base period • the quantity of the relevant goods the person has entered for home consumption during any other relevant period • any other relevant matter. • the quantity of the relevant goods the person has entered for home consumption during the base period • the quantity of the relevant goods the person has entered for home consumption during any other relevant period • any other relevant matter. Unless there are reasons to consider a period other than the base period, the calculation: • totals all deliveries of the relevant goods made by the person during the base period • calculates a daily average quantity of deliveries for the base period (based on weekdays) [20] • applies the base period daily average to the declared period (if the declared period is for less than a full day it should be treated as a full day for the calculation of the quota order), and • applies an appropriate uplift factor. [21] • totals all deliveries of the relevant goods made by the person during the base period • calculates a daily average quantity of deliveries for the base period (based on weekdays) [20] • applies the base period daily average to the declared period (if the declared period is for less than a full day it should be treated as a full day for the calculation of the quota order), and • applies an appropriate uplift factor. [21] Example 2 – determining the amount of a person's cigarette quota If the declared period is 20 June 2015 to 31 July 2015 and the base period is 21 March 2015 to 8 May 2015, and during the base period a person enters for home consumption 490,000 cigarettes: • the daily average for the base period is 490,000 ÷ 35 = 14,000 cigarettes • the declared period contains 30 weekdays × 14,000 = 420,000 • the uplift by 5% is 420,000 × 1.05 = 441,000 cigarettes. • the daily average for the base period is 490,000 ÷ 35 = 14,000 cigarettes • the declared period contains 30 weekdays × 14,000 = 420,000 • the uplift by 5% is 420,000 × 1.05 = 441,000 cigarettes. Thus, the person's quota amount would be 441,000 cigarettes. | 9. Review of quota decisions: While the declaration of a declared period and nomination of a base period are not reviewable decisions, decisions about quota orders and variations of quota orders are. [22] Therefore, a person who is dissatisfied with these decisions can object to the decision as set out in Part IVC of the Taxation Administration Act 1953 . However, care should be taken to determine, and clarify if needed, whether the person is actually objecting to a quota order or requesting a variation, as this affects both the person's review rights and the time for actioning the request. Section 59B limits the time in which we can, using the discretion, vary or revoke a quota order. However, we will, consistent with the statutory obligation to decide objections [23] , implement any favourable objection decision even if it is made after the expiry of the period in section 59B.",Excise Act 1901 4(1) | Excise Act 1901 59 | Excise Act 1901 59A | Excise Act 1901 59A(1) | Excise Act 1901 59A(2) | Excise Act 1901 59A(5) | Excise Act 1901 59A(6) | Excise Act 1901 59A(7) | Excise Act 1901 59A(8) | Excise Act 1901 59B | Excise Act 1901 59B(1) | Excise Act 1901 59C | Excise Act 1901 61C | Excise Act 1901 114 | Excise Act 1901 162C | Excise Act 1901 162C(1)(b) | Excise Tariff Act 1921 6A | Excise Tariff Act 1921 6AA | TAA 1953 Pt IVC | TAA 1953 14ZY | TAA 1953 Sch1 255-5(1) | Acts Interpretation Act 1901 28A(1)(a) | Acts Interpretation Act 1901 28A(1)(b) | Customs Act 1901,,Excise Act 1901 4(1) | Excise Act 1901 59 | Excise Act 1901 59A | Excise Act 1901 59A(1) | Excise Act 1901 59A(2) | Excise Act 1901 59A(5) | Excise Act 1901 59A(6) | Excise Act 1901 59A(7) | Excise Act 1901 59A(8) | Excise Act 1901 59B | Excise Act 1901 59B(1) | Excise Act 1901 59C | Excise Act 1901 61C | Excise Act 1901 114 | Excise Act 1901 162C | Excise Act 1901 162C(1)(b) | Excise Tariff Act 1921 6A | Excise Tariff Act 1921 6AA | TAA 1953 Pt IVC | TAA 1953 14ZY | TAA 1953 Sch1 255-5(1) | Acts Interpretation Act 1901 28A(1)(a) | Acts Interpretation Act 1901 28A(1)(b) | Customs Act 1901,,,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20123/NAT/ATO/00001,"Updated in line with current ATO style and accessibility requirements. | Footnote removed as no longer relevant. | Department of Immigration and Border Protection updated to the Department of Home Affairs. | Updated to new LAPS format and style. | Updated to reflect AWOTE changes, references to Australian Customs changed to Department of Immigration and Border Protection, examples made more contemporary and a number of minor grammatical edits have been made. | Replace Corporate Management Practice Instructions PS CM 2006/07/09 and 2006/07/10 with Chief Executive Instruction CEI 2014/06/07 ATO Security. | [1] Section 59A of the Excise Act uses the term 'CEO', but by definition in subsection 4(1) of the Excise Act, this is the Commissioner. | [2] Subsections 59A(6) and (7) of the Excise Act. | [3] Subsections 59A(1) and (2). | [4] A base period is a period in the past that shows normal delivery activity without any influence from the expectation of a rate rise. It must end before the commencement of the declared period. | [6] Paragraph 28A(1)(a) of the Acts Interpretation Act 1901 . | [7] Paragraph 28A(1)(b) of the Acts Interpretation Act 1901 . | [10] Subsection 59B(1) and section 162C. | [11] Indexation increases result from consumer price index (CPI) and average weekly ordinary time earnings (AWOTE) changes. | [12] Subsections 59A(6) and (7). | [13] While the excess goods may not have been delivered under the section 61C permission, this provides an appropriate time for making the payment. | [14] An excise tariff proposal itself does not change the duty rate. It notifies an intention to bring an amending Bill into parliament. It is the subsequent Act amending the Schedule to the Excise Tariff Act 1921 that changes the duty rate (generally with retrospective application). | [15] Section 114 prevents people from initiating court proceedings against an officer for taking action to protect the revenue for 12 months from when the tariff proposal is tabled in parliament or the close of the session of parliament in which the tariff proposal is made, whichever occurs first. | [16] Imported goods may be subject to quotas under the Customs Act 1901 , so coordinating action on quotas is appropriate. | [17] These dates should be confirmed by reference to the Australian Bureau of Statistics website. | [18] See sections 6A and 6AA of the Excise Tariff Act 1921 . | [20] This recognises that many businesses do not make deliveries on Saturdays or Sundays. | [21] The uplift factor is used to provide persons to whom a quota order may be issued with some latitude in recognition that there is often variability in delivery of product for home consumption unrelated to anticipation of rate increases. Without intending to fetter the decision-maker in any respect, a factor of 5% has been previously applied. | [22] Paragraph 162C(1)(b). | [23] Section 14ZY of the Taxation Administration Act 1953 . | File 1-3DFTC5A; 1-7JBFFCJ; 1-15LQR3RY"
PS LA 2012/4,Administration of the false or misleading statement penalty - where there is no shortfall amount,23 August 2012,4 June 2010,Law Administration Practice Statement,False,"What this Practice Statement is about: 1. This Practice Statement provides guidance on how the Commissioner administers the penalty [1] for making a false or misleading statement that does not result in a shortfall amount, including: • when an entity is liable to a penalty in the situation where the statement does not result in a shortfall amount, and • how the penalty is assessed, including factors to consider when making a remission decision. • when an entity is liable to a penalty in the situation where the statement does not result in a shortfall amount, and • how the penalty is assessed, including factors to consider when making a remission decision. 2. All further legislative references in this Practice Statement are to Schedule 1 to the Taxation Administration Act 1953, unless otherwise indicated. 3. This Practice Statement applies to statements made on or after 4 June 2010. 4. Where the statement results in a shortfall amount, guidance is provided in Law Administration Practice Statement PS LA 2012/5 Administration of the false or misleading statement penalty – where there is a shortfall amount. 5. Remission guidelines in this Practice Statement are provided to assist you to exercise the discretion and ensure that entities in like situations receive like treatment. The guidelines do not lay down conditions that may restrict the exercise of the discretion. | Administering the penalty: 6. There are 3 steps in administering the false or misleading statement penalty: • Step 1 – determine if a penalty is imposed by law • Step 2 – assess the amount of the penalty [2] • Step 3 – notify the entity of the liability to pay the penalty. • Step 1 – determine if a penalty is imposed by law • Step 2 – assess the amount of the penalty [2] • Step 3 – notify the entity of the liability to pay the penalty. | General principles: 7. The following general principles should be considered when making decisions: • A primary purpose of this penalty regime is to encourage entities to take reasonable care to comply with their tax obligations. Generally, an entity will not be penalised – where they have made a reasonable and genuine attempt to comply – because of the reasonable care or safe harbour exceptions – because the law was applied in an accepted way, or – because we have remitted any remaining penalty. [3] • The penalty regime aims to achieve a level playing field, ensuring fairness and equity for all entities and for there to be consequences for failing to take reasonable care. • The compliance model requires us to be fair to entities wanting to do the right thing, but firm with those who are choosing to avoid their tax obligations. • The ATO Charter requires us to treat an entity to have been honest, unless we have reason to think otherwise. • We must consider the individual circumstances of each case, including the background and experience of the entity and whether the individual is experiencing, or has experienced, vulnerability. • Decisions must be supported by the available facts and evidence. Conclusions about an entity's behaviour should only be made where they are supported by, or can be reasonably inferred from, the facts. • The entity should be contacted and given the opportunity to explain their actions before a penalty decision is made. Exceptions to this general principle might include fully automated data-matching cases or where the facts of the case clearly show deliberate disengagement from the taxation system. • A primary purpose of this penalty regime is to encourage entities to take reasonable care to comply with their tax obligations. Generally, an entity will not be penalised – where they have made a reasonable and genuine attempt to comply – because of the reasonable care or safe harbour exceptions – because the law was applied in an accepted way, or – because we have remitted any remaining penalty. [3] • The penalty regime aims to achieve a level playing field, ensuring fairness and equity for all entities and for there to be consequences for failing to take reasonable care. • The compliance model requires us to be fair to entities wanting to do the right thing, but firm with those who are choosing to avoid their tax obligations. • The ATO Charter requires us to treat an entity to have been honest, unless we have reason to think otherwise. • We must consider the individual circumstances of each case, including the background and experience of the entity and whether the individual is experiencing, or has experienced, vulnerability. • Decisions must be supported by the available facts and evidence. Conclusions about an entity's behaviour should only be made where they are supported by, or can be reasonably inferred from, the facts. • The entity should be contacted and given the opportunity to explain their actions before a penalty decision is made. Exceptions to this general principle might include fully automated data-matching cases or where the facts of the case clearly show deliberate disengagement from the taxation system. – where they have made a reasonable and genuine attempt to comply – because of the reasonable care or safe harbour exceptions – because the law was applied in an accepted way, or – because we have remitted any remaining penalty. [3] | Our approach to administering the penalty: 8. We take a risk-based approach to administering the penalty provisions. 9. The provisions have broad application and could apply to a wide variety of activities, including compliance, audit, advice, debt, lodgment and registration activities. However, it is not administratively appropriate, nor is it necessary, to consider applying the penalty to every potentially false or misleading statement. 10. Statements that do not result in a shortfall amount will normally only be examined where we take action to investigate or mitigate a risk. This includes, but is not limited to: • audits of regulatory statements made by trustees of a self-managed super fund (SMSF) • audits of Australian Prudential Regulation Authority (APRA) regulated funds for the accuracy and completeness of their reporting • audits which result in reduced carry-forward losses for an income year (including losses carried forward to future income years) [4] • reviews of registration applications or registration records (or both), or • project-based work where tax or super-related statements are being reviewed. • audits of regulatory statements made by trustees of a self-managed super fund (SMSF) • audits of Australian Prudential Regulation Authority (APRA) regulated funds for the accuracy and completeness of their reporting • audits which result in reduced carry-forward losses for an income year (including losses carried forward to future income years) [4] • reviews of registration applications or registration records (or both), or • project-based work where tax or super-related statements are being reviewed. 11. These examinations will result in the making of a penalty decision, which may involve assessment of a penalty. 12. You should not usually seek to examine statements that do not result in a shortfall amount, where the statements made are of little importance or relevance to the ATO's activities. 13. If the statement is not the focus of the examination or activity, we will only consider the statement if there is a risk to the integrity of the tax system or a need to be firm with non-compliant entities (for example, where it appears that the statement was made recklessly or with intentional disregard of the law). [5] 14. In addition, there should be exceptional situations in order to consider assessing a penalty for the following types of statements: • an incorrect application of the law to correct facts (although statements of mixed fact and law will be considered) • a statement made regarding future intentions, unless subsequent actions make it doubtful the statement was genuine at the time, or • where information is omitted on a questionnaire or document that was simply to gather generic information from an entity. • an incorrect application of the law to correct facts (although statements of mixed fact and law will be considered) • a statement made regarding future intentions, unless subsequent actions make it doubtful the statement was genuine at the time, or • where information is omitted on a questionnaire or document that was simply to gather generic information from an entity. 15. We would not normally consider imposing penalties where amended assessments result in increased credits or an increase in losses carried forward. 16. Additionally, for examinations that are ongoing from 1 July 2018, we will not apply false or misleading statement penalty where an entity or their agent failed to take reasonable care in certain circumstances. This is called 'penalty relief' and will apply in limited situations to individuals, small businesses, super funds and trusts. Certain entities are excluded from penalty relief, and the actions of other entities can also mean that penalty relief is not applied. For further details of the grounds for inclusion and exclusion for penalty relief see Appendix B to PS LA 2012/5. | What a false or misleading statement penalty is: 17. Subsection 284-75(1) imposes a penalty where an entity (or their agent) makes a statement to the Commissioner, or to another entity who is exercising powers or performing functions under a taxation law, and the statement: • is about a tax-related matter • is false or misleading in a material particular, and • does not result in a shortfall amount. • is about a tax-related matter • is false or misleading in a material particular, and • does not result in a shortfall amount. 18. Subsection 284-75(4) imposes a penalty where an entity (or their agent) makes a statement to another entity (other than the Commissioner, or to another entity who is exercising powers or performing functions under a taxation law) and the statement: • is, or purports to be one, that is required or permitted under a taxation law • might reasonably be expected to be used in determining, for the purposes of goods and services tax (GST) law, whether the entity is an Australian consumer, and [6] • is false or misleading in a material particular. • is, or purports to be one, that is required or permitted under a taxation law • might reasonably be expected to be used in determining, for the purposes of goods and services tax (GST) law, whether the entity is an Australian consumer, and [6] • is false or misleading in a material particular. | What a statement is: 19. A statement is anything that is disclosed for a purpose connected with a taxation law orally or in writing (and includes those made electronically). 20. Statements may be made in correspondence, a registration form, a tax return [7] , an activity statement, an amendment request or any other communication. 21. Where an entity lodges a form, the form itself is not the statement that is made. The statement is the information at the individual labels or questions. This means more than one statement can be made on a form. 22. Statements may also be made by omission, if an entity fails to include material information in a document that requires that information to be supplied. Where the omission is in a combined form 23. A combined form is one where we allow lodgment of a single form to fulfil multiple reporting obligations. [8] In these cases, where one discrete form within the combined form is not completed, the omission is a failure to give a return, notice or other document on time [9] , for which a separate penalty applies. It is not a statement by omission. 24. For example, if a super fund lodged a member contributions statement (MCS) [10] for all of its contributing members and: • the MCS did not report personal contributions for some members, but all other information was provided for those members – these omissions would be statements for penalty purposes • for other members, no member or contribution information was provided by the due date in this (or any other) MCS – these omissions would be failure to lodge statements for each member. A penalty for failing to give a return, notice or other document on time may apply for each statement. • the MCS did not report personal contributions for some members, but all other information was provided for those members – these omissions would be statements for penalty purposes • for other members, no member or contribution information was provided by the due date in this (or any other) MCS – these omissions would be failure to lodge statements for each member. A penalty for failing to give a return, notice or other document on time may apply for each statement. Supporting statements and totals 25. Where the entity provides information in support of a previously made statement, and this is consistent with the information in the initial statement, generally we will not consider this subsequent statement to be a separate statement for the purposes of this penalty. Exceptions would only apply where the statement was made intentionally disregarding the law. 26. Additionally, where an error is made in a statement and further false or misleading statements are made relying on that error (such as sub-totals, totals or amounts being carried into new documents), only the original statement will be considered for the purposes of this penalty. 27. However, where the second statement results in a shortfall amount (such as a later tax return which utilises losses disallowed in a prior year), it will be more appropriate to consider shortfall penalties for the second statement and not impose penalties for the statement which did not result in a shortfall amount. | Whether the statement concerns a tax-related matter: 28. The penalty only applies to statements made for a purpose connected with a taxation law. [11] A taxation law includes: • an Act, or part of an Act, of which the Commissioner has the general administration, and • any legislative instruments made under such an Act. • an Act, or part of an Act, of which the Commissioner has the general administration, and • any legislative instruments made under such an Act. 29. A statement will be about a tax-related matter if a taxation law provides for the statement to be made. This includes: • where there is a legislative requirement to make the statement, or • where the statement is made for a purpose connected with a taxation law – for example, because it is relevant to a decision, or the exercise of a power. • where there is a legislative requirement to make the statement, or • where the statement is made for a purpose connected with a taxation law – for example, because it is relevant to a decision, or the exercise of a power. 30. If the statement does not directly affect or concern an entity's tax or super affairs and is not otherwise provided for under the legislation, there needs to be a connection to: • an express explanation about the purpose of the statement, which was available before the entity made the statement, or • an objective inference about the purpose and manner in which the information will be used. • an express explanation about the purpose of the statement, which was available before the entity made the statement, or • an objective inference about the purpose and manner in which the information will be used. | Whether the statement is false or misleading in a material particular: False 31. A statement is false if it is contrary to fact or wrong. 32. It may be false because of something contained in the statement or because something is omitted from the statement. 33. If a statement was correct at the time it was made but is subsequently made incorrect because of a retrospective amendment to the law, it is not later considered false (or misleading). It is the nature of the statement at the time that it was made that is relevant. 34. It does not matter if the person who made the statement did not know that it was false. Misleading 35. A statement is misleading if it creates a false impression, even if it is literally true. 36. It may be misleading because of something contained in the statement or because of something omitted from the statement. 37. The reason it is misleading may be because it is uninformative, unclear or deceptive. In a material particular 38. For a particular to be 'material' it must have a connection to the purpose for which the statement is made, but it does not have to be something that must or actually will be taken into account in making a decision. 39. Materiality is determined at the time the statement is made – a statement cannot be made material because of subsequent events. 40. However, materiality may be unknown until a subsequent event occurs (such as when an assessment is made) or further evidence comes to light which reveals that the statement was false or misleading in a material particular at the time it was made (such as during an examination). 41. Examples 1 to 9 in the Appendix to this Practice Statement provide guidance on what would constitute a material particular. | Who the statement is made to: 42. The statement must have been made in any of the following ways. To the Commissioner or to another entity who is exercising powers or performing functions under a tax law 43. Where the statement is made to the Commissioner or to another entity who is exercising powers or performing functions under a tax law [12] , the term 'another entity who is exercising powers or performing functions under a tax law' is interpreted narrowly. This will include a statement made to the Commissioner [13] , tax officers or other staff authorised to perform functions under taxation laws. [14] To another entity, if the statement is, or purports to be, one that is required or permitted under a taxation law 44. Where a statement is made to another entity, if the statement is required or purports to be required under a taxation law [15] , there is an obligation to make the statement. For example, the Superannuation Industry (Supervision) Act 1993 (SISA) requires an SMSF trustee to give certain information to an approved SMSF auditor if they request it. This would be a statement required by law. 45. In certain situations, taxation laws make it clear a statement is permitted to be made. For example, under the Income Tax Assessment Act 1936, someone may give a tax file number (TFN) declaration to their prospective employer. 46. In each case, if the statement is purported to be required or permitted by a taxation law, then it must state, or imply, that the statement is one that is required or permitted by taxation law. 47. For example, if the law requires that a statement be made by a trustee in an approved form and the trustee makes a statement which appears to be the one required but does so in a manner which fails to meet the approved form requirements, the statement is one that purports to be the statement as required by law. 48. This differs from a statement held out to be required by a taxation law, when in fact no such requirement exists. To another entity, if the statement is, or purports to be, one that might reasonably be expected to be used in determining whether the entity is an Australian consumer 49. Where a statement is made to another entity, if the statement is, or purports to be, a statement that may be expected to be used in determining whether the entity is an Australian consumer [16] , you may be liable to an administrative penalty. 50. For GST, an offshore supplier of low-value goods, digital products and other services imported by consumers is required to take reasonable steps to obtain information about whether or not the recipient is an Australian consumer of the supply, for the purposes of determining the tax treatment of the supply. [17] 51. The law does not require that the recipient of the supply make a statement. 52. Where a consumer supplies false information to the supplier, which might reasonably be expected to be used in determining whether the entity is an Australian consumer for GST purposes [18] , a penalty may apply. 53. For example, if an individual consumer made misrepresentations to a supplier as to their location in Australia, or falsely claimed they were registered for GST and acquiring the supply for the purpose of their enterprise they carry on in Australia, the consumer will have made a false or misleading statement for penalty purposes as outlined in paragraph 18 of this Practice Statement. To a foreign government agency that has a qualified competent authority agreement in effect with Australia 54. For minimum tax law [19] purposes, an entity in scope of the minimum tax law is taken to give the Globe Information Return (GIR) to the Commissioner at the time the ultimate parent entity (UPE) or designated filing entity (DFE) gives the Globe Information Return (GIR) to the foreign government agency. [20] | Who is liable for the penalty: 55. An entity will be liable for the penalty for a statement they or their authorised representatives (including tax agents, business activity statement (BAS) agents, authorised employees or other agents) make on their behalf. [21] 56. Under commercial law, an agent is a person who is either expressly or impliedly authorised by a principal to act for that principal so as to create or effect legal relations between the principal and third parties. [22] An act done by the agent on behalf of the principal is considered an act of that principal. 57. For super, an authorised agent also includes an administrator or super supplier. 58. If an agent exceeds the scope of their authority when making a statement and the entity can prove that responsibility for that statement lies with the agent, the penalty may be imposed on the agent. | Exceptions to the penalty: 59. An entity will not be liable to a penalty where: • the entity and their agent (if relevant) took reasonable care in connection with making the statement [23] , or • a 'safe harbour' applies to the statement. [24] • the entity and their agent (if relevant) took reasonable care in connection with making the statement [23] , or • a 'safe harbour' applies to the statement. [24] 60. There is also a reduced liability to a penalty where the entity followed our advice or guidance, or general administrative practice. This is a reduction of the base penalty amount (BPA) and is covered in paragraphs 97 to 101 of this Practice Statement. | Reasonable care: 61. Reasonable care is explained in Miscellaneous Taxation Ruling MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard. 62. The 'reasonable care test' requires an entity to make a reasonable and genuine attempt to comply with obligations imposed under a taxation law. This means taking into account all actions leading up to the making of the statement. 63. Making a genuine attempt means that the entity was actively engaged with the tax system and actively attempting to comply with their tax obligations. When considering if a genuine attempt has been made, we compare the entity's attempt with that of other entities in similar circumstances. 64. The fact that a false or misleading statement was made does not automatically mean there was a failure to take reasonable care. There must be evidence that the entity's attempt to comply has fallen short of the standard of care that would reasonably be expected in the circumstances. 65. The effort required is one commensurate with the entity's circumstances, including their knowledge, education, experience and skill. [25] A higher standard of care is expected of an entity dealing with a matter that involves a substantial amount of tax or involves a large proportion of the overall tax payable. [26] In borderline cases, it can be more readily accepted that an entity has exercised reasonable care where the entity has a good compliance history. 66. The following factors are also relevant when assessing reasonable care: • if there was an inadvertent mistake • if reasonable enquiries were made, including whether – the entity conducted a level of enquiry commensurate with the risk of the decision and their resources, or – the entity just assumed the statement was correct • whether the entity was aware, or should have been aware, of the correct treatment of the law or of the facts, noting – an entity should not rely on advice they have received where a reasonable person would be expected to know or strongly suspect the advice is not worthy of such reliance [27] , and – an entity is not obliged or entitled to blithely accept assurance by their professional adviser especially where those statements appear flawed or questionable • whether any factors prevented the entity from seeking advice, understanding the requirements of the tax law or reporting correctly, and • whether the entity's level of knowledge, understanding of the tax system or personal circumstances impacted their compliance, considering – whether a registered tax agent or BAS agent was used – the entity's level of sophistication relating to tax matters – the level of knowledge, education, experience and skills of relevant persons involved with the entity – the personal circumstances of relevant persons involved, including age, health and background, and – whether the individual is experiencing, or has experienced, vulnerability (including, but not limited to, family violence, financial coercion, homelessness or serious mental health challenges). • if there was an inadvertent mistake • if reasonable enquiries were made, including whether – the entity conducted a level of enquiry commensurate with the risk of the decision and their resources, or – the entity just assumed the statement was correct • whether the entity was aware, or should have been aware, of the correct treatment of the law or of the facts, noting – an entity should not rely on advice they have received where a reasonable person would be expected to know or strongly suspect the advice is not worthy of such reliance [27] , and – an entity is not obliged or entitled to blithely accept assurance by their professional adviser especially where those statements appear flawed or questionable • whether any factors prevented the entity from seeking advice, understanding the requirements of the tax law or reporting correctly, and • whether the entity's level of knowledge, understanding of the tax system or personal circumstances impacted their compliance, considering – whether a registered tax agent or BAS agent was used – the entity's level of sophistication relating to tax matters – the level of knowledge, education, experience and skills of relevant persons involved with the entity – the personal circumstances of relevant persons involved, including age, health and background, and – whether the individual is experiencing, or has experienced, vulnerability (including, but not limited to, family violence, financial coercion, homelessness or serious mental health challenges). – the entity conducted a level of enquiry commensurate with the risk of the decision and their resources, or – the entity just assumed the statement was correct – an entity should not rely on advice they have received where a reasonable person would be expected to know or strongly suspect the advice is not worthy of such reliance [27] , and – an entity is not obliged or entitled to blithely accept assurance by their professional adviser especially where those statements appear flawed or questionable – whether a registered tax agent or BAS agent was used – the entity's level of sophistication relating to tax matters – the level of knowledge, education, experience and skills of relevant persons involved with the entity – the personal circumstances of relevant persons involved, including age, health and background, and – whether the individual is experiencing, or has experienced, vulnerability (including, but not limited to, family violence, financial coercion, homelessness or serious mental health challenges). Using a registered tax agent or BAS agent 67. Even if an entity uses a registered tax agent or BAS agent, they are still expected to take a prudent attitude to their tax affairs. Engaging an agent does not, by itself, mean that reasonable care has automatically been taken, and entities are still required to set up appropriate reporting and recording systems, provide all relevant taxation information to their agent and answer questions or provide information to their agent. 68. An entity will generally be found not to be making a genuine attempt to comply with their obligations where they do not query advice that: • is obviously incorrect or does not apply to their circumstances • produces an odd or irregular outcome, or • seems an extraordinary treatment of tax matters, which a comparable, ordinarily prudent person would investigate further. • is obviously incorrect or does not apply to their circumstances • produces an odd or irregular outcome, or • seems an extraordinary treatment of tax matters, which a comparable, ordinarily prudent person would investigate further. 69. The more complex the area of tax law involved, the greater the monetary amount involved or the more 'sophisticated' the entity, the greater the level of enquiry that is expected. 70. Before signing documents lodged on their behalf, an entity is also expected to confirm, to an appropriate extent, that the document reflects the information they provided to their tax agent. 71. A registered agent will be subject to a higher standard of care that reflects the level of knowledge and experience a reasonable person in their circumstances will possess. The appropriate benchmark is the level of care that would be expected of an ordinary and competent practitioner practising in that field and having the same level of expertise. 72. Registered agents are not required to extensively audit or review books, records or other source documents to independently verify the entity's information. It will not be possible or practical for an agent to scrutinise every item of information supplied. What is appropriate will depend on the individual circumstances of the entity and the registered agent. However, reasonable enquiries must be made if the information appears to be incorrect or incomplete. | The 'safe harbour' exception: 73. Safe harbour [28] provides that an entity will not be subject to a penalty as a result of certain actions (or omissions) of their registered tax or BAS agent, as long as: • they gave all the relevant tax information necessary for the statement to be correctly prepared to the agent, and • the agent did not act recklessly or with intentional disregard of the law. [29] • they gave all the relevant tax information necessary for the statement to be correctly prepared to the agent, and • the agent did not act recklessly or with intentional disregard of the law. [29] 74. This means the safe harbour exception applies only where the agent has failed to take reasonable care. 75. Each statement has to be considered separately. All relevant taxation information 76. The safe harbour exception will only apply if the entity provides their registered agent with all the relevant taxation information about a particular matter. 77. Whether or not 'all the relevant taxation information' was provided needs to be considered objectively. It does not matter if the entity genuinely believed they provided all relevant information. The exception will not apply if the entity omitted or did not supply any part of the relevant information, or gave incorrect or conflicting information. 78. An entity may provide some information to their registered agent in a summary and the registered agent may reasonably rely on that for preparation of the statement. However, a summary which is incorrect or incomplete in a material particular will not meet the requirement to provide all relevant taxation information, even if reasonable care for a registered agent would have involved querying the information. Registered agents are not required to view all source documents, and it is often impractical for them to do so. 79. The entity has the burden of proof to establish that they provided all relevant taxation information. The standard of proof required is 'on the balance of probability' or 'more likely than not'. If the probability either way is equal, then the standard is not satisfied. 80. You would usually need to contact the registered agent if the entity is claiming the safe harbour exception to the penalty. Without doing so, it would be difficult to assess their actions and whether they exercised reasonable care, or know what information they requested from their client. 81. However, contact with the registered agent is not mandatory. If you have been unable to contact the registered agent, a decision should be made on the information available. 82. Safe harbour can be considered even if the entity or agent do not explicitly request it, as it may be clear from the statement that all relevant taxation information was provided but the registered agent did not exercise reasonable care. In these cases, it is still generally appropriate to contact the registered agent to discuss safe harbour, but you are not required to do so in order to apply safe harbour. | Working out the penalty amount: 83. To assess the penalty amount: • determine the BPA • increase or reduce the BPA, and • consider remission of the calculated penalty amount. • determine the BPA • increase or reduce the BPA, and • consider remission of the calculated penalty amount. | Working out the base penalty amount: 84. The BPA is calculated by: • assessing the entity's behaviour in making the statement, then • reducing the BPA to the extent that the entity applied a taxation law in an accepted way. • assessing the entity's behaviour in making the statement, then • reducing the BPA to the extent that the entity applied a taxation law in an accepted way. 85. Where a shortfall amount does not occur, subsection 284-90(1) provides the initial penalty units [30] as follows: Table 1: BPA penalty units Situation BPA intentional disregard of a taxation law by the entity or their agent 60 penalty units recklessness by the entity or their agent as to the operation of a taxation law 40 penalty units failure by the entity or their agent to take reasonable care to comply with a taxation law 20 penalty units 86. The entity's behaviours or attributes to consider are those exhibited at the time of and in connection with making the statement. Actions which occur after making the statement do not affect the determination of the BPA. 87. The behaviours considered are those exhibited at the time of, or in connection to the making of the statement. The guidelines for determining the behaviour are in MT 2008/1. They are described briefly in this Practice Statement but you must use the ATO view found in MT 2008/1. 88. Each statement needs to be considered separately. Base penalty amount for a significant global entity 89. For statements made on or after 1 July 2017, if an entity is a significant global entity (SGE) [31] and a BPA in an item of the table in subsection 284-90(1) applies, the BPA is taken to be doubled. [32] 90. An entity's status as an SGE must be worked out on the day the statement was made and is based upon the most recent income year for which an income tax assessment has been made for the entity [33] or a determination by the us that the entity is an SGE at the date of the statement (see Example 17 of this Practice Statement). Base penalty amount for minimum tax law 91. For statements made on or after 1 January 2024, if an entity is in scope of the minimum tax law and a BPA in a table item in subsection 284-90(1) applies, the BPA is taken to be doubled. [34] Failure to take reasonable care 92. Failure to take reasonable care occurs where reasonable care has not been taken in connection with making the statement, but neither the entity nor their agent has been reckless or intentionally disregarded the law. Recklessness 93. Recklessness is behaviour which falls significantly short of the standard of care expected of a reasonable person in the same circumstances as the entity. It is gross carelessness. 94. Recklessness assumes that the behaviour in question shows a disregard of the risk or indifference to the consequences that are foreseeable by a reasonable person. However, the entity does not need to actually realise the likelihood of the risk for it to be reckless. Intentional disregard 95. Intentional disregard of the law is something more than reckless disregard of, or indifference to, a taxation law. 96. Intention of the entity is a critical element – there must be actual knowledge that the statement made is false. The entity must understand the effect of the relevant legislation and how it operates in respect of their affairs and make a deliberate choice to ignore the law. Reducing the base penalty amount where the entity treated the law as applying in an accepted way 97. The BPA is reduced [35] to the extent that the entity treated a taxation law in a particular way that agreed with: • advice given to them by, or on behalf of, us • general administrative practice under that law, or • a statement in a publication approved in writing by us. • advice given to them by, or on behalf of, us • general administrative practice under that law, or • a statement in a publication approved in writing by us. Reliance on advice or a statement from us 98. Where an entity has treated a taxation law as applying in a particular way, and that way agrees with advice we provided (in writing or orally) or a statement in a document we have published, then they may be protected from application of a penalty. [36] Alignment with a general administrative practice 99. The BPA is also reduced to the extent that an entity's behaviour aligns with our general administrative practice. 100. A general administrative practice under a taxation law is a practice which is applied by us generally as a matter of administration. It is the usual course of conduct that we apply, rather than any particular document, that is relevant in determining whether or not there is a general administrative practice. [37] 101. Publications and other documents produced by us may also provide evidence of a general administrative practice. If we frequently provide advice to different taxpayers which consistently adopts a particular practice, that will tend to support that a general administrative practice exists. | Increasing or reducing the base penalty amount: 102. In certain instances, the BPA is increased or reduced, using the following formula [38] : BPA + [ BPA × (increase % − reduction % )] BPA + [ BPA × (increase % − reduction % )] Increasing the base penalty amount 103. The BPA is increased by 20% where the entity [39] : • prevents or obstructs us from finding out about the false or misleading nature of the statement • becomes aware of the false or misleading nature of the statement after the statement is made and does not tell us about it within a reasonable time, or • had a BPA worked out for this type of penalty previously, even if the penalty was remitted. • prevents or obstructs us from finding out about the false or misleading nature of the statement • becomes aware of the false or misleading nature of the statement after the statement is made and does not tell us about it within a reasonable time, or • had a BPA worked out for this type of penalty previously, even if the penalty was remitted. 104. The increase is a maximum of 20%, even if more than one of the criteria in paragraph 103 of this Practice Statement applies. Increasing the base penalty amount – prevent or obstruct 105. Examples of what would constitute preventing or obstructing us would include where the entity, without an acceptable reason: • repeatedly defers or fails to keep appointments • repeatedly fails to supply information • repeatedly fails to respond adequately to reasonable requests for information, such as – by not replying to the request for information – giving information that is not relevant – not addressing all the issues in the request, or – supplying inadequate information • fails to respond to formal information-gathering notices • provides incorrect information or fraudulently prepared documents in support of statements (although these may also be further false or misleading statements), or • destroys records. • repeatedly defers or fails to keep appointments • repeatedly fails to supply information • repeatedly fails to respond adequately to reasonable requests for information, such as – by not replying to the request for information – giving information that is not relevant – not addressing all the issues in the request, or – supplying inadequate information • fails to respond to formal information-gathering notices • provides incorrect information or fraudulently prepared documents in support of statements (although these may also be further false or misleading statements), or • destroys records. – by not replying to the request for information – giving information that is not relevant – not addressing all the issues in the request, or – supplying inadequate information 106. You should also note the use of the term 'repeatedly' when considering increases for prevention or obstruction. Simply not replying to a letter or not returning a call does not indicate the entity is taking steps to prevent or obstruct us. [40] It will also not be obstruction where the incorrect information or the failure to provide information was the result of the taxpayer not understanding the request. 107. We expect that where legal professional privilege (LPP) claims are made, they are made properly. [41] Claims of LPP will not generally be considered to be obstructive. However, if you discover that claims were unjustified, you should consider if they were made to obstruct us. Increasing the base penalty amount – previous penalty 108. The BPA is increased by 20% where the entity has a previous penalty of the same type as the penalty being assessed. For false or misleading statements which do not result in a shortfall amount, the previous penalty must also have been for a false or misleading statement which did not result in a shortfall amount. 109. The increase will apply regardless of whether the previous penalty was assessed during a previous interaction, or whether it occurs on the same day. This means that, where you assess multiple penalties of the same type at the same time, the increase will apply to the second and subsequent statements. 110. The order of the statements is determined by the date on which they were made, not the period to which they relate. Reducing the base penalty amount for voluntary disclosure 111. The BPA can be reduced in certain circumstances where an entity voluntarily discloses the false or misleading statement, if they do so in 'the approved form'. [42] 112. You must refer to Miscellaneous Taxation Ruling MT 2012/3 Administrative penalties: voluntary disclosures when making any decision regarding voluntary disclosure and the rates of penalty reduction applicable in certain situations. [43] Approved form 113. A voluntary disclosure must meet the requirements of the approved form. 114. The approved form sets out a list of the information required for the entity to make that disclosure. This includes an identification of the statement and an explanation of its false or misleading nature. 115. Generally, the actual form and structure used is irrelevant, as long as the entity provides the required information through an acceptable mechanism. You can find full details of the information required and the methods or mechanisms available to make a voluntary disclosure at How to make a voluntary disclosure . 116. In working out if a voluntary disclosure has been made, it is important to recognise that an entity making a genuine attempt to inform us of a mistake may not be fully aware of all the information we require. 117. If the disclosure fails to meet the strict requirements of the approved form, but substantially complies with the requirements, and you can accurately determine the nature of the false or misleading statement from the information provided, the disclosure should be treated as meeting the requirements of the approved form. 118. If additional information is sought on an incomplete disclosure and it is provided within a reasonable time, the original incomplete disclosure should be treated as sufficiently complete. 119. The entity's original disclosure would not be regarded as constituting a voluntary disclosure if the facts or reasonable inferences indicate that the entity supplied incomplete information in an attempt to obstruct or hinder us from identifying the correct information (that is, the false or misleading nature of the statement), particularly where the degree of incompleteness is significant. [44] 120. In more complex, low-volume reviews and audits, you should: • tell the taxpayer as soon as practicable after they make a voluntary disclosure that we have received it, and • advise of the rate of penalty reduction at the same time, if it is possible and appropriate to do so. • tell the taxpayer as soon as practicable after they make a voluntary disclosure that we have received it, and • advise of the rate of penalty reduction at the same time, if it is possible and appropriate to do so. | Considering whether to remit the penalty: 121. We have the discretion to remit all or part of the penalty. [45] This discretion is 'unfettered', meaning that there is no legal restriction on when we can and cannot remit. Remission provides the administrative flexibility to ensure the penalty imposed is aligned with the observed behaviour. 122. This Practice Statement sets out guidance that must be used in exercising this discretion. However, remission is not limited to the reasons listed here and you should consider remission in any situation where the final penalty is not a just and reasonable outcome. 123. You must make a remission decision whenever penalties are imposed. You may decide that there are no grounds for remission or that there are grounds to remit in full or in part. 124. You need to consider each case on its own merits, looking at all of the relevant facts and circumstances, including whether an individual is experiencing, or has experienced vulnerability (including, but not limited to, family violence, financial coercion, homelessness or serious mental health challenges). 125. The final penalty you apply must be defensible, proper and have regard to the overall circumstances of the entity. 126. Relevant matters to consider in making a remission decision include: • the purpose of the penalty regime is to encourage entities to take reasonable care in complying with their tax obligations • the penalty regime also aims to promote consistent treatment with specified rates of penalty; this objective would be compromised if penalties imposed at the rates specified in the law were remitted without just cause, arbitrarily or as a matter of course, and • that the amount of the penalty rate alone, in the absence of specific reasons why it would be unjust in the taxpayer's particular circumstances, is not considered to be unjust. • the purpose of the penalty regime is to encourage entities to take reasonable care in complying with their tax obligations • the penalty regime also aims to promote consistent treatment with specified rates of penalty; this objective would be compromised if penalties imposed at the rates specified in the law were remitted without just cause, arbitrarily or as a matter of course, and • that the amount of the penalty rate alone, in the absence of specific reasons why it would be unjust in the taxpayer's particular circumstances, is not considered to be unjust. 127. Matters that you should not usually consider include: • behaviour or situations unrelated to the relevant statement, such as the entity or registered agent becoming ill at the time of examination, well after the statement was made, and • whether there is a capacity to pay the penalty, except in exceptional circumstances. [46] • behaviour or situations unrelated to the relevant statement, such as the entity or registered agent becoming ill at the time of examination, well after the statement was made, and • whether there is a capacity to pay the penalty, except in exceptional circumstances. [46] Unintended or unjust result 128. If imposition of the penalty provides an unintended or unjust result, we may remit the penalty in whole or in part. 129. Four examples of where an unjust result could arise are outlined in paragraph 130 to 139 of this Practice Statement. You should also consider remission in other instances where the result is unjust, having regard to the particular circumstances. Mechanical process of the law 130. In some instances, the mechanical process of the law could result in an unintended or unjust result. This can include where a BPA is increased because 2 or more penalties were assessed at the same time, the entity has not been advised of a previous penalty and the behaviour is not intentional disregard of the law. Multiple penalties 131. Because of the nature of this penalty, multiple instances of the same penalty can apply. Because a penalty is assessed in respect of each false or misleading statement, multiple penalties may arise in relation to a single form. 132. It may not be appropriate for multiple penalties to be maintained if the errors resulted from an administrative oversight which through repetition affected a large number of statements. However, this would depend on the assessment of the particular facts and circumstances. [47] 133. Additionally, remission may be appropriate because the ultimate penalty amounts are not commensurate with a reasonable outcome considering the statements made or are disproportionate to the errors made. 134. The following factors should be taken into account: • the circumstances in which the errors which caused the false or misleading statements occurred, such as – whether the errors were properly distinct or arose out of the one course of conduct – the efforts the entity took to avoid or reduce the potential for making a false or misleading statement, considering whether there have been previous incorrect statements, or whether they were aware or should have been aware of the potential for error – governance processes the entity had in place, and – the seriousness of the issues which led to the false or misleading statements • the nature and degree of impact the false or misleading statement had on third parties • whether the entity gained a real (or perceived) benefit as a result of the false or misleading statement • what remedial action, if any, the entity took before being notified of an examination by us, to avoid a recurrence • the need for specific and general deterrence • the entity's compliance history, giving particular consideration to any previous false or misleading statements, especially of the same or similar nature, and • any other factors which may be relevant. • the circumstances in which the errors which caused the false or misleading statements occurred, such as – whether the errors were properly distinct or arose out of the one course of conduct – the efforts the entity took to avoid or reduce the potential for making a false or misleading statement, considering whether there have been previous incorrect statements, or whether they were aware or should have been aware of the potential for error – governance processes the entity had in place, and – the seriousness of the issues which led to the false or misleading statements • the nature and degree of impact the false or misleading statement had on third parties • whether the entity gained a real (or perceived) benefit as a result of the false or misleading statement • what remedial action, if any, the entity took before being notified of an examination by us, to avoid a recurrence • the need for specific and general deterrence • the entity's compliance history, giving particular consideration to any previous false or misleading statements, especially of the same or similar nature, and • any other factors which may be relevant. – whether the errors were properly distinct or arose out of the one course of conduct – the efforts the entity took to avoid or reduce the potential for making a false or misleading statement, considering whether there have been previous incorrect statements, or whether they were aware or should have been aware of the potential for error – governance processes the entity had in place, and – the seriousness of the issues which led to the false or misleading statements Penalty is disproportionate to misstatement 135. Because penalties for false or misleading statements that do not result in a shortfall amount are based on a fixed number of penalty units, situations may arise where relatively small errors receive penalties which are disproportionate to the size of the misstatement. 136. This commonly occurs when a small adjustment is made to an entity in a loss situation and the penalty is larger than the shortfall penalty which would have applied if the entity were not in a loss situation. 137. Where this occurs, it is appropriate to consider remitting the penalty in part, to an amount which is proportionate to the size of the misstatement. Where the entity has taken reasonable care but the actions of their registered agent makes them liable to a penalty 138. An unjust result may also occur where the entity has made a genuine attempt to comply (they have taken reasonable care), but because of the actions of their registered agent, the entity is liable to a penalty and safe harbour does not apply (for example, because the agent was reckless in their application of the law or some information was not provided to the agent). 139. While remission is possible in this situation, it would be unusual for full remission to be given, because entities are responsible for the actions of their agent. Remission is also less likely or may be for a lesser amount where the tax agent intentionally disregarded the law. Significant global entities 140. An entity (which is not an SGE at the time they make a false or misleading statement) may be treated as an SGE on the basis of their last lodged return, default assessment or a determination by us, and have a penalty multiplier (double penalty) used to assess their penalties. 141. When the entity lodges a return for the period which includes the date of the false or misleading statement, and which shows that they were not an SGE at the time of the statement, the penalty will be recalculated on the basis that they were not an SGE. 142. However, if the entity requests remission of the penalty multiplier prior to that return being lodged, and is able to provide sufficient evidence that they were no longer or likely not an SGE at the time of the statement, remission of the additional penalty would be appropriate. 143. For example, a change in SGE status may have occurred as a result of the Australian entity being sold to a new owner, or the SGE may have divided its group, sold off some parts of its business, demerged, restructured, had their turnover drop significantly or go through some other change which affects their SGE status after the period covered by their last return or default assessment. | Notifying the entity: 144. We must give a written notice to the entity [48] telling them of: • their liability to pay the penalty, after any reductions or remissions (or both) • why they are liable to the penalty, and • where a penalty has not been remitted in full, why the penalty has not been remitted in full. • their liability to pay the penalty, after any reductions or remissions (or both) • why they are liable to the penalty, and • where a penalty has not been remitted in full, why the penalty has not been remitted in full. 145. Where there is a liability to a penalty assessed, we are required to provide reasons for the decisions made that set out the findings on material questions of fact and refer to the evidence or other material that those findings were based on. 146. The law does not require us to give reasons for the penalty decision where the penalty has been reduced or remitted to nil. However, it is still prudent to advise the entity of a summary of our reasons or alternately advise the entity of the penalty outcome and ensure the entity is aware of why the error occurred and has been provided with sufficient information or education to potentially avoid the same error in future. [49] 147. These reasons for decision should be provided to the entity at the same time as or before they have been given the notice of assessment. If that is not possible it should occur as soon as possible after they have been notified of the penalty. 148. You must also record complete reasons for the penalty decisions on the relevant ATO system (but this could be the same document as the reasons for decision sent to the taxpayer). 149. The reasons for decision and notice of liability (the notice of assessment for the penalty) are separate documents and may be sent to the taxpayer either separately or together. | Right of review: 150. An entity that is dissatisfied with any element of the penalty assessment may object to the penalty assessment as long as there is a liability. [50] 151. If a remission decision is made after an assessment of the penalty, the entity may also object to the separate remission decision if the amount remaining after remission is more than 2 penalty units. 152. Where there is no liability to a penalty because the penalty has been reduced in full or to 2 penalty units or less for a separate remission decision because of an exception, reduction, voluntary disclosure or remission, there is no objection right. | More information: 153. For more information, see: • MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard • MT 2012/3 Administrative penalties: voluntary disclosures • PS LA 2008/3 Provision of advice and guidance by the ATO • PS LA 2016/5 The disclosure of information and documents collected by the Registrar of the Australian Business Register. • MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard • MT 2012/3 Administrative penalties: voluntary disclosures • PS LA 2008/3 Provision of advice and guidance by the ATO • PS LA 2016/5 The disclosure of information and documents collected by the Registrar of the Australian Business Register. 154. The examples provided in this Practice Statement should be used as a general guide of the principles only. The facts and circumstances will differ from case to case, and each case should be looked at on its own merits. | Examples of what would be considered a 'material particular': 155. The examples on material particulars do not imply that the entities will be liable to a penalty and are only for the purposes of illustrating the material particular | Example 1 – statements contributing to loss: 156. An entity lodges a tax return that indicates they incurred a loss of $10 million for that income year. In the following income year, the entity carried forward the $10 million loss and disclosed a current year loss of $5 million. 157. A review of the entity's tax affairs for the 2 income years determines the entity failed to declare all their income and in fact had a $7 million loss in the first year and a $5 million loss in the second year. 158. For the first income year, the tax officer examines each false or misleading statement on the tax return that contributed to the incorrectly claimed $3 million loss and considers the imposition of a false or misleading statement penalty for each of the statements. The statements in the tax returns are material particulars as they were required to correctly determine the relevant loss amounts. 159. In the second income year, the tax officer does not consider assessing a false or misleading statement penalty on the statement that there is a carry forward loss of $10 million, even though it is incorrect. The statement is restating the position from the previous return and is considered to be a 'second statement' of the same facts and should not be reviewed for the purposes of this penalty. | Example 2 – entity registers for an Australian business number: 160. An individual entity registers for an Australian business number (ABN) and GST in order to claim input tax credits on a car they intend to purchase. When applying for the ABN, the entity indicates that they had set up a new business. When queried, the entity advises they are a subcontractor who bears commercial risks and can delegate decisions. Because of this statement, the conclusion is reached that they are carrying on an enterprise and their ABN and GST applications are processed. 161. In fact, the entity is an employee and the statement that they are able to delegate and subcontract their work is a false or misleading statement. The statement is material because the ability to delegate and assume commercial risks are indicators that an entity is carrying on an enterprise as an independent contractor [51] , and the carrying on of an enterprise is an essential element in determining whether an entity is entitled to an ABN. 162. Statements that impact on decisions regarding an entity's entitlement to be registered for regimes we administer have a clear nexus (or direct link) to taxation laws and are material particulars. Example 3 – employer requires potential employee to get an Australian business number; statements by employer and employee 163. An employer informs prospective employees that they must acquire an ABN before they can be hired. If a potential employee applies for an ABN and provides incorrect information stating that they are operating as a subcontractor, this would be a material particular, as in Example 2 of this Practice Statement. 164. The statement by the employer would not be subject to the penalty provisions. This is because, while the statement was about taxation law, it was not a statement required or permitted to be made under a taxation law. | Example 4 – director penalty notice: 165. The director of a company is served with a director penalty notice (DPN) under Division 269. She later advises us that she had resigned as a director 6 months before the DPN was served and is therefore not liable to the penalty. 166. An Australian Securities and Investments Commission (ASIC) search confirms the resignation but also shows the form regarding resignation was lodged 4 days after the DPN was served. ASIC did not question the timing of the alleged resignation. 167. Based upon activity statements lodged and signed by her as director after her 'resignation' and conversations with us where she claimed to be a director, we are satisfied that she has made a false statement. 168. The false statements are directly pertinent to determining a director's liability under the DPN provisions and are therefore material particulars. 169. The statement to ASIC is not a statement made for a purpose connected with a taxation law. | Example 5 – incorrect invoices: 170. A large tax credit for GST is claimed by Helen. In response to a request for an invoice to show the credit claimed, Helen supplies an invoice from Glenn. 171. When interviewed, Glenn states Helen had asked him for a tax invoice, with a credit of $12,000. As a friend, he supplied it. He did not seek advice from us or a tax professional. 172. Glenn has made a false or misleading statement to Helen (a person other than us) in the form of the statements made in the tax invoice purporting that GST was included in the supply. The statement is material as it relates to the entitlement to a GST credit and it is a statement that purports to be required by a taxation law (GST law requiring tax invoices to be provided for taxable supplies within 28 days of the recipient of the supply requesting a tax invoice). | Example 6 – incorrect tax file numbers provided to and by a super fund: 173. A large APRA-regulated fund has 1,000 new members, who all provided their TFN details to the fund when they completed the application form to be a new member. The fund lodges an MCS, reporting the TFNs as provided to them by the new members. 174. We review the information contained on the MCS and advise the fund that 21 of the reported TFNs are invalid for the following reasons: • 8 of the TFNs reported are duplicate TFNs which belong to other existing members of the fund • 6 of the TFNs reported have insufficient digits for the TFN to be valid, and • 7 of the TFNs reported are not correct and are not the valid TFN of the member. • 8 of the TFNs reported are duplicate TFNs which belong to other existing members of the fund • 6 of the TFNs reported have insufficient digits for the TFN to be valid, and • 7 of the TFNs reported are not correct and are not the valid TFN of the member. 175. The statements by these 21 members to the fund are a material particular, as a valid TFN is required to determine the correct taxing of contributions and other items under the taxing acts. The taxpayers may be liable to a penalty under subsection 284-75(4) for the incorrect information provided to the fund. 176. The statements made to us by the fund are also false or misleading in a material particular. These false or misleading statements are material particulars because this information is required in the approved form for the statement pursuant to section 390-5. [52] | Example 7 – questionnaires or requests for information: 177. The ATO runs a project investigating entities with overseas accounts. A sample of taxpayers known to be sending amounts of money offshore is selected. We send these taxpayers a questionnaire asking for details of transactions undertaken to assist us in determining whether further action is warranted. 178. Some taxpayers return a partially completed form with some questions unanswered. This lack of information leaves us unable to determine if there is a need to continue examining the entity to determine if the return lodged by the entity was correct. 179. By not completing the form in full, the entities may potentially have made statements that are false and misleading in material particulars because of things having been omitted. The statements are of material particulars because the statements were to be made for the purposes of reporting income-related information to us. The purpose of sending these taxpayers the form is for us to understand the true tax position and obtain further details about their overseas accounts and their reasons for sending amounts of money offshore. Such examination is within the Commissioner's powers and functions and statements made to us are made for a purpose connected with taxation law. Provided that the purpose of the questionnaire is objectively apparent, the penalty applies. 180. The matter is considered important enough for a questionnaire to be designed by us and it is intended that the information gained from such a questionnaire is material to determining an essential ATO function (namely the scope of audit activities on select individuals). Furthermore, the purpose and context of the statements being provided is implicit in the form itself by its particularity to questions regarding overseas accounts. It is also likely that the information would be relevant to the actual taxation position of the taxpayer. 181. However, if the document sent to the taxpayers appears to be a voluntary or statistical questionnaire or does not have an identifiable purpose or, specific questions in it do not have an identifiable purpose, it may be more difficult or not possible to establish that the responses have the quality of material particulars, as there may be no objective connection with a relevant purpose. 182. There may also be issues of fact as to whether an unanswered question amounts to an omission, a choice to not answer, or a response of 'nil' in documents that are not approved forms or formal information notices. | Example 8 – incorrect information provided in return: 183. A taxpayer states in a company tax return that its core business is millinery (hat-making) but, in fact, the entity is a builder. A deemed assessment issues. In the circumstances of this case, the lodgment of a tax return containing an incorrect statement about a taxpayer's core business is not likely to be a material particular. While not covered directly by the statutory purpose of the return, a statement specifically explaining the particular purpose for the information may make it a material particular in respect of that stated purpose. 184. The statement may have ramifications in our overall assessment of the compliance risk of the taxpayer, or it may potentially affect the industry parameters for us in assessing the taxpayer's industry. However, the statement is not determinative of the taxpayer's liability in any way, nor does a taxation or superannuation law provide for the making of such a statement in the tax return. 185. However, this determination needs to be made on a case-by-case basis, taking into account the overall circumstances of the taxpayer and the reasons why the questions are asked. If this statement was made during an audit where a case officer was seeking to understand what transactions were occurring and the nature of the business to determine the tax-related liability, it is likely that this is a material particular. | Example 9 – incorrect loss changed to taxable position: 186. An entity lodges a tax return for the 2016–17 income year, showing $10 million of losses carried forward to later income years. 187. An examination reveals the entity overstated their deductions and was only entitled to carry $4 million of losses forward to later income years. The adjustment to the losses does not result in a shortfall amount. 188. Prior to the audit, the entity also lodged a tax return for the 2017–18 income year, where they reported a profit and utilised $8 million in prior-year losses. This return was correct, except for the losses carried forward from 2016–17, but the consequential amendment changes the entity from being non-taxable to being taxable. 189. We should consider imposition of shortfall penalties for the 2017–18 tax return, where the incorrectly reported losses were claimed as deductions. | Example 10 – core and non-core statements: 190. A tax officer is allocated an audit of an employer for the 2016–17 income year to determine the correct pay as you go (PAYG) withholding amounts. PAYG withholding amounts reported by employees in their tax returns total $523,000, whereas the total of the amounts reported at label W2 on the BAS lodged by the entity was only $475,000. 191. The tax officer notifies the employer of the examination of the BAS for the 2016–17 year and commences the audit. He identifies the total PAYG withholding amounts are $547,200 (identifying a shortfall amount of $72,200). Identifying this shortfall amount is the core activity for the tax officer and penalties for false or misleading statements that result in shortfall amounts will be considered. 192. During the examination, the tax officer also becomes aware that amounts at label W1 on the BAS for salary, wages and other payments are understated. The reported amount was $1.1 million but the total based on employee tax return data was $1.3 million. This false or misleading statement does not result in a shortfall amount. There was no evidence found to show that the amounts were understated through recklessness or intentional disregard. The examination of this statement would be incidental to the audit and would not be further examined for the purposes of assessing a penalty. | Example 11 – SMSF loan to members: 193. An SMSF makes loans to members. When completing the SMSF annual return, the trustees of the SMSF does not indicate the loans have been made. This statement is false. 194. The statement is material because it is directly relevant to determining whether the fund is compliant with the regulatory obligations under the SISA. 195. Statements that have an effect on determining whether an entity has satisfied the regulatory requirements under a taxation law are 'tax-related matters' as super law provides for the making of such statements, and they have a direct impact on determining an entity's tax position. 196. We notify the trustees of the SMSF that an examination is to be made for a relevant period. 197. During the examination, the tax officer identifies the false statement about the loans. The facts and evidence indicate that the SMSF trustees were acting recklessly. The records of the fund show clearly that 3 loans to members were made during the relevant period. 198. The trustees should have reported these SISA contraventions to us. 199. A penalty amount of 40 penalty units is imposed on the SMSF, as: • the trustees of the SMSF did not make a voluntary disclosure • the trustees did not hinder us from finding out about the false or misleading nature of the statement as they were not aware of the false nature of the statement • the trustee did not rely on advice, a publication or a general administrative practice when they made the statement, and • a BPA has not been previously worked out for a false or misleading statement that didn't result in a shortfall amount. • the trustees of the SMSF did not make a voluntary disclosure • the trustees did not hinder us from finding out about the false or misleading nature of the statement as they were not aware of the false nature of the statement • the trustee did not rely on advice, a publication or a general administrative practice when they made the statement, and • a BPA has not been previously worked out for a false or misleading statement that didn't result in a shortfall amount. 200. The tax officer decides the trustees of the SMSF had made no real effort to report correctly and, despite a good compliance history, the penalty is not remitted. | Example 12 – adjusted member contributions statement: 201. Stuart (aged 58) is a member of an APRA-regulated fund and makes the following contributions: • $300,000 in the 2012–13 income year (which triggers the bring forward non-concessional cap of $450,000), and • $200,000 in the 2013–14 income year. • $300,000 in the 2012–13 income year (which triggers the bring forward non-concessional cap of $450,000), and • $200,000 in the 2013–14 income year. 202. These contributions are all recorded by the fund as personal contributions at the time they are made. The contributions are not treated as assessable contributions as Stuart had made them via a direct debit from his personal bank account and, with the direct debit request, gave a standard form to the fund that indicated he was making them personally and would not be claiming a tax deduction for them. The fund subsequently reports Stuart's personal contributions to us in an MCS. 203. Stuart receives an excess contributions tax (ECT) assessment for the 2013–14 income year for the $50,000 that is in excess of his non-concessional cap. 204. After receiving the ECT assessment, Stuart contacts the fund to say he had received an ECT assessment and asks the fund to change the information they had reported to us. He advises his $200,000 contribution for the 2013–14 income year should in fact have been $150,000 personal contributions and $50,000 employer contributions. He gives no other reasons or evidence to support the requested change and the fund does not ask for more information. The fund had never previously received employer contributions for Stuart and had no record of who his employer was. 205. The fund amends its MCS to reduce Stuart's personal contributions as requested. 206. We notify the fund an examination of their reporting is to occur for the relevant period. 207. When audited, the fund was not able to justify its decision that the $50,000 contribution was an employer contribution rather than a personal contribution and could not confirm the amended MCS was accurate. During the examination, the tax officer determines that the statement made in the amended MCS was false or misleading in a material particular. The facts and evidence support an assessment of the fund's behaviour when making the statement as reckless. 208. There are no grounds to reduce the BPA as the fund did not make a voluntary disclosure. As the fund previously had a BPA applied, the BPA amount of 40 penalty units is increased by 20%. 209. The tax officer decides the fund did not make any significant effort to provide a correct statement and the fund did not have a good compliance history because of the previous penalty applied. As a result, the tax officer decides no remission is appropriate. | Example 13 – false invoice supplied: 210. James provides a tax invoice in support of input tax credits claimed in an activity statement to a tax officer conducting an audit. The tax invoice was issued by another business (run by Dennis) and shows a purchase by James of $100,000 in goods. 211. The tax officer decides to examine the statement by Dennis and conducts an interview with him. During this interview, Dennis confirms that James is his brother-in-law and that he did not make the supply but provided the tax invoice in response to a request from James 'to help him out'. Dennis confirms he had not received any money from James. James' case 212. The statement James makes during the audit (the invoice he provided to the tax officer) is a false or misleading statement in a material particular that did not result in a shortfall amount. However, it is considered a supporting statement made in an attempt to hinder us from finding out about a shortfall amount (the incorrectly claimed input tax credits). 213. Since James has also made a statement which is false or misleading in a material particular that resulted in a shortfall amount when he lodged the activity statement, the BPA for the shortfall penalty is increased by 20% for hindering us. The supporting statement is not considered as a separate statement for the purposes of the no shortfall penalty. 214. The facts and evidence support a conclusion that James had been acting with intentional disregard of a taxation law for the shortfall amount and had not been making a genuine attempt to provide a correct statement. The tax officer decides not to remit any of the penalties applicable. Dennis' case 215. The tax invoice provided to James by Dennis is a false or misleading statement made to a person other than us for a taxation purpose. It is material to ascertaining the correct taxation position and it is a statement that purports to be required by a taxation law – that is, the provisions of the GST law requiring tax invoices to be provided for taxable supplies, where requested by the recipient. Dennis confirms that he was aware that the tax invoice was false as he had not made the supply. 216. Since Dennis voluntarily discloses the false or misleading nature of the statement and this saved us a significant amount of time, the BPA of 60 penalty units for intentional disregard of the law is decreased by 20%. 217. Based on the facts of the case, the tax officer decides not to remit any penalty. It was likely that in addition to preparing the false invoice, Dennis knew or should have suspected that James was using the information to keep a false record or provide false information. 218. The actions of James and Dennis could be referred for prosecution action. This is a separate decision and not dealt with in this Practice Statement. | Example 14 – debt and interest remission: 219. A person makes various statements to us in connection with entering into a payment arrangement and obtaining remission of general interest charge (GIC). One particular statement is that he had been unemployed for 3 months. A payment arrangement is entered into and remission given for a significant amount of GIC. 220. When the person defaults on the payment arrangement several months later, a different tax officer reviews the file. This review takes into account new information, including the person's tax returns for previous years. These tax returns show that the person had been employed for the full income year, including the time at which the decision was made to grant the payment arrangement and remit an amount of GIC. 221. The false or misleading information made at the time of entering into the payment arrangement and obtaining an interest remission was directly related to a material particular used in a decision made by us regarding exercising a specific statutory discretion in a particular way. 222. The statement was also directly relevant to the purpose for which it was made – that is, whether to grant a payment arrangement and remit an amount of GIC. Therefore, the statement was false in a material particular. 223. The facts and evidence support an assessment of the person behaving with intentional disregard of a taxation law. The tax officer decides the person did not make a genuine attempt to provide a correct statement and no amount of remission is appropriate. | Example 15 – tax file number omitted from a member contributions statement: 224. Peter is a new member of a large APRA-regulated super fund. Peter provides a completed membership application form when opening his new account and makes sure to include his TFN. He then makes a non-deductible personal contribution of $5,000 to the fund, which is correctly accepted in accordance with the contributions standards as the fund holds a TFN. However, an error is made when the application form is processed by the fund and the TFN is not recorded in their information systems. After the end of the income year, the fund lodges an MCS for Peter that reports the personal contribution but, as a consequence of the processing error, does not report Peter's TFN. 225. We later review the MCS provided by the fund as the contribution may have been accepted by the fund without a TFN, which is in contravention of the contributions standards. The omission of the TFN is an omission of a material particular because it was required to determine if the fund had dealt with the contribution correctly. It was also a material particular as Peter may have been a low-income earner entitled to a super co-contribution and the omission of Peter's TFN might cause us to fail to identify and determine his entitlement. 226. The fund is contacted and we advise that if there is a TFN, the fund can make a voluntary disclosure within 14 days. 227. The fund provides Peter's TFN and explains they had received the TFN from Peter when he joined the fund. However, an incorrect character entered into the system at the time of processing resulted in the TFN not reporting correctly on the MCS, even though it displayed correctly within the funds internal systems. 228. The tax officer decides this is a minor, inadvertent error and that, as the fund had taken reasonable care, the fund is not liable to a penalty. 229. The facts and circumstances relating to multiple false or misleading statements made by APRA funds may vary significantly. Final penalty decisions will be dependent upon the facts and circumstances of each case. 230. You must follow the decision-making process in Example 16 of this Practice Statement when dealing with multiple false or misleading statements by APRA funds. Example 16 – process for dealing with multiple false or misleading statements made by APRA-regulated super funds 231. An APRA-regulated super fund (APRA fund) lodges a combined MCS to the ATO. Analysis of the reported data suggests there are 350 member statements in the MCS which may not be complete or correct. 232. We notify the APRA fund that an examination is to be made for the relevant period and invite them to make a voluntary disclosure to correct any false or misleading statements within 21 days. The APRA fund responds and provides corrected information for 100 member statements within the 21-day period. 233. The examination of the remaining 250 member statements reveals they all contain inaccurate reporting of contributions. These false or misleading statements are material particulars because this information is required in the approved form for each statement. This information is critical for the effective administration of the tax and super affairs of those members, such as determining whether an ECT liability exists. 234. We seek an explanation from the APRA fund on why the mistakes occurred and gather additional information to assist us with penalty imposition and remission considerations. 235. We consider the evidence gathered and apply the principles in MT 2008/1 to conclude that the APRA fund failed to take reasonable care. For the 100 statements for which a voluntary disclosure was made, we consider the penalty should be reduced to nil, and for the other 250 statements, we recommend that significant remission is appropriate. 236. As we are considering applying multiple penalties against an APRA fund, we prepare a position paper that is referred to an internal ATO Panel. 237. The Panel, which includes Senior Executive Service (SES) officers, considers the facts, evidence and initial recommendation contained in the position paper. The role of the Panel is to provide support and advice to the decision-maker (for multiple penalties relating to APRA funds this is an SES officer). 238. The Panel considers the following aspects: • the BPA • whether safe harbour provisions applied, and • whether there were grounds to uplift or decrease the BPA due to voluntary disclosure and the remission principles set out in paragraphs 111 to 143 of this Practice Statement. • the BPA • whether safe harbour provisions applied, and • whether there were grounds to uplift or decrease the BPA due to voluntary disclosure and the remission principles set out in paragraphs 111 to 143 of this Practice Statement. 239. As the total BPA for the 250 false or misleading statements (prior to considering remission) is 5,000 penalty units (250 20 penalty units), the Panel considers what final penalty amount would be just and appropriate, having regard to the facts of the case. Significant remission of the penalty is recommended by the Panel to achieve what they consider to be a just and defensible final penalty amount. 240. The SES decision-maker considers the Panel's recommendation and issues a penalty position paper to the APRA fund advising the proposed final penalty amount. 241. If the APRA fund provides any comments in relation to the position paper, they will be considered along with any other information that may have been gathered by the tax officer. The Panel will then advise the decision-maker of any new issues or considerations. 242. The SES decision-maker will determine each step in the penalty process to ensure the final penalty amount is appropriate for the compliance behaviour shown. Our reasons for decisions, including our final penalty decision, are then communicated to the APRA fund and a penalty notice will issue to the APRA fund for the penalty amounts. | Example 17 – significant global entities: 243. A company lodges a 2017–18 tax return on 20 January 2019 and self-assesses as an SGE for that income year. 244. A penalty for recklessly making a false or misleading statement relating to incorrect invoices is imposed for a statement made in August 2018. The 2017–18 income year return is the last return lodged and is used to determine the SGE status. As this return shows that the company is an SGE, the penalty is doubled from 40 penalty units to 80 penalty units. 245. The company group is being divided and certain activities and entities have been sold as they are no longer the core business, or closed as no longer being profitable and others will be. The company considers they are no longer an SGE in the 2018–19 income year. 246. The entity can request remission of the multiplier. If we consider the entity is not, or will not, be an SGE for the 2018–19 income year, the SGE multiplier (the additional 40 penalty units) will be remitted. If the entity is not in a position to provide information that would prove or indicate they will not be an SGE, the entity may choose to not request remission. If, when the entity lodges its 2018–19 tax return, they are not an SGE, the SGE penalty multiplier will never have applied at law. As a result, the penalty amount will be recalculated and reduced to remove the SGE multiplier (the additional 40 penalty units). If the entity is not in a position to provide information that would prove or indicate they will not be an SGE, the entity may choose to not request remission. If, when the entity lodges its 2018–19 tax return, they are not an SGE, the SGE penalty multiplier will never have applied at law. As a result, the penalty amount will be recalculated and reduced to remove the SGE multiplier (the additional 40 penalty units).",MT 2008/1 | MT 2012/3 | PS LA 2008/3 | PS LA 2016/5 | Compliance with formal notices – claiming legal professional privilege in response to formal notices | TD 2011/19 | TR 2005/16 | PS LA 2012/5 | Compliance with formal notices - claiming legal professional privilege in response to formal notices | ANTS(GST)A 1999 9-25(7) | ANTS(GST)A 1999 Div 84 | TAA 1953 Sch 1 Div 269 | TAA 1953 Sch 1 127-20(2)(a) | TAA 1953 Sch 1 284-20 | TAA 1953 Sch 1 284-25 | TAA 1953 Sch 1 284-75(1) | TAA 1953 Sch 1 284-75(3) | TAA 1953 Sch 1 284-75(4) | TAA 1953 Sch 1 284-75(4)(b)(ii) | TAA 1953 Sch 1 284-75(5) | TAA 1953 Sch 1 284-75(6) | TAA 1953 Sch 1 284-85(2) | TAA 1953 Sch 1 284-90(1) | TAA 1953 Sch 1 284-90(1A) | TAA 1953 Sch 1 284-90(1C) | TAA 1953 Sch 1 284-155 | TAA 1953 Sch 1 284-220 | TAA 1953 Sch 1 284-224 | TAA 1953 Sch 1 284-225 | TAA 1953 Sch 1 298-10 | TAA 1953 Sch 1 298-20 | TAA 1953 Sch 1 298-30(2) | TAA 1953 Sch 1 388-50(2) | TAA 1953 Sch 1 390-5 | ITAA 1936 | ITAA 1997 960-555 | SISA 1993 | Crimes Act 1914 4AA | 2002 ATC 2099 | 2006 ATC 2263 | 100 CLR 644 | 2005 ATC 2001,PS LA 2008/3 PS LA 2012/5 PS LA 2016/5,ANTS(GST)A 1999 9-25(7) | ANTS(GST)A 1999 Div 84 | TAA 1953 Sch 1 Div 269 | TAA 1953 Sch 1 127-20(2)(a) | TAA 1953 Sch 1 284-20 | TAA 1953 Sch 1 284-25 | TAA 1953 Sch 1 284-75(1) | TAA 1953 Sch 1 284-75(3) | TAA 1953 Sch 1 284-75(4) | TAA 1953 Sch 1 284-75(4)(b)(ii) | TAA 1953 Sch 1 284-75(5) | TAA 1953 Sch 1 284-75(6) | TAA 1953 Sch 1 284-85(2) | TAA 1953 Sch 1 284-90(1) | TAA 1953 Sch 1 284-90(1A) | TAA 1953 Sch 1 284-90(1C) | TAA 1953 Sch 1 284-155 | TAA 1953 Sch 1 284-220 | TAA 1953 Sch 1 284-224 | TAA 1953 Sch 1 284-225 | TAA 1953 Sch 1 298-10 | TAA 1953 Sch 1 298-20 | TAA 1953 Sch 1 298-30(2) | TAA 1953 Sch 1 388-50(2) | TAA 1953 Sch 1 390-5 | ITAA 1936 | ITAA 1997 960-555 | SISA 1993 | Crimes Act 1914 4AA,,ATO Charter Compliance with formal notices - claiming legal professional privilege in response to formal notices How to make a voluntary disclosure Penalties,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20124/NAT/ATO/00001,"Step 2 – assessing the amount of the penalty | Step 3 – notify the entity of their liability | Example of the administrative approach taken in regard to the penalty | Inserted 'tax return' and footnote reference to not-for-profit self-review return. | Included vulnerability as a consideration in determining whether reasonable care has been taken and whether the penalty should be remitted. | Added reference to not-for-profit self-review return. | Updated to align with amended Practice Statement style and formatting requirements. | Content checked for technical accuracy and currency. Updated in line with current ATO style and accessibility requirements. | Removed reference to Law Companion Ruling LCR 2015/3 Subdivision 815-E of the Income Tax Assessment Act 1997: Country-by-Country reporting, given its withdrawal, effective 19 December 2025. | Inserted 'legislative instruments made' to list of tax-related matters. | Paragraph 9L and footnote 19 | Inserted to note requirements of minimum tax laws. | Paragraph 15GA and footnote 33 | For minimum tax law, the BPA is taken to be doubled if an item of table in subsection 284-90(1) applies. | Update of style and format. | Updated reference to the source of the penalty unit value. | Removed specific dollar value for a penalty unit; amended reference to the source of the penalty unit value and where to locate it. | Footnotes 4, 5, 28 and 44 | Updated for currency. Addition of BPA for significant global entities. Updated to new LAPS format and style. New examples of material particular. | Revised to reflect change in penalty unit value from 28 December 2012. | [1] Subsections 284-75(1) and (4) of Schedule 1 to the Taxation Administration Act 1953 . | [2] This will usually involve a decision about remission of the penalty. This decision can also be made after the entity has been notified of the liability. | [3] Subsections 284-75(5) and (6), or section 284-224. | [4] Refer to Examples 1 and 9 of this Practice Statement for guidance on practical application to cases involving losses. | [5] Example 10 of this Practice Statement also provides an illustration of this approach. | [6] Subparagraph 284-75(4)(b)(ii) applies to tax periods starting on or after 1 July 2017. | [7] 'Tax return' includes the not-for-profit self-review return. | [8] Subsection 388-50(2). | [9] Subsection 284-75(3). See Law Administration Practice Statement PS LA 2014/4 Default assessment penalty for guidance. | [12] Subsection 284-75(4). | [13] This includes statements made to the Registrar of the Australian Business Register. | [14] Another person is a tax officer in the course of their duties, or a Border Force officer (customs officer) in the course of their duties under a delegation from the Commissioner of Taxation. | [15] Subsection 284-75(4). | [16] Subsection 284-75(4). | [17] Division 84 of the A New Tax System (Goods and Services) Act 1999 . | [18] Subsection 9-25(7) of the A New Tax System (Goods and Services) Act 1999 . | [19] As defined in section 995-1 of the Income Tax Assessment Act 1997 . | [20] Paragraph 127-20(2)(a). | [22] International Harvester Co of Australia Pty Ltd v Carrigan's Hazeldene Pastoral Co [1958] HCA 16. | [23] Subsection 284-75(5). | [24] Subsection 284-75(6). | [25] Paragraph 28 of MT 2008/1. | [26] Paragraph 92 of MT 2008/1. | [27] Weyers v Commissioner of Taxation [2006] FCA 818. | [28] Subsection 284-75(6). 'Safe harbour' is not a term found in the law but is commonly used to describe this exception, including in the Explanatory Memorandum to the law. | [29] See paragraphs 93 to 96 of this Practice Statement and MT 2008/1 for the meanings of the terms 'reckless' and 'intentional disregard'. | [30] The value of a penalty unit is contained in section 4AA of the Crimes Act 1914 and is indexed regularly. The dollar amount of a penalty unit is available at Penalties. | [31] The term 'significant global entity' is defined in section 960-555 of the Income Tax Assessment Act 1997 . | [32] Subsection 284-90(1A). | [33] Assessment may be based on the last return lodged or an original default assessment. | [34] Subsection 284-90(1C). | [35] A reduction under section 284-224 is applied to the BPA before the formula in section 284-155 is used to determine the amount of penalty. The reduction in the formula only refers to section 284-225 (voluntary disclosures). | [36] See Law Administration Practice Statement PS LA 2008/3 Provision of advice and guidance by the ATO . | [37] For more information on general administrative practice, refer to Taxation Determination TD 2011/19 Tax administration : what is a general administrative practice for the purposes of protection from administrative penalties and interest charges ? | [38] Subsection 284-85(2). This formula is not used for reductions resulting from treating the law as applying in an accepted way. | [40] Ebner and Commissioner of Taxation [2006] AATA 525 at [19]; Ciprian and Ors and Commissioner of Taxation [2002] AATA 746. | [41] Guidance on our approach to dealing with claims for LPP can be found in Compliance with formal notices – claiming legal professional privilege in response to formal notices . | [43] Unlike shortfall penalties where the reduction rates are 20%, 80% and to nil, this false or misleading statement penalty is reduced to nil for pre-notification disclosures, and either by 20% or to nil (if the discretion is exercised) after being told of an examination. | [44] Kdouh and Commissioner of Taxation [2005] AATA 6. | [46] Capacity to pay and hardship may be dealt with through payment arrangements, compromise, release, settlement and insolvency and under other taxation or insolvency provisions, and generally not remission of penalties. | [47] See Example 16 of this Practice Statement. For APRA-regulated funds, an officer at the Senior Executive Service (SES) level is required to make the penalty decision where the potential for multiple penalties exists. | [48] Sections 298-10 and 298-20. | [49] An exception to this would be where there is some operational requirement making it impractical, such as some limited types of high-volume work where penalties have been remitted automatically. | [50] Subsection 298-30(2). | [51] Under Taxation Ruling TR 2005/16 Income tax: Pay As You Go – withholding from payments to employees . | [52] We will be required to determine if reasonable care was taken by the fund. Although this will be determined by the facts of each situation, the 7 cases where there was no anomaly with the TFN are likely to meet the reasonable care standard as the fund is entitled to rely on information from third parties which they have no reason to doubt. The 8 duplicate TFNs and the 6 TFNs that have insufficient digits are both issues that they could, and should, have identified and dealt with. | File 1-186FJGAR, 1-19TCD526, 1-1BD5YH06 | Related Rulings/Determinations: TD 2011/19 TR 2005/16 MT 2008/1 MT 2012/3 | Ciprian and Ors and Commissioner of Taxation [2002] AATA 746 2002 ATC 2099 (2002) 50 ATR 1257 | Ebner and Commissioner of Taxation [2006] AATA 525 63 ATR 1073 2006 ATC 2263 | International Harvester Co of Australia Pty Ltd v Carrigan's Hazeldene Pastoral Co [1958] HCA 16 100 CLR 644 (1958) ALJR 160 | Kdouh and Commissioner of Taxation [2005] AATA 6 58 ATR 1198 2005 ATC 2001 | Weyers v Commissioner of Taxation [2006] FCA 818 (2006) 63 ATR 268 2018 ATC 4523"
PS LA 2012/5,Administration of the false or misleading statement penalty - where there is a shortfall amount,23 August 2012,23 August 2012,Law Administration Practice Statement,False,"What this Practice Statement is about: 1. This Practice Statement provides guidance on the administration of the penalty, under subsection 284-75(1) of Schedule 1 to the Taxation Administration Act 1953, for making a false or misleading statement that results in a shortfall amount, including: • when an entity will become liable to the penalty, in the situation where the statement results in a shortfall amount, and • how the penalty is assessed, including factors to consider when making a remission decision. • when an entity will become liable to the penalty, in the situation where the statement results in a shortfall amount, and • how the penalty is assessed, including factors to consider when making a remission decision. 2. All further legislative references in this Practice Statement are to Schedule 1 to the Taxation Administration Act 1953, unless otherwise indicated. 3. Remission guidelines in this Practice Statement are to assist you in exercising the Commissioner's discretion to remit the penalty and ensure consistent treatment of entities with similar situations. These guidelines are not intended to lay down conditions that may restrict the exercise of that discretion, where it is appropriate not to do so. 4. There must be a shortfall amount for this penalty to apply. Where the statement does not result in a shortfall amount, see guidance in Law Administration Practice Statement PS LA 2012/4 Administration of the false or misleading statement penalty – where there is no shortfall amount. 5. This penalty does not apply to Crown entities. | Administering the penalty: 6. There are 3 steps in administering the false or misleading statement penalty, which must be undertaken in order. • Step 1 – determine if a penalty is imposed by law. • Step 2 – assess the amount of the penalty – determine the shortfall amount – determine the base penalty amount (BPA) – increase or reduce the BPA – determine if remission is appropriate. • Step 3 – notify the entity of the liability to pay the penalty. • Step 1 – determine if a penalty is imposed by law. • Step 2 – assess the amount of the penalty – determine the shortfall amount – determine the base penalty amount (BPA) – increase or reduce the BPA – determine if remission is appropriate. • Step 3 – notify the entity of the liability to pay the penalty. – determine the shortfall amount – determine the base penalty amount (BPA) – increase or reduce the BPA – determine if remission is appropriate. | General principles: 7. The following general principles should be considered when making decisions under this penalty: • The primary purpose of the penalty provision is to encourage entities to take reasonable care to comply with their tax obligations. Generally, an entity will not be penalised where they have made a reasonable and genuine attempt to comply, because – of the reasonable care or safe harbour exceptions – the law was applied in an accepted way, or – we have remitted any remaining penalty. • The penalty provision aims to achieve a level playing field, ensuring fairness and equity for all entities and for there to be consequences for failing to take reasonable care, or not making a reasonable effort to comply correctly with their reporting obligations. • The compliance model requires us to be fair to entities wanting to do the right thing, but firm with those who are choosing to avoid their tax obligations. • The ATO Charter requires us to treat an entity as being honest. We accept that what they have told us is the truth and the information they have provided is complete and accurate unless we have reason to think otherwise. • We must consider the individual circumstances of each case, including the background and experience of the entity and whether the individual is experiencing, or had experienced, vulnerability. • Decisions must be supported by the available facts and evidence. Conclusions about an entity's behaviour should only be made where they are supported by, or can be reasonably inferred from, the facts. • The entity should be contacted and given the opportunity to explain their actions before a penalty decision is made. Exceptions to this general principle might include fully automated data-matching cases or where the facts of the case clearly show deliberate disengagement from the taxation system. • The primary purpose of the penalty provision is to encourage entities to take reasonable care to comply with their tax obligations. Generally, an entity will not be penalised where they have made a reasonable and genuine attempt to comply, because – of the reasonable care or safe harbour exceptions – the law was applied in an accepted way, or – we have remitted any remaining penalty. • The penalty provision aims to achieve a level playing field, ensuring fairness and equity for all entities and for there to be consequences for failing to take reasonable care, or not making a reasonable effort to comply correctly with their reporting obligations. • The compliance model requires us to be fair to entities wanting to do the right thing, but firm with those who are choosing to avoid their tax obligations. • The ATO Charter requires us to treat an entity as being honest. We accept that what they have told us is the truth and the information they have provided is complete and accurate unless we have reason to think otherwise. • We must consider the individual circumstances of each case, including the background and experience of the entity and whether the individual is experiencing, or had experienced, vulnerability. • Decisions must be supported by the available facts and evidence. Conclusions about an entity's behaviour should only be made where they are supported by, or can be reasonably inferred from, the facts. • The entity should be contacted and given the opportunity to explain their actions before a penalty decision is made. Exceptions to this general principle might include fully automated data-matching cases or where the facts of the case clearly show deliberate disengagement from the taxation system. – of the reasonable care or safe harbour exceptions – the law was applied in an accepted way, or – we have remitted any remaining penalty. | What a false or misleading statement penalty is for the purposes of this Practice Statement: 8. A false or misleading statement penalty is imposed where an entity or their agent: • makes a statement to the Commissioner or another entity exercising powers or performing functions under a taxation law • the statement is false or misleading in a material particular, whether because of things in it or omitted from it, and • the statement results in a shortfall amount. [1] • makes a statement to the Commissioner or another entity exercising powers or performing functions under a taxation law • the statement is false or misleading in a material particular, whether because of things in it or omitted from it, and • the statement results in a shortfall amount. [1] | What a statement is: 9. A statement is anything that is disclosed for a purpose connected with a taxation law orally or in writing and includes those made electronically. 10. Statements may be made in correspondence, in a registration form, an activity statement, a request for amendment or any other communication. 11. Where an entity lodges a form, the form itself is not the statement that is made. The statement is the information at the individual labels or questions. This means more than one statement can be made on a form. 12. Statements may also be made by omission, if an entity fails to include material information in a document that requires that information to be supplied. | Who the statement is made to: 13. The statement must have been made to the Commissioner or to another person who is exercising powers or performing functions under a tax law. 14. 'Another person' will be a tax officer in the course of their duties or a customs officer who in the course of their duties is authorised to administer an indirect tax law under a delegation from the Commissioner – for example, administering the indirect tax provisions on taxable importations. | Whether the statement is false or misleading in a material particular: False 15. A statement is false if it is contrary to fact or wrong. 16. It may be false because of something contained in the statement or because something is omitted from the statement. 17. If a statement was correct at the time it was made but is subsequently made incorrect because of a retrospective amendment to the law, it is not later considered false (or misleading). It is the nature of the statement at the time that it was made that is relevant. 18. It does not matter if the person who made the statement did not know that it was false. Misleading 19. A statement is misleading if it creates a false impression, even if it is literally true. 20. It may be misleading because of something contained in the statement or because of something omitted from the statement. 21. The reason it is misleading may be because it is uninformative, unclear or deceptive. In a material particular 22. A material particular is something that is likely to affect a decision regarding the calculation of an entity's tax related liability or entitlement to a payment or credit. 23. An inconsequential statement which does not affect an entity's tax position will not be a material particular for penalties for false or misleading statements that result in shortfall amounts. 24. Most of the information provided in a label in a tax return or activity statement will be a material particular. [2] It will be used to calculate a tax-related liability. | Who is liable for the penalty: 25. The entity lodging the statement, or on whose behalf the statement is lodged, is usually liable to the penalty. 26. Generally, an entity will be liable to the penalty where a statement is made by their authorised representative. This includes statements made by the agent for the entity. Also, a company will be liable to penalties resulting from statements made by an authorised employee, public officer or director. 27. Special rules apply to different entity types (such as trusts, superannuation funds and partnerships) when determining liability to the penalty. Trusts 28. Where a statement made by the trustee of a trust results in a shortfall amount for a beneficiary of the trust, the shortfall amount is treated as though it were also the trustee's shortfall amount for the purpose of the penalty. [3] This will mainly apply where a statement is made by the trustee about the net income of the trust, as this will affect the amount that a beneficiary has to include as assessable income in their tax return. 29. Where neither the trustee nor the beneficiary have exercised reasonable care, the trustee and beneficiary will both be liable to a penalty. [4] This will usually occur where: • the beneficiary controls the trustee (such as where the beneficiary is a director or shareholder of the trustee company) • the trustee and beneficiary are the same person or entity • the trustee and beneficiary acted in collusion in the matter resulting in the shortfall amount • the beneficiary directed how the tax returns should be prepared and the trustee has full knowledge of the issues leading to the shortfall, or • there were reasonable grounds for the beneficiary to have doubts about the accuracy of the information provided by the trustee about their share of the net income, but they did not act on those doubts. • the beneficiary controls the trustee (such as where the beneficiary is a director or shareholder of the trustee company) • the trustee and beneficiary are the same person or entity • the trustee and beneficiary acted in collusion in the matter resulting in the shortfall amount • the beneficiary directed how the tax returns should be prepared and the trustee has full knowledge of the issues leading to the shortfall, or • there were reasonable grounds for the beneficiary to have doubts about the accuracy of the information provided by the trustee about their share of the net income, but they did not act on those doubts. 30. The relevant behaviours of both the trustee and the beneficiary must be considered separately when imposing penalties and no penalty will apply to a trustee or beneficiary who takes reasonable care, solely due to the other party failing to take reasonable care and having penalties imposed. 31. Where a trustee has correctly reported the net income of the trust and the entitlements of the beneficiaries to that income, but a beneficiary has understated their distributions from that trust, only the beneficiary can be liable to a penalty, as the trustee has not made any false or misleading statements. 32. In the case of widely held trusts (other than attribution managed investment trusts), calculation of shortfalls relating to large numbers of ultimate beneficiaries may not be practical, and consultation will be required between the trustee and the ATO to establish an acceptable, workable solution for calculating the shortfall amounts on which penalties are based. 33. Where a penalty has been imposed on both the trustee and beneficiary for the same shortfall amount, remission will generally be given to avoid duplicating or 'doubling' the penalty. Guidance on this type of remission is covered in the remission portion of this Practice Statement and in Example 15 in this Practice Statement. Superannuation funds 34. For superannuation funds, an authorised agent also includes an administrator or superannuation supplier. 35. In cases where a superannuation fund does not have a trustee, the person who manages the fund is treated as a trustee of the fund. [5] If that person makes a false or misleading statement in relation to the fund and the fund has a subsequent shortfall amount, that person is liable to the penalty. Partnerships (other than corporate limited partnerships) 36. A partnership cannot have an income tax (or pay as you go (PAYG) instalment) liability, but it can have a tax-related liability in relation to a net amount of indirect tax [6] , PAYG withholding, fringe benefits tax (FBT) and some other taxes. 37. Each partner is jointly and severally liable to a penalty assessed on the partnership shortfall amount. If one partner is not at fault for the partnership having a shortfall amount, that partner will still be liable to pay the penalty in full. [7] 38. The penalty will be assessed on the shortfall amount of income tax reflected in the partner's individual tax return. [8] 39. For example, if a partnership is made up of 2 partners who are entitled to share in profits equally, and the net partnership income was understated by $2.5 million, each partner will be liable to a penalty on the shortfall amount resulting from the understated $1.25 million in their individual tax returns. | Exceptions to the penalty: 40. The following 2 exceptions result in no liability to a penalty: • the entity and their agent (if relevant) took reasonable care in connection with making the statement [9] , or • a 'safe harbour' applies to the statement. [10] • the entity and their agent (if relevant) took reasonable care in connection with making the statement [9] , or • a 'safe harbour' applies to the statement. [10] 41. For statements made on or after 4 June 2010, applying the law in an accepted way is not an exception but reduces the BPA when calculating the BPA. [11] | Reasonable care: 42. The concept of reasonable care is explained in Miscellaneous Taxation Ruling MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard. 43. The 'reasonable care test' requires an entity to make a reasonable and genuine attempt to comply with obligations imposed under a taxation law. This means taking into account all actions leading up to the making of the statement. 44. Making a genuine attempt means that the entity was reasonably attempting to comply with tax obligations. When considering if a reasonable or genuine attempt has been made, we compare the entity's actions and circumstances with that of other entities in similar circumstances. 45. The fact that a false or misleading statement was made does not automatically mean there was a failure to take reasonable care. An entity should be presumed to have taken reasonable care unless the facts or reasonable inferences suggest otherwise. There must be evidence that the entity's attempt to comply has fallen short of the standard of care that would reasonably be expected in the circumstances before they are liable to a penalty. 46. The effort required is one commensurate with or appropriate to the entity's circumstances, including their knowledge, education, experience and skill. [12] A higher standard of care is expected of an entity dealing with a matter that involves a substantial amount of tax or involves a large proportion of the overall tax payable. [13] In borderline cases, it can be more readily accepted that an entity has exercised reasonable care where the entity has a good compliance history. 47. All of the following factors are also relevant when assessing reasonable care: • whether reasonable attempts were made to keep records and to set up processes and systems, including the training of staff • if the error was an inadvertent mistake – for example, an isolated transposition mistake or a data entry error which was not the result of systematic issues • for mistakes in interpreting the law or the facts and law, if reasonable enquiries were made, including whether – the entity conducted a level of enquiry commensurate with the risk of the decision and their resources, or – the entity just assumed the statement was correct • whether the entity was aware, or should have been aware, of the correct treatment of the law or of the facts, noting – an entity should not rely on advice they have received where a reasonable person would be expected to know the advice is not worthy of such reliance [14] , and – an entity is not obliged or entitled to blithely accept assurance by their professional adviser • whether any factors prevented the entity from seeking advice, understanding the requirements of the tax law or reporting correctly • whether it was a new, unusual or extraordinary transaction, as these transactions should have higher levels of care associated with them (the care and investigation expected is also relative to the size of the transaction), and • whether the entity's level of knowledge, understanding of the tax system or personal circumstances impacted their compliance, considering – whether a registered tax agent or BAS agent was used and the agent's knowledge and understanding – the entity's level of sophistication relating to tax matters – the level of knowledge, education, experience and skills of relevant persons involved with the entity – the personal circumstances of relevant persons involved, including age, health and background, and – whether the individual is experiencing, or had experienced, vulnerability (including, but not limited to, family violence, financial coercion, homelessness or serious mental health challenges). • whether reasonable attempts were made to keep records and to set up processes and systems, including the training of staff • if the error was an inadvertent mistake – for example, an isolated transposition mistake or a data entry error which was not the result of systematic issues • for mistakes in interpreting the law or the facts and law, if reasonable enquiries were made, including whether – the entity conducted a level of enquiry commensurate with the risk of the decision and their resources, or – the entity just assumed the statement was correct • whether the entity was aware, or should have been aware, of the correct treatment of the law or of the facts, noting – an entity should not rely on advice they have received where a reasonable person would be expected to know the advice is not worthy of such reliance [14] , and – an entity is not obliged or entitled to blithely accept assurance by their professional adviser • whether any factors prevented the entity from seeking advice, understanding the requirements of the tax law or reporting correctly • whether it was a new, unusual or extraordinary transaction, as these transactions should have higher levels of care associated with them (the care and investigation expected is also relative to the size of the transaction), and • whether the entity's level of knowledge, understanding of the tax system or personal circumstances impacted their compliance, considering – whether a registered tax agent or BAS agent was used and the agent's knowledge and understanding – the entity's level of sophistication relating to tax matters – the level of knowledge, education, experience and skills of relevant persons involved with the entity – the personal circumstances of relevant persons involved, including age, health and background, and – whether the individual is experiencing, or had experienced, vulnerability (including, but not limited to, family violence, financial coercion, homelessness or serious mental health challenges). – the entity conducted a level of enquiry commensurate with the risk of the decision and their resources, or – the entity just assumed the statement was correct – an entity should not rely on advice they have received where a reasonable person would be expected to know the advice is not worthy of such reliance [14] , and – an entity is not obliged or entitled to blithely accept assurance by their professional adviser – whether a registered tax agent or BAS agent was used and the agent's knowledge and understanding – the entity's level of sophistication relating to tax matters – the level of knowledge, education, experience and skills of relevant persons involved with the entity – the personal circumstances of relevant persons involved, including age, health and background, and – whether the individual is experiencing, or had experienced, vulnerability (including, but not limited to, family violence, financial coercion, homelessness or serious mental health challenges). Using a registered tax agent or BAS agent 48. Even if an entity uses a registered tax agent or BAS agent, they are still expected to take a prudent attitude to their tax affairs. Engaging an agent does not, by itself, mean that reasonable care has automatically been taken, and entities are still required to set up appropriate reporting and recording systems, provide all relevant taxation information to their agent and answer questions or provide information to their agent. 49. An entity will generally be found not to be making a genuine attempt to comply with their obligations where they do not query advice that: • is obviously incorrect or does not apply to their circumstances • produces an odd or irregular outcome, or • seems an extraordinary treatment of tax matters, which a comparable, ordinarily prudent person would investigate further. • is obviously incorrect or does not apply to their circumstances • produces an odd or irregular outcome, or • seems an extraordinary treatment of tax matters, which a comparable, ordinarily prudent person would investigate further. 50. The more complex the area of tax law involved, the greater the monetary amount involved or the more 'sophisticated' the entity, the greater the level of enquiry that is expected. 51. Before signing documents lodged on their behalf, an entity is also expected to confirm, to an appropriate extent, that the document reflects the information they provided to their tax agent. 52. As noted earlier in this Practice Statement, the entity is liable to penalties for statements made by their agent if reasonable care is not taken by the agent. 53. A registered agent will be subject to a higher standard of care that reflects the level of knowledge and experience a reasonable person in their circumstances will possess. The appropriate benchmark is the level of care that would be expected of an ordinary and competent practitioner practising in that field and having the same level of expertise. 54. Registered agents are not required to extensively audit or review books, records or other source documents to independently verify the entity's information. It will not be possible or practical for an agent to scrutinise every item of information supplied. What is appropriate will depend on the individual circumstances of the entity and the registered agent. However, reasonable enquiries must be made if the information appears to be incorrect or incomplete. Reasonable care – beneficiaries of trusts 55. If a beneficiary relies on the trustee's advice about their share of the net income of the trust, they will generally be taken to have exercised reasonable care unless they knew, or could reasonably be expected to have known, that the information was wrong. 56. In most cases where incorrect, incomplete or misleading advice was provided to the beneficiary, it will be appropriate to consider whether the trustee took reasonable care in respect of the shortfall amounts of all the beneficiaries. | Safe harbour: 57. The safe harbour [15] provided for in subsection 284-75(6) [16] provides that an entity will not be subject to a penalty as a result of certain actions (or omissions) of their registered tax or BAS agent, as long as: • they gave all the relevant tax information necessary for the statement to be correctly prepared to the agent • the agent made the statement, and • the agent did not act recklessly or with intentional disregard of the law. [17] • they gave all the relevant tax information necessary for the statement to be correctly prepared to the agent • the agent made the statement, and • the agent did not act recklessly or with intentional disregard of the law. [17] 58. This means the safe harbour exception applies only where the agent made the statement, is registered and has failed to take reasonable care. 59. Each statement has to be considered separately. 60. Where safe harbour applies, the penalty is not transferred to the tax agent. All relevant taxation information 61. The safe harbour exception will only apply if the entity provides their registered agent with all relevant taxation information about a particular matter. 62. Whether or not all the relevant taxation information was provided needs to be considered objectively. It does not matter if the entity genuinely believed they provided all relevant information. The exception will not apply if the entity omitted or did not supply any part of the relevant information, or gave incorrect or conflicting information. 63. Registered agents are not required to view all source documents, and it is often impractical for them to do so. 64. An entity may provide some information to their registered agent in a summary and the registered agent may reasonably rely on that for preparation of the statement. However, a summary which is incorrect or omits material information will not meet the requirement to provide all relevant taxation information, even if reasonable care for a registered agent would have involved querying the information. 65. The entity has the burden of proof to establish that they provided all relevant taxation information. The standard of proof required is 'on the balance of probability' or 'more likely than not'. If the probability either way is equal, then the standard is not satisfied. 66. You would usually need to contact the registered agent if the entity is claiming the safe harbour exception to the penalty. Without doing so, it would be difficult to assess their actions and whether they exercised reasonable care or know what information they requested from their client. 67. However, contact with the registered agent is not mandatory. If you have been unable to contact the registered agent, a decision can be made on the information available. 68. Safe harbour can be considered even if the entity or agent do not explicitly request it, as it may be clear from the statement that all relevant taxation information was provided but the registered agent did not exercise reasonable care (see Example 2 of this Practice Statement). In these cases, it is still generally appropriate to contact the registered agent to discuss safe harbour, but you are not required to do so in order to apply safe harbour. | Example 1: 69. A case officer conducts an examination of interest income and rental deductions reported in an entity's tax return. 70. The case officer discovers that false or misleading statements had been made for both of these items. 71. They determine that the entity and its registered agent failed to take reasonable care in relation to the 2 shortfall amounts and therefore the reasonable care exception in subsection 284-75(5) (or former subsection 284-215(2)) does not apply. To determine if the safe harbour exception in subsection 284-75(6) or former subsection 284-75(1A) applies, each item needs to be considered separately. 72. The entity provided all relevant information to the registered agent in relation to the interest income but failed to provide all information relating to the rental deductions. The entity is entitled to the safe harbour exception in relation to the interest income but not in relation to the rental deductions. | Example 2: 73. Jock provides Ian (his registered agent) with details of the purchase of a new car for his business, as well as other information. Ian claims a deduction for the full price of the car in Jock's tax return. 74. During an audit, Ian shows that the car was used solely for business purposes, but agrees the deduction should have been only for the depreciation of the car. Ian does not comment on or explain why the item was expensed instead of being depreciated. 75. We consider that Jock must have provided the relevant information to Ian, because Ian knew that a car was purchased for the business and the price that was paid, as evidenced by the inclusion of the amount in the tax return. If we decide that Ian failed to take reasonable care, safe harbour could be applied without either Jock or Ian requesting it. However, we would generally attempt to obtain information from Ian before making the decision. | Working out the penalty amount: 76. The penalty is assessed in 4 stages: • Stage 1 – determine the shortfall amount • Stage 2 – work out the BPA • Stage 3 – increase or reduce the BPA • Stage 4 – consider remission of the calculated penalty amount. • Stage 1 – determine the shortfall amount • Stage 2 – work out the BPA • Stage 3 – increase or reduce the BPA • Stage 4 – consider remission of the calculated penalty amount. | Stage 1 – determining the shortfall amount: 77. For the purposes of the false or misleading statement penalty, a shortfall amount [18] is the amount: • by which a tax-related liability [19] is less than it would have been if the statement were not false or misleading, or • by which a payment or credit that we must make under a taxation law is more than it would have been if the statement were not false or misleading. • by which a tax-related liability [19] is less than it would have been if the statement were not false or misleading, or • by which a payment or credit that we must make under a taxation law is more than it would have been if the statement were not false or misleading. 78. A shortfall amount is usually worked out for the accounting period for which the tax-related liability or credit is calculated. However, it might also be worked out on an 'event' basis. An event might be, for example, a taxable importation or wine equalisation tax raised on a custom's dealing. 79. Shortfall amounts are not offset against credits arising from other accounting periods or events. | Example 3: 80. Pellagreen Enterprises lodges its tax return for the 2016–17 income year, disclosing assessable income of $350,000 and deductions of $30,000. No tax offsets are claimed. During a subsequent examination, it is discovered that rental income of $200,000 and rental outgoings of $80,000 have not been disclosed. The tax rate is 30%. The shortfall amount is the amount by which the tax-related liability is understated: Actual tax liability ($350,000 − $30,000) + ($200,000 − $80,000) = $440,000 × 30% = $132,000 Returned tax liability ($350,000 − $30,000) = $320,000 × 30% =$96,000 Shortfall amount = $36,000 Actual tax liability ($350,000 − $30,000) + ($200,000 − $80,000) = $440,000 × 30% = $132,000 Returned tax liability ($350,000 − $30,000) = $320,000 × 30% =$96,000 Shortfall amount = $36,000 | Example 4: 81. R-Sandow Power Co notifies in its activity statement that the goods and services tax (GST) net amount payable for a period was $250,000. During an examination, the tax officer finds that GST payable on supplies by the company was understated by $50,000 and GST credits were understated by $10,000. As the tax-related liability under the GST law is the net amount payable for the tax period, the shortfall amount is $40,000. The penalty for the false or misleading statement is worked out on that net amount (the shortfall amount), not the $50,000 understatement of GST payable on supplies. | Example 5: 82. Bill claims GST credits of $45,000 for GST in his activity statement, which results in a $30,000 negative net amount (overall credit) for the accounting period. He has included GST credits for an acquisition which was GST-free. Upon examination by the tax officer, the GST credits are reduced by $20,000, resulting in an adjusted credit position of $10,000. The shortfall amount is $20,000, the difference between the claimed $30,000 credit and the correct $10,000 credit. There is a shortfall amount despite the GST net amount being a credit amount both before and after the adjustment. 83. Where the statements result in a mixture of credit and debit adjustments for the tax-related liability for the accounting period, overall there must be an increase in the tax-related liability (or a decrease in the credit or payment) in order for there to be a shortfall amount. 84. A shortfall amount can arise for distinct liabilities reported on a combined form such as an activity statement. In these instances, a credit for one tax type does not reduce the liability for another tax type when calculating the shortfall amount. | Example 6: 85. Noncomp Co notifies the following amounts in its activity statement: 86. During an examination, the tax officer finds that the PAYG withholding amount for the period was $200,000 and that the GST net amount was $300,000. All the other amounts notified are correct. Although the adjustment to the GST net amount results in a credit of $20,000, there is a shortfall amount of $100,000 in the PAYG withholding liability. The penalty will be worked out on the full PAYG withholding shortfall amount of $100,000, without taking the GST credit into account. Shortfall amounts composed of more than one part 87. An entity may make a number of statements in one document which result in a number of parts to a shortfall amount. 88. Separate calculations are not necessary where the same BPA, or behaviour, applies to all parts of the total shortfall amount, unless an increase or reduction applies only to part of the shortfall amount. 89. However, where different BPAs apply for different parts of the shortfall amount, you will need to calculate the proportion of the shortfall amount for each statement. This would include where different levels of care applied in respect of each statement, where there is a BPA and an exception for the one shortfall amount or different behaviours are evident in one statement. | Example 7: 90. Scrooge Company notifies in its activity statement that the GST net amount payable for a period was $25,000. During an examination, the tax officer finds that the company intentionally disregarded a taxation law when it over claimed GST credits by $15,000 and over-claimed other GST credits by $2,000 because of a failure to take reasonable care. The shortfall amount for the period is $17,000 but in order to calculate the penalty, the part-shortfalls of $15,000 and $2,000 respectively will need to be established. Reduced liability apportionment 91. If there are 2 or more debit adjustments and a credit adjustment or adjustments, the credit adjustment amount will be allocated on a pro rata basis between the debit adjustments. There is an explanation of this process in Appendix A to this Practice Statement. Where the entity is in a loss situation 92. Adjustments may cause an entity in a loss situation to become taxable, either in the income year relating to the adjustment or in a later income year. The shortfall amount is the amount of tax properly payable. [20] 93. However, a reduction in a loss that does not result in the entity being taxable does not create a shortfall amount. [21] Other information on shortfall amounts 94. A number of additional factors may affect the calculation of the shortfall amount. An explanation and examples are included in Appendix A to this Practice Statement. | Stage 2 – working out the base penalty amount: 95. The following formula is used to work out the BPA: BPA = [(Shortfall amount − shortfall amount to extent applied a taxation law in an accepted way) × relevant percentage] BPA = [(Shortfall amount − shortfall amount to extent applied a taxation law in an accepted way) × relevant percentage] 96. Subsection 284-90(1) provides the BPA is worked out using Table 1 of this Practice Statement (and section 284-224 if relevant): Table 1: BPA percentages Situation BPA intentional disregard of a taxation law by the entity or their agent 75% of the shortfall amount or part recklessness by the entity or their agent as to the operation of a taxation law 50% of the shortfall amount or part failure by the entity or their agent to take reasonable care to comply with a taxation law 25% of the shortfall amount or part 97. The behaviours considered are those exhibited at the time of, or in connection to, the making of the statement. The guidelines for determining the behaviour are in MT 2008/1. They are described briefly in this Practice Statement, but you must use the precedential ATO view found in MT 2008/1. Base penalty amount for a significant global entity 98. For statements made on or after 1 July 2017, if an entity is a significant global entity (SGE) [22] and a BPA in an item of the table in subsection 284-90(1) applies, the BPA is taken to be doubled. [23] 99. An entity's status as an SGE must be worked out on the day the statement was made, and is based upon the most recent income year for which an income tax assessment has been made for the entity [24] or a determination by the Commissioner that the entity is an SGE at the date of the statement. Base penalty amount for minimum tax law 100. For statements made in respect of minimum tax law [25] on or after 1 January 2024, BPA in an item of the table in subsection 284-90(1) is taken to be doubled if the BPA arises in relation to Income Inclusion Rule/Undertaxed Profit Rule tax or domestic minimum tax. [26] Failure to take reasonable care 101. Failure to take reasonable care occurs where reasonable care has not been taken in connection with making the statement, but neither the entity nor their agent has been reckless or intentionally disregarded the law. Recklessness 102. Recklessness is behaviour which falls significantly short of the standard of care expected of a reasonable person in the same circumstances as the entity. It is gross carelessness. 103. Recklessness assumes that the behaviour in question shows a disregard of the risk or indifference to the consequences that are foreseeable by a reasonable person. However, the entity does not need to actually realise the likelihood of the risk for it to be reckless. Intentional disregard 104. Intentional disregard of the law is something more than reckless disregard of, or indifference to, a taxation law. 105. Intention of the entity is a critical element – there must be actual knowledge that the statement made is false. The entity must understand the effect of the relevant legislation and how it operates in respect of their affairs and make a deliberate choice to ignore the law. Reducing the base penalty amount where the entity treated the law as applying in an accepted way 106. The BPA is reduced [27] to the extent that the entity treated a taxation law in a particular way that agreed with: • advice given to them by, or on behalf of, the Commissioner • general administrative practice under that law, or • a statement in a publication approved in writing by the Commissioner. • advice given to them by, or on behalf of, the Commissioner • general administrative practice under that law, or • a statement in a publication approved in writing by the Commissioner. Reliance on advice or a statement from the Commissioner 107. Where an entity has treated a taxation law as applying in a particular way, and that way agrees with advice we gave them (in writing or orally) or a statement in a document we have published, then they may be protected from application of a penalty. [28] Alignment with a general administrative practice 108. The BPA is also reduced to the extent that an entity's behaviour aligns with our general administrative practice. 109. A general administrative practice under a taxation law is a practice which is applied by us generally as a matter of administration. It is the usual course of conduct that we apply, rather than any particular document, that is relevant in determining whether or not there is a general administrative practice. [29] Reliance on a statement in a publication 110. Publications and other documents we produce may also provide evidence of a general administrative practice. If we frequently provide advice to different taxpayers, which consistently adopts a particular practice, that will tend to support that a general administrative practice exists. | Stage 3 – increasing or reducing the base penalty amount: 111. In certain instances, the BPA worked out in Stage 2 is increased or reduced, using the following formula [30] : BPA + [BPA × (increase % − reduction %)] BPA + [BPA × (increase % − reduction %)] Increasing the base penalty amount 112. The BPA is increased by 20% where the entity [31] : • prevents or obstructs us from finding out about the shortfall amount [32] • becomes aware of the shortfall amount after the statement is made and does not tell us about it within a reasonable time, or • had a BPA worked out for this type of penalty previously, even if the penalty was remitted. • prevents or obstructs us from finding out about the shortfall amount [32] • becomes aware of the shortfall amount after the statement is made and does not tell us about it within a reasonable time, or • had a BPA worked out for this type of penalty previously, even if the penalty was remitted. 113. The increase is 20%, even if more than one of the criteria in paragraph 112 of this Practice Statement applies. [33] Increasing the base penalty amount – prevent or obstruct 114. Examples of what would constitute preventing or obstructing us would include where the entity, without an acceptable reason: • repeatedly defers or fails to keep appointments • repeatedly fails to supply information • repeatedly fails to respond adequately to reasonable requests for information, such as – by not replying to the request for information – giving information that is not relevant – not addressing all the issues in the request, or – supplying inadequate information • fails to respond to formal information gathering notices • provides false or misleading information or documents [34] • destroys records, or • a combination of these. • repeatedly defers or fails to keep appointments • repeatedly fails to supply information • repeatedly fails to respond adequately to reasonable requests for information, such as – by not replying to the request for information – giving information that is not relevant – not addressing all the issues in the request, or – supplying inadequate information • fails to respond to formal information gathering notices • provides false or misleading information or documents [34] • destroys records, or • a combination of these. – by not replying to the request for information – giving information that is not relevant – not addressing all the issues in the request, or – supplying inadequate information 115. You should also note the use of the term 'repeatedly' when considering increases for prevention or obstruction. Simply not replying to a letter or not returning a call does not indicate the entity is taking steps to prevent or obstruct us. [35] It will also not be obstruction where the incorrect information or the failure to provide information was the result of the taxpayer not understanding the request. 116. However, we hold the expectation that entities will cooperate with us. Whether or not an entity's failure to reply constitutes obstruction will depend upon the facts of the particular situation. 117. We expect that where legal professional privilege (LPP) claims are made, they are made properly. [36] Claims of LPP are not in themselves obstructive. However, in cases where the claim itself is false or misleading (for example, where the statement claiming LPP is baseless or without foundation), you should consider whether the claim was made to obstruct us. 118. If the hindrance occurs for part of a shortfall amount, the BPA is increased only on that part of the shortfall amount. Increasing the base penalty amount – previous calculation of base penalty amount 119. The BPA is increased where the entity has a previous BPA calculated of the same type as the penalty being assessed. For false or misleading statements which result in a shortfall amount, the previous calculation must also have been for a false or misleading statement which resulted in a shortfall amount. However, the previous penalty calculation does not have to be for the same issue, tax type or behaviour. 120. For example, where an entity has a shortfall penalty imposed for income tax in 2016 and a shortfall penalty imposed for GST in 2018, the previous BPA calculation will result in the 20% increase in the 2018 penalty. Also, if the 2016 penalty had been remitted in full, the BPA would have been calculated despite there ultimately being no liability, and the increase will still apply. 121. The increase will apply regardless of whether the previous penalty was assessed during a previous interaction, or whether it occurs on the same day. There is no requirement for the entity to be aware of the penalty for the increase to apply. This means that, where we assess multiple penalties of the same type at the same time, the increase will apply to the second and subsequent statements. [37] 122. The order of the statements is determined by the date on which they were made, not the period to which they relate. | Example 8: 123. An audit takes place and the entity is found to have made a false or misleading statement for GST claims for the months ending 31 May 2016 and 30 June 2016. The entity has not had a previous BPA amount worked out under table items 1, 2 or 3 of subsection 284-90(1). A BPA of 25% is worked out for the 2 periods for a failure to take reasonable care. However, for the June period, as the entity has had a previous penalty (that is, the May activity statement), the BPA for the June activity statement is increased by 20%. Generally, this increase in the penalty is remitted; see paragraph 150 of this Practice Statement. However, if the entity previously had a BPA worked out for another period, for an income tax audit in 2014, the BPA would be increased for the GST periods under examination and would not be remitted. Reducing the base penalty amount for voluntary disclosure 124. The BPA can be reduced [38] in certain circumstances where an entity voluntarily discloses a shortfall amount in 'the approved form' and this information allows us to work out the shortfall amount. This reduction only applies to that part of the shortfall amount for which the disclosure is made. 125. You must refer to Miscellaneous Taxation Ruling MT 2012/3 Administrative penalties: voluntary disclosures when making any decision regarding voluntary disclosure and the rates of penalty reduction applicable in certain situations. [39] The approved form 126. Currently, the approved form for voluntary disclosures does not require a specific format. It lists the type of information required and methods of delivery – see How to make a voluntary disclosure . The precise form and structure in which the information is supplied does not matter, provided the information required by the approved form is supplied. 127. If we can accurately determine the shortfall amount based on the information provided, the disclosure should be treated as one meeting the requirements of the approved form. The entity does not have to work out the shortfall amount itself. 128. In determining whether a voluntary disclosure has been made, it is important to recognise that an entity, making a genuine attempt to inform us of a mistake, may not be fully aware of all the information we require. 129. If the disclosure fails to meet the strict requirements of the approved form, but substantially complies with the requirements, and you can accurately determine the nature of the false or misleading statement from the information provided, the disclosure should be treated as meeting the requirements of the approved form. | Example 9: 130. Mai writes a letter to the ATO advising that she has over-claimed her work-related expenses for the 2016–17 income year by $8,700. She does not identify which item in the tax return the expense relates to. She signs the letter and provides information to prove her identity but does not make the required declaration. 131. As she had only claimed a deduction on one work-related expense item in the return, we can identify the item requiring adjustment and, although the declaration is preferable, in this instance the disclosure is accepted as being in the approved form. 132. If additional information is sought on an incomplete disclosure and it is provided within a reasonable time, the original incomplete disclosure should be treated as sufficiently complete. 133. The entity's original disclosure would not be regarded as constituting a voluntary disclosure if the facts or reasonable inferences indicate that the entity supplied incomplete information in an attempt to obstruct or hinder us from identifying the correct information (that is, the false or misleading nature of the statement), particularly where the degree of incompleteness is significant. [40] | Example 10: 134. During an examination, an entity advises that they had made a mistake regarding the treatment and pricing of purchases of equipment from an associated entity in the previous accounting period. The entity advises the tax officer that the information could be found in the files and offered access to 2 folders of material. 135. This, in itself, does not constitute a voluntary disclosure. However, if the entity was to provide details of the specific transactions, this may be considered a voluntary disclosure depending on the circumstances. | Example 11: 136. Karen is notified that an audit will commence. At the beginning of the audit, Karen is given a date by which, if she makes a voluntary disclosure, the Commissioner will exercise the discretion under subsection 284-225(5) to reduce any shortfall penalty by 80%. 137. Karen supplies some information to the tax officer on the last day of the period but it is insufficient to identify the shortfall amount. The tax officer considers that Karen is making a genuine attempt to make a voluntary disclosure. The tax officer advises her that if she supplies further information sufficient to identify a shortfall amount within a reasonable timeframe (in this case, 14 days), the tax officer will accept the voluntary disclosure as having been made on the date the earlier information was supplied. However, if the information is not provided within 14 days, the Commissioner's discretion would not be exercised but the disclosure would be considered for the 20% reduction. 138. In more complex, low-volume reviews and audits, you should: • tell the taxpayer as soon as practicable after they make a voluntary disclosure that we have received it, and • advise of the rate of penalty reduction at the same time, if it is possible and appropriate to do so. • tell the taxpayer as soon as practicable after they make a voluntary disclosure that we have received it, and • advise of the rate of penalty reduction at the same time, if it is possible and appropriate to do so. | Stage 4 – considering whether to remit the penalty: 139. We have the discretion to remit all or part of the penalty. [41] This discretion is 'unfettered', meaning that there is no legal restriction on when we can and cannot remit. Remission provides the administrative flexibility to ensure the penalty imposed is aligned with the observed behaviour. 140. However, this Practice Statement sets out guidance that must be used in exercising this discretion. Remission is not limited to the reasons listed here and you should consider remission in any situation where the final penalty is not a just outcome. 141. You must make a remission decision whenever penalties are imposed. You may decide that there are no grounds for remission or that there are grounds to remit in full or in part. The final penalty you apply must be defensible, proper and have regard to the purpose of imposition and remission of this penalty and the overall circumstances of the entity. This includes whether an individual is experiencing, or has experienced vulnerability, such as family violence, financial coercion, homelessness or serious mental health challenges. 142. You need to consider each case on its own merits, looking at all of the relevant facts and circumstances. 143. Entities in the same circumstances should be treated consistently for remission purposes. This is particularly relevant for entities involved in examinations relating to the same arrangement. However, this should not be used as justification for replicating an incorrect penalty decision made in relation to another entity. 144. Relevant matters to consider in making a remission decision include: • that the purpose of the penalty provision is to encourage entities to take reasonable care in complying with their tax obligations • that the penalty regime also aims to promote consistent and equitable treatment by reference to specified rates of penalty; this objective would be compromised if the penalties imposed at the rates specified in the law were remitted without just cause, arbitrarily or as a matter of course, and • that the amount of the penalty rate alone is not a valid reason for remission, in the absence of specific reasons why it would be unjust in the taxpayer's particular circumstances. • that the purpose of the penalty provision is to encourage entities to take reasonable care in complying with their tax obligations • that the penalty regime also aims to promote consistent and equitable treatment by reference to specified rates of penalty; this objective would be compromised if the penalties imposed at the rates specified in the law were remitted without just cause, arbitrarily or as a matter of course, and • that the amount of the penalty rate alone is not a valid reason for remission, in the absence of specific reasons why it would be unjust in the taxpayer's particular circumstances. 145. Matters that you should not usually consider include: • behaviour or situations unrelated to the relevant statement, such as the entity or registered agent becoming ill at the time of the examination, well after the statement was made • that there is 'no harm to the revenue', such as when a refund has been stopped before issuing [42] or a credit was available in another accounting period • where GST was 'not included' in working out the selling price for the transaction, because the entity could not or would not collect the GST on that supply from the purchaser, or • whether there is a capacity to pay the penalty [43] (except in relation to determining whether a trustee or beneficiary is the more appropriate entity to bear their penalty). • behaviour or situations unrelated to the relevant statement, such as the entity or registered agent becoming ill at the time of the examination, well after the statement was made • that there is 'no harm to the revenue', such as when a refund has been stopped before issuing [42] or a credit was available in another accounting period • where GST was 'not included' in working out the selling price for the transaction, because the entity could not or would not collect the GST on that supply from the purchaser, or • whether there is a capacity to pay the penalty [43] (except in relation to determining whether a trustee or beneficiary is the more appropriate entity to bear their penalty). | Examples of situations warranting remission: 146. If imposition of the penalty provides an unintended or unjust result, we may remit the penalty in whole or in part. 147. Some examples of where an unjust result could arise are outlined here. You should also consider remission in other instances where the result is unjust, having regard to the particular circumstances. Mechanical process of the law 148. In some instances, the mechanical or calculation process of the law could result in an unintended or unjust result, and remission in part or full may be warranted. 149. A tax credit for amounts withheld, such as amounts withheld from wages or interest, are included as an addition to a notice of assessment, but do not form part of the assessment or shortfall amount. Where a taxpayer under reports credits available, the shortfall amount does not change because of the credits. Because the entity has paid these amounts in the income year in question, the penalty should be remitted to the extent of the penalty calculated on an amount equal to the credit. See Example 16 in Appendix A to this Practice Statement. 150. As noted in paragraph 121 and Example 8 of this Practice Statement, remission of the 20% uplift is usually given where: • a BPA is increased because 2 or more penalties were assessed at the same time • the entity has not been advised of a previous penalty (usually because of concurrent calculation), and • the behaviour is not intentional disregard of the law. • a BPA is increased because 2 or more penalties were assessed at the same time • the entity has not been advised of a previous penalty (usually because of concurrent calculation), and • the behaviour is not intentional disregard of the law. 151. Where information is provided prior to lodgment, or as part of lodgment, of a document that but for the timing would meet or exceed the requirements of a voluntary disclosure in the approved form, remission of 80% of the BPA should generally be given to the extent of the disclosure. In some cases, it may also be appropriate to remit the remaining 20%, but is not automatic. Normal remission principles apply and specific factors to consider in these circumstances include: • how, why and when the entity disclosed the information to us, and • the extent to which the entity was aware of a potential risk when they chose to make the relevant statement. • how, why and when the entity disclosed the information to us, and • the extent to which the entity was aware of a potential risk when they chose to make the relevant statement. | Example 12: 152. Heather, the director of a company with 20 employees, fails to take reasonable care on 5 consecutive activity statements when reporting the amounts withheld from wages. The BPA worked out for the second to fifth accounting periods inclusive is increased by 20%. The tax officer decides to remit the 20% increase because Heather was not advised of the previous penalty and the behaviour was not intentional disregard of the law. | Example 13: 153. GHI Co has made a statement about a tax position in their tax return that is false or misleading in a material particular and would result in a shortfall amount. GHI Co has also lodged a Reportable Tax Position Schedule (RTPS) that clearly sets out the particulars of this statement. The information in the RTPS is not a voluntary disclosure and remission is not given simply for filling in the RTPS in accordance with the RTPS instructions. This is considered to simply be compliance with the taxation laws. 154. If GHI Co provides information to us, either in the RTPS or as a supplement to the RTPS, that is sufficient for the Commissioner to identify the basis of this statement and calculate the shortfall amount, remission of the shortfall penalty may be given to the extent of the shortfall amount identified by the information. However, remission is not given where there is evidence or reasonable inference to suggest there was intentional disregard of the law in filling in the tax return for those items. GHI Co may also make a voluntary disclosure after lodgment of the tax return and the appropriate reduction and remission will apply (see paragraphs 189 to 191 of this Practice Statement and MT 2012/3). Commissioner's discretion in relation to tax invoices or adjustment notes 155. We have the discretion to treat a document as a tax invoice or adjustment note, despite it not meeting the requirements to be a tax invoice or adjustment note. [44] Where we accept that a creditable acquisition or decreasing adjustment has been made, but do not exercise the discretion, a shortfall amount may arise. 156. In these instances, you should usually remit any shortfall penalty in full, unless it is clear the recipient [45] : • was aware of the requirements in relation to holding a valid tax invoice or adjustment note before it could attribute its claim, and • deliberately sought to gain an advantage by making the claim without holding a tax invoice or adjustment note. • was aware of the requirements in relation to holding a valid tax invoice or adjustment note before it could attribute its claim, and • deliberately sought to gain an advantage by making the claim without holding a tax invoice or adjustment note. 157. Any decision not to remit the shortfall penalty relating to the GST credit or decreasing adjustment must be approved by an Executive Level 2 officer or above. Where the actions of the tax agent are more culpable than the entity's actions 158. Sometimes an agent's behaviour is more culpable than the entity's. This can result in an unjust result. 159. For example, an unjust result may also occur in certain situations where the entity has made a genuine attempt to comply (they have taken reasonable care), but because of the actions of their tax agent the entity is liable to a penalty and safe harbour does not apply (for example, because the agent was reckless in their application of the law). 160. As an entity is responsible for the actions of their agent, except where safe harbour applies, it would be unusual for full remission to be given unless the taxpayer took reasonable care. 161. An entity does not give up responsibility simply by appointing a tax agent. They are still required to ask questions or make reasonable enquiries, commensurate to their knowledge and experience, with the tax agent about the reporting that is occurring. Additionally, they are liable for the penalty outcomes of actions of their agent unless safe harbour applies. 162. Where the entity failed to take reasonable care, some remission may still be appropriate. However, in the absence of exceptional circumstances, remission (if any) on this basis should not be below the level of behaviour exhibited by the entity unless other circumstances apply. | Example 14: 163. Donald changes accountants on the recommendation of a friend, as the friend had received a large refund. Donald uses the agent and receives a significantly higher than usual refund. A subsequent audit identifies significant shortfall amounts as a result of exaggerated deduction claims related to private expenditure. Interest deduction claims included 50% of the mortgage loan interest for the family home in which his family lived and from which Donald occasionally worked, 40% of his family's private phone bill (and Donald had a work phone), some travel to work, some family grocery expenses and numerous other private expenses. The behaviour is assessed as intentional disregard of the law. 164. Donald states this is his tax agent's fault, stating he provided his agent the information he had requested. Donald did say that he did not question the agent. He just signed the document. 165. While we do not expect Donald to ask sophisticated questions about the tax law, it would be expected for him to review the documents and to ask questions about some items – he knew he could not claim his mortgage interest and had not in the past, but had not noticed it was included in the return. He did not ask if his previous agent was wrong and why. In not making appropriate enquiries with the tax agent, and not checking, and in choosing to be 'un-curious' of their accuracy, Donald failed to take reasonable care and has been reckless. Remission of penalty is not considered appropriate. 166. This compares to Mo, who went to the same agent. Mo checked the return and noticed the large claim for interest. He told his agent he only used one room to work from home, not half the property, and that amount was reduced. Although we later find that Mo was not entitled to claim the deductions for the interest and a few other items, in this case Mo has made appropriate enquiries by asking questions about some other items and been given explanations by the agent as to why he could claim the travel expenses to work. 167. Safe harbour did not apply because of the agent's behaviour but Mo, while he could have confirmed certain more extreme information, made an attempt to understand and question the situation. Significant remission is appropriate in this situation. Trustees and beneficiaries 168. Where both trustee and beneficiary have penalties imposed for the same shortfall amount, it may be appropriate to remit one or both of the penalties, depending upon the facts and circumstances of each particular case. This is to ensure that penalties are ultimately only imposed once for any given shortfall amount. 169. In determining who should ultimately bear the penalty, you should consider: • the extent to which the respective actions of either the trustee or the beneficiary have caused the false or misleading statements • the extent to which penalising the trustee for the shortfall amount of a culpable beneficiary may penalise other 'non-culpable' beneficiaries (where the trustee can draw on the trust's assets for payment) • the capacity of the parties to pay the penalty, and • that there should be no 'double penalty' ultimately imposed on any given part of the shortfall amount (notwithstanding that penalties may be imposed on both parties until such time as information is provided to determine who should ultimately bear the penalty). • the extent to which the respective actions of either the trustee or the beneficiary have caused the false or misleading statements • the extent to which penalising the trustee for the shortfall amount of a culpable beneficiary may penalise other 'non-culpable' beneficiaries (where the trustee can draw on the trust's assets for payment) • the capacity of the parties to pay the penalty, and • that there should be no 'double penalty' ultimately imposed on any given part of the shortfall amount (notwithstanding that penalties may be imposed on both parties until such time as information is provided to determine who should ultimately bear the penalty). 170. Where a beneficiary has knowledge of the trustee's behaviour or is in a position to control the trustee, we would generally remit the part of the trustee's penalty relating to that beneficiary's shortfall amount and maintain the full penalty on the beneficiary. 171. Where, despite our attempts to obtain information from the trustee or beneficiaries, there remains insufficient information available to fairly determine which party should bear the penalty, we would maintain the full penalty amount on both the trustee and the beneficiaries, with no remission to either, and invite them to provide the necessary information to us. [46] | Example 15: 172. A delicatessen is operated by a discretionary trust. The sole beneficiaries, a husband and wife, work the shop and are sole directors of the corporate trustee of the trust. 173. Audit identifies shortfall amounts for multiple tax returns for the trust and beneficiaries, due to trust income and distributions to beneficiaries having been understated over a 3-year period. The beneficiaries took cash from the business, which they omitted from the trust's business records. They provided the incorrect records to their tax agent for preparation of both their individual tax returns and the trust tax returns. 174. The trustee and both beneficiaries are liable to statement penalties and the same BPA behaviours apply, given the beneficiaries are the controlling minds of the trust. 175. In this case, it was deemed appropriate for the beneficiaries to bear the full weight of the penalties. The penalties were maintained on the beneficiaries and remitted in full on the trustee. 176. Alternatively, using this example, if one of the 2 beneficiaries was not culpable (for example, was not actively involved in the administration of the business and trust and unaware of the omitted trust income and distributions), that beneficiary will not be liable to a penalty related to their own shortfall amounts. However, the trustee is liable to penalty related to the shortfall amounts for the trust, potentially affecting all beneficiaries including the non-culpable party. It would be appropriate to remit the trustee's penalty to the extent related to distributions made to the culpable beneficiary and to not remit the culpable beneficiary's penalty related to their own tax return shortfall amounts. 177. Alternatively, if the trustee of the trust was not the corporate entity but rather an independent accountant (individual) who was provided with incorrect business records (from the beneficiaries), was unaware of the understated income and distributions and took reasonable care in preparing the trust tax return, no penalty liability would apply for the trust's shortfall amounts. However, as the beneficiaries have knowingly provided false business records to the trustee, resulting in the net income of the trust being understated and shortfalls arising in their own tax returns, they are liable to penalty. Multiple penalties 178. There may be some circumstances where the entity's behaviour results in more than one type of penalty applying under the law. The remission treatment of the penalties will differ according to the penalties that apply and the action or actions that lead to each penalty. [47] 179. For example, an entity may be liable to a penalty for failing to keep or retain records [48] , as well as false or misleading statement penalties for incorrectly reporting. However, while the failure to keep records may have led to the false or misleading statements, keeping records and reporting correctly are not the same obligations and may not necessarily comprise the same actions. The failure to keep records reflects day-to-day business management practices. The underreporting of income or overclaiming of credits is a separate action and separate decisions need to be made. 180. In those circumstances, both penalties apply and there is no automatic remission of the lesser penalty. The relevant remission principles should be considered for each penalty. However, we should consider whether maintaining both penalties produces an unjust result. 181. This is especially relevant where multiple penalties arise from the same course of action. For example, where an amount in an assessment is both a shortfall amount for the purposes of both a false or misleading statement penalty and a scheme shortfall penalty [49] , although both penalties might apply by law, one would generally be remitted to prevent an unjust result. Amount reported or claimed in incorrect period 182. In some cases, a shortfall amount may represent an amount of tax deferred rather than an amount of tax permanently avoided. This generally occurs where an amount is reported in a period later than it should be or credit claimed in a period earlier than it should be. 183. If it is reasonable to assume that not reporting in the correct period was not an attempt to defer or avoid the payment, we generally should fully or partially remit the penalty assessed. 184. In income tax cases, if there has been a reduction in the rate of tax between the 2 years in question, there will be an amount of tax avoided. Remission of the penalty relating to the avoided tax would generally not be warranted. 185. If the shortfall amount for the period is determined prior to lodgment of the second statement (which could have reported the amount), generally remission would not be given on this basis, and general remission principles may apply. Amount reported or credit claimed in another entity's tax return or activity statement in the same accounting period 186. If an amount omitted by one entity is mistakenly included by another entity in their tax return or activity statement for the same accounting period, you may remit the penalty in full if, after the relevant amendments, there was no tax avoided in overall terms. 187. This principle applies equally for deductions or credits claimed in the wrong entity's tax return or activity statement. 188. However, if there were different tax rates for the 2 entities, or one entity has losses, other tax deductions or offsets which created a tax advantage by treating the amounts incorrectly, there may be an amount of tax avoided. Remission of the penalty relating to the avoided tax would generally not be warranted. Voluntary disclosure Before notification of examination 189. Where penalties are reduced by 80% for a voluntary disclosure made before notification of a review, audit or other examination [50] , any penalty remaining after the reduction should be remitted in full, unless the entity was reckless or intentionally disregarded the law. 190. However, a disclosure made after being told of an examination (even if we treated it as being before notification or it was during a review) does not get remission of the remaining 20% of the penalty because the voluntary disclosure was made. After notification of examination 191. Where a review moves to an audit, it is generally expected the entity will be notified at the closure of the review. However, in limited cases a delay may occur between closure of a review and commencement of an audit and there is a gap period where the entity is not subject to examination. A voluntary disclosure made during this 'gap' period does not get remission of the remaining 20% of the penalty on the basis they are not currently 'told' of an examination. Significant global entities 192. An entity (which is not an SGE at the time they make a false or misleading statement) may be treated as an SGE on the basis of their last lodged return, default assessment or a determination by the Commissioner, and have a penalty multiplier used to assess their penalties. 193. When the entity subsequently lodges a tax return for the income year in which the false or misleading statement was made which shows that they were not an SGE at the time of the statement, the penalty will be recalculated without the SGE multiplier on that basis. 194. However, if the entity requests remission of the penalty prior to that tax return being lodged, on the basis they were not an SGE at the time of lodgment, and is able to provide sufficient evidence that they were not an SGE at the time of the statement, partial remission to the non-SGE rate would be appropriate. | Notifying the entity: 195. There are 2 parts to notifying the taxpayer of the penalty: • explaining why there is a liability to a penalty, and • issuing a notice of assessment for the penalty which raises the liability to pay the penalty. • explaining why there is a liability to a penalty, and • issuing a notice of assessment for the penalty which raises the liability to pay the penalty. Reasons for decision 196. Where there is a liability, we must give a written explanation to the entity [51] informing them of: • their liability to pay the penalty, after any reductions or remissions • why they are liable to the penalty, and • why the penalty has not been remitted in full. • their liability to pay the penalty, after any reductions or remissions • why they are liable to the penalty, and • why the penalty has not been remitted in full. 197. This explanation, called 'reasons for the decisions', will set out the facts that we have used to make the decision and explain how the law works for penalties in a matter appropriate to the entity's client group. 198. In more complex cases or where objection or litigation is likely, it will set out the findings on material questions of fact and refer to the evidence or other material that those findings were based on. In other words, you must explain not only what the decision and the penalty is, but why you have made it, the law used and the facts you considered. In all cases, you must also address all issues raised by the entity regardless of whether they are relevant to normal penalty considerations. 199. The law does not specify when the explanation must be supplied. However, a case officer should usually ensure the reasons for a liability to a penalty are supplied prior to or at the same time as the entity is notified of the penalty. In those instances where this is not possible, they should be provided as soon as possible after issuing a notice of assessment of penalty. 200. The law does not require us to give reasons for the penalty decision where the penalty has been reduced or remitted to nil. The extent to which we explain this to the entity will depend on a number of factors. This includes the type of entity and interaction, whether it is reasonable care or remission [52] and what the behaviour was and that, in order to positively influence compliance behaviour, the basis of a penalty decision or the error should be clearly and promptly explained to an entity, or education should be provided. 201. We may: • provide a full explanation of the penalty decision • advise the entity the penalty outcome with a summary of our reasons and offer to provide reasons if requested, or • advise the entity of the outcome only where the explanation for the primary tax decision identifies the potential reason for the error and explains how to correct it and report correctly in future. • provide a full explanation of the penalty decision • advise the entity the penalty outcome with a summary of our reasons and offer to provide reasons if requested, or • advise the entity of the outcome only where the explanation for the primary tax decision identifies the potential reason for the error and explains how to correct it and report correctly in future. 202. You must also record complete reasons for the penalty decisions on the relevant ATO system – regardless of the level of explanation provided to the taxpayer – although this could be the same document as the reasons for decision sent to the taxpayer). Notice of assessment 203. You must make an assessment of the amount of an administrative penalty and give (or serve) the taxpayer with that notice. | Right of review: 204. An entity that is dissatisfied with any element of the penalty assessment may object to the penalty assessment. [53] The grounds of the objection may include all elements of the penalty assessment, including the remission decision where it is made as part of the penalty assessment. 205. Tax officers are generally required to make a remission decision as part of the assessment of the penalty. However, in exceptional circumstances this might not occur. 206. If a remission decision is made after an assessment of the penalty, the entity may also object to the separate remission decision if the amount remaining after remission is more than 2 penalty units. [54] 207. If the entity objects against a primary tax liability (usually an assessment) and the objection results in a reduction of the shortfall amount, the amount of the corresponding shortfall penalty is proportionately reduced. This is not a remission decision and no separate objection rights attach to the recalculation of the penalty. 208. Where there is no liability to a penalty because of an exception, reduction or remission, there is no objection right. | More information: 209. For more information, see: • MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard • MT 2012/3 Administrative penalties: voluntary disclosures • PS LA 2008/3 Provision of advice and guidance by the ATO • PS LA 2012/4 Administration of false or misleading statement penalty - where there is no shortfall amount. • PS LA 2016/5 The disclosure of information and documents collected by the Registrar of the Australian Business Register • TD 2011/19 Tax administration: what is a general administrative practice for the purposes of protection from administrative penalties and interest charges? • MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard • MT 2012/3 Administrative penalties: voluntary disclosures • PS LA 2008/3 Provision of advice and guidance by the ATO • PS LA 2012/4 Administration of false or misleading statement penalty - where there is no shortfall amount. • PS LA 2016/5 The disclosure of information and documents collected by the Registrar of the Australian Business Register • TD 2011/19 Tax administration: what is a general administrative practice for the purposes of protection from administrative penalties and interest charges? 210. This Appendix explains how the different components in the penalty formula are calculated. | Credits which do not form part of an income tax assessment: 211. Some credits, such as PAYG withholding and TFN withholding amounts, which are reported in the tax return do not form part of the income tax assessment. Where there is an increase in the credits from the amount originally reported, any income tax shortfall amount is not reduced to reflect the increased credits [55] , but remission of penalty may be appropriate in this circumstance. 212. A reduction in the credit reported is a shortfall amount in respect of the amounts withheld. | Example 16: 213. Kieran has a number of part-time jobs and changes jobs often. When lodging his tax return, he fails to include 3 payment summaries. The understated salary is $16,000, which leads to a shortfall amount of $5,200. The shortfall penalty is assessed on the shortfall amount of $5,200. 214. One of the payment summaries also included PAYG withholding amounts totalling $4,000. These credits are applied to reduce the amount of tax payable (or other debts) after the (amended) assessment is made. Therefore, while the shortfall amount is $5,200, the amount payable is only $1,200. (The penalty should be remitted to the extent that it relates to the $4,000 of tax which is offset by the credit for tax withheld.) | Head company of consolidated group: 215. Subsection 284-80(2) sets out a formula where a shortfall amount may be modified in cases where the head company of a consolidated group makes errors in working out a tax cost-setting amount for an asset, as mentioned in section 705-315 of the Income Tax Assessment Act 1997. | Amendment not required in certain situations: 216. If an entity makes a request for an amendment to its tax position, we are not required to make the amendment if we believe the entity is not entitled to the amounts claimed or the reduction in tax payable. Therefore, it is possible for a shortfall penalty to be assessed where the Commissioner does not make an adjustment or issue an amended assessment. | Example 17: 217. To enable him to claim further fuel tax credits, Rohan lodges a request with us to amend his activity statement. This would give him a refund of $37,200. Prior to making an adjustment, we review the material and determine the credit is not substantiated. No adjustment to the period is made. 218. The shortfall amount is the difference between the amount incorrectly claimed ($37,200) and the correct entitlement which is nil. A shortfall amount of $37,200 exists. | Further information available prior to issuing income tax assessment: 219. Where we have information available when the tax return is lodged and that information is not subsequently reported in the return, what happens next will depend on the entity type: • Full self-assessment entities, such as companies or superannuation funds, are deemed to have been assessed [56] by us upon lodgment of a tax return in the approved form. Where any adjustment is subsequently made, an amended assessment must issue. The shortfall amount is generally the difference in the relevant liability as originally reported in the tax return (deemed assessment) and the notice of amended assessment. • For entities which are not full self-assessment taxpayers, such as individuals and trusts, an assessment cannot be deemed on the basis of a statement and must be actually made by us. We may issue an original assessment with adjustments to the items as stated in the tax return taking into account additional information prior to issuing the assessment. The shortfall amount is the difference between the amount of tax-related liability, if we calculated it based upon statements in the tax return, and the tax-related liability in the notice of original assessment. There is no amended assessment. • Full self-assessment entities, such as companies or superannuation funds, are deemed to have been assessed [56] by us upon lodgment of a tax return in the approved form. Where any adjustment is subsequently made, an amended assessment must issue. The shortfall amount is generally the difference in the relevant liability as originally reported in the tax return (deemed assessment) and the notice of amended assessment. • For entities which are not full self-assessment taxpayers, such as individuals and trusts, an assessment cannot be deemed on the basis of a statement and must be actually made by us. We may issue an original assessment with adjustments to the items as stated in the tax return taking into account additional information prior to issuing the assessment. The shortfall amount is the difference between the amount of tax-related liability, if we calculated it based upon statements in the tax return, and the tax-related liability in the notice of original assessment. There is no amended assessment. | Example 18: 220. Mavis lodges her 2009–10 tax return. Prior to making an assessment, we review the tax return and identify deductions claimed in error. An assessment of the tax-related liability is made for an amount of $60,000. 221. For the shortfall amount, we compare the tax-related liability worked out using Mavis's original statements in her return. A refund of $20,000 would have resulted. However, the correct liability after disallowing the deductions is a tax-related liability of $60,000. The shortfall amount is therefore $80,000. | Apportionment of a shortfall amount within the same accounting period, including credits: 222. In determining a shortfall amount, a number of labels in a statement may be adjusted. Where there is a mixture of adjustments (or BPA behaviour rates), you will need to apportion the total shortfall amount into individual components. 223. Where there are a number of increasing and decreasing adjustments, the resulting shortfall amount is allocated on a pro rata basis between the adjustments that result in an increase in liability (or decrease in the amount of a credit or payment). 224. The reduction in the tax-related liability (from the credit adjustments) is apportioned in the same ratio as each component to the shortfall amount. That is, a pro rata portion of the reduction is subtracted from each of the various parts of the shortfall amount. 225. In this context, the 'notional shortfall' is what the shortfall amount would be if the adjustment which decreases the tax-related liability was not present. | Example 19: 226. A GST examination results in 3 adjustments, 2 of which increase the tax-related liability by $10,000 and $5,000 and the third which reduces the liability by $6,000. The shortfall amount, after all the adjustments are made, is $9,000. 227. The adjustments that increase the liability are the result of 2 different behaviours. These are: • Label 1A: $10,000 – recklessness • Label 1B: $5,000 – reasonable care. • Label 1A: $10,000 – recklessness • Label 1B: $5,000 – reasonable care. 228. The 'notional' shortfall amount (excluding the credit adjustment) is $15,000 ($10,000 + $5,000). 229. The individual BPA components of the shortfall amount are calculated by multiplying the shortfall amount by the fractional percentage for each part of the notional shortfall amount as follows: $9,000 × ($10,000 ÷ $15,000) = $6,000 and $9,000 × ($5,000 ÷ $15,000) = $3,000 Therefore, the total BPA will be $3,750 ($6,000 × 50% + $3,000 × 25%) and $9,000 × ($5,000 ÷ $15,000) = $3,000 Therefore, the total BPA will be $3,750 ($6,000 × 50% + $3,000 × 25%) 230. The calculation process may be easier to understand if a fractional or percentage is calculated for each part of the shortfall amount using the following formula: shortfall amount related to issue ÷ nominal shortfall amount = fraction or percentage 231. The fraction or percentage of each part of the shortfall is then multiplied by the shortfall amount to calculate the amount of that part of the shortfall to which the prescribed penalty rate for that part is applied. Example 19 of this Practice Statement uses this process. 232. For some tax types, all adjustments are directly proportional to the tax-related liability. Adjustments to either the GST payable or GST credits have a direct dollar-to-dollar effect on the GST net amount. 233. However, with taxes such as income tax, some of the adjustments must be multiplied by the appropriate tax rate to determine the effect on the tax-related liability. | Reduced liability for income tax: 234. Income tax adjustments which decrease the liability are first applied to any increasing adjustments within the same broad category. Where necessary, any decrease in the tax-related liability which remains is apportioned between shortfall amount parts arising from adjustments in other broad categories on a pro rata basis. For these purposes, the broad categories of calculating income tax payable are divided into: • basic income tax liability – which is the taxable income multiplied by the appropriate rate or rates (adjustments to assessable income or allowable deductions, that is, adjustments to the taxable income, are considered in one broad category) • tax offsets – which directly reduce the net income tax liability, and • levies and charges – such as the Medicare levy surcharge, the superannuation surcharge and the termination payments surcharge. • basic income tax liability – which is the taxable income multiplied by the appropriate rate or rates (adjustments to assessable income or allowable deductions, that is, adjustments to the taxable income, are considered in one broad category) • tax offsets – which directly reduce the net income tax liability, and • levies and charges – such as the Medicare levy surcharge, the superannuation surcharge and the termination payments surcharge. | Example 20: 235. Compli Co lodges their tax return. An audit identifies 2 separate tax offsets claimed by Compli Co that they were not entitled to claim. The tax officer also identifies an additional amount of an unrelated tax offset that Compli Co was entitled to claim. 236. The total net shortfall amount is $900,000. 237. The 2 tax offsets erroneously claimed (increasing adjustments) are: • $500,000 resulting from intentional disregard • $1 million resulting from failure to take reasonable care. • $500,000 resulting from intentional disregard • $1 million resulting from failure to take reasonable care. 238. The additional tax offset (decreasing adjustment) is $600,000. 239. The penalty is calculated as follows: 1. Determine each debit and the sum of the debit adjustments: $500,000 + $1 million = $1.5 million 2. Determine the proportional shortfall amount for each part: $900,000 × ($500,000 ÷ $1.5 million) = $300,000 $900,000 × ($1 million ÷ $1.5 million) = $600,000 3. Calculate the BPA for each part: $300,000 × 75% = $225,000 $600,000 × 25% = $150,000 4. Calculate the penalty amount: (Assuming there is no reason to increase or reduce either BPA.) $225,000 + $150,000 = $375,000 1. Determine each debit and the sum of the debit adjustments: $500,000 + $1 million = $1.5 million 2. Determine the proportional shortfall amount for each part: $900,000 × ($500,000 ÷ $1.5 million) = $300,000 $900,000 × ($1 million ÷ $1.5 million) = $600,000 3. Calculate the BPA for each part: $300,000 × 75% = $225,000 $600,000 × 25% = $150,000 4. Calculate the penalty amount: (Assuming there is no reason to increase or reduce either BPA.) $225,000 + $150,000 = $375,000 $500,000 + $1 million = $1.5 million $900,000 × ($500,000 ÷ $1.5 million) = $300,000 $900,000 × ($1 million ÷ $1.5 million) = $600,000 $300,000 × 75% = $225,000 $600,000 × 25% = $150,000 (Assuming there is no reason to increase or reduce either BPA.) $225,000 + $150,000 = $375,000 | Example 21: 240. Leonardo lodges his tax return. An audit of this statement revealed that he understated income by $3,000 and claimed $500 of deductions that were disallowed. The tax officer also identifies $300 of deductions to which Leonardo was entitled. 241. Leonardo had also claimed 2 tax offsets to which he was not entitled, but had failed to claim a tax offset to which he was entitled. 242. The amounts of the adjustments and the relevant behaviour are: • understated income of $1,000 – reckless • understated income of $2,000 – failure to take reasonable care • overclaimed deduction of $500 – reasonable care • unclaimed deduction – $300 • tax offset of $1,000 disallowed – failure to take reasonable care • tax offset of $500 disallowed – reckless • tax offset not claimed – $420. • understated income of $1,000 – reckless • understated income of $2,000 – failure to take reasonable care • overclaimed deduction of $500 – reasonable care • unclaimed deduction – $300 • tax offset of $1,000 disallowed – failure to take reasonable care • tax offset of $500 disallowed – reckless • tax offset not claimed – $420. 243. The adjustments to the income tax assessment result in an increase in the liability of $1,435. When the adjustments to the tax offsets of $1,080 are included, the total shortfall amount is $2,515. 244. The penalty is calculated as follows: Since there are adjustments in different stages of the income tax assessment process, each stage is first considered separately. 245. For the basic income tax liability stage: 1. Determine the ratio each debit adjustment has to the sum of the debit adjustments for this stage. The sum of the debit adjustments is: $1,000 + $2,000 + $500 = $3,500 $1,000 / $3,500 = two-sevenths $2,000 / $3,500 = four-sevenths $500 / $3,500 = one-seventh 2. Determine the proportional shortfall amount for each part: $1,435 × (2 / 7) = $410 $1,435 × (4 / 7) = $820 $1,435 × (1 / 7) = $205 3. The BPAs for each part are then calculated: $410 × 50% = $205 $820 × 25% = $205 Over-claimed deduction – no BPA since reasonable care was taken. 1. Determine the ratio each debit adjustment has to the sum of the debit adjustments for this stage. The sum of the debit adjustments is: $1,000 + $2,000 + $500 = $3,500 $1,000 / $3,500 = two-sevenths $2,000 / $3,500 = four-sevenths $500 / $3,500 = one-seventh 2. Determine the proportional shortfall amount for each part: $1,435 × (2 / 7) = $410 $1,435 × (4 / 7) = $820 $1,435 × (1 / 7) = $205 3. The BPAs for each part are then calculated: $410 × 50% = $205 $820 × 25% = $205 Over-claimed deduction – no BPA since reasonable care was taken. 246. For the net income tax liability stage: 1. Determine the ratio each debit adjustment has to the sum of the debit adjustments for this stage: The sum of the debit adjustments is $1,000 + $500 = $1,500 $1,000 / $1,500 = two-thirds $500 / $1,500 = one-third 2. Determine the proportional shortfall amount for each part: $1,080 × (2 / 3) = $720 $1,080 × (1 / 3) = $360 3. The BPAs for each part are then calculated: $720 × 25% = $180 $360 × 50% = $180 The total penalty is the sum of the BPAs. 4. Calculate the penalty amount: (Assuming there is no reason to increase or reduce either BPA.) $205 + $205 + $180 + $180 = $770 1. Determine the ratio each debit adjustment has to the sum of the debit adjustments for this stage: The sum of the debit adjustments is $1,000 + $500 = $1,500 $1,000 / $1,500 = two-thirds $500 / $1,500 = one-third 2. Determine the proportional shortfall amount for each part: $1,080 × (2 / 3) = $720 $1,080 × (1 / 3) = $360 3. The BPAs for each part are then calculated: $720 × 25% = $180 $360 × 50% = $180 The total penalty is the sum of the BPAs. 4. Calculate the penalty amount: (Assuming there is no reason to increase or reduce either BPA.) $205 + $205 + $180 + $180 = $770 | Goods and services tax situations: 247. When working out the net amount for a single accounting period, if an entity understates an amount payable or overstates the entitlement to a payment or credit, and at the same time overstates another liability or understates another entitlement to a payment or credit, the shortfall amount may need to be adjusted to apportion the credit. | Example 22: 248. Carborundum Co recklessly understated taxable supplies by $55,000 and this has resulted in an under-reporting of GST of $5,000. The understatement of sales was also not included in the company's PAYG instalment income that was subject to a 2% instalment rate. There was also a misclassification of $22,000 worth of goods sold as GST-free due to a lack of reasonable care. This resulted in a further under-reporting of $2,000. 249. The company also made an arithmetic error that has resulted in an under-claim of GST credits by $2,500. In this case, the total of the 2 GST under-reportings is $7,000 ($5,000 understating of GST plus $2,000 misclassification). However, this is not the amount on which the penalty will be calculated because a reduction is required for the under-claimed GST credits. 250. The penalty will be calculated as follows: Shortfall amount for understated sales (as adjusted for proportion of under-claimed GST credits): $5,000 − ($2,500 × 5,000 / 7,000) = $3,214.00 Penalty for recklessness: $3,214 × 50% = $1,607.00 Shortfall amount for misclassification (as adjusted for proportion of under-claimed GST credits): $2,000 − ($2,500 × 2,000 / 7,000) = $1,286.00 Penalty for lack of reasonable care: $1,286 × 25% = $321.50 Total GST penalty ($1,607.00 + $321.50) = $1,928.50 Calculation of penalty on PAYG instalment shortfall amount: Understated income (recklessness): ($50,000 × 2%) × 50% = $500.00 Total penalty for activity statement ($1928.50 + $500) = $2,478.50 251. As set out in this Appendix, penalty relief can be given to certain groups or types of taxpayers, generally individuals and small business. This means where the entity has a liability to a specified category of administrative penalty, the relevant penalty will not be applied and a notice of assessment will not be issued. | Reasons for penalty relief: 252. The individual and small business taxpayer populations sometimes have: • lower levels of financial literacy, business experience and taxation knowledge • more limited financial capacity to engage taxation and business professionals to provide taxation advice, or • less time to manage their affairs on their own given the complexity of the tax system for small businesses and superannuation funds. • lower levels of financial literacy, business experience and taxation knowledge • more limited financial capacity to engage taxation and business professionals to provide taxation advice, or • less time to manage their affairs on their own given the complexity of the tax system for small businesses and superannuation funds. 253. This can result in individual and small business taxpayers managing all or part of their own taxation affairs or engaging with tax practitioners with the potential for errors in underlying information. This frequently results in low-value shortfall amounts with a low BPA, which penalty relief specifically addresses. 254. Accordingly, the penalty relief is confined to most taxpayers within the individual and small business groups. The specific types of entities (or taxpayer groups) who may or may not get penalty relief are explained in paragraphs 261 to 264 of this Practice Statement. Even if you consider the taxpayer to have access to advice and resources because of their circumstances, penalty relief is to apply unless they fall into one of the categories that excludes its application. 255. The penalties within scope of penalty relief are set out in paragraphs 256 to 260 of this Practice Statement. Penalty relief is typically provided in situations where there is a failure to take reasonable care, often for the reasons noted in paragraph 252 of this Practice Statement. This excludes penalties where disregard or indifference to the law or intentional disregard of the law has occurred. In such cases, for example, it is appropriate for there to be a consequence for failing to try to meet obligations for correct reporting. | Penalties where penalty relief may be considered: 256. Only penalties arising from statements made in tax returns and business activity statements (excluding FBT instalments) are eligible for penalty relief. Statements for FBT and superannuation guarantee are excluded, as are statements made for other taxation purposes. 257. The penalties for which penalty relief can be given are: • shortfall penalty for false or misleading statements which result in a BPA for failure to take reasonable care (25% of the shortfall amount) • penalty for false or misleading statements that do not result in shortfall amounts for failure to take reasonable care where the statements relate only to the reduction in carry forward losses, and • penalty for not having a reasonably arguable position. • shortfall penalty for false or misleading statements which result in a BPA for failure to take reasonable care (25% of the shortfall amount) • penalty for false or misleading statements that do not result in shortfall amounts for failure to take reasonable care where the statements relate only to the reduction in carry forward losses, and • penalty for not having a reasonably arguable position. 258. All penalties listed in paragraph 257 of this Practice Statement, to which the entity is liable, for each period and issue in the examination (generally a review or audit) can be considered for penalty relief. That is, if there are penalties for more than one period or issue, penalty relief can apply to all. An exception to this will be where the eligibility to penalty relief changes in those periods. [57] 259. Penalty relief will not apply to penalty at the 25% BPA rate if any one or more of the periods or issues in the examination has a false or misleading statement BPA for recklessness or intentional disregard. 260. The practical effect of the penalty relief measure on administration is that we are using resources more efficiently through not having to engage the machinery provisions of the law which provide for the assessment and review of penalties. Where penalty relief is applied, there is no penalty amount to be paid in that instance. | Eligible entities that may get penalty relief: 261. The following entities are eligible for penalty relief consideration, subject to the exceptions noted in paragraphs 264 and 265 of this Practice Statement: • individuals • small business entities – sole traders, partnerships, companies or trusts [58] that meet both of the following during the income year the statement is under examination, where the entity – operates a business for all or part of the income year – has an aggregated turnover less than the small business turnover threshold. [59] • individuals • small business entities – sole traders, partnerships, companies or trusts [58] that meet both of the following during the income year the statement is under examination, where the entity – operates a business for all or part of the income year – has an aggregated turnover less than the small business turnover threshold. [59] – operates a business for all or part of the income year – has an aggregated turnover less than the small business turnover threshold. [59] 262. This means that while most entities will get penalty relief for all periods in an examination, where the entity moves between eligible and ineligible groups, they will only be considered for penalty relief for the periods (generally income years) for which they are not in an ineligible group. 263. Further explanation on situations that can arise for eligible entities: • partnerships – activity statements – the partnership is a separate entity with penalty relief eligibility assessed at the partnership level (only if a partner who is not eligible for penalty relief has control of the partnership will the partnership be ineligible for penalty relief) – corporate limited partnerships – penalty relief eligibility is assessed at the partnership level (only if a partner who is not eligible for penalty relief has control of the partnership will the partnership be ineligible for penalty relief) – income tax – a shortfall penalty cannot be imposed as there is no shortfall amount for the partnership (the penalty is imposed on the individual and their individual eligibility is determined) • trusts – income tax – penalty relief will apply to a trust, where they are relevant entities for penalty relief, where the trust meets the small business eligibility criteria [60] – activity statements – the trust is a separate entity and is subject to the penalties for the small business entity criteria • cooperatives, not-for-profit organisations and strata title body or body corporates – penalty relief is considered where turnover does not exceed $10 million (aligned to small business entities). • partnerships – activity statements – the partnership is a separate entity with penalty relief eligibility assessed at the partnership level (only if a partner who is not eligible for penalty relief has control of the partnership will the partnership be ineligible for penalty relief) – corporate limited partnerships – penalty relief eligibility is assessed at the partnership level (only if a partner who is not eligible for penalty relief has control of the partnership will the partnership be ineligible for penalty relief) – income tax – a shortfall penalty cannot be imposed as there is no shortfall amount for the partnership (the penalty is imposed on the individual and their individual eligibility is determined) • trusts – income tax – penalty relief will apply to a trust, where they are relevant entities for penalty relief, where the trust meets the small business eligibility criteria [60] – activity statements – the trust is a separate entity and is subject to the penalties for the small business entity criteria • cooperatives, not-for-profit organisations and strata title body or body corporates – penalty relief is considered where turnover does not exceed $10 million (aligned to small business entities). – activity statements – the partnership is a separate entity with penalty relief eligibility assessed at the partnership level (only if a partner who is not eligible for penalty relief has control of the partnership will the partnership be ineligible for penalty relief) – corporate limited partnerships – penalty relief eligibility is assessed at the partnership level (only if a partner who is not eligible for penalty relief has control of the partnership will the partnership be ineligible for penalty relief) – income tax – a shortfall penalty cannot be imposed as there is no shortfall amount for the partnership (the penalty is imposed on the individual and their individual eligibility is determined) – income tax – penalty relief will apply to a trust, where they are relevant entities for penalty relief, where the trust meets the small business eligibility criteria [60] – activity statements – the trust is a separate entity and is subject to the penalties for the small business entity criteria | Ineligible entities: 264. The following entities are not eligible for penalty relief consideration for any period that they were considered to have the status of a: • Non-small business entity – non-small business entities are sole traders, partnerships, companies and trusts that do not meet the small business entity eligibility criteria as detailed in paragraph 261 of this Practice Statement. • Wealthy individuals, including high-wealth individuals and the entities they control, and their associates – wealthy individuals are resident individuals who, together with their business associates, control net wealth of $5 million or more. Wealthy individuals who control net wealth of $30 million or more are classified as high-wealth individuals. • Business entities controlled by wealthy individuals that are small business entities will not be eligible for penalty relief. • Public group, SGE and associates – public groups and significant global entities are excluded, as are their subsidiaries that might ordinarily be included as a small business entity. • Self-managed super funds – the fund is excluded if any member is a wealthy or high-wealth individual. • Non-small business entity – non-small business entities are sole traders, partnerships, companies and trusts that do not meet the small business entity eligibility criteria as detailed in paragraph 261 of this Practice Statement. • Wealthy individuals, including high-wealth individuals and the entities they control, and their associates – wealthy individuals are resident individuals who, together with their business associates, control net wealth of $5 million or more. Wealthy individuals who control net wealth of $30 million or more are classified as high-wealth individuals. • Business entities controlled by wealthy individuals that are small business entities will not be eligible for penalty relief. • Public group, SGE and associates – public groups and significant global entities are excluded, as are their subsidiaries that might ordinarily be included as a small business entity. • Self-managed super funds – the fund is excluded if any member is a wealthy or high-wealth individual. | Reset period and further exceptions to penalty relief: 265. Penalty relief may not be a one-off event. Penalty relief can be given multiple times; however, it cannot be given for 3 years after an earlier penalty relief or other certain events. 266. Penalty relief is not available where, in the 3 years prior to the date that the entity is (or would be) advised of the final decision in the current audit, an entity has one or more of the following: • had penalty relief previously applied – that is, currently has an active reset period • been assessed with false or misleading statement penalty for reckless or intentional disregard [61] • evaded tax or committed a fraudulent act relating to taxation law • been involved in the control or management of another entity which has evaded tax • had debts incurred without the intention of being able to pay including but not limited to involvement in phoenix activity • during the examination, they sought to prevent or obstruct the Commissioner from finding out about the shortfall amount as detailed in paragraphs 114 to 118 of this Practice Statement. • had no penalty imposed as part of a special project – see paragraph 268 of this Practice Statement. • had penalty relief previously applied – that is, currently has an active reset period • been assessed with false or misleading statement penalty for reckless or intentional disregard [61] • evaded tax or committed a fraudulent act relating to taxation law • been involved in the control or management of another entity which has evaded tax • had debts incurred without the intention of being able to pay including but not limited to involvement in phoenix activity • during the examination, they sought to prevent or obstruct the Commissioner from finding out about the shortfall amount as detailed in paragraphs 114 to 118 of this Practice Statement. • had no penalty imposed as part of a special project – see paragraph 268 of this Practice Statement. 267. If penalty relief is given for an examination and a later examination occurs within the reset period, penalty relief will not be applied even if the statement was made prior to the previous penalty relief decision. Except if the penalty relates to the same issues examined by us in an earlier examination and the statement or return in the later examination was lodged prior to the relief advice in the earlier examination. In such circumstances penalty relief can apply. 268. Special projects may provide incentives to entities that come forward on targeted risks, such as knowing that they will not be penalised under the normal provisions. Where an entity has received a concession under a special project that is not a concession available under law, such as under the voluntary disclosure provisions, they will not be eligible for penalty relief until the 3-year reset period expires. | Commencement date and scope: 269. The penalty relief strategy commencing on 1 July 2018 will apply to any ongoing examination (such as a review or audit) that is under way on or after 1 July 2018. An examination will be ongoing if the final decision on the examination has not been issued to the taxpayer or their authorised representative. 270. Penalty relief will apply to any examination (review or audit) in progress on or after 1 July 2018. It will also apply to any directly linked issues in previous tax returns and activity statements lodged prior to the final case decision being formally advised [62] for the first review or audit that is in progress on or after 1 July 2018. 271. Where statements for periods later than the review or audit period are lodged during the course of an examination in progress, those statements with directly linked issues to the active review or audit can also be brought into scope and penalty relief will apply. 272. Directly linked issues include: • the same issue for an earlier or later period than in the first audit, provided lodgment for the period occurred prior to the final decision • where one adjustment resulted in another adjustment and the later did not occur during the first audit. For example, an entity underreported sales in their activity statement and used the same incorrect amount in their tax return. The first audit amended the error in the activity statement (and applied penalty relief) but not the tax return. As the tax return error is a directly linked issue (to the activity statement error), penalty relief will apply, notwithstanding the tax return error is identified separately or in a later audit. • the same issue for an earlier or later period than in the first audit, provided lodgment for the period occurred prior to the final decision • where one adjustment resulted in another adjustment and the later did not occur during the first audit. For example, an entity underreported sales in their activity statement and used the same incorrect amount in their tax return. The first audit amended the error in the activity statement (and applied penalty relief) but not the tax return. As the tax return error is a directly linked issue (to the activity statement error), penalty relief will apply, notwithstanding the tax return error is identified separately or in a later audit. | Objections: 273. Penalty relief will be considered in any penalty objections where the original audit or review case was in progress on or after 1 July 2018. If the objection decision reduces the penalty to the base penalty for failure to take reasonable care penalty relief will be applied. 274. If penalty relief is applied and the objection decision determines that there is no penalty because of the reduction of the shortfall amount, penalty relief will be deemed not to have occurred and the reset period will be not triggered. 275. Existing provisions including administrative review, remission and objection rights remain available. | General items: 276. Improving the understanding of the entity of the regular and correct reporting outcome or of the risks in not taking reasonable care is a key element of penalty relief. 277. Therefore, after an examination an entity should be aware of the errors they made and they should have enough information to understand how to avoid making the same error in future. [63] | Administration: 278. You are required to make and record those decisions about the BPA (behaviour) with the supporting facts and evidence and note the application of the law explained when penalty relief is given. These decisions must be recorded in any relevant case management system. 279. Where there is no penalty liability in the audit because the entity took reasonable care or because of safe harbour or a mix of the 2, the entity's penalty relief opportunity will remain available in the future without triggering a reset period. 280. Where there are no changes in the voluntary disclosure practices: • voluntary disclosures are still to be invited at the commencement of an audit, if that is the current practice • voluntary disclosures reductions will be applied, and where the shortfall amount is less than $1,000 the penalty will be reduced to nil, without the application of penalty relief. If the reduction is 80% or 20% of the BPA, penalty relief will be applied where eligible. [64] • voluntary disclosures are still to be invited at the commencement of an audit, if that is the current practice • voluntary disclosures reductions will be applied, and where the shortfall amount is less than $1,000 the penalty will be reduced to nil, without the application of penalty relief. If the reduction is 80% or 20% of the BPA, penalty relief will be applied where eligible. [64] 281. You are not required to consider or record a decision on an increase in penalty or remission of penalty, where penalty relief is to be applied. 282. Where penalty relief is given, the taxpayer must be informed of this. 283. The date the final decision is given to the entity is the commencement date of the reset period and must be recorded in the relevant case management system. 284. Because we make decisions about behaviour and BPA before applying penalty relief any future false or misleading statement penalty would involve uplift to the BPA. We will remit the uplift amount in most circumstances.",MT 2008/1 | MT 2012/3 | PS LA 2008/3 | PS LA 2012/4 | PS LA 2016/5 | TD 2011/19 | Compliance with formal notices – claiming legal professional privilege in response to formal notices | PS LA 2004/11 | PS LA 2007/4 | PS LA 2008/18 | Compliance with formal notices - claiming legal professional privilege in response to formal notices | TAA 1953 Sch1 Div 284 | TAA 1953 Sch 1 127-15 | TAA 1953 Sch 1 127-20(2)(a) | TAA 1953 Sch 1 127-25 | TAA 1953 Sch 1 284-75(1) | TAA 1953 Sch 1 284-75(1)(A) | TAA 1953 Sch 1 284-75(5) | TAA 1953 Sch 1 284-75(6) | TAA 1953 Sch 1 284-80(2) | TAA 1953 Sch 1 284-85 | TAA 1953 Sch 1 284-85(2) | TAA 1953 Sch 1 284-90(1) | TAA 1953 Sch 1 284-90(1A) | TAA 1953 Sch 1 284-90(1C) | TAA 1953 Sch 1 284-220 | TAA 1953 Sch 1 284-224 | TAA 1953 Sch 1 284-225 | TAA 1953 Sch 1 284-225(5) | TAA 1953 Sch 1 298-10 | TAA 1953 Sch 1 298-20 | TAA 1953 Sch 1 298-30(2) | ITAA 1936 166A | ITAA 1936 318 | ITAA 1997 328-110 | ITAA 1997 705-315 | FBTAA 1986 72 | GDMTA 2024 | Crimes Act 1914 | [2019] FCAFC 116 | 2002 ATC 2099 | 2007 ATC 4748 | [2021] FCA 766 | 2006 ATC 2263 | 2005 ATC 2001 | 98 ATC 4323 | 2006 ATC 4523 | 98 ATC 4681,PS LA 2004/11 PS LA 2007/4 PS LA 2008/3 PS LA 2008/18 PS LA 2012/4 PS LA 2016/5,TAA 1953 Sch1 Div 284 | TAA 1953 Sch 1 127-15 | TAA 1953 Sch 1 127-20(2)(a) | TAA 1953 Sch 1 127-25 | TAA 1953 Sch 1 284-75(1) | TAA 1953 Sch 1 284-75(1)(A) | TAA 1953 Sch 1 284-75(5) | TAA 1953 Sch 1 284-75(6) | TAA 1953 Sch 1 284-80(2) | TAA 1953 Sch 1 284-85 | TAA 1953 Sch 1 284-85(2) | TAA 1953 Sch 1 284-90(1) | TAA 1953 Sch 1 284-90(1A) | TAA 1953 Sch 1 284-90(1C) | TAA 1953 Sch 1 284-220 | TAA 1953 Sch 1 284-224 | TAA 1953 Sch 1 284-225 | TAA 1953 Sch 1 284-225(5) | TAA 1953 Sch 1 298-10 | TAA 1953 Sch 1 298-20 | TAA 1953 Sch 1 298-30(2) | ITAA 1936 166A | ITAA 1936 318 | ITAA 1997 328-110 | ITAA 1997 705-315 | FBTAA 1986 72 | GDMTA 2024 | Crimes Act 1914,,Compliance with formal notices - claiming legal professional privilege in response to formal notices How to make a voluntary disclosure Penalties,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20125/NAT/ATO/00001,"Step 2 – assessing the amount of the penalty | Step 3 – notify the entity of their liability | Appendix A – Calculations | Appendix B – Penalty relief | Inserted footnote reference to not-for-profit self-review return. | Included vulnerability as a consideration in determining whether reasonable care has been taken and whether the penalty should be remitted. | Updated to align with amended Practice Statement style and formatting requirements. | Revised Example 21 to correct reference to 'unclaimed deduction - $350' to ''unclaimed deduction - $300' | Updated in line with current ATO style and accessibility requirements. | Removed reference to Law Companion Ruling LCR 2015/3 Subdivision 815-E of the Income Tax Assessment Act 1997: Country-by-Country reporting, given its withdrawal, effective 19 December 2025. | For minimum tax law, BPA is doubled. | Appendix B, paragraphs 7 and 30 | Abbreviated base penalty amount to BPA. | Added circumstances for BPA uplift and remittance. | Content checked for technical accuracy and currency. | Updated 'Taxpayers' Charter' to 'ATO Charter'. | Updated content to address accessibility issues. | Updated reference to the source of the penalty unit value. | Update of style and format. | Removed specific dollar value for a penalty unit; amended reference to the source of the penalty unit value and where to locate it. | Correct minor errors, including for clarity. | Updated for currency; addition of penalty relief; addition of BPA for significant global entities; trusts and beneficiaries content expanded. | Updated to new template format and style. | Paragraph 159 and Example 15 | Included dot point and new example relating to disclosure or prior lodgment. | Revised to reflect change in penalty unit value from 28 December 2012. | [1] Determining the shortfall amount is covered in this Practice Statement at Step 2. | [2] Note that a 'tax return' includes the not-for-profit self-review return. Information in a self-review return could be a material particular, for example, if it misrepresents the entity's taxable status. | [4] Zeta Force Pty Ltd v The Commissioner of Taxation of the Commonwealth of Australia [1998] FCA 728 accepted, in relation to the former penalty regime, that penalties can be imposed on both trustee and beneficiary (a 'non-exclusive code approach') and that the appropriate remedy to avoid double-penalisation was the Commissioner's remission discretion. | [6] A net amount includes amounts in respect of luxury car tax and wine equalisation tax. | [9] Subsection 284-75(5). | [10] Subsection 284-75(6), and former subsection 284-75(1A) prior to 4 June 2010. | [11] It is dealt with in paragraphs 95 to 138 of this Practice Statement. For statements made prior to 4 June 2010, refer to former subsection 284-75(1A). | [12] Paragraph 28 of MT 2008/1. | [13] Paragraph 92 of MT 2008/1. | [14] Weyers v Commissioner of Taxation [2006] FCA 818. | [15] 'Safe harbour' is not a term found in the law but is commonly used to describe this exception, including in the Explanatory Memorandum to the law. | [16] Relevant to statements made on or after 1 March 2010. | [17] See paragraphs 95 to 110 of this Practice Statement and MT 2008/1 for the meanings of the terms 'reckless' and 'intentional disregard'. | [18] Table items 1 and 2 of subsection 284-80(1). | [19] Tax-related liabilities are outlined in section 250-10. | [20] Table item 1 of subsection 284-80(1). | [21] The entity may be liable to an administrative penalty for making a false or misleading statement which does not result in a shortfall amount. See PS LA 2012/4. | [22] The term 'significant global entity' is defined in section 960-555 of the Income Tax Assessment Act 1997 . | [23] Subsection 284-90(1A). | [24] Assessment may be based on the last return lodged or an original default assessment. | [25] As defined in section 995-1 of the Income Tax Assessment Act 1997 . | [26] Subsection 284-90(1C). | [27] A reduction under section 284-224 is applied to the BPA before the formula in section 284-85 is used to determine the amount of penalty. Application of this provision is rare, given in most cases where it is applied a decision would have been made that the taxpayer took reasonable care and there was no penalty liability. The reduction in the formula only refers to section 284-225 (voluntary disclosures). | [28] See Law Administration Practice Statement PS LA 2008/3 Provision of advice and guidance by the ATO . | [29] For more information on general administrative practice, refer to Taxation Determination TD 2011/19 Tax administration: what is a general administrative practice for the purposes of protection from administrative penalties and interest charges ? | [30] Subsection 284-85(2). | [32] The increase in this case will only apply to that part of the shortfall for which hindrance occurs. | [33] Where more than one applies, the facts for each should be recorded in the explanation to the taxpayer. | [34] False or misleading statements provided during audit may incur false or misleading statement penalty which does not result in a shortfall amount, which should be taken into account when considering remission of the uplift portion of this penalty. | [35] Ebner and Commissioner of Taxation [2006] AATA 525 at [19]; Ciprian and Ors and Commissioner of Taxation [2002] AATA 746. | [36] Guidance on our approach to dealing with claims for LPP can be found in Compliance with formal notices – claiming legal professional privilege in response to formal notices . | [37] Commissioner of Taxation v Ross [2021] FCA 766 at [194–198]; Bosanac v Commissioner of Taxation [2019] FCAFC 116 at [143–149]; Picton Finance Limited and Commissioner of Taxation [2013] AATA 116 at [103–107]. Also note that often in such situations the increase will be remitted. See paragraph 150 of this Practice Statement for detailed explanations. | [39] For shortfall penalties, the reduction rate depends on whether a disclosure is made before or after an entity is notified of an examination. The rates are 20% (for post-notification disclosures), 80% (for pre-notification disclosures or post-notification disclosures we have treated as being pre-notification) or to nil (where a pre-notification disclosure is of a shortfall amount of less than $1,000). | [40] Kdouh and Commissioner of Taxation [2005] AATA 6. | [42] Commissioner of Taxation v Dixon (Trustee) [2007] FCA 1079. | [43] Capacity to pay and hardship may be dealt with through payment arrangements, compromise, release and insolvency and under other taxation or insolvency provisions, and not remission of penalties. | [44] Law Administration Practice Statement PS LA 2004/11 Treating a document as a tax invoice or adjustment note contains guidance on exercising this discretion. | [45] Law Administration Practice Statement PS LA 2007/4 Remission of penalty for failure to comply with GST registration obligations . | [46] The trustee or beneficiaries, or both, should be asked to provide this information in their response to our position paper or, if they fail to do that, it can be supplied in the form of an objection to our remission decision. | [47] Law Administration Practice Statement PS LA 2008/18 Interaction between Subdivisions 284-B and 284-C of Schedule 1 to the Taxation Administration Act 1953 provides details of the policy in relation to imposition and the Commissioner's discretion to remit where Subdivisions 284-B and 284-C penalties apply to the same statement. | [50] The definition of examination is broad and includes audits and reviews. Refer to MT 2012/3. | [51] Sections 298-10 and 298-20. | [52] Generally, remission decisions. | [53] Subsection 298-30(2). | [54] The value of a penalty unit is contained in section 4AA of the Crimes Act 1914 and is indexed regularly. The dollar amount of a penalty unit is available at Penalties . | [55] The Commissioner of Taxation of the Commonwealth of Australia v Ryan, Gwenda Blanche [1998] FCA 320. | [56] Examples are from section 166A of the Income Tax Assessment Act 1936 and section 72 of the Fringe Benefits Tax Assessment Act 1986 . | [57] For example, a company that was a small business for the 2015–16 and 2016–17 income years but not for the 2017–18 income year, and is audited for all 3 years, will only have penalty relief apply to statements made for the 2015–16 and 2016–17 income years. | [58] If the trustee and beneficiary are both liable to the penalty, and penalty relief applies only to one entity, penalty relief will not automatically be given for the other entity. | [59] Section 328-110 of the Income Tax Assessment Act 1997 defines the criteria for a small business and the small business turnover threshold, which increased to less than $10 million from 1 July 2016 (and is current to publication date of this Practice Statement). The small business turnover threshold of less than $2 million should be used for statements for periods prior to 1 July 2016 when considering if an entity is a small business and is eligible for penalty relief. | [60] Beneficiaries will be assessed as individuals or the entity type they are for their own personal income tax reporting. | [61] The date the penalty, reasons for decision or audit or review finalisation letter was issued to the taxpayer will be used in this instance. | [62] Advice of the final case decision typically will be aligned to the issue date of the case finalisation letter or the date the final decision is told to the entity through any alternate communication channel used for particular audit or review products. | [63] Where the taxpayer or their agent voluntary disclosures the shortfall amount, it can be appropriate to assume that they now have this awareness. | [64] Where a voluntary disclosure is made for an issue or period is outside of the identified scope of the examination, any penalty remaining after reduction for that specific voluntary disclosure will be remitted in full. | File 1-19TCD526; 1-1B7NCAWI; 1-1BD5YH06 | Related Rulings/Determinations: TD 2011/19 MT 2008/1 MT 2012/3 | Bosanac v Commissioner of Taxation [2019] FCAFC 116 | Ciprian and Ors and Commissioner of Taxation [2002] AATA 746 2002 ATC 2099 50 ATR 1257 | Commissioner of Taxation v Dixon (Trustee) [2007] FCA 1079 2007 ATC 4748 | Commissioner of Taxation v Ross [2021] FCA 766 174 ALD 77 | Ebner and Commissioner of Taxation [2006] AATA 525 63 ATR 1073 2006 ATC 2263 | Kdouh and Commissioner of Taxation [2005] AATA 6 58 ATR 1198 2005 ATC 2001 | Picton Finance Limited and Commissioner of Taxation [2013] AATA 116 | The Commissioner of Taxation of the Commonwealth of Australia v Ryan, Gwenda Blanche [1998] FCA 320 38 ATR 464 98 ATC 4323 82 FCR 345 | Weyers v Commissioner of Taxation [2006] FCA 818 2006 ATC 4523 63 ATR 268 | Zeta Force Pty Ltd v The Commissioner of Taxation of the Commonwealth of Australia [1998] FCA 728 98 ATC 4681 39 ATR 277 84 FCR 70"
PS LA 2011/2,Administering penalties for failing to electronically notify or pay goods and services tax or pay as you go liabilities,14 April 2011,14 April 2011,Law Administration Practice Statement,False,"1. What this Practice Statement is about: Electronic lodgment and payment by large entities makes Australia's tax system more responsive, efficient and consistent by better matching tax collections with the economic conditions faced by traders. Therefore, penalties apply to large entities when they do not lodge a range of goods and services (GST) and pay as you go (PAYG) notices and payments electronically. This Practice Statement provides guidance on: • how the non-electronic notification (NEN) and the non-electronic payment (NEP) penalties apply • when and how to exercise our discretion to remit these penalties, and • the taxpayer's review rights when we decide not to remit. • how the non-electronic notification (NEN) and the non-electronic payment (NEP) penalties apply • when and how to exercise our discretion to remit these penalties, and • the taxpayer's review rights when we decide not to remit. All legislative references in this Practice Statement are to Schedule 1 to the Taxation Administration Act 1953 (TAA), unless otherwise indicated. | 2. When electronic notification and electronic payment is required: The following entities (relevant entities) must notify and pay electronically: • any entity with a GST turnover of $20 million or more [1] • any entity with a base assessment instalment amount [2] of $20 million or more [3] • any entity that is participating in the deferred GST scheme [4] , and • any entity classed as a 'large withholder' under the PAYG withholding system. [5] • any entity with a GST turnover of $20 million or more [1] • any entity with a base assessment instalment amount [2] of $20 million or more [3] • any entity that is participating in the deferred GST scheme [4] , and • any entity classed as a 'large withholder' under the PAYG withholding system. [5] Any entity that chooses or is required to lodge its GST return [6] electronically must also notify all other business activity statement (BAS) amounts due on the same day. [7] An entity with a GST turnover below $20 million may choose to lodge its GST return electronically. [8] If an entity chooses to do this, it must also electronically notify all other BAS amounts that are due on the same day. However, an entity is only liable to a penalty if it is required to lodge or pay electronically or both and does not do so. | 3. When the NEN and the NEP penalties are imposed: A NEN penalty applies each time a relevant entity makes a non-electronic: • lodgment of a GST return [9] • notification of monthly PAYG instalment, even when the amount is nil [10] , or • notification of another BAS amount. [11] • lodgment of a GST return [9] • notification of monthly PAYG instalment, even when the amount is nil [10] , or • notification of another BAS amount. [11] A NEP penalty is imposed each time a relevant entity makes a non-electronic payment of an assessed net amount for: • a tax period [12] • a debt [13] • a withheld amount [14] , or • an instalment. [15] • a tax period [12] • a debt [13] • a withheld amount [14] , or • an instalment. [15] | 4. How the NEN and the NEP penalties are applied: We must notify an entity in writing if a penalty applies and give reasons. [16] The penalties are calculated as follows: • a NEN penalty of 5 penalty units [17] where an entity has made the lodgment or notification in another way [18] • a NEP penalty of 5 penalty units where an entity has made the payment in another way. [19] • a NEN penalty of 5 penalty units [17] where an entity has made the lodgment or notification in another way [18] • a NEP penalty of 5 penalty units where an entity has made the payment in another way. [19] The penalty is due and payable on the date specified in the notice, which must be at least 14 days after the notice is given to the entity. [20] The general interest charge applies to any unpaid penalty from the due date for payment of that penalty. [21] | 5. When to remit the NEN and the NEP penalties: We can exercise our discretion to remit some or all of the NEN or the NEP penalty or both when it is fair and reasonable to do so, with or without a request from the taxpayer. [22] While our discretion to remit is unfettered, when deciding whether to remit a penalty, you should consider the following: • the facts and circumstances relevant to the taxpayer's case, including what they (or their registered agent) have provided to us, and • the principles of natural justice and those outlined in Our Charter , including that we - be fair and reasonable, and - treat clients as being honest and give them an opportunity to explain any discrepancies. • the facts and circumstances relevant to the taxpayer's case, including what they (or their registered agent) have provided to us, and • the principles of natural justice and those outlined in Our Charter , including that we - be fair and reasonable, and - treat clients as being honest and give them an opportunity to explain any discrepancies. - be fair and reasonable, and - treat clients as being honest and give them an opportunity to explain any discrepancies. Compliance with tax obligations other than the electronic notification and payment obligation is relevant to considering whether to remit the penalties. While it is not possible to identify every circumstance where it would be fair and reasonable to remit the NEN or the NEP penalty, we will usually remit where the entity can show that: • they did not have access to the appropriate infrastructure to lodge or pay electronically • access to the appropriate telecommunication infrastructure was prohibitively expensive • there was a telecommunications fault that could not be repaired in time • they were affected by a natural disaster (such as flood, fire, drought, earthquake or state of emergency) • they were affected by another disaster which had significant impact on the entity or the region where it or its branches operate • a key staff member responsible for electronically notifying or paying for the entity was seriously ill and there was no other person that could have notified or paid electronically • the entity has taken steps to ensure electronic payment or notification will occur in future, but those arrangements were not yet available at the time of this payment or notification, or • there was ATO action resulting in the delay of the electronic lodgment and payment. • they did not have access to the appropriate infrastructure to lodge or pay electronically • access to the appropriate telecommunication infrastructure was prohibitively expensive • there was a telecommunications fault that could not be repaired in time • they were affected by a natural disaster (such as flood, fire, drought, earthquake or state of emergency) • they were affected by another disaster which had significant impact on the entity or the region where it or its branches operate • a key staff member responsible for electronically notifying or paying for the entity was seriously ill and there was no other person that could have notified or paid electronically • the entity has taken steps to ensure electronic payment or notification will occur in future, but those arrangements were not yet available at the time of this payment or notification, or • there was ATO action resulting in the delay of the electronic lodgment and payment. Generally, we would not exercise the discretion to remit the NEN or the NEP penalty when: • a deliberate act or omission of the entity resulted in non-electronic lodgment or payment • the entity chose not to set up systems for electronic lodgment or payment and has not taken subsequent steps to set up such systems, or • the entity did not have the cash flow to enable electronic lodgment or payment and did not seek an extension of time to lodge or pay. • a deliberate act or omission of the entity resulted in non-electronic lodgment or payment • the entity chose not to set up systems for electronic lodgment or payment and has not taken subsequent steps to set up such systems, or • the entity did not have the cash flow to enable electronic lodgment or payment and did not seek an extension of time to lodge or pay. When we decide to not remit or partially remit the NEN or the NEP penalty, we must give the entity a written notice with reasons for the decision. [23] It is not necessary to notify the entity or to record the penalties on the entity's tax account where the penalties were remitted in full. | 6. Exemption from electronic lodgment for GST returns: An entity with a GST turnover of $20 million or more may not be required to lodge electronically if the Commissioner of Taxation 'otherwise approves'. [24] We generally expect large entities to have the facilities required to comply with electronic lodgment and payment requirements. However, we may approve an exemption from the electronic lodgment requirement for a GST return (and, consequently, the other BAS amounts due on the same day) if the telecommunication infrastructure is: • inadequate where the taxpayer is conducting the accounting work for these liabilities, or • prohibitively expensive to the entity. • inadequate where the taxpayer is conducting the accounting work for these liabilities, or • prohibitively expensive to the entity. | 7. Objection and appeal rights: If we do not fully remit a penalty and the amount that remains payable is more than 2 penalty units, the taxpayer may object to our decision. [25] If they object and are dissatisfied with the objection decision, they may either apply to the Administrative Review Tribunal (ART) or to the Federal Court for a review of the objection decision. The ART is a less complex and costly option. If the entity is dissatisfied with the ART decision, they may appeal to the Federal Court. If the remaining penalty is 2 units or less, the taxpayer cannot object to our decision not to remit, however, they may seek a review of the decision under the Administrative Decisions (Judicial Review) Act 1977 in the Federal Circuit Court or the Federal Court. Under Our Charter, we must include review rights in our correspondence when advising a taxpayer of a decision which is subject to review rights. | 8. Privacy: We must comply with the Privacy Act 1988 and the requirements of the Australian Privacy Principles and the Privacy (Tax File Number) Rule 2015 when collecting or handling personal information relating to penalty remission. | 9. More information: For more information, see: • ATO privacy policy • Australian Privacy Principles • Privacy (Tax File Number) Rule 2015 • Law Administration Practice Statement PS LA 2011/15 Lodgment obligations, due dates and deferrals • Our Charter • ATO privacy policy • Australian Privacy Principles • Privacy (Tax File Number) Rule 2015 • Law Administration Practice Statement PS LA 2011/15 Lodgment obligations, due dates and deferrals • Our Charter",PS LA 2011/15 | ANTS(GST)A 1999 31-25(1) | ANTS(GST)A 1999 31-25(2) | ANTS(GST)A 1999 31-25(4) | ANTS(GST)A 1999 33-10(2) | ANTS(GST)A 1999 195-1 | ANTS(GST)R 2019 33-15.01A(a) | ANTS(GST)R 2019 33-15.01B(2) | TAA 1953 8AAZMA | TAA 1953 8AAZMA(2) | TAA 1953 Sch 1 16-85(1) | TAA 1953 Sch 1 16-95(1) | TAA 1953 Sch 1 45-20(2A) | TAA 1953 Sch 1 45-72 | TAA 1953 Sch 1 45-320(2) | TAA 1953 Sch 1 288-10 | TAA 1953 Sch 1 288-20 | TAA 1953 Sch 1 298-10 | TAA 1953 Sch 1 298-15 | TAA 1953 Sch 1 298-20 | TAA 1953 Sch 1 298-20(1) | TAA 1953 Sch 1 298-20(2) | TAA 1953 Sch 1 298-20(3) | TAA 1953 Sch 1 298-25 | TAA 1953 Sch 1 388-80 | Administrative Decisions (Judicial Review) Act 1977 | Crimes Act 1914 4AA | Privacy Act 1988 | Privacy (Tax File Number) Rule 2015,PS LA 2011/15,ANTS(GST)A 1999 31-25(1) | ANTS(GST)A 1999 31-25(2) | ANTS(GST)A 1999 31-25(4) | ANTS(GST)A 1999 33-10(2) | ANTS(GST)A 1999 195-1 | ANTS(GST)R 2019 33-15.01A(a) | ANTS(GST)R 2019 33-15.01B(2) | TAA 1953 8AAZMA | TAA 1953 8AAZMA(2) | TAA 1953 Sch 1 16-85(1) | TAA 1953 Sch 1 16-95(1) | TAA 1953 Sch 1 45-20(2A) | TAA 1953 Sch 1 45-72 | TAA 1953 Sch 1 45-320(2) | TAA 1953 Sch 1 288-10 | TAA 1953 Sch 1 288-20 | TAA 1953 Sch 1 298-10 | TAA 1953 Sch 1 298-15 | TAA 1953 Sch 1 298-20 | TAA 1953 Sch 1 298-20(1) | TAA 1953 Sch 1 298-20(2) | TAA 1953 Sch 1 298-20(3) | TAA 1953 Sch 1 298-25 | TAA 1953 Sch 1 388-80 | Administrative Decisions (Judicial Review) Act 1977 | Crimes Act 1914 4AA | Privacy Act 1988 | Privacy (Tax File Number) Rule 2015,,ATO privacy policy Australian Privacy Principles Our Charter Penalties,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20112/NAT/ATO/00001,"Updated in line with current ATO style and accessibility requirements. | Update the footnote to include missing hyperlink. | Rewrite into the new style and format. | Paragraphs 2, 5, 11 and 12 | Updated to reflect a legislative amendment to section 288 10 to Schedule 1 of the TAA to include monthly PAYG instalment payers. | Updated to promote consistency on remission of penalties. | Insert new paragraph 34 to reflect amendments to the Privacy Act 1988 . | Include reference to Privacy Act 1988 . | New paragraph to advise that penalty arises separately for each activity statement. | New paragraph to advise that penalty does not apply to entities that are not under legal obligation to lodge electronically but choose to do so. | Removed reference to example of using compliance history as a factor in remission consideration as per trend in PS LA 2012/5. | Removed example in 4th dot point of factors to consider when remitting penalty, as the example has been misconstrued by clients. | Revised general structure to enhance the readability of the LAPS. | [1] Subsections 31-25(2), (4) and 33-10(2) of the A New Tax System ( Goods and Services Tax ) Act 1999 (GST Act). | [2] Your base assessment instalment amount is the amount of your assessable income that the Commissioner determines is instalment income for the base year (subsection 45-320(2)). | [3] Subsection 45-20(2A) and section 45-72. | [4] Paragraph 33-15.01A(a) and subsection 33-15.01B(2) of the A New Tax System ( Goods and Services Tax ) Regulations 2019 . | [5] Subsection 8AAZMA(2) of the TAA and the definition in subsection 16-95(1). | [6] 'GST return' is defined in section 195-1 of the GST Act. | [8] Subsection 31-25(1) of the GST Act. | [9] Subsection 31-25(2) of the GST Act. | [10] Subsection 45-20(2A). | [12] Note 1 to subsection 33-10(2) of the GST Act. | [13] Section 8AAZMA of the TAA. | [14] Subsection 16-85(1). | [17] The value of a penalty unit is contained in section 4AA of the Crimes Act 1914 and is indexed regularly. The dollar amount of a penalty unit is available at Penalties . | [22] Subsection 298-20(1). | [23] Subsection 298-20(2). | [24] Subsection 31-25(2) of the GST Act. | [25] Subsection 298-20(3). | File 1-5AHLM0M; 1-1417KAXG; 1-14JJDFD1"
PS LA 2011/3,SUBJECT: Compromise of undisputed tax-related liabilities and other amounts payable to the Commissioner PURPOSE: This Practice Statement sets out the factors to be considered and principles to be applied in reaching decisions on applications to compromise undisputed taxation debts.,14 April 2011,14 April 2011,Law Administration Practice Statement,False,"1. Tax debtors have a responsibility to meet their payment obligations as and when they fall due for payment. Where a tax debtor does not pay by the due date, we have a range of collection and recovery options (see Law Administration Practice Statement PS LA 2011/14 General debt collection powers and principles). These include, in appropriate cases, compromising the undisputed tax-related liabilities and other amounts payable to us (undisputed taxation debts). 2. There is no express enactment under any of the taxation laws which empowers us to compromise undisputed taxation debts. Section 8 of the Income Tax Assessment Act 1936 (ITAA 1936) and equivalent provisions in other tax statutes confer upon the Commissioner of Taxation responsibility for the general administration of the relevant legislation. 3. Section 15 of the Public Governance, Performance and Accountability Act 2013 (PGPA Act) invests in the Commissioner a power to enter into an agreement that includes an undertaking not to pursue part of a taxation debt owing to the Commonwealth, as part of a financially prudent bargain. 4. Section 11 of the Public Governance, Performance and Accountability Rule 2014 (PGPA Rule 2014) imposes on the Commissioner an obligation to pursue recovery of debts owing to the Commonwealth. This obligation is subject to some specified exceptions which, in effect, allow us to decide not to pursue a debt in particular circumstances. 5. The powers of general administration, together with the powers in section 15 of the PGPA Act and section 11 of the PGPA Rule 2014, enable us to compromise undisputed taxation debts (that is, agree to accept payment of less than the full amount owed in full and final settlement of the whole debt). 6. The power to compromise, however, is not an unfettered power that we can exercise for any reason. It is a power which can only be properly exercised if it is exercised for a permissible purpose. In so far as the power of general administration is relevant to the compromise of taxation debts, the fundamental purpose of the power is to enable the efficient collection of taxation liabilities from those who are obliged to pay them. 7. The following terms are used in this Practice Statement: • Compromise – in this context means to permanently agree not to pursue recovery of the balance of an undisputed taxation debt (effectively, to accept a sum less than the debt in full satisfaction of that debt – whether payable in one amount, either immediately or at a later date, or by instalments). It does not refer to agreements involving full payment, at a later date or by instalments, authorised by various taxation enactments which are discussed in detail in PS LA 2011/14. • Disgorged payments – refers to payments that we are legally required to pay to a liquidator or trustee on the basis that such payment when originally received from the tax debtor was a voidable preference or transaction. • Reparation order – means an order made by a court following conviction of a person for an offence against a law of the Commonwealth (including breaches of the tax laws), which requires the person to make restitution to the Commonwealth 'by way of money, payment or otherwise' in respect of any loss suffered or expense incurred by the Commonwealth because of the offence. • Seizure of property in execution – refers to the legal process for seizing property belonging to a debtor and having it sold to meet the amount owed. • Unfair preference – refers to a transaction entered into between the company and its creditors which results in the creditor receiving, in respect of an unsecured debt, more than it would have received if the creditor were to prove for the debt in the winding up of the company. • Voidable preference – refers to payments made to a creditor by an insolvent debtor during a prescribed period prior to the debtor's bankruptcy which had the effect of putting that creditor into a preferential situation compared with other creditors. • Voidable transactions – refers to transactions in respect of which the Court may make an order under section 588FF of the Corporations Act 2001 (Corporations Act). • Compromise – in this context means to permanently agree not to pursue recovery of the balance of an undisputed taxation debt (effectively, to accept a sum less than the debt in full satisfaction of that debt – whether payable in one amount, either immediately or at a later date, or by instalments). It does not refer to agreements involving full payment, at a later date or by instalments, authorised by various taxation enactments which are discussed in detail in PS LA 2011/14. • Disgorged payments – refers to payments that we are legally required to pay to a liquidator or trustee on the basis that such payment when originally received from the tax debtor was a voidable preference or transaction. • Reparation order – means an order made by a court following conviction of a person for an offence against a law of the Commonwealth (including breaches of the tax laws), which requires the person to make restitution to the Commonwealth 'by way of money, payment or otherwise' in respect of any loss suffered or expense incurred by the Commonwealth because of the offence. • Seizure of property in execution – refers to the legal process for seizing property belonging to a debtor and having it sold to meet the amount owed. • Unfair preference – refers to a transaction entered into between the company and its creditors which results in the creditor receiving, in respect of an unsecured debt, more than it would have received if the creditor were to prove for the debt in the winding up of the company. • Voidable preference – refers to payments made to a creditor by an insolvent debtor during a prescribed period prior to the debtor's bankruptcy which had the effect of putting that creditor into a preferential situation compared with other creditors. • Voidable transactions – refers to transactions in respect of which the Court may make an order under section 588FF of the Corporations Act 2001 (Corporations Act). 8. This Practice Statement details the factors and considerations that should be taken into account when deciding whether or not to accept an offer to compromise an undisputed taxation debt. 9. The guidelines for settlement of disputed taxation debts are contained within the Code of settlement . Those in relation to the settlement of debt recovery litigation are contained in Law Administration Practice Statement PS LA 2011/7 Settlement of debt litigation proceedings. 10. Securities obtained in relation to the Excise Act 1901 cannot be compromised and are therefore excluded from the scope of this Practice Statement. 11. Employers' undisputed debts and their associated general interest charge which arose under the Superannuation Guarantee (Administration) Act 1992 (exclusive of the administration components and Part 7 penalties), represent employees' entitlements which the Commissioner is required to pay to an eligible fund [1] on behalf of those employees. Accordingly, as a matter of public policy, it is considered appropriate to exclude such debts from the scope of this Practice Statement. 12. When assisting tax debtors in discharging their undisputed taxation debts, we will, in the first instance, generally seek to exercise the Commissioner's express statutory powers with due regard to the relevant legislation, guidelines and policy in respect to those powers. The Commissioner's powers include: • remitting penalties, other additional charges and interest, including the general interest charge • entering into payment arrangements • deferring time for payment • releasing from payment of certain liabilities. • remitting penalties, other additional charges and interest, including the general interest charge • entering into payment arrangements • deferring time for payment • releasing from payment of certain liabilities. 13. Where the exercise of those statutory powers fails to bring about a satisfactory outcome for the revenue, we may then consider whether it is appropriate to compromise the debt. In some limited circumstances, the finance minister may approve a waiver of the debt. [2] 14. The Commissioner's power to compromise must be exercised in accordance with the purpose of the taxation legislation, that is, to secure the highest net return taking into account considerations of good management and administrative common sense. In view of this, it would be unusual for us to compromise a debt outside the statutory processes available under the bankruptcy and corporations laws unless it is satisfied that result would not be available without the compromise. 15. The benefits of entering into a compromise may include: • a saving in the costs of collection • collection at an earlier date than would otherwise be the case • collection of a greater sum than could be otherwise recovered, or • the abandonment by the tax debtor of some claim or right arising under a taxation law that has a monetary value (for example, the right to carry forward revenue and capital losses). • a saving in the costs of collection • collection at an earlier date than would otherwise be the case • collection of a greater sum than could be otherwise recovered, or • the abandonment by the tax debtor of some claim or right arising under a taxation law that has a monetary value (for example, the right to carry forward revenue and capital losses). 16. Consideration will not be focused solely on the short-term benefits and costs. Longer-term considerations, such as general compliance with taxation legislation, are also relevant. Any immediate benefit of cost savings may, for example, be offset many times over if the tax debtor's compliance history is poor. 17. If considerations of good management or administrative common sense lead us to conclude that the most efficient way to collect the taxation liabilities correctly payable is to reach a compromise, it is appropriate to compromise. 18. Likewise, if in a particular case we conclude that a greater amount can be recovered by entering into a compromise than by pursuing alternative remedies, such as agreeing to accept payment over an extended period of time or instituting legal proceedings leading to bankruptcy or liquidation, then we may decide that compromise is the most appropriate step to take. 19. On the other hand, considerations which are not directly related to our function of collecting taxes cannot support the use of the power to compromise. For example, it would not be permissible to accept a compromise to: • assist those tax debtors who may have overcommitted themselves • save a business from closure because a large number of people in a particular region depended on the business for employment • avoid the failure of a business because the activities of the business might be seen to be serving a national interest (for example, a large exporter, a producer of a key raw material or product) • alleviate what may be perceived to be a harsh or unfair operation of a tax law in particular circumstances • avoid hardship (such as the need to sell a home or a business), or • create for us a benevolent public image or in the furtherance of some charitable objective. • assist those tax debtors who may have overcommitted themselves • save a business from closure because a large number of people in a particular region depended on the business for employment • avoid the failure of a business because the activities of the business might be seen to be serving a national interest (for example, a large exporter, a producer of a key raw material or product) • alleviate what may be perceived to be a harsh or unfair operation of a tax law in particular circumstances • avoid hardship (such as the need to sell a home or a business), or • create for us a benevolent public image or in the furtherance of some charitable objective. 20. Requests for compromise must be made to us in writing. Application forms are available on request for individual and corporate tax debtors, which seek the requisite information in a structured format. Refer to Compromise of tax debt . 21. The onus is on the tax debtor to establish that the debt should be compromised. To this end, tax debtors should be made aware of the stringent requirements that must be satisfied in order to obtain a compromise agreement and of the actions we may take if a compromise proposal is not accepted. 22. In lodging an application for a compromise, tax debtors should also be mindful that they are essentially admitting that: • they are insolvent • they may have been insolvent for some time, but now do not see this situation improving, and • in some cases, they may have paid out other creditors to our detriment (potentially, an act of bankruptcy under the Bankruptcy Act 1966 (Bankruptcy Act)). • they are insolvent • they may have been insolvent for some time, but now do not see this situation improving, and • in some cases, they may have paid out other creditors to our detriment (potentially, an act of bankruptcy under the Bankruptcy Act 1966 (Bankruptcy Act)). 23. We are entitled to use any available information when evaluating the risks inherent in particular debts and in considering which recovery action to take on those debts. Where such information discloses evidence of insolvency, this will usually imply a high level of risk. Where a compromise proposal is not accepted, we may take the appropriate action to mitigate such risks. | Limitations on the Commissioner's ability to compromise: 24. In a private agreement between a creditor and a debtor which involves acceptance of a lesser sum in full satisfaction of a debt, the creditor (in consideration for payment of the lesser sum) would usually grant a legal discharge of the balance of the debt such that, in law, it no longer existed. 25. The Commissioner, however, does not have the same power. For taxation debts, it is the Commonwealth (not the Commissioner) who is the creditor. The Commissioner is simply the agent through which the Commonwealth acts to collect. 26. Any purported grant of a discharge would be ineffective and would not prevent subsequent recovery of the debt. Consequently, the Commissioner's inability to give a valid discharge may be unacceptable to a tax debtor. 27. Many of the remedies available to us to secure payment are discretionary rather than mandatory. Accordingly, we may use our judgment on how best to collect any taxation debt. We may decide not to exercise any or all of these discretionary remedies (that is, effectively compromise the debt) provided, in so doing, we are acting for reasons of good management or administrative commonsense so far as collecting the revenue is concerned. 28. The most appropriate mechanism for giving effect to a compromise is for us to enter into a deed which would include a covenant that we will not exercise any discretionary remedy to enforce payment. A covenant in these terms would be enforceable at law against the Commissioner. 29. There are limitations on the Commissioner's ability to compromise. We cannot enter into an agreement to do something contrary to that prescribed by legislation. Any agreement attempting this would be ineffective at law. 30. The limitations on the Commissioner's ability to compromise include: • a covenant by the Commissioner not to exercise or pursue discretionary remedies will not prevent the Commonwealth itself, or other agencies of the Commonwealth (such as the Commonwealth Director of Public Prosecutions) from exercising such powers or remedies as are separately available to it or them, such remedies include recovery of unpaid amounts (or equivalent amounts) by way of reparation orders made under the Crimes Act 1914 or penalties under provisions such as section 12 of the Crimes (Taxation Offences) Act 1980 or section 8W of the Taxation Administration Act 1953 (TAA), and • the power of compromise is not available in the cases of Higher Education Loan Program (HELP) debts or student financial supplement assessment or accumulated debts. The Commissioner does not have the general administration of either the Higher Education Support Act 2003 (HESA) or the Student Assistance Act 1973 (SAA), even though they are charged with responsibility for collection of liabilities arising under those Acts through the income tax system. Nevertheless, the provisions of sections 154-45 and 154-50 of the HESA and section 12ZP of the SAA provide authority for the Commissioner to deal with any foreseeable circumstances by way of deferring or amending such assessments. • a covenant by the Commissioner not to exercise or pursue discretionary remedies will not prevent the Commonwealth itself, or other agencies of the Commonwealth (such as the Commonwealth Director of Public Prosecutions) from exercising such powers or remedies as are separately available to it or them, such remedies include recovery of unpaid amounts (or equivalent amounts) by way of reparation orders made under the Crimes Act 1914 or penalties under provisions such as section 12 of the Crimes (Taxation Offences) Act 1980 or section 8W of the Taxation Administration Act 1953 (TAA), and • the power of compromise is not available in the cases of Higher Education Loan Program (HELP) debts or student financial supplement assessment or accumulated debts. The Commissioner does not have the general administration of either the Higher Education Support Act 2003 (HESA) or the Student Assistance Act 1973 (SAA), even though they are charged with responsibility for collection of liabilities arising under those Acts through the income tax system. Nevertheless, the provisions of sections 154-45 and 154-50 of the HESA and section 12ZP of the SAA provide authority for the Commissioner to deal with any foreseeable circumstances by way of deferring or amending such assessments. 31. The only options available to a tax debtor who is not prepared to accept the limitations to the Commissioner's ability to compromise, as detailed in paragraph 30 of this Practice Statement, are either to apply to the Commissioner for release or apply to the finance minister for a waiver of the balance of the debt. A tax debtor could also obtain a discharge of the debt (apart from HELP debt) by becoming subject to the insolvency processes available under the bankruptcy or corporations laws. | Matters that should be considered: 32. Generally, the avenues available to both creditors and debtors for dealing with debts under various statutes operate to effectively protect all parties and provide alternatives to bankruptcy or liquidation for debtors. Specific provisions of the bankruptcy and corporation laws act to protect the interests of all creditors, who each have the opportunity of voting on compromise proposals in cases where debtors offer payment of less than the full debt. 33. In this regard, it should be recognised that a favourable compromise arrangement with us would serve little purpose if the tax debtor's financial position indicates that there is a risk that other unsatisfied creditors are likely to instigate bankruptcy proceedings to enforce payment of their debts. In the event of such action, any payment received by us may need to be repaid as a voidable preference. 34. There is a similar risk for corporate tax debtors. Payments made under compromise agreements have been found to be voidable transactions (in that they were unfair preferences under section 588FA of the Corporations Act and insolvent transactions under section 588FC of the Corporations Act where the agreement may result in all creditors not being paid in a timely fashion by an insolvent company (refer: In the Matter of Australian Company Number 007 764 249 Smith, Anthony Stevens Pty Ltd v Deputy Commissioner of Taxation & Ors [1997] FCA 344)). 35. It is not possible to set out all of the circumstances which might arise in a particular case and which might justify entering into a compromise. Nevertheless, there are some matters that need to be considered before deciding whether or not to compromise a taxation debt. These include: • determining the potential return to the Commonwealth if there were no compromise • what allowance should be made, if any, for tax losses that may be available, and • determining the return to the Commonwealth if the compromise was accepted. • determining the potential return to the Commonwealth if there were no compromise • what allowance should be made, if any, for tax losses that may be available, and • determining the return to the Commonwealth if the compromise was accepted. | Determining the position without compromise: 36. In making an assessment of what the position will be without a compromise, it is not only necessary to look at the value of the tax debtor's present property but also to examine the tax debtor's future prospects, past transactions and the position of any related entities. There is no time limit within which we must recover taxation debts. Consequently, we can have access to income derived and assets acquired for an unlimited period in order to obtain payment. 37. This assessment should proceed on the basis that the tax debtor will voluntarily pay over net current assets. In relation to individual tax debtors, there is an expectation that they will also agree to pay any surplus from their current and future income which is not needed for meeting their future taxation debts or their necessary living expenses during the currency of the compromise deed, together with other assets acquired up to 3 years after the date of the compromise agreement. This creates some alignment with the Bankruptcy Act. (For example, Division 4B of Part VI of the Bankruptcy Act provides guidance with regard to the contribution the debtor could make). In other words, the assessment process should disregard the potential enforcement costs or the time it would take for a liquidator or trustee to ultimately realise assets to satisfy the taxation debts. 38. In considering the question of a tax debtor's future prospects, regard should be had to any arrangements which have been implemented or are proposed which might have the effect of diverting income or property that might otherwise accrue to the tax debtor or to other entities. Unless there are compelling reasons for the implementation of the particular arrangements and the diversion of income or property is unavoidable, compromise will not be accepted on the basis of the reduced income or property likely to be available. In these cases, the arrangements should be ignored for the purpose of calculating the value of the tax debtor's future income or property. This stand should be maintained even though, in the final analysis, the Commissioner might not, through bankruptcy or other legal remedies, be able to avoid the arrangements. 39. The overriding consideration is that we should not be seen to condone arrangements which are detrimental to the revenue. To do so may encourage proliferation of such arrangements to the even greater detriment of the revenue. 40. A full assessment of the position as it would be without a compromise also involves a consideration of the application of bankruptcy and corporation law to the facts of the case. There are 4 broad areas in which bankruptcy law remedies can make available to creditors funds over and above the value of a debtor's present property. They are: • the 'clawback' of money or assets previously disposed of by way of preferences in favour of other creditors, voluntary settlement (that is, transfers of property for nil or inadequate consideration) and fraudulent disposition (that is, property disposed of with intent to defeat or delay creditors) • the recovery of money or assets held by entities controlled by the debtor (see Division 4A of Part VI of the Bankruptcy Act) • the requirement that the bankrupt contribute to their estates from future earnings (see Division 4B of Part VI of the Bankruptcy Act), and • the vesting of all divisible property, acquired by a bankrupt prior to discharge, in the trustee for the benefit of creditors. • the 'clawback' of money or assets previously disposed of by way of preferences in favour of other creditors, voluntary settlement (that is, transfers of property for nil or inadequate consideration) and fraudulent disposition (that is, property disposed of with intent to defeat or delay creditors) • the recovery of money or assets held by entities controlled by the debtor (see Division 4A of Part VI of the Bankruptcy Act) • the requirement that the bankrupt contribute to their estates from future earnings (see Division 4B of Part VI of the Bankruptcy Act), and • the vesting of all divisible property, acquired by a bankrupt prior to discharge, in the trustee for the benefit of creditors. 41. The Corporations Act contains provisions which roughly parallel the clawback provisions of the Bankruptcy Act and there are also provisions which allow for recovery of money from company officers in a range of circumstances. A prerequisite to the employment of these provisions is the liquidation of the company. 42. Accordingly, an assessment of a compromise application should proceed on a projection of the likely return to the revenue after we have exhausted all rights under the provisions discussed in paragraphs 40 and 41 of this Practice Statement. While it is preferable for the projected amount arrived at in the determination of the position without compromise to be settled between the tax debtor and the Commissioner, it is recognised that this may not always be possible given that the parties may have different views as to our prospect of success in any potential litigation. Notwithstanding this, no allowance should be made for the costs or delay involved in enforcing those remedies. 43. A compromise will generally deliver better results to the revenue than would be obtained by any available recovery processes and for this reason many, perhaps most, tax debtors may be unwilling to reach a compromise. As a consequence, the amounts ultimately recovered in some cases adopting other recovery approaches may be significantly less than the amounts calculated under this approach. These losses, however, are seen to be simply a cost associated with achievement of the broader objective of voluntary compliance by the taxpaying community at large. From our perspective, exercising good management and administrative commonsense in the general administration of the tax law entails giving precedence to this objective over the recovery of some additional funds in individual cases. 44. In evaluating the dollar value of debts that may be recoverable by a trustee or liquidator on behalf of the tax debtor from their debtors, there may be certain circumstances in which it would be acceptable to discount the face value of rights relating to past transactions or anticipated future interests. Such cases would include those involving costs of litigation in proceedings by the tax debtor which are unrelated to any action by us on behalf of the Commonwealth (for example, costs associated with an action for damages for personal injury or breach of contract by an arms-length party). 45. It would also be permissible to discount the value of a debt payable to the tax debtor in the future provided that the circumstances concerning its creation and terms of repayment do not involve uncommercial elements. An interest-free loan to a party associated with the tax debtor, for example, could be considered to be uncommercial in this sense. 46. It is important to ensure that non-compliant behaviour in the form of reckless or careless failure to make provision to pay an expected taxation debt, even by instalments over time, is not rewarded or condoned. Again, the broader objective of achieving voluntary compliance is more important than the amount recovered in any individual case. | Losses that may be available for tax purposes: 47. It will not be unusual that a tax debtor who makes a compromise proposal has incurred substantial losses of either revenue or capital nature, or both. It would be quite unacceptable that a tax debtor be allowed the benefit of a compromise, whether in respect of an income tax debt or some other taxation debt, but at the same time retain the right to offset losses against future income or capital gains. 48. Consequently, the deed evidencing the compromise should contain provisions that bind the tax debtor to not claim losses against income of future years and to exclude capital losses from the calculation of future net capital gains or losses. The provisions would need to clearly identify the specific losses (revenue, capital or both) to be foregone by reference to a date, usually the end of the income year either preceding or succeeding the date of the deed. Agreements of this kind, which effectively amount to abandonment of the tax debtor's statutory rights, can be validly entered into by tax debtors and would be enforceable by us. | Determining position with compromise: 49. Having ascertained what the potential position would be without a compromise, it is then necessary to assess what benefit will flow to the Commonwealth from acceptance of the compromise offer. Unless benefits of substance can be clearly demonstrated, the compromise offer should be rejected. 50. It is not sufficient that the compromise offer is equal to our assessment of what the position would be without the compromise. There must be a positive advantage of substance to the revenue in accepting the compromise. If for no other reason, this stance is justified by the fact that a compromise will involve loss of access to any future windfall gains by the tax debtor which, of course, will not have been taken into account in the evaluation process described previously. | Guiding principles in considering compromise applications: A. We will not accept compromise proposals that offer less than the tax debtor's total net assets in full satisfaction of the taxation debt 51. Bankruptcy law and the law relating to seizure of property in execution exempt from this obligation certain basic necessities like clothing, furniture, tools of trade and the like. Subject to these exemptions, any compromise offer will be expected to consist of no less than the full value of the whole of the tax debtor's present property. 52. The same guiding principle applies to corporate tax debtors. Because of this, it is unlikely that many corporate tax debtors will seek to compromise their debts. They will probably seek an arrangement with creditors under Part 5.3A of the Corporations Act or go into liquidation. Both of these options are discussed in Law Administration Practice Statement PS LA 2011/16 Insolvency – collection, recovery and enforcement issues for entities under external administration. Where a corporate tax debtor is contemplating a compromise, enquiries should be made to ascertain whether the tax debtor or its principals have engaged in conduct that satisfies guiding principle E of this Practice Statement. B. We will not accept compromise proposals unless there is a benefit in doing so over and above that which would flow from taking actions under either the Bankruptcy Act or the Corporations Act 53. If in a particular case, we conclude that a greater amount can be recovered by entering into a compromise than by pursuing alternative remedies, such as agreeing to accept payment over an extended period of time or instituting legal proceedings leading to bankruptcy or liquidation, we may decide that compromise is the most appropriate outcome for the revenue. 54. It is often argued that we should accept a lesser amount than what is recoverable in a bankruptcy or liquidation, because if we do not, we will suffer the expense and delay of legal proceedings necessary to forcibly realise property. This argument is not accepted because to do so would be to reward behaviour which amounts to non-compliance with the tax debtor's obligations. This would be wholly inconsistent with the objective of achieving a high level of voluntary compliance by the community generally. However, due allowance can be made for the legitimate costs associated with the realisation of an asset which are not attributable to any active obstruction (or inaction) on the part of the tax debtor. 55. Another aspect is what cost savings to us are relevant in calculating any benefit. Only future cost savings are relevant. Tax debtors who defer discussing their affairs with us until they are at court will have little chance of their proposals being accepted as we would have already incurred costs in commencing the legal proceedings. | C. We must be able to quantify the tax debtor's total taxation debt: 56. The tax debtor's lodgment obligations must be up to date and there must be certainty as to the amount that is the subject of the compromise application. 57. We will not consider requests for compromise where: • the taxation debts are subject to dispute • an application to waive the debt has not been finalised, or • an application for release from payment of an income tax or fringe benefits tax debt has not been finalised. • the taxation debts are subject to dispute • an application to waive the debt has not been finalised, or • an application for release from payment of an income tax or fringe benefits tax debt has not been finalised. 58. In terms of disputed debts, the Code of Settlement sets out the relevant considerations for reaching an out-of-court settlement concerning the amount which a tax debtor is or will be liable to pay in a case where there is a genuine dispute about the actual amount of a liability. 59. In most cases where disputed debts are settled, the terms of settlement are given effect by the issue of assessments or amended assessments on an agreed basis and those assessments thereafter determine for all purposes the amount of a tax debtor's liability. D. We will neither prejudice other creditors' entitlements nor accept that other creditors can prejudice the Commissioner's entitlements 60. In considering whether or not to enter into a compromise, it is necessary to ensure that the proposed compromise does not disadvantage any other creditors. Such a proposal should be refused unless it can be shown that all affected creditors consent to the arrangement. On the other hand, a proposal involving payment to us of funds provided by a third party (for example, a relative) would not disadvantage any other creditor. 61. It would also be prudent to gain an appreciation of the other creditors' intentions in relation to the payment of their debts. Firstly, we will not consider a proposal if another creditor intends to take, or has initiated, formal recovery proceedings. Secondly, it is necessary to ensure that whatever arrangements have been, or are proposed to be, made in relation to some or all other creditors do not place them in a position of advantage relative to the Commonwealth. Proposals where the Commissioner is the only creditor should receive very close scrutiny as it is likely that other creditors' debts may have been fully satisfied in preference to the taxation debts. 62. There would be no objection to creditors, such as former employees with claims for wages who would enjoy priority in a formal administration under insolvency law, being given an equally preferred status under the proposed compromise terms. E. We will not consider requests for compromise where this may directly or indirectly impact on other actions involving the tax debtor or other parties 63. In respect of the recovery of penalties for directors of non-complying companies under Division 269 of Schedule 1 to the TAA (and Division 9 of Part VI of the ITAA 1936 for penalties due prior to 1 July 2010), compromise is unavailable in situations where a director penalty liability exists for more than one director. Compromise can only be considered where options against the company are exhausted and there are no director penalty liabilities outstanding for the same debt against other directors. Therefore, compromise may be an option: • for a single director of a company – where all viable recovery avenues against the company have been exhausted, or • where one or more directors are exposed to a parallel liability – where all viable recovery avenues against the company and the other directors have been exhausted. • for a single director of a company – where all viable recovery avenues against the company have been exhausted, or • where one or more directors are exposed to a parallel liability – where all viable recovery avenues against the company and the other directors have been exhausted. 64. Under section 588FGA of the Corporations Act, we are entitled to seek an indemnity against a director of a company in respect of any loss or damage resulting from an order obtained by a liquidator against the Commissioner in respect of an unfair preference or other voidable transaction relating to a pay as you go withholding payment. Where directors have a liability under section 588FGA, they may seek to compromise that debt. It should be borne in mind that the effect of section 588FGA is to return the Commissioner to a similar legal position that they would have been in had the disgorged payments not been made and they had invoked the director penalty recourse set out under Division 269 of Schedule 1 to the TAA (and in Division 9 of Part VI of the ITAA 1936 for penalties due prior to 1 July 2010). Although liabilities of directors arising under section 588FGA are not taxation debts as such, we will adopt a similar approach to the compromising of such debts as we would with a director penalty liability (see paragraph 63 of this Practice Statement). 65. Compromise is rarely available in situations where more than one member of a consolidated group under Division 721 of the Income Tax Assessment Act 1997 is jointly and severally liable for the same debt because we may recover from other members of the consolidated group. Where a contributing member is liable for an amount under a tax-sharing agreement, compromise will not be considered until all options against the head company have been exhausted. An offer of compromise made by either the head company or a contributing member may be considered once all options against each jointly and severally liable party have been exhausted. 66. It is open to the tax debtor to seek to compromise their debts once all options against each jointly liable party have been exhausted. In rare cases where a dispute exists between the parties who are jointly and severally liable for the tax debt, their rights could also be compromised where there is a demonstrable benefit to the revenue. In that event, the compromise of these other actions could include terms to encompass all debts owed by the tax debtor and other parties. For example, a director against whom action is being taken to recover a director's penalty may also have an income tax debt. In appropriate cases, we may compromise both debts. Where this occurs, the tax debtor and the other parties would normally be made parties to the compromise arrangement by way of deed. F. We cannot accept compromise proposals where the only reason to support the proposal is the tax debtor's claim of hardship in paying their taxation debts 67. Considerations of hardship alone cannot justify the exercise of the power to compromise. Parliament has laid down a specific procedure for dealing with serious hardship cases. This procedure has displaced any implied authority the Commissioner may have had to deal with hardship cases under their powers of general administration. For the same reason, serious hardship considerations cannot justify the exercise of the power to compromise in the case of those liabilities for which there is no provision for release on grounds of serious hardship. 68. A typical example is where the total of the tax debtor's resources is equal to the taxation debt. The fact the tax debtor must dispose of a home and a source of income (be it a business or investments) and all other assets and property in order to pay will not justify accepting less than the full amount as full payment of the debt. Tax debtors have a responsibility to manage their affairs to ensure funds are available to meet taxation debts. The fact they may have used funds to acquire assets instead of setting those funds aside to meet their taxation debts is no reason for us to accept anything less than the full amount. | G. We will take into account the tax debtor's compliance history: 69. An agreement to compromise a debt is essentially based on trust. We will not enter into a compromise agreement where a tax debtor has demonstrated a lack of candour, provided misleading or incomplete information, declined to provide any information or failed to enter into or honour reasonable agreements to pay their debts without reasonable cause. 70. In deciding how to administer the taxation laws, we manage risks. High-risk taxpayers include those who continually participate in aggressive tax planning arrangements, regularly lodge their taxation returns late or pay their taxation debts late or not at all. The conduct of high-risk tax debtors excludes them from compromise agreements. For these reasons, debts in the form of reparation orders and other similar orders made by the courts as a result of a conviction will not be compromised. H. We will not accept a compromise proposal where the tax debtor could lodge a debt agreement under Part IX of the Bankruptcy Act 71. As debt agreements offer the same benefits to tax debtors as compromise agreements, but at less cost to the Commissioner, we will not consider compromise proposals where the tax debtor meets the requirements of, and can lodge, a debt agreement proposal with the Australian Financial Security Authority. I. We will not accept a compromise proposal where, the tax debtor has been a party to a form of insolvency administration within 5 years 72. Certain arrangements within taxation, bankruptcy and corporations legislation provide for different forms of insolvency administration. In deciding how to collect taxation debts, we manage risks. We will not accept a compromise proposal where, within 5 years immediately before the proposal, the tax debtor has been a party to a compromise agreement with us, bankrupt or party to an arrangement under Part IX or Part X of the Bankruptcy Act or Part 5.3A of the Corporations Act. Tax debtors that seek to be relieved of their debts within this time period are too high a risk for compromise agreements. | Application of refunds and credits: 73. Section 8AAZL of the TAA sets out how the Commissioner must treat payments, credits and running balance account (RBA) surpluses. We may allocate a payment or credit first to an RBA (Method 1) or apply these amounts first against a non-RBA tax debt (Method 2). 74. Generally, the process of offsetting a payment or credit amount against a tax debt owed by an entity using Method 1 or Method 2 is mandatory, except in limited circumstances where we have discretion to refund the amount to the entity (subsections 8AAZL(3) and (4) of the TAA). These circumstances include where: • the debt is due but not yet payable • the taxpayer is complying with an arrangement to pay the debt by instalments • we have agreed to defer recovery of the debt, or • the debt is a director penalty (for directors of non-complying companies). • the debt is due but not yet payable • the taxpayer is complying with an arrangement to pay the debt by instalments • we have agreed to defer recovery of the debt, or • the debt is a director penalty (for directors of non-complying companies). 75. Notwithstanding that the acceptance of a compromise by us constitutes a permanent deferment of recovery of the debt, as a general principle, we will offset any credits that may arise against the amount of the tax debt until such time as all the terms of a deed have been fully satisfied. 76. When the tax debt payable under a deed of compromise has been extinguished, any credits that may subsequently arise cannot be applied against the amount of debt that we have agreed to compromise. | Deed to evidence compromise agreement: 77. In all cases of compromise, a deed drafted by the Objections and Review business line must be signed by all relevant parties to evidence what has been agreed between the parties.",PS LA 2011/7 | PS LA 2011/14 | PS LA 2011/16 | PS LA 2011/17 | ITAA 1936 8 | ITAA 1997 Div 721 | TAA 1953 8W | TAA 1953 8AAZL | TAA 1953 8AAZL(3) | TAA 1953 8AAZL(4) | TAA 1953 Sch1 Div 269 | Bankruptcy Act 1966 Pt VI Div 4A | Bankruptcy Act 1966 Pt VI Div 4B | Bankruptcy Act 1966 Pt IX | Bankruptcy Act 1966 Pt X | Corporations Act 2001 Pt 5.3A | Corporations Act 2001 588FA | Corporations Act 2001 588FC | Corporations Act 2001 588FF | Corporations Act 2001 588FGA | Crimes Act 1914 | Crimes (Taxation Offences) Act 1980 12 | PGPA Act 2013 15 | Excise Act 1901 | HESA 2003 154-45 | HESA 2003 154-50 | SAA 1973 12ZP | Superannuation Guarantee (Administration) Act 1992 65 | Superannuation Guarantee (Administration) Act 1992 Pt 7 | 97 ATC 4471,PS LA 2011/7 PS LA 2011/14 PS LA 2011/16 PS LA 2011/17,ITAA 1936 8 | ITAA 1936 Pt VI Div 9 | ITAA 1997 Div 721 | TAA 1953 8W | TAA 1953 8AAZL | TAA 1953 8AAZL(3) | TAA 1953 8AAZL(4) | TAA 1953 Sch1 Div 269 | Bankruptcy Act 1966 Pt VI Div 4A | Bankruptcy Act 1966 Pt VI Div 4B | Bankruptcy Act 1966 Pt IX | Bankruptcy Act 1966 Pt X | Corporations Act 2001 Pt 5.3A | Corporations Act 2001 588FA | Corporations Act 2001 588FC | Corporations Act 2001 588FF | Corporations Act 2001 588FGA | Crimes Act 1914 | Crimes (Taxation Offences) Act 1980 12 | PGPA Act 2013 15 | PGPA Rule 2014 11 | Excise Act 1901 | HESA 2003 154-45 | HESA 2003 154-50 | SAA 1973 12ZP | Superannuation Guarantee (Administration) Act 1992 65 | Superannuation Guarantee (Administration) Act 1992 Pt 7,,Code of settlement Compromise of tax debt,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20113/NAT/ATO/00001,"Updated in line with current ATO style and accessibility requirements. | Corrected to reflect the legislative change introduced in 2011 and to clarify the circumstances when the Commissioner may refund an amount. | Paragraphs 3, 4 and 5; Legislative references | Updated to meet ATO style guide requirements and to improve readability. | To exclude superannuation guarantee debts from the scope of the practice statement | [1] Section 65 of the Superannuation Guarantee (Administration) Act 1992 prescribes how the Commissioner is required to deal with employees' benefits. | [2] See Law Administration Practice Statement PS LA 2011/17 Debt relief, waiver and non-pursuit . | File 1-4EEQXYH; 1-138WMILV; 1-142WLCG3 | In the Matter of Australian Company Number 007 764 249 Smith, Anthony Stevens Pty Ltd v Deputy Commissioner of Taxation & Ors [1997] FCA 344 77 FCR 339 97 ATC 4471 36 ATR 142 15 ACLC 687"
PS LA 2011/4,Collection and recovery of disputed debts,14 April 2011,14 April 2011,Law Administration Practice Statement,False,"Definitions: 1. The following terms are used in this Practice Statement: Administrative overpayment means an amount that we have paid to a person by mistake, being an amount to which the person is not entitled. [1] Disputed debt means a tax-related liability that is subject to an objection, review or appeal under Part IVC of the TAA. It includes both the disputed principal tax debt and related amounts. These related amounts include tax shortfall penalty, shortfall interest charge (SIC) and general interest charge (GIC). Disputed principal tax debt means the primary tax at the centre of a tax dispute. It includes amounts such as assessed income tax, assessed net amounts of goods and services tax and assessed fringe benefits tax. It does not include other related amounts that may arise from the making of an assessment, such as tax shortfall penalty, SIC and GIC. GIC means the general interest charge dealt with in Part IIA of the TAA. Large business and wealthy group taxpayer includes a taxpayer that is a: • member of a group with a turnover of greater than $250 million • member of a private group with over $250 million in net assets, or • significant global entity. [2] • member of a group with a turnover of greater than $250 million • member of a private group with over $250 million in net assets, or • significant global entity. [2] These groups can include Australian public and private businesses, majority foreign-owned businesses and private equity arrangements. Recovery action means: • legal action in which we sue in a court of competent jurisdiction to recover a tax-related liability • the issue of a garnishee notice • the issue of a departure prohibition order • seeking or actioning writs or warrants of execution, or warrants of seizure and sale • pursuing freezing orders or Mareva injunctions preventing debtors dealing with assets, and • the use of equitable remedies or declaratory and restitution orders. • legal action in which we sue in a court of competent jurisdiction to recover a tax-related liability • the issue of a garnishee notice • the issue of a departure prohibition order • seeking or actioning writs or warrants of execution, or warrants of seizure and sale • pursuing freezing orders or Mareva injunctions preventing debtors dealing with assets, and • the use of equitable remedies or declaratory and restitution orders. SIC means the shortfall interest charge that applies to shortfalls of income tax, minerals resource rent tax, petroleum resource rent tax, excess non-concessional contributions tax, and tax under Division 293 of the ITAA 1997. Liability to SIC is covered in Division 280 of Schedule 1 to the TAA. Tax-related liability means any pecuniary liability to the Commonwealth arising directly under a taxation law (including a liability the amount of which is not yet due and payable). It encompasses all types of taxes, penalties and additional charges for late payment. A table listing the various tax-related liabilities is in section 250-10 of Schedule 1 to the TAA. 50/50 arrangement means an administrative arrangement between us and a taxpayer whereby the taxpayer pays a minimum of 50% of the disputed principal tax debt. In return, we defer recovery of the balance of the disputed debt under section 255-5 of Schedule 1 to the TAA and agree to partially remit the GIC which would otherwise be payable. This arrangement is subject to certain conditions as outlined in this Practice Statement. | General approach: 2. A tax-related liability that is due and payable is a debt due to the Commonwealth and payable to us. [3] We can take action to recover such a debt even where it is disputed, that is, where the taxpayer has lodged an objection, application for review or appeal disputing the liability. [4] 3. Our ability to recover a tax debt where a dispute is on foot is an important feature of the tax system. It ensures that disputes are not used as a mechanism to inappropriately delay or frustrate the payment or recovery of tax and it gives the community confidence that the right amount of tax is not only assessed but also collected. 4. Our approach to the collection of disputed debts considers each taxpayer's individual circumstances and the need to prevent those who do not pay on time from gaining an unfair financial advantage over those who do. The decisions and actions we take must be consistent with the commitments in Our Charter . 5. While we expect tax debts to be paid on time, we recognise that taxpayers have the right to dispute their liability through the objection, review and appeal processes. This means that additional considerations apply in managing the collection of disputed debts over and above those that apply when a debt is not disputed, and we tailor our approach accordingly. | Approach for large businesses and wealthy groups: 6. We require large business and wealthy group taxpayers with a disputed debt to either pay their debt in full or enter into a 50/50 arrangement (as discussed at paragraphs 25 to 44 of this Practice Statement). 7. Where a large business or wealthy group taxpayer with a disputed debt does not pay their debt in full or enter into a 50/50 arrangement, we may take action to secure payment of the disputed debt before the dispute is resolved. 8. This approach recognises the significance of large business and wealthy group taxation payments to Commonwealth revenue collections and the critical role of that in maintaining community confidence in the tax system. | Approach for other taxpayers: 9. For other taxpayers, where there is a dispute about a taxpayer's liability, any recovery action we take is based on an assessment of the risk the case poses to the revenue, taking into account the taxpayer's individual circumstances. This risk assessment is a fundamental part of the disputed debt process and continues during the various stages of a dispute, while a disputed debt remains unpaid. 10. In cases where a taxpayer's tax affairs are straightforward and the risk to the revenue is low, we will not take recovery action in respect of a disputed debt while an objection, review or appeal is on foot. 11. Taxpayers in this position may wish to enter into a 50/50 arrangement to reduce their exposure to GIC. 12. In some cases, based on a careful risk assessment, we may determine that the risk associated with a case is serious enough that it necessitates action to secure the payment of the disputed debt before the dispute is resolved. In such cases, we will generally work with the taxpayer to explore other options as an alternative to initiating recovery action. These options may include agreeing to the payment of the debt by instalments and, in exceptional cases, to the provision of security in lieu of payment until the dispute is finalised. These arrangements can provide an appropriate level of protection to the revenue without the need to resort to recovery action. 13. It is rare for us to initiate recovery action for a disputed debt. However, in a small number of cases, based on a careful risk assessment, action to recover all or part of a disputed debt may be taken. This will typically happen in high-risk cases where there are links to organised crime, phoenixing or other fraudulent activity, or where there is a serious concern about the dissipation of assets or the ability to pay in the event that the taxpayer is unsuccessful in the dispute. It may also happen where the taxpayer's objection is frivolous or without merit and the dispute is being used to inappropriately delay or frustrate the recovery of tax. 14. In all cases, we encourage taxpayers to talk to us about their individual circumstances where they have a disputed debt that remains unpaid after the due date. We are committed to improving the experience of taxpayers when dealing with us and this is especially so for taxpayers who are in a dispute with us. We recognise that when disputes are not managed well, the effects can be long-lasting and costly. Our approach to the collection of disputed debts aims to provide the most appropriate outcome in the circumstances of each case. | Risk assessment process: 15. Any action that we take in managing a disputed debt is based on an assessment of the risk that the case poses to the revenue, taking into account the taxpayer's individual circumstances. The concept of risk to the revenue covers 'capacity to pay' but extends to other considerations as well. For example, depending on the taxpayer's circumstances, it may include consideration of the taxpayer's behaviour, whether there is a genuine concern about the dissipation of assets or whether the taxpayer's objection or appeal is reasonably perceived to be used as a delay tactic. 16. Our risk assessment process is based on the principles contained in Law Administration Practice Statement PS LA 2011/6 Risk management in the enforcement of lodgment obligations and debt collection activities. 17. In undertaking a risk assessment, we consider the factors contained in paragraph 22 of PS LA 2011/6. These include but are not limited to: • the subject matter of the dispute including whether it may reflect a non-compliant attitude to taxation and superannuation laws • whether a minimum of 50% of the debt in dispute has been paid (which would indicate good faith), reducing the GIC and lowering the perceived level of risk (see '50/50 arrangement' at paragraphs 25 to 44 of this Practice Statement), and • any significant change in the taxpayer's financial position since the raising of the debt (that is, any evidence of dissipation or alienation of assets). • the subject matter of the dispute including whether it may reflect a non-compliant attitude to taxation and superannuation laws • whether a minimum of 50% of the debt in dispute has been paid (which would indicate good faith), reducing the GIC and lowering the perceived level of risk (see '50/50 arrangement' at paragraphs 25 to 44 of this Practice Statement), and • any significant change in the taxpayer's financial position since the raising of the debt (that is, any evidence of dissipation or alienation of assets). 18. We also consider additional factors, such as: • the taxpayer's compliance history • the size of the disputed debt and any other tax debts that remain unpaid • the taxpayer's willingness to provide information necessary for the resolution of the dispute • the taxpayer's willingness to cooperate with us • the extent to which the taxpayer's rights are being genuinely pursued so as to advance the dispute in a timely manner • the merits of the taxpayer's case, including whether the subject matter of the dispute has been decided by a court or tribunal in our favour in a substantially similar case • the age of the debt in dispute • the growth of the debt by accumulation of GIC • whether the taxpayer's case is frivolous or without merit [5] • whether there are reasonable grounds to think that the dispute is being used to inappropriately delay or frustrate the recovery of tax • whether the action of a taxpayer may be prejudicial to their ability to pay or our recovery position (for example, restructuring of affairs) • whether the taxpayer is otherwise up to date with their tax lodgment and payment obligations • whether the taxpayer has the financial capacity to meet their tax-related liabilities or to comply with an ongoing payment arrangement, and • whether the dispute has been commenced at the later stages of recovery, as this may indicate a risk to collection. • the taxpayer's compliance history • the size of the disputed debt and any other tax debts that remain unpaid • the taxpayer's willingness to provide information necessary for the resolution of the dispute • the taxpayer's willingness to cooperate with us • the extent to which the taxpayer's rights are being genuinely pursued so as to advance the dispute in a timely manner • the merits of the taxpayer's case, including whether the subject matter of the dispute has been decided by a court or tribunal in our favour in a substantially similar case • the age of the debt in dispute • the growth of the debt by accumulation of GIC • whether the taxpayer's case is frivolous or without merit [5] • whether there are reasonable grounds to think that the dispute is being used to inappropriately delay or frustrate the recovery of tax • whether the action of a taxpayer may be prejudicial to their ability to pay or our recovery position (for example, restructuring of affairs) • whether the taxpayer is otherwise up to date with their tax lodgment and payment obligations • whether the taxpayer has the financial capacity to meet their tax-related liabilities or to comply with an ongoing payment arrangement, and • whether the dispute has been commenced at the later stages of recovery, as this may indicate a risk to collection. 19. We will initiate recovery action prior to the determination of an objection if the circumstances of the case indicate an unacceptable level of risk. Similarly, where a review or appeal is on foot, recovery action will be initiated before the dispute is finalised if the circumstances of the case indicate an unacceptable level of risk. Situations where this may occur include where: • there is evidence that the taxpayer is involved in organised crime, phoenixing, or other fraudulent activity • there is a serious concern about the dissipation of assets or the taxpayer's capacity to pay in the event that the taxpayer is unsuccessful in the dispute, or • the taxpayer's objection is frivolous or without merit and the dispute is being used to inappropriately delay or frustrate the payment of tax. • there is evidence that the taxpayer is involved in organised crime, phoenixing, or other fraudulent activity • there is a serious concern about the dissipation of assets or the taxpayer's capacity to pay in the event that the taxpayer is unsuccessful in the dispute, or • the taxpayer's objection is frivolous or without merit and the dispute is being used to inappropriately delay or frustrate the payment of tax. 20. The risk assessment process is a fundamental part of managing disputed debts and an assessment is regularly revisited throughout all stages of a dispute while a debt remains unpaid. The fact that a case is initially determined to be low risk does not mean that it may not be determined to be high risk at a later stage. Additional facts or considerations may emerge during a dispute which indicate that recovery action is necessary. 21. For example, we might initially risk-assess the non-payment of a debt in relation to a lodged objection as acceptable. However, during the objection process, the objecting taxpayer may act inconsistently with the proper and timely advancement of the dispute - for example, by making repeated extension requests or failing to provide evidence or information reasonably required resulting in delay. The lack of genuine pursuit by the taxpayer of their objection rights may, in turn, factor into a reassessment of the debt recovery risk as unacceptable. | Low-risk cases: 22. The majority of cases where there is a disputed debt involve taxpayers whose tax affairs are straightforward and the risk to the revenue is low. In such cases, we will not take action to recover a disputed debt while an objection, review or appeal is on foot. 23. However, the law incentivises the prompt payment of tax debts by imposing GIC on debts which remain unpaid. This includes tax debts that are disputed. GIC continues to accrue on such debts even while a dispute is on foot. 24. We encourage taxpayers with a disputed debt to talk to us about their circumstances and about entering into a 50/50 arrangement to manage their disputed debt, including their exposure to GIC. [6] | 50/50 arrangement: 25. Subject to a risk assessment, we will generally allow a taxpayer with a disputed debt to enter into a 50/50 arrangement to limit their exposure to GIC. 26. A 50/50 arrangement can provide a mutually beneficial outcome for the taxpayer and us. For the taxpayer, it minimises their exposure to GIC which would normally be payable on an amount of a disputed debt that remains unpaid. For us, it helps protect the revenue by ensuring that part of the disputed principal tax debt is collected in a timely way. 27. A 50/50 arrangement requires the taxpayer to: • pay all undisputed tax debts and a minimum of 50% of the disputed principal tax debt • cooperate fully in providing any requested information necessary for the resolution of the dispute within 28 days of the request or another agreed timeframe • pay the whole of any subsequently arising tax-related liabilities that are not in dispute and for which no other deferral of recovery or payment arrangement has been granted, and • meet all subsequent lodgment obligations. • pay all undisputed tax debts and a minimum of 50% of the disputed principal tax debt • cooperate fully in providing any requested information necessary for the resolution of the dispute within 28 days of the request or another agreed timeframe • pay the whole of any subsequently arising tax-related liabilities that are not in dispute and for which no other deferral of recovery or payment arrangement has been granted, and • meet all subsequent lodgment obligations. 28. In return, we will: • defer recovery under section 255-5 of Schedule 1 to the TAA of the unpaid balance of the disputed debt until 14 days after (as applicable) - we determine the taxpayer's objection - the relevant tribunal or court hands down its final decision [7] , or - we determine that the risk posed by the case requires recovery action to be taken (see paragraphs 52 to 57 of this Practice Statement), and • remit 50% of the GIC that accrues on the unpaid balance of the disputed debt as described at paragraph 33 of this Practice Statement (this will increase to remission at the rate of 75% if the dispute is subject to the Test Case Litigation Program). • defer recovery under section 255-5 of Schedule 1 to the TAA of the unpaid balance of the disputed debt until 14 days after (as applicable) - we determine the taxpayer's objection - the relevant tribunal or court hands down its final decision [7] , or - we determine that the risk posed by the case requires recovery action to be taken (see paragraphs 52 to 57 of this Practice Statement), and • remit 50% of the GIC that accrues on the unpaid balance of the disputed debt as described at paragraph 33 of this Practice Statement (this will increase to remission at the rate of 75% if the dispute is subject to the Test Case Litigation Program). - we determine the taxpayer's objection - the relevant tribunal or court hands down its final decision [7] , or - we determine that the risk posed by the case requires recovery action to be taken (see paragraphs 52 to 57 of this Practice Statement), and 29. In some cases, we may encourage a taxpayer with a disputed debt to enter into a 50/50 arrangement. A taxpayer can also submit an offer to enter into a 50/50 arrangement with us. In either case, the same considerations apply. 30. A 50/50 arrangement is generally given effect by way of correspondence from us. The correspondence will detail the circumstances where we may revoke the arrangement in accordance with paragraphs 40 to 41 of this Practice Statement. 31. The provision of security in lieu of payment will not satisfy the requirements of a 50/50 arrangement. 32. The amount of any withholding tax remitted by the taxpayer will not be taken into account in setting the amount of the disputed principal tax debt to be paid under a 50/50 arrangement. | General interest charge imposed or remitted under a 50/50 arrangement: 33. Where we and a taxpayer enter into a 50/50 arrangement, the taxpayer will be liable for the GIC as follows: • The disputed debt will be subject to GIC at the full statutory rate from the due date for payment until, but not including, the day the taxpayer pays a minimum of 50% of the disputed principal tax debt. • For the period starting on the day the taxpayer pays a minimum of 50% of the disputed principal tax debt, and ending 14 days after (as applicable) we determine the taxpayer's objection, or the relevant tribunal or court hands down its final decision, we will remit 50% of the GIC (75% if the dispute is subject to the Test Case Litigation Program) that accrues on the unpaid balance of the disputed debt during that period. We will generally remit the relevant amounts after the dispute has been finalised. • From the 15th day after (as applicable) we determine the taxpayer's objection, or the relevant tribunal or court hands down its final decision, the unpaid balance of the disputed debt will be subject to GIC at the full statutory rate until paid in full. • The disputed debt will be subject to GIC at the full statutory rate from the due date for payment until, but not including, the day the taxpayer pays a minimum of 50% of the disputed principal tax debt. • For the period starting on the day the taxpayer pays a minimum of 50% of the disputed principal tax debt, and ending 14 days after (as applicable) we determine the taxpayer's objection, or the relevant tribunal or court hands down its final decision, we will remit 50% of the GIC (75% if the dispute is subject to the Test Case Litigation Program) that accrues on the unpaid balance of the disputed debt during that period. We will generally remit the relevant amounts after the dispute has been finalised. • From the 15th day after (as applicable) we determine the taxpayer's objection, or the relevant tribunal or court hands down its final decision, the unpaid balance of the disputed debt will be subject to GIC at the full statutory rate until paid in full. | General interest charge deductible under a 50/50 arrangement: 34. Section 25-5 of the ITAA 1997 provides for the deductibility of GIC. Conversely, subsection 20-25(2A) of the ITAA 1997 requires the taxpayer to return any amount of GIC remitted as recouped income. Under section 20-25 of the ITAA 1997 a credit adjustment to GIC is treated as recouped income. [8] 35. Taxpayers whose disputed debt is subject to a 50/50 arrangement will effectively be entitled to claim a deduction for 50% of the total amount of GIC incurred over the life of the arrangement. Where we remit the interest at the end of the arrangement, taxpayers who wish to claim a deduction for GIC, when completing their tax return, will need to: • deduct the full amount of GIC accrued during the particular financial year, and • return the amount remitted under the 50/50 arrangement as recouped income in the financial year in which the remission occurs. • deduct the full amount of GIC accrued during the particular financial year, and • return the amount remitted under the 50/50 arrangement as recouped income in the financial year in which the remission occurs. | Exclusions from 50/50 arrangements: 36. A taxpayer is not eligible for a 50/50 arrangement where: • the dispute relates to a debt which arose under the Superannuation Guarantee (Administration) Act 1992; this is because a 50/50 arrangement in such circumstances may negatively impact on employee entitlements • the dispute relates to a diverted profits tax assessment [9] • the tax officer who has responsibility for determining the taxpayer's objection considers it to be frivolous or without merit, or • the proposed 50/50 arrangement would disadvantage the revenue or is not otherwise appropriate having regard to the facts and circumstances of the case. • the dispute relates to a debt which arose under the Superannuation Guarantee (Administration) Act 1992; this is because a 50/50 arrangement in such circumstances may negatively impact on employee entitlements • the dispute relates to a diverted profits tax assessment [9] • the tax officer who has responsibility for determining the taxpayer's objection considers it to be frivolous or without merit, or • the proposed 50/50 arrangement would disadvantage the revenue or is not otherwise appropriate having regard to the facts and circumstances of the case. 37. Where you consider that the proposed 50/50 arrangement would disadvantage the revenue, you should consider proposing an alternative arrangement. The alternative arrangement may involve the taxpayer paying a larger portion of the disputed debt in order to ensure an appropriate amount of revenue is collected. | Example: In the 2020–21 income year, Company Ltd is issued with a notice of amended assessment in respect of an income tax shortfall for the 2001–02 income year. By operation of law, GIC is imposed from the original due date for payment of the 2001–02 assessment. Company Ltd is entitled to a deduction in the 2020–21 income year for GIC in respect of the tax shortfall amount, referable to the period from the 2001–02 income year to the 2020–21 income year. The result of this is that Company Ltd is put into a loss position in the 2020–21 income year which it can use to reduce its taxable income in subsequent years. Company Ltd objects against the amended assessment and offers to enter into a 50/50 arrangement with us. Under the proposed 50/50 arrangement, upon payment of 50% of the disputed principal tax debt, we would defer recovery under section 255-5 of Schedule 1 to the TAA of the unpaid balance of the disputed debt. In determining whether to accept the arrangement, we consider that the deduction available to Company Ltd in respect of GIC accrued over the 2001–02 to 2020–21 period greatly exceeds the amount of the disputed principal tax debt that would be paid under a standard 50/50 arrangement. We propose an alternative arrangement whereby the taxpayer pays a larger portion of the disputed debt, to ensure that an appropriate amount is collected having regard to the size of the GIC deduction available in the 2020–21 income year. 38. Where the disputed debt is equal to or greater than $50 million, before proceeding with a 50/50 arrangement, you must first obtain formal approval from both an Assistant Commissioner in the Client Engagement Group and an Assistant Commissioner in Frontline Compliance. 39. As part of obtaining this approval, you must show that entering into a 50/50 arrangement will not disadvantage the revenue and is otherwise appropriate having regard to the facts and circumstances of the case. | When a 50/50 arrangement may be refused or revoked: 40. A 50/50 arrangement will be refused or revoked and recovery action may be initiated even before a dispute is finalised where there are reasonable grounds for us to believe that the associated risk requires such action. Situations where this may occur include those detailed at paragraph 19 of this Practice Statement. 41. The effect of revoking a 50/50 arrangement is that the deferral of recovery action under section 255-5 of Schedule 1 to the TAA will end. Any amounts paid towards the debt will not be refunded and there will be no remission of GIC. | Offsetting of credits when a 50/50 arrangement is in place: 42. Offsetting occurs when a taxpayer's credit or running balance account surplus is applied to another liability of the taxpayer. We are required to offset all credits a taxpayer becomes entitled to, except in specific situations. In these situations, we have the discretion to refund rather than offset credits. 43. Relevantly, we have the discretion to refund a credit in situations where we have deferred recovery under section 255-5 of Schedule 1 to the TAA. [10] For further details about our approach to offsetting, see Law Administration Practice Statement PS LA 2011/21 Offsetting of refunds and credits against taxation and other debts. 44. In relation to credits, such as those arising from subsequent income tax assessments or activity statements, we will generally exercise the discretion to refund such credits rather than offset them against the unpaid balance of a disputed debt where the taxpayer has a deferral of recovery in place under a 50/50 arrangement. However, if there is new evidence since the deferral was granted that there is an unreasonable risk to revenue, the credit should be offset. [11] | Alternatives to recovery action: 45. If, as part of our ongoing risk assessment process, we identify that a case poses a significant risk to the revenue, we may request a submission from the taxpayer regarding the options available to mitigate the risk. 46. Where a taxpayer wishes to provide a submission, we will generally require a full and true disclosure of the financial position of the taxpayer and all associated entities upon which the taxpayer can reasonably be expected to rely for financial assistance. In addition to providing this information, the taxpayer may be asked to disclose information such as the name of the owners of properties where the taxpayer resides or conducts business. 47. Where the risk associated with a case cannot be mitigated to an acceptable degree, we may take action to secure payment of a disputed debt before the dispute is finalised. However, in such cases we will consider the following options as alternative to initiating recovery action: • the payment of the disputed debt by instalments • the payment of 50% of the disputed debt in a lump sum with the balance to be paid by instalments • the payment of 50% of the disputed debt in a lump sum together with the provision of acceptable security for the balance, and • the provision of acceptable security for the disputed debt in its entirety. • the payment of the disputed debt by instalments • the payment of 50% of the disputed debt in a lump sum with the balance to be paid by instalments • the payment of 50% of the disputed debt in a lump sum together with the provision of acceptable security for the balance, and • the provision of acceptable security for the disputed debt in its entirety. 48. You must obtain approval from an Executive Level 2 officer in Frontline Compliance before taking any action to secure payment of a disputed debt before the dispute is finalised. 49. Acceptance of any of the options provided in paragraph 47 of this Practice Statement is not to be considered as entering into a 50/50 arrangement and will not automatically entitle the taxpayer to the remission of GIC. However, consideration should be given to remission whenever it is requested by the taxpayer. For further details about the remission of GIC, see PS LA 2011/12 . | Securities: 50. Where action is taken to secure payment of a disputed debt before the dispute is finalised, you must first seek to have the debt addressed by payment or an agreement to pay the disputed debt by instalments. Securities will only be considered in lieu of payment where you determine that the taxpayer does not have the capacity to repay the debt within a reasonable period of time or the taxpayer is experiencing exceptional circumstances (see Law Administration Practice Statement PS LA 2011/14 General debt collection powers and principles). 51. However, given action is only taken to secure payment where the taxpayer presents as higher risk, it may also be appropriate to obtain security for part of the debt, where payment for a portion of the disputed debt is made. | Recovery action in high-risk cases: 52. In a small number of cases, based on a careful risk assessment, the level of risk associated with the case may require us to take action to recover all or part of a disputed debt. Where this happens, such action will be taken by the most appropriate means available taking into account the circumstances of the case. 53. Examples of the type of action we may take to recover a disputed debt include: • in the case of a corporation, issuing a statutory demand in respect of the debt • commencing proceedings in court to obtain judgment in respect of the debt • obtaining a writ or warrant of execution to enforce judgment in respect of the debt • seeking a freezing order or Mareva injunction to prevent the risk that the judgment (or prospective judgment) of the court will be wholly or partly dissatisfied, and • applying to appoint a provisional liquidator. • in the case of a corporation, issuing a statutory demand in respect of the debt • commencing proceedings in court to obtain judgment in respect of the debt • obtaining a writ or warrant of execution to enforce judgment in respect of the debt • seeking a freezing order or Mareva injunction to prevent the risk that the judgment (or prospective judgment) of the court will be wholly or partly dissatisfied, and • applying to appoint a provisional liquidator. For further details on enforcement and insolvency actions, see Law Administration Practice Statements PS LA 2011/18 Enforcement measures used for the collection and recovery of tax-related liabilities and other amounts and PS LA 2011/16 Insolvency – collection, recovery and enforcement issues for entities under external administration . 54. You must obtain approval from an Executive Level 2 officer in Frontline Compliance before taking recovery action in respect of a disputed debt. 55. In deciding whether to proceed with recovery action in a particular case, in addition to considering the matters outlined at paragraphs 15 to 18 of this Practice Statement, we will consider any adverse consequences to the taxpayer that may flow from recovery action being instituted prior to the finalisation of the dispute. Examples of adverse consequences include: • recovery action would leave the taxpayer with insufficient funds to progress their underlying dispute or meet legal fees in respect of those processes • in the case of an individual, the recovery action would cause the taxpayer serious hardship [12] , or • recovery action would significantly impact the taxpayer's ability to continue trading or conduct their business. • recovery action would leave the taxpayer with insufficient funds to progress their underlying dispute or meet legal fees in respect of those processes • in the case of an individual, the recovery action would cause the taxpayer serious hardship [12] , or • recovery action would significantly impact the taxpayer's ability to continue trading or conduct their business. 56. However, these considerations need to be carefully balanced against the risk factors that resulted in the case being deemed high risk and our obligation to ensure that taxpayers pay their tax-related liabilities. 57. Where we have already commenced recovery proceedings, it is also open to the taxpayer to seek a stay of the proceeding or a stay of execution of the judgment where the examples in paragraph 55 of this Practice Statement arise. | Objections after the commencement of recovery action: 58. In some cases, an objection may be lodged after we have commenced action to recover a tax debt. In such cases, the taxpayer's objection may be accompanied by a request for us to stop recovery action while the objection is being determined. 59. Where such a request is made, we will consider this as a request to defer recovery action under section 255-5 of Schedule 1 to the TAA. At this point, we will undertake a risk assessment as to whether or not the recovery action should continue. In doing so, you must take into account the factors outlined at paragraphs 15 to 18 of this Practice Statement and reassess whether or not recovery action remains appropriate. 60. Where a risk assessment results in us determining not to proceed with recovery action, you may discontinue recovery action in favour of an administrative arrangement to address the disputed debt. This arrangement could be a 50/50 arrangement or an alternative arrangement detailed at paragraphs 45 to 51 of this Practice Statement. 61. Where we cannot agree to an administrative arrangement with the taxpayer, the taxpayer may seek to have the recovery proceeding or the enforcement of the judgment [13] stayed pending determination of the objection. | Cases involving the mutual agreement procedure: 62. In cases where we make a transfer pricing or profit reallocation adjustment, the taxpayer may seek competent authority assistance under the mutual agreement procedure (MAP) article contained in Australia's double-tax agreements to attempt to have the matter resolved in consultation with the other tax jurisdiction. 63. Where a taxpayer initiates the MAP in respect of such an adjustment, we will treat the relevant tax debt as a disputed debt for the purposes of this Practice Statement. Where the MAP is initiated, you must follow the principles set out in this Practice Statement in managing the collection and recovery of the disputed debt. 64. For information about the remission of GIC which has accrued during the MAP, see Mutual agreement procedure . | Administrative Review Tribunal orders in relation to small business taxation assessment decisions: 65. In cases involving review of a small business taxation assessment decision, the taxpayer may request that the Administrative Review Tribunal (ART) make orders staying or otherwise affecting the operation or implementation of a reviewable objection decision that relates to a small business taxation assessment decision. [14] For example, the ART may order us to not sue in a court or to not issue a garnishee notice to recover a debt under review. 66. Where the taxpayer seeks such orders, the taxpayer must satisfy the ART that the application is not frivolous, vexatious, misconceived, lacking in substance or otherwise intended to unduly impede, prejudice or restrict the proper administration or operation of a taxation law in the context of both the particular circumstances of the decision under review and the overall taxation system. [15] 67. In considering the application, relevant considerations for the ART may include: • the prospects of success of the underlying application for review • the financial consequences for the applicant of the refusal of a stay • the public interest • the consequences for us in carrying out our functions • whether the application for review will be rendered null if a stay were not granted, and • any other matters the ART considers relevant. [16] • the prospects of success of the underlying application for review • the financial consequences for the applicant of the refusal of a stay • the public interest • the consequences for us in carrying out our functions • whether the application for review will be rendered null if a stay were not granted, and • any other matters the ART considers relevant. [16] We will seek to assist the ART by providing any relevant information.",Future Made in Australia (Production Tax Credits and Other Measures) Act 2025 | Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025 | PS LA 2011/6 | PS LA 2011/21 | PS LA 2011/12 | PS LA 2011/14 | PS LA 2011/18 | PS LA 2011/16 | PS LA 2011/23 | PS LA 2011/17 | Explanatory Memorandum | ITAA 1997 20-25 | ITAA 1997 20-25(2A) | ITAA 1997 25-5 | ITAA 1997 Div 293 | ITAA 1997 960-555 | TAA 1953 Pt IIA | TAA 1953 8AAZL(3) | TAA 1953 8AAZN(3) | TAA 1953 Pt IVC | TAA 1953 14ZZH | TAA 1953 14ZZM | TAA 1953 14ZZR | TAA 1953 Sch 1 155-5 | TAA 1953 Sch 1 250-10 | TAA 1953 Sch 1 255-5 | TAA 1953 Sch 1 Div 280 | SGAA 1992 | Administrative Review Tribunal Act 2024 32 | Taxation (Interest on Overpayments and Early Payments) Act 1983,PS LA 2011/6 PS LA 2011/12 PS LA 2011/14 PS LA 2011/16 PS LA 2011/17 PS LA 2011/18 PS LA 2011/21 PS LA 2011/23,ITAA 1997 20-25 | ITAA 1997 20-25(2A) | ITAA 1997 25-5 | ITAA 1997 Div 293 | ITAA 1997 960-555 | TAA 1953 Pt IIA | TAA 1953 8AAZL(3) | TAA 1953 8AAZN(3) | TAA 1953 Pt IVC | TAA 1953 14ZZH | TAA 1953 14ZZM | TAA 1953 14ZZR | TAA 1953 Sch 1 155-5 | TAA 1953 Sch 1 250-10 | TAA 1953 Sch 1 255-5 | TAA 1953 Sch 1 Div 280 | SGAA 1992 | Administrative Appeals Tribunal Act 1975 41 | Administrative Review Tribunal Act 2024 32 | Taxation (Interest on Overpayments and Early Payments) Act 1983,,Explanatory Memorandum to the Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 Mutual agreement procedure Our Charter,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20114/NAT/ATO/00001,"The changes extend the imposition of shortfall interest charge to overclaimed tax offsets refunds and apply to amended assessments made on or after 1 April 2025. | For more information, see Strengthen penalty and shortfall interest charge provisions . | This Practice Statement is being reviewed to incorporate the amendments made by Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025 . | The changes withdraw a taxpayer's entitlement to claim general interest charge incurred on or after 1 July 2025 as a deduction. Taxpayers will also not be required to include those amounts incurred on or after 1 July 2025 if remitted as recouped income. | For more information, see Denying deductions for ATO interest charges . | Administrative Appeals Tribunal orders in relation to small business taxation assessment decisions | Paragraph 65 and associated footnotes | Updated to reflect change from Administrative Appeals Tribunal to Administrative Review Tribunal. | Content updated for style and accessibility issues. | Updated to clarify our expectation that large businesses and some wealthy group taxpayers with a disputed debt pay their debt in full or enter into a 50/50 arrangement. | Footnoted to indicate the intention to update section once the Administrative Review Tribunal has commenced. | Updated for clarification and format as well as current ATO style and accessibility requirements. | Updated to new template format; added in footnote references; repositioned several paragraphs. | Removed underlying premise that taxpayers should pay their tax debt even when disputed. The Practice Statement clarifies as a general principle that the Commissioner will generally not seek to recover a debt when there is a dispute, save in exceptional cases where there is a significant risk to revenue (generally in high-risk cases). | Included definition of 'recovery action' for the purposes of this Practice Statement. | Included a statement regarding our general encouragement for large corporate groups to either pay their disputed debts or enter into a 50/50 arrangement. | Included greater discussion around the Commissioner's risk assessment process. | Included further guidance around 50/50 arrangements. | Included new statement outlining that any withholding tax remitted by the taxpayer will not be taken into account in setting the amount of the disputed principal tax debt to be paid under a 50/50 arrangement. | Included DPT in exclusions from 50/50 arrangement. | Included a directive that where the disputed equal to or greater than $50 million, before proceeding with a 50/50 arrangement the responsible tax officer must first obtain formal approval from both an Assistant Commissioner from Client Engagement Group and an Assistant Commissioner from Lodge and Pay. | Included further guidance around offsetting credits. | Included further information regarding alternatives to recovery action. | Included that approval from an EL2 officer in Frontline Compliance is required before taking action in respect of a disputed debt. | Included discussion around taking of securities. | Updated content regarding serious hardship to remove implication that a corporate taxpayer can suffer serious hardship. | Included discussion of the application of new AAT orders in relation to small business taxation assessment decisions. | Previous paragraphs 16 to 21 | Removed discussion of interest on overpayment regime in body of Practice Statement. | Previous paragraphs 69 to 72 | Removed discussion of significant delay on the part of the ATO having 'negligible weight' on remission. | Corrected reference to paragraph 43. | Updated for clarification. | Updated to meet ATO style guide requirements; added in footnote references; repositioned paragraphs dealing with interest on overpayment regime. | Revised policy position – where a 50/50 arrangement is acceptable, the taxpayer will only be required to pay 50% of the principal tax component of the disputed debt to receive a deferral of legal action and a partial remission of GIC imposed on remaining balance of disputed debt (which includes associated shortfall penalties, SIC and GIC). | Included definition for shortfall interest charge. | New paragraph 15 and paragraph 40 (previously 38) | Revised policy position – At review or appeal stage, the Commissioner will seek to enforce collection of any unpaid disputed debt unless a formal deferral of recovery action has been agreed to with the taxpayer, subject to a risk assessment. | Explain the tax treatment of the GIC incurred and remitted under a 50/50 arrangement. | Paragraph 39 (previously 37) | Included a footnote to reference the ATO external website and documents on the independent internal review process. | Paragraphs 43 and 45 (previously 41 and 43) | Explanation of conditions for deferral of recovery action. | [1] Subsection 8AAZN(3) of the Taxation Administration Act 1953 (TAA). | [2] Section 960-555 of the Income Tax Assessment Act 1997 (ITAA 1997). | [3] Section 255-5 of Schedule 1 to the TAA. | [4] Sections 14ZZM and 14ZZR of the TAA. | [5] We may consider the case to be frivolous or without merit in instances where there is settled case law on an issue in dispute or where the taxpayer does not present sufficient evidence to demonstrate they have an arguable case. There is a distinction to be made between these cases and genuine disputes where we do not agree with the taxpayer's arguments. | [6] Where tax is paid and the dispute is resolved in favour of the taxpayer (in whole or in part), we will pay interest on overpayments under the Taxation (Interest on Overpayments and Early Payments) Act 1983 , in respect of certain types of tax which have been overpaid. See Law Administration Practice Statement PS LA 2011/23 Credit interest . | [7] Where a taxpayer lodges an application for review or an appeal, we will generally extend any 50/50 arrangement in place during the objection stage until 14 days after a final decision is handed down by the relevant tribunal or court. | [8] For further discussion of the deductibility and assessability of GIC, see Law Administration Practice Statement PS LA 2011/12 Remission of General Interest Charge . | [9] Section 155-5 of Schedule 1 to the TAA. | [10] Subsection 8AAZL(3) of the TAA. | [12] See Law Administration Practice Statement PS LA 2011/17 Debt relief , waiver and non-pursuit . | [13] In the case of a corporate taxpayer where we have issued the taxpayer a statutory demand, the taxpayer may make an application to the court to set aside the statutory demand on the basis it has a genuine dispute to the underlying liability. | [14] See section 32 of the Administrative Review Tribunal Act 2024 , as modified by section 14ZZH of the TAA. | [15] See section 14ZZH of the TAA. | [16] See paragraphs 4.25 and 4.26 of the Explanatory Memorandum to the Treasury Laws Amendment (2022 Measures No. 2) Bill 2022; Scott and Australian Securities and Investment Commission [2009] AATA 798 regarding the predecessor provision to section 32 of the Administrative Review Tribunal Act 2024 , being section 41 of the Administrative Appeals Tribunal Act 1975 . | File 1-ZY8LM10; 1-13ZY02YI | Scott and Australian Securities and Investment Commission [2009] AATA 798 [2010] ALMD 3491 51 AAR 114"
PS LA 2011/5,Recovery of administrative overpayments,14 April 2011,14 April 2011,Law Administration Practice Statement,False,"1. What this Practice Statement is about: This Practice Statement provides guidance to you about how you should recover administrative overpayments. An administrative overpayment is an amount that we have paid to a person by mistake and that the person is not entitled to. [1] This administrative overpayment is a debt due to the Commonwealth by the person to whom the payment was made and is payable to the Commissioner of Taxation. [2] Paying an amount to a person by mistake may result from our actions or omissions and usually relate to processing errors, such as: • incorrectly keying or scanning amounts • crediting an electronic refund to an incorrect bank account • incorrectly calculating and refunding interest entitlements • system and accounting errors. • incorrectly keying or scanning amounts • crediting an electronic refund to an incorrect bank account • incorrectly calculating and refunding interest entitlements • system and accounting errors. Paying an amount to a person by mistake may also result from a taxpayer's or their representative's actions or omissions, such as: • making a genuine mistake when fulfilling their taxation obligations • omitting relevant information on a form • making false and misleading statements • fraud. [3] • making a genuine mistake when fulfilling their taxation obligations • omitting relevant information on a form • making false and misleading statements • fraud. [3] | 2. When you can't use the administrative overpayment legislation: Indirect taxes You cannot use the administrative overpayment legislation to recover overpaid amounts relating to: • goods and services tax (GST) [4] • luxury car tax [5] • fuel tax credits [6] • wine equalisation tax. [7] • goods and services tax (GST) [4] • luxury car tax [5] • fuel tax credits [6] • wine equalisation tax. [7] This is because there is specific legislation which deals with overpaid amounts of these taxes, where the overpayment was made on or after 24 March 2010. Overpayment to a third party The administrative overpayment legislation also does not cover all situations that the common law does because it only applies to the person that the administrative overpayment was made to. It does not cover third parties who may have received or benefited from the overpaid amount. Because of this, if the circumstances are not covered by the legislation, you can still use common law causes of action to recover administrative overpayments. For example, where an overpaid amount is transferred by the initial recipient to a third party, you may need to rely on a common law cause of action to recover the amount from the third party. | 3. Recovering an administrative overpayment: Issuing a notice The administrative overpayment legislation provides that we can give a notice to the person who received the administrative overpayment. The notice must specify a due date for payment which must be at least 30 days after the notice is given. GIC will accrue on any amount unpaid from the beginning of the due date specified in the notice. [8] You should issue a notice to the person who received the administrative overpayment. This ensures that the person does not have the benefit of interest-free money if they fail to pay by the due date. Where the amount of the overpayment has resulted from an ATO processing error, part or full remission of the GIC incurred may be considered. Other methods of recovering an overpayment Other ways you can recover administrative overpayments include: • contacting the recipient and negotiating the return of the overpaid amount • commencing legal recovery proceedings. • contacting the recipient and negotiating the return of the overpaid amount • commencing legal recovery proceedings. Because GIC will accrue on any amount unpaid from the beginning of the due date specified in the notice you should issue the notice in addition to any other recovery method. The circumstances and level of risk in each case will influence what other methods of recovery may be appropriate to use, and when you issue the notice. Following the Compliance model , the method of recovery must be proportionate to the level of risk to the revenue and the willingness of the recipient to repay the amount. For example, if there is a risk of the amount paid by mistake being passed onto a third person or dispersed, it could be appropriate to commence legal recovery proceedings straight away, in addition to issuing a notice. Law Administration Practice Statement PS LA 2011/6 Risk management in the enforcement of lodgment obligations and debt collection activities also provides guidance on dealing with the risks associated with litigation action to recover debts. | 4. More information: For more information, see: • PS LA 2008/6 Fraud or evasion • PS LA 2011/6 Risk management in the enforcement of lodgment obligations and debt collection activities • PS LA 2008/6 Fraud or evasion • PS LA 2011/6 Risk management in the enforcement of lodgment obligations and debt collection activities",PS LA 2008/6 | PS LA 2011/6 | TAA 1953 8AAZN | TAA 1953 8AAZN(1) | TAA 1953 8AAZN(2) | TAA 1953 8AAZN(3) | FTA 2006 61-5 | ANTS(GST)A 1999 35-5 | ANTS(LCT)A 1999 17-5 | ANTS(WET)A 1999 17-25,PS LA 2008/6 PS LA 2011/6,TAA 1953 8AAZN | TAA 1953 8AAZN(1) | TAA 1953 8AAZN(2) | TAA 1953 8AAZN(3) | FTA 2006 61-5 | ANTS(GST)A 1999 35-5 | ANTS(LCT)A 1999 17-5 | ANTS(WET)A 1999 17-25,,Compliance model,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20115/NAT/ATO/00001,"Updated in line with current ATO style and accessibility requirements. | Updated to new LAPS format and style. | Clarified that where the amount of the overpayment has resulted from an ATO processing error, remission in part or in full of the GIC incurred may be considered. | Updated to current ATO publication style; new sub-headings added; cosmetic changes to improve readability. | Reinforces tax officers' obligations to follow the Taxpayers' Charter and Corporate Management Practice Statements. | Paragraph 20 – new dot points 3 and 4 | Inclusion of additional categories of mistakes that can be made by taxpayers and their representatives. | Inclusion of policy on the imposition of GIC in the context of over-claimed refundable tax offsets and over claimed PAYG withholding credits due to system constraints. | Paragraph 41 – last sentence | Additional information regarding an exception to the rule where system constraints prevent an AMOP being allocated to an RBA. | Updated to note that section 8AAZN should not be relied upon to circumvent the operation of the 4 year time limit prescribed by section 105-50 of Schedule 1 to the TAA. | Footnote 6; legislative references | Updated references to Financial Management and Accountability Act 1997 with relevant provisions in the Public Governance, Performance and Accountability Rule 2014; updated contact details. | [1] Subsection 8AAZN(3) of the Taxation Administration Act 1953 (TAA). | [2] Subsection 8AAZN(1) of the TAA. | [3] Law Administration Practice Statement PS LA 2008/6 Fraud or evasion provides guidance on dealing with taxpayers that have committed or are suspected of having committed fraud or evasion. | [4] Section 35-5 of the A New Tax System (Goods and Services Tax) Act 1999 . | [5] Section 17-5 of the A New Tax System (Luxury Car Tax) Act 1999 . | [6] Section 61-5 of the Fuel Tax Act 2006 . | [7] Section 17-25 of the A New Tax System (Wine Equalisation Tax) Act 1999 . | [8] Subsection 8AAZN(2) of the TAA. | File 1-306XDHI; 1-14QXLXRX"
PS LA 2011/6,SUBJECT: Risk management in the enforcement of lodgment obligations and debt collection activities PURPOSE: To provide guidelines to staff on the identification and management of risks associated with lodgment enforcement and debt collection activities,14 April 2011,14 April 2011,Law Administration Practice Statement,False,"1. The taxation and superannuation systems rely on taxpayers voluntarily complying with their obligations under the law. The risks involved in administering these systems may require decisions that, while not always seen to be cost-effective in the short term, are designed to support the integrity of these systems by reinforcing the message that there are serious consequences for those who choose to avoid their obligations under the taxation and superannuation laws. 2. Unlike someone operating in the private sector, we cannot select our clients and cannot refuse to deal with taxpayers simply because they have not lodged or paid. On the other hand, we are not resourced to chase every last dollar of revenue payable under the law. This means that we are required to make intelligent choices about what compliance risks will be addressed, how such risks will be addressed and where to best apply available resources. 3. The risk managed by those responsible for securing lodgment of overdue documents [1] or for collecting outstanding debts (including all penalties for late lodgment or late payment imposed by legislation) is that future documents may not be lodged on time, or debts may not be paid, as well as the currently overdue documents and debts may not be lodged or paid within timeframes acceptable to the Commissioner of Taxation, if at all. 4. For those dealing with the collection of outstanding debts, risk is about making decisions to do something in the most cost-effective and timely manner, based on an evaluation of all the circumstances. 5. The factor of risk is not only involved in the more common decisions about events such as extending time for lodgment, deferring legal action for recovery, remitting penalties for late lodgment, deferring time for payment, permitting payment by instalments or remitting the general interest charge (GIC). It is also a factor in decisions about matters such as: • identifying risk groups • non-pursuit of debts • how to vote at creditors' meetings • how to recover different types of administrative overpayments • whether to initiate recovery action for collection of disputed debt • the type of action initiated (for example, applications to the court for freezing orders where an undertaking to the court as to damages is required from the Commissioner) • taking action to protect or secure the debt • granting an indemnity to a trustee or a liquidator, or • whether to settle defended debt recovery litigation and the necessity to test cases to clarify the law where the prospect of recovery is uncertain. • identifying risk groups • non-pursuit of debts • how to vote at creditors' meetings • how to recover different types of administrative overpayments • whether to initiate recovery action for collection of disputed debt • the type of action initiated (for example, applications to the court for freezing orders where an undertaking to the court as to damages is required from the Commissioner) • taking action to protect or secure the debt • granting an indemnity to a trustee or a liquidator, or • whether to settle defended debt recovery litigation and the necessity to test cases to clarify the law where the prospect of recovery is uncertain. 6. In other words, risk management must be seen as preparation for risk events – in advance where possible, rather than responding as they happen. 7. The risk management approach to debt and lodgment is aligned with our strategic frameworks, including our Enterprise Risk Management Framework (link available internally only), which aim to foster willing and proper participation in the tax and superannuation systems. In line with those strategic frameworks, the risk management approach prescribed in this Practice Statement is underpinned by Our Charter and the Compliance model , as well as the Commonwealth's Fraud and Corruption Guidance . 8. This Practice Statement provides general guidance to ATO staff on dealing with the risks associated with disputed debts, taking litigation action to recover debts and securing the lodgment of overdue documents. The risk management context with respect to these areas is defined, and guidance is provided on how to evaluate, manage and minimise or avoid risk when making decisions in that context. | Our Charter: 9. Our Charter requires us to be open and fair in the treatment of people, within the framework set by the law. It sets out our commitment to inform people of their rights, obligations and entitlements, directs the way we behave towards the community and sets out what the community expects from us. This relationship has a starting point of mutual trust and respect. 10. Similarly, in the context of debt and lodgment, the starting premise is about being open and fair to people in our risk assessment processes and to keep them informed of their rights concerning our decisions to embark on any particular course of action. | The Compliance model: 11. The policy for securing the lodgment of overdue documents and the collection of outstanding debts is an integral part of our strategy to improve taxpayer compliance. While the policy is primarily concerned with taxpayers meeting their payment and lodgment obligations, its contribution to taxpayer compliance overall can be demonstrated by reference to the Compliance model, as illustrated in Diagrams 1 and 2 of this Practice Statement: Diagram 1: Factors that influence client behaviour Diagram 2: Compliance model Diagram 1: Factors that influence client behaviour Diagram 2: Compliance model 12. The Compliance model promotes a deeper understanding of taxpayers' motivation, circumstances and characteristics so that assistance and enforcement actions can be tailored to improve compliance. The ultimate aim of the Compliance model is to influence as many taxpayers as possible to move down the pyramid into the 'willing to do the right thing' zone. Analysing compliance behaviour in this way assists us to address the actual causes of non-compliance rather than the symptoms. 13. The principle of the Compliance model applies to every facet of taxation and superannuation administration and is used widely at both strategic and operational levels. 14. A taxpayer's attitude to compliance and their consequent behaviour is unlikely to be limited only to having an effect on lodgment of documents or payment of outstanding debts. It may also include the making of false statements, not being cooperative or being engaged in illegal activities. While the immediate effect of our strategies and actions may result in lodgment or a payment, they should also be designed to maximise the likelihood that the taxpayer will comply voluntarily with all of their obligations in the future. This includes the obligation to lodge correct documentation and pay the correct amount on time. 15. The determination of which strategies to adopt to achieve this is predicated on an evaluation of the overall compliance risk posed by the taxpayer. This is based on their individual circumstances. In other words, we need to differentiate our treatment of taxpayers according to their ability to meet their tax responsibilities and the circumstances they face in doing it. The evaluation process uses our risk model to examine the debtor's capacity or propensity to pay. This is consistent with the intent of Our Charter. The Compliance model clearly links the degree of compliant attitude (and consequent behaviour) to the severity of the strategies. In applying this model, we will consider all available behavioural information (not just lodgment history or payment and debt performance), together with an understanding of why there was any previous non-compliance. As an example, previous non-payment of a debt could be the result of either an unwillingness to pay or of a willingness to pay combined with an inability through various circumstances (for example, flood or fire). This policy recognises that the former attitude and behaviour warrants more severe sanctions (such as prosecution, recovering the debt despite outstanding disputes and denial of arrangements unless security is provided), while the latter does not. | Fraud on the Commonwealth: 16. As noted by the Commonwealth Fraud Prevention Centre, the management of fraud risk is a collective responsibility of all persons employed by the Government, whether working in policy design, program delivery or other functions. The government is committed to protecting public money, information and property, as well as the integrity and good reputation of Commonwealth agencies. This includes reducing the risk of fraud occurring, discovering and investigating fraud when it occurs and taking corrective actions to remedy the harm. The Commonwealth Fraud and Corruption Control Framework outlines the government's requirement that Australian Government agencies put in place fraud control plans and processes to manage the prevention and detection of potential fraud. Chief Executive Instruction External fraud and Chief Executive Instruction Internal fraud and corruption (links available internally only) describe our policy and attitude towards fraud, including both internal fraud and taxpayer fraud. 17. The Commonwealth Fraud Prevention Centre defines fraud as 'dishonestly obtaining (including attempting to obtain) a gain or benefit, or causing a loss, or risk of loss, by deception or other means'. [2] Conduct constituting fraud requires some understanding by the perpetrator that there is a wrongdoing. It may involve an act or an omission to perform an act. A benefit is not restricted to monetary benefits and may be tangible or intangible. It may also be obtained by a third party rather than, or in addition to, the perpetrator of the fraud. 18. Government agencies, such as the ATO, are expected to consider prosecution in appropriate circumstances in accordance with the Commonwealth's Prosecution Policy . Criminal prosecutions are vital to deterring future instances of fraud and to educating the public generally about the seriousness of fraud. As expected of all Australian Government agencies, we are committed to recovering losses caused by illegal activity through proceeds of crime and civil recovery processes and, in the absence of criminal prosecution, to applying appropriate civil, administrative or disciplinary penalties. 19. Where a loss to the government has occurred as a result of a fraud, we will apply the principle of the Compliance model in ensuring that every recovery sanction is pursued in seeking restitution of the loss to the government. Where such loss cannot be recouped through the proceeds of crime process, we are committed to pursuing civil recovery against the perpetrators of such fraud to bankruptcy, if necessary. | Disputed debts: 20. Our debt collection strategy is premised on prompt payment being received as it recognises that an ageing debt becomes more difficult to collect. 21. An ageing debt normally increases in size through the accrual of GIC and the taxpayer's financial position may deteriorate in the interim, making collection of that debt more difficult than a new debt. Accordingly, any factor which is likely to cause or contribute to delay in the collection of a debt must be regarded as an inherent element of risk. 22. Generally, the longer a debt is in dispute, the greater the risk to the collection process. In order to assess the level of risk associated with a disputed debt, the following matters need to be considered: • the subject matter of the dispute (for example, aggressive tax planning (ATP), evasion or other) may reflect a non-compliant attitude to taxation and superannuation laws, though not necessarily a risk to collection of the disputed debt • whether the subject matter of the dispute is dependent on a test case, which may be an indicator that the disputed debt may not be collected for some time (that is, until a final decision is given on a test case) • whether the dispute is frivolous or without merit, which may indicate a high level of risk in instances where the taxpayer has no prospect of succeeding and is deliberately prolonging the inevitable while possibly rearranging their financial affairs to frustrate our recovery action • whether any tax or superannuation not in dispute is outstanding, which is an inherent risk and could include an indication of unwillingness or inability to pay. • whether a minimum of 50% of the debt in dispute has been paid (which would indicate good faith) reducing GIC and lowering the perceived level of risk • the level of cooperation by the taxpayer, which is an indicator of the bona fides of the taxpayer to promptly resolve the dispute and remove any impediment to collection • whether the taxpayer's assets are held in the name of other entities (for example, company, trust, super fund, or family members) or are cash-based, which may be an indication of high risk, particularly where the taxpayer is insolvent and protracted litigation for recovery of the debt may prove futile • any significant change in the taxpayer's financial position since the raising of the debt (that is, any evidence of dissipation or alienation of assets), which is another potential indicator of high risk which may compel us to institute immediate legal action or seek injunctive relief • any subsequent action by the taxpayer since the raising of the debt (for example, signing a section 188 authority under the Bankruptcy Act 1966, frivolous application for release, frivolous application under section 39B of the Judiciary Act 1903), as any of those actions may, on their facts, be construed as an attempt to avoid payment and as indicative of a high level of risk. • the subject matter of the dispute (for example, aggressive tax planning (ATP), evasion or other) may reflect a non-compliant attitude to taxation and superannuation laws, though not necessarily a risk to collection of the disputed debt • whether the subject matter of the dispute is dependent on a test case, which may be an indicator that the disputed debt may not be collected for some time (that is, until a final decision is given on a test case) • whether the dispute is frivolous or without merit, which may indicate a high level of risk in instances where the taxpayer has no prospect of succeeding and is deliberately prolonging the inevitable while possibly rearranging their financial affairs to frustrate our recovery action • whether any tax or superannuation not in dispute is outstanding, which is an inherent risk and could include an indication of unwillingness or inability to pay. • whether a minimum of 50% of the debt in dispute has been paid (which would indicate good faith) reducing GIC and lowering the perceived level of risk • the level of cooperation by the taxpayer, which is an indicator of the bona fides of the taxpayer to promptly resolve the dispute and remove any impediment to collection • whether the taxpayer's assets are held in the name of other entities (for example, company, trust, super fund, or family members) or are cash-based, which may be an indication of high risk, particularly where the taxpayer is insolvent and protracted litigation for recovery of the debt may prove futile • any significant change in the taxpayer's financial position since the raising of the debt (that is, any evidence of dissipation or alienation of assets), which is another potential indicator of high risk which may compel us to institute immediate legal action or seek injunctive relief • any subsequent action by the taxpayer since the raising of the debt (for example, signing a section 188 authority under the Bankruptcy Act 1966, frivolous application for release, frivolous application under section 39B of the Judiciary Act 1903), as any of those actions may, on their facts, be construed as an attempt to avoid payment and as indicative of a high level of risk. 23. In high-risk cases, ATO staff engaged in debt collection activities will work together with officers engaged in audit and dispute resolution activities to ensure the early determination of objections or, if this is not possible, take the necessary legal action to preserve assets while the dispute remains on foot. Law Administration Practice Statement PS LA 2011/4 Collection and recovery of disputed debts outlines our recovery approach towards disputed debts. | Debt recovery litigation: 24. Risks identified in the debt collection process may often warrant the commencement of litigation for recovery of outstanding debts. The delay caused by the lodgment of defences to debt litigation proceedings can pose a significant risk to the timely collection of revenue. 25. Law Administration Practice Statement PS LA 2009/9 Conduct of ATO litigation and engagement of ATO Dispute Resolution outlines our approach to risk management in ATO litigation. Once a matter is at the litigation stage, the litigation team must undertake a separate risk assessment to determine the level of the litigation risk associated with the case. This will assist the team to determine and apply the most appropriate litigation strategy. 26. The risk assessment process continues throughout the litigation proceedings. Accordingly, at any time during the litigation proceedings, additional facts may emerge or the debtor may advance submissions for settlement, which show upon reassessment of the risks involved that the level of risk warrants bringing litigation to an end by settling the matter. Law Administration Practice Statement PS LA 2011/7 Settlement of debt litigation proceedings provides guidelines for settlement of debt recovery litigation. 27. Strategic litigation is a category of work that has been recognised by the ATO Executive as having a level of inherent risk sufficient to require the engagement of officers from the Tax Counsel Network (TCN). In this regard, technical officers in TCN must be engaged in accordance with the guiding principles in Law Administration Practice Statement PS LA 2012/1 Engaging Tax Counsel Network on tax technical issues . The level of their engagement will be determined having regard to the specific issues and risks involved. | The risk management context: 28. Risk management is integral to the process of deciding what we should do to avoid the undesirable outcome in which documents are not lodged on time or at all, and debts are not paid promptly or at all. This decision-making process entails the evaluation of objective and subjective factors before reaching a conclusion as to the overall risk. 29. Evaluation of risk for a particular case is made in the following context: • Risk management for lodgment or collection occurs in a statutory framework. Those responsible for securing lodgments or collecting debts must not make risk decisions that may contravene the statutory framework. • Decisions on risk are also subject to policy considerations and you should avoid decisions which may contravene the policy. • Risk assessment is based on objective and subjective facts and logical inference and not on hearsay. A risk assessment must be reasonable, having regard to the circumstances at the time it was made. Historical facts and current data are relevant considerations in this process. • Responsibility for providing relevant information to enable assessment of the risk lies solely with the taxpayer (although we will also make use of information to which we have access or which we have obtained). If taxpayers are not being cooperative or decline to provide all necessary information to enable appropriate decisions to be made, adverse inferences can be drawn and these may influence the decision made. • Risk management for lodgment or collection occurs in a statutory framework. Those responsible for securing lodgments or collecting debts must not make risk decisions that may contravene the statutory framework. • Decisions on risk are also subject to policy considerations and you should avoid decisions which may contravene the policy. • Risk assessment is based on objective and subjective facts and logical inference and not on hearsay. A risk assessment must be reasonable, having regard to the circumstances at the time it was made. Historical facts and current data are relevant considerations in this process. • Responsibility for providing relevant information to enable assessment of the risk lies solely with the taxpayer (although we will also make use of information to which we have access or which we have obtained). If taxpayers are not being cooperative or decline to provide all necessary information to enable appropriate decisions to be made, adverse inferences can be drawn and these may influence the decision made. 30. It is incumbent on decision-makers to ensure that risk decisions are: • authorised under relevant legislation • within their authorised or delegated powers • based on and consistent with established policy • based on the particular circumstances of a case • properly reasoned, and • properly documented and reviewed at appropriate intervals. • authorised under relevant legislation • within their authorised or delegated powers • based on and consistent with established policy • based on the particular circumstances of a case • properly reasoned, and • properly documented and reviewed at appropriate intervals. | How the risk is evaluated: 31. There are 3 essential elements to risk evaluation in the lodgment and collection contexts: • The risk – determining the most cost-effective method of lodgment enforcement or debt recovery and determining if and when the document will be lodged or the debt will be paid. Allied to this are the implications of not pursuing the document or debt and the cost of undertaking alternative courses of action. • The risk probability – using all available information and the Compliance model to determine whether the outstanding lodgment obligations or debt are likely to escalate and whether lodgment or payment is likely to occur and when. • The risk exposure – determining the extent of any loss to the revenue that could result and the risk of being seen to encourage non-compliant behaviour. The loss would include the non-lodgment of current documents, the information contained therein, the non-payment of current debts, the outstanding amount and the penalties for late lodgment or the GIC. Coupled with this is the potential for loss of public confidence in the integrity of the taxation and superannuation systems. • The risk – determining the most cost-effective method of lodgment enforcement or debt recovery and determining if and when the document will be lodged or the debt will be paid. Allied to this are the implications of not pursuing the document or debt and the cost of undertaking alternative courses of action. • The risk probability – using all available information and the Compliance model to determine whether the outstanding lodgment obligations or debt are likely to escalate and whether lodgment or payment is likely to occur and when. • The risk exposure – determining the extent of any loss to the revenue that could result and the risk of being seen to encourage non-compliant behaviour. The loss would include the non-lodgment of current documents, the information contained therein, the non-payment of current debts, the outstanding amount and the penalties for late lodgment or the GIC. Coupled with this is the potential for loss of public confidence in the integrity of the taxation and superannuation systems. 32. Risk should be evaluated having regard to all of the taxpayer's relevant circumstances. The cumulative effect of several factors, each suggesting varying degrees of risk, may indicate a more severe risk overall. On the other hand, the high risk inherent in one factor may be totally offset by low or no risk in other matters which are considered. 33. At a practical level, we will rely on our risk engines, such as Operational Analytics, to conduct risk ratings and case selection. ATO staff engaged in debt collection are required to follow a set of risk-based collection strategies and are guided by scripting and other resources, such as the Business viability assessment tool . 34. The following list identifies a number of the matters that may need to be considered when evaluating risk: • the total outstanding lodgment obligations or the amount of the debt • the characteristics of the total outstanding lodgment obligation or the debt, including - whether outstanding lodgment obligations are escalating or likely to escalate (and whether that is expected to be rapid or more gradual) - the components of the debt (for example, a fraudulent refund contrived by lodgment of unauthorised or inaccurate forms) - how the debt was established (for example, voluntary disclosure, general compliance work, audits into proceeds of crime or ATP) - whether the debt is escalating or likely to escalate (and whether that escalation is expected to be rapid or more gradual) - the age of the debt (as a general rule, the older the debt, the greater the risk of not collecting it) - whether the debt is in dispute (see paragraphs 20 to 23 of this Practice Statement), and - whether other creditors are pursuing actions. • taxpayer attributes (attitude, behaviour and circumstances), including - previous compliance history (for example, compliance with lodgment and payment requirements, accuracy of documents) - previous bankruptcy or another form of insolvency administration (including multiple bankruptcies) - previous corporate delinquency or failure (for example, phoenix activities, disqualification as a director) - previous participation in, promotion or marketing of ATP arrangements - previous derivation or non-disclosure of income from criminal activities - capacity to pay - financial position - willingness to pay the debt (including efforts made by the taxpayer to borrow funds in order to pay the outstanding debt) - attitude to lodging expected documents and paying expected debts (it may be appropriate to draw adverse inferences about taxpayers who have given priority to acquiring personal assets ahead of paying their taxation liabilities; taxpayers who appear to ignore their financial responsibilities and live beyond their means tend to represent a higher risk) - steps taken by the taxpayer to ensure future lodgment obligations are met and future liabilities are paid as and when they fall due - income and expenditure (that is, whether income is steady, fluctuating or seasonal; whether the level of expenditure can be considered to be reasonable; and whether there is any excess of income over expenditure) - whether the taxpayer has been denied credit or further credit - whether other creditors are being paid in preference to the ATO - the level of cooperation provided by the taxpayer and the timeliness of any proposal that is made - the truthfulness of the taxpayer (for example, whether the taxpayer has been candid in dealings with us and whether the taxpayer's assertions are supported by documentation) - commercial considerations, such as where a taxpayer faces a tight liquidity situation because stock is turning over slowly or because a major debtor has delayed payment of an account - the nature of any undertakings that may have been given to other creditors, whether secured or unsecured - any commercial advantage to the taxpayer that deferral of payment or non-payment of debts generates - the contents of any lodgment or payment proposal (including whether the proposal is legal and would benefit us to a greater extent than alternative available actions), and - the cost of the proposal relative to the cost of alternatives • the cost of varying, terminating or staying a lodgment or recovery process, including the stage which the process has reached before the request to vary, terminate or stay the process is made • relevant policy issues • relevant information about the taxpayer or the taxpayer's activities that we may hold • any reports on the taxpayer's financial affairs that may have been obtained, including insolvency practitioners' reports • the existence of any impediment to the ready recovery of a debt (for example, where the taxpayer's assets are overseas and no asset is held in the jurisdiction or where the taxpayer has equitable interest in assets legally owned by other associated entities). • the total outstanding lodgment obligations or the amount of the debt • the characteristics of the total outstanding lodgment obligation or the debt, including - whether outstanding lodgment obligations are escalating or likely to escalate (and whether that is expected to be rapid or more gradual) - the components of the debt (for example, a fraudulent refund contrived by lodgment of unauthorised or inaccurate forms) - how the debt was established (for example, voluntary disclosure, general compliance work, audits into proceeds of crime or ATP) - whether the debt is escalating or likely to escalate (and whether that escalation is expected to be rapid or more gradual) - the age of the debt (as a general rule, the older the debt, the greater the risk of not collecting it) - whether the debt is in dispute (see paragraphs 20 to 23 of this Practice Statement), and - whether other creditors are pursuing actions. • taxpayer attributes (attitude, behaviour and circumstances), including - previous compliance history (for example, compliance with lodgment and payment requirements, accuracy of documents) - previous bankruptcy or another form of insolvency administration (including multiple bankruptcies) - previous corporate delinquency or failure (for example, phoenix activities, disqualification as a director) - previous participation in, promotion or marketing of ATP arrangements - previous derivation or non-disclosure of income from criminal activities - capacity to pay - financial position - willingness to pay the debt (including efforts made by the taxpayer to borrow funds in order to pay the outstanding debt) - attitude to lodging expected documents and paying expected debts (it may be appropriate to draw adverse inferences about taxpayers who have given priority to acquiring personal assets ahead of paying their taxation liabilities; taxpayers who appear to ignore their financial responsibilities and live beyond their means tend to represent a higher risk) - steps taken by the taxpayer to ensure future lodgment obligations are met and future liabilities are paid as and when they fall due - income and expenditure (that is, whether income is steady, fluctuating or seasonal; whether the level of expenditure can be considered to be reasonable; and whether there is any excess of income over expenditure) - whether the taxpayer has been denied credit or further credit - whether other creditors are being paid in preference to the ATO - the level of cooperation provided by the taxpayer and the timeliness of any proposal that is made - the truthfulness of the taxpayer (for example, whether the taxpayer has been candid in dealings with us and whether the taxpayer's assertions are supported by documentation) - commercial considerations, such as where a taxpayer faces a tight liquidity situation because stock is turning over slowly or because a major debtor has delayed payment of an account - the nature of any undertakings that may have been given to other creditors, whether secured or unsecured - any commercial advantage to the taxpayer that deferral of payment or non-payment of debts generates - the contents of any lodgment or payment proposal (including whether the proposal is legal and would benefit us to a greater extent than alternative available actions), and - the cost of the proposal relative to the cost of alternatives • the cost of varying, terminating or staying a lodgment or recovery process, including the stage which the process has reached before the request to vary, terminate or stay the process is made • relevant policy issues • relevant information about the taxpayer or the taxpayer's activities that we may hold • any reports on the taxpayer's financial affairs that may have been obtained, including insolvency practitioners' reports • the existence of any impediment to the ready recovery of a debt (for example, where the taxpayer's assets are overseas and no asset is held in the jurisdiction or where the taxpayer has equitable interest in assets legally owned by other associated entities). - whether outstanding lodgment obligations are escalating or likely to escalate (and whether that is expected to be rapid or more gradual) - the components of the debt (for example, a fraudulent refund contrived by lodgment of unauthorised or inaccurate forms) - how the debt was established (for example, voluntary disclosure, general compliance work, audits into proceeds of crime or ATP) - whether the debt is escalating or likely to escalate (and whether that escalation is expected to be rapid or more gradual) - the age of the debt (as a general rule, the older the debt, the greater the risk of not collecting it) - whether the debt is in dispute (see paragraphs 20 to 23 of this Practice Statement), and - whether other creditors are pursuing actions. - previous compliance history (for example, compliance with lodgment and payment requirements, accuracy of documents) - previous bankruptcy or another form of insolvency administration (including multiple bankruptcies) - previous corporate delinquency or failure (for example, phoenix activities, disqualification as a director) - previous participation in, promotion or marketing of ATP arrangements - previous derivation or non-disclosure of income from criminal activities - capacity to pay - financial position - willingness to pay the debt (including efforts made by the taxpayer to borrow funds in order to pay the outstanding debt) - attitude to lodging expected documents and paying expected debts (it may be appropriate to draw adverse inferences about taxpayers who have given priority to acquiring personal assets ahead of paying their taxation liabilities; taxpayers who appear to ignore their financial responsibilities and live beyond their means tend to represent a higher risk) - steps taken by the taxpayer to ensure future lodgment obligations are met and future liabilities are paid as and when they fall due - income and expenditure (that is, whether income is steady, fluctuating or seasonal; whether the level of expenditure can be considered to be reasonable; and whether there is any excess of income over expenditure) - whether the taxpayer has been denied credit or further credit - whether other creditors are being paid in preference to the ATO - the level of cooperation provided by the taxpayer and the timeliness of any proposal that is made - the truthfulness of the taxpayer (for example, whether the taxpayer has been candid in dealings with us and whether the taxpayer's assertions are supported by documentation) - commercial considerations, such as where a taxpayer faces a tight liquidity situation because stock is turning over slowly or because a major debtor has delayed payment of an account - the nature of any undertakings that may have been given to other creditors, whether secured or unsecured - any commercial advantage to the taxpayer that deferral of payment or non-payment of debts generates - the contents of any lodgment or payment proposal (including whether the proposal is legal and would benefit us to a greater extent than alternative available actions), and - the cost of the proposal relative to the cost of alternatives 35. The Compliance model clearly links risk with the indicators of unwillingness to comply with taxation and superannuation obligations. While individual circumstances must be considered in each case, due regard needs to be given to any steps taken by the taxpayer to mitigate the risk. The following activities are considered to indicate the highest levels of risk: • promotion of ATP schemes • participation or prior participation in activities designed to avoid payment of an assessed or probable debt for example, multiple bankruptcies and phoenix activities • participation in criminal activities • continued participation in ATP schemes, and • continued participation in other contrived or artificial schemes designed to avoid or reduce assessment. • promotion of ATP schemes • participation or prior participation in activities designed to avoid payment of an assessed or probable debt for example, multiple bankruptcies and phoenix activities • participation in criminal activities • continued participation in ATP schemes, and • continued participation in other contrived or artificial schemes designed to avoid or reduce assessment. 36. In considering whether a taxpayer's participation in more than one ATP activity constitutes the highest level of risk, due regard must be given to the level of mischief associated with the arrangements. | Managing risk when making a decision: 37. The management of risk involves making decisions in a statutory and policy framework, which means: • All taxpayers will be treated professionally, equitably and fairly. • We will form our own opinions on risk based on an impartial review of the facts and then respond to the risk (taxpayers can expect each case to be considered on its merits). • Taxpayers can expect us to apply the most severe measures and sanctions in response to the highest level of risk in accordance with the Compliance model. • Taxpayers cannot expect us to agree to any particular course of action on the basis of our past actions or decisions. We will assess risk based on current circumstances. • Taxpayers can expect us to make use of any or all available lodgment compliance or debt collection options, including prosecution and the bankruptcy or liquidation option. The fact that negotiations are taking place over payment of a debt or that a debt is disputed does not automatically preclude us from taking action to secure the debt by appropriate means (for example, judgment, security over property, injunctions or issue of 'garnishee' notices as defined elsewhere in our policy). • Responding to changes in taxpayers' circumstances which, upon an evaluation of the risk to revenue, may warrant a decision to take action that could involve costs exceeding revenue collected (for example, action designed to ensure outstanding lodgments or debts do not escalate; or action to support the integrity of the taxation and superannuation systems). • The decision taken in response to the evaluation of risk must be commensurate with the perceived risk, rather than to 'reward' or 'punish' taxpayers for their action or inaction concerning the lodgment of their documents and payment of their outstanding debts. • Evaluating risk is not an isolated task. All relevant facts need to be considered and, where appropriate, other ATO areas should be consulted. It may not be possible to consider every aspect of a taxpayer's circumstances before making a decision. ATO staff dealing with lodgment or debts should focus on the major risks (rather than the insignificant risks) that determine the capacity to meet outstanding obligations. • All taxpayers will be treated professionally, equitably and fairly. • We will form our own opinions on risk based on an impartial review of the facts and then respond to the risk (taxpayers can expect each case to be considered on its merits). • Taxpayers can expect us to apply the most severe measures and sanctions in response to the highest level of risk in accordance with the Compliance model. • Taxpayers cannot expect us to agree to any particular course of action on the basis of our past actions or decisions. We will assess risk based on current circumstances. • Taxpayers can expect us to make use of any or all available lodgment compliance or debt collection options, including prosecution and the bankruptcy or liquidation option. The fact that negotiations are taking place over payment of a debt or that a debt is disputed does not automatically preclude us from taking action to secure the debt by appropriate means (for example, judgment, security over property, injunctions or issue of 'garnishee' notices as defined elsewhere in our policy). • Responding to changes in taxpayers' circumstances which, upon an evaluation of the risk to revenue, may warrant a decision to take action that could involve costs exceeding revenue collected (for example, action designed to ensure outstanding lodgments or debts do not escalate; or action to support the integrity of the taxation and superannuation systems). • The decision taken in response to the evaluation of risk must be commensurate with the perceived risk, rather than to 'reward' or 'punish' taxpayers for their action or inaction concerning the lodgment of their documents and payment of their outstanding debts. • Evaluating risk is not an isolated task. All relevant facts need to be considered and, where appropriate, other ATO areas should be consulted. | Minimising risk to the ATO or risk avoidance: 38. Risk management is not focused solely on addressing perceived or real risks. It also requires an exercise of caution to ensure that our position is not put at risk by certain actions, such as: • making comments or taking actions on matters unrelated to the lodgment of documents which cause the taxpayer to have certain expectations, or otherwise • creating a situation which could cause the taxpayer confusion, loss or damage. These actions may create new risks. • making comments or taking actions on matters unrelated to the lodgment of documents which cause the taxpayer to have certain expectations, or otherwise • creating a situation which could cause the taxpayer confusion, loss or damage. 39. In reviewing a taxpayer's records or in making enquiries to establish facts to determine the risks inherent in the case and the most cost-effective lodgment compliance action or recovery method, ATO staff involved in the lodgment or debt collection process will frequently see or hear comments that suggest that the taxpayer's situation (and, perhaps, the debt itself) arose through the actions, inaction or negligence of another person. In these circumstances, ATO staff need to apply professional standards by refusing to express comments on issues outside their expertise. For example: • We are not financial counsellors and, therefore, should not provide financial advice. If it is apparent that a taxpayer may benefit from financial counselling, that may be suggested to the taxpayer as an option for consideration. • We should not express views to taxpayers which suggest that the taxpayer's circumstances arose through the negligence of others. Any assertions by the taxpayer along these lines should not be discussed, apart from suggesting that the taxpayer discuss the matter with their solicitor. • If the taxpayer claims that their taxation or superannuation document is incorrect and the document has been lodged by their agent, ATO staff involved in the debt collection process should refer the taxpayer to the ATO website [3] or to their tax agent. If a taxpayer raises the issue of negligence by their agent or enquires about their rights against the agent, they should be advised to contact the Tax Practitioners Board. We should not discuss whether the taxpayer's tax agent erred or was negligent in completing the document. • We are not financial counsellors and, therefore, should not provide financial advice. If it is apparent that a taxpayer may benefit from financial counselling, that may be suggested to the taxpayer as an option for consideration. • We should not express views to taxpayers which suggest that the taxpayer's circumstances arose through the negligence of others. Any assertions by the taxpayer along these lines should not be discussed, apart from suggesting that the taxpayer discuss the matter with their solicitor. • If the taxpayer claims that their taxation or superannuation document is incorrect and the document has been lodged by their agent, ATO staff involved in the debt collection process should refer the taxpayer to the ATO website [3] or to their tax agent. If a taxpayer raises the issue of negligence by their agent or enquires about their rights against the agent, they should be advised to contact the Tax Practitioners Board. We should not discuss whether the taxpayer's tax agent erred or was negligent in completing the document. | Documenting the decision: 40. It is important that decisions and the reasons for making the decisions be properly documented in the case management system (or the paper file where appropriate) to: • enable the decision to be readily reviewed at a later date if the need arises or if circumstances change • provide background information to any other officer who subsequently deals with the taxpayer so as to assist their decision-making • provide an audit trail • enable a ready response to any requests for review or complaints by the taxpayer or the taxpayer's representative, and • enable any legal challenge, or request for a Statement of Reasons under the Administrative Decisions (Judicial Review) Act 1977, to be dealt with effectively and efficiently. • enable the decision to be readily reviewed at a later date if the need arises or if circumstances change • provide background information to any other officer who subsequently deals with the taxpayer so as to assist their decision-making • provide an audit trail • enable a ready response to any requests for review or complaints by the taxpayer or the taxpayer's representative, and • enable any legal challenge, or request for a Statement of Reasons under the Administrative Decisions (Judicial Review) Act 1977, to be dealt with effectively and efficiently.",PS LA 2009/9 | PS LA 2011/4 | PS LA 2011/7 | PS LA 2012/1 | Administrative Decisions (Judicial Review) Act 1977 | Bankruptcy Act 1966 188,PS LA 2009/9 PS LA 2011/4 PS LA 2011/7 PS LA 2012/1,Administrative Decisions (Judicial Review) Act 1977 | Bankruptcy Act 1966 188 | Judiciary Act 1903 39B,,Business viability assessment tool Chief Executive Instruction External fraud (link available internally only)Chief Executive Instruction Internal fraud and corruption (link available internally only) Commonwealth Fraud and Corruption Control Framework Compliance model Enterprise Risk Management Framework (link available internally only) Fraud and Corruption Guidance Our Charter Prosecution Policy of the Commonwealth,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20116/NAT/ATO/00001,"Updated in line with current ATO style and accessibility requirements. | Compliance model diagram updated. | General update to terminology, risk models and reference and link inserted to the Business Viability Assessment Tool. | References now include superannuation where relevant. | Updated information from Commonwealth Fraud Control Guidelines. | Inclusion of information in relation to strategic litigation and reference to Law Administration Practice Statement PS LA 2012/1 Management of high risk technical issues and engagement of tax technical officers in Law and Practice . | Section on 'Aggressive tax planning schemes' deleted. | [1] In this Practice Statement, the term 'documents' refers broadly to all returns (such as income tax and fringe benefits) and statements (such as activity statements and superannuation guarantee statements). Note that goods and services tax obligations are reported in an activity statement. | [2] Commonwealth Fraud Prevention Centre, Explore the fraud problem , accessed 29 October 2024. | [3] Our website offers a comprehensive range of help and education products (including calculators) to assist individuals, tax practitioners and businesses."
PS LA 2011/7,Settlement of debt litigation proceedings,14 April 2011,14 April 2011,Law Administration Practice Statement,False,"1. What this Practice Statement is about: This Practice Statement sets out our approach to settling debt litigation proceedings. | 2. Summary: Settlement can be a cost-effective way to quickly resolve litigation (and pre-litigation) disputes. Settling debt litigation matters requires you to assess the various risks involved in reaching a settlement, which are detailed in this Practice Statement. Considering whether settlement is appropriate is important in complying with our obligations as a model litigant . These obligations require Commonwealth litigants to act honestly and fairly in litigation. They include managing cases efficiently and effectively and endeavouring to limit litigation where possible by engaging in alternative dispute resolution (ADR). This Practice Statement is to be read alongside the Code of settlement (Code). While the Code applies to settling disputes arising under Part IVC of the Taxation Administration Act 1953 , its principles can extend to debt litigation proceedings. | 3. Settlements: A settlement is an agreement or arrangement between parties to finalise their matters in dispute. It involves balancing the Commissioner's duties to administer the tax law by assessing and collecting taxes, and administering the tax system in a fair, efficient and effective way. For the purposes of this Practice Statement, settlement is limited to deciding not to commence litigation proceedings on consideration of relevant risk factors or ending the litigation proceedings early due to new or additional risk factors that have emerged after the commencement of the litigation proceedings. Legal basis for settlement The Commissioner's powers of general administration encompass settlement of any matters on principles that reflect good management of the tax and superannuation systems, overall fairness and best use of our resources. This is commonly known as the 'good management rule'. Application of ATO policy to settlements Our existing policies may assist in settling debt litigation proceedings. For instance: • accepting a payment arrangement by instalments, including any security, that results in a proceeding being discontinued or stayed (Law Administration Practice Statement PS LA 2011/14 General debt collection powers and principles ) • remitting general interest charge (Law Administration Practice Statement PS LA 2011/12 Remission of general interest charge ) • discontinuing litigation proceedings to allow the taxpayer to apply to - the Finance Minister for a waiver of their debt, or - us for release from their debt in cases of serious hardship (Law Administration Practice Statement PS LA 2011/17 Debt relief, waiver and non-pursuit ), or • discontinuing litigation where information establishes the debt is either irrecoverable at law or uneconomical to pursue (PS LA 2011/17). • accepting a payment arrangement by instalments, including any security, that results in a proceeding being discontinued or stayed (Law Administration Practice Statement PS LA 2011/14 General debt collection powers and principles ) • remitting general interest charge (Law Administration Practice Statement PS LA 2011/12 Remission of general interest charge ) • discontinuing litigation proceedings to allow the taxpayer to apply to - the Finance Minister for a waiver of their debt, or - us for release from their debt in cases of serious hardship (Law Administration Practice Statement PS LA 2011/17 Debt relief, waiver and non-pursuit ), or • discontinuing litigation where information establishes the debt is either irrecoverable at law or uneconomical to pursue (PS LA 2011/17). - the Finance Minister for a waiver of their debt, or - us for release from their debt in cases of serious hardship (Law Administration Practice Statement PS LA 2011/17 Debt relief, waiver and non-pursuit ), or Settlement versus compromise To 'compromise' is to accept a sum less than payment of the full undisputed primary tax debt. A settlement is an agreement or arrangement between parties to finalise their matters in dispute. Law Administration Practice Statement PS LA 2011/3 Compromise of undisputed tax-related liabilities and other amounts payable to the Commissioner applies in considering offers to compromise undisputed tax debts and conveys the principle that compromise will only be considered in very limited circumstances. Commercial settlement A 'commercial' settlement is a settlement that reflects commercial practice between a commercial creditor and a commercial debtor. In a debt litigation context, this means a settlement where we would receive less than the full debt, but more than we would in bankruptcy or liquidation. We are not a commercial creditor and must approach settlement in accordance with the principles in this Practice Statement. We should not settle solely on a commercial basis. Settlements must account for fairness to other creditors and taxpayers who pay their debts as they fall due. With the exception of insolvency litigation matters, a commercial settlement offer is better considered as a compromise request under PS LA 2011/3. For guidance on insolvency litigation matters, refer to Law Administration Practice Statement PS LA 2011/16 Insolvency – collection, recovery and enforcement issues for entities under external administration. | 4. Risk-based approach: We must undertake a risk assessment in determining whether or not it is appropriate to settle a debt litigation proceeding. This assessment must take place both when commencing and throughout a debt litigation proceeding. Broad risk categories include: • legal risk • revenue risk • reputational risk • compliance risk • operational risk. • legal risk • revenue risk • reputational risk • compliance risk • operational risk. Legal risk Legal risk is the risk we face in proceeding with a claim. This risk can arise from: • uncertainty in the interpretation or application of the law • uncertainty or ambiguity in any contract entered into • risks flowing from the litigation itself, such as adverse court findings and the risk of increased litigation • not settling a matter which may have precedential value or highlight the need for legislative reform. • uncertainty in the interpretation or application of the law • uncertainty or ambiguity in any contract entered into • risks flowing from the litigation itself, such as adverse court findings and the risk of increased litigation • not settling a matter which may have precedential value or highlight the need for legislative reform. Legal risk is the primary and often determining factor for most cases considered appropriate for settlement. Legal risk is often dependent on evidence. The level of risk can change throughout a litigation proceeding as new evidence comes to light. Revenue risk Revenue risk is the risk of monetary loss – in particular, our ability to collect revenue. The broader revenue implications must be considered. For instance: • whether the taxpayer has a novel or arguable defence that has the potential to affect our well-settled processes • our position on a particular matter in the proceeding has not yet been settled • settling the wrong cases may result in more litigation, or our recovering less money than we would if judgment was obtained • not settling a matter which may have precedential value or highlight the need for legislative reform. • whether the taxpayer has a novel or arguable defence that has the potential to affect our well-settled processes • our position on a particular matter in the proceeding has not yet been settled • settling the wrong cases may result in more litigation, or our recovering less money than we would if judgment was obtained • not settling a matter which may have precedential value or highlight the need for legislative reform. Reputational risk Reputational risk refers to the perception of the ATO. Litigation proceedings may affect our standing with the government, judiciary, other government agencies, external advisers or the community. The decision of whether or not to settle can carry a reputational risk where the community perception is that we are being 'too hard' or 'too soft' on certain taxpayers. Similarly, there are reputational risks if settlements are not seen to be applied consistently. You must therefore consider each case on its merits, with reference to the principles set out in this Practice Statement. If we are not seen to be applying settlements consistently, community confidence in us may be reduced by perceptions of unfairness from those taxpayers that comply with their payment obligations. Compliance risk Compliance risk is an acknowledgment that a number of factors can influence taxpayer behaviour in complying with the law. It is the current and prospective risk to revenue arising from non-compliance with tax laws and precedential ATO views. Our decision on whether to settle can influence taxpayer behaviour in complying with the tax law. For example, settlements that treat taxpayers differently or do not accord with the ATO view can undermine community confidence in the tax system and negatively impact voluntary compliance. Compliance risk is also linked to legal risk. For example, litigating a matter with unique factual circumstances may result in ambiguity in the law or in our position. This can have wider compliance and revenue impacts for us. Operational risk Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from unforeseeable events. Practical examples of operational risk include: • the availability of staff • the inability to produce evidence of the taxpayer's debt because of a computer server crash • bad weather preventing a witness attending court. • the availability of staff • the inability to produce evidence of the taxpayer's debt because of a computer server crash • bad weather preventing a witness attending court. | 5. Circumstances where it may be appropriate to settle: Settlement may be appropriate where: • there is merit in the taxpayer's defence that poses legal risk to us • there is scope to quickly resolve the dispute without expending further costs and time of litigation • progressing a matter to trial could affect well-established principles of law or our position • we face adverse costs orders in progressing a claim • the costs of continuing a litigation approach exceed the recoverable debt, or • the taxpayer otherwise has a good compliance history. • there is merit in the taxpayer's defence that poses legal risk to us • there is scope to quickly resolve the dispute without expending further costs and time of litigation • progressing a matter to trial could affect well-established principles of law or our position • we face adverse costs orders in progressing a claim • the costs of continuing a litigation approach exceed the recoverable debt, or • the taxpayer otherwise has a good compliance history. | 6. Circumstances where it may not be appropriate to settle: Settlement may be inappropriate where: • the outcome of the settlement would be contrary our policy or the law • it is in our or the public interest to have judicial clarification on the issues in dispute • there is a risk or pattern of the taxpayer dissipating or disposing of assets • the taxpayer's defence has no merit (this does not prevent a settlement that provides for payment of the full debt over time) • there is a flow-on compliance benefit in running the litigation through to judgment • the proposal received by the taxpayer is better considered as a request for compromise • it may encourage frivolous defences • it would treat taxpayers inconsistently, or • the taxpayer has a poor compliance history. • the outcome of the settlement would be contrary our policy or the law • it is in our or the public interest to have judicial clarification on the issues in dispute • there is a risk or pattern of the taxpayer dissipating or disposing of assets • the taxpayer's defence has no merit (this does not prevent a settlement that provides for payment of the full debt over time) • there is a flow-on compliance benefit in running the litigation through to judgment • the proposal received by the taxpayer is better considered as a request for compromise • it may encourage frivolous defences • it would treat taxpayers inconsistently, or • the taxpayer has a poor compliance history. | 7. Authority to settle: Authority to settle debt litigation proceedings is given to Litigation and Legal Services officers (at Executive Level 1 and above) and Frontline Operations officers (at Executive Level 1 and above). Courts often require parties to participate in ADR during debt litigation proceedings. Additionally, we have internal processes such as in-house facilitation to facilitate settlement discussions. ATO officers with authority to settle must attend any ADR process. If authority lies with a Senior Executive Service (SES) officer who cannot attend, an appropriate officer should be given settlement parameters in attending the ADR process. An SES officer should then be available to be contacted by phone during the process. If you are unsure about whether an authorised officer should attend, contact Litigation and Legal Services. | 8. Settlement and prosecution action: If the taxpayer in a debt litigation proceeding is the subject of prosecution action or is subject to a criminal investigation into alleged offences, you should refer to Chief Executive Instruction External fraud (link available internally only). If a case falls within that instruction, you should seek a formal written response from the Criminal Law Program, Business Development and Management Team in Fraud and Criminal Behaviours on the impact of the prosecution or investigation action on any settlement. This team can also be contacted if you are unsure about the guidelines. No prosecution exemption You do not have the authority to exempt taxpayers from prosecution. Therefore, this cannot form part of any settlement. Equally, you must not threaten prosecution action as a lever to settle cases. | 9. More information: For more information, see: • Code of settlement • Chief Executive Instruction External fraud (link available internally only) • Law Administration Practice Statement PS LA 2011/3 Compromise of undisputed tax related liabilities and other amounts payable to the Commissioner • Law Administration Practice Statement PS LA 2011/12 Remission of general interest charge • Law Administration Practice Statement PS LA 2011/14 General debt collection powers and principles • Law Administration Practice Statement PS LA 2011/16 Insolvency – collection, recovery and enforcement issues for entities under external administration • Law Administration Practice Statement PS LA 2011/17 Debt relief, waiver and non-pursuit. • Code of settlement • Chief Executive Instruction External fraud (link available internally only) • Law Administration Practice Statement PS LA 2011/3 Compromise of undisputed tax related liabilities and other amounts payable to the Commissioner • Law Administration Practice Statement PS LA 2011/12 Remission of general interest charge • Law Administration Practice Statement PS LA 2011/14 General debt collection powers and principles • Law Administration Practice Statement PS LA 2011/16 Insolvency – collection, recovery and enforcement issues for entities under external administration • Law Administration Practice Statement PS LA 2011/17 Debt relief, waiver and non-pursuit.",PS LA 2011/3 | PS LA 2011/12 | PS LA 2011/14 | PS LA 2011/16 | PS LA 2011/17 | TAA 1953 Pt IVC,PS LA 2011/3 PS LA 2011/12 PS LA 2011/14 PS LA 2011/16 PS LA 2011/17,TAA 1953 Pt IVC,,Code of settlement External fraud (link available internally only) Our obligations as a model litigant,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20117/NAT/ATO/00001,"Updated in line with current ATO style and accessibility requirements. | Comprehensive re-write to convert into plain English and reformatted into new LAPS style. | Paragraphs 24; 49; 82 & 84; legislative references | Updated references to the Financial Management and Accountability Act 1997 with relevant provisions in the Public Governance, Performance and Accountability Act 2013 and the Public Governance, Performance and Accountability Rule 2014; updated references to PS CM 2007/02 now replaced by CEI 2014/05/09; updated contact details. | Revised to meet current ATO style guide requirements, reflect new work group titles and current practices in relation to voidable preference type of litigations, and to cater for amendments to PS LA 2009/9."
PS LA 2011/8,"SUBJECT: The registration of entities PURPOSE: This Practice Statement sets out the policy and procedures to be followed on a range of issues relating to the registration of entities, maintaining the client register and security of taxpayer data. It should be read in conjunction with Law Administration Practice Statement PS LA 2011/9 The registration of entities in the Australian Business Register.",14 April 2011,14 April 2011,Law Administration Practice Statement,False,"1. We use unique identifiers to: • enable the accurate identification of entities and persons for taxation law purposes • record key information that will be accessed by multiple ATO systems and applications • allow for the recording and management of taxpayer entitlements and obligations under income tax and other related laws • create accounts for recording transactions within the tax system • facilitate the sharing of information with other agencies as permitted or required by law. • enable the accurate identification of entities and persons for taxation law purposes • record key information that will be accessed by multiple ATO systems and applications • allow for the recording and management of taxpayer entitlements and obligations under income tax and other related laws • create accounts for recording transactions within the tax system • facilitate the sharing of information with other agencies as permitted or required by law. 2. Under taxation law, some registrations are compulsory in certain circumstances for different kinds of entities or persons. In other circumstances, registration is optional. There may be significant benefits to registration (such as not having tax withheld on interest earned from a financial institution). 3. For the purposes of this Practice Statement, consistent with relevant taxation law provisions, the term 'person' will be used in relation to a tax file number (TFN) registration. The term 'entity' will be used in relation to an Australian business number (ABN) registration and a goods and services tax (GST) registration or in discussing taxpayer obligations generally. 4. All legislative references in this Practice Statement are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), unless otherwise indicated. 5. The following terms are used in this Practice Statement: Australian business number (ABN) – the entity's ABN as shown in the Australian Business Register. Australian Business Register (ABR) – the register established and maintained by the Registrar of the ABR. It may be kept in any form that the Registrar considers appropriate. Australia – takes the same meaning as 'indirect tax zone' set out in section 195-1. Applicant – in relation to an application for registration, means an entity or person specified in the application as the entity or person to be registered. Approved form – takes the meaning set out in section 388-50 of Schedule 1 to the Taxation Administration Act 1953 (TAA). See Law Administration Practice Statement PS LA 2005/19 Approved forms for further information on approved forms. Carrying on – in relation to an enterprise is defined in section 195-1 to include doing anything in the course of the commencement or termination of the enterprise. Commissioner – means the Commissioner of Taxation. Creditable acquisition – has the meaning given by section 11-5. An entity makes a creditable acquisition if • it acquires anything solely or partly for a creditable purpose • the supply of the thing to the entity is a taxable supply • it provides, or is liable to provide, consideration for the supply, and • it is registered or required to be registered. Creditable importation – has the meaning given by section 15-5. An entity makes a creditable importation if • it imports goods solely or partly for a creditable purpose • the importation is a taxable importation, and • it is registered or required to be registered. Creditable purpose – has the meaning given by section 11-15 in relation to creditable acquisitions and section 15-10 in relation to creditable importations. Enterprise – has the meaning given by section 9-20. Further explanation of this term is contained in Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number. Entity – in relation to GST registration and ABN registration has the meaning given by section 184-1. It means any of the following: (a) an individual; (b) a body corporate; (c) a corporation sole; (d) a body politic; (e) a partnership; (f) any other unincorporated association or body of persons; (g) a trust; (h) a superannuation fund. Further explanation of this term is contained in MT 2006/1. General law partnership – means an association of persons (other than a company or a limited partnership) carrying on a business as partners. Refer to paragraph 16 of Goods and Services Tax Ruling GSTR 2003/13 Goods and services tax: general law partnerships. Government entity – has the meaning given by section 41 of the A New Tax System (Australian Business Number) Act 1999 (ABN Act) and means: (a) a Department of State of the Commonwealth; or (b) a Department of the Parliament established under the Parliamentary Service Act 1999; or (c) an Executive Agency, or Statutory Agency, within the meaning of the Public Service Act 1999; or (d) a Department of State of a State or Territory; or (e) an organisation that: (i) is not an entity; and (ii) is either established by the Commonwealth, a State or a Territory (whether under a law or not) to carry on an enterprise or established for a public purpose by an Australian law; and (iii) can be separately identified by reference to the nature of the activities carried on through the organisation or the location of the organisation; whether or not the organisation is part of a Department or branch described in paragraph (a), (b), (c) or (d) or of another organisation of the kind described in this paragraph. GST – has the meaning given by section 195-1 and means goods and services tax that is payable under GST law. GST branch – has the meaning given by section 54-5. GST group – has the meaning given by section 48-5. GST joint venture – has the meaning given by section 51-5. GST turnover – means: • in relation to meeting a turnover threshold – has the meaning given by subsection 188-10(1), and • in relation to not exceeding a turnover threshold – has the meaning given by subsection 188-10(2). Incapacitated entity – is an individual who is bankrupt, an entity that is in receivership or liquidation or an entity that has a representative as defined in section 195-1. Input tax credit (ITC) – means an entitlement arising under sections 11-20 or 15-15. Joint venture operator – of a GST joint venture, is the entity nominated to be the joint venture operator under paragraphs 51-5(1)(ea) or 51-70(1)(c). Non-profit sub-entity – has the meaning defined in section 195-1. Parent entity – is an entity that has a GST branch. For more information, refer to section 54-40. Person – in relation to a TFN, is defined by section 202A of the Income Tax Assessment Act 1936 (ITAA 1936) to include a partnership, a company and a person in the capacity of trustee of a trust estate. Proof of identity (POI) at registration – happens at registration or enrolment and involves the provision of documents as evidence of identity (such as a birth certificate, drivers' licence or passport). For further information, refer to Chief Executive Instruction Identity management (link available internally only). Proof of record ownership (PORO) – the provision of information related to a client record to give us assurance that the person making contact is authorised to access the information they are attempting to access. For further information, refer to Chief Executive Instruction Identity management. Registrar – means the Registrar of the ABR. The Commissioner is the Registrar of the ABR. Registration turnover threshold – has the meaning given by sections 23-15 and 63-25, and sections 23-15.01 and 23-15.02 of the A New Tax System (Goods and Services Tax) Regulations 2019. Representative – has the meaning given by section 195-1 and means: (a) a trustee in bankruptcy; or (b) a liquidator [as defined in subsection 6(1) of the ITAA 1936]; or (c) a receiver; or (ca) a controller (within the meaning of section 9 of the Corporations Act 2001); or (d) an administrator appointed to an entity under Division 2 of Part 5.3A of the Corporations Act 2001; or (e) a person appointed, or authorised, under an Australian law to manage the affairs of an entity because it is unable to pay all its debts as and when they become due and payable; or (f) an administrator of a deed of company arrangement executed by the entity. Subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) adopts this definition. Resident agent – has the meaning given in section 195-1 and means an agent that is an Australian resident. Reviewable GST decisions – are defined and listed in section 110-50 of Schedule 1 to the TAA. Tax file number (TFN) – has the meaning given by section 202A of the ITAA 1936 and means a number issued to the person by the Commissioner, being a number that is either • a number issued to the person under Division 2 of Part VA of the ITAA 1936 or a number issued to a person under sections 44 or 48 of the Higher Education Funding Act 1988, or • a number notified, before the commencement of section 202A of the ITAA 1936, to the person as the person's income TFN. Tax law partnership – has the meaning given in the second limb of paragraph (a) of the definition of partnership in subsection 995-1 of the ITAA 1997 and means an association of persons (other than a company or limited partnership) 'in receipt of ordinary income or statutory income jointly'. Tax period – is the period for which an entity that is registered or required to be registered must lodge a GST return. These periods may be quarterly, monthly, annually or, in limited circumstances, another tax period such as a substituted accounting period. See section 195-1. Taxable importation – has the meaning given by sections 13-5 and 114-5. Taxable supply – has the meaning given by sections 9-5, 78-50, 84-5 and 105-5. TFN declaration – has the meaning given by section 202A of the ITAA 1936. Completion of a TFN declaration will ensure that a pay as you go (PAYG) withholding amount is withheld at the appropriate rate in certain circumstances, including receipt of salary and wages, dividends and interest. • it acquires anything solely or partly for a creditable purpose • the supply of the thing to the entity is a taxable supply • it provides, or is liable to provide, consideration for the supply, and • it is registered or required to be registered. • it imports goods solely or partly for a creditable purpose • the importation is a taxable importation, and • it is registered or required to be registered. (a) an individual; (b) a body corporate; (c) a corporation sole; (d) a body politic; (e) a partnership; (f) any other unincorporated association or body of persons; (g) a trust; (h) a superannuation fund. (a) a Department of State of the Commonwealth; or (b) a Department of the Parliament established under the Parliamentary Service Act 1999; or (c) an Executive Agency, or Statutory Agency, within the meaning of the Public Service Act 1999; or (d) a Department of State of a State or Territory; or (e) an organisation that: (i) is not an entity; and (ii) is either established by the Commonwealth, a State or a Territory (whether under a law or not) to carry on an enterprise or established for a public purpose by an Australian law; and (iii) can be separately identified by reference to the nature of the activities carried on through the organisation or the location of the organisation; (i) is not an entity; and (ii) is either established by the Commonwealth, a State or a Territory (whether under a law or not) to carry on an enterprise or established for a public purpose by an Australian law; and (iii) can be separately identified by reference to the nature of the activities carried on through the organisation or the location of the organisation; • in relation to meeting a turnover threshold – has the meaning given by subsection 188-10(1), and • in relation to not exceeding a turnover threshold – has the meaning given by subsection 188-10(2). (a) a trustee in bankruptcy; or (b) a liquidator [as defined in subsection 6(1) of the ITAA 1936]; or (c) a receiver; or (ca) a controller (within the meaning of section 9 of the Corporations Act 2001); or (d) an administrator appointed to an entity under Division 2 of Part 5.3A of the Corporations Act 2001; or (e) a person appointed, or authorised, under an Australian law to manage the affairs of an entity because it is unable to pay all its debts as and when they become due and payable; or (f) an administrator of a deed of company arrangement executed by the entity. • a number issued to the person under Division 2 of Part VA of the ITAA 1936 or a number issued to a person under sections 44 or 48 of the Higher Education Funding Act 1988, or • a number notified, before the commencement of section 202A of the ITAA 1936, to the person as the person's income TFN. 6. This Practice Statement sets out the policy and procedures you must follow in relation to: • TFNs • GST registration • maintaining the client register. • TFNs • GST registration • maintaining the client register. 7. Some aspects of this Practice Statement apply to all or many registration types. The introductory paragraphs and paragraphs 110 to 133 of this Practice Statement also apply to registration of an ABN. 8. The Commissioner (including in the role as Registrar of the ABR) is required to: • record and maintain registration details (including establishing and maintaining the ABR) using formal and informal information-gathering powers to seek information in order to verify and update registration entitlements and details • maintain the confidentiality of TFNs and other taxpayer information in accordance with taxation law confidentiality provisions, the Privacy Act 1988 (Privacy Act) and the Privacy (Tax File Number) Rule 2015 issued under the Privacy Act • notify entities and persons when making certain changes to registration details (for example, cancelling a registration). • record and maintain registration details (including establishing and maintaining the ABR) using formal and informal information-gathering powers to seek information in order to verify and update registration entitlements and details • maintain the confidentiality of TFNs and other taxpayer information in accordance with taxation law confidentiality provisions, the Privacy Act 1988 (Privacy Act) and the Privacy (Tax File Number) Rule 2015 issued under the Privacy Act • notify entities and persons when making certain changes to registration details (for example, cancelling a registration). 9. The TFN registration is attached to a person (as defined). An ABN or GST registration is attached to an entity (as defined). 10. Where a registration imposes obligations or provides entitlements, the date of effect may be important. Most provisions allow the Commissioner to determine the date of effect for registration and cancellation. These are generally reviewable decisions. 11. This section of this Practice Statement deals with TFNs. In particular, it contains a TFN overview and deals with: • applying for a TFN • refusal to issue a TFN • maintaining TFN records and declarations • TFN declarations • TFN security • compromised TFNs. • applying for a TFN • refusal to issue a TFN • maintaining TFN records and declarations • TFN declarations • TFN security • compromised TFNs. | TFN overview: 12. The TFN is a unique identifier issued by us to a person (as defined). 13. TFNs are used for a variety of purposes, including: • identifying an account • enabling interactions between the account holder and us • increasing the effectiveness and efficiency of ATO data-matching • preventing income tax evasion • facilitating the administration of various Australian Government laws, such as those relating to social security, child support, super and higher education loans. • identifying an account • enabling interactions between the account holder and us • increasing the effectiveness and efficiency of ATO data-matching • preventing income tax evasion • facilitating the administration of various Australian Government laws, such as those relating to social security, child support, super and higher education loans. 14. A person can only have one TFN at any time. If a new TFN is issued, any previously issued TFN will cease to have effect. 15. We may issue a TFN without an application being made where it is necessary to perform a function under a tax law. [1] For example, we may issue a TFN to enable an assessment to be made following a compliance enforcement activity. | Applying for a TFN: 16. An application for a TFN must be in the approved form and accompanied by evidence of the applicant's identity. [2] PS LA 2005/19 sets out how we administer approved forms. 17. Generally, persons (as defined) lodging their first application for a TFN may: • complete an online form and attend a personal interview and present POI at registration at selected Australia Post outlets • apply online using myID if they are an Australian citizen with a current Australian passport, or • complete and lodge a paper TFN application form (including POI at registration documentation). • complete an online form and attend a personal interview and present POI at registration at selected Australia Post outlets • apply online using myID if they are an Australian citizen with a current Australian passport, or • complete and lodge a paper TFN application form (including POI at registration documentation). 18. Information about how to apply for a TFN can be found at Apply for a TFN . 19. Special arrangements are in place to assist particular individuals register. These are through: • Centrelink or the Department of Veterans' Affairs if applying for government benefits or a pension • online application on arrival in Australia if a permanent migrant or temporary visitor • a form designed specifically for Aboriginal and Torres Strait Islander people , or • specific processes for prisoners and applicants from detention centres . • Centrelink or the Department of Veterans' Affairs if applying for government benefits or a pension • online application on arrival in Australia if a permanent migrant or temporary visitor • a form designed specifically for Aboriginal and Torres Strait Islander people , or • specific processes for prisoners and applicants from detention centres . 20. Non-individual applicants may also apply for a TFN: • online through the ABR website, or • via the approved paper application form. • online through the ABR website, or • via the approved paper application form. | Minors applying for a TFN: 21. Generally, if a person applying for a TFN is: • under 13 years old – their parent or guardian must sign an approved application form on their behalf • 16 years old or older – they must sign their own approved application form • 13 years old or older, but under 16 years old – either the minor or the parent or guardian can sign the application form. • under 13 years old – their parent or guardian must sign an approved application form on their behalf • 16 years old or older – they must sign their own approved application form • 13 years old or older, but under 16 years old – either the minor or the parent or guardian can sign the application form. 22. Where a parent or guardian signs the approved application form, they must provide: • POI at registration for themselves • POI at registration for the minor • documentation that proves their relationship with the minor. • POI at registration for themselves • POI at registration for the minor • documentation that proves their relationship with the minor. | Applicant does not require connection with tax system: 23. Entitlement to a TFN is not contingent on the applicant establishing that they need or intend to use a TFN. An application that meets all the process requirements will result in us issuing a TFN. 24. If an applicant has no need for a TFN or the application is made in error, we may suggest to the applicant that they withdraw their application. This is done because TFNs have a specific tax purpose and it is undesirable to have unnecessary TFNs in the tax system. However, the person is entitled to proceed with their application in these circumstances. | Refusal of TFN application: 25. We may refuse an application for a TFN if: • the application is not received in the approved form, or • we are not satisfied as to the person's true identity. • the application is not received in the approved form, or • we are not satisfied as to the person's true identity. 26. We must refuse an application if: • the person already has a TFN, or • an interim notice has been issued under section 202BD of the ITAA 1936. [3] These notices are issued when a TFN applicant provides the name and address of the payer of the applicant, and we give the payer a notice that a TFN application is pending in relation to the applicant. This notice is valid for 28 days. If such a notice exists, there is already a TFN application in process. • the person already has a TFN, or • an interim notice has been issued under section 202BD of the ITAA 1936. [3] These notices are issued when a TFN applicant provides the name and address of the payer of the applicant, and we give the payer a notice that a TFN application is pending in relation to the applicant. This notice is valid for 28 days. If such a notice exists, there is already a TFN application in process. | Inactive TFNs: 27. In some circumstances, it is necessary for a TFN to be deactivated. This may occur where, for example, we have been advised that an individual has died, the individual has departed the country permanently or a person has been inadvertently issued with 2 or more TFNs. 28. In certain circumstances, it is necessary to deactivate and replace a TFN, such as where the security of private information associated with the TFN has been compromised (see paragraphs 37 to 41 of this Practice Statement). 29. Deactivated TFN records are retained for record-keeping purposes. | TFN declarations: 30. The TFN declaration form is an approved form [4] that is completed in a 2-stage process. The payee gives their completed form to their payer, who in turn countersigns the form, retains a copy and sends the original to us. [5] The payer and payee are both required to sign declarations to state that the information in their part of the form is true and correct. [6] Lodging TFN declarations electronically 31. Payers who lodge their TFN declaration reports to us electronically may also receive a payee's TFN declaration form electronically, including the payee's electronic signature. Our requirements for an acceptable electronic signature are set out in fact sheet TFN declaration – approved electronic payee to payer process . | TFN security: 32. A TFN is an important identifier used in administering the tax and superannuation systems, as well as some government services such as child support and personal assistance programs, and should be kept secure and confidential. 33. A person may not request or require another person to quote their TFN except as permitted by section 8WA of the TAA. However, person A may voluntarily disclose their TFN to person B (who is not authorised to request it), but person B may not record, use or disclose the TFN except as allowed by section 8WB of the TAA. Sections 8WA and 8WB apply to all types of persons, not just to us or other government officials. 34. Failure to maintain the security of their TFN and related personal information can adversely affect a TFN holder, including the TFN being used for fraudulent purposes such as identity theft. We recommend that persons: • not store their TFN in their purse or wallet or on their mobile phone • shred or destroy documents when disposing of documents containing TFN details • install up-to-date anti-virus software on their computer or mobile phone • only provide their TFN to persons who are authorised to ask for it (such as us, their tax agent, financial institution or employer) • ensure that the tax agent they use to complete or lodge their tax return is registered, by checking the Tax Practitioners Board website (tpb.gov.au). • not store their TFN in their purse or wallet or on their mobile phone • shred or destroy documents when disposing of documents containing TFN details • install up-to-date anti-virus software on their computer or mobile phone • only provide their TFN to persons who are authorised to ask for it (such as us, their tax agent, financial institution or employer) • ensure that the tax agent they use to complete or lodge their tax return is registered, by checking the Tax Practitioners Board website (tpb.gov.au). 35. The Privacy (Tax File Number) Rule 2015 regulates the collection, storage, use, disclosure, security and disposal of individuals' TFN information. It is legally binding and is available on the Office of the Australian Information Commissioner's website (oaic.gov.au). 36. Under the Privacy (Tax File Number) Rule 2015, individuals cannot be compelled to quote their TFN but there may be consequences if they choose not to (for example, not being able to access certain Australian Government assistance benefits or having an assessment delayed). We are required to inform individuals of this when we ask them for their TFN. | Compromised TFN: 37. We may classify a TFN as compromised if an unauthorised party has obtained the TFN. A TFN may also be compromised if an unauthorised party has access to sufficient information to obtain the TFN. A compromised identity may occur if an unauthorised third party has obtained personal identification details, such as a person's name, address and date of birth. 38. A compromised TFN or identity may be caused by a range of circumstances, including one or more of the following: • theft • loss or accidental disclosure • our error (for example, incorrectly matched records may lead to a taxpayer's TFN being included in material provided to an unintended third party). • theft • loss or accidental disclosure • our error (for example, incorrectly matched records may lead to a taxpayer's TFN being included in material provided to an unintended third party). 39. Remedial action may include implementing additional security measures for that taxpayer record or replacing the TFN. 40. In determining what remedial action, if any, should be undertaken, we will consider the facts and circumstances, such as: • the likelihood of fraud, that is, the known or anticipated intent by the third party to defraud (for example, this would be higher where records are deliberately stolen from a tax agent's office, compared to where records are lost in a natural disaster where they are likely destroyed) • whether the TFN has been associated with, or used by, another person • potential impacts on us, such as revenue risks or reputational risks arising from failure to take timely remedial action or to identify fraudulent activity • the cost and inconvenience to the taxpayer of any proposed remedial action • the likely effectiveness of the possible remedial action, including considering – if the remedial action will provide long-term sustainable resolution to the issue (for example, if a third party is known to have obtained, from a theft or disclosure, sufficient information to pass our PORO requirements, simply issuing a new TFN may not be appropriate or adequate action) – whether the remedial action for a prior compromise has been previously implemented and not succeeded, in which case, an alternative approach may be required – whether it is likely that the compromise will recur, regardless of the solution • the taxpayer's preferences – although the decision to take remedial action is taken by us, the taxpayer's preferences will be considered. However, there may be situations where a taxpayer would prefer to have their TFN replaced but we decline to do so, or some unusual cases where we insist on doing so. • the likelihood of fraud, that is, the known or anticipated intent by the third party to defraud (for example, this would be higher where records are deliberately stolen from a tax agent's office, compared to where records are lost in a natural disaster where they are likely destroyed) • whether the TFN has been associated with, or used by, another person • potential impacts on us, such as revenue risks or reputational risks arising from failure to take timely remedial action or to identify fraudulent activity • the cost and inconvenience to the taxpayer of any proposed remedial action • the likely effectiveness of the possible remedial action, including considering – if the remedial action will provide long-term sustainable resolution to the issue (for example, if a third party is known to have obtained, from a theft or disclosure, sufficient information to pass our PORO requirements, simply issuing a new TFN may not be appropriate or adequate action) – whether the remedial action for a prior compromise has been previously implemented and not succeeded, in which case, an alternative approach may be required – whether it is likely that the compromise will recur, regardless of the solution • the taxpayer's preferences – although the decision to take remedial action is taken by us, the taxpayer's preferences will be considered. However, there may be situations where a taxpayer would prefer to have their TFN replaced but we decline to do so, or some unusual cases where we insist on doing so. – if the remedial action will provide long-term sustainable resolution to the issue (for example, if a third party is known to have obtained, from a theft or disclosure, sufficient information to pass our PORO requirements, simply issuing a new TFN may not be appropriate or adequate action) – whether the remedial action for a prior compromise has been previously implemented and not succeeded, in which case, an alternative approach may be required – whether it is likely that the compromise will recur, regardless of the solution | Example 1 – identity theft, replacing TFN: 41. Peter has a large share portfolio. A record of his TFN is stolen from his tax agent's office by thieves targeting identity information. Peter would prefer not to replace his TFN as he would have to inform all the companies in which he holds shares. However, we decide that, as the thieves were specifically searching for identity information, the inconvenience to Peter is outweighed by the risk of the TFN being misused. 42. This section deals with GST registration. In particular, it contains a GST overview and deals with: • applying for GST registration • cancelling GST registration • GST groups • GST joint ventures, and • GST branches. • applying for GST registration • cancelling GST registration • GST groups • GST joint ventures, and • GST branches. | Applying for GST registration: 43. Entities that carry on an enterprise and have a GST turnover of $75,000 (or $150,000 for non-profit bodies) or more are required to register for GST. [7] Entities that carry on an enterprise with a turnover of less than $75,000 (or $150,000 for non-profit bodies) may register for GST if they choose. It is the entity that is registered for GST, not the enterprise. 44. If an entity is registered or required to be registered, they must pay GST on any taxable supplies and taxable importations that they make. They are also entitled to ITCs for creditable acquisitions and creditable importations. | Registering for GST: 45. We must register an entity for GST if [8] : • an application for registration has been made in the approved form, and • they are satisfied that the entity is carrying on an enterprise or intends to carry on an enterprise from the date specified in the application. • an application for registration has been made in the approved form, and • they are satisfied that the entity is carrying on an enterprise or intends to carry on an enterprise from the date specified in the application. 46. We must also register an entity if we are satisfied that the entity is required to be registered, even if the entity has not applied for registration. [9] 47. An entity may choose to register for GST if it [10] : • is carrying on an enterprise and its GST turnover is below the registration turnover threshold, or • intends to carry on an enterprise from a particular date. • is carrying on an enterprise and its GST turnover is below the registration turnover threshold, or • intends to carry on an enterprise from a particular date. 48. If an entity is required to be registered, it must apply in the approved form to us within 21 days after becoming required to be registered. [11] If an entity is entitled to be registered but not required to do so, it may apply at any time. 49. MT 2006/1 considers the meaning of the terms 'entity' and 'enterprise' in relation to entitlement to an ABN. The principles in MT 2006/1 apply equally to the terms 'entity' and 'enterprise' in the GST Act (see Goods and Services Tax Determination GSTD 2006/6 Goods and services tax: does MT 2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the A New Tax System (Goods and Services Tax) Act 1999?). 50. Carrying on an enterprise includes doing anything in the course of commencement of that enterprise. [12] Activities undertaken in the commencement of an enterprise may include feasibility studies involving genuine business activities where, from the scale and nature of these activities, it is clear that there has been serious contemplation of developing an enterprise. However, the mere intention by an entity to commence an enterprise is not commencement activity. 51. We will require POI at registration to establish the identity of the applicant and its associates (where appropriate) when an entity applies for GST registration. There is no express provision for the Commissioner to seek information necessary to establish the identity of the applicant and its associates. However, the approved form provisions in the TAA empower the Commissioner to determine the information and additional statements or documents that an approved form will require. This can extend to any information which has a reasonable connection with the purpose for which it is sought (such as information to identify an applicant seeking GST registration). | Registration date of effect: 52. An entity's registration will take effect from the date specified in its registration application, unless we specify another date. [13] 53. Where an entity registers for GST on the basis that it intends to carry on an enterprise, the date of effect of registration must not be earlier than the date the entity specifies in its application as the date from which it intends to carry on the enterprise. [14] 54. We must notify the entity in writing of [15] : • the date of effect of the registration • the registration number, and • the tax periods that apply to the entity. • the date of effect of the registration • the registration number, and • the tax periods that apply to the entity. 55. The Registrar of the ABR must also enter the date of effect of the entity's GST registration in the ABR. [16] 56. Where an entity that has an ABN applies for a GST registration or an entity applies for ABN and GST registration at the same time, the GST registration number will be the same as the ABN, even though they are separate registrations. | Backdating GST registration: 57. We may backdate an entity's GST registration, subject to the following limitations [17] : • Where no registration application is made, the date of effect cannot be before the day on which the entity became required to be registered. • Where the entity applies for registration, the date of effect cannot be before the date the entity specified in the application, unless we are satisfied that the entity was required to be registered as of an earlier date. • Where no registration application is made, the date of effect cannot be before the day on which the entity became required to be registered. • Where the entity applies for registration, the date of effect cannot be before the date the entity specified in the application, unless we are satisfied that the entity was required to be registered as of an earlier date. 58. If an entity's GST registration is backdated, it will result in the entity being required to pay GST on taxable supplies and taxable importations made from that earlier date. The entity will be entitled to claim ITCs on creditable acquisitions or importations from the earlier date, provided the appropriate documentation is held. [18] However, for tax periods that commence on or after 1 July 2012, we cannot backdate the date of effect to a date that is more than 4 years before the date on which we decide the date of effect of the entity's registration. [19] | GST-only registration: 59. An entity qualifies for an ABN by carrying on an enterprise in Australi a, whereas an applicant for GST registration need only carry on an enterprise. [20] Non-resident entities that are carrying on an enterprise, although not in Australia, may apply for GST registration but are not entitled to an ABN because they are not carrying on an enterprise in Australia. 60. There are a number of situations where entities are registered for GST without having an ABN. The most common examples of this are: • non-residents entitled to ITCs – if an entity is not carrying on an enterprise in Australia or making supplies connected with Australia, it will not be entitled to an ABN • GST audit cases where the entity is not registered for GST but is required to be. The entity can be registered for GST whether or not it applies but cannot be registered in the ABR unless it applies. • non-residents entitled to ITCs – if an entity is not carrying on an enterprise in Australia or making supplies connected with Australia, it will not be entitled to an ABN • GST audit cases where the entity is not registered for GST but is required to be. The entity can be registered for GST whether or not it applies but cannot be registered in the ABR unless it applies. 61. Where an entity is entitled to GST registration but not to an ABN, it will be provided with a GST registration number for use when meeting its GST obligations. | Example 2 – registered for GST without an ABN: 62. Ray Source is a livestock breeder in the United States of America. He buys 3 brood mares in Australia and pays GST on purchase. He exports the horses to his ranch in Kentucky and seeks registration for GST to claim ITCs. As he is carrying on an enterprise, he can register for GST. As Ray is not carrying on an enterprise in Australia, and not making supplies connected with Australia in the course of an enterprise he carries on elsewhere, he is not entitled to an ABN. | Entities subject to special rules for GST registration: 63. A government entity is not required to be registered even if it is carrying on an enterprise and its GST turnover meets the registration turnover threshold. [21] However, a government entity may apply for registration even if it does not meet the usual criteria for registration. That is, it may apply to be registered even if it is not an entity and is not carrying on or intending to carry on an enterprise. [22] 64. Some kinds of non-profit entities may choose to have some (or all) of their separately identifiable branches treated as separate entities for GST purposes. A non-profit sub-entity may be registered for GST if the criteria set out in section 63-5 are met, even if the non-profit sub-entity is not carrying on, or not intending to carry on, an enterprise. [23] 65. If an entity supplies taxi travel as part or all of its enterprise, it must register for GST irrespective of its GST turnover. [24] Taxi travel is travel that involves transporting passengers, by taxi or limousine, for fares. [25] 66. The representative of an incapacitated entity must register for GST in that capacity, if the incapacitated entity is registered or required to be registered. [26] 67. A resident agent of a non-resident is required to be registered if the non-resident is registered or required to be registered. [27] | GST branches: 68. We must register a branch of a parent entity as a GST branch if [28] : (a) the parent entity is registered for GST and applies in the approved form for registration of the branch, and (b) we are satisfied that the branch maintains an independent accounting system and can be separately identified either by the nature of its activities or by its location, and (c) we are satisfied that the parent entity carries on, or intends to carry on, an enterprise through the branch, from a particular date specified in the application. (a) the parent entity is registered for GST and applies in the approved form for registration of the branch, and (b) we are satisfied that the branch maintains an independent accounting system and can be separately identified either by the nature of its activities or by its location, and (c) we are satisfied that the parent entity carries on, or intends to carry on, an enterprise through the branch, from a particular date specified in the application. 69. A branch cannot be registered as a GST branch if the parent entity is a member of a GST group. [29] | GST groups: 70. Two or more entities may form a GST group if [30] : • each of the entities satisfies the membership requirements of the group • each of the entities agrees in writing to forming the group • one of the entities notifies us, in the approved form, of the formation of the group • the notifying entity is nominated in that notice to be the representative member of the group, and • that entity is an Australian resident. • each of the entities satisfies the membership requirements of the group • each of the entities agrees in writing to forming the group • one of the entities notifies us, in the approved form, of the formation of the group • the notifying entity is nominated in that notice to be the representative member of the group, and • that entity is an Australian resident. 71. If a group's representative member nominates to us a date for forming, changing or dissolving the group, but does so after the day by which they were required to give to us a GST return for the period within which the nominated date falls, they must apply for approval of the backdated date of effect. [31] 72. If a GST group is formed or entities leave or join an existing GST group part way through a tax period, the entities will be responsible for their own GST obligations for the relevant period during which they are not in the GST group. [32] | GST joint ventures: 73. Two or more entities may become participants in a GST joint venture if [33] : • the joint venture is for the exploration or exploitation of mineral deposits, or for a purpose specified in the A New Tax System (Goods and Services Tax) Regulations 2019 • the joint venture is not a partnership • each of those entities satisfy the participation requirements of a GST joint venture (see section 51-10) • each of the entities agree in writing to the formation of the joint venture as a GST joint venture • one of the entities, or another entity, is nominated in that agreement to be the joint venture operator of the joint venture • the nominated joint venture operator notifies us, in the approved form, of the formation of the joint venture as a GST joint venture, and • the nominated joint venture operator is not a party to the joint venture agreement, that entity must be registered for GST and account for GST on the same basis as the participants in the joint venture. • the joint venture is for the exploration or exploitation of mineral deposits, or for a purpose specified in the A New Tax System (Goods and Services Tax) Regulations 2019 • the joint venture is not a partnership • each of those entities satisfy the participation requirements of a GST joint venture (see section 51-10) • each of the entities agree in writing to the formation of the joint venture as a GST joint venture • one of the entities, or another entity, is nominated in that agreement to be the joint venture operator of the joint venture • the nominated joint venture operator notifies us, in the approved form, of the formation of the joint venture as a GST joint venture, and • the nominated joint venture operator is not a party to the joint venture agreement, that entity must be registered for GST and account for GST on the same basis as the participants in the joint venture. | Refusal of GST registration: 74. We may refuse an entity's application for GST registration if they are not satisfied that the entity is carrying on an enterprise or intends to do so from a particular date specified in the application. However, special rules apply to some entities such as non-profit sub-entities and government entities, which may register regardless of whether they meet these criteria (see paragraphs 63 to 67 of this Practice Statement). 75. We may also refuse an application if it is not in the approved form, including the provision of POI at registration information required by the approved form. For a non-individual applicant, POI at registration may include the TFN or proof of the identity at registration of some individuals who are associates of the entity (for example, the directors of a company). 76. We must notify an entity in writing of a decision to refuse to register the entity. [34] A decision to refuse to register an entity is a reviewable GST decision. [35] | Cancelling a GST registration: 77. An entity must request cancellation of their GST registration within 21 days of ceasing to carry on an enterprise or if it did not commence carrying on an enterprise. [36] An entity ceases carrying on an enterprise when it concludes doing everything in the course of terminating its enterprise. 78. Failure to cancel a registration may result in a penalty of 20 penalty units. [37] 79. If a registered entity is entitled to be registered for GST but is no longer required to be registered (for example, its GST turnover has dropped below the registration turnover threshold), it may apply to have its registration cancelled. 80. An entity that is required to be registered for GST cannot cancel its GST registration. (For a more detailed explanation of the terms 'entity' and 'enterprise', refer to MT 2006/1 which applies in both the GST and ABN context). 81. Cancellation of the GST registration will also result in the cancellation of fuel tax credit, luxury car tax and wine equalisation tax registrations. 82. If an enterprise which has been carried on by an entity continues but is undertaken by a new entity, the old entity must cancel its registration unless it is carrying on another enterprise. This includes entities with associated individuals in common, such as a partnership whose partners then become directors of a company which proceeds to carry on the enterprise. The new entity may apply for a new registration. This is because it is the entity that is registered for GST, not the enterprise. | Example 3 – registering for GST, entity or enterprise: 83. Catherine and Peter are carrying on an enterprise as partners and the partnership is registered for GST. They change their business structure by incorporating and becoming directors of a Corporations Act company that is carrying on the same enterprise as previously carried on by the partnership. As it is the entity which is registered for GST, not the enterprise, the company will need to apply for GST and the partnership, if it is not carrying on another enterprise, must cancel its registration. 84. Similarly, if Catherine and Peter sell the enterprise to a partnership between Lisa and Anthony, Lisa and Anthony will need to register for GST. Catherine and Peter, if they are not carrying on any other enterprise, will need to cancel their GST registration. 85. If an entity applies in the approved form to cancel its GST registration and we are satisfied that the entity is not required to be registered: • if the entity has been registered for at least 12 months, we must cancel the registration [38] , and • if the entity has been registered for less than 12 months, we may cancel the registration. [39] • if the entity has been registered for at least 12 months, we must cancel the registration [38] , and • if the entity has been registered for less than 12 months, we may cancel the registration. [39] 86. We must also cancel the entity's GST registration, even if the entity has not applied for cancellation, if they [40] : • are satisfied that the entity is not carrying on any enterprise, and • believe on reasonable grounds that the entity is not likely to carry on any enterprise for at least 12 months. • are satisfied that the entity is not carrying on any enterprise, and • believe on reasonable grounds that the entity is not likely to carry on any enterprise for at least 12 months. 87. We must notify an entity of any decision made in relation to cancelling the entity's GST registration. If we decide to cancel the registration, the notice must specify the date of effect of the cancellation. [41] Cancelling an entity's registration or refusing to cancel an entity's registration is a reviewable GST decision. | Date of effect of cancellation of GST registration: 88. We must decide the date on which the cancellation of a GST registration takes effect. The date of effect of cancellation may be any day occurring before, on or after the day on which we make the decision to cancel the registration. [42] 89. We will not cancel the registration with effect from a date on which the entity was required to be registered and will not usually do so from any date when the entity was operating as if it were registered for GST. 90. When an entity that was required to be registered applies to cancel its registration, we will ordinarily accept the cancellation date the entity chooses, provided that the entity: • was not required to be registered after that date • was entitled to be registered before that date • has been registered for 12 months, and • has at that date ceased operating on a GST-registered basis. • was not required to be registered after that date • was entitled to be registered before that date • has been registered for 12 months, and • has at that date ceased operating on a GST-registered basis. 91. When an entity that is registered but was not required to be registered (a voluntary registration) applies to cancel its registration: • if we are satisfied that the entity has never operated on a GST-registered basis, we may accept the application to cancel the GST registration from a retrospective date chosen by the entity • if the entity has operated on a GST-registered basis but has ceased doing so before the application to cancel registration is made, we may accept the entity's application to cancel its GST registration from the start of the tax period which commences on or after the date it stopped operating on a GST-registered basis • if the entity is still operating on a GST-registered basis at the time of the application to cancel registration, the date of cancellation will generally not be retrospective. We will negotiate a prospective date if the application does not state one. • if we are satisfied that the entity has never operated on a GST-registered basis, we may accept the application to cancel the GST registration from a retrospective date chosen by the entity • if the entity has operated on a GST-registered basis but has ceased doing so before the application to cancel registration is made, we may accept the entity's application to cancel its GST registration from the start of the tax period which commences on or after the date it stopped operating on a GST-registered basis • if the entity is still operating on a GST-registered basis at the time of the application to cancel registration, the date of cancellation will generally not be retrospective. We will negotiate a prospective date if the application does not state one. 92. The date of effect of cancellation effect is a reviewable GST decision. [43] 93. We will be satisfied that an entity has stopped operating (or never operated) on a GST-registered basis from a certain date if, from that date or an earlier date, the entity: • did not hold themselves out to other businesses as being registered for GST • did not issue any tax invoices or adjustment notes • did not claim any ITCs, special transitional credits or indirect transitional credits, and • has made a declaration to us that satisfies all of the above points. • did not hold themselves out to other businesses as being registered for GST • did not issue any tax invoices or adjustment notes • did not claim any ITCs, special transitional credits or indirect transitional credits, and • has made a declaration to us that satisfies all of the above points. | Dissolving GST groups or removing group members: 94. The representative member may notify us in the approved form that a GST group is dissolved or that one or more of the entities is removed from the group. If a group's representative member ceases to be the representative member, the new representative member must notify us within 21 days of becoming a representative member. The GST group will be dissolved unless a new representative member is nominated with effect from the day after the previous representative ceased to be the representative member. [44] 95. A GST group member that becomes incapacitated may be removed from the group by the representative member or the representative of the incapacitated member. If the representative member becomes an incapacitated entity and it does not cease to be a group member, it ceases to be the group representative member unless all other group members are incapacitated entities. [45] 96. Under section 27-39, an incapacitated entity's tax period ceases at the end of the day before incapacitation, which generally means that the incapacitated member has a tax period different to those applying to the other members and therefore breaches one of the membership requirements. However, the representative member may elect that the tax periods of the other GST group members will end at the same time as that of the incapacitated member thereby allowing the incapacitated member to remain in the group. [46] The election must be made in the approved form within 21 days after the member becomes an incapacitated entity. [47] | Cancelling GST branches: 97. We must cancel the registration of a GST branch if [48] : • the entity has applied for cancellation of registration in the approved form, and • the branch had been registered for at least 12 months at the time of the application. • the entity has applied for cancellation of registration in the approved form, and • the branch had been registered for at least 12 months at the time of the application. 98. An entity must apply for cancellation of registration of its GST branch if it is not carrying on an enterprise through the branch. [49] It must lodge the application within 21 days of ceasing to carry on an enterprise through the branch. [50] 99. We must also cancel the registration of a GST branch, even without an application being made, if satisfied that the entity [51] : • is not carrying on an enterprise through the branch, and • will not carry on an enterprise through the branch in the following 12 months. • is not carrying on an enterprise through the branch, and • will not carry on an enterprise through the branch in the following 12 months. 100. The date of effect of cancellation of the registration of a GST branch may be any date occurring before, on or after the day on which we make the decision. [52] 101. Cancellation of an entity's registration will automatically cancel the GST registration of its branch or branches, with the same date of effect. [53] 102. Refusing to cancel a branch's GST registration, cancelling a branch registration without an application and deciding the date of effect of cancellation of a GST branch are all reviewable GST decisions. [54] | Registration requirements for representatives of incapacitated entities: 103. A representative of an incapacitated entity is required to be registered for GST in their capacity as a representative, if the incapacitated entity is registered or required to be registered. [55] If more than one representative is appointed over the assets of the incapacitated entity, each representative will be required to register, unless the representatives are appointed jointly, in which case there is a single registration for the joint appointment. If the incapacitated entity is registered or required to be registered, the tax periods applying to the representative in that capacity are the same tax periods that apply to the incapacitated entity. [56] 104. We must cancel the registration of a representative of an incapacitated entity if they are satisfied that the representative is not required to be registered in that capacity. We must notify the representative of the cancellation. [57] 105. When a representative ceases to be a representative of the incapacitated entity, they must notify us in the approved form within 21 days. [58] 106. The Commissioner (in their capacity as Registrar of the ABR) will allow the representative of an incapacitated entity to use the incapacitated entity's existing ABN for transactions conducted in its capacity as the representative of the incapacitated entity. We will set up a new running balance account under the incapacitated entity's ABN for each representative to cover post-appointment liabilities and entitlements. However, a trustee in bankruptcy will need to apply for a separate ABN in respect of each appointment as trustee under the Bankruptcy Act 1966. | Other notifications required of representatives: 107. A liquidator must give written notice to us of their appointment within 14 days after becoming liquidator. [59] 108. A receiver must give written notice to us within 14 days after taking possession of the assets of the entity in receivership. [60] 109. This section of the Practice Statement deals with maintaining the client registers. In particular, it deals with: • registration of partnerships consisting of one entity or person acting in different legal capacities • registration requirements where an entity or person restructures • change of sex code • registration for minors (making decisions and signing forms) • recording names on the client registers • public officers. • registration of partnerships consisting of one entity or person acting in different legal capacities • registration requirements where an entity or person restructures • change of sex code • registration for minors (making decisions and signing forms) • recording names on the client registers • public officers. Registration of partnerships consisting of one entity or person acting in different legal capacities 110. An entity (as defined) or person (as defined) can act in a number of different capacities. For example, in addition to their individual capacity, an individual may be a trustee of one or more trusts. In each of those capacities, the individual is taken to be a different entity or person. This also applies where the trustee is a company. 111. The Commissioner (including when acting as Registrar of the ABR) may accept an application for registration from a partnership (for a TFN, ABN, GST or other role registration) if satisfied that the entities involved are together proprietors of the relevant business or assets that are being used to carry on a business or to derive income jointly. The partnership can be either a general law or tax law partnership and must be comprised of: • 2 or more entities or persons being an individual or company in their own right and that individual or company as trustee of one or more trusts, or • 2 or more entities or persons being an individual or company as trustee of 2 or more trusts. • 2 or more entities or persons being an individual or company in their own right and that individual or company as trustee of one or more trusts, or • 2 or more entities or persons being an individual or company as trustee of 2 or more trusts. | Example 4 – one individual with multiple roles: 112. Margaret as an individual and Margaret as trustee for the Scanlan Family Trust are partners in an enterprise. There is only one natural person (Margaret) involved, but she is there in 2 capacities (individual and trustee). The Registrar will register the partnership. | Reconstituted partnerships: 113. Where a partner exits a general law partnership (the partnership) and the assets and liabilities of that partnership are taken over by the continuing partners (and any new partners) and the partnership business is continued without any apparent break, a technical rather than a general dissolution has occurred. This is known as a reconstituted partnership. 114. A reconstituted partnership, providing the conditions in paragraph 115 of this Practice Statement are met, can continue to use the same TFN, GST registration or ABN as the pre-reconstitution partnership. The partnership will only be required to complete one tax return for the income year in which the reconstitution took place. The reconstituted partnership treatment only applies to general law partnerships, not to tax law partnerships. 115. All of the following conditions must be satisfied if a reconstituted partnership wishes to continue to use its existing TFN, GST registration or ABN: • There must be at least one continuing partner who is a member of the partnership prior to and following the reconstitution. • There must be an express or implied continuity clause agreed to by the continuing, incoming and outgoing partners. This includes a clause in the partnership agreement, a statement signed by the partners or an oral agreement by the partners. • The following must be satisfied – substantially all of the partnership assets remain with the continuing partnership – the nature of the enterprise remains substantially unchanged – the client or customer base remains substantially unchanged – the business name or name of the firm remains unchanged. 'Substantially' means largely or considerably. This is taken to mean more than 50%, though each case will need to be decided on its own facts. • When lodging the partnership tax return, the following details must be supplied – the date of the dissolution – the date of the reconstitution – the names of the new, continuing and retiring partners – the TFN or address and date of birth of all new partners – details of the changes if the contacts authorised to act on behalf of the partnership have changed. • There must be at least one continuing partner who is a member of the partnership prior to and following the reconstitution. • There must be an express or implied continuity clause agreed to by the continuing, incoming and outgoing partners. This includes a clause in the partnership agreement, a statement signed by the partners or an oral agreement by the partners. • The following must be satisfied – substantially all of the partnership assets remain with the continuing partnership – the nature of the enterprise remains substantially unchanged – the client or customer base remains substantially unchanged – the business name or name of the firm remains unchanged. 'Substantially' means largely or considerably. This is taken to mean more than 50%, though each case will need to be decided on its own facts. • When lodging the partnership tax return, the following details must be supplied – the date of the dissolution – the date of the reconstitution – the names of the new, continuing and retiring partners – the TFN or address and date of birth of all new partners – details of the changes if the contacts authorised to act on behalf of the partnership have changed. – substantially all of the partnership assets remain with the continuing partnership – the nature of the enterprise remains substantially unchanged – the client or customer base remains substantially unchanged – the business name or name of the firm remains unchanged. – the date of the dissolution – the date of the reconstitution – the names of the new, continuing and retiring partners – the TFN or address and date of birth of all new partners – details of the changes if the contacts authorised to act on behalf of the partnership have changed. 116. If all of the conditions set out in paragraph 115 of this Practice Statement are not met, the original partnership will be dissolved and a new partnership created. In this case: • the new partnership will be required to register for a new TFN, GST registration and ABN • the former partnership will be required to cancel their GST registration and ABN if they are not carrying on any other enterprise • the new partnership will be required to lodge a tax return for the period from the date of its formation to the end of the income year • the former partnership will be required to lodge a tax return from the beginning of the income year to the date of dissolution. • the new partnership will be required to register for a new TFN, GST registration and ABN • the former partnership will be required to cancel their GST registration and ABN if they are not carrying on any other enterprise • the new partnership will be required to lodge a tax return for the period from the date of its formation to the end of the income year • the former partnership will be required to lodge a tax return from the beginning of the income year to the date of dissolution. | Government entities: 117. Government entities at the Commonwealth, state, territory and local level may undergo a variety of structural changes that include but are not limited to: • the merging of 2 bodies • a change in the type of entity (for example, a change from one type of government body to another • the whole or part of an entity being absorbed by another entity. • the merging of 2 bodies • a change in the type of entity (for example, a change from one type of government body to another • the whole or part of an entity being absorbed by another entity. 118. Such restructures are commonly referred to as 'machinery of government changes'. 119. Machinery of government changes give rise to questions as to whether the entity or entities emerging from a restructure need to apply for new registrations or roles, such as TFN, ABN, GST, PAYG withholding, fringe benefits tax and fuel tax credits, or may instead continue the registrations and roles of the pre-change entity. 120. Where it is evident that an entity emerging from a machinery of government change is to be treated at law as a continuation of the pre-change entity, the TFN, ABN and other roles of the pre-change entity continue unaltered with only a change to the entity name. Relevant evidence is found in the primary or delegated legislation, administrative orders or gazettal notice. The legislation should contain specific transition, transfer and savings provisions which provide that the new entity is to be treated as if it were the former entity such that the new entity has all the rights, entitlements, liabilities and obligations of the former entity. 121. Where there is no such evidence, an entity emerging from a machinery of government change must apply for new registrations. 122. Where it is evident that a government entity continues, in fact, after the machinery of government change, there is no new and former entity for which there is a need to establish continuity. Such cases do not need to be treated in accordance with this Practice Statement and the entity may continue to use their existing registrations. An example of the continuation of an entity in fact is where a State Governor gives notice in their state's Gazette that an existing department has been renamed and had some functions added or taken away (sometimes referred to as having its 'designation altered') under the relevant state Public Sector Management Act (or equivalent). In this example, no new primary or delegated legislation has been passed. Rather, powers under the existing statute have been used to restructure a department without abolishing it. | Registrations and sex code: 123. When registering an individual, we will record the individual's sex or gender as described in the primary POI documents. In cases where an individual seeks to change the record of their sex or gender, they are required to provide one of the following documents specifying their preferred sex or gender: • a statement from a registered medical practitioner or a registered psychologist, or • a valid Australian Government travel document, such as a valid passport, or • an amended state or territory birth certificate, or • a state or territory gender recognition certificate or recognised details certificate showing a state or territory Registrar of Birth, Deaths and Marriages. • a statement from a registered medical practitioner or a registered psychologist, or • a valid Australian Government travel document, such as a valid passport, or • an amended state or territory birth certificate, or • a state or territory gender recognition certificate or recognised details certificate showing a state or territory Registrar of Birth, Deaths and Marriages. 124. Sex reassignment surgery or hormone therapy are not pre-requisites for the recognition of a change of sex or gender in our records. 125. Recording of gender is not compulsory on the ABR. However, the ABR recognises the following gender codes: • F – Female • M – Male • U – Unknown • X – Other. • F – Female • M – Male • U – Unknown • X – Other. 126. An individual may apply to change their name and update their title to one that is not sex or gender-specific or to remove the title from our records. | Minors – making decisions and signing forms: 127. At general law, an individual does not achieve full legal capacity while they are a minor (under 18 years old). Legal capacity is a legal concept which describes the ability of an individual to act under the law. See also paragraphs 21 and 22 of this Practice Statement. 128. Taxation laws do not specify at what age a minor will have capacity in relation to tax affairs. Case law in the criminal and family law contexts [61] has established that the optimal approach to determining the capacity of a minor is to judge each case on its own merits depending on the nature of a particular decision to be made and the minor's ability to understand the consequences of their decision. However, it also suggests that generally children under 10 years old will not be capable of making informed decisions while children 14 years or over generally will be capable. There is no specific guidance on the capacity of children aged between 10 and 14. 129. It would be difficult for us to attempt to discover the actual capacity of minors on an individual basis. In the context of this Practice Statement, it is accepted that a minor aged 14 years or over, in the absence of evidence or facts indicating otherwise, has the capacity to make decisions in relation to matters dealt with in this Practice Statement, such as registrations. 130. A manager in a client contact area also has the discretion to decide whether a particular minor under 14 years old has capacity (that is, the capacity to understand the decision and its consequences). In these cases, a determination of the child's capacity would need to be made by the manager. An example of this is the manager interviewing the minor to assess the minor's understanding of the decision. The manager can decide, taking into account the minor's understanding and the complexity of the decision to be made by the minor, that the minor is capable of making the decision and understanding the decision. 131. Exceptions applying to different ages should be made where it can be assessed that the particular type of decision is appropriate for a child of that age. An example of an exception is the policy on the age for signing a TFN application, which is referred to at paragraph 21 of this Practice Statement. The TFN application process for minors has operated successfully for many years and is widely accepted within the community. | Recording names in ATO systems: 132. We will enter the legal name (also known as entity name) of an entity or person in our systems. However, an entity or person can record more than one name in our systems (for example, a client's legal name and preferred name), provided there is no intention to use it for fraudulent purposes. 133. We maintain records containing the full legal name of an individual. This may include the surname, given name and middle names. Unless there is a specific legal requirement to use the taxpayer's full legal name (such as serving a particular form of notice), it is acceptable to use a shortened version of the full name, such as given and last name only or given name, middle initials and surname. We may take into account the taxpayer's wishes and can accommodate them where it is appropriate, taking into account system limitations such as a limited character field. | Public officers: 134. The public officer is a position that exists for taxation and indirect taxation purposes. A public officer is not appointed until notice has been given to us in writing. The public officer appointed under section 252 of the ITAA 1936 is also the public officer of the company for the purposes of an indirect tax law. [62] 135. A company that carries on business in Australia or derives income from property in Australia is required to be represented for taxation purposes by a public officer. [63] The company must appoint a public officer, in writing, within 3 months of commencing to carry on business or derive income in Australia. [64] 136. The public officer has the authority to do all things in relation to taxation matters on behalf of a company. 137. In performing your duties as a taxation officer, you may disclose information about a company to its public officer for the purposes of administering taxation laws. However, you cannot automatically disclose information about the company to the public officer for purposes which do not assist in the administration of taxation laws. In these circumstances, the public officer must be nominated in the approved form under paragraph 355-25(2)(g) of Schedule 1 to the TAA so that they will then be a 'covered entity' in relation to the company for the purposes of the confidentiality provisions. 138. A trust estate that carries on business in Australia or derives any income from property from sources in Australia, and does not have an Australian-resident trustee, is also required to appoint a resident public officer. [65] 139. Further information on public officers is contained in the Appendix to this Practice Statement. | Exemption from being represented by a public officer: 140. We may exempt a company [66] or trust estate [67] from the requirement to appoint a public officer for some of the time or all of the time. 141. While there is scope to exempt a company or trust estate from the requirement to appoint a public officer, the intent of the public officer provisions is to ensure that every company or trust estate carrying on business in Australia, or deriving in Australia income from property, appoints a public officer. Even if the Commissioner's discretion in this regard is not subject to any particular conditions, the context, purpose and policy of the provisions and the matters which may properly be taken into account in exercising the discretion demonstrate that the requirement to appoint a public officer should be waived in limited situations only. For example, we may consider granting an exemption where there is another representative or associate of the company or trust estate who is in effect performing the role of public officer. 142. We are unlikely to grant an exemption on the basis that the company cannot find a suitable individual to fill the position, or that it is too onerous or expensive to do so. | Company or trust estate trading for less than 3 months: 143. A company or trust which would otherwise be required to appoint a public officer, but which ceases to trade within 3 months from commencing, is not required to appoint a public officer. | Example 5 – appointing a public officer: 144. Sporty Co sells souvenirs at the Table Tennis World Championships, and trades for 3 weeks. At the end of that time, the company stops trading. As it has not traded for a period of 3 months, it is not required to appoint a public officer. Application of the public officer provisions to a company not carrying on business in Australia or deriving in Australia income from property 145. There is no requirement to appoint a public officer if a company does not carry on business in Australia or does not derive in Australia income from property. 146. Under section 444-10 of Schedule 1 to the TAA, a company's public officer for the purposes of the ITAA 1936 is also the public officer of the company for the purposes of an indirect tax law. An indirect tax law does not include the ABN Act, meaning that a public officer is not appointed for ABN purposes. However, the public officer's name is recorded in the ABR. [68] 147. Where a company is required to be registered for indirect taxes but is not required to appoint a public officer under the ITAA 1936, they are not required to appoint a public officer for indirect tax purposes. However, any notice or process that is to be given or served on the company for the purposes of an indirect tax law may be given to or served on an individual who is acting or appears to be acting in the business of the company. [69] | Example 6 – overseas company carrying on an enterprise in Australia: 148. Moo Inc, an American company buys 3 stud bulls in Australia and exports them to the United States of America. They are carrying on an enterprise so are entitled to register for GST. However, they are not carrying on business in Australia and are not deriving in Australia income from property, so are not required to appoint a public officer under subsection 252(1) of ITAA 1936. As such, they do not have a public officer for indirect tax purposes. | Multiple or alternate public officers: 149. The intent of the public officer provisions is to appoint a single person answerable for everything that is required to be done by the company for tax related purposes. For this reason, we will not accept the nomination of more than one public officer at any one time. 150. If more than one public officer were appointed by a company or by a trustee, issues might arise about the responsibilities and liabilities of the respective public officers of various sections. 151. If a company's public officer is unavailable for a particular time to perform the role, a company or trust may appoint an alternate public officer who is responsible for carrying out all the things required to be done. Having an alternate public officer does not amount to more than one public officer at any one time. | Example 7 – appointing a public officer for a period of leave: 152. Robin, the public officer of Lorry Co, goes on leave for 6 months. It is appropriate to appoint Terry as an alternate public officer for that period. Terry's appointment for this period overrides Robin's appointment. | Example 8 – multiple divisions and public officers not allowed: 153. Lorry Co wishes to appoint Robin as the public officer of the West division of Lorry Co and to appoint Terry as the public officer of the East division of Lorry Co. This is not appropriate as Lorry Co may only have one public officer at a time. | Non-resident companies: 154. For the purposes of the public officer provisions, non-resident companies fall into one of the following categories: (a) Non-resident companies that are carrying on business in Australia, or deriving income in Australia from property, for more than 3 months. The intent of the public officer provisions is that every company carrying on business in Australia, or deriving in Australia income from property, is required to appoint a public officer and this requirement applies whether the company is a resident or non-resident. All non-resident companies that are carrying on business or deriving income in Australia on an ongoing basis will be required to appoint a public officer. (b) Non-resident companies that are not carrying on business in Australia or deriving in Australia income from property, for a period of greater than 3 months. In this situation, there is no requirement to appoint a public officer. For example, a management company trading in Australia for less than 3 months while representing a non-resident entertainer or sportsperson, is not required to appoint a public officer. (c) Non-resident companies that are not carrying on business in Australia, or deriving in Australia income from property, but still need to interact with the Australian tax system (for example, GST only registrants). Where a company is required to be registered for indirect taxes but is not required to appoint a public officer under the ITAA 1936, it is not required to appoint a public officer. However, any notice or process that is to be given or served on the company for the purposes of an indirect tax law may be given to or served on an individual who is acting or appears to be acting in the business of the company. [70] (a) Non-resident companies that are carrying on business in Australia, or deriving income in Australia from property, for more than 3 months. The intent of the public officer provisions is that every company carrying on business in Australia, or deriving in Australia income from property, is required to appoint a public officer and this requirement applies whether the company is a resident or non-resident. All non-resident companies that are carrying on business or deriving income in Australia on an ongoing basis will be required to appoint a public officer. (b) Non-resident companies that are not carrying on business in Australia or deriving in Australia income from property, for a period of greater than 3 months. In this situation, there is no requirement to appoint a public officer. For example, a management company trading in Australia for less than 3 months while representing a non-resident entertainer or sportsperson, is not required to appoint a public officer. (c) Non-resident companies that are not carrying on business in Australia, or deriving in Australia income from property, but still need to interact with the Australian tax system (for example, GST only registrants). Where a company is required to be registered for indirect taxes but is not required to appoint a public officer under the ITAA 1936, it is not required to appoint a public officer. However, any notice or process that is to be given or served on the company for the purposes of an indirect tax law may be given to or served on an individual who is acting or appears to be acting in the business of the company. [70] | Notification of the appointment of a public officer at registration: 155. If a company applies for registration before it has been carrying on business in Australia or deriving in Australia income from property for 3 months, it is not required to appoint a public officer in order to complete registration. However, before expiration of the 3-month period, the company must nominate the appointment of the public officer in writing. 156. Although we are obliged to allow all companies or trust estates the flexibility to not appoint a public officer on registering during their first 3 months of operation, for administrative convenience, it is desirable for companies or trust estates to appoint a public officer at the time of registration. We will continue to encourage appointments of public officers at that time.",MT 2006/1 | GSTD 2006/6 | GSTR 2003/13 | PS LA 2004/11 | PS LA 2005/19 | PS LA 2011/9 | ANTS(ABN)A 1999 8(1) | ANTS(ABN)A 1999 8(1)(b) | ANTS(ABN)A 1999 41 | ANTS(ABN)R 2020 6 | ANTS(GST)A 1999 9-5 | ANTS(GST)A 1999 9-20 | ANTS(GST)A 1999 11-5 | ANTS(GST)A 1999 11-15 | ANTS(GST)A 1999 11-20 | ANTS(GST)A 1999 13-5 | ANTS(GST)A 1999 15-5 | ANTS(GST)A 1999 15-10 | ANTS(GST)A 1999 15-15 | ANTS(GST)A 1999 23-5 | ANTS(GST)A 1999 23-10 | ANTS(GST)A 1999 23-15 | ANTS(GST)A 1999 25-1 | ANTS(GST)A 1999 25-5(1) | ANTS(GST)A 1999 25-5(2) | ANTS(GST)A 1999 25-5(3) | ANTS(GST)A 1999 25-10 | ANTS(GST)A 1999 25-10(1)(c) | ANTS(GST)A 1999 25-10(1A) | ANTS(GST)A 1999 25-10(2) | ANTS(GST)A 1999 25-50 | ANTS(GST)A 1999 25-55 | ANTS(GST)A 1999 25-55(2) | ANTS(GST)A 1999 25-55(3) | ANTS(GST)A 1999 25-57 | ANTS(GST)A 1999 25-57(3) | ANTS(GST)A 1999 25-60(1) | ANTS(GST)A 1999 27-39 | ANTS(GST)A 1999 48-5 | ANTS(GST)A 1999 48-5(4) | ANTS(GST)A 1999 48-60 | ANTS(GST)A 1999 48-70 | ANTS(GST)A 1999 48-70(4) | ANTS(GST)A 1999 48-71 | ANTS(GST)A 1999 48-73 | ANTS(GST)A 1999 48-73(1B) | ANTS(GST)A 1999 48-75 | ANTS(GST)A 1999 51-5 | ANTS(GST)A 1999 51-5(1)(ea) | ANTS(GST)A 1999 51-10 | ANTS(GST)A 1999 51-70(1)(c) | ANTS(GST)A 1999 54-5 | ANTS(GST)A 1999 54-5(3) | ANTS(GST)A 1999 54-40 | ANTS(GST)A 1999 54-70(1) | ANTS(GST)A 1999 54-70(2) | ANTS(GST)A 1999 54-75 | ANTS(GST)A 1999 54-75(2) | ANTS(GST)A 1999 54-80 | ANTS(GST)A 1999 54-90 | ANTS(GST)A 1999 57-20(1) | ANTS(GST)A 1999 58-20 | ANTS(GST)A 1999 58-25 | ANTS(GST)A 1999 58-30 | ANTS(GST)A 1999 58-35 | ANTS(GST)A 1999 63-5 | ANTS(GST)A 1999 63-20 | ANTS(GST)A 1999 63-25 | ANTS(GST)A 1999 78-50 | ANTS(GST)A 1999 84-5 | ANTS(GST)A 1999 105-5 | ANTS(GST)A 1999 114-5 | ANTS(GST)A 1999 144-5 | ANTS(GST)A 1999 149-5 | ANTS(GST)A 1999 149-10 | ANTS(GST)A 1999 184-1 | ANTS(GST)A 1999 188-10(1) | ANTS(GST)A 1999 188-10(2) | ANTS(GST)A 1999 195-1 | ANTS(GST)R 2019 23-15.01 | ANTS(GST)R 2019 23-15.02 | Bankruptcy Act 1966 | Corporations Act 2001 9 | Corporations Act 2001 Pt 5.3A Div 2 | Crimes Act 1914 4AA | Higher Education Funding Act 1988 44 | Higher Education Funding Act 1988 48 | ITAA 1936 6(1) | ITAA 1936 Pt VA Div 2 | ITAA 1936 202A | ITAA 1936 202B(2) | ITAA 1936 202BA(2) | ITAA 1936 202BA(3) | ITAA 1936 202BA(4) | ITAA 1936 202BD | ITAA 1936 202C(2) | ITAA 1936 202CD | ITAA 1936 252 | ITAA 1936 252(1) | ITAA 1936 252(1)(a) | ITAA 1936 252(1)(c) | ITAA 1936 252A | ITAA 1936 252A(3) | ITAA 1997 995-1 | Privacy Act 1988 | Privacy (Tax File Number) Rule 2015 | TAA 1953 8WA | TAA 1953 8WB | TAA 1953 Sch 1 110-50 | TAA 1953 Sch 1 260-45(2) | TAA 1953 Sch 1 260-75(2) | TAA 1953 Sch 1 288-40 | TAA 1953 Sch 1 355-25(2)(g) | TAA 1953 Sch 1 388-50 | TAA 1953 Sch 1 388-60 | TAA 1953 Sch 1 444-10 | TAA 1953 Sch 1 444-10(5) | 175 CLR 218 | 106 ALR 385,PS LA 2004/11 PS LA 2005/19 PS LA 2011/9,ANTS(ABN)A 1999 8(1) | ANTS(ABN)A 1999 8(1)(b) | ANTS(ABN)A 1999 41 | ANTS(ABN)R 2020 6 | ANTS(GST)A 1999 9-5 | ANTS(GST)A 1999 9-20 | ANTS(GST)A 1999 11-5 | ANTS(GST)A 1999 11-15 | ANTS(GST)A 1999 11-20 | ANTS(GST)A 1999 13-5 | ANTS(GST)A 1999 15-5 | ANTS(GST)A 1999 15-10 | ANTS(GST)A 1999 15-15 | ANTS(GST)A 1999 23-5 | ANTS(GST)A 1999 23-10 | ANTS(GST)A 1999 23-15 | ANTS(GST)A 1999 25-1 | ANTS(GST)A 1999 25-5(1) | ANTS(GST)A 1999 25-5(2) | ANTS(GST)A 1999 25-5(3) | ANTS(GST)A 1999 25-10 | ANTS(GST)A 1999 25-10(1)(c) | ANTS(GST)A 1999 25-10(1A) | ANTS(GST)A 1999 25-10(2) | ANTS(GST)A 1999 25-50 | ANTS(GST)A 1999 25-55 | ANTS(GST)A 1999 25-55(2) | ANTS(GST)A 1999 25-55(3) | ANTS(GST)A 1999 25-57 | ANTS(GST)A 1999 25-57(3) | ANTS(GST)A 1999 25-60(1) | ANTS(GST)A 1999 27-39 | ANTS(GST)A 1999 48-5 | ANTS(GST)A 1999 48-5(4) | ANTS(GST)A 1999 48-60 | ANTS(GST)A 1999 48-70 | ANTS(GST)A 1999 48-70(4) | ANTS(GST)A 1999 48-71 | ANTS(GST)A 1999 48-73 | ANTS(GST)A 1999 48-73(1B) | ANTS(GST)A 1999 48-75 | ANTS(GST)A 1999 51-5 | ANTS(GST)A 1999 51-5(1)(ea) | ANTS(GST)A 1999 51-10 | ANTS(GST)A 1999 51-70(1)(c) | ANTS(GST)A 1999 54-5 | ANTS(GST)A 1999 54-5(3) | ANTS(GST)A 1999 54-40 | ANTS(GST)A 1999 54-70(1) | ANTS(GST)A 1999 54-70(2) | ANTS(GST)A 1999 54-75 | ANTS(GST)A 1999 54-75(2) | ANTS(GST)A 1999 54-80 | ANTS(GST)A 1999 54-90 | ANTS(GST)A 1999 57-20(1) | ANTS(GST)A 1999 58-20 | ANTS(GST)A 1999 58-25 | ANTS(GST)A 1999 58-30 | ANTS(GST)A 1999 58-35 | ANTS(GST)A 1999 63-5 | ANTS(GST)A 1999 63-20 | ANTS(GST)A 1999 63-25 | ANTS(GST)A 1999 78-50 | ANTS(GST)A 1999 84-5 | ANTS(GST)A 1999 105-5 | ANTS(GST)A 1999 114-5 | ANTS(GST)A 1999 144-5 | ANTS(GST)A 1999 149-5 | ANTS(GST)A 1999 149-10 | ANTS(GST)A 1999 184-1 | ANTS(GST)A 1999 188-10(1) | ANTS(GST)A 1999 188-10(2) | ANTS(GST)A 1999 195-1 | ANTS(GST)R 2019 23-15.01 | ANTS(GST)R 2019 23-15.02 | Bankruptcy Act 1966 | Corporations Act 2001 9 | Corporations Act 2001 Pt 5.3A Div 2 | Crimes Act 1914 4AA | Higher Education Funding Act 1988 44 | Higher Education Funding Act 1988 48 | ITAA 1936 6(1) | ITAA 1936 Pt VA Div 2 | ITAA 1936 202A | ITAA 1936 202B(2) | ITAA 1936 202BA(2) | ITAA 1936 202BA(3) | ITAA 1936 202BA(4) | ITAA 1936 202BD | ITAA 1936 202C(2) | ITAA 1936 202CD | ITAA 1936 252 | ITAA 1936 252(1) | ITAA 1936 252(1)(a) | ITAA 1936 252(1)(c) | ITAA 1936 252A | ITAA 1936 252A(3) | ITAA 1997 995-1 | Privacy Act 1988 | Privacy (Tax File Number) Rule 2015 | TAA 1953 8WA | TAA 1953 8WB | TAA 1953 Sch 1 110-50 | TAA 1953 Sch 1 260-45(2) | TAA 1953 Sch 1 260-75(2) | TAA 1953 Sch 1 288-40 | TAA 1953 Sch 1 355-25(2)(g) | TAA 1953 Sch 1 388-50 | TAA 1953 Sch 1 388-60 | TAA 1953 Sch 1 444-10 | TAA 1953 Sch 1 444-10(5) | Parliamentary Service Act 1999 | Public Service Act 1999,,Aboriginal and Torres Strait Islander people - TFN application Apply for a TFN Chief Executive Instruction Identity management (link available internally only) Penalties Permanent migrants and temporary visitors - TFN application TFN application or enquiry for individuals - instructions TFN declaration – approved electronic payee to payer process,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20118/NAT/ATO/00001,"APPENDIX – Public officers | Definition of 'Australia' added. | Updated in line with current ATO style and accessibility requirements. | Policy revised to implement the Attorney General's Department recommendations regarding the process for changing a person's sex/gender code. | Additional information including – compromised TFNs; restructure of government entity; change of sex code; minors making decisions/signing forms; recording names on the client register; public officers. | Words 'are not met' added to first sentence. | [1] Subsection 202BA(4) of the ITAA 1936. | [2] Subsection 202B(2) of the ITAA 1936. | [3] Subsections 202BA(2) and (3) of the ITAA 1936. | [4] Subsection 202C(2) of the ITAA 1936. | [5] Section 202CD of the ITAA 1936. | [6] Section 388-60 of Schedule 1 to the TAA. | [7] Sections 23-5 and 23-15. Also see the exceptions to this rule requiring certain types of entities to register for GST even though they do not meet these criteria, as discussed at paragraphs 63 to 67 of this Practice Statement. | [10] Section 23-10. Also note the special rules which permit government entities and some kinds of non-profit sub-entities to register for GST even if they do not meet the criteria in section 23-10, as discussed in paragraphs 63 to 67 of this Practice Statement. | [12] See definition of 'carrying on' in section 195-1. | [14] Paragraph 25-10(1)(c). | [16] Subsection 25-10(2). | [18] See Law Administration Practice Statement PS LA 2004/11 Treating a document as a tax invoice or adjustment note for further information. | [19] Subsection 25-10(1A), unless we are of the opinion there has been fraud or evasion. | [20] Compare section 23-5 with subsection 8(1) of the ABN Act. However, paragraph 8(1)(b) of the ABN Act also permits an entity to have an ABN if it carries on an enterprise other than in Australia and in the course or furtherance of that enterprise, makes supplies that are connected with Australia. | [27] Subsection 57-20(1). | [31] Subsections 48-5(4) and 48-70(4) and section 48-71. | [35] Section 110-50 of Schedule 1 to the TAA. | [37] Section 288-40 of Schedule 1 to the TAA. (The value of a penalty unit is contained in section 4AA of the Crimes Act 1914 and is indexed regularly. The dollar amount of a penalty unit is available at Penalties .) | [40] Subsection 25-55(2). | [41] Subsections 25-55(3) and 25-57(3). | [42] Subsection 25-60(1). | [43] See section 110-50 of Schedule 1 to the TAA. | [47] Subsection 48-73(1B). | [49] Subsection 54-70(1). | [50] Subsection 54-70(2). | [51] Subsection 54-75(2). | [54] Section 110-50 of Schedule 1 to the TAA. | [59] Subsection 260-45(2) of Schedule 1 to the TAA. | [60] Subsection 260-75(2) of Schedule 1 to the TAA. | [61] Gillick v West Norfolk and Wisbech Area Health Authority [1986] AC 112; Secretary, Department of Health & Community Services v B [1992] HCA 15. | [62] See section 444-10 of Schedule 1 to the TAA and the definition of 'indirect tax law' in section 995-1 of the ITAA 1997. | [63] Subsection 252(1) of the ITAA 1936. | [64] Paragraphs 252(1)(a) and (c) of the ITAA 1936. | [65] See section 252A of the ITAA 1936. | [66] Subsection 252(1) of the ITAA 1936. | [67] Subsection 252A(3) of the ITAA 1936. | [68] Section 6 of the A New Tax System ( Australian Business Number) Regulations 2020 . | [69] Subsection 444-10(5) of Schedule 1 to the TAA. | [70] Subsection 444-10(5) of Schedule 1 to the TAA. | ATO references: NO 1-4BTR9C5; 1-5XM5L60; 1-13NKCH8S; 1-1A9063LN | Gillick v West Norfolk and Wisbech Area Health Authority [1986] AC 112 [1985] 3 WLR 830 [1985] 3 All ER 402 | Secretary, Department of Health & Community Services v B [1992] HCA 15 175 CLR 218 66 ALJR 300 106 ALR 385 15 Fam LR 392 [1992] FLC 92-293"
PS LA 2011/9,Registration of entities in the Australian Business Register,14 April 2011,14 April 2011,Law Administration Practice Statement,False,"What this Practice Statement is about: 1. This Practice Statement outlines the Registrar's policy on the registration of entities in the Australian Business Register (ABR). 2. The Registrar registers an entity [1] in the ABR in order to allocate a single unique identifier, the Australian business number (ABN), so that an entity can easily and reliably identify itself in the following circumstances [2] : • to other businesses • to all levels of Australian government • for any Commonwealth purpose. • to other businesses • to all levels of Australian government • for any Commonwealth purpose. 3. All legislative references in this Practice Statement are to the A New Tax System (Australian Business Number) Act 1999 (ABN Act), unless otherwise indicated. | The Registrar of the ABR: 4. The Commissioner of the Australian Taxation Office (ATO) is the Registrar of the ABR. [3] 5. The Registrar has the general power of administration [4] of the ABN Act. | How an entity is registered in the ABR: 6. We must register [5] an entity in the ABR where the following conditions are met: • the entity applies in the approved form [6] • we are satisfied that the entity is entitled to an ABN, or is likely to be entitled by the date specified in the application • we are satisfied that the entity's identity and the identity of any of its associates has been established • the entity is not already registered in the ABR. • the entity applies in the approved form [6] • we are satisfied that the entity is entitled to an ABN, or is likely to be entitled by the date specified in the application • we are satisfied that the entity's identity and the identity of any of its associates has been established • the entity is not already registered in the ABR. 7. We register an entity in the ABR by allocating an ABN to the entity and by entering certain details about the entity in the ABR. [7] | Who is entitled to an ABN: 8. To be entitled to an ABN [8] , an entity: • must be carrying on an enterprise in Australia, or • in the course of carrying on an enterprise, make supplies connected with the indirect tax zone [9] , or • must be a body registered as a company under the Corporations Act 2001, but • cannot be a limited registration entity for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 [10] (GST Act). • must be carrying on an enterprise in Australia, or • in the course of carrying on an enterprise, make supplies connected with the indirect tax zone [9] , or • must be a body registered as a company under the Corporations Act 2001, but • cannot be a limited registration entity for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 [10] (GST Act). | Whether unlawful activities can be an enterprise: 9. We cannot refuse or cancel a registration where the entity is conducting an enterprise in contravention of another law. This is because the definition of enterprise does not exclude unlawful activities. | Consequences of not registering in the ABR: 10. An ABN is not compulsory and we cannot compel an entity to register in the ABR. However, there may be consequences of not having an ABN, such as payments to the entity being subject to 'no ABN withholding' tax under the pay as you go system. [11] | Who can make an application for registration in the ABR?: 11. An entity or their agent can apply for an entity to be registered in the ABR. [12] 12. An agent can either be a registered tax agent [13] or any other person authorised by the entity to act on its behalf. | Whether a minor can make an application for registration: 13. In the absence of evidence or facts to the contrary, we accept that a minor (aged 14 years or over) has the capacity to make decisions in relation to making an application to be registered in the ABR. Where the person is less than 14 years old, their parent or guardian must sign an approved application form on their behalf. | Substantial completion of an approved form: 14. We will accept an application that is substantially complete [14] if satisfied from the information supplied that the entity is entitled to be registered in the ABR. | Information not provided in the application: 15. Where an entity does not provide all necessary information, we will: • stop the entity proceeding any further in the online application process • refuse the application, or • request further information or documents within a designated timeframe. • stop the entity proceeding any further in the online application process • refuse the application, or • request further information or documents within a designated timeframe. | Information provided but not accepted by us: 16. The application will be refused where an entity has provided information and documents, but we are still not satisfied that [15] : • the information is true and correct • the identity of the entity and its associates has been established, or • the entity is entitled to an ABN. • the information is true and correct • the identity of the entity and its associates has been established, or • the entity is entitled to an ABN. | How an entity establishes its identity: 17. We may request an entity to provide specific information or documents to establish the identity of the entity or its associates whose details are requested in the approved application form. [16] 18. The application form requests but does not compel the applicant to provide the tax file number (TFN) of the entity and the TFN of any of its associates. [17] This information is used to verify the identity of the entity and any of its associates. This occurs by matching the TFN and other personal details supplied in the application form against information held in the ATO Client Register. 19. Where an applicant does not provide the TFN of the entity and any of its associates, we will request other details such as the name, date of birth and residential address of the associates. This information will be used to locate a TFN in the ATO Client Register. 20. Where a TFN is not supplied or details of the applicant cannot be matched against information held in the ATO Client Register, the Registrar will refuse the application (see paragraphs 29 to 32 of this Practice Statement). | Existence of an entity: 21. An entity is not entitled to have an ABN for a period prior to coming into existence. 22. For example, a company commences to exist when it is registered with the Australian Securities and Investment Commission under the Corporations Act 2001 and allocated an Australian company number. [18] | Date of effect of a registration in the ABR: 23. We set the date of effect of registration. [19] It may be a date that is: • specified by the entity • determined by us. • specified by the entity • determined by us. 24. Depending upon the circumstances of the entity, the date of effect may be: • the date on the application • a date that pre-dates the application • a future date (not more than 6 months in the future). • the date on the application • a date that pre-dates the application • a future date (not more than 6 months in the future). | Factors we take into account when setting the date of effect: 25. When setting the date from which an entity is registered in the ABR, we must consider the following factors: • the date the entity came into existence • whether the entity is entitled to an ABN • the reasons why an entity may be requesting a date of effect that is prior to the date of its application for registration in the ABR • where an entity is requesting a future date for the date of effect of its registration, whether the entity would likely to be entitled to an ABN by that date • the date the ABN Act came into force. [20] • the date the entity came into existence • whether the entity is entitled to an ABN • the reasons why an entity may be requesting a date of effect that is prior to the date of its application for registration in the ABR • where an entity is requesting a future date for the date of effect of its registration, whether the entity would likely to be entitled to an ABN by that date • the date the ABN Act came into force. [20] | Review rights about the date of effect: 26. If an entity does not agree with the date of effect of its registration, it can lodge an objection against that decision. [21] | Written notice of registration: 27. We must give the entity a written notice [22] that contains: • the fact the entity has been registered • the ABN of the entity • the date of effect of the registration • any other details entered in the ABR in relation to the entity. • the fact the entity has been registered • the ABN of the entity • the date of effect of the registration • any other details entered in the ABR in relation to the entity. 28. We must send the written notice as soon as is practicable after registering an entity in the ABR. | Circumstances where we will refuse an application for registration in the ABR: 29. We will refuse an application for registration where: • the application is not in the approved form • we are not satisfied that the entity is entitled to an ABN or likely to be entitled by the date specified in the application • we are not satisfied as to the identity of the entity or its associates • the entity is already registered in the ABR. • the application is not in the approved form • we are not satisfied that the entity is entitled to an ABN or likely to be entitled by the date specified in the application • we are not satisfied as to the identity of the entity or its associates • the entity is already registered in the ABR. | When we refuse an application for registration: 30. When we refuse an application for registration, the entity is not: • issued with an ABN • registered in the ABR. • issued with an ABN • registered in the ABR. 31. We must give the entity written notice as soon as practicable after we have refused the application. It must contain the reason for the refusal and the entity's review and objection rights. [23] | Review rights about refusals: 32. If an entity does not agree with the refusal decision, it can lodge an objection against that decision. [24] | If we do not make a decision about an application within 28 days: 33. Where we have not made a decision about an entity's application for registration within 28 days of the application being made, the entity may give us written notice that it wishes to treat the application as if it has been refused. [25] The application is taken to have been refused by us on the day that the applicant gives notice to us. [26] 34. This allows the entity to object to the refusal decision. 35. If we request further information or documents, the 28-day period does not include the period commencing on the day of the request and concluding on the day that the entity gives the information or documents to us. [27] | Whether an entity with a cancelled ABN can reapply to be registered in the ABR: 36. Where we cancel an entity's registration in the ABR, the entity ceases to have an active ABN. The record remains in the ABR and displays the date of effect of the ABN cancellation. 37. In the future the entity may wish to reapply for their ABN. To do so, it needs to: • make sure that it is the same legal entity and not a restructured entity • lodge a new application to be registered in the ABR • establish their identity and that of their associates • establish their entitlement to an ABN. • make sure that it is the same legal entity and not a restructured entity • lodge a new application to be registered in the ABR • establish their identity and that of their associates • establish their entitlement to an ABN. 38. Once we are satisfied the entity can be registered in the ABR, the previously allocated ABN will be activated with a new date of effect. We will give the entity a written notice of its registration in the ABR (see paragraphs 27 to 28 of this Practice Statement). | Address for service of notices: 39. An entity must give us an address for service of notices. [28] The address must be one of the following: • physical address • postal address • electronic address. • physical address • postal address • electronic address. 40. We may give a written notice to a registered entity at the address for service of notices held in the ABR. [29] This may be done by: • delivering it to the person personally • leaving it at the address for service • sending it to the address for service via pre-paid post • sending it to the electronic address. • delivering it to the person personally • leaving it at the address for service • sending it to the address for service via pre-paid post • sending it to the electronic address. 41. A notice that has been posted will be deemed to have been served on the entity at the time that it would be delivered in the ordinary course of the post (unless proven otherwise). [30] | Communicating electronically: 42. We are able to communicate electronically with an entity where the entity consents [31] to information being given to them electronically and the entity can subsequently retrieve the notice. [32] | An entity can only have one ABN: 43. Once an entity is registered in the ABR and allocated an ABN, it will use that same ABN for each enterprise [33] it carries on. It is the entity, not the individual enterprises, that is entitled to have an ABN. | Interaction between ABN and GST registration: 44. Where an entity applies for registration in the ABR and also applies to be registered for goods and services tax (GST), the ABN that is issued is also the GST registration number. 45. An entity does not have to have an ABN to obtain a GST registration. Where an entity only has a GST registration, the Registrar must record the date of effect of the GST registration and the date of effect of the GST cancellation in the ABR. | More information: 46. For more information, refer to: • Law Administration Practice Statement PS LA 2016/3 The cancellation of registrations in the Australian Business Register • Law Administration Practice Statement PS LA 2016/4 Maintaining the Australian Business Register • Law Administration Practice Statement PS LA 2016/5 The disclosure of information held in the Australian Business Register • Miscellaneous Tax Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number • Proving your identity . • Law Administration Practice Statement PS LA 2016/3 The cancellation of registrations in the Australian Business Register • Law Administration Practice Statement PS LA 2016/4 Maintaining the Australian Business Register • Law Administration Practice Statement PS LA 2016/5 The disclosure of information held in the Australian Business Register • Miscellaneous Tax Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number • Proving your identity .",PS LA 2016/3 | PS LA 2016/4 | PS LA 2016/5 | MT 2006/1 | PS LA 2005/9 | ANTS(ABN)A 1999 3 | ANTS(ABN)A 1999 8 | ANTS(ABN)A 1999 9(1) | ANTS(ABN)A 1999 9(2) | ANTS(ABN)A 1999 9(3) | ANTS(ABN)A 1999 10 | ANTS(ABN)A 1999 10(2) | ANTS(ABN)A 1999 11(1) | ANTS(ABN)A 1999 11(2) | ANTS(ABN)A 1999 12 | ANTS(ABN)A 1999 13(1) | ANTS(ABN)A 1999 13(2) | ANTS(ABN)A 1999 13(3) | ANTS(ABN)A 1999 13(4) | ANTS(ABN)A 1999 21(2) | ANTS(ABN)A 1999 25(2)(a) | ANTS(ABN)A 1999 28(2) | ANTS(ABN)A 1999 28(3) | ANTS(ABN)A 1999 41 | ANTS(GST)A 1999 9-20 | ANTS(GST)A 1999 Div 146 | ANTS(GST)A 1999 184-1 | TAA 1953 Pt IVC | TAA 1953 Sch 1 12-190(1) | TAA 1953 Sch 1 12-190(2) | TAA 1953 Sch 1 12-190(3) | TAA 1953 Sch 1 12-190(4) | TAA 1953 Sch 1 12-190(5) | TAA 1953 Sch 1 12-190(6) | Acts Interpretation Act 1901 25C | Acts Interpretation Act 1901 29(1) | Corporations Act 2001 118,PS LA 2005/9 PS LA 2016/3 PS LA 2016/4 PS LA 2016/5,ANTS(ABN)A 1999 3 | ANTS(ABN)A 1999 8 | ANTS(ABN)A 1999 9(1) | ANTS(ABN)A 1999 9(2) | ANTS(ABN)A 1999 9(3) | ANTS(ABN)A 1999 10 | ANTS(ABN)A 1999 10(2) | ANTS(ABN)A 1999 11(1) | ANTS(ABN)A 1999 11(2) | ANTS(ABN)A 1999 12 | ANTS(ABN)A 1999 13(1) | ANTS(ABN)A 1999 13(2) | ANTS(ABN)A 1999 13(3) | ANTS(ABN)A 1999 13(4) | ANTS(ABN)A 1999 21(2) | ANTS(ABN)A 1999 25(2)(a) | ANTS(ABN)A 1999 28(2) | ANTS(ABN)A 1999 28(3) | ANTS(ABN)A 1999 41 | ANTS(GST)A 1999 9-20 | ANTS(GST)A 1999 Div 146 | ANTS(GST)A 1999 184-1 | TAA 1953 Pt IVC | TAA 1953 Sch 1 12-190(1) | TAA 1953 Sch 1 12-190(2) | TAA 1953 Sch 1 12-190(3) | TAA 1953 Sch 1 12-190(4) | TAA 1953 Sch 1 12-190(5) | TAA 1953 Sch 1 12-190(6) | Acts Interpretation Act 1901 25C | Acts Interpretation Act 1901 29(1) | Corporations Act 2001 118 | Electronic Transactions Act 1999 9(1)(a) | Electronic Transactions Act 1999 9(1)(d),,,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20119/NAT/ATO/00001,"Our general policy about applications | Our general policy about identity | Our general policy about the date of effect of a registration in the ABR | Our general policy about refusing applications for registration in the ABR | Updated to align with amended Practice Statement style and formatting requirements. | Minor content changes made to references and footnotes. Hyperlinks updated. | Minor content changes made for clarity and style. | General restructure of content. Added new paragraph about entitlement to an ABN. | Paragraph 6, Footnote 18, 19 and references | Update to reflect amendment to section 9 A New Tax System (Goods and Services Tax) Act 1999. Inserted LAPS references. | Updated to new LAPS format and style. | General restructure of content. Additional information including: service of notices by email; address for service of notices; acceptance/refusal of application; power to change ABN; descriptors for entity names; entity update to Registrar; de-registered companies; suppression of ABR information; disclosure of ABR information; visa holders; provision of TFNs; approved form declarations; future dated registrations; registration date of effect; establishment and maintenance of ABR; information sourced from third parties; updating ABR with tax information; secrecy provisions. | [1] The term 'entity' is defined in section 41 to have the meaning given by section 184-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). For further information about entities, refer to Miscellaneous Tax Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number . | [2] Section 3 sets out the objects of the ABN Act. | [6] Subsection 9(2). Further information on approved forms is set out in Law Administration Practice Statement PS LA 2005/19 Approved forms . | [8] Section 8 sets out when an entity is entitled to an ABN. For further information in determining an entity's entitlement to an ABN, refer to MT 2006/1. | [9] The indirect tax zone means the geographical part of Australia in which the goods and services tax (GST), the wine equalisation tax and the luxury car tax operate. This excludes all the external territories and certain offshore installations. | [10] Division 146 of the GST Act. | [11] Subsection 12-190(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA) sets out the requirements for the 'no ABN withholding' provision to apply. If these requirements are satisfied, the provision will require a withholding unless one of the exceptions listed in subsections 12-190(2) to (6) of that Act is satisfied. | [13] A registered tax agent is someone who is registered with the Tax Practitioners Board to provide tax agent, business activity statement or tax (financial) advice services for a fee or other reward. | [14] Section 25C of the Acts Interpretation Act 1901 sets out that substantial compliance with a form is sufficient, unless it is specified that strict compliance with the form is required. | [15] See paragraphs 29 to 32 of this Practice Statement. | [18] Section 118 of the Corporations Act 2001 . | [20] While the ABN Act was enacted from 8 July 1999, the ABR system will not allow a date of effect prior to 1 July 2000. Therefore, a date of effect of a registration in the ABR cannot predate this date even if the entity may have existed prior to that date. | [21] A decision setting the date of effect of an ABN registration is a 'reviewable ABN decision' under table item 1 of subsection 21(2). This means an entity may object under Part IVC of the TAA if they disagree with it, which applies in relation to a reviewable ABN decision as if references in that Part to the 'Commissioner of Taxation' were references to the Registrar. | [22] A written notice includes correspondence provided electronically. | [24] An entity may object, in the manner set out in Part IVC of the TAA, against a decision it is dissatisfied with that is a reviewable ABN decision, including a decision to refuse to register the entity or its representative as described in table item 2 in subsection 21(2). | [30] Section 29 of the Acts Interpretation Act 1901 . | [31] When dealing electronically, we must comply with the requirements of the Electronic Transactions Act 1999 . Paragraph 9(1)(d) of that Act provides that a person to whom information is required to be given under a law of the Commonwealth must consent to the information being given by way of electronic communication. Consent can be express or inferred. Express consent is where the entity has given consent to us to allow information to be sent to it by way of electronic communications – for example, completing the approved form to indicate that their email address is an address for service of notice and correspondence. Inferred consent can come about through an existing relationship – for example, where the entity already interacts with us electronically, consent may be inferred. | [32] Paragraph 9(1)(a) of the Electronic Transactions Act 1999 provides that where information is given by means of electronic communication, it is reasonable to expect that the information is readily accessible so as to be useable for subsequent reference. | [33] The term 'enterprise' is defined in section 41 to have the meaning given by section 9-20 of the GST Act. For further information about enterprise, refer to MT 2006/1."
PS LA 2011/10,"SUBJECT: Waiver of tax-related liabilities in proceeds of crime matters PURPOSE: This Practice Statement provides guidelines for the exercise of the Commissioner's power to waive the Commonwealth's right to payment of certain tax-related liabilities, in appropriate cases, in order to facilitate proceedings under the Proceeds of Crime Act 2002",14 April 2011,14 April 2011,Law Administration Practice Statement,False,"1. The Proceeds of Crime Act 2002 (POCA) provides a comprehensive scheme to trace, investigate, restrain and confiscate the proceeds, instruments and benefits of crime (including value-based confiscation via pecuniary penalties, unexplained wealth and literary proceed orders). The POCA primarily applies in relation to Commonwealth offences but has scope to apply to State and Territory offences and foreign indictable offences in some circumstances. 2. The POCA provides 2 streams for the confiscation of illicit wealth and instruments of crime: • conviction-based confiscation, upon conviction of an offence, and • non-conviction-based confiscation, which enables restraint and confiscation without the necessity of securing a criminal conviction. • conviction-based confiscation, upon conviction of an offence, and • non-conviction-based confiscation, which enables restraint and confiscation without the necessity of securing a criminal conviction. 3. The standard of proof required for non-conviction-based confiscation is the standard in civil proceedings ('on the balance of probabilities'). While this is a lower standard of proof than that of conviction-based confiscation ('beyond reasonable doubt'), it still requires a sufficiently high standard of admissible evidence to satisfy the court that an offence has been committed. 4. The principal objects of the POCA include: • depriving persons of the proceeds, instruments and benefits of crime (including literary proceeds and unexplained wealth amounts) • punishing and deterring persons from breaching the laws of the Commonwealth • preventing the reinvestment of proceeds, instruments and benefits of crime in further criminal activities • undermining the profitability of criminal enterprises, and • giving effect to Australia's obligations under various international agreements relating to proceeds of crime, money-laundering and other serious criminal offences. • depriving persons of the proceeds, instruments and benefits of crime (including literary proceeds and unexplained wealth amounts) • punishing and deterring persons from breaching the laws of the Commonwealth • preventing the reinvestment of proceeds, instruments and benefits of crime in further criminal activities • undermining the profitability of criminal enterprises, and • giving effect to Australia's obligations under various international agreements relating to proceeds of crime, money-laundering and other serious criminal offences. 5. All legislative references in this Practice Statement are to Schedule 1 to the Taxation Administration Act 1953 , unless otherwise indicated. 6. The following terms are used in this Practice Statement. Table 1: Terms used in this Practice Statement Term Description AFP Australian Federal Police AFP Commissioner Commissioner of the AFP assets levied in execution assets seized by a sheriff or bailiff under a warrant of seizure and sale for the purpose of satisfying the claim of a judgment creditor Commissioner Commissioner of Taxation confiscation process by which property and benefits are seized from a person's possession or effective control and forfeited to the Commonwealth by way of court order or operation of statute, to give effect to the objectives of the POCA conviction-based confiscation confiscation of property predicated on its owner having been convicted of an indictable or serious offence Criminal Assets Confiscation Taskforce (CACT) Commonwealth multi-agency task force created to investigate, restrain and confiscate proceeds of crime We are a member of the CACT, which commenced operation as a permanent entity on 1 January 2012 and is led by the AFP. Since that date, the CACT has been responsible for the vast majority of Commonwealth-based proceeds of crime litigation, acting for the AFP Commissioner in their role as a proceeds of crime authority under the POCA. The Commonwealth Director of Public Prosecutions (CDPP) is also a proceeds of crime authority and retains a role in the confiscation of criminal assets. pecuniary penalty order an order of the court requiring the person against whom it is made to pay a specified amount to the Commonwealth in respect of benefits derived from the commission of offences restraining order in the context of this Practice Statement, an order of the court made under the POCA which prohibits or restricts the disposal of, or dealings with, the property that is subject to the order These orders are obtained in respect of passive assets. Where the property subject to the order comprises of ongoing business property, the court will appoint an Official Trustee to manage this property. waiver in the context of this Practice Statement, a release from a taxpayer's obligation to pay certain tax debts which we may grant to a taxpayer in order to facilitate a tax-related proceeding under the POCA The effect of a waiver is that the waived debt owed to the Commonwealth is extinguished so that the Commonwealth cannot pursue that debt at a later date. We are a member of the CACT, which commenced operation as a permanent entity on 1 January 2012 and is led by the AFP. Since that date, the CACT has been responsible for the vast majority of Commonwealth-based proceeds of crime litigation, acting for the AFP Commissioner in their role as a proceeds of crime authority under the POCA. The Commonwealth Director of Public Prosecutions (CDPP) is also a proceeds of crime authority and retains a role in the confiscation of criminal assets. These orders are obtained in respect of passive assets. Where the property subject to the order comprises of ongoing business property, the court will appoint an Official Trustee to manage this property. The effect of a waiver is that the waived debt owed to the Commonwealth is extinguished so that the Commonwealth cannot pursue that debt at a later date. | The Proceeds of Crime Act 2002 from a tax perspective: 7. The POCA is important in the tax context for a number of reasons. In some tax fraud cases, it has been more effective to pursue confiscation action under the POCA rather than under traditional ATO recovery processes. Examples of such cases include where: • offenders have concealed their assets by setting up artificial ownership by family members or controlled structures, such as companies or trusts, designed to defeat the operation of the tax laws • an offender has endeavoured to defeat tax laws using a bankruptcy or family law arrangement (action under the POCA takes priority over both bankruptcy and family law proceedings) • evidence relating to a tax fraud is located in an overseas jurisdiction or property required to satisfy a tax-related liability is located overseas (this is because, in some instances, countries more readily provide assistance in recovering proceeds of crime than for recovering tax-related liabilities). • offenders have concealed their assets by setting up artificial ownership by family members or controlled structures, such as companies or trusts, designed to defeat the operation of the tax laws • an offender has endeavoured to defeat tax laws using a bankruptcy or family law arrangement (action under the POCA takes priority over both bankruptcy and family law proceedings) • evidence relating to a tax fraud is located in an overseas jurisdiction or property required to satisfy a tax-related liability is located overseas (this is because, in some instances, countries more readily provide assistance in recovering proceeds of crime than for recovering tax-related liabilities). 8. The advantages of taking action under the POCA include the: • ability to target assets legally owned by a person, as well as assets which are subject to their 'effective control' (which is broadly defined and captures property regardless of whether or not the person has a legal or equitable estate or interest in the property, or a right, power or privilege in connection with the property [1] ) • power to conduct compulsory examinations of any person about the affairs of the suspected offender, their spouse or de facto partner, or any other person with an interest in the property (which may include company directors and trustees), in order to gather information for the investigation and proceedings under the POCA • ability to obtain restraining orders to preserve the targeted assets under the offender's effective control pending conclusion of proceedings under the POCA • ability to seek pecuniary penalty orders against a person, not only in respect of benefits received by or payable to that person individually, but also benefits received by other entities or persons as a result of the first person's conduct. • ability to target assets legally owned by a person, as well as assets which are subject to their 'effective control' (which is broadly defined and captures property regardless of whether or not the person has a legal or equitable estate or interest in the property, or a right, power or privilege in connection with the property [1] ) • power to conduct compulsory examinations of any person about the affairs of the suspected offender, their spouse or de facto partner, or any other person with an interest in the property (which may include company directors and trustees), in order to gather information for the investigation and proceedings under the POCA • ability to obtain restraining orders to preserve the targeted assets under the offender's effective control pending conclusion of proceedings under the POCA • ability to seek pecuniary penalty orders against a person, not only in respect of benefits received by or payable to that person individually, but also benefits received by other entities or persons as a result of the first person's conduct. 9. The POCA is also important in the tax context where criminal investigations under the POCA which do not start off as tax-related investigations end up having significant tax implications. For example, investigations into cash 'structuring' and other money-laundering arrangements by the AFP may uncover significant understatement of income to us. In such matters, the criminal investigation and associated proceedings under the POCA would generally have been commenced before we uncover any tax implications as a result of subsequent ATO investigative or audit action. 10. Given the importance of the POCA in the tax context, it is imperative that in all of the types of cases outlined in this Practice Statement, the POCA and the tax processes work together effectively and do not come into conflict. | Difficulties in facilitating matters under the Proceeds of Crime Act 2002: 11. The Commissioner's basic duty is to administer taxation laws. This duty includes assessing and collecting taxes and delivering entitlements arising under those laws. The general rule is that we do not forgo tax properly payable and will seek to collect the full amount of that tax unless there is a legislative basis for not doing so. 12. Accordingly, wherever possible, we will use the traditional debt recovery processes as the first option to enforce collection of tax-related liabilities and it is only where such avenues of collection are not available or feasible that cases are considered for referral to the CACT for action under the POCA. 13. Once action is commenced under the POCA, we have limited discretion under the law to refrain from either raising assessments or taking action to fully enforce a tax-related liability. 14. Historically, these limitations created difficulties for the CDPP in effectively managing and settling matters under the POCA prior to the formation of the CACT, especially where defendants sought assurances that they would be released from the balance of their remaining Commonwealth debt and would therefore avoid the double liability of both proceeds of crime and tax enforcement actions. As our legal obligations preclude us from giving such assurances, settlement discussions stalled and were compromised, in some instances, resulting in the CDPP having to seek alternative outcomes. 15. In October 2006, the Proceeds of Crime Regulations 2002 were amended to confer status on the ATO as an enforcement agency under the POCA. [2] The conferral of most of the POCA investigative powers on us means that we are obliged to give effect to the objects of the POCA, in addition to our obligations under the taxation laws. 16. To address the difficulties referred to in paragraphs 13 and 14 of this Practice Statement, Division 342 was inserted into Schedule 1 to the Taxation Administration Act 1953 . These provisions empower the Commissioner to exercise their discretion, in appropriate cases, to waive the right to payment of certain tax-related liabilities in order to facilitate the conduct of proceedings under the POCA. 17. Division 342 is not intended to act as a crediting provision to bring an amount of payment received under the POCA to the tax account, nor to alleviate the notion of double punishment. The object of the Division is to facilitate the starting, conduct and resolution of proceedings under the POCA, and thereby to achieve the objects of the POCA (see paragraph 4 of this Practice Statement) rather than the recovery of tax. 18. Therefore, it is open to us, in appropriate circumstances, to waive all or part of a tax-related liability if the waiver of that tax-related liability would facilitate the proceedings under the POCA. For example, we could waive an amount of a tax-related liability equal to the amount confiscated under the POCA. By way of contrast, in some circumstances it may be appropriate for us to waive an amount of a tax-related liability that exceeds the amount confiscated under the POCA action. 19. Division 342 applies to proceedings under the POCA that: • start, or propose to start, on or after the commencement of Division 342, or • started, and have not ended, before the commencement of Division 342. • start, or propose to start, on or after the commencement of Division 342, or • started, and have not ended, before the commencement of Division 342. 20. Division 342 applies whether the tax liability was incurred before, on or after the commencement of the Division. 21. The tax assessment process may be implemented at any time while a matter under the POCA is on foot. In some cases, tax assessments may be issued either prior to the instigation of the proceedings under the POCA or during the proceedings. In other cases, issue of the tax assessments may be deferred pending finalisation of the proceedings. 22. We may waive the right to payment only after the liability has arisen, but may do so whether or not the liability is due and payable. Consequently, this Practice Statement only applies to cases where the relevant tax-related liability has been raised. 23. Cases where the tax-related liabilities connected with the proceedings under the POCA have not been raised or are incapable of being raised are outside the scope of this Practice Statement. 24. As a general rule, once proceedings under the POCA have commenced and there is a corresponding tax-related liability (or other pecuniary liability to the Commonwealth that arises directly under a taxation law) on foot, we will take the appropriate steps to ensure that we undertake no action that may prejudice or impede the proceedings under the POCA. In this context, we may decide to: • defer the time for payment of the associated tax-related liability • agree to defer recovery of the associated tax-related liability • remit penalties or interest charges associated with the proceedings under the POCA • waive the tax-related liability. • defer the time for payment of the associated tax-related liability • agree to defer recovery of the associated tax-related liability • remit penalties or interest charges associated with the proceedings under the POCA • waive the tax-related liability. 25. Through the enactment of Division 342, the Commissioner has been provided with an express power to waive tax-related liabilities in order to facilitate proceedings under the POCA. This power, in combination with existing powers, allows us to manage situations where the Commissioner's obligations to enforce tax laws and facilitate proceedings under the POCA might otherwise come into conflict. 26. You must follow the principles and guidelines outlined in this Practice Statement when exercising the Commissioner's powers under Division 342. It is noted, however, that it is not possible to set out all the circumstances in which the powers may or may not be exercised. Each case has to be considered on its merits and on the basis of all the relevant facts. You must ensure that the pre-conditions prescribed for the exercise of the powers are met, take care not to consider irrelevant factors and exercise your own judgment in arriving at an appropriate decision. The decision should be made in good faith and without bias. Your decisions and actions must be consistent with the commitments we have made in Our Charter . You are also expected to follow Chief Executive Instruction Respecting taxpayers' rights of review (link available internally only). | Threshold conditions: 27. Division 342 makes clear that the Commissioner's power to waive a tax-related liability (or other pecuniary liability to the Commonwealth that arises directly under a taxation law) only arises where we are satisfied that 2 statutory prerequisites [3] exist: • the liability is connected with the circumstances associated with the proceedings under the POCA, and • waiving the liability will facilitate the starting, conduct or ending (by settlement or otherwise) of the proceedings. • the liability is connected with the circumstances associated with the proceedings under the POCA, and • waiving the liability will facilitate the starting, conduct or ending (by settlement or otherwise) of the proceedings. | Tax-related liability connected with proceedings under the Proceeds of Crime Act 2002: 28. The question of whether a tax-related liability is connected with the circumstances associated with proceedings under the POCA needs to be determined by considering all the facts and circumstances of each case. 29. Generally, a tax-related liability is connected with the circumstances associated with the proceedings under the POCA if the liability arose because of activities that could form the basis of proceedings under the POCA. For example, where proceedings under the POCA have been brought in respect of proceeds or benefits derived from alleged tax fraud, the conduct targeted in the proceedings is also likely to give rise to a relevant tax-related liability. Another example would be the earning of income from drug trafficking (which is assessable income but often will not be declared to us). 30. In some matters, the entity that has the tax-related liability may be different to the entity targeted in the proceedings under the POCA (for example, where a company has the tax-related liability but the proceedings under the POCA target a natural person, such as the director). This does not prevent the tax-related liability from being connected with the circumstances associated with the proceedings under the POCA if the underlying conduct is sufficiently connected. A typical example of this type of case is where an individual who conducts business through a corporate structure embarks on phoenix activities, leaving a series of insolvent corporate entities with tax-related liabilities that cannot be recovered. In these cases, the tax-related liabilities will be owed by the corporate entities whereas the proceedings under the POCA may target the individual. 31. Penalties and interest that arise in relation to a tax-related liability are also considered to be connected with the circumstances associated with the proceedings under the POCA. Consequently, the Commissioner may exercise the power to waive such penalties and interest. 32. In circumstances where part of the debt is clearly not connected to the proceedings under the POCA, the Commissioner cannot exercise the power to waive that portion of the tax-related liabilities and will be obliged to continue to pursue its recovery. 33. You should also consider any information supplied by other Commonwealth agencies, such as the AFP or the Australian Criminal Intelligence Commission (ACIC), when exercising this power. | Waiver must facilitate proceedings under the Proceeds of Crime Act 2002: 34. We must also be satisfied that waiving the tax-related liability will facilitate the starting, conduct or ending (by settlement or otherwise) of the proceedings under the POCA. It is clear from this wording that it is contemplated that an exercise of the waiver power may be considered and exercised prior to or during proceedings under the POCA. In particular, the power may be exercised in order to facilitate the resolution of such proceedings. 35. The question of whether waiver will facilitate proceedings under the POCA is one to be considered in light of all the facts and circumstances of each case. In the context of this Practice Statement, it is relevant to have regard to information about the proceedings under the POCA provided by other agencies involved in the proceedings. As a general rule, it is likely that where the conduct which gave rise to the tax-related liability corresponds or overlaps with the conduct being targeted in proceedings under the POCA, waiver may be of assistance in facilitating those proceedings. 36. When having regard to information about the proceedings under the POCA, it is important for us to consider whether the likelihood of a favourable outcome in the proceedings under the POCA sufficiently justifies the exercise of the waiver. This is important because if the proceedings under the POCA fail and we have exercised the waiver, the opportunity to address the taxpayer's conduct via traditional ATO recovery processes will have been lost. 37. It is important that any engagement between us and the relevant proceeds of crime authority (AFP Commissioner or CDPP) regarding potential exercise of the waiver power be undertaken sufficiently early to ensure that if we decide to waive the tax-related liability, it will have the intended effect of facilitating the starting, conduct or ending of the proceedings under the POCA. 38. In cases where we are the investigating agency, there may also be a need to communicate with other internal stakeholders who are involved in the conduct of the case. 39. Given that the power to waive a debt is specifically intended to facilitate the starting, conduct or ending of the proceedings under the POCA, it is relevant to take into account the extent to which the person subject to the proceedings under the POCA chooses to cooperate in the resolution of those proceedings and tax matters. For example, if that person fully contests the proceedings under the POCA, it may not be appropriate for us to waive the tax-related liability connected with the proceedings. 40. Taxpayers or defendants in proceedings under the POCA do not have standing to advise us on whether exercise of the waiver will facilitate the proceedings. The relevant proceeds of crime authority (AFP Commissioner or CDPP) may advise us of this and request the exercise of the waiver. We will then decide whether to exercise the Commissioner's discretion to waive the tax-related liability in accordance with the POCA. | Exercise of power: 41. If we are satisfied that the statutory prerequisites have been met, we must then consider the following 2 matters [4] in deciding whether to exercise the discretion to waive the tax-related liability in a particular case: • the amount the Commonwealth will forgo as a result of the waiver and the time the Commonwealth could reasonably be expected to receive that amount apart from the waiver • the amount the Commonwealth could reasonably be expected to receive as a result of the proceedings under the POCA and the time the Commonwealth could reasonably be expected to receive that amount. • the amount the Commonwealth will forgo as a result of the waiver and the time the Commonwealth could reasonably be expected to receive that amount apart from the waiver • the amount the Commonwealth could reasonably be expected to receive as a result of the proceedings under the POCA and the time the Commonwealth could reasonably be expected to receive that amount. | Amount forgone versus amount expected to be received: 42. We are obliged to compare the amount of the tax-related liability proposed to be waived and the amount reasonably expected to be confiscated as a result of the proceedings under the POCA. This requires a practical common sense weighing of all the facts of the case. For example, if the expected recovery under the POCA is only a small amount and the associated tax-related liability is very large, waiver of the full amount of the tax-related liability may not be appropriate. 43. The comparison between the amount forgone and the amount expected to be received needs to be carefully examined on a case-by-case basis without losing sight of the main objective of the law – to facilitate proceedings under the POCA. | Timing of recoveries: 44. In addition to amounts collected and forgone, we are required to have regard to the time when the Commonwealth could reasonably be expected to receive payment of a tax-related liability, compared to the time when the Commonwealth could reasonably be expected to receive an amount confiscated in a proceeding under the POCA. 45. In this context, it may be relevant to have regard to the extent to which our traditional civil and administrative recovery remedies have either been exhausted or were not available in the first place. 46. In many circumstances, proceedings under the POCA may represent a more timely recovery mechanism than traditional tax civil enforcement options. For example, where the Commissioner's statutory garnishee powers are not available as a timely tax recovery option. | Other relevant factors: 47. In deciding whether to exercise the discretion to waive a tax-related liability, we may take into account any other factor [5] which is relevant in a particular case. 48. One factor which may be relevant in many cases is our prospects of recovery of the liability in the absence of proceedings under the POCA. In many cases, our prospects of recovering a tax-related liability may be significantly lower than the prospects of recovery under the POCA. For example, it may be clear, given the taxpayer's financial circumstances and the value of the assets constituting the asset pool restrained by the CACT and offered towards a settlement, that there is no reasonable prospect of recovering the tax-related liability. As such, a full waiver of the tax-related liability may be appropriate. 49. Some other factors which may be relevant for us to consider include but are not limited to: • the CACT's assessment of the strength of the available evidence and the likelihood of success if the case under the POCA proceeds • the seriousness of the defendant's misconduct which gave rise to the alleged offence • the value of the property (including money and other assets) thought to have been derived by the person as a consequence of the activities that gave rise to the tax-related liabilities and the proceedings under the POCA • the total value of the assets potentially subject to confiscation action • the assets available to the person (including any assets outside Australia) • any amounts already paid by way of taxes, duties, excise or civil damages • the interests of third parties in the assets restrained • the likely cost to the Commonwealth (including legal costs and the commitment of staff and other resources) if the matter proceeds • the amount of any tax-related liability that is not connected to the proceedings under the POCA and the tax debtor's capacity and willingness to make provision for payment of those debts • any other individual circumstance or representation made by the tax debtor that may require special consideration (for example, grave illness) • the level of resources which have been invested by us, the AFP, the ACIC or other Commonwealth agencies in the proceedings under the POCA • the resources which would be required for us to commence and pursue traditional civil enforcement action and the relative prospects of success of such action. • the CACT's assessment of the strength of the available evidence and the likelihood of success if the case under the POCA proceeds • the seriousness of the defendant's misconduct which gave rise to the alleged offence • the value of the property (including money and other assets) thought to have been derived by the person as a consequence of the activities that gave rise to the tax-related liabilities and the proceedings under the POCA • the total value of the assets potentially subject to confiscation action • the assets available to the person (including any assets outside Australia) • any amounts already paid by way of taxes, duties, excise or civil damages • the interests of third parties in the assets restrained • the likely cost to the Commonwealth (including legal costs and the commitment of staff and other resources) if the matter proceeds • the amount of any tax-related liability that is not connected to the proceedings under the POCA and the tax debtor's capacity and willingness to make provision for payment of those debts • any other individual circumstance or representation made by the tax debtor that may require special consideration (for example, grave illness) • the level of resources which have been invested by us, the AFP, the ACIC or other Commonwealth agencies in the proceedings under the POCA • the resources which would be required for us to commence and pursue traditional civil enforcement action and the relative prospects of success of such action. | Circumstances where it may be appropriate to waive a tax-related liability: 50. Each case will need to be considered on its own merits having regard to all the relevant circumstances of the case. As a guide only, circumstances where it may be appropriate to waive a tax-related liability include: • the conduct which gave rise to the tax-related liability corresponds substantially, or at least in part, with the conduct targeted by the proceedings under the POCA • the tax debtor or their associates have indicated a willingness to settle or consent to the proceedings under the POCA if an assurance is provided in relation to the relevant tax-related liabilities, and these discussions have occurred with us prior to the matter under the POCA being settled • a proposed resolution of the proceedings under the POCA involves confiscation of all or a significant proportion of the tax debtor's available assets • the proposed waiver is supported by other relevant Commonwealth agencies, such as the AFP or the ACIC. • the conduct which gave rise to the tax-related liability corresponds substantially, or at least in part, with the conduct targeted by the proceedings under the POCA • the tax debtor or their associates have indicated a willingness to settle or consent to the proceedings under the POCA if an assurance is provided in relation to the relevant tax-related liabilities, and these discussions have occurred with us prior to the matter under the POCA being settled • a proposed resolution of the proceedings under the POCA involves confiscation of all or a significant proportion of the tax debtor's available assets • the proposed waiver is supported by other relevant Commonwealth agencies, such as the AFP or the ACIC. | Circumstances where it may be inappropriate to waive a tax-related liability: 51. There are numerous circumstances where it may be inappropriate to waive a tax-related liability. Therefore, the individual circumstances of each case need to be assessed. Some of the relevant factors we will consider when deciding not to exercise the discretion to waive a tax-related liability include: • proceedings under the POCA have not yet been commenced and – the tax debtor holds assets in their own right that could be levied in execution should we decide to enforce civil recovery proceedings – there is a clear nexus for us to exercise the garnishee powers under section 260-5 to recover the tax-related liability – there is no apparent advantage in embarking on proceedings under the POCA • there are poor prospects of success in the proceedings under the POCA or it is too early to assess the prospects of success • the proceedings under the POCA were defended and the litigation did not require the facilitation of the proceeding by the waiver of the tax-related liability • the tax debtor's other taxation obligations are not up to date • the tax debtor refuses to unwind existing structures which gave rise to the tax mischief associated with the proceedings under the POCA. • proceedings under the POCA have not yet been commenced and – the tax debtor holds assets in their own right that could be levied in execution should we decide to enforce civil recovery proceedings – there is a clear nexus for us to exercise the garnishee powers under section 260-5 to recover the tax-related liability – there is no apparent advantage in embarking on proceedings under the POCA • there are poor prospects of success in the proceedings under the POCA or it is too early to assess the prospects of success • the proceedings under the POCA were defended and the litigation did not require the facilitation of the proceeding by the waiver of the tax-related liability • the tax debtor's other taxation obligations are not up to date • the tax debtor refuses to unwind existing structures which gave rise to the tax mischief associated with the proceedings under the POCA. – the tax debtor holds assets in their own right that could be levied in execution should we decide to enforce civil recovery proceedings – there is a clear nexus for us to exercise the garnishee powers under section 260-5 to recover the tax-related liability – there is no apparent advantage in embarking on proceedings under the POCA | Approval of waiver: 52. The power to approve a waiver of a tax-related liability is delegated only to certain senior tax officers. | Giving effect to a waiver: 53. As a general rule, we may agree to waive a tax-related liability on the understanding that the defendant will meet certain conditions prescribed in consent orders in the proceedings under the POCA or in a deed of settlement associated with the proceedings. In such cases, the waiver will be conditional on all of the conditions prescribed in the orders or deed of settlement being met. Provisions should be made in the orders or deed to ensure that we are not prevented from pursuing recovery of the tax-related liability if the defendant is in default of their obligations under the orders or deed. 54. In some cases, it may be necessary for the Commissioner to be a party to the deed of settlement. Where this is considered necessary, our Settlements team in the Office of the Chief Tax Counsel will settle the requisite inclusions in the deed.",TAA 1953 Sch1 260-5 | TAA 1953 Sch1 Div 342 | TAA 1953 Sch1 342-10(1) | TAA 1953 Sch1 342-10(2) | TAA 1953 Sch1 342-10(3) | Proceeds of Crime Act 2002 | Proceeds of Crime Regulations 2019 | Proceeds of Crime Regulations 2002 (repealed),,TAA 1953 Sch1 260-5 | TAA 1953 Sch1 Div 342 | TAA 1953 Sch1 342-10(1) | TAA 1953 Sch1 342-10(2) | TAA 1953 Sch1 342-10(3) | Proceeds of Crime Act 2002 | Proceeds of Crime Regulations 2019 | Proceeds of Crime Regulations 2002 (repealed),,Our Charter Chief Executive Instruction Respecting taxpayers' rights of review (link available internally only),False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS201110/NAT/ATO/00001,"Application of Division 342 | Content checked for consistency with the ATO's Memorandum of Understanding (MOU) with the CACT. | Updated in line with current ATO style and accessibility requirements. | Updated current term definitions and added new terms and definitions for 'AFP', 'AFP Commissioner' and 'Commissioner'. | • Commissioner's waiver power includes penalties and interest arising in respect of certain tax-related liabilities • risk of exercising the waiver power in circumstances where there is not likely to be a favourable outcome in the proceedings under the POCA • importance of early engagement between the ATO and the relevant proceeds of crime authority to consider the potential exercise of the waiver power • parties who have standing to advise the Commissioner on whether exercise of the waiver power will facilitate the proceedings under the POCA. | Updated to reflect the repeal of the Proceeds of Crime Regulations 2002 and its replacement by the Proceeds of Crime Regulations 2019 . | – expanded on the objects of the POCA – amended to use the term 'confiscation' instead of 'recovery' or 'collection' as appropriate – expanded on the concepts of 'confiscation', 'serious offences', 'indictable offences', 'indictable offences of Commonwealth concern', 'property', 'effective control' and 'restraining orders' – specified that the POCA operates to confiscate the 'proceeds, instruments and benefits of crime', and included examples of such benefits of crime. | Updated to more accurately reflect the background of proceeds of crime actions in a tax context (clarified the historical difficulties with effective management and settlement of POCA matters prior to the formation of the CACT; clarified the role of the AFP Commissioner and CDPP as proceeds of crime authorities in proceedings under the POCA; clarified the effectiveness of POCA confiscation action in comparison with traditional ATO debt recovery action; clarified the standard of proof required for non-conviction-based confiscation actions; distinguished references to the Commissioner of Taxation and the Commissioner of the AFP). | Updated Taxpayers' charter link | Revised to meet ATO Style guide requirements. | Updated to provide detail of the transfer of the POCA function from the Commonwealth Director of Public Prosecutions to the Criminal Assets Confiscation Taskforce, a Commonwealth multi agency Taskforce created to restrain and confiscate proceeds of crime. | [1] Refer to section 337 of the POCA for the full definition of 'effective control'. | [2] Following the repeal of the Proceeds of Crime Regulations 2002 , section 8 of the Proceeds of Crime Regulations 2019 continues to confer 'enforcement agency' status on the ATO. | [3] Subsection 342-10(1). | [4] See subsection 342-10(2). | [5] See subsection 342-10(3). | File 1-4EF26MP; 1-13L9BG06; 1-13LAQAFK"
PS LA 2011/11,"SUBJECT: Refunds of certain pay as you go withholding amounts PURPOSE: This Law Administration Practice Statement details: • obligations and rights of a payer, a recipient and the Commissioner where an amount has been withheld, in error, purportedly under the pay as you go withholding system • general information as to how a recipient may obtain a refund of incorrectly withheld amounts.",14 April 2011,14 April 2011,Law Administration Practice Statement,False,"1. The pay as you go (PAYG) withholding system requires an entity (the payer) to withhold an amount from certain payments made to, or received for, another entity (recipient) and to pay the withheld amount to us. This system also applies to non-cash benefits and to certain payments of personal services income. 2. Generally, the recipient will receive a credit, equal to the amount withheld, when an assessment of their income tax in the relevant year has been made. If, on the other hand, the withholding is from a dividend, interest, royalty or a fund payment made to, or received for the recipient, and the recipient is a non-resident [1] who has borne all or part of the amount withheld, the recipient is entitled to a credit equal to all or part of that amount against their non-resident or managed investment trust withholding tax liability. 3. While complying with their obligations under the PAYG withholding system, a payer may withhold an amount in error or withhold an amount from a purported payment of paid parental leave [2] that was not lawfully payable. When this occurs, the recipient may request a refund of the amount withheld from the payer or from us. 4. All legislative references in this Practice Statement are to Schedule 1 to the Taxation Administration Act 1953 , unless otherwise indicated. 5. Subdivision 18-B contains the rules allowing amounts withheld or paid to us in error, purportedly under any of the PAYG withholding provisions, to be refunded to recipients. It also contains rules allowing for amounts that were withheld from a purported payment of paid parental leave that was not lawfully payable to be refunded. 6. The recipient may obtain a refund from the payer or us, depending upon the circumstances. 7. Alternatively, the entity entitled to a credit under Subdivision 18-A may receive a refund of that entitlement to the extent that the purported PAYG withholding amount has not been refunded under Subdivision 18-B. | Refunding of certain withheld amounts: 8. The word 'error' has its ordinary, broad meaning and includes an error of fact and an error of law. An error of fact is one where an error is made by a decision-maker about the existence of a particular fact. An error of law is a misinterpretation or misapplication of a principle of law, or the application of an inappropriate principle of law to an issue of fact. 9. The following examples illustrate where an amount would be considered to have been withheld in error. • An investor quotes their tax file number (TFN) to an investment body that fails to record it and later withholds from a payment of investment income because a TFN has not been quoted. • An employer misreads the tax tables when an amount is withheld from a payment of salary or wages paid to an employee and consequently withholds an amount at a much higher rate than is required. • An amount is withheld from certain payments that are exempt income or are not assessable and not exempt income in the hands of the recipient. • An amount is withheld from a payment to: - an entity that is not entitled to an Australian business number (ABN) – for example, the supply is made in the supplier's private capacity or in relation to a hobby - a non-resident who derives it in carrying on business in Australia, at or through a permanent establishment, and the payment is a dividend or interest, or - certain suppliers that are not carrying on an enterprise because they have no reasonable expectation of profit or gain. • An amount is withheld from a recipient in one of the exception categories: - the total payment for the supply does not exceed $75 (exclusive of any goods and services tax (GST) payable on the supply), which is the amount currently specified in regulations in force for the purposes of subsection 29-80(1) of the A New Tax System (Goods and Services Tax) Act 1999 (subsection 12-190(4)), or - the supply is wholly input-taxed under GST. • The wrong exchange rate is used in calculating an interest, unfranked dividend or royalty payment to a non-resident and an excess amount is subsequently withheld from these payments. • An incorrect (higher) withholding rate is used in calculating the amount withheld from a payment of an interest, unfranked dividend or royalty to a non-resident (for example, because they did not take account of the rate provided under an agreement or convention covered by the International Tax Agreements Act 1953 ). Subsequently, an excess amount is withheld from these payments. • A purchaser withholds an amount from a payment to a vendor of a capital gains tax (CGT) asset where, prior to settlement, the vendor: - provided the purchaser with a clearance certificate from us [3] - made the purchaser aware of a variation notice from us where the rate used to determine the amount to be withheld exceeds the rate specified by us in that notice [4] , or - provided the purchaser with a vendor declaration. [5] • An investor quotes their tax file number (TFN) to an investment body that fails to record it and later withholds from a payment of investment income because a TFN has not been quoted. • An employer misreads the tax tables when an amount is withheld from a payment of salary or wages paid to an employee and consequently withholds an amount at a much higher rate than is required. • An amount is withheld from certain payments that are exempt income or are not assessable and not exempt income in the hands of the recipient. • An amount is withheld from a payment to: - an entity that is not entitled to an Australian business number (ABN) – for example, the supply is made in the supplier's private capacity or in relation to a hobby - a non-resident who derives it in carrying on business in Australia, at or through a permanent establishment, and the payment is a dividend or interest, or - certain suppliers that are not carrying on an enterprise because they have no reasonable expectation of profit or gain. • An amount is withheld from a recipient in one of the exception categories: - the total payment for the supply does not exceed $75 (exclusive of any goods and services tax (GST) payable on the supply), which is the amount currently specified in regulations in force for the purposes of subsection 29-80(1) of the A New Tax System (Goods and Services Tax) Act 1999 (subsection 12-190(4)), or - the supply is wholly input-taxed under GST. • The wrong exchange rate is used in calculating an interest, unfranked dividend or royalty payment to a non-resident and an excess amount is subsequently withheld from these payments. • An incorrect (higher) withholding rate is used in calculating the amount withheld from a payment of an interest, unfranked dividend or royalty to a non-resident (for example, because they did not take account of the rate provided under an agreement or convention covered by the International Tax Agreements Act 1953 ). Subsequently, an excess amount is withheld from these payments. • A purchaser withholds an amount from a payment to a vendor of a capital gains tax (CGT) asset where, prior to settlement, the vendor: - provided the purchaser with a clearance certificate from us [3] - made the purchaser aware of a variation notice from us where the rate used to determine the amount to be withheld exceeds the rate specified by us in that notice [4] , or - provided the purchaser with a vendor declaration. [5] - an entity that is not entitled to an Australian business number (ABN) – for example, the supply is made in the supplier's private capacity or in relation to a hobby - a non-resident who derives it in carrying on business in Australia, at or through a permanent establishment, and the payment is a dividend or interest, or - certain suppliers that are not carrying on an enterprise because they have no reasonable expectation of profit or gain. - the total payment for the supply does not exceed $75 (exclusive of any goods and services tax (GST) payable on the supply), which is the amount currently specified in regulations in force for the purposes of subsection 29-80(1) of the A New Tax System (Goods and Services Tax) Act 1999 (subsection 12-190(4)), or - the supply is wholly input-taxed under GST. - provided the purchaser with a clearance certificate from us [3] - made the purchaser aware of a variation notice from us where the rate used to determine the amount to be withheld exceeds the rate specified by us in that notice [4] , or - provided the purchaser with a vendor declaration. [5] 10. The following examples illustrate where an amount would be considered to have been withheld correctly. • The payer withholds amounts correctly according to the facts at the time when the payment was made. It is the facts that apply at the time that payment is made that are relevant, as opposed to any facts that may apply at a different point in time. • A payer withholds 46.5% from a payment for a supply because the supplier had not quoted their ABN on an invoice, or some other document relating to the supply. • An employee fails to complete a TFN declaration and the employer withholds an amount from the payments of salary or wages at the higher rate than that which applies to employees who have quoted a TFN. • A purchaser withholds an amount from a payment to a vendor of a CGT asset because that vendor has not done any of the following by the time of settlement: - provided the purchaser with a clearance certificate from us [6] , - made the purchaser aware of a variation notice from us [7] [8] , or - provided the purchaser with a vendor declaration. [9] • The payer withholds amounts correctly according to the facts at the time when the payment was made. It is the facts that apply at the time that payment is made that are relevant, as opposed to any facts that may apply at a different point in time. • A payer withholds 46.5% from a payment for a supply because the supplier had not quoted their ABN on an invoice, or some other document relating to the supply. • An employee fails to complete a TFN declaration and the employer withholds an amount from the payments of salary or wages at the higher rate than that which applies to employees who have quoted a TFN. • A purchaser withholds an amount from a payment to a vendor of a CGT asset because that vendor has not done any of the following by the time of settlement: - provided the purchaser with a clearance certificate from us [6] , - made the purchaser aware of a variation notice from us [7] [8] , or - provided the purchaser with a vendor declaration. [9] - provided the purchaser with a clearance certificate from us [6] , - made the purchaser aware of a variation notice from us [7] [8] , or - provided the purchaser with a vendor declaration. [9] | Refunds from the payer: 11. In accordance with section 18-65, the payer must (before the end of the financial year in which the amount was withheld or paid to us) refund to the recipient the amount withheld or paid to us in error if either: • the payer becomes aware of the error, or • the recipient applies to the payer for the refund. • the payer becomes aware of the error, or • the recipient applies to the payer for the refund. 12. Where an amount has been withheld due to an error involving the quotation of a recipient's TFN or ABN, the payer may request the required information to enable the correction of their records before refunding an amount. If the recipient does not provide its TFN or ABN to the payer, or evidence of the basis on which the recipient is taken to have quoted it, the payer is not required to refund the amount. 13. Where an amount has been withheld from a purported payment of paid parental leave that was not lawfully payable, the payer will be required to (before the end of the financial year in which the amount was withheld or paid to us) refund the amount withheld if either: • the payer becomes aware that the paid parental leave was not lawfully payable, or • the recipient applies to the payer for a refund. • the payer becomes aware that the paid parental leave was not lawfully payable, or • the recipient applies to the payer for a refund. 14. The payer can offset a credit equal to the amount refunded to the recipient against future PAYG withholding liabilities to us, provided the payer has already forwarded the 'incorrectly' withheld amount to us. A payer is entitled, however, to recover the refunded amount from us provided the amount is not recorded by the payer as offset against future withholding liabilities. 15. The payer must refund to the recipient the amount withheld in error if the payer becomes aware of the error before the end of the financial year in which the amount was withheld or paid to us. 16. If the recipient has not applied for a refund, or the payer does not otherwise become aware before the end of the financial year in which the amount was withheld or paid to us, the payer is not required to refund under section 18-65. In such a case, the recipient will be entitled to: • claim a credit on assessment for the amount withheld in error (as is the case for amounts correctly withheld), or • if that is not appropriate, for example, because the recipient is not required to lodge a tax return or the amount was withheld purportedly under Subdivision 12-F, apply to us for a refund of the amount. • claim a credit on assessment for the amount withheld in error (as is the case for amounts correctly withheld), or • if that is not appropriate, for example, because the recipient is not required to lodge a tax return or the amount was withheld purportedly under Subdivision 12-F, apply to us for a refund of the amount. | Refunds from the Commissioner: 17. A recipient may apply to us in accordance with section 18-70 for a refund of: • an amount withheld or paid to us in error, or • the amount withheld from a purported payment of paid parental leave that was not lawfully payable, where - the recipient did not apply to the payer for a refund before the end of the financial year in which the amount was withheld or paid to us in error, or - the payer did not become aware of the error or that the payment of paid parental leave was not lawfully payable before the end of the financial year in which the amount was withheld or paid to us. • an amount withheld or paid to us in error, or • the amount withheld from a purported payment of paid parental leave that was not lawfully payable, where - the recipient did not apply to the payer for a refund before the end of the financial year in which the amount was withheld or paid to us in error, or - the payer did not become aware of the error or that the payment of paid parental leave was not lawfully payable before the end of the financial year in which the amount was withheld or paid to us. - the recipient did not apply to the payer for a refund before the end of the financial year in which the amount was withheld or paid to us in error, or - the payer did not become aware of the error or that the payment of paid parental leave was not lawfully payable before the end of the financial year in which the amount was withheld or paid to us. 18. We are required to refund the amount withheld in error if: • the amount withheld or paid in error has been paid to us • the application specifies either - the recipient's TFN - the basis on which the recipient is taken to have quoted a TFN to the payer before the amount was withheld (where the recipient did not have a TFN), or - the recipient's ABN (where the payment or non-cash benefit from which the withholding occurred was in respect of a Part VA investment) [10] made in the course or furtherance of an enterprise carried on by the recipient, and • we consider it 'fair and reasonable' to refund the amount. • the amount withheld or paid in error has been paid to us • the application specifies either - the recipient's TFN - the basis on which the recipient is taken to have quoted a TFN to the payer before the amount was withheld (where the recipient did not have a TFN), or - the recipient's ABN (where the payment or non-cash benefit from which the withholding occurred was in respect of a Part VA investment) [10] made in the course or furtherance of an enterprise carried on by the recipient, and • we consider it 'fair and reasonable' to refund the amount. - the recipient's TFN - the basis on which the recipient is taken to have quoted a TFN to the payer before the amount was withheld (where the recipient did not have a TFN), or - the recipient's ABN (where the payment or non-cash benefit from which the withholding occurred was in respect of a Part VA investment) [10] made in the course or furtherance of an enterprise carried on by the recipient, and | Fair and reasonable: 19. In determining what is fair and reasonable, we will have regard to: • the circumstances that give rise to the withholding obligation (if any) • the circumstances that gave rise to the unlawful payment of the purported amount of paid parental leave • the nature of the error, and • any other matter we consider relevant. • the circumstances that give rise to the withholding obligation (if any) • the circumstances that gave rise to the unlawful payment of the purported amount of paid parental leave • the nature of the error, and • any other matter we consider relevant. 20. Generally, if the entity is required to lodge a tax return for the income year in which the error or unlawful payment of paid parental leave was made, it is usually more expedient for the entity to lodge their return and claim the amounts withheld from payment to them under Subdivision 18-A. In considering whether it would be fair and reasonable to refund the amount, we may also have regard to matters including whether: • it is unlikely that the recipient will become entitled to a credit for the amount withheld in error or withheld from an unlawful payment of paid parental leave before the end of the financial year after the one in which the amount was withheld – for example, the recipient is not required to lodge a tax return or is unable to lodge the return before the end of the financial year due to, for instance, delay in receiving relevant information from overseas, or the amount was withheld purportedly under Subdivision 12-F, or • the recipient will suffer hardship if we do not refund the amount. In this context, hardship is where a recipient depends on using the amount of the payment from which an amount has been withheld in error in order to meet their immediate basic living expenses or to maintain the viability of their business. • it is unlikely that the recipient will become entitled to a credit for the amount withheld in error or withheld from an unlawful payment of paid parental leave before the end of the financial year after the one in which the amount was withheld – for example, the recipient is not required to lodge a tax return or is unable to lodge the return before the end of the financial year due to, for instance, delay in receiving relevant information from overseas, or the amount was withheld purportedly under Subdivision 12-F, or • the recipient will suffer hardship if we do not refund the amount. In this context, hardship is where a recipient depends on using the amount of the payment from which an amount has been withheld in error in order to meet their immediate basic living expenses or to maintain the viability of their business. 21. We may consider that it is not fair and reasonable to refund the amount under section 18-70 if, on the basis of the recipient's application and other relevant information, the nature of the payment subject to the withholding error is assessable income in the hands of a non-resident recipient in the relevant income year. 22. Where a taxpayer has already claimed a credit for the amount withheld in their tax return, we will not consider it to be 'fair and reasonable' to refund the amount. 23. A person dissatisfied with a decision made under section 18-70 may object against the decision in the manner set out under Part IVC of the TAA. | More information: 24. For more information on residency refer to: • TR 2023/1 Income tax: residency tests for individuals (published on 7 June 2023) • TR 2018/5 Income tax: central management and control test of residency (published on 21 June 2018) • TR 2023/1 Income tax: residency tests for individuals (published on 7 June 2023) • TR 2018/5 Income tax: central management and control test of residency (published on 21 June 2018)",TR 2023/1 | TR 2018/5 | TAA Pt IVC | TAA Sch 1 Subdiv 12-F | TAA Sch 1 12-190(4) | TAA Sch 1 14-200(3)(b) | TAA Sch 1 14-210 | TAA Sch 1 14-210(2) | TAA Sch 1 14-235(2) | TAA Sch 1 14-235(3)(c) | TAA Sch 1 14-235(6) | TAA Sch 1 Subdiv 18-A | TAA Sch 1 Subdiv 18-B | TAA Sch 1 18-65 | TAA Sch 1 18-70 | ANTS(GST)A 1999 29-80(1) | ITAA 1936 Pt VA | ITAA 1936 202D | International Tax Agreements Act 1953 | [2019] WASC 464,,TAA Pt IVC | TAA Sch 1 Subdiv 12-F | TAA Sch 1 12-190(4) | TAA Sch 1 14-200(3)(b) | TAA Sch 1 14-210 | TAA Sch 1 14-210(2) | TAA Sch 1 14-235(2) | TAA Sch 1 14-235(3)(c) | TAA Sch 1 14-235(6) | TAA Sch 1 Subdiv 18-A | TAA Sch 1 Subdiv 18-B | TAA Sch 1 18-65 | TAA Sch 1 18-70 | ANTS(GST)A 1999 29-80(1) | ITAA 1936 Pt VA | ITAA 1936 202D | International Tax Agreements Act 1953 | Paid Parental Leave Act 2010,,,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS201111/NAT/ATO/00001,"Paragraphs 9, 10, 22 and 24 | Additions made to clarify situation for foreign-resident capital gains withholding. | Updated in line with current ATO style and accessibility requirements. | Included legislative references to align with the ATO Style guide. | First dot point – further information added to clarify the context of the withholding. | Included a footnote and additional information to clarify the withholding event. | [1] The terms 'non-resident' and 'foreign resident' are used interchangeably within this Practice Statement and are taken to mean the same thing. | [2] Parental leave pay means payments of parental leave pay under the Paid Parental Leave Act 2010 . | [3] That comes within the exceptions for withholding set out in subsection 14-210(2). | [4] See paragraph 14-200(3)(b) and subsections 14-235(2) and (6). | [5] That comes within the exceptions for withholding set out in subsection 14-210(3). | [6] The certificate must come within the exceptions for withholding set out in subsection 14-210(2). | [7] In determining whether to make a variation notice, see paragraph 14-200(3)(b) and subsections 14-235(2) and (6). | [8] As confirmed in National Australia Bank Ltd v Thorp [No 2] [2019] WASC 464 at [14], an amount will not be regarded as held in error merely because a secured creditor of the vendor has an interest in the payment for the relevant CGT asset and where the purchaser has not been made aware of any variation notice from us. It is noted that a secured creditor is able to apply for a variation under paragraph 14-235(3)(c) and in determining whether to make a variation notice we must have regard to the creditor's rights to recover the relevant debt owed by the vendor. However, if we vary the amount to be withheld and paid to us, the secured creditor must be made aware of the variation on or before settlement to ensure that it takes effect. | [9] The declaration must come within the exceptions for withholding set out in subsection 14-210(3). | [10] Investment of a kind mentioned in section 202D of the Income Tax Assessment Act 1936 . | File 1-59MXIWV, 1-14C5WFUD | National Australia Bank Ltd v Thorp [No 2] [2019] WASC 464"
PS LA 2011/12,Remission of General Interest Charge,14 April 2011,14 April 2011,Law Administration Practice Statement,False,"1. Overarching principles: Fully complying with taxation obligations is an important community responsibility. Taxpayers are expected to pay their tax debts as and when they fall due. Various taxation laws provide for the automatic imposition of interest (including the general interest charge (GIC)) on unpaid tax debts, which the ATO will take steps to recover. However, the law recognises there are situations where remission of interest may be appropriate. Any decision you make in relation to the remission of GIC must be consistent with both the law and the policy in this practice statement. Your decisions must also be consistent with the commitments made by the ATO in the Taxpayers' Charter and Chief Executive Instruction Respecting Clients' Rights of Review CEI . | 2. What is GIC?: GIC is imposed by law where an amount owing to us remains unpaid or where there is an underpayment of tax following an amendment to an assessment. Very generally, GIC is intended to: • encourage the timely payment of tax • deny late payers an unfair financial advantage over those who pay on time, and • compensate the Australian Government for the impact of late payments. • encourage the timely payment of tax • deny late payers an unfair financial advantage over those who pay on time, and • compensate the Australian Government for the impact of late payments. This practice statement primarily concerns the remission of GIC that is imposed when an amount is unpaid by its due date. | 3. Can you remit GIC?: We have the discretion to remit GIC under the Taxation Administration Act 1953 (TAA). [1] A client may request a remission of GIC at any time. The onus is generally on the client to satisfy us that remission is warranted and must provide us with sufficient information to allow us to make a decision. However, we may initiate remission ourselves if we are aware of circumstances justifying remission in a particular case or group of cases. We can remit all or part of the GIC payable by the client. You should consider partial remission when the circumstances of the case do not warrant full remission. | 4. When should GIC be remitted?: GIC may be remitted on various grounds prescribed under the legislation. These are outlined in further detail below. When considering whether to remit GIC you must have regard to all the facts and circumstances of the particular case. Where the delay was not caused by the client We may remit GIC where we are satisfied that: • the circumstances contributing to the delayed payment are not the client's fault, and • the client has taken reasonable steps to mitigate, or mitigate the effects of, those circumstances. [2] • the circumstances contributing to the delayed payment are not the client's fault, and • the client has taken reasonable steps to mitigate, or mitigate the effects of, those circumstances. [2] The client needs to show how an event which was beyond their control affected their ability to pay. They also need to show that they would, but for that event, have paid on time. Examples of circumstances not caused by the client include natural disasters (such as fire, flood or drought), industrial action, an unforeseen collapse of a major debtor of the client, or the sudden ill health of the key personnel in sole trader or small business situations. However, circumstances such as general adverse business conditions facing an industry, general economic downturn or fluctuations of currency exchange rates would not usually justify remission. Similarly, a client whose ability to pay on time is affected by an extended credit policy to maintain business which adversely affects their cash flow, or who uses available funds to buy assets or to pay other creditors, will not usually qualify for remission. You should also consider what reasonable steps the client has, or could have, taken (for example, realise assets or seek finance) to lessen the severity of the circumstances causing the payment delay. Where the delay was caused by the client and it is fair and reasonable to remit We may remit GIC: • where the circumstances contributing to the delay are due to the client's acts or omissions, and • the client has taken reasonable steps to mitigate, or mitigate the effects of, those circumstances, and • having regard to the nature of those circumstances, it would be fair and reasonable to remit. [3] • where the circumstances contributing to the delay are due to the client's acts or omissions, and • the client has taken reasonable steps to mitigate, or mitigate the effects of, those circumstances, and • having regard to the nature of those circumstances, it would be fair and reasonable to remit. [3] If the delay was caused by the client, you must consider their actions to reduce the severity and impact of the circumstances causing the delayed payment. You must also consider whether it is 'fair and reasonable' to remit. The words 'fair and reasonable' are given their ordinary meaning. You should consider the following: • the intent of the GIC as described above and the legislative policy that clients should be liable to additional charges if they pay late, and • not only must the exercise of the power to remit be fair to the client concerned, it must be fair to the whole community. In other words, a client who pays late should not be given any unfair financial advantage over those taxpayers who organise their affairs to ensure they can pay on time. Clients will need to demonstrate that it is fair and reasonable to remit the GIC, having regard to the nature of the specific event. • the intent of the GIC as described above and the legislative policy that clients should be liable to additional charges if they pay late, and • not only must the exercise of the power to remit be fair to the client concerned, it must be fair to the whole community. In other words, a client who pays late should not be given any unfair financial advantage over those taxpayers who organise their affairs to ensure they can pay on time. Clients will need to demonstrate that it is fair and reasonable to remit the GIC, having regard to the nature of the specific event. Therefore, you should ask whether ordinary and reasonable members of the community who pay their taxes on time would see the circumstances as fair and reasonable to remit. For example, the community may view it as fair and reasonable that a partial or full remission be granted where the client may have made a soundly advised or well-considered decision which results in unforseen severe consequences affecting their ability to pay. In this instance, the client would need to demonstrate that plans were in place to pay their tax on time. Conversely, the community would not generally perceive it to be fair and reasonable where a client in business was unable to pay on time simply because of generally adverse economic conditions. This is because many other businesses are also experiencing these conditions, but have taken appropriate steps to ensure that they pay their taxes on time. Where there are special circumstances We may remit GIC if: • there are special circumstances relating to the client's case, and • because of those special circumstances, it would be fair and reasonable to remit. [4] • there are special circumstances relating to the client's case, and • because of those special circumstances, it would be fair and reasonable to remit. [4] What constitutes 'special circumstances' will depend on the facts in the particular case. You must consider each case on its own merits. An example of a special circumstance would be where a client with a consistently good payment record is late making a payment on an isolated occasion. In deciding whether to remit the GIC in whole or in part, the good payment history and any other relevant factors of the client will be taken into account. It must also be 'fair and reasonable' to remit because of those special circumstances. The meaning of 'fair and reasonable' is considered in previous paragraphs. Where it is 'otherwise appropriate' to remit We may remit GIC if it is 'otherwise appropriate to do so'. [5] The decision to remit the GIC on this ground is restricted to senior tax officers. [6] This is a broad discretion and there is no exhaustive list of those circumstances which might warrant remission under this provision. However, it gives us a degree of flexibility for the remission of the GIC. It means that we can respond to changing circumstances, and consider unusual factors or future issues on their merits and make decisions accordingly. Such decisions may be concerned with the circumstances of a particular client. In practice, however, they are more likely to extend to a particular group of tax clients, or to the general body of tax clients, and may involve consideration of issues of administrative efficiency and fairness. An example of this type of decision is where the ATO introduced certain debt assistance initiatives. These allowed for extended repayment programs that considered partial or full GIC remission for the period of the payment arrangements. Note that while a decision may be made to allow a remission of GIC for a particular category of tax debtors, this does not necessarily mean that all tax debtors falling within that category will be granted a remission, or given a remission to the same extent. [7] | 5. Specific situations: Specific policies apply to the remission of GIC in the following situations, and these are based on one or more of the above mentioned legislative provisions: Disputed debt and 50/50 arrangements You may offer a client a 50/50 arrangement which minimises their exposure to the GIC. Very generally, if the client pays all undisputed debts and a minimum of 50% of the principal disputed tax debt, we will remit 50% of the applicable GIC on the remaining balance of the debts in dispute, subject to various other conditions. Refer to Law Administration Practice Statement PS LA 2011/4 Collection and recovery of disputed debts for a more detailed discussion of 50/50 arrangements and the GIC implications of these. Bankruptcy/liquidation The ATO will generally include claims for GIC in a proof of debt. You should not remit GIC in these cases as a general rule. Superannuation guarantee charge We have the discretion to remit GIC for the late payment of superannuation guarantee charge (SGC). It is however important to note that: • SGC is an amount collected on behalf of employees, and • SGC is payable by employers who have failed to provide the prescribed minimum level of superannuation support. • SGC is an amount collected on behalf of employees, and • SGC is payable by employers who have failed to provide the prescribed minimum level of superannuation support. Given these considerations it may often be difficult to regard remission in these cases as 'fair and reasonable'. Each case must however be examined on its merits taking into account the particular facts of the case in question. One situation where remission may be granted is where an audit area has determined that an employer has not made the minimum required superannuation contributions for an individual engaged under a contract for their labour as both parties reasonably believed that an employment relationship did not exist, resulting in an SGC assessment to the employer. Excess contributions tax and the Division 293 tax [8] There are caps on the amount that can be contributed to superannuation each financial year that are taxed at lower rates. If the client contributes more than these caps, they may have to pay extra tax. In some cases, the client can choose to pay the excess contributions tax from their Superannuation fund. This requires a release authority from the ATO, which the client forwards to the superannuation fund, directing them to release an amount to pay the tax. For excess contributions tax for 2012-13 and prior years, and excess non-concessional contributions tax for the 2013-14 and following income years: Excess contributions tax is due for payment 21 days after the assessment is given. GIC applies after this date if any of the tax is unpaid. As soon as practicable after making the excess non-concessional contributions tax assessment, the ATO must give the client a release authority, [9] authorising the client's superannuation fund to release an amount to pay the tax. Where the client gives the release authority to their superannuation fund before the due and payable date of the assessment, and the fund pays an amount to the ATO within the 30 days from when the superannuation fund receives the release authority, [10] you should remit any GIC on the assessment up to the date the amount is paid to the ATO. For excess concessional contributions in the 2013-14 and following income years: A client can make an election within 21 days from the receipt of an excess concessional contributions determination to issue a release authority to their superannuation fund. [11] Where the superannuation fund pays an amount to the ATO within the 7 days from the issue of the release authority, you should consider whether to remit any GIC accrued on the client's related income tax liability. You should also consider the extent of such a remission, on a case-by-case basis, taking into account the general guidelines contained in this practice statement. [12] For Division 293 tax A client may be liable for additional tax where an individual's income and certain superannuation contributions are in excess of the high income threshold. GIC accrues on an assessed Division 293 tax for an income year [13] and a debt account discharge liability for a superannuation interest, [14] if they are not paid by their due and payable date. Where a client gives a release authority to their superannuation fund before the due and payable date of those liabilities, and the superannuation fund pays the amount to the ATO within the 30 days of the superannuation fund receiving the release, you should remit any relevant GIC accrued up to the date of payment from the superannuation fund. PAYG instalments You should not remit GIC on unpaid PAYG instalments solely because the income tax subsequently assessed for a client is less than the PAYG instalments that are payable for that year. Similarly, where the client chooses a varied instalment rate that is lower than the rate previously used and is eligible for a credit in respect of earlier instalments, you should not remit GIC on the unpaid amount of that instalment for that reason alone. Any remission of GIC in these cases will only be granted if it is fair and reasonable to do so because of special circumstances. [15] Deceased estates Where payment cannot be made because probate has not been granted, the ATO recognises that this is often outside the control of the trustee of the deceased estate. In these situations, you should generally remit the GIC that has accrued on the account for the period from the date of death until 28 days after probate is granted. For GIC accrued during the period of administration, remission may be granted if the trustee of a deceased estate under administration can show that assets were realised promptly and funds were not available at an earlier date to enable payment. Competent authority issues/mutual agreement procedures There are specific rules governing GIC remission in cases involving double-taxation with another tax jurisdiction, where the Mutual Agreement Procedure (MAP) article in Australia's double tax agreements applies. Remission of GIC generally depends on the amount of tax actually paid in the foreign jurisdiction where that tax is directly related to the particular amount of profits that are the subject of the MAP. See TR 2000/16 Income tax: international transfer pricing - transfer pricing and profit reallocation adjustments, relief from double taxation and the Mutual Agreement Procedure Foreign revenue claims If we are collecting a foreign revenue claim on behalf of another country under Division 263 of Schedule 1 to the TAA: • You should remit GIC on the unpaid amount of the claim where the claim is reduced due to a reduction in the client's liability in that country. This may occur from a successful objection or appeal in that country where the client is considered to never have been liable for the amount of the reduction. You should remit the GIC incurred on the amount of the reduction. • You should generally not remit GIC solely because the client has made a part payment of the liability in the other country. • You should remit GIC on the unpaid amount of the claim where the claim is reduced due to a reduction in the client's liability in that country. This may occur from a successful objection or appeal in that country where the client is considered to never have been liable for the amount of the reduction. You should remit the GIC incurred on the amount of the reduction. • You should generally not remit GIC solely because the client has made a part payment of the liability in the other country. In some cases we may remove details of a foreign revenue claim from the foreign claims register under Division 263. In such cases the client will be entitled to a credit equal to the amount of the GIC that may have accrued in relation to the claim. Refer to Law Administration Practice Statement PS LA 2011/13 Cross-border recovery of taxation debts for a more detailed discussion of foreign revenue claims. | 6. More information: For more information, see: • Chief Executive Instruction Respecting Clients' Rights of Review CEI (link available internally only) • PS LA 2011/4 Collection and recovery of disputed debts, for a more detailed discussion of 50/50 arrangements and the GIC implications of these • PS LA 2011/13 Cross-border recovery of taxation debts, for a more detailed discussion of foreign revenue claims • Taxpayers' Charter , sets out the way the ATO conducts itself when dealing with our clients • Chief Executive Instruction Respecting Clients' Rights of Review CEI (link available internally only) • PS LA 2011/4 Collection and recovery of disputed debts, for a more detailed discussion of 50/50 arrangements and the GIC implications of these • PS LA 2011/13 Cross-border recovery of taxation debts, for a more detailed discussion of foreign revenue claims • Taxpayers' Charter , sets out the way the ATO conducts itself when dealing with our clients ATTACHMENT A: DEDUCTIBILITY AND ASSESSABILITY OF GIC AND OTHER INTEREST CHARGES Deductibility of GIC on income tax debts GIC can be claimed as a tax deduction as expenditure incurred in the year of income. [16] 'Accrue' and 'incur' The terms 'accrue' and 'incur' are used frequently in these paragraphs. 'Accrue': GIC for late payment accrues on a daily basis; that is, it accumulates daily. [17] 'Incur': For GIC to be deductible, it must have been incurred by the client in the year of income. You 'incur' GIC only if and when you actually become liable for it. 'Accrue': GIC for late payment accrues on a daily basis; that is, it accumulates daily. [17] 'Incur': For GIC to be deductible, it must have been incurred by the client in the year of income. You 'incur' GIC only if and when you actually become liable for it. GIC is not incurred on unpaid income tax debts until the client is served (or, in the case of a full self assessment taxpayer, is taken to have been served) with a notice of assessment (NOA) triggering the liability to pay the income tax. [18] Before this point, they are not liable for that income tax or associated GIC, however the GIC may be accruing should the assessment be due and payable. For example: A client lodges their individual 2013 income tax return, which was due and payable on the 21 November 2013, on 1 July 2014 and a NOA was issued on the 21 July 2014. The client will liable for the GIC from the 22 November 2013, as it has been accruing since the due date, but the GIC was incurred in the 2015 financial year. A client is entitled to claim a deduction for the GIC it incurred even though the GIC may not have in fact been paid. This is so whether a client accounts for expenses on a 'cash basis' or 'accruals basis'. Amended assessments Taxpayers are entitled to claim a tax deduction for the GIC imposed in respect of an amended assessment during the year in which the notice of amended assessment was served. [19] • For the 2000-01 to 2003-04 income years inclusive, where an assessment of income tax is amended increasing the liability, the amended assessment carries the same due date for payment as the original assessment. GIC for late payment of the amended assessment applies from the due date for payment of the original assessment. In these circumstances, the GIC which accrues from the due date for payment of the original assessment, to the issue date of the amended assessment is, incurred on the day that the amended assessment is issued. GIC accruing after the issue date of the amended assessment is incurred on a daily basis. • From the 2004-05 income year onwards, amended assessments of income tax carry a prospective due date, and the shortfall interest charge (SIC) applies between the due date of the original assessment and the day before the issue date of the amended assessment (replacing the GIC in this period).This means that the GIC will be incurred and accrue only from the issue date of the amended assessment. • For the 2000-01 to 2003-04 income years inclusive, where an assessment of income tax is amended increasing the liability, the amended assessment carries the same due date for payment as the original assessment. GIC for late payment of the amended assessment applies from the due date for payment of the original assessment. In these circumstances, the GIC which accrues from the due date for payment of the original assessment, to the issue date of the amended assessment is, incurred on the day that the amended assessment is issued. GIC accruing after the issue date of the amended assessment is incurred on a daily basis. • From the 2004-05 income year onwards, amended assessments of income tax carry a prospective due date, and the shortfall interest charge (SIC) applies between the due date of the original assessment and the day before the issue date of the amended assessment (replacing the GIC in this period).This means that the GIC will be incurred and accrue only from the issue date of the amended assessment. Late lodgment In relation to GIC imposed for late lodgment of an income tax return, [20] taxpayers are entitled to claim a tax deduction for the GIC or interest amount imposed during the year in which the notice of late lodgment penalty was served. With regard to the late lodgment of an income tax return for the 2000-01 or later years of income, the GIC which accrues [21] from the statutory due date of the original assessment to the issue date of the assessment, is incurred on the day that the assessment is issued. [22] GIC accruing after the issue date of the assessment is incurred on a daily basis. Deductibility of GIC on other revenue types Fringe Benefits Tax (FBT) FBT liabilities are not dependent on or affected by an assessment. [23] GIC on an unpaid fringe benefits tax liability accrues from the date prescribed in subsection 90(1) of the Fringe Benefits Tax Assessment Act 1986 and is incurred for the purposes of section 8-1 of the ITAA 1997 as and when it accrues. Goods and services tax (GST) Tax periods commencing prior to 1 July 2012 The liability for GST becomes due and payable on the dates prescribed in A New Tax System (Goods and Services Tax) Act 1999 (GST Act) [24] . Indirect tax liabilities, which include GST, do not depend on a making of an assessment. [25] GIC on an unpaid GST liability for tax periods commencing prior to 1 July 2012 therefore accrues from the dates prescribed in the GST Act and is incurred [26] as and when it accrues. Tax periods commencing from 1 July 2012 onwards The liability to pay an assessed net amount of GST under the GST Act depends upon the making of an assessment. The Commissioner is treated as having made an assessment when a GST return is lodged for the tax period. [27] GIC on an unpaid GST liability for tax periods commencing from 1 July 2012 onwards accrues from the dates prescribed in the GST Act, [28] but will only be incurred if an assessment has been made (or is taken to have been made) for the tax period. Assessability of GIC remitted Taxpayers who have claimed (or can claim) a deduction for GIC must include as income any GIC that is subsequently remitted. Amounts remitted should be included as income in the financial year that the remission occurs. [29] In summary: • If a client incurs GIC in a year of income, they can claim a deduction for that GIC in that year. • If that GIC is later remitted, they must include the amount remitted as assessable income in the year in which the remission occurred. - This applies even if they had not actually claimed a deduction for the remitted GIC. It applies so long as they can claim a deduction for that amount. - If they cannot claim a deduction for that amount (for example, if the period for amending the return to claim the deduction has expired), the amount should not be included as assessable income. • If a client incurs GIC in a year of income, they can claim a deduction for that GIC in that year. • If that GIC is later remitted, they must include the amount remitted as assessable income in the year in which the remission occurred. - This applies even if they had not actually claimed a deduction for the remitted GIC. It applies so long as they can claim a deduction for that amount. - If they cannot claim a deduction for that amount (for example, if the period for amending the return to claim the deduction has expired), the amount should not be included as assessable income. - This applies even if they had not actually claimed a deduction for the remitted GIC. It applies so long as they can claim a deduction for that amount. - If they cannot claim a deduction for that amount (for example, if the period for amending the return to claim the deduction has expired), the amount should not be included as assessable income. Examples Example 1: When GIC can be deducted Sam lodged his 2009-10 income tax return on 20 October 2010. A debit notice of assessment issued on 1 November 2010 with a payment due date of 22 November 2010. Sam failed to pay this amount by the due date and GIC was imposed until the total amounts owing were paid in full on 31 March 2011. The GIC that accrued from 22 November 2010 to 31 March 2011 was incurred in the 2011 income tax year. Sam is entitled to claim the GIC as a deduction in the 2010-11 income tax return. Example 2: When GIC can be deducted Tally Pty Ltd's 2009-10 income tax return was due to be lodged on or before 1 December 2010. However, it did not lodge its return until 31 July 2011. The return resulted in an income tax debt, which had also been due for payment on 1 December 2010. The GIC imposed from 1 December 2010 to 30 July 2011 was incurred on 31 July 2011, being the date the notice of assessment is deemed to have issued upon lodgment by Tally Pty Ltd of its income tax return. Tally Pty Ltd may claim a deduction for that GIC in its 2011-12 income tax return. A deduction may also be claimed for the GIC that was incurred on a daily basis from 31 July 2011 to 30 June 2012, regardless of whether the amount was actually paid. Example 3: When remission of GIC must be included as assessable income Tina lodged her 2009-10 income tax return on 20 October 2010. The notice of assessment issued on 31 October 2010 resulting in a debt that was due to be paid on or before 24 November 2010. Due to financial difficulties Tina was unable to pay her debt by the due date. She approached the ATO in January 2011 for assistance. The ATO assessed Tina's individual circumstances and granted a payment arrangement and partial remission of the GIC. Tina paid out her total debt in full on 30 June 2011. GIC was incurred on a daily basis from 24 November 2010 to 30 June 2011; that is, in the 2010-11 income year. The remission also occurred in the 2011 income year. In her 2010-11 income tax return, Tina may declare the GIC as a deduction at label D10 and must declare the remitted GIC at label 24 in the supplementary return. Example 4: When remission of GIC must be included as assessable income Owen lodged his 2011-12 income tax return on 20 October 2012. He was issued a notice of assessment on 31 October 2012 resulting in a debt that was due to be paid on 24 November 2012. Owen paid the primary amount of the tax debt on 23 December 2013, not including GIC which had been accruing on the liability from 24 November 2012. Owen approached the ATO for a remission of the GIC and was granted a partial remission on 23 December 2013. This GIC remission amount must be declared in his 2013-14 income tax return, being the year in which the remission was granted. This is irrespective of whether Owen amends his 2012-13 income tax return to claim a deduction for the GIC incurred in the 2012-13 year. This is because the legislation deems the remission amount as an assessable recoupment for the current year if you have deducted or can deduct the amount of the outgoing in an earlier income year. As Owen can still amend his 2012-13 income tax return to claim a deduction for GIC incurred in that year, he must declare the remission amount in his 2013-14 income year.","Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025 | PS LA 2011/4 | PS LA 2011/13 | TR 2000/16 Income tax: international transfer pricing - transfer pricing and profit reallocation adjustments, relief from double taxation and the Mutual Agreement Procedure | TD 2004/20 Income tax: where the Commissioner makes or amends a fringe benefits tax assessment for a fringe benefits tax year, when does the taxpayer incur an outgoing for the purposes of section 8-1 of the Income Tax Assessment Act 1997 for the fringe benefits tax assessed? | PS LA 2011/4 Recovering disputed debts | PS LA 2011/13 Cross border recovery of taxation debts | TAA 1953 | TAA 1953 8AAC | TAA 1953 8AAG | TAA 1953 8AAG(3) | TAA 1953 8AAG(4) | TAA 1953 8AAG(5)(a) | TAA 1953 8AAG(5)(b) | TAA 1953 Sch 1 45-240 | TAA 1953 Sch 1 105-15(1) | TAA 1953 Sch 1 133-115 | TAA 1953 Sch 1 155-15 | TAA 1953 Sch 1 Div 263 | ITAA 1936 | ITAA 1936 204 | ITAA 1997 | ITAA 1997 5-5 | ITAA 1997 8-1 | ITAA 1997 Subdiv 20-A | ITAA 1997 20-25 | ITAA 1997 20-35 | ITAA 1997 20-40 | ITAA 1997 25-5 | ITAA 1997 Div 293 | ITAA 1997 293 75 | ANTS(GST)A 1999 | ANTS(GST)A 1999 33-3 | ANTS(GST)A 1999 33-5 | (1953) 88 CLR 492",PS LA 2011/4 Recovering disputed debts PS LA 2011/13 Cross border recovery of taxation debts,TAA 1953 | TAA 1953 8AAC | TAA 1953 8AAG | TAA 1953 8AAG(3) | TAA 1953 8AAG(4) | TAA 1953 8AAG(5)(a) | TAA 1953 8AAG(5)(b) | TAA 1953 Sch 1 45-240 | TAA 1953 Sch 1 96-5 | TAA 1953 Sch 1 105-15(1) | TAA 1953 Sch 1 133-115 | TAA 1953 Sch 1 155-15 | TAA 1953 Sch 1 Div 263 | ITAA 1936 | ITAA 1936 51(5) | ITAA 1936 163B | ITAA 1936 163C | ITAA 1936 170AA | ITAA 1936 204 | ITAA 1936 207A | ITAA 1997 | ITAA 1997 5-5 | ITAA 1997 8-1 | ITAA 1997 Subdiv 20-A | ITAA 1997 20-25 | ITAA 1997 20-35 | ITAA 1997 20-40 | ITAA 1997 25-5 | ITAA 1997 292-405 | ITAA 1997 292-415(1) | ITAA 1997 Div 293 | ITAA 1997 293 75 | ANTS(GST)A 1999 | ANTS(GST)A 1999 33-3 | ANTS(GST)A 1999 33-5 | FBTAA 1986 90(1),,Taxpayers' Charter Taxation authorisation guidelines Chief Executive Instruction Respecting Clients' Rights of Review,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS201112/NAT/ATO/00001,"The changes withdraw a taxpayer's entitlement to claim general interest charge incurred on or after 1 July 2025 as a deduction. Taxpayers will also not be required to include those amounts incurred on or after 1 July 2025 if remitted as recouped income. | For more information, see Denying deductions for ATO interest charges . | Updated Chief Executive Instruction (CEI) title. | Revised to put into new LAPS style; change in contact details; removed Calculation of GIC; removed Imposition of GIC on judgment debts. | Minor revisions to styling and content to improve readability. | Introduces the information included in the Annexure. | Introduces definitions of certain terms used in this practice statement. | Additional information covering the requirement for tax officers to follow the Taxpayers' Charter, and review rights | Additional information on the circumstances when partial remission should be considered. | Introduces the legislative provision that allows the Commissioner to remit GIC where it is fair and reasonable to do so. | Introduces the legislative provision that allows the Commissioner to remit GIC where there are special circumstances to do so, or there are 'otherwise appropriate' circumstances. | Qualifies that the Commissioner may exclude specific taxpayers from a body of tax debtors when GIC remission is granted. | Introduces specific examples where the Commissioner will remit GIC where it is fair and reasonable to do so. | Annexure - Paragraphs 113-148 | The information on deductibility and assessability of GIC that was previously included in Chapter 93, has been revised and re-inserted into the Annexure of this LAPS. Examples have also been included to illustrate the application of the provisions. | Examples of how the provisions determining deductibility and assessability of GIC are applied in particular circumstances. | [1] Section 8AAG of the TAA. | [2] Subsection 8AAG(3) of the TAA. | [3] Subsection 8AAG(4) of the TAA. | [4] Paragraph 8AAG(5)(a) of the TAA. | [5] Paragraph 8AAG(5)(b) of the TAA. | [6] See Taxation authorisation guidelines , paragraph 1.16.8 Remit general interest: 'otherwise appropriate to do so'. | [7] The Commissioner reserves the right not to grant a remission if the particular circumstances of a case are such that it would be inappropriate for such a concession to be given, taking into account the legislation and the factors considered in this policy. | [8] Division 293 of the Income Tax Assessment Act 1997 (ITAA 1997). | [9] Section 292-405 of the ITAA 1997. | [10] Subsection 292-415(1) of the ITAA 1997. | [11] Section 96-5 of Schedule 1 to the TAA. | [12] This is because for the 2013-14 and later income years, excess concessional contributions are included in assessable income. It may therefore only be part of the reason for the debtor's total income tax debt. | [13] Section 293-75 of the ITAA 1997. | [14] Section 133-115 of Schedule 1 to the TAA. | [15] Note that the basis for a GIC remission in cases involving a variation of the PAYG instalment rate is contained separately in section 45-240 of Schedule 1 to the TAA. | [16] Section 25-5 of the ITAA 1997. A tax deduction for GIC incurred can be claimed in income tax returns for the years ended 30 June 2000 onwards. The former penalty by way of interest imposed under sections 163C, 170AA and 207A of the ITAA 1936 may also be claimed as a deduction. The deductibility of interest imposed under sections 163C, 170AA or 207A for income years 1992-93 to 1996-97 inclusive is provided for under subsection 51(5) of the ITAA 1936. For income years 1997-98 to 1998-99 inclusive, deductions can be claimed under section 25-5 of the ITAA 1997. | [17] See section 8AAC of the TAA. | [18] FC of T v . Nash [2013] FCA 336. | [19] That is, when the client became 'definitively committed' to the payment or 'has completely subjected itself to the liability' ( FCT v . James Flood Pty Ltd (1953) 88 CLR 492 at p 506). | [20] Under section 163B or former section 163C of the ITAA 1936. | [21] Under former section 204 of the ITAA 1936 and section 5-5 of the ITAA 1997. | [22] See FC of T v . Nash [2013] FCA 336. | [23] See Taxation Determination TD 2004/20. | [24] Sections 33-3 and 33-5 of the GST Act. | [25] Subsection 105-15(1) of Schedule 1 to the TAA. | [26] For the purposes of section 8-1 of the ITAA 1997. | [27] Section 155-15 of Schedule 1 to the TAA. | [28] Sections 33-3 and 33-5 of the GST Act. | [29] Section 20-25 of the ITAA 1997 states that remission of the GIC is a recoupment. Where a deduction has been allowed, or is allowable, under section 25-5 of the ITAA 1997 for tax-related expenditure, any recoupment of the expenditure is assessable under sections 20-35 or 20-40 of Subdivision 20-A of the ITAA 1997. | FC of T v. James Flood Pty Ltd (1953) 88 CLR 492 | FC of T v. Nash (2013) 211 FCR 520 [2013] FCA 336 (2013) 301 ALR 732"
PS LA 2011/13,Cross-border recovery of taxation debts,14 April 2011,15 August 2019,Law Administration Practice Statement,False,"1. What this Practice Statement is about: This Practice Statement outlines the options available to us to recover tax debts incurred in Australia where the debtor is outside Australia. The possible actions to be taken, as outlined in this Practice Statement, would generally only be appropriate where the taxpayer: • has been correctly notified of the liability • has been given clear opportunity but failed to pay by the due date, and • has not engaged with us to manage the debt after being given clear opportunity to do so. • has been correctly notified of the liability • has been given clear opportunity but failed to pay by the due date, and • has not engaged with us to manage the debt after being given clear opportunity to do so. Where you have a complex case, for example, one that involves a high risk to revenue, you should bring the case to the attention of your team or technical leader to determine when it would be appropriate to take the possible actions outlined in this Practice Statement. This Practice Statement covers: • our ability to require payment under domestic tax legislation • the ability of trustees and liquidators to recover debts in a foreign jurisdiction and how we assist them • our ability to obtain judgment in a foreign jurisdiction to recover debts in that jurisdiction • our ability to request assistance in collection and information gathering from foreign jurisdictions. • our ability to require payment under domestic tax legislation • the ability of trustees and liquidators to recover debts in a foreign jurisdiction and how we assist them • our ability to obtain judgment in a foreign jurisdiction to recover debts in that jurisdiction • our ability to request assistance in collection and information gathering from foreign jurisdictions. This Practice Statement also outlines our ability to recover tax debts on behalf of foreign jurisdictions under international treaties. All legislative references in this Practice Statement are to Schedule 1 to the Taxation Administration Act 1953, unless otherwise indicated. | 2. Our ability to require payment under domestic tax legislation: We have the ability to require payment from a debtor who is overseas under: • our general garnishee power [1] • our non-resident garnishee power. [2] • our general garnishee power [1] • our non-resident garnishee power. [2] The general garnishee power is restricted to garnisheeing funds in Australian currency, whereas the non-resident garnishee power extends to foreign currency. These 2 powers should always be considered before considering the other options outlined in this Practice Statement. This is because recovery proceedings are often more complicated and expensive where action is required to be taken in a foreign jurisdiction. Our general garnishee power Our general garnishee power allows us to collect tax debts from third parties who owe, or may later owe, money to a debtor. Law Administration Practice Statement PS LA 2011/18 Enforcement measures used for the collection and recovery of tax-related liabilities and other amounts outlines what factors you should consider when making a decision to issue a general garnishee notice. Our non-resident garnishee power Under the non-resident garnishee power, if a person (which can include a company) situated in Australia has receipt, control or disposal of money that belongs to a non-resident debtor, who derived income, profits or capital gains from a source in Australia, we can require the person: • either pay the tax [3] which is due and payable by the debtor, or • retain an amount which is sufficient to pay the tax which will be due by the debtor. • either pay the tax [3] which is due and payable by the debtor, or • retain an amount which is sufficient to pay the tax which will be due by the debtor. In making a decision on whether or not to issue a notice under this section [4] , you need to consider all the information available. Some factors you may consider include the amount of tax owed by the debtor and the availability of other assets in Australia belonging to the debtor. Once you have made the decision to issue a notice under this section, you should consider the following: • An assessment must have been issued to the debtor before you issue a notice to the person who has the receipt, control or disposal of the money. [5] The debtor must be a non-resident at the time the notice is issued. • The person needs to have receipt, control or disposal of the money at the time you issue the notice, or we must have an expectation that the person will in the future have actual receipt, control or disposal of funds owing to the taxpayer. • The person will become personally liable for any amount which they have retained or which they should have retained after receiving the notice. • Unlike the general garnishee power (pursuant to which monies must be paid in Australian currency), the person does not have to pay the amount from an Australian source. • An assessment must have been issued to the debtor before you issue a notice to the person who has the receipt, control or disposal of the money. [5] The debtor must be a non-resident at the time the notice is issued. • The person needs to have receipt, control or disposal of the money at the time you issue the notice, or we must have an expectation that the person will in the future have actual receipt, control or disposal of funds owing to the taxpayer. • The person will become personally liable for any amount which they have retained or which they should have retained after receiving the notice. • Unlike the general garnishee power (pursuant to which monies must be paid in Australian currency), the person does not have to pay the amount from an Australian source. Which garnishee power should you use? You should determine which garnishee power is most appropriate to use based on the facts of the case, as both notices serve different purposes and apply to different circumstances. When making your decision, you should note that the: • general garnishee power allows for the recovery of a broader range of tax liabilities and applies to a broader category of taxpayers than those covered under the non-resident garnishee power • non-resident garnishee power provides that the recipient is immediately personally liable [6] whereas a court order is required to make the recipient personally liable under the general garnishee power • reference to 'money' in the non-resident garnishee power [7] is not confined to Australian currency, but extends to foreign currency. [8] The definition of 'money' in the general garnishee power is confined to Australian currency. • general garnishee power allows for the recovery of a broader range of tax liabilities and applies to a broader category of taxpayers than those covered under the non-resident garnishee power • non-resident garnishee power provides that the recipient is immediately personally liable [6] whereas a court order is required to make the recipient personally liable under the general garnishee power • reference to 'money' in the non-resident garnishee power [7] is not confined to Australian currency, but extends to foreign currency. [8] The definition of 'money' in the general garnishee power is confined to Australian currency. In addition, there is no restriction on your ability to issue both notices concurrently if the facts of the case indicate that it is appropriate to do so. | 3. Powers of liquidators and trustees to recover debts: A trustee in bankruptcy or a liquidator may pursue investigations in a foreign jurisdiction to: • recover assets of the debtor situated in a foreign jurisdiction • commence proceedings to prevent the dissipation of such assets. • recover assets of the debtor situated in a foreign jurisdiction • commence proceedings to prevent the dissipation of such assets. To do this, they can ask the court to issue a letter of request for assistance to a court or authority in a foreign jurisdiction. [9] Australia has reciprocal arrangements in place with a number of foreign countries to ensure assistance in a bankruptcy or liquidation. [10] A list of these countries can be found in Attachment A to this Practice Statement. The existence of a reciprocal agreement is not a prerequisite to a court issuing a letter of request. In the absence of such an agreement, the court will consider the extent to which reciprocal cooperation is likely to occur. How this may affect us We may be asked to indemnify recovery action taken by a liquidator or trustee in a foreign jurisdiction. [11] If you receive a request from a liquidator or trustee for an indemnity, you should bring the case to the attention of your team or technical leader. | 4. Enforcing an Australian judgment in a foreign jurisdiction: The law [12] allows us, once we obtain judgment for a debt in an Australian court, to register, enforce and collect the tax debt in certain foreign jurisdictions. [13] Factors you should consider when deciding to register a civil judgment include: • the size and nature of the debt • the risk assessment of the case in question • whether all reasonable domestic recovery options have been pursued, and whether they have been exhausted • the extent and value of assets in the foreign jurisdiction that are owned by the debtor • the likelihood of recovery, and whether the amount likely to be recovered outweighs the expected costs • the likely time and costs involved in the collection of the debt. • the size and nature of the debt • the risk assessment of the case in question • whether all reasonable domestic recovery options have been pursued, and whether they have been exhausted • the extent and value of assets in the foreign jurisdiction that are owned by the debtor • the likelihood of recovery, and whether the amount likely to be recovered outweighs the expected costs • the likely time and costs involved in the collection of the debt. | 5. Cross-border insolvency: We may also use laws relating to cross-border insolvency to assist recovery. [14] Under the cross-border insolvency laws, the insolvency proceedings commence in the foreign jurisdiction where the insolvent entity has its centre of main interest. This is to ensure that the distribution of an insolvent entity's assets takes place within a single system. However, the law provides that we can take action to protect our interest if there is a risk that tax debts owed to us may not be enforceable in these proceedings. In this situation, we can apply to an Australian court to make orders requiring all the Australian assets of the company be paid to us. This will prevent the assets being remitted to the foreign jurisdiction to be distributed in the liquidation. [15] You may want to consider this option if you have a relevant case and you believe there is a risk that the amounts owed to us by the insolvent foreign entity may not be enforceable in the proceedings in the foreign jurisdiction. | 6. Exchange of information with foreign jurisdictions: We may also use an exchange of information (EOI) to assist domestic information gathering and to decide which recovery method to use. It is used when: • we have no visibility over a debtor's offshore affairs, and • we have exhausted domestic options to source the information or verify the debtor's claims. • we have no visibility over a debtor's offshore affairs, and • we have exhausted domestic options to source the information or verify the debtor's claims. We only exchange information where it is foreseeably relevant to the administration and enforcement of Australian tax laws. What type of information can be exchanged under an exchange of information? Any information held by, or that can be obtained by, an international exchange partner may be requested. Where our international exchange treaty requirements have been met, we are able to exchange information relating to intelligence, risk assessments, audits, and other activities. Information obtained through EOI can: • confirm tax residency status • identify offshore assets and income • identify trust and company records • verify transaction flows and banking information • validate global supply chain arrangements. • confirm tax residency status • identify offshore assets and income • identify trust and company records • verify transaction flows and banking information • validate global supply chain arrangements. In the specific case of indirect taxes, see Law Administration Practice Statement PS LA 2016/6 Exchange of information with foreign revenue authorities about indirect taxes. Undertaking an exchange of information Jurisdictions only exchange information that is relevant to the tax affairs of the taxpayer under investigation. Before you undertake an EOI you must: • exhaust domestic avenues (except where disproportionate difficulties arise) – it is important that all means available in Australia to obtain the information have been exhausted first, except where disproportionate difficulties have arisen • check for an effective treaty – the treaty must cover the tax type and the period for which the information is being requested • check for publicly available information – many countries have relevant information that is publicly available (that is, company records and registers of real property) and if the information is publicly available, you do not need an EOI • consider ramifications for related parties – this concerns related parties that are residents of the country from which you are requesting information • establish the foreseeable relevance of the information being requested – jurisdictions only exchange information that is relevant to the tax affairs of the taxpayer under investigation. The requesting jurisdiction should explain why they are requesting the information and show a clear link between the requested information and the examination or investigation. • exhaust domestic avenues (except where disproportionate difficulties arise) – it is important that all means available in Australia to obtain the information have been exhausted first, except where disproportionate difficulties have arisen • check for an effective treaty – the treaty must cover the tax type and the period for which the information is being requested • check for publicly available information – many countries have relevant information that is publicly available (that is, company records and registers of real property) and if the information is publicly available, you do not need an EOI • consider ramifications for related parties – this concerns related parties that are residents of the country from which you are requesting information • establish the foreseeable relevance of the information being requested – jurisdictions only exchange information that is relevant to the tax affairs of the taxpayer under investigation. The requesting jurisdiction should explain why they are requesting the information and show a clear link between the requested information and the examination or investigation. You should follow your business line procedures to undertake an EOI. Responding to an exchange of information All incoming EOI requests are received by the EOI unit. The EOI unit will check to ensure that the request from the foreign jurisdiction meets treaty requirements. Where an EOI meets treaty requirements and a debtor or third-party contact is required, the EOI unit will refer the request to the appropriate business line for action. | 7. International treaties: We can request assistance by foreign jurisdictions in regard to debt recovery through: • bilateral treaties which allow for assistance with collection with individual jurisdictions, and • the Multilateral Convention [16] to which multiple jurisdictions are a signatory. • bilateral treaties which allow for assistance with collection with individual jurisdictions, and • the Multilateral Convention [16] to which multiple jurisdictions are a signatory. Where a foreign jurisdiction is a signatory to the Multilateral Convention, and also has a bilateral treaty with Australia, either country is able to make a request for recovery on the basis of either the bilateral treaty or the Multilateral Convention. An 'assistance in collection article' has been included in some bilateral treaties signed between Australia and other countries. [17] A similar article for the provision of mutual assistance in the collection of tax debts is contained in the Multilateral Convention, to which Australia is a signatory. Action to be taken in respect of tax debts owed to us, by the relevant taxation authority in the foreign jurisdiction on our behalf (known as the 'competent authority') allowed by these articles include: • action to preserve assets, and • recovery action. • action to preserve assets, and • recovery action. In order to take action under a bilateral treaty or the Multilateral Convention in a foreign jurisdiction, the debtor must either: • be a resident in that foreign jurisdiction, or • hold assets in that foreign jurisdiction. • be a resident in that foreign jurisdiction, or • hold assets in that foreign jurisdiction. Bilateral treaties and the Multilateral Convention use different terms to describe the tax debts for which we may make a request for assistance: • Under a bilateral treaty we make a 'revenue claim' and the bilateral treaty generally specifies which taxes that includes. The revenue claim must be enforceable which means that the liability must be legally recoverable by us. However, where we take an action to preserve assets as a preliminary step to further recovery action, such as where we believe there may be dissipation of assets, the revenue claim does not, at that stage, need to be enforceable (for instance, a liability does not need to be due and payable). This action if the debt is not yet payable would need specific approval from an Assistant Commissioner based on the facts indicating a risk to ultimate collection if action was delayed. • Under the Multilateral Convention we make a 'tax claim'. The claim is restricted to taxes listed in the Multilateral Convention. • Under a bilateral treaty we make a 'revenue claim' and the bilateral treaty generally specifies which taxes that includes. The revenue claim must be enforceable which means that the liability must be legally recoverable by us. However, where we take an action to preserve assets as a preliminary step to further recovery action, such as where we believe there may be dissipation of assets, the revenue claim does not, at that stage, need to be enforceable (for instance, a liability does not need to be due and payable). This action if the debt is not yet payable would need specific approval from an Assistant Commissioner based on the facts indicating a risk to ultimate collection if action was delayed. • Under the Multilateral Convention we make a 'tax claim'. The claim is restricted to taxes listed in the Multilateral Convention. Both types of claims can include interest, administrative penalties, costs of collection or the costs of an action to preserve assets related to the claim. | 8. Requesting assistance from a foreign jurisdiction for assistance: The manner in which we will request assistance from a foreign jurisdiction depends on: • whether the request is made under a bilateral treaty or the Multilateral Convention • whether there is a memorandum of understanding (MOU) in place • the laws of the particular foreign jurisdiction we are requesting assistance from. • whether the request is made under a bilateral treaty or the Multilateral Convention • whether there is a memorandum of understanding (MOU) in place • the laws of the particular foreign jurisdiction we are requesting assistance from. Memorandums of understanding All incoming and outgoing EOIs must meet international treaty law and domestic requirements. MOUs are not legally enforceable like treaties, and they are also less formal. This is reflected in the language and key provisions used. We may have an MOU with the party that we have a bilateral treaty with or with individual parties to the Multilateral Convention. Recovery action can still be taken where an MOU does not exist. These requests will be undertaken in close collaboration with the competent authority of the foreign jurisdiction to establish general agreement on the submission of the request and administration of the recovery action. Making the request When deciding whether to make a request, you should consider the following factors: • the size and nature of the debt • whether the debt is in dispute or subject to an objection or review • the risk assessment of the case in question • whether all reasonable domestic recovery options have been pursued, and whether they have been exhausted • the value of any assets owned by the debtor that are located in the foreign jurisdiction • the legal and administrative procedures in the foreign jurisdiction applying to the collection of the Australian tax debt • the likely time and costs involved in the collection of the debt • the likelihood of recovering the debt • any advice provided by the foreign competent authority of the foreign jurisdiction. • the size and nature of the debt • whether the debt is in dispute or subject to an objection or review • the risk assessment of the case in question • whether all reasonable domestic recovery options have been pursued, and whether they have been exhausted • the value of any assets owned by the debtor that are located in the foreign jurisdiction • the legal and administrative procedures in the foreign jurisdiction applying to the collection of the Australian tax debt • the likely time and costs involved in the collection of the debt • the likelihood of recovering the debt • any advice provided by the foreign competent authority of the foreign jurisdiction. Reductions and increases in the claim If the debt reduces after you make the request, you will need to inform the foreign jurisdiction of the reduction and the new balance of the debt owing. If a debt is increased, you should work with the foreign jurisdiction to ascertain how the additional debt amount is to be claimed and treated. | 9. Collecting debts on behalf of a foreign jurisdiction when requested: Foreign jurisdictions can also request assistance from us under a bilateral treaty or the Multilateral Convention. If you receive a request for assistance (known as a 'foreign revenue claim') from a foreign jurisdiction there are a number of actions you must take in order to collect or enforce the debt – see Attachment B to this Practice Statement. If you receive a request from a foreign jurisdiction to collect a debt, you should bring the case to the attention of your team or technical leader. | 10. Costs of collection: Provisions as to the treatment of costs incurred by a jurisdiction in collecting a foreign debt are usually contained in an MOU between the jurisdictions. Usually, the ordinary costs of collection are borne by the jurisdiction collecting the foreign debt. Ordinary costs include internal administration costs (such as staff salaries and overheads) and minor external costs (such as court filing fees). Any extraordinary costs which cannot be recovered from the debtor should be borne by the jurisdiction making the collection request. These include the cost of experts, external lawyers, translators and other legal fees such as external legal advice. | 11. More information: For further information, refer to the following: • Law Administration Practice Statement PS LA 2011/3 Compromise of undisputed tax-related liabilities and other amounts payable to the Commissioner • Law Administration Practice Statement PS LA 2011/14 General debt collection powers and principles • Law Administration Practice Statement PS LA 2011/16 Insolvency – collection, recovery and enforcement issues for entities under external administration • Law Administration Practice Statement PS LA 2011/18 Enforcement measures used for the collection and recovery of tax-related liabilities and other amounts • Law Administration Practice Statement PSLA 2016/6 Exchange of information with foreign revenue authorities about indirect taxes • Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting [2019] ATS 1 • Model Tax Convention on Income and on Capital 2010 . • Law Administration Practice Statement PS LA 2011/3 Compromise of undisputed tax-related liabilities and other amounts payable to the Commissioner • Law Administration Practice Statement PS LA 2011/14 General debt collection powers and principles • Law Administration Practice Statement PS LA 2011/16 Insolvency – collection, recovery and enforcement issues for entities under external administration • Law Administration Practice Statement PS LA 2011/18 Enforcement measures used for the collection and recovery of tax-related liabilities and other amounts • Law Administration Practice Statement PSLA 2016/6 Exchange of information with foreign revenue authorities about indirect taxes • Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting [2019] ATS 1 • Model Tax Convention on Income and on Capital 2010 . ATTACHMENT A – AUSTRALIAN RECIPROCAL AGREEMENTS Australian reciprocal agreements The following is a list of current Australian reciprocal agreements: • United Kingdom • Canada • New Zealand • Jersey • Malaysia • Papua New Guinea • Singapore • Switzerland • United States of America. • United Kingdom • Canada • New Zealand • Jersey • Malaysia • Papua New Guinea • Singapore • Switzerland • United States of America. ATTACHMENT B – ACTIONS TO COLLECT OR ENFORCE THE DEBT ON BEHALF OF A FOREIGN JURISDICTION Registration of foreign revenue claims When a foreign jurisdiction makes a foreign revenue claim pursuant to the mutual assistance articles in either a bilateral treaty or the Multilateral Convention, you should check that it complies with the following requirements [18] : • It is made by or on behalf of an entity that is the competent authority. • It is consistent with the provisions of that agreement. • It is made in the approved form. • It specifies the amount owed by the debtor in Australian currency (calculated as at the day the claim is made). • It is accompanied by a declaration by the competent authority stating that the claim fulfils the requirements of that agreement. • It is made by or on behalf of an entity that is the competent authority. • It is consistent with the provisions of that agreement. • It is made in the approved form. • It specifies the amount owed by the debtor in Australian currency (calculated as at the day the claim is made). • It is accompanied by a declaration by the competent authority stating that the claim fulfils the requirements of that agreement. If you are satisfied that these requirements are met, you must register the foreign revenue claim on the Foreign Revenue Claims Register (Register) within 90 days of receiving it. Once registered, the tax debt may be recovered in the same way as other debts owed to us. [19] Service of notice on the debtor The amount of the foreign revenue claim only becomes due and payable 30 days after service of a notice of the foreign revenue claim on the debtor, or at a later date specified in the notice. [20] If the amount remains unpaid after that date, general interest charge accrues on any unpaid amounts. [21] General debt collection Once the foreign revenue claim is registered, we will recover any registered foreign revenue claim or take action to preserve assets in the same manner as domestic tax debts. However, there are some specific requirements that must be observed when undertaking recovery action on a foreign revenue claim, as set out under the heading 'Specific requirements' in this Attachment. Specific requirements Evidence In legal proceedings to recover a foreign revenue claim, the Commissioner may produce an evidentiary certificate [22] which is prima facie evidence of the matter in the proceeding. This means that once the Commissioner produces a valid evidentiary certificate, the onus is on the debtor to prove that the contents of the evidentiary certificate are incorrect. Where the liability is disputed Generally, proceedings about the existence, validity or amount of a foreign revenue claim cannot be brought before the courts or administrative bodies of Australia. [23] Therefore, if the debtor disputes the debt, the matter must be litigated and resolved in the country in which the tax debt arose, under the laws of that country. They cannot raise those arguments in any proceedings in Australia for recovery of the foreign revenue claim. Arrangements to pay by instalments Before we accept an arrangement to pay a foreign revenue claim by instalments, we will need to discuss this with the competent authority of the foreign jurisdiction. [24] We may also be notified by the foreign jurisdiction that an arrangement has been entered into between the debtor and the foreign jurisdiction itself for the payment of the debt by instalments to that foreign jurisdiction. Compromise of debts Because the debt originates in the foreign jurisdiction a debtor will usually seek to compromise (or their equivalent of compromise) in the foreign jurisdiction. Any reduction in the debt in the foreign jurisdiction then correspondingly reduces the debt in Australia. However, we have the power to compromise undisputed tax debts. [25] Once a claim is registered, this power extends to foreign revenue claims. As such, we can receive applications for compromise from the debtor. If this happens, you must inform the competent authority of the foreign jurisdiction. A decision to compromise such debts should be exercised cautiously, given that the debts have arisen (in substance) from another jurisdiction. If compromise is considered here in Australia, it will be necessary to take into account the extent and value of assets owned by the debtor in a foreign country, as an additional factor in the decision of whether to allow the compromise. Amending the claim and removal of details on the Foreign Revenue Claims Register We have, in certain circumstances [26] , powers to amend or remove the details of a debtor or a foreign revenue claim on the Register. These circumstances are as set as follows: • where we conclude, with agreement from the relevant foreign competent authority, that a foreign revenue claim on the Register should not be on the Register and wish to remove that foreign country debtor from the Register • if we are satisfied with a debtor's application to remove their details, for example, where an individual has incorrectly been identified as a debtor • where there is a minor administrative error in relation to the Register and we wish to correct that error, and we have agreement from the relevant foreign competent authority • where the amount to be recovered from the debtor should be reduced, for example, where the debt has been partially satisfied or reduced as a result of an objection or appeal in the foreign jurisdiction • if we receive advice from the requesting foreign competent authority that the amount to be recovered from the foreign country debtor should be reduced. • where we conclude, with agreement from the relevant foreign competent authority, that a foreign revenue claim on the Register should not be on the Register and wish to remove that foreign country debtor from the Register • if we are satisfied with a debtor's application to remove their details, for example, where an individual has incorrectly been identified as a debtor • where there is a minor administrative error in relation to the Register and we wish to correct that error, and we have agreement from the relevant foreign competent authority • where the amount to be recovered from the debtor should be reduced, for example, where the debt has been partially satisfied or reduced as a result of an objection or appeal in the foreign jurisdiction • if we receive advice from the requesting foreign competent authority that the amount to be recovered from the foreign country debtor should be reduced. Remitting amounts to a foreign jurisdiction Amounts recovered from the debtor in relation of the foreign revenue claim will be remitted to the foreign jurisdiction, either in full or in stages, as and when we receive the amounts. [27] The manner and frequency of remission will depend on the terms of the agreement between Australia and the foreign jurisdiction. Usually, this matter will be covered in an MOU, or by way of agreement in discussions between us and the relevant foreign competent authority.",PS LA 2011/3 | PS LA 2011/14 | PS LA 2011/16 | PS LA 2011/18 | PSLA 2016/6 | PS LA 2016/6 | ITAA 1936 255 | ITAA 1936 255(1)(b) | ITAA 1936 255(1)(c) | TAA 1953 Sch 1 255-1 | TAA 1953 Sch 1 260-5 | TAA 1953 Sch 1 263-15 | TAA 1953 Sch 1 263-30(2) | TAA 1953 Sch 1 263-30(3) | TAA 1953 Sch 1 263-35 | TAA 1953 Sch 1 263-40 | TAA 1953 Sch 1 350-10 | Bankruptcy Act 1966 29(4) | Bankruptcy Act 1966 29(5) | Corporations Act 2001 581 | Bankruptcy Regulations 2021 7 | 2007 ATC 5302 | [2013] FCAFC 118 | 2013 ATC 20-422,PS LA 2016/6 PS LA 2011/18 PS LA 2011/16 PS LA 2011/14 PS LA 2011/3,ITAA 1936 255 | ITAA 1936 255(1)(b) | ITAA 1936 255(1)(c) | TAA 1953 Sch 1 255-1 | TAA 1953 Sch 1 260-5 | TAA 1953 Sch 1 263-15 | TAA 1953 Sch 1 263-30(2) | TAA 1953 Sch 1 263-30(3) | TAA 1953 Sch 1 263-35 | TAA 1953 Sch 1 263-40 | TAA 1953 Sch 1 350-10 | Bankruptcy Act 1966 29(4) | Bankruptcy Act 1966 29(5) | Corporations Act 2001 581 | Cross-Border Insolvency Act 2008 | Foreign Judgments Act 1991 | Bankruptcy Regulations 2021 7,,"Convention between Australia and New Zealand for the Avoidance of Double Taxation with respect to Taxes on Income and Fringe Benefits and the Prevention of Fiscal Evasion [2010] ATS 10Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting [2019] ATS 1OECD/Council of Europe (2011) The Multilateral Convention on Mutual Administrative Assistance in Tax Matters, OECD Publishing, Paris https://doi.org/10.1787/9789264115606-en OECD (2012) Model Tax Convention on Income and on Capital 2010, OECD Publishing, Paris https://doi.org/10.1787/9789264175181-en",False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS201113/NAT/ATO/00001,"Updated in line with current ATO style and accessibility guides. | Added a 'More information' section and provided links to OECD publications and Practice Statements mentioned within this Practice Statement. | Added a 'Specific requirements' section in Attachment B to this Practice Statement | Updated to new LAPS format and style. | Update content to include references and amendments to take into account Australia's entry into the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (as amended by the 2010 Protocol). | Minor revisions including changes to meet Style guide requirements. | [2] Section 255 of the Income Tax Assessment Act 1936 (ITAA 1936). | [3] This includes any general interest charge, additional tax and the shortfall interest charge. | [4] Section 255 of the ITAA 1936. | [5] Bluebottle UK Limited v Deputy Commissioner of Taxation [2007] HCA 54. | [6] Paragraph 255(1)(c) of the ITAA 1936. | [7] Paragraph 255(1)(b) of the ITAA 1936. | [8] Commissioner of Taxation v Resource Capital Fund IV LP [2013] FCAFC 118. | [9] Subsection 29(4) of the Bankruptcy Act 1966 or section 581 of the Corporations Act 2001 . | [10] Subsection 29(5) of the Bankruptcy Act 1966 and section 7 of the Bankruptcy Regulations 2021 . | [11] The provision of an indemnity is discussed in Law Administration Practice Statement PS LA 2011/16 Insolvency – collection, recovery and enforcement issues for entities under external administration . | [12] Foreign Judgments Act 1991 . | [13] Only New Zealand and Papua New Guinea have application to tax debts. | [14] Australia has incorporated the United Nations Commission on International Trade Law (UNCITRAL) Model Law into the Cross-Border Insolvency Act 2008 . | [15] Article 22 of the UNCITRAL Model Law; see also Akers (as joint foreign representative) v Saad Investments Company Limited; In the matter of Saad Investments Company Limited (in official liquidation) [2013] FCA 738. | [16] OECD/Council of Europe (2011) The Multilateral Convention on Mutual Administrative Assistance in Tax Matters , OECD Publishing, Paris https://doi.org/10.1787/9789264115606-en . | [17] Based on Article 27 of the OECD (2012) Model Tax Convention on Income and on Capital 2010 , OECD Publishing, Paris, https://doi.org/10.1787/9789264175181-en . | [19] Section 255-1, see also Law Administration Practice Statement PS LA 2011/14 General debt collection powers and principles . | [20] Subsection 263-30(2). | [21] Subsection 263-30(3). | [23] For example, see Article 27(6) of the Convention between Australia and New Zealand for the Avoidance of Double Taxation with respect to Taxes on Income and Fringe Benefits and the Prevention of Fiscal Evasion [2010] ATS 10. Similar provisions exist in Article 23 of the Multilateral Convention. | [24] All arrangements entered into must be made in accordance with the principles outlined in PS LA 2011/14. | [25] Law Administration Practice Statement PS LA 2011/3 Compromise of undisputed tax-related liabilities and other amounts payable to the Commissioner . | Akers (as joint foreign representative) v Saad Investments Company Limited; In the matter of Saad Investments Company Limited (in official liquidation) [2013] FCA 738 95 ATR 588 31 ACLC 13-037 11 ABC (NS) 249 [2013] ALMD 6029 | Bluebottle UK Limited v Deputy Commissioner of Taxation [2007] HCA 54 232 CLR 598 82 ALJR 127 240 ALR 597 2007 ATC 5302 67 ATR 1 | Commissioner of Taxation v Resource Capital Fund IV LP [2013] FCAFC 118 215 FCR 1 2013 ATC 20-422 95 ATR 816 [2014] ALMD 601 [2014] ALMD 617"
PS LA 2011/14,General debt collection powers and principles,14 April 2011,14 April 2011,Law Administration Practice Statement,False,"1. All legislative references in this Practice Statement are to Schedule 1 to the Taxation Administration Act 1953 (TAA), unless otherwise indicated. | Definitions: 2. The following terms are used in this Practice Statement: • Additional charges – refers to the specific additional amounts for late payment (including general interest charge (GIC) imposed by the various Acts administered by us) whenever an amount is not paid by the time for payment. • Deferring the time for payment – means to vary the time at which a tax-related liability becomes due and payable. In a practical sense, such a deferral extends the time for payment of a debt without attracting additional charges for late payment (provided the debt is paid at or before the deferred time). As a result, the debt is no longer due and payable on the original due date but becomes payable on the date as deferred. It differs from the situation where a debtor is permitted to pay by instalments where additional charges accrue from the original due date. In the latter case, the time at which a tax-related liability becomes due and payable is not varied and interest on any unpaid amount begins to accrue from that time. • Guarantee – means a binding agreement to satisfy the obligation of another person, if the latter fails to do so. • Payment by instalments or payment over time – means to accept payment of a debt that has not been paid by the original due date by regular payments over a period of time. The arrangement does not vary the time at which the amount is due and payable. GIC or other relevant penalty for any unpaid amount of liability will accrue from the due date for payment. • Payment time or time for payment – means the time at which an amount of a tax-related liability is, was or would become due and payable. • Security – could be generally described as a possession such that the holder of the security holds, as against the grantor (the taxpayer), a right to resort to some property or some fund for the satisfaction of some demand, after which the balance of the property or fund belongs to the grantor. • Tax debt – means a primary tax debt or a secondary tax debt (see section 8AAZA of the TAA). • Tax debtor – means, as per section 8AAZA of the TAA – in relation to a tax debt – the person or persons who are liable for the tax debt – in relation to a running balance account (RBA) – the person or persons who are liable for the tax debts that are allocated to the RBA. • Tax-related liability – is a term used to describe a pecuniary liability to the Commonwealth arising directly under a taxation law (including a liability the amount of which is not yet due and payable) that is administered by the Commissioner (see subsection 255-1(1)). It encompasses all types of taxes, penalties and additional charges for late payment (including amounts previously defined under the Income Tax Assessment Act 1936 as 'tax' and under the Superannuation Guarantee (Administration) Act 1992 as 'superannuation guarantee charge'). However, it does not include a civil penalty arising under Division 290. A table which lists the tax-related liabilities is found in section 250-10. • Additional charges – refers to the specific additional amounts for late payment (including general interest charge (GIC) imposed by the various Acts administered by us) whenever an amount is not paid by the time for payment. • Deferring the time for payment – means to vary the time at which a tax-related liability becomes due and payable. In a practical sense, such a deferral extends the time for payment of a debt without attracting additional charges for late payment (provided the debt is paid at or before the deferred time). As a result, the debt is no longer due and payable on the original due date but becomes payable on the date as deferred. It differs from the situation where a debtor is permitted to pay by instalments where additional charges accrue from the original due date. In the latter case, the time at which a tax-related liability becomes due and payable is not varied and interest on any unpaid amount begins to accrue from that time. • Guarantee – means a binding agreement to satisfy the obligation of another person, if the latter fails to do so. • Payment by instalments or payment over time – means to accept payment of a debt that has not been paid by the original due date by regular payments over a period of time. The arrangement does not vary the time at which the amount is due and payable. GIC or other relevant penalty for any unpaid amount of liability will accrue from the due date for payment. • Payment time or time for payment – means the time at which an amount of a tax-related liability is, was or would become due and payable. • Security – could be generally described as a possession such that the holder of the security holds, as against the grantor (the taxpayer), a right to resort to some property or some fund for the satisfaction of some demand, after which the balance of the property or fund belongs to the grantor. • Tax debt – means a primary tax debt or a secondary tax debt (see section 8AAZA of the TAA). • Tax debtor – means, as per section 8AAZA of the TAA – in relation to a tax debt – the person or persons who are liable for the tax debt – in relation to a running balance account (RBA) – the person or persons who are liable for the tax debts that are allocated to the RBA. • Tax-related liability – is a term used to describe a pecuniary liability to the Commonwealth arising directly under a taxation law (including a liability the amount of which is not yet due and payable) that is administered by the Commissioner (see subsection 255-1(1)). It encompasses all types of taxes, penalties and additional charges for late payment (including amounts previously defined under the Income Tax Assessment Act 1936 as 'tax' and under the Superannuation Guarantee (Administration) Act 1992 as 'superannuation guarantee charge'). However, it does not include a civil penalty arising under Division 290. A table which lists the tax-related liabilities is found in section 250-10. – in relation to a tax debt – the person or persons who are liable for the tax debt – in relation to a running balance account (RBA) – the person or persons who are liable for the tax debts that are allocated to the RBA. | General principles on the payment of taxation debts: 3. The payment of taxes is an important community responsibility. We expect debtors to pay their taxation debts as and when they fall due for payment. If a debt is not paid when it falls due for payment, we are responsible for collecting it or recovering it in a timely manner. 4. We use risk management to ensure that our strategies are effective and appropriate for collecting outstanding debts. To ensure that our approach is professional: • We advise tax debtors of their rights and we respect those rights. • We proceed with appropriate collection action without further notice where a tax debtor fails to respond to our approaches or fails to enter into genuine negotiations. • We adopt the full range of appropriate collection options covered in Law Administration Practice Statement PS LA 2011/18 Enforcement measures used for the collection and recovery of tax-related liabilities and other amounts. • We advise tax debtors of their rights and we respect those rights. • We proceed with appropriate collection action without further notice where a tax debtor fails to respond to our approaches or fails to enter into genuine negotiations. • We adopt the full range of appropriate collection options covered in Law Administration Practice Statement PS LA 2011/18 Enforcement measures used for the collection and recovery of tax-related liabilities and other amounts. 5. We expect tax debtors to pay their debts as and when they fall due for payment because we: • are not a lending institution or a credit provider • expect tax debtors to organise their affairs to ensure payment of tax debts on time • expect tax debtors to give their tax debts equal priority with other debts. • are not a lending institution or a credit provider • expect tax debtors to organise their affairs to ensure payment of tax debts on time • expect tax debtors to give their tax debts equal priority with other debts. 6. Once a tax debt becomes due and payable, the law deems the debt to be due to the Commonwealth and payable to the Commissioner (see subsection 255-5(1)). If a tax debtor does not pay by the due date and does not contact us, we assume they are not going to pay and take whatever action is necessary to recover the debt. 7. When deciding appropriate action to deal with outstanding debts, we consider the compliance history of a taxpayer, including both payment and lodgment records. If we decide to take recovery action, options can include action through the courts or the use of our statutory garnishee power. For details of our garnishee policy, refer to PS LA 2011/18. 8. In applying this policy, we will assess a tax debtor's capacity to pay their tax debts. We will consider a number of factors, including: • gross income and expenditure, including – consideration of past, current and future transactions – taxable income – exempt income – wealth through inheritances – gifts and windfalls – exclusion of book entries (depreciation, investment allowances, journal entries) – the nature of business deductions – the curtailing of excessive personal expenditure, and – income alienation • access to liquid assets or assets easily convertible to cash (shares, debentures, bonds, personal assets such as jewellery, art) • ability to convert fixed assets to cash (sale of home, land, motor vehicle, boats, plant and equipment) • ability to obtain loans and funds from financial institutions, family and friends or related entities. • gross income and expenditure, including – consideration of past, current and future transactions – taxable income – exempt income – wealth through inheritances – gifts and windfalls – exclusion of book entries (depreciation, investment allowances, journal entries) – the nature of business deductions – the curtailing of excessive personal expenditure, and – income alienation • access to liquid assets or assets easily convertible to cash (shares, debentures, bonds, personal assets such as jewellery, art) • ability to convert fixed assets to cash (sale of home, land, motor vehicle, boats, plant and equipment) • ability to obtain loans and funds from financial institutions, family and friends or related entities. – consideration of past, current and future transactions – taxable income – exempt income – wealth through inheritances – gifts and windfalls – exclusion of book entries (depreciation, investment allowances, journal entries) – the nature of business deductions – the curtailing of excessive personal expenditure, and – income alienation 9. We will also consider the factors or circumstances which led to the inability to pay (for example, the disposition of funds to a family member at a time when tax-related liabilities arose). 10. If debtors cannot pay a tax debt in full by the due date (or anticipate they will not be able to), they should contact us as early as possible to discuss payment at a later date or by instalments. Note also: • Company directors may be personally liable to a penalty equal to particular debts of their company that are not paid by the due date. • We will not give approval to pay at a later time as a matter of course (see paragraphs 49 to 54 of this Practice Statement). The fact that we are negotiating payment of a debt does not prevent us from prosecuting breaches of tax laws. Further, where we have a concern about the risk to the revenue it does not prevent us from seeking to secure the debt by whatever means are available (for example, judgment, security over property, injunctions or issuing of garnishee notices). Liability to pay outstanding tax is not deferred because of any action to dispute that amount – for details, refer to Law Administration Practice Statement PS LA 2011/4 Collection and recovery of disputed debts. • Company directors may be personally liable to a penalty equal to particular debts of their company that are not paid by the due date. • We will not give approval to pay at a later time as a matter of course (see paragraphs 49 to 54 of this Practice Statement). The fact that we are negotiating payment of a debt does not prevent us from prosecuting breaches of tax laws. Further, where we have a concern about the risk to the revenue it does not prevent us from seeking to secure the debt by whatever means are available (for example, judgment, security over property, injunctions or issuing of garnishee notices). Liability to pay outstanding tax is not deferred because of any action to dispute that amount – for details, refer to Law Administration Practice Statement PS LA 2011/4 Collection and recovery of disputed debts. 11. We have the power to defer the time at which an amount of a tax-related liability is, or would become, due and payable. The circumstances of each particular case must be taken into account (see paragraphs 16 to 48 of this Practice Statement). 12. Where tax debtors face genuine difficulty in meeting payment dates but have capacity to pay, we may allow them to pay their tax debts (and any additional charges for late payment, including the GIC) by instalments over a reasonable period of time (see paragraphs 49 to 72 of this Practice Statement). 13. If payment of an income tax or fringe benefits tax debt will cause serious hardship, an individual tax debtor can apply for a release from that debt – refer to Law Administration Practice Statement PS LA 2011/17 Debt relief, waiver and non-pursuit. 14. Where a long-term payment arrangement is offered, the risk to revenue will be assessed. We may accept a security to protect the revenue (for example, a registered first mortgage over property). In such circumstances, the debtor would be expected to cover the legal costs of the mortgage (refer paragraphs 73 to 126 of this Practice Statement). 15. You must follow the principles and guidelines outlined in this Practice Statement when exercising the Commissioner's powers under sections 255-10, 255-15 or 255-20. It is noted, however, that it is not possible to set out all the circumstances in which the powers may or may not be exercised. Each case has to be considered on its merits and on the basis of all the relevant facts. You must ensure that the pre-conditions prescribed for the exercise of the power are met. You must take care not to consider irrelevant factors and must exercise your own judgment in arriving at an appropriate decision. The decision must be made in good faith and without bias. | Payment due dates and deferrals: 16. Where we make an assessment, we send the taxpayer a notice of assessment stating the amount payable and when payment is due. Where the taxpayer self-assesses the tax or charge, the payment is usually due when the lodgment is due. 17. When we notify a tax debtor of an administrative overpayment (under subsection 8AAZN(2) of the TAA), specifying a payment date at least 30 days after we give the notice, the tax debtor is liable to pay the GIC on the unpaid amount from the notified payment date. However, administrative overpayments which do not fall within the ambit of section 8AAZN of the TAA and can only be recovered under a common law remedy will not attract GIC. (Refer to Law Administration Practice Statement PS LA 2011/5 Recovery of administrative overpayments.) 18. Where lodgments or tax debts (other than GIC) fall due on a weekend or a public holiday, the law extends the due date to the next business day (section 8AAZMB of the TAA and section 388-52). 19. For the purposes of these provisions, a public holiday includes any day that is a public holiday throughout a state or territory. In these circumstances, all taxpayers receive the benefit of the extension, even if they are not located in the relevant state or territory. | Demanded due dates: 20. We can bring forward the payment time in certain cases if we reasonably believe that the tax debtor may leave Australia before a tax-related liability is due and payable (section 255-20). 21. For section 255-20 to apply, the debtor must have a tax-related debt 'due and payable' in the future. That debt can be one from a notice of assessment we have already sent or it can be one where we have quantified an amount and propose to send a notice of assessment with a new due date. 22. Section 255-20 also applies to any tax-related liability that becomes payable without an assessment or other notice issuing to the tax debtor. For example, a pay as you go withholding amount payable under Subdivision 16-B. 23. In all cases where we invoke section 255-20, subsection 255-20(2) requires us to notify the tax debtor in writing that we are bringing the payment date forward. 24. Under section 255-20, payment may be brought forward in cases involving visiting sports people, entertainers and other business professionals as we may consider the risk to revenue too great to attempt collection from people living in other tax jurisdictions. 25. We base decisions on bringing payment forward on the level of risk each case presents. In exercising this power, we consider the principles detailed in PS LA 2011/18. 26. In some cases, we exercise this power in conjunction with our power to prevent a debtor from leaving Australia without discharging, or making arrangements to discharge, a tax debt (see PS LA 2011/18). | Payment deferrals: 27. Section 255-10 enables us to defer the time for payment of a tax-related liability having regard to the circumstances of a particular case. The mere existence of that power does not confer upon a debtor any right or entitlement to its exercise. 28. A deferral of the payment time under section 255-10 varies the time at which the amount is due and payable. Any GIC or other relevant penalty applicable to any unpaid amount of the tax-related liability begins to accrue from the deferred payment time. 29. Deferring the time for payment of a tax-related liability, without the imposition of additional charges for late payment, facilitates collection from debtors who can demonstrate that they are unable to pay by the due date but have the capacity to pay in full at a particular time in the future. It also provides us with an alternative to legal action to recover debts not paid by the original due date. | Factors we take into account: 30. Without limiting our discretion in relation to any particular case, the time for payment will generally not be deferred unless the debtor can demonstrate that: • payment cannot be (or has not been) made by the original due date because of circumstances beyond their control and the debtor has taken reasonable steps to mitigate the effects of those circumstances • payment in full can be made at a later time, once the circumstances that led to non-payment have been alleviated, and • once the circumstances are under control, continuing tax-related liabilities will be paid as and when they fall due (and accordingly, the debt will not escalate after that time). • payment cannot be (or has not been) made by the original due date because of circumstances beyond their control and the debtor has taken reasonable steps to mitigate the effects of those circumstances • payment in full can be made at a later time, once the circumstances that led to non-payment have been alleviated, and • once the circumstances are under control, continuing tax-related liabilities will be paid as and when they fall due (and accordingly, the debt will not escalate after that time). 31. It is not possible to anticipate every circumstance which may prevent payment by the payment time and which is also beyond the control of a debtor or the debtor's representative (such as the trustee of the debtor's deceased estate). It can generally be expected, however, that a deferral will be granted where the debtor can show the inability to pay on time can be directly linked to: • natural disasters (for example, flood, fire, drought, earthquake) • other disasters that may have, or have had, a significant impact on a debtor or region • the serious illness of the debtor where there is no other person that can make (or could have made) the payment • experiences of vulnerability (for example, family violence, financial coercion, homelessness, serious mental health challenges or other relevant circumstances) • a legal impediment (such as probate not being granted or access to funds being denied by the order of a court) • the embezzlement of the debtor's payment by the tax agent, solicitor or other third party. • natural disasters (for example, flood, fire, drought, earthquake) • other disasters that may have, or have had, a significant impact on a debtor or region • the serious illness of the debtor where there is no other person that can make (or could have made) the payment • experiences of vulnerability (for example, family violence, financial coercion, homelessness, serious mental health challenges or other relevant circumstances) • a legal impediment (such as probate not being granted or access to funds being denied by the order of a court) • the embezzlement of the debtor's payment by the tax agent, solicitor or other third party. 32. Such circumstances do not commonly occur and there would be few others that would give rise to a debtor qualifying for a deferral. 33. We may grant a collective deferral of time for payment to a class of debtors in a particular industry or region. For example, we may exercise this power where a particular region has been impacted by natural disaster and we therefore grant deferral of payment time of tax-related liabilities to all taxpayers in the affected area. Our decision to defer payment in these circumstances will be published on our website. A taxpayer is not required to individually apply for a deferral where we have granted a blanket deferral (see subsection 255-10(2A)). 34. We will consider each individual request for a deferral on its merits. When we grant a deferral request, we will determine the deferred payment time by taking account of the particular circumstances of the debtor and the circumstances that led to the debtor not paying on time. The fact that the debtor may have other outstanding debts or a poor compliance record should not prevent that debtor from applying for and being granted a deferral of the time for payment of a particular tax-related liability. 35. In the case where a debtor has entrusted money intended for payment of a tax liability to a tax agent, solicitor or a third party and such money has been misappropriated, we may defer the time for payment of the particular tax-related liability or permit payment to be made by instalments under an arrangement, as circumstances warrant. However, the misappropriation does not alter the fact that the tax liability of that debtor remains undischarged and we would not be precluded from taking appropriate action to collect the liability concerned. The exception to this rule is where the payment was made by a cheque drawn in favour of the Commissioner and that cheque has been used for the payment of another debtor's tax-related liability. In such a situation, where the misappropriation has been established, we will usually be obliged to credit the drawer's account to the value of the cheque drawn. 36. We will not agree to defer the payment time of any tax-related liability on a permanent basis. However, where a debtor's payment has been misappropriated by another entity, we will generally extend the deferred payment time until any litigation that has been initiated to recover the misappropriated funds has been finalised. 37. In appropriate cases, we will consider being joined as a party to a matter such that his interest can be protected by seeking an order that the monies paid by the debtor are paid to us, in satisfaction or part satisfaction of the debtor's tax-related liability. 38. If we agree to defer the time for payment, we will not commence legal proceedings until after the deferred payment time. 39. Action to recover the debt and the additional charges for late payment (calculated from the deferred payment time) may be commenced if a debtor does not pay a tax-related liability by the deferred payment time and does not come to some alternative arrangement for payment of that debt. An alternative arrangement may include a further deferral or may involve us accepting payment of the debt by instalments, subject to the imposition of additional charges for late payment from the deferred payment time. 40. Once legal action for collection of the debt has commenced, the time for payment will not be deferred unless the parties to the proceedings enter into terms of settlement to enforce settlement which may include payment of the debt by instalments over an agreed period of time. (Refer to Law Administration Practice Statement PS LA 2011/7 Settlement of debt litigation proceedings). | Lodgment deferrals and payment consequences: 41. A decision that we make to defer a lodgment due date is separate to a decision to defer a payment due date. Where entities require both lodgment and payment deferrals, they will need to lodge separate requests. This applies to lodgment and payment deferrals beyond the statutory due dates or deferred due dates already allowed – for example, under the ATO lodgment program. 42. There will be cases where it is inappropriate to defer the due date for lodgment but it may be appropriate to defer the due date for payment. An inability to pay by the due date is not a valid reason for failing to lodge on time. 43. Alternatively, there will be circumstances, such as the situation where payment can be made but lodgment information is not yet available, where it is appropriate to defer the due date for lodgment but not payment. 44. Where the lodgment and payment due dates are deferred and provided lodgment and payment in full are made by the deferred due dates, no failure to lodge penalties will apply and no GIC will apply for failing to pay on time. | Transfer pricing cases: 45. 45. In cases where we make a transfer pricing or profit reallocation adjustment, the debtor may seek competent authority assistance under the mutual agreement procedure (MAP) article contained in Australia's double-tax agreements in an attempt to have the matter resolved with the other tax jurisdiction involved. For further information, refer to Mutual agreement procedure . 46. It is recognised that the collection of tax during the MAP will, in most instances, impose double taxation on the taxpayer because the same profits have been subject to tax in both jurisdictions. We will decline any request to defer the payment time until the MAP process is complete. Our power to defer recovery action under section 255-5 provides an alternate and more appropriate remedy for such circumstances. 47. We will agree to defer recovery action under section 255-5 until an agreed future date, which is usually the date that the MAP process is concluded, unless: • there is a risk to revenue • the taxpayer has other liabilities unpaid after the due date, or • the taxpayer has failed to meet other tax obligations when required. • there is a risk to revenue • the taxpayer has other liabilities unpaid after the due date, or • the taxpayer has failed to meet other tax obligations when required. | Advice to taxpayer: 48. In all cases where we decide to defer the payment time of any tax-related liability we must do so by giving written notice (see subsection 255-10(2)). The debtor will be advised in writing: • of the debts to which the deferral applies • of the deferred payment time by which payment is to be made and from which additional charges for late payment will be calculated • that the decision to defer the payment time is to specifically alleviate the difficulties caused by particular circumstances and is not a permanent deferral • that future liabilities are to be paid as and when they fall due (such that the debt does not escalate) • that additional charges continue to apply in relation to any other outstanding debt which is not the subject of the application to defer the time for payment, and • that action to recover will be commenced without further notice if payment is not made by the deferred payment time or future liabilities are not paid as and when they fall due and if alternative arrangements for payment have not been made. • of the debts to which the deferral applies • of the deferred payment time by which payment is to be made and from which additional charges for late payment will be calculated • that the decision to defer the payment time is to specifically alleviate the difficulties caused by particular circumstances and is not a permanent deferral • that future liabilities are to be paid as and when they fall due (such that the debt does not escalate) • that additional charges continue to apply in relation to any other outstanding debt which is not the subject of the application to defer the time for payment, and • that action to recover will be commenced without further notice if payment is not made by the deferred payment time or future liabilities are not paid as and when they fall due and if alternative arrangements for payment have not been made. | Payment arrangements: 49. Taxpayers have a responsibility to manage their cash flow to ensure they meet all their tax debts when those debts fall due for payment. Some taxpayers may experience cash flow difficulties that will prevent them from paying their debt on time. In those instances, we will consider requests to accept payment of the debt by instalments over a period of time. Accepting payment by instalments provides us with an alternative to more formal recovery procedures. 50. Section 255-15 gives us the power to permit taxpayers to pay an amount of a tax-related liability by instalments (payment arrangements) under an arrangement whether or not the liability has already arisen. 51. An arrangement under section 255-15 does not vary the time at which the amount is due and payable. Any GIC, if applicable, in respect of any unpaid amount of the tax-related liability, begins to accrue when the liability is due and payable under the relevant taxation law, or at the time as varied under sections 255-10 or 255-20. 52. We will not agree to accept payment arrangements as a matter of course. Any decision that we make to accept a payment arrangement will be made in accordance with the risk management guidelines set out in Law Administration Practice Statement PS LA 2011/6 Risk management in the enforcement of lodgment obligations and debt collection activities. Risk is clearly linked with the indicators of unwillingness to comply with taxation obligations in the Compliance model . We are unlikely to grant payment arrangements to those who continually fail to pay or meet their lodgment obligations on time. 53. We will consider the individual circumstances of the taxpayer in each case, including any steps that the taxpayer has taken or proposes to take to mitigate the risk. We will also consider the taxpayer's past behaviour and reasons for any previous non-compliance. The relevant factors for us to consider are outlined at paragraph 58 of this Practice Statement. 54. We may decide to accept a payment arrangement having due regard to the information provided by debtors. We will also consider any advice from financial advisers who taxpayers have engaged to assist in sorting out their financial affairs, but this does not relieve them from the responsibility for providing other relevant information to us. Taxpayers cannot impose conditions on us and if they do not provide sufficient information to support their application to pay by instalments, we will generally not agree to the request. | Application process: 55. The taxpayer has the sole responsibility for demonstrating that they cannot make payment by the due date. A taxpayer who cannot pay on time should apply for a payment arrangement before that due date has passed. If an application cannot be made by the due date, the taxpayer should apply as soon as possible after the due date. 56. Taxpayers applying to pay their debts by a payment arrangement must provide all necessary information within agreed timeframes to enable us to properly consider the request. If taxpayers do not provide the required information within the agreed timeframe, we will advise them that we may initiate or continue action to recover their debts without further notice. 57. An application to pay by a payment arrangement should be accompanied by an initial payment to the extent of the taxpayer's present capacity and the application should: • explain the reasons for non-payment by the due date • satisfy us as to the taxpayer's inability to pay the full amount by the due date, not simply provide reasons why they have decided to not pay by the due date • contain a detailed statement of the taxpayer's current financial position (including details of what steps have been taken to obtain funds to pay the debt and what arrangements are in place to pay other creditors) • satisfy us that, generally, the taxpayer is treating their tax debts with the same priority they are giving to their other payment obligations (for example, they would need to show that payment of private debts, like credit card debts and mortgage obligations, have not assumed a priority over payment of their tax debts and that any short-term priority afforded to their business debts was appropriate and that the business was viable) • include a detailed proposal for payment of their debt in full in the shortest possible timeframe • incorporate additional charges for late payment and reimbursement for any costs incurred pursuant to any recovery action that we had commenced in respect of the debt, and • contain sufficient information to satisfy us that payment can be made by a payment arrangement without the total debt escalating (taxpayers will need to specify the steps they have taken to ensure that future debts will be met as and when they fall due). • explain the reasons for non-payment by the due date • satisfy us as to the taxpayer's inability to pay the full amount by the due date, not simply provide reasons why they have decided to not pay by the due date • contain a detailed statement of the taxpayer's current financial position (including details of what steps have been taken to obtain funds to pay the debt and what arrangements are in place to pay other creditors) • satisfy us that, generally, the taxpayer is treating their tax debts with the same priority they are giving to their other payment obligations (for example, they would need to show that payment of private debts, like credit card debts and mortgage obligations, have not assumed a priority over payment of their tax debts and that any short-term priority afforded to their business debts was appropriate and that the business was viable) • include a detailed proposal for payment of their debt in full in the shortest possible timeframe • incorporate additional charges for late payment and reimbursement for any costs incurred pursuant to any recovery action that we had commenced in respect of the debt, and • contain sufficient information to satisfy us that payment can be made by a payment arrangement without the total debt escalating (taxpayers will need to specify the steps they have taken to ensure that future debts will be met as and when they fall due). | Factors we take into account: 58. Without limiting our discretion that we have in relation to a particular case, we will take account of the following factors to determine whether to accept a payment arrangement: • the information provided by the taxpayer and other information that may be held (or obtained) by us • the circumstances that led to the inability to pay and whether they were outside the taxpayer's control – examples include where the taxpayer was impacted by a natural disaster (such as fire, flood or drought) or experiences of vulnerability (such as family violence, financial coercion, homelessness, or serious mental health challenges) • the taxpayer's current financial position, including other current payment obligations and actions taken by the taxpayer to rearrange finances or borrow to meet the debt • the stage that any legal recovery action has reached, and any grounds offered by the taxpayer to justify a request that further legal action be deferred • the offer made and the ability to meet payment of the debt (and the additional charges for late payment imposed by legislation) on those terms without seriously impacting on the taxpayer's ability to meet other obligations • whether there is a likely risk to the revenue by accepting payment by instalments and whether that risk could be overcome by seeking some form of security for the debt from the taxpayer (see paragraphs 73 to 126 of this Practice Statement) • the solvency of the taxpayer and arrangements made with other creditors (arm's length or otherwise) to pay debts • compliance with other taxation obligations or commitments (for example, whether all lodgment obligations including activity statements are up to date) and the history of the taxpayer's prior dealings with us • whether there are alternative collection options that may result in payment in a shorter timeframe (for example, the use of garnishee provisions) • the willingness of the taxpayer to enter into direct debit arrangements if that facility exists, and • the willingness of the taxpayer to accept the conditions under which we will agree to a payment arrangement. • the information provided by the taxpayer and other information that may be held (or obtained) by us • the circumstances that led to the inability to pay and whether they were outside the taxpayer's control – examples include where the taxpayer was impacted by a natural disaster (such as fire, flood or drought) or experiences of vulnerability (such as family violence, financial coercion, homelessness, or serious mental health challenges) • the taxpayer's current financial position, including other current payment obligations and actions taken by the taxpayer to rearrange finances or borrow to meet the debt • the stage that any legal recovery action has reached, and any grounds offered by the taxpayer to justify a request that further legal action be deferred • the offer made and the ability to meet payment of the debt (and the additional charges for late payment imposed by legislation) on those terms without seriously impacting on the taxpayer's ability to meet other obligations • whether there is a likely risk to the revenue by accepting payment by instalments and whether that risk could be overcome by seeking some form of security for the debt from the taxpayer (see paragraphs 73 to 126 of this Practice Statement) • the solvency of the taxpayer and arrangements made with other creditors (arm's length or otherwise) to pay debts • compliance with other taxation obligations or commitments (for example, whether all lodgment obligations including activity statements are up to date) and the history of the taxpayer's prior dealings with us • whether there are alternative collection options that may result in payment in a shorter timeframe (for example, the use of garnishee provisions) • the willingness of the taxpayer to enter into direct debit arrangements if that facility exists, and • the willingness of the taxpayer to accept the conditions under which we will agree to a payment arrangement. | Running balance account deficit debt: 59. Where the outstanding debt is an RBA deficit debt, we will usually consider an application to pay by a payment arrangement based on the RBA deficit debt rather than on each of the individual component tax debts that contribute to that balance. The nature of an RBA deficit debt is discussed in Law Administration Practice Statement PS LA 2011/22 Commissioner's discretion to retain a refund. | Risk analysis: 60. We do not accept payment arrangements in circumstances where the prospects of recovery in the longer term would be diminished or the revenue would be disadvantaged. If we have insufficient information to enable us to make a decision, we will advise taxpayers that the offer is unacceptable and that formal action to recover the debt will be instituted or will continue. Where we have concerns about the solvency of taxpayers or their ability to meet the terms proposed, we may require them to provide adequate security or a surety (see paragraphs 73 to 126 of this Practice Statement). 61. Taxpayers that pay their taxation debts by payment arrangements are expected to finalise their debts in the shortest possible timeframe. However, we acknowledge there will be instances where a payment arrangement may extend over more than one financial year depending on factors such as the ability to pay, the size of the debt and the likely costs of alternative collection activity. In these circumstances, the taxpayer may be required to provide security or a surety. We will also review the payment arrangement regularly to take into account potential changes to the taxpayer's financial situation. 62. In some cases, where it is considered appropriate based on an analysis of the associated risk (see PS LA 2011/18), we may accept a payment arrangement without immediately deferring legal action. For example, we may require execution of judgment or that the taxpayer consent to judgment as a precondition of the payment arrangement. | Terms and conditions of payment arrangements: 63. Taxpayers will be advised in writing of the details of the payment arrangement (that is, what is expected from them) if it is decided to accept payment by instalments. They will also be advised of the likely consequences if they fail to pay as required under the payment arrangement (or fail to come to some alternative arrangement for payment that is acceptable to us). Taxpayers are expected to make payments in accordance with their payment proposals while we assess the proposal. 64. Payment arrangements will stipulate that GIC imposed by legislation applies from the original due date of the liabilities and will continue to accrue while the debt remains outstanding. If possible, taxpayers will be provided with an indication of the likely quantum of interest they will be required to pay under the payment arrangement. Taxpayers seeking a remission of GIC will have to demonstrate that remission is warranted (see Law Administration Practice Statement PS LA 2011/12 Remission of General Interest Charge). 65. If the taxpayer does not meet a term of the payment arrangement, action to recover the whole of the outstanding debt may be initiated (or continued) without further warning. Taxpayers are expected to acknowledge the debt and, if legal proceedings have commenced or are about to commence, must consent to the Commissioner being granted judgment in the event of any default in payment. 66. The terms of the payment arrangement should not inhibit recovery action if there are indications of risk to the revenue, preferential payments or a significant change in the taxpayer's circumstances. Where a significant change in the taxpayer's circumstances occurs, we may (having regard to any representations that have been made by the taxpayer) vary the terms of the payment arrangement or proceed to recover the debt in full (see paragraphs 71 and 72 of this Practice Statement). 67. We may require the condition that we will allocate payments to outstanding tax debts in an order that is in the best interests of the Commonwealth (see Law Administration Practice Statement PS LA 2011/20 Payment and credit allocation). When allocating payment to outstanding tax debt, we will consider a number of factors, including the: • nature of the tax types • differing age of debts • remedies open to us to collect those debts, and • stage reached in legal proceedings for any part of the debt. • nature of the tax types • differing age of debts • remedies open to us to collect those debts, and • stage reached in legal proceedings for any part of the debt. 68. If a taxpayer is not prepared to agree to the terms put forward by us, then we may commence or continue to take formal legal action to recover the debt without further warning. | Discretion not to offset: 69. By law, we must offset all credits, payments or RBA surpluses against any taxation debts. However, we have a discretion not to offset in the limited circumstances specified in subsection 8AAZL(3) of the TAA. This includes situations where the tax debt is the subject of a payment arrangement and the taxpayer is complying with the terms of that arrangement (paragraph 8AAZL(3)(b) of the TAA). If the taxpayer is complying with the terms of a payment arrangement, we will exercise the Commissioner's discretion not to offset where it is fair and reasonable to do so (see Law Administration Practice Statement PS LA 2011/21 Offsetting of refunds and credits against taxation and other debts). 70. We will generally advise taxpayers, when we negotiate payment, that offsets will occur, and we will confirm this in writing. | Termination of payment arrangements: 71. We may terminate any payment arrangement and commence or continue action to recover the whole of the outstanding debt if the: • information provided by the taxpayer and upon which the decision was based, was false or misleading • taxpayer does not pay the instalments as required • taxpayer fails to comply with subsequent lodgment and payment obligations for the duration of the arrangement • taxpayer's circumstances change and we form the view that the payment arrangement should be terminated rather than varied. • information provided by the taxpayer and upon which the decision was based, was false or misleading • taxpayer does not pay the instalments as required • taxpayer fails to comply with subsequent lodgment and payment obligations for the duration of the arrangement • taxpayer's circumstances change and we form the view that the payment arrangement should be terminated rather than varied. 72. We will commence action to recover the debt and the additional charges for late payment (calculated from the original due date) if a taxpayer does not make a payment instalment by the agreed date or contravenes a payment arrangement in any way and does not come to some alternative acceptable arrangement for payment of that debt. | Securities: 73. Security involves a transaction where a creditor is given rights that can be exercised against some property of the taxpayer or a third party in the event the taxpayer does not pay or comply with the conditions as set out in the security deed (see paragraph 84 of this Practice Statement). The advantages of obtaining a security are it: • reinforces our prospects of ultimate recovery of the debt and the risk of non-payment is mitigated • provides an incentive for a taxpayer to ensure that all possible steps are taken to finalise any review and appeal processes, and any other arrangements for the payment of tax • allows taxpayers to retain a disputed amount pending completion of the review process • prevents taxpayers or related entities from divesting themselves of assets while a debt remains outstanding • protects the Commissioner's position during court disputes. • reinforces our prospects of ultimate recovery of the debt and the risk of non-payment is mitigated • provides an incentive for a taxpayer to ensure that all possible steps are taken to finalise any review and appeal processes, and any other arrangements for the payment of tax • allows taxpayers to retain a disputed amount pending completion of the review process • prevents taxpayers or related entities from divesting themselves of assets while a debt remains outstanding • protects the Commissioner's position during court disputes. 74. In some cases, it may be appropriate for us to obtain the best security available in order to make certain its position as creditor or, more importantly, to secure the process of debt collection. We may seek to obtain security in cases where: • a taxpayer requests that we defer the time for payment of a debt (see paragraphs 16 to 48 of this Practice Statement) • a taxpayer is seeking to pay a debt by instalments (see paragraphs 49 to 72 of this Practice Statement) • we have reason to believe the taxpayer intends to carry on business for a limited period only (see the discussion of Subdivision 255-D in paragraph 85 of this Practice Statement) • the taxpayer admits they are temporarily unable to pay the taxation debts • a debt is subject to dispute and an arrangement has been made with us in accordance with PS LA 2011/4 • the taxpayer appears to be dissipating assets • the taxpayer wishes to leave Australia but is not in a position to pay the debt before leaving • the taxpayer is seeking a departure authorisation certificate from us • there is any other indication that the revenue may be at risk. • a taxpayer requests that we defer the time for payment of a debt (see paragraphs 16 to 48 of this Practice Statement) • a taxpayer is seeking to pay a debt by instalments (see paragraphs 49 to 72 of this Practice Statement) • we have reason to believe the taxpayer intends to carry on business for a limited period only (see the discussion of Subdivision 255-D in paragraph 85 of this Practice Statement) • the taxpayer admits they are temporarily unable to pay the taxation debts • a debt is subject to dispute and an arrangement has been made with us in accordance with PS LA 2011/4 • the taxpayer appears to be dissipating assets • the taxpayer wishes to leave Australia but is not in a position to pay the debt before leaving • the taxpayer is seeking a departure authorisation certificate from us • there is any other indication that the revenue may be at risk. 75. Securities may take any number of forms – for example, a mortgage over land or a guarantee by a bank (see paragraphs 82 and 83 of this Practice Statement which identify the securities the Commissioner prefers). 76. We maintain a register of all securities received and issue a receipt for each security. 77. This policy does not apply to licensing securities obtained in relation to the Excise Act 1901. | Security offered voluntarily by the taxpayer: 78. Where a security is offered, the taxpayer should be advised that: • The security is to be located in Australia, be of ascertainable value and be over property in a form acceptable us (see paragraphs 82 and 83 of this Practice Statement). • The security is to be supported by an agreement or deed which should set out the purpose of taking security, as well as when and what triggers default. For example, a breach of a payment arrangement may trigger default. The terms of the deed may include, but are not limited to, the following – All costs in maintaining the security property including rates, taxes and other charges are payable by the person offering the security. – Any property must be insured at the taxpayer's expense, showing the Commonwealth's interest in the property (including the nature of that interest, for example, as a mortgagee) for the full insurable value on a replacement and reinstatement basis. If the property is owned by the Owners' Corporation (for example, a strata title), the property must be insured by the Owners' Corporation. We may also require the taxpayer to obtain mortgagee insurance in respect of the mortgage. – The agreement or deed will provide for the us to realise the security should default occur. – Our costs in taking the security are to be met by the taxpayer at the time approval is given to take the security. This may include solicitors fees, valuation costs, registration and stamping fees. – Our costs in realising the security in the event of default are to be met by the taxpayer. • Additional charges for late payment will continue to accrue, unless the taxpayer's circumstances qualify for remission under normal remission guidelines (see PS LA 2011/12). • The security is to be located in Australia, be of ascertainable value and be over property in a form acceptable us (see paragraphs 82 and 83 of this Practice Statement). • The security is to be supported by an agreement or deed which should set out the purpose of taking security, as well as when and what triggers default. For example, a breach of a payment arrangement may trigger default. The terms of the deed may include, but are not limited to, the following – All costs in maintaining the security property including rates, taxes and other charges are payable by the person offering the security. – Any property must be insured at the taxpayer's expense, showing the Commonwealth's interest in the property (including the nature of that interest, for example, as a mortgagee) for the full insurable value on a replacement and reinstatement basis. If the property is owned by the Owners' Corporation (for example, a strata title), the property must be insured by the Owners' Corporation. We may also require the taxpayer to obtain mortgagee insurance in respect of the mortgage. – The agreement or deed will provide for the us to realise the security should default occur. – Our costs in taking the security are to be met by the taxpayer at the time approval is given to take the security. This may include solicitors fees, valuation costs, registration and stamping fees. – Our costs in realising the security in the event of default are to be met by the taxpayer. • Additional charges for late payment will continue to accrue, unless the taxpayer's circumstances qualify for remission under normal remission guidelines (see PS LA 2011/12). – All costs in maintaining the security property including rates, taxes and other charges are payable by the person offering the security. – Any property must be insured at the taxpayer's expense, showing the Commonwealth's interest in the property (including the nature of that interest, for example, as a mortgagee) for the full insurable value on a replacement and reinstatement basis. If the property is owned by the Owners' Corporation (for example, a strata title), the property must be insured by the Owners' Corporation. We may also require the taxpayer to obtain mortgagee insurance in respect of the mortgage. – The agreement or deed will provide for the us to realise the security should default occur. – Our costs in taking the security are to be met by the taxpayer at the time approval is given to take the security. This may include solicitors fees, valuation costs, registration and stamping fees. – Our costs in realising the security in the event of default are to be met by the taxpayer. 79. A security is normally for a current debt but may be arranged to meet future debts arising – for example, from non-payment of a business activity statement or other liabilities. The amount reflected in the security should be for a specific amount (so there is no uncertainty in law) and include the tax debt plus estimated additional charges for late payment, until the debt is fully paid. 80. In some cases, we will require a taxpayer to provide 'adequate' security as a pre-condition to agreeing to defer the time for payment of a tax debt, agreeing to permit payment of a tax debt by instalments or agreeing to issue a departure authorisation certificate. We will determine what is 'adequate' having regard to the particular circumstances. 81. In deciding whether to take or require security, we may consider the following factors: • the quantum of the debt • the nature of the security being offered, including – the location of the property – the expectation it can be readily and easily realised if default occurs – the taxpayer's equity in the security – the value of the security, and – how the value has been determined (that is, the basis of any valuation) • if third-party security is offered, whether the third party is solvent and if it is fair and reasonable to take the security • the value of security compared to the amount of the tax debt outstanding or the amount expected to be outstanding when any outstanding objection or appeal is finally determined • the period of time the debt has been outstanding • the taxpayer's past compliance history • the taxpayer's ability to pay, based on available information (either supplied by the taxpayer or otherwise available to us) • the level of the taxpayer's other liabilities • arrangements made by the taxpayer's other creditors to secure their debts. • the quantum of the debt • the nature of the security being offered, including – the location of the property – the expectation it can be readily and easily realised if default occurs – the taxpayer's equity in the security – the value of the security, and – how the value has been determined (that is, the basis of any valuation) • if third-party security is offered, whether the third party is solvent and if it is fair and reasonable to take the security • the value of security compared to the amount of the tax debt outstanding or the amount expected to be outstanding when any outstanding objection or appeal is finally determined • the period of time the debt has been outstanding • the taxpayer's past compliance history • the taxpayer's ability to pay, based on available information (either supplied by the taxpayer or otherwise available to us) • the level of the taxpayer's other liabilities • arrangements made by the taxpayer's other creditors to secure their debts. – the location of the property – the expectation it can be readily and easily realised if default occurs – the taxpayer's equity in the security – the value of the security, and – how the value has been determined (that is, the basis of any valuation) | Preferred securities: 82. The preferred securities are: • a registered first mortgage from the taxpayer or a third party over freehold property • a registered second or subsequent mortgage from the taxpayer or a third party over freehold property where there is sufficient equity in the property to secure the tax debt while ceding priority to the first or prior mortgagees • an unconditional bank guarantee from an Australian bank acceptable to us (unconditional means the bank pays us upon demand). • a registered first mortgage from the taxpayer or a third party over freehold property • a registered second or subsequent mortgage from the taxpayer or a third party over freehold property where there is sufficient equity in the property to secure the tax debt while ceding priority to the first or prior mortgagees • an unconditional bank guarantee from an Australian bank acceptable to us (unconditional means the bank pays us upon demand). 83. Securities can be provided by the taxpayer alone, in combination with others or by a third party alone. An agreement by the taxpayer, either to do something or not to do something, is not a security. (This is sometimes called a negative pledge. An example of this would be a pledge not to dissipate assets.) | Default by taxpayer: 84. If a taxpayer defaults on the agreement, we will take appropriate action. This may include: • allowing the agreement to continue but with any costs incurred to vary the existing documentation, including our legal costs, to be borne by the taxpayer • advising the taxpayer to pay the tax covered by the security otherwise action will be taken to enforce the security • enforcing the security. • allowing the agreement to continue but with any costs incurred to vary the existing documentation, including our legal costs, to be borne by the taxpayer • advising the taxpayer to pay the tax covered by the security otherwise action will be taken to enforce the security • enforcing the security. | Commissioner's power to request securities under Subdivision 255-D: 85. The Commissioner can require security from a taxpayer under Subdivision 255-D in situations where the Commissioner: • has reason to believe that the taxpayer is carrying on an enterprise in Australia and intends to carry on that enterprise for a limited time only, or • reasonably believes that the requirement is otherwise appropriate, having regard to all relevant circumstances. • has reason to believe that the taxpayer is carrying on an enterprise in Australia and intends to carry on that enterprise for a limited time only, or • reasonably believes that the requirement is otherwise appropriate, having regard to all relevant circumstances. 86. We may request security at any time that we reasonably believe is appropriate and as often as we reasonably believe is appropriate. The security can be required for either an existing or future tax-related liability. 87. We must consider all relevant matters, act reasonably and comply with the general principles of administrative law in deciding: • whether, and how often, to request security • how much security to require a taxpayer to provide • what kind of security to accept • how much time is given to the taxpayer to comply with the demand for security. • whether, and how often, to request security • how much security to require a taxpayer to provide • what kind of security to accept • how much time is given to the taxpayer to comply with the demand for security. 88. When requesting that a taxpayer provides security for an existing or future tax-related liability under section 255-100, we are required to give a security notice in writing to the taxpayer. 89. Under subsection 255-105(2), the security notice must be served on the taxpayer and must: • state that the taxpayer is required to give the security to the Commissioner • explain why we require the security • set out the amount of the security • describe the means by which the taxpayer is required to give the security under subsection 255-100(2) • specify the time by which the taxpayer is required to give the security • explain how the taxpayer may have our decision to require security reviewed. • state that the taxpayer is required to give the security to the Commissioner • explain why we require the security • set out the amount of the security • describe the means by which the taxpayer is required to give the security under subsection 255-100(2) • specify the time by which the taxpayer is required to give the security • explain how the taxpayer may have our decision to require security reviewed. 90. A taxpayer from whom security is requested has a right to request a review of the decision under the Administrative Decisions (Judicial Review) Act 1977, section 39B of the Judiciary Act 1903 and paragraph 75(v) of the Commonwealth of Australia Constitution Act. 91. Failure by a taxpayer to provide security as required is an offence under section 255-110. | Deciding whether to request security: Temporary enterprise 92. Under paragraph 255-100(1)(a), we may request security from a taxpayer if there is reason to believe that the taxpayer is establishing or carrying on an enterprise in Australia for a limited time only. 93. A security notice may be issued in such cases to secure the payment of tax debts which have been or which may be incurred by the taxpayer in conducting that enterprise. 94. Before we issue a security notice, we must consider all the relevant facts and circumstances of the case so as to determine if there are grounds to support a belief that the taxpayer: • is establishing or carrying on an enterprise, and • intends to carry on the enterprise for a limited time. • is establishing or carrying on an enterprise, and • intends to carry on the enterprise for a limited time. 95. Without limiting the matters that we can consider, the following factors may be relevant in deciding if the taxpayer intends to carry on the enterprise for a limited time: • the nature of the enterprise • any previous enterprises in which the taxpayer or a related entity of the taxpayer has been involved • whether the taxpayer is a non-resident • any evidence which may indicate that the taxpayer intends to leave Australia without returning • the amount of any current tax-related liability or the expected amount of any future tax-related liability • the taxpayer's ability to pay based on available information, and • the taxpayer's assets in Australia. • the nature of the enterprise • any previous enterprises in which the taxpayer or a related entity of the taxpayer has been involved • whether the taxpayer is a non-resident • any evidence which may indicate that the taxpayer intends to leave Australia without returning • the amount of any current tax-related liability or the expected amount of any future tax-related liability • the taxpayer's ability to pay based on available information, and • the taxpayer's assets in Australia. 96. When deciding whether to request security under paragraph 255-100(1)(a), we must consider the relevant facts and circumstances of each taxpayer. We may consider the following factors: • the nature of the enterprise • the expected duration of the enterprise • the nature and amount of any current tax-related liability and the nature and amount of any future tax-related liability expected to be incurred by the taxpayer in carrying on the enterprise • the taxpayer's ability to pay their current tax-related liability or the expected amount of any future tax-related liability, based on available information • the period of time any tax-related liability has been outstanding • the compliance and payment history of the taxpayer, both in respect of the current enterprise, as well as any previous enterprises in which it has been involved • the level of the taxpayer's other liabilities. • the nature of the enterprise • the expected duration of the enterprise • the nature and amount of any current tax-related liability and the nature and amount of any future tax-related liability expected to be incurred by the taxpayer in carrying on the enterprise • the taxpayer's ability to pay their current tax-related liability or the expected amount of any future tax-related liability, based on available information • the period of time any tax-related liability has been outstanding • the compliance and payment history of the taxpayer, both in respect of the current enterprise, as well as any previous enterprises in which it has been involved • the level of the taxpayer's other liabilities. Where otherwise appropriate 97. We are empowered to request security from a taxpayer where there is reason to believe that having regard to all relevant circumstances, the provision of security is otherwise appropriate (see paragraph 255-100(1)(b)). 98. In deciding whether to request security under paragraph 255-100(1)(b) and how often, we will take into account relevant facts and circumstances which may include the: • amount of any current tax-related liability or the expected amount of any future tax-related liability • period of time the debt has been outstanding • taxpayer's ability to pay their current tax-related liability or the expected amount of any future tax-related liability, based on available information • level of the taxpayer's other liabilities • impact of arrangements made by the taxpayer's other creditors to secure their debts, if known. • amount of any current tax-related liability or the expected amount of any future tax-related liability • period of time the debt has been outstanding • taxpayer's ability to pay their current tax-related liability or the expected amount of any future tax-related liability, based on available information • level of the taxpayer's other liabilities • impact of arrangements made by the taxpayer's other creditors to secure their debts, if known. 99. Generally, we should not consider issuing a security notice where no tax-related liability exists. However, we may consider issuing a security notice, where we have reasonable grounds to believe that a future liability will arise against that entity and that there is a risk that the liability will not be satisfied in the absence of the security. 100. In addition, we will consider the following factors, where relevant: • The taxpayer's payment history – we may consider the history of tax debts accrued by the taxpayer or by the businesses or activities in which they were involved, the nature and extent of those debts and the manner in which they arose. For example, security may be requested if it is evident that the taxpayer has a history of consistent non-compliance with paying previous liabilities. It may also be relevant to consider the nature of the business or activity in which the taxpayer is currently engaged. • The payment history of directors of a corporate taxpayer and trustees of trusts – in the case of companies, we may consider the current and previous conduct of those individuals who control the company's activities (such as, the directors of the company or the directors of other companies which have effective control over the relevant entity). For example, where the individuals who control the company have a history of involvement in 'phoenix' arrangements, the conduct and the compliance history of the directors of both the dissolved companies and the newly-established companies, and of the controlling companies of these entities, may be relevant considerations in deciding whether to issue a security notice. • Similarly, where relevant, in deciding to issue a security notice, we will consider the compliance history of trustees (and of directors of corporate trustees) in their – capacity as trustees of the particular trust – capacity as trustees of other trusts, both current and previous, and – non-trustee capacity. • Where we grant the taxpayer the benefit of a payment arrangement – we may require a taxpayer to provide security as a precondition of entering into a payment arrangement for the payment of liabilities by instalments. It is expected that this will not require the issue of a security notice. We may nonetheless issue a security notice in connection with an existing payment arrangement. For example, it may be appropriate to issue a security notice in the following situations – The payment arrangement had been entered into without the provision of security but it is now considered (on reasonable grounds) that the relevant risk of default has increased. This could occur where we have reasonable grounds to believe that asset dissipation by the taxpayer has occurred or is likely to occur. – Security which had been provided with the payment arrangement is considered (on reasonable grounds) to no longer be of sufficient value to meet the outstanding debt. For example, this may be due to a fall in the value of the security originally provided. • Where there is evidence of asset dissipation – we may require a taxpayer to provide security where, on the facts in a particular case, there is evidence that the taxpayer's assets are being dissipated. • The taxpayer's payment history – we may consider the history of tax debts accrued by the taxpayer or by the businesses or activities in which they were involved, the nature and extent of those debts and the manner in which they arose. For example, security may be requested if it is evident that the taxpayer has a history of consistent non-compliance with paying previous liabilities. It may also be relevant to consider the nature of the business or activity in which the taxpayer is currently engaged. • The payment history of directors of a corporate taxpayer and trustees of trusts – in the case of companies, we may consider the current and previous conduct of those individuals who control the company's activities (such as, the directors of the company or the directors of other companies which have effective control over the relevant entity). For example, where the individuals who control the company have a history of involvement in 'phoenix' arrangements, the conduct and the compliance history of the directors of both the dissolved companies and the newly-established companies, and of the controlling companies of these entities, may be relevant considerations in deciding whether to issue a security notice. • Similarly, where relevant, in deciding to issue a security notice, we will consider the compliance history of trustees (and of directors of corporate trustees) in their – capacity as trustees of the particular trust – capacity as trustees of other trusts, both current and previous, and – non-trustee capacity. • Where we grant the taxpayer the benefit of a payment arrangement – we may require a taxpayer to provide security as a precondition of entering into a payment arrangement for the payment of liabilities by instalments. It is expected that this will not require the issue of a security notice. We may nonetheless issue a security notice in connection with an existing payment arrangement. For example, it may be appropriate to issue a security notice in the following situations – The payment arrangement had been entered into without the provision of security but it is now considered (on reasonable grounds) that the relevant risk of default has increased. This could occur where we have reasonable grounds to believe that asset dissipation by the taxpayer has occurred or is likely to occur. – Security which had been provided with the payment arrangement is considered (on reasonable grounds) to no longer be of sufficient value to meet the outstanding debt. For example, this may be due to a fall in the value of the security originally provided. • Where there is evidence of asset dissipation – we may require a taxpayer to provide security where, on the facts in a particular case, there is evidence that the taxpayer's assets are being dissipated. – capacity as trustees of the particular trust – capacity as trustees of other trusts, both current and previous, and – non-trustee capacity. – The payment arrangement had been entered into without the provision of security but it is now considered (on reasonable grounds) that the relevant risk of default has increased. This could occur where we have reasonable grounds to believe that asset dissipation by the taxpayer has occurred or is likely to occur. – Security which had been provided with the payment arrangement is considered (on reasonable grounds) to no longer be of sufficient value to meet the outstanding debt. For example, this may be due to a fall in the value of the security originally provided. Amount of security required 101. In deciding how much security to require from a taxpayer, we will consider all relevant facts and circumstances including the amount of the current tax-related liability or the expected amount of the future tax-related liability. 102. We may require security to the value of the existing or anticipated tax-related liabilities or to the value of a portion of those liabilities. We should consider the taxpayer's ability to provide that security. 103. Where there is both an existing tax-related liability as well as an anticipated tax-related liability, security that equals the amount of both the current and expected liabilities may be required. This may be the case, for example, where there are reasonable grounds to believe that an anticipated tax-related liability is unlikely to be met by the taxpayer at the time in which it becomes due and payable. 104. The extent to which future tax-related liabilities of an entity may be anticipated by us will depend on the relevant circumstances of each case, including (but not limited to) the: • nature of the business or activity in which the taxpayer is engaged • size of the taxpayer's business • number of employees in the business • type of tax debt incurred or expected to be incurred • nature and extent of the debts incurred by the businesses or activities in which the taxpayer was previously engaged and the taxpayer's tax compliance and payment history. • nature of the business or activity in which the taxpayer is engaged • size of the taxpayer's business • number of employees in the business • type of tax debt incurred or expected to be incurred • nature and extent of the debts incurred by the businesses or activities in which the taxpayer was previously engaged and the taxpayer's tax compliance and payment history. 105. We may, for example, have a reasonable basis upon which to expect that the entity will incur an income tax debt in a particular amount for the current income year or a pay as you go withholding debt for several periods in an income year. An estimation of this liability may be based on information relating to the taxpayer's business. 106. When we anticipate the tax-related liabilities likely to be incurred by the taxpayer, we may consider the likely changes in either the general economic environment or circumstances relevant to the conduct and operation of the taxpayer's business. It may not always be possible for us to anticipate amounts of future tax-related liabilities with the necessary degree of precision, particularly over a long period of time. The longer the period of time in respect of which the liabilities are to be anticipated, the greater the chance that unforeseeable events may occur that will materially affect the conduct and operations of the taxpayer's business. 107. We may therefore consider it appropriate to request further security. We may choose to issue a security notice covering tax debts that can reasonably be expected to be incurred over a particular period and issue a subsequent security notice in respect of that period, or a subsequent period, for further liabilities that have become reasonably predictable. 108. We may not consider it practical or desirable to issue multiple security notices in succession covering short periods of immediately foreseeable liability, particularly where there appears to be evidence of a significant risk of asset dissipation. 109. It may be appropriate for us to request security only for a portion of the existing or anticipated liability, notwithstanding that the quantum of the full debt amount may be established or reasonably ascertainable. We will make this decision based on the relevant facts and circumstances. Court orders to comply with a requirement to provide security 110. We can make an application to the Federal Court to seek an order to compel an entity to comply with a requirement to provide a security where we have requested security under section 255-105. 111. Failure to comply with this court order is an offence which carries a maximum penalty of 50 penalty units [1] , imprisonment for 12 months or both (subsection 255-120(1)). What kind of security to accept 112. Paragraphs 82 and 83 of this Practice Statement describe the types of security that are acceptable to us. 113. A security notice issued to a taxpayer may prescribe a specific type or types of security that must be provided by the taxpayer in satisfaction of the request. We will consider the taxpayer's circumstances when determining what security is sought. We will not require a taxpayer to provide a type of security that cannot reasonably be expected to be provided by that taxpayer. 114. In most cases, we will prescribe a range of security types in the security notice issued to the taxpayer, to allow the taxpayer some flexibility in satisfying the request. However, there may be cases in which the security notice requires a particular type of security from a taxpayer. This may be necessary, for example, where there is evidence of asset dissipation. 115. In order to satisfy the security notice requirements, the taxpayer must provide security of the kind and in the amount specified by us. We may reject an offer of security that does not meet these requirements. The taxpayer may be liable for an offence for failure to comply with the security notice if an acceptable security is not provided within the timeframe stipulated in the notice. 116. We should also consider any equity that the debtor or a third party has in the various assets over which the security is being sought. Time allowed for the provision of security 117. A security notice issued to the taxpayer must prescribe the time by which the taxpayer is required to provide the security. 118. We will prescribe a reasonable amount of time for the taxpayer to comply with the security notice. The amount of time considered reasonable for the satisfaction of the security notice will vary from case-to-case and depends on the circumstances pertaining to each matter. 119. We must regard all the relevant circumstances in prescribing the time within which the security notice requirements must be met. This may include the following factors: • the risk of asset dissipation • the amount of security required from the taxpayer • the type of tax liabilities covered by the security • the type of security to be provided by the taxpayer • whether the asset is owned directly or indirectly by the taxpayer. • the risk of asset dissipation • the amount of security required from the taxpayer • the type of tax liabilities covered by the security • the type of security to be provided by the taxpayer • whether the asset is owned directly or indirectly by the taxpayer. 120. Security is 'provided' once all the transactions necessary to give us rights that can be exercised against the taxpayer's property have been completed. 121. In some cases, the security required by us may need to be supported by an executed agreement or deed or various other documents (for example, a registered mortgage). Security will only be considered to have been 'provided' by the due date in the security notice if all such necessary documents have been executed and all necessary processes concluded by the required date. 122. The taxpayer will be liable for penalties for failure to provide the required security by the due date. However, we may extend the time for compliance with the security notice provided that the taxpayer has requested an extension of time from us within the period nominated in the notice. The time should only be extended in those cases where it is considered reasonable to do so after having considered all relevant facts and circumstances. Failure to provide security 123. A taxpayer will commit an offence if they fail to provide security to us as required in the security notice (see section 255-110). 124. The penalty for not complying with a security notice is determined by the courts based on the penalty unit provisions of the Crimes Act 1914 and the TAA. Default by the taxpayer 125. The general legal principles that apply to security arrangements govern our ability to exercise rights over the security. The exercise of the Commissioner's rights depends on the specific situation, taking into account factors such as the nature of the liabilities covered by the security, the reason the security was requested and the precise wording of the agreement or deed under which the security is provided. 126. The security required by the security notice is not a tax or a withholding obligation. The enforcement of the security is not subject to the general collection and recovery rules that apply to tax-related liabilities. For example, a failure to comply with the security notice will not attract GIC on the amount of the security required under the security notice. Where applicable, GIC will be applied to the particular outstanding tax-related liabilities in respect of which a security notice is issued.",PS LA 2011/4 | PS LA 2011/5 | PS LA 2011/6 | PS LA 2011/7 | PS LA 2011/12 | PS LA 2011/17 | PS LA 2011/18 | PS LA 2011/20 | PS LA 2011/21 | PS LA 2011/22 | ITAA 1936 | SGAA 1992 | TAA 1953 8AAZA | TAA 1953 8AAZL(3) | TAA 1953 8AAZL(3)(b) | TAA 1953 8AAZMB | TAA 1953 8AAZN | TAA 1953 8AAZN(2) | TAA 1953 Sch 1 Subdiv 16-B | TAA 1953 Sch 1 250-10 | TAA 1953 Sch 1 255-1(1) | TAA 1953 Sch 1 255-5 | TAA 1953 Sch 1 255-5(1) | TAA 1953 Sch 1 255-10 | TAA 1953 Sch 1 255-10(2) | TAA 1953 Sch 1 255-10(2A) | TAA 1953 Sch 1 255-15 | TAA 1953 Sch 1 255-20 | TAA 1953 Sch 1 255-20(2) | TAA 1953 Sch 1 Subdiv 255-D | TAA 1953 Sch 1 255-100 | TAA 1953 Sch 1 255-100(1)(a) | TAA 1953 Sch 1 255-100(1)(b) | TAA 1953 Sch 1 255-100(2) | TAA 1953 Sch 1 255-105(2) | TAA 1953 Sch 1 255-110 | TAA 1953 Sch 1 255-120(1) | TAA 1953 Sch 1 Div 290 | TAA 1953 Sch 1 388-52 | Administrative Decisions (Judicial Review) Act 1977 | Crimes Act 1914 | Excise Act 1901,PS LA 2011/4 PS LA 2011/5 PS LA 2011/6 PS LA 2011/7 PS LA 2011/12 PS LA 2011/17 PS LA 2011/18 PS LA 2011/20 PS LA 2011/21 PS LA 2011/22,ITAA 1936 | SGAA 1992 | TAA 1953 8AAZA | TAA 1953 8AAZL(3) | TAA 1953 8AAZL(3)(b) | TAA 1953 8AAZMB | TAA 1953 8AAZN | TAA 1953 8AAZN(2) | TAA 1953 Sch 1 Subdiv 16-B | TAA 1953 Sch 1 250-10 | TAA 1953 Sch 1 255-1(1) | TAA 1953 Sch 1 255-5 | TAA 1953 Sch 1 255-5(1) | TAA 1953 Sch 1 255-10 | TAA 1953 Sch 1 255-10(2) | TAA 1953 Sch 1 255-10(2A) | TAA 1953 Sch 1 255-15 | TAA 1953 Sch 1 255-20 | TAA 1953 Sch 1 255-20(2) | TAA 1953 Sch 1 Subdiv 255-D | TAA 1953 Sch 1 255-100 | TAA 1953 Sch 1 255-100(1)(a) | TAA 1953 Sch 1 255-100(1)(b) | TAA 1953 Sch 1 255-100(2) | TAA 1953 Sch 1 255-105(2) | TAA 1953 Sch 1 255-110 | TAA 1953 Sch 1 255-120(1) | TAA 1953 Sch 1 Div 290 | TAA 1953 Sch 1 388-52 | Administrative Decisions (Judicial Review) Act 1977 | Commonwealth of Australia Constitution Act 75(v) | Crimes Act 1914 | Excise Act 1901 | Judiciary Act 1903 39B,,Compliance Model Mutual agreement procedure,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS201114/NAT/ATO/00001,"This Practice Statement is being reviewed to ensure alignment of the ATO's approach to remission of interest and penalties charges. This document incorporates revisions made since original publication. View its history and amending notices, if applicable. | Included vulnerability as a factor to be taken into account. | Updated to align with amended Practice Statement style and formatting requirements. | Content checked for technical accuracy and currency. | New paragraphs 107 to 109 | Included to reflect amendments to the law brought in by the Treasury Laws Amendment (2018 Measures No. 4) Act 2019. | Removed reference to the Financial Management and Accountability Regulations 1997. | Corrections to comply with Style guide and to improve readability of document. | Re-arranged information on securities to improve readability. | Qualified that the Commissioner will generally re-credit in these circumstances described if misappropriation has been established. | Change in policy – in those cases where litigation has been initiated to recover misappropriated funds, the Commissioner will generally defer the payment due date until the litigation is finalised and may consider joining the civil proceedings to protect the Commonwealth's interests. | Revised to reflect current policy in PS LA 2011/15. | Removed reference to fixed and floating charge. | Qualified that the Commissioner's costs in taking the security are to be met by the taxpayer at the time approval is given to take the security. | Revised listing of the securities preferred by the Commissioner. | Removed reference to specific penalty amount. | [1] The value of a penalty unit is contained in section 4AA of the Crimes Act 1914 and is indexed regularly. The dollar amount of a penalty unit is available at Penalties . | File 1-HJN7E8H; 1-12I72638"
PS LA 2011/15,"Lodgment obligations, due dates and deferrals",14 April 2011,14 April 2011,Law Administration Practice Statement,False,"Appendix A – Types of lodgment obligations: Topics included in this Appendix 86B. The topics included in Appendix A are as follows: • income tax • income tax – consolidated groups • fringe benefits tax (FBT) • employee share scheme obligations • activity statements and instalment notices • PAYG withholding annual reports • petroleum resource rent tax (PRRT) • Single Touch Payroll (STP) • global and domestic minimum tax (minimum tax) [13A] • Public CBC reporting. • income tax • income tax – consolidated groups • fringe benefits tax (FBT) • employee share scheme obligations • activity statements and instalment notices • PAYG withholding annual reports • petroleum resource rent tax (PRRT) • Single Touch Payroll (STP) • global and domestic minimum tax (minimum tax) [13A] • Public CBC reporting. Income tax 87. Each year, under section 161 of the ITAA 1936, we are required to set out in a legislative instrument the lodgment requirements and due dates of tax returns for a year of income. This instrument sets out who is required to lodge a tax return for the income year. [13B] 88. In this instrument, we may exempt certain classes of entities not liable to pay income tax from their obligation to lodge a return. [14] Return not necessary 89. An entity may notify us when it is not required to lodge a tax return or further income tax returns. Regardless of such notification, we retain the right to require these entities to give a return or further or fuller return. Further return or information 90. We may require any entity to give further or fuller returns, or any information, statement or document about the entity's financial affairs. [15] Partnerships and lodgment 91. An individual is not required to lodge a partnership return where the partnership was not carrying on a business and the only income derived jointly (or in common) with another individual was: • rent from a jointly owned property • interest from a jointly held account • dividends from jointly held shares. • rent from a jointly owned property • interest from a jointly held account • dividends from jointly held shares. 92. Each individual in the partnership needs to include details of all relevant income, expenditure and deduction items, as well as distribution details, in their own tax return. 93. For further information, see the Partnership tax return instructions for the relevant income year. Income tax – consolidated and multiple entry consolidated groups 94. Where a head company or eligible tier one companies make a choice to either form a consolidated group [16] or a multiple entry consolidated (MEC) [17] group, it is the responsibility of either the head company or the provisional head company to ensure the relevant information related to the choice is given to us in the approved form. [18] 95. For the year in which a consolidated group is formed, the head company needs to lodge only one income tax return to cover any pre-consolidation and post-consolidation periods. The income tax return lodged needs to include all the income tax information from all subsidiary members for the duration of their time in the group. 96. An entity that is a subsidiary member of a consolidated group is not required to lodge an income tax return for the duration of their time in the group. That is, it is only required to lodge its income tax return for its non-membership period if it was not a member for the whole consolidated group (or MEC group) income year. 97. An entity that moves in or out of a consolidated group (or MEC group) during an income year has to lodge only one return for that year, but must account for any period the entity was not a subsidiary member of a group. Fringe benefits tax 98. An entity which is an employer must lodge an FBT return if it has a fringe benefits taxable amount in an FBT year. [19] An FBT year is 1 April to 31 March. [20] 99. By notice in writing, we may require any person, whether an employer or not, to provide a return for an FBT year in the manner and within the time specified in that notice. This applies whether or not the relevant entity has provided or otherwise been required to provide a return for that FBT year. [21] Employee share scheme obligations 100. An entity that provides employee share scheme (ESS) [22] interests to an individual under an employee share scheme during a year must, at the end of the year (and, in certain cases, at the end of a later year), give certain information to us and to the individual. 101. The statement must be in the approved form, and must be given: • to the individual no later than 14 July after the end of the year, and • to us no later than 14 August after the end of the year. • to the individual no later than 14 July after the end of the year, and • to us no later than 14 August after the end of the year. Activity statements and instalment notices 102. We may combine several approved forms into one [23] lodgment obligation for an activity statement. An activity statement may include: • GST • GST instalments • wine equalisation tax (WET) • luxury car tax (LCT) • fuel tax credit • PAYG instalments • PAYG withholding • FBT instalments. • GST • GST instalments • wine equalisation tax (WET) • luxury car tax (LCT) • fuel tax credit • PAYG instalments • PAYG withholding • FBT instalments. 103. The activity statement is the document used to lodge a GST return. 104. We require lodgment of GST returns where an entity is registered or required to be registered for GST. This applies regardless of whether the net amount is a refund, nil balance or the entity is liable for GST on taxable supplies attributable to the relevant period. 105. Where no amount is notified against a liability, we generally consider it to be notification that the amount is nil. Where it is later determined that an amount should have been included, the entity may be liable for an administrative penalty for false or misleading statements. [24] 106. Activity statement reporting obligations are generally monthly or quarterly, but in certain circumstances an entity may report annually or biannually. Where entities choose to report GST or PAYG withholding branch [25] activities or both separately, they need to lodge an activity statement for each branch for each period. 107. We may, at any time, require a further or fuller GST return for one or more tax periods. [26] 108. Entities using the 'income times rate' option [27] in the PAYG instalment system are required to notify us of their PAYG instalment liability, even where this is 'nil'. 109. A 'nil' notification is also required when an entity has made a PAYG withholding payment or provided a benefit treated as a PAYG withholding payment, but the amount withheld is nil. Substituted accounting period 110. A substituted accounting period (SAP) is an accounting period that has a balancing date different to the normal balancing date of 30 June. For further information, see Law Administration Practice Statement PS LA 2007/21 Substituted accounting periods (SAPs). 111. Entities with an SAP for income tax purposes that report GST and PAYG withholding on a quarterly basis will report these liabilities in accordance with the standard reporting periods. [28] SAP entities reporting PAYG instalments on a quarterly basis will report these amounts consistent with the quarters aligned to the entity's SAP. Electronic lodgment 112. An entity with a GST turnover [29] of $20 million or more must lodge GST returns and make payments electronically. [30] Entities participating in the deferred GST scheme [31] must also report GST electronically each month. An entity required to lodge GST returns electronically must also notify all other BAS amounts [32] electronically, where notification of these amounts is required on the same day. [33] An entity may also choose to lodge and pay electronically, if not otherwise required to do so. [34] 113. We generally follow an administrative practice of issuing at least one warning for entities to adopt electronic lodgment and payment arrangements before we consider administrative penalties. 114. Law Administration Practice Statement PS LA 2011/2 Administering penalties for failing to electronically notify or pay goods and services tax or pay as you go liabilities sets out circumstances where these administrative penalties may be applied. Variation of reporting periods 115. Reporting periods for tax obligations such as GST and PAYG withholding can be varied in certain circumstances. Generally, a change in reporting period is triggered by a: • change in eligibility • poor compliance history • client request. • change in eligibility • poor compliance history • client request. 116. The GST law provides for the determination of monthly tax periods based on GST turnover, with effect from the first day of a 3-month tax period. [35] Where the monthly tax periods have been determined based on GST turnover, the tax period cannot be varied within 12 months of the date of the determination. [36] 117. The PAYG withholding law requires an entity's status to be changed from small to medium if the total amount withheld in the preceding financial year exceeded $25,000 or, from small or medium to large if the total amount withheld in the preceding financial year exceeded $1 million. [37] Each year we review and advise affected entities if there is a change in their status. 118. An entity's PAYG withholding status may be varied from small to medium or large, or from medium to large, for failing to comply with withholding obligations. [38] This results in more frequent reporting and payment obligations. Any variation made on the basis of a poor compliance history applies for a twelve-month period. If an entity is also registered for GST, both the PAYG withholding and GST reporting periods change to monthly. 119. More frequent reporting and payment obligations are not necessarily applied every time a taxpayer fails to comply with an obligation. Those taxpayers who consistently fail to meet their obligations may benefit from more frequent reporting and payment requirements. Additionally, it offers an opportunity for entities having difficulty managing their cash flow, to account for their liabilities monthly on a more structured arrangement than through voluntary payments. 120. Further, the entity may apply in writing to have the withholder status varied downwards so that reporting and payment is less frequent. Generally, an application is only approved where the entity's amounts withheld are likely to have fallen permanently below the relevant threshold, or where other unusual circumstances apply. There is no set period of time that applies to this new reporting period. We will notify the withholder of the decision effective for a particular month if it is given before that month. [39] Where a more frequent reporting and payment period is required following a review (for example, a change in status from a 'medium' withholder to a 'large' withholder), we allow a reasonable amount of time for the entity to arrange their affairs. Fuel tax credits for non-GST entities 121. Eligible entities [40] not registered for GST, or required to be registered for GST, must still register for fuel tax credits in order to claim. Claims can be made on a fuel tax credit claim form (the fuel tax return) which will be sent out after registration. The fuel tax return period is the period specified in the return, however, this period must end within 90 days after an eligible entity becomes aware it has an increasing fuel tax adjustment [41] or within a longer period as allowed by us. [42] Fuel tax credits for GST entities 122. Eligible entities registered for GST, or required to be registered for GST, must lodge fuel tax returns using the BAS. Circumstances where lodgment obligation created 123. Instalment notices and PAYG or GST instalment obligations on activity statements may only require payment of the notified amount. However, lodgment obligations are created where an entity: • has elected or defaulted to the GDP-adjusted notional tax [43] method for calculating their PAYG instalment amount and is varying the instalment amount • is eligible and elects for annual PAYG instalments and either varies the instalment amount or calculates their instalment using the 'income times rate' method • whose only obligation is GST instalments varies that instalment amount • has fuel tax credits and GST instalment obligations and has an increasing fuel tax adjustment in the last quarter of the financial year • has GST instalment and quarterly PAYG instalment obligations and is varying one or both of the instalment amounts. • has elected or defaulted to the GDP-adjusted notional tax [43] method for calculating their PAYG instalment amount and is varying the instalment amount • is eligible and elects for annual PAYG instalments and either varies the instalment amount or calculates their instalment using the 'income times rate' method • whose only obligation is GST instalments varies that instalment amount • has fuel tax credits and GST instalment obligations and has an increasing fuel tax adjustment in the last quarter of the financial year • has GST instalment and quarterly PAYG instalment obligations and is varying one or both of the instalment amounts. Elections – vary lodgment requirements 124. Where the law allows an entity to vary their lodgment requirements, an election is the accepted mechanism. 125. Failure to make an election by the due date may exclude the entity from their preferred option. Certain entities may elect to report GST or PAYG withholding obligations or both more frequently than required by law. Reasons may include early access to credits, including fuel tax credits, and more control over cash flow. For example, where an entity is otherwise eligible to report GST obligations on a quarterly basis, there is provision for them to elect to report monthly. Entities making such elections must accept the responsibilities of changing their tax period, including more frequent exposure to FTL penalty and GIC for failing to pay on time. 126. However, entities wishing to make more frequent payments towards their expected activity statement liabilities can do so voluntarily without the requirement to change their lodgment period. Monthly GST reporting 127. If an entity makes an election to report GST obligations on a monthly basis, they may: • withdraw the election if more than 12 months have passed since the election took effect [44] • ask us to revoke the election if less than 12 months have passed. [45] • withdraw the election if more than 12 months have passed since the election took effect [44] • ask us to revoke the election if less than 12 months have passed. [45] 128. While we normally allow an early revocation of a monthly election, it would not be approved where we consider that the entity is exploiting the provision. For example, an entity may seek to have monthly reporting revoked immediately prior to a period where they are in receipt of seasonal income. The sole purpose for seeking to report quarterly is to pay GST at a later time. 129. We only backdate the revocation of an entity's monthly election where the application is received on or before the last day of the first month in the relevant quarter. In all other cases, the revocation generally takes effect from the start of the next quarterly tax period after the entity lodges their application. 130. If an entity is required, based on GST turnover being $20 million or more, to report GST obligations on a monthly basis, the entity may apply to have the monthly reporting period revoked. We would only change the entity to a quarterly reporting period if the GST turnover falls below $20 million and the entity has been using monthly tax periods for at least 12 months. 131. GST law has a specific provision for us to determine that one-month tax periods apply to an entity with a history of failing to comply with any taxation obligation, when the entity would otherwise qualify for quarterly tax periods. [46] If monthly tax periods were imposed because of a poor compliance history, the entity's reporting requirement will not revert to quarterly tax periods for a minimum of 12 months. [47] 132. Where monthly tax periods apply for GST, they also apply for fuel tax, LCT and WET. GST instalments 133. Entities that are eligible and elect to pay GST instalments quarterly need to lodge an annual GST return. [48] This is in addition to the notification [49] of the instalment amount on quarterly activity statements where they have other activity statement obligations. 134. Where GST lodgments are not up to date, an otherwise eligible entity will not be offered the option of a quarterly GST instalment amount we set. [50] Limited registration entities 135. Non-residents may make an election to be a limited registration entity for GST purposes, by notifying us in the approved form if they have made, or intend to make, one or more supplies that are: • inbound intangible consumer supplies, or • offshore supplies of low value goods that were, or would be, connected with the indirect tax zone, solely because of Subdivision 84-C. [51] • inbound intangible consumer supplies, or • offshore supplies of low value goods that were, or would be, connected with the indirect tax zone, solely because of Subdivision 84-C. [51] 136. Non-residents may also make an election to be a limited registration entity if they are or intend to become a re-deliverer of offshore supplies of low-value goods. [52] 137. Non-residents that are eligible and elect to be limited registration entities need to lodge a GST return quarterly. [53] Annual GST reporting 138. Entities who are eligible and elect to report and pay (or claim a refund of) GST annually must lodge an annual GST return. These entities have an annual tax period and report and calculate their annual GST liability on the annual GST return. PAYG withholding annual reports 139. Under the PAYG withholding system, entities who withhold amounts from particular kinds of payments have an obligation to report annually [54] , either electronically or in paper form. Common payments from which amounts are withheld include: • payments for work or services (individuals) including retirement payments • annuities, benefits and compensation payments • superannuation lump sum payments • superannuation income streams • capped defined benefit income streams • voluntary agreements • labour hire arrangements and other specified payments • employment termination payments • alienated personal service payments • departing Australia superannuation payments • supplies where the recipient does not quote their ABN • dividend, interest and royalty payments made to non-residents • payments to foreign residents. • payments for work or services (individuals) including retirement payments • annuities, benefits and compensation payments • superannuation lump sum payments • superannuation income streams • capped defined benefit income streams • voluntary agreements • labour hire arrangements and other specified payments • employment termination payments • alienated personal service payments • departing Australia superannuation payments • supplies where the recipient does not quote their ABN • dividend, interest and royalty payments made to non-residents • payments to foreign residents. 140. Any entity registered for PAYG withholding must lodge an annual report showing the total amount of all payments subject to withholding that were made, even if the amount withheld is nil. However, if these payments have already been reported through STP and an STP finalisation has been lodged, then the annual report is not required. 141. If lodging using an ATO-printed form, the obligation to lodge is not fulfilled unless the entity lodges both a completed PAYG withholding payment summary and all the relevant payment summaries. 142. Entities who self-print their payment summaries must lodge them electronically with us. Entities who lodge electronically are not required to complete a PAYG withholding payment summary or send paper payment summaries to us. 143. Any of the requirements for providing an annual report may be varied, either for one entity or a class of entities. [55] Variations for a class of entities can be given to each entity or made by way of a notice contained in a legislative instrument. 144. Variations for an individual entity must be made by written notice to the entity. For example, we may forgo the need for an entity to lodge an annual report where that entity had nil withholding for the income year and is no longer in business. 145. Entities required to report withholding events where no-ABN is quoted have an obligation to lodge an annual report listing all those events. [56] This report is called the PAYG withholding where ABN not quoted – annual report. 146. Entities required to report no TFN withholding events associated with closely held trusts [57] , have an obligation to lodge an annual TFN withholding report. 147. These no TFN withholding events are: • trustees of eligible trusts distributing income to certain beneficiaries [58] • certain beneficiaries becoming presently entitled to income of eligible trusts. [59] • trustees of eligible trusts distributing income to certain beneficiaries [58] • certain beneficiaries becoming presently entitled to income of eligible trusts. [59] 148. Entities that pay dividends, interest and royalties to overseas entities have an obligation to lodge an annual report of the payments made. This report is called the PAYG withholding from interest, dividends and royalty payments – annual report. 149. Entities making payments to foreign residents engaged in certain activities, such as sports and entertainment, construction and related activities and organising casino gaming junkets, have an obligation to lodge an annual report of the payments made and the amounts withheld. This report is called the PAYG withholding annual report – payments to foreign residents. Petroleum resource rent tax PRRT instalment statement 150. An entity is required to lodge an instalment statement for a petroleum project where there is a liability to pay an instalment for an instalment period or there has been a liability in a previous instalment period. [60] PRRT returns 151. An obligation to lodge a PRRT return arises where an entity derives assessable receipts in a year of tax for a petroleum project. [61] PRRT consolidation 152. For onshore petroleum projects, the head company of a consolidated group, MEC group or provisional head company of a MEC group (head company) that has notified us of its choice to consolidate for income tax purposes may choose to consolidate for PRRT purposes. [62] The consolidation choice takes effect on the day the choice is made upon which all subsidiary members' interests in onshore petroleum projects transfer to the head company. [63] As the holder, the head company assumes the responsibility of meeting PRRT instalment obligations and lodging the PRRT returns for all onshore petroleum project interests. 153. An entity that is a subsidiary member of such a group for the whole of the financial year is not required to lodge PRRT instalment statements and PRRT returns for any interests in onshore petroleum projects for that financial year. 154. An entity that holds interests in onshore petroleum projects that moves into and remains in a group for the full financial year does not have to lodge a PRRT return for its onshore petroleum interests for that financial year. 155. An entity that holds interests in onshore petroleum projects at the time it moves out of a group where it derives assessable receipts in that year of tax, has to lodge PRRT returns for those interests for that financial year. 156. For an entity that holds interests in onshore petroleum projects, if that entity moves in or out of a group during a financial year where it is not in the group for an instalment period ending in that financial year, it needs to pay PRRT instalments and lodge PRRT instalment statements for onshore projects that have an instalment liability or had an instalment liability in a previous instalment period. 157. As the choice to consolidate for PRRT purposes only applies in respect of interests in onshore petroleum projects, subsidiary members must still meet PRRT obligations in respect of their interests in offshore petroleum projects including the North West Shelf petroleum project. Single Touch Payroll Obligation to report 158. An entity that makes certain payments is required to report information about those payments to us through STP. The information to be reported includes: • withholding amounts and associated withholding payments • salary or wages and ordinary time earnings information that is not already covered by the previous dot point, and • sacrificed salary or wages and sacrificed ordinary time earnings information. [64] • withholding amounts and associated withholding payments • salary or wages and ordinary time earnings information that is not already covered by the previous dot point, and • sacrificed salary or wages and sacrificed ordinary time earnings information. [64] 159. Payers are required to report these amounts to us on or before the day on which the amount is required to be withheld or paid (or would be paid in the case of sacrificed salary or wages and sacrificed ordinary time earnings). [65] 160. The Commissioner may, by legislative instrument, determine additional kinds of amounts (other than those listed in paragraph 158 of this Practice Statement) that are required to be reported in the STP approved form. [66] 161. To finalise STP reporting at the end of a financial year, a payer lodges a finalisation declaration by 14 July. [67] This declares that the entity has provided all required information for the financial year through their STP reporting. 162. The requirement to report via STP applies from: • 1 July 2018 for employers with 20 or more employees [68] , and • 1 July 2019 for employers with 19 or fewer employees. [69] • 1 July 2018 for employers with 20 or more employees [68] , and • 1 July 2019 for employers with 19 or fewer employees. [69] Effect on other reporting obligations 163. An entity that has met all of its STP reporting obligations for an income year will be relieved of any further reporting obligations, to the extent that those amounts were able to be reported through STP [70] , for: • PAYG withholding • annual payment summaries • payment summaries for payments for termination of employment • annual reports to the Commissioner • part-year payment summaries, and • payment summaries for superannuation lump sums and payments for termination of employment. • PAYG withholding • annual payment summaries • payment summaries for payments for termination of employment • annual reports to the Commissioner • part-year payment summaries, and • payment summaries for superannuation lump sums and payments for termination of employment. Exemptions 164. The Commissioner may grant an exemption from STP reporting for one or more income years, both on a class of entities basis and an individual basis. [71] 165. We may grant an STP exemption where it is fair and reasonable to do so taking into account all relevant circumstances. In deciding whether it is fair and reasonable to grant an STP exemption, we consider the same matters set out in this Practice Statement in relation to lodgment deferrals. 166. During the period of time that an entity is exempt from STP reporting, they must continue to comply with their existing PAYG withholding obligations. [72] 167. An entity may object to a decision to refuse an exemption application or a decision to limit the extent of an exemption. [73] More information – consolidations 167AA. For more information, see Law Administration Practice Statement PS LA 2013/5 Collection of consolidated group liabilities. Minimum tax 167A. There are 4 lodgment obligations associated with the minimum tax: • GloBE information return (GIR) – a standardised form that provides each jurisdiction's tax authority with the information required to calculate an entity's tax liability [73A] • foreign lodgment notification – this form notifies the Commissioner that the GIR has been lodged with a foreign government agency on behalf of the Australian group entity and of the jurisdiction in which this lodgment was made • Australian IIR/UTPR tax return (AIUTR) – an Australian-specific tax return that forms the basis of the Commissioner's assessment of Australian IIR/UTPR tax [73B] • Australian DMT tax return (DMTR) – an Australian-specific tax return that forms the basis for the Commissioner's assessment of Australian DMT tax. • GloBE information return (GIR) – a standardised form that provides each jurisdiction's tax authority with the information required to calculate an entity's tax liability [73A] • foreign lodgment notification – this form notifies the Commissioner that the GIR has been lodged with a foreign government agency on behalf of the Australian group entity and of the jurisdiction in which this lodgment was made • Australian IIR/UTPR tax return (AIUTR) – an Australian-specific tax return that forms the basis of the Commissioner's assessment of Australian IIR/UTPR tax [73B] • Australian DMT tax return (DMTR) – an Australian-specific tax return that forms the basis for the Commissioner's assessment of Australian DMT tax. 167B. For administrative purposes, the foreign lodgment notification, AIUTR and DMTR are combined into the combined global and domestic minimum tax return. The GIR is a standalone form. Public CBC reporting 167C. The Public CBC reporting regime requires certain CBC reporting parent entities [73C] (referred to herein as Public CBC reporting entities) to publish a Public CBC report. They do this by giving their Public CBC report to us and we then make it publicly available on an Australian government website. [73D] 167D. The reporting obligation rests with the Public CBC reporting entity, not an Australian member entity. [73E] However, an Australian member entity will have a reporting obligation if the foreign group head excludes the member entity from its consolidated financial statements, and the member entity qualifies as a reporting parent in its own right. 167E. A Public CBC reporting entity may apply to the Commissioner for an exemption [73F] from their reporting obligations, or for an exclusion [73G] from Public CBC reporting if they are a government-related entity. More information 167F. For more information, see: • Public CBC reporting • Law Administration Practice Statement PS LA 2025/2 Public country-by-country reporting exemptions. • Public CBC reporting • Law Administration Practice Statement PS LA 2025/2 Public country-by-country reporting exemptions. | Appendix B – Specific lodgment requirements: Topics included in this Appendix 167G. The topics included in Appendix B are: • GST groups • GST joint ventures • GST branches • fuel tax • excise • closely held trusts • taxable payments reporting – businesses in the building and construction (B&C) industry • taxable payments reporting – businesses providing courier, cleaning, road freight, security, investigation, surveillance or information technology services • taxable payments reporting – government-related entities • sharing economy reporting – electronic distribution platforms • large PAYG withholders • PAYG withholding branches • Public CBC reporting parent. • GST groups • GST joint ventures • GST branches • fuel tax • excise • closely held trusts • taxable payments reporting – businesses in the building and construction (B&C) industry • taxable payments reporting – businesses providing courier, cleaning, road freight, security, investigation, surveillance or information technology services • taxable payments reporting – government-related entities • sharing economy reporting – electronic distribution platforms • large PAYG withholders • PAYG withholding branches • Public CBC reporting parent. GST groups 168. An entity that is the representative member of a GST group [74] for a tax period is required to lodge an activity statement to account for the GST obligations of the group. [75] 169. Non-reporting members of GST groups may have to lodge activity statements in respect of non-GST obligations. 170. All members of the group must have the same tax period for the period of time that they are grouped. 171. If a GST group is formed, dissolved, or its membership changed part way through a tax period, entities that were not in the GST group for part of a tax period will also have to lodge their own GST return for that time as if it were a tax period. GST joint ventures 172. The joint venture operator of a GST joint venture [76] must lodge a GST return for the GST joint venture for each tax period applying to the joint venture operator. [77] 173. The tax periods applying to the joint venture operator may not be the same as the tax periods otherwise applying to other participants in the joint venture. 174. Where an entity is a joint venture operator for more than one GST joint venture, a separate activity statement is required for each GST joint venture, unless the joint venture operator elected to consolidate GST returns relating to all the GST joint ventures of the joint venture operator. [78] GST branches 175. Where an entity separately registers each of its branches as GST branches [79] , it is required to lodge a separate GST return for each branch for each tax period that applies to the entity. [80] 176. If the entity carries on enterprises outside its GST branches, it must also lodge a GST return in relation to those other enterprises. [81] Fuel tax 177. Fuel tax law generally applies in a corresponding way to how GST law applies to the entity in regard to GST groups, GST joint ventures and GST branches. [82] Excise 178. Excise duty [83] is a tax on excisable goods that include alcohol (excluding wine), tobacco, fuel and petroleum products (including liquid and gaseous fuels) produced or manufactured in Australia. 179. Excise duty is imposed at the time excisable goods are manufactured or produced. However, the time at which the liability for excise duty becomes payable depends on how authority is given to deliver the excisable goods into the Australian market. 180. Authority to deliver excisable goods can be given on an ad hoc basis, known as prepayment of duty, or on a continuing basis, known as a periodic settlement permission. Closely held trusts 181. Eligible trustees must lodge a TFN report for any quarter where beneficiaries decide to quote them their TFN. [84] If the trustee has no new TFNs to report for a quarter, lodgment of the TFN report is not required. 182. At the end of each income year, trustees must lodge an annual trustee payment report. This is contained in the statement of distribution and included as part of the trust's income tax return. 183. If a trustee is required to withhold amounts from a beneficiary that are to be paid to the ATO, they must register for PAYG withholding for closely held trust purposes. [85] 184. Where a beneficiary's TFN has not been quoted, eligible trustees must withhold payment where: • the trustee distributes income [86] , or • the beneficiary becomes presently entitled to income. [87] • the trustee distributes income [86] , or • the beneficiary becomes presently entitled to income. [87] 185. 'No TFN withholding' events, where a beneficiary has not quoted their TFN, must be reported by the trustee lodging an annual TFN withholding report. [88] Payment of the total of the withheld amounts must be made on an annual activity statement. Taxable payments reporting 186. Various entities and industries may need to lodge a Taxable payments annual report (TPAR) each year, including: • businesses in the B&C industry [89] • government-related entities [90] • entities providing – cleaning services [91] – courier or road freight services [92] – security, investigation or surveillance services [93] – information technology services. [94] • businesses in the B&C industry [89] • government-related entities [90] • entities providing – cleaning services [91] – courier or road freight services [92] – security, investigation or surveillance services [93] – information technology services. [94] – cleaning services [91] – courier or road freight services [92] – security, investigation or surveillance services [93] – information technology services. [94] Businesses in the building and construction industry 187. Businesses in the B&C industry are required to report if all of the following apply to them [95] : • business activities are primarily in the B&C industry • the entity has an ABN • payments are made for B&C services. • business activities are primarily in the B&C industry • the entity has an ABN • payments are made for B&C services. 188. A government-related entity other than a local governing body must report the provision of a grant by the entity to an entity that has an ABN. [96] 189. Businesses in the B&C industry need to report the following details [97] : • ABN (if known by the purchaser) • name and address • gross amount paid • total GST included in the gross amount paid • other information we require. • ABN (if known by the purchaser) • name and address • gross amount paid • total GST included in the gross amount paid • other information we require. Government-related entities 190. A government-related entity must report the provision of consideration: • by the entity to an entity, and • wholly or partly for a supply of services; unless the supply of services is incidental to a supply of goods. [98] • by the entity to an entity, and • wholly or partly for a supply of services; unless the supply of services is incidental to a supply of goods. [98] 191. In addition to B&C reporting requirements, government entities are required to report the following details: • date of grant payment • name of grant or grant program • other information we require. • date of grant payment • name of grant or grant program • other information we require. Businesses providing cleaning, courier, road freight, security, investigation, surveillance or information technology services 192. From 1 July 2018, the taxable payments reporting system (TPRS) applies to courier and cleaning services. [99] From 1 July 2019, the TPRS applies to road freight, security, investigation, surveillance and information technology services. [100] Collectively, we call these 'relevant services'. 193. Suppliers of relevant services must report any payments made to contractors if [101] : • the supplier has an ABN • the payment is wholly or partly for providing that service on their behalf, and • a reporting exemption does not apply to them. • the supplier has an ABN • the payment is wholly or partly for providing that service on their behalf, and • a reporting exemption does not apply to them. 194. The information which must be reported by the payer in a TPAR includes: • payee's ABN (if known by the purchaser) • payee's name and address • gross amount paid • total GST included in the gross amount paid. • payee's ABN (if known by the purchaser) • payee's name and address • gross amount paid • total GST included in the gross amount paid. Sharing economy reporting Electronic distribution platforms 195. Operators of an electronic distribution platform (EDP) [102] are required to report on transactions made using the platform where the EDP facilitates a supply for consideration between 2 entities. 196. From 1 July 2023, EDP operators must report on transactions entered into via the EDP for supplying: • taxi travel services including ride-sourcing, and • short-term accommodation. • taxi travel services including ride-sourcing, and • short-term accommodation. 197. EDP operators must report on all other types of reportable transactions for supplies made via the EDP from 1 July 2024. [103] 198. EDP operators must report on payments that an entity makes to a supplier through the EDP if [104] : • the supply is connected with Australia, including the external Territories [105] • no amount is required to be withheld from the payment under the PAYG withholding regime • the EDP operator and supplier of the service are not members of the same consolidated group or multiple entry consolidated group, and • the supply made via the EDP is not for – the transfer of ownership of goods – transfer of real property – a financial supply. • the supply is connected with Australia, including the external Territories [105] • no amount is required to be withheld from the payment under the PAYG withholding regime • the EDP operator and supplier of the service are not members of the same consolidated group or multiple entry consolidated group, and • the supply made via the EDP is not for – the transfer of ownership of goods – transfer of real property – a financial supply. – the transfer of ownership of goods – transfer of real property – a financial supply. 199. The information which must be reported includes: • information that identifies the EDP operator and the sector it operates in, including ABN or ATO • reference number, business name and contact details • information that identifies the supplier that has used the EDP including their ABN, name and contact details • information that details the transaction facilitated by the EDP, such as the type of supply made, description of the supply (for example, of the property supplied for short-term accommodation), gross amounts received, commissions received and GST included. • information that identifies the EDP operator and the sector it operates in, including ABN or ATO • reference number, business name and contact details • information that identifies the supplier that has used the EDP including their ABN, name and contact details • information that details the transaction facilitated by the EDP, such as the type of supply made, description of the supply (for example, of the property supplied for short-term accommodation), gross amounts received, commissions received and GST included. Large PAYG withholders 200. Large PAYG withholders [106] are required to report PAYG withholding information via STP on or before the date the amounts are required to be withheld. 201. Large withholders who make a payment that is equal to the total liability for the reporting period are not required to report the withholding amount on their activity statement. 202. However, where the payment is less than the liability (for example, partial payment), the remitter must contact us to advise the total liability for the period. 203. Where the payment is less than the liability because the remitter is utilising a net GST credit, the remitter must notify us of their full liability using a PAYG withholding liability notification form. PAYG withholding branches 204. An entity may choose to divide its PAYG withholding reporting and paying responsibilities into separate PAYG withholding branches, where it meets certain conditions related to its accounting systems, and activities or locations. [107] 205. The entity remains responsible for all reporting obligations, even though it has divided into branches. 206. Where the entity is a large withholder, each branch has a large withholder status because it still remains part of the large withholder entity. Public CBC reporting parent 206A. A Public CBC reporting entity required to publish a Public CBC [107A] must give their report for the reporting period to us for publication on an Australian government website. [107B] The report must contain the relevant tax and entity information that is required by the law, which has not been exempted. [107C] | Appendix C – Lodgment requirements for special classes of persons: Topics included in this Appendix 206B. The topics included in Appendix C are as follows: • public officers • agents and trustees (including receivers) • trustees of deceased estates • liquidators • bankrupt individuals • representatives of incapacitated entities and GST return • labour hire firms. • public officers • agents and trustees (including receivers) • trustees of deceased estates • liquidators • bankrupt individuals • representatives of incapacitated entities and GST return • labour hire firms. Public officers 207. Every company that carries on a business or derives income from property in Australia is required to be represented by a public officer appointed by the company, unless exempted by us. [108] 208. The public officer is responsible for carrying out all responsibilities required of the company under the ITAA 1936, the ITAA 1997, the TAA, regulations related to these Acts and any indirect tax law. If the company does not meet all of its requirements, the public officer will be liable to the same penalties that would accrue to the company. Agents and trustees (including receivers) 209. An agent or trustee [109] has the same responsibilities as the entity for complying with income tax law in respect of the income, or any profits, or gains of a capital nature, derived in a representative capacity or derived by the principal by virtue of an agency, and for payment of tax. [110] Trustees of deceased estates 210. We have the same powers and remedies for the assessment and recovery of tax payable on income that is derived by the deceased up to the time of death that would have been available if the deceased were still alive. The trustee is obliged to provide any returns or other information that the deceased was liable to provide or would have been liable to provide if still alive. Liquidators 211. A liquidator [111] may be personally liable for the income tax requirements and liabilities arising under the ITAA 1936 from the date of their appointment [112] or from the date we were notified. [113] 212. The liquidator's responsibility overrides the responsibility of the public officer under section 252 of the ITAA 1936 to lodge the return. This is because the liquidator takes control of the company's affairs on behalf of creditors, members and (in court-initiated cases), the Court. 213. Further, we can also require the liquidator to lodge returns for periods before the liquidator's date of appointment. 214. We will only require lodgment of any returns by a liquidator after considering the following factors: • the prospect for, and likely size of, a dividend being paid to unsecured creditors • the likelihood that the return would, if lodged, reveal an increase in the tax liabilities owed to us • the availability of books and records of the entity that would make it possible for the liquidator to prepare the returns • the likelihood that the liquidator's cost of preparing those returns would be covered by the assets of the liquidated company without resulting in an inordinate adverse impact on returns to other creditors • the wider community benefits of having the tax returns lodged. • the prospect for, and likely size of, a dividend being paid to unsecured creditors • the likelihood that the return would, if lodged, reveal an increase in the tax liabilities owed to us • the availability of books and records of the entity that would make it possible for the liquidator to prepare the returns • the likelihood that the liquidator's cost of preparing those returns would be covered by the assets of the liquidated company without resulting in an inordinate adverse impact on returns to other creditors • the wider community benefits of having the tax returns lodged. Bankrupt individuals 215. The Commissioner has the power under section 168 of the ITAA 1936 to issue 2 part-year assessments in respect of the one year of income. [114] 216. From 29 March 1999, individuals who become bankrupt during an income year will be assessed for the period from the beginning of the income year to the day the individual became bankrupt. They will also be assessed separately for the period from the day after the date of bankruptcy to the end of the income year. This may require lodgment of separate returns for the pre-bankruptcy period and post-bankruptcy period. 217. Where bankruptcy occurs during an activity statement period, separate activity statements may be required for both the periods before and after the date of bankruptcy. 218. There is no requirement in relation to PAYG instalments or PAYG withholding to complete separate activity statements for pre- and post-bankruptcy. However, for GST, LCT and WET, the tax period for an individual who becomes bankrupt ends at the end of the day before they become bankrupt. [115] This will place a requirement on the individual to lodge separate activity statements for both the periods before and after the date of bankruptcy detailing GST, LCT and WET amounts. Representatives of incapacitated entities and GST returns 219. A representative of an incapacitated entity [116] must take on the GST reporting periods that apply to the incapacitated entity. [117] The representative must also take on the GST reporting period that applied to the incapacitated entity for fuel tax. [118] 220. This extends to notifying us of an amount of GST for which the entity is liable (or the entity's increasing adjustment [119] if the representative is aware or could reasonably be expected to be aware) and we have not been notified. [120] We must be notified before the day on which the representative declares a dividend to unsecured creditors of the incapacitated entity. [121] 221. A representative must give us GST returns (or returns for fuel tax) for tax periods during which they are registered in that capacity, and are liable to pay any GST and fuel tax debts incurred during that period. In some circumstances, a GST or fuel tax liability that arises while a representative is registered may remain the liability of the incapacitated entity, for example, an adjustment relating to a pre-appointment supply. [122] 222. Further, a representative must give us a GST return if: • the incapacitated entity has failed to provide a GST return for a tax period, and • we direct the representative in writing to give us a GST return. [123] • the incapacitated entity has failed to provide a GST return for a tax period, and • we direct the representative in writing to give us a GST return. [123] 223. In directing the representative to give a GST return, we must consider: • the likelihood a dividend to unsecured creditors of the incapacitated entity will be declared, or the likely amounts of any such dividend • the likelihood any GST return or return for fuel tax would result in a liability • whether the cost to the representative of preparing the return would result in an unreasonable impact on the other creditors of the incapacitated entity • whether the availability of records make it possible to prepare the return. [124] • the likelihood a dividend to unsecured creditors of the incapacitated entity will be declared, or the likely amounts of any such dividend • the likelihood any GST return or return for fuel tax would result in a liability • whether the cost to the representative of preparing the return would result in an unreasonable impact on the other creditors of the incapacitated entity • whether the availability of records make it possible to prepare the return. [124] 224. A representative of an incapacitated entity is not required to give a GST return or return for fuel tax for a tax period if: • the entity's net amount for the tax period is zero • the entity does not have an increasing adjustment that is attributable to the tax period, and • the entity is not liable for GST or fuel tax that is attributable to the tax period. [125] • the entity's net amount for the tax period is zero • the entity does not have an increasing adjustment that is attributable to the tax period, and • the entity is not liable for GST or fuel tax that is attributable to the tax period. [125] Labour hire firms 225. Labour hire firms and recruitment agencies acting in the capacity of a labour hire firm are given a deferral for lodgment of TFN declarations. These entities are required to forward TFN declarations to us within 14 days from the commencement of the relationship. This means from when the payee actually commences working for the payer (the labour hire firm), and not the date the payee has made the declaration. This is because the labour hire firm will usually have the payee complete a TFN declaration at the time of registering with the labour hire firm (for convenience), but the payee may not commence a working relationship until much later, if at all. More information – insolvency 225A. For more information, see Law Administration Practice Statement PS LA 2011/16 Insolvency – collection, recovery and enforcement issues for entities under external administration. | Appendix D – Lodgment due dates: Topics included in this Appendix 225B. The topics included in Appendix D are: • dates in the lodgment legislative instruments • annual superannuation return and statements • statutory due dates • activity statements, instalment notices and annual GST reporting • miscellaneous – GST • fuel tax credits for non-GST entities • PAYG withholding annual reports • PRRT • excise • reporting • taxable payments reporting • sharing economy reporting – EDPs • elections • Single Touch Payroll • minimum tax • Public CBC reporting. • dates in the lodgment legislative instruments • annual superannuation return and statements • statutory due dates • activity statements, instalment notices and annual GST reporting • miscellaneous – GST • fuel tax credits for non-GST entities • PAYG withholding annual reports • PRRT • excise • reporting • taxable payments reporting • sharing economy reporting – EDPs • elections • Single Touch Payroll • minimum tax • Public CBC reporting. Dates in the lodgment legislative instruments Income tax returns 226. Every person required to lodge a return (with the exception of those covered in subsection 6(7) or 6(8) in the lodgment legislative instrument [126] ) whose year of income ends on 30 June must do so by 31 October. 227. Full self-assessment taxpayers must lodge by the 15th day of the seventh month after the end of their adopted accounting period. 228. Other persons must lodge by the last day of the fourth month after the end of their adopted accounting period. 229. A person described in subsections 6(7) or (8) in the lodgment legislative instrument must lodge by the first day of the sixth month of the following year of income. Franking returns 230. Corporate tax entities required to lodge a franking return [127] must lodge by the last day of the month following the end of the income year, unless a provision of a taxation law requires the entity to give the Commissioner a franking return within 14 days of receiving a refund. Venture capital deficit tax returns 231. Corporate tax entities required to lodge a venture capital deficit [128] tax return must lodge by the last day of the first month following the end of the income year. Ancillary fund returns 232. An entity that is a trustee of a public or private ancillary fund is required to lodge an ancillary fund return whether or not the ancillary fund is exempt from income tax by: • 31 December if the entity's year of income ends on 30 June, or • the last day of the sixth month after the end of the entity's adopted accounting period. [129] • 31 December if the entity's year of income ends on 30 June, or • the last day of the sixth month after the end of the entity's adopted accounting period. [129] Annual superannuation return and statements 233. Trustees of self-managed superannuation funds (SMSF) must give an annual return that combines the income tax and regulatory return, as well as the member information statement to us. This must be given by the same date they are required to lodge their income tax return. 234. A superannuation provider, other than an SMSF, must give the member contributions statement to us on or by 31 October following the end of the financial year. 235. The date the SMSF 'is required to lodge' is specified in the legislative instrument that is published annually. However, this lodgment due date may be deferred (under the tax agent lodgment program or because of exceptional or unforeseen circumstances). Statutory due dates Annual fringe benefit tax returns 236. Annual FBT returns are due for lodgment by 21 May after the close of the FBT year, being 31 March. [130] Superannuation 237. Superannuation providers, other than SMSF, must report lost members to the Lost Members Register (that we maintain) at the end of each half-calendar year. Table 1: Lost members statement [131] Period Due date 1 January to 30 June 31 October in that year 1 July to 31 December 30 April in the following year 238. Superannuation providers must also give a statement of unclaimed money to us at the end of each half-calendar year. Table 2: Statement of unclaimed money [132] Period Due date 1 January to 30 June 31 October in that year 1 July to 31 December 30 April in the following year 239. Where a superannuation guarantee shortfall occurs in any quarter, employers must give superannuation guarantee charge statements. Table 3: Superannuation guarantee charge statement [133] Period Due date 1 July to 30 September 28 November in the next quarter 1 October to 31 December 28 February in the next quarter 1 January to 31 March 28 May in the next quarter 1 April to 30 June 28 August in the next quarter 240. A superannuation provider must give us a statement where the provider has been given a release authority and has paid an amount out of the superannuation plan in accordance with that release authority. The statement must be given within 30 days after the date of the payment. [134] 241. Where an auditor or actuary has to report contraventions of the Superannuation Industry (Supervision) Act 1993 by a trustee or trustees of an SMSF to us, the auditor or actuary contravention report must be lodged as soon as practicable. [135] Activity statements, instalment notices and annual GST reporting 242. The due date for any activity statement that reports: • a monthly GST obligation – is 21 days after the period end [136] (regardless of any other monthly or quarterly obligation that may also be reported on that document) • a monthly PAYG withholding obligation only – is 21 days after the period end [137] • quarterly PAYG instalments for the head company of a consolidated group – is 21 days after the period end [138] • quarterly obligations that include one or more of GST, WET, LCT, fuel tax, GST instalments, PAYG instalments, FBT instalments and PAYG withholding – is 28 days after the period end, except the December quarter, when the due date is 28 February. [139] • a monthly GST obligation – is 21 days after the period end [136] (regardless of any other monthly or quarterly obligation that may also be reported on that document) • a monthly PAYG withholding obligation only – is 21 days after the period end [137] • quarterly PAYG instalments for the head company of a consolidated group – is 21 days after the period end [138] • quarterly obligations that include one or more of GST, WET, LCT, fuel tax, GST instalments, PAYG instalments, FBT instalments and PAYG withholding – is 28 days after the period end, except the December quarter, when the due date is 28 February. [139] 243. The due date for quarterly instalment notices that report variations in PAYG or GST instalments or both is 28 days after the period end, except the December quarter, when the due date is 28 February. [140] 244. Notwithstanding the due dates listed in paragraphs 237 to 241 of this Practice Statement, where we notify a PAYG instalment amount, the payment (and any reporting) is due by the 21st day after the day of the notice. [141] 245. The due date is generally the 28th day of the month after the end of the instalment quarter for lodgment or payment or both for entities with SAPs that: • have not chosen to pay GST monthly, or are not required to pay GST monthly, and • have a quarterly PAYG instalment obligation that does not align with the standard quarters ending September, December, March and June. • have not chosen to pay GST monthly, or are not required to pay GST monthly, and • have a quarterly PAYG instalment obligation that does not align with the standard quarters ending September, December, March and June. 246. Where a monthly PAYG withholding obligation also exists, the withholding obligation for that month also falls due on the 28th day and not the 21st day. 247. Where an obligation exists to notify us of an annual PAYG instalment amount, notification is due on or before the 21st day of the fourth month after the end of the income year. For 30 June balancers, this will be 21 October following the end of the income year. [142] 248. Generally, the due date for lodgment of an annual GST return is the due date for lodgment of the income tax return. Where an entity has no obligation to lodge an income tax return, the due date for the annual GST return is 28 February. [143] Miscellaneous – GST Supplies in satisfaction of debt 249. Where an entity that is not registered or required to be registered for GST makes a supply during a month to satisfy a debt and the supply is a taxable supply, then it must lodge a GST return within 21 days after the end of the month for supplies made in that month. [144] Resident agent acting for non-residents 250. Non-residents are not required to lodge a GST return for a tax period where either the net amount for the period is nil or their taxable supplies or importations are all made through a resident agent. [145] Insurance 251. Where an entity makes any taxable supplies under section 78-50 of the GST Act, or has an increasing adjustment in relation to those supplies, during a month, and the entity is not registered or required to be registered during that month, it must lodge a GST return within 21 days of the end of the month relating to those supplies and increasing adjustments. [146] Pay GST by instalments 252. Returns for GST instalment payers or annual GST reporters who become bankrupt or who go into liquidation, receivership or for any reason cease to exist, are due on or by the 21st day of the month following the instalment or annual tax period that ends because of bankruptcy, liquidation, receivership or cessation. [147] 253. A GST group that is a GST instalment payer and has a change in membership must lodge a GST return for the instalment period by the 21st day of the month following the change of membership. [148] 254. The instalment period ends when the membership of the group changes. Fuel tax credits for non-GST entities 255. The due date for a fuel tax return for an entity not registered for GST or required to be registered for GST is 21 days after the end of the fuel tax period. [149] PAYG withholding annual reports 256. Annual reports are due by 14 August [150] for entities who have an obligation to report on the following and who do not report and finalise these amounts via STP: • payments for work and services (individuals) including retirement payments • annuities, benefits and compensation payments • superannuation lump sums • superannuation income streams • voluntary agreements • labour hire and other specified payments • employment termination payments • alienated personal services payments • non-cash benefits • reportable fringe benefit amounts • reportable employers' superannuation contributions. • payments for work and services (individuals) including retirement payments • annuities, benefits and compensation payments • superannuation lump sums • superannuation income streams • voluntary agreements • labour hire and other specified payments • employment termination payments • alienated personal services payments • non-cash benefits • reportable fringe benefit amounts • reportable employers' superannuation contributions. 257. Where the PAYG withholding annual report was prepared by a registered agent, concessionary due dates may apply, as set out in the lodgment program. 258. Annual reports are due by 31 October [151] for entities who have an obligation to report on: • supplies where the recipient has not quoted an ABN • certain payments to foreign residents • interest, dividend and royalty payments to non-residents. • supplies where the recipient has not quoted an ABN • certain payments to foreign residents • interest, dividend and royalty payments to non-residents. 259. Annual reports are due by 30 September for entities with an obligation to report on payments made to beneficiaries of closely held trusts, where the beneficiaries have not provided their TFN to the trustee. [152] 260. Annual reports are due by 28 October for payment to us on an annual activity statement for amounts withheld from payments by trustees of closely held trusts, where beneficiaries have not provided their TFN to the trustee. [153] 261. A list of PAYG withholding forms can be filtered from the consolidated list of approved forms on ato.gov.au . 262. The Departing Australia Superannuation Payment (DASP) annual report is due by 31 October each year. [154] 263. If DASP data records are reported as part of the PAYG withholding payment summary annual report, then the due date for the annual report is 14 August each year, or a later date as we may allow. [155] Petroleum resource rent tax Instalments 264. The due dates for lodgment of the PRRT instalment statements for a year of tax are 21 October, 21 January and 21 April in the year of tax concerned. [156] Tax returns 265. Lodgment of annual returns is due 60 days after the end of the year of tax or a later date as we allow. [157] Excise 266. Under prepayment, an entity must lodge an excise return detailing the excisable goods to be delivered into the Australian market. The excise duty must be paid on the goods before a Delivery Authority will be given by us. This allows the entity to deliver the goods into the Australian market. 267. Periodic settlement permission (PSP) allows an entity to deliver excisable goods for a specified period (settlement period) and to defer lodging an excise return and paying excise duty until the due date specified in the PSP. [158] 268. A PSP may specify a settlement period as a: • recurring 7-day period [159] , or • calendar month if [160] – the entity is a small business entity or included in a class prescribed by the regulations, or – the goods to be delivered for home consumption are of a kind prescribed by the regulations, or • quarter if [160A] • the goods are classified to items 1, 2, 3,10, 15, 20 or 21 of the Schedule to the Excise Tariff Act 1921, and • the person is an eligible business entity. • recurring 7-day period [159] , or • calendar month if [160] – the entity is a small business entity or included in a class prescribed by the regulations, or – the goods to be delivered for home consumption are of a kind prescribed by the regulations, or • quarter if [160A] • the goods are classified to items 1, 2, 3,10, 15, 20 or 21 of the Schedule to the Excise Tariff Act 1921, and • the person is an eligible business entity. – the entity is a small business entity or included in a class prescribed by the regulations, or – the goods to be delivered for home consumption are of a kind prescribed by the regulations, or 269. In all situations, the permission is subject to the condition that a return is given at the end of each settlement period. Due dates for lodgment of the excise return and payment of excise duty are if: • the PSP applies in respect of a 7-day period and specifies goods other than gaseous fuels, the first business day following the end of the 7-day period [161] • the PSP applies in respect of a 7-day period and specifies gaseous fuels, the sixth business day following the end of the 7-day period [162] • the entity is a small business entity and the PSP applies in respect of a calendar month, on or before the 21st day of the following month [163] • the entity is included in a class prescribed by the regulations or has permission to enter goods of a kind mentioned in the regulations in respect of a calendar month, the due date is prescribed as a condition by the regulations [164] , and • the entity is an eligible business entity and the PSP applies in respect of a quarter – for a quarter ending on 31 March, 30 June or 30 September – the 28th day after the end of the quarter [164A] , and – for a quarter ending on 31 December – the 28th day of the February after the end of the quarter. [164B] • the PSP applies in respect of a 7-day period and specifies goods other than gaseous fuels, the first business day following the end of the 7-day period [161] • the PSP applies in respect of a 7-day period and specifies gaseous fuels, the sixth business day following the end of the 7-day period [162] • the entity is a small business entity and the PSP applies in respect of a calendar month, on or before the 21st day of the following month [163] • the entity is included in a class prescribed by the regulations or has permission to enter goods of a kind mentioned in the regulations in respect of a calendar month, the due date is prescribed as a condition by the regulations [164] , and • the entity is an eligible business entity and the PSP applies in respect of a quarter – for a quarter ending on 31 March, 30 June or 30 September – the 28th day after the end of the quarter [164A] , and – for a quarter ending on 31 December – the 28th day of the February after the end of the quarter. [164B] – for a quarter ending on 31 March, 30 June or 30 September – the 28th day after the end of the quarter [164A] , and – for a quarter ending on 31 December – the 28th day of the February after the end of the quarter. [164B] 270. Further information is available on ato.gov.au . Reporting TFN report 271. A TFN report that trustees of certain closely held trusts must lodge when beneficiaries have quoted them their TFN is due: • one month after the end of the quarter to which it relates, or • within such further time as we allow. [165] • one month after the end of the quarter to which it relates, or • within such further time as we allow. [165] Taxable payments reporting 272. The due date for lodgment of the TPAR is 28 August. Reporting by businesses in the building and construction industry 273. An entity in the B&C industry that has an obligation to report payments made, or liable to be made, to a supplier must give a 'Division 405 report' to us within 21 days after the end of the quarter. [166] 274. However, we may, by written notice, vary this reporting requirement. [167] Currently, we have determined that entities required to report under Division 405 of Schedule 1 to the TAA, must report annually through a TPAR. Reporting by government-related entities 275. Under Subdivision 396-B of Schedule 1 to the TAA, government entities at the federal, state or territory and local levels are required to report to us payments they make to an entity for the provision of services. [168] In addition, government entities at the federal and state or territory levels will also be required to report grants paid to entities with an ABN. [169] 276. We may also vary the reporting requirement for government-related entities reporting under Subdivision 396-B of Schedule 1 to the TAA. Reporting by businesses that provide cleaning, courier, road freight, security, investigation, surveillance or information technology services 277. Under Subdivision 396-B of Schedule 1 to the TAA, an ABN holder that provides cleaning, courier, road freight, security, investigation, surveillance or information technology services is required to report to us payments they make to an entity to provide those services on their behalf, unless a reporting exemption applies. [170] 278. Certain types of payments are not required to be reported in the TPAR, including: • payments for materials only • invoices unpaid at the end of the income year • PAYG withholding payments (such as payments to employees) • payments within consolidated or MEC groups • payments made by individuals for private reasons. • payments for materials only • invoices unpaid at the end of the income year • PAYG withholding payments (such as payments to employees) • payments within consolidated or MEC groups • payments made by individuals for private reasons. 279. We may vary this reporting requirement. [171] TFN declaration 280. With one exception, where an entity gives a TFN declaration to an entity, it must be lodged with us within 14 days of the declaration being made. [172] The exception is where the payer is a labour hire firm and the payee has not commenced work. Annual investment income report 281. For each financial year, investment bodies must give us a written report in relation to all investments in the investment body. The report must be lodged within 4 months after the end of the financial year; that is, 31 October following a financial year ending 30 June. [173] Sharing economy reporting Electronic distribution platforms 282. Operators of EDPs are required to lodge reports on or before the 31st day after the end of each reporting period. 283. We have determined that EDP operators must report every 6 months. [174] This means that the reporting periods and respective due dates for reports are: • 1 July to 1 December – due 31 January • 1 January to 30 June – due 31 July • 1 July to 1 December – due 31 January • 1 January to 30 June – due 31 July Elections PAYG instalments 284. Eligible entities may elect to pay PAYG instalments annually. Entities must make an election to report annually by the date on which the first quarterly instalment would otherwise be due. [175] This is generally 28 October. 285. Once the annual election is made, it remains in force until either the entity is no longer eligible for the annual option, or they choose to revert to quarterly reporting. Any change to a reporting period occurs at the beginning of the income year. 286. Head companies of consolidated groups do not have the option of reporting and paying PAYG instalments annually. [176] Pay GST by instalments 287. Eligible entities are able to elect to pay GST by instalments. This election generally must be made on or before 28 October of the financial year to which it relates. [177] Annual GST reporting 288. Those entities that are eligible to report and pay, or claim a refund of, GST annually (that is, elect annual tax periods) must make an election by the due date. Annual GST tax period elections are generally due for [178] : • quarterly reporters – on or before 28 October in that financial year to which it relates • monthly reporters – on or before 21 August in that financial year. • quarterly reporters – on or before 28 October in that financial year to which it relates • monthly reporters – on or before 21 August in that financial year. 289. New GST registrants are allowed to elect the annual GST option up to 6 months from the date of effect of their GST registration, if this is later than the dates set out in paragraph 288 of this Practice Statement. 290. We may accept elections after the due date in certain circumstances. 291. Lodgment due dates, including the lodgment program, are located on ato.gov.au . Single Touch Payroll 292. Employers are required to lodge STP reports to us on or before the day that the amounts reported in it were required to be withheld or paid. [179] 293. To finalise STP reporting at the end of a financial year, a payer lodges a finalisation declaration by 14 July. Lodgment of the finalisation declaration relieves the employer of any further PAYG withholding reporting obligations for that financial year. [180] Minimum tax 294. The GIR, foreign lodgment notification, AIUTR and DMTR are required to be lodged 18 months after the end of the first fiscal year [181] and 15 months after the end of subsequent fiscal years. [182] 295. The Commissioner can defer the lodgment due date for the AIUTR and DMTR, but not the GIR or the foreign lodgment notification. [183] Public CBC reporting 296. Public CBC reporting entities required to give a Public CBC report [184] must give that report to the Commissioner within 12 months following the end of the relevant reporting period. [185] 297. The requirement to publish applies for reporting periods commencing on or after 1 July 2024. 298. We will then publish the Public CBC report by making it available on an Australian Government website. [186] More information 299. For more information on: • failure to lodge, see PS LA 2011/19 . • taxable payment reporting, see Law Companion Ruling LCR 2018/8 Expansion of the taxable payments reporting system to courier and cleaning services. • failure to lodge, see PS LA 2011/19 . • taxable payment reporting, see Law Companion Ruling LCR 2018/8 Expansion of the taxable payments reporting system to courier and cleaning services. | Appendix E – Lodgment tables: Business activity statements 300. The following abbreviations are used in these tables: • FBTI – fringe benefits tax instalments • PAYGI – pay as you go instalments • PAYGW – pay as you go withholding • WET – wine equalisation tax • LCT – luxury car tax. • FBTI – fringe benefits tax instalments • PAYGI – pay as you go instalments • PAYGW – pay as you go withholding • WET – wine equalisation tax • LCT – luxury car tax. 301. Statutory due dates for lodgment of activity statements in relation to the majority of entities involved in the activity statement processes (excluding those with substituted accounting periods) are as follows. Table 4: Quarterly GST (WET, LCT) and fuel tax credits and any other quarterly obligations (PAYGW, PAYGI, FBTI) Period Due date Quarter 1 (July to September) 28 October Quarter 2 (October to December) 28 February Quarter 3 (January to March) 28 April Quarter 4 (April to June) 28 July Table 5: Quarterly GST (WET, LCT) and fuel tax credits and monthly PAYGW, and any other quarterly obligations (PAYGI, FBTI) Period Due date July monthly PAYGW 21 August August monthly PAYGW 21 September July – September GST, WET, LCT, PAYGI and FBTI September PAYGW 28 October October monthly PAYGW 21 November November monthly PAYGW 21 December October – December GST, WET, LCT, PAYGI and FBT December PAYGW 28 February January monthly PAYGW 21 February February monthly PAYGW 21 March January – March GST, WET, LCT, PAYGI and FBTI March PAYGW 28 April April monthly PAYGW 21 May May monthly PAYGW 21 June April – June GST, WET, LCT, PAYGI and FBTI June PAYGW 28 July Table 6: No GST (WET, LCT), and quarterly PAYGW, PAYGI or FBTI Period Due date Quarter 1 (July to September) 28 October Quarter 2 (October to December) 28 February Quarter 3 (January to March) 28 April Quarter 4 (April to June) 28 July Table 7: Quarterly consolidated PAYGI – lodged by the head company (regardless of any other obligations) Period Due date Quarter 1 (July to September) 21 October Quarter 2 (October to December) 21 January Quarter 3 (January to March) 21 April Quarter 4 (April to June) 21 July Table 8: Lodgment due date for No GST (WET, LCT), quarterly PAYGI, FBTI or monthly PAYGW Period Due date July monthly PAYGW 21 August August monthly PAYGW 21 September July – September PAYGI and FBTI September PAYGW 28 October October monthly PAYGW 21 November November monthly PAYGW 21 December October – December PAYGI and FBTI December PAYGW 28 February January monthly PAYGW 21 February February monthly PAYGW 21 March January – March PAYGI and FBTI March PAYGW 28 April April monthly PAYGW 21 May May monthly PAYGW 21 June April – June PAYGI and FBTI June PAYGW 28 July Table 9: Monthly GST (WET, LCT), fuel tax credits and other monthly or quarterly obligations OR No GST (WET, LCT), PAYGI or FBTI and monthly PAYGW only Period Due date July 21 August August 21 September September 21 October October 21 November November 21 December December 21 January January 21 February February 21 March March 21 April April 21 May May 21 June June 21 July September PAYGW December PAYGW March PAYGW June PAYGW September PAYGW December PAYGW March PAYGW June PAYGW Public CBC reports 302. Statutory due dates for lodgment of Public CBC reports for reporting periods in relation to the majority of entities are as follows: Table 10: Due date for Public CBC report publication Reporting period Due date 1 July to 30 June 30 June of the following year 1 October to 30 September 30 September of the following year 1 January to 31 December 31 December of the following year 1 April to 31 March 31 March of the following year 1 June to 31 May 31 May of the following year",PS LA 2004/6 | PS LA 2011/19 | PS LA 2007/24 | PS LA 2005/19 | PS LA 2013/5 | PS LA 2025/2 | PS LA 2011/16 | LCR 2018/8 | PS LA 2007/21 | PS LA 2011/2 | PS LA 2011/14 | Legislative Instrument Unclaimed money days and scheduled statement days | Privacy (Tax File Number) Rule 2015 | Acts Interpretation Act 1901 25C | Administrative Decisions (Judicial Review) Act 1977 | ANTS(GST)A 1999 27-15(1)(c) | ANTS(GST)A 1999 27-15(2) | ANTS(GST)A 1999 27-20 | ANTS(GST)A 1999 27-22 | ANTS(GST)A 1999 27-25(2)(b) | ANTS(GST)A 1999 27-39(1) | ANTS(GST)A 1999 31-10 | ANTS(GST)A 1999 31-20 | ANTS(GST)A 1999 31-25(1) | ANTS(GST)A 1999 31-25(2) | ANTS(GST)A 1999 33-10(1) | ANTS(GST)A 1999 33-10(2) | ANTS(GST)A 1999 33-15 | ANTS(GST)A 1999 48-5 | ANTS(GST)A 1999 48-60 | ANTS(GST)A 1999 51-5 | ANTS(GST)A 1999 51-50 | ANTS(GST)A 1999 51-52(1) | ANTS(GST)A 1999 54-5 | ANTS(GST)A 1999 54-55(1) | ANTS(GST)A 1999 54-55(3) | ANTS(GST)A 1999 57-40 | ANTS(GST)A 1999 58-10 | ANTS(GST)A 1999 58-35 | ANTS(GST)A 1999 58-50(1) | ANTS(GST)A 1999 58-50(4) | ANTS(GST)A 1999 58-55 | ANTS(GST)A 1999 58-60 | ANTS(GST)A 1999 58-60(2) | ANTS(GST)A 1999 78-50 | ANTS(GST)A 1999 78-85 | ANTS(GST)A 1999 84-70 | ANTS(GST)A 1999 84-70(1)(c) | ANTS(GST)A 1999 Subdiv 84-C | ANTS(GST)A 1999 105-15(1) | ANTS(GST)A 1999 146-5 | ANTS(GST)A 1999 146-25 | ANTS(GST)A 1999 151-20 | ANTS(GST)A 1999 151-45 | ANTS(GST)A 1999 151-60 | ANTS(GST)A 1999 162-5(1)(d) | ANTS(GST)A 1999 162-25 | ANTS(GST)A 1999 162-60 | ANTS(GST)A 1999 162-70(4) | ANTS(GST)A 1999 162-75 | ANTS(GST)A 1999 162-90 | ANTS(GST)A 1999 162-95 | ANTS(GST)A 1999 Div 188 | ANTS(GST)A 1999 195-1 | ANTS(GST)R 1999 Div 33 | Excise Act 1901 61C | Excise Act 1901 61C(1)(a) | Excise Act 1901 61C(1)(b) | Excise Act 1901 61C(1)(c) | Excise Act 1901 61C(3)(a) | Excise Act 1901 61C(3)(b) | Excise Act 1901 61C(3)(c) | Excise Act 1901 61C(3)(d) | Excise Act 1901 61C(3)(da)(i) | Excise Act 1901 61C(3)(da)(ii) | Excise Tariff Act 1921 5 | FBTAA 1986 68 | FBTAA 1986 69 | FBTAA 1986 136 | FBTAA 1986 Pt VII | FTA 2006 41-5(3) | FTA 2006 42-5 | FTA 2006 Div 44 | FTA 2006 44-5 | FTA 2006 61-15(2) | FTA 2006 61-20 | FTA 2006 Div 70 | FTA 2006 70-25 | FTA 2006 110-5 | ITAA 1936 6(1) | ITAA 1936 102UC | ITAA 1936 161 | ITAA 1936 161(1A) | ITAA 1936 162 | ITAA 1936 163 | ITAA 1936 167 | ITAA 1936 168 | ITAA 1936 202CD | ITAA 1936 202DP(1) | ITAA 1936 202DP(2) | ITAA 1936 252 | ITAA 1936 254 | ITAA 1997 5-5(5) | ITAA 1997 5-5(6) | ITAA 1997 703-5 | ITAA 1997 703-58 | ITAA 1997 719-5 | ITAA 1997 719-76 | ITAA 1997 960-100 | ITAA 1997 995-1(1) | GDMTA 2024 34 | Privacy Act 1988 | PRRTAA 1987 59 | PRRTAA 1987 95 | PRRTAA 1987 98 | SGAA 1992 33 | SISA 1993 129(3) | Superannuation (Unclaimed Money and Lost Members) Act 1999 15A | TAA 1953 3D(1) | TAA 1953 3D(1)(f) | TAA 1953 3D(3) | TAA 1953 3D(4) | TAA 1953 3D(5) | TAA 1953 3D(6) | TAA 1953 3DA | TAA 1953 3DB(1) | TAA 1953 3DB(4) | TAA 1953 3DB(5) | TAA 1953 Sch 1 12-175 | TAA 1953 Sch 1 12-180 | TAA 1953 Sch 1 16-75(2) | TAA 1953 Sch 1 16-75(5) | TAA 1953 Sch 1 16-95 | TAA 1953 Sch 1 16-100 | TAA 1953 Sch 1 16-110(3) | TAA 1953 Sch 1 16-115(5)(c) | TAA 1953 Sch 1 16-140 | TAA 1953 Sch 1 16-142 | TAA 1953 Sch 1 16-150 | TAA 1953 Sch 1 16-152 | TAA 1953 Sch 1 16-152(2) | TAA 1953 Sch 1 16-153 | TAA 1953 Sch 1 16-153(1) | TAA 1953 Sch 1 16-153(1)(a) | TAA 1953 Sch 1 16-153(2) | TAA 1953 Sch 1 16-153(6) | TAA 1953 Sch 1 16-153(7) | TAA 1953 Sch 1 45-61 | TAA 1953 Sch 1 45-70 | TAA 1953 Sch 1 45-110(1) | TAA 1953 Sch 1 45-112(3) | TAA 1953 Sch 1 45-115(1) | TAA 1953 Sch 1 45-125(1)(b) | TAA 1953 Sch 1 45-140(2) | TAA 1953 Sch 1 45-405 | TAA 1953 Sch 1 45-715 | TAA 1953 Sch 1 45-720 | TAA 1953 Sch 1 127-5 | TAA 1953 Sch 1 127-35 | TAA 1953 Sch 1 127-60(1) | TAA 1953 Sch 1 127-60(2)(a) | TAA 1953 Sch 1 127-60(3) | TAA 1953 Sch 1 255-10 | TAA 1953 Sch 1 255-10(2A) | TAA 1953 Sch 1 260-45 | TAA 1953 Sch 1 284-75 | TAA 1953 Sch 1 388-50 | TAA 1953 Sch 1 388-50(2) | TAA 1953 Sch 1 388-52 | TAA 1953 Sch 1 388-55(1) | TAA 1953 Sch 1 388-55(2) | TAA 1953 Sch 1 388-80 | TAA 1953 Sch 1 389-5 | TAA 1953 Sch 1 389-5(1) | TAA 1953 Sch 1 389-5(3) | TAA 1953 Sch 1 389-10 | TAA 1953 Sch 1 389-20 | TAA 1953 Sch 1 390-65(2) | TAA 1953 Sch 1 Div 392 | TAA 1953 Sch 1 393-10 | TAA 1953 Sch 1 Subdiv 396-B | TAA 1953 Sch 1 396-55 | TAA 1953 Sch 1 396-55(a)(ii) | TAA 1953 Sch 1 396-55(b)(ii) | TAA 1953 Sch 1 Div 405 | TAA 1953 Sch 1 405-10 | TAA 1953 Sch 1 405-10(1) | TAA 1953 Sch 1 405-10(2) | TAA 1953 Sch 1 405-10(4) | TAA 1953 Sch 1 426-102(1) | TAA 1953 Sch 1 426-105(1) | TAA 1953 Sch 1 444-10 | TAR 2017 70 | Treasury Laws Amendment (2018 Measures No. 4) Act 2019 | Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Act 2018 | Treasury Laws Amendment (Black Economy Taskforce Measures No. 2) Act 2018 | [1999] FCA 308 | 99 ATC 4373,PS LA 2004/6 PS LA 2005/19 PS LA 2007/21 PS LA 2007/24 PS LA 2011/2 PS LA 2011/14 PS LA 2011/16 PS LA 2011/19 PS LA 2013/5 PS LA 2025/2,Acts Interpretation Act 1901 25C | Administrative Decisions (Judicial Review) Act 1977 | ANTS(GST)A 1999 27-15(1)(c) | ANTS(GST)A 1999 27-15(2) | ANTS(GST)A 1999 27-20 | ANTS(GST)A 1999 27-22 | ANTS(GST)A 1999 27-25(2)(b) | ANTS(GST)A 1999 27-39(1) | ANTS(GST)A 1999 31-10 | ANTS(GST)A 1999 31-20 | ANTS(GST)A 1999 31-25(1) | ANTS(GST)A 1999 31-25(2) | ANTS(GST)A 1999 33-10(1) | ANTS(GST)A 1999 33-10(2) | ANTS(GST)A 1999 33-15 | ANTS(GST)A 1999 48-5 | ANTS(GST)A 1999 48-60 | ANTS(GST)A 1999 51-5 | ANTS(GST)A 1999 51-50 | ANTS(GST)A 1999 51-52(1) | ANTS(GST)A 1999 54-5 | ANTS(GST)A 1999 54-55(1) | ANTS(GST)A 1999 54-55(3) | ANTS(GST)A 1999 57-40 | ANTS(GST)A 1999 58-10 | ANTS(GST)A 1999 58-35 | ANTS(GST)A 1999 58-50(1) | ANTS(GST)A 1999 58-50(4) | ANTS(GST)A 1999 58-55 | ANTS(GST)A 1999 58-60 | ANTS(GST)A 1999 58-60(2) | ANTS(GST)A 1999 78-50 | ANTS(GST)A 1999 78-85 | ANTS(GST)A 1999 84-70 | ANTS(GST)A 1999 84-70(1)(c) | ANTS(GST)A 1999 Subdiv 84-C | ANTS(GST)A 1999 105-15(1) | ANTS(GST)A 1999 146-5 | ANTS(GST)A 1999 146-25 | ANTS(GST)A 1999 151-20 | ANTS(GST)A 1999 151-45 | ANTS(GST)A 1999 151-60 | ANTS(GST)A 1999 162-5(1)(d) | ANTS(GST)A 1999 162-25 | ANTS(GST)A 1999 162-60 | ANTS(GST)A 1999 162-70(4) | ANTS(GST)A 1999 162-75 | ANTS(GST)A 1999 162-90 | ANTS(GST)A 1999 162-95 | ANTS(GST)A 1999 Div 188 | ANTS(GST)A 1999 195-1 | ANTS(GST)R 1999 Div 33 | Excise Act 1901 61C | Excise Act 1901 61C(1)(a) | Excise Act 1901 61C(1)(b) | Excise Act 1901 61C(1)(c) | Excise Act 1901 61C(3)(a) | Excise Act 1901 61C(3)(b) | Excise Act 1901 61C(3)(c) | Excise Act 1901 61C(3)(d) | Excise Act 1901 61C(3)(da)(i) | Excise Act 1901 61C(3)(da)(ii) | Excise Tariff Act 1921 5 | FBTAA 1986 68 | FBTAA 1986 69 | FBTAA 1986 136 | FBTAA 1986 Pt VII | FTA 2006 41-5(3) | FTA 2006 42-5 | FTA 2006 Div 44 | FTA 2006 44-5 | FTA 2006 61-15(2) | FTA 2006 61-20 | FTA 2006 Div 70 | FTA 2006 70-25 | FTA 2006 110-5 | ITAA 1936 6(1) | ITAA 1936 102UC | ITAA 1936 161 | ITAA 1936 161(1A) | ITAA 1936 162 | ITAA 1936 163 | ITAA 1936 167 | ITAA 1936 168 | ITAA 1936 202CD | ITAA 1936 202DP(1) | ITAA 1936 202DP(2) | ITAA 1936 252 | ITAA 1936 254 | ITAA 1997 5-5(5) | ITAA 1997 5-5(6) | ITAA 1997 703-5 | ITAA 1997 703-58 | ITAA 1997 719-5 | ITAA 1997 719-76 | ITAA 1997 960-100 | ITAA 1997 995-1(1) | GDMTA 2024 34 | Privacy Act 1988 | PRRTAA 1987 58N | PRRTAA 1987 58Q | PRRTAA 1987 59 | PRRTAA 1987 95 | PRRTAA 1987 98 | SGAA 1992 33 | SISA 1993 129(3) | Superannuation (Unclaimed Money and Lost Members) Act 1999 15A | Superannuation (Unclaimed Money and Lost Members) Regulations 1999 5 | Superannuation (Unclaimed Money and Lost Members) Regulations 1999 6 | TAA 1953 3D(1) | TAA 1953 3D(1)(f) | TAA 1953 3D(3) | TAA 1953 3D(4) | TAA 1953 3D(5) | TAA 1953 3D(6) | TAA 1953 3DA | TAA 1953 3DB(1) | TAA 1953 3DB(4) | TAA 1953 3DB(5) | TAA 1953 Sch 1 Pt 2-5 | TAA 1953 Sch 1 12-175 | TAA 1953 Sch 1 12-180 | TAA 1953 Sch 1 16-75(2) | TAA 1953 Sch 1 16-75(5) | TAA 1953 Sch 1 16-95 | TAA 1953 Sch 1 16-100 | TAA 1953 Sch 1 16-110(3) | TAA 1953 Sch 1 16-115(5)(c) | TAA 1953 Sch 1 16-140 | TAA 1953 Sch 1 16-142 | TAA 1953 Sch 1 16-150 | TAA 1953 Sch 1 16-152 | TAA 1953 Sch 1 16-152(2) | TAA 1953 Sch 1 16-153 | TAA 1953 Sch 1 16-153(1) | TAA 1953 Sch 1 16-153(1)(a) | TAA 1953 Sch 1 16-153(2) | TAA 1953 Sch 1 16-153(6) | TAA 1953 Sch 1 16-153(7) | TAA 1953 Sch 1 Pt 2-10 | TAA 1953 Sch 1 45-61 | TAA 1953 Sch 1 45-70 | TAA 1953 Sch 1 45-110(1) | TAA 1953 Sch 1 45-112(3) | TAA 1953 Sch 1 45-115(1) | TAA 1953 Sch 1 45-125(1)(b) | TAA 1953 Sch 1 45-140(2) | TAA 1953 Sch 1 45-405 | TAA 1953 Sch 1 45-715 | TAA 1953 Sch 1 45-720 | TAA 1953 Sch 1 127-5 | TAA 1953 Sch 1 127-35 | TAA 1953 Sch 1 127-60(1) | TAA 1953 Sch 1 127-60(2)(a) | TAA 1953 Sch 1 127-60(3) | TAA 1953 Sch 1 255-10 | TAA 1953 Sch 1 255-10(2A) | TAA 1953 Sch 1 260-45 | TAA 1953 Sch 1 284-75 | TAA 1953 Sch 1 388-50 | TAA 1953 Sch 1 388-50(2) | TAA 1953 Sch 1 388-52 | TAA 1953 Sch 1 388-55(1) | TAA 1953 Sch 1 388-55(2) | TAA 1953 Sch 1 388-80 | TAA 1953 Sch 1 389-5 | TAA 1953 Sch 1 389-5(1) | TAA 1953 Sch 1 389-5(3) | TAA 1953 Sch 1 389-10 | TAA 1953 Sch 1 389-20 | TAA 1953 Sch 1 390-65(2) | TAA 1953 Sch 1 Div 392 | TAA 1953 Sch 1 393-10 | TAA 1953 Sch 1 Subdiv 396-B | TAA 1953 Sch 1 396-55 | TAA 1953 Sch 1 396-55(a)(ii) | TAA 1953 Sch 1 396-55(b)(ii) | TAA 1953 Sch 1 Div 405 | TAA 1953 Sch 1 405-10 | TAA 1953 Sch 1 405-10(1) | TAA 1953 Sch 1 405-10(2) | TAA 1953 Sch 1 405-10(4) | TAA 1953 Sch 1 426-102(1) | TAA 1953 Sch 1 426-105(1) | TAA 1953 Sch 1 444-10 | TAR 2017 70 | Treasury Laws Amendment (2018 Measures No. 4) Act 2019 | Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Act 2018 | Treasury Laws Amendment (Black Economy Taskforce Measures No. 2) Act 2018,,ATO Charter ATO privacy policy Chief Executive Instruction Respecting taxpayers' rights of review Legislative Instrument Unclaimed money days and scheduled statement days Practitioner lodgment service Privacy (Tax File Number) Rule 2015 Prosecution Policy | Commonwealth Director of Public Prosecutions,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS201115/NAT/ATO/00001,"This Practice Statement is being reviewed to ensure alignment of the ATO's approach to remission of interest and penalties charges. This document incorporates revisions made since original publication. View its history and amending notices, if applicable. | What this Practice Statement is about | The specific date on which we consider lodgment to be made | Enforcing overdue lodgment | Not pursuing overdue lodgment | Suspension of lodgment enforcement action | Considerations when suspending lodgment action | Communicating suspension decisions | Does the law allow us to defer lodgment? | Lodgment deferral requests | Information to be provided for deferral requests | Consequences of deferrals on failure to lodge and general interest charge | When you can defer a lodgment | Lodgment deferral in other circumstances | Collective lodgment deferrals | Lodgment deferrals where there are new legislative measures | Concessionary deferral arrangements | Lodgment deferrals for clients of a registered agent | Assessing lodgment deferral requests from registered agents | Deferrals for new or re-engaged clients with overdue tax returns | What to consider in registered agent deferral requests | Communicating deferral decisions | Can a deferral decision be reviewed? | What is the impact of an income tax return deferral on other lodgments? | Can a deferral be granted permanently? | This Practice Statement provides guidance on: • lodgment obligations, including supporting voluntary lodgment compliance • lodgment due dates and how these dates are determined • deferring lodgment. | What this Practice Statement is about: • lodgment obligations • lodgment due dates • suspension of lodgment enforcement • lodgment deferrals. | • a return [3A] • a notice • a statement • an application • a report, or • other documents. | The term 'document' is used throughout this Practice Statement and refers to the items listed in this paragraph. | 3. Further information on obligation types is available in Appendix A to this Practice Statement. | 4. Specific lodgment requirements are outlined in Appendix B to this Practice Statement, while lodgment requirements for special classes of persons are in Appendix C to this Practice Statement. | 5. A due date is the date that lodgment of a document is due to be received by the ATO. | 6. Approved and prescribed forms are due for lodgment by due dates specified in a legislative instrument [4] or provided in legislation (statutory due dates), within prescribed periods or as we require. | 7. Entities or their representatives are required to lodge documents by the due date, whether or not any related liability is paid or payable. | • further or fuller returns for a period [5] • a different document for different liabilities within one period • a further Public country-by-country (Public CBC) report for a reporting period to correct a material error. [5A] | 9. If the lodgment due date falls on a Saturday, Sunday or public holiday, lodgment may be made on the first business day after the due date without incurring a failure to lodge (FTL) penalty. [6] A public holiday refers to a day that is a public holiday for the whole of any state, the Australian Capital Territory or the Northern Territory. [7] | 10. You can find lodgment due dates, including the lodgment program, on ato.gov.au . | 11. Further information on lodgment due dates is available in Appendix D to this Practice Statement, and lodgment tables are available in Appendix E to this Practice Statement. | The specific date on which we consider lodgment to be made: 12. Documents delivered to ATO premises are considered lodged on the day delivery is made. Entities should allow sufficient time when posting documents so they are with us by the due date. | 13. Documents given to ATO staff (for example, at a tax agent's office, a taxpayer's business or residence or a court) are considered lodged on the day they are received by the ATO officer. | 14. Generally, documents lodged electronically are considered lodged on the date they receive an ATO receipt number or lodgment confirmation via myTax, Single Touch Payroll (STP)-enabled software or the practitioner lodgment service (PLS). If an error message is provided when lodging a document, an entity will need to correct the error and re-submit. | 15. The PLS, which is our main electronic lodgment channel for tax practitioners [8] , does not provide a validation report. Instead, agents will receive a message response. These lodgments are updated on the client record in Online services for agents (OSFA) almost immediately, so the lodgment status can be checked via OSFA. | 16. Where a document is sent by an entity but is not recorded by us as lodged, the date of lodgment is the date on which lodgment of the document could reasonably have been made. Depending on an entity's compliance history, evidence that the document was lodged may be required to establish the lodgment date. | Enforcing overdue lodgment: 17. The action we may take for entities that fail to meet their lodgment obligations differs depending on their particular circumstances. Prior to taking action, we consider the reasons for non-lodgment, compliance history, the entity's knowledge of tax and superannuation laws and other relevant circumstances of that entity. | • ensuring the entity is aware of the obligation to lodge by the due date • advising the entity of the consequences of non-lodgment or late lodgment • contacting the entity or their representative via phone or in writing (in some instances, lodgment of activity statements may be completed over the phone to quickly finalise compliance action) • applying an FTL penalty or other administrative penalty • issuing an assessment or default assessment, making estimates, or bringing tax-related liabilities to account, or a combination of these • referring the matter for prosecution. | • what periods are outstanding and how they can lodge • the consequences of not lodging • any rights of review. | 20. Any personal information collected via lodgment must comply with the Privacy Act 1988 and the requirements of the Australian Privacy Principles, in particular the Privacy (Tax File Number) Rule 2015. | Not pursuing overdue lodgment: • there is little risk to revenue, and • the value of information to be provided is minimal and follow-up action would not be cost-effective. | 22. The decision not to pursue overdue lodgment may be reviewed at any time and it does not depend on receiving new information. | 23. Not pursuing overdue lodgment of a document does not remove the entity's obligation to lodge that document, now or in the future. | 24. In general, we do not advise the entity if a decision is made not to pursue lodgment. | Suspension of lodgment enforcement action: 25. A suspension is not a deferral or extension of time to lodge. We may agree to suspend lodgment enforcement action by not undertaking compliance action on a specific overdue lodgment or lodgments for a period of time. | • from an express request from the entity or the entity's representative for enforcement action to be suspended • because the reasons given in a deferral request are not sufficient to allow the deferral. | 27. Where lodgment enforcement action is suspended, an FTL penalty or other administrative penalty may be applied and calculated from the original due date. Where suspension of lodgment enforcement action applies, payment is still required by the due date with the general interest charge (GIC) applying to any late payment. | 28. A request to suspend lodgment enforcement action after the issue of a final notice for lodgment of certain documents, such as income tax returns, is not generally granted. This is because potential prosecution action may be compromised. | Considerations when suspending lodgment action: • information provided by the entity and other information that we may hold (or obtain) • the circumstances that led to the inability to lodge on time and the effect on the entity in requiring immediate lodgment • the cooperation and engagement by the entity with us (towards meeting their obligations) • the stage any current lodgment enforcement action has reached and the grounds put forward by the entity to justify suspending that action • the offer made by the entity and their ability to meet that offer without seriously impacting on their ability to meet other obligations • whether there is a likely risk to the revenue or to the efficient operation and administration of the taxation system • the entity's compliance history (that is, lodgment of taxation returns, activity statements and other documents, as well as payment of amounts on time and the history of the entity's previous dealings with us) • the likelihood of the entity lodging the document within the period allowed • the risk of undermining the transparency intention of the Public CBC reporting regime (where applicable). | Communicating suspension decisions: 30. All arrangements made must stipulate that an FTL penalty may be applied from the original due date until lodgment is received. If a suspension of lodgment enforcement action request is either not granted or is varied, we document all of the factors considered and the reasons for the decision, and communicate them to the entity. | Does the law allow us to defer lodgment?: 31. The law generally allows us to defer the time for lodgment of an approved [9] or a prescribed form. [9A] | 32. Where the law allows, the Commissioner of Taxation and, by extension, delegated ATO officers have discretionary power to defer the time within which an approved form is to be given to us or another entity. This power may be exercised individually, by way of concession for some electronic lodgments or through the lodgment program. | 33. This discretion does not mean the entity is entitled to a lodgment deferral, but it does enable the time for lodgment to be deferred where warranted. | 34. The purpose of deferring the due date for lodgment is to facilitate the lodgment of a document that is unable to be lodged by the due date, but has the potential to be lodged at a particular time in the future. | Lodgment deferral requests: 35. Lodgment deferral requests should be made by the lodgment due date. Requests made after the due date are only considered where the entity or registered agent can explain in detail the circumstances that prevented the request being made before the due date. | 36. A deferred due date for lodgment does not defer the time for payment. [10] | 37. Where entities require a deferral for both lodgment and payment, they must request each separately. These requests can be made at the same time. | 38. There are cases where it is inappropriate to defer the due date for lodgment, but it may be appropriate to defer the due date for payment. An inability to pay by the due date is not a valid reason for failing to lodge on time. | 39. Alternatively, there are circumstances where payment can be made but lodgment information is not yet available. In this case it is appropriate to defer the due date for lodgment but not payment. | Information to be provided for deferral requests: • the type of document and the year or period it relates to • the entity's details, including Australian business number (ABN) or tax file number (TFN) • the circumstances that prevent lodgment by the due date • the steps taken to mitigate those circumstances, and • the proposed date of lodgment. | 41. Registered agents should submit deferral requests, using the appropriate online form, in OSFA. | Consequences of deferrals on failure to lodge and general interest charge: 42. Deferring the due date for lodgment provides a further period of time to lodge without incurring an FTL penalty. It also provides us with an alternative to taking further compliance action. | 43. Where the lodgment due dates are deferred, and provided lodgment is completed by the deferred due dates, no FTL penalty will apply for failing to lodge on time. Where the payment due dates are deferred, and provided payment is made in full by the deferred due dates, no GIC will apply for failing to pay on time. | 44. For information on how the FTL penalty is applied and administered, see paragraph 86A of this Practice Statement. | When you can defer a lodgment: 45. We can grant a lodgment deferral where it is fair and reasonable to do so taking into account all relevant circumstances. This approach seeks to balance our obligations to administer taxation and superannuation laws consistently and fairly but also consider an entity's individual circumstances. | • the reason the entity or their representative is unable to lodge on time • the value of the information provided in the document (including the impact of deferring public access to the information contained in a report which is required to be published) • the size and structure of the entity (large corporate entities are more likely to have the ability and resources to overcome circumstances that might affect their ability to not lodge by the due date) • the risk to revenue or the risk of undermining the transparency intention of the Public CBC reporting regime (where applicable) • the entity's compliance history as a whole (that is, lodgment of taxation returns, activity statements and other documents, payments on time and previous dealings with us) • the length of time needed to lodge the document (a deferral will usually be granted where an entity has a good compliance history and requests a short period of additional time to lodge) • whether the entity has applied for an exemption from their reporting obligation which we are currently considering • any other relevant information that includes the individual circumstances. | 47. We generally consider it fair and reasonable to grant a deferral to entities where the inability to lodge by the due date is reasonably attributed to exceptional or unforeseen circumstances. | • natural disasters or other disasters or events that may have, or have had, a significant impact on individuals, regions or particular industries • impeded access to records (for example, records seized during a police search, retained as evidence in a court matter or situations involving family violence or financial coercion) • experiences of vulnerability, including but not limited to family violence, financial coercion, sudden homelessness or serious mental health challenges • the serious illness or death of a family member, tax professional or critical staff member • considerable lack of knowledge and understanding of taxation obligations • system issues, either with ATO online services or the entity's business system. | 49. A lodgment deferral may be granted even where the circumstances leading to their inability to lodge on time continue to be beyond the entity's control so that they may not be able to meet future obligations on time. For example, if arm's length partners or beneficiaries cannot influence the preparation timeframe of the respective partnership or trust returns. | 50. The fact that an entity may have a poor lodgment compliance history should not prevent granting a request for a deferral of time to lodge where the inability to lodge was caused by circumstances beyond their control or if it would be otherwise fair and reasonable to grant the deferral. | 51. Each request is considered on its merits and the deferred due date will be determined considering the particular circumstances of the entity. | Lodgment deferral in other circumstances: 52. In some circumstances, such as an individual being overseas or away from home, the individual should arrange to deal with their taxation affairs either before or during their absence. | 53. If an entity proposes a lodgment deferral that is either unacceptable or has some aspects that are unacceptable, a more suitable arrangement may be negotiated. | 54. Where generation of an activity statement is delayed, if necessary, on generation we may defer the lodgment due date to provide reasonable time to lodge the document. | 55. Further, there may be occasions where the late provision of information from a third party delays the issue of an activity statement – for example, data required on the activity statement for participants in the deferred goods and services tax (GST) scheme. The individual circumstances of a participant in this case may warrant a deferral. | Collective lodgment deferrals: 56. A collective lodgment deferral may be granted to a class of entities affected by a common event, such as a natural disaster or delayed legislation. Where we can reasonably assume that a common event has had an impact on a defined population, a collective lodgment deferral may be granted without the entities involved making individual applications. | 57. For example, where a bushfire has impacted a particular area, a collective lodgment deferral may be granted to certain entities affected by the disaster in the area. This may extend to other entities where it can be demonstrated that excessive costs of compliance affect their ability to meet reporting obligations. | Lodgment deferrals where there are new legislative measures: 58. On occasions, the government may announce new legislative measures that apply retrospectively once enabling legislation is enacted. The general approach we take in administering retrospective changes is to apply the existing law until the proposed changes are enacted. However, the tax law allows the ATO to accept returns as lodged. | 59. For more information, see Law Administration Practice Statement PS LA 2004/6 Giving advice on proposed changes to the tax law before royal assent or registration on the Federal Register of Legislation . | 60. In limited circumstances, it may be appropriate to grant a general deferral of the due date for lodgment. | 61. The fact that a new legislative measure is to apply retrospectively but has not been enacted is not sufficient for a deferral of the due date for lodgment. | Concessionary deferral arrangements: 62. Concessionary deferral arrangements are where we provide a deferral if certain terms and conditions are met, for example, the 2-week deferral that applies to most quarterly activity statements lodged online by self-preparers. | 63. Concessionary deferral arrangements are subject to review and may be revoked at any time. | Lodgment deferrals for clients of a registered agent: 64. The lodgment program was specifically developed to assist tax and BAS agents (referred to collectively as registered agents) to manage their workload throughout the year. Even so, circumstances may arise that prevent agents from meeting all of the obligations under the lodgment program. | – the serious illness of a sole practitioner – prolonged but unexpected staff absences – prolonged and expected staff absences where other factors have prevented replacement by suitably qualified staff | 66. Further, it may be otherwise fair and reasonable to grant registered agents deferrals where, despite making a concerted effort to achieve lodgment for a period, a small number of documents will not be lodged by the due date. | – the due date under the lodgment program, or – the due date for lodgment if not covered by the lodgment program. | Assessing lodgment deferral requests from registered agents: • agent-assessed deferrals • ATO-assessed deferrals • additional time to lodge for clients with overdue returns. | The lodgment deferral requests are assessed using the information provided in the form. | Agent-assessed deferrals: • made prior to the due date, though requests can be submitted up to 3 business days after the lodgment due date • for a maximum of 14 days for monthly obligations, 21 days for quarterly obligations and 28 days for annual obligations, and • for eligible clients and document types. | 70. Approved agent-assessed deferral requests also have an automatic payment deferral to the deferred lodgment due date. | • individuals and trusts, as payment is due 21 days after the issue of the notice of assessment of the deferred return [11] • fringe benefits tax (FBT) returns, as payment is due on 25 June [12] (for electronic lodgment). | ATO-assessed deferrals: 72. Registered agent requests that do not meet the 'agent assessed' criteria or require additional information will be escalated for manual assessment. | Deferrals for new or re-engaged clients with overdue income tax returns: • a deferral for current year obligations • a suspension of action for outstanding prior-year income tax returns. | What to consider in registered agent deferral requests: • circumstances giving rise to the request • past lodgment performance • reporting period • document type • number of deferrals • size of the practice • value of the information required • risk to revenue. | • a particular group of entities • entities with a particular end date in the lodgment program. | Communicating deferral decisions: • the income year or tax period to which the deferral applies • the deferred due date by which lodgment is to be made, and from which an FTL penalty may be calculated if lodgment is not made by the deferred due date, and • that the action to secure lodgment may be commenced without further notice if lodgment is not made by the deferred due date. | 77. If a lodgment deferral request is disallowed or varied, we will document the factors considered and reasons for making the decision and communicate these reasons to the entity. The entity is also advised of their review rights. | 78. Collective lodgment deferral decisions may also be communicated through ato.gov.au or other external mediums. | Can a deferral decision be reviewed?: 79. If the entity or representative is not satisfied with the deferral decision, they may request an internal review. | 80. Registered agents should complete the Review of lodgment deferral decision application form. | 81. If the entity or representative is not satisfied with the internal review decision, they may appeal to the Federal Court of Australia for a review of the decision under the Administrative Decisions (Judicial Review) Act 1977. [12A] | 82. The entity or representative cannot object to a decision to disallow a lodgment deferral. [12B] | What is the impact of an income tax return deferral on other lodgments?: 83. Where a deferral to lodge an income tax return is granted, any other returns, statements or notices with due dates that are linked by law to the due date of the income tax return must be changed to become due on the deferred date (for example, an annual GST return). | Can a deferral be granted permanently?: 84. Lodgment deferrals cannot be permanent. | 85. Lodgment deferrals can only be granted on a short-term basis to allow time to overcome problems preventing the lodgment of the relevant document by the due date. | 86. If a further lodgment deferral is required for the document, the entity or representative can submit a further deferral request. Registered agents must submit further deferral requests in OSFA. | – the requirements of the relevant legislative provision have been satisfied, or – the Commissioner requires a document to be created in connection with the exercise of either an implied power or their power of general administration of a taxation law, where sufficient information is provided to enable effective and efficient administration of the taxation and superannuation laws. | Inserted footnote reference to not-for-profit self-review return. | Inserted 'and' between dot points. | Included vulnerability as an example of exceptional or unforeseen circumstances where it may be appropriate to grant a lodgment deferral. | Updated to align with amended Practice Statement style and formatting requirements. | Updated list to include multiple reports being required for Public CBC in the circumstance where an entity has to correct a material error. | Inserted footnote 9A – certain global and domestic minimum tax lodgment obligations cannot be deferred. | Inserted Public CBC reporting as a topic. | Attachment A paragraphs 167A and 167B | Inserted lodgment obligations for minimum tax. | Attachment A paragraphs 167D to 167F | Inserted lodgment obligations for Public CBC reporting. | Attachment B paragraph 206A | Inserted lodgment entity for Public CBC reporting. | Attachment D paragraphs 294 and 295 | Inserted due dates for lodgment for minimum tax. | Attachment D paragraphs 296 to 298 | Inserted due dates for Public CBC report. | Inserted Table 10 the due date for Public CBC report publication. | Updated in line with current ATO style and accessibility requirements. | Example updated for currency | Updated in line with current ATO style and accessibility guides. | Updated to include option for quarterly lodgment as a result of change to the Excise Act 1901 which came into effect 1 July 2023. | Minor updates have been made to advise of the new online services for agents (OSFA) channel available to tax agents to make lodgment deferral requests. Attachments B and D have been updated to describe the lodgment obligations and due dates for Sharing Economy reporting. | Footnote references updated. | Inserted, amended and removed to reflect changes and details of Single Touch Payroll (STP). | Paragraph about fraud remediation removed as the policy in PS LA 2011/8 is under review as at date of amendment. | Update wording for agent deferral application form. | Update FBT payment due date to 25 June. | Insert new paragraphs on review of deferral decisions. | Update text to reflect change of wording in section 161 of the ITAA 1936. | Remove footnote reference to section 56 of the Legislation Act as that is no longer necessary. | Minor update and remove references to Tax and BAS Agent portal and insert Online Services for Agents. | Remove reference to ELS which has been retired. | MEC and consolidated groups updated. | Updated to reflect extensions of the taxable payments reporting system. | Rewrite into the new style and format. | Paragraph 21 and footnote 4 | Updated Federal Register of Legislative Instruments to Federal Register of Legislation. | Deletion of reference to information report. | Paragraph 227 and Legislative references | Replacement of Financial Management and Accountability Act 1997 with Public Governance, Performance and Accountability Act 2013. | Inserted new paragraphs and title. | e-tax reference removed and replaced with myTax. | TPAR lodgment date updated to 28 August. | www.ato.gov.au changed to ato.gov.au in line with ATO Style Guide. | www.ato.gov/mrrt changed to ato.gov/mrrt in line with ATO Style Guide. | Paragraphs 154, 180 and 239 | www.ato.gov.au/prrt changed to ato.gov.au/prrt in line with ATO Style Guide. | www.ato.gov.au/Excise changed to ato.gov.au/Excise in line with ATO Style Guide. | Include Privacy Act 1988 . | • Compliance measures (12-15) • Ordering of paragraphing to better structure IT, FBT, AS and PAYG obligations (18-75) • Non-lodgment advice notification policy (22) • MW McIntosh Pty Ltd and Anor v FC of T [2009] FCAFC 88 to support administering consolidated groups (27) • FBT obligations (29-30) • Pay as you go withholding - no TFN annual reporting associated with closely held trusts obligation (73) • Minerals resource rent tax lodgment obligations (76-89) • Petroleum resource rent tax lodgment obligations (90-99) • Excise lodgment obligations (110-112) • Closely held trust reporting obligations (113-117) • Taxable payments reporting - building and construction industry as reporting obligations (118-120) • Minerals resource rent tax - lodgment due dates (182-185) • Petroleum resource rent tax - lodgment due dates (amended text) (186-188) • Excise - lodgment due dates (189-193) • TFN report - lodgment due dates (194) • Lodgment deferrals where activity statements are generated late (222) • Lodgment deferrals - registered tax agent and BAS agents - amalgamating both groups (230-235). | Legislative linkage between lodgment and payment deferrals removed and replaced by paragraph detailing their separate administration (241). | Error amended. Incorrect date in last dot point updated from '21 October' to correct date of '21 August'. | [1] 'Entity' takes its meaning from section 960-100 of the Income Tax Assessment Act 1997 (ITAA 1997). | [2] Section 388-50 of Schedule 1 of the Taxation Administration Act 1953 (TAA). Also see Law Administration Practice Statement PS LA 2005/19 Approved forms . | [3] See paragraph 86A of this Practice Statement and section 25C of the Acts Interpretation Act 1901 . | [3A] 'A return' includes the not-for-profit self-review return. | [5] Section 162 of the Income Tax Assessment Act 1936 (ITAA 1936). | [5A] Subsection 3DB(1) of the TAA. | [6] Section 388-52 of Schedule 1 to the TAA. | [7] See definition of 'business day' under subsection 995-1(1) of the ITAA 1997. | [8] For further information on PLS, refer to Practitioner lodgment service . | [9] Subsection 388-55(1) of Schedule 1 to the TAA. | [9A] However, certain global and domestic minimum tax lodgment obligations cannot be deferred: see subsection 127-60(3) of Schedule 1 to the TAA. | [10] Subsection 388-55(2) of Schedule 1 to the TAA. We have the power to defer payments under section 255-10 of Schedule 1 to the TAA. See also Law Administration Practice Statement PS LA 2011/14 General debt collection powers and principles . | [10A] Public CBC deferral requests should be sent to PublicCBC@ato.gov.au . | [11] Subsections 5-5(5) or (6) of the ITAA 1997. | [12] This is a deferral under subsection 255-10(2A) of Schedule 1 to the TAA. | [12A] For further information, refer to paragraphs 93 to 110 of Law Administration Practice Statement PS LA 2009/9 Conduct of ATO litigation and engagement of ATO Dispute Resolution . | [12B] The provisions enabling the Commissioner to grant a lodgment deferral are not within the scope of Part IVC of the TAA. | [13] Refer also to section 167 of the ITAA 1936. | [13A] As introduced by the Taxation (Multinational – Global and Domestic Minimum Tax) Act 2024 and related Acts. | [13B] 'Tax return' includes the not-for-profit self-review return. | [14] Subsection 161(1A) of the ITAA 1936. | [15] Sections 162 and 163 of the ITAA 1936 and section 31-20 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act). | [16] Section 703-5 of the ITAA 1997. | [17] Section 719-5 of the ITAA 1997. | [18] Section 703-58 of the ITAA 1997 for consolidated groups; section 719-76 of the ITAA 1997 in relation to MEC groups. | [19] Section 68 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA). | [20] Section 136 of the FBTAA. | [21] Section 69 of the FBTAA. | [22] Employee Share Schemes – reporting obligations Division 392 of Schedule 1 to the TAA. | [23] Subsection 388-50(2) of Schedule 1 to the TAA. | [24] Section 284-75 of Schedule 1 to the TAA. | [25] PAYG withholding branch has the meaning given by section 16-142 of Schedule 1 to the TAA. | [26] Section 31-20 of the GST Act. | [27] Subsections 45-110(1) and 45-115(1) and paragraph 45-125(1)(b) of Schedule 1 to the TAA. | [28] The standard quarterly reporting periods are the tax periods ending 30 September, 31 December, 31 March and 30 June. | [29] GST turnover takes the meaning given by Division 188 of the GST Act. | [30] Subsections 31-25(2) and 33-10(2) of the GST Act. | [31] Section 33-15 of the GST Act and Division 33 of the A New Tax System (Goods and Services Tax) Regulations 1999 . | • indirect tax law that is any of GST law, WET law, LCT law, fuel tax law • Part VII of the FBTAA, and • Parts 2-5 and 2-10 of Schedule 1 to the TAA that are about the PAYG system. | [33] Section 388-80 of Schedule 1 to the TAA. | [34] Subsections 31-25(1) and 33-10(1) of the GST Act. | [35] Subsection 27-15(2) of the GST Act. | [36] Paragraph 27-25(2)(b) of the GST Act. | [37] Sections 16-95 and 16-100 of Schedule 1 to the TAA. | [38] Paragraph 16-115(5)(c) of Schedule 1 to the TAA. | [39] Section 16-110(3) of Schedule 1 to the TAA. | [40] Subsection 41-5(3) and section 42-5 of the Fuel Tax Act 2006 (FTA). | [41] Division 44 of the FTA. | [42] Section 61-20 of the FTA. | [43] 'GDP-adjusted notional tax' has the meaning given by section 45-405 of Schedule 1 to the TAA. | [44] Section 27-20 of the GST Act. | [45] Section 27-22 of the GST Act. | [46] Paragraph 27-15(1)(c) of the GST Act. | [47] Paragraph 27-25(2)(b) of the GST Act. | [48] Section 162-60 of the GST Act. | [49] Section 162-75 of the GST Act. | [50] Paragraph 162-5(1)(d) of the GST Act. | [51] Subdivision 84-C of the GST Act. | [52] Section 146-5 of the GST Act. | [53] Section 146-25 of the GST Act. | [54] Sections 16-152 and 16-153 of Schedule 1 to the TAA. | [55] Subsections 16-153(6) and (7) of Schedule 1 to the TAA. | [56] Paragraph 16-153(1)(a) of Schedule 1 to the TAA. | [57] Defined in section 102UC of the ITAA 1936. | [58] Section 12-175 of Schedule 1 to the TAA. | [59] Section 12-180 of Schedule 1 to the TAA. | [60] Section 98 of the Petroleum Resource Rent Tax Assessment Act 1987 (PRRTAA). | [61] Section 59 of the PRRTAA. | [62] Section 58N of the PRRTAA. | [63] Section 58Q of the PRRTAA. | [64] Section 389-5 of Schedule 1 to the TAA. | [65] Section 389-5 of Schedule 1 to the TAA. | [66] Subsection 389-5(3) of Schedule 1 to the TAA. | [67] Section 389-20 of Schedule 1 to the TAA. | [68] Section 389-5 of Schedule 1 to the TAA. | [69] Treasury Laws Amendment (2018 Measures No. 4) Act 2019 . | [70] Section 389-20 of Schedule 1 to the TAA. | [71] Section 389-10 of Schedule 1 to the TAA. | [72] Section 389-10 of Schedule 1 to the TAA. | [73] Section 389-10 of Schedule 1 to the TAA. | [73A] Section 127-5 of Schedule 1 to the TAA. | [73B] Section 127-35 of Schedule 1 to the TAA. | [73C] Subsection 3D(1) of the TAA. | [73D] Subsections 3D(3) and (4) of the TAA. | [73E] Subsections 3D(1) and 3D(3) of the TAA. | [73F] Paragraph 3D(1)(f) and subsections 3DB(4) and (5) of the TAA. | [73G] Subsections 3D(5) and (6) of the TAA. | [74] GST group has the meaning given by section 48-5 of the GST Act. | [75] Section 48-60 of the GST Act. | [76] GST joint venture has the meaning given by section 51-5 of the GST Act. | [77] Section 51-50 of the GST Act. | [78] Subsection 51-52(1) of the GST Act. | [79] GST branch has the meaning given by section 54-5 of the GST Act. | [80] Subsection 54-55(1) of the GST Act. | [81] Subsection 54-55(3) of the GST Act. | [82] Division 70 of the FTA. Fuel tax law has the meaning given by section 110-5 of the FTA. | [83] Defined in section 5 of the Excise Tariff Act 1921 . | [84] Subsection 202DP(1) of the ITAA 1936. | [85] Section 16-140 of Schedule 1 to the TAA. | [86] Section 12-175 of Schedule 1 to the TAA. | [87] Section 12-180 of Schedule 1 to the TAA. | [88] Section 16-152 of Schedule 1 to the TAA. | [89] Section 405-10 of Schedule 1 to the TAA and section 70 of the Taxation Administration Regulations 2017 . | [90] As defined in section 195-1 of the GST Act. | [91] Table item 11 of section 396-55 of Schedule 1 to the TAA. | [92] Table item 12 of section 396-55 of Schedule 1 to the TAA. | [93] Table item 13 of section 396-55 of Schedule 1 to the TAA. | [94] Table item 14 of section 396-55 of Schedule 1 to the TAA. | [95] Section 405-10 of Schedule 1 to the TAA and section 70 of the Taxation Administration Regulations 2017 . | [96] Table item 1 of section 396-55 of Schedule 1 to the TAA. | [97] Subsection 405-10(2) of Schedule 1 to the TAA. | [98] Table item 2 of section 396-55 of Schedule 1 to the TAA. | [99] The Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Act 2018 . | [100] The Treasury Laws Amendment (Black Economy Taskforce Measures No. 2) Act 2018 . | [101] Table items 11 to 14 of section 396-55 of Schedule 1 to the TAA. | [102] As defined in section 84-70 of the GST Act, disregarding paragraph 84-70(1)(c). | [103] Table item 15 of section 396-55 of Schedule 1 to the TAA. | [104] Table item 15 of section 396-55 of Schedule 1 to the TAA. | [105] Table item 15 of section 396-55 of Schedule 1 to the TAA refers to the 'indirect tax zone' as defined in the GST Act and for the purposes of sharing economy reporting, includes the external Territories. | [106] Section 16-95 of Schedule 1 to the TAA. | [107] Section 16-142 of Schedule 1 to the TAA. | [107A] As set out in subsection 3D(1) of the TAA. | [107B] Subsections 3D(3) and (4) of the TAA. | [107C] Subsection 3D(3) and section 3DA of the TAA. | [108] Section 252 of the ITAA 1936 and section 444-10 of Schedule 1 to the TAA. | [109] Agent and trustee have the meaning given in subsection 6(1) of the ITAA 1936. | [110] Section 254 of the ITAA 1936. | [111] Liquidator has the meaning given in subsection 6(1) of the ITAA 1936. | [112] Section 254 of the ITAA 1936. | [113] Section 260-45 of Schedule 1. | [114] Deputy Commissioner of Taxation v Jones [1999] FCA 308. | [115] Subsection 27-39(1) of the GST Act. | [116] Incapacitated entity is defined in section 195-1 of the GST Act. | [117] Section 58-35 of the GST Act. | [118] Section 70-25 of the FTA. | [119] Increasing adjustment has the meaning given in section 195-1 of the GST Act. | [120] Section 58-60 of the GST Act. | [121] Subsection 58-60(2) of the GST Act. | [122] Section 58-10 of the GST Act. | [123] Subsection 58-50(1) of the GST Act. | [124] Subsection 58-50(4) of the GST Act. | [125] Section 58-55 of the GST Act and section 70-25 of the FTA. | [126] The terms 'person', 'persons', and 'full self-assessment taxpayer' take their meanings from the annual lodgment legislative instrument. | [127] Terms associated with franking such as 'franking deficit' and 'franking credit' are defined in subsection 995-1(1) of the ITAA 1997. | [128] The term 'venture capital deficit' is defined in subsection 995-1(1) of the ITAA 1997. | [129] The term 'public ancillary fund' takes its meaning from subsection 426-102(1) of Schedule 1 to the TAA and 'private ancillary fund' takes its meaning from subsection 426-105(1) of Schedule 1 to the TAA. | [130] Section 68 of the FBTAA. | [131] Sections 5 and 6 of the Superannuation (Unclaimed Money and Lost Members) Regulations 1999 . | [132] Section 15A of the Superannuation (Unclaimed Money and Lost Members) Act 1999 and Legislative Instrument Unclaimed money days and scheduled statement days . | [133] Section 33 of the Superannuation Guarantee (Administration) Act 1992 . | [134] Subsection 390-65(2) of Schedule 1 to the TAA. | [135] Subsection 129(3) of the Superannuation Industry (Supervision) Act 1993 . | [136] Section 31-10 of the GST Act. | [137] Section 16-150 and subsection 16-75(2) of Schedule 1 to the TAA. | [138] Section 45-715 of Schedule 1 to the TAA. | [139] Section 45-61 of Schedule 1 to the TAA and subsection 162-70(4) of the GST Act. | [140] Section 45-61 of Schedule 1 to the TAA and subsection 162-70(4) of the GST Act. | [141] Subsection 45-112(3) of Schedule 1 to the TAA. | [142] Section 45-70 of Schedule 1 to the TAA. | [143] Sections 151-45 and 162-60 of the GST Act. | [144] Subsection 105-15(1) of the GST Act. | [145] Section 57-40 of the GST Act. | [146] Section 78-85 of the GST Act. | [147] Sections 151-60 and 162-90 of the GST Act. | [148] Section 162-95 of the GST Act. | [149] Subsection 61-15(2) of the FTA. Section 61-20 of the FTA provides that tax periods for fuel tax are as specified by the entity or within 90 days after an entity becomes aware it has an 'increasing fuel tax adjustment' under section 44-5 of the FTA. | [150] Subsection 16-153(2) of Schedule 1 to the TAA. | [151] Subsection 16-153(1) of Schedule 1 to the TAA. | [152] Subsection 16-152(2) of Schedule 1 to the TAA. | [153] Subsection 16-75(5) of Schedule 1 to the TAA. | [154] Paragraph 16-153(1)(a) of Schedule 1 to the TAA. | [155] Subsection 16-153(2) of Schedule 1 to the TAA. | [156] Sections 95 and 98 of the PRRTAA. | [157] Section 59 of the PRRTAA. | [158] Section 61C of the Excise Act 1901 (Excise Act). | [159] Paragraph 61C(1)(a) of the Excise Act. | [160] Paragraph 61C(1)(b) of the Excise Act. | [160A] Paragraph 61C(1)(c) of the Excise Act. | [161] Paragraph 61C(3)(a) of the Excise Act. | [162] Paragraph 61C(3)(b) of the Excise Act. | [163] Paragraph 61C(3)(c) of the Excise Act. | [164] Paragraph 61C(3)(d) of the Excise Act. | [164A] Subparagraph 61C(3)(da)(i) of the Excise Act. | [164B] Subparagraph 61C(3)(da)(ii) of the Excise Act. | [165] Subsection 202DP(2) of the ITAA 1936. | [166] Subsection 405-10(1) of Schedule 1 to the TAA. | [167] Subsection 405-10(4) of Schedule 1 to the TAA. | [168] Table item 2 of section 396-55 of Schedule 1 to the TAA. | [169] Table item 1 of section 396-55 of Schedule 1 to the TAA. | [170] Table items 11 to 14 of section 396-55 of Schedule 1 to the TAA. | [171] Subdivision 396-B of Schedule 1 to the TAA. | [172] Section 202CD of the ITAA 1936. | [173] Section 393-10 of Schedule 1 to the TAA. | [174] The Commissioner can vary reporting periods and specify due dates for reports via legislative instrument under paragraphs 396-55(a)(ii) and (b)(ii) of Schedule 1 to the TAA. | [175] Subsection 45-140(2) of Schedule 1 to the TAA. | [176] Section 45-720 of Schedule 1 to the TAA. | [177] Section 162-25 of the GST Act. | [178] Section 151-20 of the GST Act. | [179] Subsection 389-5(1) of Schedule 1 to the TAA. | [180] Section 389-20 of Schedule 1 to the TAA. | [181] As defined in section 34 of the Taxation (Multinational – Global and Domestic Minimum Tax) Act 2024 . | [182] Paragraph 127-60(2)(a) and subsection 127-60(1) of Schedule 1 to the TAA. | [183] Subsection 127-60(3) of Schedule 1 to the TAA. | [184] As set out in subsection 3D(1) of the TAA. | [185] Subsection 3D(3) of the TAA. | [186] Subsection 3D(4) of the TAA. | Deputy Commissioner of Taxation v Jones [1999] FCA 308 86 FCR 282 99 ATC 4373 41 ATR 460 166 ALR 650"
PS LA 2011/16,"Insolvency - collection, recovery and enforcement issues for entities under external administration",14 April 2011,14 April 2011,Law Administration Practice Statement,False,"1. What this Practice Statement is about: This Practice Statement provides general guidance to tax officers on taking bankruptcy or liquidation proceedings and on dealing with incapacitated entities and their representatives under the Bankruptcy Act 1966 (Bankruptcy Act) and the Corporations Act 2001 (Corporations Act). | 2. Bankruptcy and liquidation: Bankruptcy proceedings and liquidation are insolvency proceedings for individuals and companies [1] that cannot pay their debts. An individual can voluntarily enter bankruptcy by filing a debtor's petition with the official receiver. [2] A creditor owed more than $10,000 [3] can apply to the court to make a sequestration order against an individual, after the debtor has committed an act of bankruptcy. [4] A company's members can voluntarily enter the company into liquidation. [5] A company can also be wound up voluntarily through the voluntary administration process. In the case of a corporate debtor owing more than $4,000 [6] to a creditor, the creditor may serve a statutory demand for payment. [7] If the statutory demand is not satisfied, the creditor can then file an application for winding up with the court. Where we are a creditor of an insolvent entity that cannot pay its debts, in appropriate circumstances we will take steps towards making an application to the appropriate court for liquidation of a company or sequestration of a person's bankrupt estate. Factors to consider before initiating bankruptcy or liquidation Before initiating bankruptcy or liquidation proceedings, you will consider each case on its merits, having regard to: • the asset position of the debtor • the size and nature of the debt • the future income of the debtor • the risk to the revenue • the cost to initiate bankruptcy or liquidation and the likely return • if any of the debt is disputed (though a dispute does not prevent us from initiating proceedings) • if there is reasonable suspicion that the entity is trading while insolvent, with potential for an insolvent trading action [8] to be taken against the directors • if there are assets available which can be realised by the bankruptcy trustee or liquidator to enable a dividend to be paid to creditors • if there likely is fraudulent or criminal activity by or associated with the directors • public interest considerations (including safeguarding the community from insolvent companies continuing to trade, and liquidation examinations enabling discovery of undisclosed assets and offences that have been committed). • the asset position of the debtor • the size and nature of the debt • the future income of the debtor • the risk to the revenue • the cost to initiate bankruptcy or liquidation and the likely return • if any of the debt is disputed (though a dispute does not prevent us from initiating proceedings) • if there is reasonable suspicion that the entity is trading while insolvent, with potential for an insolvent trading action [8] to be taken against the directors • if there are assets available which can be realised by the bankruptcy trustee or liquidator to enable a dividend to be paid to creditors • if there likely is fraudulent or criminal activity by or associated with the directors • public interest considerations (including safeguarding the community from insolvent companies continuing to trade, and liquidation examinations enabling discovery of undisclosed assets and offences that have been committed). If insolvency proceedings are initiated, you must follow the policies set out in this Practice Statement for dealing with incapacitated entities and their representatives. If insolvency proceedings are not initiated, you can continue dealing with the entity in the ordinary manner. | 3. Representatives of incapacitated entities: An incapacitated entity [9] is: • an individual who is a bankrupt • an entity that is in liquidation or receivership, or • an entity that has a representative such as – a receiver – a controller (within the meaning of the Corporations Act) – an administrator appointed to an entity under the Corporations Act – an administrator of a deed of company arrangement (DOCA) executed by the company – a small business restructuring (SBR) practitioner, after a debt restructuring plan has been agreed to by creditors under the Corporations Act – a controlling trustee. [10] • an individual who is a bankrupt • an entity that is in liquidation or receivership, or • an entity that has a representative such as – a receiver – a controller (within the meaning of the Corporations Act) – an administrator appointed to an entity under the Corporations Act – an administrator of a deed of company arrangement (DOCA) executed by the company – a small business restructuring (SBR) practitioner, after a debt restructuring plan has been agreed to by creditors under the Corporations Act – a controlling trustee. [10] – a receiver – a controller (within the meaning of the Corporations Act) – an administrator appointed to an entity under the Corporations Act – an administrator of a deed of company arrangement (DOCA) executed by the company – a small business restructuring (SBR) practitioner, after a debt restructuring plan has been agreed to by creditors under the Corporations Act – a controlling trustee. [10] | 4. Alternatives to bankruptcy or liquidation: Both the Bankruptcy Act and the Corporations Act provide alternatives to initiating (or continuing) bankruptcy or liquidation proceedings which require us to consider entering into agreements or arrangements. Under these arrangements, debtors present their creditors with proposals under which they would be required to discharge their debts, usually over time and by paying less than the full amount of the debt in full and final settlement. The following sections of this Practice Statement describe alternatives that are available, and the factors you should consider when deciding whether to accept or vote in favour of an alternative arrangement. If an arrangement has been accepted by creditors and appears to unfairly disadvantage us, you should escalate to the Complex Insolvency team within Frontline Compliance. Alternatives to bankruptcy You may be asked to agree to alternatives to bankruptcy, including: • Part IX debt agreements and Part X personal insolvency agreements (PIAs) [11] • compositions or schemes of arrangement. [12] • Part IX debt agreements and Part X personal insolvency agreements (PIAs) [11] • compositions or schemes of arrangement. [12] Part IX debt agreements and Part X PIAs allow debtors to compromise their debts and are regulated by the Australian Financial Security Authority (AFSA). These arrangements can assist debtors to avoid the restrictions of a bankruptcy and may provide creditors with a greater or timelier return. The debt agreement provided for in Part IX is similar to the PIA. The major difference between the 2 is cost – the fees for entering into a Part IX debt agreement are generally much lower than the costs of PIAs. Part IX debt agreements are only available to debtors whose income, assets and liabilities are below prescribed thresholds. [13] A Part IX debt agreement proposal cannot be given if at any time in the 10 years immediately before the proposal time the debtor has been a bankrupt, has been a debtor under a debt agreement or has given an authority to enter into a PIA. [14] A PIA cannot be proposed if the debtor has proposed another PIA in the previous 6 months, unless permission is obtained from the court. Compositions or schemes of arrangement allow a bankrupt individual, through their bankruptcy trustee, to seek to end their bankruptcy with a proposal put to creditors if accepted. [15] Alternatives to liquidation You may be asked to agree to alternatives to liquidation, including: • A DOCA – which is an opportunity for insolvent companies to reach an agreement with their creditors which addresses the debts and enables the company to continue trading. It seeks to provide for the business, property and affairs of an insolvent company to be administered in a way that results in a greater return for the company's creditors and members than would result from the liquidation of the company. [16] • A creditors' trust – which is a trust entity created under a DOCA. You should escalate cases involving creditors' trusts to the Complex Insolvency team. • An SBR – where a restructuring practitioner puts a restructuring plan to creditors proposing to compromise creditors' claims in return for a payment under the plan. [17] • A DOCA – which is an opportunity for insolvent companies to reach an agreement with their creditors which addresses the debts and enables the company to continue trading. It seeks to provide for the business, property and affairs of an insolvent company to be administered in a way that results in a greater return for the company's creditors and members than would result from the liquidation of the company. [16] • A creditors' trust – which is a trust entity created under a DOCA. You should escalate cases involving creditors' trusts to the Complex Insolvency team. • An SBR – where a restructuring practitioner puts a restructuring plan to creditors proposing to compromise creditors' claims in return for a payment under the plan. [17] Factors to consider before voting on alternatives to bankruptcy or liquidation When presented with these alternative proposals, we will consider each case on its individual merits. We will generally support proposed arrangements or agreements which have no adverse features and which can provide the Commonwealth with a greater proportion of the provable debt within a reasonable period than would be received under bankruptcy or liquidation. As a general rule, we will not vote in favour of an arrangement under which non-cash items, such as shares or other property, are offered to creditors. This is due to the costs and difficulties that may arise in administering the transfer and sale of that property. However, where we are obliged to accept such property, for example, where a DOCA containing such provisions has been accepted by the majority of creditors and executed, prompt action will be taken to register such property in the name of the Commonwealth. Once such property has vested in the Commonwealth, we will take the necessary steps to realise the property to enable payment of the proceeds to be applied against the taxpayer's debts. We must consider each proposal on its merits having regard to factors including: • if our priority claims available in bankruptcy or liquidation will be maintained (where applicable) • the contents, comprehensiveness and adequacy of relevant reports (including relevant omissions in the statement of affairs, the proposal and report prepared by the trustee or administrator) • the likelihood that the terms of the proposal would be achieved • if the debtor has made appropriate arrangements to meet future tax liabilities • the debtor's compliance history • if the proposal purports to limit our rights to pursue directors for director penalties • if the proposal purports to require us to allocate payments to debts owed by the insolvent entity to an allocation order contrary to our policy [18] • if the proposal involves the use of a creditors' trust • if the full tax debt has not been quantified (for example, there are outstanding lodgments) • if there is an association or relation between the debtor and other creditors (including related-party transactions or associations which involve an assignment of debt) • there are circumstances that make the proposal inappropriate, including evidence of potentially fraudulent or phoenixing activity [19] • if there are voidable transactions or dispositions which cannot be pursued • if the proposal appears to be unfairly prejudicial or discriminatory (for example, we will consider the manner in which the proposal would distribute a dividend between all classes of creditors) • other matters that are considered to be of public interest or if it appears to be fair or appropriate for voting (particularly if the proposal impacts statutory powers of investigation, examination or the ability to clawback assets or funds) • if the proposal includes non-cash property (costs and difficulties may arise in administering the transfer and sale of that property). • if our priority claims available in bankruptcy or liquidation will be maintained (where applicable) • the contents, comprehensiveness and adequacy of relevant reports (including relevant omissions in the statement of affairs, the proposal and report prepared by the trustee or administrator) • the likelihood that the terms of the proposal would be achieved • if the debtor has made appropriate arrangements to meet future tax liabilities • the debtor's compliance history • if the proposal purports to limit our rights to pursue directors for director penalties • if the proposal purports to require us to allocate payments to debts owed by the insolvent entity to an allocation order contrary to our policy [18] • if the proposal involves the use of a creditors' trust • if the full tax debt has not been quantified (for example, there are outstanding lodgments) • if there is an association or relation between the debtor and other creditors (including related-party transactions or associations which involve an assignment of debt) • there are circumstances that make the proposal inappropriate, including evidence of potentially fraudulent or phoenixing activity [19] • if there are voidable transactions or dispositions which cannot be pursued • if the proposal appears to be unfairly prejudicial or discriminatory (for example, we will consider the manner in which the proposal would distribute a dividend between all classes of creditors) • other matters that are considered to be of public interest or if it appears to be fair or appropriate for voting (particularly if the proposal impacts statutory powers of investigation, examination or the ability to clawback assets or funds) • if the proposal includes non-cash property (costs and difficulties may arise in administering the transfer and sale of that property). Deed of company arrangements including a creditors' trust Generally, we will vote against any proposed DOCA which includes the use of a creditors' trust because it creates additional risks, including [20] : • the DOCA may be 'effectuated' and our rights against the company are extinguished before – the amount available for distribution to creditors of the company or beneficiaries of the trust has been ascertained – the trust fund has been received in full by the trustee, or – creditors of the company or beneficiaries of the trust have received any payment from either the deed administrator or the trustee • our legal rights are reduced if the DOCA is not fully complied with by all relevant parties. As a beneficiary, however, we can seek redress for breaches of trust from the courts. • the DOCA may be 'effectuated' and our rights against the company are extinguished before – the amount available for distribution to creditors of the company or beneficiaries of the trust has been ascertained – the trust fund has been received in full by the trustee, or – creditors of the company or beneficiaries of the trust have received any payment from either the deed administrator or the trustee • our legal rights are reduced if the DOCA is not fully complied with by all relevant parties. As a beneficiary, however, we can seek redress for breaches of trust from the courts. – the amount available for distribution to creditors of the company or beneficiaries of the trust has been ascertained – the trust fund has been received in full by the trustee, or – creditors of the company or beneficiaries of the trust have received any payment from either the deed administrator or the trustee We will not withdraw or stay any action against a director where the terms of a deed purport to limit our rights to take, or refrain from taking, such action. Such terms of a DOCA are legally ineffective. [21] Further, we will not alter how we allocate payments to debts [22] owed by the insolvent entity where the terms in the deed purport to direct the allocation of dividend receipts contrary to the method set out in Law Administration Practice Statement PS LA 2011/20 Payment and credit allocation. We will generally vote against any deed which includes such clauses. However, in some circumstances it may be appropriate to vote in favour of a DOCA proposal which involves the use of a creditors' trust, such as where the re-listing on the stock exchange of a public company is an essential step in procuring the funds that are to be made available for creditors. Small business restructuring plan Before providing a restructuring plan to creditors, the company must have [23] : • paid all employee entitlements that are due and payable (including superannuation and superannuation guarantee charge (SGC)), and • their tax lodgments up to date (or at least substantially complying with this requirement). • paid all employee entitlements that are due and payable (including superannuation and superannuation guarantee charge (SGC)), and • their tax lodgments up to date (or at least substantially complying with this requirement). Substantial compliance is considered for each obligation and not holistically, that is, we will not consider that a company has substantially complied if it has met only most of its obligations. Where a company has outstanding lodgments, the company needs to demonstrate they have taken steps to lodge unless there were exceptional circumstances outside their control that prevented them from lodging. To make an informed decision, you should only vote in relation to a proposed restructuring plan, if we have received and considered appropriate information, including historical, current, and prospective financial information, together with confirmation that any third party making payments into the plan has access to sufficient funds to do so. We will generally vote against a restructuring plan if: • the entity has unpaid employee entitlements or overdue tax lodgments, or both • it is inconsistent with the requirement that all admissible debts and claims rank equally. • the entity has unpaid employee entitlements or overdue tax lodgments, or both • it is inconsistent with the requirement that all admissible debts and claims rank equally. If an alternative to insolvency proceedings is initiated, you must follow the policies set out in this Practice Statement for dealing with entities and their representatives that are participating in an alternative to insolvency. If an alternative to insolvency proceedings is not initiated, you can continue dealing with the entity in the ordinary manner, in accordance with the laws and policies applicable to the relevant insolvency proceeding. | 5. Registration: Representatives under the Bankruptcy Act Trustees of bankrupt estates, PIAs, compositions or schemes of arrangement cannot use the Australian business number (ABN) of the insolvent individual, they must apply for a separate ABN. Where property has vested in the representative (trustee) and the representative has derived income, profits or gains from it, the representative will be required to apply for a separate tax file number (TFN) and lodge a trust tax return to account for that income, profit or gain. [24] Where a bankruptcy has been annulled after a composition or scheme of arrangement has been accepted, the trustee of the composition or scheme can use the same TFN as the trustee in bankruptcy. [25] Receivers A receiver (including a receiver and manager) appointed to take possession to lease or sell property of an entity is required to have a separate TFN and lodge a separate trust tax return to account for any income, profits or gains derived in their representative capacity. [26] Upon a relevant tax assessment being made, the receiver is also required to retain funds and pay the assessed tax on that income, profit or gain. [27] Receivers are required to register for an ABN and goods and services tax (GST) if they sell the property to pay off the mortgagor's debt, and the sale would have been subject to GST (a taxable sale) if the mortgagor had sold the property. [28] Agents for mortgagee in possession If the agent for the mortgagee in possession (AMIP) is required to account for GST, the rules under Division 105 of the A New Tax System (Goods and Services) Tax Act 1999 (GST Act) will apply. This means the mortgagee must include in their business activity statement (BAS), the reportable transactions of the AMIP made in the AMIP's capacity as agent for the mortgagee. Representatives under the Corporations Act Liquidators, receivers (including court-appointed receivers), voluntary or deed administrators and restructuring practitioners under a plan appointed under the Corporations Act [29] can continue to use the company's ABN. Goods and services tax If an incapacitated entity is registered for GST, or is required to be registered, the representative of that incapacitated entity is also required to be registered for GST. [30] If an incapacitated entity is not required to be registered for GST, a representative can choose to register in that capacity if the entity is carrying on an enterprise. [31] 'Carrying on' an enterprise includes activities in the course of terminating the enterprise. [32] The representative would then, in turn, be required to register as a representative of the incapacitated entity. [33] Representatives that have the 'capacity to declare dividends' are required to notify us of an amount of GST or fuel tax for which the entity is liable or an increasing adjustment the entity has where we have not been notified in a return or otherwise. The notification must be given to us before the day on which the representative declares a dividend to unsecured creditors of the incapacitated entity. [34] An incapacitated entity is not required to give a GST return for a tax period if [35] : • the entity's net amount for the tax period is zero • the entity does not have an increasing adjustment that is attributable to the tax period, and • the entity is not liable for GST that is attributable to the tax period. • the entity's net amount for the tax period is zero • the entity does not have an increasing adjustment that is attributable to the tax period, and • the entity is not liable for GST that is attributable to the tax period. This also applies for net fuel amounts. A GST or fuel tax credit due to a representative cannot be offset against liabilities of the incapacitated entity because the representative and the incapacitated entity are considered to be different entities. Further, the GST or fuel tax credit due to one representative cannot be offset against the liabilities of another representative. An increasing adjustment that arises after the date of the appointment of a representative that relates to prior supplies and acquisitions, including an adjustment resulting from the payment of a dividend to creditors, is a provable debt. For further information on how to calculate input tax credits and bad debt adjustments when a dividend of less than 100 cents in the dollar is paid to creditors, see Law Administration Practice Statement PS LA 2012/1 (GA) How to calculate input tax credits and bad debt adjustments when a dividend is paid to creditors. | 6. Lodgments and assessments: Who is required to lodge – companies in liquidation, administration and receivership Generally, incapacitated entities are required to lodge returns for the periods up to the appointment of a representative. Once a representative is appointed, the effect is that the incapacitated entity's business, property and affairs come under the control of the representative. Accordingly, a liquidator, administrator or receiver who has taken possession of the assets and records of the company must lodge the returns of the incapacitated entity. This requirement applies to [36] : • periods before their date of appointment, and • periods where a representative is appointed part-way through a period. • periods before their date of appointment, and • periods where a representative is appointed part-way through a period. Concurrent appointments Where there are conflicting obligations to lodge documents because of partial or concurrent appointments of representatives, we generally expect that the lodgment obligation will be fulfilled by the representative or entity that has control of the records. Where the representative of an incapacitated entity changes During the course of any insolvency proceeding, the originally appointed representative of an incapacitated entity may be replaced. The representative at the end of a tax period generally has the obligation to lodge returns for that tax period as well as the obligation to pay any resulting tax-related liability. [37] Bankruptcy Bankrupt individuals continue to have lodgment obligations. Bankrupt individuals should lodge 2 tax returns for the financial year in which they become bankrupt [38] : • one from the start of the financial year in which the person became bankrupt to the day before bankruptcy date • a second from the date of bankruptcy to the end of the financial year. • one from the start of the financial year in which the person became bankrupt to the day before bankruptcy date • a second from the date of bankruptcy to the end of the financial year. A bankrupt individual cannot seek the amendment of an assessment relating to pre-bankruptcy periods without the consent of their trustee. You should not amend a return that relates to a pre-bankruptcy period for individuals discharged from bankruptcy without consulting with the bankruptcy trustee. This is because a trustee may still have ongoing administration of the estate after a taxpayer has been discharged from bankruptcy and any pre-insolvency credits may be claimed by the trustee. Obligations of agents and trustees deriving income, profits or gains This applies to all agents and trustees. This includes a bankruptcy trustee [39] , a liquidator [40] and an administrator appointed [41] under the Corporations Act. [42] Agents and trustees (including a representative of incapacitated entity) are required to lodge tax returns in their representative capacity and be assessed in respect of income, profits or gains (IPG) they derive for periods after their appointment. [43] If a bankruptcy trustee derives IPG in a representative capacity, both the bankruptcy trustee and the bankrupt individual have lodgment obligations arising from this: • the bankrupt must lodge their individual tax return, including the IPG derived by the trustee • the bankruptcy trustee must lodge a separate trust tax return and include the IPG derived in their representative capacity. • the bankrupt must lodge their individual tax return, including the IPG derived by the trustee • the bankruptcy trustee must lodge a separate trust tax return and include the IPG derived in their representative capacity. Once an assessment of tax on the IPG has been made, both the bankrupt and bankruptcy trustee have an obligation to pay that tax. The bankrupt individual has the primary liability and the bankruptcy trustee has an ancillary (secondary) liability. [44] We can only collect the assessed amount once. Accordingly, where one party makes payment, the liability is correspondingly reduced for both parties. In the case of companies, the insolvency practitioner is required to lodge returns and be assessed in respect of IPG derived in their representative capacity. This obligation is met by lodging the company's tax return for the relevant year. Agents and trustees are required to retain from funds they have or which come to them in their representative capacity, amounts to pay tax assessed in respect of the IPG they derived. [45] This retention requirement only arises upon a relevant assessment being made [46] – that may be an assessment of the bankrupt individual or of the representative. There is no requirement for a trustee or agent to retain funds to pay tax until an assessment is made. Lodgment enforcement If an incapacitated entity fails to lodge a return for which they are responsible, we can request that the representative lodge that return. We can also issue a demand for lodgment, to enforce an obligation for the representative or company to lodge a: • tax return [47] • BAS to report fringe benefits tax (FBT) [48] • BAS to report GST [49] • superannuation guarantee statement. [50] • tax return [47] • BAS to report fringe benefits tax (FBT) [48] • BAS to report GST [49] • superannuation guarantee statement. [50] This demand may occur if the company is going through administration, which is generally a short-term appointment lasting only one or 2 months. You may however, issue a final notice for lodgment for overdue income tax, FBT and GST returns. Written records should be kept explaining reasons why the final notice has been issued and the address issued to. Lodgment compliance action on pre-appointment returns You should consider the following factors in determining whether to take lodgment compliance action against a representative for pre-appointment returns that are overdue: • the obligation to lodge • if there is a capability or capacity for the client to lodge if relevant • the information available to lodge • if a risk is presented by non-lodgment • the likelihood that the return will, if lodged, reveal a liability or an increase in the tax liabilities owed to us • the information available (such as company books and records), that make it possible for the liquidator or receiver to prepare the returns • the likelihood that the cost of preparing the returns will be covered by the assets of the company, without resulting in an adverse impact on returns to other creditors, and • if there is a benefit to the wider community of having the documents lodged. • the obligation to lodge • if there is a capability or capacity for the client to lodge if relevant • the information available to lodge • if a risk is presented by non-lodgment • the likelihood that the return will, if lodged, reveal a liability or an increase in the tax liabilities owed to us • the information available (such as company books and records), that make it possible for the liquidator or receiver to prepare the returns • the likelihood that the cost of preparing the returns will be covered by the assets of the company, without resulting in an adverse impact on returns to other creditors, and • if there is a benefit to the wider community of having the documents lodged. Estimates and default assessments We are empowered to initiate assessments. If lodgment is outstanding, we consider the circumstances and may make one or more of the following: • an indirect tax assessment • an FBT default assessment • an estimate for a pay as you go withholding liability or an SGC liability • a default assessment for income tax • an SGC default assessment. • an indirect tax assessment • an FBT default assessment • an estimate for a pay as you go withholding liability or an SGC liability • a default assessment for income tax • an SGC default assessment. We may seek information from the representative of the incapacitated entity to assist us in raising activity statement liabilities, making estimates or assessments. | 7. Credits, refunds and offsetting: Credits can be offset against debts from pre- or post-insolvency periods. This will depend on the type of credit, insolvency process and the incapacitated entity. For information on offsetting, see Law Administration Practice Statement PS LA 2011/21 Offsetting of refunds and credits against taxation and other debts. | 8. Tax refunds: A trustee in bankruptcy may demand that tax refunds due to the bankrupt for pre-sequestration periods be paid to the trustee. [51] The refund will not be issued until the trustee has submitted the demand in the approved form. [52] The approved form requires a specific amount to be included in the demand, which may not be known to the trustee. As such, this field on the approved form may be left blank. However, the trustee must ensure that the amount requested is otherwise described clearly and unambiguously so that we can identify the amount to be refunded. Alternatively, the trustee can request information from us about the refund. Refunds due to bankrupts in post-sequestration periods will only be paid to the trustee in bankruptcy if a valid garnishee notice has been served on us. [53] | 9. Priority debts and provable debts in bankruptcy and liquidation: Priority debt SGC is a priority debt [54] which the trustee in bankruptcy or liquidator is required to pay before other debts. Proof of debt and amended proof of debt Provable debts are all debts payable to us at the time of bankruptcy or insolvency, excluding [55] : • Higher Education Loan Program (HELP) loans • Student start-up loans • ABSTUDY student start-up loans • Trade support loans. • Higher Education Loan Program (HELP) loans • Student start-up loans • ABSTUDY student start-up loans • Trade support loans. You lodge a proof of debt with a trustee or liquidator which outlines the details of provable debts owed by an insolvent entity. If a final distribution has not been made, an amended proof of debt should be lodged to amend the original provable debt. This can occur, for example, if information about an additional debt comes to our attention, such as by way of a finalisation of an audit for additional income years. Consolidated groups, GST groups and GST joint ventures If an entity is within an income tax consolidated group, GST group or GST joint venture, each member of the group is jointly and severally liable for the group's debts, subject to any tax sharing agreement in place. [56] A tax sharing agreement may limit the exposure of their joint and several liability for tax-related liabilities. If the insolvent entity is the representative member for the GST group or is the head company for a consolidated group, you should only include the representative member or head company's tax-related liabilities in the proof of debt. If the insolvent entity is a contributing member of a GST group or a subsidiary member of a consolidated group, you should include the representative member or head company's outstanding tax-related liabilities on the member's proof of debt. For further information on which entity is liable in a consolidated group, GST group or GST joint venture, see: • Law Administration Practice Statement PS LA 2013/5 Collection of consolidated group liabilities • Law Administration Practice Statement PS LA 2013/6 Collection from goods and services tax (GST) groups, GST joint ventures and other entities of debts arising from indirect tax laws. • Law Administration Practice Statement PS LA 2013/5 Collection of consolidated group liabilities • Law Administration Practice Statement PS LA 2013/6 Collection from goods and services tax (GST) groups, GST joint ventures and other entities of debts arising from indirect tax laws. Proof of debt where garnishee in existence If there is a garnishee notice in place in relation to the tax-related liabilities of an insolvent entity, we are a secured creditor to the extent of the garnishee. When preparing a proof of debt to be lodged with the trustee or liquidator, you should exclude amounts secured by a garnishee. | 10. Clearance notices for liquidators, receivers and agents: Unless we give permission, a liquidator, receiver or an agent instructed to wind up a foreign resident's business carried on in Australia must not part with any of a company's assets before receiving a clearance notice from us. [57] There are, however, certain exceptions. [58] As soon as practicable, you must issue a clearance notice. You should only issue a clearance notice if lodgments are up to date. This includes where an insolvent entity is a member of a GST group or a subsidiary member of a consolidated group – the representative member or head company is required to bring outstanding lodgments up to date before a clearance notice can be issued. Where it is not possible for the liquidator, receiver or agent to bring lodgments up to date (for example, where there are missing records), you may make a risk-based assessment to issue a clearance notice having regard to any of the factors set out in the 'Lodgment compliance action on pre-appointment returns' in section 6 of this Practice Statement. The clearance notice should detail the amount which would be sufficient to meet any tax-related liabilities that are, or will become, payable. Different types of tax-related liabilities should be listed separately. For liquidators, you must include additional SGC imposed under Part 7 of the Superannuation Guarantee (Administration) Act 1992 , but not ordinary SGC. For receivers and agents, you must include both ordinary and additional SGC in the clearance notice. After a clearance notice has been issued, the liquidator, receiver or agent is obliged to calculate the proportionate amount due to us. It is an offence for a liquidator, receiver or agent not to pay that amount and they will also become personally liable for that amount. [59] If a clearance notice has been issued, no further action should be pursued for the lodgment of overdue returns. | 11. Garnishees: Garnishees issued before the appointment of a representative A garnishee notice issued prior to the appointment of a representative of an incapacitated entity may still be effective. In liquidation, a garnishee notice must be served prior to the commencement of winding up to remain effective. In bankruptcy: • the garnishee notice must be served more than 6 months before the bankruptcy petition, and • the third-party debt to the bankrupt must arise before the making of the sequestration order (unless it relates to salary and wages or income earned after bankruptcy, which will not vest in the trustee). [60] • the garnishee notice must be served more than 6 months before the bankruptcy petition, and • the third-party debt to the bankrupt must arise before the making of the sequestration order (unless it relates to salary and wages or income earned after bankruptcy, which will not vest in the trustee). [60] We will not withdraw a valid garnishee merely because: • a representative of an incapacitated entity has been appointed, or • the debtor entered into a debt agreement under Part IX of the Bankruptcy Act. • a representative of an incapacitated entity has been appointed, or • the debtor entered into a debt agreement under Part IX of the Bankruptcy Act. Small business restructure and deed of company arrangement It may be appropriate to withdraw a garnishee notice issued before the appointment of a representative in an SBR or DOCA, if there are no overriding public interest considerations and either: • there are no amounts which are or may become payable to us under the notice, or • the proposed restructuring plan or DOCA can provide us with a greater proportion of the tax liability within a reasonable period than would be received under the garnishee and a winding up. • there are no amounts which are or may become payable to us under the notice, or • the proposed restructuring plan or DOCA can provide us with a greater proportion of the tax liability within a reasonable period than would be received under the garnishee and a winding up. Satisfying these criteria does not automatically result in the withdrawal of a garnishee. However, if these criteria are met, you should conduct a risk assessment to determine if it is appropriate to withdraw the garnishee in the circumstances. Use of garnishees after a representative has been appointed While we would exercise this power infrequently, we are able to issue a garnishee notice after the appointment of an insolvency representative, except for a liquidator. When deciding whether to issue a garnishee post-appointment, you should consider the: • need to ensure that we can collect the amount legally owed, and • expected impact that the garnishee will have on the debtor's unrelated, arm's-length creditors. [61] • need to ensure that we can collect the amount legally owed, and • expected impact that the garnishee will have on the debtor's unrelated, arm's-length creditors. [61] For example, it may be appropriate to issue a garnishee notice to a receiver where the appointment of the receiver (or receivers) is not over all the assets of the company. Garnishee notices and 'supervised accounts' A garnishee notice can be served on a supervised account which a bankrupt has been required to open by their trustee. [62] We will usually withdraw or refrain from using the garnishee power in respect of a supervised account where the trustee in bankruptcy indicates that it would have a detrimental effect on their ability to collect income contributions. For further information on garnishees, see Law Administration Practice Statement PS LA 2011/18 Enforcement measures used for the collection and recovery of tax-related liabilities and other amounts. | 12. Our formal notice powers: We have formal information-gathering powers available to compel the provision of information. [63] They can be used to require a representative or third party to provide information, attend and give evidence or produce documents. | 13. Disclosure of protected information: Information about an incapacitated entity to their representative You may disclose protected information to an entity's representative where that information is relevant to the entity's administration. [64] You cannot give information about the incapacitated entity to the director or act on their instructions as the director's powers are suspended when a representative is appointed. Information about a third party to a representative of an incapacitated entity A representative may request information about a third party. For example, they may seek information about assets owned personally by a director of the insolvency company or of an unrelated entity that owes the incapacitated entity a debt. This may require us to exercise our formal notice powers to obtain information from a third party. You can only disclose protected third-party information where the disclosure is permitted for the purpose of administering a taxation law (which includes the collection and recovery of tax), and in the performance of your duties as a tax officer. [65] The disclosure of third-party protected information to a representative will be in the performance of your duties where: • we are a creditor of the incapacitated entity • it can be reasonably concluded (independent of the representative) that the disclosure will result in the collection of the correct amount of revenue. • we are a creditor of the incapacitated entity • it can be reasonably concluded (independent of the representative) that the disclosure will result in the collection of the correct amount of revenue. Where it is not clear whether you are permitted to disclose protected information, you should seek advice from Operational Policy Assurance and Law (OPAL). OPAL will liaise with Office of General Counsel if necessary. You can disclose protected information that is already available to the public. [66] Providing information to Government authorities We may report misconduct by insolvency entities or their representatives to responsible authorities such as Australian Securities and Investments Commission (ASIC) and AFSA. If you identify misconduct by an incapacitated entity, escalate the conduct to the Complex Insolvency Team. | 14. Settlement offers proposed to liquidators: When seeking to recover amounts, it is common for the liquidator to receive settlement offers for a sum less than the full amounts owed by the incapacitated entity. If the amount owed is more than $100,000, the liquidator cannot accept the settlement offer without the approval of the court, a committee of inspection or creditors. [67] We will generally vote in favour of a compromise offer if it appears that the settlement will result in a greater return to the liquidator than litigating the matter to conclusion. In deciding how to vote on a settlement offer, you should consider: • the recommendation of the insolvency practitioner and their reasons • the chances of success of litigation • the ability of the defendant to meet a judgment debt following litigation • the costs of pursuing the debt (including liquidator indemnities) • the length of time to recover through litigation • any relevant public interest considerations. • the recommendation of the insolvency practitioner and their reasons • the chances of success of litigation • the ability of the defendant to meet a judgment debt following litigation • the costs of pursuing the debt (including liquidator indemnities) • the length of time to recover through litigation • any relevant public interest considerations. In some instances, we will, for public interest reasons, reject an offer of settlement in favour of continuing litigation. For example, the claim may be against a director who has deliberately structured both the company's and their own affairs in an attempt to minimise creditors' chances of recovery. To accept an offer in these circumstances – especially where the offer is a token amount – may only encourage such behaviour in the future. However, before voting against an offer solely on public interest grounds, you must consider the effect that our vote will have on other arm's-length creditors, in particular, the extent to which they may be financially disadvantaged if the settlement offer is rejected. Indemnity requests As a creditor, we may be asked to help fund action by the liquidator or trustee where that action may result in more funds being available to creditors. The request for funding may take the form of a request for indemnity against the costs, charges and expenses which will be incurred by the trustee or liquidator in the course of recovery proceedings on behalf of the creditors, for example: • obtaining legal opinions • recovering assets and preference payments • conducting investigations • public examination of relevant parties • adverse legal costs. • obtaining legal opinions • recovering assets and preference payments • conducting investigations • public examination of relevant parties • adverse legal costs. An indemnity can be granted based on: • a partial contribution with other creditors • contribution of the full amount, or • a partial contribution up to a certain point in time or stage when our position will be reassessed. • a partial contribution with other creditors • contribution of the full amount, or • a partial contribution up to a certain point in time or stage when our position will be reassessed. In the event of any successful recovery as a result of providing an indemnity, the trustee or liquidator may be asked to make an application to the court (or support an application by us) for priority distribution of the amount recovered. [68] It should be noted that the indemnity funding itself is considered to be a cost of the bankruptcy or liquidation. [69] Entering a deed of indemnity If you do grant an indemnity, the trustee or liquidator will be required to enter a deed with us detailing the terms. The deed of indemnity needs to be approved by the Litigation and Legal Services (LLS) business line before signing. A deed of indemnity must specify the: • actions to which it relates, and be expressed to cover only those actions • maximum amount payable to the trustee or liquidator and be expressed to be paid progressively • expenses which it covers and whether they relate to professional fees of the trustee or liquidator. • actions to which it relates, and be expressed to cover only those actions • maximum amount payable to the trustee or liquidator and be expressed to be paid progressively • expenses which it covers and whether they relate to professional fees of the trustee or liquidator. Further, the agreement must include the following requirements of the trustee or liquidator: • provide regular reports as to the progress of the action and make allowance for a regular assessment of risk • provide a breakup of the expenses for which reimbursement is claimed prior to any payment • provide copies of any legal advice received in taking actions funded by the indemnity • seek our views on any negotiated settlement of actions funded by the indemnity (our agreement to any negotiated settlement will generally be required for higher-risk indemnity matters) • pay indemnity expenses as a cost of the administration [70] • make an application to the court to give indemnifying creditors priority (if requested). [71] • provide regular reports as to the progress of the action and make allowance for a regular assessment of risk • provide a breakup of the expenses for which reimbursement is claimed prior to any payment • provide copies of any legal advice received in taking actions funded by the indemnity • seek our views on any negotiated settlement of actions funded by the indemnity (our agreement to any negotiated settlement will generally be required for higher-risk indemnity matters) • pay indemnity expenses as a cost of the administration [70] • make an application to the court to give indemnifying creditors priority (if requested). [71] We will also usually require the trustee or liquidator to provide a plan of action and timelines so we can monitor the expenditure and progress of the indemnity. After granting an indemnity, you should ensure amounts claimed are within the terms of the indemnity. Where there is also an indemnity for adverse costs, there should be 2 separate deeds. | 15. Voidable transactions: A court can void a transaction made during a specific period before the 'relation-back day' for companies. [72] Voidable transaction provisions protect unsecured creditors from being prejudiced by the actions of an insolvent company which result in the disposal of assets, or the incurring of liabilities, prior to a winding up that may favour certain creditors or other persons (particularly related entities). The period where a transaction can be void is generally 6 months before the relation-back day and 3 months in the case of a simplified liquidation. However, the period may be extended to 10 years for related party or non-arm's length transactions if there is evidence of 'attempt to defeat, delay or interfere' with the rights of any creditors. [73] For individuals, the period is also generally 6 months before the presentation of the petition leading to the debtor's bankruptcy. [74] A bankruptcy trustee or liquidator may claim that a payment by an individual or company made to us is a voidable transaction that gives an unfair preference over other creditors. A payment received as a result of a valid garnishee notice [75] served prior to the commencement of winding up is not an unfair preference or an uncommercial transaction. [76] Defences against voidable transaction claims We will have a defence to a voidable transaction claim by a bankruptcy trustee if: • we did not receive notice of a petition presented against the debtor • the transaction was in good faith and in the ordinary course of business. [77] • we did not receive notice of a petition presented against the debtor • the transaction was in good faith and in the ordinary course of business. [77] We will have a defence to a voidable transaction claim by a liquidator if [78] : • we acted in good faith in respect of the transaction • at the time of the transaction there were no reasonable grounds for suspecting that the company was insolvent or would become insolvent because of the transaction – for instance, we received financial documents in support of a payment proposal showing a healthy financial position of the company • a reasonable person in the same circumstances would have no grounds for such a suspicion. • we acted in good faith in respect of the transaction • at the time of the transaction there were no reasonable grounds for suspecting that the company was insolvent or would become insolvent because of the transaction – for instance, we received financial documents in support of a payment proposal showing a healthy financial position of the company • a reasonable person in the same circumstances would have no grounds for such a suspicion. Circumstances in which we will refund voidable transaction amounts to a liquidator There will be instances where it will be appropriate to settle a voidable transaction claim without the need for a liquidator to apply to the court for an order. You must be satisfied that settling the claim: • is an efficient, effective and ethical use of public money • is consistent with statutory governance requirements [79] , and • is consistent with the requirements of the Legal Services Directions 2017. • is an efficient, effective and ethical use of public money • is consistent with statutory governance requirements [79] , and • is consistent with the requirements of the Legal Services Directions 2017. Generally, we will not settle a voidable transaction claim after the later of 3 years from the relation-back day or 12 months after the appointment of the first liquidator (whichever is later). [80] The most common voidable transaction claim made by a liquidator against the Commissioner is in relation to an unfair preference. [81] If a liquidator claims that we have received an unfair preference, you should ask the liquidator to provide evidence that the company: • was insolvent at the time of each payment which forms part of the claim, or • will become insolvent as a result of making the payment which forms part of the claim. [82] • was insolvent at the time of each payment which forms part of the claim, or • will become insolvent as a result of making the payment which forms part of the claim. [82] Director indemnities because a voidable transaction is set aside If a court makes an order setting aside a transaction, each person who was a director of the company at the time of the payment is liable to indemnify us in relation to particular amounts. [83] This directors' liability arises when we repay the amount to the liquidator. Where voidable transaction claims are made that affect the indemnity provisions, repayments of alleged unfair preferences or uncommercial transactions will not be made to a liquidator unless: • a court orders the payment [84] , or • the directors are prepared to settle our potential claims against them without the need for an indemnity order. [85] • a court orders the payment [84] , or • the directors are prepared to settle our potential claims against them without the need for an indemnity order. [85] If we are satisfied that a court would determine that the payment is a voidable transaction and you think it is appropriate to pursue indemnity from the director or directors, you can request the liquidator commence proceedings. In deciding whether to pursue an indemnity against a director, you should consider: • defences available to the director • the director's capacity to pay, and • other relevant factors, including the director's history with other companies. • defences available to the director • the director's capacity to pay, and • other relevant factors, including the director's history with other companies. The defences available to a director in relation to indemnity claims are [86] : • At the time of payment, the director had reasonable grounds to expect and did expect that the company was solvent and would remain solvent even if it made the payment. • At the time of payment, the director had reasonable grounds to believe, and did believe that: – a competent and reliable person was responsible for providing the director adequate information about whether the company was solvent – the other person was fulfilling their responsibility, and – the director expected, based on that information, that the company was solvent and would remain solvent even if it made the payment. • Because of illness or for some other good reason the director did not take part in the management of the company at the time of the payment. • The director took all reasonable steps to prevent the company from making the payment. • At the time of payment, the director had reasonable grounds to expect and did expect that the company was solvent and would remain solvent even if it made the payment. • At the time of payment, the director had reasonable grounds to believe, and did believe that: – a competent and reliable person was responsible for providing the director adequate information about whether the company was solvent – the other person was fulfilling their responsibility, and – the director expected, based on that information, that the company was solvent and would remain solvent even if it made the payment. • Because of illness or for some other good reason the director did not take part in the management of the company at the time of the payment. • The director took all reasonable steps to prevent the company from making the payment. – a competent and reliable person was responsible for providing the director adequate information about whether the company was solvent – the other person was fulfilling their responsibility, and – the director expected, based on that information, that the company was solvent and would remain solvent even if it made the payment. | 16. More information: For more information, see PS LA 2011/18 .","PS LA 2013/5 | PS LA 2013/6 | PS LA 2011/18 | PS LA 2011/7 | PS LA 2011/20 | PS LA 2012/2 | PS LA 2021/2 | ATO ID 2003/506 | ATO ID 2005/257 | ITAA 1997 995-1 | ITAA 1997 721-15 | ITAA 1936 254 | ITAA 1936 254(1)(d) | ITAA 1936 162 | ITAA 1936 163 | TAA 1953 8AAZLE | TAA 1953 Sch 1 Subdiv 260-A | TAA 1953 Sch 1 260-45(4) | TAA 1953 Sch 1 260-45(8) | TAA 1953 Sch 1 260-75(4) | TAA 1953 Sch 1 260-75(5) | TAA 1953 Sch 1 260-75(8) | TAA 1953 Sch 1 260-105(4) | TAA 1953 Sch 1 260-105(7) | TAA 1953 Sch 1 Div 353 | TAA 1953 Sch 1 355-25(2)(c) | TAA 1953 Sch 1 355-45 | TAA 1953 Sch 1 355-50 | TAA 1953 Sch 1 444-80 | TAA 1953 Sch 1 444-90 | ANTS(GST)A 1999 195-1 | ANTS(GST)A 1999 58-20 | ANTS(GST)A 1999 23-10 | ANTS(GST)A 1999 31-20 | ANTS(GST)A 1999 58-60 | ANTS(GST)A 1999 58-55 | Bankruptcy Act 1966 40 | Bankruptcy Act 1966 55 | Bankruptcy Act 1966 82 | Bankruptcy Act 1966 109 | Bankruptcy Act 1966 109(1)(a) | Bankruptcy Act 1966 109(10) | Bankruptcy Act 1966 115 | Bankruptcy Act 1966 122 | Bankruptcy Act 1966 123 | Bankruptcy Act 1966 129(4A) | Bankruptcy Act 1966 129(4B) | Bankruptcy Act 1966 139ZL | Bankruptcy Act 1966 139ZIG(8) | Bankruptcy Act 1966 185C(4) | Bankruptcy Act 1966 187(1) | Bankruptcy Act 1966 188 | Bankruptcy Act 1966 Pt IV Div 6 | Bankruptcy Regulations 2021 10A | Corporations Act 2001 91 | Corporations Act 2001 95A | Corporations Act 2001 Pt 5.5 | Corporations Act 2001 Pt 5.7B | Corporations Act 2001 477(2A) | Corporations Act 2001 459E | Corporations Act 2001 Pt 5.3A | Corporations Act 2001 Pt 5.3B | Corporations Act 2001 556 | Corporations Act 2001 556(1)(a) | Corporations Act 2001 564 | Corporations Act 2001 588FA | Corporations Act 2001 588FE | Corporations Act 2001 588FF(3)(a) | Corporations Act 2001 588FG | Corporations Act 2001 588FGA | Corporations Act 2001 588FGB | Corporations Regulations 2001 5.3B.24 | Corporations Regulations 2001 5.4.02 | Corporations Regulations 2001 5.4.01AAA(1)(b) | Fringe Benefits Tax Assessment Act 1986 69 | Public Governance, Performance and Accountability Act 2013 15 | SGAA 1992 34 | 2009 ATC 20-125 | 2015 ATC 20-548 | [1999] FCA 308 | 99 ATC 4373 | 89 ATC 5071 | 2024 ATC 20-921 | 95 ATC 4720",PS LA 2011/7 PS LA 2011/18 PS LA 2011/20 PS LA 2012/2 PS LA 2013/5 PS LA 2013/6 PS LA 2021/2,"ITAA 1997 995-1 | ITAA 1997 721-15 | ITAA 1936 254 | ITAA 1936 254(1)(d) | ITAA 1936 162 | ITAA 1936 163 | TAA 1953 8AAZLE | TAA 1953 Sch 1 Subdiv 260-A | TAA 1953 Sch 1 260-45(4) | TAA 1953 Sch 1 260-45(8) | TAA 1953 Sch 1 260-75(4) | TAA 1953 Sch 1 260-75(5) | TAA 1953 Sch 1 260-75(8) | TAA 1953 Sch 1 260-105(4) | TAA 1953 Sch 1 260-105(7) | TAA 1953 Sch 1 Div 353 | TAA 1953 Sch 1 355-25(2)(c) | TAA 1953 Sch 1 355-45 | TAA 1953 Sch 1 355-50 | TAA 1953 Sch 1 444-80 | TAA 1953 Sch 1 444-90 | ANTS(GST)A 1999 195-1 | ANTS(GST)A 1999 58-20 | ANTS(GST)A 1999 23-10 | ANTS(GST)A 1999 31-20 | ANTS(GST)A 1999 58-60 | ANTS(GST)A 1999 58-55 | Bankruptcy Act 1966 40 | Bankruptcy Act 1966 55 | Bankruptcy Act 1966 82 | Bankruptcy Act 1966 109 | Bankruptcy Act 1966 109(1)(a) | Bankruptcy Act 1966 109(10) | Bankruptcy Act 1966 115 | Bankruptcy Act 1966 122 | Bankruptcy Act 1966 123 | Bankruptcy Act 1966 129(4A) | Bankruptcy Act 1966 129(4B) | Bankruptcy Act 1966 139ZL | Bankruptcy Act 1966 139ZIG(8) | Bankruptcy Act 1966 185C(4) | Bankruptcy Act 1966 187(1) | Bankruptcy Act 1966 188 | Bankruptcy Act 1966 Pt IV Div 6 | Bankruptcy Regulations 2021 10A | Civil Dispute Resolution Act 2011 | Corporations Act 2001 91 | Corporations Act 2001 95A | Corporations Act 2001 Pt 5.5 | Corporations Act 2001 Pt 5.7B | Corporations Act 2001 477(2A) | Corporations Act 2001 459E | Corporations Act 2001 Pt 5.3A | Corporations Act 2001 Pt 5.3B | Corporations Act 2001 556 | Corporations Act 2001 556(1)(a) | Corporations Act 2001 564 | Corporations Act 2001 588FA | Corporations Act 2001 588FE | Corporations Act 2001 588FF(3)(a) | Corporations Act 2001 588FG | Corporations Act 2001 588FGA | Corporations Act 2001 588FGB | Corporations Regulations 2001 5.3B.24 | Corporations Regulations 2001 5.4.02 | Corporations Regulations 2001 5.4.01AAA(1)(b) | Fringe Benefits Tax Assessment Act 1986 69 | Public Governance, Performance and Accountability Act 2013 15 | SGAA 1992 34",,"Australian Financial Security Authority (2025) www.afsa.gov.au , accessed 23 December 2025 Australian Securities and Investments Commission (ASIC) (December 2018) Regulatory Guide 82, External administration: Deeds of company arrangement involving a creditors' trust www.asic.gov.au ATO ID 2003/506 ATO ID 2005/257 Legal Services Directions 2017 Notice of demand – Form 9 (2025) www.afsa.gov.au , accessed 23 December 2025",False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS201116/NAT/ATO/00001,"REGISTRATION, LODGMENTS AND ASSESSMENTS | GATHERING EVIDENCE AND DISCLOSING INFORMATION DURING AN INSOLVENCY ADMINISTRATION | LEGAL CLAIMS AND SETTLEMENT OFFERS IN INSOLVENCY ADMINISTRATIONS | Updates include a restructure of content and heading changes. SBR content has been included. | Updated to new LAPS format and style. Updated in line with current ATO style and accessibility requirements. | Updated to reflect that TD 2012/D7 has been replaced by TD 2021/5. | Aesthetic updates throughout document, including to spacing and layout. | Restructure and heading changes with the inclusion of contextual information and legislative references; changes to incorporate ATO Style guide requirements. | Changes made to reflect current ATO practice: 'Where a tax debtor does not propose or adhere to an acceptable proposal to pay a tax debt, the Commissioner may commence legal recovery proceedings.' | Reference to 'Federal Magistrates Court' updated to 'Federal Circuit Court'. | Inclusion of SGC debts with respect to DPNs (change in legislation). | Paragraph 22, footnote 11 | Threshold amounts and name of ITSA (to AFSA) updated. | New information about the limitations to proposing a Part IX or Part X agreement. | New information about proposed DOCAs, including terms where creditors are offered non-cash items. | Additional information about payments made under valid garnishees. | Paragraph 69, footnote 24 | Revised reference to section 15 of the Public Governance, Performance and Accountability Act 2013 . | New information about statutory limitation periods for voidable transactions. | Paragraph amended to accommodate for the decision in Commissioner of Taxation v. Kassem and Secatore [2012] FCA 152. | Changes made to accommodate for the decision of the NSW Court of Appeal in Commissioner of Taxation v. Moodie [2014] NSWCA 59. | Paragraph 78, footnote 34 | Inclusion of further information on receivers following the receipt of advice from Roger Derrington QC. | Additional information on the Commissioner's obligations under Division 260 of Schedule 1 to the TAA with a specific focus on SGC debts. | New information on the obligations of liquidators, receivers or agents for a foreign resident principal to set aside amount to pay tax-related liabilities. | Inserted ""The term ""representative of an incapacitated entity"" is defined under the A New Tax System (Goods and Services) Tax Act 1999 (GST Act), however, this definition has broader application"" to clarify that the terms is used beyond GST purposes. | Title changed; inserted ""or compositions or schemes of arrangement (under Division 6 of Part IV)"" for completeness. | Inserted information about vesting of property (including property not vesting in controlling trustees) and information about TFNs where taxpayer has entered into a post-bankruptcy scheme or composition. (The latter was an issue raised by SBIT.) | New information about obligations under section 254 of the ITAA 1936. | New paragraph inserted to include specific information contained in the TD 94/68 & ATOID 2005/257 (which were previously referred to in footnote 45). | New information about the Commissioner's powers under sections 163 of the ITAA 1936. | New paragraph inserted to accommodate for circumstances where we require the insolvency practitioner to lodge pre-appointment returns but they are not confident in signing off on those returns. | New information on the responsibilities of representatives of incapacitated entities under Division 58 of the GST Act and specific information about fuel tax; explain how Div. 58 of the GST Act interacts with section 23-10 of the GST Act & particularly how this operates in relation to trustees in bankruptcy. | Inserted additional information to clarify situation where there is more than one representative. | New information about mortgagees in possession. Changes to the law clarify that Division 105 operates to the exclusion of Division 58 of the GST Act. | New information on the Commissioner's powers to raise liabilities. | New information in relation to changes of trustees. | More detailed information included in relation to the confidentiality provisions affecting representatives of incapacitated entities. | Change to accommodate for changes to Privacy Act. | New information on the validity of garnishees. | Inclusion of further information on issuing garnishees to receivers. | New policy covering tax refunds. | Deleted information about the Commissioner's position on the costs of wind up proceedings where the Commissioner was the applicant creditor and the ATO is asked to stand aside with respect to the priority (Information no longer required.) | [1] Section 95A of the Corporations Act. | [2] Section 55 of the Bankruptcy Act. | [3] Section 10A of the Bankruptcy Regulations 2021 . | [4] Section 40 of the Bankruptcy Act. | [5] Part 5.5 of the Corporations Act. | [6] See paragraph 5.4.01AAA(1)(b) of the Corporations Regulations 2001 . | [7] Section 459E of the Corporations Act. | [8] Under Division 3 of Part 5.7B of the Corporations Act. | [9] Defined in section 995-1 of the Income Tax Assessment Act 1997 and section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). | [10] Subsection 187(1) of the Bankruptcy Act. | [11] Under the Bankruptcy Act. | [12] Division 6 of Part IV of the Bankruptcy Act. | [13] Refer to Australian Financial Security Authority for the current prescribed amount. | [14] Section 188 and subsection 185C(4) of the Bankruptcy Act. | [15] Division 6 of Part IV of the Bankruptcy Act. | [16] Part 5.3A of the Corporations Act. | [17] Part 5.3B of the Corporations Act. | [18] See Law Administration Practice Statement PS LA 2011/20 Payment and credit allocation . | [19] Section 5 of Law Administration Practice Statement PS LA 2021/2 The ATO's administrative approach to the extension of the Commissioner's discretion to retain tax refunds . | [20] Refer to Australian Securities and Investments Commission (ASIC) Regulatory Guide 82 External administration: Deeds of company arrangement involving a creditors' trust . | [21] Lehman Brothers Holdings Inc v City of Swan & Ors ; Lehman Brothers Asia Holdings Limited (In Liquidation) v City of Swan & Ors [2010] HCA 11 at [50]. | [22] Section 8AAZLE of the Taxation Administration Act 1953 (TAA). | [23] Regulation 5.3B.24 of the Corporations Regulations 2001 . | [24] Section 254 of the Income Tax Assessment Act 1936 (ITAA 1936). See also, Robson as trustee for the bankrupt estate of Lanning v Commissioner of Taxation [2024] FCA 720. | [25] The composition or scheme trust estate is viewed as the same trust as that of the bankrupt estate (as the composition or scheme is binding on all creditors so far as it relates to provable debts due to them from the former bankrupt). | [26] Section 254 of the ITAA 1936. | [27] Paragraph 254(1)(d) of the ITAA 1936. See also, Commissioner of Taxation v Australian Building Systems Pty Ltd (In Liquidation) [2015] HCA 48. | [28] Section 58-20 of the of the GST Act. | [29] Part 5.3A of the Corporations Act. | [30] Section 58-20 of the GST Act. | [31] Section 23-10 of the GST Act. | [32] See section 195-1 of the GST Act. | [33] Section 58-20 of the GST Act. | [34] Section 58-60 of the GST Act. | [35] Section 58-55 of the GST Act. | [36] ATO Interpretive Decision ATO ID 2005/257 Income tax: who is responsible for lodgment of a company return when a liquidator has been appointed ? | [37] See Law Administration Practice Statement PS LA 2012/2 Change of trustee . | [38] Deputy Commissioner of Taxation v Jones [1999] FCA 308. | [39] Robson as trustee for the bankrupt estate of Lanning v Commissioner of Taxation [2024] FCA 720. | [40] Commissioner of Taxation v Australian Building Systems Pty Ltd (In Liquidation) [2015] HCA 48. | [41] Part 5.3A of the Corporations Act. | [42] ATO Interpretative Decisions ATO ID 2003/506 Income Tax: Taxation obligations of company administrators and ATO ID 2005/257. | [43] Section 254 of the ITAA 1936. | [44] Section 254 of the ITAA 1936. Robson as trustee for the bankrupt estate of Lanning v Commissioner of Taxation [2024] FCA 720. | [45] Paragraph 254(1)(d) of the ITAA 1936. | [46] Commissioner of Taxation v Australian Building Systems Pty Ltd (In Liquidation) [2015] HCA 48. | [47] Sections 162 and 163 of the ITAA 1936. | [48] Section 69 of the Fringe Benefits Tax Assessment Act 1986 . | [49] Section 31-20 of the GST Act. | [50] Section 34 of the Superannuation Guarantee (Administration) Act 1992 . | [51] Subsection 129(4A) of the Bankruptcy Act. | [52] Subsection 129(4B) of the Bankruptcy Act and the AFSA Administrative form Notice of demand – Form 9. | [53] Section 139ZL of the Bankruptcy Act. | [54] Section 556 of the Corporations Act for liquidations and section 109 of the Bankruptcy Act for bankruptcy. | [55] Section 82 of the Bankruptcy Act. | [56] See section 721-15 of the Income Tax Assessment Act 1997 , sections 444-80 and 444-90 of Schedule 1 to the TAA. | [57] Subsections 260-45(4), 260-75(4) and 260-105(4) of Schedule 1 to the TAA. | [58] Subsections 260-45(5) and 260-75(5) of Schedule 1 to the TAA. | [59] Subsections 260-45(8), 260-75(8) and 260-105(7) of Schedule 1 to the TAA. | [60] Deputy Commissioner of Taxation v Donnelly, M.C. & Ors [1989] FCA 588. | [61] Bruton Holdings Pty Limited (in liquidation) v Commissioner of Taxation [2009] HCA 32. | [62] Subsection 139ZIG(8) of the Bankruptcy Act. | [63] Division 353 of Schedule 1 to the TAA. | [64] Paragraph 355-25(2)(c) of Schedule 1 to the TAA. | [65] Section 355-50 of Schedule 1 to the TAA. See also, Simionato Holdings Pty Ltd v The Commissioner of Taxation of The Commonwealth of Australia [1995] FCA 891. | [66] Except where the information is public because of a prohibited disclosure of protected information. See section 355-45 of Schedule 1 to the TAA. | [67] Subsection 477(2A) of the Corporations Act and regulation 5.4.02 of the Corporations Regulations 2001 . | [68] Subsection 109(10) of the Bankruptcy Act and section 564 of the Corporations Act. | [69] See paragraph 109(1)(a) of the Bankruptcy Act and paragraph 556(1)(a) of the Corporations Act. | [70] Under paragraph 109(1)(a) of the Bankruptcy Act and paragraph 556(1)(a) of the Corporations Act. | [71] Subsection 109(10) of the Bankruptcy Act and section 564 of the Corporations Act. | [72] Section 91 of the Corporations Act and section 115 of the Bankruptcy Act. | [73] Section 588FE of the Corporations Act. | [74] Section 122 of the Bankruptcy Act. | [75] Subdivision 260-A of Schedule 1 to the TAA. | [76] Deputy Commissioner of Taxation v Donnelly , M . C . & Ors [1989] FCA 588. | [77] Section 123 of the Bankruptcy Act. | [78] Section 588FG of the Corporations Act. | [79] Such as section 15 of the Public Governance , Performance and Accountability Act 2013 . | [80] Paragraph 588FF(3)(a) of the Corporations Act. | [81] Section 588FA of the Corporations Act. | [82] Section 588FE of the Corporations Act. | [83] Section 588FGA of the Corporations Act. | [84] The Commissioner will also be guided by the alternative dispute resolution provisions, for example, under the Civil Dispute Resolution Act 2011 . | [85] See Law Administration Practice Statement PS LA 2011/7 Settlement of debt recovery litigation . | [86] Section 588FGB of the Corporations Act. | Bruton Holdings Pty Limited (in liquidation) v Commissioner of Taxation [2009] HCA 32 2009 ATC 20-125 72 ATR 856 | Commissioner of Taxation v Australian Building Systems Pty Ltd (In Liquidation) [2015] HCA 48 257 CLR 544 2015 ATC 20-548 102 ATR 359 | Deputy Commissioner of Taxation v Jones [1999] FCA 308 86 FCR 282 99 ATC 4373 41 ATR 460 | Deputy Commissioner of Taxation v Donnelly, M.C. & Ors [1989] FCA 588 25 FCR 432 89 ATC 5071 20 ATR 1331 | Lehman Brothers Holdings Inc v City of Swan & Ors; Lehman Brothers Asia Holdings Limited (In Liquidation) v City of Swan & Ors [2010] HCA 11 240 CLR 509 | Robson as trustee for the bankrupt estate of Lanning v Commissioner of Taxation [2024] FCA 720 2024 ATC 20-921 120 ATR 200 | Simionato Holdings Pty Ltd v The Commissioner of Taxation of The Commonwealth of Australia [1995] FCA 891 60 FCR 375 95 ATC 4720 32 ATR 298"
PS LA 2011/17,"Debt relief, waiver and non-pursuit",29 August 2016,14 April 2011,Law Administration Practice Statement,False,"Overarching principles: 1. The Commissioner of Taxation has a statutory obligation to pursue the recovery of tax debts. However, a tax debt may not be pursued in the following situations: • The Commissioner may determine not to pursue a debt considered not economical to pursue (in which case it can be re-raised later). • The Commissioner will not pursue a debt that is irrecoverable at law. • The Commissioner may permanently release particular liabilities in the case of serious hardship. • The Finance Minister may waive amounts owing to the Commonwealth. • The Commissioner may determine not to pursue a debt considered not economical to pursue (in which case it can be re-raised later). • The Commissioner will not pursue a debt that is irrecoverable at law. • The Commissioner may permanently release particular liabilities in the case of serious hardship. • The Finance Minister may waive amounts owing to the Commonwealth. 2. In making decisions regarding debt relief, waiver and non-pursuit, you must follow the principles set out in this Practice Statement and the law. The relevant facts and circumstances of each case must be considered. | Making a decision to not pursue a debt: 3. We will generally not pursue a debt if we are satisfied that the debt is: • not economical to pursue, or • irrecoverable at law. [1] • not economical to pursue, or • irrecoverable at law. [1] 4. If a decision is made to not pursue a debt on the basis that it is uneconomical to pursue, the debt can be re-raised on a taxpayer's account at a future time. A debt that is irrecoverable at law is effectively extinguished. | Determining that a debt is not economical to pursue: 5. Relevant considerations in determining whether a debt is not economical to pursue include: • whether the anticipated cost of future recovery is likely to exceed the amount of the debt • the age of the debt • the type of debt involved, for example, a superannuation guarantee charge may be more likely to be pursued because its collection directly affects the superannuation entitlements of employees • whether the taxpayer cannot be located – the debt may be re-raised when the taxpayer is located • the asset position of the taxpayer • whether a levy under a writ or warrant of execution has been unsuccessful and it is not possible or intended to pursue bankruptcy action • whether a company has ceased to trade • advice from a trustee or administrator of a deceased estate that the estate has insufficient assets to satisfy the debt. • whether the anticipated cost of future recovery is likely to exceed the amount of the debt • the age of the debt • the type of debt involved, for example, a superannuation guarantee charge may be more likely to be pursued because its collection directly affects the superannuation entitlements of employees • whether the taxpayer cannot be located – the debt may be re-raised when the taxpayer is located • the asset position of the taxpayer • whether a levy under a writ or warrant of execution has been unsuccessful and it is not possible or intended to pursue bankruptcy action • whether a company has ceased to trade • advice from a trustee or administrator of a deceased estate that the estate has insufficient assets to satisfy the debt. 6. None of the factors in paragraph 5 of this Practice Statement are definitive on their own. All considerations relevant to a taxpayer's circumstances should be considered. 7. We may decide to pursue a debt, even though it may not be economical to do so, if there are public interest considerations that support recovery action. An example of this may be where a taxpayer has a significant history of non-compliance. | Determining that a debt is not legally recoverable: 8. Situations where we consider a debt to be effectively extinguished include where the debt: • cannot be recovered by action in a court • forms part of the pre-sequestration debt of a discharged bankrupt • represents the balance after a trustee in bankruptcy or a liquidator has advised that either no dividend will be paid or the final dividend has been paid; in recognition that there may be a time delay in receiving this advice, where – it is advised that there will be a nil dividend or where an approximate dividend cannot be quantified, the total debt can be treated as irrecoverable at law from when the proof of debt is lodged – the approximate dividend expected has been advised, the balance can be treated as irrecoverable at law from when the proof of debt is lodged [2] • represents the balance outstanding after the debtor has discharged all obligations under a debt agreement pursuant to Parts IX or X of the Bankruptcy Act 1966 [3] • represents the balance outstanding following the termination of a scheme of arrangement which has been sanctioned by a court • represents the balance outstanding following the finalisation of a deed of arrangement that has been approved by creditors pursuant to Part 5.3A of the Corporations Act 2001 • represents the balance of a debt we have agreed not to pursue under a deed of compromise or settlement after the debtor has complied with all the terms of the deed • has been released as described in paragraphs 9 to 33 of this Practice Statement or waived by the Finance Minister. • cannot be recovered by action in a court • forms part of the pre-sequestration debt of a discharged bankrupt • represents the balance after a trustee in bankruptcy or a liquidator has advised that either no dividend will be paid or the final dividend has been paid; in recognition that there may be a time delay in receiving this advice, where – it is advised that there will be a nil dividend or where an approximate dividend cannot be quantified, the total debt can be treated as irrecoverable at law from when the proof of debt is lodged – the approximate dividend expected has been advised, the balance can be treated as irrecoverable at law from when the proof of debt is lodged [2] • represents the balance outstanding after the debtor has discharged all obligations under a debt agreement pursuant to Parts IX or X of the Bankruptcy Act 1966 [3] • represents the balance outstanding following the termination of a scheme of arrangement which has been sanctioned by a court • represents the balance outstanding following the finalisation of a deed of arrangement that has been approved by creditors pursuant to Part 5.3A of the Corporations Act 2001 • represents the balance of a debt we have agreed not to pursue under a deed of compromise or settlement after the debtor has complied with all the terms of the deed • has been released as described in paragraphs 9 to 33 of this Practice Statement or waived by the Finance Minister. – it is advised that there will be a nil dividend or where an approximate dividend cannot be quantified, the total debt can be treated as irrecoverable at law from when the proof of debt is lodged – the approximate dividend expected has been advised, the balance can be treated as irrecoverable at law from when the proof of debt is lodged [2] Permanent release of an individual from the payment of particular liabilities on the basis of serious hardship | Application of the release provisions: 9. The law [4] allows for an individual to be partially or fully released from particular liabilities if we consider that payment would result in serious hardship. [5] The provision also applies to the trustee of a deceased estate where the dependants of the deceased individual would suffer serious hardship if the trustee paid the liability. 10. The particular liabilities for which release may be granted include [6] : • income tax • pay as you go instalments • fringe benefits tax or a fringe benefits tax instalment • Medicare levy or Medicare levy (fringe benefits) surcharge • withholding taxes on dividends, interest or royalties • mining withholding tax • managed investment trust withholding tax • some penalties and interest charges associated with these debts. • income tax • pay as you go instalments • fringe benefits tax or a fringe benefits tax instalment • Medicare levy or Medicare levy (fringe benefits) surcharge • withholding taxes on dividends, interest or royalties • mining withholding tax • managed investment trust withholding tax • some penalties and interest charges associated with these debts. 11. Where we have previously determined that a liability will not be pursued [7] , we may still consider whether that liability should be released on the basis of serious hardship. | Release application process: 12. Taxpayers are to apply for release on ato.gov.au by using the Debt release tool . [8] An application for release will not be determined unless: • all relevant information has been provided to us • income tax and activity statement lodgments are up to date • there are no outstanding amendment requests or unresolved tax disputes • any outstanding insurance, compensation or damages claims have been finalised. • all relevant information has been provided to us • income tax and activity statement lodgments are up to date • there are no outstanding amendment requests or unresolved tax disputes • any outstanding insurance, compensation or damages claims have been finalised. 13. If a taxpayer discloses that they have an outstanding insurance, compensation or damages claim, we should ask them for more information about it before making any decision. | Recovery of debts pending the outcome of a release application: 14. The decision to continue recovery action of an amount for which the taxpayer has sought release must be based on the risk management principles outlined in Law Administration Practice Statement PS LA 2011/6 Risk management in the enforcement of lodgment obligations and debt collection activities. 15. This decision must be made on a case-by-case basis, applying the principles of PS LA 2011/6 to the facts of the case. 16. Generally, recovery action will be deferred unless the claim is considered frivolous, is not considered to have merit or there is a serious risk to recovery. General interest charge (GIC) continues to accrue until the application is determined. | Definition of serious hardship: 17. 'Serious hardship' is given its ordinary meaning. 18. We consider serious hardship to exist where the payment of a tax liability would result in a person being left without the means to afford basics such as food, clothing, medical supplies, accommodation or reasonable education. 19. We have tests to apply in helping you decide whether serious hardship exists. The object of the tests is to determine whether the consequences of paying the tax would be so burdensome that the person would be deprived of what are considered necessities according to normal community standards. 20. These tests are: • the income and outgoings test • the assets and liabilities test • other relevant factors. • the income and outgoings test • the assets and liabilities test • other relevant factors. | Income and outgoings test: 21. The purpose of the income and outgoings test is to assess a taxpayer's capacity to meet their tax liability from their current income. We take into account household income and expenditure, along with the taxpayer's ability to provide the necessities for family members or others for whom they have responsibility. In addition, the following are relevant considerations: • the taxpayer's capacity to pay in a reasonable timeframe on the basis of their income and outgoings • scope for the taxpayer to increase their income • whether all expenditure could be considered reasonable and consideration of any discretionary components • whether the taxpayer has made attempts to defer or reschedule other financial commitments. • the taxpayer's capacity to pay in a reasonable timeframe on the basis of their income and outgoings • scope for the taxpayer to increase their income • whether all expenditure could be considered reasonable and consideration of any discretionary components • whether the taxpayer has made attempts to defer or reschedule other financial commitments. | Assets and liabilities test: 22. The purpose of the asset and liabilities test is to assess a taxpayer's equity in, or access to, assets which may be indicative of their capacity to pay. Consideration is given to any property owned wholly or jointly by the taxpayer and their partner, privately or within a business structure. 23. There are several types of assets which are regarded as normal and reasonable possessions. These would not be expected to be surrendered in order to pay a tax debt, provided they are of a reasonable nature and include: • ownership of, or interest in, a residential property which is the taxpayer's home • a motor vehicle • furniture and household goods • tools of trade • cash on hand or bank balances sufficient to meet immediate day-to-day living expenses • funds put aside by aged persons to cover funeral expenses. • ownership of, or interest in, a residential property which is the taxpayer's home • a motor vehicle • furniture and household goods • tools of trade • cash on hand or bank balances sufficient to meet immediate day-to-day living expenses • funds put aside by aged persons to cover funeral expenses. 24. All other significant assets need to be scrutinised to determine capacity to pay (either by sale or used as security for a loan). These assets include other real estate, multiple or luxury motor vehicles or boats, life insurance or annuity entitlements, shares and other investments, and collections for trading, investment or hobby purposes. | Other relevant factors: 25. We are not bound to grant release even if a taxpayer can demonstrate serious hardship may be caused by payment of their liability. However, we are obliged to act reasonably and not arbitrarily. 26. When deciding whether release should be granted, you should take into consideration the facts of the case and have regard to the taxpayer's particular circumstances. 27. Examples of the factors we may consider in arriving at a decision include: • release would not alleviate hardship, such as where the person has other liabilities or creditors • whether it was reasonable for the taxpayer to acquire assets ahead of meeting their tax liabilities • whether a taxpayer has made plans to address their tax liabilities prior to disposing of funds or assets • whether a taxpayer has paid other debts (either business or private) in preference to their tax debt • whether the taxpayer has pursued debts owed to them or provided reasons as to why they have not • whether serious hardship is likely only to be short term [9] • whether there was an event that led to a change in the taxpayer's compliance • the taxpayer's past compliance history, including lodgment of returns, payment of tax debts and the outcome of any audit or enforcement activity taken to enforce compliance • whether the taxpayer has made plans to pay future debts • how the taxpayer has structured their affairs and whether they have placed themselves in a position of hardship (for example, placing all assets in trusts or related entities over which they have control) • whether there are other factors contributing to the taxpayer's serious hardship that are outside their control – this includes experiences of vulnerability such as family violence, financial coercion, sudden homelessness or serious mental health challenges. • release would not alleviate hardship, such as where the person has other liabilities or creditors • whether it was reasonable for the taxpayer to acquire assets ahead of meeting their tax liabilities • whether a taxpayer has made plans to address their tax liabilities prior to disposing of funds or assets • whether a taxpayer has paid other debts (either business or private) in preference to their tax debt • whether the taxpayer has pursued debts owed to them or provided reasons as to why they have not • whether serious hardship is likely only to be short term [9] • whether there was an event that led to a change in the taxpayer's compliance • the taxpayer's past compliance history, including lodgment of returns, payment of tax debts and the outcome of any audit or enforcement activity taken to enforce compliance • whether the taxpayer has made plans to pay future debts • how the taxpayer has structured their affairs and whether they have placed themselves in a position of hardship (for example, placing all assets in trusts or related entities over which they have control) • whether there are other factors contributing to the taxpayer's serious hardship that are outside their control – this includes experiences of vulnerability such as family violence, financial coercion, sudden homelessness or serious mental health challenges. 28. The factors in paragraph 27 of this Practice Statement are not intended to be an exhaustive list of relevant factors but rather are examples of the types of considerations it would be appropriate to have regard to in exercising this discretion. | Decision as to whether to grant release: 29. The outcome of the tests outlined in this Practice Statement will usually enable a decision to be made as to whether serious hardship exists and the extent, if at all, to which release should be granted. You may decide not to grant a release, to grant a partial release or to grant a full release. Release from the full amount of the liability would not generally be appropriate where partial release is sufficient to avoid serious hardship. 30. Release cannot be granted from judgment interest and associated legal costs. However, if you allow a full release of the liability relating to the judgment, we will not pursue the judgment interest or the costs. If partial release is allowed, we will not pursue the corresponding proportion of the judgment interest or costs. 31. If a decision is made not to fully grant release from the payment of GIC, the taxpayer can apply for remission pursuant to the general remission guidelines. [10] 32. A taxpayer who is dissatisfied with a decision not to grant release in full is entitled to lodge an objection against the decision. If they are dissatisfied with the result of the objection decision, they may seek further review by the Administrative Review Tribunal. [11] We will pay any lodgment fees related to such a review. The taxpayer may also appeal to the Federal Court. 33. A taxpayer may reapply for release if their circumstances change or they have new material to submit. | Exercise of the Finance Minister's power to waive tax debts: 34. Section 63 of the Public Governance, Performance and Accountability Act 2013 provides that the Finance Minister may waive amounts owing to the Commonwealth. 35. A waiver permanently extinguishes a debt owed to the Commonwealth. The Commonwealth cannot pursue the debt at a later date if the financial circumstances of the person or organisation which received the waiver improve. 36. The Commissioner does not have the power to grant a waiver. 37. The waiver power is generally a remedy of last resort. Waiver will only be granted once all other available options have been considered and determined to be inappropriate to address the specific circumstances of the matter. | Waiver application process: 38. Information about waiver is available on the Department of Finance (Finance) website, including the Application process for act of grace or waiver of debt . Generally, Finance will notify and consult with us before briefing the Minister or relevant delegate on the request. The information we provide is used to assist the Minister in progressing a waiver application. 39. Information that we provide to Finance to progress a waiver application may include: • details of the debt and any other relevant information in relation to the debt, such as how the debt arose, action taken to recover the debt, whether there is any dispute in relation to the debt, offers of payment and our decision in relation to those offers • specific details of the Commonwealth's role, if any, that may have directly contributed to the taxpayer's situation • any history or background to the case, including any available information on the taxpayer's assets, income, future income-earning capacity, other debts, health, family circumstances and experiences of vulnerability (such as family violence, financial coercion, homelessness or serious mental health challenges). • any other information relevant to the decision-maker's consideration. • details of the debt and any other relevant information in relation to the debt, such as how the debt arose, action taken to recover the debt, whether there is any dispute in relation to the debt, offers of payment and our decision in relation to those offers • specific details of the Commonwealth's role, if any, that may have directly contributed to the taxpayer's situation • any history or background to the case, including any available information on the taxpayer's assets, income, future income-earning capacity, other debts, health, family circumstances and experiences of vulnerability (such as family violence, financial coercion, homelessness or serious mental health challenges). • any other information relevant to the decision-maker's consideration. 40. A recommendation, either supporting or not supporting the application and the reasons for adopting that stance, will also be provided. The recommendation will consider the merits of a person or organisation having a debt waived that the Commonwealth has a legal right to recover. 41. A copy of the information and recommendation you provide to Finance is given to the taxpayer for comment before making a decision. | Determine if another viable remedy is available: 42. If you determine that there may be an alternative solution to alleviate the taxpayer's circumstances, you will need to discuss this with them and ask if they wish to withdraw the waiver application. Alternative solutions include, but are not limited to: • release on the basis of serious hardship • a decision that the debt is not economical to pursue • entering the taxpayer into a payment arrangement • a decision to compromise undisputed tax-related liabilities and other amounts payable to us • remission of GIC, if applicable. • release on the basis of serious hardship • a decision that the debt is not economical to pursue • entering the taxpayer into a payment arrangement • a decision to compromise undisputed tax-related liabilities and other amounts payable to us • remission of GIC, if applicable. | When a recommendation for waiver may be supported: 43. A recommendation to waive may have regard to some of the following circumstances including, but not limited to, where: • the taxpayer has no other debt management options • the law as it applies to the taxpayer's circumstances results in an outcome that is inequitable • the taxpayer meets the requirement for serious hardship but the debt in the waiver application falls outside of the liabilities that can be released under section 340-10 of Schedule 1 to the TAA • the taxpayer's debt arose due to actions of the Commonwealth • the taxpayer provides a service that is beneficial to the broader community. • the taxpayer has no other debt management options • the law as it applies to the taxpayer's circumstances results in an outcome that is inequitable • the taxpayer meets the requirement for serious hardship but the debt in the waiver application falls outside of the liabilities that can be released under section 340-10 of Schedule 1 to the TAA • the taxpayer's debt arose due to actions of the Commonwealth • the taxpayer provides a service that is beneficial to the broader community. | When a recommendation for waiver may not be supported: 44. There are some circumstances where the debt would be unlikely to be waived including, but not limited to, where: • an alternative viable remedy is available • the taxpayer's debts have been established by a judicial decision of a court, for example, judgment debts • the taxpayer's debts owed to us will be paid on to third parties, for example, superannuation guarantee charge debts • the taxpayer's debts have arisen through deliberate fraudulent or other illegal actions • requests are submitted by companies on the grounds of financial hardship [12] • an amount owing to the Commonwealth is not certain or ascertainable • the taxpayer's financial situation and the merits of them being allowed to retain money that the Commonwealth has a legal right to recover. • an alternative viable remedy is available • the taxpayer's debts have been established by a judicial decision of a court, for example, judgment debts • the taxpayer's debts owed to us will be paid on to third parties, for example, superannuation guarantee charge debts • the taxpayer's debts have arisen through deliberate fraudulent or other illegal actions • requests are submitted by companies on the grounds of financial hardship [12] • an amount owing to the Commonwealth is not certain or ascertainable • the taxpayer's financial situation and the merits of them being allowed to retain money that the Commonwealth has a legal right to recover. | If the taxpayer is dissatisfied: 45. Before a decision is made, the taxpayer is given an opportunity to comment on our submission. For procedural fairness, we are required to provide a complete copy of the submission to the taxpayer at the same time it is sent to Finance. | Recovery of debts pending the outcome of a waiver application: 46. The decision to continue recovery action of an amount for which the taxpayer has sought waiver must be based on the risk management principles outlined in PS LA 2011/6. This decision must be made on a case-by-case basis, applying these principles to the facts of the case. | More information: 47. For more information, see: • Chief Executive Instruction Respecting taxpayers' rights of review (link available internally only) • Law Administration Practice Statement PS LA 2011/6 Risk management in the enforcement of lodgment obligations and debt collection activities • Law Administration Practice Statement PS LA 2011/12 Remission of General Interest Charge • Law Administration Practice Statement PS LA 2011/18 Enforcement measures used for the collection and recovery of tax-related liabilities and other amounts • Law Administration Practice Statement PS LA 2011/20 Payment and credit allocation • Release from your tax debt • Waiver of Debt . • Chief Executive Instruction Respecting taxpayers' rights of review (link available internally only) • Law Administration Practice Statement PS LA 2011/6 Risk management in the enforcement of lodgment obligations and debt collection activities • Law Administration Practice Statement PS LA 2011/12 Remission of General Interest Charge • Law Administration Practice Statement PS LA 2011/18 Enforcement measures used for the collection and recovery of tax-related liabilities and other amounts • Law Administration Practice Statement PS LA 2011/20 Payment and credit allocation • Release from your tax debt • Waiver of Debt .","PS LA 2011/6 | PS LA 2011/12 | PS LA 2011/18 | PS LA 2011/20 | TAA 1953 Sch 1 340-5 | TAA 1953 Sch 1 340-5(7) | TAA 1953 Sch 1 340-10 | Bankruptcy Act 1966 Pt IX | Bankruptcy Act 1966 Pt X | Corporations Act 2001 Pt 5.3A | Public Governance, Performance and Accountability Act 2013 63",PS LA 2011/6 PS LA 2011/12 PS LA 2011/18 PS LA 2011/20,"TAA 1953 Sch 1 340-5 | TAA 1953 Sch 1 340-5(7) | TAA 1953 Sch 1 340-10 | Bankruptcy Act 1966 Pt IX | Bankruptcy Act 1966 Pt X | Corporations Act 2001 Pt 5.3A | Public Governance, Performance and Accountability Act 2013 63 | Public Governance, Performance and Accountability Rule 2014 11",,Application process for act of grace or waiver of debt Debt release tool Respecting taxpayers' rights of review (link available internally only) Release from your tax debt Waiver of Debt,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS201117/NAT/ATO/00001,"Not pursuing a tax debt due to it being not economical to pursue or not legally recoverable | The Finance Minister's power to permanently waive debts | Included vulnerability as an example of other relevant factors to consider when making a release decision or to include when recommending waiver. | Updated to align with amended Practice Statement style and formatting requirements. | Updated in line with current ATO style and accessibility requirements. | Update to second dot point. | Multiple changes made to dot points. | Updates made throughout Practice Statement to correct minor typographical and aesthetic issues, and to update hyperlinks. | Update the Public Governance, Performance and Accountability Act 2014 to the Public Governance, Performance and Accountability Act 2013. | Updated Chief Executive Instruction (CEI) title. | 'Write-off' replaced by 'non-pursuit'. | Updated for currency. No change in policy. | B. The Finance Minister's power to permanently waive debts | Content added to provide more guidance on what would formulate a recommendation to waive or deny a waiver. | Corrected the year of the Act. | Updated to new LAPS style and template. | Paragraphs 3, 48, 63, 64 and 69; legislative references | Updated references to the Financial Management and Accountability Act 1997 with relevant provisions in the Public Governance, Performance and Accountability Act 2013 and the Public Governance, Performance and Accountability Rule 2014. | Minor revisions to meet Style guide requirements and to improve readability including formatting changes, new headings, revised text placement and legislative references. | Added in requirements regarding Taxpayers' Charter and CM PS 2007/01. | Included excess contributions tax in the list of liabilities to which the release provisions do not apply. | Added additional example where debt that is irrecoverable at law can be re-raised. | New information added to explain the circumstance when debt may be considered uneconomical to pursue. | Added additional factor that should be taken into account when considering non pursuit of amounts of revenue because they are uneconomical to pursue. | Deleted following advice from ASIC. | Revised to reflect current work practice. | [1] Section 11 of the Public Governance, Performance and Accountability Rule 2014. | [2] A debt that is irrecoverable at law may be re-raised in very limited circumstances, for example, to absorb a dividend paid in an insolvency administration after the balance of the debt was determined to be irrecoverable. | [3] In these circumstances, the amount of the balance will generally be treated as uneconomical to pursue from the time of lodging the proof of debt and treated as irrecoverable at law once the administration is concluded. | [4] Section 340-5 of Schedule 1 to the Taxation Administration Act 1953 (TAA). | [5] The provision is considered to extend to an individual who has incurred personal liability in their capacity as a trustee of a trust or a self-managed superannuation fund in respect to an eligible liability. | [6] Refer to section 340-10 of Schedule 1 to the TAA. | [7] For example, where the liability is subject to administrative arrangements such as being written off as not economical to pursue, a due date has been deferred or a payment arrangement is in place. | [8] Refer to Release from your tax debt . | [9] 'Short term' is to be determined on a case-by-case basis. | [10] Law Administration Practice Statement PS LA 2011/12 Remission of General Interest Charge. | [11] Refer to subsection 340-5(7) of Schedule 1 to the TAA. | [12] This is because the companies, rather than the individuals involved, are liable for the debts. | File 1-D271KQA; 1-14FF8UJO"
PS LA 2011/18,Enforcement measures used for the collection and recovery of tax-related liabilities and other amounts,14 April 2011,14 April 2011,Law Administration Practice Statement,False,"What this Practice Statement is about: 1. We expect taxpayers to pay their tax-related liabilities as and when they fall due for payment. If a tax-related liability remains unpaid after its due date, it is our responsibility to instigate the most appropriate action to collect that debt as soon as practicable. 2. The appropriate collection action is assessed in response to the level of risk the taxpayer and the unpaid liability presents to revenue collection. Law Administration Practice Statement PS LA 2011/6 Risk management in the enforcement of lodgment obligations and debt collection activities explains the ATO risk management principles, including the Compliance model , as they apply to the collection of unpaid liabilities. 3. The Compliance model is a structured way of understanding and improving taxpayer compliance. It helps us to understand the factors that influence taxpayer behaviour and to apply the most appropriate compliance strategy. 4. As a matter of course, we will take into account the individual circumstances of each tax debtor to ensure that any recovery strategy is effective and appropriate for collecting that particular tax-related liability. 5. The level of risk in each case is assessed at the commencement of collection activities by applying PS LA 2011/6 and the Compliance model. In appropriate cases, the level of risk may warrant the instigation of enforcement action to recover those debts. 6. Following the ATO risk management approach ensures that the process which leads to the necessary recovery action is fair, transparent and professional. | How to navigate within this Practice Statement: 7. This Practice Statement is structured in 2 main parts. The first part provides a general overview of the debt collection process, as well as the various enforcement measures we may use to collect outstanding tax-related liabilities. 8. The second part consists of Appendixes A to F, which provide detailed guidelines on certain specific enforcement measures. | Terms used: 9. The following terms are used for the purposes of this Practice Statement: • Assessed net amount – is the 'net amount' assessed for the tax period. [1] • Associate of a director – includes, for the purposes of the pay as you go (PAYG) withholding non-compliance tax – the director's spouse – the parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendant or adopted child of the director, or of the director's spouse, or – the spouse of a person referred to in the dot point immediately above. [2] • AUSTRAC reports – are reports produced by the Australian Transaction Reports and Analysis Centre (AUSTRAC). • Australian nationals – are residents of Australia, which include Australian citizens as well as other permanent residents of Australia. • Ex parte – is a matter dealt with by a court with only the applicant present – the respondent is not usually present to put forward an argument to refute that of the applicant. • Foreign nationals – are non-residents or temporary residents of Australia who are liable to pay Australian tax liabilities. • Freezing order – is an order which restrains a debtor or the debtor's agents, servants or otherwise from removing assets from the jurisdiction or disposing of or dealing with those assets so as to frustrate a creditor seeking to recover a liability from the debtor. • Garnishee or statutory garnishee – is the power of the Commissioner under section 260-5 of Schedule 1 to the Taxation Administration Act 1953 (TAA) to issue a notice requiring a third party to pay money to us to meet the tax debt of another. The third party receiving the notice is required to pay to us any monies which may be held for, owed to or accruing to the tax debtor. The notice issued by us is similar to (but legally distinct from) a garnishee order issued through the courts. • Injunction – is an order by which the court directs someone to refrain from acting in a particular way (known as a prohibitive injunction) or, in some instances, to perform a particular act (known as a mandatory injunction). • Interlocutory – are proceedings or applications taken during the course of a legal proceeding which are incidental to the principal object of the proceeding. In the collection context, it may be a further application made after a writ or summons has been issued for the recovery of a debt. These proceedings can also be taken prior to legal action being initiated provided we give an undertaking to issue the relevant process (for example, writ or summons) within a certain time. • Lien – is a type of security over property, including a right to retain possession of a debtor's property until the debt has been paid. • Mareva injunction – is an interlocutory injunction which restrains a debtor or the debtor's agents, servants or otherwise from removing assets from the jurisdiction or disposing of or dealing with those assets so as to frustrate a creditor seeking to recover a liability from the debtor. • Net amount – for a tax period, is the sum of all goods and services tax (GST) on taxable supplies attributable to the tax period, less the sum of all input tax credits that are attributable to the tax period. The net amount for a tax period may be increased or decreased if the taxpayer has any adjustments. The net amount can also be impacted by luxury car tax (LCT) and wine equalisation tax (WET). [3] • Parallel liability – refers to liabilities that payment or application of an amount towards discharging one liability will reduce each other liability to which it relates by the same amount or fulfilment of one tax debtor's liability discharges other tax debtors of the same liability by the same amount. In particular, for PAYG withholding liabilities, they include: – a company's liabilities to pay amounts required under Part 2-5 of Schedule 1 to the TAA (including a judgment for such a liability) – a company's liabilities to pay estimates made by the Commissioner under Division 268 of Schedule 1 to the TAA in respect to the preceding liabilities – director penalty liabilities under Division 269 of Schedule 1 to the TAA in relation to the preceding liabilities. The general interest charge (GIC) in respect of each of these 'parallel liabilities' (where they apply) are also parallel liabilities. Similarly, for superannuation guarantee charge (SGC) liabilities they include: – a company's liability to SGC under the Superannuation Guarantee (Administration) Act 1992 (SGAA) (including a judgment for such a liability) – a company's liability to pay estimates made by us under Division 268 of Schedule 1 to the TAA in respect to the preceding liabilities, or – a director penalty liability under Division 269 of Schedule 1 to the TAA in relation to either of the preceding liabilities. For GST liabilities (including LCT and WET liabilities) they include: – a company's liability to pay amounts required under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) (including a judgment for such a liability) – a company's liability to pay estimates made by us under Division 268 of Schedule 1 to the TAA in respect of the preceding liabilities – a director penalty liability under Division 269 of Schedule 1 to the TAA in relation to the preceding liabilities. • Remittance provision – refers to various legislative provisions requiring an entity to remit: – prior to 1 July 2000 o deductions made from reportable payments and prescribed payments o tax instalment deductions made from payments of salary and wages o deductions made from natural resource payments or unattributed payments, and o dividend, interest and royalty withholding taxes – on or after 1 July 2000 o amounts withheld under Divisions 12, 13 and 14 in accordance with Subdivision 16-B of Part 2-5 (PAYG withholding) of Schedule 1 to the TAA o amounts estimated under Division 268 of Schedule 1 to the TAA [4] in respect of unpaid PAYG withholding amounts. • Supervised account – is an account maintained by a bankrupt but supervised by a trustee in bankruptcy under Subdivision HA of Division 4B, Part VI of the Bankruptcy Act 1966, into which a bankrupt's income is directed and from which the bankrupt may only make withdrawals with the explicit permission of the trustee. The purpose of these accounts is to help the trustee collect income contributions for the benefit of creditors. A trustee in bankruptcy will only require the use of a supervised account where the bankrupt has previously failed to make income contributions as required. • Tax debt – is defined in section 8AAZA of the TAA to mean a 'primary tax debt' or a 'secondary tax debt'. A primary tax debt is defined in section 8AAZA of the TAA to mean: … any amount due to the Commonwealth directly under a taxation law (other than, except in Division 4 [of Part IIB of the TAA], the Products Grants and Benefits Administration Act 2000), including any such amount that is not yet payable. A secondary tax debt is defined in section 8AAZA of the TAA to mean '… an amount that is not a primary tax debt, but is due to the Commonwealth in connection with a primary tax debt.' An example of a secondary tax debt would be costs awarded to the Commonwealth in a court proceeding for recovery of a primary tax debt. The term 'tax debt' applies to Part IIB of the TAA – Running Balance Accounts (RBA) (Division 2), Treatment of payments, credits and RBA surpluses (Division 3) and Miscellaneous provisions about tax debts (Division 4). • Tax debtor – is an entity who has a tax debt, tax liability or tax-related liability (including a liability which is not yet due and payable). The term also includes an entity with a judgment debt (plus costs awarded) for a tax-related liability and an entity who has amounts payable to us because they have been convicted of a tax offence. • Tax liability – is defined in subsection 2(1) of the TAA to mean 'a liability to the Commonwealth arising under, or by virtue of, a taxation law'. For example, this term applies to Part IVA of the TAA – the departure prohibition order (DPO) provisions. • Tax-related liability – is defined in subsection 255-1(1) of Schedule 1 to the TAA to mean 'a pecuniary liability to the Commonwealth arising directly under a taxation law (including a liability the amount of which is not yet due and payable).' [5] For example, this term applies to Part 4-15 of Schedule 1 to the TAA – Collection and recovery of tax-related liabilities and other amounts. • Taxation law – is defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) to mean: (a) an Act of which the Commissioner has the general administration (including a part of an Act to the extent to which the Commissioner has the general administration of the Act); or (b) legislative instruments under such an Act (including such a part of an Act); or (c) the Tax Agent Services Act 2009 or regulations made under that Act. • This definition also applies to the TAA. • Underlying liability – in relation to an estimate, means the liability to which the estimate relates (that is, the unpaid amount of the PAYG withholding, SGC liability or GST liabilities (including WET and LCT liabilities)). • Void transaction – is a transaction in respect of which the court has made an order under section 588FF of the Corporations Act 2001. • Wholly discharged – is defined in the TAA to include a reference to arrangements satisfactory to us having been made for those tax liabilities to be wholly discharged. • Writ or warrant of execution, writ of fieri facias, writ of land, warrant of sale, writ or warrant of seizure and sale – allows a court official, usually known as a sheriff or bailiff, to attend the address given on the writ and attach or levy (that is, secure) any assets found there belonging to the debtor. If the debtor does not pay the amount due to the judgment creditor within a specified time, the sheriff or bailiff returns, collects the goods and puts them to auction. Certain goods cannot be auctioned and the laws in relation to this vary from State to State. • Assessed net amount – is the 'net amount' assessed for the tax period. [1] • Associate of a director – includes, for the purposes of the pay as you go (PAYG) withholding non-compliance tax – the director's spouse – the parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendant or adopted child of the director, or of the director's spouse, or – the spouse of a person referred to in the dot point immediately above. [2] • AUSTRAC reports – are reports produced by the Australian Transaction Reports and Analysis Centre (AUSTRAC). • Australian nationals – are residents of Australia, which include Australian citizens as well as other permanent residents of Australia. • Ex parte – is a matter dealt with by a court with only the applicant present – the respondent is not usually present to put forward an argument to refute that of the applicant. • Foreign nationals – are non-residents or temporary residents of Australia who are liable to pay Australian tax liabilities. • Freezing order – is an order which restrains a debtor or the debtor's agents, servants or otherwise from removing assets from the jurisdiction or disposing of or dealing with those assets so as to frustrate a creditor seeking to recover a liability from the debtor. • Garnishee or statutory garnishee – is the power of the Commissioner under section 260-5 of Schedule 1 to the Taxation Administration Act 1953 (TAA) to issue a notice requiring a third party to pay money to us to meet the tax debt of another. The third party receiving the notice is required to pay to us any monies which may be held for, owed to or accruing to the tax debtor. The notice issued by us is similar to (but legally distinct from) a garnishee order issued through the courts. • Injunction – is an order by which the court directs someone to refrain from acting in a particular way (known as a prohibitive injunction) or, in some instances, to perform a particular act (known as a mandatory injunction). • Interlocutory – are proceedings or applications taken during the course of a legal proceeding which are incidental to the principal object of the proceeding. In the collection context, it may be a further application made after a writ or summons has been issued for the recovery of a debt. These proceedings can also be taken prior to legal action being initiated provided we give an undertaking to issue the relevant process (for example, writ or summons) within a certain time. • Lien – is a type of security over property, including a right to retain possession of a debtor's property until the debt has been paid. • Mareva injunction – is an interlocutory injunction which restrains a debtor or the debtor's agents, servants or otherwise from removing assets from the jurisdiction or disposing of or dealing with those assets so as to frustrate a creditor seeking to recover a liability from the debtor. • Net amount – for a tax period, is the sum of all goods and services tax (GST) on taxable supplies attributable to the tax period, less the sum of all input tax credits that are attributable to the tax period. The net amount for a tax period may be increased or decreased if the taxpayer has any adjustments. The net amount can also be impacted by luxury car tax (LCT) and wine equalisation tax (WET). [3] • Parallel liability – refers to liabilities that payment or application of an amount towards discharging one liability will reduce each other liability to which it relates by the same amount or fulfilment of one tax debtor's liability discharges other tax debtors of the same liability by the same amount. In particular, for PAYG withholding liabilities, they include: – a company's liabilities to pay amounts required under Part 2-5 of Schedule 1 to the TAA (including a judgment for such a liability) – a company's liabilities to pay estimates made by the Commissioner under Division 268 of Schedule 1 to the TAA in respect to the preceding liabilities – director penalty liabilities under Division 269 of Schedule 1 to the TAA in relation to the preceding liabilities. The general interest charge (GIC) in respect of each of these 'parallel liabilities' (where they apply) are also parallel liabilities. Similarly, for superannuation guarantee charge (SGC) liabilities they include: – a company's liability to SGC under the Superannuation Guarantee (Administration) Act 1992 (SGAA) (including a judgment for such a liability) – a company's liability to pay estimates made by us under Division 268 of Schedule 1 to the TAA in respect to the preceding liabilities, or – a director penalty liability under Division 269 of Schedule 1 to the TAA in relation to either of the preceding liabilities. For GST liabilities (including LCT and WET liabilities) they include: – a company's liability to pay amounts required under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) (including a judgment for such a liability) – a company's liability to pay estimates made by us under Division 268 of Schedule 1 to the TAA in respect of the preceding liabilities – a director penalty liability under Division 269 of Schedule 1 to the TAA in relation to the preceding liabilities. • Remittance provision – refers to various legislative provisions requiring an entity to remit: – prior to 1 July 2000 o deductions made from reportable payments and prescribed payments o tax instalment deductions made from payments of salary and wages o deductions made from natural resource payments or unattributed payments, and o dividend, interest and royalty withholding taxes – on or after 1 July 2000 o amounts withheld under Divisions 12, 13 and 14 in accordance with Subdivision 16-B of Part 2-5 (PAYG withholding) of Schedule 1 to the TAA o amounts estimated under Division 268 of Schedule 1 to the TAA [4] in respect of unpaid PAYG withholding amounts. • Supervised account – is an account maintained by a bankrupt but supervised by a trustee in bankruptcy under Subdivision HA of Division 4B, Part VI of the Bankruptcy Act 1966, into which a bankrupt's income is directed and from which the bankrupt may only make withdrawals with the explicit permission of the trustee. The purpose of these accounts is to help the trustee collect income contributions for the benefit of creditors. A trustee in bankruptcy will only require the use of a supervised account where the bankrupt has previously failed to make income contributions as required. • Tax debt – is defined in section 8AAZA of the TAA to mean a 'primary tax debt' or a 'secondary tax debt'. A primary tax debt is defined in section 8AAZA of the TAA to mean: … any amount due to the Commonwealth directly under a taxation law (other than, except in Division 4 [of Part IIB of the TAA], the Products Grants and Benefits Administration Act 2000), including any such amount that is not yet payable. A secondary tax debt is defined in section 8AAZA of the TAA to mean '… an amount that is not a primary tax debt, but is due to the Commonwealth in connection with a primary tax debt.' An example of a secondary tax debt would be costs awarded to the Commonwealth in a court proceeding for recovery of a primary tax debt. The term 'tax debt' applies to Part IIB of the TAA – Running Balance Accounts (RBA) (Division 2), Treatment of payments, credits and RBA surpluses (Division 3) and Miscellaneous provisions about tax debts (Division 4). • Tax debtor – is an entity who has a tax debt, tax liability or tax-related liability (including a liability which is not yet due and payable). The term also includes an entity with a judgment debt (plus costs awarded) for a tax-related liability and an entity who has amounts payable to us because they have been convicted of a tax offence. • Tax liability – is defined in subsection 2(1) of the TAA to mean 'a liability to the Commonwealth arising under, or by virtue of, a taxation law'. For example, this term applies to Part IVA of the TAA – the departure prohibition order (DPO) provisions. • Tax-related liability – is defined in subsection 255-1(1) of Schedule 1 to the TAA to mean 'a pecuniary liability to the Commonwealth arising directly under a taxation law (including a liability the amount of which is not yet due and payable).' [5] For example, this term applies to Part 4-15 of Schedule 1 to the TAA – Collection and recovery of tax-related liabilities and other amounts. • Taxation law – is defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) to mean: (a) an Act of which the Commissioner has the general administration (including a part of an Act to the extent to which the Commissioner has the general administration of the Act); or (b) legislative instruments under such an Act (including such a part of an Act); or (c) the Tax Agent Services Act 2009 or regulations made under that Act. • This definition also applies to the TAA. • Underlying liability – in relation to an estimate, means the liability to which the estimate relates (that is, the unpaid amount of the PAYG withholding, SGC liability or GST liabilities (including WET and LCT liabilities)). • Void transaction – is a transaction in respect of which the court has made an order under section 588FF of the Corporations Act 2001. • Wholly discharged – is defined in the TAA to include a reference to arrangements satisfactory to us having been made for those tax liabilities to be wholly discharged. • Writ or warrant of execution, writ of fieri facias, writ of land, warrant of sale, writ or warrant of seizure and sale – allows a court official, usually known as a sheriff or bailiff, to attend the address given on the writ and attach or levy (that is, secure) any assets found there belonging to the debtor. If the debtor does not pay the amount due to the judgment creditor within a specified time, the sheriff or bailiff returns, collects the goods and puts them to auction. Certain goods cannot be auctioned and the laws in relation to this vary from State to State. – the director's spouse – the parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendant or adopted child of the director, or of the director's spouse, or – the spouse of a person referred to in the dot point immediately above. [2] – a company's liabilities to pay amounts required under Part 2-5 of Schedule 1 to the TAA (including a judgment for such a liability) – a company's liabilities to pay estimates made by the Commissioner under Division 268 of Schedule 1 to the TAA in respect to the preceding liabilities – director penalty liabilities under Division 269 of Schedule 1 to the TAA in relation to the preceding liabilities. – a company's liability to SGC under the Superannuation Guarantee (Administration) Act 1992 (SGAA) (including a judgment for such a liability) – a company's liability to pay estimates made by us under Division 268 of Schedule 1 to the TAA in respect to the preceding liabilities, or – a director penalty liability under Division 269 of Schedule 1 to the TAA in relation to either of the preceding liabilities. – a company's liability to pay amounts required under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) (including a judgment for such a liability) – a company's liability to pay estimates made by us under Division 268 of Schedule 1 to the TAA in respect of the preceding liabilities – a director penalty liability under Division 269 of Schedule 1 to the TAA in relation to the preceding liabilities. – prior to 1 July 2000 o deductions made from reportable payments and prescribed payments o tax instalment deductions made from payments of salary and wages o deductions made from natural resource payments or unattributed payments, and o dividend, interest and royalty withholding taxes – on or after 1 July 2000 o amounts withheld under Divisions 12, 13 and 14 in accordance with Subdivision 16-B of Part 2-5 (PAYG withholding) of Schedule 1 to the TAA o amounts estimated under Division 268 of Schedule 1 to the TAA [4] in respect of unpaid PAYG withholding amounts. o deductions made from reportable payments and prescribed payments o tax instalment deductions made from payments of salary and wages o deductions made from natural resource payments or unattributed payments, and o dividend, interest and royalty withholding taxes o amounts withheld under Divisions 12, 13 and 14 in accordance with Subdivision 16-B of Part 2-5 (PAYG withholding) of Schedule 1 to the TAA o amounts estimated under Division 268 of Schedule 1 to the TAA [4] in respect of unpaid PAYG withholding amounts. | Statement: 10. This Practice Statement sets out the guidelines for tax officers involved in the use of enforcement measures for the collection and recovery of tax-related liabilities and other amounts. 11. You must follow the principles and guidelines outlined in this Practice Statement when exercising the Commissioner's powers covered by this Practice Statement, including those under Part IVA of the TAA, Subdivision 260-A and Divisions 268 and 269 of Schedule 1 to the TAA. 12. It is noted, however, that it is not possible to set out all the circumstances in which the powers may or may not be exercised. Each case has to be considered on its merits and on the basis of all the relevant facts. You must ensure that the pre-conditions prescribed for the exercise of the power are met and must take care not to consider irrelevant factors and exercise your own judgment in arriving at an appropriate decision. The decision should be made in good faith and without bias. 13. Your decisions and actions must be consistent with the commitments in ATO Charter . You are also expected to follow Chief Executive Instruction Respecting taxpayers' rights of review (link available internally only). This includes giving taxpayers a clear explanation of decisions affecting them and clear information about review rights when they need it. | Part one – overview of collection process and enforcement measures: 14. Where tax-related liabilities are not paid by the due date, we have the responsibility of collecting the outstanding amount, both the principal tax liability and any additional charges for late payment or the GIC automatically imposed by legislation. 15. The collection and recovery of unpaid tax-related liabilities and other related amounts is covered by a common set of rules in Part 4-15 of Schedule 1 to the TAA. The law provides that where tax or other amounts are due and payable, they become a debt due to the Commonwealth and we have the authority to recover those debts as civil debts in any court of competent jurisdiction. 16. There are a number of options available to us to recover outstanding tax-related liabilities. We, as a creditor, are entitled to make use of the legislation that provides sanctions and will use the sanction that is considered the most appropriate for dealing with the tax debtor. The final legislative sanction for tax debtors who do not pay or enter into an arrangement to pay by instalments is the sequestration of an individual's estate in bankruptcy or the liquidation of a company. These actions will normally be used only after other collection and enforcement measures have been taken and proven unsuccessful (that is, the tax debtor can be, by their actions or inaction, reasonably be categorised as high risk). 17. Enforcement measures of increasing consequence are a normal commercial response to non-payment of a debt and often result in significant costs for us (which will be recouped from the tax debtor or their estate, where possible). | Initial collection activity: 18. In most cases, a notice calling for payment of the outstanding amount will issue to tax debtors before the debts are referred for collection activity. Generally, these notices are issued automatically but, in some instances, they are manually produced. 19. However, there is no legislative requirement for us to issue a final demand or similar notice prior to the start of collection activity. For example, for some high-risk debts it would be inappropriate to issue a notice before initiating other more appropriate debt collection options. Thus, tax debtors cannot rely on the non-receipt of a demand notice as an excuse to avoid the implications of not paying their debts by the due date. 20. RBA statements are statements of account activity issued to taxpayers. However, a taxpayer will usually only receive a statement if there is an outstanding balance on their account. An RBA statement will include GIC if there is, or has been, an amount outstanding. 21. Subsection 8AAZL(2) of the TAA requires us to offset all credits, payments or RBA surpluses against any tax debts. However, we have a discretion not to offset in limited circumstances. This includes situations where the tax debt is the subject of an arrangement to pay by instalments and the tax debtor is complying with the terms of that arrangement. (See Law Administration Practice Statement PS LA 2011/20 Payment and credit allocation.) | Enforcement measures: 22. Where a tax-related liability remains unpaid, having regard to the tax debtor's circumstances, we may take any one or more of the following actions. • We may make phone or further written contact with the tax debtor. We expect tax debtors to accept responsibility for either paying on time or making contact prior to the due date and entering into a suitable arrangement for payment of the debt by instalments. Tax debtors cannot expect to be contacted prior to the institution of other recovery alternatives. • We may accept payment of a tax-related liability by instalments. – Taxpayers have a responsibility to manage their cash flow to ensure they meet all their tax debts when those debts fall due for payment. Some taxpayers may experience cash flow difficulties that will prevent them from paying their debt on time. In those instances, we will consider requests to accept payment of the debt by instalments over a period of time. Accepting payment by instalments provides us with an alternative to more formal recovery procedures. – The onus is on tax debtors to demonstrate that they cannot pay the full amount by the due date and to provide us with all necessary information to determine whether they can pay by instalments. (See Law Administration Practice Statement PS LA 2011/14 General debt collection powers and principles.) • We may accept security. Where a long-term payment arrangement is offered, the risk to revenue will be assessed. We may accept a security to protect the revenue (for example, a registered first mortgage over property). On those occasions, the tax debtor would be expected to cover the legal and associated costs of the mortgage. (See PS LA 2011/14.) • We may take legal action, up to and including, the liquidation of companies or the bankruptcy of an individual. – Legal action covers 3 basic steps: o summons (writ or claim) o judgment, and o post-judgment execution. – Generally, we will not consent to set aside a judgment that has been properly entered, unless: o the judgment debt, together with any interest and costs, has been paid in full, and o the taxpayer files an application to set aside the judgment, supported by an affidavit which accurately discloses the relevant facts. – It may be appropriate to initiate legal action, even if the tax debtor is insolvent, to prevent escalation of the debt. – Under the bankruptcy and liquidation laws, the tax debtor's affairs are placed into the hands of a trustee in bankruptcy or a liquidator who will take steps to dispose of the tax debtor's assets to raise funds to meet the proven debts of all creditors. (See PS LA 2011/16 Insolvency – collection, recovery and enforcement issues for entities under external administration). • We may use estimates of PAYG withholding, SGC and GST liabilities. Under Division 268 of Schedule 1 to the TAA, we may make an estimate of unpaid amounts of a PAYG withholding, an SGC liability or net amounts in respect of GST, WET and LCT and recover the amount of the estimate. (See Appendix A to this Practice Statement – Estimates of PAYG withholding, SGC and GST liabilities.) • We may take action to recover against directors of companies personally. Under Division 269 of Schedule 1 to the TAA, the directors of a company have a duty to ensure that the company either meets its obligations to pay any PAYG withholding, SGC and GST liabilities or goes promptly into voluntary administration or liquidation. The directors' duties are enforced by penalties. (See Appendix B to this Practice Statement – Personal liabilities of company directors.) • We may issue a 'garnishee' notice. A notice may be issued to an employer, a contractor, a financial institution or someone holding money for or on behalf of the tax debtor, requiring payment of the money to us of so much of the money as is required to satisfy the tax-related liability. (See Appendix C to this Practice Statement – Statutory garnishees.) • We may issue a DPO, preventing a tax debtor from leaving the country. While this action does not necessarily guarantee payment, the debtor is prevented from leaving the country. This enables us to pursue other recovery alternatives against the tax debtor or the tax debtor's assets to secure payment or receive acceptable security. (See Appendix D to this Practice Statement – Departure prohibition orders.) • We may seek writs or warrants of execution or warrants of seizure and sale. We, as a judgment creditor, may have a warrant issued by a court for a sheriff or bailiff to seize property of the judgment debtor and, if the judgment debt plus costs are not paid, to sell the property seized and pay the amounts of the judgment debt and costs to the creditor. (See Appendix E to this Practice Statement – Writs or Warrants of execution.) • We may seek oral examinations or enforcement hearings. – We, as a judgment creditor, may make an application to the court for an order that the judgment debtor be orally examined. – Failure to attend or refusal to answer questions may result in the court directing the arrest or apprehension of the debtor. Accordingly, because of these serious implications, the approval for arrest or apprehension of the debtor for failing to attend the hearing should come from a Senior Executive Service (SES) officer. • We may seek a freezing order to preventing debtors dealing with their assets. This option will be pursued where we see it as appropriate to secure assets that may be dissipated at the expense of the revenue. Injunctions will be sought through the courts in appropriate cases. (See Appendix F to this Practice Statement – Freezing orders (also known as Mareva injunctions or asset preservation orders.) • We may issue a notice to provide information under section 353-10 of Schedule 1 to the TAA. The Commissioner's powers under section 353-10 of Schedule 1 to the TAA are wider and administratively more efficient than the oral examination or enforcement hearing processes. Accordingly, we may use these powers in preference to invoking court processes. • We may seek equitable remedies or declaratory and restitution orders. – We, as a judgment creditor, may apply to the court for orders in aid of execution. For example, where the tax debtor has an equitable interest in a third party's property, we may seek a declaratory order that a constructive trust exists in favour of the tax debtor. (See Sarkis v Deputy Commissioner of Taxation [2005] VSCA 67.) – Alternatively, where a tax debtor has alienated property to defeat creditors, we may apply to the court to have the transfer set aside as a voidable transaction under the Property Law Act (of the particular State). • We may make phone or further written contact with the tax debtor. We expect tax debtors to accept responsibility for either paying on time or making contact prior to the due date and entering into a suitable arrangement for payment of the debt by instalments. Tax debtors cannot expect to be contacted prior to the institution of other recovery alternatives. • We may accept payment of a tax-related liability by instalments. – Taxpayers have a responsibility to manage their cash flow to ensure they meet all their tax debts when those debts fall due for payment. Some taxpayers may experience cash flow difficulties that will prevent them from paying their debt on time. In those instances, we will consider requests to accept payment of the debt by instalments over a period of time. Accepting payment by instalments provides us with an alternative to more formal recovery procedures. – The onus is on tax debtors to demonstrate that they cannot pay the full amount by the due date and to provide us with all necessary information to determine whether they can pay by instalments. (See Law Administration Practice Statement PS LA 2011/14 General debt collection powers and principles.) • We may accept security. Where a long-term payment arrangement is offered, the risk to revenue will be assessed. We may accept a security to protect the revenue (for example, a registered first mortgage over property). On those occasions, the tax debtor would be expected to cover the legal and associated costs of the mortgage. (See PS LA 2011/14.) • We may take legal action, up to and including, the liquidation of companies or the bankruptcy of an individual. – Legal action covers 3 basic steps: o summons (writ or claim) o judgment, and o post-judgment execution. – Generally, we will not consent to set aside a judgment that has been properly entered, unless: o the judgment debt, together with any interest and costs, has been paid in full, and o the taxpayer files an application to set aside the judgment, supported by an affidavit which accurately discloses the relevant facts. – It may be appropriate to initiate legal action, even if the tax debtor is insolvent, to prevent escalation of the debt. – Under the bankruptcy and liquidation laws, the tax debtor's affairs are placed into the hands of a trustee in bankruptcy or a liquidator who will take steps to dispose of the tax debtor's assets to raise funds to meet the proven debts of all creditors. (See PS LA 2011/16 Insolvency – collection, recovery and enforcement issues for entities under external administration). • We may use estimates of PAYG withholding, SGC and GST liabilities. Under Division 268 of Schedule 1 to the TAA, we may make an estimate of unpaid amounts of a PAYG withholding, an SGC liability or net amounts in respect of GST, WET and LCT and recover the amount of the estimate. (See Appendix A to this Practice Statement – Estimates of PAYG withholding, SGC and GST liabilities.) • We may take action to recover against directors of companies personally. Under Division 269 of Schedule 1 to the TAA, the directors of a company have a duty to ensure that the company either meets its obligations to pay any PAYG withholding, SGC and GST liabilities or goes promptly into voluntary administration or liquidation. The directors' duties are enforced by penalties. (See Appendix B to this Practice Statement – Personal liabilities of company directors.) • We may issue a 'garnishee' notice. A notice may be issued to an employer, a contractor, a financial institution or someone holding money for or on behalf of the tax debtor, requiring payment of the money to us of so much of the money as is required to satisfy the tax-related liability. (See Appendix C to this Practice Statement – Statutory garnishees.) • We may issue a DPO, preventing a tax debtor from leaving the country. While this action does not necessarily guarantee payment, the debtor is prevented from leaving the country. This enables us to pursue other recovery alternatives against the tax debtor or the tax debtor's assets to secure payment or receive acceptable security. (See Appendix D to this Practice Statement – Departure prohibition orders.) • We may seek writs or warrants of execution or warrants of seizure and sale. We, as a judgment creditor, may have a warrant issued by a court for a sheriff or bailiff to seize property of the judgment debtor and, if the judgment debt plus costs are not paid, to sell the property seized and pay the amounts of the judgment debt and costs to the creditor. (See Appendix E to this Practice Statement – Writs or Warrants of execution.) • We may seek oral examinations or enforcement hearings. – We, as a judgment creditor, may make an application to the court for an order that the judgment debtor be orally examined. – Failure to attend or refusal to answer questions may result in the court directing the arrest or apprehension of the debtor. Accordingly, because of these serious implications, the approval for arrest or apprehension of the debtor for failing to attend the hearing should come from a Senior Executive Service (SES) officer. • We may seek a freezing order to preventing debtors dealing with their assets. This option will be pursued where we see it as appropriate to secure assets that may be dissipated at the expense of the revenue. Injunctions will be sought through the courts in appropriate cases. (See Appendix F to this Practice Statement – Freezing orders (also known as Mareva injunctions or asset preservation orders.) • We may issue a notice to provide information under section 353-10 of Schedule 1 to the TAA. The Commissioner's powers under section 353-10 of Schedule 1 to the TAA are wider and administratively more efficient than the oral examination or enforcement hearing processes. Accordingly, we may use these powers in preference to invoking court processes. • We may seek equitable remedies or declaratory and restitution orders. – We, as a judgment creditor, may apply to the court for orders in aid of execution. For example, where the tax debtor has an equitable interest in a third party's property, we may seek a declaratory order that a constructive trust exists in favour of the tax debtor. (See Sarkis v Deputy Commissioner of Taxation [2005] VSCA 67.) – Alternatively, where a tax debtor has alienated property to defeat creditors, we may apply to the court to have the transfer set aside as a voidable transaction under the Property Law Act (of the particular State). – Taxpayers have a responsibility to manage their cash flow to ensure they meet all their tax debts when those debts fall due for payment. Some taxpayers may experience cash flow difficulties that will prevent them from paying their debt on time. In those instances, we will consider requests to accept payment of the debt by instalments over a period of time. Accepting payment by instalments provides us with an alternative to more formal recovery procedures. – The onus is on tax debtors to demonstrate that they cannot pay the full amount by the due date and to provide us with all necessary information to determine whether they can pay by instalments. (See Law Administration Practice Statement PS LA 2011/14 General debt collection powers and principles.) – Legal action covers 3 basic steps: o summons (writ or claim) o judgment, and o post-judgment execution. – Generally, we will not consent to set aside a judgment that has been properly entered, unless: o the judgment debt, together with any interest and costs, has been paid in full, and o the taxpayer files an application to set aside the judgment, supported by an affidavit which accurately discloses the relevant facts. – It may be appropriate to initiate legal action, even if the tax debtor is insolvent, to prevent escalation of the debt. – Under the bankruptcy and liquidation laws, the tax debtor's affairs are placed into the hands of a trustee in bankruptcy or a liquidator who will take steps to dispose of the tax debtor's assets to raise funds to meet the proven debts of all creditors. (See PS LA 2011/16 Insolvency – collection, recovery and enforcement issues for entities under external administration). o summons (writ or claim) o judgment, and o post-judgment execution. o the judgment debt, together with any interest and costs, has been paid in full, and o the taxpayer files an application to set aside the judgment, supported by an affidavit which accurately discloses the relevant facts. – We, as a judgment creditor, may make an application to the court for an order that the judgment debtor be orally examined. – Failure to attend or refusal to answer questions may result in the court directing the arrest or apprehension of the debtor. Accordingly, because of these serious implications, the approval for arrest or apprehension of the debtor for failing to attend the hearing should come from a Senior Executive Service (SES) officer. – We, as a judgment creditor, may apply to the court for orders in aid of execution. For example, where the tax debtor has an equitable interest in a third party's property, we may seek a declaratory order that a constructive trust exists in favour of the tax debtor. (See Sarkis v Deputy Commissioner of Taxation [2005] VSCA 67.) – Alternatively, where a tax debtor has alienated property to defeat creditors, we may apply to the court to have the transfer set aside as a voidable transaction under the Property Law Act (of the particular State). | Other action you will take: 23. When dealing with tax-related liabilities, you will take action both to recover those debts and to ensure the tax debtor is complying with other requirements under the tax laws (for example, following up on non-lodgment of returns). 24. In the course of debt collection activities, information relevant to payment and other taxation requirements may be sought. Further, you will identify cases suitable for prosecution action that involve breaches of legislation. 25. Where the tax liability arose as a result of fraudulent behaviour, you will refer cases to the Commonwealth Director of Public Prosecution for Proceeds of Crime action or Tax Crime prosecution. (See Law Administration Practice Statement PS LA 2011/10 Waiver of tax-related liabilities in proceeds of crime matters.) | Part two – guidelines for use of specific enforcement measures: 26. As outlined in paragraphs 14 to 25 of this Practice Statement, there are a wide range of options open to us to pursue the recovery of tax-related liabilities. Some of these options require you to give due regard to a range of relevant considerations in implementing them. For that reason, this Practice Statement provides guidelines for the following measures: • estimates of PAYG withholding, SGC and GST liabilities (Appendix A) • company directors' personal liabilities (Appendix B) • statutory garnishees (Appendix C) • DPOs (Appendix D) • writs or warrants of execution (Appendix E) • freezing orders (also known as Mareva injunctions or asset preservation orders) (Appendix F). • estimates of PAYG withholding, SGC and GST liabilities (Appendix A) • company directors' personal liabilities (Appendix B) • statutory garnishees (Appendix C) • DPOs (Appendix D) • writs or warrants of execution (Appendix E) • freezing orders (also known as Mareva injunctions or asset preservation orders) (Appendix F). | Purpose: 27. This Appendix provides guidelines for the use of our power to estimate PAYG withholding, SGC and GST liabilities (including WET and LCT liabilities) and then to recover the amount of those estimates. 28. It is noted that the estimate provisions relating to SGC liabilities apply to SGC for a quarter, if the day by which a superannuation guarantee statement for the quarter must be lodged occurs on or after 30 June 2012. 29. The estimate provisions relating to GST, WET and LCT liabilities apply to a tax period where the day by which the GST return for the tax period must be lodged occurs on or after 1 April 2020. | Background: 30. Section 268-10 of Schedule 1 to the TAA allows us to take prompt and effective action to recover unremitted PAYG withholding, SGC and GST amounts (including WET and LCT) by estimating the unpaid and overdue amount of the liability. 31. The ability to estimate PAYG withholding, SGC and GST liabilities provides a method to deal with cases quickly, particularly where tax debtors fail to notify amounts and there is a subsequent lack of cooperation in responding to requests for information, or where there are other problems in establishing debts. However, it is still desirable to establish correct amounts outstanding (and, in the case of SGC and GST, make an assessment) whenever that can be done expeditiously. | Statement: 32. We will use the power to estimate PAYG withholding and SGC liabilities and take action to recover the estimated amounts whenever it is considered that the procedure will assist in the efficient collection of unpaid debts. The making of an estimate is not a measure of last resort; it is a measure which is used routinely whenever it is perceived that it may enhance the speed or efficiency of collection activity. 33. We may make an estimate and issue a notice in circumstances where there is reason to suspect that there is a PAYG withholding or SGC liability where: • there is difficulty in establishing that liability expeditiously • there is reason to suspect that the tax debtor has reported less than the total amount of PAYG withholdings in a period or the liability to SGC is greater than that disclosed in a superannuation guarantee statement • there is a history of failing to notify liabilities as required by the law or a history of late payment and we have reason to believe that a liability has been incurred • in the case of SGC liabilities, there is a history of default assessments being made • attempts to establish debts are met with a lack of cooperation – for example, phone calls are not returned, or there is a refusal to provide details of amounts withheld or superannuation contributions paid when requested, or there are continuing delays or excuses for not making details available • the tax debtor refuses to give access to, or cooperate with, us • the tax debtor continually breaks appointments or refuses to meet with us • the tax debtor claims that no amounts have been withheld or that there is no SGC liability, but there is evidence to suggest that amounts have in fact been withheld or there has been a failure to pay superannuation contributions • there is a need to issue a statutory demand, writ or summons as quickly as possible to recover the whole of a debt, though only a part of the debt has been established • there is a need to 'prove' for a total debt in an insolvency administration, though only part of the debt has been established, or • there is a desire, for the sake of completeness, to incorporate a total liability in a penalty notice to directors. • there is difficulty in establishing that liability expeditiously • there is reason to suspect that the tax debtor has reported less than the total amount of PAYG withholdings in a period or the liability to SGC is greater than that disclosed in a superannuation guarantee statement • there is a history of failing to notify liabilities as required by the law or a history of late payment and we have reason to believe that a liability has been incurred • in the case of SGC liabilities, there is a history of default assessments being made • attempts to establish debts are met with a lack of cooperation – for example, phone calls are not returned, or there is a refusal to provide details of amounts withheld or superannuation contributions paid when requested, or there are continuing delays or excuses for not making details available • the tax debtor refuses to give access to, or cooperate with, us • the tax debtor continually breaks appointments or refuses to meet with us • the tax debtor claims that no amounts have been withheld or that there is no SGC liability, but there is evidence to suggest that amounts have in fact been withheld or there has been a failure to pay superannuation contributions • there is a need to issue a statutory demand, writ or summons as quickly as possible to recover the whole of a debt, though only a part of the debt has been established • there is a need to 'prove' for a total debt in an insolvency administration, though only part of the debt has been established, or • there is a desire, for the sake of completeness, to incorporate a total liability in a penalty notice to directors. 34. We may make an estimate and issue a notice in circumstances where there is reason to suspect that there is a GST liability. However, before issuing the GST estimate, we must be satisfied there are reasonable grounds to believe that the taxpayer or their related entities are involved in phoenix behaviour. Refer to Practical Compliance Guideline PCG 2020/2 Expansion of estimates regime to GST, LCT and WET for detailed guidance on issuing GST estimates. 35. The amount of the estimate must be what we think is reasonable. We will have regard to anything thought to be relevant for the purposes of making an estimate and will be influenced by the pattern of liabilities in the past and the particular circumstances in each case. 36. If a person responds to the receipt of an estimate by providing a statutory declaration within the following 7 days, the estimate will generally be reduced or revoked to reflect the details provided in that statutory declaration. However, in assessing whether a statutory declaration has the effect of revoking or reducing an estimate under section 268-40 of Schedule 1 to the TAA, we will evaluate the substance of the claims made. [6] 37. Where the information contained in the statutory declaration is false or misleading, a consequence will be that section 268-40 of Schedule 1 to the TAA will not operate to reduce or revoke the estimate. In addition, prosecution action against the person who made the declaration will be considered. We may also decide of their own volition to reduce or revoke an estimate. This could be based on a statutory declaration received out of time or any other credible information that comes to our attention. 38. We only seek to recover an amount equivalent to the underlying liability (and, in the case of an estimate for PAYG withholding and GST, any GIC that may have accrued on the estimated liability). Accordingly, in the interests of ascertaining the correct amount of the liability, we will consider a request to extend the time for lodgment of the statutory declaration where the tax debtor can satisfy us that it cannot be completed or lodged within the required time. 39. Payment of an estimated amount does not relieve a tax debtor of the obligation to pay any amount of the underlying liability in excess of the estimate. Where a tax debtor pays an estimated liability without disclosing the amount of the underlying liability, we will, by audit activity or other means, establish the tax debtor's actual liability and, where necessary, pursue recovery of any amounts still owing. 40. We will not continue to send estimate notices to the same tax debtor on an ongoing basis without follow-up action. In addition to recovery action which may lead to bankruptcy or liquidation, we will also consider prosecution action in respect of the tax debtor's failure to comply with their obligations under the law. | Purpose: 41. This Appendix outlines our approach towards: • recovery of the personal liabilities that company directors may incur in relation to their company's liabilities for – PAYG withholding (or another remittance provision) – SGC, or – GST (including WET and LCT) • disclosures to other parties when dealing with parallel liabilities. • recovery of the personal liabilities that company directors may incur in relation to their company's liabilities for – PAYG withholding (or another remittance provision) – SGC, or – GST (including WET and LCT) • disclosures to other parties when dealing with parallel liabilities. – PAYG withholding (or another remittance provision) – SGC, or – GST (including WET and LCT) | Background: 42. Company directors can incur a personal liability for a tax-related liability owed by their company in a number of different ways. Division 269 of Schedule 1 to the TAA provides that directors can incur penalties equal to their company's unremitted PAYG withholding liabilities, SGC, GST or unpaid estimates of those liabilities. 43. Prior to 1 July 2010, we had specific powers to enter into payment agreements with companies under section 222ALA in Division 8 of the Income Tax Assessment Act 1936 (ITAA 1936). That section (along with the rest of Division 8) has been repealed. From 1 July 2010, any payment arrangements must be made under section 255-15 of Schedule 1 to the TAA. However, section 222ALA payment agreements made before 1 July 2010 will continue in effect and directors can still be held personally liable for any unpaid instalments of a defaulted former payment agreement which was made under section 222ALA of the ITAA 1936. 44. Directors are also under a duty (under section 588G of the Corporations Act 2001) to prevent the company incurring debts while it is insolvent. Where they fail in that duty, directors can be ordered to compensate creditors for the debts that were accrued when the company was trading while insolvent and which were not able to be recovered through the liquidation. 45. Further, section 588FGA of the Corporations Act 2001 provides that if a company's payment in respect of a remittance provision liability or an estimate of SGC is held to be a void transaction, directors are liable to indemnify the Commissioner for any loss or damage resulting from an order requiring the Commissioner to return that payment to the liquidated company. 46. Where the company commits a taxation offence (such as failing to comply with its obligations to furnish a return or other information), the directors may also be liable to prosecution under section 8Y of the TAA. Where the offence has resulted in a loss to the Commonwealth, a person convicted of an offence could be ordered to make reparation under section 21B of the Crimes Act 1914. | Scope of the director penalty regime: 47. The scope of our power to issue director penalty notices has changed over time. This means the periods we can issue the notices for depends on the type of liability: • For SGC liabilities (and estimates of such liabilities), director penalties apply for a quarter if the day by which the company must lodge a superannuation guarantee statement for the quarter occurs on or after 30 June 2012. [7] • For SGC liabilities due on or after 1 July 2018, where the superannuation guarantee statement was not lodged by the due date, penalty remission is only available if the debt is paid in full. [8] Previously, where the company entered voluntary administration or liquidation within 21 days of a director penalty notice (DPN) being issued, remission was available if the company had lodged the superannuation guarantee statement within 3 months of the due date. • For estimates issued on or after 1 July 2018 (regardless of when the underlying liability arose), the director's obligations arise at the same time as their obligations in relation to the underlying unpaid liability, not the date the estimate notice was issued. [9] • For GST liabilities (and estimates of such liabilities), director penalties apply for tax periods or quarters starting on or after 1 April 2020. [10] • For SGC liabilities (and estimates of such liabilities), director penalties apply for a quarter if the day by which the company must lodge a superannuation guarantee statement for the quarter occurs on or after 30 June 2012. [7] • For SGC liabilities due on or after 1 July 2018, where the superannuation guarantee statement was not lodged by the due date, penalty remission is only available if the debt is paid in full. [8] Previously, where the company entered voluntary administration or liquidation within 21 days of a director penalty notice (DPN) being issued, remission was available if the company had lodged the superannuation guarantee statement within 3 months of the due date. • For estimates issued on or after 1 July 2018 (regardless of when the underlying liability arose), the director's obligations arise at the same time as their obligations in relation to the underlying unpaid liability, not the date the estimate notice was issued. [9] • For GST liabilities (and estimates of such liabilities), director penalties apply for tax periods or quarters starting on or after 1 April 2020. [10] Director penalty notices 48. Where a director incurs a director penalty (pursuant to section 269-20 of Schedule 1 to the TAA), we will endeavour to issue a DPN under section 269-25 of Schedule 1 to the TAA in respect of that penalty as soon as practicable after the penalty is incurred. This is consistent with the primary object of the director penalty provisions, which is to induce directors to either cause the company to pay the outstanding liabilities or to have the company quickly brought under some form of external administration so as to protect the interests of all creditors. We also recognise that the prompt dispatch of DPNs can encourage directors to address a company's financial difficulties before they become insurmountable. 49. Under subsection 269-25(1) of Schedule 1 to the TAA, we must not commence proceedings to recover a penalty until 21 days after the director is given a DPN which must: • set out what we think is the unpaid amount of the company's liability • state that the liability to pay the penalty is because of an obligation arising under Division 269 of Schedule 1 to the TAA, and • explain the main circumstances in which the penalty may be remitted. Under subsection 269-25(4) of Schedule 1 to the TAA, a DPN is taken to be given at the time we leave or post it. • set out what we think is the unpaid amount of the company's liability • state that the liability to pay the penalty is because of an obligation arising under Division 269 of Schedule 1 to the TAA, and • explain the main circumstances in which the penalty may be remitted. Under subsection 269-25(4) of Schedule 1 to the TAA, a DPN is taken to be given at the time we leave or post it. 50. We may also give a copy of a DPN to a director's registered tax agent (for the purposes of any tax law) by leaving the copy at or posting the copy to the address of the registered tax agent. It is considered that a tax agent would have the professional knowledge to advise the director of the importance of the notice and the actions the director can take. 51. However, whether we choose to avail ourselves of this right to serve a copy of a DPN on a tax agent does not affect whether we have given a director the actual notice or how we may give a director the actual notice. 52. Factors to be considered when deciding whether to give a copy of a notice to a tax agent include: • whether a DPN has previously issued to the director and, if so, the director's response • the response, if any, of the tax agent to a copy of a DPN for the director previously given • any request by the director or a tax agent to give (or not give) a copy of a DPN to a tax agent. • whether a DPN has previously issued to the director and, if so, the director's response • the response, if any, of the tax agent to a copy of a DPN for the director previously given • any request by the director or a tax agent to give (or not give) a copy of a DPN to a tax agent. Liability to a director penalty 53. The directors of a company have an obligation to cause the company to comply with its obligation to pay PAYG withholding, SGC and GST liabilities. [11] Director penalties apply if directors do not meet their obligations by the due date. [12] 54. For notices of estimate, the director's obligation to cause the company to pay the estimate is taken to start on the same day that the company is liable to pay the underlying liability (not the day the estimate notice is issued). [13] 55. New directors can avoid becoming liable for director penalties that were due before their appointment if, within 30 days of their appointment, they ensure the company [14] : • pays their debts in full, or • appoints an administrator or a small business restructuring (SBR) practitioner, or begins to be wound up. Otherwise, the penalty is due and payable at the end of that 30th day. [15] • pays their debts in full, or • appoints an administrator or a small business restructuring (SBR) practitioner, or begins to be wound up. Otherwise, the penalty is due and payable at the end of that 30th day. [15] 56. If a director resigns, they remain liable for director penalties for liabilities of the company that [16] : • were due before the date they resigned • fell due after they resigned, if for – PAYG withholding, the first withholding event in the reporting period occurred before their resignation – GST liabilities, the last day of the relevant reporting period occurred before their resignation – SGC, the last day of the reporting period occurred before their resignation. • were due before the date they resigned • fell due after they resigned, if for – PAYG withholding, the first withholding event in the reporting period occurred before their resignation – GST liabilities, the last day of the relevant reporting period occurred before their resignation – SGC, the last day of the reporting period occurred before their resignation. – PAYG withholding, the first withholding event in the reporting period occurred before their resignation – GST liabilities, the last day of the relevant reporting period occurred before their resignation – SGC, the last day of the reporting period occurred before their resignation. Remission 57. Director penalties will be remitted if the company pays the outstanding tax debt at any time. [17] 58. Director penalties may be remitted by a director causing the company to enter voluntary administration, appoint an SBR practitioner or enter liquidation before or within 21 days of a DPN being issued. This option is not available for 'locked down' director penalties. 59. Where the company fails to report its PAYG withholding or GST liabilities within 3 months of the due date for lodgment or fails to lodge its superannuation guarantee statements by the due date, the DPN regime imposes a 'lock-down' on the penalty. That is, the director penalties cannot be remitted even if an administrator, SBR practitioner or a liquidator is appointed before or within the 21-day period. [18] 60. Table 1 of this Practice Statement summarises the circumstances where penalty remission is available. Table 1: Circumstances where penalty remission is available Debt type Circumstances Outcome if the debt is paid in full Outcome if before or within 21 days of the DPN being issued, the company appoints an administrator, an SBR practitioner or begins to be wound up PAYG withholding the amount is notified before or within 3 months of the payment due date Penalty is remitted Penalty is remitted** PAYG withholding the amount is notified after 3 months of the payment due date Penalty is remitted Penalty is not remitted PAYG withholding estimate the relevant action* commences before or within 3 months of the payment due date Penalty is remitted Penalty is remitted PAYG withholding estimate the relevant action* commences after 3 months of the payment due date Penalty is remitted Penalty is not remitted SGC lodgment is on or before the payment due date (that is, one month and 28 days after the end of the quarter the super contribution relates to) Penalty is remitted Penalty is remitted** SCG lodgment is after the payment due date Penalty is remitted Penalty is not remitted SGC estimate the relevant action* commences on or before the payment due date Penalty is remitted Penalty is remitted SGC estimate the relevant action* commences after the payment due date Penalty is remitted Penalty is not remitted GST assessed net amount lodgment is before or within 3 months of the payment due date Penalty is remitted Penalty is remitted** GST assessed net amount lodgment is after 3 months of the payment due date Penalty is remitted Penalty is not remitted Estimate of GST net amount the relevant action* commences before or within 3 months of the payment due date Penalty is remitted Penalty is remitted Estimate of GST net amount the relevant action* commences after 3 months of the payment due date Penalty is remitted Penalty is not remitted GST instalment there is any outstanding GST instalment amount Penalty is remitted Penalty is remitted *For estimates, the relevant action to be commenced by the period specified under this column is the appointment of an administrator, or an SBR practitioner, or winding up. **If the amount declared in the lodgment is less than the liability for the period, remission is limited to the amount reported, the difference remains a penalty to which the director is liable. *For estimates, the relevant action to be commenced by the period specified under this column is the appointment of an administrator, or an SBR practitioner, or winding up. **If the amount declared in the lodgment is less than the liability for the period, remission is limited to the amount reported, the difference remains a penalty to which the director is liable. 61. If a new director was appointed during or after the 3 months mentioned in Table 1 of this Practice Statement, the reference to the 3 months is treated as being the 3 months after the day they become a director. That is, director penalties in relation to PAYG withholding or GST are not locked down for a new director if they make all required lodgments (including any outstanding lodgments due before their appointment) for PAYG withholding or GST within 3 months of their appointment. This concession for new directors is not available for SGC liabilities where the amounts become payable on or after 1 July 2018. [19] Statutory defences 62. Under subsections 269-35(1) and (2) of Schedule 1 to the TAA, a director is not liable to a penalty: • if, because of illness or some other good reason, it would have been unreasonable to expect the director to take part (and, in fact, they did not take part) in the management of the company at any time when a director of the company and the directors were under an obligation to cause the company to meet its payment obligation, or • if the director took all reasonable steps to ensure the directors caused one of these 3 things to happen (or no such steps were available) – (in relation to a reported liability) the company to comply with its obligation to pay – an administrator or SBR practitioner to be appointed, or – the company to begin to be wound up. • if, because of illness or some other good reason, it would have been unreasonable to expect the director to take part (and, in fact, they did not take part) in the management of the company at any time when a director of the company and the directors were under an obligation to cause the company to meet its payment obligation, or • if the director took all reasonable steps to ensure the directors caused one of these 3 things to happen (or no such steps were available) – (in relation to a reported liability) the company to comply with its obligation to pay – an administrator or SBR practitioner to be appointed, or – the company to begin to be wound up. – (in relation to a reported liability) the company to comply with its obligation to pay – an administrator or SBR practitioner to be appointed, or – the company to begin to be wound up. 63. Where the director penalty relates to an estimate, directors can demonstrate reasonable steps taken (or the absence of any reasonable steps) to discharge their obligations to both the unpaid estimate and the related underlying unpaid liability. The timing of a director's obligations to pay an estimate is the same as the day the obligation arose for the underlying liability, instead of when the notice of estimate was issued. [20] 64. In determining what are reasonable steps that a director could have taken, regard must be had to when and for how long the person was a director and took part in the management of the company, and all other relevant circumstances. [21] 65. Additionally, the enquiry into what is 'reasonable' for a particular director should not be limited to the director's personal knowledge. Rather, consideration must be paid to what a reasonable director in the director's position knew or ought to have known. [22] Defences specific to penalty related to SGC and GST 66. In addition to the defences detailed in this Practice Statement, a person is not liable to a director penalty in respect of SGC or GST to the extent that the penalty resulted from the company treating the SGAA or GST Act as applying to a matter or identical matters in a particular way that was reasonably arguable if the company took reasonable care in connection with applying either Act to the matter or matters. 67. There is no corresponding defence in relation to PAYG withholding obligations, because they only arise if amounts are withheld but not remitted, meaning that it is more likely a company will be conscious of its unremitted PAYG withholding obligations than it will be of its superannuation guarantee or GST obligations. There may, in some cases, be uncertainty about superannuation guarantee liabilities, in respect of whether particular workers are entitled to superannuation. 68. A matter is reasonably arguable [23] : … if it would be concluded in the circumstances, having regard to relevant authorities, that what is argued for is about as likely to be correct as incorrect, or is more likely to be correct than incorrect. This definition provides a suitable standard for the purposes of the defence. For further discussion on the meaning of reasonably arguable, refer to Miscellaneous Taxation Ruling MT 2008/2 Shortfall penalties: administrative penalty for taking a position that is not reasonably arguable. 69. Exercising reasonable care means making a reasonable attempt to comply with the relevant law. The effort required is one commensurate with all the taxpayer's circumstances, including the taxpayer's knowledge, education, experience and skill. For further discussion on the meaning of reasonable care, refer to Miscellaneous Taxation Ruling MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard. 70. Generally, if a company has a reasonably arguable position, it will have also exercised reasonable care. However, there may be unusual cases where a company has failed to exercise reasonable care, but nonetheless has a reasonably arguable position. Provision of information to support a defence 71. For the illness or reasonable steps defences under subsections 269-35(1) and (2) of Schedule 1 to the TAA to be available, subsection 269-35(4A) requires the director to provide information to us within the period of 60 days starting on the day we: • give the director a copy of a notice under section 260-5 of Schedule 1 to the TAA (a statutory garnishee notice) which includes the penalty amount, or • otherwise notify the director in writing that any of the penalty has been recovered. • give the director a copy of a notice under section 260-5 of Schedule 1 to the TAA (a statutory garnishee notice) which includes the penalty amount, or • otherwise notify the director in writing that any of the penalty has been recovered. 72. The penalty will not be payable if the information is provided in the time required and we are satisfied that the director's circumstances meet one of the statutory defences under subsections 269-35(1) and (2) of Schedule 1 to the TAA. 73. A director who is dissatisfied with our decision to reject the defence on the basis that the statutory defence has not been made out may request a statement of reasons relating to that decision under section 13 of the Administrative Decisions (Judicial Review) Act 1977 (ADJR Act). They may also elect, pursuant to section 5 of the ADJR Act, to make an application to the Federal Court or the Federal Circuit and Family Court of Australia to seek a review of the decision. 74. Where a director provides information regarding a defence before the 60-day period starts, we may still consider that information and determine whether the director is liable to a director penalty. However, decisions made on the basis of information provided outside of the 60-day period are not reviewable under the ADJR Act. 75. In court proceedings to recover a penalty or in relation to a right under section 269-45 of Schedule 1 to the TAA (a right of a director to recover from the company or other directors any penalty they have paid), the penalty will not be payable if a statutory defence under subsections 269-35(1) and (2) of Schedule 1 to the TAA is proved. [24] 76. Before commencing (or continuing) recovery proceedings in a court in respect of a DPN, we will evaluate any defence alleged by the director pursuant to section 269-35 of Schedule 1 to the TAA. If, after considering all relevant documentation and evidence provided by the director, it is apparent that the director could satisfy the court that they have a valid defence, we will not initiate (or continue) recovery proceedings in respect of those penalties. 77. The relevant time when considering whether the defence has been proved is not the time when the penalty notice is given; rather, it is the time at which the obligation arose as per section 269-10 of Schedule 1 to the TAA. [25] Pursuing director penalty liabilities 78. Where an indebted company has multiple directors, the director penalties owed by the directors are likely to be parallel liabilities, such that we may commence action against any or all of the directors in an attempt to recover an amount equivalent to the liability of the company. Before determining which director or directors to pursue, we will have regard to a number of factors, including each director's capacity to pay and the relative merits of any defences that may be available to them. | Disclosure to parallel debtors: 79. We may be approached by a former director of a company with a request to provide information about our negotiations with, or actions against, the company or against other directors or former directors who share a parallel liability. It is accepted that it is possible that the disclosure of information to a former director can facilitate collection of unremitted amounts. For example, a former director may be encouraged to pay an outstanding amount of penalty when they see that other parallel debtors have paid amounts toward the penalty and have rights of indemnity (under section 269-45 of Schedule 1 to the TAA) against the former director. Alternatively, a former director may be encouraged to pay an amount of outstanding penalty in the knowledge that other identified persons have not paid and that they can pursue a right of indemnity against those persons. 80. Division 355 of Schedule 1 to the TAA contains confidentiality provisions that apply to protected information (information obtained or generated by us under or for the purposes of a taxation law). The Commissioner or any other tax officer is prohibited from disclosing protected information, except in circumstances set out in exceptions in Division 355. The exception in section 355-50 of Schedule 1 to the TAA allows (but does not compel) disclosure by a tax officer in performing their duties as a tax officer. 81. A disclosure in performing duties as a tax officer includes a disclosure made for the purpose of administering any taxation law, which would include a disclosure made to ensure the collection and recovery of a tax-related liability. Section 355-50 of Schedule 1 to the TAA also expressly provides that protected information about one entity may lawfully be disclosed to another entity if the disclosure is made for the purpose of enabling the entity receiving the information to understand or comply with its obligations under a taxation law. 82. Lawful disclosures for the purposes just described could extend to the disclosure of protected information about a company to a director (including a former director) of that company, including the: • amount of the outstanding liability • action we are taking against the particular persons to recover all or part of that liability, and • identity of the persons who have already paid part of the liability. • amount of the outstanding liability • action we are taking against the particular persons to recover all or part of that liability, and • identity of the persons who have already paid part of the liability. 83. Disclosure for the purpose of satisfying the curiosity of a person (that is, a disclosure solely for that person's, rather than our, purposes) is not sufficiently connected with the administration of relevant tax laws to bring the disclosure within the performance of an ATO employee's duties. | PAYG withholding non-compliance tax: 84. Under Subdivision 18-D in Part 2-5 of Schedule 1 to the TAA, directors (and their associates) of companies that fail to fully pay their PAYG withholding liabilities may be liable to pay the PAYG withholding non-compliance tax. 85. The amount of tax payable is the lesser of the: • amount of PAYG withholding credit a director (or their associate) is entitled to under section 18-15 of Schedule 1 to the TAA in respect of amounts withheld from payments made by the company to the director during an income year, and • total amount of PAYG withholding liabilities the company did not pay for that income year which – became due for payment on a day when the person was a director, and – for amounts due for payment before a person was appointed director, were still due for payment 30 days after their appointment. • amount of PAYG withholding credit a director (or their associate) is entitled to under section 18-15 of Schedule 1 to the TAA in respect of amounts withheld from payments made by the company to the director during an income year, and • total amount of PAYG withholding liabilities the company did not pay for that income year which – became due for payment on a day when the person was a director, and – for amounts due for payment before a person was appointed director, were still due for payment 30 days after their appointment. – became due for payment on a day when the person was a director, and – for amounts due for payment before a person was appointed director, were still due for payment 30 days after their appointment. 86. PAYG withholding non-compliance tax is due and payable at the earliest time any income tax the individual must pay for the relevant income year is due and payable (or if no income tax is payable, the date that any tax would have been payable). GIC is payable on any tax that remains unpaid after the due date. 87. We must not commence proceedings to recover the PAYG withholding non-compliance tax (or any related GIC) until a written notice is given to the individual under section 18-140 of Schedule 1 to the TAA. The written notice must specify: • the company • the income year, and • the amount of PAYG withholding non-compliance tax the individual must pay. • the company • the income year, and • the amount of PAYG withholding non-compliance tax the individual must pay. 88. We must not give a notice if, at that time, the individual (or the director to which a non-director individual is associated) is liable to pay a director penalty under Division 269 of Schedule 1 to the TAA because of the company's failure to pay PAYG withholding for the income year to which the PAYG withholding non-compliance tax relates. 89. Further, a notice under section 18-140 of Schedule 1 to the TAA may only be given if we are satisfied, on the basis of information available to us, that it is fair and reasonable for the individual to pay PAYG withholding non-compliance tax in relation to the company for the income year. 90. When considering whether it is fair and reasonable for the individual to pay PAYG withholding non-compliance tax, regard will be had to the object of the tax which is to reverse the economic benefit of a PAYG withholding credit that an individual is entitled to where the credit relates to unpaid PAYG withholding of the company. Other factors that may be relevant in determining whether it is fair and reasonable to issue a notice include: • the company's compliance record in regard to payment of PAYG withholding liabilities while the person has been a director (or an associate of a director) • whether the individual has been a director (or an associate of a director) of other companies that have failed to meet their PAYG withholding obligations and the extent of that failure • the amount of the PAYG withholding non-compliance tax that is payable, and • the likelihood and timeliness of collection of the PAYG withholding amount payable by the company. • the company's compliance record in regard to payment of PAYG withholding liabilities while the person has been a director (or an associate of a director) • whether the individual has been a director (or an associate of a director) of other companies that have failed to meet their PAYG withholding obligations and the extent of that failure • the amount of the PAYG withholding non-compliance tax that is payable, and • the likelihood and timeliness of collection of the PAYG withholding amount payable by the company. PAYG withholding non-compliance tax reduced in certain circumstances 91. The amount of PAYG withholding non-compliance tax an individual must pay is reduced if we give a notice to the individual under section 18-130 of Schedule 1 to the TAA. 92. We must give such a written notice to the individual if satisfied that the person meets one of the prescribed grounds in section 18-130 of Schedule 1 to the TAA which mirror the statutory defences a director may raise against a director penalty liability – see paragraphs 59 and 60 of this Practice Statement. 93. The amount of the reduction is the amount stated in the notice. In determining the amount of the reduction, we must have regard to: • where a person did not take part in the management of the company – when and for how long the individual could not have been expected to take part, and did not take part in the management of the company • where the individual took all reasonable steps to ensure the directors caused the company to pay, enter administration or begin to be wound up (or there were no reasonable steps they could have taken) – when and for how long, the individual was a director and took part in the management of the company, and • in either case – what is fair and reasonable in the circumstances. • where a person did not take part in the management of the company – when and for how long the individual could not have been expected to take part, and did not take part in the management of the company • where the individual took all reasonable steps to ensure the directors caused the company to pay, enter administration or begin to be wound up (or there were no reasonable steps they could have taken) – when and for how long, the individual was a director and took part in the management of the company, and • in either case – what is fair and reasonable in the circumstances. Associates of directors 94. An associate of a director is liable to pay PAYG withholding non-compliance tax if they are entitled to a credit which can be attributed to some extent to amounts withheld from payments such as salary or wages made to them by the company during the income year. 95. To be subject to the tax, the associate must also have been an associate of a director who was a director of the company either: • when the company was due to pay the withheld amounts to us but failed to do so, or • after the unpaid withholding amounts became due and 30 days later the director was still a director and PAYG withholding remained unpaid. • when the company was due to pay the withheld amounts to us but failed to do so, or • after the unpaid withholding amounts became due and 30 days later the director was still a director and PAYG withholding remained unpaid. 96. Merely being an associate of the director does not mean that an individual is liable to pay the tax. We must be satisfied that due to the associate's relationship with the director or their relationship with the company, that the associate knew or could reasonably be expected to have known that the company had failed to pay amounts withheld to us. 97. Further, we must also be satisfied that the associate did not do at least one of the following: • take reasonable steps to influence the director to – cause the company to notify us about the amount withheld – cause the company to pay the withheld amounts to us – appoint an administrator or have the company wound up, or • report to us or another relevant authority that the company has not paid the amount withheld to us. • take reasonable steps to influence the director to – cause the company to notify us about the amount withheld – cause the company to pay the withheld amounts to us – appoint an administrator or have the company wound up, or • report to us or another relevant authority that the company has not paid the amount withheld to us. – cause the company to notify us about the amount withheld – cause the company to pay the withheld amounts to us – appoint an administrator or have the company wound up, or 98. Alternatively, where the associate was an employee of the company, the associate is liable to pay PAYG withholding non-compliance tax if we are satisfied that the associate was treated more favourably than other employees. 99. Examples of favourable treatment include where the associate's wage is higher than other employees doing similar work or where the associate is receiving their entitlements while other employees are not. Alternatively, it may be that income is being split among associate employees to ensure lower tax rates or other entitlements. Credits 100. Where we have given a notice to an individual under section 18-140 of Schedule 1 to the TAA enabling recovery of a PAYG withholding non-compliance tax liability and subsequently the company's liability to pay relevant PAYG withholding amounts is discharged to any extent, the individual may be entitled to a credit. 101. To work out if the individual is entitled to a credit, the PAYG withholding non-compliance tax is calculated taking into account the company's repayment. If the amount of PAYG withholding non-compliance tax worked out is now less than the original amount notified (or zero), then the individual is entitled to a credit equal to the difference. We must give a notice stating the credit amount. 102. In addition to the credit referred to in paragraph 101 of this Practice Statement, we have discretion to allow a further credit to the extent that the total credit does not exceed the amount paid by the company or the PAYG withholding non-compliance tax liability. Similarly, where the company's payment does not reduce the individual's PAYG withholding non-compliance tax, we may notify a credit up to the amount of the payment or the tax outstanding. 103. In determining the amount of the discretionary credit, we must have regard to what is fair and reasonable in the circumstances. 104. Generally, in keeping with the object of the law, which is to reverse the economic benefit of a PAYG withholding credit entitlement, it would not be expected that credits would be allowed beyond the minimum amount required under the law. An example of a situation where, for administrative convenience, a discretionary credit further to the minimum statutory amount may be appropriate, is where failure to provide the credit would leave a small amount of PAYG withholding non-compliance tax outstanding. Objection against decisions in respect of PAYG withholding non-compliance tax 105. Where a liability notice under section 18-140 of Schedule 1 to the TAA has been given, the individual may, pursuant to section 18-190 of Schedule 1 to the TAA, object against a decision of ours under: • section 18-130 of Schedule 1 to the TAA – tax of a director reduced in certain circumstances (statutory defences) • section 18-140 of Schedule 1 to the TAA – liability notice • sections 18-170 and 18-175 of Schedule 1 to the TAA – credits for later compliance by the company. • section 18-130 of Schedule 1 to the TAA – tax of a director reduced in certain circumstances (statutory defences) • section 18-140 of Schedule 1 to the TAA – liability notice • sections 18-170 and 18-175 of Schedule 1 to the TAA – credits for later compliance by the company. Timing of notices 106. Section 18-185 of Schedule 1 to the TAA provides when the various notices relating to PAYG withholding non-compliance tax can be given. In particular: • If a notice of assessment for income tax has not been given to the individual for the income year to which the PAYG withholding non-compliance tax relates – a notice can be given at any time. • If a notice results in the amount of PAYG withholding non-compliance tax being increased (for example, because a credit previously given is reduced) – the notice can be given no later than 2 years after first giving a notice of assessment for income tax to the individual for the relevant income year. • A new or amended liability notice allowing recovery proceedings to be commenced – the notice can be given no later than 2 years after first giving a notice of assessment for income tax to the individual for the relevant income year. • If a notice results in the amount of PAYG withholding non-compliance tax being reduced – the notice can be given no later than 4 years after first giving a notice of assessment for income tax to the individual for the relevant income year. • An amended liability notice resulting in a reduced amount of PAYG withholding non-compliance tax to be recovered – a notice can be given no later than 4 years after first giving a notice of assessment for income tax to the individual for the relevant income year. • Any notice to give effect to a decision as a result of an objection, review or appeal or following an objection but pending a review or appeal – a notice can be given at any time. • If a notice of assessment for income tax has not been given to the individual for the income year to which the PAYG withholding non-compliance tax relates – a notice can be given at any time. • If a notice results in the amount of PAYG withholding non-compliance tax being increased (for example, because a credit previously given is reduced) – the notice can be given no later than 2 years after first giving a notice of assessment for income tax to the individual for the relevant income year. • A new or amended liability notice allowing recovery proceedings to be commenced – the notice can be given no later than 2 years after first giving a notice of assessment for income tax to the individual for the relevant income year. • If a notice results in the amount of PAYG withholding non-compliance tax being reduced – the notice can be given no later than 4 years after first giving a notice of assessment for income tax to the individual for the relevant income year. • An amended liability notice resulting in a reduced amount of PAYG withholding non-compliance tax to be recovered – a notice can be given no later than 4 years after first giving a notice of assessment for income tax to the individual for the relevant income year. • Any notice to give effect to a decision as a result of an objection, review or appeal or following an objection but pending a review or appeal – a notice can be given at any time. | Insolvent trading: 107. We will look to support the activities of a liquidator or administrator in appropriate actions against directors where there is a view that the action of directors has adversely affected the revenue. In particular, we will support a liquidator in their pursuit of directors in certain insolvent trading cases (see paragraph 44 of this Practice Statement) where there is a significant amount of tax involved and where there is a potential for recovering that amount by initiating action against the directors. (See also PS LA 2011/16.) | Purpose: 108. This Appendix provides guidelines on the use of the Commissioner's power to recover tax-related liabilities and certain other debts [26] payable to the Commonwealth from third parties owing money to, or holding money for, a tax debtor. | Background: 109. Where a person (third party) owes money to or holds money for a tax debtor, section 260-5 of Schedule 1 to the TAA empowers us to require the third party to pay that money to us rather than paying it to, or continuing to hold it for, the tax debtor. This power is commonly referred to as a 'garnishee power' and a written notice issued by the us under subsection 260-5(2) of Schedule 1 to the TAA is referred to as a 'garnishee notice'. 110. Any third party who pays money to us as required by a notice is taken to have been authorised by the tax debtor or any other person who is entitled to all or part of that amount. The third party is indemnified for any money paid to us. | Considerations – before and after issuing a garnishee notice: 111. Collection through third parties by serving garnishee notices is often an efficient and cost-effective way of obtaining payment of outstanding debts. We will use garnishee notices in circumstances where we consider that action to be the most effective method of obtaining payment of a debt. 112. The issue of a garnishee notice is an exercise of a coercive power, so care must be taken when exercising this power. 113. In considering whether to issue a garnishee notice, we will have regard to: • the financial position of the tax debtor and the steps taken to make payment in the shortest possible timeframe having regard to the particular circumstances of the tax debtor • the extent of any other debts owed by the tax debtor • whether the revenue is placed at risk because of the actions of the tax debtor, such as the tax debtor making payment to other creditors in preference to paying us • the likely implications of issuing a notice on a tax debtor's ability to provide for a family or to maintain the viability of a business. • the financial position of the tax debtor and the steps taken to make payment in the shortest possible timeframe having regard to the particular circumstances of the tax debtor • the extent of any other debts owed by the tax debtor • whether the revenue is placed at risk because of the actions of the tax debtor, such as the tax debtor making payment to other creditors in preference to paying us • the likely implications of issuing a notice on a tax debtor's ability to provide for a family or to maintain the viability of a business. 114. We will consider any reasonable request from a tax debtor to either withdraw or vary the requirements of a garnishee notice, provided the tax debtor makes suitable alternative arrangements for payment. | Garnishee of credit card merchant facilities: 115. With the increasing use of e-commerce for transacting business, we recognise that financial institutions may hold money on behalf of tax debtors on account of business transacted through their merchant card facility. This may include any business transacted electronically with clients, whether such transactions originate from a cheque, savings or credit card account. We may use the garnishee power to require a financial institution to pay us amounts transacted through a business' merchant card facility before the amounts are deposited into the business' account. | Privacy considerations: 116. In employing the Commissioner's garnishee power, we will ensure that the confidentiality provisions in Division 355 of Schedule 1 to the TAA and the privacy obligations under the Privacy Act 1988 are strictly observed at all times. 117. Where garnishee notices are to be given to a tax debtor's employer in respect of wages or salary owed to the tax debtor, we will take care to preserve the tax debtor's privacy. 118. Where the tax debtor's employer is a large organisation, there is potential for the garnishee notice to pass through the hands of several employees before reaching the person with the designated responsibility for complying with the notice. To minimise the number of people who see the notice at an employer's office, we will observe the Australian Information Commissioner's recommendation – the envelope containing the garnishee will be marked 'private and confidential' and addressed 'to be opened by the paymaster only'. | Limitations on the use of garnishees: Salary and wages 119. Where the garnishee is in respect of salary or wages, we will not usually seek to garnishee more than 30 cents in the dollar of the amount of salary and wages payable. However, a higher percentage may be sought where the tax debtor has another source of income or where the tax debtor's financial position indicates that it would be fair and equitable to do so. 120. Similarly, the garnishee percentage may be reduced where the tax debtor's income is already subject to another garnishee (such as a garnishee in respect of a child support obligation to Services Australia). Medicare – Services Australia payments 121. Where we elect to send a garnishee to Medicare – Services Australia in respect of payments it makes to an indebted doctor, Medicare – Services Australia will be informed to disregard the application of the garnishee in respect of 'pay doctor cheques' (that is, payments under subsection 20(2) of the Health Insurance Act 1973). Centrelink or Department of Veterans' Affairs benefits 122. We will not garnishee Centrelink or Department of Veterans' Affairs pensions or benefits, unless requested to do so by the tax debtor. Taxation appeals 123. Where a tax debtor is appealing to a tribunal or court against the assessments that raised the debt, we will consider whether a garnishee would significantly prejudice the tax debtor's rights in pursuing those appeals. 124. Small business entities can apply to the Administrative Review Tribunal for an order under section 32 of the Administrative Review Tribunal Act 2024 staying, or otherwise affecting, the operation or implementation of a reviewable objection decision (including an order directing us not to issue a garnishee). [27] Purchaser of mortgaged land or property 125. A garnishee may place us ahead of certain earlier secured creditors, although we will not always seek to enforce this entitlement. For instance, where a garnishee notice is served on the purchaser of mortgaged land or property, the garnishee will also attach that part of the purchase price which is necessary to payout the mortgage. [28] The purchaser's obligation in relation to a garnishee supersedes the obligation or discretion to pay money to a secured creditor in accordance with the tax debtor's instructions. However, the sale would not proceed if the seller is unable to provide the purchaser with clear title to the property. 126. Therefore, we will take account of individual circumstances and may require that the notice only apply to that part of the purchase price to be paid to the vendor or as the vendor directs, after the mortgage has been discharged. In any case, where there is evidence that the purpose of the mortgage (whether registered or unregistered) was to defeat our recovery powers, we will require payment of all or part of the purchase price from the purchaser. 127. We may also issue a garnishee notice to a receiver appointed by a secured creditor in order to attach the balance of any monies that would otherwise be payable to a mortgagor. Financial institution accounts 128. We will serve garnishee notices according to arrangements made for service of notices with specific banks and other financial institutions. It is expected that the financial institution will undertake searching procedures to locate all the accounts of the tax debtor held at all branches. To assist in this process, we will list any known account numbers in the notice. 129. Legally, the obligations created by a garnishee notice continue to apply until either the third party pays to us the total debt or we subsequently notifies the third party that the garnishee notice has been withdrawn. However, some garnishee notices may themselves specify that the third party's obligations are discharged at an earlier time – for example, 3 months after the issue date of the notice. This withdraws the notice at that time. No obligation continues after the debt to which the notice refers is met and this debt is identified by the notice at the time when the notice is received. Superannuation funds 130. A garnishee notice in respect of any tax-related liabilities may be served on a superannuation fund but it will not be effective until the tax debtor's (member's) benefits are payable under the rules of the fund (for example, the tax debtor retires or dies). A notice served on the fund will generally request payment as a lump sum unless the anticipated retirement income stream can guarantee repayment within a satisfactory period of time. Life insurance policies 131. A garnishee notice may be served in respect of the proceeds of life insurance policies but the notice may not take effect until the person (whose life is insured) dies or the monies otherwise become payable under the policies. Courts 132. Garnishee notices will not be served on a court (or clerk of petty sessions who holds money on behalf of the court). A court is not a person within the meaning of the former 'garnishee' provisions. While the expression 'person' has been replaced by 'third party', there was no intention to extend the definition of the recipient of a notice to include a court. Trust funds 133. A garnishee notice may be served on a professional, such as a solicitor or accountant, who holds funds on trust for a taxpayer, but the notice may not be effective if all such monies have become charged by a lien. This happens, for example, when a debt from the tax debtor to the solicitor is created by the taxing of a bill of costs or by the delivery of the bill of costs to the tax debtor where the tax debtor does not object to the bill. Shares 134. A garnishee notice may be served on a company in which a tax debtor holds shares. This would then entitle us to receive any dividend payable to the tax debtor in respect of such shares. Other 135. As garnishee notices will not be legally effective, they will not be served in respect of: • benefits payable under defence forces retirement or death benefits legislation • the Registrar of Commonwealth Inscribed Stock or Bearer Securities • an individual's bank account, life policy or beneficial interest in a trust where it is known that the amount held is a 'first home saver account' under the First Home Saver Accounts Act 2008, which commenced on 1 October 2008. (A garnishee notice may constitute a charge or an assignment of rights for the purposes of subsection 126B(3) of that Act.) • benefits payable under defence forces retirement or death benefits legislation • the Registrar of Commonwealth Inscribed Stock or Bearer Securities • an individual's bank account, life policy or beneficial interest in a trust where it is known that the amount held is a 'first home saver account' under the First Home Saver Accounts Act 2008, which commenced on 1 October 2008. (A garnishee notice may constitute a charge or an assignment of rights for the purposes of subsection 126B(3) of that Act.) | Garnishee notices and external controllers or insolvency administrations: 136. We will not ordinarily withdraw the notice where, subsequent to the issue of a garnishee notice, the tax debtor: • appoints a controlling trustee • appoints an SBR practitioner • is subject to a personal insolvency agreement • has given a debt agreement proposal to the Official Receiver • is subject to a debt agreement • is bankrupt • is subject to the control of a voluntary administrator • is subject to a deed of company arrangement • is under the control of a receiver or receiver and manager • is subject to the control of a provisional liquidator, or • is in liquidation. • appoints a controlling trustee • appoints an SBR practitioner • is subject to a personal insolvency agreement • has given a debt agreement proposal to the Official Receiver • is subject to a debt agreement • is bankrupt • is subject to the control of a voluntary administrator • is subject to a deed of company arrangement • is under the control of a receiver or receiver and manager • is subject to the control of a provisional liquidator, or • is in liquidation. 137. In such circumstances, the notice will continue to operate on the relevant amounts. For example, a notice served prior to the tax debtor's bankruptcy would continue to operate on amounts that were due to the bankrupt prior to the date of bankruptcy even if they remain unpaid at that date. Where it is clear that there are no amounts which are or may become payable to us under the notice, it may be withdrawn. 138. Where it is apparent that the tax debtor is about to enter or become subject to one of the processes described in paragraph 136 of this Practice Statement, we will only issue a garnishee notice in respect of amounts due (or expected to become due) to the tax debtor, after having regard to a number of factors. These factors include the need to protect the revenue and the expected impact that the garnishee will have on the tax debtor's unrelated arm's-length creditors, in terms of their likely receipts from the tax debtor's insolvency administration. 139. In accordance with the decision of the High Court in Bruton Holdings Pty Limited (in liquidation) v Commissioner of Taxation [2009] HCA 32, the Commissioner will not issue a garnishee notice in respect of a debt owed to a company after an order has been made, or a resolution has been passed, for the winding up of the company. 140. Subsection 139ZIG(8) of the Bankruptcy Act 1966 specifically permits the use of the Commissioner's garnishee power in respect of 'supervised accounts' created under Division 4B of Part VI of that Act, although we may withdraw or refrain from using the garnishee power in respect of a supervised account where the bankruptcy trustee indicates that it would have a detrimental effect on the trustee's ability to collect income contributions. | Allocation of payments received pursuant to a garnishee: 141. Where a payment is made (in full or in part) pursuant to a garnishee notice, the payment will be appropriated to the respective component amounts that constitute the total payable in that notice. Part payments in respect of a garnishee notice will be allocated to tax debts in accordance with the payment allocation rules prescribed by the particular accounting system under which the debt is managed. For example, in relation to a part payment received towards an indirect tax debt managed in the Receivables Management System (RMS), such part payment will be first allocated to the liability with the earliest due date that contributes to the balance of the claim. On the other hand, a part payment received towards debts managed in the Integrated Core Processing (ICP) system (for example, income tax) will be allocated in accordance with the Role Allocation Hierarchy rules – that is, the oldest outstanding period within the highest role will be paid first, based on the period start date. For further information on payment allocation, refer to PS LA 2011/20. | Purpose: 142. This Appendix provides guidelines for the use of our power to stop taxpayers from departing from Australia until such time as their tax liability is paid in full or suitable arrangements for payment of their tax liability are made. | Background: 143. Part IVA of the TAA gives us the power to issue a DPO which prohibits the taxpayer from leaving Australia, regardless of whether the taxpayer intends to return. 144. Our ability to exercise this power depends upon the existence of certain preconditions. These are: • the taxpayer must be subject to a tax liability [29] , and • we must believe, on reasonable grounds, that it is desirable to issue a DPO for the purpose of ensuring that the taxpayer does not depart from Australia without – wholly discharging the tax liability, or – making arrangements satisfactory to us for the tax liability to be wholly discharged. • the taxpayer must be subject to a tax liability [29] , and • we must believe, on reasonable grounds, that it is desirable to issue a DPO for the purpose of ensuring that the taxpayer does not depart from Australia without – wholly discharging the tax liability, or – making arrangements satisfactory to us for the tax liability to be wholly discharged. – wholly discharging the tax liability, or – making arrangements satisfactory to us for the tax liability to be wholly discharged. 145. The legislation applies to both Australian nationals and foreign nationals who are liable to pay Australian tax, except if a deportation order under the Migration Act 1958 is in force. Where a deportation order is made after a DPO has issued, the DPO ceases to have force (subsection 14S(3) of the TAA). We will consult with the Department of Home Affairs about revoking the DPO. | Issuing a departure prohibition order: 146. A DPO imposes a significant restriction on the normal rights of taxpayers in that it deprives them of their liberty to travel outside Australia. We recognise the impact of this restriction on a taxpayer's liberty and freedom of movement. 147. A DPO can only be made where the taxpayer is subject to a tax liability.Therefore, it is not appropriate to make a DPO in circumstances where the taxpayer is not subject to an existing tax liability – for example, there is only an anticipated or future tax liability. 148. The critical phase in the making of a DPO is the process of determining whether there are 'reasonable grounds' which make it desirable to ensure the taxpayer does not depart from Australia without wholly discharging or making arrangements satisfactory to us to wholly discharge the tax liability. 149. It is not appropriate to issue a DPO: • where the tax is completely irrecoverable [30] • for the sole purpose of pressuring the taxpayer to file a debtor's petition for bankruptcy [31] • for a punitive purpose. [32] • where the tax is completely irrecoverable [30] • for the sole purpose of pressuring the taxpayer to file a debtor's petition for bankruptcy [31] • for a punitive purpose. [32] 150. In deciding whether to issue a DPO, we will take into account all relevant facts and circumstances, and weigh up the factors for and against the making of a DPO. These factors may include (but are not limited to) the following: • Recoverability of the debt – the nature of the tax liability and the potential recovery action involved, including – the size of the debt [33] – the length of time the debt has remained unpaid, including whether the debt has increased over time – whether the liability was a self-assessed liability or a result of our compliance action – the prospects of recovering the debt from the taxpayer. • The taxpayer's engagement, behaviour and compliance history – this may include – the taxpayer's level of engagement with us, including whether they have responded to our correspondence, phone contact or information requests – whether the taxpayer has outstanding lodgments – whether the taxpayer has demonstrated a lack of willingness to address their tax obligations, including a failure to sustain payment arrangements or a history of late payments or no payments. [34] • Indicators that the taxpayer is distancing themselves from their assets – this may include – concealing assets (including where assets may be indirectly held through complex structures or where the taxpayer has beneficial ownership of assets that are owned by third parties) – advertising personal assets for sale (for example, cars, boats, caravans, matrimonial home), where the potential dissipation may suggest the taxpayer is planning to leave the country [35] – disposing of assets to associated persons or entities for less than their reasonable value – transferring funds overseas. • Propensity to depart – this may include – the taxpayer's level of connection with Australia, including o whether the taxpayer has dependents in Australia o whether the taxpayer maintains primary residence or employment in Australia o the level and extent to which the taxpayer can sever connections and relocate overseas with minimal disruption. – the taxpayer's capacity to reside overseas for lengthy periods and their access to funds, including whether they o hold dual citizenship with another country – have access to assets overseas o have family members living overseas o undertake frequent travel and the associated reasons for that travel (for example, there is information that indicates that the taxpayer will depart Australia where there is no apparent need for travel). – if the taxpayer is considered a 'flight risk' and has any opportunity to reside overseas, including whether they o have travelled overseas or plans to travel overseas while they have an outstanding tax debt o remained in Australia after becoming aware of our audit or investigation o cooperated with our requests for interviews o complied with court orders or directions (for example, freezing orders). • Impact of departure on recoverability – the level of impact that the taxpayer departing Australia will have on our recovery actions in respect of the debt, including whether – the taxpayer has assets in Australia capable of meeting their tax liability – we can recover the debt from the taxpayer's assets in Australia even where the taxpayer resides overseas – the taxpayer has moved assets and funds offshore – the taxpayer holds, or has access to, assets overseas (either directly or indirectly) – the Commissioner has the ability to serve legal documents or enforce an Australian judgment abroad [36] – debt recovery is likely to be facilitated by the taxpayer remaining in Australia (for example, if the Commissioner is likely to issue information gathering notices to the taxpayer or to facilitate the trustee in bankruptcy examining the taxpayer to ascertain asset amounts and locations). • Recoverability of the debt – the nature of the tax liability and the potential recovery action involved, including – the size of the debt [33] – the length of time the debt has remained unpaid, including whether the debt has increased over time – whether the liability was a self-assessed liability or a result of our compliance action – the prospects of recovering the debt from the taxpayer. • The taxpayer's engagement, behaviour and compliance history – this may include – the taxpayer's level of engagement with us, including whether they have responded to our correspondence, phone contact or information requests – whether the taxpayer has outstanding lodgments – whether the taxpayer has demonstrated a lack of willingness to address their tax obligations, including a failure to sustain payment arrangements or a history of late payments or no payments. [34] • Indicators that the taxpayer is distancing themselves from their assets – this may include – concealing assets (including where assets may be indirectly held through complex structures or where the taxpayer has beneficial ownership of assets that are owned by third parties) – advertising personal assets for sale (for example, cars, boats, caravans, matrimonial home), where the potential dissipation may suggest the taxpayer is planning to leave the country [35] – disposing of assets to associated persons or entities for less than their reasonable value – transferring funds overseas. • Propensity to depart – this may include – the taxpayer's level of connection with Australia, including o whether the taxpayer has dependents in Australia o whether the taxpayer maintains primary residence or employment in Australia o the level and extent to which the taxpayer can sever connections and relocate overseas with minimal disruption. – the taxpayer's capacity to reside overseas for lengthy periods and their access to funds, including whether they o hold dual citizenship with another country – have access to assets overseas o have family members living overseas o undertake frequent travel and the associated reasons for that travel (for example, there is information that indicates that the taxpayer will depart Australia where there is no apparent need for travel). – if the taxpayer is considered a 'flight risk' and has any opportunity to reside overseas, including whether they o have travelled overseas or plans to travel overseas while they have an outstanding tax debt o remained in Australia after becoming aware of our audit or investigation o cooperated with our requests for interviews o complied with court orders or directions (for example, freezing orders). • Impact of departure on recoverability – the level of impact that the taxpayer departing Australia will have on our recovery actions in respect of the debt, including whether – the taxpayer has assets in Australia capable of meeting their tax liability – we can recover the debt from the taxpayer's assets in Australia even where the taxpayer resides overseas – the taxpayer has moved assets and funds offshore – the taxpayer holds, or has access to, assets overseas (either directly or indirectly) – the Commissioner has the ability to serve legal documents or enforce an Australian judgment abroad [36] – debt recovery is likely to be facilitated by the taxpayer remaining in Australia (for example, if the Commissioner is likely to issue information gathering notices to the taxpayer or to facilitate the trustee in bankruptcy examining the taxpayer to ascertain asset amounts and locations). – the size of the debt [33] – the length of time the debt has remained unpaid, including whether the debt has increased over time – whether the liability was a self-assessed liability or a result of our compliance action – the prospects of recovering the debt from the taxpayer. – the taxpayer's level of engagement with us, including whether they have responded to our correspondence, phone contact or information requests – whether the taxpayer has outstanding lodgments – whether the taxpayer has demonstrated a lack of willingness to address their tax obligations, including a failure to sustain payment arrangements or a history of late payments or no payments. [34] – concealing assets (including where assets may be indirectly held through complex structures or where the taxpayer has beneficial ownership of assets that are owned by third parties) – advertising personal assets for sale (for example, cars, boats, caravans, matrimonial home), where the potential dissipation may suggest the taxpayer is planning to leave the country [35] – disposing of assets to associated persons or entities for less than their reasonable value – transferring funds overseas. – the taxpayer's level of connection with Australia, including o whether the taxpayer has dependents in Australia o whether the taxpayer maintains primary residence or employment in Australia o the level and extent to which the taxpayer can sever connections and relocate overseas with minimal disruption. o whether the taxpayer has dependents in Australia o whether the taxpayer maintains primary residence or employment in Australia o the level and extent to which the taxpayer can sever connections and relocate overseas with minimal disruption. – the taxpayer's capacity to reside overseas for lengthy periods and their access to funds, including whether they o hold dual citizenship with another country – have access to assets overseas o have family members living overseas o undertake frequent travel and the associated reasons for that travel (for example, there is information that indicates that the taxpayer will depart Australia where there is no apparent need for travel). – if the taxpayer is considered a 'flight risk' and has any opportunity to reside overseas, including whether they o have travelled overseas or plans to travel overseas while they have an outstanding tax debt o remained in Australia after becoming aware of our audit or investigation o cooperated with our requests for interviews o complied with court orders or directions (for example, freezing orders). o hold dual citizenship with another country o have family members living overseas o undertake frequent travel and the associated reasons for that travel (for example, there is information that indicates that the taxpayer will depart Australia where there is no apparent need for travel). o have travelled overseas or plans to travel overseas while they have an outstanding tax debt o remained in Australia after becoming aware of our audit or investigation o cooperated with our requests for interviews o complied with court orders or directions (for example, freezing orders). – the taxpayer has assets in Australia capable of meeting their tax liability – we can recover the debt from the taxpayer's assets in Australia even where the taxpayer resides overseas – the taxpayer has moved assets and funds offshore – the taxpayer holds, or has access to, assets overseas (either directly or indirectly) – the Commissioner has the ability to serve legal documents or enforce an Australian judgment abroad [36] – debt recovery is likely to be facilitated by the taxpayer remaining in Australia (for example, if the Commissioner is likely to issue information gathering notices to the taxpayer or to facilitate the trustee in bankruptcy examining the taxpayer to ascertain asset amounts and locations). 151. Appropriate weight should be given to each relevant fact and circumstance of a taxpayer's case to determine whether it supports (or does not support) the making of a DPO. 152. The DPO must be issued as soon as practicable after it is decided that a DPO should be made. [37] 153. When a DPO is made, the Commissioner is required to serve a copy of the DPO on the taxpayer. [38] However, the existence of a DPO is not dependent on the taxpayer being informed of its making. While service should take place as soon as possible after a DPO is made, the failure to inform the person does not affect the validity of the DPO. 154. A DPO remains in force unless and until it is revoked by us or set aside by a court. A DPO is also taken not to be in force during any period an order is in force under the Migration Act 1958 for the deportation of the person. | Issuing a departure authorisation certificate: 155. In accordance with section 14U of the TAA, a taxpayer in respect of whom a DPO is in force may apply to us for the issue of a departure authorisation certificate (DAC) to permit them to depart Australia temporarily. 156. We are required to issue a DAC if satisfied that: (a) it is likely that the taxpayer will depart Australia and will return within such a period as we consider appropriate, and circumstances of a kind which would oblige us to revoke the DPO under paragraph 14T(1)(a) of the TAA will come into existence within such period as we consider appropriate, and (b) it is not necessary or desirable for the taxpayer to give security under subsection 14U(2) of the TAA for their return to Australia. (a) it is likely that the taxpayer will depart Australia and will return within such a period as we consider appropriate, and circumstances of a kind which would oblige us to revoke the DPO under paragraph 14T(1)(a) of the TAA will come into existence within such period as we consider appropriate, and (b) it is not necessary or desirable for the taxpayer to give security under subsection 14U(2) of the TAA for their return to Australia. 157. If we are not satisfied with respect to the matters referred to at subparagraphs 156(a) and 156(b) of this Practice Statement, we are required to issue a DAC authorising the taxpayer to depart from Australia: • if they have given security under subsection 14U(2) of the TAA to our satisfaction for their return to Australia, or • if they are unable to give such security, we are satisfied that a DAC should be issued on humanitarian grounds or that a refusal to issue a DAC would be detrimental to the interests of Australia. • if they have given security under subsection 14U(2) of the TAA to our satisfaction for their return to Australia, or • if they are unable to give such security, we are satisfied that a DAC should be issued on humanitarian grounds or that a refusal to issue a DAC would be detrimental to the interests of Australia. 158. In considering whether the taxpayer is unable to give such security, the Full Federal Court in Lui v Commissioner of Taxation [2009] FCAFC 115 agreed with the Commissioner that the provision requires the Commissioner to conclude that the taxpayer is unable to give such security. In the context of section 14U of the TAA, 'unable' means something that the particular taxpayer could not do in the existing circumstances and it is not enough that the taxpayer is merely either unwilling to do so or unable to obtain the Commissioner's agreement. 159. Where a taxpayer's application for a DAC is sought on humanitarian grounds, they must produce evidence to support the: • contention that they are unable to give security to our satisfaction, and • humanitarian grounds relied upon in the application for the DAC. • contention that they are unable to give security to our satisfaction, and • humanitarian grounds relied upon in the application for the DAC. 160. Similarly, where a taxpayer's application for a DAC is sought on the basis that a refusal to issue the DAC would be detrimental to the interest of Australia, the taxpayer must produce evidence to support the: • contention that they are unable to give security to our satisfaction, and • reasons why a refusal to issue a DAC would be detrimental to the interests of Australia. • contention that they are unable to give security to our satisfaction, and • reasons why a refusal to issue a DAC would be detrimental to the interests of Australia. | Security for a departure authorisation certificate: 161. In the context of a DAC, the purpose of a security is to cause the taxpayer to return to Australia within the time prescribed. Although there may be consequences to the revenue if a taxpayer does not return to Australia following the issue of a DAC, it does not necessarily follow that the size of the security has to be commensurate with the size of the tax liabilities owing. If the taxpayer fails to return as required, the security is forfeited to the Commonwealth and its value when realised is not applied against the taxpayer's tax liabilities. 162. Without being exhaustive, the following factors may be relevant in determining the size of a security that would be considered satisfactory to us: • the risk that the taxpayer may not return to Australia as required under the DAC and the impact this would have on the prospects of the tax liabilities being wholly discharged • whether the asset being offered as security is owned by a person or entity other than the taxpayer • the impact on the taxpayer (as distinct from the person or entity providing the security) should the security be forfeited due to their failure to return to Australia • the size of the security compared to the amount of tax liabilities outstanding (or the amount expected to be outstanding when any outstanding objection or appeal is finally determined) • the size of the security compared to the value of assets controlled by the taxpayer • the willingness of the taxpayer to fully disclose financial and other information to enable us to properly consider their application for a DAC. • the risk that the taxpayer may not return to Australia as required under the DAC and the impact this would have on the prospects of the tax liabilities being wholly discharged • whether the asset being offered as security is owned by a person or entity other than the taxpayer • the impact on the taxpayer (as distinct from the person or entity providing the security) should the security be forfeited due to their failure to return to Australia • the size of the security compared to the amount of tax liabilities outstanding (or the amount expected to be outstanding when any outstanding objection or appeal is finally determined) • the size of the security compared to the value of assets controlled by the taxpayer • the willingness of the taxpayer to fully disclose financial and other information to enable us to properly consider their application for a DAC. 163. For the considerations regarding the type of security which may be acceptable, refer to PS LA 2011/14. | Revocation or variation of a departure prohibition order: 164. A DPO can be revoked either on the application of the person concerned or on our own initiative. 165. We will revoke a DPO that is in force where: • the taxpayer's tax liabilities have been wholly discharged and we are satisfied that any impending tax liabilities arising out of a completed transaction can also be wholly discharged or would be completely irrecoverable, or • we consider that the taxpayer's tax liabilities are completely irrecoverable. [39] • the taxpayer's tax liabilities have been wholly discharged and we are satisfied that any impending tax liabilities arising out of a completed transaction can also be wholly discharged or would be completely irrecoverable, or • we consider that the taxpayer's tax liabilities are completely irrecoverable. [39] 166. A DPO may also be revoked or varied for any other reason at the Commissioner's discretion or on application being made to us pursuant to subsection 14T(2) of the TAA. 167. In Troughton v Deputy Commissioner of Taxation [2008] FCA 18 (Troughton), Jessup J noted at [27] that in a case where an applicant does not differentiate under which provision a revocation is being sought, the Commissioner should first consider whether there is a requirement to revoke under subsection 14T(1) of the TAA and only if not satisfied that there is not such a requirement, then consider whether or not to exercise the discretion under subsection 14T(2) of the TAA. 168. Although subsection 14T(2) of the TAA does not prescribe how the discretionary powers of the Commissioner should be exercised, there is a requirement to exercise this discretion in accordance with the scope and objects of Part IVA of the TAA. 169. While Part IVA of the TAA is primarily concerned with the protection of the revenue, consideration of the risks to the revenue needs to be balanced with the severe intrusion into a person's liberty, privacy and freedom of movement that a DPO represents. 170. Following the making of a DPO, regular reviews must be undertaken to ensure that keeping the DPO in force is still appropriate. 171. As a general proposition and without limiting the breadth of the discretion under subsection 14T(2) of the TAA, we will take into account: • all the relevant facts and circumstances that led to the making of the DPO, including any material changes to those facts and circumstances, such as the quantum of the tax liability, that have occurred since the making of the DPO • any additional factors of relevance advanced by the taxpayer in support of the application for revocation of the DPO, and • any other risks to the revenue that have materialised since the making of the order. • all the relevant facts and circumstances that led to the making of the DPO, including any material changes to those facts and circumstances, such as the quantum of the tax liability, that have occurred since the making of the DPO • any additional factors of relevance advanced by the taxpayer in support of the application for revocation of the DPO, and • any other risks to the revenue that have materialised since the making of the order. 172. When deciding whether to revoke a DPO, we are not bound to consider any humanitarian circumstances (such as the taxpayer's wife undergoing cancer treatment in the United Kingdom), as these were circumstances relevantly addressed by section 14U of the TAA in the context of an application for a DAC. [40] 173. We may also vary a DPO to take into account any change in the amount of the taxpayer's tax liabilities – for example, as a result of payments received, amended assessments issued or subsequent tax liabilities that have arisen since the making of the DPO. [41] 174. The discretion to vary a DPO will not be exercised to allow a taxpayer in respect of whom a DPO has been made to depart Australia. The appropriate process to allow for the taxpayer to depart Australia is by issuing a DAC or by revoking the DPO. 175. As soon as practicable after a DPO is revoked or varied, we shall serve on the taxpayer and each other person to whom a copy of the DPO was given notification of the revocation or variation of the DPO. 176. Similarly, as soon as practicable after a decision is made refusing to revoke a DPO, we shall serve on the taxpayer notification of the decision. | Purpose: 177. This Appendix provides guidelines on our use of writs or warrants of execution to enforce judgments obtained in respect of unpaid tax-related liabilities. | Background: 178. A warrant issued by a court authorises the person to whom it is directed (usually the sheriff or bailiff) to seize the property of the judgment debtor and, if the judgment debt plus costs are not paid, to sell the property seized and pay the amounts of the judgment debt and costs to the creditor. | Statement: 179. The use of warrants may be effective in certain cases, particularly where the debt is not large and is not escalating, where assets belonging to the tax debtor have been identified or, in some cases, where assets cannot be identified. A warrant may prompt a tax debtor to pay or enter into an acceptable agreement to pay the debt by instalments. 180. A decision on whether to proceed to a warrant after judgment would depend on the circumstances of each case. Warrants should be considered in the following circumstances: • when it can be established that the tax debtor has sufficient unsecured assets to satisfy the debt, or • the tax debtor has equity in real estate, even if the equity is as a part-owner, joint owner or tenant in common. • when it can be established that the tax debtor has sufficient unsecured assets to satisfy the debt, or • the tax debtor has equity in real estate, even if the equity is as a part-owner, joint owner or tenant in common. 181. Some factors that may be taken into account before the issue of a warrant are: • If the property to be attached is owned jointly by the tax debtor with another person, a forced sale of the tax debtor's share (though difficult to achieve or to achieve for value) can be an effective recovery option. On the other hand, the Property Law Acts of some States may provide for a joint proprietor to force a sale of the whole property with the proceeds divided between those proprietors. • Where it has been ascertained the tax debtor does not have sufficient assets to satisfy at least a significant part of the warrant, a warrant for partial satisfaction may, nevertheless, prompt the tax debtor to make alternative arrangements to pay. • A tax debtor's assets subject to a charge or goods held by the tax debtor may be subject to a retention of title (or Romalpa) clause. This would normally be the case for corporate debtors, in which case the best course of action would be through winding up or action against the directors if appropriate. • As the warrants are treated by the sheriff on a 'first-in first-out' basis, if it is found that other creditors have already issued warrants against the tax debtor; it may be better to proceed straight to bankruptcy or winding-up action in these cases. • Section 45A of the Defence Service Homes Act 1918 provides that where the Defence Service Homes Corporation has some form of security (mortgage or contract of sale) over the tax debtor's real property, that property can only be sold to satisfy a judgment debt with the approval of the Secretary of the Department. • If the property to be attached is owned jointly by the tax debtor with another person, a forced sale of the tax debtor's share (though difficult to achieve or to achieve for value) can be an effective recovery option. On the other hand, the Property Law Acts of some States may provide for a joint proprietor to force a sale of the whole property with the proceeds divided between those proprietors. • Where it has been ascertained the tax debtor does not have sufficient assets to satisfy at least a significant part of the warrant, a warrant for partial satisfaction may, nevertheless, prompt the tax debtor to make alternative arrangements to pay. • A tax debtor's assets subject to a charge or goods held by the tax debtor may be subject to a retention of title (or Romalpa) clause. This would normally be the case for corporate debtors, in which case the best course of action would be through winding up or action against the directors if appropriate. • As the warrants are treated by the sheriff on a 'first-in first-out' basis, if it is found that other creditors have already issued warrants against the tax debtor; it may be better to proceed straight to bankruptcy or winding-up action in these cases. • Section 45A of the Defence Service Homes Act 1918 provides that where the Defence Service Homes Corporation has some form of security (mortgage or contract of sale) over the tax debtor's real property, that property can only be sold to satisfy a judgment debt with the approval of the Secretary of the Department. 182. Any offer of payment made by the tax debtor after issue of an execution process will be evaluated in light of the particular circumstances of the case. 183. Procedures for dealing with warrants vary according to the jurisdiction out of which the execution process is issued. You need to be aware of the relevant court rules when seeking to issue warrants. 184. The return by the sheriff or bailiff of an unsatisfied execution is an act of bankruptcy which can establish a creditor's petition without the need for a bankruptcy notice to be issued. A decision may then be made as to whether to commence insolvency proceedings against that tax debtor. For further considerations relating to the commencement of bankruptcy proceedings, refer to PS LA 2011/16. | Purpose: 185. This Appendix outlines the circumstances and risk factors that will determine when we will utilise the freezing order or Mareva injunction process. | Background: 186. The equitable remedy of a Mareva injunction (named after the case of Mareva Compania Naviera SA v International Bulkcarriers SA [1975] 2 Lloyd's Rep 509) is now incorporated as part of the Rules of Civil Procedure in Commonwealth and State jurisdictions. In line with these rules, the term 'freezing order' is used interchangeably in this Practice Statement with the term 'Mareva injunction'. 187. Rule 7.32 of the Federal Court Rules 2011 provides that the Court may make a freezing order: … for the purpose of preventing the frustration or inhibition of the Court's process by seeking to meet a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied. 188. We will generally apply to the court for a freezing order where it is concluded that actions of certain tax debtors to dispose of or deal with assets present an unacceptable level of risk to payment of the liability or the enforcement of a judgment subsequently obtained, should legal action become necessary to recover the debt. 189. A freezing order is essentially a form of injunction that is used to restrain the respondent or their agents from removing assets from the jurisdiction or otherwise disposing of or dealing with those assets pending further orders by the court (for example, until final judgment is obtained against the respondent). The order does not create a security or interest as such in the assets for the applicant. 190. The law which governs the granting of Mareva injunctions is well-settled and the courts have been prepared to adapt Mareva injunctions to a range of situations where we have sought to preserve assets at risk of being dissipated. 191. In addition to relevant case law, there are both Federal and State court rules which allow a court to make a freezing order in similar circumstances to those necessary for the granting of a Mareva injunction. The wording of rule 7.32 of the Federal Court Rules 2011 has been largely adopted by the states in their respective rules. 192. To justify a freezing order, there must be in the view of the court a real and not merely fanciful risk that any assets will be dissipated or dealt with in some fashion such that the applicant will not be able to have the judgment satisfied. | Statement: 193. Under the Public Governance, Performance and Accountability Rule 2014, we have a duty to collect money legally owed to the Commonwealth as a result of the operation of those Acts that they administer. This duty requires them to ensure that tax debtors do not evade their liability by dealing with their assets in such a way so as to frustrate the execution of judgment. 194. As a successful application for a freezing order depends on the level of risk attributable to any case, our decision to embark on this process will invariably necessitate consideration of the principles set out in PS LA 2011/6. 195. Where the risk assessment process establishes that there is an unacceptable level of risk to the revenue, we will make a decision to minimise that risk. That decision may involve the instigation of a number of processes, including the application to the court for a freezing order to preserve assets considered to be at risk of being dissipated. | Requisite elements for a freezing order: 196. The risk assessment process requires due regard to be given to the requisite elements for a freezing order as prescribed by the relevant court rules and as settled by the court. In Third Chandris Shipping Corporation v Unimarine SA [1979] QB 645 at [668], Lord Denning outlined the requisite elements that the plaintiff must address in an application for a Mareva injunction. In the case of the Commissioner as an applicant for a freezing order, the following are considered relevant: • Prima-facie cause of action – In the first instance, we must establish a prima-facie cause of action against the tax debtor. A prima-facie case is one that has a real possibility of ultimate success as opposed to a speculative case. Therefore, we must demonstrate a good arguable case against the tax debtor. The cause of action is the non-payment of the debt by the date that it was due to be paid. – Although it is an advantage to have commenced legal recovery proceedings before embarking on an application for a freezing order, it is not an essential prerequisite. It will not always be possible to commence legal action because the assessed amounts due to us may not be payable at the point in time when action to obtain a freezing order is commenced (that is, the amounts are payable at a future date). – If legal action has not commenced, the plaintiff must establish a claim against the tax debtor. The courts would appear to be satisfied that we have a sufficiently strong case where notices of assessment have been issued. Production in court of notices of assessment, by virtue of subsection 177(1) of the ITAA 193 6, is deemed to be conclusive evidence of the making of the assessments. (See Deputy Commissioner of Taxation (Commonwealth) v Rosenthal, Leopold Solomon; Victory Downs P/L & Leeal Nominees P/L [1984] VicSC 550; Deputy Commissioner of Taxation v Gay Frances Sharp and Ian Robert Sharp [1988] ACTSC 36; Commissioner of Taxation v Futuris Corporation Limited [2008] HCA 32; Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41.) Where legal action has not commenced, it is to be expected that the court will require an undertaking that proceedings for recovery be commenced within a fixed time. • Disclosure to the court – In an ex parte application, it is essential for the applicant to make a full and frank disclosure of all material matters, to avoid injustice to the tax debtor. Such matters should include any evidence that may be prejudicial to the applicant's case and, in addition, any assumption made in the absence of sufficient evidence or suspicion of a particular course of conduct by the tax debtor, which may not be fully substantiated. – A failure to make full disclosure places the applicant at risk of an application being made by the tax debtor for the freezing order to be discharged on the basis that the order would not have been made ex parte, had the undisclosed matters been brought to the attention of the court. – Hearsay evidence is admissible, as long as the source of information is explicitly stated. • Assets within the jurisdiction – We must provide evidence of the existence of assets owned by the tax debtor within the jurisdiction, wherever possible. The nature of the assets, their location and their approximate value should be identified with as much detail as is possible. – Where we have little or no knowledge of the financial circumstances of the party against whom the injunction is sought, an application for a freezing order may be made. A freezing order may also be successful even where, with more diligence, something more might have been discovered. Commercial reality often requires an application for this relief to be brought quickly and without notice before detailed enquiries can be made, otherwise its very purpose could be frustrated. – Where it is considered necessary, an application may be made to the court for an order requiring the tax debtor to file an affidavit of discovery of all their assets. – In the event that we can identify the tax debtor's assets with sufficient particularity to enable the court to make an effective order, no discovery will be required. Discovery should be sought where the precise form and whereabouts of a tax debtor's assets are in doubt or where distribution of assets among a number of persons is unclear. Without the aid of discovery, it may be impossible to enforce the order or to oblige third parties to comply with it. Tax debtors are obliged to disclose all assets, including those in which they have only a contingent interest, when making their affidavit of discovery. – Information can also be obtained by issuing notices pursuant to section 353-10 of Schedule 1 to the TAA, provided such notices issue before the commencement of any proceedings. – Some Australian case decisions indicate that a freezing order may be granted to restrain a person from dealing with assets wherever they are located and regardless of whether they have ever been within the jurisdiction. In Deputy Commissioner of Taxation v Hickey and Another 33 ATR 453, the Supreme Court of Western Australia ruled that a Mareva injunction can apply to assets outside the territorial jurisdiction of the Court (in this case, New Zealand). However, this is not settled law and there appears to be some judicial conflict on the question of jurisdiction. (See Federal Commissioner of Taxation v Karageorge 34 ATR 196; National Australia Bank Ltd v Dessau [1988] VR 521; Brereton v Milstein [1988] VR 508.) Generally, we will apply for an injunction covering assets in Australia and overseas. • Grounds for believing that there is a real risk of dissipation – We must provide grounds for believing that there is a risk of the assets being moved from the jurisdiction or dissipated so that if judgment is obtained, it may go unsatisfied. A fear held by us that the assets are likely to be improperly dealt with is not sufficient to seek a freezing order. – Evidence should be provided that the risk has materialised or will probably do so. Wherever possible, it should be shown that the tax debtor may be organising their affairs and assets so that any judgment obtained may be frustrated. – It may be difficult to establish a clear case of real risk, but evidence as to the previous conduct of the tax debtor may hold significant weight in such matters. Situations may arise where evidence relevant to the cause of action itself is also relevant to the question of risk of dissipation of assets. – The same factors that go toward establishing a prima-facie cause of action may in certain cases be used to establish the question of risk of dissipation. This is particularly so in cases in which the prima-facie cause of action against the tax debtor involved evidence of gross dishonesty. – The case of Patterson v BTR Engineering (Aust) Ltd 18 NSWLR 319 involved a claim by the plaintiff that the defendant had fraudulently misappropriated a large sum of money from a company under his control. It was held by the court that the nature of the scheme in which the defendant appeared to have engaged was such that it was 'reasonable to infer' that he was not the sort of person who would, unless restrained, preserve his assets intact so that they might be available to his judgment creditor. The evidence used to bring on the action was also held to be relevant in establishing the question of the risk of asset dissipation. – In the decisions of Deputy Commissioner of Taxation v AES Services (Aust) Pty Ltd [2009] VSC 418 and Deputy Commissioner of Taxation v Gashi [2010] VSC 120, the courts were also prepared to find a real risk of dissipation of assets by the tax debtor based on evidence of earlier dishonest conduct. In these cases, the Supreme Court of Victoria granted freezing orders despite the fact that there was no direct evidence of intention to avoid the debts or of any preparations to dissipate assets. – To enable the court to evaluate an application, the Commissioner's affidavit should disclose the enquiries which have been made about the tax debtor and their business and the results of those enquiries, including evidence of any relevant dishonest conduct. The affidavit should also include details of any statements or inferences from the tax debtor indicating an intention to move assets, as well as any threats made by the tax debtor. Financial statements, such as balance sheets, may also be used to support the application, together with evidence of intended overseas travel, particularly if there is evidence of a regular pattern of overseas travel. – The strength of the evidence contained within the affidavit presented to the court will be the deciding factor in whether the freezing order is granted. • Undertaking as to damages – A freezing order may have serious consequences on a tax debtor's business, which may lead to substantial claims being made against us in the event that it is found that the injunction was unjustified. We would ordinarily be required to give an undertaking as to damages, which may be supported by a bond or other security. – In this regard, we must ensure that the injunction is not too wide, catching unnecessarily assets of which they were unaware or extending to assets greater in value than are necessary to meet the claim. • Prima-facie cause of action – In the first instance, we must establish a prima-facie cause of action against the tax debtor. A prima-facie case is one that has a real possibility of ultimate success as opposed to a speculative case. Therefore, we must demonstrate a good arguable case against the tax debtor. The cause of action is the non-payment of the debt by the date that it was due to be paid. – Although it is an advantage to have commenced legal recovery proceedings before embarking on an application for a freezing order, it is not an essential prerequisite. It will not always be possible to commence legal action because the assessed amounts due to us may not be payable at the point in time when action to obtain a freezing order is commenced (that is, the amounts are payable at a future date). – If legal action has not commenced, the plaintiff must establish a claim against the tax debtor. The courts would appear to be satisfied that we have a sufficiently strong case where notices of assessment have been issued. Production in court of notices of assessment, by virtue of subsection 177(1) of the ITAA 193 6, is deemed to be conclusive evidence of the making of the assessments. (See Deputy Commissioner of Taxation (Commonwealth) v Rosenthal, Leopold Solomon; Victory Downs P/L & Leeal Nominees P/L [1984] VicSC 550; Deputy Commissioner of Taxation v Gay Frances Sharp and Ian Robert Sharp [1988] ACTSC 36; Commissioner of Taxation v Futuris Corporation Limited [2008] HCA 32; Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41.) Where legal action has not commenced, it is to be expected that the court will require an undertaking that proceedings for recovery be commenced within a fixed time. • Disclosure to the court – In an ex parte application, it is essential for the applicant to make a full and frank disclosure of all material matters, to avoid injustice to the tax debtor. Such matters should include any evidence that may be prejudicial to the applicant's case and, in addition, any assumption made in the absence of sufficient evidence or suspicion of a particular course of conduct by the tax debtor, which may not be fully substantiated. – A failure to make full disclosure places the applicant at risk of an application being made by the tax debtor for the freezing order to be discharged on the basis that the order would not have been made ex parte, had the undisclosed matters been brought to the attention of the court. – Hearsay evidence is admissible, as long as the source of information is explicitly stated. • Assets within the jurisdiction – We must provide evidence of the existence of assets owned by the tax debtor within the jurisdiction, wherever possible. The nature of the assets, their location and their approximate value should be identified with as much detail as is possible. – Where we have little or no knowledge of the financial circumstances of the party against whom the injunction is sought, an application for a freezing order may be made. A freezing order may also be successful even where, with more diligence, something more might have been discovered. Commercial reality often requires an application for this relief to be brought quickly and without notice before detailed enquiries can be made, otherwise its very purpose could be frustrated. – Where it is considered necessary, an application may be made to the court for an order requiring the tax debtor to file an affidavit of discovery of all their assets. – In the event that we can identify the tax debtor's assets with sufficient particularity to enable the court to make an effective order, no discovery will be required. Discovery should be sought where the precise form and whereabouts of a tax debtor's assets are in doubt or where distribution of assets among a number of persons is unclear. Without the aid of discovery, it may be impossible to enforce the order or to oblige third parties to comply with it. Tax debtors are obliged to disclose all assets, including those in which they have only a contingent interest, when making their affidavit of discovery. – Information can also be obtained by issuing notices pursuant to section 353-10 of Schedule 1 to the TAA, provided such notices issue before the commencement of any proceedings. – Some Australian case decisions indicate that a freezing order may be granted to restrain a person from dealing with assets wherever they are located and regardless of whether they have ever been within the jurisdiction. In Deputy Commissioner of Taxation v Hickey and Another 33 ATR 453, the Supreme Court of Western Australia ruled that a Mareva injunction can apply to assets outside the territorial jurisdiction of the Court (in this case, New Zealand). However, this is not settled law and there appears to be some judicial conflict on the question of jurisdiction. (See Federal Commissioner of Taxation v Karageorge 34 ATR 196; National Australia Bank Ltd v Dessau [1988] VR 521; Brereton v Milstein [1988] VR 508.) Generally, we will apply for an injunction covering assets in Australia and overseas. • Grounds for believing that there is a real risk of dissipation – We must provide grounds for believing that there is a risk of the assets being moved from the jurisdiction or dissipated so that if judgment is obtained, it may go unsatisfied. A fear held by us that the assets are likely to be improperly dealt with is not sufficient to seek a freezing order. – Evidence should be provided that the risk has materialised or will probably do so. Wherever possible, it should be shown that the tax debtor may be organising their affairs and assets so that any judgment obtained may be frustrated. – It may be difficult to establish a clear case of real risk, but evidence as to the previous conduct of the tax debtor may hold significant weight in such matters. Situations may arise where evidence relevant to the cause of action itself is also relevant to the question of risk of dissipation of assets. – The same factors that go toward establishing a prima-facie cause of action may in certain cases be used to establish the question of risk of dissipation. This is particularly so in cases in which the prima-facie cause of action against the tax debtor involved evidence of gross dishonesty. – The case of Patterson v BTR Engineering (Aust) Ltd 18 NSWLR 319 involved a claim by the plaintiff that the defendant had fraudulently misappropriated a large sum of money from a company under his control. It was held by the court that the nature of the scheme in which the defendant appeared to have engaged was such that it was 'reasonable to infer' that he was not the sort of person who would, unless restrained, preserve his assets intact so that they might be available to his judgment creditor. The evidence used to bring on the action was also held to be relevant in establishing the question of the risk of asset dissipation. – In the decisions of Deputy Commissioner of Taxation v AES Services (Aust) Pty Ltd [2009] VSC 418 and Deputy Commissioner of Taxation v Gashi [2010] VSC 120, the courts were also prepared to find a real risk of dissipation of assets by the tax debtor based on evidence of earlier dishonest conduct. In these cases, the Supreme Court of Victoria granted freezing orders despite the fact that there was no direct evidence of intention to avoid the debts or of any preparations to dissipate assets. – To enable the court to evaluate an application, the Commissioner's affidavit should disclose the enquiries which have been made about the tax debtor and their business and the results of those enquiries, including evidence of any relevant dishonest conduct. The affidavit should also include details of any statements or inferences from the tax debtor indicating an intention to move assets, as well as any threats made by the tax debtor. Financial statements, such as balance sheets, may also be used to support the application, together with evidence of intended overseas travel, particularly if there is evidence of a regular pattern of overseas travel. – The strength of the evidence contained within the affidavit presented to the court will be the deciding factor in whether the freezing order is granted. • Undertaking as to damages – A freezing order may have serious consequences on a tax debtor's business, which may lead to substantial claims being made against us in the event that it is found that the injunction was unjustified. We would ordinarily be required to give an undertaking as to damages, which may be supported by a bond or other security. – In this regard, we must ensure that the injunction is not too wide, catching unnecessarily assets of which they were unaware or extending to assets greater in value than are necessary to meet the claim. – In the first instance, we must establish a prima-facie cause of action against the tax debtor. A prima-facie case is one that has a real possibility of ultimate success as opposed to a speculative case. Therefore, we must demonstrate a good arguable case against the tax debtor. The cause of action is the non-payment of the debt by the date that it was due to be paid. – Although it is an advantage to have commenced legal recovery proceedings before embarking on an application for a freezing order, it is not an essential prerequisite. It will not always be possible to commence legal action because the assessed amounts due to us may not be payable at the point in time when action to obtain a freezing order is commenced (that is, the amounts are payable at a future date). – If legal action has not commenced, the plaintiff must establish a claim against the tax debtor. The courts would appear to be satisfied that we have a sufficiently strong case where notices of assessment have been issued. Production in court of notices of assessment, by virtue of subsection 177(1) of the ITAA 193 6, is deemed to be conclusive evidence of the making of the assessments. (See Deputy Commissioner of Taxation (Commonwealth) v Rosenthal, Leopold Solomon; Victory Downs P/L & Leeal Nominees P/L [1984] VicSC 550; Deputy Commissioner of Taxation v Gay Frances Sharp and Ian Robert Sharp [1988] ACTSC 36; Commissioner of Taxation v Futuris Corporation Limited [2008] HCA 32; Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41.) Where legal action has not commenced, it is to be expected that the court will require an undertaking that proceedings for recovery be commenced within a fixed time. – In an ex parte application, it is essential for the applicant to make a full and frank disclosure of all material matters, to avoid injustice to the tax debtor. Such matters should include any evidence that may be prejudicial to the applicant's case and, in addition, any assumption made in the absence of sufficient evidence or suspicion of a particular course of conduct by the tax debtor, which may not be fully substantiated. – A failure to make full disclosure places the applicant at risk of an application being made by the tax debtor for the freezing order to be discharged on the basis that the order would not have been made ex parte, had the undisclosed matters been brought to the attention of the court. – Hearsay evidence is admissible, as long as the source of information is explicitly stated. – We must provide evidence of the existence of assets owned by the tax debtor within the jurisdiction, wherever possible. The nature of the assets, their location and their approximate value should be identified with as much detail as is possible. – Where we have little or no knowledge of the financial circumstances of the party against whom the injunction is sought, an application for a freezing order may be made. A freezing order may also be successful even where, with more diligence, something more might have been discovered. Commercial reality often requires an application for this relief to be brought quickly and without notice before detailed enquiries can be made, otherwise its very purpose could be frustrated. – Where it is considered necessary, an application may be made to the court for an order requiring the tax debtor to file an affidavit of discovery of all their assets. – In the event that we can identify the tax debtor's assets with sufficient particularity to enable the court to make an effective order, no discovery will be required. Discovery should be sought where the precise form and whereabouts of a tax debtor's assets are in doubt or where distribution of assets among a number of persons is unclear. Without the aid of discovery, it may be impossible to enforce the order or to oblige third parties to comply with it. Tax debtors are obliged to disclose all assets, including those in which they have only a contingent interest, when making their affidavit of discovery. – Information can also be obtained by issuing notices pursuant to section 353-10 of Schedule 1 to the TAA, provided such notices issue before the commencement of any proceedings. – Some Australian case decisions indicate that a freezing order may be granted to restrain a person from dealing with assets wherever they are located and regardless of whether they have ever been within the jurisdiction. In Deputy Commissioner of Taxation v Hickey and Another 33 ATR 453, the Supreme Court of Western Australia ruled that a Mareva injunction can apply to assets outside the territorial jurisdiction of the Court (in this case, New Zealand). However, this is not settled law and there appears to be some judicial conflict on the question of jurisdiction. (See Federal Commissioner of Taxation v Karageorge 34 ATR 196; National Australia Bank Ltd v Dessau [1988] VR 521; Brereton v Milstein [1988] VR 508.) Generally, we will apply for an injunction covering assets in Australia and overseas. – We must provide grounds for believing that there is a risk of the assets being moved from the jurisdiction or dissipated so that if judgment is obtained, it may go unsatisfied. A fear held by us that the assets are likely to be improperly dealt with is not sufficient to seek a freezing order. – Evidence should be provided that the risk has materialised or will probably do so. Wherever possible, it should be shown that the tax debtor may be organising their affairs and assets so that any judgment obtained may be frustrated. – It may be difficult to establish a clear case of real risk, but evidence as to the previous conduct of the tax debtor may hold significant weight in such matters. Situations may arise where evidence relevant to the cause of action itself is also relevant to the question of risk of dissipation of assets. – The same factors that go toward establishing a prima-facie cause of action may in certain cases be used to establish the question of risk of dissipation. This is particularly so in cases in which the prima-facie cause of action against the tax debtor involved evidence of gross dishonesty. – The case of Patterson v BTR Engineering (Aust) Ltd 18 NSWLR 319 involved a claim by the plaintiff that the defendant had fraudulently misappropriated a large sum of money from a company under his control. It was held by the court that the nature of the scheme in which the defendant appeared to have engaged was such that it was 'reasonable to infer' that he was not the sort of person who would, unless restrained, preserve his assets intact so that they might be available to his judgment creditor. The evidence used to bring on the action was also held to be relevant in establishing the question of the risk of asset dissipation. – In the decisions of Deputy Commissioner of Taxation v AES Services (Aust) Pty Ltd [2009] VSC 418 and Deputy Commissioner of Taxation v Gashi [2010] VSC 120, the courts were also prepared to find a real risk of dissipation of assets by the tax debtor based on evidence of earlier dishonest conduct. In these cases, the Supreme Court of Victoria granted freezing orders despite the fact that there was no direct evidence of intention to avoid the debts or of any preparations to dissipate assets. – To enable the court to evaluate an application, the Commissioner's affidavit should disclose the enquiries which have been made about the tax debtor and their business and the results of those enquiries, including evidence of any relevant dishonest conduct. The affidavit should also include details of any statements or inferences from the tax debtor indicating an intention to move assets, as well as any threats made by the tax debtor. Financial statements, such as balance sheets, may also be used to support the application, together with evidence of intended overseas travel, particularly if there is evidence of a regular pattern of overseas travel. – The strength of the evidence contained within the affidavit presented to the court will be the deciding factor in whether the freezing order is granted. – A freezing order may have serious consequences on a tax debtor's business, which may lead to substantial claims being made against us in the event that it is found that the injunction was unjustified. We would ordinarily be required to give an undertaking as to damages, which may be supported by a bond or other security. – In this regard, we must ensure that the injunction is not too wide, catching unnecessarily assets of which they were unaware or extending to assets greater in value than are necessary to meet the claim. | Third parties: 197. During investigations of the tax debtor's affairs, including their compliance history, it may become apparent that the tax debtor has deliberately structured their financial affairs in a manner so as to defeat any judgments made against them. For example, the tax debtor's matrimonial home may have been transferred to a related third party, such as a spouse, a family company or trust. 198. Accordingly, where such third party's assets appear to be at risk of dissipation by the tax debtor or the third party, we would often seek to include such assets within the scope of a freezing order. 199. The decision of the High Court in Cardile v LED Builders Pty Ltd [1999] HCA 18 assessed the basis of a Mareva order with particular focus on its application against third parties who are non-parties to the main proceedings. By majority judgment, the High Court found that a Mareva order may be granted against non-parties, where it is necessary to prevent the dissipation of assets so as to protect the administration of justice. The High Court said that such an order against a third party may be appropriate, assuming the existence of other relevant criteria and discretionary factors, in circumstances in which: • the third party is in possession of or has a means of control of assets of the judgment debtor or potential judgment debtor, or • some process, ultimately enforceable by the courts, is or may be available to the judgment creditor as a consequence of a judgment against that actual or potential judgment debtor, pursuant to which (whether by appointment of a liquidator, trustee in bankruptcy, receiver or otherwise) the third party may be obliged to disgorge property or otherwise contribute to the funds or property of the judgment debtor to help satisfy the judgment against the judgment debtor. • the third party is in possession of or has a means of control of assets of the judgment debtor or potential judgment debtor, or • some process, ultimately enforceable by the courts, is or may be available to the judgment creditor as a consequence of a judgment against that actual or potential judgment debtor, pursuant to which (whether by appointment of a liquidator, trustee in bankruptcy, receiver or otherwise) the third party may be obliged to disgorge property or otherwise contribute to the funds or property of the judgment debtor to help satisfy the judgment against the judgment debtor. 200. Subrule 7.35(5) of the Federal Court Rules 2011 deals with third-party assets and states that a freezing order can be made over third-party assets if the Court is satisfied that there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied, because the third party: (i) … holds or is using or has exercised or is exercising a power of disposition over assets of the [prospective] judgment debtor, or (ii) … is in possession of or is in a position of control or influence over assets of the [prospective] judgment debtor. Alternatively, the Court can make a freezing order if it is satisfied that there is a process ultimately available to the applicant as a result of a [prospective] judgment under which the third party may be obliged to disgorge assets or contribute towards satisfying the [prospective] judgment. (i) … holds or is using or has exercised or is exercising a power of disposition over assets of the [prospective] judgment debtor, or (ii) … is in possession of or is in a position of control or influence over assets of the [prospective] judgment debtor. 201. From a taxation perspective, a freezing order will be used to restrain the disposal or removal of assets held by third parties where it can be demonstrated to the court that the judgment debtor has control over property held by a third party and that execution of the judgment would be successfully levied against such property. 202. A freezing order may be granted against third parties where they have obtained the assets of the tax debtor by means of sham transactions or fraudulent conveyances. The court has taken the view on a number of occasions that assets, even though held in the name of the tax debtor's spouse, were in reality assets beneficially or equitably held on behalf of the tax debtor against which a judgment creditor should be able to levy execution. 203. The evidentiary onus lies on the applicant to convince the court that assets of a third party are, in reality, available to the respondent to meet his obligations. 204. A freezing order cannot be used to affect the legitimate rights which a third party may have acquired over the respondent. For example, a respondent cannot be prevented from paying their legitimate debts or disposing of their assets in the normal course of business: refer AJ Bekhor & Company Ltd v Bilton [1981] 2 All ER 565. | Breaches: 205. A freezing order is a court order. Consequently, wilful breaches are punishable as contempt of court with appropriate penalties. 206. As a model litigant, and also in accordance with the our corporate values, we have an obligation to bring such contempt to the attention of the court. 207. In Deputy Commissioner of Taxation v Guang Min Zhu (Supreme Court of Victoria 6922/1995, per Beach J on 9 September 1996), a tax debtor who purported to assign their half-share of their matrimonial home to their estranged spouse under a family law settlement while a Mareva injunction was in force was sentenced to 2 months' imprisonment. 208. As the freezing order is an equitable remedy, the court will not tolerate any abuse of the procedure. Accordingly, improper conduct by the applicant, such as not prosecuting the recovery proceedings in a timely manner or putting unfair pressure on the tax debtor, may lead the court to refuse to grant or continue the injunction. | Roles of ATO technical areas: 209. Given the complexity of the matters to be considered when determining whether to proceed with a freezing order, the relevant technical area in the Frontline Operations business line must be consulted at the earliest opportunity to assess the available evidence on which the application will rely. 210. A freezing order may impose considerable constraints on taxpayers' resources, which could adversely impact on their business. Therefore, extreme care needs to be exercised in reaching a decision to utilise this remedy. Accordingly, the authority to approve an application for a freezing order will be limited to SES officers. 211. The Litigation and Legal Services business line should also be consulted as early as possible if an application for a freezing order is being considered. Advice can be provided to assist in respect of the gathering of evidence to support the application. It may also be necessary to liaise with other stakeholders to coordinate the timing for issue of notices of assessment with the filing of the application with the court. | What is a direction to pay superannuation guarantee charge?: 212. We can issue a direction to an employer to pay an outstanding SGC liability or an estimate of that liability. When an employer receives a direction to pay SGC, they must ensure that they pay the full the amount included in the direction. | Factors that must be taken into account when deciding to issue the direction: 213. We are required to consider a number of matters in deciding whether to issue a direction to an employer, including: • history of compliance with SGC obligations • history of compliance with other obligations under taxation laws • size of the liability, having regard to the size and nature of the business • any steps that the employer has taken to discharge the unpaid liability or to dispute that it exists, and • any other matters that we consider relevant. • history of compliance with SGC obligations • history of compliance with other obligations under taxation laws • size of the liability, having regard to the size and nature of the business • any steps that the employer has taken to discharge the unpaid liability or to dispute that it exists, and • any other matters that we consider relevant. | What happens if an employer fails to comply with a direction?: 214. Failure to pay the amount in full, within the period or by the due date in accordance with the direction (in paragraph 212 of this Practice Statement) is an offence and can result in criminal penalties. The maximum penalty for this offence is 50 penalty units [42] , imprisonment for 12 months, or both. | Defence: 215. An employer will not commit an offence if they took all reasonable steps within the required period to • comply with the direction, and • ensure that the original liability was discharged before the direction was given. • comply with the direction, and • ensure that the original liability was discharged before the direction was given. | Variation and revocation: Variation of amount or period of compliance 216. We may change a direction issued to an employer to: • reduce the amount required to be paid, or • extend the period within which the employer must comply with the original direction. • reduce the amount required to be paid, or • extend the period within which the employer must comply with the original direction. Revoking the direction 217. We may also revoke a direction at any time before the end of the period specified for compliance with the direction. | Objection to issue direction: 218. An employer that is dissatisfied with the decision to give a direction to pay an unpaid liability can object to the decision in the manner set out in Part IVC of the TAA. An objection must be made before the end of the period specified in the direction. | Extension of period to comply if taxation objection is made: 219. The period or due date in which an employer must comply with a direction is automatically extended if the employer objects in the manner set out in Part IVC of the TAA to: • the direction being issued, or • the taxation decision relating to the underlying liability. • the direction being issued, or • the taxation decision relating to the underlying liability.",MT 2008/1 | MT 2008/2 | PS LA 2011/6 | PS LA 2011/10 | PS LA 2011/14 | PS LA 2011/16 | PS LA 2011/20 | PCG 2020/2 | ANTS(GST)A 1999 17-5 | ANTS(GST)A 1999 17-10 | ANTS(GST)A 1999 195-1 | ANTS(LCT)A 1999 Subdiv 13-A | ANTS(WET)A 1999 Subdiv 21-A | ITAA 1936 318 | ITAA 1997 995-1 | ITAA 1997 995-1(1) | TAA 1953 2(1) | TAA 1953 8AAZA | TAA 1953 8AAZL(2) | TAA 1953 8Y | TAA 1953 14S(3) | TAA 1953 14T(1) | TAA 1953 14T(1)(a) | TAA 1953 14T(2) | TAA 1953 14U | TAA 1953 14ZZH | TAA 1953 14U(2) | TAA 1953 Pt IVA | TAA 1953 Pt IVC | TAA Pt IIB | TAA Pt IIB Div 4 | TAA 1953 Sch 1 Pt 2-5 Subdiv 18-D | TAA 1953 Sch 1 Pt 2-5 Subdiv 16-B | TAA 1953 Sch 1 Div 12 | TAA 1953 Sch 1 Div 13 | TAA 1953 Sch 1 Div 14 | TAA 1953 Sch 1 18-15 | TAA 1953 Sch 1 18-130 | TAA 1953 Sch 1 18-140 | TAA 1953 Sch 1 18-170 | TAA 1953 Sch 1 18-175 | TAA 1953 Sch 1 18-185 | TAA 1953 Sch 1 18-190 | TAA 1953 Sch 1 255-1(1) | TAA 1953 Sch 1 255-1(2) | TAA 1953 Sch 1 255-15 | TAA 1953 Sch 1 Subdiv 260-A | TAA 1953 Sch 1 260-5 | TAA 1953 Sch 1 260-5(1) | TAA 1953 Sch 1 260-5(2) | TAA 1953 Sch 1 Div 268 | TAA 1953 Sch 1 268-10 | TAA 1953 Sch 1 268-40 | TAA 1953 Sch 1 Div 269 | TAA 1953 Sch 1 269-10 | TAA 1953 Sch 1 269-15 | TAA 1953 Sch 1 269-15(2) | TAA 1953 Sch 1 269-20 | TAA 1953 Sch 1 269-20(1) | TAA 1953 Sch 1 269-20(3) | TAA 1953 Sch 1 269-20(4) | TAA 1953 Sch 1 269-25 | TAA 1953 Sch 1 269-25(1) | TAA 1953 Sch 1 269-25(4) | TAA 1953 Sch 1 269-30(1) | TAA 1953 Sch 1 269-30(2) | TAA 1953 Sch 1 269-30(3) | TAA 1953 Sch 1 269-35 | TAA 1953 Sch 1 269-35(1) | TAA 1953 Sch 1 269-35(2) | TAA 1953 Sch 1 269-35(3) | TAA 1953 Sch 1 269-35(3AA) | TAA 1953 Sch 1 269-35(4)(b) | TAA 1953 Sch 1 269-35(4A) | TAA 1953 Sch 1 269-40 | TAA 1953 Sch 1 269-45 | TAA 1953 Sch 1 284-15 | TAA 1953 Sch 1 353-10 | TAA 1953 Sch 1 Div 355 | TAA 1953 Sch 1 355-50 | Administrative Review Tribunal Act 2024 32 | Administrative Decisions (Judicial Review) Act 1977 5 | Administrative Decisions (Judicial Review) Act 1977 13 | Bankruptcy Act 1966 Pt VI Div 4B | Bankruptcy Act 1966 139ZIG(8) | Corporations Act 2001 588FF | Corporations Act 2001 588FGA | Corporations Act 2001 588G | Crimes Act 1914 21B | Crimes Act 1914 4AA | Defence Service Homes Act 1918 45A | First Home Saver Accounts Act 2008 126B(3) | Performance and Accountability Act 2013 | Privacy Act 1988 | Superannuation Guarantee (Administration) Act 1992 | Tax Agent Services Act 2009 Pt 5 | Tax Laws Amendment (2012 Measures No. 2) Act 2012 Sch 1 Pt 1 | Treasury Laws Amendment (2018 Measures No. 4) Act 2019 Sch 5 Pt 1 | Treasury Laws Amendment (2018 Measures No. 4) Act 2019 Sch 5 Pt 2 | Treasury Laws Amendment (2022 Measures No. 2) Act 2022 | Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 Sch 3 | Federal Court Rules 2011 r7.32 | Federal Court Rules 2011 r7.35(5) | [1981] QB 923 | [1988] VR 508 | 2009 ATC 20-125 | [1999] HCA 18 | 96 ATC 5114 | 2008 ATC 20-039 | 2012 ATC 20-344 | 85 ATC 4031 | 2008 ATC 20-045 | 88 ATC 4572 | 96 ATC 4892 | 2002 ATC 5135 | 92 ATC 4285 | [1988] VR 521 | 2005 ATC 4205 | 96 ATC 4661 | 2011 ATC 20-272 | 2008 ATC 20-001,PS LA 2011/6 PS LA 2011/10 PS LA 2011/14 PS LA 2011/16 PS LA 2011/20,"ANTS(GST)A 1999 17-5 | ANTS(GST)A 1999 17-10 | ANTS(GST)A 1999 195-1 | ANTS(LCT)A 1999 Subdiv 13-A | ANTS(WET)A 1999 Subdiv 21-A | ITAA 1936 Div 8 Pt VI | ITAA 1936 (former) 177(1) | ITAA 1936 (former) 222ALA | ITAA 1936 318 | ITAA 1997 995-1 | ITAA 1997 995-1(1) | TAA 1953 2(1) | TAA 1953 8AAZA | TAA 1953 8AAZL(2) | TAA 1953 8Y | TAA 1953 14S(3) | TAA 1953 14T(1) | TAA 1953 14T(1)(a) | TAA 1953 14T(2) | TAA 1953 14U | TAA 1953 14ZZH | TAA 1953 14U(2) | TAA 1953 Pt IVA | TAA 1953 Pt IVC | TAA Pt IIB | TAA Pt IIB Div 4 | TAA 1953 Sch 1 Pt 2-5 | TAA 1953 Sch 1 Pt 2-5 Subdiv 18-D | TAA 1953 Sch 1 Pt 2-5 Subdiv 16-B | TAA 1953 Sch 1 Pt 4-15 | TAA 1953 Sch 1 Div 12 | TAA 1953 Sch 1 Div 13 | TAA 1953 Sch 1 Div 14 | TAA 1953 Sch 1 18-15 | TAA 1953 Sch 1 18-130 | TAA 1953 Sch 1 18-140 | TAA 1953 Sch 1 18-170 | TAA 1953 Sch 1 18-175 | TAA 1953 Sch 1 18-185 | TAA 1953 Sch 1 18-190 | TAA 1953 Sch 1 255-1(1) | TAA 1953 Sch 1 255-1(2) | TAA 1953 Sch 1 255-15 | TAA 1953 Sch 1 Pt 4-15 | TAA 1953 Sch 1 Subdiv 260-A | TAA 1953 Sch 1 260-5 | TAA 1953 Sch 1 260-5(1) | TAA 1953 Sch 1 260-5(2) | TAA 1953 Sch 1 Div 268 | TAA 1953 Sch 1 268-10 | TAA 1953 Sch 1 268-40 | TAA 1953 Sch 1 Div 269 | TAA 1953 Sch 1 269-10 | TAA 1953 Sch 1 269-15 | TAA 1953 Sch 1 269-15(2) | TAA 1953 Sch 1 269-20 | TAA 1953 Sch 1 269-20(1) | TAA 1953 Sch 1 269-20(3) | TAA 1953 Sch 1 269-20(4) | TAA 1953 Sch 1 269-25 | TAA 1953 Sch 1 269-25(1) | TAA 1953 Sch 1 269-25(4) | TAA 1953 Sch 1 269-30(1) | TAA 1953 Sch 1 269-30(2) | TAA 1953 Sch 1 269-30(3) | TAA 1953 Sch 1 269-35 | TAA 1953 Sch 1 269-35(1) | TAA 1953 Sch 1 269-35(2) | TAA 1953 Sch 1 269-35(3) | TAA 1953 Sch 1 269-35(3AA) | TAA 1953 Sch 1 269-35(3AB) | TAA 1953 Sch 1 269-35(4)(b) | TAA 1953 Sch 1 269-35(4A) | TAA 1953 Sch 1 269-40 | TAA 1953 Sch 1 269-45 | TAA 1953 Sch 1 284-15 | TAA 1953 Sch 1 353-10 | TAA 1953 Sch 1 Div 355 | TAA 1953 Sch 1 355-50 | Administrative Review Tribunal Act 2024 32 | Administrative Decisions (Judicial Review) Act 1977 5 | Administrative Decisions (Judicial Review) Act 1977 13 | Bankruptcy Act 1966 Pt VI Div 4B | Bankruptcy Act 1966 139ZIG(8) | Corporations Act 2001 588FF | Corporations Act 2001 588FGA | Corporations Act 2001 588G | Crimes Act 1914 21B | Crimes Act 1914 4AA | Defence Service Homes Act 1918 45A | Financial Management and Accountability Act 1997 | First Home Saver Accounts Act 2008 126B(3) | Health Insurance Act 1973 20(2) | Migration Act 1958 | Performance and Accountability Act 2013 | Public Governance, Performance and Accountability Rule 2014 | Privacy Act 1988 | Superannuation Guarantee (Administration) Act 1992 | Tax Agent Services Act 2009 Pt 5 | Tax Laws Amendment (2012 Measures No. 2) Act 2012 Sch 1 Pt 1 | Treasury Laws Amendment (2018 Measures No. 4) Act 2019 Sch 5 Pt 1 | Treasury Laws Amendment (2018 Measures No. 4) Act 2019 Sch 5 Pt 2 | Treasury Laws Amendment (2022 Measures No. 2) Act 2022 | Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 Sch 3 | Federal Court Rules 2011 r7.32 | Federal Court Rules 2011 r7.35(5)",,Chief Executive Instruction Respecting taxpayers' rights of review (internal link only) Compliance model ATO Charter PCG 2020/2 Penalties,False,True,https://www.ato.gov.au/law/view/document?docid=PSR/PS201118/NAT/ATO/00001,"Appendix A – Estimates of PAYG withholding, SGC and GST liabilities | Appendix B – Personal liabilities of company directors | Appendix C – Statutory garnishees | Appendix D – Departure prohibition orders | Appendix E – Writs or warrants of execution | Appendix F – Freezing orders (also known as mareva injunctions or asset preservation orders) | Appendix G – Direction to pay superannuation guarantee charge | Updated to provide additional detail on the factors that are considered by the ATO when determining whether to issue a Departure Prohibition Order (DPO). | The Appendix has also been restructured to align with the typical sequence of decision-making in relation to DPOs: issuing a DPO, issuing a Departure Authorisation Certificate, and revocation or variation of a DPO. | Naming convention updated to Appendixes A to G. | Updated to align with amended Practice Statement style and formatting requirements. | Updated in line with current ATO style and accessibility requirements. | Enforcement measures - subparagraph 22(iv) | Updated to clarify our position in relation to applications made by taxpayers to set aside a judgment. | Other action - paragraph 25 | Updated to clarify the cases referred to the Commonwealth Director of Public Prosecution include tax fraud or crime cases. | Various changes resulting from amendments to the law brought in by the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 to provide for estimates of GST, WET and LCT. | Various changes resulting from amendments to the law brought in by the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 which extended the director penalty regime to GST liabilities (including WET and LCT). | Limitations on the use of garnishees - paragraph 124 | Added to reflect the amendments to the law brought in by the Treasury Laws Amendment (2022 Measures No. 2) Act 2022 . | Garnishee notices and external controllers or insolvency administrations - paragraph 136 | Updated the list of circumstances where we will not ordinarily withdraw a garnishee. | Updated to reflect amendments to the law brought in by the Treasury Laws Amendment (2018 Measures No. 4) Act 2019 | Annexure G inserted to reflect amendments to the law brought in by the Treasury Laws Amendment (2018 Measures No. 4) Act 2019 | Paragraph 183; legislative reference section | Updated references to Financial Management and Accountability Act 1997 with relevant provisions in Public Governance, Performance and Accountability Act 2013 and Public Governance, Performance and Accountability Rule 2014 ; updated contact details. | Deleted term - withholding provisions. Term is outdated and no longer used in the practice statement. | Enforcement measures - new subparagraph 21(xiii) | Annexure A - Estimates of PAYG withholding and SGC liabilities | Various changes resulting from amendments to the law to provide for estimates of SGC. | Updated to reflect the decision in Transtar Linehaul Pty Ltd v DFC of T [2011] FCA 856 | Director penalties - paragraphs 39-73 | Updated to reflect the amendments to the law which extended the director penalty regime to SGC liabilities and limited the penalty remission opportunities when a liability remains unreported by the company for more than three months. | PAYG withholding non-compliance tax - paragraphs 80-102 | Garnishee notices and financial institution accounts - paragraph 124 | Replacement paragraph concerning the obligations created by service of a garnishee notice | Allocation of payments received pursuant to a garnishee - paragraph 135 | Updated paragraph to reflect ATO system changes. | Revocation or variation of a departure prohibition order - paragraphs 152-163 | Security for a departure authorisation certificate - paragraphs 164-166 | Various changes to the style for clarity and greater consistency of terms used. | [1] See section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). | [2] Refer to the definitions of 'associate' in section 318 of the Income Tax Assessment Act 1936 (ITAA 1936) and 'relative' and 'spouse' both in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997). | [3] See sections 17-5 and 17-10 of the GST Act. The provisions under Subdivision 21-A of the A New Tax System (Wine Equalisation Tax) Act 1999 and Subdivision 13-A of the A New Tax System (Luxury Car Tax) Act 1999 allow for those taxes (and associated credits and adjustments) to be administered by the GST system. | [4] Division 268 of Schedule 1 to the TAA is effective from 1 July 2010. Prior to that date, estimates of PAYG withholding were made under Division 8 of Part VI of the ITAA 1936. | [5] A civil penalty under Division 290 of Schedule 1 of the TAA or Part 5 of the Tax Agent Services Act 2009 is not a tax-related liability - refer subsection 255-1(2) of Schedule 1 to the TAA. | [6] See Transtar Linehaul Pty Limited v Deputy Commissioner of Taxation [2011] FCA 856 at [86]. | [7] Schedule 1, Part 1 of the Tax Laws Amendment (2012 Measures No. 2) Act 2012 . | [8] Schedule 5, Part 2 of the Treasury Laws Amendment (2018 Measures No. 4) Act 2019 . | [9] Schedule 5, Part 1 of the Treasury Laws Amendment (2018 Measures No. 4) Act 2019 . | [10] Schedule 3 of the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 . | [11] Section 269-15 of Schedule 1 to the TAA. | [12] Section 269-20 of Schedule 1 to the TAA. | [13] Section 269-10 of Schedule 1 to the TAA. | [14] Subsection 269-20(3) and subsection 269-15(2) of Schedule 1 to the TAA. | [15] Subsection 269-20(4) of Schedule 1 to the TAA. | [16] Sections 269-10, 269-15 and subsection 269-20(1) of Schedule 1 to the TAA. | [17] Section 269-40 of Schedule 1 to the TAA. | [18] Subsections 269-30(1) and (2) of Schedule 1 to the TAA. | [19] Subsection 269-30(3) of Schedule 1 to the TAA. | [20] Subsections 269-35(3AA) and (3AB) of Schedule 1 to the TAA. | [21] Subsection 269-35(3) of Schedule 1 to the TAA. | [22] Deputy Commissioner of Taxation v Saunig [2002] NSWCA 390. | [23] The term 'reasonably arguable' is defined in subsection 995-1(1) of the ITAA 1997 to have the meaning given by section 284-15 of Schedule 1 to the TAA. | [24] Paragraph 269-35(4)(b) of Schedule 1 to the TAA. | [25] See also Simpson and Others v Deputy Commissioner of Taxation [1996] SASC 5598 in relation to the former provisions. | [26] Other debts for which a garnishee notice can issue are a judgment debt for a tax-related liability, costs for such a judgment debt and an amount that a court has ordered the debtor to pay to the Commissioner following the debtor's conviction for an offence against a taxation law - subsection 260-5(1) of Schedule 1 to the TAA. | [27] This power was brought about by the Treasury Laws Amendment (2022 Measures No. 2) Act 2022 . The purpose of the amendments is to provide small business entities with a cheaper, faster and simpler way to pause the effects of a decision to recover a tax debt during merits review of the decision as compared to applying to a court. See section 32 of the Administrative Review Tribunal Act 2024 and section 14ZZH of the TAA. | [28] See Commissioner of Taxation v Park [2012] FCAFC 122. | [29] 'Tax liability' is defined in subsection 2(1) of the TAA to mean 'a liability to the Commonwealth arising under, or by virtue of, a taxation law.' | [30] See Dalco v Federal Commissioner of Taxation (1987) 19 ATR 443 at [447-448], Edelsten, G.W. v Commissioner of Taxation [1989] FCA 4; 20 ATR 238 ( Edelsten ) at [241] and Troughton v Deputy Commissioner of Taxation [2008] FCA 18 ( Troughton ) at [40]. | [31] Skase, C.C. v Commissioner of Taxation [1991] FCA 904; 32 FCR 206 at [210-211]. | [33] See Edelsten at [244], citing Winter v Federal Commissioner of Taxation (1985) 16 ATR 977 at [989-990]. | [35] See Edelsten at [244], citing Winter v Federal Commissioner of Taxation (1985) 16 ATR 977 at [989-990] and Gazal v Deputy Commissioner of Taxation [2024] NSWSC 1 at [80]. | [36] See Bakri v Deputy Commissioner of Taxation [2017] FCA 20 at [46] and Pattenden v Commissioner of Taxation [2008] FCA 1590 at [94]. | [37] Pattenden v Commissioner of Taxation [2008] FCA 1590 at [38]. | [38] Paragraph 14S(4)(a) of the TAA and subsection 11(2) and section 14 of the Taxation Administration Regulations 2017 . | [39] See Edelsten, G.W. v Deputy Commissioner of Taxation [1992] FCA 379. | [41] Subsection 14T(2) of the TAA. | [42] The value of a penalty unit is contained in section 4AA of the Crimes Act 1914 and is indexed regularly. The dollar amount of a penalty unit is available at Penalties . | File 1-HJN7EIG; 1-11U1V5UO; 1-1ADVGQ20 | AJ Bekhor & Company Ltd v Bilton [1981] QB 923 2 All ER 565 | Bruton Holdings Pty Limited (in liquidation) v Commissioner of Taxation [2009] HCA 32 239 CLR 346 2009 ATC 20-125 72 ATR 856 83 ALJR 1034 258 ALR 612 | Cardile v LED Builders Pty Ltd [1999] HCA 18 198 CLR 380 73 ALJR 657 162 ALR 294 45 IPR 1 | Federal Commissioner of Taxation v Karageorge 34 ATR 196 96 ATC 5114 | Commissioner of Taxation v Futuris Corporation Limited [2008] HCA 32 237 CLR 146 2008 ATC 20-039 69 ATR 41 82 ALJR 1177 247 ALR 605 | Commissioner of Taxation v Park [2012] FCAFC 122 205 FCR 1 2012 ATC 20-344 90 ATR 519 | Deputy Commissioner of Taxation (Commonwealth) v Rosenthal, Leopold Solomon; Victory Downs P/L & Leeal Nominees P/L [1984] VicSC 550 [1984] 79 FLR 11 85 ATC 4031 16 ATR 159 | Deputy Commissioner of Taxation v AES Services (Aust) Pty Ltd [2009] VSC 418 77 ATR 414 | Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41 237 CLR 473 82 ALJR 1411 248 ALR 693 2008 ATC 20-045 69 ATR 357 | Deputy Commissioner of Taxation v Gashi [2010] VSC 120 27 VR 127 78 ATR 860 | Deputy Commissioner of Taxation v Gay Frances Sharp and Ian Robert Sharp [1988] 82 ACTR 1 91 FLR 70 88 ATC 4572 19 ATR 1515 | Deputy Commissioner of Taxation v Hickey and Another 33 ATR 453 96 ATC 4892 | Deputy Commissioner of Taxation v Saunig [2002] NSWCA 390 2002 ATC 5135 43 ACSR 387 51 ATR 435 | Edelsten, G.W. v Deputy Commissioner of Taxation [1992] FCA 379 36 FCR 236 92 ATC 4285 23 ATR 351 108 ALR 195 | Lui v Commissioner of Taxation [2009] FCAFC 115 178 FCR 289 2009 ATC 20-127 76 ATR 633 | Sarkis v Deputy Commissioner of Taxation [2005] VSCA 67 2005 ATC 4205 59 ATR 33 | Simpson and Others v Deputy Commissioner of Taxation [1996] SASC 5598 132 FLR 459 96 ATC 4661 33 ATR 139 | Third Chandris Shipping Corp. v Unimarine S.A. [1979] QB 645 | Transtar Linehaul Pty Limited v Deputy Commissioner of Taxation [2011] FCA 856 196 FCR 271 2011 ATC 20-272 84 ATR 518 | Troughton v Deputy Commissioner of Taxation [2008] FCA 18 166 FCR 9 2008 ATC 20-001 69 ATR 234 99 ALD 571 100 ALD 260"
PS LA 2011/19,Administration of the penalty for failure to lodge on time,14 April 2011,14 April 2011,Law Administration Practice Statement,False,"What this Practice Statement is about: 1. Subsection 286-75(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA) imposes a failure to lodge (FTL) penalty for failing to lodge returns, notices, statements or other documents (referred to as 'taxation documents' [1] ) in the 'approved form' [2] by a particular day. 2. This Practice Statement provides guidance on how the FTL penalty is applied and administered. It also provides guidance on exercising the discretion to remit the FTL penalty. [3] 3. All further legislative references in this Practice Statement are to Schedule 1 of the TAA, unless otherwise indicated. | Reasons why we have a failure to lodge penalty: 4. You should be aware of the reasons why we have an FTL penalty when applying the policy in this Practice Statement. These reasons include: • revenue collections are often contingent on timely lodgments • pay as you go (PAYG) withholding annual reports reconcile amounts withheld from employees and failing to lodge these can prevent individuals from lodging correctly using pre-filling • businesses may gain cash flow advantages by delaying lodgment (by delaying updates to PAYG instalment rates) • information from large entities is valuable to the ATO in managing compliance risks • the community expects penalties to be administered fairly, with those who avoid reporting on time being penalised and those who are trying to do the right thing given reasonable opportunity to comply • partly as cost recovery where we have undertaken compliance action to bring the lodgment in. • revenue collections are often contingent on timely lodgments • pay as you go (PAYG) withholding annual reports reconcile amounts withheld from employees and failing to lodge these can prevent individuals from lodging correctly using pre-filling • businesses may gain cash flow advantages by delaying lodgment (by delaying updates to PAYG instalment rates) • information from large entities is valuable to the ATO in managing compliance risks • the community expects penalties to be administered fairly, with those who avoid reporting on time being penalised and those who are trying to do the right thing given reasonable opportunity to comply • partly as cost recovery where we have undertaken compliance action to bring the lodgment in. | Types of documents to which the failure to lodge penalty applies: 5. An FTL penalty can apply to any document which must be lodged in the approved form under a taxation law. Some of the most common documents to which an FTL penalty applies are: • activity statements • annual goods and services tax (GST) returns and information reports • tax returns [4] • fringe benefits tax returns • PAYG withholding annual reports • taxable payments annual reports • member statements [5] • Common Reporting Standard statements • Foreign Account Tax Compliance Act statements • global and domestic minimum tax (minimum tax) lodgment obligations [6] • Sharing Economy Reporting Regime reports. Note: it is generally important that entities lodge using the approved form. If photocopies or other documents are lodged, we may return them and advise that they need to be lodged using the approved form. If we have to repeatedly return forms, an FTL penalty may be imposed. • activity statements • annual goods and services tax (GST) returns and information reports • tax returns [4] • fringe benefits tax returns • PAYG withholding annual reports • taxable payments annual reports • member statements [5] • Common Reporting Standard statements • Foreign Account Tax Compliance Act statements • global and domestic minimum tax (minimum tax) lodgment obligations [6] • Sharing Economy Reporting Regime reports. Note: it is generally important that entities lodge using the approved form. If photocopies or other documents are lodged, we may return them and advise that they need to be lodged using the approved form. If we have to repeatedly return forms, an FTL penalty may be imposed. 6. Documents required under the following Acts are specifically excluded from the FTL penalty [7] : • Superannuation Contributions Tax (Assessment and Collection) Act 1997 • Superannuation Guarantee (Administration) Act 1992 • Superannuation (Self Managed Superannuation Funds) Supervisory Levy Imposition Act 1991. • Superannuation Contributions Tax (Assessment and Collection) Act 1997 • Superannuation Guarantee (Administration) Act 1992 • Superannuation (Self Managed Superannuation Funds) Supervisory Levy Imposition Act 1991. | How the failure to lodge penalty is applied: 7. The FTL penalty can be applied either: • automatically (using a system of filters to exclude certain documents and entities which represent a low risk), or • manually – in those cases which are excluded from the automated system. This includes situations where the documents remain overdue, in situations of escalating non-compliance, and where the entities are higher risk. • automatically (using a system of filters to exclude certain documents and entities which represent a low risk), or • manually – in those cases which are excluded from the automated system. This includes situations where the documents remain overdue, in situations of escalating non-compliance, and where the entities are higher risk. | When a failure to lodge penalty should be applied: 8. Overall, you should seek to apply the FTL penalty in such a way as to improve lodgment behaviours. 9. The general principles are that the FTL penalty will be applied if the FTL: • places the efficient operation of the taxation and superannuation systems at risk • provides a benefit or advantage to the late or non-lodger over the general community, or • erodes community confidence in the taxation and superannuation systems. • places the efficient operation of the taxation and superannuation systems at risk • provides a benefit or advantage to the late or non-lodger over the general community, or • erodes community confidence in the taxation and superannuation systems. 10. Some of the factors you should consider in deciding whether to apply the FTL penalty are: • the compliance history of the entity • the effort it took to obtain lodgment • the value of the information to be disclosed in the taxation document • whether the entity is aware of their lodgment obligation and the consequences of not meeting that obligation • whether the entity has had an opportunity to comply • the length of time the taxation document was overdue • any contact the entity or their representative may have had with us prior to the due date for lodgment. This list is not exhaustive. • the compliance history of the entity • the effort it took to obtain lodgment • the value of the information to be disclosed in the taxation document • whether the entity is aware of their lodgment obligation and the consequences of not meeting that obligation • whether the entity has had an opportunity to comply • the length of time the taxation document was overdue • any contact the entity or their representative may have had with us prior to the due date for lodgment. This list is not exhaustive. 11. Generally, the following rules also apply: • Where multiple obligations are reported on the one document (for example, an activity statement) – we will only apply one FTL penalty, although, at law, the entity is liable to a separate FTL penalty for each obligation. • Where multiple entities are required to be reported on the one document, multiple FTL penalties, equivalent to the number of obligations not lodged, can be applied. • Where multiple obligations are reported on the one document (for example, an activity statement) – we will only apply one FTL penalty, although, at law, the entity is liable to a separate FTL penalty for each obligation. • Where multiple entities are required to be reported on the one document, multiple FTL penalties, equivalent to the number of obligations not lodged, can be applied. | Notifying the entity of the failure to lodge penalty: 12. We must give written notice to the entity of the amount of FTL penalty and why they are liable for it. The penalty does not become payable until at least 14 days after the notice is given. [8] 13. Notice of the FTL penalty may be made before or after the entity has lodged the document. If it is made before, we can later increase the penalty (up to the statutory maximum) [9] either when the document is lodged, or if it remains unlodged. | Calculation of the failure to lodge penalty: 14. The FTL penalty is calculated in 2 stages: • the base penalty amount (BPA) is determined • the BPA is increased if entity size tests are satisfied. [10] • the base penalty amount (BPA) is determined • the BPA is increased if entity size tests are satisfied. [10] | Base penalty amount: 15. The BPA is one penalty unit [11] for every 28 days (or part thereof) that the taxation document is late, up to a maximum of 5 penalty units. 16. The BPA is calculated from the due date of the document to the date before it is received. | Increasing the base penalty amount: 17. The BPA is increased if the entity is a medium or large withholder (at the time the document is required to be lodged). 18. The BPA is multiplied by 2 [12] if the entity: • is a medium withholder [13] in the month the document was due • has an assessable income for the income year in which the taxation document was due of more than $1 million but less than $20 million, or • has a current GST turnover of more than $1 million but less than $20 million in the month the document was due. • is a medium withholder [13] in the month the document was due • has an assessable income for the income year in which the taxation document was due of more than $1 million but less than $20 million, or • has a current GST turnover of more than $1 million but less than $20 million in the month the document was due. 19. The BPA is multiplied by 5 if the entity: • is a large withholder [14] in the month the taxation document was due • has an assessable income for the income year in which the taxation document was due of $20 million or more, or • has a current GST turnover of $20 million or more in the month the taxation document was due. • is a large withholder [14] in the month the taxation document was due • has an assessable income for the income year in which the taxation document was due of $20 million or more, or • has a current GST turnover of $20 million or more in the month the taxation document was due. 20. If we do not have current information to apply all 3 size tests to determine the size of an entity, you should use the entity's withholder status or assessable income to determine their size, whichever imposes the higher penalty. 21. Where it is determined that the FTL penalty amount has been incorrectly applied to an entity, and the rate of the FTL penalty does not reflect the actual size of the entity, then the following actions will occur: • The FTL penalty notice will be cancelled. • A new FTL penalty notice will be issued with the correct rate for FTL penalty to be applied. • A new notice and reasons for the imposition and calculation will be provided to the entity. • The FTL penalty notice will be cancelled. • A new FTL penalty notice will be issued with the correct rate for FTL penalty to be applied. • A new notice and reasons for the imposition and calculation will be provided to the entity. | Failure to lodge penalties for significant global entities: 22. The BPA is multiplied by 500 where the entity is a significant global entity (SGE). [15] 23. FTL penalties [16] apply to an entity that is an SGE that fails to lodge a taxation document required to be given at a date that is on or after 1 July 2017. 24. An entity is an SGE, for the purposes of FTL penalties, according to the most recent income tax assessment (either following lodgment of the entity's tax return or, if the entity has not lodged a tax return, a default assessment). However, if at the time of calculating a penalty amount, we are satisfied that an entity will not be an SGE for the current income year (for example, because the entity is no longer a member of the global group), we are able to remit the higher penalty amount to the amount that would otherwise have applied. 25. In most circumstances, the question of whether an entity is an SGE for the income year in which a penalty is imposed is determined after the year has ended. If a penalty is imposed at the rate applicable to SGEs and the entity was not in fact an SGE for that period according to the assessment for that relevant income year, the penalty amount will be reduced to the amount that would otherwise have applied (refer to subsection 286-80(4B)). 26. Other than the situation described in paragraphs 24 and 25 of this Practice Statement, we will apply the same approach for remission of FTL penalties as referred to in paragraphs 31 to 33 of this Practice Statement to SGEs. 27. Remission of FTL penalties is generally considered appropriate where circumstances beyond the control of the entity exist, where it is fair and reasonable or where imposing the FTL penalty would not provide a just result. The increased amount of FTL penalties applying to SGEs is not by itself a relevant factor in considering if a penalty should be remitted. | Failure to lodge penalties for lodging entities in scope of the minimum tax: 28. The BPA is multiplied by 500 where the entity has a minimum tax lodgment obligation. [17] | Lodgment deferral: 29. If the lodgment due date is deferred [18] , it is calculated from the deferred due date, not the original due date. 30. If a suspension of lodgment enforcement action has been granted, it is calculated from the original due date for lodgment. | Requesting remission of the failure to lodge penalty: 31. We have the discretion to remit the FTL penalty, in whole or in part. 32. A request for remission may be made either verbally or in writing and should fully outline the reasons for the delay in lodgment and the steps the entity has taken to lodge. 33. You should ask for the request to be in writing where: • the penalty was manually applied, which indicates an ATO officer has deliberately applied this penalty and has likely already considered remission; often this is done as part of a compliance action • the document is still overdue, unless the taxpayer declares there is no obligation to lodge the document • verbal information provided does not clearly demonstrate a claim for remission or allow you to make an informed decision. • the penalty was manually applied, which indicates an ATO officer has deliberately applied this penalty and has likely already considered remission; often this is done as part of a compliance action • the document is still overdue, unless the taxpayer declares there is no obligation to lodge the document • verbal information provided does not clearly demonstrate a claim for remission or allow you to make an informed decision. | Making the decision to remit the failure to lodge penalty: 34. You should generally only remit the FTL penalty after: • the document is lodged, and • an FTL penalty has actually been applied to the entity's account. • the document is lodged, and • an FTL penalty has actually been applied to the entity's account. 35. Paragraphs 36 to 41 of this Practice Statement outline instances where remission should be considered. | Circumstances beyond the control of the entity: 36. You should remit the FTL penalty if the entity is able to demonstrate that: • the FTL was caused by circumstances beyond their control • those circumstances could not be predicted, and • they or their agent were not in a position to request further time to lodge. • the FTL was caused by circumstances beyond their control • those circumstances could not be predicted, and • they or their agent were not in a position to request further time to lodge. | Where it is fair and reasonable: 37. Even if circumstances were not beyond the entity's control, it may still be appropriate for you to remit the penalty (in full or in part) where you can make a decision that it is reasonable to do so. 38. The onus is on the entity to demonstrate that it is fair and reasonable to remit, considering the nature of the specific event or decision that prevented lodgment. 39. In making your decision, you should have regard to the reasons why we have FTL penalty (see paragraph 4 of this Practice Statement). | Unjust result: 40. There may be cases where imposition of the FTL penalty does not provide a just result. For example, it would not be appropriate to apply multiple FTL penalties if the non-lodgment occurred as a result of an administrative oversight. However, this would depend on the particular facts and circumstances of each case. 41. The final penalty applied must be defensible, proper and just, taking into account the overall circumstances of the entity. | Examples where remission may be appropriate: 42. The following are examples where remission would ordinarily be appropriate (not exhaustive): • taxpayer or their agent was sick with a severe life-threatening illness, such as battling cancer • taxpayer was caring for another person who was sick with a severe life-threatening illness • taxpayer could not lodge as they had not received information from other parties such as employers (for example, a payment summary or income statement) that would enable them to lodge – ideally, the taxpayer should be able to demonstrate they have persistently tried to get this information • taxpayer was affected by a disaster such as fire or flood or state of emergency which took their complete attention and perhaps meant that some records were lost • taxpayer was experiencing vulnerability such as family violence, financial coercion, homelessness or serious mental health challenges that materially impacted their ability to lodge. • taxpayer or their agent was sick with a severe life-threatening illness, such as battling cancer • taxpayer was caring for another person who was sick with a severe life-threatening illness • taxpayer could not lodge as they had not received information from other parties such as employers (for example, a payment summary or income statement) that would enable them to lodge – ideally, the taxpayer should be able to demonstrate they have persistently tried to get this information • taxpayer was affected by a disaster such as fire or flood or state of emergency which took their complete attention and perhaps meant that some records were lost • taxpayer was experiencing vulnerability such as family violence, financial coercion, homelessness or serious mental health challenges that materially impacted their ability to lodge. | Examples where remission may not be appropriate: 43. The following are examples where remission would ordinarily not be appropriate (not exhaustive): • taxpayer claims they could not lodge on time because they were on holiday • taxpayer claims they could not lodge on time because they were extremely busy • taxpayer could not lodge because they were sick with a cold (or other short-lived non-severe illness) • taxpayer requests remission because they claim that they did not receive any reminders to lodge from the ATO • taxpayer has not yet lodged the document. • taxpayer claims they could not lodge on time because they were on holiday • taxpayer claims they could not lodge on time because they were extremely busy • taxpayer could not lodge because they were sick with a cold (or other short-lived non-severe illness) • taxpayer requests remission because they claim that they did not receive any reminders to lodge from the ATO • taxpayer has not yet lodged the document. | Legislative exemption from failure to lodge penalty: 44. If subsection 286-75(1A) applies, no FTL penalty should be imposed. The relevant circumstances are: • the entity engaged a registered tax agent or BAS agent (registered agent) • the entity provided all relevant information to the registered agent to enable the document to be lodged on time (note that the onus is on the entity to prove that they met this requirement) [19] • the registered agent does not lodge the document on time, and • the FTL on time was not due to either – intentional disregard of a taxation law by the registered agent, or – recklessness by the registered agent as to the operation of a taxation law. • the entity engaged a registered tax agent or BAS agent (registered agent) • the entity provided all relevant information to the registered agent to enable the document to be lodged on time (note that the onus is on the entity to prove that they met this requirement) [19] • the registered agent does not lodge the document on time, and • the FTL on time was not due to either – intentional disregard of a taxation law by the registered agent, or – recklessness by the registered agent as to the operation of a taxation law. – intentional disregard of a taxation law by the registered agent, or – recklessness by the registered agent as to the operation of a taxation law. 45. If the request to apply the exemption is lodged by the entity, you should contact the registered agent and give them an opportunity to comment on the entity's claim. Note: if you determine that the exemption does not apply, you can still consider if the circumstances warrant remission of the FTL penalty. Note: if you determine that the exemption does not apply, you can still consider if the circumstances warrant remission of the FTL penalty. | Notifying the entity of the remission decision: 46. If your decision is to not remit the FTL penalty, you must advise the entity in writing of the decision and the reasons for making that decision. | Remission decisions: 47. The entity has rights of review in relation to remission decisions in the following circumstances: • If there are more than 2 penalty units remaining after the remission decision is made, the entity can object under Part IVC of the TAA. • If there are 2 or less penalty units remaining, the entity can seek a review under the Administrative Decisions (Judicial Review) Act 1977. • If there are more than 2 penalty units remaining after the remission decision is made, the entity can object under Part IVC of the TAA. • If there are 2 or less penalty units remaining, the entity can seek a review under the Administrative Decisions (Judicial Review) Act 1977. | Exemption decisions: 48. The entity has no objection rights if we determine that they are not exempt from the FTL penalty under subsection 286-75(1A), but the entity can seek a review under the Administrative Decisions (Judicial Review) Act 1977. | More information: 49. For more information, see: • Law Administration Practice Statement PS LA 2011/12 Remission of General Interest Charge • Chapter 2 – Increasing penalties for significant global entities of the Revised Explanatory Memorandum to the Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017 and the Diverted Profits Tax Bill 2017. • Law Administration Practice Statement PS LA 2011/12 Remission of General Interest Charge • Chapter 2 – Increasing penalties for significant global entities of the Revised Explanatory Memorandum to the Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017 and the Diverted Profits Tax Bill 2017.",PS LA 2011/12 | Chapter 2 – Increasing penalties for significant global entities | MT 2011/1 | PS LA 2005/19 | PS LA 2011/26 | Chapter 2 - Increasing penalties for significant global entities | TAA 1953 Pt IVC | TAA 1953 Pt 1 2B | TAA 1953 Sch 1 16-95 | TAA 1953 Sch 1 16-100 | TAA 1953 Sch 1 286-75(1) | TAA 1953 Sch 1 286-75(1A) | TAA 1953 Sch 1 286-75(1B) | TAA 1953 Sch 1 286-75(2) | TAA 1953 Sch 1 286-80(1) | TAA 1953 Sch 1 286-80(3) | TAA 1953 Sch 1 286-80(4A) | TAA 1953 Sch 1 286-80(4A)(b) | TAA 1953 Sch 1 286-80(4B) | TAA 1953 Sch 1 286-80(4C) | TAA 1953 Sch 1 286-80(6) | TAA 1953 Sch 1 298-10 | TAA 1953 Sch 1 298-15 | TAA 1953 Sch 1 388-50 | TAA 1953 Sch 1 388-55 | TAA 1953 Sch 1 390-5 | ITAA 1997 960-555 | Superannuation Contributions Tax (Assessment and Collection) Act 1997 | Superannuation Guarantee (Administration) Act 1992 | Superannuation (Self Managed Superannuation Funds) Supervisory Levy Imposition Act 1991 | Superannuation (Unclaimed Money and Lost Members) Act 1999 24C | Taxation (Multinational-Global and Domestic Minimum Tax) Act 2024 | Treasury Legislation Amendment (Repeal Day) Act 2015 | Administrative Decisions (Judicial review) Act 1977 | Crimes Act 1914 4AA,PS LA 2005/19 PS LA 2011/12 PS LA 2011/26,TAA 1953 Pt IVC | TAA 1953 Pt 1 2B | TAA 1953 Sch 1 16-95 | TAA 1953 Sch 1 16-100 | TAA 1953 Sch 1 286-75(1) | TAA 1953 Sch 1 286-75(1A) | TAA 1953 Sch 1 286-75(1B) | TAA 1953 Sch 1 286-75(2) | TAA 1953 Sch 1 286-80(1) | TAA 1953 Sch 1 286-80(3) | TAA 1953 Sch 1 286-80(4A) | TAA 1953 Sch 1 286-80(4A)(b) | TAA 1953 Sch 1 286-80(4B) | TAA 1953 Sch 1 286-80(4C) | TAA 1953 Sch 1 286-80(6) | TAA 1953 Sch 1 298-10 | TAA 1953 Sch 1 298-15 | TAA 1953 Sch 1 388-50 | TAA 1953 Sch 1 388-55 | TAA 1953 Sch 1 390-5 | ITAA 1997 960-555 | Superannuation Contributions Tax (Assessment and Collection) Act 1997 | Superannuation Guarantee (Administration) Act 1992 | Superannuation (Self Managed Superannuation Funds) Supervisory Levy Imposition Act 1991 | Superannuation (Unclaimed Money and Lost Members) Act 1999 24C | Taxation (Multinational-Global and Domestic Minimum Tax) Act 2024 | Treasury Legislation Amendment (Repeal Day) Act 2015 | Administrative Decisions (Judicial review) Act 1977 | Crimes Act 1914 4AA,,Revised Explanatory Memorandum to the Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017 and the Diverted Profits Tax Bill 2017 Chapter 2 - Increasing penalties for significant global entities Penalties,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS201119/NAT/ATO/00001,"This Practice Statement is being reviewed to better align the ATO's approach to remission of interest and penalties charges. This document incorporates revisions made since original publication. View its history and amending notices, if applicable. | Inserted Sharing Economy Reporting Regime reports. | Inserted vulnerability as an example of where remission may be appropriate. | Updated to align with amended Practice Statement style and formatting requirements. | Inserted Foreign Account Tax Compliance Act statements. | Inserted minimum tax lodgment obligations. | Inserted Per the Treasury Laws Amendment (Multinational – Global and Domestic Minimum Tax)(Consequential) Act 2024. | Added increase BPA 500 times for entities in scope of minimum tax. | Content checked for technical accuracy and currency. | Updated in line with current ATO style and accessibility requirements. | Clarification of review rights. | Included the content of footnote 1 into paragraph 1 and omitted footnote 1. | Updated reference to the source of the penalty unit value. | Content updated to new PSLA format and update of style and format. | Updated to include 'on time'. | Updated formatting style and made multiple minor adjustments. | Insert new paragraph and dot points. | To fix an incorrect section reference | Include link to Chapter 2 of the revised Explanatory Memorandum to the Treasury Laws Amendment (Combating Tax Avoidance) Act 2017 and the Diverted Profits Tax Bill 2017. | Paragraph 8 and footnotes 3, 13, 14, 15 and 16 | Inserted paragraph 8 and footnotes. | Updated to new LAPS format and style. | Include Taxable payments annual report. | Define Taxable payments annual report and its risk level. | Standardised the meaning of the word 'taxation document' and added legislative reference in footnote | Aligning application of safe harbour more clearly with legislation. Updated use of registered agent with ATO style guide | Clarified under what circumstances the Commissioner may apply multiple FTL penalties. | Clarified the requirement that only the approved form is to be used and the impact of lodging photocopies. | Insert new paragraph 53 to reflect amendments to the Privacy Act 1988. | Include reference to Privacy Act 1988. | [1] The term 'taxation documents' is used in this Practice Statement to refer to returns, notices, statements or other documents. | [2] See section 388-50 of Schedule 1 to the TAA and Law Administration Practice Statement PS LA 2005/19 Approved forms . | [3] Changes made by the Treasury Legislation Amendment (Repeal Day) Act 2015 to insert section 2B into the TAA have resulted in the Commissioner no longer imposing penalties and interest on the Crown. For more information on how the Commissioner now administers this law, please refer to Miscellaneous Taxation Ruling MT 2011/1 Miscellaneous taxes: application of penalties and interest charges to the Commonwealth, States, Northern Territory and Australian Capital Territory or Law Administration Practice Statement PS LA 2011/26 Administration of penalties and interest charges in relation to the notional liabilities of the States . | [4] 'Tax returns' includes the not-for-profit self-review return. | [5] For example, for Australian Prudential Regulation Authority regulated funds under section 390-5 and for lost member statements under section 24C of the Superannuation (Unclaimed Money and Lost Members) Act 1999 . | [6] Per the Treasury Laws Amendment (Multinational—Global and Domestic Minimum Tax) (Consequential) Act 2024 . | [7] See subsection 286-75(2). | [8] See sections 298-10 and 298-15. | [9] See subsection 286-80(6). | [10] See subsection 286-80(1). | [11] The value of a penalty unit is contained in section 4AA of the Crimes Act 1914 and is indexed regularly. The dollar amount of a penalty unit is available at Penalties . | [12] See subsection 286-80(3). | [15] See subsection 286-80(4A). The term 'significant global entity' is defined in section 960-555 of the Income Tax Assessment Act 1997 . From 5 December 2019, this higher FTL penalty also applies to an SGE who is a subsidiary member of a consolidated group or a multiple entity consolidated (MEC) group where another member of the group has had an income tax assessment: see subparagraph 286-80(4A)(b)(iv). | [16] See subsection 286-80(4A). | [17] See subsection 286-80(4C). | [19] See subsection 286-75(1B). | File 1-186FJGAR, 1-1BD5YH06"
PS LA 2011/20,Payment and credit allocation,14 April 2011,14 April 2011,Law Administration Practice Statement,False,"What this Practice Statement is about: 1. This Practice Statement outlines the way we allocate payments and available credits to debts owed by taxpayers. Generally, payments and credits are allocated based on the type of tax debt outstanding. 2. The appendixes to this Practice Statement provide further guidance on how we allocate specific payments and credits to taxation liabilities: • Appendix A outlines how you should allocate certain payments, known as 'listed payments' [1] , when we receive them. • Appendix B outlines how you should allocate 'listed credits' [2] when they arise. • Appendix C outlines how we allocate an excess payment or credit. [3] It includes the order of specific accounts that we generally follow, as well as the order that liabilities within those accounts are paid. • Appendix D outlines how our system automatically allocates payments and credits depending on which account the excess credit originates from. • Appendix A outlines how you should allocate certain payments, known as 'listed payments' [1] , when we receive them. • Appendix B outlines how you should allocate 'listed credits' [2] when they arise. • Appendix C outlines how we allocate an excess payment or credit. [3] It includes the order of specific accounts that we generally follow, as well as the order that liabilities within those accounts are paid. • Appendix D outlines how our system automatically allocates payments and credits depending on which account the excess credit originates from. 3. All legislative references in this Practice Statement are to the Taxation Administration Act 1953, unless otherwise indicated. | Payment and credit allocation under tax law: 4. A payment is an amount that we receive from a taxpayer in respect of a current or anticipated tax debt. [4] 5. A credit is an amount to which a taxpayer is entitled (such as an amount resulting from an assessment) that we must pay to a taxpayer under a tax law. [5] 6. A taxpayer generally directs the payment to an account by making a payment through the approved process, which includes using a payment reference number (PRN). 7. Where a payment matches a specific liability amount, we will also use that as the basis for directing a payment to a liability. 8. The majority of payments and credits we receive are allocated in this way. However, there may be some circumstances where we need to determine where the payment or credit will be applied. 9. Where we receive unidentified payments [6] or a credit arises, we will follow the allocation rules outlined in Appendix C to this Practice Statement. | Rules and principles about paying tax debts: 10. The following outlines some basic rules and principles about the payment of tax debts: • We can only accept payment of a tax debt in Australian currency. [7] • A payment for a tax debt is taken to be made only when it is received by us. [8] • A taxpayer's payment may be accompanied by correspondence which places conditions on the acceptance of the payment. Accepting the payment does not bind us to these conditions and you should inform the taxpayer of this as soon as possible. In some instances, you may treat these conditions as a proposal to us (for instance, the taxpayer may be proposing to pay an amount by instalments or may be requesting remission of interest) and you should advise the taxpayer whether the proposal has been accepted. • Payments (whether partial or full) [9] are allocated to the appropriate accounts based on the information available when the payment is received. • Sometimes, the administrator of an insolvent company may offer equity in the company to creditors. This situation is discussed in Law Administration Practice Statement PS LA 2011/16 Insolvency – collection, recovery and enforcement issues for entities under external administration. • We can only accept payment of a tax debt in Australian currency. [7] • A payment for a tax debt is taken to be made only when it is received by us. [8] • A taxpayer's payment may be accompanied by correspondence which places conditions on the acceptance of the payment. Accepting the payment does not bind us to these conditions and you should inform the taxpayer of this as soon as possible. In some instances, you may treat these conditions as a proposal to us (for instance, the taxpayer may be proposing to pay an amount by instalments or may be requesting remission of interest) and you should advise the taxpayer whether the proposal has been accepted. • Payments (whether partial or full) [9] are allocated to the appropriate accounts based on the information available when the payment is received. • Sometimes, the administrator of an insolvent company may offer equity in the company to creditors. This situation is discussed in Law Administration Practice Statement PS LA 2011/16 Insolvency – collection, recovery and enforcement issues for entities under external administration. | Payments: 11. Generally, we will apply a payment to a particular account based on the PRN that has been used by the taxpayer, and we will allocate within that account in the manner outlined in Appendix C to this Practice Statement. 12. None of this overrides the law enabling us to allocate payments as we see fit and we may allocate the payment differently to the direction indicated by the PRN or specific instructions. [10] 13. If you decide to allocate a payment in a manner that is inconsistent with the general allocation policy, you must record specific reasons outlining why you have made this decision. This includes where you have reallocated a payment on request by a taxpayer. Note: there are specific rules which may modify this policy where the payment is a listed payment. These are outlined in Appendix A to this Practice Statement. Note: there are specific rules which may modify this policy where the payment is a listed payment. These are outlined in Appendix A to this Practice Statement. Where a payment is received without a payment reference number 14. If we receive a payment with no PRN, we will allocate it in accordance with Appendix C to this Practice Statement. | Credits: 15. Credits can arise on a taxpayer's account as a result of lodgments, amended assessments, account adjustments or credit entitlements at law. 16. Where there is a credit, you should first allocate it to the account from which the credit originates. Generally, before refunding a credit to a taxpayer, it must be applied to any outstanding debts. [11] 17. Any excess credit will then be allocated to accounts in accordance with the order of accounts outlined in Appendix C to this Practice Statement. 18. Within each account, the credit will be allocated in accordance with the account's specific hierarchy of allocation as explained in Appendix C to this Practice Statement. Note: there are specific rules which may modify this policy, such as, where the payment is a 'listed credit'. These are outlined in Appendix B to this Practice Statement. Note: there are specific rules which may modify this policy, such as, where the payment is a 'listed credit'. These are outlined in Appendix B to this Practice Statement. | Where there are no tax debts to offset: 19. Where there are no unpaid tax debts to apply a payment against, before any amount is refunded to a taxpayer it will be allocated to the following Services Australia amounts: • firstly, to any Family assistance debt (excluding the childcare subsidy), provided the refund relates to income tax • next, to any child support debts as notified by the Child Support Program, and • lastly, to debts in relation to social security, family assistance or student assistance. • firstly, to any Family assistance debt (excluding the childcare subsidy), provided the refund relates to income tax • next, to any child support debts as notified by the Child Support Program, and • lastly, to debts in relation to social security, family assistance or student assistance. | More information: 20. For more information, see: • Director penalties • Law Administration Practice Statement PS LA 2011/4 Collection and recovery of disputed debts • Law Administration Practice Statement PS LA 2011/21 Offsetting of refunds and credits against taxation and other debts • Indirect tax sharing agreement - reasonable allocation of indirect tax law liability . • Director penalties • Law Administration Practice Statement PS LA 2011/4 Collection and recovery of disputed debts • Law Administration Practice Statement PS LA 2011/21 Offsetting of refunds and credits against taxation and other debts • Indirect tax sharing agreement - reasonable allocation of indirect tax law liability . 21. The following payments have specific rules which apply to their allocation. | Arrangements to pay tax-related liabilities by instalments: 22. We often agree for a tax debt to be paid by instalments. [12] A payment received in accordance with such an arrangement will be allocated using the 'order of allocation' as outlined in Appendix C to this Practice Statement. A PRN will be provided to the taxpayer to direct the instalments to the correct account and liability. 23. Generally, where there are multiple debts recorded on different accounts, the order of allocation will determine in which order payments will be applied to those accounts. 24. However, you can take into account individual circumstances to allocate payments differently if it will achieve a more appropriate and reasonable outcome for the taxpayer, with no detriment to the revenue. 25. For example, a taxpayer may have a super guarantee liability and a judgment obtained on another account. If that taxpayer wanted to enter into concurrent payment arrangements to specifically address the judgment liability as soon as possible, it may be permissible to alter the order of allocation. 26. The core principle, in agreeing to a payment arrangement that may alter the order of allocation, is to consider a taxpayer's individual circumstances. | Administrative overpayments: 27. Where an administrative overpayment [13] is returned, you should allocate the payment to the overpaid amount. | Payment agreements made under former section 222ALA of the Income Tax Assessment Act 1936: 28. Where there is a written agreement with a taxpayer in accordance with former section 222ALA of the Income Tax Assessment Act 1936, you must allocate a payment in the order detailed in that agreement. These agreements will have been made before 1 July 2010, but some are still in effect. | Payment of company liabilities under a remittance provision: 29. Where you can identify a taxpayer has directed a payment towards a particular liability of a company arising under a remittance provision (for example, a pay as you go (PAYG) withholding obligation), you should generally allocate the payment to that liability. | Director penalty liabilities: 30. Where a payment is received from a director (in full or in part) in relation to a director penalty liability [14] , the payment will reduce the penalty on the director's account and the corresponding parallel liability on the company's account. 31. If the payment is for less than the full amount, the payment will be allocated against the earliest penalty on the director's account and will offset the company's parallel liability. | Disputed tax debts: 32. Where the taxpayer has entered into a fifty-fifty arrangement in relation to a disputed debt [15] , you should allocate the payments received (in accordance with that arrangement) to 50% of the disputed principal tax debt. 33. Any additional payment after the 50% disputed principal tax debt has been paid will follow the order of allocation in Appendix C to this Practice Statement. | Current legal proceedings: 34. Payments made towards debts subject to legal action in the income tax account will be allocated to the earliest debt, first using relevant allocation hierarchy. 35. Payments made for the activity statement running balance account (RBA) legal account will follow the proportional allocation rules. | Judgment debts and associated costs: 36. Generally, when applying payments to a case where judgment has been entered against a taxpayer, payments will be allocated firstly against the judgment debt and then to the costs involved in obtaining the judgment. 37. However, for judgments entered into in New South Wales State Courts, you must follow the Civil Procedure Act 2005 (NSW) [16] , which requires that any payment made on account of a judgment debt is to be allocated firstly towards any post-judgment (or later date as the court orders) interest and then towards the balance of the judgment. | Garnishee notices: 38. Where a payment is made pursuant to a garnishee notice which satisfies the liability on the notice, you must allocate the payment to the amounts that constitute the total payable in that notice. 39. Where a part-payment towards the amount stipulated on the garnishee notice is received, you should allocate this amount to the debts subject to the garnishee notice, in accordance with the order of allocation in Appendix C to this Practice Statement. How payments are allocated within that account will depend on the allocation rules for that account, which are also outlined in Appendix C. 40. If the amount on the garnishee notice has been settled, any excess payments received will be allocated to other liabilities not subject to the notice in accordance with Appendix C to this Practice Statement. | Voluntary payments: 41. Where payments are made voluntarily for an anticipated tax debt in an account (not including the activity statement RBA), you should use the order of allocation as outlined in Appendix C to this Practice Statement if there are existing debts on that account. 42. If there are existing tax debts in the activity statement RBA, where there is also an expected lodgment, then the voluntary payment made will be allocated to that anticipated lodgment. However, where that anticipated lodgment is not received within the specified timeframe [17] , then the payment will be allocated according to the activity statement RBA allocation rules, with any excess to be allocated according to Appendix C to this Practice Statement. | Dividends received from insolvency administrations: 43. You should allocate payments of dividends of less than 100c in the dollar according to the account's hierarchy rules (Appendix C to this Practice Statement) to each tax debt and other debts (such as judgment interest) that formed our claim in the administration. [18] 44. Where all, or part, of a debt is an activity statement RBA deficit debt (which is the balance of all activity statement debts as well as payments and credits on an RBA), you should allocate the dividend proportionally among the components of the activity statement debts. Once these debts are extinguished, you should allocate any excess credit proportionally to debts relating to the activity statement debts, such as the provable general interest charge (GIC). 45. Where a company has a liability that is also subject to a director penalty (a parallel liability), you should apply the instruction in this Practice Statement to identify the balance subject to director penalties. Any dividend that is applied to the liability subject to the director penalty will also reduce the director penalty liability. 46. Where the dividend received relates to super guarantee charge (SGC) liabilities, you must allocate in accordance with the following rules. | For company insolvencies under the Corporations Act 2001: Priority dividends 47. The order of allocation for payments of SGC priority dividends, subject to capping [19] , is the: • nominal interest component • total of the individual super guarantee shortfall • administration component. • nominal interest component • total of the individual super guarantee shortfall • administration component. 48. Allocation is pro rata across all periods of one component [20] of the SGC debt followed by the next component according to this order of allocation. 49. If there are insufficient funds to pay the total of a particular component across quarters, the component will receive a percentage of the balance of the dividend remaining in accordance with the portion that the quarter's component represents of the total outstanding for that particular component. Non-priority dividends where priority dividends have already been received 50. The order of allocation for payments of non-priority SGC dividends which follow priority dividends is: • if priority dividends paid previously were subject to capping [21] , any balance outstanding for nominal interest or individual super guarantee shortfall for excluded employees • additional GIC for the unpaid total of the individual super guarantee shortfall • Part 7 of the Superannuation Guarantee (Administration) Act 1992 (SGAA) penalty charges • additional GIC for unpaid Part 7 of the SGAA penalty charges. • if priority dividends paid previously were subject to capping [21] , any balance outstanding for nominal interest or individual super guarantee shortfall for excluded employees • additional GIC for the unpaid total of the individual super guarantee shortfall • Part 7 of the Superannuation Guarantee (Administration) Act 1992 (SGAA) penalty charges • additional GIC for unpaid Part 7 of the SGAA penalty charges. 51. Allocation is pro rata across all periods of one component of the SGC debt followed by the next component according to this order of allocation. 52. If there are insufficient funds to pay the total of a particular component across quarters, the component will receive a percentage of the balance of the dividend remaining in accordance with the portion that the quarter's component represents of the total outstanding for that particular component. | For individual bankruptcies under the Bankruptcy Act 1966: Priority dividends 53. For insolvency administrations after 5 May 2003, the order of allocation for payments of SGC priority dividends, subject to capping [22] , should be: • the nominal interest component • the total of the individual super guarantee shortfall • additional GIC for the unpaid total of the individual super guarantee shortfall • the administration component. • the nominal interest component • the total of the individual super guarantee shortfall • additional GIC for the unpaid total of the individual super guarantee shortfall • the administration component. 54. Allocation is pro rata across all periods of one component of the SGC debt followed by the next component according to this order of allocation. 55. If there are insufficient funds to pay the total of a particular component across quarters, the component will receive a percentage of the balance of the dividend remaining in accordance with the portion that the quarter's component represents of the total outstanding for that particular component. Non-priority dividends where priority dividends have already been received 56. The order of allocation for payments of SGC non-priority dividends which follow priority dividends should be: • if priority dividends paid previously were subject to capping, any balance outstanding for nominal interest or individual super guarantee shortfall for excluded employees • additional GIC for the unpaid total of the individual super guarantee shortfall • Part 7 of the SGAA penalty charges • additional GIC for the unpaid Part 7 of the SGAA penalty charges. • if priority dividends paid previously were subject to capping, any balance outstanding for nominal interest or individual super guarantee shortfall for excluded employees • additional GIC for the unpaid total of the individual super guarantee shortfall • Part 7 of the SGAA penalty charges • additional GIC for the unpaid Part 7 of the SGAA penalty charges. 57. Allocation is pro rata across all periods of one component of the SGC debt followed by the next component according to this order of allocation. 58. If there are insufficient funds to pay the total of a particular component across quarters, the component will receive a percentage of the balance of the dividend remaining in accordance with the portion that the quarter's component represents of the total outstanding for that particular component. | Payments to consolidated group liabilities, including tax sharing agreement contribution amounts: 59. The way you allocate payments made in relation to a consolidated group liability will depend on whether a tax sharing agreement (TSA) exists. 60. If an effective TSA exists: • A payment by the head company will be allocated to the head company liability and the TSA contributing members' liabilities to an amount equalling the reduced head company liability. • A payment by a TSA contributing member will be applied against that member's liability and the head company liability. • A payment by the head company will be allocated to the head company liability and the TSA contributing members' liabilities to an amount equalling the reduced head company liability. • A payment by a TSA contributing member will be applied against that member's liability and the head company liability. 61. If no TSA exists, all members are jointly and severally liable. This means that: • A payment by a subsidiary member in relation to a group liability will be applied against that liability and will also reduce all related subsidiary members' liabilities and the related head company liability. • A payment made by the head company will be applied against the head company group liability and will also reduce the related subsidiary members' liabilities. • A payment by a subsidiary member in relation to a group liability will be applied against that liability and will also reduce all related subsidiary members' liabilities and the related head company liability. • A payment made by the head company will be applied against the head company group liability and will also reduce the related subsidiary members' liabilities. 62. Further information is outlined in Law Administration Practice Statement PS LA 2013/5 Collection of consolidated group liabilities. Payments to goods and services tax joint venture or group liabilities and indirect tax sharing agreement contribution amount 63. The way you allocate payments made in relation to a goods and services tax (GST) joint venture or GST group liabilities will depend on whether an indirect tax sharing agreement (ITXSA) exists. 64. Where a valid ITXSA exists: • A payment from a participant or member will be applied against the participant or member's liability and also reduce the related operator or representative member's liability. • A payment from the operator or representative will be applied to their liability and may also reduce each participant or member's liability, depending on the terms of the ITXSA. • A payment from a participant or member will be applied against the participant or member's liability and also reduce the related operator or representative member's liability. • A payment from the operator or representative will be applied to their liability and may also reduce each participant or member's liability, depending on the terms of the ITXSA. 65. Where there is no ITXSA: • A payment from a participant or member will be applied to their personal joint and several [23] liability. It will also reduce the liability of all participant or group members as well as the related operator or representative member's liability. • A payment from the related operator or representative member will be applied to their liability and will also reduce the participant or member's joint and several liabilities equally. • A payment from a participant or member will be applied to their personal joint and several [23] liability. It will also reduce the liability of all participant or group members as well as the related operator or representative member's liability. • A payment from the related operator or representative member will be applied to their liability and will also reduce the participant or member's joint and several liabilities equally. 66. Further information is outlined in Law Administration Practice Statement PS LA 2013/6 Collection from goods and services tax (GST) groups, GST joint ventures and other entities of debts arising from indirect tax laws. | Shortfall interest charge: 67. Shortfall interest charge (SIC) is posted to the relevant account for the underlying liability on which it is charged (for example, income tax). The allocation for this liability follows the income tax account hierarchy as outlined in Appendix C to this Practice Statement. | General interest charge: 68. You should allocate payments towards GIC using the same allocation rules that apply to the relevant account on which GIC is charged. See Appendix C to this Practice Statement for further information about the allocation rules for different accounts. | Super guarantee charge payments: 69. You should allocate an SGC payment to a specific debt where the payment is directed by the employer at the time of making the payment (for example, if the employer specifies which employee it applies to). 70. You should allocate a payment towards an estimate of SGC if we can identify the employee that the payment is to be allocated toward (for example, if the employer specifies where the payment should go). 71. Once a payment towards SGC has been made and applied against the employer's liability, this will credit the employees' entitlements of SGC shortfall, associated GIC and the nominal interest component according to the allocation rules of the SGC account in Appendix C to this Practice Statement. 72. If there is only one employee with an entitlement, the payment will be applied in full to this employee. If there are multiple employees with entitlements, the payment will be applied proportionally across these employees. | Super excess contributions tax payment: 73. You should allocate super excess contribution tax payments to a corresponding excess contribution tax assessment where you can identify that the payment has been directed towards that liability (for example, if the payment dollar matches that liability). | Minimum tax: 74. If a designated local entity [24] (DLE) is elected to lodge a Combined Global and Domestic Minimum Tax Return (CGDMTR), the DLE may pay the top-up tax liabilities for each entity using each entity's PRN. 75. Where a DLE makes a payment equal to the total top-up tax liability of other entities to their own account, this payment should first be allocated to the DLE's GDMT account according to the allocation order set out in Appendix C to this Practice Statement. Any excess should be allocated to the DLE's other liabilities according to Appendix C. 76. The following credits have specific rules which apply to their allocation. PAYG credits to be allocated first to compulsory repayment amounts and financial support assessment debts 77. There is a special rule that operates when you apply credits arising under the PAYG withholding provisions [25] which provides that before allocating it to a non-RBA tax debt (which are tax debts other than an RBA deficit debt), you should allocate this credit to the following amounts in the following order: (a) compulsory repayment amounts arising under the Higher Education Support Act 2003 (b) compulsory Vocational Education and Training Student Loan repayment amounts (c) compulsory Student Start-up Loan repayment amounts (d) compulsory ABSTUDY Student Start-up Loan repayment amounts (e) compulsory Australian Apprenticeship Support Loan repayment amount s, and (f) Financial Support assessment debts. (a) compulsory repayment amounts arising under the Higher Education Support Act 2003 (b) compulsory Vocational Education and Training Student Loan repayment amounts (c) compulsory Student Start-up Loan repayment amounts (d) compulsory ABSTUDY Student Start-up Loan repayment amounts (e) compulsory Australian Apprenticeship Support Loan repayment amount s, and (f) Financial Support assessment debts. | Credits for instalments: 78. Where an entitlement to a credit for instalments payable in relation to GST instalments, PAYG instalments, or fringe benefits tax (FBT) instalments arises where we make an assessment of the annual returns for GST, income tax or FBT, you should allocate that credit to those respective assessed taxes for that income year. | Credits arising from account adjustments, and SIC and GIC remissions: 79. You should allocate credits arising from account adjustments against the account posting to which it pertains. Any excess credit is allocated in accordance with Appendix C to this Practice Statement. 80. A debt may have previously been reduced by a payment or credit and then may later be subject to an account adjustment. In these situations, where an excess credit arises, you should allocate it to reduce unpaid component debts due and payable on the relevant account. Once that account has no further liabilities, you should allocate any excess credit to pay debts in other accounts in the order outlined in Appendix C to this Practice Statement. 81. A SIC or GIC remission posting should be allocated against the imposition posting to which it relates. However, at times, a GIC remission may not be easily identified with amounts which have been imposed. Where this occurs, you should allocate the GIC remission to the earliest GIC debts on the account. Any excess can be used to pay other debts in other accounts in the order outlined in Appendix C to this Practice Statement. | Credits relating to pre-insolvency periods: 82. You must allocate credits relating to pre-insolvency periods to pre-insolvency debts; firstly, to pre-insolvency debts on the account on which the credit originates and then to accounts as listed in the order of allocation in Appendix C to this Practice Statement. 83. You must allocate any further or remaining credit against any post-insolvency debts on the account on which the credit originates and then against any other post-insolvency debts as listed in the order of allocation in Appendix C to this Practice Statement. 84. For further information on how credits may be allocated in insolvency administrations, refer to PS LA 2011/16 and PS LA 2011/21. | Credits relating to post-insolvency periods: 85. You must allocate credits relating to post-insolvency periods firstly to post-insolvency debts on the account on which the credit originates and then to accounts as listed in the order of allocation in Appendix C to this Practice Statement. 86. You must allocate any remaining post-insolvency credit against any pre-insolvency debts on the account on which the credit originates and then against any other pre-insolvency debts as listed in the order of allocation in Appendix C to this Practice Statement. 87. Note that credits under the Product stewardship for oil program generally cannot be offset against pre-insolvency debts. [26] However, where a receiver has been appointed, credits should be applied against any liabilities of the entity regardless of the period. This is because the appointment of a receiver would not normally impact on the rights of unsecured creditors, including a right of legal set-off. 88. For further information on credits in insolvency administrations, refer to PS LA 2011/21. | Credit allocation for a consolidated group: 89. When an income tax assessment is made in relation to the head company, you should initially apply any credit entitlements to the assessed tax payable for that income year. 90. Any excess credit will then be allocated to the head company's PAYG instalment obligations for that income year, commencing with the instalment that has the earliest due date and any related penalties (such as SIC and GIC). 91. Any remaining credit would then be allocated to: • any other unpaid assessed tax or related administrative penalty of the head company, commencing with the debt that has the earliest due date • any other liability of the head company as listed in the order of allocation in Appendix C to this Practice Statement. • any other unpaid assessed tax or related administrative penalty of the head company, commencing with the debt that has the earliest due date • any other liability of the head company as listed in the order of allocation in Appendix C to this Practice Statement. 92. A credit in relation to PAYG instalments for choosing a varied instalment rate or estimating a benchmark tax will be initially allocated to the related instalment liability. | Credit allocation for GST groups and GST joint ventures: 93. Where a GST group exists, you must apply a credit of a member initially against any of their own tax liabilities. [27] If that member has no tax liabilities, the amount would then be allocated proportionally across the group's activity statement RBAs, commencing with the member that has the earliest period tax debt for each tax type. This may be modified by a valid ITXSA. 94. Similarly, where a GST joint venture exists, you may offset a participant's credit against any GST or fuel tax related debt incurred by the GST joint venture. 95. The following lists the order of allocation our system uses for allocating to particular debt components within these accounts. This account hierarchy is also to be utilised by staff for manually allocating excess credits and for payments where no direction has been received. 96. To super account liabilities using the following hierarchy: (a) To any SGC debts, commencing with the debts that have the earliest due date, applying the payments in the following order (i) nominal interest (ii) shortfall (iii) shortfall GIC (iv) administration fee (v) Part 7 (vi) Part 7 GIC (vii) shortfall penalty (viii) shortfall penalty GIC (ix) super guarantee employer estimate. The same order is to be followed in applying payments to each subsequent period debt until all outstanding SGC debts are finalised. Where there has been a late payment offset and a further payment is made to be applied for the benefit of multiple employees, the proportional entitlement for each employee must first be calculated then applied to pay nominal interest pro rata across all employees. (b) Payments received in respect of a director penalty relating to an SGC liability are to be credited towards the earliest SGC director penalty debt in the following order (i) nominal interest (ii) shortfall (iii) administration fee (iv) estimated liability. The same order is to be followed in applying payments to each subsequent period until all outstanding director penalty debts are finalised. Payments received in respect of an estimate of SGC under Division 268 of Schedule 1 are to be credited first towards the estimate relating to the earliest period. (a) To any SGC debts, commencing with the debts that have the earliest due date, applying the payments in the following order (i) nominal interest (ii) shortfall (iii) shortfall GIC (iv) administration fee (v) Part 7 (vi) Part 7 GIC (vii) shortfall penalty (viii) shortfall penalty GIC (ix) super guarantee employer estimate. The same order is to be followed in applying payments to each subsequent period debt until all outstanding SGC debts are finalised. Where there has been a late payment offset and a further payment is made to be applied for the benefit of multiple employees, the proportional entitlement for each employee must first be calculated then applied to pay nominal interest pro rata across all employees. (b) Payments received in respect of a director penalty relating to an SGC liability are to be credited towards the earliest SGC director penalty debt in the following order (i) nominal interest (ii) shortfall (iii) administration fee (iv) estimated liability. The same order is to be followed in applying payments to each subsequent period until all outstanding director penalty debts are finalised. Payments received in respect of an estimate of SGC under Division 268 of Schedule 1 are to be credited first towards the estimate relating to the earliest period. (i) nominal interest (ii) shortfall (iii) shortfall GIC (iv) administration fee (v) Part 7 (vi) Part 7 GIC (vii) shortfall penalty (viii) shortfall penalty GIC (ix) super guarantee employer estimate. (i) nominal interest (ii) shortfall (iii) administration fee (iv) estimated liability. 97. To the RBA which records our activity statement liabilities. A payment or credit in our activity statement account will be allocated in the following way: (a) If a payment 'dollar matches' either a single or group debt you should allocate it to that debt. (b) If a payment matches the total amount of a period and a single debt you should allocate it to the total amount of the period. (c) Where a payment is made to the activity statement RBA, the payment will await allocation for up to 14 days if (i) the payment does not dollar match any debts, and (ii) there is an expected lodgment. Where 14 days has elapsed, the payment may be applied against other outstanding debts, first within the activity statement RBA and, once all outstanding debts on the same account are finalised, any residual payment may be applied against debts on other accounts according to the account hierarchy in Appendix D to this Practice Statement. (d) Once all activity statement debts within that period are satisfied, any remaining amount will be proportionally allocated to non-activity statement debts, such as penalties and GIC within the same period. The same order is to be followed in applying payments to each subsequent period until all outstanding debts are finalised (i) GST (ii) GST conversion role (iii) GST instalment (iv) wine equalisation tax (v) luxury car tax (vi) fuel tax credit (vii) FBT (viii) PAYG – withholding (ix) PAYG – large (x) PAYG – conversion (xi) PAYG – instalments (xii) PAYG – trust (xiii) activity statement former account (xiv) administrative penalties (xv) GST Annual Information Report (xvi) Single Touch Payroll Reporting (xvii) pay as you go withholding (PAYGW) Annual Reporting (xviii) PAYG(W) Payment Summary Report (xix) Report – PAYGW No ABN (xx) Report – PAYG Withhold Dep Super (xxi) Report – PAYGW Non-Resident (xxii) Report PAYG Withhold Int N-Res (xxiii) pay as you go instalments (PAYGI) Annual Reporting (xxiv) franking tax (xxv) New Zealand franking entity (xxvi) GIC. (a) If a payment 'dollar matches' either a single or group debt you should allocate it to that debt. (b) If a payment matches the total amount of a period and a single debt you should allocate it to the total amount of the period. (c) Where a payment is made to the activity statement RBA, the payment will await allocation for up to 14 days if (i) the payment does not dollar match any debts, and (ii) there is an expected lodgment. Where 14 days has elapsed, the payment may be applied against other outstanding debts, first within the activity statement RBA and, once all outstanding debts on the same account are finalised, any residual payment may be applied against debts on other accounts according to the account hierarchy in Appendix D to this Practice Statement. (d) Once all activity statement debts within that period are satisfied, any remaining amount will be proportionally allocated to non-activity statement debts, such as penalties and GIC within the same period. The same order is to be followed in applying payments to each subsequent period until all outstanding debts are finalised (i) GST (ii) GST conversion role (iii) GST instalment (iv) wine equalisation tax (v) luxury car tax (vi) fuel tax credit (vii) FBT (viii) PAYG – withholding (ix) PAYG – large (x) PAYG – conversion (xi) PAYG – instalments (xii) PAYG – trust (xiii) activity statement former account (xiv) administrative penalties (xv) GST Annual Information Report (xvi) Single Touch Payroll Reporting (xvii) pay as you go withholding (PAYGW) Annual Reporting (xviii) PAYG(W) Payment Summary Report (xix) Report – PAYGW No ABN (xx) Report – PAYG Withhold Dep Super (xxi) Report – PAYGW Non-Resident (xxii) Report PAYG Withhold Int N-Res (xxiii) pay as you go instalments (PAYGI) Annual Reporting (xxiv) franking tax (xxv) New Zealand franking entity (xxvi) GIC. (i) the payment does not dollar match any debts, and (ii) there is an expected lodgment. (i) GST (ii) GST conversion role (iii) GST instalment (iv) wine equalisation tax (v) luxury car tax (vi) fuel tax credit (vii) FBT (viii) PAYG – withholding (ix) PAYG – large (x) PAYG – conversion (xi) PAYG – instalments (xii) PAYG – trust (xiii) activity statement former account (xiv) administrative penalties (xv) GST Annual Information Report (xvi) Single Touch Payroll Reporting (xvii) pay as you go withholding (PAYGW) Annual Reporting (xviii) PAYG(W) Payment Summary Report (xix) Report – PAYGW No ABN (xx) Report – PAYG Withhold Dep Super (xxi) Report – PAYGW Non-Resident (xxii) Report PAYG Withhold Int N-Res (xxiii) pay as you go instalments (PAYGI) Annual Reporting (xxiv) franking tax (xxv) New Zealand franking entity (xxvi) GIC. 98. To any debt within a GST joint venture account in the following order proportionally to the debts on the earliest activity statement period within the activity statement RBA. Once all activity statement debts within that period are satisfied, any remaining amount will be proportionally allocated to non-activity statement debts, such as GIC within the same period: (a) GST (b) GST conversion role (c) wine equalisation tax (d) luxury car tax (e) fuel tax credit (f) activity statement debt from a former account (g) administrative penalties (h) GIC. (a) GST (b) GST conversion role (c) wine equalisation tax (d) luxury car tax (e) fuel tax credit (f) activity statement debt from a former account (g) administrative penalties (h) GIC. 99. To any debt within a GST limited registration entity (LRE) account. 100. To any debt which represents dividend, interest and royalty withholding tax debts, including any associated charges and penalties. 101. To any debt within an FBT account, including any associated charges and penalties to the earliest period within the account following the hierarchy: (a) conversion FBT (b) FBT (c) GIC. (a) conversion FBT (b) FBT (c) GIC. 102. To any debt within a super surcharge account, including any associated charges and penalties to the earliest period within the account following the hierarchy: (a) surcharge superannuation provider (b) GIC (c) unfunded defined benefit (UDB) surcharge superannuation provider (d) surcharge superannuant (e) UDB surcharge superannuant. (a) surcharge superannuation provider (b) GIC (c) unfunded defined benefit (UDB) surcharge superannuation provider (d) surcharge superannuant (e) UDB surcharge superannuant. 103. To any debt within a super surcharge for a constitutionally protected fund (CPF) to the earliest period within the account following the hierarchy: (a) CPF surcharge exit (b) CPF surcharge (c) end of year interest. (a) CPF surcharge exit (b) CPF surcharge (c) end of year interest. 104. To any debt within a minerals resource rent tax (MRRT) account, including any associated charges or penalties to the earliest period within the account following the hierarchy: (a) MRRT instalments (b) MRRT Instalments Consolidated Group Head (c) MRRT (d) MRRT Consolidated Group Head (e) GIC (f) administrative penalties. (a) MRRT instalments (b) MRRT Instalments Consolidated Group Head (c) MRRT (d) MRRT Consolidated Group Head (e) GIC (f) administrative penalties. 105. To any debt with a tax-sharing amount for an MRRT account including any associated charges or penalties. 106. To any debt within a petroleum resource rent tax (PRRT) account, including any associated charges or penalties to the earliest period within the account following the hierarchy: (a) PRRT instalments (b) PRRT Instalments Consolidated Group Head (c) PRRT Consolidated Group Head (d) GIC (e) administrative penalties. (a) PRRT instalments (b) PRRT Instalments Consolidated Group Head (c) PRRT Consolidated Group Head (d) GIC (e) administrative penalties. 107. To any debt with a tax-sharing amount for a PRRT account, including any associated charges or penalties. 108. To any debt within an excise (duty) account, including any associated charges and penalties to the earliest period within the account following the hierarchy: (a) excise or customs conversion (b) excise delivery authority (c) excise duty (d) duty-free operator off airport (e) duty-free operator on airport (f) excise claims. (a) excise or customs conversion (b) excise delivery authority (c) excise duty (d) duty-free operator off airport (e) duty-free operator on airport (f) excise claims. 109. To any debt within an excise equivalent goods account, including any associated charges and penalties to the earliest period within the account following the hierarchy: (a) customs indirect taxes (b) GIC (c) excise or customs conversion (d) customs fee (e) non-administrative penalty (f) customs claim (g) customs duty. (a) customs indirect taxes (b) GIC (c) excise or customs conversion (d) customs fee (e) non-administrative penalty (f) customs claim (g) customs duty. 110. To any debt within an excise infringement account, including any associated charges and penalties. 111. To any debt within an excise customs demand account. A payment or credit in an excise customs demand account should be allocated in the following way: (a) If a payment 'dollar matches' either a single or group debt, you should allocate it to that debt. (b) If a payment matches the total amount of a period and a single debt, you should allocate it to the total amount of the period. (c) The payment should be allocated proportionally to the earliest period within the excise customs demand account where a payment is made to the excise customs demand account, and (i) does not dollar match any debts, and (ii) there are both excise and customs debts in the same account. (a) If a payment 'dollar matches' either a single or group debt, you should allocate it to that debt. (b) If a payment matches the total amount of a period and a single debt, you should allocate it to the total amount of the period. (c) The payment should be allocated proportionally to the earliest period within the excise customs demand account where a payment is made to the excise customs demand account, and (i) does not dollar match any debts, and (ii) there are both excise and customs debts in the same account. (i) does not dollar match any debts, and (ii) there are both excise and customs debts in the same account. 112. To any debt within a grants or benefits scheme account arising under the Product Grants and Benefits Administration Act 2000, including any associated charges and penalties. 113. To any debt within a diesel and alternative fuels grants scheme account, including any associated charges and penalties. 114. To any debt with a diesel fuel rebate scheme debt, including any associated charges and penalties. 115. To any debt within an international wine equalisation tax rebate scheme account, including any associated charges and penalties. 116. To any debt which represents an assessed net fuel amount greater than zero (where the taxpayer is not registered or required to be registered for GST). 117. To any debt which represents franking deficit tax, over-franking tax or venture capital deficit tax, including any associated charges and penalties. 118. To any debt within a self-managed super fund supervisory levy account, including any associated charges or penalties. 119. To any debt within an income tax debts account, including any associated charges and penalties. [28] 120. A payment or credit will be allocated in the following way: (a) If a payment 'dollar matches' a single debt, you should allocate it to that debt. (b) If no dollar match occurs, the payment received is applied to the earliest outstanding period within the role, based on period start date. (c) If a credit is unable to offset the total amount of liabilities on that role, then that credit is to be applied to the individual debt components, based upon the role allocation hierarchy. The earliest outstanding period within the highest role is paid first, based on period start date following this order (i) income tax from former account (ii) franking tax (iii) income tax – individual (iv) income tax – company (v) income tax – consolidated group (vi) income tax – trust (vii) income tax – super fund (viii) income tax – partnership (ix) income tax – government (x) family trust distribution tax (xi) ultimate beneficiary tax (xii) Division 293 tax due and payable (xiii) excess contributions tax (xiv) GIC (xv) administrative penalties (xvi) Investment Income Report (xvii) income tax – non-compliance. (a) If a payment 'dollar matches' a single debt, you should allocate it to that debt. (b) If no dollar match occurs, the payment received is applied to the earliest outstanding period within the role, based on period start date. (c) If a credit is unable to offset the total amount of liabilities on that role, then that credit is to be applied to the individual debt components, based upon the role allocation hierarchy. The earliest outstanding period within the highest role is paid first, based on period start date following this order (i) income tax from former account (ii) franking tax (iii) income tax – individual (iv) income tax – company (v) income tax – consolidated group (vi) income tax – trust (vii) income tax – super fund (viii) income tax – partnership (ix) income tax – government (x) family trust distribution tax (xi) ultimate beneficiary tax (xii) Division 293 tax due and payable (xiii) excess contributions tax (xiv) GIC (xv) administrative penalties (xvi) Investment Income Report (xvii) income tax – non-compliance. (i) income tax from former account (ii) franking tax (iii) income tax – individual (iv) income tax – company (v) income tax – consolidated group (vi) income tax – trust (vii) income tax – super fund (viii) income tax – partnership (ix) income tax – government (x) family trust distribution tax (xi) ultimate beneficiary tax (xii) Division 293 tax due and payable (xiii) excess contributions tax (xiv) GIC (xv) administrative penalties (xvi) Investment Income Report (xvii) income tax – non-compliance. 121. To any debt which represents only tax-sharing amounts for assessed income tax debts, including any associated charges and penalties following the income tax role hierarchy. 122. To any debt within a GDMT account, including any associated charges or penalties to the earliest period within the account following the hierarchy: (a) Domestic Minimum Tax (b) Australian IIR tax/ Australian UTPR tax (c) Administrative penalties (d) GIC. (a) Domestic Minimum Tax (b) Australian IIR tax/ Australian UTPR tax (c) Administrative penalties (d) GIC. 123. To any debt within the assessed super excess contributions tax account, including any associated charges and penalties to the earliest period within the account following the hierarchy: (a) excess contribution for income tax (b) excess contribution for superfunds (c) administrative penalties. (a) excess contribution for income tax (b) excess contribution for superfunds (c) administrative penalties. 124. To any tax debt within our legal action account. Legal accounts will all have an underlying source account. A payment to a legal action account will follow the payment allocation rules for the underlying source account. 125. To any debt within our transfer balance accounts. 126. To any secondary tax debts (for example, the costs involved in obtaining a judgment against a taxpayer). 127. To any judgment costs with the debts that have the earliest due date, applying the payments in the following order: (a) costs ordered by the Court – administration costs (b) fines ordered by the Court – administration fines. (a) costs ordered by the Court – administration costs (b) fines ordered by the Court – administration fines. 128. To any director penalty amount in respect of PAYG withholding (or an estimate of PAYG withholding) pursuant to Division 269 of Schedule 1, commencing with the earliest period director penalty amount until all penalty amounts are finalised. 129. To any director penalty amount in respect of GST. 130. To any debt which represents PAYG withholding non-compliance tax (NCT), commencing with the earliest period NCT amount. 131. To tax debts that are subject to objection, review or appeal, including any associated charges and penalties. 132. To tax debts associated with the first home super saver (FHSS) tax account: (a) FHSS tax role (b) GIC. (a) FHSS tax role (b) GIC. 133. To any debts associated with the first home super saver scheme tax account (FHSA): (a) FHSA Provider Report (b) FHSA payment (c) return of FHSA contribution (d) recovery of FHSA contribution (e) FHSA penalty (f) FHSA Report – Holder Details (g) FHSA Government contributions (h) intermediary – FHSA supplier (i) FHSS role (j) FHSS tax role. (a) FHSA Provider Report (b) FHSA payment (c) return of FHSA contribution (d) recovery of FHSA contribution (e) FHSA penalty (f) FHSA Report – Holder Details (g) FHSA Government contributions (h) intermediary – FHSA supplier (i) FHSS role (j) FHSS tax role. 134. To any further amounts due to the Commonwealth directly under a taxation law, which are due but not yet payable: (a) to the integrated client account (ICA) of a trust beneficiary following allocation order, to the earliest period within the account following the hierarchy (i) activity statement former account (ii) trust beneficiary PAYGI (iii) administrative penalties (iv) activity statement reporting (v) PAYGI Annual Reporting (vi) GIC (b) to the trust beneficiary non-disclosure liabilities (c) ultimate beneficiary non-disclosure. (a) to the integrated client account (ICA) of a trust beneficiary following allocation order, to the earliest period within the account following the hierarchy (i) activity statement former account (ii) trust beneficiary PAYGI (iii) administrative penalties (iv) activity statement reporting (v) PAYGI Annual Reporting (vi) GIC (b) to the trust beneficiary non-disclosure liabilities (c) ultimate beneficiary non-disclosure. (i) activity statement former account (ii) trust beneficiary PAYGI (iii) administrative penalties (iv) activity statement reporting (v) PAYGI Annual Reporting (vi) GIC 135. To the tax account which administers our taxable payment reporting system (TPAR) account to the earliest period within the account following the hierarchy: (a) TPAR role (b) TPAR GIC role (c) Early Stage Innovation Companies Report Reporter role (d) Business Transactions through Payment Systems (BTTPS) Reporting Role (e) BTTPS GIC role. (a) TPAR role (b) TPAR GIC role (c) Early Stage Innovation Companies Report Reporter role (d) Business Transactions through Payment Systems (BTTPS) Reporting Role (e) BTTPS GIC role. 136. To the tax account which administers our Sharing Economy Reporting Regime (SERR) to the earliest period within the account following the hierarchy: (a) administrative penalties (b) GIC. (a) administrative penalties (b) GIC. 137. To the tax account which represents amount owed to us in respect to securities and monies in trust. 138. To the foreign double-tax account in the following allocation order to the earliest period within the account following the hierarchy (a) trust income tax – conversion (b) trust beneficiary income tax (c) GIC (d) administrative penalties. (a) trust income tax – conversion (b) trust beneficiary income tax (c) GIC (d) administrative penalties. 139. To the tax account under the super direction to pay regime. 140. To the tax account under the GST withholding regime. 141. To the tax account which represents a civil penalty promotion scheme. 142. To the account in respect to our Foreign Investment Review Board (FIRB) Accounts to the earliest period within the account following the hierarchy: (a) FIRB role (b) FIRB vacancy fee role (c) administrative penalties (d) GIC. (a) FIRB role (b) FIRB vacancy fee role (c) administrative penalties (d) GIC. 143. To the account in respect to our exchange of information with foreign government agencies, known as the automatic exchange of information (AEOI) Admin Account to the earliest period within the account following the hierarchy: (a) Common Reporting Standard Reporter (b) Foreign Account Tax Compliance Act Reporter (c) GIC (d) administrative penalties. (a) Common Reporting Standard Reporter (b) Foreign Account Tax Compliance Act Reporter (c) GIC (d) administrative penalties. 144. To Major Bank Levy accounts (the Major Bank Levy Act 2017 and the Treasury Laws Amendment (Major Bank Levy) Act 2017). 145. To any further amounts due to the Commonwealth directly under a taxation law, which are due but not yet payable. 146. To any government agency costs and fines account. 147. The following lists the automatic order of allocation of our systems. The account hierarchy of each particular account is unique when allocating. 148. Depending on which account the excess credit originates from, it will follow the order of allocation listed in this Appendix. 149. We note that allocation varies slightly between these accounts and, at some point in future, we may look to align the allocation policy. However, this is how we allocate at this time. | Our superannuation system: 150. The superannuation system allocates following the hierarchy: (a) Superannuation Guarantee Employer (b) Super Guarantee Director Penalty Account (c) Integrated Client Account (d) GST Joint Venture Account (e) ICA Trust Beneficiary (f) Fringe Benefits Tax Account (g) Income Tax Account (h) Costs Ordered by Court Account (i) Fines Ordered by Court Account (j) PAYGW Director Penalty Account (k) GST Director Penalty Account (l) Superannuation (m) First Home Saver Account (n) Entity Endorsement Account (o) Fund Endorsement Account (p) Unclaimed Super Money (USM) Superannuation Account (q) USM Unmatched Account (r) Superannuation Holding Account (SHA) Special Account (s) SG Overpaid Distributions Account (t) External Agency. (a) Superannuation Guarantee Employer (b) Super Guarantee Director Penalty Account (c) Integrated Client Account (d) GST Joint Venture Account (e) ICA Trust Beneficiary (f) Fringe Benefits Tax Account (g) Income Tax Account (h) Costs Ordered by Court Account (i) Fines Ordered by Court Account (j) PAYGW Director Penalty Account (k) GST Director Penalty Account (l) Superannuation (m) First Home Saver Account (n) Entity Endorsement Account (o) Fund Endorsement Account (p) Unclaimed Super Money (USM) Superannuation Account (q) USM Unmatched Account (r) Superannuation Holding Account (SHA) Special Account (s) SG Overpaid Distributions Account (t) External Agency. | Our Integrated Client Account: 151. The integrated client account allocates following the hierarchy: (a) Integrated Client Account (b) GST Joint Venture Account (c) Miscellaneous Amounts – Admin Account (d) GST LRE Account (e) Superannuation Guarantee Employer (f) Super Guarantee Director Penalty Account (g) ICA Trust Beneficiary (h) Fringe Benefits Tax Account (i) Income Tax Account (j) GDMT Account (k) FHSS Scheme Account (l) Transfer Balance Account (m) Costs Ordered by Court Account (n) Fines Ordered by Court Account (o) PAYGW Director Penalty Account (p) GST Director Penalty Account (q) Superannuation (r) First Home Saver Account (s) Entity Endorsement Account (t) Fund Endorsement Account (u) USM Superannuation Account (v) USM Unmatched Account (w) SHA Special Account (x) SG Overpaid Distributions Account (y) FIRB Account (z) AEOI Admin Account (aa) Miscellaneous Penalty Account (bb) External Agency. (a) Integrated Client Account (b) GST Joint Venture Account (c) Miscellaneous Amounts – Admin Account (d) GST LRE Account (e) Superannuation Guarantee Employer (f) Super Guarantee Director Penalty Account (g) ICA Trust Beneficiary (h) Fringe Benefits Tax Account (i) Income Tax Account (j) GDMT Account (k) FHSS Scheme Account (l) Transfer Balance Account (m) Costs Ordered by Court Account (n) Fines Ordered by Court Account (o) PAYGW Director Penalty Account (p) GST Director Penalty Account (q) Superannuation (r) First Home Saver Account (s) Entity Endorsement Account (t) Fund Endorsement Account (u) USM Superannuation Account (v) USM Unmatched Account (w) SHA Special Account (x) SG Overpaid Distributions Account (y) FIRB Account (z) AEOI Admin Account (aa) Miscellaneous Penalty Account (bb) External Agency. | Our Income Tax Account: 152. The income tax account allocates following the hierarchy: (a) Income Tax Account (b) GDMT Account (c) Superannuation Guarantee Employer (d) Super Guarantee Director Penalty Account (e) Integrated Client Account (f) GST Joint Venture Account (g) GST LRE Account (h) ICA Trust Beneficiary (i) Fringe Benefits Tax Account (j) First Home Superannuation Saver Tax Account (k) FHSS Scheme Account (l) Transfer Balance Account (m) Costs Ordered by Court Account (n) Fines Ordered by Court Account (o) PAYGW Director Penalty Account (p) GST Director Penalty Account (q) Superannuation (r) First Home Saver Account (s) Entity Endorsement Account (t) Fund Endorsement Account (u) USM Superannuation Account (v) USM Unmatched Account (w) SHA Special Account (x) SG Overpaid Distributions Account (y) FIRB Account (z) AEOI Admin Account (aa) Miscellaneous Penalty Account (bb) External Agency. (a) Income Tax Account (b) GDMT Account (c) Superannuation Guarantee Employer (d) Super Guarantee Director Penalty Account (e) Integrated Client Account (f) GST Joint Venture Account (g) GST LRE Account (h) ICA Trust Beneficiary (i) Fringe Benefits Tax Account (j) First Home Superannuation Saver Tax Account (k) FHSS Scheme Account (l) Transfer Balance Account (m) Costs Ordered by Court Account (n) Fines Ordered by Court Account (o) PAYGW Director Penalty Account (p) GST Director Penalty Account (q) Superannuation (r) First Home Saver Account (s) Entity Endorsement Account (t) Fund Endorsement Account (u) USM Superannuation Account (v) USM Unmatched Account (w) SHA Special Account (x) SG Overpaid Distributions Account (y) FIRB Account (z) AEOI Admin Account (aa) Miscellaneous Penalty Account (bb) External Agency.",PS LA 2011/4 | PS LA 2011/21 | PS LA 2011/16 | PS LA 2013/5 | PS LA 2013/6 | ITAA 1936 former 222ALA | SGAA 1992 Pt 7 | TAA 1953 Pt IIB Div 3 | TAA 1953 8AAZA | TAA 1953 8AAZL | TAA 1953 8AAZLA | TAA 1953 8AAZLB | TAA 1953 8AAZLD | TAA 1953 8AAZLE | TAA 1953 8AAZM | TAA 1953 8AAZN | TAA 1953 Sch 1 255-15 | TAA 1953 Sch 1 Div 268 | TAA 1953 Sch 1 Div 269 | TAA 1953 Sch 1 127-15 | TAR 2017 21(1) | TAR 2017 21(3) | Bankruptcy Act 1966 109 | Bankruptcy Act 1966 109(1)(e) | Bankruptcy Act 1966 Pt X | Bankruptcy Act 1966 188 | Bankruptcy Regulations 2021 26 | Corporations Act 2001 556(1A) | Corporations Act 2001 556(1)(e) | Civil Procedure Act 2005 (NSW) 101 | Civil Procedure Act 2005 (NSW) 136,PS LA 2011/4 PS LA 2011/16 PS LA 2011/21 PS LA 2013/5 PS LA 2013/6,ITAA 1936 former 222ALA | SGAA 1992 Pt 7 | TAA 1953 Pt IIB Div 3 | TAA 1953 8AAZA | TAA 1953 8AAZL | TAA 1953 8AAZLA | TAA 1953 8AAZLB | TAA 1953 8AAZLD | TAA 1953 8AAZLE | TAA 1953 8AAZM | TAA 1953 8AAZN | TAA 1953 Sch 1 255-15 | TAA 1953 Sch 1 Div 268 | TAA 1953 Sch 1 Div 269 | TAA 1953 Sch 1 127-15 | TAR 2017 21(1) | TAR 2017 21(3) | Bankruptcy Act 1966 109 | Bankruptcy Act 1966 109(1)(e) | Bankruptcy Act 1966 Pt X | Bankruptcy Act 1966 188 | Bankruptcy Regulations 2021 26 | Corporations Act 2001 556(1A) | Corporations Act 2001 556(1)(e) | Civil Procedure Act 2005 (NSW) 101 | Civil Procedure Act 2005 (NSW) 136,,Director penalties Indirect tax sharing agreement - reasonable allocation of indirect tax law liability Product stewardship for oil program,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS201120/NAT/ATO/00001,"Our general policy about payment and credit allocation | Appendix A – Listed payments | Appendix B – Listed credits | Appendix C – Order of allocation | Appendix D – Automatic system order of allocation of payments and credits | Added new paragraphs 74 and 75 on allocation of payments for minimum tax. | New paragraph 136 added to insert the order of allocation with regards to the Sharing Economy Reporting Regime (SERR). | Inserted minimum tax (GDMT account) to reflect automatic offsetting order. | Updated to align with amended Practice Statement style and formatting requirements. | Updated in line with current ATO style and accessibility requirements. | Attachment C – Order of allocation | Previous paragraph 31 removed to avoid conflict with paragraph 1(b) in respect of director penalty amounts relating to a SGC liability. | Changes made because of system enhancements to Excise and Customs accounts. Additional minor amendments made to align the order of allocation with system functionality. | Attachment B – Listed credits | In paragraph (e), reference to 'Trade Support Loan' changed to 'Australian Apprenticeship Support Loan'. | Subparagraphs 1(a)(iii) and (iv) switched in order. | In December 2019, the ATO undertook a system enhancement, referred to as Activity statement financial processing (ASFP), that moved all activity statement and franking deficit tax accounts into the one accounting system. Multiple changes were made throughout this practice statement to reflect payment and credit allocation within the updated system. This included adding Attachment D. | Attachment A & C – Order of allocation of amounts | Change made to allocation order for annual SGC debts for periods before 1 July 2003 and to payments received for quarterly SGC liabilities for periods after 1 July 2003. | Updated to new LAPS format and style. | Clarified the treatment of dividends received from an insolvency administration. | Update content to include application of new law including Mining Resource Rent Tax, changes to Petroleum Resource Rent Tax, Director Penalties for unpaid Superannuation Guarantee, Refunds of Excess superannuation contributions and GST default assessment regime. | Changes made in order to reduce duplication, incorporate policy from internal practice note regarding payment application in the ICP system and heading/style/ordering changes made to improve readability. | [1] A listed payment is one made to specified liabilities or under an arrangement with us. | [2] A listed credit is one that results from a specific tax product. | [3] An excess payment or credit arises where a payment or credit has paid off all liabilities in an account, and an excess remains. | [6] An unidentified payment is one made without a PRN or with an incorrect PRN. | [7] Subsection 21(1) of the Taxation Administration Regulations 2017 . | [9] Subsection 21(3) of the Taxation Administration Regulations 2017 requires a taxpayer to pay their tax debt in a single payment unless we agree to accept payment by instalments. In practice, we receive and allocate payments of less than the full amount. | [11] See Part 4, Division 3. | [12] Section 255-15 of Schedule 1 allows for payments by instalments. | [13] An administrative overpayment is a payment that we have paid to a person by mistake, being an amount to which the person is not entitled under section 8AAZN. | [14] Raised under Division 269 of Schedule 1. | [16] Sections 136 and 101. | [18] In accordance with Turner Manufacturing Co. Pty. Ltd. v Senes [1964] NSWR 692 and Thompson v Hudson (1871) LR 6 Ch App 320. | [19] For companies that went into liquidation, receivership or entered into a Deed of Company Arrangement on or after 31 December 2007, priority benefits paid to excluded employees - that is, directors, their spouses or relatives - will be subject to being capped under subsection 556(1A) of the Corporations Act 2001 . The capped amount will vary depending on the other benefits payable to that person under paragraph 556(1)(e) of that Act, but the amount paid with respect to each excluded employee for the nominal interest and individual super guarantee shortfall components will not exceed $2,000. As the administration component is not paid to the employee, it should not be included in the capped amount. | [20] Individual tax liability within an account. | [21] Individual tax liability within an account. | [22] While the priority for SGC and GIC applies to administrations from 5 May 2003, we can only apply the capping where the date of bankruptcy is on or after 31 December 2007; for personal insolvency agreements, if the agreement makes provision for distributions pursuant to section 109 of the Bankruptcy Act 1966 , we will apply the capping if the date of the section 188 authority is on or after 31 December 2007. (The date of the section 188 authority is not the effective date of the Part X agreement.) The capped amount will vary depending on the other benefits payable to that person under paragraph 109(1)(e) of the Bankruptcy Act 1966 , but the amount paid with respect to each employee for the nominal interest, individual super guarantee shortfall components and additional GIC for the unpaid total of the individual super guarantee shortfall will not exceed an amount calculated, and increased at the applicable consumer price index rate, according to section 26 of the Bankruptcy Regulations 2021 for any individual employee. As the administration component is not paid to the employee, it should not be included in the capped amount. | [23] 'Jointly' means that both parties have joint liability, giving responsibility for the full amount of the obligation to each party. 'Severally' means that the parties are only responsible for their share of the obligation. | [24] Subsection 127-15 of Schedule 1. | [26] This is because credits relating to Product stewardship for oil program do not come within the operation of the Division 3 of Part IIB. | [27] Sections 8AAZA, 8AAZLA and 8AAZLB. | [28] Note the Integrated Core Processing (ICP) role allocation hierarchy rules. | File 1-4JI4FZX; 1-17DUS06C | Turner Manufacturing Co. Pty. Ltd. v Senes [1964] NSWR 692 | Thompson v Hudson (1871) LR 6 Ch App 320"
PS LA 2011/21,Offsetting of refunds and credits against taxation and other debts,14 April 2011,14 April 2011,Law Administration Practice Statement,False,"1. What is this Practice Statement about?: This Practice Statement outlines: • when credits and refunds will be offset against tax debts, and • the Commissioner's discretion to refund instead of offset and what to consider in doing so. • when credits and refunds will be offset against tax debts, and • the Commissioner's discretion to refund instead of offset and what to consider in doing so. | 2. Offsetting and the Commissioner's powers: Offsetting occurs when a taxpayer's credit or running balance account (RBA) surplus is applied to another liability of the taxpayer. [1] For convenience, the word 'credit' in this Practice Statement refers to both a credit and an RBA surplus. Commissioner is required to offset We are required to offset credits, except in specific situations. [2] Offsetting is generally automatic, based on accounting system rules. Attachment A to this Practice Statement details more specific rules related to particular types of credits. Commissioner may refund credits in specific situations You have the discretion to refund rather than offset credits only in particular situations. [3] You must first consider whether the circumstances fall within the scope of these provisions (see section 3 of this Practice Statement). If they do, you need to then consider whether the facts warrant the refunding of the amount that has been, or could be, offset against another liability (see section 4 of this Practice Statement). Refunding and ATO systems Our accounting system rules will often automatically offset a payment or credit prior to consideration of the discretion to refund and not offset. Where an amount has been offset contrary to the principles outlined in this Practice Statement, and if the taxpayer requests us to do so, a refund will be provided to the taxpayer. This means that the discretion can be applied after an offset has occurred, provided the facts at the time of the offset would have warranted the exercise of the discretion. | 3. When the Commissioner can refund rather than offset: You have the discretion not to offset a credit and instead refund the amount to a taxpayer. [4] This is limited to the following circumstances where: • the amount owing is due but not yet payable • the amount owing is under a payment arrangement and the taxpayer is complying with that arrangement • we have agreed to defer recovery action, or • the amount is to be offset against a director penalty debt. • the amount owing is due but not yet payable • the amount owing is under a payment arrangement and the taxpayer is complying with that arrangement • we have agreed to defer recovery action, or • the amount is to be offset against a director penalty debt. These are the only circumstances where you are able to refund and not offset a credit. | 4. Whether or not to exercise the discretion to not offset: Since the power to refund and not offset is discretionary, you must consider whether or not it is appropriate to exercise the power on a case-by-case basis. If one of the discretions in section 3 of this Practice Statement applies, you should consider the following circumstances. Where the amount owing is due but not yet payable You may decide to refund and not offset a credit if that credit would be applied against a debt that is due but not yet payable. As our systems will automatically offset credits against debts which have crystallised on the account that are due but not yet payable, this discretion will only be exercised where a taxpayer requests the credit be refunded. You must consider individual circumstances of each case for any decision to refund the credit (as listed under the General considerations section of this Practice Statement). In addition to these, it may be appropriate to exercise the discretion to refund and not offset where the credit would be offset against a debt owed by the taxpayer in a different capacity. For example, you may decide not to offset a credit from a taxpayer's own RBA against a debt owed on their GST joint venture RBA, where the retained credit is causing the taxpayer significant cash flow issues. Payment arrangement You have the discretion to refund a credit if it would be offset against a debt that is subject to a payment arrangement. The discretion to refund should only be considered where the arrangement provides for the taxpayer to pay the debt by instalments and the taxpayer is meeting the terms of that arrangement. However, most payment arrangements expressly allow for offsetting to occur. Therefore, you should generally offset credits against debts subject to a payment arrangement unless the general considerations warrant the exercise of the discretion to refund. Note: If an offset during the course of a payment arrangement causes the taxpayer unexpected cash flow problems, they can apply for a temporary variation to that arrangement (see Law Administration Practice Statement PS LA 2011/20 Payment and credit allocation). Where we have agreed to defer recovery proceedings You should not offset credits against a tax debt that is subject to a formal deferral of recovery action. This may occur when the relevant debt is disputed. However, if there is new evidence since the deferral was granted that there is an unreasonable risk to revenue, the credit should be offset. Where the offset is to a director penalty liability There is a specific discretion for director penalty liabilities due to their parallel nature. Parallel liabilities include the company's underlying liability, as well as director penalties owed by any co-directors. Payments or credits applied to one parallel liability will proportionately reduce the other liabilities. You should consider whether any parallel liabilities are in dispute or being paid through an agreed payment arrangement. If the company with the parallel liability has made arrangements or provided satisfactory security to pay the underlying liability, exercise of the discretion to refund and not to offset would generally be appropriate. Otherwise, you should generally offset credits against director penalty liabilities unless the general considerations warrant the exercise of the discretion to refund. General considerations You must consider the individual circumstances of each case and whether refunding the amount would be fair and reasonable to other taxpayers who have paid all their debts on time. This requires you to balance the factors relevant to exercising the discretion. Factors weighing against exercising the discretion to refund (instead of offset) a credit include: • the taxpayer has a poor compliance history in meeting their tax obligations • there is an unreasonable risk to revenue – for example, there is evidence that the taxpayer is dissipating assets • the credit is being offset against a superannuation guarantee charge (SGC) or is to be paid to the Child Support Registrar, and • the taxpayer is a promoter of schemes. • the taxpayer has a poor compliance history in meeting their tax obligations • there is an unreasonable risk to revenue – for example, there is evidence that the taxpayer is dissipating assets • the credit is being offset against a superannuation guarantee charge (SGC) or is to be paid to the Child Support Registrar, and • the taxpayer is a promoter of schemes. Factors that would support exercising the discretion to refund include where the taxpayer has shown that the offset will cause: • serious financial hardship, or • significant cash flow issues for their business. • serious financial hardship, or • significant cash flow issues for their business. An individual taxpayer is in serious financial hardship when they cannot meet the basic necessities of life. This may include where the offset would result in a person being left without the means to afford basics such as food, clothing, medical supplies, accommodation or reasonable education. The financial impact on a business can also be taken into account. There should be evidence that the business is engaging with the office to bring their liabilities up to date. If you are unsure whether you should exercise the discretion to refund and not offset, you should contact Operational Policy, Assurance and Law (OPAL) for advice. | 5. Where the taxpayer requests an offset of their credit against the taxation debt of another taxpayer: Sometimes, where they have no outstanding tax debts or other Commonwealth liabilities to offset, a taxpayer may wish to have their refund or credit offset against the tax debt of another taxpayer. You are not required by law to do this and you should not agree to such a request as a matter of course. However, you may agree to their request if: • there is little risk in doing so • paying the refund in this manner is an efficient, effective, economical and ethical use of public resources for which the Commissioner is responsible [5] , and • the offset satisfies the Commissioner's obligation to pay the refund the taxpayer is entitled to under Division 3A of Part IIB to the TAA. • there is little risk in doing so • paying the refund in this manner is an efficient, effective, economical and ethical use of public resources for which the Commissioner is responsible [5] , and • the offset satisfies the Commissioner's obligation to pay the refund the taxpayer is entitled to under Division 3A of Part IIB to the TAA. The request must: • be made by the taxpayer or an authorised representative of the entitled taxpayer • provide a statement by the taxpayer or an authorised representative of the entitled taxpayer that they understand the refundable amount will be offset against a different taxpayer's tax debt • state how much of the refundable amount is to be offset against the other taxpayer's debt, and • provide sufficient details to enable identification of the taxpayer and the debt against which the entitled taxpayer wants to have the refundable amount offset. • be made by the taxpayer or an authorised representative of the entitled taxpayer • provide a statement by the taxpayer or an authorised representative of the entitled taxpayer that they understand the refundable amount will be offset against a different taxpayer's tax debt • state how much of the refundable amount is to be offset against the other taxpayer's debt, and • provide sufficient details to enable identification of the taxpayer and the debt against which the entitled taxpayer wants to have the refundable amount offset. Any offset we agree to will only be to the extent of the tax liability of the other taxpayer. Any remaining amount must be refunded to the taxpayer entitled at law to the refund. Example ABC Pty Ltd is a wholly owned subsidiary of XYZ Pty Ltd. The 2 companies are not grouped for any reporting purpose. ABC Pty Ltd lodges its quarter 3 business activity statement (BAS), which results in a $10,000 credit. ABC Pty Ltd also has an outstanding fringe benefits tax (FBT) debt of $1,500 that is due and payable. XYZ Pty Ltd has an outstanding income tax debt of $8,000. Through a letter of informed consent, ABC Pty Ltd requests the Commissioner offset its refund against XYZ Pty Ltd's income tax debt. Provided that the letter of informed consent contains all relevant information, you may exercise the discretion to offset ABC Pty Ltd's BAS credit against XYZ Pty Ltd's income tax debt. You must first offset $1,500 of the credit to ABC Pty Ltd's FBT debt, leaving a balance of $8,500. If the discretion to offset $8,000 to XYZ Pty Ltd's income tax debt is exercised, the remaining credit of $500 must be refunded to ABC Pty Ltd. Attachment A: Specific credits The following credits have specific rules which apply to their allocation. Pay as you go credits Where an entitlement to a credit arises in relation to pay as you go (PAYG) instalments or PAYG withheld, that credit will be applied initially to: • compulsory repayment amounts arising under the Higher Education Support Act 2003 (HESA), and • student financial supplement assessment debts. • compulsory repayment amounts arising under the Higher Education Support Act 2003 (HESA), and • student financial supplement assessment debts. Note: Prior to 3 June 2010, priority was also given to higher education contribution assessment debts. Higher Education Support Act 2003 payments Where a taxpayer pays an amount to the Commonwealth under Division151 of the HESA and the amount exceeds the total debts owed, the excess may be applied against the taxpayer's primary tax debts prior to being refunded. Fringe benefits tax credits An entitlement to a tax credit for FBT instalments payable, that arises when an assessment of the FBT is made, will be initially applied to the assessed tax for that FBT year. Fuel tax credits Business taxpayers If an entitlement to a credit arises on an activity statement lodged by a business taxpayer (that is, the assessed net fuel amount is less than zero), this credit will initially be applied to any other liabilities notified in the same activity statement before being applied against other tax debts. Non-business taxpayers If an entitlement to a credit arises on a fuel tax return lodged by a non-business taxpayer on a fuel tax return (that is, the assessed net fuel amount is less than zero), this credit will be applied against other outstanding tax debts. Grants and benefits administered under the Product Grants and Benefits Administration Act 2000 Entitlements to product grants and benefits are not subject to the offsetting provisions contained within Division 3 of Part IIB of the TAA. A product grant or benefit entitlement can be offset against a debt relating to an overpayment of a Product Grants and Benefits Administration Act 2000 (PGBAA) entitlement [6] or a penalty imposed. [7] We generally cannot offset PGBAA entitlements against other tax debts without the recipient's consent. However, you may contact grant and benefit recipients to discuss offsetting these credits against their tax debts. If the recipient agrees to the offset, the credit will be applied against their tax debt. This agreement does not constitute a payment arrangement to pay the tax debt by instalments; it relates solely to an agreement to retain the credit. Where the recipient enters into a suitable payment arrangement to pay off their outstanding tax debt, you should seek to include the entitlement offset as part of that arrangement, unless it is not practical to do so. If a suitable payment arrangement cannot be reached because of prior arrangements that have been put in place in relation to the credits (for example, between the recipient of a grant and their supplier), the recipient may be given up to 3 months to make alternative arrangements so that a suitable payment arrangement can be reached which would include these credits. Excise claims Where a taxpayer is entitled to a credit or refund of an amount paid under the Excise Act 1901, that amount can be offset if the taxpayer has an outstanding tax liability at the time the credit amount is determined. [8] Tax offsets The table under subsection 63-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides the order in which tax offsets are to be applied to an income tax liability for the relevant year. To the extent that an amount of a tax offset remains, the table also states what is to happen to it. Unless specifically provided for in the table, the excess tax offset cannot be refunded, transferred to another entity or carried forward. Excess franking credits Certain taxpayers will be entitled to a refund of excess franking credits in relation to dividends paid on or after 1 July 2000. These credits can be offset against any tax debts owed. However, we have the authority not to offset if the cost to do so would be prohibitive. [9] Sometimes it will be uneconomical to offset the credits against old tax debts owed by taxpayers who have not been required to be in the taxation system for some time, for example, certain retirees. Therefore, taxpayers who have had no obligation (other than the outstanding debt) to be in the taxation system for over 2 years will not have these credits offset unless the amount of both the credit and the debt are substantial. This exception does not apply to SGC debts or child support debts. In the case of child support debts, the credit will be offset against any tax debt, regardless of size, before it is paid to the Child Support Registrar. Where a refund of excess franking credit is offset contrary to this Practice Statement, we will refund the amount upon receipt of a request to do so from the taxpayer. Credits in relation to refunds of excess concessional superannuation contributions For the 2011-12 and 2012-13 income years only, taxpayers whose superannuation contributions exceed their concessional cap by $10,000 or less are able to make a once-only request to have the excess concessional (before tax) contributions refunded and assessed at their marginal tax rate, rather than pay excess contributions tax. In this circumstance, the taxpayer must authorise a voluntary release authority to enable their superannuation fund to remove the funds from their superannuation account and pay to the Commissioner the requested amount (which can be up to 85% of the excess amount originally contributed). This amount is then included by the Commissioner in the taxpayer's assessable income (usually by way of an amended assessment for the relevant year) and taxed at the taxpayer's relevant marginal tax rate. When assessed on the returned amount, the taxpayer is entitled to credits as follows: • a credit for the contributions returned by the superannuation fund, and • a tax offset credit equivalent to the contributions tax paid (usually 15%) by the superannuation fund on the returned contribution. • a credit for the contributions returned by the superannuation fund, and • a tax offset credit equivalent to the contributions tax paid (usually 15%) by the superannuation fund on the returned contribution. These credits will first be applied to the assessed income tax (for the assessment that includes the relevant returned amount as income) and then, to the extent that the credits exceed the income tax and other amounts payable in that assessment, may be offset to other tax debts, then to other Commonwealth debts. The balance may then be refunded. Other refundable tax offsets Where a taxpayer is entitled to another type of 'refundable tax offset' [10] in a particular income year, any excess amount after the refundable tax offset will be applied to a taxpayer's income tax liability for that year and any other tax liabilities outstanding at that time. Transferable tax offsets The excess of some tax offsets (for example, the senior Australian tax offset) can be transferred by the taxpayer entitled to them to another taxpayer. [11] Carry forward tax offsets The excess of some tax offsets (for example, a tax offset arising from a franking deficit tax liability) may also be carried forward to future income years. [12] Family tax benefit Provided there are no other tax debts to apply a credit against, a tax refund can be applied, if the Secretary of Services Australia requests, to any Centrelink debts. [13] A taxpayer can also give consent to apply their refund to reduce another person's (for example, their spouse's) Centrelink debt. [14] Application to these debts will take priority over application to child support debts. Equally, we may apply a family tax benefit credit (other than childcare benefits) to any primary tax debts. [15] Input tax credits Input tax credits are set off against goods and services tax (GST) attributable to the same period. Where there is an excess (that is, the assessed net amount on the activity statement is less than zero), the credit will be applied to any other liabilities notified in the same activity statement before being applied against other tax debts. GST groups These indirect tax laws include the GST law, wine tax law, luxury car tax law and fuel tax law. Where there is a GST group [16] , although the representative member is liable for all GST and fuel tax debts, all members of the group are jointly and severally liable to pay the group's GST and fuel tax debts. A GST group is included in the definition of an RBA group and thus any credit amounts of a member will initially be applied against their own tax liabilities. [17] Any excess would then be allocated across the group, commencing with the member that has the oldest period tax debt for each tax type. Joint and several liability does not apply to a member of a GST group if an Australian law has the effect of prohibiting that member from entering into any arrangement under which they become liable for another entity's debts - for example, some financial institutions. However, that member does remain liable for any amount payable under an indirect tax law (including a GST or fuel tax debt) by the representative member of the group, to the extent that the liability arises from its own acts or omission. GST joint ventures Where taxpayers have entered into a GST joint venture [18] , the joint venture operator is liable for all tax debts payable by the GST joint venture under an indirect tax law, and each GST joint venture participant is also jointly and severally liable for those tax debts (unless there is a valid indirect tax sharing agreement (ITXSA), limiting the participant's liability). [19] Where a valid ITXSA exists [20] ,the participant's joint and several liability may be limited by the ITXSA. Due to this, any credits owing to a participant (who is not the operator) will not be automatically offset against tax debts payable under an indirect tax law by the GST joint venture. Offsetting may still occur to an entity's own integrated client account, FBT and income tax accounts. We may request a copy of the ITXSA to determine the extent to which each participant is liable and may offset across the GST joint venture if appropriate under the agreement. [21] Cross-entity offsetting may also occur in limited circumstances where no ITXSA has been obtained (for example, where we have decided to take debt collection action against all participants or any participant of a GST joint venture), based on the most expedient means of recovery. Where no valid ITXSA exists [22] , any credit entitlements of the joint venture operator may be offset against any tax debts payable by the GST joint venture under an indirect tax law. Any remaining credit entitlements of a GST joint venture on the operator's RBA will be allocated to any other liability of the operator, as listed in Attachment B to PS LA 2011/20. If the entity is the operator of multiple joint ventures, we will use the credits on one joint venture account to offset against tax debts on another joint venture account. Credits owing to one GST joint venture participant (who is not the operator) will not be offset against the tax debt of another GST joint venture participant. GST and PAYG withholding branches Where taxpayers have elected to branch their business operations, each branch has its own BAS for the relevant period and a related RBA. Each RBA of the branches is considered an RBA of the parent entity. A credit arising on the RBA of a branch will first be applied against any tax liability on that RBA. Credits will then be used to automatically offset against the tax debts on the parent entity's RBA. Any excess credit will then be applied against the tax liabilities on the RBA of other branches of the parent entity. If there is excess credit after this allocation the excess will be applied to other accounts, such as FBT and income tax accounts. [23] Consolidated income tax groups The consolidated group regime does not enable the offsetting of one entity's credits against the debts of another entity except where both entities are members of a GST group for the purposes of Division 48 of the GST Act. However, the law in relation to offsetting should be distinguished from the legislation that makes entities jointly and severally liable for a liability. Liability to pay the income tax attributable to the activities of a consolidated group activities rests with the head company. If not paid by the due date, all entities that were members of the group for a part of the liability period (the contributing members) become jointly and severally liable for that group liability. However, joint and several liability may be avoided by the contributing members if, just before the due date, the particular group liability was covered by a valid tax sharing agreement (TSA). A member's joint and several liability or liability equal to the contribution amount under a TSA does not become due and payable until 14 days after the Commissioner gives the entity written notice. Where members of a consolidated group are also members of a GST group and may therefore be subject to the RBA group offsetting provisions (see the previous discussion in this Practice Statement on GST groups). However, the legislative intent behind the introduction of the TSA regime is to be respected. Therefore: • If the head company is a member of a GST group, any refund or credit belonging to any other member of the GST group (who is not a subsidiary member of the consolidated group) may be offset against any of the head company's debts. • If the head company is a member of a GST group, any refund or credit belonging to any other member of the consolidated group that is not a member of the GST group will not be offset against any of the head company's debts. • If the head company is not a member of the GST group, offsetting other GST group members' refunds or credits against any of the head company's debts cannot occur. • If the head company is a member of a GST group, its refunds or credits may be offset against any liability of the other members of the GST group even if those companies are not members of the consolidated group. • If the head company and one or more subsidiary members of a consolidated group are also members of a GST group, a refund or credit of a subsidiary member will not be applied to any head company group liability or another subsidiary's joint and several consolidated group liability or TSA component amount where that liability is covered by an existing TSA that includes the subsidiary member. • If the head company is a member of a GST group, any refund or credit belonging to any other member of the GST group (who is not a subsidiary member of the consolidated group) may be offset against any of the head company's debts. • If the head company is a member of a GST group, any refund or credit belonging to any other member of the consolidated group that is not a member of the GST group will not be offset against any of the head company's debts. • If the head company is not a member of the GST group, offsetting other GST group members' refunds or credits against any of the head company's debts cannot occur. • If the head company is a member of a GST group, its refunds or credits may be offset against any liability of the other members of the GST group even if those companies are not members of the consolidated group. • If the head company and one or more subsidiary members of a consolidated group are also members of a GST group, a refund or credit of a subsidiary member will not be applied to any head company group liability or another subsidiary's joint and several consolidated group liability or TSA component amount where that liability is covered by an existing TSA that includes the subsidiary member. Where a head company's or subsidiary member's refund or credit amounts can be offset against another member's liability, generally these amounts will be applied initially against their own tax liabilities. If that member has no tax liabilities, the amount would then be allocated across the group commencing with the head company or subsidiary member that has the debts with the earliest due date for each tax type. Bankruptcy When debtors are discharged from bankruptcy, they are released from the debts that were provable in the bankruptcy. Therefore: • until a bankrupt is discharged, any excess credits can be applied to reduce any liability (both pre-and-post-sequestration or bankruptcy) [24] ; the credit should firstly be applied to any post-sequestration debt, then to pre-sequestration debts, and • once a bankrupt has been discharged, the pre-sequestration debt is considered to be irrecoverable at law and is written off; any excess credits arising after the bankrupt's discharge will be refunded, assuming there are no other debts. • until a bankrupt is discharged, any excess credits can be applied to reduce any liability (both pre-and-post-sequestration or bankruptcy) [24] ; the credit should firstly be applied to any post-sequestration debt, then to pre-sequestration debts, and • once a bankrupt has been discharged, the pre-sequestration debt is considered to be irrecoverable at law and is written off; any excess credits arising after the bankrupt's discharge will be refunded, assuming there are no other debts. The only exception to this is where the credit arises from an assessment for a pre-sequestration period (for example, an income year or tax period). This credit would be offset against the bankrupt's debt regardless of whether or not the bankrupt has been discharged. [25] Personal insolvency agreements (Part X of the Bankruptcy Act 1966) The execution of a personal insolvency agreement (PIA) may provide for the taxpayer to be released from certain debts [26] , but release will only occur when the terms of the PIA have been complied with. Therefore: • If tax debts have been released by the PIA, any excess credits arising after that time will be refunded. • If there is any tax debt which was due and payable at the date of execution of the PIA, and which has not been released, credits arising may be applied in reduction of the debt. Credits arising from a post-PIA period will be applied firstly to any post-PIA liabilities, then to pre-PIA debts (assuming that the PIA has not already operated to release the taxpayer from those debts). • Credits in relation to periods prior to the agreement will be offset even if the relevant assessment is made after the agreement. • If tax debts have been released by the PIA, any excess credits arising after that time will be refunded. • If there is any tax debt which was due and payable at the date of execution of the PIA, and which has not been released, credits arising may be applied in reduction of the debt. Credits arising from a post-PIA period will be applied firstly to any post-PIA liabilities, then to pre-PIA debts (assuming that the PIA has not already operated to release the taxpayer from those debts). • Credits in relation to periods prior to the agreement will be offset even if the relevant assessment is made after the agreement. Debt agreements (Part IX of the Bankruptcy Act 1966) Where a debt agreement exists: • Until the terms of an agreement have been completed, credits will be applied in reduction of the debts subject to that agreement. • Once the terms of the agreement have been fulfilled, credits can no longer be offset against the debts subject to that agreement. • Credits in relation to periods or years of income prior to the agreement can be offset even if the credit arises after the debtor has been released from the debts. • Until the terms of an agreement have been completed, credits will be applied in reduction of the debts subject to that agreement. • Once the terms of the agreement have been fulfilled, credits can no longer be offset against the debts subject to that agreement. • Credits in relation to periods or years of income prior to the agreement can be offset even if the credit arises after the debtor has been released from the debts. Composition or arrangement with creditors (Division 6 of Part IV of the Bankruptcy Act 1966) A composition or arrangement with creditors is similar to a PIA, except that the taxpayer is released from their provable debts and the bankruptcy annulled when a special resolution accepting the taxpayer's proposal is passed. Therefore, refunds cannot be offset against a tax debt subject to the composition or arrangement, unless the composition or arrangement itself is annulled. Deed of company arrangement (Part 5.3A of the Corporations Act 2001) The following applies when a deed of company arrangement is in place. • Until the company is released from its provable debts, any excess credits can be applied to reduce any liability (both pre-and-post-administration). The credit should firstly be applied to any post-administration debt, then to pre-administration debts. • Once the company is released from its debts, any excess credits arising after the effectuation of the deed of company arrangement will be refunded, assuming there are no other post-administration debts. • Until the company is released from its provable debts, any excess credits can be applied to reduce any liability (both pre-and-post-administration). The credit should firstly be applied to any post-administration debt, then to pre-administration debts. • Once the company is released from its debts, any excess credits arising after the effectuation of the deed of company arrangement will be refunded, assuming there are no other post-administration debts. The only exception to this is where the credit relates to a pre-administration period. This credit would be offset against pre-administration debts regardless of whether or not the company has been released from those debts. Companies in liquidation Credits due to a company in liquidation must first be applied against any debts of the company before a refund can be made. Credits in respect of post-liquidation periods should first be applied against post-liquidation debts and then any other debts of the company. Representatives of incapacitated entities A GST or fuel tax credit due to a person in their capacity as a representative of an incapacitated entity cannot be offset against liabilities of the incapacitated entity [27] , nor (if there is more than one representative acting in different capacities) can the credits of one be offset against the debts of another. Where the GST or fuel tax credit due to an incapacitated entity arises: • After the appointment of a representative – it will initially be offset against any post-appointment tax debts of the entity. Any remaining credit will then be offset against any pre-appointment tax debts (provided the entity has not been released from those debts). • Before the appointment of a representative – it will initially be offset against any pre-appointment tax debts of the entity. Any remaining credit will then be offset against any post-appointment tax debts. • After the appointment of a representative – it will initially be offset against any post-appointment tax debts of the entity. Any remaining credit will then be offset against any pre-appointment tax debts (provided the entity has not been released from those debts). • Before the appointment of a representative – it will initially be offset against any pre-appointment tax debts of the entity. Any remaining credit will then be offset against any post-appointment tax debts. Product grants and benefits and arrangements under the Bankruptcy Act 1966 and the Corporations Act 2001 Grants and benefits payable under the PGBAA for post-insolvency periods cannot be applied against pre-insolvency debts. [28] Grants and benefits payable under the PGBAA for pre-insolvency periods will be applied against pre-insolvency debts. [29] In receiverships, however, grants and benefits payable under the PGBAA should be applied against any liabilities the entity has regardless of which period the grant or benefit and the liabilities relate. This is because the appointment of a receiver would not normally impact on the rights of unsecured creditors of the company, including a right of legal offset. Credits from delayed refund interest, interest on overpayments and early payments Interest payable, arising under the Taxation (Interest on Overpayments and Early Payments) Act 1983, will be initially allocated to the account to which it pertains and then to any other tax debt. Credits arising from account adjustments Where a credit arises from an account adjustment, it is to be applied against the account posting to which it pertains and then to reduce any amounts due and payable on the account to which it is posted. Remainder credits Where any credit remains after the initial offset of the specific credits outlined above, it is to be allocated to any other liability the taxpayer has to the Commonwealth that arises under an Act of which the Commissioner has the general administration. Superannuation credits SGC credits Where SGC credits arise, they should be offset against any other liabilities of the employer to the Commonwealth before being refunded. Because there is no specific provision allowing excess SGC credits to be refunded, they will be refunded in accordance with section 77 of the PGPA Act. Superannuation contributions surcharge credits Superannuation contributions surcharge (SCS) credits may be offset against other surcharge liabilities of the provider or member before being refunded. Because there is no specific provision allowing excess SCS credits to be refunded, they will be refunded in accordance with section 77 of the PGPA Act. As a matter of policy, SCS credits may be offset against other surcharge liabilities of the provider or member before refunding any balance as required. Superannuation holding accounts special account, government co-contributions and unclaimed money credits A credit relating to superannuation holding accounts special account (SHASA), government co-contribution or unclaimed money cannot be offset against the person's tax debts. [30] Further, as these amounts are not subject to the offsetting provisions contained in the TAA, these amounts cannot be paid to the Child Support Registrar. However, you may contact the relevant person and ask if the credit may be offset against the person's tax debts. This option may be provided for the convenience of the person entitled and would be solely at their discretion. If they agree, the credits can then be offset against the person's tax debts. Where a superannuation provider has made a payment in accordance with the Superannuation (Unclaimed Money and Lost Members) Act 1999 and the amount exceeded the amount payable, the excess may be refunded to the superannuation provider for the fund or to another fund that provides rights relating to the person equivalent to those provided by the fund who made the original payment where that fund no longer exists. These amounts cannot be offset against the superannuation provider's or person's tax debts. [31] Offsetting future or later superannuation credits against existing superannuation debts A person may have an existing superannuation debt and may be entitled to a later credit for the same superannuation product. For example, an employee may have an existing SGC debt due to a prior overpayment. Their employer then makes a later payment of SGC in relation to this employee. This later payment would then be available to allocate to the employee's superannuation fund or as a direct payment (as appropriate). Where a later SGC, SHASA or unclaimed money credit becomes available, this cannot be offset against any existing debt that relates to that credit. The only circumstance where the Commissioner may offset future entitlements against existing debts is in relation to the superannuation co-contribution. [32]","PS LA 2011/20 | ITAA 1997 63-10 | ITAA 1997 63-10(1) | TAA 1953 PT IIB | TAA 1953 PT IIB Div 3 | TAA 1953 Pt IIB Div 3A | TAA 1953 8AAZA | TAA 1953 8AAZL | TAA 1953 8AAZLA | TAA 1953 8AAZLB | TAA 1953 8AAZLA(1) | TAA 1953 8AAZLB(1) | TAA 1953 8AAZL(3) | TAA 1953 8AAZL(4) | TAA 1953 Sch 1 444-80 | ANTS(GST)A 1999 Div 48 | ANTS(GST)A 1999 Div 51 | ANTS(GST)A 1999 Div 54 | ANTS(GST)A 1999 Div 58 | ANTS(GST)A 1999 110-60 | A New Tax System (Family Assistance) (Administration) Act 1999 87 | A New Tax System (Family Assistance) (Administration) Act 1999 93 | A New Tax System (Family Assistance) (Administration) Act 1999 226 | Bankruptcy Act 1966 Pt IV Div 6 | Bankruptcy Act 1966 86 | Bankruptcy Act 1966 Pt IX | Bankruptcy Act 1966 Pt X | Bankruptcy Act 1966 230 | Corporations Act 2001 Pt 5.3A | Corporations Act 2001 553C | Excise Act 1901 | Higher Education Support Act 2003 Div 151 | Product Grants and Benefits Administration Act 2000 24 | Product Grants and Benefits Administration Act 2000 Pt 8 | Public Governance, Performance and Accountability Act 2013 15 | Public Governance, Performance and Accountability Act 2013 77 | Public Governance, Performance and Accountability Rule 2014 11 | Superannuation (Unclaimed Money and Lost Members) Act 1999 18A | Superannuation (Unclaimed Money and Lost Members) Act 1999 20K | Superannuation (Unclaimed Money and Lost Members) Act 1999 24J | Superannuation (Government Co-contribution for Low Income Earners) Act 2003 24 | Taxation (Interest on Overpayments and Early Payments) Act 1983 | 87 ATC 4441",PS LA 2011/20,"ITAA 1997 63-10 | ITAA 1997 63-10(1) | TAA 1953 PT IIB | TAA 1953 PT IIB Div 3 | TAA 1953 Pt IIB Div 3A | TAA 1953 8AAZA | TAA 1953 8AAZL | TAA 1953 8AAZLA | TAA 1953 8AAZLB | TAA 1953 8AAZLA(1) | TAA 1953 8AAZLB(1) | TAA 1953 8AAZL(3) | TAA 1953 8AAZL(4) | TAA 1953 Sch 1 444-80 | ANTS(GST)A 1999 Div 48 | ANTS(GST)A 1999 Div 51 | ANTS(GST)A 1999 Div 54 | ANTS(GST)A 1999 Div 58 | ANTS(GST)A 1999 110-60 | A New Tax System (Family Assistance) (Administration) Act 1999 87 | A New Tax System (Family Assistance) (Administration) Act 1999 93 | A New Tax System (Family Assistance) (Administration) Act 1999 226 | Bankruptcy Act 1966 Pt IV Div 6 | Bankruptcy Act 1966 86 | Bankruptcy Act 1966 Pt IX | Bankruptcy Act 1966 Pt X | Bankruptcy Act 1966 230 | Corporations Act 2001 Pt 5.3A | Corporations Act 2001 553C | Excise Act 1901 | Higher Education Support Act 2003 Div 151 | Product Grants and Benefits Administration Act 2000 24 | Product Grants and Benefits Administration Act 2000 Pt 8 | Public Governance, Performance and Accountability Act 2013 15 | Public Governance, Performance and Accountability Act 2013 77 | Public Governance, Performance and Accountability Rule 2014 11 | Superannuation (Unclaimed Money and Lost Members) Act 1999 18A | Superannuation (Unclaimed Money and Lost Members) Act 1999 20K | Superannuation (Unclaimed Money and Lost Members) Act 1999 24J | Superannuation (Government Co-contribution for Low Income Earners) Act 2003 24 | Taxation (Interest on Overpayments and Early Payments) Act 1983",,,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS201121/NAT/ATO/00001,"Clarified when an individual taxpayer cannot meet the basic necessities of life. | Removed section on 'Baby bonus credits' for currency. Removed reference to 'child care tax offset' under heading 'Transferrable tax offsets' for currency. | Updated in line with current ATO style and accessibility requirements. | Updated Attachment A under headings 'GST joint ventures' and 'PAYG Withholding branches' to outline the Commissioner's position regarding offsetting between these entities. | Multiple changes made throughout to align with ATO style guide and standards for citations and references. | Updated 2nd dot point under Deed of company arrangement (Part 5.3A of the Corporations Act 2001) . | Updated the body of the LAPS to clarify the interaction between offsetting and the ATO systems, the instances when offsetting is available and included the discretion for director penalty liabilities. | Clarified the treatment of dividends received from an insolvency administration. | Paragraph 3 and Attachment A | Removed references to small amounts as an exception to the general principle. | Paragraphs 13, 40, 61, 139 & 141; legislative reference section | Updated references to the Financial Management and Accountability Act 1997 with relevant provisions in the Public Governance, Performance and Accountability Act 2013 and the Public Governance, Performance and Accountability Rule 2014 . | Updated content to include material from internal document (Operations Practice Note 2004/32). | New material around excess contributions tax credits. | New material to outline policy around offsetting of various superannuation credits. | Adjusted to reflect law change to section 8AAZL of the TAA effective 1 July 2011. | Changed to reflect the position that an offset that has already occurred will only be overturned where it is incorrect. | [1] See Division 3 of Part IIB. Section 8AAZL of the Taxation Administration Act 1953 (TAA). | [2] See section 8AAZL of the TAA. | [3] These situations are set out in subsections 8AAZL(3) and (4) of the TAA. | [4] Subsections 8AAZL(3) and (4) of the TAA. | [5] Section 15 of the Public Governance, Performance and Accountability Act 2013 (PGPA Act). | [6] Section 24 of the PGBAA. | [8] The authority to offset these amounts exists because the Commissioner has general administration of the Excise Act 1901 and any credits arising under that Act are treated in accordance with the Commissioner's general offsetting and refunding rules outlined in Part IIB of the TAA. | [9] Section 15 of the PGPA Act and section 11 of the Public Governance, Performance and Accountability Rule 2014. | [10] For example, the 'no-TFN contribution income' tax offset, which applies when a superannuation fund member is taxed at 46.5% rather than 15% because they have not quoted their tax file number but subsequently do so within 4 years. | [11] Subsection 63-10(1) of the ITAA 1997. | [12] Subsection 63-10 of the ITAA 1997. | [13] Section 87 of the A New Tax System (Family Assistance) Administration) Act 1999 (ANTS(FA)A). | [14] Section 93 of the ANTS(FA)A. | [15] Section 226 of the ANTS(FA)A. | [16] Under Division 48 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). | [17] Subsections 8AAZLA(1) and 8AAZLB(1) of the TAA. | [18] Division 51 of the GST Act. | [19] Section 110-60 of the GST Act. | [20] Section 110-60 of the GST Act. | [21] Section 444-80 of Schedule 1 to the TAA. | [22] Section 110-60 of the GST Act. | [23] Sections 8AAZLA and 8AAZLB of the TAA. | [24] Taylor, J. v Commissioner of Taxation [1987] FCA 232. | [25] Section 86 of the Bankruptcy Act 1966 (Bankruptcy Act). | [26] Section 230 of the Bankruptcy Act. | [27] For the purposes of Division 58 of the GST Act, they are different entities. | [28] Because these grants and benefits do not fall within the definition of credit in section 8AAZA of the TAA. | [29] Using the set-off provisions in section 86 of the Bankruptcy Act or section 553C of the Corporations Act 2001 . | [30] Because they do not fall within the definition of 'credit' as defined in section 8AAZA of the TAA. | [31] Sections 18A, 20K and 24J of the Superannuation (Unclaimed Money and Lost Members) Act 1999 . | [32] Section 24 of the Superannuation (Government Co-contribution for Low Income Earners) Act 2003 . | Taylor, J. v Commissioner of Taxation [1987] FCA 232 (1987) FCR 212 87 ATC 4441 18 ATR 715 (1987) 73 ALR 219 | OperationalPolicyAssuranceandLawWorkManagement@ato.gov.au"
PS LA 2011/22,Commissioner's discretion to retain a refund,14 April 2011,14 April 2011,Law Administration Practice Statement,False,"1. What this Practice Statement is about: This Practice Statement provides guidance on the Commissioner's discretion to retain a taxpayer's refund where the taxpayer has: • made a voluntary payment in anticipation of a tax debt [1] • not provided their financial institution account (FIA) details or their FIA details are non-compliant [2] • an outstanding business activity statement (BAS), petroleum resource rent tax (PRRT) or Single Touch Payroll (STP) notification [3] • provided information that may affect the amount of the refund and that requires verification. [4] • made a voluntary payment in anticipation of a tax debt [1] • not provided their financial institution account (FIA) details or their FIA details are non-compliant [2] • an outstanding business activity statement (BAS), petroleum resource rent tax (PRRT) or Single Touch Payroll (STP) notification [3] • provided information that may affect the amount of the refund and that requires verification. [4] You must refund to the taxpayer any running balance account (RBA) surplus or a credit that has not been applied against a tax debt [5] unless one of the grounds for discretion to retain the refund applies. You may exercise only one discretion to retain a taxpayer's refund at a time. The grounds for discretion are discussed in sections 2 to 6 of this Practice Statement, in the order in which they apply. Where there are no grounds to retain a refund, you must pay the refund within a reasonable time. [6] All further legislative references in this Practice Statement are to the Taxation Administration Act 1953 (TAA), unless otherwise indicated. Outstanding notifications not covered by this Practice Statement This Practice Statement does not apply to the exercise of the discretion to retain a taxpayer's RBA surplus or credit where a taxpayer has an outstanding notification, other than under the BAS provisions, the PRRT provisions or STP. For guidance on exercising the discretion to retain a taxpayer's refund in these cases, refer to Law Administration Practice Statement PS LA 2021/2 The ATO's administrative approach to the extension of the Commissioner's discretion to retain tax refunds. | 2. Voluntary payments: Where an RBA surplus or credit arises because a voluntary payment is made in respect of an anticipated tax debt, you do not have to refund the RBA surplus or credit unless the taxpayer requests a refund. [7] You are not required to notify the taxpayer that you have retained the refund. If a taxpayer requests a refund, you must comply with the request unless you decide to retain the refund for another reason. | 3. Financial institution account details not provided or non-compliant: If there is an RBA surplus and primary tax debts arising under a BAS or PRRT return have been allocated to the RBA, you may retain the refund if: • the taxpayer has not provided FIA details, or the FIA details are non-compliant, and • the Commissioner has not directed the refund to be paid to a third-party bank account or by cheque (see Payment to a third-party bank account and Payment by cheque ). [8] • the taxpayer has not provided FIA details, or the FIA details are non-compliant, and • the Commissioner has not directed the refund to be paid to a third-party bank account or by cheque (see Payment to a third-party bank account and Payment by cheque ). [8] You may retain the refund until compliant FIA details are provided. You are not required to notify the taxpayer that you have retained the refund. Compliant financial institution account details A nominated FIA is compliant if: • it is maintained at a branch or office of a financial institution in Australia [9] , and • it is held by - the taxpayer alone or together with another entity - the taxpayer's registered tax agent or BAS agent, or - a legal practitioner as trustee or executor for the taxpayer. [10] • it is maintained at a branch or office of a financial institution in Australia [9] , and • it is held by - the taxpayer alone or together with another entity - the taxpayer's registered tax agent or BAS agent, or - a legal practitioner as trustee or executor for the taxpayer. [10] - the taxpayer alone or together with another entity - the taxpayer's registered tax agent or BAS agent, or - a legal practitioner as trustee or executor for the taxpayer. [10] Under this section, there is no discretion to retain an income tax refund. [11] Payment to a third-party bank account You may pay a refund to a third-party bank account where there is a low risk of fraud [12] and you are satisfied that: • the nominated account is maintained at an office or branch of a financial institution in Australia • a significant legal relationship exists between the taxpayer entitled to the refund and the third party whose FIA the refund will be paid into • the taxpayer entitled to the refund gives the Commissioner a clear authority to pay the refund to the nominated FIA, and • there is a legislative requirement, a standard industry or commercial practice, or a legal reason for the refund to be paid to that third party. • the nominated account is maintained at an office or branch of a financial institution in Australia • a significant legal relationship exists between the taxpayer entitled to the refund and the third party whose FIA the refund will be paid into • the taxpayer entitled to the refund gives the Commissioner a clear authority to pay the refund to the nominated FIA, and • there is a legislative requirement, a standard industry or commercial practice, or a legal reason for the refund to be paid to that third party. For a significant legal relationship to exist, the third-party account must be held by a: • parent entity or nominated member entity for a related group of entities (including special-purpose entities) • manager, custodian, administrator or agent charged with the responsibility of managing some financial aspects of a large number of separate entities, such as strata titles, property trusts, managed investment funds or super funds • trustee for a number of trusts, or • representative of an incapacitated entity – for example, a liquidator or receiver. • parent entity or nominated member entity for a related group of entities (including special-purpose entities) • manager, custodian, administrator or agent charged with the responsibility of managing some financial aspects of a large number of separate entities, such as strata titles, property trusts, managed investment funds or super funds • trustee for a number of trusts, or • representative of an incapacitated entity – for example, a liquidator or receiver. Payment by cheque You should only pay a refund by cheque in exceptional circumstances. For example, where the taxpayer holds religious beliefs against holding a bank account. | 4. Outstanding BAS or petroleum resource rent tax notification: You may retain a refund if there is an outstanding BAS or PRRT notification that affects or may affect the amount of the refund. [13] An outstanding notification may have become due before the entitlement to the refund arose (prior notification) [14] or after the entitlement to the refund arose (subsequent notification). [15] You may retain the refund until the taxpayer provides the outstanding notification, or we make or amend an assessment of the amount (whichever happens first). A taxpayer with an outstanding notification can request release of a refund you have decided to retain. You should release the refund in the following circumstances. Prior notification outstanding Where a prior notification is outstanding, you should release a refund if the taxpayer can demonstrate (or you confirm, based on ATO-held information) that: • retaining the refund will cause serious financial hardship [16] (for an individual) or will compromise the viability of a business (for a business) and the inability to give the outstanding notification by the original due date is directly caused by circumstances beyond the taxpayer's control, or • the taxpayer is not contributing to the delay in the processing of the notification through failing to provide required additional information and the taxpayer has a good compliance history. • retaining the refund will cause serious financial hardship [16] (for an individual) or will compromise the viability of a business (for a business) and the inability to give the outstanding notification by the original due date is directly caused by circumstances beyond the taxpayer's control, or • the taxpayer is not contributing to the delay in the processing of the notification through failing to provide required additional information and the taxpayer has a good compliance history. Subsequent notification outstanding Where a subsequent notification is outstanding, you should release a refund if the taxpayer has: • no outstanding tax debts and there are no significant compliance risks that would give us reason to retain the refund [17] • an outstanding tax debt [18] if the retention of the refund will cause serious financial hardship (for an individual) or will compromise the viability of a business (for a business). • no outstanding tax debts and there are no significant compliance risks that would give us reason to retain the refund [17] • an outstanding tax debt [18] if the retention of the refund will cause serious financial hardship (for an individual) or will compromise the viability of a business (for a business). | 5. Outstanding Single Touch Payroll notification: You may retain an RBA surplus or a credit where: • a taxpayer is required to report employees' payroll information through STP • the taxpayer has not notified that information, and • that information affects or may affect the amount that we refund the taxpayer. • a taxpayer is required to report employees' payroll information through STP • the taxpayer has not notified that information, and • that information affects or may affect the amount that we refund the taxpayer. You may only retain a refund if you reasonably believe that information is outstanding [19] , taking into account the entity's previous pattern of STP lodgment. [20] Notifying the taxpayer If you decide to retain a refund because you reasonably believe payroll information is outstanding for one or more employees, you must inform the taxpayer by the end of the 14th day after the day on which the relevant RBA surplus or credit arises. [21] How long a refund may be retained You may only retain an amount for outstanding employee payroll information until [22] : • the taxpayer gives you the outstanding employee payroll information • you become reasonably satisfied that the taxpayer is not required to give the employee payroll information [23] • you become reasonably satisfied that the taxpayer does not have a pay as you go (PAYG) withholding liability, or • you otherwise ascertain the taxpayer's total PAYG withholding liability. [24] • the taxpayer gives you the outstanding employee payroll information • you become reasonably satisfied that the taxpayer is not required to give the employee payroll information [23] • you become reasonably satisfied that the taxpayer does not have a pay as you go (PAYG) withholding liability, or • you otherwise ascertain the taxpayer's total PAYG withholding liability. [24] | 6. Verification of information: You may retain an RBA surplus or a credit to verify information provided by the taxpayer in a notification that affects or may affect the amount of refund where: • it would be reasonable to require verification of information [25] , or • the entity has requested we retain the amount for verification. [26] • it would be reasonable to require verification of information [25] , or • the entity has requested we retain the amount for verification. [26] This discretion to retain refunds under section 8AAZLGA should only be exercised where there is a deemed assessment. This is because: • The taxpayer becomes immediately entitled to the refund upon the lodgment of a return or other information. • The Commissioner does not have the opportunity to consider the information in the notification before a deemed assessment is made. • The Commissioner must rely on section 8AAZLGA to retain refunds while they verify information. • The taxpayer becomes immediately entitled to the refund upon the lodgment of a return or other information. • The Commissioner does not have the opportunity to consider the information in the notification before a deemed assessment is made. • The Commissioner must rely on section 8AAZLGA to retain refunds while they verify information. It will not be appropriate for us to retain refunds that arise under Commissioner-made assessments. This is because: • Upon lodgment of a return or other information provided by the taxpayer, no RBA surplus or credits arise before the Commissioner makes an assessment. • The Commissioner is expected to consider the veracity of information in the notification when making the assessment. • The Commissioner does not need to retain the refund as they are able to verify information before making the assessment. • Upon lodgment of a return or other information provided by the taxpayer, no RBA surplus or credits arise before the Commissioner makes an assessment. • The Commissioner is expected to consider the veracity of information in the notification when making the assessment. • The Commissioner does not need to retain the refund as they are able to verify information before making the assessment. However, you should still consider the factors listed below in deciding whether to verify information prior to making an assessment and how long that verification should take (see How to exercise the discretion ). Table 1: Deemed assessments and Commissioner-made assessments Assessments Notifications for which the Commissioner is deemed to have made an assessment Notifications the Commissioner uses to make an assessment Income tax • income tax returns for full self-assessment taxpayers (principally companies and super funds) for income tax purposes • income tax returns for other than full self-assessment taxpayers (principally individuals) for income tax purposes • any income tax amendment requests Indirect tax • indirect tax returns for full self-assessment taxpayers • amendment requests made other than in the form of a revised BAS under the indirect tax self-actuating system • amendment requests under the indirect tax self-assessment system Mineral resources rent tax (MRRT) • MRRT returns under the MRRT self-assessment system • any MRRT amendment requests PRRT • PRRT annual returns under the PRRT self-assessment system • any PRRT amendment requests • income tax returns for full self-assessment taxpayers (principally companies and super funds) for income tax purposes • income tax returns for other than full self-assessment taxpayers (principally individuals) for income tax purposes • any income tax amendment requests • indirect tax returns for full self-assessment taxpayers • amendment requests made other than in the form of a revised BAS under the indirect tax self-actuating system • amendment requests under the indirect tax self-assessment system • MRRT returns under the MRRT self-assessment system • any MRRT amendment requests • PRRT annual returns under the PRRT self-assessment system • any PRRT amendment requests You may only verify information before issuing an assessment until it is no longer reasonable to require verification of the information. You should reconsider whether it is possible to make an assessment based on the information available from time to time. Verifying information may include: • searching internal and external databases or other information held by us • making enquiries of the taxpayer or third parties (such as requests for information and documentation). • searching internal and external databases or other information held by us • making enquiries of the taxpayer or third parties (such as requests for information and documentation). Notifying the taxpayer If you decide to retain an RBA surplus or a credit for verification, you must inform the taxpayer: • for an RBA surplus - where the whole or part of the RBA surplus arises under the BAS provisions, by the end of the 30th day after the day on which the surplus arises [27] , or - otherwise, by the end of the 14th day after the surplus arises, or • for a credit (including an excess non-RBA credit), by the end of the 30th day after the taxpayer provides the notification. [28] • for an RBA surplus - where the whole or part of the RBA surplus arises under the BAS provisions, by the end of the 30th day after the day on which the surplus arises [27] , or - otherwise, by the end of the 14th day after the surplus arises, or • for a credit (including an excess non-RBA credit), by the end of the 30th day after the taxpayer provides the notification. [28] - where the whole or part of the RBA surplus arises under the BAS provisions, by the end of the 30th day after the day on which the surplus arises [27] , or - otherwise, by the end of the 14th day after the surplus arises, or While you have 30 days to notify a taxpayer that their refund will be retained (where the whole or part of the RBA surplus arises under the BAS provisions) [29] , refunds not identified as potentially high risk should continue to be processed as quickly as possible. The time period for notifying the taxpayer does not start if the refund is being retained because the taxpayer has: • not provided FIA details or the FIA details are non-compliant [30] • an outstanding BAS or PRRT notification [31] , or • an outstanding notification under taxation laws other than the BAS or PRRT provisions. [32] • not provided FIA details or the FIA details are non-compliant [30] • an outstanding BAS or PRRT notification [31] , or • an outstanding notification under taxation laws other than the BAS or PRRT provisions. [32] Once the taxpayer has provided this information, the time period to notify the taxpayer begins as outlined earlier in this section. Failure to inform the taxpayer will mean you cannot rely on section 8AAZLGA to retain the amount for verification. [33] You may inform the taxpayer in several ways including by phone, email, post, text message or a combination of these. How to exercise the discretion You must consider each of the following 10 factors when deciding whether to exercise the discretion for an RBA surplus or credit [34] : • the likely accuracy of the notified information • the likelihood that the notified information was affected by - fraud or evasion - intentional disregard of a taxation law - recklessness as to the operation of a taxation law • the impact of retaining the amount on the taxpayer's financial position • whether retaining the amount is necessary for the protection of the revenue [35] • any complexity that would be involved in verifying the notified information • the time for which we have already retained the amount • what we have already done to verify the notified information • whether we have enough evidence to verify the information in the notification [36] • the extent to which the notified information is consistent with information that the taxpayer previously provided • any other relevant matter. • the likely accuracy of the notified information • the likelihood that the notified information was affected by - fraud or evasion - intentional disregard of a taxation law - recklessness as to the operation of a taxation law • the impact of retaining the amount on the taxpayer's financial position • whether retaining the amount is necessary for the protection of the revenue [35] • any complexity that would be involved in verifying the notified information • the time for which we have already retained the amount • what we have already done to verify the notified information • whether we have enough evidence to verify the information in the notification [36] • the extent to which the notified information is consistent with information that the taxpayer previously provided • any other relevant matter. - fraud or evasion - intentional disregard of a taxation law - recklessness as to the operation of a taxation law No factor is more important than another and you must consider how each factor applies to the individual circumstances of each case. You must make your decision based on the information available at the time. In some cases, a lack of information will mean that a particular factor will not impact your decision. If a taxpayer asks you to retain a refund, the taxpayer's request is a relevant (and ordinarily strong) factor in making the decision to retain the refund. However, you do not have to agree to a taxpayer request to retain the amount. You must keep all records relating to decisions made to retain an amount for verification and you must document the reasons for your decision (referring to the 10 factors). More information on each of these factors is in Appendix 1 to this Practice Statement. How long may we retain the refund? You may only retain an RBA surplus or credit for verification until: • it is no longer reasonable to require verification of the information • if you have failed to inform the taxpayer, the day after the end of the time by which you were required to inform the taxpayer that the amount will be retained • there is a change to the amount of the refund as a result of the Commissioner making or amending the assessment. [37] • it is no longer reasonable to require verification of the information • if you have failed to inform the taxpayer, the day after the end of the time by which you were required to inform the taxpayer that the amount will be retained • there is a change to the amount of the refund as a result of the Commissioner making or amending the assessment. [37] You should reconsider the decision to retain a refund from time to time. You must reconsider the decision to retain an amount: • each time new information becomes available • if the taxpayer withdraws a request to verify information • if circumstances change in a way that is relevant to your consideration of any of the 10 factors. • each time new information becomes available • if the taxpayer withdraws a request to verify information • if circumstances change in a way that is relevant to your consideration of any of the 10 factors. | 7. Taxpayer rights: A taxpayer cannot object to a decision by us to retain an amount because the taxpayer has: • not provided FIA details or the FIA details are non-compliant • an outstanding BAS or PRRT notification. • not provided FIA details or the FIA details are non-compliant • an outstanding BAS or PRRT notification. A taxpayer may object to a decision by us to retain an amount: • because the taxpayer has outstanding STP information, or • to verify information. • because the taxpayer has outstanding STP information, or • to verify information. Objection period The objection period starts 60 days (plus any applicable extensions) after the day on which you are required to inform the taxpayer you are retaining the refund. [38] If you are retaining the refund because the taxpayer has outstanding STP information, the objection period ends on the day on which the Commissioner ceases to be entitled to retain the amount. [39] If you are retaining the refund to verify information, the objection period ends when there is a change to the amount of the refund as a result of the Commissioner making or amending the assessment. [40] If you make or amend an assessment that changes the entitlement to the amount of the refund, the taxpayer may object to the assessment or amended assessment. [41] Extensions If you are retaining a refund for verification of information, the 60-day period is extended when you request information from the taxpayer. [42] The extension of time covers the period of time between when you request and when you receive information. For an extension to apply, the request for information must be made during the 60-day period. The extension does not apply where you make requests to third parties as part of your verification activities. Notifying the taxpayer You must inform the taxpayer, in writing, of their right to object within 7 days of the objection period starting. [43] The 10 statutory factors for verification of information: further explanation and examples As far as the information is available, you must consider 10 factors when deciding whether or not it is reasonable to retain an amount for verification. [44] The examples in this Practice Statement illustrate how different factors may impact on a decision to retain. The examples are indicative rather than conclusive or exhaustive. In some circumstances, particularly where there is little information available to you, one factor might be sufficient to support a decision to retain the amount, but you must still consider each factor. Likely accuracy of notified information When assessing the 'likely accuracy' of notified information, indicators that may affect this include: • variance from previous net amount patterns • comparisons to industry benchmarks • the size of the refund claimed relative to the taxpayer's turnover. • variance from previous net amount patterns • comparisons to industry benchmarks • the size of the refund claimed relative to the taxpayer's turnover. These indicators increase the risk the notified information is inaccurate but may also reflect an extraordinary transaction undertaken during the period. Example 1 – accuracy of information A taxpayer is registered as a commercial fisherman. On their BAS, they report large claims for fuel tax credits and input tax credits on the capital acquisition of a vessel, which are significantly higher than industry benchmarks. As there is no other ATO-held information to support the taxpayer's claims, we decide it is reasonable to retain the refund for verification as there are doubts about the accuracy of the notified information. We request a copy of purchase documents for the vessel, the vessel's certificate of survey, the taxpayer's catch records and the taxpayer's fuel tax receipts. The taxpayer has not yet provided any of the requested information. This would support a decision to continue to retain the refund. Example 2 – accuracy of information A company, operating a small business from a home office, lodges a tax return reporting a number of deductions. This results in a refund of all the PAYG instalments for the year. During a phone conversation, the taxpayer's tax agent indicates the taxpayer's return included deductions for expenses of its principal shareholder, such as the acquisition of a motor vehicle, utility bills, insurance payments and capital expenditure on home renovations. This would support a decision to retain the refund to verify information that the deductions are valid. Likelihood that the notified information was affected by fraud or evasion, intentional disregard of a taxation law or recklessness as to the operation of a taxation law A taxpayer commits fraud where they make false statements knowingly or without belief in their truth and commits evasion commits a blameworthy act or omission. [45] A taxpayer intentionally disregards a taxation law if they have consciously decided to disregard clear obligations under a taxation law. [46] For example, this would include claiming an input tax credit based on a tax invoice the taxpayer knows has been falsified. A taxpayer will have been reckless as to the operation of a taxation law if the taxpayer's conduct shows disregard of, or indifference to, consequences or risks that are reasonably foreseeable to result from the taxpayer's actions. [47] For example, this would include providing information in a tax return or in a BAS where the taxpayer knows there is a real risk that the information may be incorrect, or is indifferent to whether the information is incorrect. In assessing the likelihood that there has been fraud or evasion, intentional disregard or recklessness, the compliance history of the taxpayer may be relevant. A good compliance history is an indicator that this factor is less likely to be relevant. On the other hand, where there has been a history of non-compliance with taxation laws, this could indicate that there is a higher likelihood of intentional disregard or recklessness (if not fraud or evasion). Example 3 – suspected fraud or evasion A sole trader operating a road freight business claims an extremely large fuel tax credit on their BAS. A check of vehicle registrations reveals the taxpayer has not registered a heavy vehicle in the last 10 years. This would support a decision to retain the refund for verification. Example 4 – suspected fraud or evasion We are investigating a tax agent and identify that they have previously lodged information on behalf of clients who were involved in fraud or evasion. The agent lodges a tax return on behalf of a new client which contains information that is outside industry norms and would lead to a large refund of the company's PAYG instalments. This information would support a decision to retain the refund for verification. Impact of retaining the amount on a taxpayer's financial position When assessing the impact of retaining the amount on a taxpayer's financial position, relevant information may include evidence of financial hardship suffered by an individual or evidence that the retention would compromise the viability of the taxpayer's business. Relevant evidence includes material provided by the taxpayer and relevant information that is otherwise available to you. You should evaluate the taxpayer's financial position having regard to their capacity to meet their basic living expenses [48] or the immediate cash flow, solvency and borrowing needs of the taxpayer's business. The size of the refund may also be a relevant consideration in the context of particular taxpayer circumstances. However, the mere fact that a taxpayer will not receive a refund is not a determinative factor and it may still be reasonable to retain an amount for verification. Example 5 – impact of retaining a refund A company's tax return is identified for review. The company is expecting a large refund. It states the refund is required to fund a reconstruction of its business following a recent natural disaster. Bank statements and other documents show the viability of the business will be compromised if the refund is retained. This would be a factor against retaining the refund. Whether retaining the amount is necessary for the protection of the revenue In determining whether retaining an amount is necessary for the protection of the revenue, the likelihood of whether the amount can be later recovered from the taxpayer should be considered. A range of things may affect the likelihood of later recovery from a taxpayer, including solvency issues, hardship, suspected fraud, compliance history and available assets. Information we hold which raises revenue protection concerns is often relevant to one or more of the other factors to be considered. The size of the refund may also be relevant, but evaluation of this indicator must be made taking into account a taxpayer's circumstances. However, there is no threshold amount which would prevent or require the retention of a refund. Example 6 – potential difficulty in recovering amounts A taxpayer company, whose sole director has been associated with companies that were put into liquidation after accumulating large tax debts, lodges a BAS reporting a refund amount of $2 million. The size of the refund is not consistent with previous BAS returns, nor with the sales reported. The director's past associations are an indicator that there may be difficulty in recovering the amount if it is refunded and later found to be incorrect. This would support a decision to retain the refund for verification. Example 7 – potential difficulty in recovering amounts A taxpayer's BAS is identified for review. The taxpayer is a non-resident on a business owner (provisional) visa who owns and operates a small café. Since becoming registered for GST a year ago, the business has reported very few sales compared to large claims for input tax credits, resulting in a consistent refund position. Potential difficulty in recovering the amounts if the taxpayer left the country would support a decision to retain the refund for verification. Any complexity that would be involved in verifying notified information Complex arrangements, such as those involving multiple supply chains and multiple entities, generally require more time and resources to verify than more straightforward or linear arrangements. Example 8 – continuing to retain a refund in complex circumstances A taxpayer, suspected of entering into non-arm's length transactions with related entities, lodges a BAS. After consideration of the 10 factors, the refund is retained for verification. The verification process requires a detailed examination of each of the related entities and the transactions entered into between them. During the verification process, we identify a series of complex transactions between associated entities that are not fully documented. As a result, we cannot readily determine and establish the facts. This would support a decision to continue retaining the refund for verification. Example 9 – complex circumstances and relationships A taxpayer registers for GST as a wine producer and lodges a BAS reporting a large wine equalisation tax credit claim, including a wine producer rebate. During the verification process, a number of issues are identified. ATO systems checks do not show any previous experience by the taxpayer in the winemaking industry. A phone call with the taxpayer reveals that the wine the taxpayer produces is made for them by a well-established winery under the terms of a verbal agreement. Under that verbal agreement, the taxpayer's wine is produced from grapes that are sourced from the same vineyard that supplies the established winery. We also discover that the taxpayer has a number of other business and personal relationships with the established winery and entities and individuals associated with it. We believe the established winery may be using the taxpayer to improperly access a wine producer rebate greater than the $350,000 annual threshold. The complex nature of the relationship and the transactions between the 2 parties would support a decision to retain the refund for verification. The time for which the Commissioner has already retained the amount The time for which we have already retained the amount may be relevant when considering the impact on the taxpayer's financial position and the complexity of the investigation. Undue delay in an investigation may in some cases be a factor against continuing to retain the refund. Example 10 – time we have already retained a refund In April 2020, we decide to retain a refund and request further information about amounts reported in a taxpayer's BAS. The taxpayer promptly provides the information. In July 2020, ATO systems identify the case has not progressed in a timely manner. As no additional information has been requested during this time, this would support a decision not to continue retaining the refund. What the Commissioner has already done to verify the notified information You should consider what actions we have already taken to verify the information. We will take prompt, reasonable and appropriate action when seeking to resolve any uncertainty there might be about the correctness of an amount to be refunded. Reasonable action may involve requesting information from the taxpayer, third parties, or both, or accessing ATO-held information, as well as publicly available information. Consideration of this factor will usually be conducted in conjunction with the length of time for which a refund has already been retained. Example 11 – additional information not promptly provided For several months we have been seeking further information from a taxpayer, in order to verify their claim to input tax credits. External database searches show several inconsistencies in the taxpayer's claim but, without further information from the taxpayer or from third parties, insufficient information is held to make an assessment. This would support a decision to continue retaining the refund for verification. Whether the Commissioner has enough information to make an assessment relating to the amount A disagreement about how the law applies to the facts is not a reason to retain a refund. Where there is a disagreement about the application of the law, an assessment should be made on the ATO view of the law. The taxpayer may exercise objection and review rights once an assessment is made. Example 12 – an amended assessment can be made A company lodges a tax return claiming substantial deductions leading to a refund of its PAYG instalments. We retain the refund and asks for information to substantiate the claims made. We make an amended assessment based on the information provided by the company which indicates it is not entitled to the deductions. The company disagrees with our decision regarding deductibility and lodges an objection. As the disagreement is not about the facts, we release the reduced refund. The extent to which the notified information is consistent with information that the taxpayer previously provided Patterns in behaviour, such as the size of the refund compared to previous refund amounts, are relevant to consider. However, an unusual variation in the pattern might be explained by an extraordinary transaction. This is also relevant when considering the likely accuracy of the information. Example 13 – inconsistency with previous lodgments A small business taxpayer with a GST turnover of $500,000 has been registered for GST for 5 years as a corner store operator. During this time, the taxpayer consistently reports a net amount payable. However, the taxpayer lodges a BAS claiming input tax credits of $1 million, which results in a significant refund. The taxpayer's lodgment history would support a decision to retain the refund for verification. Any other relevant matter Any other relevant matters must be considered when deciding whether to retain a refund for verification. For example, it would be relevant to take into account a taxpayer's request that we retain the amount for verification.",PS LA 2008/6 | PS LA 2011/6 | PS LA 2011/17 | PS LA 2021/2 | PS LA 2024/1 | MT 2008/1 | TAA 1953 8AAZLF | TAA 1953 8AAZLF(2) | TAA 1953 8AAZLG | TAA 1953 8AAZLG(1) | TAA 1953 8AAZLGA | TAA 1953 8AAZLGA(1)(a) | TAA 1953 8AAZLGA(1)(b) | TAA 1953 8AAZLGA(2)(a) | TAA 1953 8AAZLGA(2)(b) | TAA 1953 8AAZLGA(2)(c) | TAA 1953 8AAZLGA(2)(d) | TAA 1953 8AAZLGA(2)(e) | TAA 1953 8AAZLGA(2)(f) | TAA 1953 8AAZLGA(2)(g) | TAA 1953 8AAZLGA(2)(h) | TAA 1953 8AAZLGA(2)(i) | TAA 1953 8AAZLGA(2)(j) | TAA 1953 8AAZLGA(3) | TAA 1953 8AAZLGA(5) | TAA 1953 8AAZLGA(5)(b) | TAA 1953 8AAZLGA(7) | TAA 1953 8AAZLGB | TAA 1953 8AAZLGB(1)(a) | TAA 1953 8AAZLGB(1)(b) | TAA 1953 8AAZLGB(2) | TAA 1953 8AAZLGB(3) | TAA 1953 8AAZLGB(5) | TAA 1953 8AAZLH | TAA 1953 8AAZLH(1) | TAA 1953 8AAZLH(2) | TAA 1953 8AAZLH(2A) | TAA 1953 8AAZLH(3) | TAA 1953 8AAZLH(4) | TAA 1953 Pt IVC | TAA 1953 14ZW(1)(aad)(i) | TAA 1953 14ZW(1)(aad)(ii) | TAA 1953 14ZW(1)(aae)(i) | TAA 1953 14ZW(4) | ITAA 1997 995-1(1) | Treasury Laws Amendment (2017 Measures No. 4) Act 2017 | Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025 | 2011 ATC 20-292,PS LA 2008/6 PS LA 2011/6 PS LA 2011/17 PS LA 2021/2 PS LA 2024/1,TAA 1953 8AAZLF | TAA 1953 8AAZLF(2) | TAA 1953 8AAZLG | TAA 1953 8AAZLG(1) | TAA 1953 8AAZLGA | TAA 1953 8AAZLGA(1)(a) | TAA 1953 8AAZLGA(1)(b) | TAA 1953 8AAZLGA(2)(a) | TAA 1953 8AAZLGA(2)(b) | TAA 1953 8AAZLGA(2)(c) | TAA 1953 8AAZLGA(2)(d) | TAA 1953 8AAZLGA(2)(e) | TAA 1953 8AAZLGA(2)(f) | TAA 1953 8AAZLGA(2)(g) | TAA 1953 8AAZLGA(2)(h) | TAA 1953 8AAZLGA(2)(i) | TAA 1953 8AAZLGA(2)(j) | TAA 1953 8AAZLGA(3) | TAA 1953 8AAZLGA(5) | TAA 1953 8AAZLGA(5)(b) | TAA 1953 8AAZLGA(7) | TAA 1953 8AAZLGB | TAA 1953 8AAZLGB(1)(a) | TAA 1953 8AAZLGB(1)(b) | TAA 1953 8AAZLGB(2) | TAA 1953 8AAZLGB(3) | TAA 1953 8AAZLGB(5) | TAA 1953 8AAZLH | TAA 1953 8AAZLH(1) | TAA 1953 8AAZLH(2) | TAA 1953 8AAZLH(2A) | TAA 1953 8AAZLH(3) | TAA 1953 8AAZLH(4) | TAA 1953 Pt IVC | TAA 1953 14ZW(1)(aad)(i) | TAA 1953 14ZW(1)(aad)(ii) | TAA 1953 14ZW(1)(aae)(i) | TAA 1953 14ZW(1)(aad)(ii) | TAA 1953 14ZW(4) | ITAA 1997 995-1(1) | Treasury Laws Amendment (2017 Measures No. 4) Act 2017 | Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025,,MT 2008/1,False,True,https://www.ato.gov.au/law/view/document?docid=PSR/PS201122/NAT/ATO/00001,"Updated to reflect the extended period within which the Commissioner must notify a taxpayer of a decision to retain an RBA surplus that arises under the BAS provisions, as enacted in Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025. | Updated to reflect the reduced producer rebate cap of $350,000 as enacted in Treasury Laws Amendment (2017 Measures No. 4) Act 2017. | Updated in line with current ATO style and accessibility requirements. | Updated to refer to PS LA 2024/1. | Updates made to merge this Practice Statement with Law Administration Practice Statement PS LA 2012/6 Exercise of Commissioner's discretion to retain a refund (PSLA 2012/6 has now been withdrawn). Format and language modernised and simplified throughout. | New content added for retaining refunds for outstanding Single Touch Payroll obligations, as enacted in the Budget Savings (Omnibus) Act 2016. | Updated reference to paragraph 25 instead of paragraph 19. | Updated to include a reference to PS LA 2021/2 for further information regarding the retention of refunds in relation to provisions of a taxation law other than the BAS provisions or any of the petroleum resource rent tax provisions. | Updated to meet ATO Style guide requirements; revised headings and placement of text; additional information added to clarify topic discussion. | New information on Commissioner's treatment of voluntary payments. | [1] Subsection 8AAZLF(2) of the Taxation Administration Act 1953 (TAA). | [2] Subsections 8AAZLH(3) and (4) of the TAA. | [3] Sections 8AAZLG and 8AAZLGB of the TAA. | [4] Section 8AAZLGA of the TAA. | [5] Section 8AAZLF of the TAA. | [6] Commissioner of Taxation v Multiflex Pty Ltd [2011] FCAFC 142 at [40]. | [7] Subsection 8AAZLF(2). | [8] Subsections 8AAZLH(3) and (4). | [9] Subsection 8AAZLH(2). | [10] Subsection 8AAZLH(2A). | [11] Subsection 8AAZLH(1). | [12] See Law Administration Practice Statement PS LA 2024/1 Suspected fraud involving unconnected third parties for indicators of suspected fraud. | [13] Section 8AAZLG. Note that notification must be required under the BAS provisions or PRRT provisions (defined in subsection 955-1(1) of the Income Tax Assessment Act 1997 ). The BAS provisions include provisions relating to fringe benefits tax, goods and services tax (GST), wine equalisation tax, luxury car tax, pay as you go withholding, pay as you go instalments, fuel tax law, STP and the major bank levy. | [14] An example is where a taxpayer is claiming a GST refund by providing its BAS for the month of March and, at that time, the taxpayer has an outstanding BAS for February. | [15] An example is where a taxpayer is claiming a GST refund by providing its BAS for the month of March; however, before we have completed processing the refund, the taxpayer's BAS for the month of April becomes outstanding. | [16] An individual taxpayer is in serious financial hardship when they cannot afford the basic necessities of life. See Law Administration Practice Statement PS LA 2011/17 Debt relief, waiver and non-pursuit . | [17] See Law Administration Practice Statement PS LA 2011/6 Risk management in the enforcement of lodgment obligations and debt collection activities for the evaluation of risks. | [18] There may be an outstanding tax debt where a decision has been made not to offset the refund against a tax debt. | [19] Paragraph 8AAZLGB(1)(a). | [20] For example, where a substantial employer has been reporting payments made to its employees on the day that it makes its regular fortnightly payments, it would be reasonable for you to expect that amounts would continue to be reported on a fortnightly basis, in the absence of any information to the contrary. | [21] Subsection 8AAZLGB(2). | [22] Subsection 8AAZLGB(3). | [23] For example, where an individual has ceased to be an employee of the taxpayer. | [24] For example, if you ascertain the taxpayer's total PAYG withholding liability from lodged BAS or by issuing PAYG withholding estimates. | [25] Paragraph 8AAZLGA(1)(a). | [26] Paragraph 8AAZLGA(1)(b). | [27] Subsection 8AAZLGA(3). | [28] Subsection 8AAZLGA(3). | [29] The Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025 extended the notification period under subsection 8AAZLGA(3) from 14 to 30 days for lodgments received on or after 1 July 2025. | [30] Subsection 8AAZLH(4). | [31] Subsection 8AAZLG(1). | [32] Subsection 8AAZLG(1). | [33] Paragraph 8AAZLGA(5)(b). | [34] Paragraphs 8AAZLGA(2)(a) to (j). | [35] This includes the likelihood that we could recover any of the amount if the notified information was found to be incorrect after the amount had been refunded. | [36] This includes information obtained from making further requests for information. | [37] Subsection 8AAZLGA(5). | [38] Subparagraphs 14ZW(1)(aad)(i) and (aae)(i). | [39] Subparagraph 14ZW(1)(aae)(ii). | [40] Subparagraph 14ZW(1)(aad)(ii). | [43] Subsections 8AAZLGA(7) and 8AAZLGB(5). | [44] The 10 factors are listed in paragraphs 8AAZLGA(2)(a) to (j). | [45] For further information on fraud or evasion, see Law Administration Practice Statement PS LA 2008/6 Fraud or evasion . | [46] Miscellaneous Taxation Ruling MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard . | [48] In line with the consideration of serious financial hardship in PS LA 2011/17. | File 1-59PLLGA; 1-ZUY73DT; 1-19CRZP9P | Commissioner of Taxation v Multiflex Pty Ltd [2011] FCAFC 142 197 FCR 580 2011 ATC 20-292 82 ATR 153 284 ALR 279"
PS LA 2011/23,SUBJECT: Credit interest PURPOSE: This Practice Statement discusses the credit interest regime administered by us and details when interest is payable.,14 April 2011,14 April 2011,Law Administration Practice Statement,False,"1. This Practice Statement deals with the circumstances where you are entitled to be paid an amount of interest by us. In the majority of cases, such interest is payable under the Taxation (Interest on Overpayments and Early Payments) Act 1983 (T(IOEP)A). 2. Circumstances where interest is payable by us include: • early payments of certain tax liabilities (interest on early payment (IEP)) • particular overpayments of taxes (interest on overpayments (IOP)) • delayed refunds of activity statement amount credits that have been allocated to a running balance account (RBA) (delayed refund interest (DRI)) • certain amounts of tax on no-tax file number (no-TFN) contributions income of superannuation providers. • early payments of certain tax liabilities (interest on early payment (IEP)) • particular overpayments of taxes (interest on overpayments (IOP)) • delayed refunds of activity statement amount credits that have been allocated to a running balance account (RBA) (delayed refund interest (DRI)) • certain amounts of tax on no-tax file number (no-TFN) contributions income of superannuation providers. 3. The entitlement to IEP, overpayments, DRI and certain amounts of no-TFN contributions tax is set out in the T(IOEP)A. 4. Interest payable by us under the T(IOEP)A is: • assessable income when it is received (applied, credited or refunded) • payable at the base interest rate (within the meaning of section 8AAD of the Taxation Administration Act 1953 (TAA)) • calculated as simple interest, not compound interest [1] • calculated to the nearest cent (0.5 cent rounded up to nearest cent) and amounts less than 50c are not payable. [2] • assessable income when it is received (applied, credited or refunded) • payable at the base interest rate (within the meaning of section 8AAD of the Taxation Administration Act 1953 (TAA)) • calculated as simple interest, not compound interest [1] • calculated to the nearest cent (0.5 cent rounded up to nearest cent) and amounts less than 50c are not payable. [2] 5. Apart from interest that is payable under the T(IOEP)A, interest is also payable under the following Acts [3] : • Parts 2 and 5 of the Superannuation (Government Co-contribution for Low Income Earners) Act 2003 (Co-contributions Act) • section 131-70 of Schedule 1 to the TAA, which relates to money received by us in accordance with a release authority, including – excess concessional and non-concessional contributions determinations issued on or after 1 July 2018 (whether for financial years commencing before, on or after 1 July 2018) [4] – notices of assessments of amounts of Division 293 tax issued on or after 1 July 2018 (whether for financial years commencing before, on or after 1 July 2018), and – first home super saver determinations issued on or after 1 July 2018 • subsections 17(2AB), 17(2AC), 20H(2AA), 24G(3A) and 24G(3B) of the Superannuation (Unclaimed Money and Lost Members) Act 1999. [5] • Parts 2 and 5 of the Superannuation (Government Co-contribution for Low Income Earners) Act 2003 (Co-contributions Act) • section 131-70 of Schedule 1 to the TAA, which relates to money received by us in accordance with a release authority, including – excess concessional and non-concessional contributions determinations issued on or after 1 July 2018 (whether for financial years commencing before, on or after 1 July 2018) [4] – notices of assessments of amounts of Division 293 tax issued on or after 1 July 2018 (whether for financial years commencing before, on or after 1 July 2018), and – first home super saver determinations issued on or after 1 July 2018 • subsections 17(2AB), 17(2AC), 20H(2AA), 24G(3A) and 24G(3B) of the Superannuation (Unclaimed Money and Lost Members) Act 1999. [5] – excess concessional and non-concessional contributions determinations issued on or after 1 July 2018 (whether for financial years commencing before, on or after 1 July 2018) [4] – notices of assessments of amounts of Division 293 tax issued on or after 1 July 2018 (whether for financial years commencing before, on or after 1 July 2018), and – first home super saver determinations issued on or after 1 July 2018 6. All legislative references in this Practice Statement are to the T(IOEP)A, unless otherwise indicated. 7. The following terms are used in this Practice Statement: Table 1: Terms and definitions Term Definition or meaning BAS is a Business activity statement. BAS amounts are any debts or credits that arise directly under the BAS provisions. Credit is an amount that we must pay to the taxpayer under a taxation law, whether or not described as a credit. Decision to which this Act applies is defined in subsection 3(1). Decisions that fall within this definition include a decision [6] : • by us on an objection • of the Administrative Review Tribunal (ART) on an objection • of the court in relation to an objection, or a decision of the ART in relation to an objection • by us to amend an income tax assessment reducing the tax liability, including where the taxpayer has requested the amendment • by us to amend an assessment reducing the liability to amounts that were treated under Subdivision 154-D of the Higher Education Support Act 2003 (HESA) as if they were income tax (this includes where the taxpayer has requested the amendment) • by us to amend an assessment reducing the liability to amounts that were treated under section 12ZN of the Student Assistance Act 1973 as if they were income tax (this includes where the taxpayer has requested the amendment) • by us to amend a fringe benefits tax assessment reducing the liability to tax (but not where a request has been made by or on behalf of the employer) • about foreign revenue claims made under Subdivision 263-A of Schedule 1 to the TAA • by us to give a notice under subsection 282-18(4) of the Private Health Insurance Act 2007 • by us under section 18-130 of Schedule 1 to the TAA to reduce pay as you go (PAYG) withholding non-compliance tax in certain circumstances • by us to amend a petroleum rent resource tax (PRRT) assessment reducing the liability to tax (but not where a request has been made by or on behalf of the taxpayer). [7] Full self-assessment taxpayer is defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936). It includes companies and trustees of superannuation funds, approved deposit funds and pooled superannuation trusts. Income tax crediting amount is defined in subsection 3(1). It includes any: • credit amount except – a foreign income tax offset credit arising under Division 770 of the Income Tax Assessment Act 1997 (ITAA 1997) – a credit arising under section 131-65 of Schedule 1 to the TAA (in relation to a release authority) – a credit arising under the International Tax Agreements Act 1953 • tax offset arising under former section 160AQK of the ITAA 1936 (offsetting franking deficit tax against company tax), or • tax offset subject to the refundable tax offset rules in Division 67 of the ITAA 1997. Notification required for the refund has the meaning given by section 8AAZLG of the TAA. This is a notification that affects or may affect the amount of the refund. It is required to be given under any of the BAS or PRRT provisions as defined in section 995-1 of the ITAA 1997. Ordinary taxpayer means a taxpayer who is not a full self-assessment taxpayer. It includes individuals and trustees of some trust estates. RBA means a running balance account established under section 8AAZC of the TAA to keep account of the primary tax debts, payments and credits allocated to that RBA. RBA interest day for an RBA, surplus means the 14th day after the latest of the following days: • the day on which the surplus arises (if section 12AA applies) • the day on which the relevant request is made (if sections 12AB or AC apply) • the day on which the taxpayer has given a notification to us that is required for the refund under 8AAZLG [8] (or 8AAZLGB as the case requires) of the TAA and that is accurate so far as it relates to the refund, or • if subsection 8AAZLH(3) [9] of the TAA does not apply, the day on which the taxpayer nominated a financial institution account. RBA surplus is defined in section 8AAZA of the TAA and means a balance on an RBA in favour of the taxpayer, where the primary tax debts allocated to the RBA are less than the payments and credits allocated to that RBA. Relevant tax is defined in section 3C. It includes: • income tax (as defined in subsection 6(1) of the ITAA 1936 [10] ) • amounts payable to us under Subdivision 16-A of Schedule 1 to the TAA (PAYG withholding amounts) • the general interest charge (GIC) payable on unpaid – PAYG withholding amounts, under section 16-80 of Schedule 1 to the TAA – amounts of indirect tax liabilities, under Subdivision 105-D of Schedule 1 to the TAA – amounts of the late lodgment penalty, under former section 163AA of the ITAA 1936 (in relation to 1999–00 and earlier years) • the shortfall interest charge (SIC) payable under Division 280 of Schedule 1 to the TAA • interest under section 102AAM of the ITAA 1936 (interest paid by the taxpayer on distributions from certain non-resident trust estates) • diverted profits tax • PAYG withholding non-compliance tax (tax payable by directors of non-compliant companies in accordance with section 18-125 of Schedule 1 to the TAA) • amounts that are treated under Subdivision 154-D of the HESA as if they were income tax • amounts that are treated under Division 6 of Part 3A of the VET Student Loans Act 2016 as if they were income tax • amounts that are treated under Part 2AA.5 of the Social Security Act 1991 as if they were income tax • amounts that are treated under Part 3.3 of the Australian Apprenticeship Support Loans Act 2014 as if they were income tax • amounts that are treated under section 12ZN and Division 6 of Part 2 of the Student Assistance Act 1973 as if they were income tax • amounts paid under section 282-18 of the Private Health Insurance Act 2007 • trust recoupment tax, applied penalty tax or penalty tax, as defined in subsection 3(1) of the Trust Recoupment Tax Assessment Act 1985 • an amount payable to us under Subdivision 263-A of Schedule 1 to the TAA (about foreign revenue claims) • goods and services tax (GST) • wine equalisation tax (WET) • luxury car tax (LCT • fringe benefits tax (FBT) • PRRT. [11] Relevant tax does not include the following amounts: • the GIC payable on unpaid amounts of income tax and SIC, under section 5-15 of the ITAA 1997 (or former subsection 204(3) of the ITAA 1936) • PAYG instalments, or • penalties under Part 4-25 of Schedule 1 to the TAA (for example, shortfall penalties and penalties for failing to lodge on time in relation to 2000–01 and later years). • by us on an objection • of the Administrative Review Tribunal (ART) on an objection • of the court in relation to an objection, or a decision of the ART in relation to an objection • by us to amend an income tax assessment reducing the tax liability, including where the taxpayer has requested the amendment • by us to amend an assessment reducing the liability to amounts that were treated under Subdivision 154-D of the Higher Education Support Act 2003 (HESA) as if they were income tax (this includes where the taxpayer has requested the amendment) • by us to amend an assessment reducing the liability to amounts that were treated under section 12ZN of the Student Assistance Act 1973 as if they were income tax (this includes where the taxpayer has requested the amendment) • by us to amend a fringe benefits tax assessment reducing the liability to tax (but not where a request has been made by or on behalf of the employer) • about foreign revenue claims made under Subdivision 263-A of Schedule 1 to the TAA • by us to give a notice under subsection 282-18(4) of the Private Health Insurance Act 2007 • by us under section 18-130 of Schedule 1 to the TAA to reduce pay as you go (PAYG) withholding non-compliance tax in certain circumstances • by us to amend a petroleum rent resource tax (PRRT) assessment reducing the liability to tax (but not where a request has been made by or on behalf of the taxpayer). [7] • credit amount except – a foreign income tax offset credit arising under Division 770 of the Income Tax Assessment Act 1997 (ITAA 1997) – a credit arising under section 131-65 of Schedule 1 to the TAA (in relation to a release authority) – a credit arising under the International Tax Agreements Act 1953 • tax offset arising under former section 160AQK of the ITAA 1936 (offsetting franking deficit tax against company tax), or • tax offset subject to the refundable tax offset rules in Division 67 of the ITAA 1997. – a foreign income tax offset credit arising under Division 770 of the Income Tax Assessment Act 1997 (ITAA 1997) – a credit arising under section 131-65 of Schedule 1 to the TAA (in relation to a release authority) – a credit arising under the International Tax Agreements Act 1953 • the day on which the surplus arises (if section 12AA applies) • the day on which the relevant request is made (if sections 12AB or AC apply) • the day on which the taxpayer has given a notification to us that is required for the refund under 8AAZLG [8] (or 8AAZLGB as the case requires) of the TAA and that is accurate so far as it relates to the refund, or • if subsection 8AAZLH(3) [9] of the TAA does not apply, the day on which the taxpayer nominated a financial institution account. • income tax (as defined in subsection 6(1) of the ITAA 1936 [10] ) • amounts payable to us under Subdivision 16-A of Schedule 1 to the TAA (PAYG withholding amounts) • the general interest charge (GIC) payable on unpaid – PAYG withholding amounts, under section 16-80 of Schedule 1 to the TAA – amounts of indirect tax liabilities, under Subdivision 105-D of Schedule 1 to the TAA – amounts of the late lodgment penalty, under former section 163AA of the ITAA 1936 (in relation to 1999–00 and earlier years) • the shortfall interest charge (SIC) payable under Division 280 of Schedule 1 to the TAA • interest under section 102AAM of the ITAA 1936 (interest paid by the taxpayer on distributions from certain non-resident trust estates) • diverted profits tax • PAYG withholding non-compliance tax (tax payable by directors of non-compliant companies in accordance with section 18-125 of Schedule 1 to the TAA) • amounts that are treated under Subdivision 154-D of the HESA as if they were income tax • amounts that are treated under Division 6 of Part 3A of the VET Student Loans Act 2016 as if they were income tax • amounts that are treated under Part 2AA.5 of the Social Security Act 1991 as if they were income tax • amounts that are treated under Part 3.3 of the Australian Apprenticeship Support Loans Act 2014 as if they were income tax • amounts that are treated under section 12ZN and Division 6 of Part 2 of the Student Assistance Act 1973 as if they were income tax • amounts paid under section 282-18 of the Private Health Insurance Act 2007 • trust recoupment tax, applied penalty tax or penalty tax, as defined in subsection 3(1) of the Trust Recoupment Tax Assessment Act 1985 • an amount payable to us under Subdivision 263-A of Schedule 1 to the TAA (about foreign revenue claims) • goods and services tax (GST) • wine equalisation tax (WET) • luxury car tax (LCT • fringe benefits tax (FBT) • PRRT. [11] – PAYG withholding amounts, under section 16-80 of Schedule 1 to the TAA – amounts of indirect tax liabilities, under Subdivision 105-D of Schedule 1 to the TAA – amounts of the late lodgment penalty, under former section 163AA of the ITAA 1936 (in relation to 1999–00 and earlier years) Relevant tax does not include the following amounts: • the GIC payable on unpaid amounts of income tax and SIC, under section 5-15 of the ITAA 1997 (or former subsection 204(3) of the ITAA 1936) • PAYG instalments, or • penalties under Part 4-25 of Schedule 1 to the TAA (for example, shortfall penalties and penalties for failing to lodge on time in relation to 2000–01 and later years). • the GIC payable on unpaid amounts of income tax and SIC, under section 5-15 of the ITAA 1997 (or former subsection 204(3) of the ITAA 1936) • PAYG instalments, or • penalties under Part 4-25 of Schedule 1 to the TAA (for example, shortfall penalties and penalties for failing to lodge on time in relation to 2000–01 and later years). | Basic concepts: 8. The rationale for the credit interest regime is to allow taxpayers to benefit from the period in which funds were held by the ATO and unavailable for their use. 9. Part IIA provides that IEP is payable only where the taxpayer makes a payment (or part payment) that is received by us more than 14 days before the due date for payment of certain liabilities. [12] 10. Parts IIB, IIC, IIE to IIG, III and IIIA provide when IOP is generally payable and this includes when an overpayment has arisen from: • an income tax assessment • certain amended assessments of surcharge or an advanced instalment and interest on certain offsets relating to no-TFN contributions income of superannuation funds and retirement savings account providers • decisions to which the T(IOEP)A applies • certain remissions, refunds and credits [13] of particular taxes that occurred as a result of a request by the taxpayer. • an income tax assessment • certain amended assessments of surcharge or an advanced instalment and interest on certain offsets relating to no-TFN contributions income of superannuation funds and retirement savings account providers • decisions to which the T(IOEP)A applies • certain remissions, refunds and credits [13] of particular taxes that occurred as a result of a request by the taxpayer. 11. Part IIIAA provides that DRI is generally payable in relation to an RBA established to account for BAS amounts if a refund that we are required to give is not paid by the RBA interest day. [14] 12. Further detail of the circumstances when an amount of interest is payable by us under the T(IOEP)A and other Acts is provided in the following paragraphs of this Practice Statement. 13. A taxpayer's entitlement to credit interest arises strictly in accordance with the relevant provisions of the T(IOEP)A or other relevant Acts. When an amount of interest is payable under the T(IOEP)A, we have no discretion to alter the amount or basis (or both) of the taxpayer's interest entitlement. While the taxpayer may choose to forgo their entitlement to interest (for example, as part of a settlement agreement), this is their choice and not a decision by us. | Interest on early payments: 14. IEP is payable in relation to: • income tax (including the Medicare levy and Medicare levy surcharge) • SIC under Division 280 of Schedule 1 to the TAA [15] • a compulsory repayment amount in respect of an accumulated Higher Education Loan Program (HELP) debt [16] • a compulsory Vocational Education and Training Student Loan (VSL) repayment amount • a compulsory Student Start-up Loan (SSL) repayment amount • a compulsory ABSTUDY SSL repayment • a compulsory Australian Apprenticeship Support Loan (AASL) repayment amount • a Financial Supplement (FS) assessment debt [17] • interest under section 102AAM of the ITAA 1936 • late lodgment penalty under former section 163A [18] of the ITAA 1936 • GIC for late lodgment under former section 163B or GIC in relation to debit amended assessments under former section 170AA [19] of the ITAA 1936. • income tax (including the Medicare levy and Medicare levy surcharge) • SIC under Division 280 of Schedule 1 to the TAA [15] • a compulsory repayment amount in respect of an accumulated Higher Education Loan Program (HELP) debt [16] • a compulsory Vocational Education and Training Student Loan (VSL) repayment amount • a compulsory Student Start-up Loan (SSL) repayment amount • a compulsory ABSTUDY SSL repayment • a compulsory Australian Apprenticeship Support Loan (AASL) repayment amount • a Financial Supplement (FS) assessment debt [17] • interest under section 102AAM of the ITAA 1936 • late lodgment penalty under former section 163A [18] of the ITAA 1936 • GIC for late lodgment under former section 163B or GIC in relation to debit amended assessments under former section 170AA [19] of the ITAA 1936. 15. Early payment interest is limited to the early payment of the amount due and only for the relevant period provided for in the T(IOEP)A. 16. If the taxpayer is not a full self-assessment taxpayer and makes a payment more than 14 days before the payment due date, the calculation of interest commences from the beginning of the later of the following: • the day on which the payment is made • the day on which the notice notifying the tax, debt, interest or instalment concerned is issued. • the day on which the payment is made • the day on which the notice notifying the tax, debt, interest or instalment concerned is issued. 17. If the taxpayer is a full self-assessment taxpayer and they make a payment more than 14 days before the payment due date, the calculation of interest commences from the beginning of the day on which the payment is made. 18. For all taxpayers, their interest period will end on the earlier of the due date for payment or, in circumstances where the early payment is refunded before the due date, when the refund takes place. 19. For eligible payments made since 1 July 2021, the calculation and payment of the IEP is automatic. 20. For eligible payments made before 1 July 2021, claims for IEP should be made by the taxpayer or their agent by a written request to us or, alternatively, calculated and claimed via their tax return for the income year in which the interest entitlement arises. 21. IEP can only be paid after the due date for payment of the tax paid early has lapsed and only after that tax amount has been established. If the payment is to any extent refunded before the due date, interest is not payable on the payment to that extent, in respect to the period after the day on which the refund takes place. 22. If the interest has been offset against any outstanding taxation debts, the taxpayer will be advised in writing as to the nature and date of the offset. 23. If there is an overlap between IEP and IOP under Part IIB, IIC, IIE and IIF and IIG, the taxpayer is entitled to receive both the IEP and the relevant IOP payable. However, when there is an overlap between IEP and IOP under Part IIIA, section 8D removes the IEP entitlement. | Interest on overpayments: 24. Generally, the following parts of the T(IOEP)A deal with IOP: Table 2: Types of overpayments T(IOEP)A Type of overpayment Part IIB Overpayments resulting from income tax assessments. Parts IIC, IIE, IIF and IIG Overpayments relating to certain amended assessments of surcharge or an advanced instalment and interest on certain offsets relating to no-TFN contributions income of superannuation funds and retirement savings account providers. Part III Overpayments resulting from decisions to which the T(IOEP)A applies (for example, objections, ART appeals, court decisions, certain amendments). Part IIIA Overpayments resulting from certain remissions, refunds and credits of particular taxes (including income tax, GIC and SIC). | Part IIB – interest on overpayments resulting from income tax assessments: 25. IOP may be payable as a result of the application of certain credits, known as income tax crediting amounts, to the taxpayer's account at the time of processing an original return or at some later time. 26. Interest under Part IIB only applies in relation to income tax. [20] 27. Where interest applies under Part IIB, the provision of the T(IOEP)A that applies will depend on: • whether the taxpayer is a full self-assessment taxpayer or not, and • when we credited, applied or refunded the relevant income tax crediting amounts. • whether the taxpayer is a full self-assessment taxpayer or not, and • when we credited, applied or refunded the relevant income tax crediting amounts. 28. Interest is not payable under this Part in circumstances where the taxpayer's tax return has been lodged fraudulently by an unauthorised third party. Ordinary taxpayers – notice crediting 29. For an ordinary taxpayer, an entitlement to interest will arise under subsection 8E(1) where: • they lodge a tax return for a year of income • an assessment is made up of the income tax payable by them for the year of income • the notice of assessment notifies that we have credited, applied or refunded one or more income tax crediting amounts to them (this is called the 'notice crediting') for the year of income • the sum of their income tax crediting amounts exceeds the sum of their income tax and related liabilities (listed under subparagraphs 8E(1)(d)(i) to (v)) for the year of income, and • the notice crediting occurs more than 30 days after the day on which they lodged the relevant tax return. The interest is calculated on the amount of the excess. • they lodge a tax return for a year of income • an assessment is made up of the income tax payable by them for the year of income • the notice of assessment notifies that we have credited, applied or refunded one or more income tax crediting amounts to them (this is called the 'notice crediting') for the year of income • the sum of their income tax crediting amounts exceeds the sum of their income tax and related liabilities (listed under subparagraphs 8E(1)(d)(i) to (v)) for the year of income, and • the notice crediting occurs more than 30 days after the day on which they lodged the relevant tax return. The interest is calculated on the amount of the excess. 30. The liabilities under subparagraphs 8E(1)(d)(i) to (v) include: • income tax payable for the year of income (after allowing any rebate, except a tax offset that is subject to the refundable tax offset rules, or deduction under subsection 100(2) of the ITAA 1936 and before allowing any crediting, applying or other payment) plus Medicare levy and any Medicare levy surcharge assessed on the taxable income (after adjustments) • a repayment amount that is notified on the notice of assessment, including – a compulsory repayment amount under the HESA – a compulsory VSL, SSL, ABSTUDY SSL or AASL repayment amount • an FS assessment debt • a liability under section 282-18 of the Private Health Insurance Act 2007 that is notified in the notice of assessment • interest for the year of income payable under section 102AAM of the ITAA 1936 (distributions from certain non-resident trust estates) immediately before the notice crediting. • income tax payable for the year of income (after allowing any rebate, except a tax offset that is subject to the refundable tax offset rules, or deduction under subsection 100(2) of the ITAA 1936 and before allowing any crediting, applying or other payment) plus Medicare levy and any Medicare levy surcharge assessed on the taxable income (after adjustments) • a repayment amount that is notified on the notice of assessment, including – a compulsory repayment amount under the HESA – a compulsory VSL, SSL, ABSTUDY SSL or AASL repayment amount • an FS assessment debt • a liability under section 282-18 of the Private Health Insurance Act 2007 that is notified in the notice of assessment • interest for the year of income payable under section 102AAM of the ITAA 1936 (distributions from certain non-resident trust estates) immediately before the notice crediting. – a compulsory repayment amount under the HESA – a compulsory VSL, SSL, ABSTUDY SSL or AASL repayment amount Ordinary taxpayers – post-notice crediting 31. Interest may also be payable to an ordinary taxpayer under subsection 8E(2) where: • they lodge an income tax return for a year of income • an assessment is made of the income tax payable by them for the year of income • we credited, applied or refunded one or more income tax crediting amounts to them after the income tax notice of assessment is issued (this is called a 'post-notice crediting') for a year of income, and • the sum of their income tax crediting amounts exceeds the sum of the amounts listed in subparagraphs 8E(2)(d)(i) to (v) for a year of income. • they lodge an income tax return for a year of income • an assessment is made of the income tax payable by them for the year of income • we credited, applied or refunded one or more income tax crediting amounts to them after the income tax notice of assessment is issued (this is called a 'post-notice crediting') for a year of income, and • the sum of their income tax crediting amounts exceeds the sum of the amounts listed in subparagraphs 8E(2)(d)(i) to (v) for a year of income. 32. The amounts that are listed in subparagraphs 8E(2)(d)(i) to (v) are: • income tax payable for the year of income as reduced by any rebate, deduction under subsection 100(2) of the ITAA 1936, crediting, applying or other payment made before the post-notice crediting • a repayment amount that is payable by the taxpayer immediately before the post-notice crediting, including – a compulsory repayment amount under the HESA – a compulsory VSL, SSL, ABSTUDY SSL or AASL repayment amount • an FS assessment debt payable by them immediately before the post-notice crediting • a liability under section 282-18 of the Private Health Insurance Act 2007, payable by them immediately before the post-notice crediting, and • interest for the year of income payable by them under section 102AAM of the ITAA 1936 (distributions from certain non-resident trust estates) immediately before the post-notice crediting. The interest is calculated on the amount of the excess. • income tax payable for the year of income as reduced by any rebate, deduction under subsection 100(2) of the ITAA 1936, crediting, applying or other payment made before the post-notice crediting • a repayment amount that is payable by the taxpayer immediately before the post-notice crediting, including – a compulsory repayment amount under the HESA – a compulsory VSL, SSL, ABSTUDY SSL or AASL repayment amount • an FS assessment debt payable by them immediately before the post-notice crediting • a liability under section 282-18 of the Private Health Insurance Act 2007, payable by them immediately before the post-notice crediting, and • interest for the year of income payable by them under section 102AAM of the ITAA 1936 (distributions from certain non-resident trust estates) immediately before the post-notice crediting. – a compulsory repayment amount under the HESA – a compulsory VSL, SSL, ABSTUDY SSL or AASL repayment amount The interest is calculated on the amount of the excess. Ordinary taxpayers – calculation of interest 33. The periods for which interest is payable by an ordinary taxpayer on the amount of the excess under section 8F is as follows: Table 3: Timing of interest on overpayment Time of credit Start date for interest calculation End date for interest calculation On assessment (notice crediting) Subsection 8F(1) Beginning of the 30th day after the day on which the taxpayer furnished the return End of the day on which the notice of assessment is issued After assessment has issued (post-notice crediting) Subsection 8F(2) Beginning of the day on which the notice of assessment is issued End of the day on which the post-notice crediting occurs Subsection 8F(1) Subsection 8F(2) 34. Where the taxpayer made a payment in anticipation of an income tax or related liability after the notice of assessment issued and before a post-notice crediting, interest is payable on the amount of the excess income tax crediting amounts that is attributable to the payment from the beginning of the day the payment was made until the end of the day on which the post-notice crediting occurs. Interest on the remainder of the excess credits that are attributable to the post-notice crediting is calculated as described in Table 3 of this Practice Statement. 35. Where multiple payments have been made after the notice of assessment has issued and before a post-notice crediting, the excess is attributable to a particular payment (to the extent that it would be set off against that payment) by setting off in the reverse order that the payments were made. 36. Interest is not payable on a payment if it attracts interest under Part III or it has already been taken into account in a previous application of Part IIB. Full self-assessment taxpayers – first crediting 37. In relation to a full self-assessment taxpayer, subsection 8G(1) provides that interest will be payable where: • they lodged a tax return for a year of income • after they lodged the return, we credited, applied or refunded one or more income tax crediting amounts to them (this is called a 'first crediting') for the year of income • we have not previously credited, applied or refunded any income tax crediting amount for the year of income • the sum of their income tax crediting amounts exceeds the sum of income tax payable (after allowing any rebate, except a tax offset that is subject to the refundable tax offset rules, or deduction under subsection 100(2) of the ITAA 1936 and before allowing any crediting, applying or other payment) and interest payable under section 102AAM of the ITAA 1936 for the year of income, and • the 'first crediting' takes place after a specified date. • they lodged a tax return for a year of income • after they lodged the return, we credited, applied or refunded one or more income tax crediting amounts to them (this is called a 'first crediting') for the year of income • we have not previously credited, applied or refunded any income tax crediting amount for the year of income • the sum of their income tax crediting amounts exceeds the sum of income tax payable (after allowing any rebate, except a tax offset that is subject to the refundable tax offset rules, or deduction under subsection 100(2) of the ITAA 1936 and before allowing any crediting, applying or other payment) and interest payable under section 102AAM of the ITAA 1936 for the year of income, and • the 'first crediting' takes place after a specified date. 38. For interest to be payable under subsection 8G(1), the date on which the first crediting occurs must be either: • 30 days or more after the day on which the return was lodged (if they lodged the tax return at least 30 days before the payment due date for the assessed tax) (under paragraph 8G(1)(e)), or • after the payment due date for the assessed tax (if they lodged the tax return less than 30 days before the payment due date for the assessed tax [21] ) (under paragraph 8G(1)(f)). For clarification, paragraph 8G(1)(f) of the T(IOEP)A only applies where paragraph 8G(1)(e) does not apply. • 30 days or more after the day on which the return was lodged (if they lodged the tax return at least 30 days before the payment due date for the assessed tax) (under paragraph 8G(1)(e)), or • after the payment due date for the assessed tax (if they lodged the tax return less than 30 days before the payment due date for the assessed tax [21] ) (under paragraph 8G(1)(f)). For clarification, paragraph 8G(1)(f) of the T(IOEP)A only applies where paragraph 8G(1)(e) does not apply. 39. The interest is calculated on the amount of the excess credit that remains after performing the calculation taking into account the amounts referred to in the third bullet point of paragraph 37 of this Practice Statement. Full self-assessment taxpayers – later crediting 40. Subsection 8G(2) provides that interest will be payable in relation to a full self-assessment taxpayer, where: • they lodged a tax return for a year of income • after the first crediting, we credited, applied or refunded one or more income tax crediting amounts to them (this is called a 'later crediting') for the year of income, and • the sum of their income tax crediting amounts credited, refunded or applied via the later crediting exceeds the sum of the following amounts – income tax payable for the year of income as reduced by any rebate, deduction under subsection 100(2) of the ITAA 1936, crediting, applying or other payment made immediately before the later crediting, and – interest for the year of income payable under section 102AAM of the ITAA 1936 immediately before the later crediting. The interest is calculated on the amount of the excess. • they lodged a tax return for a year of income • after the first crediting, we credited, applied or refunded one or more income tax crediting amounts to them (this is called a 'later crediting') for the year of income, and • the sum of their income tax crediting amounts credited, refunded or applied via the later crediting exceeds the sum of the following amounts – income tax payable for the year of income as reduced by any rebate, deduction under subsection 100(2) of the ITAA 1936, crediting, applying or other payment made immediately before the later crediting, and – interest for the year of income payable under section 102AAM of the ITAA 1936 immediately before the later crediting. – income tax payable for the year of income as reduced by any rebate, deduction under subsection 100(2) of the ITAA 1936, crediting, applying or other payment made immediately before the later crediting, and – interest for the year of income payable under section 102AAM of the ITAA 1936 immediately before the later crediting. The interest is calculated on the amount of the excess. Full self-assessment taxpayers – calculation of interest 41. The period for which interest is payable to a full self-assessment taxpayer on the amount of the excess arising from a 'first crediting' (under subsection 8H(1A)) is from the earlier of: (a) the 30th day after the day on which the person furnishes the return of income for the year of income; (b) the due date for payment of the assessed tax; until the end of the day on which the first crediting occurs. 42. The period for which interest is payable to a full self-assessment taxpayer on the amount of the excess arising from a 'later crediting' (under subsection 8H(2A)) is from the payment due date for the assessed tax until the day on which the later crediting occurs. 43. Where a full self-assessment taxpayer made a payment towards an income tax or related liability after the first crediting and before the later crediting, the period for which interest is payable on the amount of the excess income tax crediting amounts that are attributable to that payment (under subsection 8H(3)) is from the day the payment was made until the day on which the later crediting occurs. 44. Where multiple payments have been made after the first crediting and before a later crediting, the excess is attributable to a particular payment (to the extent that it would be set off against that payment) by setting off in the reverse order that the payments were made. 45. The term 'first crediting' is to be interpreted as meaning the date that we first credit, apply or refund one or more income tax crediting amounts in relation to the income tax payable for a full self-assessment taxpayer for the relevant year of income (being a date after they lodged their tax return). 46. The term 'later crediting' is to be interpreted as meaning the date (after the first crediting) that we next credit, apply or refund one or more income tax crediting amounts in relation to the income tax payable by a full self-assessment taxpayer for the relevant year of income. 47. The term 'credits' as it relates to the date of first crediting or later crediting includes the date on which we are deemed to have made an assessment of income tax payable for a full self-assessment taxpayer for the relevant year of income. 48. The term 'applies' as it relates to the date of first crediting (subject to paragraph 50 of this Practice Statement) or later crediting means the effective date of the transaction representing the partial or full offset of the excess income tax crediting amounts against the outstanding tax debt for a full self-assessment taxpayer. 49. The term 'refunds' as it relates to the date of first crediting (subject to paragraph 50 of this Practice Statement) or later crediting means the process date that the refund of the excess income tax crediting amounts is actually issued to a full self-assessment taxpayer (for example, the date that the refund is paid by electronic funds transfer into a full self-assessment taxpayer's bank account or the date that the cheque is sent by post to a full self-assessment taxpayer). 50. Notwithstanding the information provided in paragraphs 48 and 49 of this Practice Statement, under no circumstances should the effective date of the offset or the refund in relation to first crediting be earlier than the effective date of the underlying credit entitlement. That credit entitlement is the deemed issue date of the notice of assessment, being the lodgment date of the tax return. 51. In circumstances where there is both a partial offset and a residual refund in either first crediting or later crediting situations, there will be 2 interest calculations (unless the partial offset and residual refund occur at the same time). One calculation will be based on the offset amount with the end date being the effective date of the offset transaction and the other calculation will be based on the residual refund amount with the effective date being the date the residual refund is actually issued to a full self-assessment taxpayer. | Parts IIC, IIE, IIF and IIG – interest on overpayments resulting from certain amendments: 52. IOP is payable under Parts IIC, IIE and IIF where an amount of surcharge or an advance instalment is overpaid following certain amendments to assessments under the: • Superannuation Contributions Tax (Assessment and Collection) Act 1997 • Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997. • Superannuation Contributions Tax (Assessment and Collection) Act 1997 • Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997. 53. Interest is payable under Parts IIC, IIE, IIF and IIG on the overpaid amount which starts from the later of: • the day on which the amount of the surcharge or advance instalment was paid, or • the day by which the amount of the surcharge or advance instalment was required to be paid. It ends on the day on which the assessment was amended. • the day on which the amount of the surcharge or advance instalment was paid, or • the day by which the amount of the surcharge or advance instalment was required to be paid. It ends on the day on which the assessment was amended. 54. Interest may also be payable under Part IIG to a superannuation provider in certain circumstances where an individual quotes a tax file number (TFN) to the provider resulting in a tax offset under Subdivision 295-J of the ITAA 1997. 55. Interest will be payable where: • an individual has quoted their TFN to their employer before the end of an income year • their employer failed to comply with the requirements set out in section 133 of the Retirement Savings Accounts Act 1997 or section 299C of the Superannuation Industry (Supervision) Act 1993 which requires them to inform the superannuation provider, to which they make contributions, of the individual's TFN before the end of the income year • due to the employer's failure to comply contributions made to that superannuation provider formed part of its no-TFN contributions income • tax payable on that no-TFN contributions income (the interest-bearing tax) counted towards the no-TFN contributions tax offset of the superannuation provider for the current year, and • the tax offset has been applied in an assessment in respect of the superannuation provider for the current year. • an individual has quoted their TFN to their employer before the end of an income year • their employer failed to comply with the requirements set out in section 133 of the Retirement Savings Accounts Act 1997 or section 299C of the Superannuation Industry (Supervision) Act 1993 which requires them to inform the superannuation provider, to which they make contributions, of the individual's TFN before the end of the income year • due to the employer's failure to comply contributions made to that superannuation provider formed part of its no-TFN contributions income • tax payable on that no-TFN contributions income (the interest-bearing tax) counted towards the no-TFN contributions tax offset of the superannuation provider for the current year, and • the tax offset has been applied in an assessment in respect of the superannuation provider for the current year. 56. The interest is payable for a period from the day the interest-bearing tax on the no-TFN contributions income was paid or the day the interest-bearing tax was required to be paid (whichever is the later) until the day on which the assessment of the no-TFN contributions income tax offset is made. The interest is payable on each amount of interest-bearing tax. Application of Part III – interest on overpayments resulting from decision to which the T(IOEP)A applies 57. IOP is payable under subsection 9(1) where [22] : • the taxpayer pays an amount of 'relevant tax' to us • all or part of the amount of 'relevant tax' paid is overpaid as a result of a 'decision to which this Act applies', and • the overpaid amount is refunded to the taxpayer or applied against their outstanding tax liability. • the taxpayer pays an amount of 'relevant tax' to us • all or part of the amount of 'relevant tax' paid is overpaid as a result of a 'decision to which this Act applies', and • the overpaid amount is refunded to the taxpayer or applied against their outstanding tax liability. 58. Generally, overpayments that arise from an amended assessment that reduces the taxpayer's liability to tax, as a result of a relevant decision by us, the ART or a court, will give rise to an entitlement to IOP. 59. For the purposes of Part III, the taxpayer's payment of an amount of 'relevant tax' includes where a credit assessment has been made by them and that credit assessment is subsequently amended to reduce their liability to tax (including where an original credit assessment is increased upon amendment). 60. The taxpayer is entitled to interest only on the overpaid amount. [23] 61. Interest entitlements pursuant to Part III are payable on the overpaid amount for the period starting from the later of: • the issue date of the notice of assessment (or deemed notice of assessment), determination or decision in relation to the 'decision to which this Act applies', or • the day on which the amount of relevant tax was paid. The period ends on the day on which the amount of overpaid relevant tax is refunded or applied. • the issue date of the notice of assessment (or deemed notice of assessment), determination or decision in relation to the 'decision to which this Act applies', or • the day on which the amount of relevant tax was paid. The period ends on the day on which the amount of overpaid relevant tax is refunded or applied. 62. Where an amount of relevant tax has been paid in instalments and, as a result of a decision to which this Act applies, only part of the relevant tax is overpaid, the amount so refunded or applied is to be attributed to the instalments in the reverse order to which the instalments were paid. 63. The term 'refunded' in the context of Part III (subject to paragraph 65 of this Practice Statement) means the effective date that the refund of the overpaid relevant tax is actually issued to the taxpayer (for example, the date that the refund is paid by electronic funds transfer into their account or the date that the cheque is posted to them). 64. The term 'applied' in the context of Part III (subject to paragraph 65 of this Practice Statement) means the effective date of the transaction representing the partial or full offset of the overpaid relevant tax against an outstanding tax debt. 65. Notwithstanding the information provided in paragraphs 63 and 64 of this Practice Statement, where the overpaid relevant tax is the result of an amended assessment, the relevant end date is the later of the date the credit was refunded or applied, or the notice was issued (for example, the effective date of the Notice of Assessment). 66. If we have amended the income tax assessment multiple times for a particular income year, the start date for the defined interest period under subparagraph 10(1)(a)(i) is the issue date for the Notice of Assessment issued which created the underlying liability that led to the overpayment. 67. Where the decision to which this Act applies is a decision by us, the ART or a court in regard to indirect tax or assessed GST [24] , an entitlement to interest may arise under either Part III (IOP) or Part IIIAA (DRI), but not both. That is, there is no double entitlement to interest. However, in accordance with the underlying intent of the T(IOEP)A, the taxpayer should receive whichever amount provides the greatest benefit. | Application of Part IIIA – interest on overpayments resulting from certain remissions and refunds: 68. Where a request has been made and the refund or remission takes place more than 30 days after the day on which the request is made, Part IIIA provides for an entitlement to IOP where we, as a result of the taxpayer's request [25] : • remit, under section 8AAG of the TAA, certain amounts of the GIC that have been paid (for example, the GIC under section 5-15 of the ITAA 1997 incurred in relation to unpaid assessed income tax liabilities) • remit, under section 280-160 of Schedule 1 to the TAA, the whole or part of an amount that has been paid to us in respect of SIC payable under Division 280 in that Schedule • refund the whole or part of a payment made by the taxpayer on account of assessed income tax and certain related liabilities (for example, a compulsory repayment amount payable under section 154-1 of the HESA). • remit, under section 8AAG of the TAA, certain amounts of the GIC that have been paid (for example, the GIC under section 5-15 of the ITAA 1997 incurred in relation to unpaid assessed income tax liabilities) • remit, under section 280-160 of Schedule 1 to the TAA, the whole or part of an amount that has been paid to us in respect of SIC payable under Division 280 in that Schedule • refund the whole or part of a payment made by the taxpayer on account of assessed income tax and certain related liabilities (for example, a compulsory repayment amount payable under section 154-1 of the HESA). 69. Where an amount of the GIC that has been paid is remitted, an entitlement to interest may arise under either Part IIIA (IOP) or Part IIIAA (DRI) but not both. That is, there is no double entitlement to interest in relation to the remission of an amount of the GIC. 70. IOP under Part IIIA is calculated on the amount remitted, refunded or credited from the beginning of the 30th day after the day on which the request was made and up until the end of the effective day on which the remission, refund or crediting takes place. 71. If the taxpayer makes a payment of income tax before the day they lodge their tax return, the return will be considered a request for refund of the overpaid amount, made on the day of lodgment. There will be an entitlement to interest if the refund takes place more than 30 days after the request, regardless of whether the payment and lodgment occurred before, on or after the payment and lodgment due dates. The amount refunded may include other amounts which are not overpaid income tax – these are not eligible for payment of interest. Interest is limited to the amount overpaid as determined by the income tax assessment. | Application of Part IIIAA – delayed refund interest on running balance account surpluses: 72. DRI is generally payable in relation to an RBA established to account for BAS amounts if a refund that we are required to give is not paid by the RBA interest day. [26] However, DRI is not payable where a notification required for the refund has not been given or is inaccurate [27] or there is a need to obtain further information. For example, a notification under any of the BAS provisions or a further (or fuller) GST return [28] that the taxpayer is required to give to us. Entitlement to delayed refund interest after notification of business activity statement amount or petroleum resource rent tax amount – section 12AA 73. DRI is payable under section 12AA where: • we have allocated a BAS amount or PRRT amount to the taxpayer's RBA and an RBA surplus arises • under subsection 8AAZLF(1) of the TAA, we are required to refund the whole or part of that surplus, and • the refund takes place after the RBA interest day. • we have allocated a BAS amount or PRRT amount to the taxpayer's RBA and an RBA surplus arises • under subsection 8AAZLF(1) of the TAA, we are required to refund the whole or part of that surplus, and • the refund takes place after the RBA interest day. When is the running balance account interest day? 74. The RBA interest day as it relates to section 12AA means the 14th day after the latest of the following days: • the day on which the surplus arises • the day on which the taxpayer has given a notification to us that is required for the refund [29] under section 8AAZLG or 8AAZLGB of the TAA (as the case requires) and that is accurate so far as it relates to the refund • if subsection 8AAZLH(3) [30] of the TAA does not apply, the day on which the taxpayer nominates a financial institution account. • the day on which the surplus arises • the day on which the taxpayer has given a notification to us that is required for the refund [29] under section 8AAZLG or 8AAZLGB of the TAA (as the case requires) and that is accurate so far as it relates to the refund • if subsection 8AAZLH(3) [30] of the TAA does not apply, the day on which the taxpayer nominates a financial institution account. 75. The RBA surplus will generally arise on the day the taxpayer gave us the notification required for the refund in the approved form of their credit entitlement for a particular tax period. [31] This would generally be when they lodged their activity statement or fuel tax return. In such cases, the RBA interest day would be 14 days after the lodgment received date. 76. In certain limited circumstances, the day on which the RBA surplus arises may be a day prior to when a notification required for the refund is given to us. For example, if the taxpayer lodged a revised activity statement or fuel tax return that results in a credit for a particular tax period, the RBA surplus would retrospectively arise on the original lodgment date as they were, in effect, entitled to the credit on that date. In such cases, the RBA interest day would be 14 days after the day that the revised activity statement or fuel tax return is given (in the approved form). [32] This day is later than the day on which the surplus arises and will therefore be the RBA interest day. Refer to Diagram 1 in this Practice Statement for an illustration of this. Diagram 1: Delayed refund interest period Diagram 1: Delayed refund interest period 77. We will not pay DRI where a notification that affects or may affect the amount that is refunded has not been given, is inaccurate [33] or there is a need to obtain further information – for example, where: • the taxpayer has not given us a notification that they are required to give us under any of the BAS provisions (for example, where they have outstanding activity statements or where we have requested further or fuller GST returns) • an activity statement is lodged and does not disclose an amount against all labels on the statement where the taxpayer has an expected liability for that period • the taxpayer makes an error on the activity statement (for example, arithmetic error) and it is necessary to contact them to obtain other information to process the activity statement, or • the taxpayer has not nominated an account at a financial institution into which the refund should be paid (unless we have exercised the discretion provided in subsection 8AAZLH(3) of the TAA). • the taxpayer has not given us a notification that they are required to give us under any of the BAS provisions (for example, where they have outstanding activity statements or where we have requested further or fuller GST returns) • an activity statement is lodged and does not disclose an amount against all labels on the statement where the taxpayer has an expected liability for that period • the taxpayer makes an error on the activity statement (for example, arithmetic error) and it is necessary to contact them to obtain other information to process the activity statement, or • the taxpayer has not nominated an account at a financial institution into which the refund should be paid (unless we have exercised the discretion provided in subsection 8AAZLH(3) of the TAA). 78. In the situations outlined in paragraph 77 of this Practice Statement, the RBA interest day will be 14 days after the day the taxpayer provides the relevant information or notification or return to us. In addition, the notification that is provided must be in the approved form and must be accurate so far as it relates to the actual amount to be refunded. Entitlement to delayed refund interest for running balance account surpluses after request for remission – section 12AB 79. DRI is also payable in accordance with section 12AB where: • we have allocated a BAS amount or PRRT amount to an RBA • the taxpayer requests a remission of a penalty that has been notified by us, and • as a result of the remission of penalty, an RBA surplus arises that we are required to refund under subsection 8AAZLF(1) of the TAA and the surplus is not refunded by the RBA interest day. • we have allocated a BAS amount or PRRT amount to an RBA • the taxpayer requests a remission of a penalty that has been notified by us, and • as a result of the remission of penalty, an RBA surplus arises that we are required to refund under subsection 8AAZLF(1) of the TAA and the surplus is not refunded by the RBA interest day. 80. The RBA interest day as it relates to section 12AB, means the 14th day after the latest of the following days: • the day on which the request for remission is received • the day on which the taxpayer has given a notification to us that is required for the refund [34] under section 8AAZLG or 8AAZLGB of the TAA (as the case requires) and that is accurate as far as it relates to the refund • if subsection 8AAZLH(3) of the TAA does not apply, the day on which the taxpayer nominates a financial institution account. • the day on which the request for remission is received • the day on which the taxpayer has given a notification to us that is required for the refund [34] under section 8AAZLG or 8AAZLGB of the TAA (as the case requires) and that is accurate as far as it relates to the refund • if subsection 8AAZLH(3) of the TAA does not apply, the day on which the taxpayer nominates a financial institution account. 81. Interest will be payable in these circumstances for the period from the end of the RBA interest day until the end of the day on which the refund takes place. Entitlement to delayed refund interest for running balance account surpluses after request for refund – section 12AC 82. DRI is also payable in accordance with section 12AC where: • we have allocated a payment to an RBA • we have allocated or intend to allocate a BAS amount or PRRT amount to that RBA, and • the taxpayer requests a refund of an RBA surplus that has arisen as a result of a voluntary payment and that we are required to refund under subsection 8AAZLF(2) of the TAA, and the surplus is not refunded by the RBA interest day. • we have allocated a payment to an RBA • we have allocated or intend to allocate a BAS amount or PRRT amount to that RBA, and • the taxpayer requests a refund of an RBA surplus that has arisen as a result of a voluntary payment and that we are required to refund under subsection 8AAZLF(2) of the TAA, and the surplus is not refunded by the RBA interest day. 83. The RBA interest day as it relates to section 12AC means the 14th day after the latest of the following days: • the day on which the request for refund of the RBA surplus resulting from the voluntary payment is received • the day on which the taxpayer has given a notification to us that is required for the refund [35] under 8AAZLG or 8AAZLGB of the TAA (as the case requires) and that is accurate as far as it relates to the refund • if subsection 8AAZLH(3) of the TAA does not apply, the day on which the taxpayer nominates a financial institution account. • the day on which the request for refund of the RBA surplus resulting from the voluntary payment is received • the day on which the taxpayer has given a notification to us that is required for the refund [35] under 8AAZLG or 8AAZLGB of the TAA (as the case requires) and that is accurate as far as it relates to the refund • if subsection 8AAZLH(3) of the TAA does not apply, the day on which the taxpayer nominates a financial institution account. 84. Interest is payable on the amount of the RBA surplus which is required to be refunded under section 8AAZLF of the TAA for the period from the end of the RBA interest day (that is, the beginning of the next day) until the end of the effective day on which the refund is actually issued. | Tax treatment of interest payable under the T(IOEP)A: 85. Interest payable by us under the T(IOEP)A is assessable income when it is received (applied, credited or refunded). [36] 86. Generally, if an amount of interest is to be paid to a taxpayer that has an overseas address according to ATO records, or if we are authorised to pay the interest at a place outside of Australia, 10% of the interest is withheld under section 12-245 of Schedule 1 to the TAA. 87. Interest payable under the T(IOEP)A is also a 'credit' for the purposes of Part IIB of the TAA. Accordingly, we are required under Division 3 of Part IIB to the TAA to apply an amount of interest payable to the taxpayer against any amount due to the Commonwealth directly arising under a taxation law, including any such amount that is due but not yet payable. | Entitlement to interest under Parts 2 and 5 of the Co-contributions Act: 88. A taxpayer will be entitled to a payment of interest by us if we pay none of the government co-contribution on or before the payment date for the co-contribution. [37] 89. Interest is payable: • on the amount of the government co-contribution, and • for the period from the payment date for the government co-contribution until the day on which we first pay an amount in satisfaction of that co-contribution. • on the amount of the government co-contribution, and • for the period from the payment date for the government co-contribution until the day on which we first pay an amount in satisfaction of that co-contribution. 90. A taxpayer will also be entitled to a payment of interest by us if we underpay a government co-contribution and we do not pay the underpaid amount in full on or before the payment date for the underpaid amount. [38] 91. Interest is payable: • on the unpaid amount of the government co-contribution (or payment shortfall) that remains unpaid on the payment date, and • for the period from the payment date for the underpaid amount until the day on which the underpaid amount is paid in full. • on the unpaid amount of the government co-contribution (or payment shortfall) that remains unpaid on the payment date, and • for the period from the payment date for the underpaid amount until the day on which the underpaid amount is paid in full. 92. Additionally, if by an administrative error we have underpaid the amount of co-contribution, a taxpayer will be entitled to interest on the amount of the payment shortfall. Interest is payable for the period from the payment date for the government co-contribution until the payment date for the underpaid amount. [39] 93. The payment date is 60 days after we have received all of the information, required by the Co-contributions Act or requested by us under the Act, necessary to make a determination that a government co-contribution is payable and to whom the payment is to be directed. [40] | Tax treatment of interest payable under the Co-contributions Act: 94. The interest that is payable under section 12 of the Co-contributions Act forms part of the actual government co-contribution. Therefore, it is treated for all purposes (for example, taxation purposes) in the same manner as the government co-contribution. The government co-contribution is not assessable income in the hands of the superannuation entity or the individual (sections 295-170 and 307-135 of the ITAA 1997). Entitlement to interest for late payments of money received by us in accordance with release authority – section 131-70 of Schedule 1 to the TAA 95. The entitlement to interest for amounts released from superannuation is set out in section 131-70 of Schedule 1 to the TAA [41] and applies to: • excess concessional and non-concessional contribution determinations, where issued on or after 1 July 2018 (whether for financial years commencing before, on, or after 1 July 2018) • notices of assessments of amounts of Division 293 tax (where issued on or after 1 July 2018 (whether for financial years commencing before, on, or after 1 July 2018), and • first home super saver determinations issued on or after 1 July 2018. • excess concessional and non-concessional contribution determinations, where issued on or after 1 July 2018 (whether for financial years commencing before, on, or after 1 July 2018) • notices of assessments of amounts of Division 293 tax (where issued on or after 1 July 2018 (whether for financial years commencing before, on, or after 1 July 2018), and • first home super saver determinations issued on or after 1 July 2018. 96. A taxpayer will be entitled to interest for late payments where: • we issue a release authority to a superannuation provider in accordance with section 131-15 of Schedule 1 to the TAA • the superannuation provider pays the amount detailed in the release authority to us • they are entitled to a credit for that amount as mentioned in section 131-65 of Schedule 1 to the TAA • all or part of the credit is required to be refunded in accordance with Division 3A of Part IIB of the TAA, and • we do not refund the required amount within 60 days after receiving the amount from the superannuation provider. • we issue a release authority to a superannuation provider in accordance with section 131-15 of Schedule 1 to the TAA • the superannuation provider pays the amount detailed in the release authority to us • they are entitled to a credit for that amount as mentioned in section 131-65 of Schedule 1 to the TAA • all or part of the credit is required to be refunded in accordance with Division 3A of Part IIB of the TAA, and • we do not refund the required amount within 60 days after receiving the amount from the superannuation provider. 97. Interest is calculated on a daily basis utilising the base interest rate that applies for each relevant day and the interest period is determined as follows: • beginning 60 days after the day we receive the amount, and • ending on the effective day that we refund the amount or the effective day that the relevant amount is applied or offset against the outstanding taxation liability. • beginning 60 days after the day we receive the amount, and • ending on the effective day that we refund the amount or the effective day that the relevant amount is applied or offset against the outstanding taxation liability. | Tax treatment of interest for amounts refunded in accordance with a release authority: 98. Interest payable under section 131-70 of Schedule 1 to the TAA is assessable income at the time that it is received (applied, credited or refunded). 99. Interest payable is also a 'credit' for the purposes of Part IIB of the TAA. Accordingly, we are required under Division 3 of Part IIB of the TAA to apply an amount of interest payable against any amount due to the Commonwealth directly arising under a taxation law, including any such amount not yet payable.",T(IOEP)A Pt IIA | T(IOEP)A Pt IIB | T(IOEP)A Pt IIC | T(IOEP)A Pt IIE | T(IOEP)A Pt IIF | T(IOEP)A Pt IIG | T(IOEP)A Pt III | T(IOEP)A Pt IIIA | T(IOEP)A Pt IIIAA | T(IOEP)A Pt IIIB | T(IOEP)A 3(1) | T(IOEP)A 3C | T(IOEP)A 8D | T(IOEP)A 8E(1) | T(IOEP)A 8E(1)(d)(i) | T(IOEP)A 8E(1)(d)(ii) | T(IOEP)A 8E(1)(d)(iii) | T(IOEP)A 8E(1)(d)(iv) | T(IOEP)A 8E(1)(d)(v) | T(IOEP)A 8E(2) | T(IOEP)A 8E(2)(d)(i) | T(IOEP)A 8E(2)(d)(ii) | T(IOEP)A 8E(2)(d)(iii) | T(IOEP)A 8E(2)(d)(iv) | T(IOEP)A 8E(2)(d)(v) | T(IOEP)A 8F | T(IOEP)A 8F(1) | T(IOEP)A 8F(2) | T(IOEP)A 8G(1) | T(IOEP)A 8G(1)(e) | T(IOEP)A 8G(1)(f) | T(IOEP)A 8G(2) | T(IOEP)A 8H(1A) | T(IOEP)A 8H(2A) | T(IOEP)A 8H(3) | T(IOEP)A 9(1) | T(IOEP)A 10(1)(a)(i) | T(IOEP)A 12AA | T(IOEP)A 12AB | T(IOEP)A 12AC | ANTS(GST)A 31-20 | ITAA 1936 6(1) | ITAA 1936 former 204(3) | ITAA 1936 100(2) | ITAA 1936 102AAM | ITAA 1997 5-15 | ITAA 1997 15-35 | ITAA 1997 Div 67 | ITAA 1997 Div 293 | ITAA 1997 Subdiv 295-J | ITAA 1997 295-170 | ITAA 1997 307-135 | ITAA 1997 Div 770 | ITAA 1997 995-1 | ITAA 1997 995-1(1) | TAA 8AAD | TAA 8AAG | TAA Pt IIB | TAA Pt IIB Div 3 | TAA Pt IIB Div 3A | TAA 8AAZA | TAA 8AAZC | TAA 8AAZLF | TAA 8AAZLF(1) | TAA 8AAZLF(2) | TAA 8AAZLG | TAA 8AAZLGB | TAA 8AAZLH(3) | TAA Pt IVC | TAA Sch 1 12-245 | TAA Sch 1 Subdiv 16-A | TAA Sch 1 16-80 | TAA Sch 1 18-125 | TAA Sch 1 18-130 | TAA Sch 1 Subdiv 105-D | TAA Sch 1 131-15 | TAA Sch 1 131-65 | TAA Sch 1 131-70 | TAA Sch 1 155-15 | TAA Sch 1 155-40 | TAA Sch 1 263-A | TAA Sch 1 Div 280 | TAA Sch 1 280-160 | TAA Sch 1 388-50 | Australian Apprenticeship Support Loans Act 2014 Pt 3.3 | Private Health Insurance Act 2007 282-18 | Private Health Insurance Act 2007 282-18(4) | HESA 137-1 | HESA 140-25 | HESA 154-D | HESA 154-1 | Retirement Savings Accounts Act 1997 133 | Student Assistance Act 1973 12ZN | Superannuation Contributions Tax (Assessment and Collection) Act 1997 | Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 | Superannuation (Government Co-Contribution for Low Income Earners) Act 2003 Pt 2 | Superannuation (Government Co-Contribution for Low Income Earners) Act 2003 12 | Superannuation (Government Co-Contribution for Low Income Earners) Act 2003 Pt 5 | Superannuation (Government Co-Contribution for Low Income Earners) Act 2003 21 | Superannuation (Government Co-Contribution for Low Income Earners) Act 2003 22 | Superannuation Industry (Supervision) Act 1993 299C | Superannuation (Unclaimed Money and Lost Members) Act 1999 17(2AB) | Superannuation (Unclaimed Money and Lost Members) Act 1999 17(2AC) | Superannuation (Unclaimed Money and Lost Members) Act 1999 20H(2AA) | Superannuation (Unclaimed Money and Lost Members) Act 1999 24G(3A) | Superannuation (Unclaimed Money and Lost Members) Act 1999 24G(3B) | [2009] NSWSC 730 | (1992) 92 ATC 4260,,T(IOEP)A Pt IIA | T(IOEP)A Pt IIB | T(IOEP)A Pt IIC | T(IOEP)A Pt IID | T(IOEP)A Pt IIE | T(IOEP)A Pt IIF | T(IOEP)A Pt IIG | T(IOEP)A Pt III | T(IOEP)A Pt IIIA | T(IOEP)A Pt IIIAA | T(IOEP)A Pt IIIB | T(IOEP)A 3(1) | T(IOEP)A 3C | T(IOEP)A 8D | T(IOEP)A 8E(1) | T(IOEP)A 8E(1)(d)(i) | T(IOEP)A 8E(1)(d)(ii) | T(IOEP)A 8E(1)(d)(iii) | T(IOEP)A 8E(1)(d)(iv) | T(IOEP)A 8E(1)(d)(v) | T(IOEP)A 8E(2) | T(IOEP)A 8E(2)(d)(i) | T(IOEP)A 8E(2)(d)(ii) | T(IOEP)A 8E(2)(d)(iii) | T(IOEP)A 8E(2)(d)(iv) | T(IOEP)A 8E(2)(d)(v) | T(IOEP)A 8F | T(IOEP)A 8F(1) | T(IOEP)A 8F(2) | T(IOEP)A 8G(1) | T(IOEP)A 8G(1)(e) | T(IOEP)A 8G(1)(f) | T(IOEP)A 8G(2) | T(IOEP)A 8H(1A) | T(IOEP)A 8H(2A) | T(IOEP)A 8H(3) | T(IOEP)A 9(1) | T(IOEP)A 10(1)(a)(i) | T(IOEP)A 12AA | T(IOEP)A 12AB | T(IOEP)A 12AC | ANTS(GST)A 31-20 | ITAA 1936 6(1) | ITAA 1936 former 204(3) | ITAA 1936 100(2) | ITAA 1936 102AAM | ITAA 1936 former 163A | ITAA 1936 former 163AA | ITAA 1936 former 163B | ITAA 1936 former 170AA | ITAA 1936 former 204(3) | ITAA 1997 5-15 | ITAA 1997 15-35 | ITAA 1997 Div 67 | ITAA 1997 repealed 292-425 | ITAA 1997 Div 293 | ITAA 1997 Subdiv 295-J | ITAA 1997 295-170 | ITAA 1997 307-135 | ITAA 1997 Div 770 | ITAA 1997 995-1 | ITAA 1997 995-1(1) | TAA 8AAD | TAA 8AAG | TAA Pt IIB | TAA Pt IIB Div 3 | TAA Pt IIB Div 3A | TAA 8AAZA | TAA 8AAZC | TAA 8AAZLF | TAA 8AAZLF(1) | TAA 8AAZLF(2) | TAA 8AAZLG | TAA 8AAZLGB | TAA 8AAZLH(3) | TAA Pt IVC | TAA Sch 1 12-245 | TAA Sch 1 Subdiv 16-A | TAA Sch 1 16-80 | TAA Sch 1 18-125 | TAA Sch 1 18-130 | TAA Sch 1 repealed 96-10 | TAA Sch 1 Subdiv 105-D | TAA Sch 1 131-15 | TAA Sch 1 131-65 | TAA Sch 1 131-70 | TAA Sch 1 155-15 | TAA Sch 1 155-40 | TAA Sch 1 263-A | TAA Sch 1 Div 280 | TAA Sch 1 280-160 | TAA Sch 1 Pt 4-25 | TAA Sch 1 388-50 | Australian Apprenticeship Support Loans Act 2014 Pt 3.3 | Private Health Insurance Act 2007 282-18 | Private Health Insurance Act 2007 282-18(4) | HESA 137-1 | HESA 140-25 | HESA 154-D | HESA 154-1 | Retirement Savings Accounts Act 1997 133 | Student Assistance Act 1973 12ZN | Superannuation Contributions Tax (Assessment and Collection) Act 1997 | Superannuation Contributions Tax (Members of Constitutionally Protected Superannuation Funds) Assessment and Collection Act 1997 | Superannuation (Government Co-Contribution for Low Income Earners) Act 2003 Pt 2 | Superannuation (Government Co-Contribution for Low Income Earners) Act 2003 12 | Superannuation (Government Co-Contribution for Low Income Earners) Act 2003 Pt 5 | Superannuation (Government Co-Contribution for Low Income Earners) Act 2003 21 | Superannuation (Government Co-Contribution for Low Income Earners) Act 2003 22 | Superannuation (Government Co-Contribution for Low Income Earners) Regulations 2004 7 | Superannuation Industry (Supervision) Act 1993 299C | Superannuation (Unclaimed Money and Lost Members) Act 1999 17(2AB) | Superannuation (Unclaimed Money and Lost Members) Act 1999 17(2AC) | Superannuation (Unclaimed Money and Lost Members) Act 1999 20H(2AA) | Superannuation (Unclaimed Money and Lost Members) Act 1999 24G(3A) | Superannuation (Unclaimed Money and Lost Members) Act 1999 24G(3B),,,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS201123/NAT/ATO/00001,"Updated in line with current ATO style and accessibility requirements. | Revised explanation of practice statement. | Revised explanation of how IOP is calculated to the nearest cent. | Revised definition of income tax crediting amount, ordinary taxpayers, relevant tax | Insertion of paragraph to explain rationale of credit interest regime. | Insertion of paragraph to explain discretion to pay or not to pay a credit interest entitlement. | Insertion of paragraph to reflect that for eligible payments made since 1 July 2021, IEP is automatically calculated and paid out. Former paragraph 16 removed as a result. | Insertion of paragraph to reflect that eligible payments made before 1 July 2021 require that the taxpayer or their agent must send a written request to us or alternatively can be calculated and claimed via their next tax return. | Paragraph 22 (former paragraph 18) | Removed ATO requirement to provide written details to a taxpayer when IEP has been paid. | Paragraph 23 (former paragraph 19) | Insertion of paragraph to reflect that for an overlap of IEP and IOP under Part IIB, IIC, IIE, IIF, and IIG, the taxpayer is entitled to receive both the IEP and IOP. | Paragraph 24 - 'Table 2: Types of overpayments', Paragraph 52 and 53 (former paragraphs 20, 42, 43) | Removed reference to Part IID and Termination Payments Tax (Assessment and Collection) Act 1997- repealed in Treasury Laws Amendment (2018 Measures No. 1) Act 2018. Introduced table name. | Paragraph 26 (former paragraph 21) | Revised explanation to which tax Part IIB applies to. | Insertion of further explanation to which situation where Part IIB interest applies to. | Insertion of paragraph to explain that Part IIB is not payable when the income tax return had been lodged fraudulently by an unauthorised third party. | Paragraph 29 (former paragraph 22) | Revised explanation of entitlement under subsection 8E(1). Added 'notice crediting' to heading above this paragraph. | Paragraph 31 (former paragraph 24) | Revised explanation of entitlement under subsection 8E(2). Added 'ordinary taxpayers - post-notice crediting' heading above this paragraph. | Paragraph 33 (former paragraph 25) | Insertion of text to explain this applies under section 8F. Inserted table name. Further revised content of the table to explain time of credit is not reliant on 'original' assessment. Added heading above this paragraph 'ordinary taxpayers - calculation of interest'. | Paragraph 37 (former paragraph 29) | Revised explanation of entitlement under subsection 8G(1). Amended heading above this paragraph to include 'first crediting'. | Paragraph 38 (former paragraph 30 and 31) | Revised explanation of 8G(1)(e) and 8G(1)(f) further. | Paragraph 39 (former paragraph 29) | Interest calculation for 8G(1) was made into its own paragraph. | Paragraph 40 (former paragraph 31) | Revised explanation of entitlement under 8G(2). Added heading above this paragraph 'full self-assessment taxpayers - later crediting'. | Paragraphs 41-43 (former paragraphs 33-35) | Revised explanation of calculation of interest. Added heading for paragraph 40 'full self-assessment taxpayers - calculation of interest'. | Paragraph 45 (former paragraph 36) | Revised explanation of 'first crediting'. | Insertion of paragraph to explain 'credits' as it relates to the date of the first crediting or later crediting. | Paragraph 49 (former paragraph 39) | Amended the phrase 'effective date' to 'process date'. Revised explanation further. | Paragraph 57 (former paragraph 47) | Revised explanation of IOP payable under subsection 9(1). | Paragraph 58 (former paragraph 47) | Insertion of paragraph to explain what occurs when overpayments arise from an amended assessment. Removed decisions relation to Part IVC objection. | Insertion of paragraph to explain that 'relevant tax' for the purposes of Part III includes a credit assessment that has been made by the taxpayer and that credit assessment is subsequently amended to reduce the taxpayer's liability to tax. | Paragraph 65 (former paragraph 52) | Revised explanation of IOP end dates, when it is a result of an amended assessment. | Added explanation of subparagraph 10(1)(a)(i) for when the income tax assessment for a particular year has been amended multiple times. | Removed explanation where there is both a partial offset and an income tax crediting refund. | Heading of paragraph 68 (former paragraph 55) | Removed 'credits' as they were removed from Part IIIA - repealed in Treasury Laws Amendment (2018 Measures No. 4) Act 2019. | Removed 'authorised tax representative acting on the taxpayer's behalf'. | Paragraph 68 (former paragraph 55) | Removed reference to 'former section 163AA of the ITAA1936' from paragraph. | Paragraph 98 (former paragraph 85) | Removed reference to 'former sections 96-55 of Schedule 1 to the TAA and section 202-425 of the ITAA 1997'. | Paragraph 6 – 'Terms Used' | Under 'Relevant tax' section, reference to 'Trade Support Loans Act 2014' changed to 'Australian Apprenticeship Support Loans Act 2014'. | Reference to 'Trade Support Loan' changed to 'Australian Apprenticeship Support Loan'. | Corrected error in footnote 15 - changed 'Individual Education Plan' to 'IEP'. | Minor wording changes to better reflect the wording of the T(IOEP)A. | • Removal of, or changes to headings for sections dealing with excess superannuation contributions, including updated legislative references. • Removal of FHSA Act sections – repealed by the Tax and Superannuation Laws Amendment (2015 Measures No.1) Act 2015. • Corresponding changes to page numbers. | Additional footnotes throughout to reflect content changes, including relevant repeals and additions to 'Terms Used' section. | • Section 96-55 reference updated to section 131-70, with corresponding changes to content to better reflect content of provision. • Removal of section 292-45 content - repealed by the Tax Laws Amendment (Fairer Taxation of Excess Concessional Contributions) Act 2013. • Removal of FHSA Act sections – repealed by the Tax and Superannuation Laws Amendment (2015 Measures No. 1) Act 2015. • Removal of section 20H(2B) - the section does not provide for payment of interest. | • FBT dot point revised to request made by employer rather than taxpayer to reduce ambiguity • deletion of MRRT - repealed by the Minerals Resource Rent Tax Repeal and Other Measures Act 2014. | 'Notification required for the refund'- added. | 'RBA interest day' inserted, with inclusion of the words '8AAZLGB (as the case requires)', consistent with the T(IOEP)A. | • clarified interest under former section 170AA of the ITAA 1936 to refer to GIC • deletion of MRRT from list of relevant taxes-repealed • addition of other tax types to more comprehensively reflect the T(IOEP)A. | Change from '...where a taxpayer makes a payment' to '...where a taxpayer makes a payment (or part payment)'. | • Removal of redundant references to 'HECS assessment debt'. HECS was absorbed into HELP in 2005 reforms legislated by the HESA. The T(IOEP)A refers to 'compulsory repayment amount' which captures all HELP debt types. • Removal of SFSS assessment debt to reflect legislation (insert FS Assessment debt). • Insert HELP; VETSL; SSL; ABSTUDY SSL; TSL: FS assessment debt to reflect the HESA. • Amended reference to subsections 163A, 163B and 170AA to reflect they have been repealed. | Addition of text reflecting requirement for early payment more than 14 days before the due date to be eligible for IEP- added for clarity for staff performing IEP calculations. | Clarification of wording reflecting requirement for early payment more than 14 days before the due date to be eligible for IEP added for clarity for staff performing IEP calculations. | • Removal of redundant references to 'HECS assessment debt'. HECS was absorbed into HELP in 2005 reforms legislated by the HESA. The T(IOEP)A refers to 'compulsory repayment amount' which captures all HELP debt types. • Removal of SFSS assessment debt to reflect legislation (insert FS Assessment debt). • Insert HELP; VETSL; SSL; ABSTUDY SSL; TSL: FS assessment debt to reflect the HESA. • Clarification of wording in section 282-18 of the Private Health Insurance Act 2007, and section 102AAM of the ITAA 1936. | Removal of SFSS assessment debt to reflect legislation (insert FS Assessment debt). | Insert HELP; VETSL; SSL; ABSTUDY SSL; TSL: FS assessment debt to reflect the HESA. | Clarify section 282-18 to reflect legislation required notification of NOA. | Clarification of section 102AAM to remove 'post' preceding 'notice crediting'. | Insert 'Notice of' before 'assessment to clarify type of assessment for section 8F(2) of the T(IOEP)A. | Footnote to heading for Part IID IOP to reflect repeal by the Treasury Laws Amendment (2018 Measures No. 1) Act. | • Addition of 'section 133 of the Retirement Savings Accounts Act or' in second dot point for consistency with the T(IOEP)A. • Removal of section 299C in third dot point for readability. | Update from 'GIC under former sub section 204(3)' to 'section 163AA of the ITAA 1936 or section 5-15 of the ITAA 1997'. | Additional of 'or PRRT amount' consistent with wording in Part IIIA of the T(IOEP)A. | Addition of '8AAZLGB (as the case requires)', consistent with wording in the T(IOEP)A. | Clarification of wording relating to period for which interest is payable. | Addition of, or changes to content reflecting interest entitlements under sections 12, 21 and 22 of the Co-contributions Act, including separation of content in relation to situations where the Commissioner pays none of the co-contribution vs underpaying an amount, or administrative errors. | Remove section 292-425 content to reflect repeal of legislation in the Tax Laws Amendment (Fairer Taxation of Excess Concessional Contributions) Act 2013. | Paragraphs 82 (former paragraph 84) to 84 | • Updates to various legislative references from sections 96 to 131. • Change to heading to refer to 'late payments of money received by the Commissioner in accordance with release authority', consistent with section 131-70 heading and content. • Change to content to capture (in addition to excess concessional contributions determinations), other payments subject to release authorities. • Clarification of timing of determinations. | Paragraph 85 (former paragraph 87) | Updated current reference to section 131-70, and addition of 'former' preceding repealed sections 96-55 of Schedule 1 to the TAA and section 292-425 of the ITAA 1997. | Removal of FHSA content to reflect repeal of legislation in the Tax and Superannuation Laws Amendment (2015 Measures No. 1) Act 2015. | Revised content and formatting to meet ATO Style guide requirements and to improve readability, for example, moved text, added headings. | Diagram included to assist in explaining the RBA interest day in the circumstance where RBA surplus arises prior to when notification is given. | • excess concessional contributions under section 96-55 of Schedule 1 to the TAA • refunded excess concessional contributions under section 292-425 of the ITAA 1997. | New information on the entitlement to interest under the First Home Savers Accounts Act 2008. | Paragraph 42 (including footnote 15) | Example updated to reflect repealed legislation (Part VII of the ITAA 1936) and refer to section 154-1 of the Higher Education Support Act 2003. Footnote 15 omitted. | [1] Refer to the decision in Consolidated Fertilizers Ltd v Deputy Commissioner of Taxation [1992] FCA 312. | [2] Part IIIB of the T(IOEP)A. | [3] Interest was previously also payable under section 292-425 of the Income Tax Assessment Act 1997 (ITAA 1997), which relates to refunded excess concessional contributions for the financial years commencing 1 July 2011 and 1 July 2012 (repealed by the Tax Laws Amendment (Fairer Taxation of Excess Concessional Contributions) Act 2013 ) and sections 44 and 48 of the First Home Savers Accounts Act 2008 (repealed by the Tax and Superannuation Laws Amendment (2015 Measures No.1) Act 2015 ). | [4] For excess contribution determinations issued between 1 July 2013 and 30 June 2018, section 96-10 of Schedule 1 to the TAA (now repealed) applies. | [5] The provisions are not discussed further in this Practice Statement. | [6] In relation to assessments for the 1993–94 and later income years in respect to decisions made after 1 July 1994. | [7] Mineral resource rent tax (MRRT) was repealed on 30 September 2014 by the Minerals Resource Rent Tax Repeal and Other Measures Act 2014 . The effect of this is that only petroleum rent resource amounts attract interest from 30 September 2014. However, interest may be payable on MRRT amounts prior to 30 September 2014. | [8] See the explanation of the term 'Notification required for the refund' in paragraph 7 of this Practice Statement. | [9] This subsection gives us the discretion to direct that certain refunds be paid in a different way. | [10] See the definitions for 'tax', 'income tax' and 'withholding tax' in subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997. | [11] See footnote 7 of this Practice Statement. | [12] In relation to a liability pertaining to 1993–94 and later years where the payment occurs after 1 July 1994. | [13] 'Credits' were removed from Part IIIA effective 1 April 2019 following the repeal of inoperative provisions of sections 163A and B of the ITAA 1936 in the Treasury Laws Amendment (2018 Measures No. 4) Act 2019 . | [14] In relation to RBAs established from 1 July 2000. | [15] Law Administration Practice Statement PS LA 2006/8 Remission of shortfall interest charge and general interest charge for shortfall periods discusses the relationship between the payment of IEP and remission of SICs for early payment of shortfall amounts. | [16] Accumulated HELP debt is calculated with reference to section 140-25 of the HESA. Section 137-1 of the HESA, includes HECS-HELP, FEE-HELP, OS-HELP, SA-HELP, VET FEE-HELP and pre-July 2019 VSL debts. | [17] This refers to Student Financial Supplement Scheme debt, under subsection 19AB(2) of the Social Security Act 1991 , or the Student Assistance Act 1973 , as in force at a time on or after 1 July 1998. | [18] See footnote 14 of this Practice Statement. | [19] Former section 170AA of the ITAA 1936 repealed as inoperative by the Tax Laws Amendment (Repeal of Inoperative Provisions) Act 2006 . | [20] In relation to assessments for 1993-94 and later years where the crediting takes place on or after 1 July 1994. | [21] This includes where a taxpayer lodged the return after the payment due date for the assessed tax. | [22] Refer to paragraph 7 of this Practice Statement for an explanation of the terms used in this section. | [23] Refer to Charara v Commissioner of Taxation [2009] NSWSC 730. | [24] Table items 145 and 155 in section 3C. | [25] 'Credits' were removed from Part IIIA effective 1 April 2019 following the repeal of inoperative provisions of sections 163A and B of the ITAA 1936 in the Treasury Laws Amendment (2018 Measures No. 4) Act 2019 . | [26] In relation to RBAs established from 1 July 2000. | [27] An inaccurate notification would be one where the credit entitlement claimed in the BAS lodgment does not substantially match their actual entitlement that is ultimately refunded. | [28] Further or fuller GST return is described in section 31-20 of the A New Tax System (Goods and Services Tax) Act 1999 . The approved form for a further or fuller GST return may require information to be provided relating to the tax period to which the return relates, one or more preceding tax periods or both. | [29] See the explanation of the term 'Notification required for the refund' in paragraph 7 of this Practice Statement. | [30] This subsection gives us the discretion to direct that certain refunds be paid in a different way. | [31] Subsequent to 1 July 2012, this is a deemed assessment and deemed notice of assessment. See sections 155-15 and 155-40 of Schedule 1 to the TAA. | [32] Section 388-50 of Schedule 1 to the TAA. | [33] An inaccurate notification would be one where the credit entitlement claimed in the BAS lodgment does not substantially match the actual entitlement that is ultimately refunded. | [34] See the explanation of the term 'Notification required for the refund' in paragraph 7 of this Practice Statement. | [35] See the explanation of the term 'Notification required for the refund' in paragraph 7 of this Practice Statement. | [36] Section 15-35 of the ITAA 1997. | [37] Section 12 of the Co-contributions Act. | [38] Section 21 of the Co-contributions Act. | [39] Section 22 of the Co-contributions Act. | [40] The method for identifying the payment date is contained in section 8 of the Superannuation (Government Co-contribution for Low Income Earners) Regulations 2022 . | [41] For excess concessional and non-concessional contributions commencing 1 July 2013 to 30 June 2018, section 96-10 of Schedule 1 to the TAA (now repealed) applies. For refunded excess concessional contributions commencing 1 July 2011 to 29 June 2013, section 292-425 of the ITAA 1997 (now repealed) applies. | Charara v Commissioner of Taxation [2009] NSWSC 730 (2009) 74 ATR 1 | Consolidated Fertilizers Ltd v Deputy Commissioner of Taxation [1992] FCA 312 36 FCR 1 (1992) 92 ATC 4260 23 ATR 305 107 ALR 456"
PS LA 2011/25,Reconstructing records and making reasonable estimates for taxpayers affected by a disaster,9 June 2011,9 June 2011,Law Administration Practice Statement,False,"1. What this Practice Statement is about: When a taxpayer's original records have been destroyed by a natural disaster, we can assist them or their nominated representative to reconstruct their records. This Practice Statement is to guide you through that process. In particular, it is to provide guidelines for: • reconstructing records to lodge returns • making reasonable estimates to enable the lodgment of returns for - income tax - fringe benefits tax (FBT) - superannuation guarantee - goods and services tax (GST) - other documents required by a taxation law, and • issuing a default assessment (if neither of the earlier listed options is possible). • reconstructing records to lodge returns • making reasonable estimates to enable the lodgment of returns for - income tax - fringe benefits tax (FBT) - superannuation guarantee - goods and services tax (GST) - other documents required by a taxation law, and • issuing a default assessment (if neither of the earlier listed options is possible). - income tax - fringe benefits tax (FBT) - superannuation guarantee - goods and services tax (GST) - other documents required by a taxation law, and This Practice Statement sets out a range of other matters you will need to consider when assisting a taxpayer, including: • establishing proof of their identity (section 3 of this Practice Statement) • reconstructing documents for non-business individuals (section 4 of this Practice Statement) • reconstructing documents for businesses (section 5 of this Practice Statement) • default assessments (section 8 of this Practice Statement) • substantiation requirements for various taxes (section 9 of this Practice Statement) • false and misleading statements (section 10 of this Practice Statement) • penalties and interest charges (section 11 of this Practice Statement). • establishing proof of their identity (section 3 of this Practice Statement) • reconstructing documents for non-business individuals (section 4 of this Practice Statement) • reconstructing documents for businesses (section 5 of this Practice Statement) • default assessments (section 8 of this Practice Statement) • substantiation requirements for various taxes (section 9 of this Practice Statement) • false and misleading statements (section 10 of this Practice Statement) • penalties and interest charges (section 11 of this Practice Statement). What a 'disaster' means A 'disaster' is: • a natural disaster causing localised or widespread destruction, such as a flood, a bushfire or any other such extreme weather event • a personal disaster, such as a house or business fire or any other such event. • a natural disaster causing localised or widespread destruction, such as a flood, a bushfire or any other such extreme weather event • a personal disaster, such as a house or business fire or any other such event. | 2. General policy on disaster-affected taxpayers: In general, when a taxpayer has a 'disaster-affected' indicator on a case, we will not impose penalties for: • failure to maintain records • failure to lodge documents or returns on time • failure to withhold (section 11 of this Practice Statement). • failure to maintain records • failure to lodge documents or returns on time • failure to withhold (section 11 of this Practice Statement). Processing disaster-affected returns and refunds If you receive documents and returns that follow this Practice Statement, clearly note 'disaster-affected' in the description field on the associated Siebel work item. Any lodgment or refund that has been marked 'disaster-affected' will be fast-tracked for immediate processing. | 3. Establishing proof of identity: Before you can discuss the tax affairs of a taxpayer, you will need to confirm their identity by following the guidelines for establishing proof of identity set out in Chief Executive Instruction Identity management (link available internally only). When working in the community, you can phone the Emergency Support line on 1800 806 218 to confirm the taxpayer's identity. | 4. Assisting taxpayers who are not in business with their tax return: You can assist the taxpayer to lodge their current year tax return by using: • pre-fill information from myTax • information from the taxpayer's employer, or • if these options are not available, net salary amounts on the taxpayer's bank statements, which need to be grossed-up to an annual amount and have the withholding calculated. • pre-fill information from myTax • information from the taxpayer's employer, or • if these options are not available, net salary amounts on the taxpayer's bank statements, which need to be grossed-up to an annual amount and have the withholding calculated. If the requisite information cannot be obtained, consider whether the taxpayer can make a reasonable estimate of their taxable income. Lodging the tax return based on a reasonable estimate of a taxpayer's taxable income The taxpayer may be able to lodge their current year tax return based on a signed statement by them setting out a reasonable estimate of their taxable income in a Reasonable estimate for documents destroyed by disaster form (NAT 72981). Only one signed statement is necessary from a taxpayer to cover all lodgments made using that reasonable estimate. Assisting in making a reasonable estimate of a non-business taxpayer's taxable income At the taxpayer's request, you can assist them to make a reasonable estimate of their taxable income by: • accessing previous year income data and asking the taxpayer if this is a reasonable estimate of their current year income and deductions • contacting third parties who are able to supply information and documents (the taxpayer should approach third parties in the first instance to obtain the information and documents) • taking into account if the taxpayer is eligible to receive insurance payouts for destroyed assets • taking into account if the taxpayer is eligible to receive assessable income protection insurance payouts • taking into account whether the taxpayer is eligible for rebates and other entitlements • ensuring pay as you go (PAYG) withholding tax credits claimed by the taxpayer match employer records on the assumption those records are correct, unless there are reasonable grounds to believe otherwise • using the appropriate tax rates and tables available on our website or app to work out their PAYG withholding tax credits if the employer records have also been destroyed. • accessing previous year income data and asking the taxpayer if this is a reasonable estimate of their current year income and deductions • contacting third parties who are able to supply information and documents (the taxpayer should approach third parties in the first instance to obtain the information and documents) • taking into account if the taxpayer is eligible to receive insurance payouts for destroyed assets • taking into account if the taxpayer is eligible to receive assessable income protection insurance payouts • taking into account whether the taxpayer is eligible for rebates and other entitlements • ensuring pay as you go (PAYG) withholding tax credits claimed by the taxpayer match employer records on the assumption those records are correct, unless there are reasonable grounds to believe otherwise • using the appropriate tax rates and tables available on our website or app to work out their PAYG withholding tax credits if the employer records have also been destroyed. | 5. Assisting taxpayers who are in business to lodge a tax return: You can assist the taxpayer to lodge their current year tax return by: • using data from business activity statements (BAS) that have been lodged to construct the tax return • attempting to reconstruct the taxpayer's records to determine the net amounts owed for each period of lodgment where BAS have not been lodged. • using data from business activity statements (BAS) that have been lodged to construct the tax return • attempting to reconstruct the taxpayer's records to determine the net amounts owed for each period of lodgment where BAS have not been lodged. You can manually input the information relating to BAS into our systems, which will then be used to complete their tax return. If all the requisite information cannot be obtained to enable their current tax return to be lodged, you need to consider whether the taxpayer is able to make a reasonable estimate of their taxable income. Assisting in making a reasonable estimate of a business taxpayer's taxable income At the taxpayer's request, you can assist in making a reasonable estimate of their taxable income by: • using data from BAS that have been lodged to construct their tax return • using data available in both tax returns and BAS from the previous 3 income years where there is no current BAS or only partial-year BAS available • using data available in their tax returns and BAS to make a trend-based estimate of the current income year's income and deductions, unless there are circumstances where this may not be appropriate, such as - our statistics as published on our website will be applied as part of the process when averaging data - any estimate of this kind must take into consideration identified annual downturn in business • consulting with the taxpayer to determine if it is reasonable to base their tax returns and BAS on previous years' returns and statements for the same period. In this situation, no uplift factor should be applied. For example, if a credit was issued for the same period last year, we would generally issue a refund for the same amount. • using data from BAS that have been lodged to construct their tax return • using data available in both tax returns and BAS from the previous 3 income years where there is no current BAS or only partial-year BAS available • using data available in their tax returns and BAS to make a trend-based estimate of the current income year's income and deductions, unless there are circumstances where this may not be appropriate, such as - our statistics as published on our website will be applied as part of the process when averaging data - any estimate of this kind must take into consideration identified annual downturn in business • consulting with the taxpayer to determine if it is reasonable to base their tax returns and BAS on previous years' returns and statements for the same period. In this situation, no uplift factor should be applied. For example, if a credit was issued for the same period last year, we would generally issue a refund for the same amount. - our statistics as published on our website will be applied as part of the process when averaging data - any estimate of this kind must take into consideration identified annual downturn in business Lodging the tax return based on a reasonable estimate of a taxpayer's taxable income The taxpayer may be able to lodge their current year tax return based on a signed statement by them setting out a reasonable estimate of their taxable income in a Reasonable estimate for documents destroyed by disaster form (NAT 72981). Only one signed statement is necessary from a taxpayer to cover all lodgments made using that reasonable estimate. If the requisite information cannot be obtained, consider whether the taxpayer can make a reasonable estimate of their taxable income. You may also need to consider: • whether there are third parties who are able to supply information and documents (the taxpayer should approach third parties in the first instance to obtain the information and documents) • whether Australian Transaction Reports and Analysis Centre transaction reports are available to assist in reconstructing purchase and sales records for businesses (you should not pass on this information to the taxpayer) • if the taxpayer received insurance payouts for destroyed assets • if the taxpayer has any PAYG withholding instalment obligations which may need to be varied • what rebates and other entitlements the taxpayer was eligible for previously and will continue to be eligible for. • whether there are third parties who are able to supply information and documents (the taxpayer should approach third parties in the first instance to obtain the information and documents) • whether Australian Transaction Reports and Analysis Centre transaction reports are available to assist in reconstructing purchase and sales records for businesses (you should not pass on this information to the taxpayer) • if the taxpayer received insurance payouts for destroyed assets • if the taxpayer has any PAYG withholding instalment obligations which may need to be varied • what rebates and other entitlements the taxpayer was eligible for previously and will continue to be eligible for. | 6. Assisting taxpayers who are in business to lodge their business activity statement: The taxpayer may be able to lodge a BAS using a signed statement by them setting out a reasonable estimate of their GST. If the requisite tax invoices cannot be obtained or reconstructed to enable input tax credits to be attributed to the relevant periods, consider an assessment for a net amount under section 155-5 of Schedule 1 to the Taxation Administration Act 1953 (TAA). | 7. Assisting taxpayers who are in business with other tax obligations: PAYG withholding Refer to Law Administration Practice Statement PS LA 2011/18 Enforcement measures used for the collection and recovery of tax-related liabilities and other amounts when establishing a reasonable estimate of PAYG withholding where business records have been destroyed. Once you have made a reasonable estimate, you will need to provide this information to the taxpayer's employees for use in their individual tax returns. If records have been destroyed, lodgment of PAYG withholding annual reports and the issuing of payment summaries will not be required. Superannuation You should ensure that any superannuation liability is correctly raised and reported. If required, there can be a default assessment of superannuation guarantee shortfall and of the superannuation guarantee charge payable on the shortfall under section 36 of the Superannuation Guarantee (Administration) Act 1992. Fringe benefits tax You may also need to consider any FBT obligations. If required, you can make a default assessment of the FBT amount and the amount of FBT payable under section 73 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA). | 8. Default assessments: Where records have been lost or destroyed as a result of disaster and cannot be reconstructed, you can make an assessment or an estimate under various provisions of the taxation laws: • income tax - section 167 of the Income Tax Assessment Act 1936 • FBT - section 73 of the FBTAA • superannuation guarantee charge - section 36 of the Superannuation Guarantee (Administration) Act 1992 • GST or fuel tax net amount for a tax period - section 105-5 of Schedule 1 to the TAA applies for tax periods starting before 1 July 2012; for tax periods starting on or after 1 July 2012, section 155-5 of Schedule 1 to the TAA applies • PAYGW amounts - section 268-10 of Schedule 1 to the TAA. • income tax - section 167 of the Income Tax Assessment Act 1936 • FBT - section 73 of the FBTAA • superannuation guarantee charge - section 36 of the Superannuation Guarantee (Administration) Act 1992 • GST or fuel tax net amount for a tax period - section 105-5 of Schedule 1 to the TAA applies for tax periods starting before 1 July 2012; for tax periods starting on or after 1 July 2012, section 155-5 of Schedule 1 to the TAA applies • PAYGW amounts - section 268-10 of Schedule 1 to the TAA. You may make an assessment on any basis that is reasonable in light of the information available in the particular circumstances. This includes the use of third-party information, indirect audit methods, statistical information or extrapolation from previous years' returns. You will also need to refer to Law Administration Practice Statement PS LA 2007/24 Making default assessments: section 167 of the Income Tax Assessment Act 1936. | 9. Substantiation requirements: Substantiation provisions in various taxation Acts may prevent a taxpayer from claiming losses or outgoings unless they can provide documentary support. Where records have been lost as a result of disaster, the provisions discussed in this Practice Statement may relieve the taxpayer of having to substantiate reconstructed records. Income tax - section 900-205 of the Income Tax Assessment Act 1997 Division 900 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out particular substantiation requirements for: • work expenses • car expenses, and • business travel expenses. • work expenses • car expenses, and • business travel expenses. It requires that taxpayers be able to show how they reasonably arrived at a claim for any other expense. Under section 900-205 of the ITAA 1997, a taxpayer may be relieved of these obligations if they have the following, as these may be treated as the original document: • a complete copy of the original document, or • a substitute of the original document that sets out all the required information. • a complete copy of the original document, or • a substitute of the original document that sets out all the required information. Alternatively, if the taxpayer does not have a complete copy or suitable substitute document, they may still be relieved of the necessity to substantiate if: • you are satisfied that they took reasonable precautions to prevent the loss or destruction, and • it was not reasonably possible for the taxpayer to get a substitute document. • you are satisfied that they took reasonable precautions to prevent the loss or destruction, and • it was not reasonably possible for the taxpayer to get a substitute document. For more information, see: • Law Administration Practice Statement PS LA 2005/7 Substantiating an individual's work-related expenses, which sets out the substantiation requirements in more detail, and • Taxation Ruling TR 97/24 Income tax: relief from the effects from failing to substantiate. • Law Administration Practice Statement PS LA 2005/7 Substantiating an individual's work-related expenses, which sets out the substantiation requirements in more detail, and • Taxation Ruling TR 97/24 Income tax: relief from the effects from failing to substantiate. GST - subsection 29-70(1B) of the A New Tax System (Goods and Services Tax) Act 1999 If you can reasonably conclude from a document that there is a creditable acquisition, you may apply the discretion. For detailed information, see: • Goods and Services Tax Ruling GSTR 2013/1 Goods and services tax: tax invoices • Law Administration Practice Statement PS LA 2004/11 Treating a document as a tax invoice or adjustment note. • Goods and Services Tax Ruling GSTR 2013/1 Goods and services tax: tax invoices • Law Administration Practice Statement PS LA 2004/11 Treating a document as a tax invoice or adjustment note. If there is no document to establish the creditable acquisition, consider whether you can make an assessment under section 105-5 of Schedule 1 to the TAA or, for a tax period starting on or after 1 July 2012, under section 155-5 of Schedule 1 to the TAA. Fringe benefits tax - subsections 123(5) and (6) of the Fringe Benefits Tax Assessment Act 1986 If FBT documents have been lost, refer to subsections 123(5) and (6) and section 123B of the FBTAA for exceptions to the substantiation requirements. | 10. False or misleading information: The lodgment will be subject to normal compliance activities if information received suggests that a taxpayer: • has made false or misleading information in a lodgment, or • lodged with the intent to either - obtain a financial benefit they are not entitled to, or - commit fraud. • has made false or misleading information in a lodgment, or • lodged with the intent to either - obtain a financial benefit they are not entitled to, or - commit fraud. - obtain a financial benefit they are not entitled to, or - commit fraud. Ensure that the taxpayer is fully aware that the tax law imposes heavy penalties for providing false or misleading information. | 11. Penalties and interest charges: Penalties A penalty is not payable until the taxpayer is informed by written notice and provided with the reason the penalty was imposed. Refer to the following Practice Statements for details: • Law Administration Practice Statement PS LA 2011/19 Administration of the penalty for failure to lodge on time • Law Administration Practice Statement PS LA 2005/2 Penalty for failure to keep or retain records • Law Administration Practice Statement PS LA 2007/22 Remission of penalties for failure to withhold • Law Administration Practice Statement PS LA 2021/3 Remission of additional superannuation guarantee charge. • Law Administration Practice Statement PS LA 2011/19 Administration of the penalty for failure to lodge on time • Law Administration Practice Statement PS LA 2005/2 Penalty for failure to keep or retain records • Law Administration Practice Statement PS LA 2007/22 Remission of penalties for failure to withhold • Law Administration Practice Statement PS LA 2021/3 Remission of additional superannuation guarantee charge. Where a disaster-affected indicator is present on a case, do not impose penalty for: • failure to lodge taxation documents or returns on time • maintain records, or • failure to withhold. • failure to lodge taxation documents or returns on time • maintain records, or • failure to withhold. If penalties have been automatically imposed, refer to the other Practice Statements listed in this Practice Statement and consider whether the penalty should be remitted. Interest charges All or part of the general interest charge (GIC) imposed for late payment may be remitted under section 8AAG of the TAA. For guidance on when GIC may be remitted, refer to Law Administrative Practice Statement PS LA 2011/12 Remission of General Interest Charge. In most cases, GIC will be remitted for taxpayers who are affected by a disaster. However, administration and nominal interest components of GIC applied to superannuation guarantee charges will not be remitted.",PS LA 2011/18 | PS LA 2007/24 | PS LA 2005/7 | TR 97/24 | GSTR 2013/1 | PS LA 2004/11 | PS LA 2011/19 | PS LA 2005/2 | PS LA 2007/22 | PS LA 2021/3 | PS LA 2011/12 | PS LA 2011/28 | ITAA 1936 | ITAA 1936 167 | FBTAA 1986 | FBTAA 1986 73 | FBTAA 1986 123(5) | FBTAA 1986 123(6) | FBTAA 1986 123B | SGAA 1992 | SGAA 1992 36 | TAA 1953 | TAA 1953 8AAG | TAA 1953 Sch 1 155-5,PS LA 2004/11 PS LA 2005/2 PS LA 2005/7 PS LA 2007/22 PS LA 2007/24 PS LA 2011/12 PS LA 2011/18 PS LA 2011/19 PS LA 2011/28 PS LA 2021/3,ITAA 1936 | ITAA 1936 167 | FBTAA 1986 | FBTAA 1986 73 | FBTAA 1986 123(5) | FBTAA 1986 123(6) | FBTAA 1986 123B | SGAA 1992 | SGAA 1992 36 | TAA 1953 | TAA 1953 8AAG | TAA 1953 Sch 1 105-5 | TAA 1953 Sch 1 155-5,,Identity Management CEI (internal link only) Reasonable estimate for documents destroyed by disaster form,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS201125/NAT/ATO/00001,"Updated to ensure compliance with current ATO style and accessibility guidelines. | Wording updated for clarity. | Updated contact details, ato.gov.au page title, and CEI title. | Rewritten into new LAPS format and style. | General edit for clarity. | Change of template and reorganisation of content. | Edited references to legislative provisions for consistency. | Replaced PS LA 2006/1 with PS LA 2011/28. | Replaced PS CM 2008/2 with Identity Management CEI (internal only). | Additional text inserted. | Updated for clarification. | Remove reference to GSTR 2000/17 and replace with GSTR 2013/1. | Include reference to section 155 5 of Schedule 1 of TAA 1953. | Remove reference to TX160."
PS LA 2011/26,SUBJECT: Administration of penalties and interest charges in relation to the notional liabilities of the States PURPOSE: To provide guidance on the administrative aspects of Miscellaneous Taxation Ruling MT 2011/1,29 June 2011,29 June 2011,Law Administration Practice Statement,False,"1. The Commissioner's view on whether and how the uniform penalty regime in Part 4-25 of Schedule 1 to the Taxation Administration Act 1953 (TAA) and interest charges apply to the Commonwealth, States and Territories is contained in MT 2011/1. 2. For a period before the Commissioner's view was expressed in MT 2011/1, the Commissioner placed a moratorium on the application of penalties and interest charges in relation to net amounts [1] of State and Territory entities that share the immunities of the Crown. The moratorium ceases from the date of publication of this practice statement. 3. Before the moratorium, the Commissioner did not apply penalties on State and Territory entities that shared the immunity of the Crown. However, interest charges were applied in accordance with normal practice and policy. 4. In summary, the Commissioner's view in MT 2011/1 is: • The Crown in right of the Commonwealth and untaxable Commonwealth entities: [2] (i) can only have notional liabilities [3] (ii) cannot be liable to penalties in relation to its notional liabilities, and (iii) cannot be liable to interest charges due to the specific exemptions in subsection 8AAB(3) of the TAA (for the general interest charge (GIC) and subsection 280-103(2) of Schedule 1 to the TAA (for shortfall interest charge (SIC)). • The Crown in right of the States and State government bodies: (i) can have both legal and notional liabilities [4] (ii) can be liable to penalties and interest charges in relation to legal liabilities, and (iii) cannot be liable to penalties and interest charges in relation to notional liabilities. [5] • The Crown in right of the Australian Capital Territory (ACT) and Northern Territory (NT) and government bodies of the ACT and NT: (i) have and can have only legal liabilities, [6] and (ii) can be liable to penalties and interest charges in relation to legal liabilities. • The Crown in right of the Commonwealth and untaxable Commonwealth entities: [2] (i) can only have notional liabilities [3] (ii) cannot be liable to penalties in relation to its notional liabilities, and (iii) cannot be liable to interest charges due to the specific exemptions in subsection 8AAB(3) of the TAA (for the general interest charge (GIC) and subsection 280-103(2) of Schedule 1 to the TAA (for shortfall interest charge (SIC)). • The Crown in right of the States and State government bodies: (i) can have both legal and notional liabilities [4] (ii) can be liable to penalties and interest charges in relation to legal liabilities, and (iii) cannot be liable to penalties and interest charges in relation to notional liabilities. [5] • The Crown in right of the Australian Capital Territory (ACT) and Northern Territory (NT) and government bodies of the ACT and NT: (i) have and can have only legal liabilities, [6] and (ii) can be liable to penalties and interest charges in relation to legal liabilities. (i) can only have notional liabilities [3] (ii) cannot be liable to penalties in relation to its notional liabilities, and (iii) cannot be liable to interest charges due to the specific exemptions in subsection 8AAB(3) of the TAA (for the general interest charge (GIC) and subsection 280-103(2) of Schedule 1 to the TAA (for shortfall interest charge (SIC)). (i) can have both legal and notional liabilities [4] (ii) can be liable to penalties and interest charges in relation to legal liabilities, and (iii) cannot be liable to penalties and interest charges in relation to notional liabilities. [5] (i) have and can have only legal liabilities, [6] and (ii) can be liable to penalties and interest charges in relation to legal liabilities. 5. This practice statement applies: • to returns, activity statements or other documents in an approved form under a taxation law that are lodged on or after the date of issue of this practice statement, in relation to tax periods to which the views in MT 2011/1 apply. [7] • to amendments, revisions and voluntary disclosures that are made or lodged on or after the date of issue of this practice statement in respect of those returns, activity statements or other documents which relate to tax periods to which the views in MT 2011/1 apply. • to returns, activity statements or other documents in an approved form under a taxation law that are lodged on or after the date of issue of this practice statement, in relation to tax periods to which the views in MT 2011/1 apply. [7] • to amendments, revisions and voluntary disclosures that are made or lodged on or after the date of issue of this practice statement in respect of those returns, activity statements or other documents which relate to tax periods to which the views in MT 2011/1 apply. 6. This practice statement provides guidance on: (i) how the Commissioner will administer shortfall penalties in circumstances where the underlying liability of a State may be notional or legal, and (ii) how the Commissioner will administer the interest charges in those same circumstances. (i) how the Commissioner will administer shortfall penalties in circumstances where the underlying liability of a State may be notional or legal, and (ii) how the Commissioner will administer the interest charges in those same circumstances. 7. This practice statement does not apply to: • the NT, the ACT or their bodies because, apart from National Tax Equivalent Regime (NTER) liabilities, the liabilities of the NT and the ACT will always be legal liabilities [8] • government related entities that are not part of a State for the purposes of section 114 of the Constitution [9] because the liabilities of those entities are always legal liabilities • the Commonwealth or untaxable Commonwealth entities because all of the Commonwealth's liabilities are notional liabilities, [10] and • liabilities arising under the NTER because all NTER liabilities are notional liabilities. • the NT, the ACT or their bodies because, apart from National Tax Equivalent Regime (NTER) liabilities, the liabilities of the NT and the ACT will always be legal liabilities [8] • government related entities that are not part of a State for the purposes of section 114 of the Constitution [9] because the liabilities of those entities are always legal liabilities • the Commonwealth or untaxable Commonwealth entities because all of the Commonwealth's liabilities are notional liabilities, [10] and • liabilities arising under the NTER because all NTER liabilities are notional liabilities. 8. This practice statement does not address notional penalties and notional interest charges which may be payable by a State body pursuant to State law. 9. This practice statement does not address the remission practices for the penalty regime. The ATO remission practices for various sections of the penalty regime are set out in Law Administration Practice Statements including PS LA 2000/9, PS LA 2002/8, PS LA 2005/2, PS LA 2007/3, PS LA 2007/4, PS LA 2011/2, PS LA 2011/19 and PS LA 2012/5. 10. This practice statement does not address the remission practices for GIC imposed under section 8AAG of the TAA and SIC under section 280-160 of Schedule 1 to the TAA. The ATO policy on the remission of these interest charges is set out in PS LA 2006/8 and PS LA 2011/12. 11. In this practice statement, unless otherwise stated: • all legislative references are to Schedule 1 to the TAA • a reference to a 'State' is a reference to entities which form part of the State for the purpose of section 114 of the Constitution • 'legal liability' refers to a liability that arises under a 'taxation law' and is imposed under the relevant imposition Act • 'shortfall penalty' refers to the provisions in Part 4-25 of Schedule 1 to the TAA where a liability to a statement penalty arises where there is a shortfall amount. Penalties imposed where there is no shortfall amount are not within the scope of this practice statement [11] • 'notional liability', refers to any amounts that are the notional equivalent of tax that would have arisen under a taxation law and imposed under the relevant imposition Act, and • 'uniform penalty regime' refers to the scheme of uniform administrative penalties in Part 4-25 of Schedule 1 to the TAA. • all legislative references are to Schedule 1 to the TAA • a reference to a 'State' is a reference to entities which form part of the State for the purpose of section 114 of the Constitution • 'legal liability' refers to a liability that arises under a 'taxation law' and is imposed under the relevant imposition Act • 'shortfall penalty' refers to the provisions in Part 4-25 of Schedule 1 to the TAA where a liability to a statement penalty arises where there is a shortfall amount. Penalties imposed where there is no shortfall amount are not within the scope of this practice statement [11] • 'notional liability', refers to any amounts that are the notional equivalent of tax that would have arisen under a taxation law and imposed under the relevant imposition Act, and • 'uniform penalty regime' refers to the scheme of uniform administrative penalties in Part 4-25 of Schedule 1 to the TAA. 12. The shortfall penalty provisions apply in relation to the legal liabilities of a State. The shortfall penalty provisions cannot apply to a State to the extent that the underlying tax liability is a notional liability. [12] 13. Similarly, a State is liable to interest charges to the extent that its underlying tax liability is a legal liability and not to the extent that the underlying tax liability is a notional liability. 14. If there is a question whether a particular liability is notional to some extent, and the circumstances give rise to consideration of the shortfall penalty provisions and interest charges, the State may tell the Commissioner the amounts which it considers are the notional and the legal liabilities. This may occur at any time including at the time of lodgment or revision. 15. The Commissioner will consider any such information consistently with the general principles of self-assessment. So, if an entity states that it has determined that it is part of the State for the purposes of section 114 of the Constitution and that a specified amount is in respect of a notional liability, the Commissioner will ordinarily accept this statement. It would ordinarily not be necessary for the Commissioner to inquire further. 16. However, as for any other matter that is subject to self-assessment, the Commissioner may inquire further in relation to whether the entity is part of the State for the purposes of section 114 of the Constitution or whether a liability has been correctly determined to be a notional liability. The Commissioner will seek to resolve any such issue co-operatively with the State entity. 17. In considering whether a particular transaction is a 'tax on property' of a State for the purpose of section 114 of the Constitution, if the transaction does not clearly fall within a category of transactions identified one way or the other in MT 2011/1, [13] case officers must escalate the issue to the Interpretative Advice area within their business line for consideration and further escalation as required. | Shortfall penalty: 18. Taxpayers may be liable to a penalty for failing to satisfy certain obligations under different taxation laws for which the Commissioner has general administration. 19. More specifically, Division 284 provides for liability to penalty in certain situations where a taxpayer makes a statement which results in a 'shortfall amount'. The table in subsection 284-80(1) sets out the situations in which an entity has a 'shortfall amount'. For an entity to have a 'shortfall amount', subsection 284-80(1) requires the entity to have a tax-related liability. A 'tax-related liability' is defined in section 255-1 as: a pecuniary liability to the Commonwealth arising directly under a taxation law (including a liability the amount of which is not due and payable) 20. Section 114 of the Constitution prevents the Commonwealth from imposing tax on the property of a State. [14] However, a State entity may, under a State law or from other directions, pay to the Commissioner the notional equivalent of what would have been payable under a taxation law but for the operation of section 114 of the Constitution. This amount is a notional liability and is not a 'tax-related liability' for the purposes of section 255-1 of Schedule 1 to the TAA. 21. However, a State entity is legally liable to pay a liability that is assessed under a taxation law, and that is imposed under the relevant imposition Act because section 114 of the Constitution does not preclude its imposition. These liabilities are legal liabilities and are 'tax-related' liabilities for the purposes of section 255-1 of Schedule 1 to the TAA. Hence, a State entity can have both legal liabilities which are tax-related liabilities and notional liabilities which are not tax-related liabilities. 22. It follows that certain penalties under Division 284 cannot apply to any shortfall amount of a notional liability as it is not a 'tax-related liability'. A State entity is only liable to penalty on a shortfall amount relating to their legal liability. The penalty amount is determined in accordance with the relevant section in Division 284. | Interest charges: 23. The GIC and SIC are imposed automatically by operation of the law. [15] However, GIC and SIC only apply in respect of a legal liability of a State entity and not in respect of a notional liability. | Administrative practice: 24. To enable the Commissioner to efficiently administer the position outlined above, where shortfall penalty and interest charges may apply, the State entity may provide additional information advising: (a) the entity's status as part of the State for the purposes of section 114 of the Constitution, and (b) a statement detailing the legal and notional liabilities that make up the total liability for the relevant reporting period. (a) the entity's status as part of the State for the purposes of section 114 of the Constitution, and (b) a statement detailing the legal and notional liabilities that make up the total liability for the relevant reporting period. 25. This information should be provided in circumstances including, but not limited to: (a) an activity statement or return being revised (including self revision, request for revision lodged with the ATO, and revision as a result of compliance activity), or (b) the State entity failing to pay the tax liability as it falls due. (a) an activity statement or return being revised (including self revision, request for revision lodged with the ATO, and revision as a result of compliance activity), or (b) the State entity failing to pay the tax liability as it falls due. 26. The State entity may provide this information at any time, for example, when lodging an original or revised activity statement or return, lodging a revision request or when they are advised that interest charges have been applied. 27. The Commissioner will consider any such information consistently with the general principles of self-assessment. So, if an entity states that it has determined that it is part of the State for the purposes of section 114 of the Constitution and that a specified amount is in respect of a notional liability, the Commissioner will ordinarily accept this statement. It would ordinarily not be necessary for the Commissioner to inquire further. 28. If the State entity does not provide information as detailed in paragraph 25 of this practice statement, it is ordinarily reasonable for the Commissioner to conclude that the State entity has turned their mind to the nature of the tax liability and the State entity has determined that the entire amount reported for the period relates to a legal liability. 29. Similarly, where the State entity provides information in respect of a notional liability only, it is also ordinarily reasonable for the Commissioner to conclude that the State entity has turned their mind to the nature of the total tax liability and the State entity has determined that any remaining portion of the total liability remaining after the notional liability is deducted relates to legal liabilities. The Commissioner will apply the usual practices to determine the penalty amount and interest charges to those legal liabilities. 30. However in any of the circumstances covered in paragraphs 26 to 29 of this practice statement, as for any other matter which is the subject of self-assessment, the Commissioner may inquire further in relation to whether the entity is part of the State for the purposes of section 114 of the Constitution or a liability has been incorrectly determined to be a notional liability. The Commissioner will seek to resolve any such issue co-operatively with the entity. 31. Where both the Commissioner and the State entity are not able to accurately establish the amounts of the liabilities that are legal and notional respectively, the Commissioner may agree with the State entity on a reasonable estimate of the parts of the liabilities that are legal and notional liabilities. 32. In considering whether a particular transaction is a tax on property of a State for the purpose of section 114 of the Constitution, if the transaction does not clearly fall within a category of transactions identified one way or the other in MT 2011/1, [16] case officers must escalate the issue to the Interpretative Advice area within their business line for consideration and further escalation as required. | Example 1 - General interest charge applies to legal liability only: 33. On 15 September 2010, State entity A lodged an activity statement for the monthly tax period ended 31 August 2010 reporting an amount payable of $175,000. The amount payable consists of the following: GST payable on taxable supplies (legal liability) $ 80,000 GST payable on taxable supplies (notional liability) 120,000 Input tax credits ( 25,000) Amount payable $175,000 34. State entity A paid $175,000 on 25 November 2010. 35. As a monthly taxpayer, the amount payable for the tax period ended 31 August 2010 was due on 21 September 2010. As State entity A paid its net amount after the due date, it is liable to pay GIC but only to the extent of its legal liability. The GIC is payable on the amount of $55,000 which is the amount payable for the period excluding its notional liability. | Example 2 - Activity statement revised and net amount increased: 36. State entity B lodged an activity statement for the tax period ended 30 September 2010 reporting an amount payable of $70,000 which consists of the following: GST payable on taxable supplies (legal liability) $ 20,000 GST payable on taxable supplies (notional liability) 100,000 Input tax credits ( 50,000) Amount payable $ 70,000 37. Subsequently, State entity B revised its activity statement and increased the amount payable to $80,000 as follows: GST payable on taxable supplies (legal liability) $ 30,000 GST payable on taxable supplies (notional liability) 100,000 Input tax credits ( 50,000) Amount payable $ 80,000 38. State entity B may be liable to a penalty under section 284-75 and GIC. The amount of notional GST payable on taxable supplies is disregarded for the purposes of determining whether there is a shortfall amount. This is because a notional liability is not a tax-related liability which forms the basis for working out a shortfall amount under subsection 284-80(1). GST payable (legal liability) Input tax credit Net amount Original statement 20,000 50,000 (30,000) Revised amounts 30,000 50,000 (20,000) Shortfall amount 10,000 Example 3 - Activity statement revised and net amount increased but revision does not result in shortfall amount 39. State entity C lodged an activity statement for the tax period ended 30 June 2010 reporting an amount payable of $85,000 which consists of the following: GST payable on taxable supplies (legal liability) $65,000 GST payable on taxable supplies (notional liability) 50,000 Input tax credits ( 30,000) Amount payable $85,000 40. Subsequently, State entity C revised the activity statement and increased the amount payable to $95,000 as follows: GST payable on taxable supplies (legal liability) $35,000 GST payable on taxable supplies (notional liability) 80,000 Input tax credits ( 20,000) Amount payable $95,000 41. State entity C is not liable to a penalty under section 284-75(1) and GIC because it does not have a shortfall amount. This is because a notional liability is not a tax-related liability and the notional liability component is disregarded in determining whether there is a shortfall amount. GST payable (legal liability) Input tax credit Net amount Original statement 65,000 30,000 35,000 Revised amounts 35,000 20,000 15,000 Shortfall amount nil | Example 4 - Activity statement revised but revision is to notional liability only: 42. State entity D lodged an activity statement for the tax period ended 31 March 2010 reporting an amount payable of $225,000 which consists of the following: GST payable on taxable supplies (legal liability) $200,000 GST payable on taxable supplies (notional liability) 55,000 Input tax credits ( 30,000) Amount payable $225,000 43. Subsequently, State entity D revised the activity statement and increased the amount payable to $295,000 as follows: GST payable on taxable supplies (legal liability) $200,000 GST payable on taxable supplies (notional liability) 125,000 Input tax credits ( 30,000) Amount payable $295,000 44. State entity D is not liable to a penalty under section 284-75 because the amount of the revision relates to its notional liability only. | Example 5 - Activity statement revised but revision is to input tax credit only: 45. State entity E lodged an activity statement for the tax period ended 30 June 2010 reporting a net refund of $35,000 which consists of the following: GST payable on taxable supplies (legal liability) $ 10,000 GST payable on taxable supplies (notional liability) 55,000 Input tax credits ( 100,000) Amount payable ($ 35,000) 46. Subsequently, State entity E revised the activity statement and decreases its net refund to $5,000 as follows: GST payable on taxable supplies (legal liability) $ 10,000 GST payable on taxable supplies (notional liability) 55,000 Input tax credits ( 70,000) Amount payable ($ 5,000) 47. State entity E may be liable to a penalty under section 284-75 and GIC on the shortfall amount that resulted from its claim for input tax credit that is more than it was entitled to. The notional amount is disregarded for the purposes of determining whether or not there is a shortfall amount. GST payable (legal liability) Input tax credit Net amount Original statement 10,000 100,000 (90,000) Revised amounts 10,000 70,000 (60,000) Shortfall amount $30,000",section 2B | MT 2011/1 | PS | LA | 2000/9 | 2002/8 | 2005/2 | 2006/8 | 2007/3 | 2007/4 | 2011/2 | 2011/12 | 2011/19 | 2012/5 | ANTS(GST)A 1999 177-1(5) | ANTS(GST)A 1999 195-1 | TAA 1953 8AAB(3) | TAA 1953 8AAG | TAA 1953 Sch 1 | TAA 1953 Sch 1 255-1 | TAA 1953 Sch 1 280-103(2) | TAA 1953 Sch 1 280-160 | TAA 1953 Sch 1 Div 284 | TAA 1953 Sch 1 284-75 | TAA 1953 Sch 1 284-75(1) | TAA 1953 Sch 1 284-80(1) | TAA 1953 Sch 1 284-90(1) | Tax Laws Amendment (2010 Measures No. 1) Act 2010,PS LA 2000/9 PS LA 2002/8 PS LA 2005/2 PS LA 2006/8 PS LA 2007/3 PS LA 2007/4 PS LA 2011/2 PS LA 2011/12 PS LA 2011/19 PS LA 2012/5,ANTS(GST)A 1999 177-1(5) | ANTS(GST)A 1999 195-1 | TAA 1953 8AAB(3) | TAA 1953 8AAG | TAA 1953 Sch 1 | TAA 1953 Sch 1 255-1 | TAA 1953 Sch 1 Part 4-25 | TAA 1953 Sch 1 280-103(2) | TAA 1953 Sch 1 280-160 | TAA 1953 Sch 1 Div 284 | TAA 1953 Sch 1 284-75 | TAA 1953 Sch 1 284-75(1) | TAA 1953 Sch 1 284-80(1) | TAA 1953 Sch 1 284-90(1) | Commonwealth of Australia Constitution Act 1901 114 | Tax Laws Amendment (2010 Measures No. 1) Act 2010,crown privilege general interest charge input tax credits interest charges notional tax penalties shortfall interest charge shortfalls,,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS201126/NAT/ATO/00001,"This Practice Statement is under review following changes made by the Treasury Legislation Amendment (Repeal Day) Act 2015 to insert new section 2B into the Taxation Administration Act 1953 . Section 2B states that ""This Act binds the Crown in each of its capacities. However, it does not make the Crown liable to a pecuniary penalty or to be prosecuted for an offence."" For any queries about the amendment or proposed Ruling review please email: OperationalPolicyAssuranceandLawWorkManagement@ato.gov.au . This document incorporates revisions made since original publication. View its history and amending notices, if applicable. | Examples that outline how the Commissioner applies the ATO view in MT 2011/1 | Paragraph 9 & related practice statements | 'PS LA 2006/2' replaced by 'PS LA 2012/5'. | [1] 'Net amount' is defined in section 195-1 of A New Tax System (Goods and Services Tax) Act 1999 . | [2] 'Untaxable Commonwealth entity' has the meaning given by section 177-1(5) of the A New Tax System (Goods and Services Tax) Act 1999 . | [3] Generally Commonwealth bodies are not liable to pay tax under the taxation laws. Refer to paragraph 37 of MT 2011/1. | [4] Commonwealth taxation on property of a State is prohibited under section 114 of the Commonwealth of Australia Constitution Act 1901 (the Constitution). However, under various agreements, there is an intention that the States will be notionally liable to pay an amount equivalent to the tax that otherwise would have been payable on property of a State. | [5] Refer to paragraphs 41 to 43 of MT 2011/1. | [6] This is because the prohibition against Commonwealth taxation on property under section 114 of the Constitution does not extend to the Territories and hence the Territories cannot have a notional liability. Refer to paragraph 44 of MT 2011/1. | [7] Refer to paragraphs 47 to 48 of MT 2011/1. | [8] Refer to paragraphs 44 to 45 of MT 2011/1. | [9] Refer to paragraphs 81 to 82 of MT 2011/1 for discussion of when an entity is part of a State for the purposes of section 114 of the Constitution. | [10] Refer to paragraph 37 of MT 2011/1. | [11] Refer to items 3A, 3B and 3C of the table in subsection 284-90(1) of Schedule 1 to the TAA, that were inserted into the table by Tax Laws Amendment (2010 Measures No. 1) Act 2010 . | [12] For a State body, notional liabilities arise because section 114 of the Constitution prohibits the imposition of Commonwealth tax on property of a State. Refer to paragraphs 14 and 41 to 43 of MT 2011/1. | [13] Refer to paragraphs 72 to 82 of MT 2011/1. | [14] Refer to paragraphs 68 to 71 of MT 2011/1 for discussion on what is a 'tax on property' of a State. | [15] Refer to paragraphs 63 to 67 of MT 2011/1 for further discussion on GIC and SIC. | [16] Refer to paragraphs 72 to 80 of MT 2011/1."
PS LA 2011/27,Determining whether the ATO's views of the law should be applied prospectively only,28 July 2011,28 July 2011,Law Administration Practice Statement,False,"1. What this practice statement is about: We apply the ATO's view of the law in undertaking compliance activities and in providing interpretative advice or guidance, including a precedential ATO view document such as a public ruling or ATO interpretative decision (ATO ID). This practice statement outlines procedures you should follow in determining whether there are circumstances that would make it inappropriate to apply the ATO view in relation to past years or periods. | 2. Applying the ATO view of the law - general principles: The law operates from the date of effect of the relevant legislation, and thus we will usually apply our view of the law from this date (for exceptions, see section 12 of this practice statement). However, in all instances you should consider whether there are circumstances which would make it appropriate to not take action to apply the ATO view of the law in past years or periods. This practice statement outlines those circumstances, but they are not exhaustive, and are not intended to limit the Commissioner's powers. No one factor by itself is conclusive, and you need to consider and weigh up all the factors and circumstances in making your decision. This practice statement does not purport to bind anyone in law to act contrary to the provisions of any statute. In particular, any assessment (including an amended assessment) of a taxpayer's liability must be based on the law as the ATO understands it to be having regard to any relevant case law, and not on any other basis. [1] The same principle applies if the ATO is making a decision on an objection, issuing a private ruling or making submissions to a court or tribunal on the relevant point. [2] It is preferable that a decision on whether or not to apply the ATO view of the law in relation to past years or periods be made as early as practicable in any compliance process. However, you may make such a decision at any time before issuing an assessment (including an amended assessment). This may result in the ATO declining to re-assess the taxpayer. [3] Pattern of ATO conduct in relation to a single taxpayer For the most part, this practice statement discusses ATO behaviour in relation to taxpayers generally, or to a class of taxpayers. However, a pattern of ATO conduct in relation to a single taxpayer might raise considerations for that taxpayer similar to those dealt with in this practice statement. One relevant consideration in such a case would be the desirability of treating taxpayers in comparable situations consistently. This might need to be balanced against the desirability of avoiding unfair treatment in the particular circumstances of individual cases. In case of a dispute, it would be appropriate to follow the procedure set out in section 11 of this practice statement. | 3. Applying the ATO view of the law - prospectively only: In deciding whether there are circumstances which would make it appropriate to not take action to apply the ATO view of the law in past years or periods, you must: (a) consider whether previous ATO publications and conduct could be reasonably seen as conveying a different view of the law (b) consider relevant factors in deciding whether the ATO will not take action to apply its view of the law to past years or periods. (a) consider whether previous ATO publications and conduct could be reasonably seen as conveying a different view of the law (b) consider relevant factors in deciding whether the ATO will not take action to apply its view of the law to past years or periods. These are outlined further in sections 4 and 5 of this practice statement. | 4. Consider previous ATO publications and conduct: You must start by researching whether any ATO publication, product or evidence of ATO conduct could be reasonably seen as conveying a different view of the law (that is, different to the view now held) to taxpayers generally, or to a particular class or industry group. At a minimum, you should search ATOlaw for advice we have issued on the subject, and as appropriate, other information such as the guidance we have provided on the issue on ato.gov.au. In appropriate cases, you should also speak with external advisors or industry representatives, and internal ATO experts, who might have particular knowledge of the history of the ATO's dealings with the relevant industry or taxpayer group. | 5. Consider relevant factors: In considering the circumstances when the ATO will not take action to apply its view of the law in past years or periods, you must have regard to the following factors: Main factors The extent to which the ATO has facilitated or contributed to taxpayers adopting a different view of the law (which may result from an industry practice or position), including: (i) whether the ATO became aware of the position adopted by taxpayers or an industry practice in applying the law (for example, through compliance activity) but did not challenge it within a reasonable timeframe having regard to the size of the risk (ii) whether the taxpayers' position or industry practice can be reasonably understood from ATO statements on how to apply the law (iii) whether a general administrative practice [4] supporting the taxpayers' position or industry practice can be deduced from other ATO conduct (iv) the time that has elapsed since the ATO's first awareness of the issue, publicly announcing it would challenge the position or practice [5] and the time taken to finalise its view. (i) whether the ATO became aware of the position adopted by taxpayers or an industry practice in applying the law (for example, through compliance activity) but did not challenge it within a reasonable timeframe having regard to the size of the risk (ii) whether the taxpayers' position or industry practice can be reasonably understood from ATO statements on how to apply the law (iii) whether a general administrative practice [4] supporting the taxpayers' position or industry practice can be deduced from other ATO conduct (iv) the time that has elapsed since the ATO's first awareness of the issue, publicly announcing it would challenge the position or practice [5] and the time taken to finalise its view. Whether or not an industry practice exists is discussed in section 6 of this practice statement. Overriding factors in individual cases If: • there is evidence of fraud or evasion in a particular case, or • tax avoidance is involved • there is evidence of fraud or evasion in a particular case, or • tax avoidance is involved these will override any decision that has otherwise been made to apply the ATO view of the law prospectively only. This will not apply however, where there was an administrative practice that an anti-avoidance provision did not apply in a particular factual context. [6] | 6. Is there an alternative view or industry practice?: To determine whether an industry practice exists, you need to evaluate any evidence that might support the practice, such as published documents on an industry website, academic or conference papers, speeches or minutes from industry forums, ATO publications referring to the industry practice. The publication of a single document may not be sufficient to establish industry practice. Industry views can be adopted by taxpayers generally, or a class of taxpayers. They do not apply to views adopted by a single taxpayer. If it is unclear in a particular case whether an industry practice exists or there is a perception that the ATO has facilitated or contributed to an industry practice, you should consult with relevant industry stakeholders, usually through the relevant ATO forum for the industry concerned. To facilitate the timely identification of areas of uncertainty and potential contention, we also encourage tax advisers and taxpayers to bring issues to the ATO's attention, including in income tax returns, and discuss these with us. If your research leads you to determine that no different industry practice exists, or if there is one, that the ATO has not facilitated or contributed to that practice, then the onus is on taxpayers or their representatives to provide evidence to the contrary. Circumstances in which we have facilitated or contributed to the development of taxpayers' views or an industry practice In the following circumstances, you should consider that we have contributed to the development of taxpayers' views or an industry practice: • If any of our published material, including on ato.gov.au, accepts an industry practice regardless of how widely documented that industry practice is otherwise. • If there is evidence of the ATO being aware of a particular industry practice and it did not alert taxpayers or the industry to its contrary view and it did not finalise its view for a lengthy period of time. • If there is evidence (such as ATO publications, transcripts of speeches or minutes of ATO forum meetings) that the ATO was aware of the practice, had conducted a series of audits in that industry and decided not to take compliance action in relation to that issue, then it would be more likely that the ATO would be considered to have facilitated or contributed to the practice. • If any of our published material, including on ato.gov.au, accepts an industry practice regardless of how widely documented that industry practice is otherwise. • If there is evidence of the ATO being aware of a particular industry practice and it did not alert taxpayers or the industry to its contrary view and it did not finalise its view for a lengthy period of time. • If there is evidence (such as ATO publications, transcripts of speeches or minutes of ATO forum meetings) that the ATO was aware of the practice, had conducted a series of audits in that industry and decided not to take compliance action in relation to that issue, then it would be more likely that the ATO would be considered to have facilitated or contributed to the practice. Circumstances in which we have not facilitated or contributed to the development of taxpayers' views or an industry practice In the following circumstances the ATO will not be considered to have facilitated or contributed to the development of taxpayers' views or an industry practice: • Merely providing a view in, for example, a single private ruling or an audit, or not publishing a view on the issue - although that may indicate a wider practice or view of the law. • Conducting compliance activities in relation to a taxpayer who has adopted a particular approach and deciding not to take action in relation to that issue based on an assessment of the risk. • Preliminary views provided during the course of an audit, or in preparing a ruling if the ATO later changes its view or position. • Preliminary views we may provide on the design of law changes. • In the context of self-assessment, simply issuing assessments consistent with the information returned by taxpayers in a particular industry. • Merely providing a view in, for example, a single private ruling or an audit, or not publishing a view on the issue - although that may indicate a wider practice or view of the law. • Conducting compliance activities in relation to a taxpayer who has adopted a particular approach and deciding not to take action in relation to that issue based on an assessment of the risk. • Preliminary views provided during the course of an audit, or in preparing a ruling if the ATO later changes its view or position. • Preliminary views we may provide on the design of law changes. • In the context of self-assessment, simply issuing assessments consistent with the information returned by taxpayers in a particular industry. | 7. Seeking assistance from the Tax Counsel Network: Where an existing ATO view or general administrative practice would result in an outcome that is incorrect or unintended, or because there is a significant alternative view, assistance must be sought from the business line and, if the level of risk warrants it, from the Tax Counsel Network. [7] | 8. Approval for decisions made in relation to applying the ATO view of the law: Approval of a decision not to take action to apply the ATO view in past years or periods must be made for: • A public ruling (other than a class or product ruling), by: - - a Deputy Chief Tax Counsel or the Chief Tax Counsel. Where the Public Rulings Panel reviews a proposed public ruling it will also consider date of effect issues as part of its advice. • Other products or activities (class or product rulings, ATO IDs or compliance activities), by: - an SES employee whose normal duties include making these types of decisions. • A public ruling (other than a class or product ruling), by: - - a Deputy Chief Tax Counsel or the Chief Tax Counsel. Where the Public Rulings Panel reviews a proposed public ruling it will also consider date of effect issues as part of its advice. • Other products or activities (class or product rulings, ATO IDs or compliance activities), by: - an SES employee whose normal duties include making these types of decisions. - - a Deputy Chief Tax Counsel or the Chief Tax Counsel. Where the Public Rulings Panel reviews a proposed public ruling it will also consider date of effect issues as part of its advice. - an SES employee whose normal duties include making these types of decisions. | 9. Approval for changing an existing ATO view or general administrative practice: Any change to a precedential ATO view requires the approval of a Deputy Chief Tax Counsel in the first instance who would escalate to the Chief Tax Counsel if appropriate. | 10. Communicating the decision: If the ATO view is to apply only on a prospective basis, you must clearly state this, together with reasons, in the advice to, or communication with, the taxpayer. If the issue of whether the ATO view should apply only on a prospective basis was specifically raised during the preparation of the advice or otherwise raised in the course of conducting compliance activities (for example, if it was specifically addressed in correspondence between the taxpayer and the ATO or raised as an issue as part of a consultation process), you should also tell the taxpayer of the ATO's decision and reasons for the decision. If the issue was not specifically raised and your research does not uncover any evidence of previous ATO publications or conduct conveying a different view, then in most circumstances you don't need to provide a written explanation as to why the ATO view will apply in relation to past years or periods. | 11. What happens if the taxpayer does not agree with the decision?: A disagreement might arise between you and the taxpayer during a compliance process as to whether it is appropriate to apply the ATO view prospectively only. If this can't be resolved, you should refer the question for decision to appropriately senior ATO personnel in the Law Design and Practice Group (such as an Assistant Commissioner in the Tax Counsel Network) who has not previously been involved in the particular case. The taxpayer's representatives should be given a full opportunity to explain their position to this decision-maker. The Second Commissioner Law Design & Practice should be notified if the dispute persists beyond this stage. Settlement of disputes is a specifically delegated power of general administration dealt with in the ATO Code of Settlement. The factors outlined in this practice statement may be relevant, among other considerations, in deciding whether a dispute can be settled. This includes cases in which an assessment has been issued. | 12. Exceptions to the general rule that the law will apply from the date of effect of the relevant legislation: Periods of review Under the self-assessment regime [8] , taxpayer returns (including activity statements) are generally accepted at face value, subject to post-assessment audit or other verification by the ATO. Time limits that restrict the ability to amend assessments beyond set timeframes apply to both taxpayers and the ATO. Rulings regimes Where a taxpayer follows a public, private or oral ruling that applies to them the ATO is bound to assess them as set out in the ruling. [9] If the correct application of the law is less favourable to a taxpayer than the ruling provides, the ruling protects the taxpayer from the law being applied by the ATO in that less favourable way. A public ruling usually applies to both past and future years and protects a taxpayer from the date of its application, which is usually the date of effect of the relevant legislative provision. In addition, a public ruling that is withdrawn continues to apply to schemes that had begun to be carried out before the withdrawal. [10] However, this rule doesn't apply to an indirect tax public ruling or an excise public ruling. Even if a taxpayer does follow a ruling, we may apply the law in a way that is more favourable for the taxpayer (provided that the time limits have not expired) where to do so is a correct application of the law. This may happen where the ATO subsequently decides that the ruling is incorrect and disadvantages the taxpayer. [11] See Taxation Ruling TR 2006/10 [12] for the ATO's approach to determining the date of effect of public rulings. Administratively binding advice PS LA 2008/3 explains that, in the interests of sound administration, the ATO's practice has been to provide administratively binding advice in a limited range of circumstances. [13] Matters under the Superannuation Guarantee (Administration) Act 1992 The ATO provides administratively binding advice on matters under the Superannuation Guarantee (Administration) Act 1992 (SGAA). There is no legislative framework for the provision of public, private or oral advice in relation to matters under this Act. The principles discussed in this practice statement are also relevant to decisions about what action should be taken where an employer has failed to meet the requirements of the SGAA. In making a decision whether to apply a view of the law only on a prospective basis, the ATO also needs to take into account the interests of affected employees. Matters under the Superannuation Industry (Supervision) Act 1993 The Superannuation Industry (Supervision) Act 1993 (SISA) provides that sanctions may be applied to trustees of self-managed superannuation funds (SMSFs) for contraventions of the SISA. Under paragraph 42A(5)(b) of the SISA, the Commissioner has the discretion to treat a superannuation fund as complying even if a trustee contravened one or more of the regulatory provisions in the SISA. To the extent that the ATO has facilitated or contributed to taxpayers adopting a course of action that led to a contravention, the principles discussed in this practice statement are relevant to the exercise of that discretion. [14] | 13. Powers of general administration: The Commissioner needs to make decisions about the allocation of ATO resources to compliance and other activities that promote the efficient, effective, economical and ethical use of those resources. In doing so the Commissioner must still comply with the law. In the present context, this concept means you must do more than a simple cost-benefit analysis of whether a given audit process is likely to result in recovering an amount of revenue that is greater than the cost of undertaking the audit. The Commissioner may and should give substantial weight to broader considerations, including the benefits to the tax system of administering the law in a way that promotes certainty and fairness in practice. While the Commissioner can't use the powers of general administration to accept non-compliance with the law [15] , as part of the duty of good management, the Commissioner can decide not to undertake compliance action on a particular issue for prior years or periods. PS LA 2009/4 addresses the exercise of the Commissioner's powers of general administration, including a range of factors [16] the Commissioner will take into account in deciding whether to undertake compliance action in relation to prior years or periods. | 14. Examples: The following examples illustrate how the ATO would apply the factors outlined in this practice statement. The examples are not intended to be exhaustive or prescriptive, they don't address the application and remission of penalties, and it is assumed that there was no evidence of tax avoidance, fraud or evasion. Cases where it may be appropriate to apply the ATO's view of the law only on a prospective basis Example 1 - ATO is aware of existing practice The ATO became aware through compliance activities that taxpayers in an industry were taking a particular approach to the application of a provision of the tax law. The ATO concluded that the approach had some legal merit and was reasonably open to taxpayers to adopt. The practice was referred to in guidance material published on ato.gov.au. The risk associated with this issue was not considered to be high and so the ATO, in exercising the duty of good management, determined not to undertake any further compliance action in relation to the practice. Some years later, the ATO decided to issue a public ruling outlining its views on the application of the provision. The views in the draft and final public ruling were contrary to the existing practice that the ATO was aware of and to which it referred to in the guidance material on ato.gov.au. In these circumstances, because the ATO was aware of the existing practice and contributed to it continuing by referring to the existing practice in guidance material on the website, it would be appropriate for the ATO not to take action to apply the ATO view of the law in past years or periods. The ruling would only apply prospectively. Example 2 - general industry practice established after ATO published earlier and different view The ATO issued a draft public ruling in relation to a particular issue. Before the publication of the draft ruling, the ATO had published a contrary view to that taken in the draft ruling on ato.gov.au about an industry practice that had been developed. Contrary views had also been expressed and recorded in the minutes of previous National Tax Liaison Group meetings. The taxpayers in the relevant industry had adopted the view made public by the ATO before the draft ruling. As a result of the actions by the ATO in publishing the documents containing the contrary view, which provided clear evidence of the practice, it would be appropriate for the ATO to not take action to apply the current ATO view of the law in past years or periods. Example 3 - Prior ATO ruling, tax implications of the arrangement entered into by the taxpayer will not take effect for several years after the view is published The ATO identified a need to issue a public ruling on the application of a tax law provision to arrangements undertaken by taxpayers that involved long term commitments. These involved taxpayers entering into a contract in year 1 but with the tax implications of the arrangement (which are to be addressed in the ruling), not applying until year 5. A previous ATO ruling addressing a more general point contributed to the taxpayers taking a different view to that subsequently taken by the ATO. Due to the nature of the arrangements, when the final ruling was issued, we applied it only to arrangements entered into after the date of publication of the ruling. It did not apply to arrangements that had already been entered into even though the tax implications of those arrangements would arise after the new view was published. We adopted this approach because taxpayers who entered into these contracts before the ATO view was expressed would have had a reasonable argument that the tax implications of the arrangement would have been different based on the previous ATO ruling. Taxpayers may not have entered into the arrangements had they known that there would be different tax implications. This is despite the fact that the tax implications would not arise until some time after the new view was published. This approach was considered to be appropriate in these circumstances because the ATO facilitated or contributed to the taxpayers' view of the law in relation to the contracts they had already entered into. The ATO accepted that the earlier more general ruling could be interpreted in a manner consistent with the approach taken by taxpayers. Example 4 - ATO did not challenge existing industry practice within a reasonable time In 2010, the ATO published an ATO ID on a GST issue in which the view expressed was contrary to an industry practice that been followed since the introduction of the GST in 2000. The ATO became aware of the existing practice across the industry through compliance activities in 2005 but did not take steps to challenge or express a contrary view or any concerns about the practice. In this case it would be appropriate for the Commissioner not to take action to apply the ATO's view of the law in past years or periods because the ATO contributed to the industry practice by not challenging it within a reasonable timeframe. Examples of cases where it would be appropriate to apply the ATO view of the law in past years or periods Example 5 - law unclear, no ATO view The ATO decides to issue a public ruling in relation to an issue. The ATO has not previously published a view on this issue and isn't aware of any existing taxpayer or industry practices in relation to it. There are two alternative interpretative views and the ATO publishes a discussion paper that sets out both views and identifies a preferred view. The discussion paper makes it clear that the views expressed are not binding and are for discussion purposes only. As part of preparing the public ruling, the Public Rulings Panel considers both views. It decides that the alternative view in the discussion paper (not the view that the ATO initially preferred) is the preferred view. The ATO adopts the alternative view in both the draft and final rulings. In these circumstances it would be appropriate for the ATO to apply the view both prospectively and retrospectively because it wasn't aware of any existing taxpayer or industry practices and did not contribute to the adoption of any such practices. The preferred view in the discussion paper was not binding on the ATO. The alternative view was outlined in order to help resolve the issue. As the ATO had not previously publicly stated a view on the issue and the ruling has been issued to provide certainty in circumstances in which the ATO knew of no existing taxpayer or industry practices, the ruling can have both a past and future application. Example 6 - audit of individual taxpayer, no existing practice In the course of an audit, the ATO determined that the taxpayer's approach to the application of the law on a particular issue was incorrect, and amended the taxpayer's assessment. At the time the issue was identified the ATO had no reason to believe that there was a significant risk of the approach being adopted by taxpayers more generally or it becoming an industry practice, and so no further compliance action was taken on the issue across the relevant industry. A year later, having found that the approach adopted by the taxpayer was being applied across the industry, the ATO decided to undertake compliance activity in relation to high risk taxpayers in the industry, publicising this on ato.gov.au. The subsequent audit activity revealed that there was a common misunderstanding across the sector and the views that taxpayers were adopting were contrary to the ATO view. In this case it would be appropriate for the ATO to apply its view both prospectively and in relation to past years or periods. The fact that the ATO identified the issue in relation to a particular taxpayer but took no specific compliance activity across the industry at the time or published an ATO view does not mean that the ATO can be considered to have facilitated or contributed to the development of the practice by taxpayers more generally. Example 7 - clarification of ATO view Following publication of an ATO ID, there was some uncertainty among taxpayers as to whether it applied to particular arrangements. Accordingly, the ATO issued a public ruling that was consistent with the view in the ATO ID but clarified how the principles applied to the particular arrangements. The ATO view expressed in the final public ruling is consistent with the view set out in the earlier ATO ID. In this case it would be appropriate for the ATO to apply its view both prospectively and retrospectively as the ATO did not facilitate or contribute to taxpayers taking a different view. The public ruling merely clarified the view expressed in the ATO ID. Example 8 - attempts to apply ATO view of an arrangement to different set of facts A promoter applied for a product ruling on how the tax laws applied to a particular investment scheme (Scheme 1). After the product ruling was issued, the ATO conducted compliance activities across a particular industry. It was discovered that a different investment scheme (Scheme 2) was being marketed to taxpayers on the basis of the product ruling for Scheme 1. The ATO did not agree with this view and considered that Scheme 2 was materially different to Scheme 1. The ATO discovered that a large number of taxpayers had invested in Scheme 2 and had applied the view of the law that was marketed to them. The ATO decided to undertake compliance activity in relation to the investors in Scheme 2. In these circumstances, it is appropriate for us to apply the ATO view of the law in relation to past years or periods because the ATO did not contribute to the taxpayers' view of the law in relation to Scheme 2. The product ruling only applied to Scheme 1 but had been used inappropriately by the promoter to encourage taxpayers to enter into Scheme 2, which we considered was different. Example 9 - no ATO view, taxpayer practice - lack of evidence that ATO had contributed to taxpayer view A taxpayer was selected for audit in relation to a particular issue. There was no existing document setting out the ATO view on it. The taxpayer advised that they had been applying their view of the law for several years and their returns had not been challenged. The taxpayer also advised that they understood that the ATO accepted the taxpayer's view because they had spoken to a tax officer on one occasion several years previously and the tax officer did not indicate that the ATO would have any concerns if this approach was adopted. The taxpayer did not apply for a private ruling in relation to this issue. In these circumstances, we considered that the taxpayer did not provide sufficient evidence to establish that the ATO contributed to or facilitated the taxpayer's view. A single discussion with a tax officer and the fact that the taxpayer's prior years returns were not subject to audit is not sufficient. As a result, in this case it would be appropriate for the ATO's view of the law to be applied in relation to past years or periods.",TR 92/20W | TR 2006/10 | TD 2011/19 | PS LA 2005/24 | PS LA 2006/19 | PS LA 2008/3 | PS LA 2008/6 | PS LA 2008/10 | PS LA 2009/4 | PS LA 2009/5 | PS LA 2012/1 | ITAA 1936 | ITAA 1936 45B | TAA 1953 | TAA 1953 Sch 1 357-60 | TAA 1953 Sch 1 357-70 | TAA 1953 Sch 1 358-20(3) | SGAA 1992 | SISA 1993 | SISA 1993 42A(5)(b) | [2013] FCAFC 119,PS LA 2005/24 PS LA 2006/19 PS LA 2008/3 PS LA 2008/6 PS LA 2008/10 PS LA 2009/4 PS LA 2009/5 PS LA 2012/1,ITAA 1936 | ITAA 1936 45B | TAA 1953 | TAA 1953 Sch 1 357-60 | TAA 1953 Sch 1 357-70 | TAA 1953 Sch 1 358-20(3) | SGAA 1992 | SISA 1993 | SISA 1993 42A(5)(b),,ATO Code of Settlement,False,True,https://www.ato.gov.au/law/view/document?docid=PSR/PS201127/NAT/ATO/00001,"Updated to new LAPS format and style. | Updated to include persistent disputes. | Paragraph 20 and legislative references | Update reference from section 44 of the Financial Management and Accountability Act 1997 to section 15 of the Public Governance, Performance and Accountability Act 2013. | Replace subsection 44(2) of the FMAA with section 15 of the PGPA Act | Clarify that the Commissioner may and should give substantial weight to broader issues when exercising the general powers of administration. | Modified last sentence to take into account externally raised concerns and reinforce the correct manner of exercising the Commissioner's general powers of administration | Allow that a pattern of ATO conduct in relation to a single taxpayer may raise u-turn considerations. ( Change from July 2014 draft version - swapped new paragraph 29 with previous paragraph 29 per external comments for purposes of readability and flow. ) | Paragraphs 33 to 36 (new) | • Confirm that nothing in this practice statement binds anyone to act contrary to statute. • Allow that the factors considered in deciding whether to apply the ATO view of the law prospectively only, may be relevant when considering settling a dispute. • State the ATO may decide to at any time during a compliance process to apply the ATO view of the law on a prospective basis only. • Provide for an internal referral step in cases where a disagreement about prospective application cannot be resolved. | Confirmed scope of practice statement with respect to settlement considerations in new paragraph to avoid conflation with other issues. ( Change from July 2014 draft version - inserted. ) | Updated to include a new step. | Paragraph cross references updated | Updated to reflect the issue of PS LA 2012/1. | Updated paragraph reference to PS LA 2003/3. | [1] See Macquarie Bank Limited v. Commissioner of Taxation [2013] FCAFC 119 (Macquarie Bank) at [11]. This principle is subject to exceptions created by the legislation itself, such as where legislation expressly gives the Commissioner discretion to determine a particular amount, or where a statutory time limit or a binding ruling applies. | [2] This requirement does not prevent the ATO from taking, by the accepted principles of statutory interpretation, a particular view of the law (or of its application) that is reasonably open in cases where more than one view appears to be reasonably open, having regard to any applicable case law. See Macquarie Bank at [11]. | [3] 'It may be accepted for the purposes of argument ... that the Commissioner's power of general administration ... permits the Commissioner 'to decline to consider re-assessing, or to decline to in fact re-assess, a taxpayer': Macquarie Bank at [11]. | [4] For further information about general administrative practice refer to TR 2006/10 and TD 2011/19. | [5] One way the ATO may make taxpayers aware that we are challenging a position or practice is by publishing a Taxpayer Alert on ato.gov.au. | [6] For further information on fraud, tax evasion and tax avoidance see: PS LA 2008/6 for guidance in determining whether there has been fraud or evasion, PS LA 2005/24 for information on the application of the general anti-avoidance rules, PS LA 2008/10 for information on the application of section 45B of the Income Tax Assessment Act 1936 to share capital reductions. | [7] See Law Administration Practice Statement PS LA 2012/1 Management of high risk technical issues and engagement of officers in the Tax Counsel Network. | [8] The GST, luxury car tax, wine equalisation tax and fuel tax credits systems operated on a self-actuating basis until 30 June 2012. Under this system, a taxpayer is automatically liable for tax or entitled to a refund based on the liabilities and entitlements attributable to a tax period. | [9] See section 357-60 of Schedule 1 to the Taxation Administration Act 1953 (TAA). | [10] See subsection 358-20(3) of Schedule 1 to the TAA. | [11] See section 357-70 of Schedule 1 to the TAA. | [12] See paragraphs 59 to 77 of TR 2006/10. A similar approach was also adopted by the ATO prior to the publication of this ruling - see TR 92/20 (withdrawn). | [13] Attachment B to PS LA 2008/3 contains an exhaustive list of those circumstances in which the ATO can provide administratively binding advice to a taxpayer. | [14] PS LA 2009/5 explains the weight to be given to the ATO's advice and guidance on SMSFs and the appropriate compliance action to be taken if a taxpayer has relied on this advice or guidance. See also PS LA 2006/19 for further guidance about the exercise of the discretion. | [15] The courts have held that, although the powers of general administration conferred on the Commissioner are very broad, they can't be used to extend, confine or undermine Parliament's intentions. | [16] See paragraphs 21 and 23 of Appendix B of PS LA 2009/4. | File 1-27NI4Q2; 1-5K8DTOI | Macquarie Bank Limited v. Commissioner of Taxation [2013] FCAFC 119"
PS LA 2011/29,Exercise of the Commissioner's discretion under section 109RB of Division 7A of Part III of the Income Tax Assessment Act 1936 to either disregard a deemed dividend or to permit a deemed dividend to be franked,19 January 2017,19 January 2017,Law Administration Practice Statement,False,"1. What this Practice Statement is about: Section 109RB of Division 7A of the Income Tax Assessment Act 1936 provides relief for taxpayers who trigger a deemed dividend as a result of an honest mistake or inadvertent omission. In section 109RB, the Commissioner has the discretion to either disregard a deemed dividend or allow it to be franked. All legislative references in this Practice Statement are to the Income Tax Assessment Act 1936, unless otherwise indicated. | 2. Exercising the discretion on behalf of the Commissioner: The following officers are authorised to exercise the discretion: • For decisions made about an objection – Executive Level 2 (EL2) and Executive Level 1 (EL1) officers in the Objections and Review (O&R) business line. This applies to a review of a previous discretion decision or a new request made on objection. • For all other decisions – in the Private Wealth (PW) business line o all EL2 officers o EL1 Team Leaders in Engagement and Assurance Services o EL1 Authorising Officers [1] in Technical Leadership and Advice o EL1 Domestic Structuring Risk Managers – in the Fraud and Criminal Behaviours business line – all EL2 officers – in the Small Business (SB) business line – EL2 officers in Case and Technical Leadership. • For decisions made about an objection – Executive Level 2 (EL2) and Executive Level 1 (EL1) officers in the Objections and Review (O&R) business line. This applies to a review of a previous discretion decision or a new request made on objection. • For all other decisions – in the Private Wealth (PW) business line o all EL2 officers o EL1 Team Leaders in Engagement and Assurance Services o EL1 Authorising Officers [1] in Technical Leadership and Advice o EL1 Domestic Structuring Risk Managers – in the Fraud and Criminal Behaviours business line – all EL2 officers – in the Small Business (SB) business line – EL2 officers in Case and Technical Leadership. – in the Private Wealth (PW) business line o all EL2 officers o EL1 Team Leaders in Engagement and Assurance Services o EL1 Authorising Officers [1] in Technical Leadership and Advice o EL1 Domestic Structuring Risk Managers – in the Fraud and Criminal Behaviours business line – all EL2 officers – in the Small Business (SB) business line – EL2 officers in Case and Technical Leadership. o all EL2 officers o EL1 Team Leaders in Engagement and Assurance Services o EL1 Authorising Officers [1] in Technical Leadership and Advice o EL1 Domestic Structuring Risk Managers If you are an O&R officer, you must refer to the O&R escalation and engagement procedures: Objection cases involving section 109RB discretion under Division 7A (link available internally only). If you are an SB officer, you must refer to the SB escalation and engagement procedures – refer SB Referring Tax Technical Issues (link available internally only). All other requests for a decision should be referred to PW by engaging a specialist – refer Referrals to Private Wealth Technical Leadership and Advice (link available internally only). | 3. When to consider the discretion: You should consider the discretion when it is requested by the taxpayer (the recipient), the private company or an authorised representative, or where you become aware that Division 7A applies during a review or audit. A request does not need to be in a particular form, but it should contain enough information and evidence to enable a decision to be made. | 4. Prerequisite for the discretion to be considered: A prerequisite for the discretion to be considered is that Division 7A must apply to a transaction, with the result that: • the private company is taken to have paid a deemed dividend to a shareholder or shareholder's associate (which is included in their assessable income under section 44), or • an amount is included in the assessable income of the shareholder or their associate as if it were a dividend by reason of Subdivision EA of Division 7A. [2] • the private company is taken to have paid a deemed dividend to a shareholder or shareholder's associate (which is included in their assessable income under section 44), or • an amount is included in the assessable income of the shareholder or their associate as if it were a dividend by reason of Subdivision EA of Division 7A. [2] Where there are multiple triggers of Division 7A, you must consider the facts and circumstances of each and make a separate decision in relation to each trigger. | 5. Steps after identifying that the prerequisites are met: The decision whether or not to exercise the discretion is a 2-step process: • Step 1 – was Division 7A triggered because of an honest mistake or inadvertent omission? Only if the answer at Step 1 is YES, proceed to Step 2. • Step 2 – do the facts and circumstances support the exercise of the discretion to either disregard a deemed dividend or allow it to be franked? • Step 1 – was Division 7A triggered because of an honest mistake or inadvertent omission? Only if the answer at Step 1 is YES, proceed to Step 2. • Step 2 – do the facts and circumstances support the exercise of the discretion to either disregard a deemed dividend or allow it to be franked? Note: the guidelines relating to this process must not be applied in a rigid or inflexible way. When considering the discretion in Step 2, the decision-maker must: • consider each case on its merits, having regard to the objects of section 109RB and Division 7A generally • make the decision in good faith and without bias, and • make the decision independently and not at the direction of another person. • consider each case on its merits, having regard to the objects of section 109RB and Division 7A generally • make the decision in good faith and without bias, and • make the decision independently and not at the direction of another person. STEP 1 | 6. Whether Division 7A was triggered because of an honest mistake or inadvertent omission: The discretion can only be exercised where Division 7A is triggered due to an honest mistake or inadvertent omission. [3] The thing that was mistaken or omitted must have triggered Division 7A. If Division 7A applies regardless of the mistake or omission, then the discretion cannot be exercised. The honest mistake or inadvertent omission may be made by the recipient, the private company or any other entity (the relevant entity) whose conduct contributed to the application of Division 7A. You should first consider the conduct of the private company and the recipient to determine if there was an honest mistake or inadvertent omission. | 7. If there is insufficient evidence to establish the cause of the trigger: The onus is on the entity seeking the exercise of the discretion to provide sufficient evidence to demonstrate an honest mistake or inadvertent omission. However, you should make appropriate attempts to obtain sufficient evidence. You should discuss the evidence required with the applicant and give them a reasonable opportunity to provide more. If there is not enough evidence to establish an inadvertent omission or honest mistake, the Commissioner cannot exercise the discretion. This should be communicated to the applicant when advising of this decision. The decision may also be communicated in a position paper or reasons for decision to a taxpayer, where relevant. | 8. Mistakes and omissions that may result in Division 7A being triggered: An honest mistake or inadvertent omission may be a mistake of law, a mistake of fact or a mixed mistake of law and fact. Where a mistake of law occurs, you should have regard to the level of knowledge and expertise of the person who made the mistake. 8A. Mistake or omission examples The following are examples of mistakes or omissions made in relation to Division 7A: • an incorrect view or misunderstanding of what the laws is, such as – the meaning of a provision of Division 7A – the definition of 'associate' in section 318 – the interaction of Division 7A with other areas of tax law – for example, fringe benefits tax, or – the operation of contract law (which may affect whether a loan agreement is validly made) • a mistake or omission in relation to a fact – using a company cheque book or credit card believing that you are using a personal cheque book or credit card – mistakes in the recording of transactions – for example, transposition errors, miscoding, or – errors made in calculating the minimum yearly repayment • a mistake or omission that involves both a misunderstanding about what the law is together with a mistake in relation to a fact, including – errors made when drafting loan agreements, such as in the term or interest rate of the loan – loan agreements that are incorrectly executed – making a late repayment on a loan, or – failure to make minimum repayments. • an incorrect view or misunderstanding of what the laws is, such as – the meaning of a provision of Division 7A – the definition of 'associate' in section 318 – the interaction of Division 7A with other areas of tax law – for example, fringe benefits tax, or – the operation of contract law (which may affect whether a loan agreement is validly made) • a mistake or omission in relation to a fact – using a company cheque book or credit card believing that you are using a personal cheque book or credit card – mistakes in the recording of transactions – for example, transposition errors, miscoding, or – errors made in calculating the minimum yearly repayment • a mistake or omission that involves both a misunderstanding about what the law is together with a mistake in relation to a fact, including – errors made when drafting loan agreements, such as in the term or interest rate of the loan – loan agreements that are incorrectly executed – making a late repayment on a loan, or – failure to make minimum repayments. – the meaning of a provision of Division 7A – the definition of 'associate' in section 318 – the interaction of Division 7A with other areas of tax law – for example, fringe benefits tax, or – the operation of contract law (which may affect whether a loan agreement is validly made) – using a company cheque book or credit card believing that you are using a personal cheque book or credit card – mistakes in the recording of transactions – for example, transposition errors, miscoding, or – errors made in calculating the minimum yearly repayment – errors made when drafting loan agreements, such as in the term or interest rate of the loan – loan agreements that are incorrectly executed – making a late repayment on a loan, or – failure to make minimum repayments. | 9. Facts and circumstances to take into account in determining whether a mistake was honest or an omission inadvertent: You must consider all of the following factors equally. A mistake or omission needs only to be honest or inadvertent. 9A. Relevant facts and circumstances that support honest mistake or inadvertent omission The following circumstances may indicate an honest mistake or an inadvertent omission was made: • The relevant transactions were commercial (that is, accurately and completely recorded, independently audited). • The relevant entities involved in the arrangement can demonstrate a good Division 7A compliance history (that is, genuine past attempts to comply with Division 7A both in general and in respect of the specific matter). • The recipient or company has reasonably relied on professional advice, or has adopted a position that is a common mistake or omission. • Other contributing factors may include – the complexity of the facts – novel or contentious issues of law, or – a lack of ATO advice or guidance covering the facts or the law. [4] • The relevant transactions were commercial (that is, accurately and completely recorded, independently audited). • The relevant entities involved in the arrangement can demonstrate a good Division 7A compliance history (that is, genuine past attempts to comply with Division 7A both in general and in respect of the specific matter). • The recipient or company has reasonably relied on professional advice, or has adopted a position that is a common mistake or omission. • Other contributing factors may include – the complexity of the facts – novel or contentious issues of law, or – a lack of ATO advice or guidance covering the facts or the law. [4] – the complexity of the facts – novel or contentious issues of law, or – a lack of ATO advice or guidance covering the facts or the law. [4] Ignorance of the law is not in itself sufficient evidence to establish honest mistake or inadvertent omission. The reason for that ignorance is equally important. 9B. Relevant facts and circumstances that weigh against honest mistake or inadvertent omission The following circumstances may indicate that Division 7A applies for reasons other than because of an honest mistake or inadvertent omission: • The relevant transactions were uncommercial (that is, the arrangement had a purpose of avoiding tax or involved fraud or evasion; the transaction was artificial, not accurately or completely recorded or was not subject to independent review). • The behaviour and knowledge of relevant entities involved in the arrangement does not support a conclusion of honest mistake or inadvertent omission (that is, an entity had the relevant knowledge of Division 7A; Division 7A had previously applied in similar circumstances to an entity or a relevant entity has a poor compliance history). • The entities involved consciously or unreasonably avoided obtaining advice in relation to the relevant application of Division 7A or unreasonably relied on or ignored professional advice. • Other contributing factors may include – the trigger for Division 7A and associated transactions are straightforward or involve a straightforward application of the law, and – the trigger for Division 7A involved transactions that are identified in publicly available and relevant ATO advice [5] or ATO advice provided to the entity. • The relevant transactions were uncommercial (that is, the arrangement had a purpose of avoiding tax or involved fraud or evasion; the transaction was artificial, not accurately or completely recorded or was not subject to independent review). • The behaviour and knowledge of relevant entities involved in the arrangement does not support a conclusion of honest mistake or inadvertent omission (that is, an entity had the relevant knowledge of Division 7A; Division 7A had previously applied in similar circumstances to an entity or a relevant entity has a poor compliance history). • The entities involved consciously or unreasonably avoided obtaining advice in relation to the relevant application of Division 7A or unreasonably relied on or ignored professional advice. • Other contributing factors may include – the trigger for Division 7A and associated transactions are straightforward or involve a straightforward application of the law, and – the trigger for Division 7A involved transactions that are identified in publicly available and relevant ATO advice [5] or ATO advice provided to the entity. – the trigger for Division 7A and associated transactions are straightforward or involve a straightforward application of the law, and – the trigger for Division 7A involved transactions that are identified in publicly available and relevant ATO advice [5] or ATO advice provided to the entity. 9C. If the transaction was intended to avoid the application of Division 7A Actions or omissions made to circumvent Division 7A cannot satisfy the requirements of honest mistake or inadvertent omission. Evidence that there has been a deliberate indifference or wilful blindness would not satisfy the requirement of honesty and would not constitute an honest mistake. 9D. If the entity has relied on professional advice If the entity has relied on professional advice, you must carefully consider: • the underlying facts • the disclosures made to the adviser • the nature of the advice actually given • the relationship between the entity and their adviser • whether the advice was relied on, and • whether reliance on that advice was reasonable. • the underlying facts • the disclosures made to the adviser • the nature of the advice actually given • the relationship between the entity and their adviser • whether the advice was relied on, and • whether reliance on that advice was reasonable. Where an entity obtains and reasonably relies on advice from a professional adviser, any mistake or omission resulting from that reliance is likely to be honest or inadvertent. Where a relevant entity has intentionally ignored professional advice, this would tend to weigh against a conclusion that any resulting mistake is honest or omission inadvertent. This is particularly so if, had the entity followed the advice, Division 7A would not have applied. Where an entity knew or ought to have known that the adviser was prepared to disregard Division 7A, reliance on that advice is not likely to be reasonable. This is so even if the entity made a full disclosure to the adviser. 9E. If the entity has not obtained professional advice If the entity has not obtained professional advice, you need to consider why. Relevant considerations include the size, complexity and nature of the transaction and the entity's knowledge of Division 7A. If the entity did not seek advice due to wilful blindness, this would not constitute an honest mistake. Conversely an entity may not have obtained specific advice due to a genuine belief that they understood the law. Even though it might be reasonable to obtain advice in the circumstances, it can still be established that there was an honest mistake or inadvertent omission. 9F. If the trigger is the result of a lack of knowledge of Division 7A The application of Division 7A may result from a simple misunderstanding through to intentional ignorance. You need to identify and assess the extent to which the lack of knowledge triggered Division 7A. Some relevant factors may be: • the extent of and reasons for the lack of knowledge • how the lack of knowledge contributed to Division 7A being triggered • the recipient or company's attitude towards Division 7A generally • the extent to which an adviser was engaged and briefed • prior tax knowledge and experience of anyone involved in the transaction. • the extent of and reasons for the lack of knowledge • how the lack of knowledge contributed to Division 7A being triggered • the recipient or company's attitude towards Division 7A generally • the extent to which an adviser was engaged and briefed • prior tax knowledge and experience of anyone involved in the transaction. It is generally expected that a registered tax agent would be aware of the core provisions of Division 7A. You should also consider if objective evidence in the form of a ruling request, correspondence or compliance activity indicates an awareness and knowledge of Division 7A. You must then consider this evidence in light of all the relevant circumstances. 9G. If the trigger for Division 7A was a common kind of mistake or practice Honest mistake or inadvertent omission is not always concluded in the case of a common mistake or industry practice. The applicant bears the onus of proving that in the particular circumstances there was an honest mistake or inadvertent omission. | 10. Evidence to consider: You must have sufficient information and relevant evidence to determine: • the particular provision that applies • the deemed dividend arose because of an honest mistake or inadvertent omission • who made the mistake or omission • how, why and when the mistake or omission occurred • how, when and who identified the application of Division 7A • the use or application of the funds that resulted in Division 7A applying • corrective action taken or proposed, and • any other information or evidence that will help you to make a decision. • the particular provision that applies • the deemed dividend arose because of an honest mistake or inadvertent omission • who made the mistake or omission • how, why and when the mistake or omission occurred • how, when and who identified the application of Division 7A • the use or application of the funds that resulted in Division 7A applying • corrective action taken or proposed, and • any other information or evidence that will help you to make a decision. The following is a list of relevant evidence, which is not exhaustive: • statements by relevant parties • accounting records, such as – ledger accounts recording transactions, and – journal entries and supporting documents • minutes of meetings • correspondence • loan agreements, trustee resolutions or director's minutes and resolutions • Division 7A working papers • tax return preparation and information • invoices or other source documents • advice • evidence which goes to knowledge, awareness or intent. • statements by relevant parties • accounting records, such as – ledger accounts recording transactions, and – journal entries and supporting documents • minutes of meetings • correspondence • loan agreements, trustee resolutions or director's minutes and resolutions • Division 7A working papers • tax return preparation and information • invoices or other source documents • advice • evidence which goes to knowledge, awareness or intent. – ledger accounts recording transactions, and – journal entries and supporting documents 10A. How to deal with undocumented assertions To deal with undocumented assertions, given the record-keeping obligations that apply to businesses, a finding of honest mistake or inadvertent omission should ordinarily be corroborated with documentary evidence. However, you should consider the size of the enterprise when considering the extent of the record keeping required. 10B. If there is incomplete or conflicting evidence If there is incomplete or conflicting evidence, generally, contemporaneous evidence should hold greater weight than evidence generated and assertions made after the fact. STEP 2 | 11. Whether to exercise the Commissioner's discretion: Having established that Division 7A was triggered because of an honest mistake or inadvertent omission, this step requires you to consider whether you should exercise the discretion and, if so, how – including whether to attach conditions to the decision. There is no presumption to exercise the discretion until Step 2 has been fully undertaken. | 12. Considerations in making a decision whether to exercise the discretion: When deciding whether to exercise the discretion, you must consider all of the following factors: • the circumstances that led to the mistake or omission [6] • the extent to which any of the entities have taken corrective action and, if so, how quickly [7] • whether Division 7A has applied previously in relation to any of the relevant entities [8] , and • any other relevant matters. [9] • the circumstances that led to the mistake or omission [6] • the extent to which any of the entities have taken corrective action and, if so, how quickly [7] • whether Division 7A has applied previously in relation to any of the relevant entities [8] , and • any other relevant matters. [9] Generally, these can be the same factors to establish an honest mistake or inadvertent omission. 12A. Circumstances in which the mistake or omission was made Paragraph 109RB(3)(a) requires you to consider the circumstances in which the relevant mistake or omission was made, such as: • Did the entities involved in the transaction take reasonable care? [10] • Did the relevant entity act in accordance with professional advice? • Were there any unforeseen personal circumstances (such as sudden illness) that affected the ability to comply with Division 7A? • Was ATO advice and guidance publicly available and widely publicised or provided directly to the relevant entities or their agents? • Were the circumstances part of a broader behaviour that involved tax avoidance, fraud or evasion? • Was the entity's application of a provision of Division 7A contentious or did they have a reasonably arguable position? [11] • Given the complexity of the business and business records, what was the likelihood of self-detection of Division 7A applying? • What attempts did the relevant entities make to comply with Division 7A? • Were the transactions commercial in nature? • To what extent were the relevant transactions recorded in the financial statements? • What was the Division 7A knowledge of other relevant entities involved in the transaction? • Did the entities involved in the transaction take reasonable care? [10] • Did the relevant entity act in accordance with professional advice? • Were there any unforeseen personal circumstances (such as sudden illness) that affected the ability to comply with Division 7A? • Was ATO advice and guidance publicly available and widely publicised or provided directly to the relevant entities or their agents? • Were the circumstances part of a broader behaviour that involved tax avoidance, fraud or evasion? • Was the entity's application of a provision of Division 7A contentious or did they have a reasonably arguable position? [11] • Given the complexity of the business and business records, what was the likelihood of self-detection of Division 7A applying? • What attempts did the relevant entities make to comply with Division 7A? • Were the transactions commercial in nature? • To what extent were the relevant transactions recorded in the financial statements? • What was the Division 7A knowledge of other relevant entities involved in the transaction? 12B. Extent of corrective action and when it should be taken Taking timely and appropriate corrective action will weigh in favour of exercise of the discretion. What constitutes corrective action Appropriate corrective action should put the relevant parties in the position that they would have been in if Division 7A had been applied correctly. Corrective action includes: • converting the payment, loan or debt forgiveness to a loan that complies with section 109N, and • making catch-up or shortfall minimum yearly repayments as if the transaction always complied with section 109N (plus interest compounded to reflect non-payment in earlier years). • converting the payment, loan or debt forgiveness to a loan that complies with section 109N, and • making catch-up or shortfall minimum yearly repayments as if the transaction always complied with section 109N (plus interest compounded to reflect non-payment in earlier years). The corrective actions required in different situations are contained in Appendix A to this Practice Statement. Relevance of the time when corrective action is taken Where a relevant entity takes prompt corrective action after becoming aware that Division 7A had not been properly addressed, this will weigh in favour of exercise of the discretion. If there is a delay in taking corrective action or the relevant entities are only willing to take corrective action if the Commissioner's discretion is exercised Those seeking the exercise of the discretion to disregard the deemed dividends should have voluntarily and unilaterally implemented corrective action unless it was unreasonable to do so (for example, the corrective action would have been costly or unduly inconvenient). Delays in taking corrective action may weigh against the exercise of the discretion. It may genuinely and reasonably be believed that taking corrective action should be conditional on the exercise of the discretion. For example, there may be circumstances where an entity has not yet implemented corrective action but is willing to do so as part of fulfilling the Commissioner's discretion conditions. This will not weigh against the exercise of the discretion where a timely application is made to the Commissioner for the discretion. If the relevant entities are unwilling to take corrective action Where it is reasonable for a relevant entity to have taken corrective action and they are unwilling to do so, this will weigh against exercise of the discretion. A relevant entity may genuinely and reasonably believe that corrective action is not warranted. This will not weigh against the exercise of the discretion where a timely application is made to the Commissioner for the discretion. 12C. Instances where Division 7A has been triggered previously A relevant entity who has previously triggered Division 7A (whether or not the Commissioner exercised the discretion under section 109RB in relation to that earlier occurrence) would be expected to show greater vigilance. Where there has been no increase in the care taken in relation to the application of Division 7A, this will weigh against the exercise of the discretion. Where the relevant entities were aware that substantially the same transactions had previously triggered Division 7A, this will generally weigh against exercise of the discretion. [12] 12D. Any other relevant matters When deciding whether to exercise the discretion, the meaning of 'any other relevant matters' is wide-ranging. A matter is relevant if: • it provides further insight into circumstances surrounding the trigger of Division 7A, including discovery of the matter and any corrective action, and • the purpose of Division 7A as an integrity provision (to prevent the tax-free distribution of company profits) will be met if you exercise the discretion. • it provides further insight into circumstances surrounding the trigger of Division 7A, including discovery of the matter and any corrective action, and • the purpose of Division 7A as an integrity provision (to prevent the tax-free distribution of company profits) will be met if you exercise the discretion. It may be relevant to look more widely at the conduct and knowledge of all of those who were in any way involved in the mistake or omission. Without a satisfactory explanation, the longer the period of inaction after having discovered Division 7A was triggered, the lesser the likelihood that the discretion will be exercised. If a relevant entity knew the transaction being undertaken would trigger Division 7A but did nothing to prevent that result If a relevant entity knew the transaction being undertaken would trigger Division 7A, then this would weigh against exercise of the discretion. | 13. Making a decision to either disregard a deemed dividend or allow it to be franked: When making a decision to either disregard a deemed dividend or allow it to be franked, you need to consider which of the following 2 outcomes is the most appropriate [13] : • the deemed dividend or the assessable amount under Subdivision EA of Division 7A to be disregarded, or • the deemed dividend be franked in accordance with Part 3-6 of the Income Tax Assessment Act 1997. • the deemed dividend or the assessable amount under Subdivision EA of Division 7A to be disregarded, or • the deemed dividend be franked in accordance with Part 3-6 of the Income Tax Assessment Act 1997. Any decision to disregard a deemed dividend or allow it to be franked should reflect these outcomes, as relevant: • the retained profits of the private company are restored to the private company • the private company receives the correct repayments of principal and interest that it would have received under a section 109N loan agreement and pays tax on the amount of interest income, or • the recipient of the benefit is appropriately taxed. • the retained profits of the private company are restored to the private company • the private company receives the correct repayments of principal and interest that it would have received under a section 109N loan agreement and pays tax on the amount of interest income, or • the recipient of the benefit is appropriately taxed. The power of the Commissioner to allow franking does not apply to the amount included in the assessable income of a shareholder's associate under Division 7A (including Subdivision EA). 13A. Factors to consider when disregarding the dividend or allowing it to be franked Relevant factors in relation to disregarding the dividend or allowing it to be franked include: • the extent and nature of corrective action including the capacity of the entities to take the corrective action • the effect of franking a deemed dividend on the franking account • whether the franking of a deemed dividend will result in franking credit streaming, and • the recipient's period of review. • the extent and nature of corrective action including the capacity of the entities to take the corrective action • the effect of franking a deemed dividend on the franking account • whether the franking of a deemed dividend will result in franking credit streaming, and • the recipient's period of review. 13B. Whether to exercise the discretion subject to a condition The Commissioner may exercise the discretion subject to the following kinds of conditions [14] : • a condition that the recipient or other entity must make specified payments to the private company or another entity within a specified time, or • a condition that a specified requirement in Division 7A must be met within a specified time. • a condition that the recipient or other entity must make specified payments to the private company or another entity within a specified time, or • a condition that a specified requirement in Division 7A must be met within a specified time. If the Commissioner exercises the discretion subject to a condition, the relevant deemed dividend is not disregarded until such time as any conditions imposed by the Commissioner are satisfied. [15] Therefore, any amount assessable as a result of Division 7A remains assessable if the condition is never satisfied. Where appropriate corrective action has not been taken, it is only in exceptional cases that you should exercise the discretion to disregard the dividend without imposing conditions requiring remediation. Exercise of the discretion by allowing a deemed dividend to be franked does not require conditions. 13C. A reasonable time to require the corrective action be taken Any corrective or remedial action should normally be required in the income year in which the Commissioner's discretion is exercised. However you should consider: • circumstances that make it more appropriate to satisfy conditions in a later income year • the time reasonably required to undertake the corrective action, and • the period of review for the income year in which Division 7A is triggered. • circumstances that make it more appropriate to satisfy conditions in a later income year • the time reasonably required to undertake the corrective action, and • the period of review for the income year in which Division 7A is triggered. Your decision must be made in writing (see Appendix B to this Practice Statement). | 14. Review rights in respect of a decision made under section 109RB: If a taxpayer is dissatisfied with an assessment affected by a decision not to exercise the discretion, they may object [16] to the assessment on the grounds of a failure to properly exercise the section 109RB discretion. A taxpayer who is dissatisfied with the objection decision can either apply to the Administrative Review Tribunal or to the Federal Court against the decision (section 14ZZ of the Taxation Administration Act 1953). If any jurisdictional difficulty arises in the Administrative Review Tribunal or the court, the Commissioner will cooperate with the taxpayer to have the issue properly tested. | 15. Whether to refer the tax agent to the Tax Practitioners Board: Where you become aware of a tax agent who has demonstrated a lack of competence, you should consider referring them to the Tax Practitioners Board in respect of a potential breach of the Code of Professional Conduct under section 30-10 of the Tax Agent Services Act 2009. | 16. More information: Relevant examples can be accessed on our website. As these examples will be updated from time to time, you should refer to them at each time you are considering the discretion. For more information, see: • Division 7A • Section 109RB • TR 2010/8 • The Commissioner's discretion under section 109RB – Examples . • Division 7A • Section 109RB • TR 2010/8 • The Commissioner's discretion under section 109RB – Examples . Table 1: Appropriate corrective action CATEGORY APPROPRIATE CORRECTIVE ACTION 1. The deemed dividend arose in respect of a payment under section 109C or a loan under section 109D • The full amount of the payment is converted to a loan; a loan agreement is executed that complies with section 109N at all times from the time the deemed dividend arose. • The taxpayer makes 'catch-up' minimum yearly repayments of interest and capital as if the loan existed from the time the deemed dividend arose. 2. The deemed dividend arose in respect of section 109E and modified for Subdivision EA The taxpayer makes 'catch-up' minimum yearly repayments of interest and capital as if the loan existed from the time the deemed dividend arose. 3. The deemed dividend arose in respect of a debt forgiveness under section 109F • A loan agreement is entered into that complies with section 109N at all times from the time the deemed dividend arose; the principal of the loan equals the amount of the debt forgiven. • The taxpayer makes 'catch-up' minimum yearly repayments of interest and capital as if the loan existed from the time the deemed dividend arose. 4. The deemed dividend arose in respect of an assessable amount under section 109XB In the case of a subsection 109XA(1) payment – the subsection 109XA(4) amount involved in the actual transaction is converted to a loan and a loan agreement is entered into that complies with section 109N at all times from the time the deemed dividend arose. In the case of a subsection 109XA(2) loan – the taxpayer and the trustee entered into a loan agreement for the subsection 109XA(4) amount that complies with section 109N at all times from the time the deemed dividend arose. In the case of a subsection 109XA(3) forgiven debt: • the subsection 109XA(4) amount involved in the actual transaction is treated as the principal of a loan and a loan agreement is entered into that complies with section 109N at all times from the time the deemed dividend arose, and • in any of the situations covered by the 3 preceding dot points, the taxpayer makes 'catch-up' minimum yearly repayments of interest and capital as if the loan existed from the time the deemed dividend arose. • The full amount of the payment is converted to a loan; a loan agreement is executed that complies with section 109N at all times from the time the deemed dividend arose. • The taxpayer makes 'catch-up' minimum yearly repayments of interest and capital as if the loan existed from the time the deemed dividend arose. • A loan agreement is entered into that complies with section 109N at all times from the time the deemed dividend arose; the principal of the loan equals the amount of the debt forgiven. • The taxpayer makes 'catch-up' minimum yearly repayments of interest and capital as if the loan existed from the time the deemed dividend arose. In the case of a subsection 109XA(2) loan – the taxpayer and the trustee entered into a loan agreement for the subsection 109XA(4) amount that complies with section 109N at all times from the time the deemed dividend arose. In the case of a subsection 109XA(3) forgiven debt: • the subsection 109XA(4) amount involved in the actual transaction is treated as the principal of a loan and a loan agreement is entered into that complies with section 109N at all times from the time the deemed dividend arose, and • in any of the situations covered by the 3 preceding dot points, the taxpayer makes 'catch-up' minimum yearly repayments of interest and capital as if the loan existed from the time the deemed dividend arose. • the subsection 109XA(4) amount involved in the actual transaction is treated as the principal of a loan and a loan agreement is entered into that complies with section 109N at all times from the time the deemed dividend arose, and • in any of the situations covered by the 3 preceding dot points, the taxpayer makes 'catch-up' minimum yearly repayments of interest and capital as if the loan existed from the time the deemed dividend arose. Most section 109RB decisions will fall into one of the following 5 categories. Table 2: Section 109RB decisions CATEGORY STEP 1 Outcome STEP 2 Outcome 1. Exercise the Commissioner's discretion without conditions Pass. Exercise the discretion without conditions, because corrective action is not necessary or has already been taken. 2. Exercise the Commissioner's discretion with conditions Pass. Exercise the discretion, but with conditions attached because corrective action has not occurred and must be taken. 3. Decision not to exercise the Commissioner's discretion Fail, because the Commissioner is unable to establish that there is an honest mistake or inadvertent omission. Cannot go to Step 2 because Step 1 failed. 4. Decision not to exercise the Commissioner's discretion Pass. Commissioner decides not to exercise his discretion having considered the factors in subsection 109RB(3). 5. Based on the evidence presented, the Commissioner is unable to make a decision Fail, because of insufficient or ambiguous evidence. Cannot go to Step 2 because Step 1 failed. Note: Decisions 3 and 5 are similar. Decision 3 assumes that the applicant is not likely to have more evidence, whereas Decision 5 enables the applicant to provide more evidence if available.",Division 7A | Section 109RB | TR 2010/8 | MT 2008/1 | MT 2008/2 | PS LA 2003/3 | ITAA 1936 Subdiv EA of Div 7A | ITAA 1936 44 | ITAA 1936 109C | ITAA 1936 109D | ITAA 1936 109E | ITAA 1936 109F | ITAA 1936 109N | ITAA 1936 109RB | ITAA 1936 109RB(1) | ITAA 1936 109RB(2) | ITAA 1936 109RB(3) | ITAA 1936 109RB(3)(a) | ITAA 1936 109RB(3)(b) | ITAA 1936 109RB(3)(c) | ITAA 1936 109RB(3)(d) | ITAA 1936 109RB(4) | ITAA 1936 109RB(5) | ITAA 1936 109XA(1) | ITAA 1936 109XA(2) | ITAA 1936 109XA(3) | ITAA 1936 109XA(4) | ITAA 1936 109XB | ITAA 1936 175A | ITAA 1936 318 | ITAA 1997 Pt 3-6 | TAA 1953 Part IVC | TAA 1953 14ZZ | Tax Agent Services Act 2009 30-10,PS LA 2003/3,ITAA 1936 Subdiv EA of Div 7A | ITAA 1936 44 | ITAA 1936 109C | ITAA 1936 109D | ITAA 1936 109E | ITAA 1936 109F | ITAA 1936 109N | ITAA 1936 109RB | ITAA 1936 109RB(1) | ITAA 1936 109RB(2) | ITAA 1936 109RB(3) | ITAA 1936 109RB(3)(a) | ITAA 1936 109RB(3)(b) | ITAA 1936 109RB(3)(c) | ITAA 1936 109RB(3)(d) | ITAA 1936 109RB(4) | ITAA 1936 109RB(5) | ITAA 1936 109XA(1) | ITAA 1936 109XA(2) | ITAA 1936 109XA(3) | ITAA 1936 109XA(4) | ITAA 1936 109XB | ITAA 1936 175A | ITAA 1936 318 | ITAA 1997 Pt 3-6 | TAA 1953 Part IVC | TAA 1953 14ZZ | Tax Agent Services Act 2009 30-10,,Objection cases involving section 109RB discretion under Division 7A (link available internally only) Private Wealth - Referrals to Private Wealth Technical Leadership and Advice (link available internally only) SB Referring Tax Technical Issues (link available internally only) The Commissioner's discretion under section 109RB – Examples,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS201129/NAT/ATO/00001,"Appendix A – CORRECTIVE ACTION | Appendix B – POSSIBLE SECTION 109RB DECISIONS | Updated in line with current ATO style and accessibility requirements. | Minor wording amendment under the heading 'If there is a delay in taking corrective action or the relevant entities are only willing to take corrective action if the Commissioner's discretion is exercised'. | Who is authorised to exercise the discretion on behalf of the Commissioner? | Updated to reflect that an O&R officer's escalation to O&R Case Leadership must be in accordance with internal procedures and not by email. | What review rights are there in respect of a decision made under section 109RB? | Updated to reflect the Administrative Review Tribunal was established by the Administrative Review Tribunal Act 2024 and commenced operations on 14 October 2024, replacing the Administrative Appeals Tribunal (AAT). | Updates also made to reflect business line name changes from Review and Dispute Resolution (RDR) to Objections and Review (O&R) and Integrated Compliance to Fraud and Criminal Behaviours. | Updated to reflect an updated instrument of authorisation concerning officers from the SMB business line. | Addition of References table at end of Practice Statement. | Updated to clarify the authorised officers on the creation of the PW and IC business lines. | Updated to clarify the independence of the RDR business line for considering exercise of the discretion in their decisions and to reference internal process documents. | Update references to 'taxpayer', 'relevant entity','parties' and 'relevant ' party throughout the Practice Statement for certainty. Updates made to formatting and style. | Updated to new LAPS format and style. | [1] Authorising officers are persons who have been granted the role to authorise private rulings. | [2] Subdivision EA of Division 7A deals with deemed dividends arising in relation to unpaid present entitlements of a company. | [3] Taxation Ruling TR 2010/8 Income tax: application of subsection 109RB(1) of the Income Tax Assessment Act 1936 contains detailed guidance on the meaning of honest mistake and inadvertent omission. | [4] A precedential ATO view is the ATO's documented interpretation of the tax laws administered by us in relation to a particular interpretive issue; see Law Administration Practice Statement PS LA 2003/3 Precedential ATO view . The types of documents which set out ATO views are listed at paragraph 3 of PS LA 2003/3 and in the Schedule of documents containing precedential ATO views. | [5] ATO advice includes ATO education activities, such as webcasts, bulk mail outs and fact sheets, public rulings, private rulings, practice statements, taxpayer alerts and any other relevant advice published by the ATO. | [6] Paragraph 109RB(3)(a). | [7] Paragraph 109RB(3)(b). | [8] Paragraph 109RB(3)(c). | [9] Paragraph 109RB(3)(d). | [10] For a discussion on what is considered a reasonable care, see Miscellaneous Taxation Ruling MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard . | [11] For a discussion on what is considered a reasonably arguable position, see Miscellaneous Taxation Ruling MT 2008/2 Shortfall penalties: administrative penalty for taking a position that is not reasonably arguable . | [12] This is also relevant to determining whether the breach is a result of an honest mistake or inadvertent omission; see TR 2010/8 at paragraph 98. | [13] Subsection 109RB(2). | [14] Subsection 109RB(4). | [15] Subsection 109RB(5). | [16] Under section 175A in the manner set out in Part IVC of the Taxation Administration Act 1953 . | Related Rulings/Determinations: MT 2008/1 MT 2008/2 TR 2010/8"
PS LA 2011/30,SUBJECT: Remission of administrative penalties relating to schemes imposed by subsection 284-145(1) of Schedule 1 to the Taxation Administration Act 1953 PURPOSE: To provide guidance on remission of administrative penalty relating to scheme shortfall amounts,15 December 2011,15 December 2011,Law Administration Practice Statement,False,"1. Division 284 of Part 4-25 of Schedule 1 to the Taxation Administration Act 1953 (TAA) sets out the uniform administrative penalties regime that applies to entities [1] for failing to satisfy their obligations under the taxation laws. [2] Uniform penalties will apply where an entity fails to satisfy the same type of obligation under different taxation laws. 2. All legislative references in this Practice Statement are to Schedule 1 to the TAA, unless otherwise indicated. 3. An entity is liable to an administrative penalty where they get a scheme benefit or attempt to get a scheme benefit from a scheme [3] and they entered into or carried out the scheme with the sole or dominant purpose of getting a scheme benefit. Tax avoidance schemes are, broadly, arrangements designed to avoid or defer tax obligations and to which an adjustment provision can be applied. Schemes often involve a series of complex transactions in order to avoid or minimise tax otherwise payable or to increase a credit that an entity is not otherwise entitled to. 4. A scheme benefit under section 284-150 can consist of either a reduction in a tax-related liability or an increase in payment or credit. An adjustment provision is a provision in the tax law, including Part IVA of the Income Tax Assessment Act 1936, which operates to eliminate a scheme benefit. 5. The scheme shortfall amount is the scheme benefit amount that an entity would have got from a scheme apart from the adjustment provision and is, therefore, the difference between the tax-related liability of the entity under the scheme and the tax-related liability apart from the scheme: subsections 284-150(1) and (2). [4] 6. Under paragraph 284-160(a), the base penalty amount (BPA) is calculated as: • 50% of the scheme shortfall amount, or • 25% of the scheme shortfall amount if it is reasonably arguable that the adjustment provision does not apply to the scheme. • 50% of the scheme shortfall amount, or • 25% of the scheme shortfall amount if it is reasonably arguable that the adjustment provision does not apply to the scheme. 7. The administration of Subdivision 284-C penalties involves 3 main steps: • Step 1 – Determine whether a penalty is imposed by law. • Step 2 – Assess the amount of the penalty - determine the shortfall amount - determine the BPA - determine whether the BPA is increased or decreased under any of the provisions of Subdivision 284-D - determine if remission under subsection 298-20(1) is appropriate. • Step 3 – Notify the entity of the liability to pay the penalty. • Step 1 – Determine whether a penalty is imposed by law. • Step 2 – Assess the amount of the penalty - determine the shortfall amount - determine the BPA - determine whether the BPA is increased or decreased under any of the provisions of Subdivision 284-D - determine if remission under subsection 298-20(1) is appropriate. • Step 3 – Notify the entity of the liability to pay the penalty. - determine the shortfall amount - determine the BPA - determine whether the BPA is increased or decreased under any of the provisions of Subdivision 284-D - determine if remission under subsection 298-20(1) is appropriate. 8. The Commissioner has the discretion to remit all or a part of the penalty under section 298-20. Remission should be considered as part of Step 2, after it has been determined if the BPA is increased or reduced under Subdivision 284-D. [5] 9. This Practice Statement must be used when considering the remission under subsection 298-20(1) of penalties imposed under subsection 284-145(1) of Subdivision 284-C. It only applies to penalties imposed under subsection 284-145(1) and does not apply to 'transfer pricing scheme penalties' imposed under subsection 284-145(2A). 10. Subdivision 284-C applies to things done in relation to: • for income tax, the 2000–01 income year and later years • for fringe benefits tax, the year commencing 1 April 2001 and later years, and • for other taxes, the year commencing 1 July 2000 and later years. • for income tax, the 2000–01 income year and later years • for fringe benefits tax, the year commencing 1 April 2001 and later years, and • for other taxes, the year commencing 1 July 2000 and later years. 11. If an entity has a shortfall amount that is not a scheme shortfall amount, Subdivision 284-C will not need to be considered. In these situations, Subdivision 284-B may apply. 12. Remission of administrative penalties where Subdivisions 284-B and C may apply to the same shortfall amount or scheme shortfall amount is dealt with in Law Administration Practice Statement PS LA 2008/18 Interaction between Subdivisions 284-B and 284-C of Schedule 1 to the Taxation Administration Act 1953. 13. Under section 298-20, the Commissioner has the discretion to remit all or part of the scheme penalty. After all the prior steps required under the penalty legislation have been applied correctly, a remission decision should be made. 14. We must consider remission whenever an entity is liable to penalty under subsection 284-145(1). When making an assessment of penalty, you must determine in every case whether the BPA or adjusted BPA should be remitted in full or in part. 15. This Practice Statement provides guidelines on how the discretion to remit the penalty may be exercised. There is no intention to lay down conditions that may restrict the exercise of the Commissioner's discretion, nor does this Practice Statement represent a general exercise of the Commissioner's discretion. Rather, the guidelines are provided to: • guide you in the exercise of the discretion, and • assist in ensuring entities receive consistent treatment. • guide you in the exercise of the discretion, and • assist in ensuring entities receive consistent treatment. 16. The guiding principles are that the discretion should be exercised: • so there is consistent treatment of penalty rates – the penalty rate is set by law and remission without just cause, arbitrarily or as a matter of course may compromise consistent treatment of penalty rates • where it is fair and reasonable to do so, or • to treat entities in like circumstances consistently. • so there is consistent treatment of penalty rates – the penalty rate is set by law and remission without just cause, arbitrarily or as a matter of course may compromise consistent treatment of penalty rates • where it is fair and reasonable to do so, or • to treat entities in like circumstances consistently. 17. The following general considerations also should be borne in mind when considering whether or not to exercise the discretion to remit: • An entity entering into any tax planning arrangement is expected to be aware of the risks inherent in their position. • Any decision to enter into an arrangement places the onus on the entity involved to familiarise themselves with the arrangement, its operation and the consequences, including tax outcomes. The entity accepts the risks once they decide to enter the arrangement. • The entity is expected to have investigated the arrangement and its potential tax consequences. The entity is expected to adopt a reasonable and sensible approach to the investigation and to try to avoid entering into a tax avoidance scheme. • An entity should be aware that if they enter into a tax planning arrangement which is later shown to be a tax avoidance scheme they risk having to pay a tax liability, plus penalties and interest charges. • An entity entering into any tax planning arrangement is expected to be aware of the risks inherent in their position. • Any decision to enter into an arrangement places the onus on the entity involved to familiarise themselves with the arrangement, its operation and the consequences, including tax outcomes. The entity accepts the risks once they decide to enter the arrangement. • The entity is expected to have investigated the arrangement and its potential tax consequences. The entity is expected to adopt a reasonable and sensible approach to the investigation and to try to avoid entering into a tax avoidance scheme. • An entity should be aware that if they enter into a tax planning arrangement which is later shown to be a tax avoidance scheme they risk having to pay a tax liability, plus penalties and interest charges. 18. Within the framework of the Compliance model and Our Charter , remission decisions should consider whether the penalty outcome is unjust, having regard to whether: • the entity made a genuine attempt to comply with their tax obligations considering their personal circumstances – that is, they took all reasonable and sensible steps to avoid entering into a tax avoidance scheme • the entity has a good compliance history, or • an unjust outcome results for the entity as a result of imposition of the scheme penalty or if the penalty is not remitted. • the entity made a genuine attempt to comply with their tax obligations considering their personal circumstances – that is, they took all reasonable and sensible steps to avoid entering into a tax avoidance scheme • the entity has a good compliance history, or • an unjust outcome results for the entity as a result of imposition of the scheme penalty or if the penalty is not remitted. 19. The following principles in Our Charter should be taken into account: • We should treat entities as being honest unless there is information which suggests otherwise. • Conclusions about an entity's behaviour should only be made where they are supported by facts or where reasonable inferences can be drawn from those facts. • An entity should be contacted and given the opportunity to explain their actions before the scheme penalty decision is made. [6] • We should treat entities as being honest unless there is information which suggests otherwise. • Conclusions about an entity's behaviour should only be made where they are supported by facts or where reasonable inferences can be drawn from those facts. • An entity should be contacted and given the opportunity to explain their actions before the scheme penalty decision is made. [6] | Genuine attempt to comply with tax obligations: 20. A key indicator of an entity making a genuine attempt to comply is whether they have displayed a reasonable investigative approach to the steps and risks associated with their tax position appropriate to their personal circumstances. Each entity has the responsibility to make reasonable and sensible enquiries to determine the risks associated with the tax position they may choose or have chosen in entering into an arrangement. 21. Penalty remission is more likely to occur when an entity can show a degree of investigation and analysis appropriate to their personal circumstances. Examples of investigative behaviour include: • checking the provider's Australian Financial Services (AFS) licence details [7] • checking if there is a product disclosure statement or prospectus • obtaining independent advice from an adviser who has no connection with the seller, the investment scheme or promoter of the arrangement – advice obtained from the seller or promoter is not independent advice • checking if the scheme is covered by an ATO product ruling • checking if a taxpayer alert has issued on the scheme • applying for a private ruling, or • ensuring that implementation of the arrangement proceeds in line with the promoter's or seller's advice or as covered in a relevant ruling. • checking the provider's Australian Financial Services (AFS) licence details [7] • checking if there is a product disclosure statement or prospectus • obtaining independent advice from an adviser who has no connection with the seller, the investment scheme or promoter of the arrangement – advice obtained from the seller or promoter is not independent advice • checking if the scheme is covered by an ATO product ruling • checking if a taxpayer alert has issued on the scheme • applying for a private ruling, or • ensuring that implementation of the arrangement proceeds in line with the promoter's or seller's advice or as covered in a relevant ruling. 22. An entity does not have to display all of these elements to show an investigative approach. We expect the degree of investigation to reflect the risk, complexity of tax affairs and the level of sophistication and resources of the entity. Entities with greater sophistication or resources, relatively more complex affairs or riskier or larger transactions with greater financial implications for the revenue are expected to take greater steps in determining their tax position, even if a registered tax agent or other adviser has been used. 23. In addition to making reasonable and sensible enquiries, an entity should assess or evaluate the material or information gathered or that is available in respect of the investment scheme. Where an entity evaluates the information and it would have been reasonable to have concerns that they were entering a tax avoidance arrangement or scheme, it would be difficult to justify remission. 24. Any entity that does not investigate or undertakes inadequate investigation is considered by us as likely to not have made a genuine attempt to comply. Unless there is some compelling particular or personal circumstance or unjust outcome, penalty remission would be difficult to justify. 25. As a general rule, it would be difficult to justify remission in relation to a claim that an entity merely followed professional advice if it is advice an ordinarily prudent person of comparable experience and expertise would not accept without taking further steps to be sure of their position. 26. Generally, it would be difficult to justify a remission in any of the following circumstances: • An entity has taken a frivolous position or a position that lacks substance with little prospect of success in the courts, particularly if they did not query advice which is without substance. • An entity has relied on a mere speculative opinion, even if the opinion is from an expert source – in this context a speculative opinion or advice involves significant conjecture as to the facts or in its reasoning leading to conclusions which are speculative. • An entity was advised that there was 'a chance' of success with the argument with no indication whether the position was reasonably arguable. • An entity has undertaken a deliberate course of action to find and exploit a scheme, or build a scheme specific to their circumstances – for example, a 'boutique' scheme. • An entity has taken a frivolous position or a position that lacks substance with little prospect of success in the courts, particularly if they did not query advice which is without substance. • An entity has relied on a mere speculative opinion, even if the opinion is from an expert source – in this context a speculative opinion or advice involves significant conjecture as to the facts or in its reasoning leading to conclusions which are speculative. • An entity was advised that there was 'a chance' of success with the argument with no indication whether the position was reasonably arguable. • An entity has undertaken a deliberate course of action to find and exploit a scheme, or build a scheme specific to their circumstances – for example, a 'boutique' scheme. 27. Additionally, many arrangements have several steps in them. It is the responsibility of an entity or their agent to confirm that those steps occur before lodging a tax return or activity statement. For instance, we would expect an entity to be aware that loan documents must be signed and put into effect in law before interest deductions can be claimed and seek assurances or confirm that they were. 28. We publish taxpayer alerts about particular schemes or arrangements. These should be taken into account when considering remission of penalties. As a general rule, remission is difficult to justify for those entities choosing to enter into schemes or arrangements which are the subject of a taxpayer alert or other applicable ATO publication. 29. The absence of a taxpayer alert or other ATO publication is not to be understood as us endorsing a scheme or arrangement in any way. 30. Schemes range from the blatantly artificial or groundless to those which may involve a reasonably arguable position. [8] Remission is less likely to be granted as the schemes become more egregious through blatant, artificial or contrived arrangements. | Personal circumstances: 31. Remission should be considered if an entity, at a disadvantage due to factors including their age, health and background, or through their low level of knowledge or understanding of the tax system, participated in a scheme. 32. Generally, some remission of penalties may occur in circumstances where an entity has been coerced into entering or participating in the scheme by an intermediary (such as an adviser or promoter) where the promoter has taken improper advantage or exerted undue influence affecting the quality of consent given by the entity. [9] 33. An entity may also be in a position of special disadvantage primarily due to the intermediary unduly using their position to influence the entity's decision. This can occur if the entity is not in a position to make an informed assessment about the scheme arrangement and defers to the intermediary's perceived expertise. As a result, the entity accepts the promoter's advice and does not have an understanding of their true tax risk due to their lack of knowledge or taxation sophistication. In these circumstances, remission of penalties should be considered if the entity can show that they only gave their permission to be involved in the scheme due to the intermediary actively taking advantage of their special disadvantage, or the other party's undue influence. 34. Remission may also be justified where, for example, an entity obtains a benefit from a scheme, but they were not the one entering into or carrying out the scheme. The entity would also have to show they had no knowledge of the scheme and could not reasonably be expected to have knowledge of the scheme. | Example 1 – Beneficiaries not involved with the scheme: 35. A trustee of a discretionary trust decides to enter into a scheme. The scheme enables the net income of the trust estate to be significantly reduced and results in the trust income exceeding the net income. The trustee is subsequently able to distribute a significant non-assessable distribution to the beneficiaries. The beneficiaries are used to receiving variable distributions due to the nature of their interest. The beneficiaries do not control the trustee. 36. If the effect of the scheme is overturned, the beneficiaries incur a shortfall and the penalty is worked out under Subdivision 284-C. If the beneficiaries are able to establish that they were not in a position to have any involvement in the established trust decision-making processes and they had no reason to suspect the trustee was involved in the scheme, remission is appropriate for the beneficiaries. The scheme shortfall penalty imposed on the trustee is subject to a separate remission decision. 37. It would generally not be appropriate to remit scheme shortfall penalties where the entity that entered into the scheme is also an intermediary engaged in promoting, marketing, advising on or implementing a scheme which did not involve a reasonably arguable position. [10] These entities would normally be aware of the risk inherent in the scheme, including the avenues available to them under the taxation laws to obtain a product ruling or private ruling from us to mitigate the risks about the taxation consequences of the arrangement. | Compliance history and behaviour: 38. Generally, in cases with similar factors, remission would be more appropriate for an entity with a good relevant compliance history and less appropriate for an entity with a poor relevant compliance history. [11] 39. A particular factor to consider is the entity's involvement with previous schemes. Remission is less likely for an entity with a history of involvement in schemes, or involvement in multiple schemes. | Unjust outcome: 40. In addition to the matters discussed in this Practice Statement, there may be other cases where the penalty imposed may provide an unjust result to the entity. In such cases, we may remit the penalty imposed by the law in whole or in part. 41. This can occur where the mechanical process of the law may result in an unjust result. For example, where 2 or more penalties were imposed on the same day, the second and subsequent penalties will be increased by 20% of the BPA under section 284-220, even if the entity has not been advised of a previous penalty. If there is no evidence or reasonable inference that the entity deliberately or knowingly entered into a tax avoidance scheme, the 20% uplift should be remitted. 42. It is envisaged that any other situation warranting remission for an unjust result would be infrequent. The remission decision will turn on the facts of the case and the result must be patently unjust for remission to occur. | Widely-based settlement panel: 43. A widely-based settlement panel (Panel) has been established to ensure that the terms and conditions of widely-based settlement proposals adopted by us are: • subject to the application of the Practical guide to the ATO code of settlement • consistent and appropriate, and • transparent. • subject to the application of the Practical guide to the ATO code of settlement • consistent and appropriate, and • transparent. 44. Widely-based tax disputes include tax avoidance schemes and arrangements we consider to be ineffective either through the operation of the ordinary provisions of the law or the application of a specific or general anti-avoidance rule. [12] 45. The application of this Practice Statement is subject to the Panel's application of the Practical guide to the ATO code of settlement. 46. The Panel will consider and make recommendations on the remission of penalties, including scheme penalties in cases that are presented to them but the Panel is not the final decision-maker. 47. Where it is considered appropriate to grant remission of penalty as part of the settlement, the Panel will recommend terms that would normally apply equally to the same type of entity engaged in the same widely-based scheme. This should ensure entities of similar background and knowledge participating in the same scheme are treated equitably. | Remission decisions, including partial remission: 48. The remission decision is based on an objective analysis of all the relevant factors in a case. We consider whether the entity has made a genuine attempt to comply with tax obligations, other personal circumstances and their compliance history. No one factor alone will determine if remission should be given or the quantum of any remission. 49. The considerations listed in this Practice Statement are not exhaustive and are not intended to prescribe the only valid factors. Rather, they are designed to encourage an analytical approach to each case and the application of sound judgment in making the remission decision. Each remission decision should be based on an objective consideration of all the relevant factors in the case. 50. A remission decision may result in no remission, partial remission or full remission of the penalty. | Notification of penalty and objection rights: 51. We must make an assessment of the amount of an administrative penalty under Subdivision 284-C. [13] If we decide not to remit a penalty or to partially remit the penalty, we must give written notice of the decision and the reasons for the decision to the entity. [14] 52. Generally, you should notify an entity of the penalty decision, including its liability to pay the scheme penalty, reasons for the penalty and reasons for not remitting in full prior to or at the same time that the assessment of the penalty is issued. 53. An entity that is dissatisfied with an assessment of penalty may object in the manner set out in Part IVC of the TAA. [15] The grounds of the objection may include all elements of the penalty assessment. 54. In the usual situation, where a remission decision is part of an assessment of penalty, the affected entity who is dissatisfied with the assessment will include in their objection any grounds about their dissatisfaction with the remission. 55. If a remission decision is made after an assessment of penalty, the entity may object to the separate remission decision in the manner set out in Part IVC of the TAA if the amount of penalty remaining after the decision is more than 2 penalty units. [16] 56. If a penalty has been remitted in full, an entity cannot object to that decision, as the entity is not dissatisfied with the decision. 57. If the entity objects against the determination of a primary tax-related liability and the determination of the objection results in a reduction of the scheme shortfall amount, the amount of the corresponding shortfall penalty is proportionately reduced. This is not a remission decision and no separate objection rights attach to the recalculation of the penalty.",MT 2008/2 | PS LA 2007/6 | PS LA 2008/18 | PS LA 2012/5 | PS LA 2021/1 | TAA 1953 2 | TAA 1953 Pt IVC | TAA 1953 Sch 1 Subdiv 284-B | TAA 1953 Sch 1 Subdiv 284-C | TAA 1953 Sch 1 Subdiv 284-D | TAA 1953 Sch 1 284-145(1) | TAA 1953 Sch 1 284-145(2A) | TAA 1953 Sch 1 284-150 | TAA 1953 Sch 1 284-150(1) | TAA 1953 Sch 1 284-150(2) | TAA 1953 Sch 1 284-150(3) | TAA 1953 Sch 1 284-160(a) | TAA 1953 Sch 1 284-220 | TAA 1953 Sch 1 298-20 | TAA 1953 Sch 1 298-20(1) | TAA 1953 Sch 1 298-20(2) | TAA 1953 Sch 1 298-20(3) | TAA 1953 Sch 1 298-30(1) | TAA 1953 Sch 1 298-30(2) | ITAA 1936 Pt IVA | ITAA 1997 960-100 | ITAA 1997 995-1 | Crimes Act 1914 4AA,PS LA 2007/6 PS LA 2008/18 PS LA 2012/5 PS LA 2021/1,TAA 1953 2 | TAA 1953 Pt IVC | TAA 1953 Sch 1 Pt 4-25 | TAA 1953 Sch 1 Subdiv 284-B | TAA 1953 Sch 1 Subdiv 284-C | TAA 1953 Sch 1 Subdiv 284-D | TAA 1953 Sch 1 284-145(1) | TAA 1953 Sch 1 284-145(2A) | TAA 1953 Sch 1 284-150 | TAA 1953 Sch 1 284-150(1) | TAA 1953 Sch 1 284-150(2) | TAA 1953 Sch 1 284-150(3) | TAA 1953 Sch 1 284-160(a) | TAA 1953 Sch 1 284-220 | TAA 1953 Sch 1 298-20 | TAA 1953 Sch 1 298-20(1) | TAA 1953 Sch 1 298-20(2) | TAA 1953 Sch 1 298-20(3) | TAA 1953 Sch 1 298-30(1) | TAA 1953 Sch 1 298-30(2) | ITAA 1936 Pt IVA | ITAA 1997 960-100 | ITAA 1997 995-1 | Crimes Act 1914 4AA,,Compliance model Our Charter Practical guide to the ATO code of settlement,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS201130/NAT/ATO/00001,"Updated in line with current ATO style and accessibility requirements. | Paragraph 55 including footnote 16 | Removed specific dollar value for a penalty unit; included a reference to the source of the penalty unit value and where to locate it. | Omitted 'harsh'; substituted 'unjust'. | [1] An entity is defined in section 960-100 of the Income Tax Assessment Act 1997 (ITAA 1997). | [2] Section 2 of the TAA provides that taxation law has the meaning given by the ITAA 1997. | [3] A scheme is defined in section 995-1 of the ITAA 1997 to be any arrangement or any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise. | [4] Subsection 284-150(3) provides a particular formula for working out a scheme shortfall amount to the extent that it is due to errors in working out tax cost setting amounts in a consolidated group and the errors were made in a statement before we became aware of the errors. | [5] It is also possible for remission to be considered after Step 3, once the entity has been notified of the amount of penalty assessed, but the general practice is for the entity to lodge an objection to the assessment including remission of penalty. | [6] Law Administration Practice Statement PS LA 2012/5 Administration of the false or misleading statement penalty – where there is a shortfall amount . | [7] An AFS licence is issued by the Australian Securities and Investment Commission. Anyone who offers financial products and advice must be an AFS licence holder, a director or employee of an AFS licence holder or an authorised representative of an AFS licence holder. | [8] Miscellaneous Taxation Ruling MT 2008/2 Shortfall penalties: administrative penalty for taking a position that is not reasonably arguable provides guidance on taking a position that is not reasonably arguable. | [9] Bester v Perpetual Trustee Co. Ltd . [1970] 3 NSWR 30. | [10] Law Administration Practice Statement PS LA 2021/1 Application of the promoter penalty laws provides guidance on the application of the promoter penalty provisions to potential tax exploitation schemes. | [11] An entity's compliance history refers to the entity's compliance with all of the entity's taxation obligations including registration, lodgment, lodging correct returns, activity statements and other documents required to be lodged under taxation laws, as well as correct and timely payment of tax liabilities. | [12] Law Administration Practice Statement PS LA 2007/6 Guidelines for settlement of widely - based tax disputes provides guidance on the settlement of widely-based tax disputes. | [13] Subsection 298-30(1). | [14] Subsection 298-20(2). | [15] Subsection 298-30(2). | [16] Subsection 298-20(3). The value of a penalty unit is contained in section 4AA of the Crimes Act 1914 and is indexed regularly. The dollar amount of a penalty unit is available at Penalty units . | File 1-37UND60; 1-14BKM36K; 1-14BMAY3P | Bester v. Perpetual Trustee Co Ltd [1970] 3 NSWR 30"
PS LA 2010/1,Approach to cases involving Division 6 (trust income) of the Income Tax Assessment Act 1936,2 June 2010,2 June 2010,Law Administration Practice Statement,False,"1. What this Practice Statement is about: This Practice Statement provides guidance on how to approach compliance activities involving Division 6 of Part III (trust income) of the Income Tax Assessment Act 1936 , particularly in the light of the High Court decision in Commissioner of Taxation v Bamford [2010] HCA 10 ( Bamford ). This Practice Statement replaces Law Administration Practice Statement PS LA 2009/7 (withdrawn) Approach to certain trust issues involving Division 6 of Part III of the Income Tax Assessment Act 1936 pending resolution of the Bamford litigation , which applies to the pre- Bamford situation. All legislative references in this Practice Statement are to the Income Tax Assessment Act 1936 , unless otherwise indicated. | 2. Relevant legislation: Under section 97, a beneficiary who is presently entitled to a share of the 'income of the trust estate' is assessed on 'that share' of the trust's notional taxable income worked out under section 95. That notional taxable income is referred to as the 'net income' of the trust estate. However, to avoid confusion, in this Practice Statement it is referred to as the '[tax] net income'. The [tax] net income of a trust for an income year is calculated in accordance with section 95 and assessed to beneficiaries or the trustee in accordance with Division 6 (particularly sections 97, 98, 98A, 99 and 99A). | 3. The Bamford decision: In considering the meanings to be given to 'income of the trust estate' and 'share', the High Court found in Bamford that: • 'income of the trust estate' takes its meaning from trust law such that, if the deed permits, capital receipts of a period can be treated as income for that period • a beneficiary's share of the income of the trust estate is converted to a percentage and the beneficiary is assessed on that percentage of the trust's [tax] net income • a trustee resolution, made under a power in the trust instrument, to treat a capital receipt as income was effective to treat the capital receipt as income of the trust estate for the purposes of section 97. • 'income of the trust estate' takes its meaning from trust law such that, if the deed permits, capital receipts of a period can be treated as income for that period • a beneficiary's share of the income of the trust estate is converted to a percentage and the beneficiary is assessed on that percentage of the trust's [tax] net income • a trustee resolution, made under a power in the trust instrument, to treat a capital receipt as income was effective to treat the capital receipt as income of the trust estate for the purposes of section 97. | 4. Post Bamford: Since the Bamford decision, there have been a number of judicial decisions relevant to assessing the [tax] net income of a trust. Important judicial decisions include: • Colonial First State Investments Limited v Commissioner of Taxation [2011] FCA 16, which deals with a number of matters relevant to ascertaining how the tax law applies to trusts, and • Commissioner of Taxation v Greenhatch [2012] FCAFC 84, which provides that streaming of capital gains for trust law purposes does not necessarily cause a corresponding income tax treatment. • Colonial First State Investments Limited v Commissioner of Taxation [2011] FCA 16, which deals with a number of matters relevant to ascertaining how the tax law applies to trusts, and • Commissioner of Taxation v Greenhatch [2012] FCAFC 84, which provides that streaming of capital gains for trust law purposes does not necessarily cause a corresponding income tax treatment. Relevant legislative changes have also been introduced. [1] For income years ended 30 June 2011 and later, where franked distributions and capital gains of a trust are streamed to a taxpayer in a manner prescribed by the tax law, that taxpayer will be assessed on a corresponding amount of franked distributions and capital gains. For the same years, additional integrity provisions may apply where income tax exempt entities are made presently entitled to the income of a trust estate. We have also developed further documents (and withdrawn some existing documents) that provide guidance on the operation of Division 6. A list of the available guidance documents and those that were withdrawn is contained in section 10 of this Practice Statement. | 5. How you should approach trust issues: You must consider in detail the trust deed (including any amendments) and all relevant documents, including (but not limited to) relevant trustee resolutions and financial statements. You should request this information from the taxpayer if it has not been provided. You should not rely on a distribution statement in a trust's tax return as the sole basis for determining who should be assessed on the trust's [tax] net income. | 6. Raising alternative assessments: You should raise alternative assessments against beneficiaries or the trustee where, because of different views of the facts, there is genuine doubt about which assessment is correct. For example, if there are 2 interpretations clearly open as to the effect of a particular trustee resolution and on one interpretation a share of the trust's [tax] net income is properly assessed to the trustee and on another interpretation it is assessed to beneficiaries, then it would be appropriate to issue assessments in respect of that share to both the trustee and the relevant beneficiaries. Any recovery action should be in relation to the primary assessment only. Law Administration Practice Statements PS LA 2006/7 Alternative assessments and PS LA 2011/4 Collection and recovery of disputed debts contain more information about alternative assessments. | 7. Deliberate attempts to exploit Division 6: You should be alert to arrangements that seek to avoid some or all of the liability in respect of the [tax] net income of a trust, for example, where: • there is a deliberate mismatch between the beneficiaries' entitlements and the tax outcomes, with the result that some or all of the tax liability in respect of the trust's [tax] net income is avoided (see Example 1 of this Practice Statement) • there are reasonable arguments to suggest that Part IVA or a specific anti-avoidance or integrity provision such as section 100A (aimed at trust-stripping schemes) may apply to alter the way the [tax] net income is allocated between the trustee and the beneficiaries (see Examples 2 and 3 of this Practice Statement) • it is reasonably arguable, on the facts of the case, that aspects of the arrangement that affect the application of Division 6 are a sham or of no legal effect (like the purported resolutions to appoint income to a loss trust that were disregarded in Raftland Pty Ltd as trustee of the Raftland Trust v Commissioner of Taxation [2008] HCA 21. • there is a deliberate mismatch between the beneficiaries' entitlements and the tax outcomes, with the result that some or all of the tax liability in respect of the trust's [tax] net income is avoided (see Example 1 of this Practice Statement) • there are reasonable arguments to suggest that Part IVA or a specific anti-avoidance or integrity provision such as section 100A (aimed at trust-stripping schemes) may apply to alter the way the [tax] net income is allocated between the trustee and the beneficiaries (see Examples 2 and 3 of this Practice Statement) • it is reasonably arguable, on the facts of the case, that aspects of the arrangement that affect the application of Division 6 are a sham or of no legal effect (like the purported resolutions to appoint income to a loss trust that were disregarded in Raftland Pty Ltd as trustee of the Raftland Trust v Commissioner of Taxation [2008] HCA 21. Example 1 – recharacterisation of capital outgoing as being on income account In a particular year, the trustee of a family trust derives $250,000 income, of which $245,000 is applied to buy a holiday home for the family. The trust deed gives the trustee power to distribute income and capital among a single class of discretionary objects and to characterise receipts and outgoings as on income or capital account. In the relevant year, one of the discretionary objects is in a loss position for tax purposes. The trustee, in purported exercise of its power under the deed, determines that the purchase of the holiday home involved an outgoing on income account and that consequently the income of the trust legally available for distribution for the year is $5,000. The trustee further resolves that this amount is to be appointed to the loss beneficiary. The trustee contends that, as the loss beneficiary is presently entitled to all of the income of the trust for section 97 purposes, all of the [tax] net income of the trust is also assessable to the loss beneficiary. This would have the result that the [tax] net income of the trust would be free of tax. The contended result here involves a clear mismatch between the loss beneficiary's entitlements and the tax outcomes; all of the [tax] net income is assessed to the loss beneficiary but the bulk of the income is accumulated. You should closely scrutinise an arrangement of this kind. Issues you need to consider include whether the purchase of the holiday home is an expense or outgoing of the trust that should be taken into account in determining the income of the trust estate, or whether it is simply an accumulation of that income such as may attract the operation of section 99A or, alternatively, whether Part IVA may apply. Example 2 – recharacterisation of trust income as a capital receipt In a particular year, the trustee of a family trust derives $100,000 of income. The trust deed has 2 classes of beneficiaries (those entitled to share in income and those entitled to share in the capital) and the membership of these 2 classes is different. The trustee has a discretion to allocate income and capital within the 2 classes of beneficiaries. The deed also gives the trustee a power to determine whether receipts and outgoings are on income or capital account. Having received advice on effective strategies for minimising tax and in accordance with the terms of that advice, the trustee: • in purported exercise of a power under the deed, amends the deed to admit into the class of income beneficiaries of the trust a tax exempt charity, and • determines to characterise $95,000 of the income as a capital receipt for the purposes of the deed. • in purported exercise of a power under the deed, amends the deed to admit into the class of income beneficiaries of the trust a tax exempt charity, and • determines to characterise $95,000 of the income as a capital receipt for the purposes of the deed. The trustee allocates the $5,000 of income to the charity and the remaining $95,000 as capital to a family member who is an eligible capital beneficiary. The trustee contends that as the charity is presently entitled to all of the income of the trust for section 97 purposes, all of the [tax] net income of the trust is to be attributed to the charity. This would result in the [tax] net income of the trust being free of tax. Before the year in question, the only entities to have benefited from a distribution of income from the trust were members of the family for whom the trust was settled. This example raises questions about the tax effect of recharacterising capital that was otherwise received as income and whether the arrangement might attract the operation of Part IVA. There is also a question about whether the trustee was authorised, under the trust deed, to recharacterise what was clearly an income receipt as capital. You need to examine (in light of the settlor's intention to distinguish between those beneficiaries to whom income and capital could be allocated) whether the seemingly broad power to recharacterise receipts was any more than an administrative power to honestly classify receipts according to law. In this regard, see the Decision Impact Statement on Forrest v Commissioner of Taxation [2010] FCAFC 6. If this arrangement occurred in the 2010–11 and later income years, the anti-avoidance rules contained in sections 100AA and 100AB need to be considered as they apply to distributions to an exempt entity. In this example: • Section 100AA applies where the trustee does not pay or notify the exempt entity in writing of their present entitlement to the $5,000 within 2 months of the end of the relevant income year. The exempt entity is treated as not being (and never having been) presently entitled to the income of the trust estate to the extent that they were neither notified nor paid the entitlement. • Section 100AB applies as the exempt entity's adjusted Division 6 percentage of 100% exceeds its benchmark percentage of 5%. The adjusted Division 6 percentage is the exempt entity's entitlement to the income of the trust estate (ignoring capital gains or franked distributions to which any beneficiary or trustee is specifically entitled) expressed as a percentage of that income (being $5,000 ÷ $5,000 × 100%). The benchmark percentage is the exempt entity's present entitlement to any amount forming part of the trust's adjusted [tax] net income expressed as a percentage of that income (being $5,000 ÷ $100,000 × 100%). The exempt entity is treated as not being (and never having been) presently entitled to 95% of the income of the trust. • If the trustee neither notified nor paid the exempt entity within the 2 month requirement, section 100AA results in the trustee being assessed and liable to pay tax under section 99A on the $100,000 [tax] net income of the trust. If the trustee did advise or pay the exempt entity within the 2 month requirement, section 100AB results in the trustee being assessed and liable to pay tax under section 99A on $95,000 (being 95% of the $100,000 [tax] net income of the trust). • Section 100AA applies where the trustee does not pay or notify the exempt entity in writing of their present entitlement to the $5,000 within 2 months of the end of the relevant income year. The exempt entity is treated as not being (and never having been) presently entitled to the income of the trust estate to the extent that they were neither notified nor paid the entitlement. • Section 100AB applies as the exempt entity's adjusted Division 6 percentage of 100% exceeds its benchmark percentage of 5%. The adjusted Division 6 percentage is the exempt entity's entitlement to the income of the trust estate (ignoring capital gains or franked distributions to which any beneficiary or trustee is specifically entitled) expressed as a percentage of that income (being $5,000 ÷ $5,000 × 100%). The benchmark percentage is the exempt entity's present entitlement to any amount forming part of the trust's adjusted [tax] net income expressed as a percentage of that income (being $5,000 ÷ $100,000 × 100%). The exempt entity is treated as not being (and never having been) presently entitled to 95% of the income of the trust. • If the trustee neither notified nor paid the exempt entity within the 2 month requirement, section 100AA results in the trustee being assessed and liable to pay tax under section 99A on the $100,000 [tax] net income of the trust. If the trustee did advise or pay the exempt entity within the 2 month requirement, section 100AB results in the trustee being assessed and liable to pay tax under section 99A on $95,000 (being 95% of the $100,000 [tax] net income of the trust). Example 3 – exclusion of net capital gain from trust income In a particular year, the trustee of a family trust derives business income of $10,000 and a net capital gain of $1 million. The trust deed provides the trustee with a power to appoint income and capital among discretionary objects. It also contains an income equalisation clause that equates income of the trust to section 95 net income unless the trustee otherwise determines. Having received advice on effective strategies for minimising tax, and in accordance with the terms of that advice: • the trustee exercised a power under the deed, which ensured that the income of the trust estate excluded the net capital gain, and • a corporate beneficiary was specifically incorporated and introduced in the relevant year – the company was a general beneficiary as defined in the deed because of its relationship with other general beneficiaries. • the trustee exercised a power under the deed, which ensured that the income of the trust estate excluded the net capital gain, and • a corporate beneficiary was specifically incorporated and introduced in the relevant year – the company was a general beneficiary as defined in the deed because of its relationship with other general beneficiaries. The trustee appoints the $10,000 of income to the company and the remaining $1 million is appointed, as capital, to a family member who is the controller of the trust and an eligible capital beneficiary. The trustee contends that as the company is presently entitled to all of the income of the trust for section 97 purposes, all of the [tax] net income of the trust is to be attributed to the company. This would result in the [tax] net income of the trust being taxed to the company, which could not pay the resultant tax and would therefore be liquidated. Prior to the year in question, the only entities to have benefited from a distribution of income from the trust were members of the family for whom the trust was settled. The facts of this example are such as to raise questions as to the tax effect of the arrangement and, in particular, whether it might attract the operation of section 100A or Part IVA. ATO staff should select an arrangement of this kind for closer scrutiny and possible action. | 8. Seeking advice and assistance: Staff who are uncertain as to the 'income of the trust estate' as used in Division 6 (and, in particular, section 97) for their particular case should escalate their issue to their business line technical leadership and advice area (who may work in conjunction with the Trust Technical Network ) for advice and assistance. 9. How you should approach pre- Bamford cases Because there had been considerable uncertainty before the Bamford decision about the principles applying to the operation of Division 6, you can expect that some taxpayers will have lodged tax returns and administered their trusts on the basis of views that, with the benefit of the Bamford decision, may appear to be wrong. PS LA 2009/7, which has been replaced by this Practice Statement, sets out the approach you would have taken before the Bamford decision. If there is a deliberate attempt to exploit Division 6 (see section 7 of this Practice Statement) or cases are selected for other reasons (for example, because there is a dispute about the amount of the [tax] net income) and adjustments are to be made, they must be made on the basis of the law as it currently stands. | 10. More information: For more guidance on trust issues, see • Decision Impact Statement on Commissioner of Taxation v Bamford [2010] HCA 10 • Decision Impact Statement on Forrest v Commissioner of Taxation [2010] FCAFC 6 • Law Administration Practice Statement PS LA 2012/2 Change of trustee • Law Administration Practice Statement PS LA 2015/2 Time limits for trustee assessments • PS LA 2009/7 (withdrawn) Approach to certain trust issues involving Division 6 of Part III of the Income Tax Assessment Act 1936 pending resolution of the Bamford litigation . • Decision Impact Statement on Commissioner of Taxation v Bamford [2010] HCA 10 • Decision Impact Statement on Forrest v Commissioner of Taxation [2010] FCAFC 6 • Law Administration Practice Statement PS LA 2012/2 Change of trustee • Law Administration Practice Statement PS LA 2015/2 Time limits for trustee assessments • PS LA 2009/7 (withdrawn) Approach to certain trust issues involving Division 6 of Part III of the Income Tax Assessment Act 1936 pending resolution of the Bamford litigation .",Decision Impact Statement | PS LA 2012/2 | PS LA 2015/2 | PS LA 2009/7 | PS LA 2006/7 | PS LA 2009/7 (withdrawn) | PS LA 2011/4 | ITAA 1936 Pt III Div 6 | ITAA 1936 95 | ITAA 1936 97 | ITAA 1936 98 | ITAA 1936 98A | ITAA 1936 99 | ITAA 1936 99A | ITAA 1936 100A | ITAA 1936 100AA | ITAA 1936 100AB | ITAA 1936 Pt IVA | Tax Laws Amendment (2011 Measures No. 5) Act 2011 | 2011 ATC 20-235 | 2012 ATC 20-322 | 2008 ATC 20-029,PS LA 2006/7 PS LA 2009/7 (withdrawn) PS LA 2011/4 PS LA 2012/2 PS LA 2015/2,ITAA 1936 Pt III Div 6 | ITAA 1936 95 | ITAA 1936 97 | ITAA 1936 98 | ITAA 1936 98A | ITAA 1936 99 | ITAA 1936 99A | ITAA 1936 100A | ITAA 1936 100AA | ITAA 1936 100AB | ITAA 1936 Pt IVA | Tax Laws Amendment (2011 Measures No. 5) Act 2011,,Decision Impact Statement on Commissioner of Taxation v Bamford [2010] HCA 10 Decision Impact Statement Forrest v Commissioner of Taxation [2010] FCAFC 6,False,True,https://www.ato.gov.au/law/view/document?docid=PSR/PS20101/NAT/ATO/00001,"If taxpayers rely on this Practice Statement, they will be protected from interest and penalties in the following way. If a statement turns out to be incorrect and taxpayers underpay their tax as a result, they will not have to pay a penalty, nor will they have to pay interest on the underpayment provided they reasonably relied on this Practice Statement in good faith. However, even if they do not have to pay a penalty or interest, taxpayers will have to pay the correct amount of tax provided the time limits under the law allow it. | Updated in line with current ATO style and accessibility requirements. | Updated to new LAPS format and style. | Paragraph 32 & Related practice statements | To include reference to PS LA 2015/2; which now covers the Commissioners administrative practice in relation to trustee assessments. | Updated 'PS CM 2003/05' to CEI 2014/02/03'. | [1] The Tax Laws Amendment (2011 Measures No. 5) Act 2011 was given Royal Assent on 29 June 2011 and has effect from 1 July 2010. | File 1-1ODONHM; 1-143XK9ZW | Colonial First State Investments Limited v Commissioner of Taxation [2011] FCA 16 192 FCR 298 2011 ATC 20-235 81 ATR 772 [2011] ALMD 4786 | Commissioner of Taxation v Bamford [2010] HCA 10 240 CLR 481 75 ATR 1 84 ALJR 266 264 ALR 436 | Commissioner of Taxation v Greenhatch [2012] FCAFC 84 203 FCR 134 2012 ATC 20-322 88 ATR 560 [2013] ALMD 2620 | Raftland Pty Ltd as trustee of the Raftland Trust v Commissioner of Taxation [2008] HCA 21 238 CLR 516 2008 ATC 20-029 68 ATR 170 246 ALR 406"
PS LA 2009/3,Indirect taxes: time limit on recovery,7 September 2016,1 July 2008,Law Administration Practice Statement,False,"1. What this practice statement is about: This practice statement will guide you in applying subsection 105-50(3) of Schedule 1 to the Taxation Administration Act 1953 (TAA). [1] Under this subsection, we can recover unpaid amounts and overpaid refund amounts of indirect tax, outside the four year time limit imposed by subsection 105-50(1) within which the Commissioner must issue a notice. This practice statement applies in situations where we need to recover an amount, and have not previously issued a notice of assessment, or received an activity statement. These include: • compliance audits of the net amount the taxpayer reported in an activity statement • routine lodgment and collection activity involving a taxpayer registered for GST who has not lodged an activity statement for a particular period but is not the subject of an indirect tax audit, and • miscellaneous unpaid amounts, or overpaid refund amounts. • compliance audits of the net amount the taxpayer reported in an activity statement • routine lodgment and collection activity involving a taxpayer registered for GST who has not lodged an activity statement for a particular period but is not the subject of an indirect tax audit, and • miscellaneous unpaid amounts, or overpaid refund amounts. This practice statement does not cover: • the recovery of established indirect tax debts, that is, where: - we have issued a notice of assessment that includes the payable amount, or - the taxpayer has lodged an activity statement that includes a payable amount • net fuel amounts under the Fuel Tax Act 2006. • the recovery of established indirect tax debts, that is, where: - we have issued a notice of assessment that includes the payable amount, or - the taxpayer has lodged an activity statement that includes a payable amount • net fuel amounts under the Fuel Tax Act 2006. - we have issued a notice of assessment that includes the payable amount, or - the taxpayer has lodged an activity statement that includes a payable amount Section 105-50 only applies to payments and refunds (whether relating to tax periods or not) arising before 1 July 2012. | 2. The four-year limit: section 105-50: What are the limits on ATO's ability to recover an unpaid amount or overpaid refund amount? Under subsection 105-50(1), any unpaid: • net amount • net fuel amount, or • amount of indirect tax, that is: - goods and services tax - luxury car tax, or - wine equalisation tax, ceases to be payable (together with any relevant general interest charge under the TAA) four years after it becomes payable by the taxpayer (commencing from the day after the date that the amount becomes payable). • net amount • net fuel amount, or • amount of indirect tax, that is: - goods and services tax - luxury car tax, or - wine equalisation tax, - goods and services tax - luxury car tax, or - wine equalisation tax, ceases to be payable (together with any relevant general interest charge under the TAA) four years after it becomes payable by the taxpayer (commencing from the day after the date that the amount becomes payable). Similarly, under subsection 105-50(2), any: • amount paid to the taxpayer as a refund, or • applied under the Running Balance Account (RBA) provisions that exceeded the amount the taxpayer was entitled to receive ceases to be payable (together with any general interest charge under the TAA) four years after it became payable by the taxpayer (commencing from the day after the date the amount was paid or applied). • amount paid to the taxpayer as a refund, or • applied under the Running Balance Account (RBA) provisions that exceeded the amount the taxpayer was entitled to receive ceases to be payable (together with any general interest charge under the TAA) four years after it became payable by the taxpayer (commencing from the day after the date the amount was paid or applied). What are the exceptions to the four-year limit on recovering unpaid amounts and overpaid refund amounts? Under subsection 105-50(3), the four-year time limit does not apply, and an unpaid amount or an overpaid refund amount will continue to be payable if: • the Commissioner has given the taxpayer notice, within four years, that they are required to pay the amount, or • the Commissioner is satisfied that the taxpayer avoided paying the amount by fraud or evasion, or the overpaid refund amount was brought about by fraud or evasion (paragraph 105-50(3)(b)). • the Commissioner has given the taxpayer notice, within four years, that they are required to pay the amount, or • the Commissioner is satisfied that the taxpayer avoided paying the amount by fraud or evasion, or the overpaid refund amount was brought about by fraud or evasion (paragraph 105-50(3)(b)). If you suspect that an unpaid amount or overpaid refund amount has arisen from fraud or evasion, you must refer the matter to the Private Groups and High Wealth Individuals business line. [2] A formal determination must be made before you can rely on this exception. There are three types of notices for the purposes of paragraph 105-50(3)(a): • a notice of assessment • a standard notice, usually issued as part of compliance audits, and • a lodgment and payment demand notice issued as part of routine ATO lodgment and collection activities. • a notice of assessment • a standard notice, usually issued as part of compliance audits, and • a lodgment and payment demand notice issued as part of routine ATO lodgment and collection activities. These are explained in more detail below. | 3. Notifications resulting from compliance audits: The Commissioner may recover amounts outside the four-year time limit as a result of compliance audits on the net amounts reported in a taxpayer's activity statements, and also including: • an amount of indirect tax paid on importation • entities registered for GST that have not lodged activity statements when required, or • unregistered taxpayers that are required to be registered for GST. • an amount of indirect tax paid on importation • entities registered for GST that have not lodged activity statements when required, or • unregistered taxpayers that are required to be registered for GST. In every case, we must issue a notice within the four years, commencing from the day after the amount becomes payable by the taxpayer. This section sets out guidelines on giving notice. Notice of assessment The best practice is to assess the amount, and issue a notice of assessment to the taxpayer. A notice meets the notification requirement under paragraph 105-50(3)(a) where: • it is automatically produced by an ATO corporate processing system, or • it is manually produced and uses the standard words of that notice. [3] • it is automatically produced by an ATO corporate processing system, or • it is manually produced and uses the standard words of that notice. [3] The notice should: • state the unpaid amount or overpaid amount • notify taxpayer that the amount has been applied to its account, and • state that the amount must be paid. • state the unpaid amount or overpaid amount • notify taxpayer that the amount has been applied to its account, and • state that the amount must be paid. Even if you do not have complete information before the end of the four year period, it may be more appropriate to issue an assessment based on available information than a standard notice, particularly if there has been a significant underpayment, or overpaid refund. Making an assessment in these circumstances both protects the revenue and provides the taxpayer with the opportunity to have the assessment reviewed under Part IVC of the TAA. Standard notice You can also recover an amount beyond the four year limit where the ATO has required the taxpayer to pay by issuing a specific paragraph 105-50(3)(a) notice within the 4 year limit. Notices of this type, usually issued as part of compliance audits, are referred to as 'standard notices'. To be valid, the notice must [4] : • contain sufficient information on how the amount arose • require payment from the taxpayer • specify each and every tax period to which it relates. • contain sufficient information on how the amount arose • require payment from the taxpayer • specify each and every tax period to which it relates. You should not include any tax periods where no unpaid amount or overpaid refund amount relates to that period. To be valid, a standard notice only need to require payment but does not have to specify a dollar amount. [5] Where a standard notice had been issued without specifying the amount, the law does not stipulate a time limit in which you must finalise the issue to which the notice relates or specify the amount the taxpayer needs to pay. However, you should endeavour to finalise the issue as soon as possible. When and how should you issue a standard notice? During an indirect tax audit you may issue a standard notice if you reach the view that a taxpayer has: • not reported liability in an activity statement, or • an over paid refund amount, and the four year limit is approaching and you are unable to determine the total of the unpaid amount or overpaid refund amount. • not reported liability in an activity statement, or • an over paid refund amount, and the four year limit is approaching and you are unable to determine the total of the unpaid amount or overpaid refund amount. You may issue a standard notice, before making an assessment, if one or more of the following conditions have been satisfied: (i) you and the taxpayer agree that it is more appropriate to issue a standard notice before making an assessment (ii) a technical issue needs to be resolved, or an expert opinion or valuation needs to be obtained and it is your view that a standard notice is appropriate, or (iii) you requested the taxpayer to provide information necessary to make an assessment for a tax period before the end of the four year limit, and allowed reasonable time comply to with your request but the taxpayer either did not provide the information or did not provide enough information. (i) you and the taxpayer agree that it is more appropriate to issue a standard notice before making an assessment (ii) a technical issue needs to be resolved, or an expert opinion or valuation needs to be obtained and it is your view that a standard notice is appropriate, or (iii) you requested the taxpayer to provide information necessary to make an assessment for a tax period before the end of the four year limit, and allowed reasonable time comply to with your request but the taxpayer either did not provide the information or did not provide enough information. Before you issue a standard notice, it must be approved by an officer at the Executive Level 2 (EL2) level or above. Where the above conditions are not satisfied, but you consider that the unique facts of the case justifies issuing a standard notice, you must escalate the matter to the Taxation Administration specialists in the Indirect Tax business line for consideration. If the officer considers that a notice should be issued, the decision must be approved by an SES. When should you not issue a standard notice? You should not issue a standard notice merely because an audit was not concluded at the end of the four year limit solely due to deficiencies in the ATO's management of the audit. You should not issue a standard notice if you can calculate the unpaid amount or overpaid refund amount. In this situation, an assessment should be made for the quantifiable amount within the four year period. However, if it is subsequently determined that the amount payable is more than what was assessed, you may do one of the following: • issue an amended assessment, or • recover the difference by issuing a standard notice within the relevant four-year period. • issue an amended assessment, or • recover the difference by issuing a standard notice within the relevant four-year period. What do you need to do after issuing a standard notice? You need to issue a notice of assessment within three months after giving the taxpayer a standard notice. If you have not done so, you must revoke the standard notice in writing unless there are exceptional circumstances that warrant an extension. Exceptional circumstances may include the following: • litigation is in process that may clarify the law and it is more appropriate to issue a standard notice as an alternative to assessment. • the ATO requested information necessary to make an assessment and the request was timely and reasonable, however the taxpayer did not provide information or provided insufficient information. • the exact sum of taxpayer's unpaid amount or overpaid refund amount can only be determined by the resolution of a complex factual or technical issue, and it is unreasonable to expect the issue to be resolved within 3 months. • litigation is in process that may clarify the law and it is more appropriate to issue a standard notice as an alternative to assessment. • the ATO requested information necessary to make an assessment and the request was timely and reasonable, however the taxpayer did not provide information or provided insufficient information. • the exact sum of taxpayer's unpaid amount or overpaid refund amount can only be determined by the resolution of a complex factual or technical issue, and it is unreasonable to expect the issue to be resolved within 3 months. Where there are exceptional circumstances, only a SES officer can approve a decision to extend the effective date of a standard notice. You will need to advise the taxpayer of the decision to extend the standard notice beyond 3 months. At the end of the extended period, the standard notice must be revoked unless there are exceptional circumstances where further extension is necessary. Is the taxpayer still entitled to claim input tax credits after four years? The taxpayer remains entitled, after the four year period, to input tax credits that arise from the same circumstances that resulted in the type of unpaid or overpaid amounts covered in this practice statement. However, the taxpayer will not be entitled to: • input tax credits for creditable importations, and • decreasing adjustments that form part of taxpayer's net amount for a tax period. • input tax credits for creditable importations, and • decreasing adjustments that form part of taxpayer's net amount for a tax period. However, the entitlement to input tax credits is not preserved beyond the four year period to the extent that this would give rise to a refund, unless appropriate notification has been given under section 105-55. Must you notify the taxpayer of their continued entitlement? You do not need to notify the taxpayer of their entitlement to input tax credits for creditable acquisitions. | 4. What should you do if the amount that arose was the result of fraud or evasion?: Under paragraph 105-50(3)(b), if you are satisfied that: • the payment of an amount was avoided by fraud or evasion, or • the excess amount provided to the taxpayer was brought about by fraud or evasion, the four year recovery limit does not apply. • the payment of an amount was avoided by fraud or evasion, or • the excess amount provided to the taxpayer was brought about by fraud or evasion, the four year recovery limit does not apply. The reasons for this decision must be documented by the delegate or an authorised person, as defined in Taxation Authorisations Guidelines. The decision should set out the following information: • all material facts relevant to the decision, and • factors taken into consideration to arrive at this decision. • all material facts relevant to the decision, and • factors taken into consideration to arrive at this decision. Generally, you should advise the taxpayer before you make the decision, and allow them a reasonable opportunity to respond and provide argument. However, there may be circumstances where providing prior notice would be inappropriate; such as where ATO is investigating the taxpayer with other Commonwealth agencies. See further: PS LA 2008/6: Fraud or evasion. Input tax credits where amounts are retained or obtained through fraud or evasion A taxpayer remains entitled to input tax credits for a creditable acquisition if: • the ATO is able to recover an unpaid amount or overpaid refund amount outside of the 4 year time limit as a result of fraud or evasion, and • the input tax credit results from the same circumstances that gave rise to the unpaid amount or overpaid refund amount, or • the credit is taken into account in calculating the unpaid amount or the overpaid refund amount the ATO is able to recover. • the ATO is able to recover an unpaid amount or overpaid refund amount outside of the 4 year time limit as a result of fraud or evasion, and • the input tax credit results from the same circumstances that gave rise to the unpaid amount or overpaid refund amount, or • the credit is taken into account in calculating the unpaid amount or the overpaid refund amount the ATO is able to recover. | 5. Notices issued as part of routine lodgment and collection activities: Before the four year limit expires, the ATO will issue a lodgment and payment demand notice as part of routine lodgment and collection activities. These are internal processes to monitor and enforce timely lodgments and payment of taxes where taxpayers have failed to lodge an activity statement and pay any unpaid net amount that may be outstanding. These demand notices have fewer procedural requirements than standard notices under paragraph 105-50(3)(a). For the purpose of section 105-50, it is sufficient for a demand notice to require a taxpayer who is registered for GST to do the following: • lodge activity statements, and • pay any amount owing. • lodge activity statements, and • pay any amount owing. However, if there is no unpaid amount for the tax period, the demand notice will not be considered to be sufficient notice for the purpose of paragraph 105-50(3)(a) to alter the 4 year time limit. [6] Once the taxpayer lodges the activity statement to which a demand notice relates and pays the net amount disclosed on it, you cannot rely on the demand notice to collect any further unpaid amounts not disclosed on that activity statement. However, you may rely on the demand notice to collect the unpaid amount if the lodged activity statement reports a net amount of zero and it is later discovered that there is an unpaid net amount for that period. Are input tax credits included in working out an unpaid net amount? An unpaid net amount for a relevant tax period may include input tax credits attributable to the tax period, irrespective of whether the four year period limited has expired, provided: • the input tax credits arose from the same circumstances that gave rise to the unpaid net amount, and • in the case of any given credit, you have issued the taxpayer with a demand notice not later than four years after the end of that tax period to which the credit would be attributable under subsections 29-10(1) or (2) of the A New Tax System (Goods and Services Tax) Act 1999. • the input tax credits arose from the same circumstances that gave rise to the unpaid net amount, and • in the case of any given credit, you have issued the taxpayer with a demand notice not later than four years after the end of that tax period to which the credit would be attributable under subsections 29-10(1) or (2) of the A New Tax System (Goods and Services Tax) Act 1999. Activity statements and fraud or evasion In instances where a taxpayer did not lodge an activity statement and pay an amount owing within the four year period limit, you may need to consider whether the failure to lodge and pay was an act of fraud or evasion. If the omission was the result of fraud and evasion, then you can rely on both: • the standard notice rule (paragraph 105-50(3)(a)), or • the fraud and evasion exception (paragraph 105-50(3)(b)), to recover unpaid amounts. • the standard notice rule (paragraph 105-50(3)(a)), or • the fraud and evasion exception (paragraph 105-50(3)(b)), to recover unpaid amounts. If you are relying on paragraph 150-50(3)(b) to recover an unpaid amount in the course of routine lodgment and collection activity, the formal decision that the amount was avoided by fraud or evasion must be made before initiating any formal debt recovery action. However, if you consider the omission was not due to fraud and evasion, then you may issue a demand notice to request lodgment and recover the correct amount. Once again, the notice must be issued within the 4 year limit. | 6. More information: For more information, see: • MT 2009/1 Miscellaneous taxes: Notification requirements for an entity under section 105-55 of Schedule 1 to the Taxation Administration Act 1953 • PS LA 2008/6 Fraud or evasion • Taxation Authorisation Guidelines (internal link only) • Tax Crime and External Fraud CEI (internal link only) • MT 2009/1 Miscellaneous taxes: Notification requirements for an entity under section 105-55 of Schedule 1 to the Taxation Administration Act 1953 • PS LA 2008/6 Fraud or evasion • Taxation Authorisation Guidelines (internal link only) • Tax Crime and External Fraud CEI (internal link only)",MT 2009/1 | PS LA 2008/6 | TAA 1953 | TAA 1953 Pt IVC | TAA 1953 Sch 1 105-50 | TAA 1953 Sch 1 105-50(1) | TAA 1953 Sch 1 105-50(2) | TAA 1953 Sch 1 105-50(3) | TAA 1953 Sch 1 105-50(3)(a) | TAA 1953 Sch 1 105-50(3)(b) | TAA 1953 Sch 1 105-55 | ANTS(GST)A 1999 | ANTS(GST)A 1999 29-10(1) | ANTS(GST)A 1999 29-10(2) | ANTS(GST)A 1999 162-110 | Fuel Tax Act 2006 | 93 ATC 4779 | 2012 ATC 20-362 | 2014 ATC 10-365,PS LA 2008/6,TAA 1953 | TAA 1953 Pt IVC | TAA 1953 Sch 1 105-50 | TAA 1953 Sch 1 105-50(1) | TAA 1953 Sch 1 105-50(2) | TAA 1953 Sch 1 105-50(3) | TAA 1953 Sch 1 105-50(3)(a) | TAA 1953 Sch 1 105-50(3)(b) | TAA 1953 Sch 1 105-55 | ANTS(GST)A 1999 | ANTS(GST)A 1999 29-10(1) | ANTS(GST)A 1999 29-10(2) | ANTS(GST)A 1999 162-110 | Fuel Tax Act 2006,,Taxation Authorisation Guidelines (internal link only) Tax Crime and External Fraud CEI (internal link only),False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20093/NAT/ATO/00001,"Change ""...if the lodged activity statement reports no net amount payable..."" to ""...if the lodged activity statement reports a net amount of zero..."" | Internal and external links updated. | Updated to new LAPS format and style. | Updated to use lodgment consistently. | Old paragraphs 6, 7, 9, 12 and new paragraph 63 (previously 61) | Updated to provide interaction with section 105-55 of Schedule 1 of the TAA. | Paragraph 19, 25, 27, 37, 59 and new paragraphs 60 and 74 (previously 72) | Updated to reflect Tribunal findings in North Sydney Developments Pty Ltd v. F C of T [2014] AATA 363. | Explanation regarding BAS lodged. | Updated to correct commencement dates for four year period | Tax Office references updated to ATO as per ATO Style Guide recommendations. | Include entity entitlement to input tax credit under section 93-5 of the GST Act and 105-50 of Schedule 1 of the TAA. | Old paragraph 34 and new paragraph 36 | Updated to reflect amendments to GST effective from 12 May 2009. | Added to claim to input tax credits perseverance by Commissioner. | Included entity ability to take nito account input tax credits attributable to the tax period. | [1] All legislative references in this practice statement are to Schedule 1 to the TAA, unless otherwise stated. | [2] Refer to PS LA 2008/6 and Chief Executive Instruction Tax Crime and External Fraud CEI . | [3] Cyonara Snowfox Pty Ltd v. Federal Commissioner of Taxation [2012] FCAFC 177; 2012 ATC 20-362; (2012) 89 ATR 122. | [5] Copperart Pty Ltd v . Federal Commissioner of Taxation 93 ATC 4779; (1993) 26 ATR 327 at ATC 4793; ATR 342. | [6] North Sydney Developments Pty Ltd v. Federal Commissioner of Taxation [2014] AATA 363; 2014 ATC 10-365; (2014) 92 ATR 740. | Copperart Pty Ltd v Federal Commissioner of Taxation 93 ATC 4779 (1993) 26 ATR 327 | Cyonara Snowfox Pty Ltd v. Federal Commissioner of Taxation [2012] FCAFC 177 2012 ATC 20-362 (2012) 89 ATR 122 | North Sydney Developments Pty Ltd v. Federal Commissioner of Taxation [2014] AATA 363 2014 ATC 10-365 (2014) 92 ATR 740"
PS LA 2009/4,Decisions made by the Commissioner in the general administration of the taxation laws,27 July 2011,21 May 2009,Law Administration Practice Statement,False,"1. What this Practice Statement is about: This Practice Statement outlines: • the Commissioner's general administration of the taxation laws [1] • the scope of decisions that can be made in the Commissioner's general administration • when and how to seek advice about whether a proposed general administration decision is within scope of the Commissioner's general administration • the appropriate authority for making a general administration decision, and when and how to seek guidance about whether you have that authority • the process for escalating a general administration decision proposal to the Commissioner. • the Commissioner's general administration of the taxation laws [1] • the scope of decisions that can be made in the Commissioner's general administration • when and how to seek advice about whether a proposed general administration decision is within scope of the Commissioner's general administration • the appropriate authority for making a general administration decision, and when and how to seek guidance about whether you have that authority • the process for escalating a general administration decision proposal to the Commissioner. | 2. The Commissioner's general administration of the taxation laws: Provisions located within various taxation laws place the day-to-day administration of those laws in the hands of the Commissioner [2] , by nominating the Commissioner as the person responsible for the administration of the taxation laws and by whom decisions relating to the general administration of those laws may be made. [3] | 3. The scope of decisions that can be made in the Commissioner's general administration: The Commissioner must reconcile various duties and obligations in the day-to-day administration of the taxation laws. For example, the Commissioner has a duty to collect the right amount of tax from all taxpayers while also having a duty to apply ATO resources sensibly given our finite resources. [4] The Commissioner resolves these competing duties by making a multitude of general administration decisions about the allocation of our resources to achieve an outcome that appropriately balances these duties. While this might mean that the Commissioner cannot recover all the revenue potentially owed, the obligations still exist and the Commissioner must still administer each taxation law in a manner that supports that law's purpose. [5] Like other decisions made under the taxation laws, general administration decisions are governed by the operation of administrative law principles. The Commissioner must never knowingly act contrary to their duties as an officer of the Commonwealth in exercising executive power. In this sense, the general administration decisions that can be made by the Commissioner are narrow in scope and confined to management and administrative decisions [6] , such as the allocation of compliance resources which might, for example, give effect to a practical compliance solution. [7] The Commissioner's general administration cannot remedy defects or omissions in the law. There is a specific statutory power – the Commissioner's remedial power [8] – that the Commissioner (or a delegate) can use to modify the operation of a taxation law in limited circumstances. This power can be used, subject to strict statutory criteria being met, to resolve some unforeseen or unintended outcomes in the taxation laws. The scope of decisions that can be made in the Commissioner's general administration of the taxation laws, and the powers necessary to carry that administration into effect [9] , are outlined in greater detail in Appendix B to this Practice Statement. | 4. Seeking guidance on whether a proposed general administration decision is within scope of the Commissioner's general administration: Whenever the Commissioner's authority for a particular action, or the basis for reconciling competing duties, is being considered, it is not sufficient to refer only to a general administration provision in a general sense. Rather, consideration must be given to the specific statutory provisions that are directly relevant to what is proposed to be done, or not done. All powers and duties relevant in the circumstances can then be identified and their limits ascertained to determine whether a proposed general administration decision can be made. Where there is doubt about the basis for the proposed decision, guidance can be sought from the relevant technical specialist area or from Tax Counsel Network (TCN). [10] | 5. The appropriate authority for making a general administration decision: The general administration of the taxation laws is legislatively vested in the hands of a single statutory office holder – the Commissioner of Taxation. Consequently, the Commissioner personally holds the direct authority to make general administration decisions. The Carltona [11] principle allows ATO officers to make general administration decisions on the Commissioner's behalf, but only when there is an express authority or an implied authority for them to do so. [12] An implied authority to make a general administration decision on the Commissioner's behalf exists if it is within the course of your usual duties to make the decision. For example, this might include a judgment call or decision that affects the allocation of resources, including your own time or that of the team, branch or business line you lead. Generally speaking, such everyday decisions are made by ATO officers at all levels in the course of their usual duties. Whether a particular decision is within your usual duties can be determined or inferred from your role description, organisational structure and internal instructions (including the Taxation Authorisation Guidelines, law administration practice statements, and practical compliance guidelines). For example, it might reasonably be inferred that a Senior Executive Service (SES) officer with responsibility for a particular taxpayer segment is impliedly authorised to make most general administration decisions concerning that segment because this is within the course of their usual duties. [13] Relevantly, the Commissioner has expressly delegated the making of the following decisions (which fall outside the scope of this Practice Statement): • the settlement of cases [14] • the compromise of tax debts [15] , and • the taking of security. [16] • the settlement of cases [14] • the compromise of tax debts [15] , and • the taking of security. [16] If a general administration decision needs to be made that is not clearly within the course of your usual duties, you should escalate the decision to a tax officer with the appropriate authority (advice can also be sought from the Office of General Counsel about who has the authority to make the decision). If the decision cannot be made on the basis of implied authority, you may need to consider preparing a proposal for the Commissioner to personally make the decision. [17] | 6. What attributes indicate that a decision cannot be made on the basis of implied authority and may need to be escalated to the Commissioner?: As a guide, a proposal that requires the Commissioner's attention is likely to exhibit one or more of the following attributes: • the proposed resolution is a novel or unusual approach to our administration • ATO or legislative policy is unclear • the proposed resolution may be contentious or may be perceived as unjust, anomalous or to have an improper motivation or outcome • the proposed resolution affects multiple taxpayer segments, whether favourably or unfavourably, and • the proposal is made in response to a 'very high' or greater risk, or the adoption of the proposal would represent such a risk. [18] • the proposed resolution is a novel or unusual approach to our administration • ATO or legislative policy is unclear • the proposed resolution may be contentious or may be perceived as unjust, anomalous or to have an improper motivation or outcome • the proposed resolution affects multiple taxpayer segments, whether favourably or unfavourably, and • the proposal is made in response to a 'very high' or greater risk, or the adoption of the proposal would represent such a risk. [18] When deciding if a matter is contentious, you should consider the following: • degree of sensitivity • significance • whether taxpayers are significantly disadvantaged or advantaged (including by what might be perceived as the creation of an 'uneven playing field') • risks to reputation or revenue, and • implications for the integrity of the tax, superannuation or registry systems. • degree of sensitivity • significance • whether taxpayers are significantly disadvantaged or advantaged (including by what might be perceived as the creation of an 'uneven playing field') • risks to reputation or revenue, and • implications for the integrity of the tax, superannuation or registry systems. Example 1: deciding not to apply compliance resources to a specific taxpayer's affairs for prior years Generally, a decision not to apply compliance resources to a specific taxpayer's affairs for prior years is a general administration decision made by the relevant tax officer on the basis of implied authority. The decision would normally be based on a risk assessment and existing business line guidelines or criteria and made in the ordinary course of the relevant tax officer's duties. There may however be examples where, due to the nature or profile of a specific taxpayer, a matter should be escalated to a more senior officer or put to the Commissioner for consideration. Example 2: deciding not to apply compliance resources to individuals in respect of prior years, where we have identified that a small number of those individuals may have a change in their tax position due to a remediation program being undertaken by another government agency Another government agency is undertaking a remediation program that may affect the tax position of a small number of individuals and result in some having an additional tax liability as the remediation affects previous years' returns. The circumstances that led to the remediation program were high-profile, contentious and widespread. There would be significant impact across the community as well as significant demand for our resources to answer queries if all individuals affected by the remediation were also required to review their tax position from past years and request amendments where needed, particularly where for the majority of impacted individuals there is no overall tax impact. The large number of individuals affected by the remediation program and significant impact to the community and ATO if the proposal were not adopted, notwithstanding the low risk to revenue, suggested the appropriate risk rating for the situation under our enterprise risk management framework was 'very high'. In these circumstances it would be appropriate to apply to the Commissioner personally to make a decision not to apply compliance resources to determine whether a tax liability would arise for the impacted individuals. Example 3: deciding not to apply compliance resources to a particular class of taxpayer where they use a specified shortcut calculation method that represents a suitable proxy for calculating deductions Absent any contrary instructions, the decision not to apply compliance resources in this circumstance would normally be within the usual duties of either the Assistant Commissioner, or Deputy Commissioner leading the business line, responsible for the relevant taxpayer segment. Example 4: deciding to temporarily pause firmer debt collection activity for taxpayers affected by an adverse event such as a natural disaster A decision to temporarily pause firmer debt collection activity for taxpayers impacted by an adverse event would normally be within the usual duties of an SES officer from within Frontline Operations Group at either Assistant Commissioner or Deputy Commissioner level, depending on the scale of that event. However, a decision to pause all firmer debt collection activity for an extended period of time made in response to a severe and enduring adverse event that affects the whole country may need to be made by the Commissioner personally. Exceptions A decision not to undertake compliance action in respect of prior years or periods can also be made in the following circumstances: • the decision is agreed to, or made by, the Policy Implementation Committee (see Law Administration Practice Statement PS LA 2007/11 Administrative treatment of taxpayers affected by announced but unenacted legislative measures which will apply retrospectively when enacted), or • the decision is made in accordance with Law Administration Practice Statement PS LA 2011/27 Determining whether the ATO's views of the law should be applied prospectively only. • the decision is agreed to, or made by, the Policy Implementation Committee (see Law Administration Practice Statement PS LA 2007/11 Administrative treatment of taxpayers affected by announced but unenacted legislative measures which will apply retrospectively when enacted), or • the decision is made in accordance with Law Administration Practice Statement PS LA 2011/27 Determining whether the ATO's views of the law should be applied prospectively only. | 7. How do I put a general administration decision proposal to the Commissioner?: Appendix A to this Practice Statement provides a summary of the process for putting a proposal to the Commissioner for their consideration. In accordance with business line work practices, you should prepare a proposal within, and for consideration by, the business line responsible for the proposed exercise. [19] Before submitting a proposal to the Commissioner, TCN must be engaged to provide advice on whether the proposal is within scope of the Commissioner's general administration. [20] 7a. What information must I include in the general administration decision proposal? Your proposal to your business line SES, and to TCN, must: • include background information on the issue • explain the current interpretation of relevant legislative provisions and its impact on affected taxpayers, as well as any alternative interpretations and relevant ATO views • detail the number and class or classes of taxpayers affected and the amount of revenue involved, and • detail all discussions held, or sought, with relevant stakeholders (for example, affected taxpayers, industry groups, other government agencies, TCN or other business lines). • include background information on the issue • explain the current interpretation of relevant legislative provisions and its impact on affected taxpayers, as well as any alternative interpretations and relevant ATO views • detail the number and class or classes of taxpayers affected and the amount of revenue involved, and • detail all discussions held, or sought, with relevant stakeholders (for example, affected taxpayers, industry groups, other government agencies, TCN or other business lines). Your proposal should also include: • the intended solution • how the solution will address the issue • how we will administer the arrangements and similar arrangements into the future • how you determined any de minimis [21] threshold (as relevant) • confirmation from relevant SES officers that the proposal is supported by the business line or lines • the impacts of adopting (or not) the proposal, including, but not limited to, a discussion of - whether the integrity of the tax, superannuation or registry systems is at risk (for example, the effect on taxpayer perceptions, our responsibilities to administer the law fairly and impartially and to apply the rule of law) - details of any other risks that could result if the proposal is adopted or not adopted (for example, reputation or revenue risks), and - the effect, if any, on other areas within the ATO or externally (such as other government agencies) or both • how the proposal will be practically implemented by taxpayers, and • how the proposed solution will be communicated to affected taxpayers. [22] • the intended solution • how the solution will address the issue • how we will administer the arrangements and similar arrangements into the future • how you determined any de minimis [21] threshold (as relevant) • confirmation from relevant SES officers that the proposal is supported by the business line or lines • the impacts of adopting (or not) the proposal, including, but not limited to, a discussion of - whether the integrity of the tax, superannuation or registry systems is at risk (for example, the effect on taxpayer perceptions, our responsibilities to administer the law fairly and impartially and to apply the rule of law) - details of any other risks that could result if the proposal is adopted or not adopted (for example, reputation or revenue risks), and - the effect, if any, on other areas within the ATO or externally (such as other government agencies) or both • how the proposal will be practically implemented by taxpayers, and • how the proposed solution will be communicated to affected taxpayers. [22] - whether the integrity of the tax, superannuation or registry systems is at risk (for example, the effect on taxpayer perceptions, our responsibilities to administer the law fairly and impartially and to apply the rule of law) - details of any other risks that could result if the proposal is adopted or not adopted (for example, reputation or revenue risks), and - the effect, if any, on other areas within the ATO or externally (such as other government agencies) or both 7b. Criteria to be addressed in any general administration decision proposal Ideally you should address all the following criteria listed in this section. If any criterion is irrelevant, reasons should be given. • The approach is consistent with the achievement of the policy intent of the legislation. • The approach achieves substantive compliance at a reduced cost to taxpayers. • The approach reflects industry practice (as far as possible). • Any resulting risks to the revenue are appropriately managed. • The approach does not lead to material adverse impacts on third parties. • Taxpayers can choose whether or not to adopt the approach. • The approach is consistent with the achievement of the policy intent of the legislation. • The approach achieves substantive compliance at a reduced cost to taxpayers. • The approach reflects industry practice (as far as possible). • Any resulting risks to the revenue are appropriately managed. • The approach does not lead to material adverse impacts on third parties. • Taxpayers can choose whether or not to adopt the approach. 7c. If my business line SES supports my proposal, what's next? If the relevant business line SES [23] supports your proposal and TCN have advised that the proposal is within scope of the Commissioner's general administration, you must: • prepare a submission for the Commissioner • obtain the support of the - relevant Group Head, and - Second Commissioner, Law Design and Practice [24] , and • submit your proposal to the Commissioner via the Second Commissioner, Law Design and Practice. • prepare a submission for the Commissioner • obtain the support of the - relevant Group Head, and - Second Commissioner, Law Design and Practice [24] , and • submit your proposal to the Commissioner via the Second Commissioner, Law Design and Practice. - relevant Group Head, and - Second Commissioner, Law Design and Practice [24] , and 7d. Information to be provided to the Commissioner You must provide the Commissioner with: • the key points included in your proposal, including the issue and proposed solution • an assurance that the proposal maintains the legislative intent • TCN's advice on whether the proposal is within scope of decisions that can be made in the Commissioner's general administration • a copy of the proposal sent to TCN, and • evidence of the support of the relevant Group Head and the Second Commissioner, Law Design and Practice. • the key points included in your proposal, including the issue and proposed solution • an assurance that the proposal maintains the legislative intent • TCN's advice on whether the proposal is within scope of decisions that can be made in the Commissioner's general administration • a copy of the proposal sent to TCN, and • evidence of the support of the relevant Group Head and the Second Commissioner, Law Design and Practice. | 8. More information: For more general information on: • the Commissioner's general administration of the taxation laws, refer to Appendix B to this Practice Statement • practical compliance guidelines and public advice and guidance generally - refer to Practical Compliance Guideline PCG 2016/1 Practical Compliance Guidelines: purpose, nature and role in ATO's public advice and guidance - refer to Producing PAG product , (link available internally only) or - contact your business line PAG Unit or the PAG Governance team in the Office of the Chief Tax Counsel (links available internally only) • the Commissioner's remedial power, refer to the Policy, Analysis & Legislation (link available internally only) business line SharePoint site • delegations and authorisations, contact the Office of General Counsel (link available internally only) • obtaining TCN advice, refer to How to engage Tax Counsel Network (TCN) (link available internally only). • the Commissioner's general administration of the taxation laws, refer to Appendix B to this Practice Statement • practical compliance guidelines and public advice and guidance generally - refer to Practical Compliance Guideline PCG 2016/1 Practical Compliance Guidelines: purpose, nature and role in ATO's public advice and guidance - refer to Producing PAG product , (link available internally only) or - contact your business line PAG Unit or the PAG Governance team in the Office of the Chief Tax Counsel (links available internally only) • the Commissioner's remedial power, refer to the Policy, Analysis & Legislation (link available internally only) business line SharePoint site • delegations and authorisations, contact the Office of General Counsel (link available internally only) • obtaining TCN advice, refer to How to engage Tax Counsel Network (TCN) (link available internally only). - refer to Practical Compliance Guideline PCG 2016/1 Practical Compliance Guidelines: purpose, nature and role in ATO's public advice and guidance - refer to Producing PAG product , (link available internally only) or - contact your business line PAG Unit or the PAG Governance team in the Office of the Chief Tax Counsel (links available internally only) Diagram 1: Summary of process for putting a general administration proposal to the Commissioner Consequence of the general administration provisions 1. The general administration provisions place the day-to-day administration of various taxation laws in the hands of a statutory office holder, the Commissioner of Taxation. 2. While this may in some senses be described as creating a 'power' in the Commissioner, it is more accurately described as placing a duty on the Commissioner. [25] The courts have acknowledged 2 consequences that arise out of this responsibility to administer the taxation laws: • Firstly, it is the Commissioner in carrying those laws into effect who must reconcile competing duties by making general administration decisions – which means the Commissioner has wide managerial discretion in administering the taxation laws. [26] • Secondly, parliament must have intended that the Commissioner have the authority to fulfill those duties – which necessitates implying further powers on the Commissioner beyond those expressly provided. [27] • Firstly, it is the Commissioner in carrying those laws into effect who must reconcile competing duties by making general administration decisions – which means the Commissioner has wide managerial discretion in administering the taxation laws. [26] • Secondly, parliament must have intended that the Commissioner have the authority to fulfill those duties – which necessitates implying further powers on the Commissioner beyond those expressly provided. [27] General administration decision-making: reconciling revenue collection versus duty of good management 3. In exercising the powers conferred on them, the Commissioner must reconcile various duties and powers. For example, one duty is to collect the revenue properly payable under the law. The courts have described the Commissioner's duty as [28] : ... to ensure that the correct amount of tax is paid, ""not a penny more, not a penny less"" , and [29] : ... to collect tax in accordance with a correct assessment, that is to say, to collect the correct amount of tax, no more and no less. If an assessment is excessive it would be improper for the Commissioner to seek to collect tax payable under it. 4. That duty must be reconciled with the Commissioner's duty of good management. Having regard to the competing duties and powers that arise under the taxation laws, the courts have acknowledged that the Commissioner must make administration decisions as to the allocation of scarce resources to achieve the optimum revenue collection within the limitations imposed by the resources available. This ensures that the Commissioner is not obliged, for example, to pursue every last cent of revenue where the cost of doing so is prohibitive. 5. This 'conflict' of duties was described in the English case Inland Revenue Commissioners v National Federation of Self-employed and Small Businesses Ltd [1982] AC 617. At page 651, Lord Scarman of the House of Lords considered the equivalent administration power of the Inland Revenue Commissioners. He said that: ... in the daily discharge of their duties inspectors are constantly required to balance the duty to collect ""every part"" of due tax against the duty of good management. This conflict of duties can be resolved only by good managerial decisions, some of which will inevitably mean that not all the tax known to be due will be collected. He observed that the relevant statutory provisions: ... establish a complex of duties and discretionary powers imposed and conferred in the interest of good management upon those whose duty it is to collect the income tax ... I am persuaded that the modern case law recognises a legal duty owed by the Revenue to the general body of taxpayers to treat taxpayers fairly; to use their discretionary powers so that, subject to the requirements of good management, discrimination between one group of taxpayers and another does not arise; to ensure that there are no favourites and no sacrificial victims. The duty has to be considered as one of several arising within the complex comprised in the care and management of a tax, every part of which it is their duty, if they can, to collect. 6. The Public Governance, Performance and Accountability Act 2013 (PGPA Act) supports the duty of good management. Section 15 of the PGPA Act imposes a general obligation on the Commissioner to manage the affairs of the ATO in a way that promotes proper use of the public resources for which the Commissioner is responsible. 'Proper use' in this context means that the Commissioner needs to make decisions about the allocation of ATO resources to compliance and other activities which promote the efficient, effective, economical and ethical use of those resources. However, in doing so they must still comply with the law (section 14 and subsection 13(4) of the Public Service Act 1999) and government policy (section 21 of the PGPA Act). 7. While the Commissioner has wide managerial 'discretion' in administering the taxation laws, this cannot be used to fetter the Commissioner's duty to assess or re-assess when the Commissioner has formed the view that the law imposes a liability – 'His duty then is to apply the law as he understands it to be'. [30] 8. Further, as a matter of statutory construction, the Commissioner must administer the taxation laws consistent with their purpose or object, whether express or implied, and their plain meaning. The Commissioner must interpret and administer each Act to give effect to its intention as discerned from it as a whole, not, for example, by interpreting a particular section in isolation from the rest of the Act. The provisions must be interpreted having regard to the context in which they appear. Necessary powers: carrying administration of the taxation laws into effect 9. With parliament holding the Commissioner responsible for the general administration of the taxation laws, the courts have recognised the conferral on the Commissioner of the authority necessary to discharge those responsibilities [31] , reinforcing the principle of statutory interpretation that express powers will be construed as impliedly authorising whatever may be fairly regarded as incidental to, or consequential upon, the express power itself. [32] For example: • The Commissioner's decision to audit taxpayers, even at random, supports the administration of the taxation laws which place a duty on the Commissioner to make assessments of tax due (Industrial Equity Ltd v Deputy Commissioner of Taxation [1990] HCA 46 and Knuckey, Ross Randall v Commissioner of Taxation of the Commonwealth of Australia [1998] FCA 1143). • The Commissioner's power to settle or compromise proceedings to which they are a party is derived from the administration of the taxation laws which places a duty on the Commissioner to pursue the recovery of tax-related liabilities (Grofam Pty Ltd & Ors v The Commissioner of Taxation of the Commonwealth of Australia [1997] FCA 660). • The Commissioner's decision to audit taxpayers, even at random, supports the administration of the taxation laws which place a duty on the Commissioner to make assessments of tax due (Industrial Equity Ltd v Deputy Commissioner of Taxation [1990] HCA 46 and Knuckey, Ross Randall v Commissioner of Taxation of the Commonwealth of Australia [1998] FCA 1143). • The Commissioner's power to settle or compromise proceedings to which they are a party is derived from the administration of the taxation laws which places a duty on the Commissioner to pursue the recovery of tax-related liabilities (Grofam Pty Ltd & Ors v The Commissioner of Taxation of the Commonwealth of Australia [1997] FCA 660). 10. So, while the Commissioner is often referred to as having the 'powers of general administration' or 'general powers of administration' (GPA), this must be understood in the context of the Commissioner's administration of the express provisions of the taxation laws, rather than as an independent source of 'power' in the Commissioner. 11. Further, while reference might be made to the Commissioner's general administration as a 'power' or being the 'GPA', this does not give rise to any power 'to make decisions that create, extinguish or modify the legal rights of taxpayers; nor does it include a power to promulgate rules that create legal rights or immunities or that otherwise have the force of delegated legislation'. [33] Nor does this '[permit] the Commissioner to convert the liability imposed by the statute into one mediated through an unstated discretion'. [34] To the extent that the Commissioner can do those things, that ability arises out of express powers in taxation laws. 12. It should also be noted that section 16 of the TAA restricts what the Commissioner can do in reliance on the general administration provisions. In an exception to the general rule, any payments made under the general administration provisions are not able to be paid out of the Consolidated Revenue Fund. Scope of decisions that can be made in the Commissioner's general administration 13. The table below outlines the scope of decisions that can be made in the Commissioner's general administration. Table 1: Scope of decisions that can be made in the Commissioner's general administration Extent of scope Operating within the scope The Commissioner can make management and administrative decisions, such as about the allocation of ATO resources. While the Commissioner might not be able to exhaustively discharge all of their duties because of the finite resources available, this does not modify or discharge any obligations imposed by the law, they still exist. The Commissioner must operate within the bounds of the powers conferred on them by parliament and use the powers to give effect to parliament's legislative intent as discerned by the application of the principles of statutory interpretation. [35] The Commissioner cannot administer the law so as to extend, confine or undermine parliament's intentions. The Commissioner must apply the law not the policy; general administration decisions cannot be used to remedy defects or omissions in the law. [36] The Commissioner must advise Treasury where the taxation laws do not give effect to their underlying policy. For example: • where they produce unintended consequences, anomalies, or significant compliance costs inconsistent with the policy intent, or • where a legislative solution may be needed to address an emerging compliance issue. The Commissioner's general administration does not displace the need to interpret the law. All powers and duties relevant in the circumstances must be discerned. This means that where the law is open to more than one interpretation, the alternative interpretations of the law must be explored as part of making a general administration decision. The boundaries of the Commissioner's general administration are not constant. The relative weighting of individual duties can shift depending on the focus of administration at any given time, for example the introduction of new legislation, natural disasters, a global financial crisis or other adverse events. • where they produce unintended consequences, anomalies, or significant compliance costs inconsistent with the policy intent, or • where a legislative solution may be needed to address an emerging compliance issue. where they produce unintended consequences, anomalies, or significant compliance costs inconsistent with the policy intent, or where a legislative solution may be needed to address an emerging compliance issue. Framework within which the Commissioner's general administration must operate 14. The Commissioner's general administration of the taxation laws is constrained by the principles of administrative law. These principles govern whether: • the administrative authority has the power to deal with the subject matter, or • the mode in which the authority deals with the matters entrusted to it satisfies certain standards that have been developed by the courts in interpreting the common law. [37] • the administrative authority has the power to deal with the subject matter, or • the mode in which the authority deals with the matters entrusted to it satisfies certain standards that have been developed by the courts in interpreting the common law. [37] 15. How administrative law principles govern the Commissioner's general administration of the taxation laws is summarised below: • What the Commissioner must do - Make decisions based on merit. - Act fairly, in good faith and without bias, enabling each party the opportunity to state their case. - Treat taxpayers fairly and equitably. This means treating taxpayers equally, rather than treating them in exactly the same manner. - Avoid conferring an advantage on a taxpayer (or taxpayers) thereby creating 'a privileged group who are not so much taxed by law as untaxed by concession' [38] . • What the Commissioner cannot do - Exceed the authority conferred on them by the law – such actions being invalid and of no legal effect. - Use powers for improper purposes or in bad faith – powers must be used for a purpose that is stated in, or implied by, the taxation laws. - Limit their discretion by inflexibly applying a policy or rule. Policy must not conflict with another principle of administrative law, and the Commissioner must generally be prepared to depart from the policy in appropriate (if only exceptional) cases. - Act at the direction of someone else, delegate their power to anyone else (unless authorised to do so), or enter into a binding undertaking regarding the future exercise or non-exercise of their discretionary power in a way that is against the public interest. - Be prevented from lawfully exercising their discretion by the doctrine of estoppel. • What the Commissioner must do - Make decisions based on merit. - Act fairly, in good faith and without bias, enabling each party the opportunity to state their case. - Treat taxpayers fairly and equitably. This means treating taxpayers equally, rather than treating them in exactly the same manner. - Avoid conferring an advantage on a taxpayer (or taxpayers) thereby creating 'a privileged group who are not so much taxed by law as untaxed by concession' [38] . • What the Commissioner cannot do - Exceed the authority conferred on them by the law – such actions being invalid and of no legal effect. - Use powers for improper purposes or in bad faith – powers must be used for a purpose that is stated in, or implied by, the taxation laws. - Limit their discretion by inflexibly applying a policy or rule. Policy must not conflict with another principle of administrative law, and the Commissioner must generally be prepared to depart from the policy in appropriate (if only exceptional) cases. - Act at the direction of someone else, delegate their power to anyone else (unless authorised to do so), or enter into a binding undertaking regarding the future exercise or non-exercise of their discretionary power in a way that is against the public interest. - Be prevented from lawfully exercising their discretion by the doctrine of estoppel. - Make decisions based on merit. - Act fairly, in good faith and without bias, enabling each party the opportunity to state their case. - Treat taxpayers fairly and equitably. This means treating taxpayers equally, rather than treating them in exactly the same manner. - Avoid conferring an advantage on a taxpayer (or taxpayers) thereby creating 'a privileged group who are not so much taxed by law as untaxed by concession' [38] . - Exceed the authority conferred on them by the law – such actions being invalid and of no legal effect. - Use powers for improper purposes or in bad faith – powers must be used for a purpose that is stated in, or implied by, the taxation laws. - Limit their discretion by inflexibly applying a policy or rule. Policy must not conflict with another principle of administrative law, and the Commissioner must generally be prepared to depart from the policy in appropriate (if only exceptional) cases. - Act at the direction of someone else, delegate their power to anyone else (unless authorised to do so), or enter into a binding undertaking regarding the future exercise or non-exercise of their discretionary power in a way that is against the public interest. - Be prevented from lawfully exercising their discretion by the doctrine of estoppel. Authority to make general administration decisions 16. As with many other powers and duties conferred on a minister or statutory office holder, no one person could ever personally attend to all aspects of the general administration of the taxation laws. [39] Consequently, the courts recognise that the Commissioner is able to delegate or authorise others to make decisions on their behalf. In this regard, the general principles of administrative law apply. In practice, general administration decisions will sometimes, but not always, be made under a general or specific delegation or authorisation from the Commissioner. Generally, when not oral or written, they will happen according to an authorisation that is implied from our structure and practices. 17. Relevantly, the Commissioner has made 3 specific delegations in relation to the general administration concerning the settlements of tax issues, the compromise of tax debts and the taking of security. Most other decisions reliant on the general administration provisions would be covered by an express or implied authorisation. 18. If a general administration decision or action has financial (in a non-tax sense) implications or consequences and is covered by the PGPA Act, the delegation is administered by ATO Finance. 19. The decision-making process to provide practical compliance solutions involves balancing different perspectives and needs to be transparent. Criteria to be considered when making general administration decisions 20. Consider the following criteria when making general administration decisions that help taxpayers meet their compliance obligations. Note that not all these criteria may be relevant to the proposed general administration decision. Table 2: Criteria to be considered when making general administration decisions Criteria Explanation Proposed compliance approach must be consistent with achievement of the policy intent of the legislation Application of the general administration provisions in relation to a legislative provision should result in an administrative outcome which is consistent with the underlying policy intent sought from the provision. The approach adopted achieves substantive compliance at reduced cost The community both bears the cost and reaps the benefit of the tax, superannuation and registry systems. Therefore, the approach must maintain substantive compliance with the taxation laws whilst making the law compliance experience easier, cheaper and more personalised. The approach should, as far as practical, reflect industry practice We seek an approach that leverages industry benchmarks and practices used by taxpayers to meet their business obligations. A further objective is to increase community confidence in the tax, superannuation and registry systems by reflecting the output from 'natural' business systems in taxpayers' compliance obligations. Resulting risks to the revenue must be appropriately managed (including the application of the approach where there is evidence of tax avoidance) As part of this process, the Commissioner will apply the ATO's risk management policy [40] and take into account whether there is any risk to either the revenue or the tax, superannuation and registry systems generally. When considering the revenue risk, the Commissioner recognises the need to minimise compliance costs while at the same time maintaining community confidence in the system. Administrative outcomes resulting from a practical compliance solution should generally be revenue neutral. Practical compliance solutions would not be adopted, and could not be relied on, in situations where there is evidence of tax avoidance. Avoid material adverse impacts on the rights of third parties For example, we might implement a practical compliance solution to simplify the current arrangements for employers to determine their fringe benefits tax liability. However, if this approach would result in an increase in reportable fringe benefits for some employees, it would not be pursued. Taxpayers can choose whether or not to adopt the approach Voluntariness is critical, a taxpayer may opt to apply an approach such as: • following a practical compliance guideline or law administration practice statement outlining what is acceptable to the Commissioner as a means of meeting their obligations, or • using another (more complex) methodology in line with an earlier established practice that complies with the law. For example, a taxpayer may have built 'special applications' to meet their obligations and wish to continue using them. When considering the revenue risk, the Commissioner recognises the need to minimise compliance costs while at the same time maintaining community confidence in the system. Administrative outcomes resulting from a practical compliance solution should generally be revenue neutral. Practical compliance solutions would not be adopted, and could not be relied on, in situations where there is evidence of tax avoidance. • following a practical compliance guideline or law administration practice statement outlining what is acceptable to the Commissioner as a means of meeting their obligations, or • using another (more complex) methodology in line with an earlier established practice that complies with the law. For example, a taxpayer may have built 'special applications' to meet their obligations and wish to continue using them. following a practical compliance guideline or law administration practice statement outlining what is acceptable to the Commissioner as a means of meeting their obligations, or using another (more complex) methodology in line with an earlier established practice that complies with the law. For example, a taxpayer may have built 'special applications' to meet their obligations and wish to continue using them. Making general administration decisions: a common example Decisions not to apply compliance resources to a class of taxpayers or industry group for prior years or periods 21. The Commissioner cannot fetter their duty to assess or re-assess when they have formed the view that the law imposes a liability (that is, the Commissioner cannot accept non-compliance with the law). However, as part of their duty of good management, the Commissioner can decide not to apply compliance resources to a particular issue that affects a class of taxpayers or industry group for prior years or periods. 22. In making a decision, the Commissioner will consider all of the relevant circumstances, which may include: • estimated amount of revenue at risk • potential number of taxpayers affected • cost of identifying and pursuing non-compliance • extent to which some taxpayers have complied with an ATO view in respect of the issue, where known • whether we have contributed to non-compliance [41] • whether inaction could reasonably be expected to undermine the integrity of the tax system including by affecting future voluntary compliance by taxpayers if compliance action is not taken • relative priority of the compliance risk compared to other identified risks • strength of the ATO view on the issue, and • any proposed change of law affecting the issue including the proposed date of effect of any such change. • estimated amount of revenue at risk • potential number of taxpayers affected • cost of identifying and pursuing non-compliance • extent to which some taxpayers have complied with an ATO view in respect of the issue, where known • whether we have contributed to non-compliance [41] • whether inaction could reasonably be expected to undermine the integrity of the tax system including by affecting future voluntary compliance by taxpayers if compliance action is not taken • relative priority of the compliance risk compared to other identified risks • strength of the ATO view on the issue, and • any proposed change of law affecting the issue including the proposed date of effect of any such change.","PS LA 2007/11 | PS LA 2011/27 | PCG 2016/1 | PS LA 2012/1 | PS LA 2015/1 | PS LA 2007/6 | PS LA 2011/3 | PS LA 2011/14 | PS LA 1998/1 | Acts Interpretation Act 1901 15AA | Administrative Decisions (Judicial Review) Act 1977 | Excise Act 1901 7 | Public Governance, Performance and Accountability Act 2013 15 | Public Governance, Performance and Accountability Act 2013 21 | FBTAA 1986 3 | ITAA 1936 8 | SGAA 1992 43 | TAA 1953 6D(2) | TAA 1953 Sch 1 356-5 | TAA 1953 Sch 1 3370-5 | TAA 1953 16 | 99 ATC 4516 | [1943] 2 All ER 560 | 91 ATC 4142 | 97 ATC 4656 | 90 ATC 5008 | [1982] AC 617 | 98 ATC 4903 | (1991) 91 ATC 4942 | [2013] FCA 887 | 215 FCR 403 | 97 ATR 591 | [2013] FCAFC 119 | 83 ATC 4156 | [2019] FCA 102 | [1980] AC 1148",PS LA 1998/1 PS LA 2007/6 PS LA 2007/11 PS LA 2011/3 PS LA 2011/14 PS LA 2011/27 PS LA 2012/1 PS LA 2015/1,"Acts Interpretation Act 1901 15AA | Administrative Decisions (Judicial Review) Act 1977 | Excise Act 1901 7 | Public Governance, Performance and Accountability Act 2013 15 | Public Governance, Performance and Accountability Act 2013 21 | Public Service Act 1999 13(4) | Public Service Act 1999 14 | FBTAA 1986 3 | ITAA 1936 8 | SGAA 1992 43 | TAA 1953 6D(2) | TAA 1953 Sch 1 356-5 | TAA 1953 Sch 1 3370-5 | TAA 1953 16",,"ATO Risk Matrix (link available internally only) Risk management Chief Executive Instruction (link available internally only) Code of settlement Hotop, S D (1985) Principles of Australian Administrative Law, 6th edn, Law Book Company, Sydney Office of General Counsel (link available internally only) PCG 2016/1 Policy, Analysis & Legislation (link available internally only) Producing PAG product (link available internally only)Sykes, E, et al (1997) General Principles of Administrative Law, 4th edn, Butterworths, Chatswood Taxation Authorisations Guidelines (link available internally only) How to engage Tax Counsel Network (TCN) (link available internally only)",False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20094/NAT/ATO/00001,"APPENDIX A - Process for putting a proposal to the Commissioner | APPENDIX B - The Commissioner's general administration explained | Updated 'severe' to 'very high', in line with the update to the ATO Risk Matrix. | Updated in line with current ATO style and accessibility requirements. | Replaced most references to 'Commissioner's powers of general administration' or 'Commissioner's GPA' with 'Commissioner's general administration'. | Updated to reference new section headings and a new footnote on the term 'taxation laws'. | Additional context regarding the limitations on the scope of general administration decisions. | This Section now incorporates former Section 4 titled 'Circumstances in which the Commissioner's GPA may be properly exercised' with additional context for the limitations on the scope of general administration decisions. | This Section now incorporates aspects of former Section 7 'Seeking guidance on whether it is appropriate for the Commissioner to exercise his or her GPA' and describes the analysis required to determine whether a proposed decision is within scope of the Commissioner's general administration. | Updates to reference current delegations and seeking advice from the Office of General Counsel. | Examples replaced or expanded to provide relevant guidance. | Updates to the escalation process to clarify the appropriate person to approve a proposal and that decisions may be made at different levels. | Removal of outdated references and updated to reflect current knowledge management. | Flowchart updated to reflect the changes made to Section 7. | Appendix B - paragraphs 1 to 12 | Additional content explaining the consequences of the Commissioner having responsibility to administer the taxation laws, and that the general administration provisions place a duty on the Commissioner. | Appendix B - paragraph 13 | Table outlining the scope of decisions updated to reflect that the Practice Statement is primarily focussed on making general administration decisions about the allocation of ATO resources. | Appendix B - paragraph 17 | Updated to reflect the current number of relevant delegations. | Appendix B - paragraphs 20 to 22 | Removal of example that is no longer applicable. | Updated in line with current references within document. | Reference added to the Commissioner's remedial power. | Updated to reflect the Commissioner's powers of general administration (not Commissioner's general powers of administration) | Inserted reference to Practical Compliance Guideline PCG 2017/2 | Updated to new LAPS format and style | Remove outdated legislative and internal guidance references. Remove obsolete references to A,B&PT CoE and replace with references to TCN. | Clarify that decisions involving the application of PS LA 2011/27 (issued 27 July 2011) do not need to be escalated to the Commissioner. | Paragraph 23 of Appendix B | Links the factor on whether the Commissioner contributed to non compliance to PS LA 2011/27. | Minor editorial amendments. | Tax Office references updated to ATO as per ATO Style Guide recommendations | [1] 'Taxation laws' is used as a reference to any Act or part of an Act of which the Commissioner has the general administration. For example, those laws listed below at footnote 2 of this Practice Statement. | [2] These include section 8 of the Income Tax Assessment Act 1936 for the income tax laws, section 43 of the Superannuation Guarantee (Administration) Act 1992 for the superannuation guarantee law, section 7 of the Excise Act 1901 for the excise laws, section 3 of the Fringe Benefits Tax Assessment Act 1986 for the fringe benefits tax law and section 356-5 of Schedule 1 to the Taxation Administration Act 1953 (TAA) for the indirect tax laws (including the goods and services tax law and the fuel tax law). | [3] See section 8 (More information) of this Practice Statement. | [4] Arising out of what is commonly called the 'duty of good management' and the Commissioner's general obligation under section 15 of the Public Governance, Performance and Accountability Act 2013 to govern the ATO in a way that promotes the efficient, effective, economical and ethical use of public resources. | [5] See section 15AA of the Acts Interpretation Act 1901 . | [6] These are not types of decisions that meet the description of a 'decision ... under an enactment' in terms of the Administrative Decisions (Judicial Review) Act 1977 . | [7] See Practical Compliance Guideline PCG 2016/1 Practical Compliance Guidelines: purpose, nature and role in ATO's public advice and guidance for an explanation of one type of practical compliance solution . | [8] See section 370-5 of Schedule 1 to the TAA. | [9] Including that express powers will be construed as impliedly authorising whatever may be fairly regarded as incidental to, or consequential upon, the express power itself. | [10] Law Administration Practice Statement PS LA 2012/1 Engaging Tax Counsel Network on tax technical issues outlines the TCN technical engagement process and when TCN engagement is mandatory, such as for any technical issue rated with a significant or higher risk. Consistent with the guidance in section 7 of this Practice Statement, TCN must also be engaged before submitting a general administration decision proposal to the Commissioner. | [11] Carltona Ltd v Commissioner of Works [1943] 2 All ER 560 at [562-563]. | [12] The principle that a delegate's functions may be so numerous and varied that they could never personally attend to them all and, as a matter of administrative necessity, may allow others to perform them on their behalf has been recognised in Australia in O'Reilly v Commissioners of State Bank of Victoria [1983] HCA 47 ( O'Reilly ), where the High Court accepted the principle set out in Carltona . | [13] See section 6 of this Practice Statement for a list of attributes indicating that a decision cannot be made on the basis of implied authority. | [14] Refer to the Code of settlement and see Law Administration Practice Statements PS LA 2015/1 Code of settlement and PS LA 2007/6 Guidelines for settlement of widely-based tax disputes . | [15] Refer to Law Administration Practice Statement PS LA 2011/3 Compromise of undisputed tax-related liabilities and other amounts payable to the Commissioner , and note that these powers can only be exercised in the best interests of the Commonwealth. | [16] Refer to Annexure C to Law Administration Practice Statement PS LA 2011/14 General debt collection powers and principles . | [17] See sections 7 to 11 of this Practice Statement. | [18] See Risk Management Tool: ATO Risk Matrix . More generally, Chief Executive Instruction Risk management (links available internally only) sets out ATO employee responsibilities for risk management within the ATO Enterprise Risk Management Framework. | [19] More than one business line may be involved in this process (for example, if a proposal is expected to affect multiple client experiences). | [20] Consistent with the guidance in section 4 of this Practice Statement, TCN may have already been engaged if there is doubt about whether the proposed general administration decision is within scope of the Commissioner's general administration. | [21] Meaning 'of minimum importance' or 'trifling'. | [22] The appropriate communication product where the general administration decision has a public audience would normally be a practical compliance guideline. Your business line Public Advice and Guidance (PAG) Unit, or the PAG Governance team in the Office of the Chief Tax Counsel can provide advice on the appropriate method of communication. | [23] Generally the Deputy Commissioner or Deputy Commissioners leading the business line or lines. | [24] It might also be determined at this stage that the relevant Group Head has the appropriate authority to make the decision, in the course of their usual duties, in which case it will not be necessary to escalate the proposal to the Commissioner; see, further, sections 5 to 6 of this Practice Statement. The operation of subsection 6D(2) of the TAA does not preclude a Second Commissioner being delegated the authority, or expressly or impliedly authorised, to make these decisions. | [25] Macquarie Bank Limited v Commissioner of Taxation [2013] FCA 887 at [76]. | [26] See paragraphs 3 to 8 in Appendix B to this Practice Statement. | [27] See paragraphs 9 to 12 in Appendix B to this Practice Statement. | [28] Lighthouse Philatelics Pty Ltd v Commissioner of Taxation [1991] FCA 667, per Lockhart, Burchett and Hill JJ. | [29] Brown v Commissioner of Taxation [1999] FCA 563, per Hill J. | [30] Macquarie Bank Limited v Commissioner of Taxation [2013] FCAFC 119 at [11], per Middleton, Pagone, Davies JJ. | [31] Sop & Sop Pty Ltd v Commissioner of Taxation [2019] FCA 102 at [25], per Kenny J. | [32] Dunkel, M v The Deputy Commissioner of Taxation [1990] FCA 797 at [16] per Shephard J. Under administrative law, any action by a public authority which is outside the terms of its express statutory powers, or not at least incidental to, or consequential upon, that express authority, is ultra vires and invalid - see Hotop, S D (1985) Principles of Australian Administrative Law , 6 th edn, Law Book Company, Sydney at p. 217. | [33] Macquarie Bank Limited v Commissioner of Taxation [2013] FCA 887 at [76], per Edmonds J. | [34] Macquarie Bank Limited v Commissioner of Taxation [2013] FCAFC 119 at [12], per Middleton, Pagone, Davies JJ. | [35] Section 15AA of the Acts Interpretation Act 1901 states that in interpreting a provision of an Act, a construction that promotes the purpose or object underlying the Act (whether or not that purpose or object is expressly stated) shall be preferred to a construction that would not promote that purpose or object. | [36] Section 370-5 of Schedule 1 to the TAA allows the Commissioner to make, by disallowable legislative instrument, one or more modifications to the operation of a taxation law to ensure the law can be administered to achieve its intended purpose or object. | [37] Sykes, E, et al (1997) General Principles of Administrative Law , 4 th edn, Butterworths, Chatswood at pp. 5 and 6, state that the content of administrative law is a statement of the rules casting light on the question whether a decision or determination of an administrative authority is to be subject to the controls of the superior courts of law. They say that the controls are directed to the 2 questions cited in these dot points in paragraph 14 in Appendix B to this Practice Statement. | [38] Ali Fayed & Ors v Advocate General [2002] ScotCS 349 at [124], per Lord Gill, citing Lord Wilberforce in Vestey v Inland Revenue Commissioners (Nos 1 and 2) [1980] AC 1148 at [1173]. | [39] Carltona and O'Reilly . | [40] See Chief Executive Instruction Risk management (link available internally only). | [41] PS LA 2011/27 amplifies and clarifies this specific factor. It also explains the relevant practices and procedures to be followed. | File 2008/9202; 1-10MDDDKA | Brown v Commissioner of Taxation [1999] FCA 563 42 ATR 118 99 ATC 4516 | Carltona Ltd v Commissioner of Works [1943] 2 All ER 560 | Dunkel, M v The Deputy Commissioner of Taxation [1990] FCA 797 27 FCR 524 21 ATR 1279 91 ATC 4142 | Grofam Pty Ltd & Ors v The Commissioner of Taxation of the Commonwealth of Australia [1997] FCA 660 97 ATC 4656 36 ATR 493 | Industrial Equity Ltd v Deputy Commissioner of Taxation [1990] HCA 46 170 CLR 649 90 ATC 5008 21 ATR 934 96 ALR 337 (1990) 65 ALJR 1 | Inland Revenue Commissioners v National Federation of Self-employed and Small Businesses Ltd [1982] AC 617 [1981] STC 260 | Knuckey, Ross Randall v Commissioner of Taxation of the Commonwealth of Australia [1998] FCA 1143 87 FCR 187 40 ATR 117 98 ATC 4903 | Lighthouse Philatelics Pty Ltd v Commissioner of Taxation [1991] FCA 667 (1991) 32 FCR 148 (1991) 91 ATC 4942 (1991) 22 ATR 707 | Macquarie Bank Limited v Commissioner of Taxation [2013] FCA 887 215 FCR 403 97 ATR 591 | Macquarie Bank Limited v Commissioner of Taxation [2013] FCAFC 119 | O'Reilly v Commissioners of State Bank of Victoria [1983] HCA 47 153 CLR 1 13 ATR 64 83 ATC 4156 57 ALJR 342 | Sop & Sop Pty Ltd v Commissioner of Taxation [2019] FCA 102 | Vestey v Inland Revenue Commissioners (Nos 1 and 2) [1980] AC 1148 [1979] All ER 976"
PS LA 2009/5,"SUBJECT: Provision of advice and guidance by the Australian Taxation Office in relation to the application of the Superannuation Industry (Supervision) Act 1993 and the Superannuation Industry (Supervision) Regulations 1994 to self-managed superannuation funds PURPOSE: To explain: • the forms of self-managed superannuation fund (SMSF) advice and guidance we provide about the application of the Superannuation Industry (Supervision) Act 1993 and Superannuation Industry (Supervision) Regulations 1994 • the weight given to the fact that an SMSF trustee has relied on SMSF advice or guidance in relation to a scheme, and • where to find further information about procedures for developing and issuing each form of SMSF advice and guidance.",12 August 2009,12 August 2009,Law Administration Practice Statement,False,"SCOPE: 1. This Practice Statement provides an explanation of the different forms of SMSF advice or SMSF guidance that we provide about the application of the SISA and the SISR. 2. It also explains the weight given to the fact that a trustee of an SMSF has relied on SMSF advice or SMSF guidance in relation to a scheme. 3. This Practice Statement identifies sources of further information on developing and issuing different forms of SMSF advice or SMSF guidance. | BACKGROUND: 4. PS LA 2008/3 explains the forms of advice and guidance we provide about the application of laws administered by us. It also explains the level of protection available to taxpayers who rely on each form of advice or guidance from the payment of any tax shortfall, penalty or interest. 5. PS LA 2008/3 does not deal with matters involving the Commissioner's administration or application of provisions of the SISA or SISR. [3] Such matters relate to the compliance by an SMSF (and its trustees) with its regulatory obligations, rather than the determination of a taxation liability. 6. Accordingly, the levels of protection that apply in respect of advice or guidance concerning a direct or indirect tax matter have no application in respect of any SMSF advice or SMSF guidance that is given by us about the application of the SISA or SISR. 7. SMSF advice and SMSF guidance is issued by the Commissioner in the role of regulator of SMSFs under the SISA. It is not covered by any legislative framework and is not legally or administratively binding on the Commissioner. The issuance by us of SMSF advice and guidance is consistent with the ATO having, under section 6 of the SISA, the general administration of the relevant parts of the SISA and SISR. 8. Accordingly, the levels of protection that apply in respect of advice or guidance concerning, for example, a direct or indirect tax matter have no application in respect of any views that we provide in respect of a SISA or SISR matter. The distinction made in this Practice Statement between SMSF advice and SMSF guidance does not relate to a level of protection provided to trustees of SMSFs who rely on them. Rather, it relates to the kind of assistance that we are seeking to provide. SMSF advice is aimed at providing the ATO's technical views on the way in which the SISA or SISR are to be interpreted, either in general or in relation to specific circumstances. SMSF guidance is aimed at providing more practical general assistance. 9. This Practice Statement explains: • the weight to be given to the fact that an SMSF trustee has relied on the SMSF advice or guidance in relation to a scheme, and • what compliance action, if any, will be taken if that SMSF trustee is later found to have contravened the SISA or the SISR as a result of that scheme. • the weight to be given to the fact that an SMSF trustee has relied on the SMSF advice or guidance in relation to a scheme, and • what compliance action, if any, will be taken if that SMSF trustee is later found to have contravened the SISA or the SISR as a result of that scheme. 10. SMSF advice and SMSF guidance also does not bind SMSF trustees. A trustee is entitled to apply the law to the circumstances of the SMSF. 11. This Practice Statement makes a number of references to PS LA 2008/3. When directed by such references, you should refer to PS LA 2008/3 for further information about the forms of advice and guidance under the laws covered by that Practice Statement. | EXCLUSIONS FROM THIS PRACTICE STATEMENT: 12. This Practice Statement does not deal with the following: • the application for, making of or declining to make a private ruling in accordance with Division 359 of Schedule 1 of the Taxation Administration Act 1953 (TAA) (see also paragraphs 80 to 128 of PS LA 2008/3) • public rulings made (or withdrawn) in accordance with Division 358 of Schedule 1 of the TAA (see also paragraphs 29 to 79 of PS LA 2008/3) • the application for, making of, or withdrawal of oral rulings in accordance with Division 360 of Schedule 1 of the TAA (see paragraphs 161 to 189 of PS LA 2008/3) • administratively binding advice provided in accordance with paragraphs 190 to 204 of PS LA 2008/3 • a private indirect tax rulings provided in accordance with paragraphs 129 to 144 of PS LA 2008/3 • an actual exercise of a discretion under the SISA (however, this Practice Statement provides information on the appropriate form of assistance to be provided to respond to a trustee's query involving the exercise of a discretion [4] ) • matters relating to the making of, and review of, a decision that is a 'reviewable decision' under subsection 10(1) of the SISA • matters which fall within the ambit of the Australian Prudential Regulation Authority's regulatory role • ATO audit position papers (these generally represent a preliminary view of the relevant facts and law applying to a particular situation) • taxpayer alerts. [5] • the application for, making of or declining to make a private ruling in accordance with Division 359 of Schedule 1 of the Taxation Administration Act 1953 (TAA) (see also paragraphs 80 to 128 of PS LA 2008/3) • public rulings made (or withdrawn) in accordance with Division 358 of Schedule 1 of the TAA (see also paragraphs 29 to 79 of PS LA 2008/3) • the application for, making of, or withdrawal of oral rulings in accordance with Division 360 of Schedule 1 of the TAA (see paragraphs 161 to 189 of PS LA 2008/3) • administratively binding advice provided in accordance with paragraphs 190 to 204 of PS LA 2008/3 • a private indirect tax rulings provided in accordance with paragraphs 129 to 144 of PS LA 2008/3 • an actual exercise of a discretion under the SISA (however, this Practice Statement provides information on the appropriate form of assistance to be provided to respond to a trustee's query involving the exercise of a discretion [4] ) • matters relating to the making of, and review of, a decision that is a 'reviewable decision' under subsection 10(1) of the SISA • matters which fall within the ambit of the Australian Prudential Regulation Authority's regulatory role • ATO audit position papers (these generally represent a preliminary view of the relevant facts and law applying to a particular situation) • taxpayer alerts. [5] 13. Any requests in relation to the above matters, or on any other matters not dealt with by this Practice Statement, are to be dealt with in accordance with current ATO business practices and procedures. 14. The terms set out in Table 1 are used in this Practice Statement. Table 1: Terms used in this Practice Statement Term Explanation Entity The term 'entity' is defined in subsection 10(1) of the SISA. Entity is defined to mean any of the following: (a) an individual (b) a body corporate (c) a partnership, or (d) a trust. Legal personal representative The term 'legal personal representative' is defined in subsection 10(1) of the SISA as: • the executor of the will or administrator of the estate of a deceased person • the trustee of the estate of a person who is under a legal disability, or • a person who holds an enduring power of attorney granted by a person. ORCLA Online Resource Centre for Law Administration. It contains (or links to) policies and procedures governing the provision of various forms of advice and guidance. See Law Administration Practice Statement PS LA 2003/9 The Online Resource Centre for Law Administration (ORCLA). Scheme The term 'scheme' means [6] : (a) any agreement, arrangement, understanding, promise or undertaking: (i) whether express or implied, or (ii) whether or not enforceable, or intended to be enforceable, by legal proceedings, and (b) any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise. SISA Superannuation Industry (Supervision) Act 1993 SISR Superannuation Industry (Supervision) Regulations 1994 SMSF self-managed super fund SMSFD self managed superannuation funds determination SMSFR self managed superannuation funds ruling SMSFSA self managed superannuation fund specific advice ATO website ato.gov.au (a) an individual (b) a body corporate (c) a partnership, or (d) a trust. • the executor of the will or administrator of the estate of a deceased person • the trustee of the estate of a person who is under a legal disability, or • a person who holds an enduring power of attorney granted by a person. It contains (or links to) policies and procedures governing the provision of various forms of advice and guidance. See Law Administration Practice Statement PS LA 2003/9 The Online Resource Centre for Law Administration (ORCLA). (a) any agreement, arrangement, understanding, promise or undertaking: (i) whether express or implied, or (ii) whether or not enforceable, or intended to be enforceable, by legal proceedings, and (b) any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise. (i) whether express or implied, or (ii) whether or not enforceable, or intended to be enforceable, by legal proceedings, and 15. There are many forms of assistance that we provide to SMSFs, both orally and in writing, about the application of the SISA and SISR. In accordance with Our Charter , we aim to provide complete, accurate and consistent advice. This guidance is to make taxpayers aware of their rights and entitlements and to help them understand and meet their obligations. 16. This Practice Statement explains: • each form of SMSF advice and SMSF guidance we provide, subject to the exclusions set out in paragraph 12 of this Practice Statement, and • the weight given to the fact that an SMSF trustee has relied on SMSF advice or SMSF guidance in relation to a scheme. • each form of SMSF advice and SMSF guidance we provide, subject to the exclusions set out in paragraph 12 of this Practice Statement, and • the weight given to the fact that an SMSF trustee has relied on SMSF advice or SMSF guidance in relation to a scheme. 17. The views expressed in SMSF advice and SMSF guidance represent the ATO's views. They cannot be considered to bind the Australian Prudential Regulation Authority or the Australian Securities and Investment Commission in any way. However, the other regulators' views on the interpretation of the SISA and SISR will be taken into account in the preparation of SMSF public rulings as necessary, given these bodies also have powers of general administration [7] in relation to the SISA. | PART A – SMSF ADVICE: 18. SMSF advice is our opinion on the application of the SISA and SISR to SMSFs. The SMSF advice is provided in the form of: • SMSF public rulings - self managed superannuation funds rulings, and - self managed superannuation funds determinations. • SMSF-specific advice (SMSFSA). • SMSF public rulings - self managed superannuation funds rulings, and - self managed superannuation funds determinations. • SMSF-specific advice (SMSFSA). - self managed superannuation funds rulings, and - self managed superannuation funds determinations. 19. The weight given to the fact that an SMSF trustee has relied on SMSF advice is outlined in paragraphs 98 to 111 of this Practice Statement. 20. Our basic administrative policy is to only depart from what is said in SMSF advice if there are good and substantial reasons to consider the advice to be incorrect or inappropriate. SMSF advice may be considered incorrect or inappropriate in one of the following circumstances: • There have been legislative changes since the advice was made that affects the basis for the advice. • A tribunal or court decision has affected the interpretation of the law on which the advice is founded since the advice was given. • Commercial practice which provided the context for the advice has changed. • The advice has been exploited in an abusive or unintended way such that it is no longer an accurate reflection of our position in relation to the scheme. • The advice is no longer considered to be correct, because it is found on reconsideration to be based on or to express a view of the law that is incorrect. • There have been legislative changes since the advice was made that affects the basis for the advice. • A tribunal or court decision has affected the interpretation of the law on which the advice is founded since the advice was given. • Commercial practice which provided the context for the advice has changed. • The advice has been exploited in an abusive or unintended way such that it is no longer an accurate reflection of our position in relation to the scheme. • The advice is no longer considered to be correct, because it is found on reconsideration to be based on or to express a view of the law that is incorrect. | SMSF public rulings: 21. provision of the SISA and SISR applies, or would apply, to SMSFs in relation to a class of schemes or to a class of SMSFs generally. They're not the specific circumstances of a particular SMSF. SMSF public rulings provide advice for tax officers, trustees of SMSFs and their advisors on the interpretation of the provisions of the SISA and SISR that affect their compliance with those laws. You should refer to Producing PAG product (link available internally only) for procedures on producing an SMSF public ruling. 22. While similar in form to a tax public ruling, an SMSF public ruling is not a public ruling for the purposes of Division 358 of Schedule 1 to the TAA. SMSF public rulings are not, therefore, binding on the ATO. | Issue and withdrawal of SMSF public rulings: 23. Unlike public rulings on direct or indirect taxes, there are no legislative provisions dealing with the making or withdrawal of SMSF public rulings. SMSF public rulings are accessible internally via ATOlaw or externally through the Legal database on the ATO website. 24. We may withdraw either the whole or part of an SMSF public ruling. 25. To the extent that a ruling is withdrawn, it does not apply to arrangements entered into after the date of withdrawal. The extent to which a withdrawn ruling continues to apply to arrangements so far as they have commenced to be carried out before the withdrawal would depend on the circumstances in which the ruling is withdrawn. The notice of withdrawal will outline the extent to which the ruling may continue to apply. There may be circumstances where we consider that, given the severity of the impact to retirement savings, it is necessary for transactions entered into as a result of relying on an SMSF public ruling to be unwound. | SMSF rulings and SMSF determinations: 26. In the interests of sound administration, we provide advice, in the form of SMSF public rulings about the application of SISA and SISR which do not form part of a binding rulings framework. 27. SMSFRs generally deal with a subject that involves a consideration of several issues or the answering of several questions. On the other hand, SMSFDs generally deal with discrete issues that can usually be dealt with by answering a single question. 28. Topics on which we are preparing SMSFRs and SMSFDs are listed on the Advice under development program (AUDP). The relevance and performance of the AUDP is monitored by the National Tax Liaison Group. This group consists of representatives of the major tax, law and accounting professional associations and ATO senior staff. Topics on the AUDP arise from or reflect suggestions made either internally through our escalation processes or from external sources, such as professional and industry representative bodies. These topics are subject to risk assessment and prioritisation according to the technical engagement process. [8] 29. Our Public Advice and Guidance Panel (Panel) was established to consider and advise on the proposed interpretation of the law in SMSF public rulings. It is comprised of senior tax officers, as well as external representatives who are respected practitioners or academics. The primary role of the Panel is to discuss the technical and practical merits of the draft ruling as presented to them by the authoring team, as well as to advise on the proposed interpretation of the law. The Panel is advisory and is not a decision-making body. It is one of a number of measures to ensure the highest quality of public rulings. 30. SMSF public rulings usually apply both before and after their date of issue. However, they may apply from the date of issue or from an earlier or later time, as specified in the ruling. 31. Usually, SMSFRs and SMSFDs will be first issued publicly as a draft to allow for consultation. 32. A draft SMSFR or SMSFD will represent our preliminary, though considered, view. The weight given to the fact that an SMSF trustee has followed a draft prior to finalisation is the same as that given to all SMSF advice and guidance. Once the final SMSFR or SMSFD is released, an SMSF trustee should follow the final SMSFR or SMSFD. | SMSF-specific advice: 33. SMSFSA is a written expression of our opinion on how a SISA or SISR provision applies to a specific transaction or arrangement that has been or might be entered into by the trustees of an SMSF. It is provided to the trustees of an SMSF, their advisor, their legal personal representative or an auditor of an SMSF acting under a duly sighted letter of authority. SMSFSA only pertains to the specific SMSF and transaction or arrangement in question. 34. While similar in form to a private ruling, an SMSFSA is not a private ruling for the purposes of Division 359 of Schedule 1 to the TAA. An SMSFSA is not, therefore, binding on us and does not have the same review rights as a private ruling. [9] 35. The prerequisite for SMSFSA is that the SMSF trustees and their advisors, representatives or authorised auditors who are seeking the advice should make a full and true disclosure of all relevant facts in relation to the matters on which specific advice is sought. If relevant facts are not fully and truly disclosed, the advice is not applicable to the specific transaction. 36. An SMSFSA will not be provided on an SMSF's complying status or where the exercise of a discretionary power is required. [10] However, the trustee should be assisted to obtain information or guidance suited to their needs. 37. When preparing SMSFSA, we must refer to ORCLA and relevant procedures for assistance, including approval for issue by our authorising officers. | Applying for SMSFSA: 38. A written application for an SMSFSA must be submitted and contain such information as required by the application form. A standard application form is available from the ATO website. 39. It is not mandatory to use the standard application form. A request for SMSFSA will be considered provided it is made in writing and contains all the necessary information. This includes copies of all relevant documents, the checklisted items and declaration referred to in the standard application form. The trustees and their advisors are also encouraged to provide a summary of their research and analysis of the technical issues involved so that their views on the issue can be considered in providing the SMSFSA. 40. If the type of technical assistance requested is not clear, we should contact the trustees or their advisor to ascertain the type of assistance required. If their query can only be resolved by SMSFSA, they should be invited to supply the necessary information and be given assistance in submitting an application. 41. If another form of assistance could resolve their query, we must explain the alternatives available. For instance, SMSF guidance such as an ATO publication. We must then invite the trustees or their advisor to choose the form of assistance preferred, provided the form of assistance is appropriate for the request. For example, SMSF guidance is generally inappropriate in relation to complex SISA or SISR arrangements or transactions. 42. A tax agent who is registered as a user of our online services may lodge the SMSFSA application via the relevant option for either tax agents or businesses. | Requirements for SMSFSA: 43. The following are requirements that we will follow in considering an application for SMSFSA. 44. The trustees or their advisor must describe the facts on which the request is based. This includes, where relevant, the income year or the accounting period that the advice will relate to. The SMSFSA is made on the basis of: • information, including documents identifying that information, provided in the application, as well as further information supplied by the trustee or their advisor after the initial application (such as in response to any request by us for further information), and • any assumptions made by us on which the correctness of the SMSFSA might depend. • information, including documents identifying that information, provided in the application, as well as further information supplied by the trustee or their advisor after the initial application (such as in response to any request by us for further information), and • any assumptions made by us on which the correctness of the SMSFSA might depend. 45. Importantly, if a trustee or their advisor provides further information indicating that the facts on which the request is based are materially different from that described in the original application, this is to be treated as a new application for an SMSFSA. However, the request is to be actioned so that the work proceeds with continuity. 46. We must attempt to identify all the facts necessary to arrive at a decision. If providing an SMSFSA would depend on a fact that may not occur (for instance about a future event), we may either decline to provide the SMSFSA or provide the advice on the basis of an assumption. If the trustee could reasonably be expected to have knowledge of the relevant fact, then an assumption should not be made. 47. Generally, if a trustee does not provide enough information for an SMSFSA to be provided, we must attempt to provide written SMSF guidance. As an example, we may quote some or all of an SMSF public ruling and allow the trustee to consider how to apply the law as stated to their circumstances. | Declining to provide SMSFSA: 48. A request for an SMSFSA may be declined if: • the SMSF has not yet been established • the trustee already has an SMSFSA on the issue and the particular request is considered unnecessary • the SMSF is, at the time of the request, the subject of a ATO audit relating to the particular question being raised (the trustee may seek clarification from the tax officer conducting the audit) • it relates to a reviewable decision under subsection 10(1) of the SISA [11] • the question to be determined is in relation to the trustee covenants as set out in subsection 52(2) of the SISA. • the SMSF has not yet been established • the trustee already has an SMSFSA on the issue and the particular request is considered unnecessary • the SMSF is, at the time of the request, the subject of a ATO audit relating to the particular question being raised (the trustee may seek clarification from the tax officer conducting the audit) • it relates to a reviewable decision under subsection 10(1) of the SISA [11] • the question to be determined is in relation to the trustee covenants as set out in subsection 52(2) of the SISA. 49. A request for an SMSFSA may also be declined where a trustee does not provide the additional information requested by us within a reasonable time. | Providing SMSFSA: 50. SMSFSA is to be given in writing to the trustees of an SMSF. 51. We should not provide pre-SMSFSA opinions, draft SMSFSA or any other written expressions or written endorsements of informal assistance that may mislead trustees if that preliminary view is subsequently changed or that might restrict development and application of the actual SMSFSA. File notes of telephone conversations or minutes of interviews may be provided to the trustees if they do not contain advice or if the risk of misleading trustees is properly managed. This does not mean that we cannot undertake discussions with the trustees or their advisors to establish the particulars of the scheme and its purpose, nor does this mean that we are precluded from general discussions with a trustee in relation to an issue. These processes are encouraged. However, we must ensure that the trustee is not misled and must clearly explain that any comments made will not be binding on us. 52. An SMSFSA on an interpretative issue is provided if there is a precedential ATO view of the relevant law or if the issue involves a straightforward application of the law. [12] Where there is no precedential ATO view and the issue is not a straightforward application of the law, the general rule [13] is that the interpretative issue must be referred by the Superannuation and Employee Obligations (SEO) business line to the Tax Counsel Network (TCN) to establish a precedential ATO view on the issue. [14] An SMSFSA is only made after the precedential ATO view has been established. 53. An SMSFSA: • states that it is an SMSFSA • identifies the SMSF to which it applies • specifies the scheme and the relevant provision to which the SMSFSA relates, and • details any assumptions made. • states that it is an SMSFSA • identifies the SMSF to which it applies • specifies the scheme and the relevant provision to which the SMSFSA relates, and • details any assumptions made. 54. An SMSFSA applies from the time when it is made. | Timeframes – ATO service standards: 55. In accordance with ATO service standards, we aim to provide a response to an application for an SMSFSA within 28 days of receiving all the necessary information. If all the necessary information has not been supplied in the application, we aim to contact the applicant within 14 days of receiving the application to ask for the information. If the application raises a complex matter that will take more than 28 days to resolve after receiving all the required information, we aim to contact the applicant within 14 days of receiving all necessary information to negotiate an extended reply date. | Withdrawal of SMSFSA application: 56. A trustee of an SMSF or their advisor may withdraw their SMSFSA application, either orally or in writing, at any time before the advice is issued and we will provide written confirmation of the withdrawal. | Review of SMSFSA: 57. There are no formal review rights under the SISA or SISR if a trustee of an SMSF is dissatisfied with their SMSFSA. However, they may ask us for a 'second look' [15] at a decision we have made. This second look is a review process undertaken as good administrative practice under Our Charter. We are committed to reviewing our decisions to ensure that all SMSF trustees are treated fairly and to improve the quality and consistency of its decisions. 58. Our decision not to issue an SMSFSA is not reviewable under the Administrative Decisions (Judicial Review) Act 1977. The reason is that an SMSFSA is not made under an enactment. We provide this advice because the ATO has the general administration of the SISA and SISR in relation to SMSFs, see section 6 of the SISA. However, a trustee of an SMSF may ask us for a second look at the decision not to issue SMSFSA. | Providing indicative advice before issuing SMSFSA: 59. During the preparation of SMSFSA, we may be asked to provide an indication of the likely ATO view of the law in relation to a scheme, transaction or arrangement. Subject to paragraph 61 of this Practice Statement, we are not to provide indicative advice. This ensures that no advice is provided unless the actual details of the proposed scheme, transaction or arrangement and its purpose have been firmly established. Additionally, we must have finalised our view on how a SISA or SISR provision applies so as not to mislead entities However, we can undertake informal discussions with entities raising, for example, areas of possible concern. [16] 60. Providing indicative advice before the actual details of the proposed scheme, transaction or arrangement and its purpose have been firmly established may create expectations that we will adopt a particular view in relation to a particular scheme that may not subsequently be met. This has the potential to undermine confidence in our administration of the superannuation system. 61. Nevertheless, there may be occasions (where we have established the details of the proposed scheme, transaction or arrangement, but have not finalised the position on the SISA or SISR consequences) that call for the provision of indicative advice. For example, the provision of favourable indicative advice could occur where all the following conditions are met: • There is - a substantial and time dependent business need - a very low risk of a different view being taken - appropriate documentation and transparency, and - involvement of appropriate tax officers, including relevant technical specialists. • The entity is fully aware and acknowledges that - the matter is still under consideration and therefore the view is preliminary only, and - the view should not be relied on as representing the ATO view of the law on the matter. • There is - a substantial and time dependent business need - a very low risk of a different view being taken - appropriate documentation and transparency, and - involvement of appropriate tax officers, including relevant technical specialists. • The entity is fully aware and acknowledges that - the matter is still under consideration and therefore the view is preliminary only, and - the view should not be relied on as representing the ATO view of the law on the matter. - a substantial and time dependent business need - a very low risk of a different view being taken - appropriate documentation and transparency, and - involvement of appropriate tax officers, including relevant technical specialists. - the matter is still under consideration and therefore the view is preliminary only, and - the view should not be relied on as representing the ATO view of the law on the matter. 62. There must be no undue delay by you in providing the final advice and the entity must be kept informed of the progress of the matter at appropriate intervals. 63. SMSF indicative advice will not carry the weight that may otherwise be applicable to entities who rely on SMSF advice or guidance. [17] 64. Consistent with corporate record-keeping requirements [18] , accurate and complete notes must be made of all discussions prior to, and in the course of dealing with, an application for SMSFSA. Where SMSF indicative advice is provided in connection with a request for written advice, a record of the SMSF indicative advice must be attached to the case record on the relevant case management system. | Informal discussions: 65. We can have informal discussions with trustees of an SMSF or their advisors on technical matters. ATO staff are encouraged to do so, especially where there is an opportunity to clarify matters or to understand better the entity's position. 66. Informal discussions can be undertaken with an entity about a particular scheme, either before or following the receipt of a written request for guidance. Such discussions may reveal the need for a written request for advice, and shed light on the information and material that should be provided with the request or is needed to answer an existing request. 67. If we receive a request for SMSFSA involving complex matters, general discussions about ambiguity in the law or its application are often a necessary part of ensuring that all relevant material is provided and considered, to enable the facts to be correctly established. Such discussions may also highlight to the trustee or their representative those areas where we have concerns. 68. Where the tax officer and any relevant technical specialist believe that those concerns may lead to an unfavourable response from the ATO, it may be appropriate to inform the trustees or their representative accordingly. In these circumstances, we (including any appropriate relevant technical specialists) are to explain the basis of the concerns to the trustees or their representative. It must be made clear to them at the time of this discussion that: • these concerns are being communicated so that they can take the possibility of a final unfavourable view into account and to help them decide whether to continue to expend time and money preparing to implement the proposed scheme, and • communicating concerns in this informal way does not constitute an indication of the ATO's view of the law in relation to the scheme. • these concerns are being communicated so that they can take the possibility of a final unfavourable view into account and to help them decide whether to continue to expend time and money preparing to implement the proposed scheme, and • communicating concerns in this informal way does not constitute an indication of the ATO's view of the law in relation to the scheme. 69. In undertaking these discussions, we must ensure that the trustees or their representative are not misled and must clearly explain that any comments made will not be binding on us. Relevant documentation is to be prepared and, where appropriate, captured on the relevant case management system. 70. Should the SMSF trustees or their representative submit material changes to the scheme upon which the SMSFSA is sought following the discussions, the revised scheme should be treated as a new application. However, the request will be actioned so that the work proceeds with continuity. | PART B – SMSF GUIDANCE: 71. Assistance provided in a form other than SMSF advice may answer a trustee's query or question without them having to satisfy the conditions that apply to the making of SMSF advice. SMSF guidance may be given in writing or orally, including by way of an ATO publication. This includes ATO website material. 72. Our SMSF guidance is provided to help trustees of SMSFs understand their obligations, duties and entitlements under the SISA and the SISR administered by the Commissioner. SMSF guidance is not binding on us. 73. If a trustee or their representative wants us to provide specific advice about the applicability of the SISA or SISR to their individual circumstances, they should apply for SMSFSA. 74. It may sometimes be difficult to draw a distinction between requests for SMSF guidance and SMSFSA. It may be unclear whether a trustee of an SMSF has a specific transaction in mind and is expecting SMSFSA or whether they are just broadly considering a course of action and are only expecting general guidance. For example, a trustee of an SMSF might simply ask if a residential property can be acquired from a member and provide no other information about their specific circumstances. 75. If there is any doubt whether the request is for SMSF guidance or SMSFSA, the entity should be contacted and their enquiry clarified. If their enquiry can only be satisfied by SMSFSA, they must be invited to supply the necessary information and be given information about how to make an appropriate application. | Written guidance: 76. Written guidance is issued to help trustees of SMSFs understand their obligations under the SISA and SISR administered by us. It provides only general assistance and cannot cover all possibilities or individual circumstances. Written guidance may also be in the form of an ATO publication. This can include ATO website content. 77. Written guidance is usually provided if the trustee of an SMSF has enquired about the broad operation of the law and has not provided details of their specific circumstances. A trustee of an SMSF who receives written guidance must decide how the guidance applies to their circumstances. We should refer to ORCLA for further information about providing written guidance. 78. This Practice Statement sets out the different forms of written guidance we publish. The weight given to the fact that a trustee of an SMSF or other entity has relied on any of these forms of written guidance, as they relate to SISA or SISR issues, is outlined in paragraphs 98 to 111 of this Practice Statement. | SMSF publications: 79. An entity should not use SMSF publications or ATO website material that is out of date. That is because, generally, reliance on an earlier document at a time where a later publication that correctly reflects the law is available would not be considered to be reasonable. This would be a factor that we would take into account in determining any action to take in response to a breach. All current SMSF publications are contained on the ATO website. | Published speeches, minutes of consultation groups, media releases and decision impact statements: 80. Speeches by senior tax officers and minutes of consultation groups reflect our current thinking on particular issues. Minutes are a record of proceedings at a consultation group and reflect the discussion between us and the other attendees. They are published for transparency reasons. 81. Media releases are used to communicate what our intention is in relation to certain issues. As such, media releases may contain statements intended to be relied on. 82. Decision impact statements [19] are published to the Legal database on the ATO website to publicise to the community our reaction to adverse and other significant court or tribunal decisions. They: • include a summary of the case details • summarise the facts and issues decided • note any consequences in relation to public advice or guidance • if relevant, set out how the law will be administered as a consequence of the decision, pending any change to existing public advice or guidance (but are not normally expected to contain advice). • include a summary of the case details • summarise the facts and issues decided • note any consequences in relation to public advice or guidance • if relevant, set out how the law will be administered as a consequence of the decision, pending any change to existing public advice or guidance (but are not normally expected to contain advice). 83. An entity that needs guidance about the applicability to their own specific circumstances of information contained in published speeches, minutes of consultation groups, media releases or decision impact statements should apply for SMSFSA. | Published materials produced for internal ATO purposes: ATO interpretative decisions 84. An ATO interpretative decision (ATO ID) is an edited and summarised decision on an interpretative matter that is indicative of how a provision of the law might be applied in a particular instance. ATO IDs do not provide advice to trustees of SMSFs. They represent a source of the precedential ATO view that we must apply in resolving interpretative issues. Alternatively, if we consider the application of the precedential view will result in an incorrect decision or unintended outcome, we must escalate the matter for review. [20] 85. An ATO ID provides the ATO view for SMSFSA to be given to an entity in relation to the interpretative matter it covers and for dispute resolution and compliance activity by tax officers. However, ATO IDs do not in themselves represent any established general administrative practice of the Commissioner. Further information about ATO IDs is contained in Law Administration Practice Statement PS LA 2001/8 ATO Interpretative Decisions. 86. ATO IDs were produced for the purpose of facilitating consistent and timely interpretative decision making by us. However, they may not always contain a complete statement of all the facts in summarising the application of the law to complex circumstances. For transparency reasons, they are made publicly available through the Legal database on the ATO website. 87. ATO IDs state the date of the decision and are withdrawn if a review finds that they are no longer accurate. 88. The weight given to the fact that a trustee of an SMSF has relied on a current ATO ID where their own circumstances are not materially different from those described in the ATO ID, and the ATO ID is later found to be incorrect or misleading, is outlined in paragraphs 98 to 111 of this Practice Statement. Law administration practice statements 89. Law administration practice statements [21] are produced principally to direct and assist us with approaches to be taken in performing duties involving the application of laws administered by the Commissioner. They are published primarily for transparency and accountability reasons. They are not intended to provide interpretative advice but may provide guidance on the law in the course of providing directions to us. Technical skilling materials 90. We produce educational material for the purpose of enhancing the knowledge and skills of tax officers engaged in technical decision making. Other materials are published to assist external entities who have corresponding educational needs. | Oral guidance: 91. We may provide oral guidance about the application of SISA or SISR to a trustee of an SMSF. 92. Oral guidance is to be provided only on matters of a general, straightforward or simple nature and applies only to those matters. 93. Where an SMSF trustee seeks assistance on a matter that is not of a straightforward or simple nature, we should suggest that the trustee apply for SMSFSA or written guidance as appropriate, then provide information about making a valid application. This ensures that the trustee receives a properly considered opinion on the application of the law to the SMSF's circumstances. 94. Oral guidance must be consistent with the precedential ATO view in relation to any interpretative issue raised by the trustee of an SMSF or other entity. [22] 95. Reference may also be made to the following ATO documents that either reflect precedential ATO views or contain a clear, unambiguous interpretation of the relevant legislation: • online reference materials (for example, client contact scripts) • current ATO publications (not otherwise included in the Schedule of Documents containing Precedential ATO Views ), and • ATO website material (other than that produced by external publishers). • online reference materials (for example, client contact scripts) • current ATO publications (not otherwise included in the Schedule of Documents containing Precedential ATO Views ), and • ATO website material (other than that produced by external publishers). 96. The weight given to the fact that a trustee of an SMSF has relied on oral guidance that is incorrect or misleading and makes a mistake as a result, is outlined in paragraphs 98 to 111 of this Practice Statement. The oral guidance will only carry weight where the trustee of the SMSF has made a full and true disclosure of the material facts relevant to their enquiry. 97. For procedures for providing oral guidance, refer to paragraphs 253 to 261 of PS LA 2008/3. | PART C – WEIGHT GIVEN TO SMSF ADVICE AND GUIDANCE: 98. SMSF advice and SMSF guidance is not legally or administratively binding on us. An entity that relies on SMSF advice or guidance will remain responsible for their actions under the SISA or SISR. 99. However, if we later take the view that the law applies less favourably to SMSFs than the SMSF advice or guidance indicates, the fact that the trustee acted in accordance with that advice or guidance would be a relevant factor in their favour in our exercise of any discretion as to what, if any, action is to be taken in response to a breach of that law. 100. This is on the basis that: • The advice or guidance is applicable to the SMSF's particular circumstances. • The trustee acts, reasonably and in good faith, in accordance with the advice or guidance. • In the case of SMSFSA or SMSF oral guidance, a full and true disclosure had been made to us when the advice or guidance was sought. • The advice or guidance is applicable to the SMSF's particular circumstances. • The trustee acts, reasonably and in good faith, in accordance with the advice or guidance. • In the case of SMSFSA or SMSF oral guidance, a full and true disclosure had been made to us when the advice or guidance was sought. 101. The weight to be given to the reliance placed on the SMSF advice or guidance would depend on all the circumstances applicable to the SMSF. Each case must be considered on its own merits. SMSF advice or guidance that is specific to the circumstances of the SMSF (for example, SMSFSA) is likely to be (though not necessarily) a more significant factor weighing in favour of the trustee in contrast to if the SMSF advice or guidance was general in nature. Likewise, reliance on SMSF advice is likely to be more significant than reliance on SMSF guidance, given the general nature of SMSF guidance and that SMSF advice is either based around a specific set of facts or a defined topic, such as business real property. 102. When the time comes to determine action to be taken in relation to non-compliance of a trustee of an SMSF with the SISA or SISR, the law at that time must be applied to the facts as established at that time. [23] Any action we may take, and the timing of such action, resulting from our departure from SMSF advice or guidance will depend on the circumstances and may be announced in subsequent SMSF advice or guidance. In the case of legislative change, the timing of a departure from previous advice or guidance will depend on the date of effect of the legislation and would normally apply to transactions entered into after the date of effect, unless particular circumstances warranted another approach. 103. We may, having regard to all the circumstances, decide that it is appropriate, in response to a breach: • to take no action • for the trustee to take rectification action – for example, where the SMSF trustee has appropriately relied upon SMSF advice or guidance, and that advice or guidance is later found to be incorrect, we may seek an informal agreement or enforceable undertaking involving actions to rectify the breach, including possibly unwinding or reversing of transactions, or • to take other compliance action [24] – for example, making the fund non-complying. • to take no action • for the trustee to take rectification action – for example, where the SMSF trustee has appropriately relied upon SMSF advice or guidance, and that advice or guidance is later found to be incorrect, we may seek an informal agreement or enforceable undertaking involving actions to rectify the breach, including possibly unwinding or reversing of transactions, or • to take other compliance action [24] – for example, making the fund non-complying. 104. The following examples illustrate the weight to be given to the use of SMSF advice or guidance by SMSF trustees. | Example 1 – circumstances materially different from SMSFSA supplied: 105. The trustees of an SMSF seek SMSFSA from us on their plan to purchase listed securities from the members of the fund at market value for $6,000. The SMSFSA is sought on whether this proposed transaction would breach the prohibition on acquisitions from related parties in subsection 66(1) of the SISA. We issue SMSFSA based on these facts that state that the proposed transaction meets the requirements of an exception to the prohibition and therefore does not breach subsection 66(1) of the SISA. The trustees of the SMSF rely upon this SMSF advice and proceed with the transaction. However, a later review determines that the listed securities were acquired for $10,000, which is in excess of their market value. Therefore, as the listed securities were not acquired at market value, their acquisition did not meet the exception to the prohibition and a breach of subsection 66(1) of the SISA has occurred. The transaction that was carried out was materially different to the transaction that the SMSFSA was based upon, that is, the listed securities were not acquired at market value. In these circumstances, the SMSFSA is not a factor that counts in the trustee's favour in our exercise of any discretion as to what, if any, action is to be taken in response to a breach of that law. | Example 2 –SMSF advice is subsequently withdrawn: 106. In determining whether a particular arrangement contravenes a provision of the SISA, the trustees of an SMSF rely upon a final SMSFR, as their facts are materially the same as one of the examples in the SMSFR. The trustees therefore, proceed with the arrangement. However, due to the findings of a post-implementation review, we withdraw the SMSFR. We reconsider and redraft certain aspects of the SMSFR and reissue it. Consequently, the trustees discover that the views in the reissued SMSFR indicate that the arrangement resulted in a breach of the SISA. However, the trustees of the SMSF relied upon an SMSFR in entering into the arrangement and the facts relating to the arrangement were not different from those stated in the SMSFR. These are relevant factors operating in the trustees' favour in relation to how we would deal with the breach. The SMSF has a good record of compliance with the SISA and SISR and there are no other circumstances indicating a breach of the law. Having regard to all those circumstances, we decide not to make the SMSF non-complying or disqualify the trustees based on this specific breach. We may, however, request the trustees rectify the breach where this is possible. | Example 3 – reliance on SMSF guidance for complex transactions: 107. An SMSF plans to invest a large amount of money in a complex set of transactions in entities in which the members have also invested. The trustees of the SMSF rely upon SMSF guidance available on the ATO website, determining that the entities would not be related parties. Therefore, the SMSF would not breach the in-house asset rules by making these investments. It is open to the trustees to seek SMSFSA in relation to the proposed transactions. No other professional advice is sought by the trustees on the application of the SISA and SISR in relation to the proposed transactions. Upon a later review by us, it is found that the entities in which the SMSF have invested are controlled by the members and thus the in-house asset rules were breached by investing above the allowed limit in the related parties. When exercising the Commissioner's discretion as to whether compliance action is required, we take into account all factors, including the fact that the trustees relied upon SMSF guidance. It was not reasonable for the SMSF trustees to rely on the guidance in these circumstances, because the complexity of the transactions undertaken by the trustees of the SMSF was not contemplated by the guidance. The trustees had responsibility for their actions. Therefore, we have an expectation that the trustees rectify the breach by reducing its in-house assets in a timely manner. We may also consider whether further action, such as making the fund non-complying or disqualifying the trustees is necessary, having regard to all the circumstances of the fund. | Example 4 – reliance on SMSFSA, further circumstances not covered: 108. The trustees of an SMSF are looking to invest in an unrelated unit trust in which they would acquire a 15% share, the equivalent of about 25% of the SMSF's current assets. To ensure that the investment would be compliant with the in-house asset rules in the SISA, the trustees of the SMSF apply to us for SMSFSA on whether the investment represents an 'investment in a related party of the fund'. In their application, the trustees make a full disclosure regarding the nature of the relationship between the SMSF and the unit trust. We issue SMSFSA stating that as the unit trust is not a related party of the SMSF and the investment in the unit trust does not represent an in-house asset. However, a later review by us shows that though the investment was not an in-house asset, as previously stated in the SMSFSA, in making the investment the trustees of the SMSF have breached other sections of the SISA and SISR. They have borrowed extensively to fund the investment and, via this borrowing, have also placed a charge over the SMSF's assets. Throughout the review, the SMSF trustees refuse to rectify the breaches. They believe that the investment was a good investment and that the borrowings and charge do not really place the SMSF's assets at risk. In exercising the Commissioner's discretion as to what, if any, compliance action should be taken, we take into account the fact that the trustees did seek SMSFA about whether the investment was an in-house asset and did make a full disclosure regarding the nature of the relationship between the SMSF and the unit trust. However, we also took into account all the other circumstances of the SMSF, including though not limited to, that the trustees: • did not rely on public SMSF advice or guidance when making the decision to borrow money and place a charge over the SMSF's asset • seem unwilling to recognise the seriousness of these contraventions, and • do not attempt to rectify the breaches and continued to place the SMSF's assets at risk. As such, though the SMSFSA was relevant to the fact that the investment did not breach the in-house asset rules, in this instance we exercise the Commissioner's discretion to make the fund non-complying after taking into account all other relevant factors, including the seriousness of the other breaches. • did not rely on public SMSF advice or guidance when making the decision to borrow money and place a charge over the SMSF's asset • seem unwilling to recognise the seriousness of these contraventions, and • do not attempt to rectify the breaches and continued to place the SMSF's assets at risk. As such, though the SMSFSA was relevant to the fact that the investment did not breach the in-house asset rules, in this instance we exercise the Commissioner's discretion to make the fund non-complying after taking into account all other relevant factors, including the seriousness of the other breaches. | Example 5 – reliance upon SMSF guidance, breach due to circumstances beyond the trustee's control: 109. Miss Smith has a single member SMSF with a corporate trustee and a separate company through which she runs her business. Miss Smith is looking to acquire 2 properties from an unrelated party – one for her SMSF and one for her business. Miss Smith relies upon SMSF guidance in the form of ATO publications and information on the ATO website. She determines that as the purchase of the property would be from an unrelated party, there would be no breach of section 66 of the SISA. Miss Smith documents this in a trustee minute, along with detailed instructions to her agent to make the acquisitions before she leaves for business overseas. Upon her return, she discovers that an error has been made and that her business company has been used to acquire both properties, even though her instructions and documents had made it clear that one of the properties was to be purchased by the SMSF. In an attempt to rectify this error, the agent then transfers the purchase price of the property intended for the SMSF from the SMSF's bank account to the business company's bank account, then organises for the legal title to be transferred into the name of the SMSF. Miss Smith voluntarily discloses this information to us as she has received independent advice that a breach of section 66 of the SISA may now have occurred. In exercising the Commissioner's discretion as to what, if any, compliance action needs to be taken, we take favourably into account that Miss Smith (as the trustee of the SMSF) appropriately relied upon SMSF guidance in making her decision regarding the acquisition, as well as the fact that circumstances beyond the trustee's control led to a technical and inadvertent breach of section 66 of the SISA. Further, as the SMSF has a good record of compliance and there are no other circumstances indicating a breach of the SISA or SISR, we decide not to make the SMSF non-complying or disqualify the trustee based on this specific breach. | Example 6 – reliance upon draft SMSFR: 110. The trustees of an SMSF enter into an instalment purchase contract for an asset. They rely upon a draft SMSFR on charges over assets which specifically state that such a transaction complies with the SISA and the SISR. As a result of the feedback received during the consultation process on the draft SMSFR, it is decided that the position taken in the draft SMSFR in relation to such transactions was incorrect. As a result, when the ruling is finalised 6 months after it was released as a draft, it indicates that the transaction entered into by the trustees placed a charge over the assets of the fund and therefore breaches section 34 of the SISA and regulation 13.14 of the SISR. The breach is discovered in a review of the SMSF carried out by us 2 months after the ruling is finalised. The trustees are aware of the change in our position in the final SMSFR but have not been able to rectify the breach. Given that the draft SMSFR had only recently been finalised and the trustees relied on it correctly and in good faith at the time, we allow a reasonable time for the trustees to unwind the transaction. If, however, the trustees choose not to rectify the breach or the breach is discovered several years after the SMSFR was finalised then, depending on the circumstances, we may look to take compliance action in relation to the breach. | Example 7 – subsequent amendments made: 111. The trustees of an SMSF rely upon SMSF guidance in the form of question and answer on the ATO website. This information states they can continue to accept personal contributions for a member who was over 75 years of age. They include a printout of this information in their trustee minutes. Unfortunately, due to a typographical error, the ATO website information indicates a fund can accept personal contributions after the member turns 75 years of age if the member is gainfully employed on at least a part-time basis. As this member is still employed on a full-time basis, the trustees decide, based on this website information, that they can continue receiving personal contributions. However, a later review by us confirms that the trustees were prohibited from accepting personal contributions for this member. The trustees of the SMSF relied upon this SMSF guidance and the facts relating to the arrangement were not materially different from those stated in the SMSF guidance. This is a relevant factor operating in the trustees' favour in relation to the Commissioner's discretion as to what, if any, action should be taken in relation to this breach of the SISR.",Schedule of Documents containing Precedential ATO Views | PS LA 1998/1 | PS LA 2001/8 | PS LA 2003/3 | PS LA 2003/9 | PS LA 2006/17 | PS LA 2006/19 | PS LA 2008/3 | PS LA 2008/15 | PS LA 2009/9 | PS LA 2012/1 | SISA 6 | SISA 10(1) | SISA 10(4) | SISA 34 | SISA 42 | SISA 42A | SISA 52(2) | SISA 66 | SISA 66(1) | SISA 66(5) | SISA 85(4) | SISA 126A | TAA 1953 Sch1 Div 358 | TAA 1953 Sch1 Div 359 | TAA 1953 Sch1 Div 360 | SISR 13.14 | Administrative Decisions (Judicial Review) Act 1977 | 84 CLR 105,PS LA 1998/1 PS LA 2001/8 PS LA 2003/3 PS LA 2003/9 PS LA 2006/17 PS LA 2006/19 PS LA 2008/3 PS LA 2008/15 PS LA 2009/9 PS LA 2012/1,SISA 6 | SISA 10(1) | SISA 10(4) | SISA 34 | SISA 42 | SISA 42A | SISA 52(2) | SISA 66 | SISA 66(1) | SISA 66(5) | SISA 85(4) | SISA 126A | TAA 1953 Sch1 105-60 | TAA 1953 Sch1 Div 358 | TAA 1953 Sch1 Div 359 | TAA 1953 Sch1 Div 360 | SISR 13.14 | Administrative Decisions (Judicial Review) Act 1977,,Advice under development program Chief Executive Instruction Information asset management (link available internally only) Chief Executive Instruction Respecting taxpayers' rights of review (link available internally only) ORCLA - Resources for Law Administration (link available internally only) Our Charter Producing PAG product (link available internally only) Schedule of Documents containing Precedential ATO Views,False,True,https://www.ato.gov.au/law/view/document?docid=PSR/PS20095/NAT/ATO/00001,"Examples of weight given to SMSF advice and SMSF guidance | Providing assistance in the form of SMSF advice and SMSF guidance on the application of the Superannuation Industry (Supervision) Act 1993 (SISA) and Superannuation Industry (Supervision) Regulations 1994 (SISR) is an important part of the Commissioner of Taxation's role as the regulator of SMSFs. The provision of this assistance enables SMSF trustees to understand and meet their obligations under the SISA and SISR. | This provision of assistance has no application to entities other than SMSFs and former [1] SMSFs that are regulated by us. A reference to SMSFs in this Practice Statement also includes a reference to former SMSFs that are regulated by us. | Distinction between taxation advice and guidance as described in PS LA 2008/3 and SMSF advice and SMSF guidance: In Law Administration Practice Statement PS LA 2008/3 Provision of advice and guidance by the ATO, we set out the level of protection that is available under the laws administered by us to taxpayers who rely on the advice or guidance we have provided. This level of protection is expressed in terms of protection from tax, penalty and interest. In most cases, the level of protection available to a taxpayer who relies on our advice or guidance about a tax matter arises from the operation of a taxation law. | 'Advice' (as described in PS LA 2008/3) is mostly, though not always, advice provided by us in the form of legally binding advice that protects a taxpayer who relies on it from primary tax. In a limited number of cases, while we are not legally bound by the advice we provide, the Commissioner has agreed that we will be administratively bound and gives taxpayers the same level of protection as if the law provided the protection. 'Guidance' provides a lower level of protection than advice. | However, PS LA 2008/3 specifically excludes matters involving the Commissioner's administration or application of the SISA and SISR. | The law does not legally bind the ATO in respect of the views we express about the operation of the SISA or SISR. It is not possible for us to be administratively bound by the views that we give as an administrator of the SISA or SISR in the same manner that we are, or have agreed to be, bound by tax advice that we give. This is because SISA and SISR provisions relate to the compliance of an SMSF and its trustees with their regulatory obligations, rather than the determination of a tax liability. | Accordingly, the levels of protection that apply in respect of advice or guidance concerning, for example, a direct or indirect tax matter have no application in respect of any views that we give in respect of a SISA or SISR matter. The categories of 'advice' and 'guidance' discussed in PS LA 2008/3 in relation to tax matters are not relevant to assistance the ATO provides as regulator of SMSFs under the SISA and SISR. | Trustees of SMSFs can seek advice or guidance from us in respect of the direct and indirect tax liabilities of the SMSF. We must refer to PS LA 2008/3 when giving advice or guidance to a trustee on a direct or indirect tax matter. | • SMSF public rulings (SMSF rulings and SMSF determinations), and • SMSF-specific advice. | The requirement for SMSF-specific advice is that SMSF trustees, or the principals or implementers of products, should make a full and true disclosure of all relevant facts in relation to the matters on which the SMSF advice is sought. | An SMSF public ruling is a published statement that is intended to contain advice on the way the SISA or SISR applies in circumstances that are common to many SMSFs. While similar in form to a taxation public ruling, an SMSF public ruling is not binding on us. | SMSF rulings and determinations are aimed at providing our technical views on the way in which the SISA or SISR are to be interpreted. The primary audience for SMSF rulings and determinations are tax professionals, trustees or entities who have, or seek, a technical understanding of the underlying law. | SMSF-specific advice is provided in writing and applies to a specific transaction or arrangement that has been or might be entered into by the trustees of an SMSF. It is based on the facts of the specific transaction or arrangement defined in the trustees' application for SMSF-specific advice. While similar in form to a private ruling, SMSF-specific advice is not binding on the ATO and does not have the same review rights as a private ruling. | SMSF guidance is provided to help SMSF trustees understand their obligations and duties under the provisions of the SISA and SISR administered by us. SMSF guidance provides general assistance and, especially for published products, is simply expressed, often providing step-by-step guidance but unlikely to cover all possibilities. Generally, it does not address an SMSF's or other entity's [2] specific circumstances. | Weight given to SMSF advice and SMSF guidance: SMSF advice and SMSF guidance is not binding on the ATO. A trustee or other entity that relies on SMSF advice or guidance will remain responsible for their actions under the SISA and SISR. | • the advice or guidance is applicable to the SMSF's particular circumstances • the trustee acts, reasonably and in good faith, in accordance with the advice or guidance, and • in the case of SMSFSA or SMSF oral guidance, a full and true disclosure had been made to us when the advice or guidance was sought. | The weight to be given to the reliance placed on the SMSF advice or guidance would depend on all the circumstances applicable to the SMSF. Each case must be considered on its own merits. SMSF advice or guidance that is specific to the circumstances of the SMSF in question is likely to be, though is not necessarily, a more significant factor weighing in favour of the trustee than if the SMSF advice or guidance was general in nature. Likewise, reliance on SMSF advice is likely to be more significant than reliance on SMSF guidance. | Updated in line with current ATO style and accessibility requirements. | (ii) Also remove all reference/s to SMSF product rulings as this is no longer a form of SMSF advice issued by the Commissioner. | Minor typographical error fixed. The word 'officer' changed to 'Office'. | Minor typographical errors fixed. The word 'to' added to the third sentence. | Minor typographical errors fixed. The word 'of' changed to 'on'. | References to Tax Office updated to ATO as per Style Guide recommendations. | Minor revisions to correct titles of referenced documents. | LAPS reference updated from PS LA 2007/2 to PS LA 2009/9. | [1] 'Former' SMSFs refers to super funds that have ceased being SMSFs for the purposes of the SISA and the trustee of the fund is not a registrable superannuation entity (RSE) licensee, see subsection 10(4) of the SISA. These funds are treated as SMSFs for the purposes of sections 6, 42 and 42A of the SISA. | [2] An 'entity' is a defined term in subsection 10(1) of the SISA. Within this Practice Statement, the term is used as relevant to the particular context. | [3] Refer to paragraph 6 of PS LA 2008/3 for further information. | [4] A Commissioner's discretion may be exercised under a power conferred by an administrative provision or a provision affecting liability or an anti-avoidance provision. The granting of a waiver of an individual's disqualified status is an example of discretion exercised under the SISA. | [5] Refer to Law Administration Practice Statement PS LA 2008/15 Taxpayer Alerts . | [6] Subsections 66(5) and 85(4) of the SISA. | [7] Regulators' have powers of general administration under section 6 of the SISA. | [8] See Law Administration Practice Statement PS LA 2012/1 Engaging Tax Counsel Network on tax technical issues . | [9] However, see paragraphs 71 and 72 of this Practice Statement. | [10] See paragraph 12 of this Practice Statement. | [11] Examples of reviewable decisions include a decision by us not to issue a determination that an asset is an in-house asset or the decision to not waive a trustee's disqualified status. | [12] See paragraph 13 of Law Administration Practice Statement PS LA 2003/3 Precedential ATO view , which describes circumstances where you are not required to identify and apply a precedential ATO view. These situations include the exercise of a discretion, making an ultimate conclusion of fact or determining the value of something. | [13] Note that there are some exceptions to this general rule. Refer to PS LA 2012/1. | [14] See PS LA 2012/1 and PS LA 2003/3. | [15] You should refer to Chief Executive Instruction Respecting taxpayers' rights of review (link available internally only) for further information. | [16] The discussion about indicative advice in this section applies generally to SMSFSA and SMSFPR. | [17] See paragraphs 71 to 79 of this Practice Statement. | [18] Chief Executive Instruction Information asset management (link available internally only). | [19] For further information on decision impact statements, refer to Law Administration Practice Statement PS LA 2009/9 Conduct of ATO litigation and engagement of ATO Dispute Resolution . | [21] For further information, see Law Administration Practice Statement PS LA 1998/1 Law administration practice statements . | [22] 'Precedential ATO view' is defined in PS LA 2003/3. This Practice Statement also identifies the ATO documents that contain those views. | [23] Commissioner of Taxation (Cth) v Wade [1951] HCA 66; 84 CLR 105 at [117]. | [24] See Law Administration Practice Statements PS LA 2006/19 Self-managed superannuation funds - issuing a notice of non-compliance , which outlines the factors we will consider in deciding whether a notice of non-compliance should be given to a fund, and PS LA 2006/17 Self-managed superannuation funds - disqualification of individuals to prohibit them from acting as a trustee of a self-managed superannuation fund , which outlines the circumstances in which we will consider disqualifying an individual under section 126A of the SISA. | File 08/17065; 1-14MZWYE0 | Commissioner of Taxation (Cth) v Wade [1951] HCA 66 84 CLR 105 [1951] ALR 962 9 ATD 337"
PS LA 2009/8,SUBJECT: The Commissioner's determination under paragraph 71(1)(e) of the Superannuation Industry (Supervision) Act 1993 that an asset is not an in-house asset of a self-managed superannuation fund PURPOSE: To outline the circumstances where we would exercise the Commissioner's discretion to issue a determination that an asset is not an in-house asset,15 October 2009,15 October 2009,Law Administration Practice Statement,False,"1. All legislative references in this Practice Statement are to the Superannuation Industry (Supervision) Act 1993 (SISA), unless otherwise indicated. Additionally, all references in this Practice Statement to self-managed superannuation funds (SMSF) include former SMSFs, unless otherwise indicated. 2. The Commissioner of Taxation has the general administration of Part 8 to the extent that the Part relates to SMSFs. [1] Part 8 contains the in-house asset rules that apply to regulated superannuation funds. 3. The primary policy objective of the in-house asset rules in Part 8 is [2] : ... to ensure that the investment practices of superannuation funds are consistent with the Government's retirement incomes policy. That is, superannuation savings should be invested prudently, consistent with the SIS requirements, for the purpose of providing retirement income and not for providing current day benefits. 4. Subject to some exceptions, an in-house asset of a superannuation fund is an asset of the fund that is: • a loan to, or an investment in, a related party of the fund • an investment in a related trust of the fund, or • an asset of the fund subject to a lease or lease arrangement between a trustee of the fund and a related party of the fund. [3] • a loan to, or an investment in, a related party of the fund • an investment in a related trust of the fund, or • an asset of the fund subject to a lease or lease arrangement between a trustee of the fund and a related party of the fund. [3] 5. However, not all assets of the fund that meet the descriptions in paragraph 4 of this Practice Statement are in-house assets. Part 8 contains a number of exclusions to the general definition of an in-house asset [4] , including transitional provisions which apply to certain related party assets which were held at 11 August 1999 and were not in-house assets of the SMSF prior to that date. [5] In addition, particular regulations specify exclusions to the in-house asset definition for a class of assets or a class of funds. [6] 6. Part 8 limits the value of in-house assets that a trustee of a superannuation fund may acquire and hold to 5% of the market value of the fund's total assets. [7] If the 5% limit is breached as at the end of a year of income, the trustee is required to make and implement a plan to reduce the level of the fund's in-house assets to 5% or below before the end of the following year of income. [8] 7. The Commissioner, as the Regulator of SMSFs under the SISA, has the power to make a determination under paragraph 71(1)(e) that a particular asset of an SMSF is not, or will not be, an in-house asset of the fund. 8. A determination may be made with retrospective effect. [9] It may also be revoked. [10] 9. Our decision, refusing to make (or revoke) a determination, is a reviewable decision. [11] A trustee affected by our decision may, if dissatisfied with the decision, request us to reconsider. [12] 10. The policy in this Practice Statement applies to SMSFs [13] and former SMSFs. [14] 11. In considering whether to make a determination under paragraph 71(1)(e), we will take into account all relevant facts and circumstances of the case. 12. We may consider it appropriate to issue a determination if: • the facts of the case indicate circumstances that are unusual or out of the ordinary, and • by making the determination it will not undermine the purpose of the in-house asset rules in Part 8. • the facts of the case indicate circumstances that are unusual or out of the ordinary, and • by making the determination it will not undermine the purpose of the in-house asset rules in Part 8. 13. We may consider circumstances to be unusual or out of the ordinary where: • a trustee of an SMSF has complied with the SISA requirements in investing the fund's assets • certain events occur, which are unforeseeable and beyond the trustee's control, and • these events when they relate to the fund result in the in-house assets of the fund exceeding the 5% in-house asset limit. • a trustee of an SMSF has complied with the SISA requirements in investing the fund's assets • certain events occur, which are unforeseeable and beyond the trustee's control, and • these events when they relate to the fund result in the in-house assets of the fund exceeding the 5% in-house asset limit. 14. Examples of such circumstances that are unusual or out of the ordinary include (but are not limited to) where legislative change leads to assets, previously excluded under the transitional provisions, being transferred to new SMSFs and becoming in-house assets. See Example 1 of this Practice Statement. 15. Where the circumstances are considered unusual or out of the ordinary, we may issue a determination under paragraph 71(1)(e) if it is not inconsistent with the intent of the in-house asset rules. The in-house asset rules require assets of a fund to be invested prudently, consistent with the SISA requirements, and only for the purpose of providing retirement income for members and not for providing current-day benefits. 16. Without further relevant facts, we would not normally consider the circumstances as unusual or out of the ordinary where the in-house assets of the fund exceed the 5% in-house asset limit as a result of the following events: • fluctuations in economic conditions • the trustee is not aware of the requirements of the in-house asset rules • the trustee relies on the exercise of due care and diligence by a professional and necessary advice is not provided • there is a significant benefit to the fund from the investment • the trustee does not want to incur any difficulties or costs in keeping the in-house assets under the 5% limit • there is a failure to satisfy the exclusions to the in-house asset definition specified by regulation under paragraph 71(1)(j), or • the transitional provisions allowing additional investments in particular related party assets expired at 30 June 2009 and further additional investments in assets of that kind are made after that date. • fluctuations in economic conditions • the trustee is not aware of the requirements of the in-house asset rules • the trustee relies on the exercise of due care and diligence by a professional and necessary advice is not provided • there is a significant benefit to the fund from the investment • the trustee does not want to incur any difficulties or costs in keeping the in-house assets under the 5% limit • there is a failure to satisfy the exclusions to the in-house asset definition specified by regulation under paragraph 71(1)(j), or • the transitional provisions allowing additional investments in particular related party assets expired at 30 June 2009 and further additional investments in assets of that kind are made after that date. 17. We therefore would not ordinarily issue a determination that an asset is not an in-house asset of the fund for the events listed above. However, these circumstances will be taken into account when considering whether to exercise our discretion under subsection 42A(5) to allow the fund to maintain its complying status in relation to the year of income. [15] 18. The decision to issue a determination under paragraph 71(1)(e) must be approved by an Executive Level 2 (EL2) officer or above. When making a recommendation to the EL2 officer, you are required to provide them with sufficient information to approve the issue of a determination. 19. A determination under paragraph 71(1)(e) is issued to a specific SMSF in relation to its particular assets and on the basis of its particular facts and circumstances. Therefore, a determination cannot be relied on by other SMSFs even if their situation is argued to be the same. A trustee of an SMSF that seeks an exercise of our discretion to issue a determination should apply on behalf of their fund. 20. A determination under paragraph 71(1)(e) may be made on a prospective or retrospective basis. 21. A determination under paragraph 71(1)(e) can be issued on a conditional basis where it is expressed to include facts and circumstances that we consider relevant in exercising the discretion. The determination continues to apply as long as the facts and circumstances that justified exercising the discretion continue into the future. 22. We may revoke a determination issued under paragraph 71(1)(e). This Practice Statement does not examine the timing of a revocation. To ensure full consideration, approval of the revocation by the relevant Senior Executive Service (SES) officer in the Superannuation and Employment Obligations (SEO) business line is required. The need for escalation to any other area will be in accordance with SEO's work practices. 23. If the determination ceases to apply because the facts are no longer as set out in the determination or the conditions are no longer satisfied, we are not required to revoke the determination. 24. Paragraph 71(1)(e) does not specify the form or timeframe in which a request for a determination is to be made. However, we will ordinarily consider a determination request from a trustee of an SMSF when it is in writing and contains all necessary information for us to make a decision regarding the request. 25. Paragraph 71(1)(e) does not provide any criteria limiting when we may exercise the discretion to issue a determination, nor does it provide any guidance as to when it would be appropriate. While our discretion to issue a determination is unfettered, it does not mean the power can be exercised on any basis. It must be exercised by reference to the legislative context in which it appears. 26. We will consider the policy intent of imposing limits on investments in in-house assets when making a decision on whether to issue a determination that a particular asset not be an in-house asset of an SMSF. This decision will be made by taking into account the facts and circumstances of the individual case. As a guiding principle, we may exercise the discretion and issue a determination if: • there are circumstances that are unusual or out of the ordinary, and • the issue of the determination would not undermine the purpose for which the in-house asset rules in Part 8 were introduced. • there are circumstances that are unusual or out of the ordinary, and • the issue of the determination would not undermine the purpose for which the in-house asset rules in Part 8 were introduced. | Factors taken into account when deciding to exercise an unfettered discretion: 27. Before determining whether it is appropriate to exercise the discretion, we must consider the scope and purpose of the in-house asset rules, and thus ensure that the exercise of the discretion is consistent with the identified purpose. 28. In Shrimpton v Commonwealth [1945] HCA 4, the High Court considered the Treasurer's power to approve purchases of land. Latham CJ commented [16] : Accordingly, it should be held that the discretion entrusted to the Treasurer must be exercised for the purpose of attaining the object and securing the purpose of the Regulations, such object and purpose being ascertained by an examination of the terms of the Regulations. 29. Later, in Water Conservation and Irrigation Commission (NSW) v Browning [1947] HCA 21, Latham CJ also stated that [17] : On several occasions this Court has had to consider provisions vesting a wide discretion in an administrative body and to consider whether the discretion was intended by the legislature to be absolutely unlimited ... The intention of the legislature is to be ascertained from the words of the statute as applied to the subject matter with which the statute deals. 30. In the case of Minister for Aboriginal Affairs v Peko-Wallsend Ltd [1986] HCA 40, Mason J stated [18] : If the relevant factors – and in this context I use this expression to refer to the factors which the decision-maker is bound to consider – are not expressly stated, they must be determined by implication from the subject-matter, scope and purpose of the Act. 31. In Chief Commissioner of State Revenue v Pacific General Securities Ltd and Finmore Holdings Pty Ltd (No 2) [2005] NSW ADTAP 54 ( Pacific General ), the New South Wales Administrative Decisions Tribunal Appeal Panel considered an appeal against the exercise of an unfettered discretion by the NSW Administrative Decisions Tribunal. Referring to dispensing powers in revenue legislation, the Appeal Panel stated at [29]: The discretion belongs to a context. The discretion must be applied in a manner which does not defeat the fundamental legislative objectives of the scheme of regulation within which the dispensing power is located. It is a relief mechanism for hard cases. 32. When describing how the discretion was to be applied, the Appeal Panel in Pacific General noted at [31]: On its face there is nothing special about this transaction, and there would have to be some unusual or special considerations which would take the case outside the normal application of duty. To use the discretion to relieve a purchaser from duty would require special justification. A dispensing power should not lightly be applied. 33. Further, at [39] of Pacific General : We see the purpose of the kind of discretion given by s 25(2) as to provide a measure of discretion to deal with unforeseen consequences, anomalies or unexpected outcomes (such as the unexpected application of more than one head of duty). The discretion might be open to be applied also where there is an unexpected social policy consequence of a taxation measure which should be ameliorated in the short term, ahead possibly, in some instances, of amending legislation. 34. In JNVQ and Commissioner of Taxation [2009] AATA 522, when considering an appeal against the exercise of discretion to issue a notice of compliance by the Commissioner of Taxation, Carstairs MJ stated at [41]: Any exercise of discretion must have regard to considerations of unfairness in a particular case, but must be applied in a manner consistent with the objects of the relevant Act. It is important to have regard to whether, by exercising the discretion in a particular case, the decision-maker will be achieving or frustrating those objects. 35. Therefore, to justify our decision to issue a determination under paragraph 71(1)(e), there needs to be something unusual or out of the ordinary about the situation. The power to exercise the discretion allows us to deal with unforeseen consequences, anomalies or unexpected outcomes. | Exercise of the discretion under paragraph 71(1)(e): 36. The fact that paragraph 71(1)(e) does not provide any limits to a discretionary power does not mean that the power can be exercised on any basis. Rather, the discretion should be exercised consistently with the scope and purpose of the legislation in which it appears. 37. The broad definition of an in-house asset indicates that the provision was intended to identify a wide range of assets of the superannuation fund that were exposed to or contribute to the financial viability of a related party of the SMSF. This is consistent with the primary policy objective of Part 8, which is to ensure that the investment practices of superannuation funds are consistent with the Government's retirement incomes policy. 38. Rather than making a judgment about the quality of an in-house investment, the in-house asset rules simply limit the amount of investment in a related party to 5% of the market value of the fund's total assets. The main aim is to reduce the risk to superannuation savings. 39. In The Taxpayer and Commissioner of Taxation [2000] AATA 238, the purpose of the in-house investment limits was mentioned at [22], where McMahon DP stated that '[t]he in-house investment limits are intended to ensure that the fates of the company [a related party] and of the Fund member[s] are not inextricably linked.' 40. The in-house asset rules have an object of not only ensuring prudential investment of savings, but also that these investments are consistent with SISA requirements to limit the risks associated with superannuation investments in related parties. Superannuation fund assets must be maintained for the purpose of providing retirement income for members, rather than providing current-day benefits to members or any related party of the fund. | Circumstances considered unusual or out of the ordinary: 41. In determining whether the circumstances of a given case are unusual or out of the ordinary, a tax officer should consider whether the resulting breach of the in-house asset rules is inadvertent and has arisen through no fault of the trustee or the related party of the fund. 42. Circumstances may be considered unusual or out of the ordinary where a trustee of an SMSF has complied with all SISA requirements when investing the fund's assets and certain events occurred which are unforeseeable and beyond the trustee's control, causing the fund to exceed the 5% in-house asset limit. 43. 'Beyond the trustee's control' does not include circumstances where the trustee, due to their ignorance, has no knowledge of, or participation, in the related party's business activities or decisions. 44. While each case must be determined on its facts, the following are examples of circumstances we may regard as unusual or out of the ordinary. These examples are not designed to fetter the exercise of our discretion but are for illustrative purposes only. Example 1 – legislative changes such as the introduction of the registrable superannuation entity licence 45. Following the introduction of the RSE licence in 2004, trustees of some small Australian Prudential Regulation Authority (APRA) funds want to transfer their funds to SMSFs because they are unwilling to become licensed. Assets [19] which are not in-house assets of the APRA funds due to the operation of the transitional provisions continue to be excluded from the in-house assets of the SMSFs if the APRA fund itself is to become an SMSF. However, if an APRA fund wishes to divide, assets transferred from the former APRA fund to the new SMSFs would become in-house assets of the SMSFs because the transitional provisions will not apply to the new SMSFs that received the assets. In this scenario, the in-house assets of the SMSFs may have exceeded the 5% limit. 46. We regard the introduction of the licensing regime as unusual or out of the ordinary. This is because this situation is outside of the trustee's control and at the time the assets which were not in-house assets of the APRA fund are acquired, the trustees of the APRA funds are not in a position to foresee the introduction of new licensing requirements. 47. Assets are acquired from the APRA funds when they are transferred to the new SMSFs. However, each member's rights, interests and entitlements in the assets of the SMSFs are effectively maintained in the same position as they would be if the fund had not been split. The circumstances therefore make it possible for us to conclude that the purpose of the in-house asset rules does not require the assets that were previously not in-house assets of the former APRA funds to be treated as in-house assets of the SMSF. As a result, we issue a determination under paragraph 71(1)(e) excluding those assets from the definition of an in-house asset of the SMSFs. 48. To ensure that the same individuals retain their interest in the same assets, the determination is issued on a conditional basis by stipulating that all members of the new SMSFs were members of the former APRA fund and no new members be added into the fund until after 30 June 2009. [20] 49. If there were members in the SMSFs who were not members of the former APRA fund, we do not issue a determination to provide the SMSFs relief from the in-house assets rules. Similarly, the determination ceases to take effect if new members were added to the fund before 1 July 2009. Example 2 – state or territory law changes result in water access rights being recognised as assets, separate from underlying business real property primary production land 50. A trustee of an SMSF acquires business real property (BRP) primary production land (along with the attached water rights) which the SMSF then leases to a related party. The related party uses the land in carrying on a primary production business. At the time of acquisition, the water rights are not recognised as a separate asset and the acquisition of the BRP primary production land is covered by the exception in paragraph 66(2)(b) and does not result in a contravention of the SISA. The leasing of the BRP primary production land is also covered by the in-house asset exception in paragraph 71(1)(g). 51. State or territory law changes result in the water right being unbundled from the underlying BRP primary production land. This results in the SMSF holding 2 separate assets, being the BRP primary production land and the water right (commonly referred to after separation as a water access entitlement (WAE)). The WAE, now recognised as a separate asset from the land, is no longer excluded by the BRP exception [21] when leased to a related party. It is therefore included as an in-house asset in working out if the 5% in-house asset limit has been exceeded. 52. We consider the unbundling of the WAE from the related BRP primary production land under a state or territory law is an unusual or out of the ordinary event and the trustee complied with the SISA requirements when originally acquiring and leasing the BRP primary production land to the related party. 53. In these circumstances, we consider it appropriate to issue a determination under paragraph 71(1)(e) to exclude the WAE from being an in-house asset of the SMSF while the: • SMSF leases the BRP primary production land to a related party [22] of the SMSF • BRP primary production land is used by the related party in carrying on a primary production business, and • WAE continues to be used by the related party in carrying on that primary production business. • SMSF leases the BRP primary production land to a related party [22] of the SMSF • BRP primary production land is used by the related party in carrying on a primary production business, and • WAE continues to be used by the related party in carrying on that primary production business. 54. The issue of the determination thereby returns the SMSF and the members to the same position as before the unforeseen event. It also ensures that no additional benefits are conferred upon the trustee or the members beyond those that were in place before the unbundling of the WAE. 55. On the day that any of these circumstances are no longer satisfied, the determination will cease to apply. On that day, the WAE will no longer be excepted under paragraph 71(1)(e) and the WAE will be an in-house asset of the SMSF. | Circumstances not considered unusual or out of the ordinary: 56. We would not ordinarily issue a determination that an asset is not an in-house asset of the fund where the circumstances are not considered unusual or out of the ordinary. The circumstances however will be taken into account when considering whether to exercise the Commissioner's discretion under subsection 42A(5) to allow the fund to maintain its complying status in relation to the year of income. [23] The circumstances are generally not considered unusual or out of the ordinary where the in-house assets of the fund exceed the 5% in-house asset limit as a result of the following events. | Fluctuations in economic conditions: 57. We will not ordinarily consider a decrease in market value of the fund's assets due to fluctuations in economic conditions to be sufficient reason in itself to exercise the discretion. While the circumstances may be outside of the trustee's control, fluctuations in values, including substantial fluctuations, are normal features of the financial market and other markets. 58. A fluctuation in economic conditions may result in a change in the market values of an SMSF's assets, such as shares and property. An economic downturn may cause the overall market value of the fund's assets to decrease, and this may cause the market value ratio [24] of the fund's in-house assets to exceed the 5% in-house asset limit. 59. Regardless of the magnitude of the change in the value of an investment due to fluctuations in economic conditions, it would be contrary to the object of the in-house asset rules for in-house assets with a value in excess of 5% of the total asset value to be permitted merely because of a decline in the value of an investment. | The trustee is not aware of the requirements of the in-house asset rules: 60. Failure to comply with the in-house asset rules because the trustee was not aware of the requirements will not be considered unusual or out of the ordinary. 61. A trustee of an SMSF is responsible for ensuring their fund is properly managed and complies with the SISA and all other relevant legislative and administrative requirements. To comply with their obligations, a trustee of an SMSF must keep themselves abreast of the requirements relevant to the operation of the fund (this may include seeking professional advice). Therefore, a trustee who seeks to acquire an asset for the fund will need to determine whether the investment is excluded from the definition of in-house asset and, if not, the trustee has to comply with the requirements of the in-house asset rules. 62. In considering whether ignorance of the law can be regarded as special circumstances, in B and Insurance and Superannuation Commissioner [1994] AATA 104 ( Insurance and Superannuation Commissioner ), McMahon B stated at [20] that '[i]gnorance of the law ... is difficult to regard as a special circumstance, particularly where the trustee has had ample opportunities to seek advice'. | Example 3 – failure to identify an investment as an in-house asset: 63. The partners of a partnership decide to operate a new business through a unit trust. The trustees of the SMSFs associated with those partners also invest in the same unit trust. Each partner of the partnership is a related party, thus each fund that a partner is a member of is also a related party. As SMSFs associated with the partners hold more than 50% of the units in the unit trust, the trust is defined to be a related party of the funds. [25] Since no exclusion to the in-house asset definition applies, all investments in the unit trust by trustees of the SMSFs associated with the partners are in-house assets. 64. Failing to identify the unit trust as a related party of the fund before making the investment is not considered a circumstance outside of the trustees' control. Example 4 – failure to identify a separate water access entitlement as not being business real property of the fund 65. A trustee of an SMSF acquires both BRP primary production land and a WAE, which it then leases to a related party. At the time the assets are acquired and leased, the WAE is recognised by the relevant state or territory law as a separate asset from the land. The land and the WAE are used by the related party in carrying on a primary production business. 66. As the freehold interest in the land is BRP at all times, the land is excepted from the definition of in-house asset when leased to a related party. [26] The WAE, being a separate asset from the land, is not an eligible interest in real property and therefore cannot be BRP of the fund. [27] Since no exclusion to the in-house asset definition applies to the separate WAE, it is an in-house asset of the fund when leased to a related party and subject to the 5% in-house asset limit. [28] 67. The trustee's failure to identify the separate WAE as an in-house asset of the fund when leased to a related party is not considered to be an unusual or an out of the ordinary event which was unforeseeable or beyond the trustee's control. The trustee relies on the exercise of due care and diligence by a professional and necessary advice is not provided 68. Failure to comply with the in-house asset rules when investing the fund's assets because the trustee relies on the exercise of due care and diligence by a professional, and necessary advice is not provided, will generally not be considered unusual or out of the ordinary. 69. A trustee of an SMSF may use services of a professional to complete certain tasks on their behalf – for example, a tax agent to lodge the fund's annual return, or an investment advisor or accountant for investment or financial advice. However, the trustee of an SMSF is still solely responsible and accountable for managing and making all decisions relevant to the operation of the fund. 70. In Re Insurance and Superannuation Commissioner [1994] AATA 164, the fund was in breach of the in-house asset rule. The trustee claimed that he did not receive advice from his accountant in relation to the loans of the fund and we should exercise the discretion. The Tribunal, at [35], in affirming our decision not to allow the fund to maintain the tax-exempt status, was satisfied that the trustee of the fund had: ... an obligation to inform himself as to the true factual situation at or prior to the time he signed the return. Reliance upon the accountants, even be it that they had done all they could by reason of the letter to inform the trustees of the situation, does not constitute a special circumstance. | There is a significant benefit to the fund from the investment: 71. There is nothing within the in-house asset rules that considers the quality of a particular investment. A significant benefit to the fund from the investment will not be considered unusual or out of the ordinary. 72. In Insurance and Superannuation Commissioner, when considering whether there were special circumstances in respect to a particular investment, McMahon B stated at [21]: The fact that there was a benefit to the fund by the investment, that the fund was a small one, and that there was no detrimental effect to the assets of the fund caused by anything resembling a speculative investment do not, it seems to me, take the matter out of the ordinary course. These facts do nothing to distinguish the present circumstances from those of a host of other funds in other contexts. | Example 5 – significant benefit to the fund by the investment: 73. Trustees of 2 related SMSFs combine their resources and invest almost their entire assets into a related unit trust. Aiming to improve the risk and return outcomes for the unit holders (which are trustees of the 2 SMSFs), the trustee of the unit trust buys shares in a company. This results in the unit trust holding interests in another entity. As no exclusion of the in-house asset definition applies, investments of the 2 funds in the unit trust are in-house assets of the funds. The value of each fund's in-house assets is more than 5% of the value of the fund's total assets. 74. The fact that there were significant benefits to the fund by the investment does not 'take the matter out of the ordinary course'. [29] While it can be said that the trustees of the SMSFs have succeeded in gaining greater buying power by making large investments through the unit trust, they have failed to comply with the in-house asset rules. The circumstances will not be considered unusual or out of the ordinary. The trustee does not want to incur any difficulties or costs in keeping the in-house assets under the 5% limit 75. If a trustee of an SMSF decides to make investments in related parties and the investments are in-house assets of the fund, the trustee is required to ensure the fund's in-house asset level is kept under the 5% limit. Where a fund's in-house assets exceed 5%, the trustee must prepare and carry out a written plan by the end of the following income year to dispose of some of or all the in-house assets so that the 5% in-house asset market value ratio is no longer exceeded. 76. In undertaking either of the options listed in paragraph 75 of this Practice Statement, the trustee may incur some difficulties and costs, such as administrative and transaction costs, and income tax or capital gains tax implications. The difficulties and costs the trustee may incur in fulfilling this requirement are not considered of themselves to be unusual or out of the ordinary. Therefore, the trustee would not be likely to be able to obtain a favourable determination under paragraph 71(1)(e). | There is a failure to satisfy the exclusion to the in-house asset definition in paragraph 71(1)(j): 77. Paragraph 71(1)(j) allows regulations to be made specifying a class of assets not to be in-house assets of any fund or of a class of funds in which the fund belongs. Correspondingly, Division 13.3A of the SISR was introduced to allow SMSFs to invest in certain related company and unit trusts where specific requirements are met. These requirements are designed to maintain the objectives of the investment rules that apply directly to SMSFs. [30] 78. If one of the specific requirements is breached (for example, an event in regulation 13.22D of the SISR occurs), the exclusion to the definition of in-house asset ceases to apply to all existing and future investments by the fund in the related company or unit trust, regardless of whether the event is corrected. [31] 79. The words of the SISR make it clear that a one-off breach of the requirements and consequently a failure to satisfy the conditions specified in the paragraph 71(1)(j) for the exclusion to apply would prevent an investment in that company or unit trust from being eligible for that concessional exclusion from being an in-house asset ever again. This is a deliberate policy of the government. [32] 80. A trustee of an SMSF who wants to use the concession under the SISR is required to have a detailed ongoing knowledge of the activities of the related company or unit trust. The trustee has an option of using the concession, and to judge whether the benefits of the concession outweigh the associated compliance costs. 81. Therefore, if the trustee of an SMSF decides to use the concession and there has been a breach of a specific requirement by the related company or trust, we would not consider this as an unusual or out of the ordinary circumstance. Example 6 – an investment no longer satisfies one of the requirements in regulation 13.22D of the Superannuation Industry (Supervision) Regulations 1994 82. A trustee of an SMSF invests in a related unit trust and, due to the operation of regulation 13.22C of the SISR, the investment is excluded from the definition of in-house asset. The trustee of the unit trust buys shares in a company for the unit trust. This results in the unit trust holding an interest in another entity which is an event in regulation 13.22D of the SISR. This causes any investments of the fund in the unit trust to become in-house assets of the fund. As a result of this, the fund's in-house assets exceed the in-house asset limit. 83. The happening of the event (that is, buying shares in a company) was not outside of the control of the trustee of the related unit trust. Therefore, there are likely to be no unusual or out of the ordinary circumstances which might take the case out of the intended operation of regulation 13.22D of the SISR. | The expiration of the transitional provisions on 30 June 2009: 84. We will not ordinarily consider the circumstances unusual or out of the ordinary if the fund exceeds the in-house asset limit because: • there are additional investments in relation to existing related-party assets • the existing assets were excluded from being in-house assets under the transitional provisions, and • these additional investments were made after 30 June 2009. • there are additional investments in relation to existing related-party assets • the existing assets were excluded from being in-house assets under the transitional provisions, and • these additional investments were made after 30 June 2009. 85. The circumstances are not unusual or out of the ordinary because it is foreseeable that any additional investments made after 30 June 2009 in existing related-party assets would be in-house assets of the fund. 86. A trustee of an SMSF has a choice whether to use a transitional arrangement and continue to make additional investments in relation to existing related-party assets, only until 30 June 2009, or make new investments that are not in-house assets. If the trustee takes advantage of the transitional provisions, they need to identify pre-and-post-11 August 1999 assets and liabilities and monitor future investments and flow of funds to ensure there are no additional investments or payments into those identified pre-11 August 1999 assets after 30 June 2009. 87. The underlying policy intent of the transitional provisions was to recognise the difficulties and costs that could be incurred by superannuation funds in unravelling existing investment arrangements. It is expected the period of 10 years given by the transitional provisions has been sufficient time for a trustee of an SMSF to unwind these investments by 30 June 2009, if required. | We issue a determination under paragraph 71(1)(e): 88. The issue of a determination under paragraph 71(1)(e) to a particular SMSF that an asset of the fund is not an in-house asset could have a significant impact on the fund. Therefore, the issue of a determination must be approved by an EL2 officer or above. When making a recommendation to the EL2 officer, you are required to provide them with sufficient information to approve the issue of a determination. 89. Once issued, the determination will apply to the particular asset of the particular SMSF that has applied for the determination. It therefore does not apply to assets of any other SMSFs even if the funds are in what may appear to be the same situation. A trustee of an SMSF that seeks an exercise of the Commissioner's discretion to issue a determination should apply on behalf of their fund and set out the fund's particular situation. 90. A determination may be issued on a conditional basis to mitigate the risks identified. However, the conditions must support the purposes for which the discretion is conferred in paragraph 71(1)(e) and not some other objective. Latham CJ gave the following example in Shrimpton v Commonwealth [33] : In Rossi v. Edinburgh Corporation ... it was held that a power to grant a licence did not authorize the licensing authority to impose any conditions upon the grant of a licence which commended themselves to it irrespective of ""the object which the legislature must be presumed to have had in view"". 91. When specified conditions are no longer satisfied, the determination ceases to apply to the asset at that time and the asset is an in-house asset (assuming no other in-house asset exception is relevant). | We revoke a determination under paragraph 71(1)(e): 92. We may revoke a determination issued under paragraph 71(1)(e). This Practice Statement does not examine the timing of a revocation. To ensure full consideration, approval of the revocation by the relevant SES officer in SEO is required. The need for escalation to any other area will be in accordance with SEO's work practices. | Our refusal to issue, or decision to revoke, a determination under paragraph 71(1)(e): 93. Our decision, refusing to make (or revoke) a determination, is a reviewable decision. The notification of our decision therefore must be accompanied by a statement of our reasons for the decision and a statement of review rights. [34] 94. A trustee who is affected by our decision refusing to make (or revoke) a determination may request us to reconsider if the trustee is dissatisfied with the decision. The request must be made in writing, setting out the reasons for making the request, and must be made within 21 days after the day on which the trustee first received the notice of decision or within such further period as we allow. [35] 95. If the trustee is still dissatisfied with our decision on reconsideration of the original decision, they may, in accordance with the Administrative Review Tribunal Act 2024, make an application to the Administrative Review Tribunal for a review of our decision to confirm or vary the original decision. [36]",SMSFR 2009/1 | SMSFR 2009/4 | SMSFD 2008/1 | PS LA 2006/19 | Explanatory Memorandum | Explanatory Statement | SISA 6 | SISA 6(1) | SISA 10(1) | SISA 10(4) | SISA 17 | SISA 42A | SISA 42A(5) | SISA 66 | SISA 66(2)(b) | SISA Pt 8 | SISA Pt 8 Subdiv D | SISA 70B | SISA 70E(2) | SISA 70E(3) | SISA 71(1) | SISA 71(1)(a) | SISA 71(1)(b) | SISA 71(1)(c) | SISA 71(1)(d) | SISA 71(1)(e) | SISA 71(1)(f) | SISA 71(1)(g) | SISA 71(1)(h) | SISA 71(1)(j) | SISA 71(5) | SISA 71(8) | SISA 71A | SISA 71A(1) | SISA 71B | SISA 71C | SISA 71D | SISA 71E | SISA 71F | SISA 82 | SISA 83 | SISA 344(1) | SISA 344(2) | SISA 344(3) | SISA 344(8) | SISA 345(1) | SISR Pt 13 Div 13.3A | SISR 13.22A | SISR 13.22B | SISR 13.22C | SISR 13.22D | SISR 13.22D(1) | SISR 13.22D(3) | SISR 13.24 | SISR 13.25 | SISR 13.26 | Administrative Review Tribunal Act 2024 | 94 ATC 198 | [2009] AATA 522 | 74 ATR 730 | 162 CLR 24 | 66 ALR 299 | 94 ATC 306 | 44 ATR 1074 | 74 CLR 492,PS LA 2006/19,SISA 6 | SISA 6(1) | SISA 10(1) | SISA 10(4) | SISA 17 | SISA 42A | SISA 42A(5) | SISA 66 | SISA 66(2)(b) | SISA Pt 8 | SISA Pt 8 Subdiv D | SISA 70B | SISA 70E(2) | SISA 70E(3) | SISA 71(1) | SISA 71(1)(a) | SISA 71(1)(b) | SISA 71(1)(c) | SISA 71(1)(d) | SISA 71(1)(e) | SISA 71(1)(f) | SISA 71(1)(g) | SISA 71(1)(h) | SISA 71(1)(j) | SISA 71(5) | SISA 71(8) | SISA 71A | SISA 71A(1) | SISA 71B | SISA 71C | SISA 71D | SISA 71E | SISA 71F | SISA 82 | SISA 83 | SISA 344(1) | SISA 344(2) | SISA 344(3) | SISA 344(8) | SISA 345(1) | SISR Pt 13 Div 13.3A | SISR 13.22A | SISR 13.22B | SISR 13.22C | SISR 13.22D | SISR 13.22D(1) | SISR 13.22D(3) | SISR 13.24 | SISR 13.25 | SISR 13.26 | Administrative Review Tribunal Act 2024,,Explanatory Memorandum to the Superannuation Legislation Amendment Bill (No. 4) 1999 Explanatory Statement to the Superannuation Industry (Supervision) Amendment Regulations 2000 (No 2),False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20098/NAT/ATO/00001,"Updated to align with current ATO style and accessibility guides. | Updated contact officer, section and telephone number | Paragraphs 67 and 93 and footnote 12 | Minor revisions to clarify language. | New paragraphs covering conditional determinations, revoking determinations and why a determination does not get revoked. | Paragraphs 49 to 54 and 64 to 66 | New examples covering water access entitlements. | Add that conditions must support the purpose for which discretion is conferred. | New paragraph covering revoking a determination. | [2] The Regulation Impact Statement in the Explanatory Memorandum to the Superannuation Legislation Amendment Bill (No. 4) 1999. | [3] Subsection 71(1). For discussion of the meaning of 'asset', 'loan', 'investment in', 'lease', 'lease arrangement', 'related party' and 'related trust' in the definition of an 'in-house asset', see Self Managed Superannuation Funds Ruling SMSFR 2009/4 Self Managed Superannuation Funds: the meaning of 'asset', 'loan', 'investment in', 'lease' and 'lease arrangement' in the definition of an 'in-house asset' in the Superannuation Industry (Supervision) Act 1993 . | [4] Paragraphs 71(1)(a) to 71(1)(j) and subsection 71(8) list assets of a superannuation fund that are not in-house assets. | [5] The transitional provisions are contained in Subdivision D of Part 8, which includes sections 71A to 71F. | [6] Divisions 13.3A of the Superannuation Industry (Supervision) Regulations 1994 (SISR), which includes Regulations 13.22A to 13.22D. | [10] Paragraph (j) of the definition of 'reviewable decision' in subsection 10(1) provides that a decision to revoke a determination under paragraph 71(1)(e) is a reviewable decision. This implies that the determination under paragraph 71(1)(e) can be revoked. | [11] 'Reviewable decision' is defined in subsection 10(1) and paragraph (i) and (j) of that definition respectively include the refusal to make and the decision to revoke a determination under paragraph 71(1)(e). | [12] Subsection 344(1). Subsections 344(2) and subsection 344(3) and Regulation 13.25 of the SISR set out requirements for making a request. | [13] SMSFs are defined in section 17A. | [14] A former SMSF is a superannuation fund that has ceased being an SMSF and has not appointed a registrable superannuation entity (RSE) licensee as trustee. It is treated as an SMSF for the purposes of sections 6, 42 and 42A - subsection 10(4). | [15] Refer to Law Administration Practice Statement PS LA 2006/19 Self managed superannuation funds - issuing a notice of non-compliance for factors the Commissioner will consider in deciding whether to give an SMSF a notice of non-compliance. | [16] 69 CLR 613 at [620]. | [17] 74 CLR 492 at [496]. | [18] 162 CLR 24 at [39-40]. | [19] Such assets include existing related party assets and additional investments or payments in relation to these assets. | [20] The date the transitional provisions in section 71A to section 71F expire. | [21] Self Managed Superannuation Funds Ruling SMSFR 2009/1 Self Managed Superannuation Funds: business real property for the purposes of the Superannuation Industry (Supervision) Act 1993 . | [22] It does not affect the determination if the related party changes. | [23] Refer to PS LA 2006/19 for factors the Commissioner will consider in deciding whether to give an SMSF a notice of non-compliance. | [24] The market value ratio is the value of the fund's in-house assets as a proportion of the value of all assets of the fund. | [25] Section 70B and subsections 70E(2) and (3). | [26] See paragraph 71(1)(g). | [27] See paragraphs 266 to 269 of SMSFR 2009/1. | [28] In addition, if the trustee of the fund acquires the separate WAE from a related party, the trustee of the fund contravenes the related-party asset acquisition rule in section 66. | [29] Insurance and Superannuation Commissioner at [21]. | [30] Refer to page 1 of the Explanatory Statement to the Superannuation Industry (Supervision) Amendment Regulations 2000 (No. 2) (ES). | [31] Subregulation 13.22D(3) of the SISR. See paragraph 3 of Self Managed Superannuation Funds Determination SMSFD 2008/1 Self Managed Superannuation Funds: how does the happening of an event in subregulation 13.22D(1) of the Superannuation Industry (Supervision) Regulations 1994 affect whether a self managed superannuation fund's investments in related companies or unit trusts are in-house assets of the fund? | This subregulation ensures that if an investment by a superannuation fund in a company or unit trust becomes ineligible for the exception from the in-house asset rules, all other investments made by the fund in the company or trust are also ineligible for the exception. | [33] [1945] HCA 4; 69 CLR 613 at [620]. | [34] Subsection 345(1) and regulation 13.24 of the SISR. | [35] Subsection 344(1) to (3) and regulation 13.25 of the SISR. | [36] Subsection 344(8) and regulation 13.26 of the SISR. | File 08/12439; 1-1ODVBU1; 1-14HL3N4O | B and Insurance and Superannuation Commissioner [1994] AATA 104 28 ATR 1058 94 ATC 198 | JNVQ and Commissioner of Taxation [2009] AATA 522 74 ATR 730 | Minister for Aboriginal Affairs v Peko-Wallsend Ltd [1986] HCA 40 162 CLR 24 60 ALJR 560 66 ALR 299 | Chief Commissioner of State Revenue v Pacific General Securities Ltd and Finmore Holdings Pty Ltd (No 2) [2005] NSW ADTAP 54 (2005) 63 ATR 127 [2009] ALMD 2399 | Re Insurance and Superannuation Commissioner [1994] AATA 164 28 ATR 1220 94 ATC 306 | Shrimpton v Commonwealth [1945] HCA 4 69 CLR 613 19 ALJR 25 [1945] ALR 125 | The Taxpayer and Commissioner of Taxation [2000] AATA 238 44 ATR 1074 | Water Conservation and Irrigation Commission (NSW) v Browning [1947] HCA 21 74 CLR 492 21 ALJR 105 [1948] 1 ALR 89"
PS LA 2009/9,SUBJECT: Conduct of ATO litigation and engagement of ATO Dispute Resolution PURPOSE: To outline the policies and guidelines relevant to the conduct of ATO litigation,20 November 2009,20 November 2009,Law Administration Practice Statement,False,"1. This practice statement provides general guidance to ATO staff involved in legal disputes where the Commissioner is a party to the proceedings. It sets out the guiding principles relevant to the conduct of litigation, and describes the situations and processes on how and when the ATO Dispute Resolution (Dispute Resolution) teams should be engaged. 2. This practice statement does not apply to: (a) Tax Practitioners Board related matters (b) legal actions undertaken by the Serious Non-Compliance Prosecutions area, or (c) prosecutions referred to the Commonwealth Director of Public Prosecutions. (a) Tax Practitioners Board related matters (b) legal actions undertaken by the Serious Non-Compliance Prosecutions area, or (c) prosecutions referred to the Commonwealth Director of Public Prosecutions. 3. The ATO conducts and manages litigation in accordance with its obligations under the law, the Attorney-General's Legal Services Directions 2005 (Legal Services Directions), the relevant court and tribunal rules, the relevant practice notes or directions, and ATO policies and guidelines. 4. The ATO strives to have all disputes brought to finality in a fair, timely and equitable manner consistent with the law, and supports the appropriate use of all dispute resolution techniques to minimise litigation and related costs. This practice statement should be read in conjunction with Law Administration Practice Statement PS LA 2013/3 - Alternative Dispute Resolution (ADR) in ATO disputes 5. Where the early resolution of disputes is not possible, the ATO recognises that courts and tribunals will provide final, fair and independent resolution of disputes. A key objective for the ATO when conducting litigation is to achieve law clarification for the community and the Government. Cases will be argued consistently with the ATO's published view of the law and cases will not be pursued where the ATO believes its position is not correct. | Guiding principles: 6. In conducting litigation, the ATO is guided by the following principles: (a) the ATO has responsibility for administering various laws enacted by Parliament, such as those relating to taxation and superannuation (b) the ATO applies the law in the conduct of litigation, the resolution of disputes and in managing the outcome of court and tribunal decisions (c) the ATO will follow the results of finalised court and tribunal decisions in accordance with the rule of law [1] (d) the ATO will manage litigation in accordance with the Legal Services Directions (including the model litigant obligation), relevant court and tribunal rules and directions, legislation and policies relevant to Commonwealth agencies and the ATO's policies and guidelines (e) the ATO seeks to promote an environment where: (i) the ATO will communicate effectively with taxpayers to ensure they understand their rights and obligations (ii) the law can be complied with voluntarily (iii) the law is applied and enforced consistently and fairly. In resolving various types of disputes, the ATO will maintain a level playing field for taxpayers in similar situations and disputes will be resolved in a principled way, and (iv) disputes are resolved with minimal costs. (f) the ATO will, wherever possible, obtain law clarification in a timely and cost effective manner which provides greater certainty for the community. The ATO has a continuing commitment to the Test Case Litigation Program which, in appropriate circumstances, provides financial support for a taxpayer's litigation costs to achieve law clarification (g) the ATO will risk assess litigation cases to ensure that cases are appropriately managed (h) the ATO will attempt to resolve disputes early to avoid unnecessary litigation and related costs (i) the ATO will assist the courts, tribunals and other parts of the legal system to promote efficiency in the conduct of litigation wherever possible (j) the ATO will foster a close working relationship with the Attorney-General's Department, as the agency responsible for law and justice matters and policies (k) the ATO will seek to gain value for money from the engagement of external legal services providers, and (l) ATO staff will have the appropriate range of skills and competencies, including qualified lawyers, to support its litigation strategy. (a) the ATO has responsibility for administering various laws enacted by Parliament, such as those relating to taxation and superannuation (b) the ATO applies the law in the conduct of litigation, the resolution of disputes and in managing the outcome of court and tribunal decisions (c) the ATO will follow the results of finalised court and tribunal decisions in accordance with the rule of law [1] (d) the ATO will manage litigation in accordance with the Legal Services Directions (including the model litigant obligation), relevant court and tribunal rules and directions, legislation and policies relevant to Commonwealth agencies and the ATO's policies and guidelines (e) the ATO seeks to promote an environment where: (i) the ATO will communicate effectively with taxpayers to ensure they understand their rights and obligations (ii) the law can be complied with voluntarily (iii) the law is applied and enforced consistently and fairly. In resolving various types of disputes, the ATO will maintain a level playing field for taxpayers in similar situations and disputes will be resolved in a principled way, and (iv) disputes are resolved with minimal costs. (f) the ATO will, wherever possible, obtain law clarification in a timely and cost effective manner which provides greater certainty for the community. The ATO has a continuing commitment to the Test Case Litigation Program which, in appropriate circumstances, provides financial support for a taxpayer's litigation costs to achieve law clarification (g) the ATO will risk assess litigation cases to ensure that cases are appropriately managed (h) the ATO will attempt to resolve disputes early to avoid unnecessary litigation and related costs (i) the ATO will assist the courts, tribunals and other parts of the legal system to promote efficiency in the conduct of litigation wherever possible (j) the ATO will foster a close working relationship with the Attorney-General's Department, as the agency responsible for law and justice matters and policies (k) the ATO will seek to gain value for money from the engagement of external legal services providers, and (l) ATO staff will have the appropriate range of skills and competencies, including qualified lawyers, to support its litigation strategy. (i) the ATO will communicate effectively with taxpayers to ensure they understand their rights and obligations (ii) the law can be complied with voluntarily (iii) the law is applied and enforced consistently and fairly. In resolving various types of disputes, the ATO will maintain a level playing field for taxpayers in similar situations and disputes will be resolved in a principled way, and (iv) disputes are resolved with minimal costs. | Key expectations and obligations: 7. The key expectations and obligations of the ATO in conducting litigation matters include: (a) the relevant rules, practice notes and directions issued by the various courts and tribunals (b) responsibilities under the Financial Management and Accountability Act 1997 (FMA Act) (c) responsibilities under the Legal Services Directions, in particular the obligation to act as a model litigant (d) the obligation to assist the Administrative Appeals Tribunal (AAT), and (e) the consideration of whether other methods of dispute resolution would be appropriate. (a) the relevant rules, practice notes and directions issued by the various courts and tribunals (b) responsibilities under the Financial Management and Accountability Act 1997 (FMA Act) (c) responsibilities under the Legal Services Directions, in particular the obligation to act as a model litigant (d) the obligation to assist the Administrative Appeals Tribunal (AAT), and (e) the consideration of whether other methods of dispute resolution would be appropriate. | Court and tribunal rules, practice directions and practice notes: 8. All officers are expected to adhere to the various rules, practice notes and directions of the relevant court or tribunal in which the proceedings are held. This is discussed further in section 5 of this practice statement. | Financial Management and Accountability Act 1997: 9. The FMA Act provides the framework for the proper management of public money and public property. The Commissioner has a responsibility under section 44 of the FMA Act to promote efficient, effective and ethical use of Commonwealth resources. This includes a responsibility to properly manage the spending of public money on legal services. | Legal Services Directions: 10. The Legal Services Directions places various obligations on Commonwealth agencies in the handling of claims or the conduct of litigation, across a range of areas such as the use of in-house lawyers and the engagement of counsel. A key obligation placed on agencies is the obligation to act as a model litigant, which is further discussed below. 11. The Attorney-General's Department, through the Office of Legal Services Coordination (OLSC), also provides related Guidance Notes to the Legal Services Directions. Tax officers are expected to adhere to both the Legal Services Directions and the related Guidance Notes. 12. The OLSC oversees reports of non-compliance with the Legal Services Directions. Any assertions or suspected breaches of a Legal Services Direction by the ATO must be escalated to the relevant Assistant Commissioner in Dispute Resolution who will determine what action is required, including whether the issue needs to be reported to the OLSC. [2] Model litigant obligation 13. The model litigant obligation [3] requires the Commonwealth, its officers, solicitors and counsel, to act with complete propriety, fairly and in accordance with the highest professional standards in handling claims, noting that the agency is not to commence legal proceedings unless it is satisfied that litigation is the most suitable method of dispute resolution. 14. Importantly, the obligation requires the Commissioner to not rely on technicalities and to not take advantage of claimants who lack the resources to litigate a legitimate claim. | Obligation to assist: 15. In matters before the AAT, the Commissioner and his or her representatives must use their best endeavours to assist the AAT to make its decision, as required by subsection 33(1AA) of the Administrative Appeals Tribunal Act 1975 (AAT Act). | Dispute resolution: 16. The Commissioner recognises that there are various dispute resolution processes available and is committed to resolving matters in the most cost effective and timely fashion. This commitment is reflected in the ATO's annual Dispute Management Plan which sets out the ATO's key principles for managing disputes. 17. The Commissioner's practices in relation to alternative dispute resolution generally are set out in PS LA 2013/3 - Alternative Dispute Resolution (ADR) in ATO disputes 18. The ATO's in-house legal services are provided by the Dispute Resolution teams, primarily for tax and debt disputes, and ATO General Counsel, for non-tax legal issues. These teams deliver a range of legal services and expertise for the ATO, from the conduct and management of litigation, to the provision of advice on any legal issue, including those which may arise prior to litigation. The teams are primarily comprised of legally qualified personnel and provide specialist skills, particularly in respect of evidentiary issues and dispute resolution strategies. 19. The in-house legal teams are the corporate budget holders for legal services and are therefore responsible for the engagement and management of legal services received on behalf of the ATO from external providers. [4] | The nature of the work undertaken by the Dispute Resolution teams: 20. Generally, the Dispute Resolution teams will provide in-house litigation, dispute resolution and legal advice services across the following broad categories of work: (a) matters involving, directly or indirectly, the existence of an entity's liability to taxation and excise duty, and/or their rights and obligations arising from the various Acts relating to superannuation ('Tax, Excise duty & Superannuation matters'); (b) matters relating to the ATO's collection of tax revenue, including insolvency matters under the various laws administered by the Commissioner, and other relevant legislation such as the Corporations Act 2001 and the Bankruptcy Act 1966 ('Debt resolution matters'); and (c) matters relating to the operations of the ATO as a government agency such as legal issues relating to: contracts and procurement; Freedom of Information requests; employment law, including requests for legal assistance by ATO employees; secrecy; privacy; access and information gathering; and other general law issues not covered by (a) and (b) above. (a) matters involving, directly or indirectly, the existence of an entity's liability to taxation and excise duty, and/or their rights and obligations arising from the various Acts relating to superannuation ('Tax, Excise duty & Superannuation matters'); (b) matters relating to the ATO's collection of tax revenue, including insolvency matters under the various laws administered by the Commissioner, and other relevant legislation such as the Corporations Act 2001 and the Bankruptcy Act 1966 ('Debt resolution matters'); and (c) matters relating to the operations of the ATO as a government agency such as legal issues relating to: contracts and procurement; Freedom of Information requests; employment law, including requests for legal assistance by ATO employees; secrecy; privacy; access and information gathering; and other general law issues not covered by (a) and (b) above. | Tax, Excise duty & Superannuation matters: 21. Under this broad category of work, Dispute Resolution manages litigation arising from: (a) Part IVC of the Taxation Administration Act 1953 (TAA) (b) section 39B of the Judiciary Act 1903 (Judiciary Act) (c) Administrative Decisions (Judicial Review) Act 1977 (ADJR Act) (d) Division 290 of Schedule 1 to the TAA, [5] and (e) any other matter involving an entity's taxation, excise or superannuation liability. (a) Part IVC of the Taxation Administration Act 1953 (TAA) (b) section 39B of the Judiciary Act 1903 (Judiciary Act) (c) Administrative Decisions (Judicial Review) Act 1977 (ADJR Act) (d) Division 290 of Schedule 1 to the TAA, [5] and (e) any other matter involving an entity's taxation, excise or superannuation liability. | Debt resolution matters: 22. The range of matters that Dispute Resolution is responsible for under this umbrella of work include: (a) prosecution of civil claims for recovery which have been defended by the taxpayer. These claims include court proceedings commenced to secure payment by company directors under the Director Penalty Notice regime of unpaid PAYG tax liabilities incurred by companies (b) filing creditors' petitions to secure the bankruptcy of a taxpayer where satisfactory payment arrangements have not been made (c) opposing applications by companies for the setting aside of statutory demands (d) filing applications to wind up companies, after a statutory demand has not been paid and where satisfactory payment arrangements have not been made (e) applications made by taxpayers to the Small Taxation Claims Tribunal for release from liability for certain classes of tax debts (f) acting on behalf of the Commissioner in relation to claims made by bankruptcy trustees and the liquidators of companies for the repayment of alleged preference payments (g) acting on behalf of the Commissioner in opposing applications to set aside Departure Prohibition Orders or in pursuing freezing orders where there is a real risk of creditor prejudice through dissipation of a taxpayer's assets (h) acting on behalf of the Commissioner to set aside Deeds of Company Arrangements (i) recovering monies owed to the Commissioner pursuant to Reparation Orders (j) providing legal advice to the BSL in relation to debt litigation and associated issues, and (k) family law intervention proceedings. (a) prosecution of civil claims for recovery which have been defended by the taxpayer. These claims include court proceedings commenced to secure payment by company directors under the Director Penalty Notice regime of unpaid PAYG tax liabilities incurred by companies (b) filing creditors' petitions to secure the bankruptcy of a taxpayer where satisfactory payment arrangements have not been made (c) opposing applications by companies for the setting aside of statutory demands (d) filing applications to wind up companies, after a statutory demand has not been paid and where satisfactory payment arrangements have not been made (e) applications made by taxpayers to the Small Taxation Claims Tribunal for release from liability for certain classes of tax debts (f) acting on behalf of the Commissioner in relation to claims made by bankruptcy trustees and the liquidators of companies for the repayment of alleged preference payments (g) acting on behalf of the Commissioner in opposing applications to set aside Departure Prohibition Orders or in pursuing freezing orders where there is a real risk of creditor prejudice through dissipation of a taxpayer's assets (h) acting on behalf of the Commissioner to set aside Deeds of Company Arrangements (i) recovering monies owed to the Commissioner pursuant to Reparation Orders (j) providing legal advice to the BSL in relation to debt litigation and associated issues, and (k) family law intervention proceedings. 23. Ordinarily, the services of Dispute Resolution are utilised after other ATO debt recovery areas have been unsuccessful in ensuring compliance by taxpayers in the payment of their taxation liabilities. | Non-tax related matters: 24. General Counsel (GC) is responsible for the provision of expert advice, dispute resolution and litigation services for matters that do not relate to a tax dispute. They provide the following services: (a) Legal Advice: general legal advice on issues including privacy, secrecy, access and information gathering and other areas of the law that impact upon the ATO as an organisation which are not dealt with by Dispute Resolution. (b) Commercial law: assistance, advice, dispute resolution and litigation services in relation to contracts, tendering and procurement processes, and associated administrative law issues, as well as intellectual property rights and real property. (c) Freedom of Information: processing Freedom of Information requests on behalf of the ATO, as well as providing advice, dispute resolution and litigation services related to those and other information requests including subpoenas, third party notices and summonses. (d) Employment law: assistance, advice, dispute resolution and litigation services relating to the ATO's relationship with its employees, and includes issues relating to industrial relations. (e) Monetary and Civil Claims: advice, dispute resolution and litigation services relating to the ATO's relationship with taxpayers and their representatives. The issues most commonly relate to assertions of negligence or defective administration by the ATO which has caused financial loss to the taxpayer for which they are seeking compensation. General Counsel also has responsibility for the co-ordination and management of all Act of Grace requests. (a) Legal Advice: general legal advice on issues including privacy, secrecy, access and information gathering and other areas of the law that impact upon the ATO as an organisation which are not dealt with by Dispute Resolution. (b) Commercial law: assistance, advice, dispute resolution and litigation services in relation to contracts, tendering and procurement processes, and associated administrative law issues, as well as intellectual property rights and real property. (c) Freedom of Information: processing Freedom of Information requests on behalf of the ATO, as well as providing advice, dispute resolution and litigation services related to those and other information requests including subpoenas, third party notices and summonses. (d) Employment law: assistance, advice, dispute resolution and litigation services relating to the ATO's relationship with its employees, and includes issues relating to industrial relations. (e) Monetary and Civil Claims: advice, dispute resolution and litigation services relating to the ATO's relationship with taxpayers and their representatives. The issues most commonly relate to assertions of negligence or defective administration by the ATO which has caused financial loss to the taxpayer for which they are seeking compensation. General Counsel also has responsibility for the co-ordination and management of all Act of Grace requests. | Early involvement of Dispute Resolution: 25. The ATO is committed to ensuring that disputes are resolved in the simplest and most cost-effective manner possible, taking into account the merits and the risks of each case. The Dispute Resolution teams provide expert dispute resolution services, leadership and advice to the ATO. The following disputes should be referred to Dispute Resolution as soon as they are identified (prior to the commencement of litigation) to ensure appropriate dispute resolution strategies are in place as early as possible: (a) where a dispute has been identified by a compliance or objections area of the ATO as likely to end up in litigation in the Federal Court; or (b) where the issue or amount in dispute is sufficiently significant or complex that it is prudent to have Dispute Resolution involved, for example in large settlement negotiations or mediations. (a) where a dispute has been identified by a compliance or objections area of the ATO as likely to end up in litigation in the Federal Court; or (b) where the issue or amount in dispute is sufficiently significant or complex that it is prudent to have Dispute Resolution involved, for example in large settlement negotiations or mediations. 26. The specific escalation processes for these referrals as set out in the ATO's internal policies must be followed. [6] 27. Depending on the nature of the referral, the early involvement of relevant experts, including Dispute Resolution may provide strategic advantages including: (a) minimising the number of disputes that may progress to litigation (b) providing, to varying degrees, guidance in respect of draft or potential decisions, or (c) ensuring the ATO is prepared for potential or anticipated litigation, particularly for high risk matters or matters that are likely to be filed in the Federal Court. (a) minimising the number of disputes that may progress to litigation (b) providing, to varying degrees, guidance in respect of draft or potential decisions, or (c) ensuring the ATO is prepared for potential or anticipated litigation, particularly for high risk matters or matters that are likely to be filed in the Federal Court. | Engaging Dispute Resolution teams: 28. Depending on the nature of the issues involved, the following matters should be referred to the following: [7] (a) for matters involving tax technical and debt recovery issues - the relevant Dispute Resolution manager, and (b) for matters involving issues unrelated to tax - the ATO General Counsel or Deputy General Counsel. (a) for matters involving tax technical and debt recovery issues - the relevant Dispute Resolution manager, and (b) for matters involving issues unrelated to tax - the ATO General Counsel or Deputy General Counsel. 29. Once a matter is in litigation, the number of stakeholders involved will vary depending on the nature and significance of the matter. An officer from Dispute Resolution or ATO General Counsel will always be involved in the litigation, and other stakeholders may include: (a) appropriate officers from the BSL (b) members from the TCN (c) the ATO Special Counsel (d) external solicitors, and (e) counsel. (a) appropriate officers from the BSL (b) members from the TCN (c) the ATO Special Counsel (d) external solicitors, and (e) counsel. 30. Stakeholders are expected to conduct and manage matters collaboratively and decisions should be made with the involvement of all relevant stakeholders. Where internal stakeholders can not come to a consensus on how a matter should proceed, paragraphs 39 to 42 of this practice statement sets out how disagreements should be escalated and resolved. 31. The specific roles of each stakeholder in litigation are set out below. | The role of the Dispute Resolution teams: 32. In litigation matters, in addition to the general services discussed in section 2 of this practice statement, the Dispute Resolution teams: (a) must ensure that stakeholders are consulted and kept fully informed of developments in a timely manner (b) provides a single point of contact for the ATO and external parties, including court and tribunal personnel, taxpayers' and their representatives (c) must ensure that they understand the strategic value of the matter for the ATO (d) must ensure that effective case management strategies are adopted and manage the costs of litigation appropriately (e) will provide advice on the admissibility of evidence (f) ensure that ATO policies and procedures are followed, for example, that the ATO does not argue inconsistently with a precedential ATO view without appropriate escalation and approval (g) ensure that relevant ATO systems and databases are kept up to date and accurate, and (h) ensure that the conduct of the litigation is in accordance with the Legal Services Directions. (a) must ensure that stakeholders are consulted and kept fully informed of developments in a timely manner (b) provides a single point of contact for the ATO and external parties, including court and tribunal personnel, taxpayers' and their representatives (c) must ensure that they understand the strategic value of the matter for the ATO (d) must ensure that effective case management strategies are adopted and manage the costs of litigation appropriately (e) will provide advice on the admissibility of evidence (f) ensure that ATO policies and procedures are followed, for example, that the ATO does not argue inconsistently with a precedential ATO view without appropriate escalation and approval (g) ensure that relevant ATO systems and databases are kept up to date and accurate, and (h) ensure that the conduct of the litigation is in accordance with the Legal Services Directions. | The role of the Business Service Line: 33. During the course of the litigation, the BSL will: (a) ensure that the Dispute Resolution team recognises the strategic importance of the litigation to the ATO (b) be responsible for ensuring that the Dispute Resolution team, external solicitors and counsel are provided with all necessary facts and material, including evidence and information collected during the course of any audit or review and any subsequent objection (c) be responsible for informing the Dispute Resolution team of any related matters or entities and any relevant compliance activities (d) have a crucial role in informing internal stakeholders of the broader compliance implications of an issue, the business context in which it arises, its impact in terms of numbers of taxpayers affected, the revenue at risk and other implications for the Government and the community as a whole (e) have a role in assisting the litigation team to develop an understanding of the scope and operation of the relevant tax law and any underlying compliance and administrative issues (f) have a key role in any early or alternative dispute resolution processes [8] (g) be an important link to relevant experts within the BSL in respect of the issues or subject matter, and (h) be responsible for managing the risk associated with the case, including the development of a risk mitigation strategy and any contingency plan to manage the implications of the litigation. (a) ensure that the Dispute Resolution team recognises the strategic importance of the litigation to the ATO (b) be responsible for ensuring that the Dispute Resolution team, external solicitors and counsel are provided with all necessary facts and material, including evidence and information collected during the course of any audit or review and any subsequent objection (c) be responsible for informing the Dispute Resolution team of any related matters or entities and any relevant compliance activities (d) have a crucial role in informing internal stakeholders of the broader compliance implications of an issue, the business context in which it arises, its impact in terms of numbers of taxpayers affected, the revenue at risk and other implications for the Government and the community as a whole (e) have a role in assisting the litigation team to develop an understanding of the scope and operation of the relevant tax law and any underlying compliance and administrative issues (f) have a key role in any early or alternative dispute resolution processes [8] (g) be an important link to relevant experts within the BSL in respect of the issues or subject matter, and (h) be responsible for managing the risk associated with the case, including the development of a risk mitigation strategy and any contingency plan to manage the implications of the litigation. 34. At the conclusion of the litigation, the BSL is responsible for issuing assessments and amended assessments, or implementing any relevant decisions. The BSL must ensure the accuracy of those assessments. 35. Where a dispute is resolved without a court decision, and resolution was reached with the consensus of all internal stakeholders, the BSL is responsible for authorising or approving any actions necessary to give effect to the decision, including the execution of any settlement deed. In instances where the BSL disagrees with the decision to have the matter resolved prior to a court or tribunal decision, the person approving the decision to settle the matter will be responsible for authorising and executing the deed. | The role of the Tax Counsel Network: 36. The role of the TCN in litigation matters [9] is to provide strategic and technical leadership for the ATO. However, the level of involvement by the TCN in litigation may vary between cases depending on the specific issues and risks of each case. 37. Where a member of the TCN is involved in a litigation matter, they will: (a) be the decision maker in respect of any technical and strategic aspect of the litigation (b) approve instructions to external legal service providers, particularly where: (i) they relate to arguments not previously contemplated by the ATO (ii) actions to be taken are contrary to the advice of counsel, or (iii) there is disagreement between senior officers of the ATO regarding the arguments or the strategy to be put to counsel (c) ensure that cases are prepared and presented in a way that best enables the precedential ATO view to be presented to court, and (d) contribute to the management of the wider risk associated with the litigation. (a) be the decision maker in respect of any technical and strategic aspect of the litigation (b) approve instructions to external legal service providers, particularly where: (i) they relate to arguments not previously contemplated by the ATO (ii) actions to be taken are contrary to the advice of counsel, or (iii) there is disagreement between senior officers of the ATO regarding the arguments or the strategy to be put to counsel (c) ensure that cases are prepared and presented in a way that best enables the precedential ATO view to be presented to court, and (d) contribute to the management of the wider risk associated with the litigation. (i) they relate to arguments not previously contemplated by the ATO (ii) actions to be taken are contrary to the advice of counsel, or (iii) there is disagreement between senior officers of the ATO regarding the arguments or the strategy to be put to counsel 38. Where the TCN officer is not a Tax Counsel or Senior Tax Counsel, they are expected, as a matter of judgement, to keep their manager informed on significant developments in the matter. The Senior Tax Counsel for their team and/or the relevant Senior Tax Counsel (Strategic Litigation) should be involved in major decisions, especially where there may be disagreement in the litigation team regarding the appropriate course of action. | Escalation and resolution of disagreements between internal stakeholders: 39. In matters where the TCN is involved and there is any disagreement between internal stakeholders, the TCN member will determine the issue and resolve the disagreement. 40. Where the TCN is not involved, the matter should be escalated to the relevant manager in Dispute Resolution or General Counsel, who will consult with relevant stakeholders to try and resolve the issue. If unresolved, the relevant Assistant Commissioner in Dispute Resolution or the ATO General Counsel should be advised, and provided an opportunity to intervene prior to any final decision being made. 41. Where there is disagreement between internal stakeholders on whether a matter should be resolved prior to a court or tribunal decision, the responsibility for authorising or approving any actions necessary to give effect to that decision rests with the person approving the decision to settle the matter. This includes the execution of any subsequent settlement deed. For example, where the TCN member has decided to settle the matter, and it is contrary to the BSL view, then the TCN member is responsible for ensuring the deed is executed. 42. Regardless of who the decision maker is, all stakeholders will remain actively involved in the matter and retain their respective roles and responsibilities. For example, regardless of who decided that a matter should settle, the BSL will be responsible for issuing assessments or amended assessments, and the Dispute Resolution officer will be responsible for executing relevant court or tribunal documents such as a section 42C agreement. [10] | The role of the ATO Special Counsel: 43. The ATO may retain former Judges, Queens Counsel and Senior Counsel to perform legal services for the ATO. They are referred to by the title ATO Special Counsel while so retained. Their services are usually limited to the provision of advice on matters of significance to the ATO. 44. The TCN facilitates access to ATO Special Counsel and all requests for access to the services of ATO Special Counsel must be referred to them. | The role of external solicitors: 45. External solicitors will provide general legal services including recommendations on the selection of counsel, drafting and filing of court and tribunal documents, advice on the adequacy and admissibility of evidence, advice on court requirements and procedures, and will undertake advocacy where appropriate. 46. The external solicitor is expected to have a clear understanding of the requirements of the Commissioner in respect of the case, and to relay those requirements to counsel. 47. External solicitors acting for the Commissioner: (a) must follow instructions and are expected to assist the Commissioner in the conduct of litigation to achieve timely and appropriate resolution of the particular dispute (b) are expected to conduct themselves consistently with the standards of conduct expected of ATO staff (c) must comply with the Legal Services Directions and notify the Dispute Resolution officer immediately if they suspect or receive an assertion that a breach of the Legal Services Directions has occurred. They must also advise on any possible actions that would minimise the impact of that breach (d) must comply with the tax law secrecy provisions, and (e) must avoid any conflict of interest with the ATO, and where one arises, advise the ATO immediately. (a) must follow instructions and are expected to assist the Commissioner in the conduct of litigation to achieve timely and appropriate resolution of the particular dispute (b) are expected to conduct themselves consistently with the standards of conduct expected of ATO staff (c) must comply with the Legal Services Directions and notify the Dispute Resolution officer immediately if they suspect or receive an assertion that a breach of the Legal Services Directions has occurred. They must also advise on any possible actions that would minimise the impact of that breach (d) must comply with the tax law secrecy provisions, and (e) must avoid any conflict of interest with the ATO, and where one arises, advise the ATO immediately. | The role of counsel: 48. Counsel may be engaged to provide advice or to represent the Commissioner in litigation proceedings. Where appropriate, counsel may also be engaged to conduct or assist in other activities, such as interviews with taxpayers. 49. Counsel briefed by the Commissioner are required to comply with the conditions and expectations placed on the ATO's external solicitors as set out above. Additionally, counsel are required to comply with their taxation obligations. This expectation should be brought to counsel's attention prior to their acceptance of a brief. Any concerns raised by counsel in relation to this must be escalated to the appropriate Assistant Commissioner in Dispute Resolution. 50. As counsel are already subject to the strict requirements of their various Bar associations, counsel are not required to undertake the Commonwealth's vetting process before they are engaged by the ATO. | Engaging external legal service providers - generally: 51. The Dispute Resolution teams have responsibility for the management and coordination of legal services in the ATO, including access to and the engagement of external legal service providers. Such providers include: (a) counsel (b) external solicitors, and (c) third party dispute resolution practitioners. (a) counsel (b) external solicitors, and (c) third party dispute resolution practitioners. 52. External legal service providers must not be engaged directly by a BSL under any circumstances, whether or not the matter is in litigation. The BSL must refer the request to the relevant Dispute Resolution or ATO General Counsel manager. | Factors to be considered in engaging an external legal service provider: 53. The following factors should be considered when deciding whether it is appropriate to engage an external legal service provider: [11] (a) the complexity of the matter (b) the experience of ATO officers involved in the matter (c) where there are differing views between internal stakeholders (d) the expected length of any hearing (as a general rule, where a matter has been listed for more than one day, it is expected that counsel will need to be engaged) (e) the complexity of the factual matrix and volume of the documentary evidence (f) whether there is a need for detailed cross examination, including where the credibility of a witness is relevant or if lengthy cross examination is required (g) the significance or sensitivity of the issues (h) where the precedential ATO view is being challenged (i) where the quantum in dispute is significant (j) where counsel and legal or accounting firms are representing the other party (k) where the other party has a high net wealth and/or is prominent, and (l) where the other party has a history of audits or investigations by the ATO. (a) the complexity of the matter (b) the experience of ATO officers involved in the matter (c) where there are differing views between internal stakeholders (d) the expected length of any hearing (as a general rule, where a matter has been listed for more than one day, it is expected that counsel will need to be engaged) (e) the complexity of the factual matrix and volume of the documentary evidence (f) whether there is a need for detailed cross examination, including where the credibility of a witness is relevant or if lengthy cross examination is required (g) the significance or sensitivity of the issues (h) where the precedential ATO view is being challenged (i) where the quantum in dispute is significant (j) where counsel and legal or accounting firms are representing the other party (k) where the other party has a high net wealth and/or is prominent, and (l) where the other party has a history of audits or investigations by the ATO. | The process of the engagement of an external service provider: 54. In General Counsel, the engagement of an external legal service provider must be approved by a Principal Legal Adviser. 55. In Dispute Resolution, the process for the engagement of an external legal service provider is as follows: (a) the Dispute Resolution officer will, where possible, discuss the selection of an appropriate service provider with internal stakeholders, and (b) forward the request to the relevant Dispute Resolution manager, who will make a recommendation to the relevant Assistant Commissioner, Dispute Resolution. The request must provide sufficient detail, including internal stakeholder views and preferences, to allow the decision maker to make an informed decision. (a) the Dispute Resolution officer will, where possible, discuss the selection of an appropriate service provider with internal stakeholders, and (b) forward the request to the relevant Dispute Resolution manager, who will make a recommendation to the relevant Assistant Commissioner, Dispute Resolution. The request must provide sufficient detail, including internal stakeholder views and preferences, to allow the decision maker to make an informed decision. 56. In making the decision and selection, the relevant decision-maker should take into consideration the views and preferences of internal stakeholders. 57. For significant tax technical and debt litigation matters, where there is disagreement between internal stakeholders on the selection of counsel, the matter should be escalated to a Deputy Chief Tax Counsel (DCTC). 58. There may be instances where it is critical that an external firm is engaged immediately. In these circumstances it is not always possible to consult with all stakeholders prior to the firm's engagement. In these instances, the appropriate Assistant Commissioner in the Dispute Resolution team will decide whether an external firm should be engaged. 59. The approval to engage or brief an external legal service provider must be recorded in the relevant ATO systems. | Management of external legal service providers and associated costs: 60. Where an external legal service provider is engaged: (a) the Dispute Resolution officer has responsibility for managing the relationship with the external service provider, ensuring that there is minimal duplication of roles and effort amongst all stakeholders. (b) direct contact with the external service provider should not be made by other internal stakeholders, unless by prior arrangement with the Dispute Resolution officer. (a) the Dispute Resolution officer has responsibility for managing the relationship with the external service provider, ensuring that there is minimal duplication of roles and effort amongst all stakeholders. (b) direct contact with the external service provider should not be made by other internal stakeholders, unless by prior arrangement with the Dispute Resolution officer. 61. The Dispute Resolution team must ensure that invoices received directly from external legal service providers who are not panel firms, are manually recorded onto ATOLegals. [12] | Engaging Counsel: 62. In any matter, regardless of complexity, consideration should be given to obtaining counsel's advice to assist in determining the ATO position or to provide advice on prospects for success, where there is: (a) uncertainty about the ATO position (b) disagreement between stakeholders, or (c) concern regarding the application of the precedential ATO view. (a) uncertainty about the ATO position (b) disagreement between stakeholders, or (c) concern regarding the application of the precedential ATO view. 63. Where a matter is clearly significant or complex, or there is uncertainty relating to the precedential ATO view, counsel should be considered as early as possible. Counsel should also be considered where a matter involves a significant volume of material and/or requires extensive or expert cross examination. Counsel should generally not be engaged for matters before the Small Taxation Claims Tribunal. 64. Counsel are to be selected in accordance with paragraph 4D of Appendix D to the Legal Services Directions. In selecting counsel, all reasonable endeavours are to be made to: (a) identify all counsel in the relevant practice area (b) genuinely consider engaging such counsel, and (c) regularly monitor and review the engagement of counsel. (a) identify all counsel in the relevant practice area (b) genuinely consider engaging such counsel, and (c) regularly monitor and review the engagement of counsel. 65. If advice is received from counsel indicating that they have concerns regarding the precedential ATO view, the Dispute Resolution officer must escalate these concerns to the relevant Assistant Commissioner, Dispute Resolution. | Engaging external solicitors: 66. In accordance with Appendix F to the Legal Services Directions, the ATO must utilise the whole of government legal services multi-use list when engaging external legal services. 67. The multi-use list is divided into four broad categories of law: (a) Government and Administrative Law (b) Corporate and Commercial Law (c) Dispute Resolution and Litigation, and (d) all other legal services. (a) Government and Administrative Law (b) Corporate and Commercial Law (c) Dispute Resolution and Litigation, and (d) all other legal services. 68. The use of external legal firms complement the Dispute Resolution teams by allowing the ATO increased flexibility in the provision of legal services, access to innovations and systems, and access to other external specialists as and when required. | 'Tied legal work': 69. Notwithstanding the existence of the panels, certain legal work is tied to the Australian Government Solicitor and the Attorney-General's Department. [13] 70. Tied legal work is work of a kind described by paragraph 1 of Appendix A to the Legal Services Directions. Relevantly, this includes constitutional law issues, certain legal advice to be considered or relied upon by Cabinet and legal advice on certain legislative proposals. Dispute Resolution officers are expected to understand and adhere to the requirements of Appendix A to the Legal Services Directions. 71. Other tied legal work, described in paragraphs 2 and 3 of Appendix A to the Legal Services Directions, includes legislative drafting work relating to Bills or amendments to Bills and public international law work. This work is tied to the Office of Parliamentary Counsel, the Office of Legislative Drafting and Publishing or the Department of Foreign Affairs and Trade. 72. The Attorney-General may approve other providers to undertake tied work. [14] | Engaging external alternative dispute resolution practitioners: 73. Alternative dispute resolution practitioners, although accredited, may or may not be legal practitioners. Nonetheless, they may be engaged to conduct a variety of dispute resolution processes including mediation, conciliation and neutral evaluation. [15] 74. The Commissioner may be involved in litigation across various jurisdictions, including: (a) the Administrative Appeals Tribunal (AAT) (b) Fair Work Australia (FWA) (c) the Australian Human Rights Commission (AHRC) (d) the Federal Circuit Court (FCC) (e) the Federal Court of Australia (Federal Court) (f) the High Court of Australia (High Court) (a) the Administrative Appeals Tribunal (AAT) (b) Fair Work Australia (FWA) (c) the Australian Human Rights Commission (AHRC) (d) the Federal Circuit Court (FCC) (e) the Federal Court of Australia (Federal Court) (f) the High Court of Australia (High Court) 75. The specific obligations and responsibilities on ATO stakeholders as they relate to each of the above jurisdictions are set out later in this section, but common to all litigation are the following requirements: (a) strict adherence to court and tribunal timeframes. Where it is not possible for the ATO to meet court or tribunal deadlines, leave must be sought from the court or tribunal as early as possible, but at a minimum prior to the date listed by a tribunal or specified by a court order. The request should ideally be made with the consent of the other party. Where timetables can not be met in a tribunal and leave has not been granted, this must be escalated to the relevant Dispute Resolution manager. [16] If this occurs in a court, it must also be escalated to the relevant Assistant Commissioner, Dispute Resolution. (b) early consideration should be given to whether any jurisdictional issues exist. Jurisdictional arguments should generally be made prior to arguing the substantive issues (c) the management and coordination of any document production (pursuant to a summons, notice to produce, subpoena or discovery process) will rest with the relevant Dispute Resolution team. Any searches or inquiries for such documents are to be conducted by the BSL. A record must be kept of the systems and databases searched, and (d) adopting effective case management strategies to ensure the most timely and cost effective resolution of disputes. Case Management Plans and cost estimates should be utilised in all matters other than routine debt matters. [17] (a) strict adherence to court and tribunal timeframes. Where it is not possible for the ATO to meet court or tribunal deadlines, leave must be sought from the court or tribunal as early as possible, but at a minimum prior to the date listed by a tribunal or specified by a court order. The request should ideally be made with the consent of the other party. Where timetables can not be met in a tribunal and leave has not been granted, this must be escalated to the relevant Dispute Resolution manager. [16] If this occurs in a court, it must also be escalated to the relevant Assistant Commissioner, Dispute Resolution. (b) early consideration should be given to whether any jurisdictional issues exist. Jurisdictional arguments should generally be made prior to arguing the substantive issues (c) the management and coordination of any document production (pursuant to a summons, notice to produce, subpoena or discovery process) will rest with the relevant Dispute Resolution team. Any searches or inquiries for such documents are to be conducted by the BSL. A record must be kept of the systems and databases searched, and (d) adopting effective case management strategies to ensure the most timely and cost effective resolution of disputes. Case Management Plans and cost estimates should be utilised in all matters other than routine debt matters. [17] | Administrative Appeals Tribunal: 76. ATO officers are expected to adhere to any relevant rules and practice directions of the AAT including: (a) the AAT Regulations 1976, and (b) the practice directions issued pursuant to subsection 20(2) of the AAT Act, which include: (i) the General Practice Direction (ii) the practice direction relating to section 37 of the AAT Act (iii) the Listing and Adjournment Practice Direction (iv) the Small Taxation Claims Tribunal Practice Direction (v) the Freedom of Information Practice Direction (vi) the practice direction under subsection 37(1AB) of the AAT Act for matters in the Taxation Appeals Division, and (vii) the practice direction under section 20 of the AAT Act for Australian Business Number matters to be heard in the Taxation Appeals Division. (a) the AAT Regulations 1976, and (b) the practice directions issued pursuant to subsection 20(2) of the AAT Act, which include: (i) the General Practice Direction (ii) the practice direction relating to section 37 of the AAT Act (iii) the Listing and Adjournment Practice Direction (iv) the Small Taxation Claims Tribunal Practice Direction (v) the Freedom of Information Practice Direction (vi) the practice direction under subsection 37(1AB) of the AAT Act for matters in the Taxation Appeals Division, and (vii) the practice direction under section 20 of the AAT Act for Australian Business Number matters to be heard in the Taxation Appeals Division. (i) the General Practice Direction (ii) the practice direction relating to section 37 of the AAT Act (iii) the Listing and Adjournment Practice Direction (iv) the Small Taxation Claims Tribunal Practice Direction (v) the Freedom of Information Practice Direction (vi) the practice direction under subsection 37(1AB) of the AAT Act for matters in the Taxation Appeals Division, and (vii) the practice direction under section 20 of the AAT Act for Australian Business Number matters to be heard in the Taxation Appeals Division. 77. Tax officers are expected to be aware of, and adhere to, any other relevant guidelines as issued by the AAT. 78. In circumstances where a decision of the Commissioner is subject to review by the AAT: (a) the relevant Dispute Resolution ,manager will notify the BSL of receipt of an application as soon as possible (b) as soon as practicable (no later than one week for Small Taxation Claims Tribunal matters, and two weeks for all other matters) following notification of the application, the BSL must provide Dispute Resolution with copies of all material relevant to the decision in question. This material must be accompanied by a comprehensive index [18] (c) the Dispute Resolution officer should advise the AAT and the applicant or his/her representative who the ATO contact officer is for the matter (d) the Dispute Resolution officer is generally responsible for the preparation of a draft statement of facts, issues and contentions, [19] and provide internal stakeholders with the opportunity to review and comment on the draft prior to finalising and filing the document, and (e) where counsel has been briefed, submissions should be prepared by counsel. Counsel should be requested to provide a draft of the submissions at least seven days prior to the date they are to be filed. (a) the relevant Dispute Resolution ,manager will notify the BSL of receipt of an application as soon as possible (b) as soon as practicable (no later than one week for Small Taxation Claims Tribunal matters, and two weeks for all other matters) following notification of the application, the BSL must provide Dispute Resolution with copies of all material relevant to the decision in question. This material must be accompanied by a comprehensive index [18] (c) the Dispute Resolution officer should advise the AAT and the applicant or his/her representative who the ATO contact officer is for the matter (d) the Dispute Resolution officer is generally responsible for the preparation of a draft statement of facts, issues and contentions, [19] and provide internal stakeholders with the opportunity to review and comment on the draft prior to finalising and filing the document, and (e) where counsel has been briefed, submissions should be prepared by counsel. Counsel should be requested to provide a draft of the submissions at least seven days prior to the date they are to be filed. 79. Some of the key events and issues that officers need to be aware of when conducting matters before the AAT include: (a) the need to actively seek the AAT's involvement where cases are not being progressed efficiently. For example, seeking a directions hearing where applicants have consistently not met timetables (b) an adversarial approach may not be necessary or appropriate as taxpayers are often unrepresented applicants before the AAT and the AAT aims to provide prompt review with as little formality and technicality as possible. (c) the obligation on ATO officers to use their best endeavours to assist the AAT to make its decision, as required by subsection 33(1AA) of the AAT Act (d) whether any jurisdictional issues exist. The AAT does not have a general power to review decisions under Commonwealth legislation. It can only review a decision if an Act, Regulation or other legislative instrument specifically provides that the AAT can review the decision, and (e) whether a matter is likely to provide important law clarification. Tax officers should consider the potential significance of a decision, and turn their mind to the appropriate constitution of the AAT, for example whether they should seek to have the matter heard by a presidential member. (a) the need to actively seek the AAT's involvement where cases are not being progressed efficiently. For example, seeking a directions hearing where applicants have consistently not met timetables (b) an adversarial approach may not be necessary or appropriate as taxpayers are often unrepresented applicants before the AAT and the AAT aims to provide prompt review with as little formality and technicality as possible. (c) the obligation on ATO officers to use their best endeavours to assist the AAT to make its decision, as required by subsection 33(1AA) of the AAT Act (d) whether any jurisdictional issues exist. The AAT does not have a general power to review decisions under Commonwealth legislation. It can only review a decision if an Act, Regulation or other legislative instrument specifically provides that the AAT can review the decision, and (e) whether a matter is likely to provide important law clarification. Tax officers should consider the potential significance of a decision, and turn their mind to the appropriate constitution of the AAT, for example whether they should seek to have the matter heard by a presidential member. | Fair Work Australia and the Australian Human Rights Commission: 80. The Commissioner may be involved in proceedings before Fair Work Australia (FWA) or required to respond to the Australian Human Rights Commission (AHRC) in respect of complaints of unlawful discrimination. These types of proceedings are discussed together as they are managed internally by General Counsel and place similar obligations on internal stakeholders. 81. Proceedings before FWA usually involve the following: (a) an unfair dismissal dispute (b) an industrial relations dispute, or (c) a general protections (adverse action) dispute (a) an unfair dismissal dispute (b) an industrial relations dispute, or (c) a general protections (adverse action) dispute 82. Officers are expected be aware of, and adhere to, any relevant rules, practice notes, or guidelines issued by FWA, including for instance, the Fair Work Australia Rules. 83. The Commissioner's involvement before the AHRC is usually pursuant to one of the following Federal discrimination laws: (a) the Age Discrimination Act 2004 (b) the Disability Discrimination Act 1992 (c) the Racial Discrimination Act 1975, or (d) the Sex Discrimination Act 1984 (a) the Age Discrimination Act 2004 (b) the Disability Discrimination Act 1992 (c) the Racial Discrimination Act 1975, or (d) the Sex Discrimination Act 1984 84. Where the Commissioner is involved in a proceeding before FWA or the AHRC: (a) GC will notify the relevant BSL and the ATO People Business Line of the receipt of the application as soon as possible (b) where a BSL or the ATO People Business Line receives the notification they will notify GC of the receipt of the application as soon as possible (c) GC will notify the ATO People Business Line and the relevant BSL of the name of the GC officer within 24 hours of receiving the application (d) the ATO People Business Line will advise GC of the name of the ATO people case manager and the relevant BSL contact officer(s) and provide access to all the documentation [20] within 24 hours of being advised of an application, and (e) the responsibility for the preparation of the ATO's response to the application and any relevant documents rests with GC. [21] GC must provide internal stakeholders with the opportunity to review and comment on the draft prior to finalising and filing the document. (a) GC will notify the relevant BSL and the ATO People Business Line of the receipt of the application as soon as possible (b) where a BSL or the ATO People Business Line receives the notification they will notify GC of the receipt of the application as soon as possible (c) GC will notify the ATO People Business Line and the relevant BSL of the name of the GC officer within 24 hours of receiving the application (d) the ATO People Business Line will advise GC of the name of the ATO people case manager and the relevant BSL contact officer(s) and provide access to all the documentation [20] within 24 hours of being advised of an application, and (e) the responsibility for the preparation of the ATO's response to the application and any relevant documents rests with GC. [21] GC must provide internal stakeholders with the opportunity to review and comment on the draft prior to finalising and filing the document. 85. Some of the key events and issues the GC officers need to be aware of include: (a) FWA's focus is on providing fast and effective assistance for employers and employees with as little or as much formality as is required. Applicants are often unrepresented applicants before FWA, and officers are reminded that an adversarial approach may not be necessary or appropriate in these circumstances, and (b) officers are reminded that the AHRC is not a court or a tribunal and that parties do not have to prove or disprove the complaint. Officers are to assist the AHRC and adopt an informal, flexible approach to resolving complaints and actively participate in the conciliation process should the AHRC decide to deal with the compliant in that manner. (a) FWA's focus is on providing fast and effective assistance for employers and employees with as little or as much formality as is required. Applicants are often unrepresented applicants before FWA, and officers are reminded that an adversarial approach may not be necessary or appropriate in these circumstances, and (b) officers are reminded that the AHRC is not a court or a tribunal and that parties do not have to prove or disprove the complaint. Officers are to assist the AHRC and adopt an informal, flexible approach to resolving complaints and actively participate in the conciliation process should the AHRC decide to deal with the compliant in that manner. | Federal Court of Australia: 86. The Commissioner may be involved in litigation before the Federal Court in the following matters: (a) applications in respect of objection decisions made pursuant to Part IVC of the TAA (b) appeals from the AAT pursuant to section 44 of the AAT Act and with referrals of questions of law pursuant to section 45 of that Act (c) other matters in the original jurisdiction of the Court including applications invoking the jurisdiction conferred by section 39B of the Judiciary Act and orders for review pursuant to the ADJR Act (d) applications in respect of the imposition of civil penalties pursuant to Division 290 of Schedule 1 to the TAA (e) a range of recovery and debt related matters (f) applications arising from the Fair Work Act 2009 (g) applications alleging unlawful discrimination pursuant to various Federal discrimination laws, and (h) matters in the appellate jurisdiction of that Court. (a) applications in respect of objection decisions made pursuant to Part IVC of the TAA (b) appeals from the AAT pursuant to section 44 of the AAT Act and with referrals of questions of law pursuant to section 45 of that Act (c) other matters in the original jurisdiction of the Court including applications invoking the jurisdiction conferred by section 39B of the Judiciary Act and orders for review pursuant to the ADJR Act (d) applications in respect of the imposition of civil penalties pursuant to Division 290 of Schedule 1 to the TAA (e) a range of recovery and debt related matters (f) applications arising from the Fair Work Act 2009 (g) applications alleging unlawful discrimination pursuant to various Federal discrimination laws, and (h) matters in the appellate jurisdiction of that Court. 87. ATO officers are expected to adhere to any relevant rules, practice notes or administrative notices of the Federal Court; some of which include: (a) the Administrative Decisions (Judicial Review) Regulations 1985 (b) the Federal Court (Corporations) Rules 2000 (c) the Federal Court of Australia Regulations 2004 (d) the Federal Court (Bankruptcy) Rules 2005, and (e) the Federal Court Rules 2011. (a) the Administrative Decisions (Judicial Review) Regulations 1985 (b) the Federal Court (Corporations) Rules 2000 (c) the Federal Court of Australia Regulations 2004 (d) the Federal Court (Bankruptcy) Rules 2005, and (e) the Federal Court Rules 2011. 88. The Commissioner may be involved in a range of matters before the Federal Court, however, the majority of the proceedings relate to applications made pursuant to Part IVC of the TAA and administrative law applications which are discussed in further detail below. | Applications made to the Federal Court pursuant to Part IVC of the TAA: 89. Where an application is made to the court in respect of an objection decision pursuant to Part IVC of the TAA, Dispute Resolution and the BSL must work collaboratively to ensure court timetables are met. 90. In these matters, Dispute Resolution will: (a) immediately notify the BSL of receipt of an application, (b) raise the matter with the relevant Assistant Commissioner, Dispute Resolution discussing preliminary strategies on how the case should be managed, such as: (i) the allocation of appropriate resources (ii) whether external legal service providers should be engaged immediately, and (iii) whether it is appropriate to conduct the matter as the Solicitor on Record. [22] (c) as soon as practicable following receipt of the application, prepare a draft Appeal Statement. Where an external solicitor is engaged, the statement will be prepared by the external solicitor (with assistance from the Dispute Resolution officer if appropriate). (d) prepare the Pro-Forma Questionnaire, with information to be provided by the BSL as required, [23] (e) ensure that submissions prepared by counsel are circulated to internal stakeholders prior to filing. Counsel should provide draft submissions at least one week prior to the date they are to be filed, and (f) manage and co-ordinate any document production pursuant to notices to produce, subpoenas or discovery. (a) immediately notify the BSL of receipt of an application, (b) raise the matter with the relevant Assistant Commissioner, Dispute Resolution discussing preliminary strategies on how the case should be managed, such as: (i) the allocation of appropriate resources (ii) whether external legal service providers should be engaged immediately, and (iii) whether it is appropriate to conduct the matter as the Solicitor on Record. [22] (c) as soon as practicable following receipt of the application, prepare a draft Appeal Statement. Where an external solicitor is engaged, the statement will be prepared by the external solicitor (with assistance from the Dispute Resolution officer if appropriate). (d) prepare the Pro-Forma Questionnaire, with information to be provided by the BSL as required, [23] (e) ensure that submissions prepared by counsel are circulated to internal stakeholders prior to filing. Counsel should provide draft submissions at least one week prior to the date they are to be filed, and (f) manage and co-ordinate any document production pursuant to notices to produce, subpoenas or discovery. (i) the allocation of appropriate resources (ii) whether external legal service providers should be engaged immediately, and (iii) whether it is appropriate to conduct the matter as the Solicitor on Record. [22] 91. In these matters, the relevant BSL will: (a) Within one week following notification of the application, provide copies of all material relating to the decision in question. [24] This material must include a comprehensive index and the Facts and Evidence Worksheet, (b) as soon as practicable following notification of the application, provide a document (including a chronology) that can be used to evaluate the Genuine Steps statement filed by the applicant and to prepare any reply, and (c) conduct any searches or inquiries pursuant to notices to produce, subpoenas or discovery. A record must be kept of the systems and databases searched. (a) Within one week following notification of the application, provide copies of all material relating to the decision in question. [24] This material must include a comprehensive index and the Facts and Evidence Worksheet, (b) as soon as practicable following notification of the application, provide a document (including a chronology) that can be used to evaluate the Genuine Steps statement filed by the applicant and to prepare any reply, and (c) conduct any searches or inquiries pursuant to notices to produce, subpoenas or discovery. A record must be kept of the systems and databases searched. 92. Some of the key events and issues that officers need to be aware of in proceedings before the Federal Court include: (a) Practice Note PN Tax 1 regarding 'arrangements for the management of tax cases'. [25] This Practice Note aims to improve the national and regional management of tax cases. It deals with the role of the Tax List Coordinating Judge in each region and provides arrangements to promote just and efficient determination of tax disputes in a timely manner. The Dispute Resolution officer must ensure that matters are conducted in accordance with PN Tax 1 and utilise the case management plan and cost estimate process which has been modelled to comply with PN Tax 1 (b) use of the Commissioner's powers to obtain information and evidence regarding the taxpayer or related entities, whilst court proceedings are in progress. Advice must be sought from Dispute Resolution before this occurs as this may amount to contempt of court, and (c) any implied or express undertakings not to use documents disclosed in other proceedings. Where a party to litigation is compelled to disclose documents or information during legal proceedings, the party obtaining the disclosure cannot, without leave of the court, use that information for any purpose other than for which it was given. [26] Breach of the implied undertaking amounts to a contempt of court and exposes the Commissioner to court sanctions (and ATO officers to breaches of the Code of Conduct). [27] (a) Practice Note PN Tax 1 regarding 'arrangements for the management of tax cases'. [25] This Practice Note aims to improve the national and regional management of tax cases. It deals with the role of the Tax List Coordinating Judge in each region and provides arrangements to promote just and efficient determination of tax disputes in a timely manner. The Dispute Resolution officer must ensure that matters are conducted in accordance with PN Tax 1 and utilise the case management plan and cost estimate process which has been modelled to comply with PN Tax 1 (b) use of the Commissioner's powers to obtain information and evidence regarding the taxpayer or related entities, whilst court proceedings are in progress. Advice must be sought from Dispute Resolution before this occurs as this may amount to contempt of court, and (c) any implied or express undertakings not to use documents disclosed in other proceedings. Where a party to litigation is compelled to disclose documents or information during legal proceedings, the party obtaining the disclosure cannot, without leave of the court, use that information for any purpose other than for which it was given. [26] Breach of the implied undertaking amounts to a contempt of court and exposes the Commissioner to court sanctions (and ATO officers to breaches of the Code of Conduct). [27] | Administrative law proceedings: 93. The Commissioner may also be involved in proceedings before the Federal Court where applicants are seeking judicial review of administrative decisions or actions by ATO officers. These proceedings are commonly pursuant to: (a) the ADJR Act, and (b) section 39B of the Judiciary Act 1903. (a) the ADJR Act, and (b) section 39B of the Judiciary Act 1903. 94. Judicial review of administrative decisions or actions by ATO officers involves the court reviewing whether the process by which the decision was made was flawed, or whether the decision involves an error of law. In these instances, the court generally cannot remake the decision, so the remedies available from judicial review may be limited to remitting the decision back to the original decision maker with an order to remake the decision according to law. The ADJR Act 95. An applicant can apply to have a decision of the Commissioner reviewed by the Federal Court. The applicant must be aggrieved by a decision, or the failure to make a decision, to which the ADJR Act applies. [28] 96. As soon as practicable after receiving notice of an application for an order for review, prompt consideration should be given as to whether an objection to competency should be made in respect of the application. 97. If an objection is to be made to the competency of the application, the Federal Court Rules 2011 require the Commissioner to file and serve a notice of objection to the competency within 14 days after service of the application. The notice must state briefly, but specifically, the grounds of his objection. Section 39B of the Judiciary Act 1903 - Declaratory Proceedings 98. Section 39B of the Judiciary Act 1903 confers jurisdiction on the Federal Court [29] including with respect to any matter in which a writ of prohibition or mandamus or an injunction is sought against an officer or officers of the Commonwealth. Proceedings are sometimes brought against the Commissioner under this provision by taxpayers seeking relief in the form of a declaration. [30] 99. The Commissioner generally prefers to see disputes regarding tax assessments and the like resolved through the procedures for which Parliament has provided in Part IVC of the TAA. It is exceptional for declaratory proceedings to be an appropriate mechanism for resolution of a tax dispute. [31] Where an assessment has issued, it is clear that declaratory proceedings are not appropriate and if litigation proceeds it should be by way of application for review of, or appeal against, the objection decision. [32] 100. A number of GST disputes have been resolved through the use of declaratory proceedings. However, with GST operating under a full self-assessment regime since 1 July 2012, declaratory proceedings are not appropriate to challenge assessments deemed to be made on lodgement of returns. 101. However, there are some remaining categories of disputes where declaratory proceedings may be appropriate for the resolution of GST or other indirect tax disputes. These include disputes relating to tax periods before the introduction of self assessment on 1 July 2012 and disputes regarding input tax credit entitlement where the credit has not yet become attributable. [33] 102. However, whether a declaration should be made is always at the discretion of the court. Even where parties agree between themselves that declaratory proceedings are desirable to resolve a dispute, the court may hold that a declaration should not be made in the circumstances. [34] 103. As a guide, the following factors are relevant when determining when declaratory proceedings may be considered appropriate: (a) have assessments been issued or is there a deemed assessment? Declarations can only be sought where no assessment has been issued or no deemed assessment (and there is no immediate concern that relevant time limits for issuing or amending assessments may expire) (b) are there any factual or evidentiary controversies? Declaratory proceedings are usually not preferred where there are significant factual or evidentiary controversies. A declaration will be more likely to be capable of resolving a dispute when the question before the court in declaratory proceedings is a clear question of law, with clear criteria against which the court can make a determination one way or another. However, this does not mean that there must necessarily be agreement on every aspect of the facts. For example, it may be satisfactory for affidavit evidence to be adduced, with the court asked to make particular findings or inferences from the evidence, such as regarding the construction of a contract or the character of a transaction. (c) does the matter involve a real controversy sufficient to engage the jurisdiction of the court (as distinct from being a hypothetical issue)?, and (d) whether the declaration sought will completely resolve and finalise the entire dispute. [35] Declaratory proceedings will not be appropriate where there may be remaining disagreement about the consequences which would flow from the making of the declaration. (a) have assessments been issued or is there a deemed assessment? Declarations can only be sought where no assessment has been issued or no deemed assessment (and there is no immediate concern that relevant time limits for issuing or amending assessments may expire) (b) are there any factual or evidentiary controversies? Declaratory proceedings are usually not preferred where there are significant factual or evidentiary controversies. A declaration will be more likely to be capable of resolving a dispute when the question before the court in declaratory proceedings is a clear question of law, with clear criteria against which the court can make a determination one way or another. However, this does not mean that there must necessarily be agreement on every aspect of the facts. For example, it may be satisfactory for affidavit evidence to be adduced, with the court asked to make particular findings or inferences from the evidence, such as regarding the construction of a contract or the character of a transaction. (c) does the matter involve a real controversy sufficient to engage the jurisdiction of the court (as distinct from being a hypothetical issue)?, and (d) whether the declaration sought will completely resolve and finalise the entire dispute. [35] Declaratory proceedings will not be appropriate where there may be remaining disagreement about the consequences which would flow from the making of the declaration. 104. Taxpayers who may be contemplating the commencement of declaratory proceedings and/or their representatives may wish to contact the ATO before commencing the proceedings. This may allow the parties an opportunity to work co-operatively in good faith early to try to resolve issues regarding the court's jurisdiction or the appropriateness of declaratory proceedings in the particular circumstances without incurring unnecessary costs in litigation. This early engagement with taxpayers may require the involvement of counsel, and counsel to counsel discussions may be appropriate. 105. On occasions, taxpayers ask the ATO to hold off making an assessment to facilitate an application for a declaration. This would be an exceptional course and counsel's opinion should be sought if appropriate. The issue must be escalated to the relevant compliance group business line Assistant Commissioner, the relevant Assistant Commissioner, Dispute Resolution, and the relevant STC, Strategic Litigation. 106. ATO officers cannot unreservedly promise to hold off making an assessment in order to facilitate a taxpayer's application for a declaration. It would be rare for the ATO to indicate that it did not contemplate issuing an assessment while the declaratory proceedings were on foot and then find it necessary to do so. However, if the Commissioner were to decide that it is necessary to make an assessment for the relevant tax period before the finalisation of declaratory proceedings, the Commissioner must bring the assessment to the court's attention. [36] 107. Whilst either party can apply for a declaration, it is usually up to the taxpayer to commence proceedings as the Commissioner will not generally be in a position to do so - the Commissioner will not have been party to the relevant transactions and may not be in a position to put relevant evidence before the court. Nevertheless, the ATO should be open to the possibility of commencing proceedings itself where it is appropriate to do so in the interests of achieving law clarification for the benefit of the community. Advice of senior counsel would usually be appropriate before commencing such action. 108. As with any litigation, there will be various risks that will need to be considered. Particular to declaratory proceedings, there is a risk that the proceedings may not provide certainty for either party. For example, where there are more than two outcomes possible, the court may decline to accept the contentions of either party and leave the dispute unresolved. In contrast, the operation of the burden of proof provisions in Part IVC proceedings ensures certainty and clarity when those proceedings are finalised. That is, under Part IVC proceedings, taxpayers need to show not only that an assessment is excessive, but also what the correct assessment should be. 109. There is also a risk that declaratory proceedings may leave parties with no avenue of appeal. For the Commissioner, there is a risk that a declaration may make a finding contrary to an ATO view, but provide no opportunity for the Commissioner to appeal. [37] 110. It is important that in any proceeding invoking the jurisdiction conferred by section 39B of the Judiciary Act 1903, prompt consideration should be given as to whether it is appropriate for the matter to be dealt with under this section. Officers should determine if there are more suitable avenues for review, such as the Part IVC process. If this is the case, it may be appropriate for the Commissioner to seek to have the section 39B proceedings dismissed. Applications made to the Federal Court pursuant to the Fair Work Act 2009 or Federal discrimination law 111. The Commissioner may be involved in proceedings before the Federal Court arising from the Fair Work Act 2009 and applications alleging unlawful discrimination pursuant to various Federal discrimination laws. [38] Where the Commissioner is involved in such proceedings before the Federal Court, ATO officers must follow the same procedures and guidelines as set out in paragraph 84 of this practice statement. | Federal Circuit Court: 112. The Commissioner may be involved in proceedings before the Federal Circuit Court (FCC). The FCC provides an alternative to litigation in the Federal Court and Family Court of Australia. The FCC's jurisdiction includes, but is not limited to, administrative law, bankruptcy, human rights and industrial law. Proceedings before this court can thus involve either Dispute Resolution or General Counsel. 113. ATO officers are expected to be aware of, and adhere to, any relevant rules, practice notes, or guidelines issued by the FCC, such as the Federal Circuit Court Rules. 114. Where General Counsel is involved in a proceeding before the FCC, stakeholders are to follow the same procedures and guidance as set out in paragraph 84 of this practice statement. | High Court of Australia: 115. The Commissioner may be involved in litigation before the High Court including: (a) applications for special leave to appeal against the judgment of another court (b) matters in the appellate jurisdiction being those where special leave to appeal was granted or appeals from single judges of the High Court, and (c) matters in the Court's original jurisdiction such as where a party is seeking a writ or injunction. (a) applications for special leave to appeal against the judgment of another court (b) matters in the appellate jurisdiction being those where special leave to appeal was granted or appeals from single judges of the High Court, and (c) matters in the Court's original jurisdiction such as where a party is seeking a writ or injunction. 116. Most commonly, the Commissioner will be involved in applications for special leave to appeal and, where granted, the ensuing appeal. 117. Officers are expected to be aware of, and adhere to any relevant rules or practice directions issued by the High Court. 118. Matters before the High Court are generally central to the Commissioner's law clarification objectives and are likely to present significant risks to the Commissioner. 119. These matters are therefore expected to be managed with a very high degree of consultation and stakeholder involvement. It is also essential that a broader range of stakeholders or ATO officers are continually informed and kept apprised of the progress of the matter and any developments that have occurred. 120. In particular, the Solicitor-General must be advised where the Commissioner is contemplating seeking special leave to appeal to the High Court [39] in litigation involving: (a) significant financial implications, [40] either in the relevant case, or which may have flow on effects to other taxpayers in the event of an adverse outcome in the case, [41] or (b) whole of government implications. (a) significant financial implications, [40] either in the relevant case, or which may have flow on effects to other taxpayers in the event of an adverse outcome in the case, [41] or (b) whole of government implications. 121. In these instances, the Solicitor-General must be provided with: (a) a copy of the judgment, and (b) the advice of counsel briefed in the matter on the prospects of special leave being granted. (a) a copy of the judgment, and (b) the advice of counsel briefed in the matter on the prospects of special leave being granted. 122. The Solicitor-General will then form an independent view in relation to whether the application for special leave should be made (or should proceed in circumstances where an application has already been filed). 123. The management of technical issues across the ATO, including litigation, is subject to the Enterprise Risk Management Framework. In addition to this, litigation matters are subject to rigorous case management processes to ensure that cases and issues are regularly risk assessed and reviewed. 124. All debt and tax technical matters are subject to the Strategic Internal Litigation Committee (SILC) process and regular call-overs. [42] Strategic litigation matters will be discussed separately within this section as there are specific requirements which must be followed to ensure they are managed appropriately. | The SILC Process: 125. The SILC process is essential to all litigation matters. It facilitates communication between all stakeholders and ensures that appropriate consultation takes place prior to the making of any key decisions or the adoption of strategies. 126. A SILC conference is a meeting between key internal stakeholders, organised by the Dispute Resolution officer and convened at various critical stages of the litigation matter. Where appropriate, external legal service providers can also be invited to participate in key SILC conferences. 127. The following SILC conferences must be convened for each litigation matter: (a) the initial SILC conference (b) the case evaluation SILC conference, and (c) the post-decision SILC conference. (a) the initial SILC conference (b) the case evaluation SILC conference, and (c) the post-decision SILC conference. 128. These conferences must be minuted to ensure that key decisions and strategies are appropriately captured. It is expected that stakeholders will exercise good judgment and engage in regular consultation as required to ensure continual good management of the case. | The initial SILC conference: 129. The purpose of this SILC conference is to re-evaluate the decision of the Commissioner that is in dispute, including an appraisal of the issues, and whether the facts and evidence support the views taken by the Commissioner. 130. This SILC conference should be convened as soon as possible after receipt of the application, but must occur before the first conference or scheduling conference. One of the key outcomes of this SILC conference should be the development of the litigation strategy, and whether early or alternative dispute resolution is appropriate. | The case evaluation SILC conference: 131. In first instance proceedings, the case evaluation SILC conference will ordinarily occur shortly after the service of the applicant's evidence. The intention of this SILC conference is to provide a specific point in the process where: (a) the case is re-evaluated in light of the applicant's evidence (b) officers further consider, decide and, where possible, implement any appropriate steps to ensure that the Commissioner can file any evidence required, and (c) officers consider whether an alternative dispute resolution process is appropriate. (a) the case is re-evaluated in light of the applicant's evidence (b) officers further consider, decide and, where possible, implement any appropriate steps to ensure that the Commissioner can file any evidence required, and (c) officers consider whether an alternative dispute resolution process is appropriate. 132. In appellate proceedings, or in proceedings where evidence is not to be filed, this SILC conference should occur well in advance of the preparation of submissions and emphasis should be placed on identifying and managing risks, including the consideration or implementation of risk mitigation strategies and contingency plans. | The post-decision SILC conference: 133. The primary focus of the post-decision SILC conference is to ensure that consideration is given to the proper management of the decision. This SILC conference should be convened as soon as possible but no later than one week following the receipt of a decision. 134. At this SILC conference, the following should be addressed: (a) risk mitigation strategies and contingency plans (b) any errors or difficulties with the decision (c) whether a media strategy is necessary (d) whether notification or advice should be given to Treasury (e) whether notification should be given to another government department or agency which has administrative responsibility for legislation that may be affected by the litigation (f) whether the Solicitor-General should be briefed in accordance with the OLSC Guidance Note 11 (g) the risks involved in the litigation (including identification of any new risks) and the implications of the decision. This is of particular importance where the decision is adverse. However, risks or implications may also arise from a favourable decision, for instance, it may be based on reasoning not advanced by the Commissioner, or may not be consistent with a precedential ATO view (h) whether there are any implications on ATO systems (i) whether any law clarification was achieved - particularly, if the matter was test case funded or an agreement was in place regarding the payment of the taxpayer's costs, and (j) any appeal prospects and where applicable, whether a notice of appeal or cross-appeal or notice of contention should be filed. (a) risk mitigation strategies and contingency plans (b) any errors or difficulties with the decision (c) whether a media strategy is necessary (d) whether notification or advice should be given to Treasury (e) whether notification should be given to another government department or agency which has administrative responsibility for legislation that may be affected by the litigation (f) whether the Solicitor-General should be briefed in accordance with the OLSC Guidance Note 11 (g) the risks involved in the litigation (including identification of any new risks) and the implications of the decision. This is of particular importance where the decision is adverse. However, risks or implications may also arise from a favourable decision, for instance, it may be based on reasoning not advanced by the Commissioner, or may not be consistent with a precedential ATO view (h) whether there are any implications on ATO systems (i) whether any law clarification was achieved - particularly, if the matter was test case funded or an agreement was in place regarding the payment of the taxpayer's costs, and (j) any appeal prospects and where applicable, whether a notice of appeal or cross-appeal or notice of contention should be filed. | Case management plans: 135. A case management plan must be prepared for all tax technical and complex debt litigation matters. 136. A case management plan is a document setting out the details and status of a litigation matter, including the litigation strategy and any milestones. The document should include all critical information such as a summary of the issues, the precedential ATO view, the significance of the matter, and the ongoing costs related to the matter. 137. Responsibility for the preparation and ongoing periodic review of the case management plan rests with the Dispute Resolution officer, with the assistance of other internal stakeholders. 138. The case management plan is to be prepared shortly after the commencement of the proceedings and regularly updated throughout the litigation process, particularly following key decisions or events. The document should be amended to reflect any developments in the matter or changes in the litigation strategy. 139. The case management plan should be provided to all internal members of the litigation team following its preparation or subsequent review. 140. The intention of the case management plan process is to promote: (a) proactive management and regular monitoring of costs (b) strategic management of litigation by monitoring the timely progress of cases (c) collaborative partnerships between all relevant stakeholders (d) limitation of interlocutory disputes where appropriate, and (e) increased consideration and use of alternative dispute resolution processes. (a) proactive management and regular monitoring of costs (b) strategic management of litigation by monitoring the timely progress of cases (c) collaborative partnerships between all relevant stakeholders (d) limitation of interlocutory disputes where appropriate, and (e) increased consideration and use of alternative dispute resolution processes. | Ensuring continual improvement: 141. Near the conclusion of a matter, internal stakeholders should take the opportunity to review the conduct of the proceedings, turning their minds to how the ATO's management of the litigation process could be improved. In particular, feedback should be provided to the relevant Dispute Resolution manager on the following: (a) the conduct and performance of external parties such as the external solicitor and counsel. (b) the Dispute Resolution officer's performance and effectiveness during the course of the litigation. (c) any practice and procedural issues relevant to Dispute Resolution generally. (d) any BSL operations or practices that might be impacting on the quality and efficiency of the ATO's litigation process or may otherwise assist in the management of disputes generally. (e) any system deficiencies which may impact on the Commissioner's ability to comply with relevant laws, regulations or policy. (a) the conduct and performance of external parties such as the external solicitor and counsel. (b) the Dispute Resolution officer's performance and effectiveness during the course of the litigation. (c) any practice and procedural issues relevant to Dispute Resolution generally. (d) any BSL operations or practices that might be impacting on the quality and efficiency of the ATO's litigation process or may otherwise assist in the management of disputes generally. (e) any system deficiencies which may impact on the Commissioner's ability to comply with relevant laws, regulations or policy. 142. The Dispute Resolution manager will ensure relevant feedback is referred to the appropriate business area. | The call-over process for Dispute Resolution: 143. All new litigation matters are reviewed within the call-over process. These call-overs are convened by the relevant Dispute Resolution manager, and attended by the Dispute Resolution officer and the relevant Assistant Commissioner, Dispute Resolution. These call-overs allow senior officers to regularly monitor and assess the progress of new and existing cases, and to identify and manage any emerging risks. | The management of strategic litigation matters: 144. If a matter has been identified as strategic, it will be subject to further evaluation and monitoring. Strategic litigation refers to litigation that promotes clarification of the law in key high risk areas. Strategic litigation also includes cases where law clarification opportunities may not be the primary objective, but the other risks to the Commissioner are sufficiently significant to warrant a strategic corporate response. 145. Generally, strategic litigation matters will include the following: (a) matters listed in the monthly significant litigation report (b) matters with significant revenue or compliance risk attached (c) matters which raise media interest (d) matters which raise a contentious question of law (e) matters which have the TCN involvement (f) matters under the Test Case Litigation Program (g) matters which involve a dispute with a state or territory government agency (h) appeals commenced by the Commissioner against adverse court or tribunal decisions, and (i) matters being conducted in the Full Federal Court, a state Court of Appeal or above. (a) matters listed in the monthly significant litigation report (b) matters with significant revenue or compliance risk attached (c) matters which raise media interest (d) matters which raise a contentious question of law (e) matters which have the TCN involvement (f) matters under the Test Case Litigation Program (g) matters which involve a dispute with a state or territory government agency (h) appeals commenced by the Commissioner against adverse court or tribunal decisions, and (i) matters being conducted in the Full Federal Court, a state Court of Appeal or above. | Strategic litigation stakeholders: 146. In respect of strategic litigation, the following stakeholders may also be involved: (a) the Senior Assistant Commissioner, Strategic Litigation (SAC, Strategic Litigation) who provides technical leadership and is responsible for ensuring that strategic litigation is managed effectively. This includes ensuring that arguments on behalf of the ATO are consistent with precedential ATO views (b) a Senior Tax Counsel, Strategic Litigation (STC, Strategic Litigation) who will provide technical leadership. There are three STC, Strategic Litigation, and any one of them may take direct responsibility for, or closely monitor, a strategic litigation case regardless of other TCN involvement, and (c) the Strategic Litigation Unit who provides support to the SAC, Strategic Litigation to ensure that the highest priority litigation is identified, reported and managed corporately. (a) the Senior Assistant Commissioner, Strategic Litigation (SAC, Strategic Litigation) who provides technical leadership and is responsible for ensuring that strategic litigation is managed effectively. This includes ensuring that arguments on behalf of the ATO are consistent with precedential ATO views (b) a Senior Tax Counsel, Strategic Litigation (STC, Strategic Litigation) who will provide technical leadership. There are three STC, Strategic Litigation, and any one of them may take direct responsibility for, or closely monitor, a strategic litigation case regardless of other TCN involvement, and (c) the Strategic Litigation Unit who provides support to the SAC, Strategic Litigation to ensure that the highest priority litigation is identified, reported and managed corporately. Engagement of the Tax Counsel Network 147. Once a matter has been identified as strategic, it must be escalated to ensure that appropriate technical expertise from the TCN is engaged. The Dispute Resolution team must refer to PS LA 2012/1 - Management of high risk technical issues and engagement of tax technical officers in the Tax Counsel Network and related references for guidance on how to engage the technical expertise within the TCN. 148. In line with the guiding principles of PS LA 2012/1, the level of involvement by the TCN will be determined having regard to the specific issues and risks involved. Strategic litigation call-overs 149. Strategic litigation matters are further reviewed at call-overs convened by the SAC, Strategic Litigation every 3 months. These are normally attended by the Dispute Resolution officer, the TCN member, the relevant BSL representative and the external solicitor if engaged. Where appropriate, external counsel may also be invited to attend. 150. The technical issues and strategic management of these matters are often discussed in detail. The call-over panel will generally include the SAC, Strategic Litigation, the relevant STC, Strategic Litigation, both Assistant Commissioners in Dispute Resolution, and the relevant Dispute Resolution manager. Strategic litigation considerations 151. As mentioned earlier, strategic litigation will often involve matters with significant revenue or compliance risk, attract media attention, provide law clarification opportunities under the Test Case Litigation Program or involve issues which should be referred to external bodies, such as Treasury or the Attorney-General's Department. These considerations are briefly discussed below. Strategic litigation risk mitigation strategies 152. Due to the potential risk to revenue and compliance, it is prudent for the Dispute Resolution team to develop risk mitigation strategies for all strategic litigation matters. Whilst this should be developed collaboratively, the BSL has ultimate responsibility for ensuring that risk mitigation strategies and contingency plans are in place in respect of a potential decision or judgment. 153. In broad terms, the risk mitigation strategy involves consideration of: (a) the consequences of the litigation on the intended operation of the law and its application (b) any related issues, such as any media strategy that may need to be put in place or any potential changes to ATO systems, and (c) whether, in respect of potential policy implications, notification or advice should be given to Treasury. It may be prudent to notify Treasury at an early stage of the litigation, so that Treasury can monitor the case and prepare for any potential consequences of a decision. (a) the consequences of the litigation on the intended operation of the law and its application (b) any related issues, such as any media strategy that may need to be put in place or any potential changes to ATO systems, and (c) whether, in respect of potential policy implications, notification or advice should be given to Treasury. It may be prudent to notify Treasury at an early stage of the litigation, so that Treasury can monitor the case and prepare for any potential consequences of a decision. 154. Although the risk mitigation strategy will vary from case to case, it should generally include a communication strategy which sets out who will be responsible for advising key stakeholders about the consequences of the decision once it is handed down. 155. The risk mitigation strategy should include developing a contingency plan that will set out the immediate action that is to be implemented should the Commissioner receive an adverse court or tribunal decision which is not appealed. [43] Immediate guidance should be provided to ATO officers and the community on how like cases should be managed pending the publication of a Decision Impact Statement. 156. To the extent possible, precedential ATO views that may be impacted by an adverse decision should be identified prior to the decision being handed down so that they can be appropriately annotated if necessary. Media attention and strategic litigation 157. Where a court or tribunal matter is likely to attract media attention, the Dispute Resolution officer must advise the following: (a) the Assistant Commissioners, Dispute Resolution or the ATO General Counsel (b) the relevant STC, Strategic Litigation (c) the SAC, Strategic Litigation, and (d) the Dispute Resolution manager. (a) the Assistant Commissioners, Dispute Resolution or the ATO General Counsel (b) the relevant STC, Strategic Litigation (c) the SAC, Strategic Litigation, and (d) the Dispute Resolution manager. 158. The Media Unit must then be informed and briefed by the most appropriate senior officer involved. 159. With the exception of those provided by the Commissioner, a Second Commissioner, the Chief Tax Counsel or DCTC, all media comments must be cleared by a STC, Strategic Litigation. For matters managed by General Counsel, all media comments must be cleared by the ATO General Counsel. The Test Case Litigation Program 160. The Test Case Litigation Program is managed by the Strategic Litigation Unit. [44] The purpose of the program is to clarify the operation of the laws administered by the Commissioner where: (a) there is uncertainty about how the law operates (b) the issue is of significance to a substantial section of the public or has significant commercial implications for an industry, and (c) it is in the public interest for the issue to be litigated. (a) there is uncertainty about how the law operates (b) the issue is of significance to a substantial section of the public or has significant commercial implications for an industry, and (c) it is in the public interest for the issue to be litigated. 161. If a matter involves an issue which satisfies the above criteria, the matter should be referred to the Strategic Litigation Unit to determine whether it is appropriate for the matter to be funded under the Test Case Litigation Program. Notification or advice to Government Ministers, Treasury or other Commonwealth Departments 162. It may be necessary to notify or provide formal advice to a Minister, Treasury or other Commonwealth department or agency with administrative responsibility for legislation which may be affected by the litigation. The situations in which it may be necessary to notify any of them include matters where the issues: (a) are significant (b) are expected to affect the reputation of the ATO or the Government (c) have a significant impact on the revenue, or (d) require consideration of a change to the law. (a) are significant (b) are expected to affect the reputation of the ATO or the Government (c) have a significant impact on the revenue, or (d) require consideration of a change to the law. 163. The BSL, with assistance from the other internal stakeholders if appropriate, has responsibility for the preparation of any notification or advice, and should contact the Minister, Treasury, or relevant Commonwealth department at the earliest opportunity. The Attorney-General's Department notification 164. It may be appropriate or necessary to notify the Attorney-General's Department of litigation matters or issues. Officers should be aware of these notification requirements set out in the Legal Services Directions, including where the litigation: (a) gives rise to a constitutional issue (b) may have a 'whole of government' impact (c) is covered under the OLSC Guidance Note 11, or (d) is covered by the 'Reporting on significant issues' requirements in the Legal Services Directions. (a) gives rise to a constitutional issue (b) may have a 'whole of government' impact (c) is covered under the OLSC Guidance Note 11, or (d) is covered by the 'Reporting on significant issues' requirements in the Legal Services Directions. 165. Consideration must be given to whether notification should be provided to the Attorney-General's Department. Where such potential issues arise, they should be escalated to the relevant Assistant Commissioner, Dispute Resolution or for General Counsel matters, to the ATO General Counsel. 166. The management of court and tribunal decisions for tax technical or debt litigation matters [45] is an important aspect of the ATO's litigation function. This section addresses the following: (a) the notification, receipt and circulation of decisions (b) the post-decision SILC conference (c) Decision Reports and the decision making process for appeals (d) Decision Impact Statements (DIS), and (e) the ATO's approach when challenging final court decisions in other proceedings. (a) the notification, receipt and circulation of decisions (b) the post-decision SILC conference (c) Decision Reports and the decision making process for appeals (d) Decision Impact Statements (DIS), and (e) the ATO's approach when challenging final court decisions in other proceedings. | Notification, receipt and circulation of decisions: 167. Upon notification that a decision is to be published, the Dispute Resolution officer must, on the same day, notify all stakeholders. For all strategic litigation decisions or any decisions favourable to the taxpayer, the following officers must also be notified: (a) the SAC, Strategic Litigation (b) the relevant STC, Strategic Litigation (c) the Assistant Commissioners, Dispute Resolution (d) the BSL litigation co-ordinator, and (e) strategiclitigationunit@ato.gov.au. (a) the SAC, Strategic Litigation (b) the relevant STC, Strategic Litigation (c) the Assistant Commissioners, Dispute Resolution (d) the BSL litigation co-ordinator, and (e) strategiclitigationunit@ato.gov.au. 168. As soon as practicable following receipt of the decision, the Dispute Resolution officer must circulate it to the officers identified above. The decision should ordinarily be accompanied by: (a) a summary of the outcome (b) advice as to the timeframe for filing a notice of appeal, and (c) a brief summary of the reasoning of the court or tribunal, identifying any unexpected or significant consequences. However, circulation of a significant decision should not be unduly delayed to prepare this summary. (a) a summary of the outcome (b) advice as to the timeframe for filing a notice of appeal, and (c) a brief summary of the reasoning of the court or tribunal, identifying any unexpected or significant consequences. However, circulation of a significant decision should not be unduly delayed to prepare this summary. 169. If the Dispute Resolution officer is notified that a taxpayer has appealed or taken some other form of action in respect of a decision or judgment, they must notify the ATO officers set out at paragraph 167 of this practice statement as soon as practicable. 170. The post-decision SILC conference should assist in the preparation of a Decision Report. | Decision Reports: 171. The Decision Report performs two key functions in that: (a) they provide a summary of the decision, including the facts, issues and outcomes, and (b) for decisions favourable to the taxpayer, they provide an analysis of the decision, indicating stakeholders' views regarding whether an appeal should be instituted, and record the decision maker's decision regarding an appeal. (a) they provide a summary of the decision, including the facts, issues and outcomes, and (b) for decisions favourable to the taxpayer, they provide an analysis of the decision, indicating stakeholders' views regarding whether an appeal should be instituted, and record the decision maker's decision regarding an appeal. 172. The Decision Report, insofar as it addresses the first function, should be concise and convey the issues, outcomes and importance of the case. Policy implications should be clearly identified. 173. For decisions favourable, or partly favourable, to the taxpayer, the Decision Report is expected to provide a robust technical analysis and commentary of the perceived correctness of the decision, with the views of the various stakeholders identified. The document is ultimately intended to assist the decision maker in determining whether or not the decision should be appealed. 174. The Decision Report is the corporate record of that decision. 175. The Decision Report template has two distinct sections: 'Summary' and 'Appeal Considerations'. The 'Summary' section needs to be completed for all decisions, whilst the 'Appeal Considerations' section need only be completed for adverse or partly adverse decisions. | Decision reports for decisions favourable to the Commissioner: 176. For decisions which are favourable to the Commissioner, a Decision Report: (a) must be prepared by the Dispute Resolution officer in consultation with other internal stakeholders (b) must be prepared, finalised and circulated within one week of receipt of the decision (c) is to be circulated to the stakeholders set out at paragraph 167 of this practice statement, and (d) the relevant Dispute Resolution manager must refer the Decision Report to ATOlaw [46] for internal publication on the ATOlaw database. (a) must be prepared by the Dispute Resolution officer in consultation with other internal stakeholders (b) must be prepared, finalised and circulated within one week of receipt of the decision (c) is to be circulated to the stakeholders set out at paragraph 167 of this practice statement, and (d) the relevant Dispute Resolution manager must refer the Decision Report to ATOlaw [46] for internal publication on the ATOlaw database. | Decision reports for decisions favourable or partly favourable to the taxpayer: 177. For decisions which are favourable, or partly favourable, to the taxpayer: (a) the requirements in paragraph 176 of this practice statement apply to the preparation of the 'Summary' section. That is, the 'Summary' section of the Decision Report must be finalised and circulated within one week, and (b) the 'Appeal Considerations' section, including the recording of the decision on whether to appeal, must be finalised and circulated before the expiration of any relevant appeal period. (a) the requirements in paragraph 176 of this practice statement apply to the preparation of the 'Summary' section. That is, the 'Summary' section of the Decision Report must be finalised and circulated within one week, and (b) the 'Appeal Considerations' section, including the recording of the decision on whether to appeal, must be finalised and circulated before the expiration of any relevant appeal period. 178. The Dispute Resolution officer has primary responsibility for the preparation of the Decision Report. However, for decisions favourable to the taxpayer, the following should be noted: (a) the TCN member involved in the litigation matter should provide assistance in the preparation of the Decision Report (b) efforts should be made to obtain the views of all the internal stakeholders before finalisation of the Decision Report (c) advice from counsel (or other external providers) will often be sought in respect of the Commissioner's prospects for success. These views should be identified in the Decision Report (d) where the views of all the stakeholders cannot be obtained within a reasonable time, this should not prevent the Decision Report from being escalated to the decision maker within an appropriate timeframe to ensure a decision is made before the appeal period expires, and (e) notwithstanding the above, where a decision is significant, a Decision Report should not be finalised nor should a decision to appeal be made absent the views and recommendations of the TCN member involved and the relevant STC, Strategic Litigation or the SAC, Strategic Litigation. (a) the TCN member involved in the litigation matter should provide assistance in the preparation of the Decision Report (b) efforts should be made to obtain the views of all the internal stakeholders before finalisation of the Decision Report (c) advice from counsel (or other external providers) will often be sought in respect of the Commissioner's prospects for success. These views should be identified in the Decision Report (d) where the views of all the stakeholders cannot be obtained within a reasonable time, this should not prevent the Decision Report from being escalated to the decision maker within an appropriate timeframe to ensure a decision is made before the appeal period expires, and (e) notwithstanding the above, where a decision is significant, a Decision Report should not be finalised nor should a decision to appeal be made absent the views and recommendations of the TCN member involved and the relevant STC, Strategic Litigation or the SAC, Strategic Litigation. | The content of the Decision Report: 179. The Decision Report should address: (a) the identification of the question of law and/or grounds of appeal that should be relied on (b) an analysis and commentary on the correctness of the decision (c) an analysis of any basis on which an appeal is justified. For decisions partly or wholly favourable to the taxpayer: (i) by the AAT: whether a question of law is sufficiently significant to warrant an appeal to the Federal Court (ii) by a single judge of the Federal Court, Federal Circuit Court or a State Supreme Court: the errors that would warrant an appeal, or (iii) by the appellate court of a State Court or the Federal Court: [47] whether there is a question of sufficient public importance that would result in a grant of special leave. (d) whether Treasury needs to be informed of the decision, possibly to remedy any perceived deficiencies in the legislation (e) whether the decision is inconsistent with a published precedential ATO view of the law, and (f) where appropriate, commentary on the conduct of the litigation that led to the decision, such as any difficulties with evidence, witnesses, or any interlocutory decisions of the Court that may have adversely influenced the outcome. (a) the identification of the question of law and/or grounds of appeal that should be relied on (b) an analysis and commentary on the correctness of the decision (c) an analysis of any basis on which an appeal is justified. For decisions partly or wholly favourable to the taxpayer: (i) by the AAT: whether a question of law is sufficiently significant to warrant an appeal to the Federal Court (ii) by a single judge of the Federal Court, Federal Circuit Court or a State Supreme Court: the errors that would warrant an appeal, or (iii) by the appellate court of a State Court or the Federal Court: [47] whether there is a question of sufficient public importance that would result in a grant of special leave. (d) whether Treasury needs to be informed of the decision, possibly to remedy any perceived deficiencies in the legislation (e) whether the decision is inconsistent with a published precedential ATO view of the law, and (f) where appropriate, commentary on the conduct of the litigation that led to the decision, such as any difficulties with evidence, witnesses, or any interlocutory decisions of the Court that may have adversely influenced the outcome. (i) by the AAT: whether a question of law is sufficiently significant to warrant an appeal to the Federal Court (ii) by a single judge of the Federal Court, Federal Circuit Court or a State Supreme Court: the errors that would warrant an appeal, or (iii) by the appellate court of a State Court or the Federal Court: [47] whether there is a question of sufficient public importance that would result in a grant of special leave. | Decision making - whether or not to appeal: 180. All decisions seeking special leave to appeal to the High Court must be made by the Chief Tax Counsel. 181. In tax technical litigation: (a) for decisions which turn on their facts and have no precedential value, the decision maker as to whether or not the Commissioner should appeal is the relevant STC, Strategic Litigation, and (b) for all other matters, the decision maker as to whether or not the Commissioner should appeal is the relevant DCTC. (a) for decisions which turn on their facts and have no precedential value, the decision maker as to whether or not the Commissioner should appeal is the relevant STC, Strategic Litigation, and (b) for all other matters, the decision maker as to whether or not the Commissioner should appeal is the relevant DCTC. 182. In debt litigation, the decision maker as to whether or not the Commissioner should appeal is made jointly by the relevant Assistant Commissioner, Dispute Resolution and the relevant STC, Strategic Litigation. 183. Where there is disagreement between the relevant STC, Strategic Litigation and the relevant Assistant Commissioner, Dispute Resolution, the debt litigation matter should be escalated to the relevant DCTC. | Where a decision is not appealed: 184. Where the ATO decides not to appeal an unfavourable decision, or there is no further right of appeal in respect of an unfavourable decision, immediate direction must be provided by the BSL risk owner to ATO officers as to what action should be taken in respect of like cases (regardless of which stage the dispute is in) prior to the Decision Impact Statement (DIS) being published. 185. Where the implications of the decision are clearly relevant and favourable to other taxpayers, it may be appropriate to authorise case officers to immediately make favourable decisions in respect of like cases. Where the implications of the decision are less clear, and the implications have not yet been sufficiently determined to permit this, the direction should require case officers to defer making any decisions in respect of like cases until the DIS is published. 186. To the extent that the Decision Report has been able to identify precedential ATO views that may need to be amended as a result of the unfavourable decision, BSL case officers should be advised by the BSL risk owner. The Law Practice Management Unit should also be advised so that these precedential ATO views can be appropriately annotated. | Purpose: 187. A Decision Impact Statement is published to advise the community of the ATO's view on the implications of a particular court or tribunal decision. | When a Decision Impact Statement is required: 188. A Decision Impact Statement is published for all significant and strategic decisions which includes all matters listed on the Significant Litigation Report [48] and all decisions partly or wholly adverse to the Commissioner except for partly or wholly adverse Tribunal decisions where: [49] • the Commissioner has made a concession and that is the only unfavourable part of the decision • the adverse aspect of the decision only concerns the remission of administrative penalty and has not wider ramifications; or • the adverse aspect of the decision has no wider ramifications beyond the taxpayer's circumstances. [50] • the Commissioner has made a concession and that is the only unfavourable part of the decision • the adverse aspect of the decision only concerns the remission of administrative penalty and has not wider ramifications; or • the adverse aspect of the decision has no wider ramifications beyond the taxpayer's circumstances. [50] 189. Ordinarily, a Decision Impact Statement will not be published until all appeals have been concluded and there is a final decision. However an interim Decision Impact Statement may be published where a matter is on appeal and the ATO seeks to communicate to the community how it will deal with similar cases while the appeal is being resolved. For further information see below; When is an Interim Decision Impact Statement required. | Preparation, responsibilities, and approval: 190. Strategic Litigation Unit manages the Decision Impact Statement process for the ATO, including the monitoring, tracking and publication of DIS. 191. The Dispute Resolution officer is responsible for the preparation and coordination of the first draft of a Decision Impact Statement between the BSL, TCN officer and any other stakeholders. 192. The Dispute Resolution officer must prepare and escalate the draft Decision Impact Statement to either the TCN officer involved in the case and relevant DCTC (where the matter is strategic), or the relevant Senior Tax Counsel (STC) Strategic Litigation [see below 'approval of DIS for publication']. 193. The TCN officer or STC, Strategic Litigation have the leadership role in the Decision Impact Statement process and as the 'contact officer' they are responsible for settling the final version of the Decision Impact Statement and appropriate escalation. 194. A Decision Impact Statement must be published within eight weeks of a decision. 195. To meet the 8 week timeframe, officers should follow the process set out below: Timeframe (From decision) Task Responsibility Comments 5 weeks Circulate first draft of Decision Impact Statement. Dispute Resolution Preparation of the statement should commence prior to expiry of the appeal period. 6 weeks Collate stakeholder comments re the draft Decision Impact Statement and settle. Dispute Resolution Any outstanding issues should have been discussed and resolved by this point. 7 weeks Forward the settled Decision Impact Statement for approval. Tax Counsel Network If a TCN officer is not involved, then STC, Strategic Litigation. Approving officer for significant matters: Deputy Chief Tax Counsel. Approving officer for all other matters: STC, Strategic Litigation. [51] 7 weeks [52] Forward the approved document to Strategic Litigation Unit TCN officer, STC, Strategic Litigation Strategic Litigation Unit completes the final review of the document. 8 weeks Approved Decision Impact Statement sent for publication, and published. Strategic Litigation Unit. Strategic Litigation Unit will arrange publishing with ATOLaw. Instructions to publish will only be accepted from Strategic Litigation Unit. [53] | Approvals of Decision Impact Statement for publication: 196. Non-significant decisions: All Decision Impact Statement prepared for non-significant decisions must be approved by the relevant STC, Strategic Litigation. Once the STC, Strategic Litigation has approved the final Decision Impact Statement, it must be sent to the SLU mailbox (strategiclitigationunit@ato.gov.au) where the document is checked for consistency in style and content. 197. Significant decisions: All Decision Impact Statement prepared for a significant decision (including all cases listed on the Significant Litigation Report or other decisions considered significant), must be approved by the TCN officer and the relevant DCTC. The DCTC approved Decision Impact Statement should then be sent to the SLU mailbox for publication (strategiclitigationunit@ato.gov.au). [54] | Content of Decision Impact Statements: 198. The Decision Impact Statement will: (a) provide the case details; (b) classify the DIS as: (i) ' ATO is reviewing the impact of the decision' - where an advice, guidance product or ATO view is to be updated or reviewed as a result of the decision, or there is some other form of administrative action that needs to be taken or; (ii) ' The decision has no impact for the ATO' - where no further action is needed to be taken by the ATO as a consequence of the decision other than giving effect to it for that particular taxpayer. (c) provide a list of ATO view documents which are 'relevant' to the decision and a list of ATO view documents which may be affected and are being reviewed as a result of the decision (d) if there is uncertainty surrounding a court or tribunal decision, explain how the Commissioner will administer the law pending any review of a published ruling or otherwise and whether or not the ATO view is likely to change as a result of the decision; and, (e) provide details of a contact officer - this will usually be the TCN officer involved in the case; where a TCN officer is not involved, the relevant STC, Strategic Litigation will be listed as the contact officer. (a) provide the case details; (b) classify the DIS as: (i) ' ATO is reviewing the impact of the decision' - where an advice, guidance product or ATO view is to be updated or reviewed as a result of the decision, or there is some other form of administrative action that needs to be taken or; (ii) ' The decision has no impact for the ATO' - where no further action is needed to be taken by the ATO as a consequence of the decision other than giving effect to it for that particular taxpayer. (c) provide a list of ATO view documents which are 'relevant' to the decision and a list of ATO view documents which may be affected and are being reviewed as a result of the decision (d) if there is uncertainty surrounding a court or tribunal decision, explain how the Commissioner will administer the law pending any review of a published ruling or otherwise and whether or not the ATO view is likely to change as a result of the decision; and, (e) provide details of a contact officer - this will usually be the TCN officer involved in the case; where a TCN officer is not involved, the relevant STC, Strategic Litigation will be listed as the contact officer. (i) ' ATO is reviewing the impact of the decision' - where an advice, guidance product or ATO view is to be updated or reviewed as a result of the decision, or there is some other form of administrative action that needs to be taken or; (ii) ' The decision has no impact for the ATO' - where no further action is needed to be taken by the ATO as a consequence of the decision other than giving effect to it for that particular taxpayer. 199. A Decision Impact Statement must not disclose information that is 'protected', as defined by Division 355 of Schedule 1 of the Taxation Administration Act 1953, and information must not be disclosed unless the disclosure falls within one of the exceptions in that Division, for example, the information is publicly available. 200. In preparing a Decision Impact Statement, officers should be guided by the following: (a) brevity is a key concept; it is not necessary to restate all of the facts or to repeat ATO arguments in full; [55] (b) an ATO view may be set out, explaining the implications on current public rulings. For complex decisions, the statement may be unable to set out a final ATO view and will require consideration to be undertaken through the review or development of a public ruling; [56] (c) a Decision Impact Statement must not be used as a proxy for altering existing ATO view documents; (d) generally a Decision Impact Statement should not contain advice, unless there are exceptional circumstances; [57] (e) a Decision Impact Statement is not a public ruling for the purposes of Part 5-5 of the Taxation Administration Act 1953. (a) brevity is a key concept; it is not necessary to restate all of the facts or to repeat ATO arguments in full; [55] (b) an ATO view may be set out, explaining the implications on current public rulings. For complex decisions, the statement may be unable to set out a final ATO view and will require consideration to be undertaken through the review or development of a public ruling; [56] (c) a Decision Impact Statement must not be used as a proxy for altering existing ATO view documents; (d) generally a Decision Impact Statement should not contain advice, unless there are exceptional circumstances; [57] (e) a Decision Impact Statement is not a public ruling for the purposes of Part 5-5 of the Taxation Administration Act 1953. | When is an Interim Decision Impact Statement required?: 201. An Interim Decision Impact Statement may need to be published in two circumstances: (a) where there are exceptional circumstances and it is not possible or practicable to meet the 8 week timeframe. Significant and strategic Decision Impact Statements are often complex and require external consultation; or (b) where a matter is on appeal and the ATO seeks to communicate to the community how it will deal with similar cases while the appeal is being resolved. (a) where there are exceptional circumstances and it is not possible or practicable to meet the 8 week timeframe. Significant and strategic Decision Impact Statements are often complex and require external consultation; or (b) where a matter is on appeal and the ATO seeks to communicate to the community how it will deal with similar cases while the appeal is being resolved. 202. Strategic Litigation Unit will be responsible for drafting and publication of all category (i) Interim Decision Impact Statements within 8 weeks of the final decision. 203. For category (ii) Interim Decision Impact Statements, the preparation, responsibilities and approvals are the same as indicated in paragraphs 190 to 197. | Minute to Ministers: 204. In exceptional circumstances, a Decision Impact Statement may need to be sent to the Minister under a covering Minute for information prior to it being published. 205. When this is necessary, the Dispute Resolution team should consider whether a Minute is necessary and consult with Strategic Litigation Unit. Factors that may indicate a Minute is necessary include matters that have broader implications such as ongoing revenue impact, are subject to legislative change or review or have had significant media attention The Minute will be prepared by the officer responsible for settling the Decision Impact statement. The Minute and Statement must then be approved by the Chief Tax Counsel or the Second Commissioner, Law. Enquiries relating to practices regarding the Minute should be referred to Strategic Litigation Unit. | Following publication: 206. Ordinarily, a Decision Impact Statement will have a specific contact officer, usually the TCN officer or STC, Strategic Litigation listed on the Decision Impact Statement. The contact officer: (a) must either respond to any external representations directly or ensure that the representations are referred to the relevant Business Line; (b) will be expected to manage responses to any external representations and to ensure that if there are any consequences that were not previously identified that they are actioned or referred to an appropriate area for action. It is expected that in a majority of cases, it will be appropriate for these representations to be referred to the relevant Business Line; (c) will be responsible for providing any updates to the Decision Impact Statement, such as the status of the review of any rulings; (d) will be responsible for ensuring that impacted precedential documents are actioned and referred to an appropriate area for further action. [58] (a) must either respond to any external representations directly or ensure that the representations are referred to the relevant Business Line; (b) will be expected to manage responses to any external representations and to ensure that if there are any consequences that were not previously identified that they are actioned or referred to an appropriate area for action. It is expected that in a majority of cases, it will be appropriate for these representations to be referred to the relevant Business Line; (c) will be responsible for providing any updates to the Decision Impact Statement, such as the status of the review of any rulings; (d) will be responsible for ensuring that impacted precedential documents are actioned and referred to an appropriate area for further action. [58] | Payment of accounts: 207. Payment of all appropriate accounts, including those of external legal services providers, must be made within 30 days of receipt. 208. In circumstances where the ATO has a specific contract, payment should be made in accordance with the terms and conditions of that contract. 209. Where counsel and other legal services providers have been directly briefed by the ATO, the Dispute Resolution officer must record the engagement on ATOLegals and arrange for payment of the account. 210. Where Dispute Resolution has obtained the goods or engaged the services, responsibility for the management and payment of the account rests with the Dispute Resolution team. 211. In all other circumstances, the responsibility rests with the BSL that obtained that service. | Costs orders by the courts: 212. The Dispute Resolution officer has responsibility for the management of cost orders made by the courts. 213. In all cases, issues relating to costs awarded by the court must be resolved with reference to the court rules, jurisdiction and the taxpayer's entitlement to input tax credits. 214. Officers managing these cases must obtain a schedule of costs, whether they relate to settled or taxed costs, setting out the following: (a) taxpayer's legal fees (b) disbursements (c) the GST payable on these amounts, and (d) whether, and to what degree, the taxpayer is entitled to input tax credits. (a) taxpayer's legal fees (b) disbursements (c) the GST payable on these amounts, and (d) whether, and to what degree, the taxpayer is entitled to input tax credits. 215. It may be appropriate in certain circumstances to engage a cost consultant for advice. In cases involving significant costs or contentious issues relating to costs, a cost consultant may provide assistance in determining the level and type of appropriate legal costs to be claimed in the particular case. The engagement of a cost consultant must be approved by an Assistant Commissioner, Dispute Resolution. 216. All enquiries relating to costs awarded by the court in matters under the Test Case Litigation Program must be referred to the Strategic Litigation Unit. | Appealing costs orders: 217. Decisions seeking to appeal costs orders must be made by the relevant Assistant Commissioner, Dispute Resolution.",GSTR 2000/37 | GSTR 2001/4 | IT 2250 | PS LA 1998/1 | PS LA 2003/3 | PS LA 2003/10 | PS LA 2005/8 | PS LA 2007/5 | PS LA 2007/23 | PS LA 2008/3 | PS LA 2008/12 | PS LA 2012/1 | Withdrawn practice statements | PS LA 2002/3 | PS LA 2005/22 | PS LA 2007/1 | PS LA 2007/2 | PS LA 2007/12 | PS LA 2007/15 | PS LA 2007/16 | PS LA 2007/17 | PS LA 2007/18 | PS LA 2007/19 | PS LA 2008/16 | PS LA 2008/17 | Administrative Appeals Tribunal Act 1975 | Administrative Decisions (Judicial Review) Act 1977 | Taxation Administration Act 1953,PS LA 1998/1 PS LA 2003/3 PS LA 2003/10 PS LA 2005/8 PS LA 2007/5 PS LA 2007/23 PS LA 2008/3 PS LA 2008/12 PS LA 2012/1 PS CM 2003/2 (internal link only) PS CM 2005/9 (internal link only) PS CM 2005/27 (internal link only) Withdrawn practice statements PS LA 2002/3 PS LA 2005/22 PS LA 2007/1 PS LA 2007/2 PS LA 2007/12 PS LA 2007/15 PS LA 2007/16 PS LA 2007/17 PS LA 2007/18 PS LA 2007/19 PS LA 2008/16 PS LA 2008/17,Administrative Appeals Tribunal Act 1975 | Administrative Decisions (Judicial Review) Act 1977 | Judiciary Act 1903 | Taxation Administration Act 1953,ATO Litigation Engagement of Dispute Resolution Engagement of External Legal Service Providers Legal Services Directions Model Litigant Guidelines,Administrative Appeals Tribunal Practice Directions APS Values and Code of Conduct in practice Code of settlement Family Court Practice Directions Federal Court Practice Directions Federal Circuit Court Practice Directions Finance Circular 2008/07 High Court Practice Directions http://www.fedcourt.gov.au Legal Services Directions 2005 Litigation risk matrix Online Resource Centre for Law Administration (internal link only) Public Service Commissioner's Directions 1999 Taxpayers' charter,False,True,https://www.ato.gov.au/law/view/document?docid=PSR/PS20099/NAT/ATO/00001,"In this Practice Statement, a reference to a right to seek review of a reviewable objection decision or an extension of time refusal decision in the AAT should instead be read as a reference to a review in the ART. | This Practice Statement is being reviewed to reflect the above change and current ATO internal procedures. Where relevant, ATO staff should refer to current procedures in the Enterprise Knowledge Management system in myATO. | SECTION 1 - THE ATO'S APPROACH TO LITIGATION | SECTION 2 - ENGAGEMENT OF DISPUTE RESOLUTION TEAMS | SECTION 3 - LITIGATION STAKEHOLDERS | SECTION 4 - ENGAGEMENT OF EXTERNAL LEGAL SERVICE PROVIDERS AND EXTERNAL ALTERNATIVE DISPUTE RESOLUTION PRACTITIONERS | SECTION 5 - OBLIGATIONS UNDER THE VARIOUS JURISDICTIONS | SECTION 6 - CASE MANAGEMENT | SECTION 7 - MANAGEMENT OF COURT AND TRIBUNAL DECISIONS | Preparations, responsibilities, and approval | SECTION 8 - ADMINISTRATION AND RELATED MATTERS | Taxpayers can rely on this law administration practice statement to provide them with protection from interest and penalties in the way explained below. If a statement turns out to be incorrect and taxpayers underpay their tax as a result, they will not have to pay a penalty. Nor will they have to pay interest on the underpayment provided they reasonably relied on this law administration practice statement in good faith. However, even if they don't have to pay a penalty or interest, taxpayers will have to pay the correct amount of tax provided the time limits under the law allow it. | Updated to reflect various internal and external structural and name changes | Updated to reflect various changes that have come into effect since 2010 for example, the Federal Court's Practice Note 1 relating to the case management of tax litigation. Also various changes to structure. | Paragraphs 73 and 74 of Annexure F | Updated to take into account the legislative changes that came into effect from 1 July 2010 to align the indirect tax rulings regime with the income tax rulings system. | [1] There are exceptional circumstances where the ATO will challenge such a decision to obtain law clarification. | [2] Guidance Note No 3 - Breach of the Legal Services Directions. | [3] Set out in Appendix B of the Legal Services Directions. | [4] The exception to this is legal expenditure relating to prosecution work. | [5] See PS LA 2008/7 and PS LA 2008/8. | [6] See the Online Resource Centre for Law Administration (ORCLA) and related procedures. | [7] See the Dispute Resolution pathway page for current contact details. | [8] See Practice Statement PSLA 2013/3 - Alternative Dispute Resolution (ADR) in ATO disputes for details. | [9] The TCN is not generally involved in any litigation which falls under the responsibility of the General Counsel Practice. | [10] Under section 42C of the AAT Act, the AAT may make a decision in terms agreed by the parties in writing if it is satisfied that the decision is within the powers of the AAT. Under paragraph 42C(1)(b) of the AAT Act, the agreement must be signed by or on behalf of each party. The AAT can then make a formal decision in the agreed terms without holding a hearing (or without completing the hearing if one has commenced). | [11] For factors to be considered when engaging an external alternative dispute resolution practitioner, see PS LA 2013/3 - Alternative Dispute Resolution (ADR) in ATO disputes. . | [12] Invoices from panel firms are automatically received onto the system. | [13] See Appendix A to the Legal Services Directions. | [14] See paragraph 3B of Appendix A to the Legal Services Directions. | [15] See PS LA 2013/3 - Alternative Dispute Resolution (ADR) in ATO disputes. | [16] Officers are reminded of the Tribunal's policy and procedures relating to fixing matters for hearing and to applications for adjournments of hearings - see the Practice Direction on Listing and Adjournments. | [17] The case management plan is not necessary in matters in the General Counsel Practice. | [18] These documents and index will form the basis of the documents which must be filed under section 37 of the AAT Act. They must be filed within 14 days of the application for Small Taxation Claims Tribunal matter and within 28 days for all other matters. | [19] Where a member of the TCN or an external legal service provider is involved, they should provide assistance and settle the document. It may be appropriate in significant and complex matters for the statement of facts, issues and contentions to be prepared by the panel firm and/or counsel. | [20] This includes cases on the Personal Incident Escalation System. | [21] Where an external legal service provider has been engaged, the preparation of the ATO's response can be prepared by either the external legal service provider or the Dispute Resolution officer. | [22] Assuming that approval to act as solicitor on the record has been provided by the Attorney-General in accordance with Clause 5 of the Legal Services Directions | (a) status of the debt, (b) any objections with the same issues which are likely to be litigated, (c) any objections containing related matters, either by common issue or common taxpayer, (d) whether the matter is a test case, or if an application has been forwarded for test case funding, or (e) whether the case needs to be fast-tracked. | [24] This material is not limited to that which must be filed for the purposes of Rule 33.03 of the Federal Court Rules 2011. | [25] Practice Note PN Tax 1, paragraph 1.1. | [26] This implied undertaking is known as the Harman Principle (Harman v. Secretary of State for the Home Department [1983] 1 AC 280). | [27] Further details regarding the implied undertaking and how it impacts the ATO are set out on the intranet, ORCLA. | [28] Section 5 of the ADJR Act provides the grounds for judicial review. | [29] See also section 39 of the Judiciary Act relating to State Courts. | [30] These are commonly referred to as 'declaratory proceedings'. | [31] PM Developments Pty Ltd [2008] FCA 1886 | [32] Platypus Leasing Inc v Federal Commissioner of Taxation [2005] NSWSC 388 | [33] Section 29-10(4) of GST Act | [34] See Logan J's comments in PM Developments Pty Ltd [2008] FCA 1886 at paragraphs 19 -24. | [35] See Gzell J at paragraph 81 in Platypus Leasing Inc v Federal Commissioner of Taxation [2005] NSWSC 388 - ""Granting declarations as staging posts is frowned upon. Courts should proceed to the ultimate relief. "" | [36] See Platypus Leasing Inc & Ors v Commissioner of Taxation [2005] NSWCA 399, McClelland CJ at paragraph 63. | [37] For example, in South Steyne Hotel Pty Ltd & Ors v Commissioner of Taxation [2009] FCA 13, where the Full Federal Court declined to make one of the declarations sought by the taxpayer for reasons that were not consistent with the Commissioner's submissions. | [38] These include the Age Discrimination Act 2004, the Disability Discrimination Act 1992, the Racial Discrimination Act 1975 and the Sex Discrimination Act 1984. | [39] OLSC's Guidance Note 11. The guidance note requires that the Solicitor-General receive a request to be briefed to advise in every case in which an agency is contemplating seeking special leave to appeal to the High Court. However OLSC has advised that, in practice, the ATO may consider these matters on a case-by-case basis and determine whether the proposed application needs to be brought to the Solicitor-General's attention. This may be done in consultation with OLSC. | [40] For ATO purposes, considered to be tax in dispute in excess of $100 million. | [41] An example is Commissioner of Taxation v. Anstis [2010] HCA 40 where the amount in dispute was relatively minor but the outcome affected thousands of taxpayers. | [42] General Counsel matters have separate case management processes and are not subject to the SILC and call-over process discussed in this section. | [43] A contingency plan may not be required where the circumstances of the taxpayer who is party to the litigation are so specific to them, that it is unlikely that there will be any unrelated taxpayers who have like cases that could be affected by an adverse decision. | [44] The Strategic Litigation Unit can be contacted at strategiclitigationunit@ato.gov.au. | [45] General Counsel Practice litigation matters are excluded from this section. | [46] nat.atobss@ato.gov.au. | [47] Or, where the Federal Court is exercising original jurisdiction as a Full Court. | [48] Matters listed on the Significant Litigation Report. | [49] These cases will be listed on the external website under 'No DIS'. If there is disagreement over whether a DIS is required, then the Strategic Litigation Unit can be contacted to discuss and assess whether a DIS is required. | [50] If you are unsure whether a DIS is required, contact the Strategic Litigation Unit. | [51] These are also the approving officers for the publication of an updated Decision Impact Statement. | [52] Note that timeframes may differ if a Minute to the Minister is required. See paragraph 21. | [53] Note: ATOLaw requires at least three days notice to publish a Decision Impact Statement. | [54] Prior to obtaining DCTC approval, the final Decision Impact Statement should be sent to the SLU mailbox | [55] See also paragraphs 35-39 of Law Administration Practice Statement 2008/12 Public advice and guidance products: selection, development, publication and review processes. | [56] In accordance with Law Administration Practice Statement PS LA 2003/3 Precedential ATO view, staff must apply the ATO view as set out in the Decision Impact Statement. | [57] Law Administration Practice Statement PS LA 2008/3 Provision of advice and guidance by the ATO explains the level of protection available to taxpayers who rely on advice and guidance provided by the ATO. | [58] The contact officer should contact the Strategic Litigation Unit when all action is completed and update the Decision Impact Statement. | Other Business Lines consulted"
PS LA 2008/1,The Commissioner's discretion to disregard or allocate to another period superannuation contributions for excess contributions purposes,31 January 2008,1 July 2007,Law Administration Practice Statement,False,"1. What this practice statement is about: There are annual caps that limit how much a person can contribute to super without paying extra tax or charges. A person, who has or will exceed the cap, may apply for a written determination that all or part of their concessional or non-concessional contributions for a financial year are to be disregarded or allocated to another financial year. [1] The discretion can only be exercised where you consider that there are both special circumstances and making the determination is consistent with the object of Divisions 291 or 292. [2] This Practice statement sets out guidelines on when and how to apply the discretion. | 2. General principles to consider when making a determination: When considering relevant factors, you should not consider each factor in isolation when determining whether the discretion should be exercised. You must weigh up all of the relevant factors applicable to the individual's circumstances as a whole when considering whether it is appropriate to exercise the discretion. You should consider each case on its merits and consider all of the relevant facts that caused the individual to exceed the relevant contributions cap. | 3. What are 'special circumstances'?: The expression 'special circumstances' for the purposes of excess contributions has been considered in a number of decisions both in the Federal Court and the Administrative Appeals Tribunal. [3] It is not possible to lay down precise rules for what constitutes special circumstances. The core idea of special circumstances is that there is something unusual to take the case out of the ordinary course which results in an unfair, unintended or unjust outcome. [4] The issue to be considered is whether there are special circumstances in relation to all or part of the contributions that have resulted in, or will give rise to, the excess contributions determination or tax assessment. Accordingly, the focus of consideration is whether there are special circumstances that concern the contribution made in the relevant financial year that caused the individual to exceed their contributions cap. However, circumstances relating to contributions made in earlier financial years may be relevant where those contributions have some relevant relationship with the circumstances relating to the contributions made in the financial year that have resulted in, or will give rise to, the excess contributions determination or tax assessment. [5] | 4. Is the determination consistent with the object of the Division?: The object of Divisions 291 and 292 is to ensure that the amount of concessionally taxed super benefits that an individual receives results from contributions that have been made gradually over the course of the individual's life. That is, the contributions which are the subject of the determination represent contributions that have been made gradually over the course of that person's life. [6] | 5. Other factors that may be considered: You may have regard to whether a contribution made in one financial year should be more appropriately allocated towards a different financial year. You may also consider whether it was reasonably foreseeable, when the contribution was made, that there would be excess contributions. Where the contribution is made by another person (for example, an employer) you should consider the terms of any agreement or arrangement covering the amount and timing of the contribution. You should also consider the amount of control the person had over the making of the contribution and any other relevant factors. | 6. Factors that do not generally amount to special circumstances: The following factors, in isolation, would not generally amount to special circumstances: • Financial consequences - the financial (or fiscal) consequences that flow from an excess contribution are not, of themselves special circumstances. Special circumstances need to be found beyond the actual rate imposed and beyond the specific conditions which give rise to that rate being imposed. [7] This means that, for example, the financial consequences from an excess contribution that arose out of acting on a misunderstanding of the law or incorrect advice will not be special circumstances, where that misunderstanding or incorrect advice itself does not amount to special circumstances. [8] • Not knowing the law - the fact that a person is mistaken or unaware of the consequences does not, on its own, amount to special circumstances. [9] • Incorrect professional advice - the fact that a third party leads another person into error would not generally amount to special circumstances unless there were other factors leading to the mistake. [10] • Financial consequences - the financial (or fiscal) consequences that flow from an excess contribution are not, of themselves special circumstances. Special circumstances need to be found beyond the actual rate imposed and beyond the specific conditions which give rise to that rate being imposed. [7] This means that, for example, the financial consequences from an excess contribution that arose out of acting on a misunderstanding of the law or incorrect advice will not be special circumstances, where that misunderstanding or incorrect advice itself does not amount to special circumstances. [8] • Not knowing the law - the fact that a person is mistaken or unaware of the consequences does not, on its own, amount to special circumstances. [9] • Incorrect professional advice - the fact that a third party leads another person into error would not generally amount to special circumstances unless there were other factors leading to the mistake. [10] | 7. Examples: The following examples may help you decide when it may be appropriate to exercise the discretion. In particular, they show how imposing additional tax or charges may be unfair or unreasonable because the person had no control over the circumstances. Superannuation guarantee Special circumstances may occur where an employee has had no control or foreseeability over when any superannuation guarantee (SG) shortfall is paid to their superannuation fund by the ATO. For example, when the timing is directly related to an employer's failure to make contributions for an employee in order to avoid an SG charge and our action to assess, collect and pay the shortfall amount to the employee's superannuation fund. Applying the discretion to allocate the contributions to the financial year in which the SG shortfall occurred is consistent with the object of the relevant Division to ensure that super contributions are spread over the person's life. However, it is less likely to establish special circumstances where the individual is the sole director of the company or had any control over the timing and the amount of the payment. Salary sacrifice It may be appropriate to exercise the discretion in cases where the person has entered into a salary sacrifice agreement with their employer that specifies: • the date the amount is to be paid to the superannuation fund • the total number of payments in a financial year, and • the amount to be transferred with each payment, • the date the amount is to be paid to the superannuation fund • the total number of payments in a financial year, and • the amount to be transferred with each payment, and the employer breaches the written agreement. In these types of cases there is an absence of control and the amount or timing is directly related to the employer's failure to adhere to the agreement. [11] Allocating the contribution to the appropriate financial year is consistent with the object of the relevant Division. However if the salary sacrifice agreement is verbal or fails to set out the particular terms, consideration should be given to the employer's contribution pattern in prior years to determine the level of foreseeability. [12] Employees are expected to be aware of the payment patterns of their employers and factor this into decisions to alter or amend concessional contributions made on their behalf. Timing of contributions A contribution counts in the financial year a superfund actually receives the money, not when the contributor pays the amount or when employer contributions are due to be made. [13] The fact a contribution accrued or was paid in one financial year but was made in another financial year is not of itself a 'special circumstance'. A short delay in timing between the employer actually making the payment and the amount being received by the super fund is also to be expected. [14] What is relevant to consider is whether it was unusual or out of the ordinary for a third party to make the contribution when they did and what amount of control and foreseeability the relevant person had over the contribution. The discretion would generally not be exercised where an individual made an additional concessional contribution during a financial year, assuming that their employer would make contributions on their behalf during that financial year where there is an absence of a regular pattern of the employer making payments on a specific date and the super fund receiving the payment on a specific date. However, the discretion may be allowed where the individual can show that they relied on their employer making payments on a specific date and the super fund receiving the payment on a specific date. Re-contribution strategy The fact that a person has entered into a re contribution strategy (that is, where a member is paid superannuation benefits and subsequently makes contributions to a superannuation fund) would not, on its own, amount to special circumstances. Re contribution strategies are frequently carried out for a specific purpose. You will need to consider all of the circumstances around the making of the contribution giving rise to the excess to determine whether the person was able to, or could reasonably have been expected to, have control over the amount and timing of the payment, and whether it was reasonably foreseeable when the contribution was made that they would exceed the contributions cap. You must also consider whether the re-contributed amount consists solely of contributions made over the course of the person's life or if the re-contribution included any amounts from other sources to establish if exercising the discretion would be within the object of the relevant Division. [15] Personal super contributions deduction Special circumstances would not generally occur if the person exceeded their contributions cap solely because they did not meet any of the requirements to be eligible to claim an income tax deduction. [16] Foreign transfer If a person has exceeded their contributions cap due to a transfer from a foreign super fund to an Australian super fund, you should give consideration to the amount of control the person had over the amount and timing of the contribution. The fact that a person may not have been aware that the amount would count towards their contributions cap or did not know the exact day the amount was transferred may not be considered special circumstances. [17] However there may be additional factors that are sufficiently unusual or out of the ordinary which may result in special circumstances, such as excessive fluctuations in the exchange rates that may not have been foreseen. | 8. More information: For more information and further examples see: • Super contributions - too much can mean extra tax • Explanatory Memorandum to Tax Laws Amendment (Simplified Superannuation) Bill 2006 • Super contributions limits • Application - excess contributions determination • Excess contributions tax learner guide • Super contributions - too much can mean extra tax • Explanatory Memorandum to Tax Laws Amendment (Simplified Superannuation) Bill 2006 • Super contributions limits • Application - excess contributions determination • Excess contributions tax learner guide",Explanatory Memorandum to Tax Laws Amendment (Simplified Superannuation) Bill 2006 | TR 2010/1 | TD 2013/22 | Explanatory Memorandum | ITAA 1997 | ITAA 1997 Div 291 | ITAA 1997 291-1 | ITAA 1997 291-5 | ITAA 1997 291-465 | ITAA 1997 Div 292 | ITAA 1997 292-1 | ITAA 1997 292-5 | ITAA 1997 292-465 | 2016 ATC 10-429 | 2012 ATC 10-257 | 2014 ATC 20-447 | [2013] AATA 110 | [2013] AATA 111 | [2012] AATA 760 | [2012] AATA 762 | 2012 ATC 10-280 | [2014] AATA 877 | 2013 ATC 1-056 | [2012] AATA 282 | (2012) 88 ATR 603 | 2014 ATC 20-441 | 2012 ATC 10-270 | 2013 ATC 10-313 | 2010 ATC 10-145 | 2017 ATC 10-451 | 2012 ATC 10-238 | 2017 ATC 10-458 | 2012 ATC 10-250 | 2014 ATC 10-362 | [2013] AATA 12 | 2016 ATC 20-583 | 2018 ATC 10-476,,ITAA 1997 | ITAA 1997 Div 291 | ITAA 1997 291-1 | ITAA 1997 291-5 | ITAA 1997 291-465 | ITAA 1997 Div 292 | ITAA 1997 292-1 | ITAA 1997 292-5 | ITAA 1997 292-465,,Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006 Explanatory Memorandum to the Superannuation Legislation Amendment Bill 2010,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20081/NAT/ATO/00001,"Updated to the new LAPS format and style and concurrently. | Amended to reflect the decision of Ward v. Commissioner of Taxation [2018] AATA 1519. | Updated references to financial years. | Link to ATO Receivables Policy removed due to release of PS LA 2011/27 Debt Relief. | Changes made to improve technical content and readability. | Added new paragraph to include changes that received Royal assent on 16 November 2010 allowing the Commissioner to exercise discretion to disregard or allocate to another financial year all or part of a person's contributions for the purposes of excess contributions tax before an assessment is issued. Also that all of the contributions sought to be disregarded or reallocated must already have been made, and table to outline when contributions have been 'made'. | Updated NAT number for Application - excess contributions tax determination | Added paragraph to reflect new subsections 292-465(8) and (9). | Minor revisions to refer readers to information available on ato.gov.au and to clarify the paragraph. | Concessional contributions cap for 2010-11 financial year added. | Non-concessional contributions cap for 2010-11 financial year added. | Clarification of when the discretion applies. | Clarification re the object of Division 292. | Clarification of what constitutes 'special circumstances'. | Added to include that each individual case requires consideration. | Minor revision to refer readers to information available on ato.gov.au. | Changes to reflect changes in concessional and non-concessional contributions cap limits. | References to PS LA 2006/11 removed. | PS LA 2006/11 removed and link to the ATO Receivables Policy added. | [1] Section 291-465 of the Income Tax Assessment Act 1997 (ITAA 1997) applies to concessional contributions and section 292-465 applies to non concessional contributions. All legislative references are to the ITAA 1997 unless otherwise indicated. | [2] Federal Commissioner of Taxation v. Dowling [2014] FCA 252 at [94]; 2014 ATC 20-447. | [3] Cases are cited in the References section of this practice statement. | [4] Ward v. Commissioner of Taxation [2016] FCAFC 132 at [39] to [41]; 2016 ATC 20-583; (2016) 103 ATR 823; (2016) 247 FCR 372. | [5] Commissioner of Taxation v. Dowling [2014] FCA 252 at [36] to [37]. | [6] Federal Commissioner of Taxation v. Dowling [2014] FCA 252 at [114] to [116]; 2014 ATC 20-447 and Ward v. Commissioner of Taxation [2016] FCAFC 132 at [47]; 2016 ATC 20-583; (2016) 103 ATR 823; (2016) 247 FCR 372. | [7] Mills and FC of T [2017] AATA 362 at [50]; 2017 ATC 10-451; (2017) 105 ATR 216 ( Mills ) and Re Verschuer and Federal Commissioner of Taxation [2013] AATA 12 at [61]; (2013) 88 ATR 991 ( Verschuer ). | [8] The Administrative Appeals Tribunal in Ward and Commissioner of Taxation [2018] AATA 1519 considered the financial consequences of the excess contributions tax assessment to be particularly relevant on the facts of that case. However, this approach does differ from Mills and Verschuer . The approach outlined in this Practice statement is consistent with the approach taken in Mills and Verschuer . | [9] Liwszyc v. Federal Commissioner of Taxation [2014] FCA 112 at [77]; (2014) 218 FCR 334; 2014 ATC 20-441; (2014) 94 ATR 16. See also Peaker v. Commissioner of Taxation 2012 ATC 10 238 at [20]; [2012] AATA 140; (2012) 87 ATR 578 and Verschuer and Federal Commissioner of Taxation [2013] AATA 12; (2013) 88 ATR 991. | [10] Federal Commissioner of Taxation v. Dowling 2014 ATC 20-447 at [108]; [2014] FCA 252. | [11] Longcake and FC of T [2012] AATA 576; 2012 ATC 10 270; (2012) 90 ATR 436. | [12] Kuyper and FC of T [2012] AATA 282; (2012) 88 ATR 603 Davenport and FC of T [2012] AATA 0760. | [14] Liwszyc v. Federal Commissioner of Taxation [2014] FCA 112 at [76]; 218 FCR 334; 2014 ATC 20-441; (2014) 94 ATR 16. See also [80] to [81] with respect to the timing of payments in the context of the determination being consistent with the object of Division 292. See also Re Verschuer and Commissioner of Taxation [2013] AATA 12 at [55]; 88 ATR 991. | [15] McLennan and Commissioner of Taxation [2013] AATA 311; 2013 ATC 10-313; (2013) 93 ATR 957; KFBC and Federal Commissioner of Taxation [2013] AATA 577; 2013 ATC 1-056; (2013) 95 ATR 451, Thompson and Federal Commissioner of Taxation [2014] AATA 339; 2014 ATC 10-362; (2014) 98 ATR 661; Pitts v. Federal Commissioner of Taxation [2017] AATA 685 2017 ATC 10-458. | [16] Confidential and FC of T [2013] AATA 110; (2013) 92 ATR 430; Confidential and FC of T [2013] AATA 111. | [17] Mills and FC of T [2017] AATA 362 at [49]; 2017 ATC 10-451; (2017) 105 ATR 216. | Azer and Federal Commissioner of Taxation [2016] AATA 472 2016 ATC 10-429 | Bornstein and Federal Commissioner of Taxation [2012] AATA 424 2012 ATC 10-257 (2012) 88 ATR 316 | Boscolo v. Secretary, Department of Social Security (1999) 90 FCR 531 | Federal Commissioner of Taxation v. Dowling 2014 ATC 20-447 [2014] FCA 252 | Confidential and Federal Commissioner of Taxation [2013] AATA 110 (2013) 92 ATR 430 | Confidential and Federal Commissioner of Taxation [2013] AATA 111 | Davenport and Federal Commissioner of Taxation [2012] AATA 760 (2012) 91 ATR 198 | Dickinson and Federal Commissioner of Taxation [2012] AATA 762 (2012) 87 ATR 695 | Fischer v. Secretary, Department of Families, Housing, Community Services and Indigenous Affairs (2010) 185 FCR 52 [2010] FCA 441 | Hamad and Federal Commissioner of Taxation [2012] AATA 530 2012 ATC 10-280 (2012) 88 ATR 683 | Hope and Federal Commissioner of Taxation [2014] AATA 877 (2014) 99 ATR 959 | KFBC and Federal Commissioner of Taxation [2013] AATA 577 2013 ATC 1-056 (2013) 95 ATR 451 | Kuyper and Federal Commissioner of Taxation [2012] AATA 282 (2012) 88 ATR 603 | Liwszyc v. Federal Commissioner of Taxation (2014) 218 FCR 334 [2014] FCA 112 2014 ATC 20-441 (2014) 94 ATR 16 | Longcake and Federal Commissioner of Taxation [2012] AATA 576 2012 ATC 10-270 (2012) 90 ATR 436 | McLennan and Federal Commissioner of Taxation [2013] AATA 311 2013 ATC 10-313 (2013) 93 ATR 957 | McMennemin and Federal Commissioner of Taxation [2010] AATA 573 2010 ATC 10-145 (2010) 79 ATR 898 | Mills and Federal Commissioner of Taxation [2017] AATA 362 2017 ATC 10-451 (2017) 105 ATR 216 | Peaker and Federal Commissioner of Taxation 2012 ATC 10-238 [2012] AATA 140 (2012) 87 ATR 578 | Pitts and Federal Commissioner of Taxation [2017] AATA 685 2017 ATC 10-458 | Rawson and Commissioner of Taxation [2012] AATA 322 2012 ATC 10-250 (2012) 88 ATR 612 | Thompson and Federal Commissioner of Taxation [2014] AATA 339 2014 ATC 10-362 (2014) 98 ATR 661 | Verschuer and Federal Commissioner of Taxation [2013] AATA 12 (2013) 88 ATR 991 | Ward v. Federal Commissioner of Taxation [2016] FCAFC 132 2016 ATC 20-583 (2016) 103 ATR 823 (2016) 247 FCR 372 | Ward and Federal Commissioner of Taxation [2018] AATA 1519 2018 ATC 10-476 | This practice statement was originally published on 31 January 2008. Versions published from 7 October 2009 are available electronically - refer to the online version of the practice statement. Versions published prior to this date are not available electronically. If needed, these can be requested by emailing TCNLawPublishingandPolicy@ato.gov.au ."
PS LA 2008/2,Forestry managed investment schemes,31 January 2008,31 January 2008,Law Administration Practice Statement,False,"1. What this Practice Statement is about: This Practice Statement will help you to apply Division 394 of the Income Tax Assessment Act 1997 (ITAA 1997) to a forestry managed investment scheme (MIS) and to prepare product rulings. All legislative references in this Practice Statement are to the ITAA 1997, unless otherwise indicated. Division 394 allows initial investors in a qualifying forestry MIS to claim a tax deduction equal to 100% of the contributions they make under the scheme (Division 394 deduction). To qualify, the MIS must meet several conditions, including that: • they have a reasonable expectation that at least 70% of participant contributions will be used on direct forestry expenditure (DFE) (calculated on net present value (NPV)) • where the forestry manager is not dealing at arm's length with other parties in the scheme, they will use market values to calculate DFE • the scheme meets an 18-month establishment rule, and • the initial participants meet the 4-year holding period. • they have a reasonable expectation that at least 70% of participant contributions will be used on direct forestry expenditure (DFE) (calculated on net present value (NPV)) • where the forestry manager is not dealing at arm's length with other parties in the scheme, they will use market values to calculate DFE • the scheme meets an 18-month establishment rule, and • the initial participants meet the 4-year holding period. | 2. Limitations of this Practice Statement: This Practice Statement does not cover the: • treatment of secondary investors in a forestry MIS (that is, those who buy interests from an initial investor), or • capital gains tax (CGT) small business concessions under Division 152. • treatment of secondary investors in a forestry MIS (that is, those who buy interests from an initial investor), or • capital gains tax (CGT) small business concessions under Division 152. | 3. What to consider when ruling on Division 394: The following is an overview of what you need to consider when preparing a product ruling on Division 394. Each point is explained in detail in Attachment A to this Practice Statement: • whether the product ruling application is correct and complete (see section 4.3 of this Practice Statement) • whether the scheme meets the 70% DFE rule (see section 2.4 of Attachment A to this Practice Statement) • the arm's length pricing rule for items of DFE (see section 2.6 of Attachment A to this Practice Statement) • whether the NPV calculations are correct (see section 2.6 of Attachment A to this Practice Statement) • whether the forestry MIS is capable of meeting the 18-month establishment rule (see section 2.8 of Attachment A to this Practice Statement). • whether the product ruling application is correct and complete (see section 4.3 of this Practice Statement) • whether the scheme meets the 70% DFE rule (see section 2.4 of Attachment A to this Practice Statement) • the arm's length pricing rule for items of DFE (see section 2.6 of Attachment A to this Practice Statement) • whether the NPV calculations are correct (see section 2.6 of Attachment A to this Practice Statement) • whether the forestry MIS is capable of meeting the 18-month establishment rule (see section 2.8 of Attachment A to this Practice Statement). | 4.1 Non-commercial losses: Consideration must be given to whether an 'individual' participant in a forestry MIS may be carrying on a business of primary production and will therefore also be subject to the operation of Division 35 (see section 5 of Attachment A to this Practice Statement). | 4.2 Additional correct form: Where the scheme satisfies the 70% DFE rule, examine the Initial contributions notification form (NAT 71434 PDF, 374KB) that the forestry manager gives to ensure that it is in the correct form (see section 2.10 of Attachment A to this Practice Statement). | 4.3 Information and document requirements: Product Ruling PR 2007/71 The Product Rulings system gives our information requirements for product rulings. These are set out in the Division 394 forestry application checklist. [1] The product ruling applicant must provide sufficient documentation to support their 70% DFE rule calculation (both numerator – the DFE amount, and denominator – the participant contributions). If you do not have enough information and evidence to make a decision, seek additional information from the applicant. You can request the expert information used by the applicants if it has not been provided. The information and documentary requirements are set out in detail in section 4 of Attachment A to this Practice Statement. | 4.4 18-month establishment rule: You must also consider the 18-month establishment rule: • where a Failure to establish notification form is received from the forestry manager (under section 394-10 of Schedule 1 to the Taxation Administration Act 1953 (TAA)), or • the project is found to fail the 18-month establishment rule but the forestry manager has failed to notify (see section 2.8 of Attachment A to this Practice Statement). • where a Failure to establish notification form is received from the forestry manager (under section 394-10 of Schedule 1 to the Taxation Administration Act 1953 (TAA)), or • the project is found to fail the 18-month establishment rule but the forestry manager has failed to notify (see section 2.8 of Attachment A to this Practice Statement). | 4.5 Division 394 of Schedule 1 to the Taxation Administration Act 1953 – reporting requirements: Division 394 of Schedule 1 to the TAA imposes reporting requirements on forestry managers of forestry MIS. A failure to comply with these requirements may give rise to administrative penalties under Subdivision 286-C of Schedule 1 to the TAA. | 4.6 Division 290 of Schedule 1 to the Taxation Administration Act 1953 – promoter penalty laws and forestry MIS: If you are reviewing a forestry MIS, you may need to consider whether the promoter penalty laws under Division 290 of Schedule 1 to the TAA apply to a scheme. A forestry MIS that has received a product ruling may be subject to these laws when the scheme is promoted (from 1 July 2024) or implemented in a materially different way to that described in the product ruling, including where the 18-month establishment rule is not met (see subsections 290-50(1A) and (2) of Schedule 1 to the TAA, and Law Administration Practice Statement PS LA 2021/1 Application of the promoter penalty laws ). | 4.7 What your product ruling must include: Ensure that your product ruling includes: • information on record-keeping requirements, and • a statement that the product ruling does not apply to secondary investors. • information on record-keeping requirements, and • a statement that the product ruling does not apply to secondary investors. | 5. More information: For more information, see PR 2007/71 . | 1. Terms used in this Practice Statement: The following terms are used in this Practice Statement: • 4-year holding period – the period discussed at section 2.9 of this Attachment • 18-month establishment rule – the test set out in subsection 394-10(4) • Division 394 deduction – an initial investor in a qualifying forestry MIS can claim a tax deduction equal to 100% of the contributions they make under the scheme • 70% DFE rule – the test set out in section 394-35 • contractor – a third party with whom the forestry manager contracts to provide goods, services or land for establishing and tending trees for felling in Australia • Failure to establish notification form (NAT 71435, 280KB) – an approved form that the forestry manager must submit under section 394-10 of Schedule 1 to the TAA, about the 18-month establishment rule • forestry managed investment scheme (forestry MIS) – a scheme for establishing and tending trees for felling in Australia, as defined in subsection 394-15(1) • forestry manager – the entity that manages, arranges or promotes a forestry MIS, as defined in subsection 394-15(2) • Initial contributions notification form (NAT 71434 PDF, 374KB) – an approved form about initial contributions to the scheme that the forestry manager must submit under section 394-5 of Schedule 1 to the TAA • initial participant – one who obtains their interest in the manner described in subsection 394-15(5) • net present value (NPV) – the value of past and future amounts in today's dollars as required by section 394-35 • participant – an entity that holds a forestry interest in a forestry MIS, as defined in subsection 394-15(4) • participant contributions – payments under a forestry MIS made by a participant to a forestry manager, other than those excluded by section 394-40 • test time for the 70% DFE rule – is 30 June in the income year in which a participant in the scheme first pays an amount under the scheme. • 4-year holding period – the period discussed at section 2.9 of this Attachment • 18-month establishment rule – the test set out in subsection 394-10(4) • Division 394 deduction – an initial investor in a qualifying forestry MIS can claim a tax deduction equal to 100% of the contributions they make under the scheme • 70% DFE rule – the test set out in section 394-35 • contractor – a third party with whom the forestry manager contracts to provide goods, services or land for establishing and tending trees for felling in Australia • Failure to establish notification form (NAT 71435, 280KB) – an approved form that the forestry manager must submit under section 394-10 of Schedule 1 to the TAA, about the 18-month establishment rule • forestry managed investment scheme (forestry MIS) – a scheme for establishing and tending trees for felling in Australia, as defined in subsection 394-15(1) • forestry manager – the entity that manages, arranges or promotes a forestry MIS, as defined in subsection 394-15(2) • Initial contributions notification form (NAT 71434 PDF, 374KB) – an approved form about initial contributions to the scheme that the forestry manager must submit under section 394-5 of Schedule 1 to the TAA • initial participant – one who obtains their interest in the manner described in subsection 394-15(5) • net present value (NPV) – the value of past and future amounts in today's dollars as required by section 394-35 • participant – an entity that holds a forestry interest in a forestry MIS, as defined in subsection 394-15(4) • participant contributions – payments under a forestry MIS made by a participant to a forestry manager, other than those excluded by section 394-40 • test time for the 70% DFE rule – is 30 June in the income year in which a participant in the scheme first pays an amount under the scheme. | 2. Section 394-10 general conditions: For a participant to qualify for a Division 394 deduction, the forestry MIS they contribute to must be a qualifying scheme that meets the following conditions in section 394-10: • The forestry manager must have a reasonable expectation at test time that they will spend at least 70% of participant contributions on DFE during the life of the project (see sections 2.1 and 2.2 of this Attachment for more on the 70% DFE rule). • The scheme's trees are established within 18 months of the end of the income year in which the first payment is made by the participant (see section 2.8 of this Attachment for more on the 18-month establishment rule). • The participant is an initial participant. • The participant holds the interest for 4 years from the end of the income year in which they first paid an amount under the scheme (see section 2.9 of this Attachment for more on the 4-year holding rule). • The forestry manager must have a reasonable expectation at test time that they will spend at least 70% of participant contributions on DFE during the life of the project (see sections 2.1 and 2.2 of this Attachment for more on the 70% DFE rule). • The scheme's trees are established within 18 months of the end of the income year in which the first payment is made by the participant (see section 2.8 of this Attachment for more on the 18-month establishment rule). • The participant is an initial participant. • The participant holds the interest for 4 years from the end of the income year in which they first paid an amount under the scheme (see section 2.9 of this Attachment for more on the 4-year holding rule). | 2.1. The 70% DFE rule – overview: To ensure that most of the funds contributed by participants are spent on activities directly related to establishing, tending, felling and harvesting trees, the scheme's forestry manager must ensure that no less than 70% of contributions are spent on DFE at test time. This requirement is explained at paragraph 8.36 of the Explanatory Memorandum to the Tax Laws Amendment (2007 Measures No. 3) Bill 2007 (EM). The rule is an objective test of a reasonable expectation that 70% of payments under the scheme will be expended on DFE over the life of the project, using an NPV calculation for past and future expenditure. DFE includes actual and notional amounts attributable to establishing, tending, felling and harvesting trees (see subsection 394-45(1)), as well as certain amounts not expressly excluded from the definition of DFE by subsections 394-45(3) and (4). This is explained in more detail in section 2.4 of this Attachment. The 70% DFE rule calculation is met if the NPV of DFE is no less than 70% of the NPV of participant contributions. Section 394-40 also lists payments by a participant which are excluded for the purposes of payments under a forestry MIS. These payments, such as borrowing costs, may be relevant to other parts of the ITAA 1997. These payments are not relevant to the 70% DFE rule calculation. Example 1 – simple 70% DFE rule calculation In year 1, a participant acquires a 1-hectare interest in a 10-year plantation for $10,000 and holds it until harvest. Also in year 1, the forestry manager pays $8,000 in DFE and there are no further anticipated or actual expenses or participant contributions over the life of the project. This scheme passes the 70% DFE rule, as $8,000 is 80% of $10,000. | 2.2 Reasonable expectation: Under subsection 394-35(1), the forestry manager must be able to demonstrate a reasonable expectation of meeting the 70% DFE rule over the life of the project. The test is objective but applies to both the objective and subjective knowledge of the forestry manager. The term 'reasonable' is not defined in the ITAA 1997 and therefore has its 'ordinary meaning'. In this context, we consider the objective standard of 'reasonable' is that of a reasonable person standing in the shoes of the forestry manager. That is, whether there is about an even chance that a reasonable person would expect that the project would meet the 70% DFE rule. This approach is consistent with paragraph 8.38 of the EM and the other views we have released on the 'ordinary meaning' of 'reasonable', including: • paragraphs 19, 20 and 37 to 46 of Goods and Services Taxation Ruling GSTR 2000/7 Goods and Services Tax: transitional arrangements – supplies, including supplies of rights, made before 1July 2000 and the extent to which such supplies are taken to be made on or after 1 July 2000 • paragraphs 27 to 29 of Miscellaneous Taxation Ruling MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard, and • subparagraphs 10B, 10C, 10E and 10F of Law Administration Practice Statement PS LA 2012/5 Administration of the false or misleading statement penalty – where there is a shortfall amount. • paragraphs 19, 20 and 37 to 46 of Goods and Services Taxation Ruling GSTR 2000/7 Goods and Services Tax: transitional arrangements – supplies, including supplies of rights, made before 1July 2000 and the extent to which such supplies are taken to be made on or after 1 July 2000 • paragraphs 27 to 29 of Miscellaneous Taxation Ruling MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard, and • subparagraphs 10B, 10C, 10E and 10F of Law Administration Practice Statement PS LA 2012/5 Administration of the false or misleading statement penalty – where there is a shortfall amount. To apply the objective test, assume that the forestry manager has all of the information that a reasonable person would require in order to make a reasonable estimate of the DFE over the term of the project. This includes knowledge that is not generally available and which may apply only to the particular scheme. The forestry manager must have taken the steps that a reasonable person would have taken at the time to obtain sufficient information about the forestry industry, and the relevant costs of carrying out such a project. Example 2 – 70% DFE rule met, despite changes In the first year of a 10-year blue gum project, the forestry manager reasonably expects that the proportion of contributions spent on DFE under the scheme will be 75%. This expectation is based on the forestry manager's knowledge of present felling technology and prevailing economic conditions. The forestry manager estimates that the cost of felling and loading the plantation in 10 years' time in NPV terms will be $4,000 per hectare. This estimate is based on reports from independent experts on the methods of felling blue gums in the plantation's region. Subsequently, technological advances in felling methods (that were not reasonably foreseeable when the project was planted) result in the cost of felling being reduced by 25% to $3,000 per hectare. This means that the actual DFE on the project during its life is below 70% of total fees charged to participants. The forestry manager becomes aware of this in year 8 of the project. The forestry manager could not have been expected to foresee the technological advancement at the time of making the estimate. Therefore, the reasonable expectation test is met at the time of the estimate. Example 3 – 70% DFE rule and foreseeable changes A forestry manager's estimated labour cost for a project is based on the future value of current costs of similar-sized projects and includes labour costs for pest control. During the 3 years before the commencement of the project, the use of advanced methods of pest control increases steadily from 10% of industry projects to 30%. In the year before the project commences, industry reports indicate that, in the next 10 years, this method will spread to all parts of the industry. This method of pest control is actually adopted in the project from commencement and significantly reduces labour costs below that used in the estimates of DFE. A reasonable estimate of the proportion of contributions spent on DFE based on the reasonably expected use of the advanced pest control method would be below 70%. The forestry manager could reasonably have expected to be able to use these methods during the project's life and did actually expect to use them. The reasonable expectation test is never met, therefore, and the participants in the scheme are never entitled to the specific deduction of the amounts they paid under the forestry MIS. | 2.3. Participant contributions: Participant contributions are payments under a forestry MIS made by the participant to the forestry manager. These participant contributions, calculated on an NPV basis, form the denominator in the 70% DFE rule calculation. For the purposes of paragraph 394-10(1)(b), 'payment' includes an amount paid at the direction of a participant in the scheme, such as a financial institution paying the scheme manager an amount as part of funding a loan to the participant. Under Division 394, the following payments are not considered to be made under a forestry MIS and are excluded from the 70% DFE rule calculation: • borrowing costs • interest, and payments in the nature of interest (such as a premium on repayment or redemption of a security, or a discount of a bill or bond) • stamp duty • goods and services tax • stockpiling costs • processing costs, and • specified transport and handling costs. • borrowing costs • interest, and payments in the nature of interest (such as a premium on repayment or redemption of a security, or a discount of a bill or bond) • stamp duty • goods and services tax • stockpiling costs • processing costs, and • specified transport and handling costs. | 2.4. Direct forestry expenditure: DFE is defined in subsection 394-45(1) as: (a) an amount paid under the scheme that is attributable to establishing, tending, felling and harvesting trees; and (b) notional amounts reflecting the market value of goods, services or the use of land, provided by the forestry manager of the scheme, for establishing, tending, felling and harvesting trees. (a) an amount paid under the scheme that is attributable to establishing, tending, felling and harvesting trees; and (b) notional amounts reflecting the market value of goods, services or the use of land, provided by the forestry manager of the scheme, for establishing, tending, felling and harvesting trees. Section 394-45 also sets out exclusions to DFE and exceptions to those exclusions. Where only part of an amount is attributable to DFE, the forestry manager must apportion the amount when calculating whether the scheme passes the 70% DFE rule. Where a grant is received towards expenditure that is undertaken by the scheme manager, then only the net expense of the scheme manager is taken into account in calculating DFE. That is, the grant amount is excluded from the DFE calculation. Refer to paragraph 8.43 of the EM. Exclusions from DFE Subsection 394-45(3) states that the following types of expenditure are excluded from DFE to the extent that they relate to any of the following: (a) marketing of the scheme; Example: Advertising, sales, sponsorship and entertainment. (b) insurance, contingency funds or provisions (other than provisions for employee entitlements); (c) financing; (d) lobbying; (e) general business overheads (but not overheads directly related to forestry); (f) subscriptions to industry bodies; (g) commissions for financial planners or financial advisers; (h) compliance with requirements related to the structure and operations of the forestry manager of the scheme; Example: Product design and preparation of product disclosure statements. (i) supervision and auditing of contracts, other than direct supervision of direct forestry activities (such as establishing trees for felling); (j) legal fees relating to any matter mentioned in this subsection. (a) marketing of the scheme; Example: Advertising, sales, sponsorship and entertainment. (b) insurance, contingency funds or provisions (other than provisions for employee entitlements); (c) financing; (d) lobbying; (e) general business overheads (but not overheads directly related to forestry); (f) subscriptions to industry bodies; (g) commissions for financial planners or financial advisers; (h) compliance with requirements related to the structure and operations of the forestry manager of the scheme; Example: Product design and preparation of product disclosure statements. (i) supervision and auditing of contracts, other than direct supervision of direct forestry activities (such as establishing trees for felling); (j) legal fees relating to any matter mentioned in this subsection. Subsection 394-45(4) states that expenditure is excluded from DFE to the extent that it relates to any of the following: (a) transportation and handling of felled trees that happens after the earliest of the following: (i) sale of the trees; (ii) arrival of the trees at the mill door; (iii) arrival of the trees at the port; (iv) arrival of the trees at the place of processing (other than where processing happens in-field); (b) processing; (c) stockpiling (other than in-field stockpiling); (d) marketing and sale of forestry produce. (a) transportation and handling of felled trees that happens after the earliest of the following: (i) sale of the trees; (ii) arrival of the trees at the mill door; (iii) arrival of the trees at the port; (iv) arrival of the trees at the place of processing (other than where processing happens in-field); (b) processing; (c) stockpiling (other than in-field stockpiling); (d) marketing and sale of forestry produce. (i) sale of the trees; (ii) arrival of the trees at the mill door; (iii) arrival of the trees at the port; (iv) arrival of the trees at the place of processing (other than where processing happens in-field); Amounts that are DFE As they are not specifically excluded by subsections 394-45(3) or (4), the following types of expenditure are included as DFE: • transportation and handling expenses to the first stages of milling or processing (paragraph 8.61 of the EM) • the first leg of transport after in-field chipping to a mill or wharf (paragraph 8.61 of the EM) • research and development (R&D) that is attributable to establishing, tending, felling and harvesting trees (paragraph 8.62 of the EM) • overheads directly related to forestry (paragraph 394-45(3)(e)) • provisions for employee entitlements (paragraph 394-45(3)(b)), and • direct supervision of direct forestry activities (such as establishing trees for felling) (paragraph 394-45(3)(i)). • transportation and handling expenses to the first stages of milling or processing (paragraph 8.61 of the EM) • the first leg of transport after in-field chipping to a mill or wharf (paragraph 8.61 of the EM) • research and development (R&D) that is attributable to establishing, tending, felling and harvesting trees (paragraph 8.62 of the EM) • overheads directly related to forestry (paragraph 394-45(3)(e)) • provisions for employee entitlements (paragraph 394-45(3)(b)), and • direct supervision of direct forestry activities (such as establishing trees for felling) (paragraph 394-45(3)(i)). Example 4 – corporate overheads Example 8.9 from the EM provides guidance on activities of employees that are not direct forestry activities. It states: Greentrees Ltd's sole business is the management of bluegum forestry projects. The costs of an employee of Greentrees Ltd who only carries out the following tasks would be regarded as corporate overheads and not included in DFE: chief executive officer, personnel manager or accounts manager. Example 5 – direct forestry activities Example 8.10 in the EM provides guidance on the activities of employees that are direct forestry activities. It states: The costs of an employee who only carries out the following tasks would be included in DFE: • a 'project coordinator' who undertakes community liaison, education programmes and land purchase; • a 'case and systems manager' located at head office who operates Private Plantation Management Information System (PPMIS) allocations, mapping services, geology, planning applications, remote sensing and survival analysis; • a 'resource manager' who undertakes harvest scheduling, inventory, survival analysis, mill liaison and in-field project analysis; • a 'head of forestry operations' who undertakes final land approval, seedling [and] cutting strategy, plantation and base design and government and community liaison (noting that there is a specific exception for lobbying); and • an 'in-field technical supply officer' who undertakes satellite operations, personal digital assistant (PDA) support, mapping and taping out and reserve monitoring. • a 'project coordinator' who undertakes community liaison, education programmes and land purchase; • a 'case and systems manager' located at head office who operates Private Plantation Management Information System (PPMIS) allocations, mapping services, geology, planning applications, remote sensing and survival analysis; • a 'resource manager' who undertakes harvest scheduling, inventory, survival analysis, mill liaison and in-field project analysis; • a 'head of forestry operations' who undertakes final land approval, seedling [and] cutting strategy, plantation and base design and government and community liaison (noting that there is a specific exception for lobbying); and • an 'in-field technical supply officer' who undertakes satellite operations, personal digital assistant (PDA) support, mapping and taping out and reserve monitoring. Example 6 – in-field chipping This example illustrates that DFE does not include the cost of in-field chipping which is a processing cost under paragraph 394-45(4)(b). Gum Blue Pty Ltd is an entity engaged in a forestry MIS. According to its cost analysis done internally, it is more economical for them to chip the felled trees on-site before transporting them to a mill. While the first leg of transport is included in DFE, the costs of the 'in-field chipping' are not. This is consistent with paragraph 8.67 of the EM, which states that while the concept of harvesting is exclusive of processing, including the costs of 'in-field chipping', a forestry manager may claim costs of transport to a mill or wharf subsequent to in-field chipping (but not the costs of the chipping, or where transport is after the sale). | 2.5. Apportioning DFE amounts: Paragraph 8.51 of the EM explains that the forestry manager should use a reasonable apportionment method when apportioning DFE amounts to determine the extent to which the expenditure is attributable to establishing, tending, felling and harvesting trees on the project. This excludes the extent to which the goods or services acquired: • have an effective life greater than the scheme they were acquired for, or • are used in multiple schemes. • have an effective life greater than the scheme they were acquired for, or • are used in multiple schemes. Example 7 – apportionment scenarios Scenario 1: A forestry manager incurs R&D costs attributable to establishing, tending, felling and harvesting trees in Australia. These R&D costs relate to multiple projects. It is permissible for the forestry manager to apportion the R&D costs on a reasonable basis, such as the proportion of the area under plantation or the value of the R&D to individual projects (verified by documentary evidence to support the area or value for each plantation). Scenario 2: A forestry manager purchases harvesting equipment for $100,000. The equipment will be used equally on 5 forestry projects for the whole of the equipment's life. Therefore, $20,000 is allocated to each of the 5 projects. Scenario 3: An entity engaged in a forestry project employs a person to supervise its team of foresters and accounting staff. If a forestry manager includes the costs of this supervisor in the calculation of DFE for the 70% DFE rule, then it must apportion the costs (including the labour costs of employing the supervisor) between DFE and general overheads. Only the portion that relates directly to supervising the foresters is DFE. An internal report stating the intended proportion of the supervisor's time to be spent supervising the foresters is used to determine how the costs of employing the supervisor should be apportioned. Apportionment based on time spent supervising the foresters is the most appropriate method in this instance. Scenario 4: An entity engaged in a 10-year forestry project purchases a 10-year water licence for $10,000. The cost of the licence is in line with other licences purchased in the recent past for a similar period. The licence grants the entity access to 5,000 megalitres of water each year and this water will be used primarily for the forestry project (as specified within the project plan). However, the water will also be used for other purposes. It would be appropriate to apportion the cost of the licence when calculating DFE based on the likely water usage of the type and number of trees in the plantation. An expert's report detailing the expected total water usage of the plantation shows that the plantation is expected to use 4,000 megalitres of water each year. Therefore, $8,000 of the licence costs will be attributable to DFE. | 2.6. Net present value calculation – overview: The concept of NPV is used to calculate amounts for the purposes of the 70% DFE rule. The scheme is a qualifying scheme if the NPV of its DFE divided by the NPV of its participant contributions is equal to or greater than 70% (see section 394-35, and paragraph 8.46 of the EM). When calculating the NPV of amounts to establish the ratio of DFE to participant contributions, the amounts used may be actual or notional. Notional amounts Under paragraph 394-45(1)(b), notional expenditure includes any notional amount attributable to the use of land for establishing trees under the scheme, or the notional charges for goods or services that the forestry manager provides in house rather than acquiring from a contractor. Under subsection 394-45(2), notional expenditure is calculated as if it were paid annually for each income year based on the market value of the goods or services provided, or the use of land. Under subsection 394-45(2), the notional amount is taken to have been paid on 1 January in an income year, unless: • the first amount paid by a participant under the scheme occurs after the income year commences, or • the scheme ceases before the end of the income year. • the first amount paid by a participant under the scheme occurs after the income year commences, or • the scheme ceases before the end of the income year. Where the first amount paid by the participant under the scheme occurs after the income year commences, the notional amount is taken to have been paid on the last day of the income year (paragraph 394-45(2)(b)). If the scheme ceases before the end of the income year, the notional amount is taken to have been paid on the day the scheme ceases (paragraph 394-45(2)(c)). Example 8 – notional amount for land use Hardywood Pty Ltd's (Hardywood) landowning division carries out an ongoing program of identifying and acquiring land that is suitable for growing hardwood eucalypts. This land is held in the company's land bank and, under a licence arrangement, made available to participants who acquire interests in a forestry MIS promoted by Hardywood. An annual fee for use of the land is charged to participants over the term of the forestry MIS. Each participant's fee is based on the number of forestry interests they hold as a proportion of all interests in the scheme. There is no actual amount paid for the land, as Hardywood owns the land made available to the scheme participants. Hardywood engages a qualified land valuer who provides written advice that, if the land was leased from an independent third party, the company would pay an average of $200 per hectare. Under section 394-45, this amount can be used as the basis of determining the notional amount for the use of land in the DFE calculation for the project. Example 9 – notional amount for forestry services Hugetree Pty Ltd is an integrated forester that has been engaged in forestry in its own right for over 50 years and has extensive tracts of its own trees, expert knowledge, its own nursery and a highly qualified workforce. The company's expertise and workforce is made available to the forestry MIS, as necessary, to provide tree seedlings and carry out the pre-planting, establishment, maintenance and harvesting services over the term of the scheme. The actual costs associated with providing the seedlings and the establishment services to the participants in the forestry MIS is minimal due to economies of scale achieved by using the company's own expertise and existing workforce. Hugetree Pty Ltd is aware that most other promoters of forestry MIS engage independent third-party contractors to provide seedlings and establishment services. The company obtains a written opinion from an independent expert that the average cost for these services on similar land would be $1,900 per hectare. Under section 394-45, this amount can be used as the basis of determining the notional cost of establishment in the calculation of DFE for the project. Market value substitution rule – arm's length expenditure Under subsection 394-35(8), a forestry manager must substitute the market value of goods or services for the price they actually paid when: • the transaction is not at arm's length, and • the amount paid is or will be more or less than the market value of what it is for. • the transaction is not at arm's length, and • the amount paid is or will be more or less than the market value of what it is for. For more guidance on the principle of arm's length and how to apply it, see: • Chapter 2 of Taxation Ruling TR 97/20 Income tax: arm's length transfer pricing methodologies for international dealings for discussion on the key concepts of the arm's length principle, and • Chapter 3 of TR 97/20 for discussion on the accepted methods used to test compliance with the arm's length principle. • Chapter 2 of Taxation Ruling TR 97/20 Income tax: arm's length transfer pricing methodologies for international dealings for discussion on the key concepts of the arm's length principle, and • Chapter 3 of TR 97/20 for discussion on the accepted methods used to test compliance with the arm's length principle. Example 10 – market value substitution Treeteak Pty Ltd, a company which manages a forestry MIS based in north-western Western Australia, decides to purchase teak seedlings from Unique Treeteak Ltd (UTL), their wholly owned subsidiary, for $10,000. UTL is one of a number of suppliers of teak seedlings in Australia. A review of commercially available information on recent sales of teak seedlings by other reputable suppliers shows that the normal market value of the seedlings is $4,000, instead of $10,000. For the purpose of the 70% DFE rule calculation, the amount of $4,000 is therefore substituted for the $10,000 as the amount of DFE. The amount of participant contributions is not affected by this substitution and neither is the NPV of those contributions. Carrying out the NPV calculation Paragraph 8.44 of the EM states: The amount spent on DFE over the life of the project will be determined in 'net present value' terms. Net present value is a way of converting past and future costs into today's dollars. Discounting is the technique used to make the conversion. Discounting recognises that a dollar today is not worth the same as a dollar in the future because (even in the absence of inflation) today's dollar can be invested. The NPV is the sum of all present values of amounts that have been or will be paid. Present values are calculated by discounting future amounts at an appropriate discount rate. For Division 394, the discount rate is the yield on Commonwealth Government Securities that are Treasury bonds with a maturity closest to 10 years (as published by the Reserve Bank of Australia). The forestry manager should use the current quoted rate as a proxy for the rate on 30 June. Calculating present values for past amounts To calculate the present value of an amount paid on or before the day on which the 70% DFE rule is calculated, treat the amount as having been paid on 30 June in the income year in which the amount was actually paid(subsection 394-35(4)). To calculate present values for past amounts, multiply the amount by the compounded discount rate. The general formula for calculating the present value of a past amount is: PV = P(1 + r) T PV = P(1 + r) T Where: • PV is the present value at the current time (where time (t) = M) • P is the amount of payment made in the past (where t = 0) • r is the discount rate for the appropriate period (in this instance 'period' = 'year') • T is the number of periods between t = 0 and t = M. • PV is the present value at the current time (where time (t) = M) • P is the amount of payment made in the past (where t = 0) • r is the discount rate for the appropriate period (in this instance 'period' = 'year') • T is the number of periods between t = 0 and t = M. Calculating NPV for future amounts To calculate the present value of an amount paid after the day on which the 70% DFE rule is calculated, treat the amount as having been paid on 1 January in the income year in which the amount is expected to be paid (subsection 394-35(5)). To calculate present values for future amounts, divide the amount by the compounded discount rate. The general formula for calculating the present value of a future amount is: PV = P ÷ (1 + r) T PV = P ÷ (1 + r) T Where: • PV is the present value at the current time (where time (t) = 0) • P is the amount of payment made in the future (where t = M) • r is the discount rate for appropriate period • T is the number of periods between t = 0 and t = M. • PV is the present value at the current time (where time (t) = 0) • P is the amount of payment made in the future (where t = M) • r is the discount rate for appropriate period • T is the number of periods between t = 0 and t = M. T will always be a number of years plus a half-year period, as the amount will be discounted back from 1 January in the year paid to the relevant 30 June. Refer to Example 12 of this Practice Statement. The NPV of DFE under a scheme is the sum of the present values of all past and future amounts. This sum forms the numerator in the 70% DFE rule calculation (subsection 394-35(2)). The denominator in the 70% DFE rule calculation is found by summing the present values of all past and future contributions under the scheme. That is, the sum of the present values of all amounts that the participants in the scheme have paid (that is, past amounts) or will pay (that is, future amounts) (subsection 394-35(3)). Example 11 – selecting a rate for present value This example regarding selecting a rate for present value appears at Example 8.5 in the EM: On 30 June 2008, a scheme manager is seeking to establish the net present value of future expenditure. The manager consults the Indicative Mid Rates of Selected Commonwealth Government Securities as published by the Reserve Bank of Australia for that day. According to the Reserve Bank, a Treasury Fixed Coupon Bond with a yield of 5.910 per cent will mature in February 2017 and another Treasury Fixed Coupon Bond with a yield of 5.880 per cent will mature in March 2019. No other bonds with a longer maturity are listed. The bond maturing in March 2019 should be chosen as it has the maturity closest to 10 years. Example 12 – NPV calculation for present and future amounts, passing 70% DFE rule A forestry manager offers forestry interests in a forestry MIS under a product disclosure statement at a cost of $10,000 per each one-hectare forestry interest. A participant that makes an application acquires a one-hectare interest in an 11-year plantation for $10,000 and holds their interest until harvest. We receive a Division 394 product ruling application from the forestry manager on 23 November 2010. On that date, the discount rate used to calculate the NPV of the project's participant contributions and DFE is the interest rate on Commonwealth Government Securities. For the purposes of this example an interest rate of 5.0% is used. In their application, the forestry manager provides us with all relevant details, summarised as follows: Project details Following the issue of the ATO product ruling, the project will be marketed until 30 June 2011. There will be 1,000 one-hectare forestry interests available under the product disclosure statement and all forestry interests are expected to be sold. Final harvest of the project trees is expected to occur in February 2022 and all sale proceeds returned to participants by June 2022. Participant contributions Total participant contributions on acceptance in the project is projected to be $10 million payable before 30 June 2011 (1,000 one-hectare forestry interests at $10,000 per forestry interest). A further $1 million ($1,000 per forestry interest) is required to be paid by participants in December 2021 to fund the harvesting of the plantation and the transportation of the harvested timber to the timber mill. Net present value of participant contributions The initial payment of $10 million does not need to be discounted as it occurs in the base year for which we are trying to determine the present value (that is, at time t = 0). To discount the $1 million payable in December 2021, the number of periods between the base time t = 0 and December 2021 must be determined. The base time is 30 June 2011 and (as per Notional amounts in section 2.6 of this Attachment ) the $1 million is taken to have been paid on 1 January 2022. Therefore, the $1 million payment must be discounted with reference to a time period of 10.5 years. The present value of $1 million to be contributed in December 2021 is: $1,000,000 ÷ 1.05 10.5 = $599,118 $1,000,000 ÷ 1.05 10.5 = $599,118 The NPV of the participant contributions for the project is $10,599,118. This is based on the calculation: $10,000,000 + $599,118 = $10,599,118 $10,000,000 + $599,118 = $10,599,118 DFE of forestry MIS Prior to 30 June 2011 (year 0), the forestry manager leases the land and begins preparing it for planting. The forestry manager incurs $3 million in DFE. In the year following 30 June 2011, the forestry manager will organise for the trees to be planted and will incur a further $4.5 million in DFE. The harvesting and transportation of the harvested timber to the timber mill in February 2022 is forecast to cost $700,000 in DFE. Net present value of forestry MIS DFE The $3 million in DFE is incurred by the forestry manager in the base year and this value is therefore not discounted. The $4.5 million in DFE for planting costs to be incurred by the forestry manager is deemed to occur on 1 January 2012 and should be discounted for 6 months. This equates to: $4,500,000 ÷ 1.05 0.5 = $4,391,550 $4,500,000 ÷ 1.05 0.5 = $4,391,550 The harvesting cost is deemed to occur on 1 January 2022. This equates to: $700,000 ÷ 1.05 10.5 = $419,383 $700,000 ÷ 1.05 10.5 = $419,383 Therefore, the NPV of all DFE for the forestry MIS is: $3,000,000 + $4,391,550 + $419,383 = $7,810,933 $3,000,000 + $4,391,550 + $419,383 = $7,810,933 Application of the 70% DFE rule The 70% DFE rule is passed as $7,810,933 is equal to or more than 70% of $10,599,118. Discussion It is important that when calculating the relevant proportion of contributions spent on DFE, all DFE after year 0 is properly discounted back to June 30 of year 0 from 1 January of the financial year in which it is incurred. For ease of calculations, we are satisfied if an annualised Treasury bond interest rate is used. Example 13 – NPV calculation, failing 70% DFE rule This example has been based on scenario 4 of Example 8.6 in the EM and provides guidance on a calculation of ratio of NPV of DFE to NPV of participant contributions that fails the 70% DFE rule. In year 1 (t = 0), a participant acquires a one-hectare interest in a 10-year plantation for $10,000 and holds their interest until harvest. In years 2 to 9, the participant pays $500 in fees each year. In year 10, the participant pays $2,000 in fees. The discount rate is 7%. The participant's total contribution in nominal terms is $16,000. Diagram 1: Participant's contributions The initial payment of $10,000 does not need to be discounted. The subsequent payments, as explained under Notional amounts in section 2.6 of this Attachment, are deemed to occur on 1 January of each income year, so there will be (M-1) time periods between times t = 0 and t = M. The NPV of participant contributions is $14,074, calculated as present values of all payments (10,000 t=0; $500 t = 2....9; $2,000 t = 10): ($10,000 ÷ 1.07 0 ) + ($500 ÷ 1.07 1 ) + ($500 ÷ 1.07 2 ) + ($500 ÷ 1.07 3 ) + ($500 ÷ 1.07 4 ) + ($500 ÷ 1.07 5 ) + ($500 ÷ 1.07 6 ) + ($500 ÷ 1.07 7 ) + ($500 ÷ 1.07 8 ) + ($2,000 ÷ 1.07 9 ) = $14,074 ($10,000 ÷ 1.07 0 ) + ($500 ÷ 1.07 1 ) + ($500 ÷ 1.07 2 ) + ($500 ÷ 1.07 3 ) + ($500 ÷ 1.07 4 ) + ($500 ÷ 1.07 5 ) + ($500 ÷ 1.07 6 ) + ($500 ÷ 1.07 7 ) + ($500 ÷ 1.07 8 ) + ($2,000 ÷ 1.07 9 ) = $14,074 The forestry manager outlays $5,000 of the initial $10,000 participant contribution. In years 2 to 9, the forestry manager's expenditure on DFE is $300 per annum and, in year 10, expenditure on DFE is $1,000. The forestry manager's total DFE in nominal terms is $8,400. The NPV of DFE is $7,335, calculated as: ($5,000 ÷ 1.07 0 ) + ($300 ÷ 1.07 1 ) + ($300 ÷ 1.07 2 ) + ($300 ÷ 1.07 3 ) + ($300 ÷ 1.07 4 ) + ($300 ÷ 1.07 5 ) + ($300 ÷ 1.07 6 ) + ($300 ÷ 1.07 7 ) + ($300 ÷ 1.07 8 ) + ($1,000 ÷ 1.07 9 ) = $7,335 ($5,000 ÷ 1.07 0 ) + ($300 ÷ 1.07 1 ) + ($300 ÷ 1.07 2 ) + ($300 ÷ 1.07 3 ) + ($300 ÷ 1.07 4 ) + ($300 ÷ 1.07 5 ) + ($300 ÷ 1.07 6 ) + ($300 ÷ 1.07 7 ) + ($300 ÷ 1.07 8 ) + ($1,000 ÷ 1.07 9 ) = $7,335 The 70% DFE rule is failed, as $7,335 is 52% of $14,074. | 2.7. Specific interest in land: An initial participant of a forestry MIS can qualify for the Division 394 deduction without holding a specific interest in a particular plot of land. The notional use of land inclusion in the DFE definition at paragraph 394-45(1)(b) allows for a proportional interest in an aggregate holding of land. It allows the inclusion of actual or notional amounts for the use of land proportional to the participants' share of the total project investment. Example 14 – notional land use In January 2008, Jennifer invests in a forestry project offered by Primary Bluegums Ltd. The project is a forestry MIS that has a product ruling from us confirming that deductions are allowable for initial participants under section 394-10. Under the scheme, initial participants pay for one or more forestry interests. A forestry interest gives the investor a right to receive a proportional share of the net proceeds at the termination of the forestry MIS. Jennifer is not required to enter into a sublease, nor is she allocated any specific allotments. Her rights to share proportionally in the net proceeds of the forestry MIS only require that she hold one or more forestry interests in the forestry MIS. | 2.8. 18-month establishment rule: Under subsection 394-10(4), the scheme's trees must all be established in the ground in Australia within 18 months of the end of the income year when an amount was first paid under the scheme by a participant. The term 'established' is not defined for the purposes of Division 394. However, paragraph 8.27 of the EM states that the concept of 'establishing' a plantation includes 'planting, coppicing and grafting activities and other methods of plant propagation that result in a forest being established'. Paragraph 8.27 of the EM explains that acquiring an immature forest is not establishing a plantation. Paragraph 8.28 of the EM provides that the site preparation necessary to establish trees and enable them to survive is included in establishment. Therefore, these costs, as they relate to the scheme, are included in DFE. As stated in Taxation Determination TD 2006/46 Income tax: what amounts are included in 'establishment expenditure' for the purposes of working out the decline in value of a horticultural plant under section 40-545 of the Income Tax Assessment Act 1997?, the term 'establish' in the context of the establishment of a horticultural plant is to plant it in its long-term growing medium. Therefore, in order to satisfy the 18-month establishment rule, the trees must be planted permanently in the ground. Should the trees not be planted within 18 months, the participant's deduction may be denied. In addition, the promoter penalty provisions may be applied against the forestry manager (see paragraph 8.21 of the EM). Failure to establish notification form Section 394-10 of Schedule 1 to the TAA requires the forestry manager to give us a statement of reasons why they failed to meet the 18-month establishment rule. The statement must be in the approved form and must be given to us within 3 months after the end of the 18-month period. This form is called a Failure to establish notification form. On the Failure to establish notification form, the forestry manager should provide sufficient information for us to determine whether any action should be taken to deny deductions. As a general guide, we would be satisfied if the forestry manager provided the following explanations as reasons for failing to adhere to the 18-month establishment rule: • a reasonable mistake on the forestry manager's part in the management, arrangement or promotion of the forestry MIS that sufficiently impedes its establishment • an act or default of another entity (other than of the forestry manager) that sufficiently impedes the establishment of the forestry MIS, or • an accident or some other cause beyond the forestry manager's control that sufficiently impedes the establishment of the forestry MIS. • a reasonable mistake on the forestry manager's part in the management, arrangement or promotion of the forestry MIS that sufficiently impedes its establishment • an act or default of another entity (other than of the forestry manager) that sufficiently impedes the establishment of the forestry MIS, or • an accident or some other cause beyond the forestry manager's control that sufficiently impedes the establishment of the forestry MIS. For each of the above explanations, the forestry manager must show that they took reasonable precautions or exercised due diligence to prevent such acts from impeding the establishment of the forestry MIS. Where the forestry manager does not notify us We may discover cases where the 18-month establishment rule is not met for a forestry project in the course of other activities, such as conformance audits for product rulings. In such cases, forestry managers should inform us about: • the name of the scheme • the identity of the forestry manager (or their associate) • the circumstances under subsection 394-10(4) of Schedule 1 to the TAA that gave rise to the 18-month establishment rule not being satisfied, and • the reasons why a notification form was not provided, as specified in section 394-10 of Schedule 1 to the TAA, once the 18-month establishment rule was not satisfied. • the name of the scheme • the identity of the forestry manager (or their associate) • the circumstances under subsection 394-10(4) of Schedule 1 to the TAA that gave rise to the 18-month establishment rule not being satisfied, and • the reasons why a notification form was not provided, as specified in section 394-10 of Schedule 1 to the TAA, once the 18-month establishment rule was not satisfied. The information provided must be sufficient for us to determine whether any action should be taken against the forestry manager and participants in the forestry MIS for failing to satisfy the 18-month establishment rule and the failure by the forestry manager to provide the Failure to establish notification form. A failure to comply with this reporting requirement may give rise to administrative penalties under Subdivision 286-C of Schedule 1 to the TAA. Refer to section 3 of this Attachment. | 2.9. 4-year holding period: In order for a participant to qualify for the Division 394 deduction under subsections 394-15(5) and 394-10(5), they must obtain a relevant forestry interest and hold it under the scheme for 4 years from the end of the income year in which they first paid an amount under the scheme. Paragraph 394-10(5)(b) denies deductions by an initial participant for contributions made under a forestry MIS if a CGT event happens in relation to the interests within 4 years after the end of the income year in which they first paid an amount under the scheme (that is, if the initial participant sells their interest in the forestry MIS). However, subsection 394-10(5A) stipulates that paragraph 394-10(5)(b) does not apply to a CGT event if: • the CGT event happens because of circumstances outside an initial participant's control (for example, the forestry interest is compulsorily acquired), and • when the initial participant acquired the forestry interest, the initial participant could not reasonably have foreseen the CGT event happening. • the CGT event happens because of circumstances outside an initial participant's control (for example, the forestry interest is compulsorily acquired), and • when the initial participant acquired the forestry interest, the initial participant could not reasonably have foreseen the CGT event happening. Under subsection 394-25(2), where a CGT event happens in relation to the interests within 4 years, but the initial participant still holds the interests after the event, the initial participant's assessable income for the income year in which the CGT event happens will include the decrease (if any) in the market value of the interests as a result of the CGT event. Consistent with the approach taken under CGT provisions and outlined in paragraph 9.34 of the EM, an initial participant is taken to dispose of their interests under a forestry MIS at the time of entering into an agreement for disposal. An initial participant's assessments may be amended within 2 years from the end of the income year in which the investor disposed of the interests, where the interest is disposed of within 4 years (subsection 394-10(6)). | 2.10. Initial contributions notification form: Where the scheme meets the 70% DFE rule, the forestry manager must give us information about amounts paid or payable by participants under the scheme (section 394-5 of Schedule 1 to the TAA) – via the Initial contributions notification form. Under subsections 394-5(4) and (5) of Schedule 1 to the TAA, this approved form requires forestry managers to provide information about: • the name of the scheme • the identity of the forestry manager (or associate) • the amounts paid or payable under the scheme by participants, and • anything else that we may consider relevant. • the name of the scheme • the identity of the forestry manager (or associate) • the amounts paid or payable under the scheme by participants, and • anything else that we may consider relevant. Where the forestry manager does not notify us A failure to comply with this reporting requirement may give rise to administrative penalties under Subdivision 286-C of Schedule 1 to the TAA. Refer to section 3 of this Attachment. | 3. Administrative penalty – failure to lodge: Division 394 of Schedule 1 to the TAA imposes the reporting requirements, as outlined in this Attachment, on forestry managers of forestry MIS. These reporting requirements apply whether or not the forestry MIS has been issued with a product ruling. The reporting requirements also apply whether or not a scheme is a MIS. A failure to comply with these requirements may give rise to administrative penalties under Subdivision 286-C of Schedule 1 to the TAA. Paragraph 286-80(2)(a) of Schedule 1 to the TAA provides that where there is failure to provide a return, notice or other document on time or in the approved form, the base penalty amount is one penalty unit [2] for each period of 28 days or part of a period of 28 days starting on the day when the document is due and ending when the document is given. This amount may be multiplied by 2, 5, or 500, by virtue of subsections 286-80(3), (4) and (4A) of Schedule 1 to the TAA, depending on whether the forestry manger is a medium withholder [3] , large withholder [4] or a significant global entity. [5] | 4. Product ruling application – documentation requirements: Our information and documentation requirements for product rulings are set out in the Division 394 forestry application checklist. Without limiting the documentation that may be required, the following paragraphs of this Attachment discuss the document requirements for supporting claims made in Division 394. If the forestry manager has not provided expert information, consider whether, and how much, additional information would influence your decision on the relevant tests in Division 394. Request additional expert information from the forestry manager if you decide that it is appropriate to do so. | 4.1. Additional expert information: If the forestry manager has expert information, you can request them to provide it to verify the assumptions and estimates in the application. For example: • forestry expert reports to verify the nature, extent and timing of proposed forestry activities • forestry expert reports to determine the suitability of land, and the type of trees to be planted • valuation expert reports to verify the cost of activities, and the value of assets, and • details of each of the experts' engagement, including - copies of letters of engagement - client instructions and assumptions, and information used in preparing the reports, and - their qualifications and relevant expertise. • forestry expert reports to verify the nature, extent and timing of proposed forestry activities • forestry expert reports to determine the suitability of land, and the type of trees to be planted • valuation expert reports to verify the cost of activities, and the value of assets, and • details of each of the experts' engagement, including - copies of letters of engagement - client instructions and assumptions, and information used in preparing the reports, and - their qualifications and relevant expertise. - copies of letters of engagement - client instructions and assumptions, and information used in preparing the reports, and - their qualifications and relevant expertise. | 4.2. Documentation required for the reasonable expectation test: The forestry manager should supply the following information in support of the reasonable expectation test: • a sufficiently detailed description of past and projected expenditure in each class, including its nature, amount, timing and any independent valuation reports they have • a sufficiently detailed description of the experts who prepared any relevant reports (such as forestry experts and valuers), including - their commercial experience in their relevant fields - the nature of the services provided, and - a copy of their engagement letter, and • a sufficiently detailed description of how the evidence supports the forestry manager's conclusion that they have a reasonable expectation of passing the 70% DFE rule at test time. • a sufficiently detailed description of past and projected expenditure in each class, including its nature, amount, timing and any independent valuation reports they have • a sufficiently detailed description of the experts who prepared any relevant reports (such as forestry experts and valuers), including - their commercial experience in their relevant fields - the nature of the services provided, and - a copy of their engagement letter, and • a sufficiently detailed description of how the evidence supports the forestry manager's conclusion that they have a reasonable expectation of passing the 70% DFE rule at test time. - their commercial experience in their relevant fields - the nature of the services provided, and - a copy of their engagement letter, and The larger a class of expenditure, the more influence it has on the outcome of the reasonable expectation test. Therefore, for higher value classes of expenditure, we should expect the forestry manager to supply more detail to support their claims. Where the class of expenditure is too broad, a breakdown of the components within that class of expenditure should be requested. For example, if a class of expenditure groups together all the costs of preparing land, establishing the acquiring the seedlings and planting into to one amount, you should request a breakdown of the amounts for each component. You may request additional valuation reports or supporting documents if you have not received enough to make a decision. | 4.3. Documentation required to determine DFE – general: The forestry manager should supply the following information about the amounts they claim as DFE: • a detailed description of each class of expenditure claimed to be DFE • an explanation of how each class of expenditure meets the definition of DFE in section 394-45, and • each class of DFE to be categorised as either a notional or an actual amount of expenditure (see sections 4.4 and 4.5 of this Attachment). • a detailed description of each class of expenditure claimed to be DFE • an explanation of how each class of expenditure meets the definition of DFE in section 394-45, and • each class of DFE to be categorised as either a notional or an actual amount of expenditure (see sections 4.4 and 4.5 of this Attachment). Where the projections of future costs used in the NPV calculation differ materially from the current values of the same services, or use of land, seek an explanation for the differences from the forestry manager. | 4.4. Documentation – actual amounts: The forestry manager should supply the following information about DFE that is paid, or will be paid, under the scheme: • the date the expenditure was paid if this is known • the name of the supplier or contractor that did supply, or is expected to supply, the goods or services, if it is known • whether the supplier is, or is expected to be, an associated entity, an independent contractor or an independent supplier • where the expenditure is an amount that is attributable to more than one scheme, how the amount has been allocated across different schemes (past, current, future) and how the amount was apportioned, including the calculations • where the expenditure relates to acquiring a depreciating asset with an effective life in excess of the duration of the project, how the amount has been apportioned between this project and the period of effective life outside the duration of the project, including calculations, and • documentary evidence to verify the actual expenditure. • the date the expenditure was paid if this is known • the name of the supplier or contractor that did supply, or is expected to supply, the goods or services, if it is known • whether the supplier is, or is expected to be, an associated entity, an independent contractor or an independent supplier • where the expenditure is an amount that is attributable to more than one scheme, how the amount has been allocated across different schemes (past, current, future) and how the amount was apportioned, including the calculations • where the expenditure relates to acquiring a depreciating asset with an effective life in excess of the duration of the project, how the amount has been apportioned between this project and the period of effective life outside the duration of the project, including calculations, and • documentary evidence to verify the actual expenditure. Where an item of DFE is provided under a contract with an entity that is not an associate of the forestry manager, the documentation should include: • a copy of the contract • any additional or supplementary documentation relating to the contract that shows how and when services under the contract will be delivered; this should include such details as timelines, work schedules and subcontracts, and • where the contract is not yet in place for goods or services that are to be provided under the contract, a statement to that effect and an estimate of when such a contract is likely to be executed. • a copy of the contract • any additional or supplementary documentation relating to the contract that shows how and when services under the contract will be delivered; this should include such details as timelines, work schedules and subcontracts, and • where the contract is not yet in place for goods or services that are to be provided under the contract, a statement to that effect and an estimate of when such a contract is likely to be executed. | 4.5. Documentation – notional amounts: The forestry manager should supply the following information in respect of notional DFE under the scheme: • documentary evidence to support the notional expenditure calculations • a detailed explanation of how the market value of each item was determined • if the notional expenditure will be attributed to more than one scheme, details about how the amount will be allocated across past, current and future schemes, including the calculations • if the notional expenditure is an amount for the use of land - documents provided by a qualified land valuer and the letter of engagement (if there is one), or - an explanation detailing why a qualified land valuer was not considered necessary, and a detailed explanation of the method used to determine the notional value of the land, and • if the notional expenditure is an amount for transporting and handling felled trees, details of the calculations and assumptions they used, including - the point to which the notional amount has been calculated, and - the details of any assumptions made for the purposes of the calculation, such as volume of timber expected to be harvested, average kilometres, cost per kilometre (see paragraph 394-45(4)(a)). • documentary evidence to support the notional expenditure calculations • a detailed explanation of how the market value of each item was determined • if the notional expenditure will be attributed to more than one scheme, details about how the amount will be allocated across past, current and future schemes, including the calculations • if the notional expenditure is an amount for the use of land - documents provided by a qualified land valuer and the letter of engagement (if there is one), or - an explanation detailing why a qualified land valuer was not considered necessary, and a detailed explanation of the method used to determine the notional value of the land, and • if the notional expenditure is an amount for transporting and handling felled trees, details of the calculations and assumptions they used, including - the point to which the notional amount has been calculated, and - the details of any assumptions made for the purposes of the calculation, such as volume of timber expected to be harvested, average kilometres, cost per kilometre (see paragraph 394-45(4)(a)). - documents provided by a qualified land valuer and the letter of engagement (if there is one), or - an explanation detailing why a qualified land valuer was not considered necessary, and a detailed explanation of the method used to determine the notional value of the land, and - the point to which the notional amount has been calculated, and - the details of any assumptions made for the purposes of the calculation, such as volume of timber expected to be harvested, average kilometres, cost per kilometre (see paragraph 394-45(4)(a)). If a forestry manager receives (or expects to receive) an item of DFE from an internal division or a non-arm's length entity, they should provide the following information (in addition to the non-arm's length information): • working papers setting out how the amount was determined, including details of the component that represents profit by the internal division, and • any other documentation relevant to determining the character, amount and timing of the item of expenditure. This will include such things as - timelines - work schedules, and - subcontracts with arm's length suppliers. • working papers setting out how the amount was determined, including details of the component that represents profit by the internal division, and • any other documentation relevant to determining the character, amount and timing of the item of expenditure. This will include such things as - timelines - work schedules, and - subcontracts with arm's length suppliers. - timelines - work schedules, and - subcontracts with arm's length suppliers. Where an item of DFE is for plant or equipment already held by the forestry manager, their documentation should include either: • copies of any invoices showing the date of purchase, the purchase price and whom the plant or equipment was purchased from, or • a copy of the relevant extracts from their asset register, or depreciation schedule. • copies of any invoices showing the date of purchase, the purchase price and whom the plant or equipment was purchased from, or • a copy of the relevant extracts from their asset register, or depreciation schedule. Where the projected costs of goods, services or use of land is based on expenditure currently being incurred by the forestry manager or their associates, the forestry manager should supply evidence of this expenditure. | 4.6. Documentation – NPV calculation: The forestry manager should provide the following documentation about the NPV calculation: • an explanation of how the present value of each item of DFE has been calculated, including the provision of the relevant worksheets and formulas • a detailed description of each amount paid or payable under the scheme by each participant who holds an interest in the scheme, outlining what each amount was paid for • the sum of the present value of each amount paid or payable under the scheme by each participant • how the sum of the present value of each amount paid or payable under the scheme by each participant has been determined, including the relevant calculations, and • the income year in which each amount was paid, or is payable, under the scheme by each participant. • an explanation of how the present value of each item of DFE has been calculated, including the provision of the relevant worksheets and formulas • a detailed description of each amount paid or payable under the scheme by each participant who holds an interest in the scheme, outlining what each amount was paid for • the sum of the present value of each amount paid or payable under the scheme by each participant • how the sum of the present value of each amount paid or payable under the scheme by each participant has been determined, including the relevant calculations, and • the income year in which each amount was paid, or is payable, under the scheme by each participant. | 4.7. Documentation required – non-arm's length pricing: The forestry manager should provide the following documentation regarding the potential application of the arm's length pricing rule: • details about any dealings in relation to DFE over the life of the project that are not, or may not be, at arm's length • details of the variation between the actual or notional amounts that all such dealings have or may have had on the market value of those items of DFE over the life of the project, and • details of how the arm's length principle was applied in determining amounts for goods and services and for the use of land where the transaction is internally generated or is between one or more associated entities. • details about any dealings in relation to DFE over the life of the project that are not, or may not be, at arm's length • details of the variation between the actual or notional amounts that all such dealings have or may have had on the market value of those items of DFE over the life of the project, and • details of how the arm's length principle was applied in determining amounts for goods and services and for the use of land where the transaction is internally generated or is between one or more associated entities. | 4.8. Documentation – 18-month establishment rule: When a forestry manager requests a product ruling, they must provide sufficient documentation to show that they can satisfy the 18-month establishment rule in subsection 394-10(4). We will not issue a product ruling unless this can be shown. In these cases, you should follow the steps set out in PR 2007/71 for situations where we refuse to rule. Without limiting the information and documentation requirements in the Division 394 forestry application checklist, the forestry manager should provide the following information: • documentation about establishing all the trees under the scheme, including - the variety of trees - the number of trees - time of planting - type of planting - location of the proposed woodlots - suitability of proposed woodlots for that species of tree, and - activities to support their establishment • an explanation of the methods to be used to establish the plants in the ground (that is, through planting, coppicing, grafting or other methods of propagation), and • documentation to demonstrate that the seedlings have been, or can be, obtained and planted in the ground in their permanent positions within the establishment period. • documentation about establishing all the trees under the scheme, including - the variety of trees - the number of trees - time of planting - type of planting - location of the proposed woodlots - suitability of proposed woodlots for that species of tree, and - activities to support their establishment • an explanation of the methods to be used to establish the plants in the ground (that is, through planting, coppicing, grafting or other methods of propagation), and • documentation to demonstrate that the seedlings have been, or can be, obtained and planted in the ground in their permanent positions within the establishment period. - the variety of trees - the number of trees - time of planting - type of planting - location of the proposed woodlots - suitability of proposed woodlots for that species of tree, and - activities to support their establishment | 4.9. Documentation – failing to give a failure to establish notice: We may discover instances where a project has failed to meet the 18-month establishment rule but has not notified us. This may happen in the course of other activities, such as conformance audits for product rulings. When this occurs, make enquiries to find out: • why the 18-month establishment rule under subsection 394-10(4) was not satisfied, and • why a failure to establish notification form (section 394-10 of Schedule 1 to the TAA) was not provided once the manager had failed the 18-month establishment rule. • why the 18-month establishment rule under subsection 394-10(4) was not satisfied, and • why a failure to establish notification form (section 394-10 of Schedule 1 to the TAA) was not provided once the manager had failed the 18-month establishment rule. The information obtained by such enquiries should be sufficient to determine whether we should take action against the forestry manager or participants in the forestry MIS for the failure to satisfy the 18-month establishment rule and the failure by the forestry manager to provide the failure to establish notification form. | 5. Non-commercial losses: Although not relevant for the purposes of Division 394, an individual participant in a forestry MIS who is considered to be carrying on a business of primary production will also be subject to the operation of Division 35. Therefore, you must consider whether the participants are carrying on a business. In Hance v Commissioner of Taxation [2008] FCAFC 196, the Full Federal Court found that participants in a forestry MIS carry on a business where the purpose of the MIS is the production of produce for sale at a profit. The retention of ownership by individual members of the produce of the scheme is the key feature in determining whether participants in a forestry MIS are carrying on a business and thus whether Division 35 is applicable. For guidance on non-commercial business losses, you should refer to Taxation Ruling TR 2001/14 Income tax: Division 35 – non-commercial business losses. For business activities carried on in partnership, you should refer to Taxation Ruling TR 2003/3 Income tax: Non-commercial losses – application of subsections 35-10(2) and 35-10(4) of the Income Tax Assessment Act 1997 to business activities carried on in partnership. For guidance on the application of our discretion within Division 35, you should refer to Taxation Ruling TR 2007/6 Income tax: non-commercial business losses: Commissioner's discretion.",PR 2007/71 | GSTR 2000/7 | MT 2008/1 | TD 2006/46 | TR 97/20 | TR 2001/14 | TR 2003/3 | TR 2007/6 | PS LA 2012/5 | PS LA 2021/1 | ITAA 1997 Div 35 | ITAA 1997 Div 152 | ITAA 1997 Div 394 | ITAA 1997 394-10 | ITAA 1997 394-10(1)(b) | ITAA 1997 394-10(4) | ITAA 1997 394-10(5) | ITAA 1997 394-10(5)(b) | ITAA 1997 394-10(5A) | ITAA 1997 394-10(6) | ITAA 1997 394-15(1) | ITAA 1997 394-15(2) | ITAA 1997 394-15(4) | ITAA 1997 394-15(5) | ITAA 1997 394-25(2) | ITAA 1997 394-35 | ITAA 1997 394-35(1) | ITAA 1997 394-35(2) | ITAA 1997 394-35(3) | ITAA 1997 394-35(4) | ITAA 1997 394-35(5) | ITAA 1997 394-35(8) | ITAA 1997 394-40 | ITAA 1997 394-45 | ITAA 1997 394-45(1) | ITAA 1997 394-45(1)(b) | ITAA 1997 394-45(2) | ITAA 1997 394-45(2)(b) | ITAA 1997 394-45(3) | ITAA 1997 394-45(3)(b) | ITAA 1997 394-45(3)(e) | ITAA 1997 394-45(3)(i) | ITAA 1997 394-45(4) | ITAA 1997 394-45(4)(a) | ITAA 1997 394-45(4)(b) | ITAA 1997 960-555 | TAA 1953 Sch 1 16-95 | TAA 1953 Sch 1 16-100 | TAA 1953 Sch 1 Div 286-C | TAA 1953 286-80(2)(a) | TAA 1953 Sch 1 286-80(3) | TAA 1953 Sch 1 286-80(4) | TAA 1953 Sch 1 286-80(4A) | TAA 1953 Sch 1 Div 290 | TAA 1953 Sch 1 290-50(1A) | TAA 1953 Sch 1 290-50(2) | TAA 1953 Sch 1 394-5 | TAA 1953 Sch 1 394-5(4) | TAA 1953 Sch 1 394-5(5) | TAA 1953 Sch 1 394-10 | Crimes Act 1914 4AA | 2008 ATC 20-085,PS LA 2012/5 PS LA 2021/1,ITAA 1997 Div 35 | ITAA 1997 Div 152 | ITAA 1997 Div 394 | ITAA 1997 394-10 | ITAA 1997 394-10(1)(b) | ITAA 1997 394-10(4) | ITAA 1997 394-10(5) | ITAA 1997 394-10(5)(b) | ITAA 1997 394-10(5A) | ITAA 1997 394-10(6) | ITAA 1997 394-15(1) | ITAA 1997 394-15(2) | ITAA 1997 394-15(4) | ITAA 1997 394-15(5) | ITAA 1997 394-25(2) | ITAA 1997 394-35 | ITAA 1997 394-35(1) | ITAA 1997 394-35(2) | ITAA 1997 394-35(3) | ITAA 1997 394-35(4) | ITAA 1997 394-35(5) | ITAA 1997 394-35(8) | ITAA 1997 394-40 | ITAA 1997 394-45 | ITAA 1997 394-45(1) | ITAA 1997 394-45(1)(b) | ITAA 1997 394-45(2) | ITAA 1997 394-45(2)(b) | ITAA 1997 394-45(3) | ITAA 1997 394-45(3)(b) | ITAA 1997 394-45(3)(e) | ITAA 1997 394-45(3)(i) | ITAA 1997 394-45(4) | ITAA 1997 394-45(4)(a) | ITAA 1997 394-45(4)(b) | ITAA 1997 960-555 | TAA 1953 Sch 1 16-95 | TAA 1953 Sch 1 16-100 | TAA 1953 Sch 1 Div 286-C | TAA 1953 286-80(2)(a) | TAA 1953 Sch 1 286-80(3) | TAA 1953 Sch 1 286-80(4) | TAA 1953 Sch 1 286-80(4A) | TAA 1953 Sch 1 Div 290 | TAA 1953 Sch 1 290-50(1A) | TAA 1953 Sch 1 290-50(2) | TAA 1953 Sch 1 394-5 | TAA 1953 Sch 1 394-5(4) | TAA 1953 Sch 1 394-5(5) | TAA 1953 Sch 1 394-10 | Crimes Act 1914 4AA,,Explanatory Memorandum to the Tax Laws Amendment (2007 Measures No. 3) Bill 2007 Failure to establish notification form Information required for a production ruling application - forestry Division 394 Initial contributions notification form,False,True,https://www.ato.gov.au/law/view/document?docid=PSR/PS20082/NAT/ATO/00001,"Refer to end of document for amendment history. Prior versions can be requested by emailing TCNLawPublishingandPolicy@ato.gov.au if required. This document incorporates revisions made since original publication. View its history and amending notices, if applicable. | 4. Other matters to consider | Sections 4.6 and 3 of Attachment A | Updated the information on promoter penalty laws to reflect the amendments made by the Treasury Laws Amendment (Tax Accountability and Fairness) Act 2024 , effective from 1 July 2024. | Section 2.2 of Attachment A | Removed the references to TR 94/4 and PS LA 2006/2 (now both withdrawn) and replaced with MT 2008/1 and PS LA 2012/5 respectively. | Updated in line with current ATO style and accessibility requirements. | Updated to new LAPS format and style. | [1] Note: The checklist will be updated from time to time to address any challenges, trends or unanticipated issues that arise from Division 394 in the future. See Information required for a product ruling application - forestry Division 394 . | [2] The value of a penalty unit is contained in section 4AA of the Crimes Act 1914 and is indexed regularly. The dollar amount of a penalty unit is available at Penalties . | [3] Medium withholder is defined in section 16-100 of Schedule 1 to the TAA. | [4] Large withholder is defined in section 16-95 of Schedule 1 to the TAA. | [5] Significant global entity is defined in section 960-555. | File 07/12826; 1-13P7U4QQ | Related Rulings/Determinations: GSTR 2000/7 MT 2008/1 PR 2007/71 TD 2006/46 TR 97/20 TR 2001/14 TR 2003/3 TR 2007/6 | Hance v Commissioner of Taxation [2008] FCAFC 196 2008 ATC 20-085 74 ATR 644"
PS LA 2008/3,"SUBJECT: Provision of advice and guidance by the ATO PURPOSE: To explain: • the forms of advice and guidance the Australian Taxation Office (ATO) provides about the application of laws administered by the Commissioner • the level of protection available to taxpayers who rely on each form of advice and guidance, and • where to find further information about procedures in developing and issuing each form of advice and guidance",28 February 2008,28 February 2008,Law Administration Practice Statement,True,"Guidance: 1. This practice statement provides an explanation of the different forms of advice and guidance the ATO provides about the application of laws administered by the Commissioner. 2. The practice statement also explains the level of protection available to taxpayers who rely on each form of advice and guidance. Attachment A contains a quick reference summary of the level of protection provided for each form of advice and guidance. 3. The practice statement also identifies some sources of further information on developing and issuing different forms of advice and guidance. 4. When providing advice and guidance, ATO personnel [1] also need to ensure that they consider other practice statements such as Law Administration Practice Statement PS LA 2003/3 Precedential ATO view , Law Administration Practice Statement PS LA 2003/9 The Online Resource Centre for Law Administration (ORCLA ) and Law Administration Practice Statement PS LA 2011/27 Matters the Commissioner considers when determining whether the ATO view of the law should only be applied prospectively . 5. The Report on Aspects of Income Tax Self Assessment [2] produced a number of recommendations for legislative and administrative changes to the provision of assistance by the ATO. The recommendations for legislative change in relation to ATO assistance were enacted in the Tax Laws Amendment (Improvements to Self Assessment) Act (No. 2) 2005 with effect from 1 January 2006. 6. In 2010, changes were introduced by the Tax Laws Amendment (2010 GST Administration Measures No. 2) Act 2010 to include indirect tax rulings and excise advice in the general rulings regime. These changes were made in response to the Board of Taxation's Review of the Legal Framework for the Administration of the GST in relation to rulings. This practice statement has been revised to reflect those changes. [3] 7. This practice statement does not deal with the following matters: • An actual exercise of a discretion. However, this practice statement provides information on the appropriate form of assistance to be used to respond to a taxpayer's query involving the exercise of a discretion. [4] • Matters relating to laws over which the Commissioner does not have the power of general administration. • Matters giving rise to a duty to transfer amounts. For instance, procedural matters relating to the administration of the Superannuation Guarantee (Administration) Act 1992 and related regulations (but not provisions under which the extent of an employer's liability to superannuation guarantee charge is worked out). • Matters involving the Commissioner's administration or application of provisions of the Superannuation Industry (Supervision) Act 1993 and related legislation. These matters are dealt with in Law Administration Practice Statement PS LA 2009/5. [5] • Matters involving the Commissioner's administration or application of provisions of the Superannuation (Unclaimed Money and Lost Members) Act 1999 and the Small Superannuation Accounts Act 1995 . • Matters involving Self Managed Superannuation Funds Rulings and Determinations, or non binding specific advice in relation to matters arising under the Superannuation Industry (Supervision) Act 1993 , to Self Managed Superannuation Fund (SMSF) trustees. [6] These matters are dealt with in PS LA 2009/5. • Australian Prudential Regulation Authority related matters. • Advance Pricing Arrangements and Forward Compliance Arrangements. These are essentially arrangements between the taxpayer and the Commissioner about how the compliance relationship will be managed for a specified period rather than advice or guidance on the application of the law. However, where a taxpayer requires formal advice about how the law applies to their specific circumstances they may wish to obtain a private ruling. • Audit position papers. These generally represent a preliminary view of the relevant facts and law applying to a particular situation. • Taxpayer Alerts. [7] Any requests for advice or guidance on the above matters, or on all other matters not dealt with by this practice statement, are to be dealt with in accordance with current ATO business practices and procedures. • An actual exercise of a discretion. However, this practice statement provides information on the appropriate form of assistance to be used to respond to a taxpayer's query involving the exercise of a discretion. [4] • Matters relating to laws over which the Commissioner does not have the power of general administration. • Matters giving rise to a duty to transfer amounts. For instance, procedural matters relating to the administration of the Superannuation Guarantee (Administration) Act 1992 and related regulations (but not provisions under which the extent of an employer's liability to superannuation guarantee charge is worked out). • Matters involving the Commissioner's administration or application of provisions of the Superannuation Industry (Supervision) Act 1993 and related legislation. These matters are dealt with in Law Administration Practice Statement PS LA 2009/5. [5] • Matters involving the Commissioner's administration or application of provisions of the Superannuation (Unclaimed Money and Lost Members) Act 1999 and the Small Superannuation Accounts Act 1995 . • Matters involving Self Managed Superannuation Funds Rulings and Determinations, or non binding specific advice in relation to matters arising under the Superannuation Industry (Supervision) Act 1993 , to Self Managed Superannuation Fund (SMSF) trustees. [6] These matters are dealt with in PS LA 2009/5. • Australian Prudential Regulation Authority related matters. • Advance Pricing Arrangements and Forward Compliance Arrangements. These are essentially arrangements between the taxpayer and the Commissioner about how the compliance relationship will be managed for a specified period rather than advice or guidance on the application of the law. However, where a taxpayer requires formal advice about how the law applies to their specific circumstances they may wish to obtain a private ruling. • Audit position papers. These generally represent a preliminary view of the relevant facts and law applying to a particular situation. • Taxpayer Alerts. [7] Any requests for advice or guidance on the above matters, or on all other matters not dealt with by this practice statement, are to be dealt with in accordance with current ATO business practices and procedures. 8. Legislative references are to provisions found in Schedule 1 to the Taxation Administration Act 1953 (TAA), unless otherwise indicated. 9. The following terms are used in this practice statement: Term Explanation Entity The term 'entity' is defined in section 960-100 of the ITAA 1997. Entity is defined to mean any of the following: (a) an individual (b) a body corporate (c) a body politic (d) a partnership (e) any other unincorporated association or body of persons (f) a trust (g) a superannuation fund, or (h) an approved deposit fund. [8] Excise duty [9] Means any duty of excise imposed by that name under a law of the Commonwealth. Excise law [10] Includes: (a) the Excise Act 1901 (b) any Act that imposes excise duty, and (c) the TAA so far as it relates to any Act covered by (a) and (b). [11] False or misleading statement penalty Administrative penalty imposed under Subdivision 284-B for false or misleading statements. [12] This penalty applies regardless of whether a tax shortfall arises as a result of the false or misleading statement. This penalty does not apply where a taxpayer has exercised reasonable care. [13] The penalty also does not apply in relation to a false or misleading statement made by a registered tax agent or BAS agent engaged by the taxpayer if the taxpayer gives the agent all relevant taxation information. [14] Even if this penalty applies, it may be remitted by the Commissioner if it is fair and reasonable to do so. Fuel tax law [15] Includes: (a) the Fuel Tax Act 2006 (b) the Fuel Tax (Consequential and Transitional Provisions) Act 2006 , and (c) the TAA so far as it relates to any Act covered by (a) and (b). GST Goods and services tax GST law [16] Includes: (a) the GST Act (b) any Act that imposes GST (c) the A New Tax System (Goods and Services Tax Transition) Act 1999 , and (d) the TAA, so far as it relates to any Act covered by paragraphs (a) to (c). [17] GST Act A New Tax System (Goods and Services Tax) Act 1999 ITAA 1997 Income Tax Assessment Act 1997 Indirect tax Means any of the following: • GST • wine tax • luxury car tax. Indirect tax law Means: • the GST law • the wine tax law • the luxury car tax law • the fuel tax law. Indirect tax or excise ruling Public ruling or a private ruling to the extent that the ruling relates to: • an indirect tax law (other than the fuel tax law), or • an excise law. Interest charges References in this practice statement to interest charges encompass: • the shortfall interest charge which is worked out under Division 280, and • the general interest charge which is worked out under Part IIA of the TAA. [18] Liability for general interest charge may result from late payment of the tax that would otherwise be payable under the law after the ATO notifies the taxpayer of the shortfall. This practice statement does not cover the general interest charge accruing after 21 days of the Commissioner notifying the taxpayer of the correct position. Also, for superannuation guarantee charge matters, the reference to interest charges does not extend to the nominal interest component of a superannuation guarantee shortfall under section 31 of the Superannuation Guarantee (Administration) Act 1992 . Note : to receive protection against interest charges on tax that would otherwise be payable under the law, a taxpayer must act reasonably and in good faith. [19] Legal Database ATOlaw or http://law.ato.gov.au . Legal personal representative The term 'legal personal representative' is defined in subsection 995-1(1) of the ITAA 1997 as: • an executor or administrator of an estate of a person who has died • a trustee of an estate of a person who is under a legal disability, or • a person who holds a general power of attorney that was granted by another person. Luxury car tax law [20] Includes: (a) the A New Tax System (Luxury Car Tax Act) 1999 (b) any Act that imposes luxury car tax (c) the A New Tax System (Wine Equalisation Tax and Luxury Car Tax Transition) Act 1999 , and (d) the TAA so far as it relates to any Act covered by paragraphs (a) to (c). [21] Minerals resource rent tax [22] Means minerals resource rent tax imposed by any of the following: (a) the Minerals Resource Rent Tax (Imposition-General) Act 2012 (b) the Minerals Resource Rent Tax (Imposition-Customs) Act 2012 (c) the Minerals Resource Rent Tax (Imposition-Excise) Act 2012 . MRRT law [23] Means: (a) the Minerals Resource Rent Tax Act 2012 ; and (b) any Act that imposes MRRT, and (c) the TAA so far as it relates to any Act covered by paragraphs (a) and (b), [24] . Misleading statement [25] A statement is misleading if it creates a false impression, even though the statement is correct. It may be misleading because of something contained in the statement, or because something is omitted from the statement. Net amount The term 'net amount' is defined in section 195-1 of the GST Act as having the meaning given by sections 17-5, 126-5 and 162-105 of the GST Act. The net amount is also affected by provisions of the A New Tax System (Luxury Car Tax Act) 1999 and the A New Tax System (Wine Equalisation Tax) Act 1999 . ORCLA Online Resource Centre for Law Administration. It contains (or links to) policies and procedures governing the provision of various forms of advice and guidance. See PS LA 2003/9. Oral ruling An oral ruling is an expression of the Commissioner's opinion made under Division 360 of the way in which the law applies or would apply to an individual. The Commissioner must give the ruling orally. Petroleum resource rent tax (PRRT) [26] PRRT means tax imposed by any of the following: (a) the Petroleum Resource Rent Tax (Imposition-General) Act 2012 (b) the Petroleum Resource Rent Tax (Imposition-Customs) Act 2012 (c) the Petroleum Resource Rent Tax (Imposition-Excise) Act 2012 as assessed under the Petroleum Resource Rent Tax Assessment Act 1987 . Private ruling A private ruling is a written expression of the Commissioner's opinion about the way in which the law applies or would apply to a particular taxpayer in their particular circumstances. Private rulings on relevant provisions are made under Division 359 and they must be in relation to a specified scheme. Private indirect tax ruling Private ruling, to the extent that it relates to an indirect tax law (other than the fuel tax law). Public ruling A public ruling is written binding advice, published by the Commissioner for the information of entities generally, on the way in which, in the Commissioner's opinion, the law applies or would apply to entities generally, or a class of entities. The legislative basis for public rulings on relevant provisions is Division 358. Relevant provision See paragraph 14 of this practice statement. Scheme Any arrangement or any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise. An arrangement is any arrangement, agreement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable (or intended to be enforceable) by legal proceedings. [27] Taxpayer For ease of expression and comprehension, this practice statement often uses the term 'taxpayer' instead of 'entity'. Tax that would be otherwise payable under the law (Tax shortfall) • Additional tax representing the difference between the self-assessed [28] liability and the correct liability according to law, or • excess credit, grant or benefit representing the difference between the self-assessed entitlement and the correct entitlement according to law. [29] This concept is also referred to as tax shortfall in this practice statement, where appropriate. For superannuation guarantee purposes, references to a tax shortfall are taken to include a superannuation guarantee charge shortfall. ATO website www.ato.gov.au Wine tax law [30] Includes: (a) the A New Tax System (Wine Equalisation Tax) Act 1999 ; and (b) any Act that imposes wine tax; and (c) the A New Tax System (Wine Equalisation Tax and Luxury Car Tax Transition) Act 1999 so far as it relates to the Acts covered by paragraphs (a) and (b); and (d) the TAA so far as it relates to any Act covered by paragraphs (a) to (c). [31] (a) an individual (b) a body corporate (c) a body politic (d) a partnership (e) any other unincorporated association or body of persons (f) a trust (g) a superannuation fund, or (h) an approved deposit fund. [8] (a) the Excise Act 1901 (b) any Act that imposes excise duty, and (c) the TAA so far as it relates to any Act covered by (a) and (b). [11] This penalty applies regardless of whether a tax shortfall arises as a result of the false or misleading statement. This penalty does not apply where a taxpayer has exercised reasonable care. [13] The penalty also does not apply in relation to a false or misleading statement made by a registered tax agent or BAS agent engaged by the taxpayer if the taxpayer gives the agent all relevant taxation information. [14] Even if this penalty applies, it may be remitted by the Commissioner if it is fair and reasonable to do so. (a) the Fuel Tax Act 2006 (b) the Fuel Tax (Consequential and Transitional Provisions) Act 2006 , and (c) the TAA so far as it relates to any Act covered by (a) and (b). (a) the GST Act (b) any Act that imposes GST (c) the A New Tax System (Goods and Services Tax Transition) Act 1999 , and (d) the TAA, so far as it relates to any Act covered by paragraphs (a) to (c). [17] • GST • wine tax • luxury car tax. • the GST law • the wine tax law • the luxury car tax law • the fuel tax law. • an indirect tax law (other than the fuel tax law), or • an excise law. • the shortfall interest charge which is worked out under Division 280, and • the general interest charge which is worked out under Part IIA of the TAA. [18] Liability for general interest charge may result from late payment of the tax that would otherwise be payable under the law after the ATO notifies the taxpayer of the shortfall. This practice statement does not cover the general interest charge accruing after 21 days of the Commissioner notifying the taxpayer of the correct position. Also, for superannuation guarantee charge matters, the reference to interest charges does not extend to the nominal interest component of a superannuation guarantee shortfall under section 31 of the Superannuation Guarantee (Administration) Act 1992 . Note : to receive protection against interest charges on tax that would otherwise be payable under the law, a taxpayer must act reasonably and in good faith. [19] • an executor or administrator of an estate of a person who has died • a trustee of an estate of a person who is under a legal disability, or • a person who holds a general power of attorney that was granted by another person. (a) the A New Tax System (Luxury Car Tax Act) 1999 (b) any Act that imposes luxury car tax (c) the A New Tax System (Wine Equalisation Tax and Luxury Car Tax Transition) Act 1999 , and (d) the TAA so far as it relates to any Act covered by paragraphs (a) to (c). [21] (a) the Minerals Resource Rent Tax (Imposition-General) Act 2012 (b) the Minerals Resource Rent Tax (Imposition-Customs) Act 2012 (c) the Minerals Resource Rent Tax (Imposition-Excise) Act 2012 . (a) the Minerals Resource Rent Tax Act 2012 ; and (b) any Act that imposes MRRT, and (c) the TAA so far as it relates to any Act covered by paragraphs (a) and (b), [24] . It contains (or links to) policies and procedures governing the provision of various forms of advice and guidance. See PS LA 2003/9. (a) the Petroleum Resource Rent Tax (Imposition-General) Act 2012 (b) the Petroleum Resource Rent Tax (Imposition-Customs) Act 2012 (c) the Petroleum Resource Rent Tax (Imposition-Excise) Act 2012 as assessed under the Petroleum Resource Rent Tax Assessment Act 1987 . Private rulings on relevant provisions are made under Division 359 and they must be in relation to a specified scheme. The legislative basis for public rulings on relevant provisions is Division 358. An arrangement is any arrangement, agreement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable (or intended to be enforceable) by legal proceedings. [27] (Tax shortfall) • Additional tax representing the difference between the self-assessed [28] liability and the correct liability according to law, or • excess credit, grant or benefit representing the difference between the self-assessed entitlement and the correct entitlement according to law. [29] This concept is also referred to as tax shortfall in this practice statement, where appropriate. For superannuation guarantee purposes, references to a tax shortfall are taken to include a superannuation guarantee charge shortfall. (a) the A New Tax System (Wine Equalisation Tax) Act 1999 ; and (b) any Act that imposes wine tax; and (c) the A New Tax System (Wine Equalisation Tax and Luxury Car Tax Transition) Act 1999 so far as it relates to the Acts covered by paragraphs (a) and (b); and (d) the TAA so far as it relates to any Act covered by paragraphs (a) to (c). [31] 10. There are many forms of assistance that the ATO provides, both orally and in writing, about the laws administered by the Commissioner. In accordance with Taxpayers' Charter principles, the ATO aims to provide accurate, consistent and clear advice and guidance to help taxpayers understand their rights and entitlements and meet their obligations. 11. This practice statement explains each form of advice and guidance provided by the ATO (subject to the exclusions set out in paragraph 7 of this practice statement) and the level of protection provided by each. 12. Advice is the Commissioner's opinion on the application of the law that the Commissioner administers. It is binding on the Commissioner and is generally provided in the form of a ruling. It encompasses public, private and oral rulings as well as administratively binding advice. | Rulings: 13. Part 5-5 provides the legislative framework for rulings to be given about the way in which the provisions of certain tax laws apply. 14. Provisions that are relevant to rulings are defined in section 357-55. Relevant provisions are provisions of Acts and regulations administered by the Commissioner that are about any of the following: • income tax • Medicare levy • fringe benefits tax • franking tax (defined as franking deficit tax, over-franking tax and venture capital deficit tax) • withholding taxes (including non-resident withholding taxes and mining withholding tax) • petroleum resource rent tax [32] • minerals resource rent tax [33] • indirect tax [34] • excise duty [35] • the administration or collection of those taxes, levies and duties • product grants or benefits mentioned in section 8 of the Product Grants and Benefits Administration Act 2000 (including energy grants, cleaner fuel grants and product stewardship (oil) benefits) or the administration or payment of such grants and benefits • net fuel amount, [36] or the administration, collection or payment of a net fuel amount [37] • a net amount, or the administration, collection or payment of a net amount, [38] and • a wine tax credit, or the administration or payment of a wine tax credit. [39] • income tax • Medicare levy • fringe benefits tax • franking tax (defined as franking deficit tax, over-franking tax and venture capital deficit tax) • withholding taxes (including non-resident withholding taxes and mining withholding tax) • petroleum resource rent tax [32] • minerals resource rent tax [33] • indirect tax [34] • excise duty [35] • the administration or collection of those taxes, levies and duties • product grants or benefits mentioned in section 8 of the Product Grants and Benefits Administration Act 2000 (including energy grants, cleaner fuel grants and product stewardship (oil) benefits) or the administration or payment of such grants and benefits • net fuel amount, [36] or the administration, collection or payment of a net fuel amount [37] • a net amount, or the administration, collection or payment of a net amount, [38] and • a wine tax credit, or the administration or payment of a wine tax credit. [39] 15. A ruling is an expression of the Commissioner's opinion of the way in which a provision of a tax law applies, or would apply, to a taxpayer who has obligations or entitlements under those laws. A ruling is a way for a taxpayer to find out the Commissioner's view about how the laws apply, thereby reducing uncertainty when they self-assess their obligations or entitlements. 16. A ruling confers the highest level of protection so that a taxpayer is not liable to pay any more tax or excise duty (or repay any credit, grant or benefit received) than is contemplated in the ruling if the ruling applies to them, and they rely on it, but it is later found to be incorrect. In other words, the Commissioner is legislatively prevented from collecting the tax that would otherwise be payable under the law. 17. Advice in the form of a ruling is to be given in accordance with the procedures relevant to the preparation and authorisation of the respective type of ruling. There are three types of rulings: • public rulings • private rulings, and • oral rulings (however, oral rulings cannot be provided in relation to indirect tax, excise or MRRT matters). • public rulings • private rulings, and • oral rulings (however, oral rulings cannot be provided in relation to indirect tax, excise or MRRT matters). | Application of rulings and level of protection: 18. A ruling applies to a taxpayer if, at the relevant time (that is, the time they rely on the ruling), the following are satisfied: • the taxpayer is a member of the class to whom the ruling applies (in the case of a public ruling) • the ruling is given in response to a ruling application (in the case of a private ruling or oral ruling) • the facts, assumptions or conditions set out in the ruling are met [40] , and • the law to which the ruling relates remains in force. • the taxpayer is a member of the class to whom the ruling applies (in the case of a public ruling) • the ruling is given in response to a ruling application (in the case of a private ruling or oral ruling) • the facts, assumptions or conditions set out in the ruling are met [40] , and • the law to which the ruling relates remains in force. 19. A ruling binds the Commissioner if it applies to a taxpayer and they rely on it by acting (or omitting to act) in accordance with it. [41] In the case of GST groups, joint ventures and incapacitated entities, an indirect tax ruling binds the Commissioner in relation to both the representative entity and the member entity where both members rely on the ruling by acting (or omitting to act) in accordance with it. [42] 20. The effect of a ruling binding the Commissioner is that there is no tax shortfall even if the ruling is incorrect. The false or misleading statement penalty and interest charges are not applied in these circumstances. 21. For example, a private ruling is issued to a particular taxpayer stating that a certain type of expense is deductible. The taxpayer relies on this ruling and claims a deduction for this expense in their income tax return. Subsequently, a decision is given by a court in another case that this particular expense is not deductible. The Commissioner is bound by the private ruling and as a result cannot amend the taxpayer's assessment to disallow the deduction for this expense. This is so even though other taxpayers had not claimed the particular expense and were subject to the tax that would otherwise be payable under the law. 22. If a taxpayer relies on a ruling and is misled by it, the taxpayer will receive protection from the false or misleading statement penalty and, if they have acted reasonably and in good faith, from interest charges. A taxpayer may be misled by a ruling even if the information contained in it is correct. A ruling may mislead because of something contained in it, or because something is omitted from the statement. 23. Theoretically, a ruling may be so misleading that it is incorrect. [43] Whether this is the case or not depends, in part, on the taxpayer or the class of persons to which it is directed. An assessment that a public ruling is so misleading as to be incorrect needs to be made generally and not on an individual case basis. The misleading nature of the ruling would ordinarily be recognised publicly, for example, by the issue of an addendum or erratum. If a ruling is accepted as being so misleading as to be incorrect then taxpayers who relied on the ruling would be protected from the tax that would otherwise be payable under the law. 24. When the Commissioner is legally bound by a ruling [44] and the correct application of the law is less favourable to a taxpayer than the ruling provides, the ruling protects the taxpayer against the law being applied by the Commissioner in that less favourable way. The ruling does not bind the taxpayer, who retains their entitlements under the law where those entitlements are more favourable to the taxpayer than is expressed in the ruling. [45] 25. If the Commissioner has made a ruling about a relevant provision [46] and that provision is re-enacted or remade, the ruling is taken to be about the re-enacted or remade provision, to the extent that the new law expresses the same ideas as the old law. However, if the law is substantively changed, the part of the ruling dealing with the changed law ceases to apply. [47] | GST payable: 26. There are special rules that apply in relation to the amount of GST payable where a supplier relies on a ruling. [48] 27. Despite anything else in the GST law, if a supplier relies on a ruling, the GST payable on the supply is the amount worked out in accordance with that ruling. Because the input tax credit entitlement of the recipient of the supply depends on the GST payable by the supplier, the reliance on a ruling by the supplier can affect the recipient's input tax credit entitlement. [49] 28. However, this will not be the case if the supplier stops relying on the ruling (for example by acting inconsistently with it) [50] or for the purposes of an objection to the ruling under section 359-60. [51] | Public rulings: 29. A public ruling is a published statement of the Commissioner's opinion of how a provision of tax law applies, or would apply, to taxpayers in relation to a class of schemes or to a class of taxpayer generally, rather than in respect of the specific circumstances of a particular taxpayer. Public rulings provide advice for taxpayers, their advisers and ATO personnel on the interpretation of tax laws that affect liability or entitlements under those laws. In addition, public rulings can address administrative and procedural provisions, including those relating to the collection of liabilities. ATO personnel should refer to the intranet version of the Public rulings manual for current procedures on producing a public ruling. 30. The ATO primarily issues formal public rulings grouped in different series (for example, the 'TR' series). [52] However, there can also be other publications not in a formal ruling series which are declared to be public rulings. [53] All public rulings are clearly stated to be public rulings. [54] 31. Notice of the making of a public ruling is published in the Commonwealth of Australia Gazette . Public rulings are accessible via the Legal Database. 32. Topics on which the ATO is preparing public rulings are listed on the 'Public Rulings Program,' which is also accessible to taxpayers on the ATO website. The relevance and performance of the public rulings program is monitored by the National Tax Liaison Group, which consists of representatives of the major tax, law and accounting professional associations and senior members of the ATO. Topics on the program arise from or reflect suggestions made either internally through ATO issue escalation processes, or from external sources such as tax professional and industry representative bodies. These topics are subject to risk assessment and prioritisation according to the ATO's Enterprise Risk Management Framework. [55] 33. The ATO's Public Rulings and Superannuation Rulings Panels were established to consider and advise on the proposed interpretation of the law in major rulings. They are comprised of several of the most senior ATO personnel as well as external representatives who are respected tax practitioners and/or academics. The primary role of the rulings panels is to discuss the technical and practical merits of the draft ruling presented to them by the authoring team and to advise on our proposed interpretation of the law. The rulings panels are advisory and not decision making bodies. The rulings panels are one of a number of measures to ensure the highest quality of public rulings. | Public rulings under Division 358: 34. Division 358 provides for the making, application and withdrawal of public rulings. A public ruling is the written expression of the Commissioner's considered view on the way in which a relevant provision [56] applies, or would apply, to an 'entity' or class of entities including in relation to a defined 'scheme' or class of schemes. [57] 35. A public ruling binds the Commissioner from the time it is published or such earlier or later time as specified in the ruling. [58] Where a new public ruling (other than an indirect tax or excise ruling) [59] changes the Commissioner's general administrative practice about the way in which a relevant provision applies, in a way that is less favourable to entities, the new ruling (that is, the proper operation of the law) applies only in relation to schemes that started after the publication date of the new ruling. [60] The ATO view on when a general administrative practice is established is set out in Taxation Determination TD 2011/19 Tax administration: what is a general administrative practice for the purposes of protection from administrative penalties and interest charges ?. 36. If there is a change to a general administrative practice [61] the ATO would usually communicate the change by way of a public ruling. [62] However, where there is a change to a general administrative practice that is less favourable for taxpayers and that change is not communicated by way of a public ruling, the ATO will not necessarily amend assessments that were raised consistently with a practice in place at the time of the assessments. As a general rule the ATO will amend assessments only where tax avoidance is involved or the practice has been exploited in an unintended way. | Inconsistent rulings: Public rulings other than indirect tax or excise rulings 37. If a new public ruling (other than an indirect tax or excise ruling) is inconsistent with a previously issued private or oral ruling, the taxpayer can rely on either the new public ruling or the existing private or oral ruling if the relevant income year or scheme specified in that ruling has commenced. [63] In some situations a new public ruling may apply in addition to an existing ruling and in this case an entity may choose which ruling to rely on. [64] Taxation Ruling TR 2006/10 Public Rulings addresses this and other aspects of public rulings under Division 358. Public indirect tax or excise rulings 38. If a new public indirect tax or excise ruling is inconsistent with a previously issued indirect tax or excise private ruling, the new public ruling is taken to apply from the later of: • the time it is made, and • the commencement time specified in the public ruling. The indirect tax or excise private ruling, to the extent of the inconsistency, is taken to cease to apply at the later time set out above. [65] • the time it is made, and • the commencement time specified in the public ruling. The indirect tax or excise private ruling, to the extent of the inconsistency, is taken to cease to apply at the later time set out above. [65] 39. In some situations a new public indirect tax or excise ruling may apply in addition to an existing public ruling and in this case an entity may choose which ruling to rely on to the extent of the inconsistency. [66] | Withdrawal of a ruling: 40. A public ruling provides protection to taxpayers where it is favourable to them until it is withdrawn at the time specified by notice of the withdrawal published in the Commonwealth of Australia Gazette [67] or when it specifies that it ceases to apply. [68] The withdrawal takes effect from the time specified in the notice and that time must not be before the time the notice is published. [69] 41. Details of the withdrawal of a public ruling can also be found on the Legal Database. The Commissioner can have regard to the consequences that an immediate date of withdrawal may have if a replacement ruling provides for different treatment, and may therefore delay the withdrawal to minimise any adverse consequences. The Public rulings manual found on the intranet provides ATO personnel with instructions on preparing addenda and withdrawal documents for public rulings. | Relying on a ruling: 42. A public ruling may be relied on by anyone to whom it properly applies. [70] An entity does not need to know of the existence of a public ruling to rely [71] on it if, for instance, they have self-assessed in the same way as the ruling provides. An entity may rely on a public ruling at any time unless they are prevented by a time limit imposed by a tax law (such as an entity's period of review for their assessment). It is not necessary to rely on the public ruling at the first opportunity. [72] 43. When self-assessing a liability or entitlement, an entity is not obliged to act in accordance with a public ruling that applies to them. However, if a public ruling applies to an entity and they do not follow it when self-assessing their liability or entitlement, they can expect the ATO to amend their assessment if their assessment is examined later. They then would have the usual rights of objection and appeal against the assessment. [73] 44. Failure to follow a public ruling does not necessarily lead to the application of any shortfall penalties. [74] Such penalties only apply if the taxpayer has failed to take reasonable care, [75] or where a relatively large adjustment is involved in relation to an income tax, PRRT or MRRT matter and the taxpayer does not have a reasonably arguable position (or the penalty relates to certain tax avoidance schemes). MT 2008/2 explains that whether the taxpayer has a reasonably arguable position will depend on whether the view taken by the taxpayer is about as likely as not to be correct (even if the ATO takes a different view). 45. Where a taxpayer does not rely on a public ruling and has a tax shortfall they will not be protected from interest charges. However, some or all of this interest may be remitted depending on the circumstances. In considering any remission, ATO personnel would need to have regard to the principles in PS LA 2006/8. Existing public rulings under Part IVAAA 46. A public ruling made under (the now repealed) Part IVAAA of the TAA continues in force as if it had been made under Division 358. [76] Existing public indirect tax rulings before 1 July 2010 47. Only indirect tax rulings in force just before 1 July 2010 and labelled as a public ruling or described as a public ruling in the Commonwealth of Australia Gazette are treated as if they had been made under the amended Division 358. [77] 48. Consequently, Division 358 applies to rulings made before 1 July 2010 issued as part of the Commissioner's formal rulings series for indirect taxes. This includes Goods and Services Tax Rulings (GSTRs), Goods and Services Tax Determinations (GSTDs), some Goods and Services Tax Bulletins (GSTBs), Wine Equalisation Tax Rulings (WETRs), Wine Equalisation Tax Determinations (WETDs) and Luxury Car Tax Determinations (LCTDs). 49. Division 358 also applies to other ATO publications about indirect tax laws that were issued before 1 July 2010 and are labelled as public rulings. This includes some items on industry partnership issues registers which are published on ato.gov.au 50. 'Other advices', a type of advice issued by the ATO before 1 July 2010, were public indirect tax rulings under former section 105-60. They are now written guidance from 1 July 2010. | Product rulings: 51. Product rulings are public rulings on the application of relevant provisions [78] of tax law to a scheme in which a number of taxpayers individually enter into substantially the same transactions with a common entity or group of entities. 52. Product rulings enable taxpayers to obtain the Commissioner's public views on the application of tax provisions claimed to be applicable to participants in investment or financial schemes (or 'products'). [79] The Commissioner has a discretion whether or not to issue a product ruling in relation to any defined scheme, and may decline to do so in some circumstances. [80] A product ruling does not provide any assurance about the commercial or financial viability of the scheme. 53. A written application is required for a product ruling. The information that should be addressed in an application is detailed in a checklist, which can be downloaded from the ATO website. Providing the information required by the checklist will assist in expediting the issue of the product ruling. 54. A draft product ruling is sent to the applicant to obtain certain agreements and statements. [81] Unlike the final product ruling it is not intended that the draft product ruling be relied upon. It is not a publication approved in writing by the Commissioner. Consequently, there is no protection against liability for any tax shortfall nor, unless the Commissioner's discretion is exercised, against false or misleading statement penalty and interest charges if a taxpayer seeks to rely on statements in the draft ruling. 55. A final product ruling provides protection to potential participants in respect of the tax treatment of a defined scheme, provided the scheme is carried out in accordance with the way it is described in the product ruling. The highest levels of disclosure are therefore expected of the applicant for the ruling. It should be a full and true disclosure. 56. If the scheme described in the product ruling differs from the scheme that is actually entered into or carried out, the Commissioner is not bound by the ruling and consequently participants cannot rely on it. This is because it does not apply to the scheme actually entered into or carried out, but to a different scheme. In those circumstances, the Commissioner will consider the nature of the variation found and the ruling may be modified to reflect a difference in the carrying out of the scheme. This may occur by way of an 'addendum' to the product ruling, or by a replacement ruling. 57. The relevant product ruling will be withdrawn if the Commissioner finds that there is a material difference in the carrying out of the scheme from the scheme described in the product ruling. There will be a material difference in circumstances where the scheme has not been entered into or carried out as described in the ruling, and the difference in implementation results in a change in tax outcome for the participants. 58. Prospective participants in a defined scheme may wish to seek assurances from the promoter of the scheme that it will be carried out in the manner described in the product ruling relating to the scheme. They may also seek an independent opinion as to the commercial and financial viability of the product. 59. Further information about product rulings is contained in PR 2007/71. | Class rulings: 60. Class rulings are public rulings issued in response to a request from an entity seeking advice about the application of relevant provisions [82] to several taxpayers in relation to a defined scheme (other than an investment or financial product for which a product ruling can be issued). Class rulings prevent the need for a private ruling to be sought by, or on behalf of, each taxpayer within the class of entity affected by the scheme. In such cases, those seeking a class ruling should make a full and true disclosure about the existing or proposed arrangements. 61. The following are examples of situations where a class ruling may be given: • advice sought by an employer about the income tax consequences of an employee share acquisition plan for employees • advice sought by a company about the income tax consequences for its shareholders of a demerger by the company, or of a proposed distribution by the company, and • advice sought by a Commonwealth, state or territory government or agency about a proposed program, for example, an industry restructure which has tax consequences for participants in that industry. • advice sought by an employer about the income tax consequences of an employee share acquisition plan for employees • advice sought by a company about the income tax consequences for its shareholders of a demerger by the company, or of a proposed distribution by the company, and • advice sought by a Commonwealth, state or territory government or agency about a proposed program, for example, an industry restructure which has tax consequences for participants in that industry. 62. Applications for class rulings should be in writing. The information that should be included in the application is outlined on the ATO website. [83] Providing the information required will assist in expediting the issue of the class ruling. 63. Applications for a priority class ruling must include a full brief which identifies all relevant information, identifies all the issues and the position for and against each issue fully argued. For more information on the priority rulings process refer to Law Administration Practice Statement PS LA 2009/2 The priority ruling process . 64. A draft class ruling is sent to the applicant to obtain certain agreements and statements. [84] Unlike the final class ruling it is not intended that the draft class ruling be relied upon. It is not a publication approved in writing by the Commissioner. Consequently, there is no protection against liability for any tax shortfall nor, unless the Commissioner's discretion is exercised, false or misleading statement penalty and interest charges if a taxpayer seeks to rely on statements in the draft class ruling. 65. Further information about class rulings is contained in Class Ruling CR 2001/1 Class Rulings system . | ATO publications, or statements in publications, declared as public rulings: 66. ATO publications not having a public ruling title may nevertheless contain expressions of opinion about the application of relevant provisions of tax law. Such publications, or statements within them, may be declared to be public rulings either for a defined class of entity or more generally. 67. Such a publication has to be declared to be a public ruling, by stating expressly that it is a public ruling, and it should explain the level of protection it provides. As with all public rulings under Division 358, notice of the publication of such a document as a public ruling must be published in the Commonwealth of Australia Gazette . [85] 68. However, it should be noted that the scenario mentioned in paragraph 66 of this practice statement is not the Commissioner's usual practice. The information contained in general publications is often simply expressed and provides practical, step by step assistance. In the interests of making them easy to understand, legal language is avoided. The use of simple language and the absence of the rigorous review processes associated with public rulings increases the risk that errors will be made in general publications, and this informs the Commissioner's reluctance to be bound by them. 69. Errors made by the Commissioner, in the taxpayer's favour, in legally binding material impact on the general community. It is the community that forgoes the revenue lost because of the error. In addition, those taxpayers, who are able to rely on that erroneous view of the law, may be able to obtain a benefit that is unavailable to other taxpayers. It is these unfavourable outcomes that the Commissioner is avoiding by not being bound by all general publications. | Draft public rulings: 70. A draft public ruling is not a ruling. It is a consultative document which sets out the Commissioner's preliminary view about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entity, in relation to a defined scheme or class of schemes. 71. Unless otherwise stated in the document, reliance on a statement in a current draft ruling provides the same level of protection as written guidance. [86] A taxpayer who relies on a draft ruling that is found to be incorrect, or misleading and makes a mistake as a result, will still be liable for any tax that would be otherwise payable under the law (unless a time limit imposed by the law precludes the liability). However, they are protected against false or misleading statement penalty and, if they have relied on the draft ruling reasonably and in good faith, against interest charges. [87] 72. Where a draft ruling sets out a view on how a relevant provision applies, and that view represents the Commissioner's general administrative practice, then that can affect the commencement date of the final ruling. In such a case, if the final public ruling (other than an indirect tax or excise ruling) takes a position that is less favourable to the taxpayer than the draft ruling, the view of the law taken in the final ruling can only be applied to schemes begun to be carried out after the final ruling is published. [88] Publicly issued rulings that are not legally binding (IT, MT, SGR and SCR series) [89] 73. In the interests of sound administration, the Commissioner has provided advice, in the form of public rulings, about the application of certain laws which do not form part of a legally binding rulings framework. 74. The Income Tax (IT) and Capital Gains Tax (CGT) Determination series were published prior to 1 July 1992 which is before any legislative framework for public rulings was established. Therefore, these two series are not legally binding on the Commissioner. 75. Publicly issued rulings in the Superannuation Guarantee Rulings (SGR), and Superannuation Contributions Rulings (SCR) series are not covered by any current legislative framework. Therefore, the SGR and SCR series of rulings are also not legally binding on the Commissioner. [90] 76. Rulings that are published within the MT series generally deal with tax laws that do not fit easily within any of the other series. However, some or all of a ruling in the MT series may be legally binding on the Commissioner as there may be a discussion of the administration or collection of a relevant provision for a ruling. In these circumstances, this section of the MT ruling is a public ruling under Division 358. 77. When the time comes to assess liability, the law as it then exists must be applied to the facts as established at that time. [91] Where the ruling is not legally binding, the basic administrative policy of the ATO is to stand by what is said in these rulings and to depart from them only if there are good and substantial reasons. Any departure would be confined to situations where: • there have been legislative changes since the ruling issued • a tribunal or court decision has affected the ATO's interpretation of the law since the ruling issued, or • for other reasons, the ruling is no longer considered appropriate. For example, if commercial practice has changed, the ruling has been exploited in an abusive and unintended way, or the ruling is found on reconsideration to be wrong in law. • there have been legislative changes since the ruling issued • a tribunal or court decision has affected the ATO's interpretation of the law since the ruling issued, or • for other reasons, the ruling is no longer considered appropriate. For example, if commercial practice has changed, the ruling has been exploited in an abusive and unintended way, or the ruling is found on reconsideration to be wrong in law. 78. In the case of a legislative change, the timing of a departure from previous practice will depend on the date of effect of the legislation. In other cases, any such departure would be announced by issuing public advice or guidance, and would normally apply to transactions entered into after the issue of that public advice or guidance, unless particular circumstances warrant another approach. 79. In the event of a departure from a ruling of this kind, a taxpayer who relies on the ruling before its withdrawal will be protected from any false or misleading statement penalty that might otherwise arise. In addition, if relying on the ruling would otherwise give rise to an interest charge under a relevant provision, [92] the taxpayer will be protected from interest charges if they relied on the ruling reasonably and in good faith. | Private rulings: 80. A private ruling is a written expression of the Commissioner's opinion on how a relevant provision applies, or would apply, to a particular entity in relation to a specified scheme, arrangement or transaction. [93] It provides the taxpayer with advice on how the Commissioner will apply the tax law (which includes its administration or collection) to their particular circumstances. The taxpayer or their agent, may apply for a private ruling under Division 359 in the form approved by the Commissioner. Information about applying for private rulings can be obtained from ATO shopfronts and on the ATO website. 81. One of the basic requirements for taxpayers is to provide a full and true disclosure of the material facts. Otherwise the ruling may not be made in relation to the scheme that is actually proposed or that actually occurred. While not mandatory, for ruling requests made through tax professionals (including in-house tax professionals), applicants are encouraged to also provide a summary of the research and analysis of the technical issues. This ensures that the ATO takes into account the issues the taxpayer considers to be the most relevant to the case and assists with the timeliness of the response. 82. Applications for a priority private ruling must include a full brief, which identifies all issues and fully states the position for and against each issue. For more information on priority rulings process refer to PS LA 2009/2. 83. ATO personnel must refer to ORCLA as well as the relevant public rulings and law administration practice statements for guidance in preparing a private ruling, including the approval for issue by authorising officers. [94] | Private rulings under Division 359: 84. Section 359-5 provides that a private ruling under Division 359 is a ruling made by the Commissioner on the way in which a relevant provision [95] of tax law applies, or would apply, to an entity in relation to a specified scheme. 85. A private ruling may cover any matter involved in the application of a relevant provision to the specified scheme, including an ultimate conclusion of fact. For example: • the status of an individual as a resident of Australia for income tax purposes • whether an activity constitutes the carrying on of a business or an enterprise, or • the value of a CGT asset. TR 2006/11 addresses this and other aspects of private rulings under Divisions 357 and 359. • the status of an individual as a resident of Australia for income tax purposes • whether an activity constitutes the carrying on of a business or an enterprise, or • the value of a CGT asset. TR 2006/11 addresses this and other aspects of private rulings under Divisions 357 and 359. Applying for a private ruling under Division 359 86. Subsection 359-10(1) provides that an applicant for a private ruling can be an 'entity', their 'agent', or a 'legal personal representative'. An agent is any person to whom the entity has given authority to apply for a private ruling on their behalf. 87. Usually the ruling applies only to the entity in respect of whom the application was made. However, a private ruling given to a trustee in respect of the tax affairs of a trust continues to apply where a new trustee is appointed. In situations where the trustee is replaced, the private ruling continues to apply to the new trustee, or any trustee replacing the new trustee, provided the ruling would have applied to the former trustee. [96] A ruling (other than an indirect tax or excise ruling) given to or for the trustee of a trust relating to the affairs of the trust also applies to the beneficiaries of the trust. [97] 88. An application for a private ruling must be made in the approved form and must contain such information relating to the ruling as required by the form. [98] 89. To facilitate this, the ATO provides two standard Private ruling application forms (one form for tax professionals and another form for others) specifying the requirements of an application. [99] These documents are available from the ATO website. In most cases, all that taxpayers are required to do is add their query, provide the relevant facts and sign the form. 90. Tax professionals (including in-house tax professionals) are encouraged to use these standard forms and follow their requirements. However, the Commissioner does not insist on the use of these standard forms. The application will be in the approved form [100] provided it is in writing and contains all the necessary information, including copies of all relevant documents, the checklisted items and declaration referred to in the relevant standard form. While not mandatory, for ruling requests made through tax professionals (including in-house tax professionals), applicants are encouraged to also provide a summary of research and analysis of the technical issues. [101] 91. A tax agent, BAS agent or business entity that is registered as a user of the Tax Agent Portal, BAS Agent Portal or the Business Portal may lodge their private ruling application via the relevant portal. The portals are secure online environments for communicating with the ATO. 92. If a written request for advice is not in the approved form, the case officer should contact the taxpayer or their agent to ascertain the type of assistance required. If their needs can only be satisfied by a private ruling, they should be invited to supply the necessary information and be given guidance in making a valid application. If another form of assistance could satisfy their needs - for instance, an oral ruling, or guidance (including an ATO publication) - the case officer must explain the alternatives available (and their respective levels of protection). They must then invite the taxpayer to choose the form of assistance they prefer, provided the form of assistance is appropriate for the request. For example, oral guidance is generally inappropriate in relation to complex legal or factual matters. [102] Requirements for a private ruling under Division 359 93. A private ruling can only be given on a specified scheme. The applicant must describe the scheme on which they are seeking a ruling. The ruling is made on the basis of: • information (including documents identifying that information) provided in the application and by the applicant after the application (such as in response to any request by the ATO for further information) [103] • any assumptions made by the Commissioner on which the correctness of the ruling might depend, such as about unknowable facts, including for example, about future events [104] (see paragraph 97 of this practice statement), and • any relevant information from another source (see paragraph 95 of this practice statement). [105] • information (including documents identifying that information) provided in the application and by the applicant after the application (such as in response to any request by the ATO for further information) [103] • any assumptions made by the Commissioner on which the correctness of the ruling might depend, such as about unknowable facts, including for example, about future events [104] (see paragraph 97 of this practice statement), and • any relevant information from another source (see paragraph 95 of this practice statement). [105] 94. Importantly, if an applicant provides information indicating that the proposed scheme will be entered into or carried out in a way that is materially different from that described in the original application, this is to be treated as a new application for a private ruling. ORCLA provides procedural instructions for actioning such cases including amending the existing application in certain circumstances. Whichever procedure is followed the case is to be actioned so that work proceeds without any discontinuity. 95. Generally, if additional information is necessary to make a private ruling it must be requested from the applicant. [106] The Commissioner can take into account information provided by an entity other than the applicant, provided that the Commissioner tells the applicant what the information is and that the Commissioner intends to take the information into account. [107] The applicant must be given a reasonable opportunity (ordinarily 28 days) to comment on the use of that information before the ruling is made. [108] 96. Where disclosing information obtained from third parties to the applicant would breach the tax secrecy provisions, privacy legislation or the confidentiality of the entity providing the information, the Commissioner: • must not use the information in making the private ruling, or • should decline to rule where the information is material to the outcome of the private ruling. • must not use the information in making the private ruling, or • should decline to rule where the information is material to the outcome of the private ruling. 97. An assumption should not be made if the applicant could reasonably be expected to have knowledge of the relevant fact. If making a private ruling would depend on a fact that may not occur, for instance about a future event, the Commissioner may either decline to make the ruling or make the ruling on the basis of an assumption. If the Commissioner proposes to make an assumption in making the ruling, the applicant must be informed of the assumption proposed to be made and given a reasonable opportunity (ordinarily 28 days) to respond. [109] 98. The Notice of private ruling may consist of a number of separate rulings, each stating the Commissioner's opinion of how a relevant provision applies. Ordinarily, private rulings should only be given on the issue(s) raised in the application. However, where a related issue is not directly raised in the application, but is crucial to providing an accurate ruling on the issue(s) raised in the application, a related ruling can be made without first seeking the applicant's consent to rule on the related issue. [110] The important consideration is that the taxpayer should not be misled by the private ruling and its scope should be clear on its face. 99. Where a related issue is not crucial to providing an accurate ruling on issues raised, a private ruling may be made on the related issue if: • a ruling on the related issue would benefit the recipient of the ruling by informing them of their wider tax obligations in respect of the scheme set out in the application, and • the applicant consents to those related issues being addressed in the private ruling. In the absence of that consent, and in accordance with ORCLA procedures, the case officer should insert a note in the Notice of private ruling warning the recipient that some related issues have been identified that may be relevant to their scheme. The recipient should be advised that a further application would need to be made to obtain private rulings on those issues. It is important, however, that this process should not unduly delay the provision of advice on the particular matters requested. • a ruling on the related issue would benefit the recipient of the ruling by informing them of their wider tax obligations in respect of the scheme set out in the application, and • the applicant consents to those related issues being addressed in the private ruling. In the absence of that consent, and in accordance with ORCLA procedures, the case officer should insert a note in the Notice of private ruling warning the recipient that some related issues have been identified that may be relevant to their scheme. The recipient should be advised that a further application would need to be made to obtain private rulings on those issues. It is important, however, that this process should not unduly delay the provision of advice on the particular matters requested. 100. When considering a request for a private ruling, case officers must consider the application of any general anti-avoidance rules (for example, Part IVA of the ITAA 1936 or Division 165 of the GST Act). Case officers should follow the instructions in Law Administration Practice Statement PS LA 2005/24 Application of General Anti-Avoidance Rules [111] and the procedures in ORCLA. Declining to make a private ruling under Division 359 101. The Commissioner must comply with a private ruling application unless there is a basis to decline to make the ruling. Without attempting to provide an exhaustive set of circumstances, the Commissioner may decline to make a private ruling if: • making the ruling would prejudice or unduly restrict the administration of a taxation law, [112] for example if: - the application is frivolous or vexatious - the applicant's liability or entitlement would not be affected by the outcome of the ruling because the assessment review period has ended - making the private ruling would require an unreasonable diversion of resources, for instance, if it would require the allocation of resources disproportionate to the subject of the ruling - the scheme is speculative, or not developed sufficiently for it reasonably to be considered in serious contemplation at the time of the application - the applicant has refused to pay an amount charged for valuation services where a valuation is required to make the private ruling [113] - further information necessary to make the ruling has been requested from the applicant and the applicant has not responded within a reasonable time, [114] or - information provided by an entity other than the applicant is material to the outcome of the ruling, but conveying that information to the applicant would breach the tax secrecy provisions, privacy legislation or the confidentiality of the person providing the information, [115] • the correctness of a private ruling would depend on an assumption about a future event or some other matter and it is considered inappropriate to make a private ruling on the basis of that assumption [116] • the matter sought to be ruled on is already being (or has been) considered by the Commissioner for the entity, for example, in the course of an audit or in deciding an objection against an assessment, or • the matter sought to be ruled on is about how the Commissioner would exercise a power under a relevant provision [117] when the Commissioner actually exercises the power or decides that it is not appropriate to do so. • making the ruling would prejudice or unduly restrict the administration of a taxation law, [112] for example if: - the application is frivolous or vexatious - the applicant's liability or entitlement would not be affected by the outcome of the ruling because the assessment review period has ended - making the private ruling would require an unreasonable diversion of resources, for instance, if it would require the allocation of resources disproportionate to the subject of the ruling - the scheme is speculative, or not developed sufficiently for it reasonably to be considered in serious contemplation at the time of the application - the applicant has refused to pay an amount charged for valuation services where a valuation is required to make the private ruling [113] - further information necessary to make the ruling has been requested from the applicant and the applicant has not responded within a reasonable time, [114] or - information provided by an entity other than the applicant is material to the outcome of the ruling, but conveying that information to the applicant would breach the tax secrecy provisions, privacy legislation or the confidentiality of the person providing the information, [115] • the correctness of a private ruling would depend on an assumption about a future event or some other matter and it is considered inappropriate to make a private ruling on the basis of that assumption [116] • the matter sought to be ruled on is already being (or has been) considered by the Commissioner for the entity, for example, in the course of an audit or in deciding an objection against an assessment, or • the matter sought to be ruled on is about how the Commissioner would exercise a power under a relevant provision [117] when the Commissioner actually exercises the power or decides that it is not appropriate to do so. - the application is frivolous or vexatious - the applicant's liability or entitlement would not be affected by the outcome of the ruling because the assessment review period has ended - making the private ruling would require an unreasonable diversion of resources, for instance, if it would require the allocation of resources disproportionate to the subject of the ruling - the scheme is speculative, or not developed sufficiently for it reasonably to be considered in serious contemplation at the time of the application - the applicant has refused to pay an amount charged for valuation services where a valuation is required to make the private ruling [113] - further information necessary to make the ruling has been requested from the applicant and the applicant has not responded within a reasonable time, [114] or - information provided by an entity other than the applicant is material to the outcome of the ruling, but conveying that information to the applicant would breach the tax secrecy provisions, privacy legislation or the confidentiality of the person providing the information, [115] 102. Therefore, the Commissioner may decline to rule on a matter relating to the exercise of a discretion if, in the circumstances of the applicant's case, it would be more appropriate to exercise the discretionary power under that provision, or to inform the applicant that the discretionary power will not be exercised. Generally, applicants seeking the exercise of a discretionary power should request the exercise of that power rather than apply for a private ruling on how that power might be exercised. For example, in relation to a discretion to defer the time for payment of tax, the Commissioner may just decide to defer the time at which an amount is payable by the applicant rather than make a private ruling. 103. A decision to decline to make a private ruling must be authorised by an authorising officer. [118] The applicant must be provided with reasons in writing if the making of the private ruling is declined. [119] Making a private ruling under Division 359 104. A private ruling is made by recording it in writing and giving a copy of it to the applicant. [120] 105. ATO personnel should not generally provide pre-ruling opinions, draft private rulings or any other written expressions or written endorsements of informal assistance that may mislead taxpayers if that preliminary view is subsequently changed. [121] File notes of telephone conversations or minutes of interviews may be provided to the taxpayer if they do not contain advice, or if the risk of misleading taxpayers is properly managed. This does not mean that ATO personnel cannot undertake discussions with the applicant to establish the particulars of the scheme and its purpose. Nor does this mean that a tax officer is precluded from general discussions with a taxpayer in relation to an issue. These discussions are encouraged. The tax officer must ensure that the taxpayer is not misled and must clearly explain that any comments made will not be binding on the Commissioner. 106. When making a private ruling, ATO personnel must follow relevant corporate policy [122] and business line procedures for applying or creating the precedential ATO view. 107. A private ruling must: • state that it is a private ruling [123] • identify the entity to which it applies [124] • specify the scheme and the relevant provision to which the ruling relates, [125] and • detail any assumptions made. [126] • state that it is a private ruling [123] • identify the entity to which it applies [124] • specify the scheme and the relevant provision to which the ruling relates, [125] and • detail any assumptions made. [126] 108. A private ruling should specify the time it begins to apply and the time it ceases to apply, for example, a particular income year. [127] This can be any time in the future or the past. [128] 109. If a private ruling does not specify the date from which it begins, then the ruling applies from the time the ruling is made. 110. If a private ruling (other than a private indirect tax or excise ruling) does not specify an end time, it ceases to apply at the end of the income year or other accounting period in which it started to apply. [129] 111. If a private indirect tax or excise ruling does not specify an end time it continues to apply until it is overridden by a later indirect tax or excise ruling. [130] 112. ORCLA provides guidelines about the time of application for private rulings and on ruling for extended periods. 113. The Notice of private ruling given to the applicant displays an authorisation number [131] and is accompanied by an explanatory note setting out its level of protection. Relying on a private ruling under Division 359 114. A private ruling binds the Commissioner (not the taxpayer) if the ruling applies to the entity and that entity relies on the ruling (by acting, (or omitting to act), in accordance with it). [132] In other words, taxpayers who follow a ruling that applies to them can ensure that the Commissioner is bound to assess them as set out in the ruling in relation to a particular matter. [133] However, even if a taxpayer does follow a private ruling, the Commissioner may apply a relevant provision of the law in a way that is more favourable for them than is set out in the ruling if the Commissioner subsequently comes to the view that the ruling is incorrect and that it disadvantages the taxpayer (provided the Commissioner is not prevented from doing so by a time limit imposed by the law). [134] 115. A private ruling applies to an entity if it is given in response to an application by, or on behalf of, that entity and the facts, assumptions and conditions set out in the ruling are met. 116. The benefit derived by the entity having a private ruling is that the Commissioner must not apply the law in a way that is inconsistent with the ruling to the entity's detriment. However, if the scheme is not implemented or carried out in the way set out in the ruling, or if material facts were omitted from the ruling application, or were misleadingly or inaccurately stated, the ruling does not bind the Commissioner. 117. An entity is not obliged to act in accordance with a private ruling and is not subject to any special sanction if they fail to follow the ruling. [135] The entity can always take a more favourable position if that is open under the tax law. 118. The entity is not liable for the false or misleading penalty merely because they have not followed a private ruling applicable to them in relation to a particular matter. Such penalties only apply if the taxpayer has failed to take reasonable care. [136] A penalty may also be imposed where a relatively large adjustment is involved in relation to an income tax. PRRT or MRRT matter and the taxpayer does not have a reasonably arguable position [137] (or the penalty relates to certain tax avoidance schemes). [138] 119. Where a taxpayer does not follow a private ruling they will not be protected from interest charges. However, some or all of this interest may be remitted. In considering any remission ATO personnel would need to have regard to the principles in PS LA 2006/8. | Inconsistent rulings: Private rulings other than indirect tax or excise rulings 120. In the event of an inconsistency between a public ruling and a later private ruling, an entity may choose to rely on the public ruling that applies to them or the private ruling that specifically addresses their circumstances and applies to them, notwithstanding the inconsistency with a prior public ruling. [139] 121. However, there are special rules which limit the ability to rely on a private ruling where it is inconsistent in some respect with a later public or private ruling. [140] A private ruling that is inconsistent with a later public ruling is taken not to have been made if, when the public ruling is made, the following two conditions are met: • the income year or other period to which the rulings relate has not begun, and • the scheme to which the rulings relate has not begun to be carried out. • the income year or other period to which the rulings relate has not begun, and • the scheme to which the rulings relate has not begun to be carried out. 122. The recipient of a private ruling may also check or clarify the ruling by applying for a new ruling. If the recipient informed the Commissioner about the earlier private or oral ruling when they applied for the new ruling then the new ruling applies. However, if the recipient did not inform the Commissioner about the earlier private or oral ruling when they applied for the new ruling then the earlier private or oral ruling applies. [141] Private indirect tax or excise rulings 123. Special rules apply where there are two inconsistent indirect tax or excise rulings that apply to an entity and at least one of the rulings is not a public ruling. In these circumstances, the later ruling is taken to apply from the later of: • the time it is made, and • the commencement time specified in the later ruling. The earlier ruling, to the extent of the inconsistency, is taken to cease to apply at the time set out above. [142] • the time it is made, and • the commencement time specified in the later ruling. The earlier ruling, to the extent of the inconsistency, is taken to cease to apply at the time set out above. [142] | Special procedures relating to private rulings under Division 359: Existing private rulings under Part IVAA 124. A private ruling made under (the now repealed) Part IVAA of the TAA continues in force as if it had been made under Division 359. [143] Existing private indirect rulings issued before 1 July 2010 125. A private indirect tax ruling that is in force just before 1 July 2010 has effect as if it had been made under the amended Division 359. [144] Application for private indirect tax ruling made before 1 July 2010 126. An application for a private indirect tax ruling is taken to have been made under the amended Division 359 if: • the application was made before 1 July 2010, and • just before that time the Commissioner had neither made the ruling nor declined to make the ruling and the taxpayer had not withdrawn the application. [145] • the application was made before 1 July 2010, and • just before that time the Commissioner had neither made the ruling nor declined to make the ruling and the taxpayer had not withdrawn the application. [145] General anti-avoidance rules 127. ATO personnel must consider the application of the relevant general anti-avoidance rules in accordance with PS LA 2005/24. This instruction applies irrespective of whether a private ruling application expressly seeks a ruling on the applicability of a general anti-avoidance rule. ORCLA contains procedural instructions to ATO personnel in considering the application of general anti-avoidance rules. Revising a private ruling (other than an indirect tax or excise ruling) 128. The Commissioner may revise a private ruling but only if the scheme to which the original private ruling relates and the relevant income year or accounting period have not begun. [146] After this time, if the Commissioner concludes that the ruling was wrong, the Commissioner may adopt the correct position if it is more favourable to the taxpayer than was set out in the ruling. [147] Revising a private indirect tax or excise ruling 129. The Commissioner may revise a private indirect tax or excise ruling at any time. The revised private ruling only applies to the extent that it is inconsistent with an earlier private ruling, and applies from the date it is issued or such later time as specified in the private ruling. [148] This provides the Commissioner with the flexibility to allow taxpayers a reasonable period to take into account the new ruling. Timeframes - ATO service standards 130. In accordance with the ATO service standards we aim to provide a response to an application for a private ruling within 28 days of receiving all the necessary information. If all the necessary information has not been supplied in the application, the ATO aims to contact the applicant within 14 days of receiving the application to ask for the information or where the issues are complex, contact the applicant to negotiate a suitable timeframe to request the information. If the application raises a valuation matter or a complex matter that will take more than 28 days to resolve after receiving all the required information, the ATO aims to contact the applicant within 14 days of receiving all necessary information to negotiate an extended reply date. [149] Timeframes - legislation 131. If the ruling has not been made (or the Commissioner has not declined, with reasons, to issue the ruling requested) within the statutory period, an applicant may notify the Commissioner in writing requiring the private ruling to be made. The statutory period is 60 days from the time the application was made, extended in the following circumstances (but ignoring any overlap) by: [150] • the number of days between the day on which additional information was requested and the day on which it was received by the Commissioner • the number of days between the day on which the Commissioner tells the applicant about an assumption proposed to be relied on in making the ruling and the day on which the applicant's response about the assumption is received by the Commissioner • the number of days between the day on which the Commissioner tells the applicant about information from another source proposed to be relied on in making the ruling and the day on which the applicant's response about that information is received by the Commissioner, and • the number of days between the day on which the Commissioner tells the applicant that a valuation matter has been referred to a valuer and the day on which the Commissioner informs the applicant that the valuer's work on the matter has been completed. • the number of days between the day on which additional information was requested and the day on which it was received by the Commissioner • the number of days between the day on which the Commissioner tells the applicant about an assumption proposed to be relied on in making the ruling and the day on which the applicant's response about the assumption is received by the Commissioner • the number of days between the day on which the Commissioner tells the applicant about information from another source proposed to be relied on in making the ruling and the day on which the applicant's response about that information is received by the Commissioner, and • the number of days between the day on which the Commissioner tells the applicant that a valuation matter has been referred to a valuer and the day on which the Commissioner informs the applicant that the valuer's work on the matter has been completed. 132. If the Commissioner has neither made the ruling nor declined to make the ruling within 30 days of the applicant's notice, the applicant may exercise a right of objection against the failure to make the ruling. To do so, the applicant must lodge the objection within 60 days after the end of that 30 day period, in the approved form, together with a draft private ruling. [151] 133. If, within the specified time period, the Commissioner does not issue a private ruling, either in the form of the applicant's draft or in some other form, the objection is taken to have been disallowed by the Commissioner. [152] The specified time period is the later of 60 days: • after the objection was lodged with the Commissioner, or • the day on which a decision was made to agree to a request to deal with the objection as if it had been lodged within time. • after the objection was lodged with the Commissioner, or • the day on which a decision was made to agree to a request to deal with the objection as if it had been lodged within time. 134. Rights of review by the Administrative Appeals Tribunal, or appeal to the Federal Court, against a disallowed objection are then available to the applicant. [153] Valuation matters 135. If a private ruling application requires the value of something to be determined, [154] the Commissioner may seek a valuation from a valuer. If a valuation is provided by the applicant, the Commissioner may seek a review of the valuation. The Commissioner may charge the applicant for the valuation, or review of the valuation, by a valuer. [155] 136. The applicant must be informed, initially, that the valuation matter has been referred to a valuer, and later, when the valuer's work in relation to the matter has been completed. [156] 137. ATO personnel should follow the procedures in ORCLA that deal with valuation matters. Withdrawal of application 138. An applicant may withdraw their application, either orally or in writing, at any time before the ruling is made and the Commissioner must provide written confirmation of the withdrawal. [157] | Review of a private ruling under Division 359: 139. If an entity is dissatisfied with their private ruling, they may object against it in the manner set out in Part IVC. [158] From 1 July 2010 this includes private indirect tax and excise rulings. There are time limits associated with lodging an objection against a private ruling. [159] 140. However, objections against the private ruling must be lodged before an assessment is made for the income year or accounting period to which the ruling relates, or before the tax is due and payable in the case of a withholding tax matter. [160] If the objection against the private ruling is not lodged before the assessment is issued, the objection must be lodged against the relevant assessment. [161] Rights of review by the Administrative Appeals Tribunal, or appeal to the Federal Court, are available if the objection is disallowed. [162] 141. In addition, an objection against a private ruling cannot be lodged if the ruling relates to excise duty or another amount payable in relation to the goods under an excise law where: [163] • the Commissioner has made a decision about the excise duty or other amount payable in relation to those goods, and • the decision is reviewable under an excise law. • the Commissioner has made a decision about the excise duty or other amount payable in relation to those goods, and • the decision is reviewable under an excise law. 142. If a taxpayer objects to a private ruling then their right of objection against an assessment or other decision is limited to matters that were not able to be raised as grounds for objection against the private ruling. This is to ensure that there is a single avenue for objections and to prevent duplicate objections being made. [164] 143. In the case of an objection to an excise private ruling in relation to the rate of duty or the liability to duty there is also a rule that prevents duplication of review avenues. If a taxpayer has already obtained a private ruling concerning the amount of duty payable on excisable goods, and has objected against the ruling, their ability to commence legal action under section 154 of the Excise Act 1901 is limited to grounds that neither were, nor could have been, grounds for objecting against the ruling. [165] 144. A private ruling has effect as altered by an objection decision if: • a decision has been made to allow the objection in whole or part, and • the period for appeal has ended without an appeal being made. [166] • a decision has been made to allow the objection in whole or part, and • the period for appeal has ended without an appeal being made. [166] | Oral rulings under Division 360: 145. An oral ruling is a form of legally binding advice that the ATO can provide in response to a taxpayer's oral application. If a taxpayer [167] relies on an oral ruling the Commissioner is bound to assess the taxpayer's liability in accordance with the oral ruling that is given and applies to them. 146. However, if the oral ruling is incorrect and disadvantages the taxpayer, then the law may be applied in a way that is more favourable for the taxpayer, provided the Commissioner is not prevented from doing so by a time limit imposed by the law. [168] | Applying for an oral ruling: 147. The Commissioner may make an oral ruling on how a relevant provision [169] (other than a provision about MRRT) applies or would apply to an individual in relation to a specified scheme. In practice this means that oral rulings are generally given on a provision of the law relating to personal income tax or Medicare levy. This is because other provisions on which oral rulings may be given (such as withholding tax and fringe benefits tax) usually relate to obligations that generally fall on employers (in a business context) rather than on an individual. Oral rulings cannot be given on indirect tax or excise matters. 148. A 'legal personal representative' can also apply for an oral ruling on an individual's behalf. A parent can apply for an oral ruling on behalf of a minor if they are a legal personal representative, for example, if they are the trustee of a trust that holds shares in a company for the minor's benefit. 149. A taxpayer must apply for an oral ruling orally, in the manner approved by the Commissioner. [170] This means contacting the ATO to request advice in the form of an oral ruling about the application of a relevant provision of tax law to a specified scheme, and satisfying proof of identity requirements. If a taxpayer does not actually request an oral ruling but the request satisfies the requirements, an authorised tax officer [171] handling the call can ask the taxpayer if they would like the response to be recorded as an oral ruling. 150. If a taxpayer has made a written request for advice which could be satisfied by providing an oral ruling, the tax officer handling the written request can telephone the taxpayer and ask if they would like the request to be handled as an oral ruling. Before an oral ruling can be given, the taxpayer must indicate their willingness to withdraw their written advice request. | Requirements for an oral ruling: 151. Not all oral enquiries can be satisfied with an oral ruling. An entity must not apply for an oral ruling in relation to: [172] • an MRRT provision • an indirect tax law (other than the fuel tax law), or • an excise law. • an MRRT provision • an indirect tax law (other than the fuel tax law), or • an excise law. 152. To be eligible for an oral ruling: • the advice sought must not relate to a business matter • the advice must not be complex, and • the matter sought to be ruled on must not be one that is already being, or has been, considered by the Commissioner for that taxpayer. [173] • the advice sought must not relate to a business matter • the advice must not be complex, and • the matter sought to be ruled on must not be one that is already being, or has been, considered by the Commissioner for that taxpayer. [173] 153. The term 'business' is defined as including any profession, trade, employment, vocation or calling, but does not include occupation as an employee. [174] Consequently, taxpayers eligible for oral rulings will generally be employees or retired persons. However, an individual conducting a business may seek an oral ruling on a non-business matter. 154. Matters will be 'complex' and ineligible for an oral ruling if, for example: • the decision turns on the interpretation of facts that require examination of documents • the facts and circumstances on which the answer is to be based are open to a number of possible interpretations and therefore require further consideration and/or research • the decision turns on a chain of conclusions to reach the final decision and therefore is not easily answered orally • the relevant law is complex and would require considerable research or analysis, or • it involves a calculation that is not covered by an online calculation tool. • the decision turns on the interpretation of facts that require examination of documents • the facts and circumstances on which the answer is to be based are open to a number of possible interpretations and therefore require further consideration and/or research • the decision turns on a chain of conclusions to reach the final decision and therefore is not easily answered orally • the relevant law is complex and would require considerable research or analysis, or • it involves a calculation that is not covered by an online calculation tool. 155. For oral ruling purposes, a matter will not be considered to be complex if there is an approved response which clearly applies to the case and the question can be fully answered from the response. [175] 156. If the query concerns a business or complex matter, ATO personnel should advise the taxpayer to apply for a private ruling and, as appropriate, provide guidance in making a valid application. 157. A taxpayer should have all relevant information (that is, all the facts necessary to make an oral ruling) at the time they apply for an oral ruling. If the taxpayer cannot provide all the relevant information at the time of the application, they should be advised to call back when they have the necessary information and request an oral ruling at that time. 158. The Commissioner may decline to give an oral ruling if further information necessary to make the ruling has been requested from the taxpayer and it has not been supplied. [176] 159. If the taxpayer still wants some immediate assistance, it must be clearly explained to them that any assistance given can only be of a general nature, and is not an oral ruling, because they have not provided all the information necessary for a legally binding ruling. [177] 160. If the matter does not satisfy the criteria for an oral ruling, the taxpayer should be advised that any oral assistance given to them can only be in the nature of guidance (with the corresponding level of protection). [178] The taxpayer should also be advised that, if they want the Commissioner to provide binding advice they should apply for a private ruling. | Providing an oral ruling: 161. An oral ruling may only be given by an appropriately 'authorised tax officer'. [179] 162. ATO personnel must follow the relevant instructions contained in ORCLA and in SMART. [180] 163. If an application is valid, the tax officer must confirm with the taxpayer all the facts and any assumptions that are made and, if appropriate, give the taxpayer an opportunity to respond before providing an oral ruling. Assumptions 164. Although an oral ruling can be given on the basis of an assumption, an assumption should not be made if the taxpayer could reasonably be expected to provide the required information. 165. If it is considered that correctly making an oral ruling would depend on an assumption, this should be explained to the taxpayer who should then be asked whether they know of anything that might negate that assumption. If there is doubt about the reliability of the assumption, the tax officer should decline to give an oral ruling. 166. The Commissioner may decline to give an oral ruling if the correctness of the ruling would depend on an assumption, for instance, about the occurrence of a future event, which it would not be appropriate to make in an oral ruling context. [181] Approved response 167. ATO personnel should only provide an oral ruling if the question posed is covered by an approved response that fully answers the query. Generally, an approved response will be in the form of an existing client contact script. Where an approved response does not exist and an oral ruling is appropriate, the response will need to be cleared by a technical specialist based on the specific facts of the case. [182] 168. The approved response must be consistent with the precedential ATO view in relation to any interpretative issue raised by the taxpayer. PS LA 2003/3 identifies the ATO documents that contain those views. 169. For the purpose of providing an oral ruling, ATO personnel may also refer to the following ATO documents that either reflect precedential ATO views or contain a clear, unambiguous interpretation of the relevant legislation: • online reference materials (for example, client contact scripts) • current ATO publications (not otherwise included in the Schedule of documents containing precedential ATO views ), and • ATO website material (other than that produced by external publishers). • online reference materials (for example, client contact scripts) • current ATO publications (not otherwise included in the Schedule of documents containing precedential ATO views ), and • ATO website material (other than that produced by external publishers). 170. A judgment on whether a matter can be fully answered from an approved response may depend on the expertise and experience of the tax officer handling the enquiry. The ATO has procedures in place for escalating matters to specialist advisers. For example, call centre officers can seek the assistance of a technical specialist. In appropriate cases, call centre officers can refer enquiries in accordance with business line escalation procedures. Issuing an oral ruling 171. An oral ruling must be accompanied by a registration identifier for the ruling. [183] 172. A taxpayer who receives an oral ruling is not entitled to a written record of the ruling. If they prefer advice in a written form they may apply for a private ruling. [184] 173. An oral ruling provided under the former Division 360 continues in force as if it had been provided under the present Division 360. [185] Inconsistent rulings 174. The rules concerning inconsistent rulings (which are explained in paragraphs 120 to 123 of this practice statement) apply equally to oral rulings. | Withdrawing an application for an oral ruling: 175. A taxpayer may withdraw their oral ruling application at any time before the oral ruling is given. The withdrawal must be given orally and in a manner determined by the Commissioner. [186] They may choose to withdraw their oral ruling application if they decide a private ruling or oral general guidance would better suit their needs. [187] Oral general guidance may include a reference to a public ruling that could apply to the taxpayer's circumstances. | Review of an oral ruling: 176. A taxpayer can also choose not to rely on an oral ruling but, unlike private rulings, oral rulings are not reviewable. [188] | Providing indicative advice prior to issuing a private, class or product ruling: 177. In the course of preparing a private, class or product ruling, ATO personnel may be asked to provide an indication of the likely ATO view of the law in relation to a scheme. Subject to paragraph 179 of this practice statement, ATO personnel are not to provide indicative advice. This is to ensure that no binding advice is provided unless the actual details of the proposed scheme and its purpose have been firmly established, and the ATO has finalised its view about the tax consequences of the scheme, so as not to mislead taxpayers. However, ATO personnel can undertake informal discussions with taxpayers raising, for example, areas of possible concern. [189] 178. Providing indicative advice before, say, the actual details of the proposed scheme and its purpose have been firmly established may create expectations that the ATO will adopt a particular view in relation to a particular scheme that may not subsequently be met. This has the potential to undermine confidence in the ATO's administration of the tax system. 179. Nevertheless, there may be occasions (where the ATO has established the details of the proposed scheme, but has not finalised the position on the tax consequences) that call for the provision of indicative advice. For example, the provision of favourable indicative advice could occur where all the following conditions are met. • There is: - a substantial and time dependent business need - a very low risk of a different view being taken - appropriate documentation and transparency, and - involvement of appropriate ATO personnel, including the case manager as well as relevant technical specialists. • The taxpayer is fully aware and acknowledges that: - the matter is still under consideration and therefore the advice is preliminary only, and - the advice is not binding on the Commissioner and should not be relied on as representing the ATO view of the law on the matter. There must be no undue delay by the tax officer in providing the final ruling, and the taxpayer must be kept informed of the progress of the ruling at appropriate intervals. • There is: - a substantial and time dependent business need - a very low risk of a different view being taken - appropriate documentation and transparency, and - involvement of appropriate ATO personnel, including the case manager as well as relevant technical specialists. • The taxpayer is fully aware and acknowledges that: - the matter is still under consideration and therefore the advice is preliminary only, and - the advice is not binding on the Commissioner and should not be relied on as representing the ATO view of the law on the matter. - a substantial and time dependent business need - a very low risk of a different view being taken - appropriate documentation and transparency, and - involvement of appropriate ATO personnel, including the case manager as well as relevant technical specialists. - the matter is still under consideration and therefore the advice is preliminary only, and - the advice is not binding on the Commissioner and should not be relied on as representing the ATO view of the law on the matter. There must be no undue delay by the tax officer in providing the final ruling, and the taxpayer must be kept informed of the progress of the ruling at appropriate intervals. 180. Where the indicative advice is provided to an applicant for a class or product ruling, and that advice may be conveyed to third parties, the tax officer must request the applicant to ensure that the conditions on which the ATO's advice is provided are also explained to the third parties. 181. Indicative advice will not provide protection from tax that would otherwise be payable under the law, false or misleading statement penalties or interest charges. 182. Consistent with corporate record keeping requirements, accurate and complete notes must be made of all discussions prior to, and in the course of dealing with, an application for a private, class or product ruling. Where indicative advice is provided in connection with a request for written advice, a record of the indicative advice must be attached to the case record on the relevant case management system. | Informal discussions: 183. As mentioned in paragraph 177 of this practice statement, ATO personnel can have informal discussions with taxpayers and/or their advisers on technical matters. ATO personnel are encouraged to do so, especially where there is an opportunity to clarify matters or to better understand the taxpayer's position. 184. Informal discussions can be undertaken with a taxpayer or their adviser about a particular scheme, either prior to or following the receipt of a written request for advice. Such discussions may reveal the need for a written request for advice, and shed light on the information and material that should be provided with the request, or is needed to answer an existing request. [190] 185. If the ATO receives a request for a private, class or product ruling involving complex matters, general discussions around ambiguity in the law or its application are often a necessary part of ensuring that all relevant material is provided and considered, to enable the facts to be correctly established. Such discussions may also highlight to the taxpayer or adviser those areas where the ATO has concerns. 186. Where a case officer, in consultation with the case manager and any relevant technical specialists, believes that those concerns may lead to an unfavourable response from the ATO, it is often appropriate to inform the taxpayer or their adviser accordingly. In these circumstances, the case manager and, if appropriate, the relevant technical specialist, are to explain the basis of the concerns to the taxpayer or their adviser. It must be made clear to them at the time of this discussion that: • these concerns are being communicated so that they can take the possibility of a final unfavourable view into account in deciding whether to continue to expend time and money preparing to implement the proposed scheme, and • communicating concerns in this informal way does not constitute an indication of the ATO's view of the law in relation to the scheme. • these concerns are being communicated so that they can take the possibility of a final unfavourable view into account in deciding whether to continue to expend time and money preparing to implement the proposed scheme, and • communicating concerns in this informal way does not constitute an indication of the ATO's view of the law in relation to the scheme. 187. In undertaking these discussions, the tax officer must ensure that the taxpayer is not misled, and must clearly explain that any comments made will not be binding on the Commissioner. Relevant documentation is to be prepared and, where appropriate, captured on the relevant case management system. 188. Should the taxpayer or their adviser submit material changes to the scheme upon which the ruling is sought following the discussions, the revised scheme should be treated as a new application. However, the priority already afforded to the original request is to be maintained. [191] 189. If after providing indicative advice, or following informal discussions about a particular scheme, the taxpayer or their adviser withdraws their request, and considerable effort has gone into developing a precedential ATO view, consideration should be given to preparing a public ruling or an ATO ID on the proposed scheme. [192] | Administratively binding advice: 190. The ATO is not obliged to provide written advice addressing an entity's specific circumstances other than in the form of a private ruling under Division 359. 191. However, in the interests of sound administration, the ATO's practice has been to provide administratively binding advice in a limited range of circumstances in response to a taxpayer's request for advice. In addition, the ATO provides a substantial amount of guidance through publications, its website and its client contact areas. 192. Attachment B contains an exhaustive list of those circumstances in which the ATO can provide administratively binding advice to a taxpayer. 193. If a taxpayer requests written advice on any of the listed topics in connection with their own particular circumstances, it must be treated as a request for administratively binding advice. The request must be in writing. It must fully and accurately identify the parties to the arrangement and disclose all relevant facts. 194. Furthermore, no fundamental assumptions can be made about the arrangement. The arrangement must be in such serious contemplation that its material elements are settled and clearly stated by the taxpayer. 195. In cases where the taxpayer is: • a company which is still to be incorporated • the trustee or beneficiary of a trust which is still to be settled, or • a company intending to launch a takeover or reversing takeover and the arrangement will follow after success of that takeover the arrangement will not have eventuated. Administratively binding advice can be given where it would be reasonable to expect these future events to be in serious contemplation and the material elements have been substantially worked out. • a company which is still to be incorporated • the trustee or beneficiary of a trust which is still to be settled, or • a company intending to launch a takeover or reversing takeover and the arrangement will follow after success of that takeover the arrangement will not have eventuated. Administratively binding advice can be given where it would be reasonable to expect these future events to be in serious contemplation and the material elements have been substantially worked out. 196. The provision about which administratively binding advice is given need not be a provision referred to in section 357-55 of Schedule 1 to the TAA. It can be about a superannuation or any other law administered by the Commissioner under which extent of liability is worked out and is a law which does not have a legally binding rulings system (for example superannuation guarantee charge). 197. Administratively binding advice may also be given to an entity other than that to which the provision applies. For example, in relation to corporate restructuring, takeovers and arrangements that would be undertaken by a company when it is incorporated. [193] However, in these circumstances, the entity requesting advice may not be in a position to provide detailed information about the entity to which the advice is to apply, so ATO personnel will need to ensure that there are sufficient facts on which to base the advice. 198. The ATO's administrative practice for administratively binding advice where a provision has been re-enacted or remade is to adopt the same approach as is taken for legally binding rulings. [194] That is, if the Commissioner has provided administratively binding advice about a provision and that provision is re-enacted or remade, the advice is taken to be about the re-enacted or remade provision, to the extent that the new law expresses the same ideas as the old law. However, if the law is substantively changed, the part of the advice dealing with the changed law ceases to apply. 199. Administratively binding advice is not legally binding on the Commissioner. When the time comes to assess liability to tax, the law as it then exists must be applied to the facts as established at that time. [195] However, the ATO will stand by what is said in such advice and will not depart from it unless: • there have been legislative changes since the advice was given • a tribunal or court decision has affected our interpretation of the law since the advice was given, or • for other reasons, the advice is no longer considered appropriate. For example, if the advice has been exploited in an abusive and unintended way. • there have been legislative changes since the advice was given • a tribunal or court decision has affected our interpretation of the law since the advice was given, or • for other reasons, the advice is no longer considered appropriate. For example, if the advice has been exploited in an abusive and unintended way. 200. Where the ATO departs from its earlier administratively binding advice because of a legislative change, it will apply the change from the date of effect of the amending legislation. If the ATO departs from its earlier advice for other reasons, normally departure from that advice would be on a prospective basis only, unless particular circumstances warrant another approach (for example, if the advice has been exploited in an abusive and unintended way). 201. The outcome of an arrangement may also be different from that detailed in the advice request. If the underlying facts change in a material way, the advice cannot provide any protection to those who seek to rely on it. 202. Where the Commissioner stands by the administratively binding advice, the taxpayer who relies on the advice will be protected against the tax that would otherwise be payable under the law, false or misleading statement penalty and interest charges. 203. Where the Commissioner is unable to stand by the advice, the taxpayer who relies on the advice will be liable for any tax that would otherwise be payable under the law (unless a time limit imposed by the law precludes the liability). However, they are protected against false or misleading statement penalty and, if they have relied on the advice reasonably and in good faith, against interest charges. [196] 204. If a taxpayer disagrees with the ATO's decision in relation to administrative binding advice, they can ask the ATO to review that decision. [197] 205. Assistance provided in a form other than a ruling may fulfil a taxpayer's need for information without them having to satisfy the conditions that apply to the making of a binding ruling. Guidance may be given in writing or orally, including by way of an ATO publication. 206. ATO guidance is provided to help taxpayers understand their obligations and entitlements under the laws administered by the Commissioner. Guidance is not binding on the Commissioner. 207. If a taxpayer wants the Commissioner to provide binding advice about the applicability of the law to their individual circumstances, they should apply for a private ruling or an oral ruling. [198] 208. It may sometimes be difficult to draw a distinction between requests for guidance and binding advice. That is, whether a taxpayer has a specific transaction in mind and is expecting binding advice or whether they are only expecting general guidance or just broadly considering a course of action and are only expecting general guidance. For example, where a history teacher simply asks if self-education deductions are available for travel to places of historical significance and provides no other information about their specific circumstances. 209. If there is any doubt whether the request is for guidance or binding advice, the taxpayer should be contacted, the difference in protection levels explained, and their needs ascertained. If their needs can only be satisfied by a private ruling, they should be given information about how to make a valid application for a private ruling. ATO personnel should also consider whether it would be appropriate, in the taxpayer's circumstances, to offer an oral ruling. [199] | Written guidance: 210. Written guidance is issued to help taxpayers understand their obligations and entitlements under the laws administered by the Commissioner. It normally provides only general assistance and cannot cover all possibilities or the circumstances of every taxpayer. Written guidance may also be in the form of an ATO publication. [200] 211. Written guidance is usually provided if the taxpayer has enquired about the broad operation of the law and has not provided details of their specific circumstances. A taxpayer who receives written guidance must decide how the guidance applies to their circumstances. 212. Written guidance may also be provided to taxpayers who do not wish to request a private ruling, or for whom an oral ruling is not appropriate, on how the relevant tax law may apply to their own specific circumstances. This would include situations where a taxpayer needs assistance in understanding a notice, letter or other document given to the taxpayer by the ATO. 213. ATO personnel should refer to ORCLA for further information about providing written guidance. | Protection level: 214. A taxpayer who relies on written guidance, including a statement in an approved publication, will remain liable for the tax that would otherwise be payable under the law where the guidance is incorrect, or misleading and the taxpayer makes a mistake as a result (unless prevented by a relevant time limit in the law). However, they will be protected against the false or misleading statement penalty that might otherwise arise. [201] 215. In addition, if a shortfall arises under a relevant provision, [202] a taxpayer will be protected against any interest charges if they relied on the guidance reasonably and in good faith. [203] 216. If the shortfall does not arise under a relevant provision, the level of protection against interest charges from reliance on written guidance depends on the exercise of the power to remit interest charges under section 280-160 and section 8AAG of the TAA. [204] 217. Taxpayers should not rely on publications that are out of date. If they do, they may not be protected against any interest charges. This is because generally reliance on an earlier document at a given point in time where a later publication that correctly reflects the law is available would not be reasonable and in good faith. Nevertheless, they will still be protected from the false or misleading statement penalty. However, if a taxpayer can demonstrate that in their circumstances reliance on the out of date publication was reasonable and in good faith, they will be protected from both the false or misleading statement penalty and interest charges. [205] | Published speeches and minutes of consultative forums: 218. Speeches by senior ATO personnel and minutes of consultative forums reflect our current thinking on particular issues. Minutes are a record of proceedings at a consultative forum and reflect the discussion between the ATO and the other attendees. They are published for transparency reasons. 219. Speeches and minutes that are published on the ATO website would ordinarily be publications approved in writing by the Commissioner. To be such a publication the approval by the Commissioner, delegate or authorised officer must be in writing. If they are so approved, and provided that they are not stated to be non-binding, [206] they provide the same level of protection as written guidance. [207] 220. A taxpayer who needs formal advice about the applicability to their own specific circumstances of information contained in published speeches or minutes should apply for a private ruling. | Media releases: 221. Media releases are used to communicate to taxpayers what our intention is in relation to certain issues. As such media releases may contain statements intended to be relied on. If they do, they will provide the same level of protection as written guidance. [208] 222. Media releases may also refer to some other ATO publication such as a public ruling, draft public ruling or law administration practice statement that would have a more detailed explanation of the subject matter. In this case a taxpayer may rely on a statement in the other publication. If the statement in the other publication is later found to be incorrect or misleading and the taxpayer makes a mistake, they will receive the level of protection that is applicable to the other publication. [209] 223. Although a media release reflects the ATO's position at the time of its publication, updated information on the topic may be contained in a subsequent ATO publication. If a taxpayer relies on a media release in these circumstances, they will still be protected from any false or misleading statement penalty [210] that may apply and consideration will be given to the particular facts and circumstances in relation to remitting interest charges. [211] For example, they may not be protected against all interest charges where a subsequent ATO publication that correctly reflects the law was readily available and accessible to them at that time. | Decision impact statements: 224. Decision impact statements [212] are published on the Legal Database to communicate to the community the ATO reaction to adverse and other significant court or tribunal decisions. They include a summary of the case details, a summary of the facts and issues decided, and they note any consequences in relation to public rulings. They set out how the law will be administered as a consequence of the decision, pending any change to existing ATO rulings, but are not normally expected to contain advice. They are not public rulings for the purposes of Part 5-5. [213] 225. A taxpayer who relies on a decision impact statement and makes a mistake as a result of the statement being incorrect or misleading, will receive the same penalty and interest protection as for written guidance. [214] | ATO Interpretative Decisions (ATO IDs): 226. An ATO ID is an edited and summarised decision on an interpretative matter that is indicative of how a provision of the law might be applied. ATO IDs do not provide advice to taxpayers and are not rulings under Part 5-5 and therefore the tax that would otherwise be payable under the law remains payable. ATO IDs represent a precedential ATO view that ATO personnel must apply in resolving interpretative issues or, if they consider the application of the precedent will result in an incorrect decision or unintended outcome, escalate the matter for review. [215] 227. An ATO ID provides authority for a private ruling or other advice to be given to a taxpayer in relation to the interpretative matter it covers, and for dispute resolution and compliance activity by ATO personnel, but do not in themselves represent any established general administrative practice. [216] Further information about ATO IDs is contained in PS LA 2001/ 8 . 228. ATO IDs are produced for the purpose of facilitating consistent and timely interpretative decision making by ATO personnel. However, they may not always contain a complete statement of all the facts in summarising the application of the law to complex circumstances. For transparency reasons, they are made publicly available through the Legal Database. 229. ATO IDs state the date of the decision and are withdrawn if a review finds that they are no longer accurate. 230. If a taxpayer relies on a current ATO ID where their own circumstances are not materially different from those described in the ATO ID, but the ATO ID is later found to be incorrect or misleading and the taxpayer makes a mistake as a result, they will receive the same penalty and interest protection as for written guidance. [217] | Law administration practice statements: 231. Law administration practice statements are produced principally to provide direction and assistance to ATO personnel on approaches to be taken in performing duties involving the application of laws administered by the Commissioner. 232. They are published primarily for transparency and accountability reasons. They are not intended to provide interpretative advice but may provide guidance on the law in the course of providing directions to ATO personnel. 233. Law administration practice statements (general administration) derive their authority from the Commissioner's powers of general administration as set out in the various Acts administered by the Commissioner. These practice statements focus on practical administration of the tax system and aim to help reduce compliance costs for taxpayers. 234. ATO personnel are required to follow law administration practice statements unless they consider that the application of a particular practice statement would have unintended consequences or is otherwise incorrect. Where this occurs ATO personnel must follow their business line's escalation process. 235. A taxpayer who relies on a law administration practice statement that is incorrect, or misleading and makes a mistake as a result, will receive the same penalty and interest protection as for written guidance. [218] 236. Law administration practice statements are not rulings under Part 5-5, and therefore the tax that would otherwise be payable under the law remains payable. Further information about law administration practice statements is contained in Law Administration Practice Statement PS LA 1998/1 Law Administration Practice Statements . | Technical skilling materials: 237. The ATO produces educational material for the purpose of enhancing the knowledge and skills of ATO personnel engaged in technical decision making. Some of this material is published to assist tax practitioners who have corresponding educational needs. Technical skilling materials are not public rulings under Part 5-5 as they do not constitute advice given or published by the Commissioner. 238. Technical skilling materials are often prepared at the time of legislative change and may not reflect developments in the law that have emerged since the time they were prepared. Furthermore, the coverage of this material is unlikely to address the less common and more complex issues that actually occur. Ordinarily, taxpayers seeking general guidance on the topic covered by this material should refer to other ATO publications covering the same topic. Publications other than skilling materials are more likely to reflect the current ATO position on a particular topic. 239. If a taxpayer does rely on a statement in the technical skilling material that is later found to be incorrect or misleading and the taxpayer makes a mistake as a result, they will receive the same penalty and interest protection as for written guidance. [219] 240. If at the time the taxpayer seeks to rely on the statement, there is available an ATO publication that correctly reflects the law, they may not be protected against all interest charges depending on the facts and circumstances. However, if a taxpayer can demonstrate that in their circumstances reliance on the earlier release was reasonable and in good faith, they will be protected from both false or misleading statement penalty and interest charges. [220] | ATO communications not intended to be relied on: 241. In limited circumstances the Commissioner may publish documents that are specifically labelled as non-binding or not intended to be relied on. Accordingly, these publications cannot be described as guidance. For example, a Public Ruling compendium of comments published with all final public rulings. | Non-binding publications: 242. Where a taxpayer relies on a statement in an ATO publication that expressly states that it is non-binding they will be liable for any tax that would otherwise be payable under the law where the statement is incorrect or misleading and the taxpayer makes a mistake as a result. 243. Subject to the exception explained in paragraph 244 of this practice statement, no false or misleading statement penalty will be imposed. However, there is no protection against interest charges under section 361-5. Although, consideration should be given to remitting any interest charged under section 280-160 or section 8AAG of the TAA, either in whole or in part. | Documents not intended to be relied on: 244. No penalty or interest protection is provided where an ATO publication, or a statement in an ATO publication states that it is not intended to be relied on. Such communications should state that they are not a publication approved in writing by the Commissioner so that readers are not misled. Edited versions 245. Edited versions of private rulings and other written binding advice are published in the Register of private binding rulings to improve the integrity of ATO advice. They constitute a historical record of the written binding advice issued. Consequently they remain on the register even where, for example, later changes to the law may make them inaccurate, until they are archived. 246. They should not be relied on by taxpayers or their advisers in any way. They are not intended to convey advice and are not rulings under Part 5-5. They are not publications approved in writing by the Commissioner and no penalty or interest protection is provided. [221] | Technical discussion papers: 247. Where appropriate, the ATO may issue a technical discussion paper to facilitate consultation between the ATO and the community as part of the process of developing a precedential ATO view on an aspect of the taxation or other laws administered by the Commissioner. 248. The procedures for issuing a technical discussion paper and their status are explained in Law Administration Practice Statement PS LA 2010/5 Technical discussion papers . Taxpayers are not provided with protection from primary tax, false or misleading statement penalty, or interest should they rely on a technical discussion paper for any purpose. | Oral guidance: 249. ATO personnel may provide oral guidance about the application of tax laws when the taxpayer does not require an oral ruling or a request for an oral ruling does not satisfy the requirements for an oral ruling. [222] 250. Oral guidance is to be provided only on matters of a general, straightforward or simple nature. 251. Oral guidance must be consistent with the precedential ATO view in relation to any interpretative issue raised by the taxpayer. [223] 252. Reference may also be made to the following ATO documents that either reflect precedential ATO views or contain a clear, unambiguous interpretation of the relevant legislation: • online reference materials (for example, client contact scripts) • current ATO publications (not otherwise included in the Schedule of documents containing precedential ATO views ), and • ATO website material (other than that produced by external publishers). • online reference materials (for example, client contact scripts) • current ATO publications (not otherwise included in the Schedule of documents containing precedential ATO views ), and • ATO website material (other than that produced by external publishers). | Procedures for providing oral guidance: 253. ATO personnel provide oral guidance by phone or in person where guidance is orally requested and it is appropriate to respond orally. This form of assistance is ordinarily provided through ATO call centres and shopfronts. It may also be provided when enquiries are referred by client contact officers in accordance with business line escalation procedures. 254. ATO personnel must take care in providing oral guidance. Before ATO personnel give any oral guidance, they must take all reasonable steps to ensure that all relevant information has been obtained from the taxpayer. 255. Where a taxpayer seeks assistance on a matter that is not of a general, straightforward or simple nature, the tax officer should suggest that they apply for a private ruling [224] or otherwise request written guidance [225] and, as appropriate, provide information about making a valid application. This ensures that the taxpayer receives a properly considered opinion on the application of the law to the taxpayer's circumstances. 256. A judgment on whether a matter is general, straightforward or simple, and whether a relevant ATO view applies, may depend on the expertise and experience of the tax officer responding to the enquiry. ATO personnel must refer requests for oral guidance that are not appropriate for them to provide, or requests for an oral ruling, to the relevant ATO call centre or shopfront. Alternatively, a tax officer may note the query and provide a timely response after researching the matter, or arrange for a call back by a specialist adviser or other tax officer who can more appropriately provide the guidance. 257. For ATO personnel in ATO call centres or shopfronts, a matter may be considered complex if: • it is not covered by a call centre script • the facts of the arrangement are such that they are not easily compiled or understood, or • in depth consideration should be given to the matter. • it is not covered by a call centre script • the facts of the arrangement are such that they are not easily compiled or understood, or • in depth consideration should be given to the matter. 258. It is important that oral guidance on a particular topic is provided by an appropriate officer, that is, an officer who, by virtue of their position, is able to provide advice on that topic in the normal course of their duties. 259. It would not be appropriate for ATO personnel to provide oral guidance if: • the query concerns an area of law beyond their capability • they are unable to identify the relevant law or the precedential ATO view, or • the facts of the relevant arrangement are such that they are not easily compiled or understood. In these circumstances, ATO personnel should either refer the issue to an appropriate officer, or assist the taxpayer in seeking the form of assistance which best suits their needs. • the query concerns an area of law beyond their capability • they are unable to identify the relevant law or the precedential ATO view, or • the facts of the relevant arrangement are such that they are not easily compiled or understood. In these circumstances, ATO personnel should either refer the issue to an appropriate officer, or assist the taxpayer in seeking the form of assistance which best suits their needs. 260. The ATO has procedures in place for escalating matters to specialist advisers. For example, call centre officers can seek the assistance of a technical specialist or escalate the matter within their business line to ascertain whether oral guidance can be provided. 261. If ATO personnel are asked a question on a matter beyond the normal scope of their duties, they should refer the taxpayer to the appropriate area. | Level of protection: 262. A taxpayer who relies on oral guidance that is later found to be incorrect, or misleading and the taxpayer makes a mistake as a result, will still be liable for any tax that would otherwise be payable under the law (unless prevented by a relevant time limit in the law). Where a taxpayer has made a full and true disclosure of the material facts relevant to their enquiry, no false or misleading statement penalty will be payable. [226] Also, interest charges will not be payable if they relied on the guidance reasonably and in good faith. [227] | Guidance about proposed changes to laws administered by the Commissioner: 263. Broadly, ATO personnel do not have the authority to provide indicative advice or guidance about legislation prior to its Royal Assent, or on regulations prior to their registration on the Federal Register of Legislative Instruments. 264. Any guidance provided to taxpayers about announced proposed changes to the laws or regulations should be limited to the public announcement and other publicly released information in the source documents that announced the proposed law change, for example, a minister's media release or the Explanatory Memorandum to the Bill. 265. ATO personnel should refer to Law Administration Practice Statement PS LA 2004/6 The ATO role in providing information or advice on the potential application of announced changes to the tax law, or where legislative change is contemplated but not announced [228] for instructions on responding to taxpayers who enquire about the potential effect of proposed legislative changes announced by the government. Various levels of protection against tax shortfall, false or misleading statement penalty and interest charges exist if ATO assistance is incorrect. CATEGORIES LEVELS OF PROTECTION Protection from tax shortfall? Protection from false or misleading statement penalty? 1 Protection from interest charges? Related practice statement paragraph numbers Legally binding advice • Public Ruling - Division 358 YES YES YES 2 29 - 45 • Product Ruling YES YES YES 2 51 - 59 • Class Ruling YES YES YES 2 60 - 65 • Private Ruling - Division 359 YES YES YES 2 80 - 123 • Oral Ruling - Division 360 YES YES YES 2 145 - 182 Administratively binding advice ^ Level of protection is subject to conditions set out in paragraph 199 of this practice statement • Administratively binding advice YES^ YES YES 2 190 - 204 Guidance * Statement penalty and interest charges may be remitted in individual cases for reasons unrelated to the guidance relied on • Published speeches and minutes of consultative forums NO YES YES 2 218 - 220 • Decision impact statements NO YES YES 2 224 - 225 • Media releases NO YES YES 2 221 - 223 • Internal publications: - ATO interpretative decisions NO YES YES 2 226 - 230 - Law administration practice statements NO YES YES 2 231 - 236 - Technical skilling material NO YES YES 2 237 - 240 • ATO communications not intended to be relied on NO NO* NO* 241 - 244 • Edited versions NO NO* NO* 245 - 246 • Technical discussion papers NO NO* NO* 247 - 248 • Oral guidance NO YES 3 YES 3 249 - 262 1 Notwithstanding that a publication is labelled non-binding; protection against false or misleading statement penalty will be available if it is a publication that has been approved in writing by the Commissioner. 2 Protection against interest on the shortfall is available where the taxpayer acted reasonably and in good faith. It does not cover the general interest charge for late payment of the tax shortfall; that is after 21 days of the Commissioner notifying the taxpayer the correct position. For superannuation guarantee charge matters, the protection does not extend to the nominal interest component of a superannuation guarantee shortfall under section 31 of the Superannuation Guarantee (Administration) Act 1992 . 3 Only if taxpayer has made a full and true disclosure of the material facts relevant to their enquiry. Misleading statement Sometimes a statement in an ATO publication might be correct, but a particular taxpayer may have been misled by it on reasonable grounds. Taxpayers who rely on ATO publications (except those labelled as non-binding) that are relevant to their circumstances but are misleading to their intended audience, and who make a mistake by relying on that publication, will be protected from false or misleading statement penalty and interest charges. Genuine effort to follow ATO assistance Taxpayers that take reasonable care to follow ATO assistance but make an honest mistake will be protected from false or misleading statement penalty and interest charges. Where the requirements of this practice statement have otherwise been met administratively binding advice can continue to be provided on the following topics. • Advice on a superannuation [230] or any other law administered by the Commissioner under which the extent of liability is worked out and is a law which does not have a legally binding rulings system (for example, superannuation guarantee charge and excess contributions tax). • Advice on an arrangement where a company intends to launch a takeover of a target company and the first company wants advice (without getting consent from the target company) on the tax consequences for the target company. • Advice on a proposed scheme that would be undertaken by a company, (including a corporate trustee) when it is incorporated or a trust when it is settled. • Advice to a Commonwealth, state or territory government or one of their agencies about the tax consequences for a taxable purchaser under a proposed privatisation. • Advice to a Commonwealth, state or territory government or one of their government authorities about a proposed transaction, for example, an industry restructure which has tax consequences for any new entity to be created as part of the restructure. • Advice on a scheme where private or public infrastructure matters are raised and there are no entities presently in existence capable of requesting a private ruling. • Advice on a proposed commercial-in-confidence product to prospective investors, where no suitable private ruling applicants can be identified. • Advice on the legislation and associated regulations (of which the Commissioner has general administration) which form part of the Coronavirus Economic Response Package. • Advice on a superannuation [230] or any other law administered by the Commissioner under which the extent of liability is worked out and is a law which does not have a legally binding rulings system (for example, superannuation guarantee charge and excess contributions tax). • Advice on an arrangement where a company intends to launch a takeover of a target company and the first company wants advice (without getting consent from the target company) on the tax consequences for the target company. • Advice on a proposed scheme that would be undertaken by a company, (including a corporate trustee) when it is incorporated or a trust when it is settled. • Advice to a Commonwealth, state or territory government or one of their agencies about the tax consequences for a taxable purchaser under a proposed privatisation. • Advice to a Commonwealth, state or territory government or one of their government authorities about a proposed transaction, for example, an industry restructure which has tax consequences for any new entity to be created as part of the restructure. • Advice on a scheme where private or public infrastructure matters are raised and there are no entities presently in existence capable of requesting a private ruling. • Advice on a proposed commercial-in-confidence product to prospective investors, where no suitable private ruling applicants can be identified. • Advice on the legislation and associated regulations (of which the Commissioner has general administration) which form part of the Coronavirus Economic Response Package.","Commissioner of Taxation v Hacon Pty Ltd (Published 14 September 2018) | CR 2001/1 | MT 2006/1 | MT 2008/1 | MT 2008/2 | PR 2007/71 | TD 2011/19 | TR 2006/10 | TR 2006/11 | TR 2011/5 | PS LA 1998/1 | PS LA 2001/4 | PS LA 2001/8 | PS LA 2002/13 | PS LA 2003/3 | PS LA 2003/7 | PS LA 2003/9 | PS LA 2003/10 | PS LA 2004/4 | PS LA 2004/6 | PS LA 2005/24 | PS LA 2006/2 | PS LA 2006/8 | PS LA 2008/4 | PS LA 2008/5 | PS LA 2008/15 | PS LA 2009/2 | PS LA 2009/5 | PS LA 2009/9 | PS LA 2010/5 | PS LA 2011/27 | PS LA 2012/1 | PS LA 2012/5 | Schedule of documents containing precedential ATO views | A New Tax System (Australian Business Number) Act 1999 | A New Tax System (Goods and Services Tax Transition) Act 1999 | A New Tax System (Luxury Car Tax) Act 1999 | A New Tax System (Luxury Car Tax) Act 1999 27-1 | A New Tax System (Wine Equalisation Tax) Act 1999 | A New Tax System (Wine Equalisation Tax) Act 1999 33-1 | A New Tax System (Wine Equalisation Tax and Luxury Car Tax Transition) Act 1999 | GST Act | GST Act 11-25 | GST Act 17-5 | GST Act 126-5 | GST Act 162-105 | GST Act Div 165 | GST Act 184-1 | GST Act 195-1 | Fuel Tax Act 2006 | Fuel Tax Act 2006 60-5 | Fuel Tax Act 2006 110-5 | Fuel Tax (Consequential and Transitional Provisions) Act 2006 | Excise Act 1901 | Excise Act 1901 154 | Excise Act 1901 155 | ITAA 1936 175A | ITAA 1936 Part IVA | ITAA 1997 Div 30 | ITAA 1997 35-55 | ITAA 1997 960-100 | ITAA 1997 995-1 | ITAA 1997 995-1(1) | TAA 1953 3C | TAA 1953 Pt IIA | TAA 1953 Pt IVAA | TAA 1953 8AAG | TAA 1953 Pt IVAAA | TAA 1953 Pt IVC | TAA 1953 14ZVA | TAA 1953 14ZW(1)(ba) | TAA 1953 14ZW(1A) | TAA 1953 14ZW(2) | TAA 1953 14ZX | TAA 1953 14ZYB | TAA 1953 14ZZ | TAA 1953 Sch 1 Div 280 | TAA 1953 Sch 1 280-160 | TAA 1953 Sch 1 Subdiv 284-B | TAA 1953 Sch 1 284-75(2) | TAA 1953 Sch 1 284-75(3) | TAA 1953 Sch 1 284-75(5) | TAA 1953 Sch 1 284-75(6) | TAA 1953 Sch 1 284-90(1) | TAA 1953 Sch 1 284-145 | TAA 1953 Sch 1 284-224 | TAA 1953 Sch 1 298-20 | TAA 1953 Sch 1 Div 357 | TAA 1953 Sch 1 357-55 | TAA 1953 Sch 1 357-60 | TAA 1953 Sch 1 357-60(1)(b) | TAA 1953 Sch 1 357-60(2) | TAA 1953 Sch 1 357-60(3) | TAA 1953 Sch 1 357-60(4) | TAA 1953 Sch 1 357-60(5) | TAA 1953 Sch 1 357-60(6) | TAA 1953 Sch 1 357-65 | TAA 1953 Sch 1 357-65(1) | TAA 1953 Sch 1 357-70 | TAA 1953 Sch 1 357-75 | TAA 1953 Sch 1 357-75(1) | TAA 1953 Sch 1 357-75(1A) | TAA 1953 Sch 1 357-75(1B) | TAA 1953 Sch 1 357-85 | TAA 1953 Sch 1 357-105 | TAA 1953 Sch 1 357-110 | TAA 1953 Sch 1 357-115 | TAA 1953 Sch 1 357-120 | TAA 1953 Sch 1 357-120(a) | TAA 1953 Sch 1 Div 358 | TAA 1953 Sch 1 358-5 | TAA 1953 Sch 1 358-5(3) | TAA 1953 Sch 1 358-5(4) | TAA 1953 Sch 1 358-10(1) | TAA 1953 Sch 1 358-10(2) | TAA 1953 Sch 1 358-15(1) | TAA 1953 Sch 1 358-20 | TAA 1953 Sch 1 358-20(2) | TAA 1953 Sch 1 Div 359 | TAA 1953 Sch 1 359-5 | TAA 1953 Sch 1 359-10 | TAA 1953 Sch 1 359-10(1) | TAA 1953 Sch 1 359-10(3) | TAA 1953 Sch 1 359-15 | TAA 1953 Sch 1 359-20(1) | TAA 1953 Sch 1 359-20(2) | TAA 1953 Sch 1 359-25(1) | TAA 1953 Sch 1 359-25(2) | TAA 1953 Sch 1 359-25(3) | TAA 1953 Sch 1 359-25(4) | TAA 1953 Sch 1 359-30 | TAA 1953 Sch 1 359-30(a) | TAA 1953 Sch 1 359-35 | TAA 1953 Sch 1 359-35(2)(a) | TAA 1953 Sch 1 359-40 | TAA 1953 Sch 1 359-40(2) | TAA 1953 Sch 1 359-40(3) | TAA 1953 Sch 1 359-45 | TAA 1953 Sch 1 359-50(2) | TAA 1953 Sch 1 359-50(3) | TAA 1953 Sch 1 359-55(1) | TAA 1953 Sch 1 359-55(2) | TAA 1953 Sch 1 359-55(5) | TAA 1953 Sch 1 359-60 | TAA 1953 Sch 1 359-60(3)(c) | TAA 1953 Sch 1 359-70 | TAA 1953 Sch 1 Div 360 | TAA 1953 Sch 1 360-5(1) | TAA 1953 Sch 1 360-5(2) | TAA 1953 Sch 1 360-5(2A) | TAA 1953 Sch 1 360-5(3) | TAA 1953 Sch 1 360-5(4) | TAA 1953 Sch 1 360-5(5) | TAA 1953 Sch 1 360-10 | TAA 1953 Sch 1 360-15 | TAA 1953 Sch 1 361-5 | TAA 1953 Sch 1 388-50 | TAA 1953 Sch 1 388-50(1A) | Product Grants and Benefits Administration Act 2000 8 | Small Superannuation Accounts Act 1995 | Superannuation Guarantee (Administration) Act 1992 31 | Superannuation Industry (Supervision) Act 1993 | Superannuation Industry (Supervision) Regulations 1994 | Superannuation (Unclaimed Money and Lost Members) Act 1999 | Minerals Resource Rent Tax Act 2012 | Minerals Resource Rent Tax (Imposition-Excise) Act 2012 | Minerals Resource Rent Tax (Imposition-Customs) Act 2012 | Minerals Resource Rent Tax (Imposition-General) Act 2012 | Tax Laws Amendment (Improvements to Self Assessment) Act (No. 2) 2005 | Tax Laws Amendment (Improvements to Self Assessment) Act 2005 (No. 2) 2005, Schedule 2, 29(1) | Tax Laws Amendment (Improvements to Self Assessment) Act 2005 (No. 2) 2005, Schedule 2, 29(2) | Tax Laws Amendment (Improvements to Self Assessment) Act (No. 2) 2005, Schedule 2, 29(3) | Tax Laws Amendment (2010 GST Administration Measures No. 2) Act 2010 | (1951) 84 CLR 105",PS LA 1998/1 PS LA 2001/4 PS LA 2001/8 PS LA 2002/13 PS LA 2003/3 PS LA 2003/7 PS LA 2003/9 PS LA 2003/10 PS LA 2004/4 PS LA 2004/6 PS LA 2005/24 PS LA 2006/2 PS LA 2006/8 PS LA 2008/4 PS LA 2008/5 PS LA 2008/15 PS LA 2009/2 PS LA 2009/5 PS LA 2009/9 PS LA 2010/5 PS LA 2011/27 PS LA 2012/1 PS LA 2012/5,"A New Tax System (Australian Business Number) Act 1999 | A New Tax System (Goods and Services Tax Transition) Act 1999 | A New Tax System (Luxury Car Tax) Act 1999 | A New Tax System (Luxury Car Tax) Act 1999 27-1 | A New Tax System (Wine Equalisation Tax) Act 1999 | A New Tax System (Wine Equalisation Tax) Act 1999 33-1 | A New Tax System (Wine Equalisation Tax and Luxury Car Tax Transition) Act 1999 | GST Act | GST Act 11-25 | GST Act 17-5 | GST Act 126-5 | GST Act 162-105 | GST Act Div 165 | GST Act 184-1 | GST Act 195-1 | Fuel Tax Act 2006 | Fuel Tax Act 2006 60-5 | Fuel Tax Act 2006 110-5 | Fuel Tax (Consequential and Transitional Provisions) Act 2006 | Excise Act 1901 | Excise Act 1901 154 | Excise Act 1901 155 | ITAA 1936 175A | ITAA 1936 Part IVA | ITAA 1997 Div 30 | ITAA 1997 35-55 | ITAA 1997 960-100 | ITAA 1997 995-1 | ITAA 1997 995-1(1) | TAA 1953 3C | TAA 1953 Pt IIA | TAA 1953 Pt IVAA | TAA 1953 8AAG | TAA 1953 Pt IVAAA | TAA 1953 Pt IVC | TAA 1953 14ZVA | TAA 1953 14ZW(1)(ba) | TAA 1953 14ZW(1AAB) | TAA 1953 14ZW(1A) | TAA 1953 14ZW(2) | TAA 1953 14ZX | TAA 1953 14ZYB | TAA 1953 14ZZ | TAA 1953 Sch 1 105-60 | TAA 1953 Sch 1 Pt 5-5 | TAA 1953 Sch 1 Div 280 | TAA 1953 Sch 1 280-160 | TAA 1953 Sch 1 Subdiv 284-B | TAA 1953 Sch 1 284-75(2) | TAA 1953 Sch 1 284-75(3) | TAA 1953 Sch 1 284-75(5) | TAA 1953 Sch 1 284-75(6) | TAA 1953 Sch 1 284-90(1) | TAA 1953 Sch 1 284-145 | TAA 1953 Sch 1 284-215 | TAA 1953 Sch 1 284-215(1) | TAA 1953 Sch 1 284-215(2) | TAA 1953 Sch 1 284-224 | TAA 1953 Sch 1 298-20 | TAA 1953 Sch 1 Div 357 | TAA 1953 Sch 1 357-55 | TAA 1953 Sch 1 357-60 | TAA 1953 Sch 1 357-60(1)(b) | TAA 1953 Sch 1 357-60(2) | TAA 1953 Sch 1 357-60(3) | TAA 1953 Sch 1 357-60(4) | TAA 1953 Sch 1 357-60(5) | TAA 1953 Sch 1 357-60(6) | TAA 1953 Sch 1 357-65 | TAA 1953 Sch 1 357-65(1) | TAA 1953 Sch 1 357-70 | TAA 1953 Sch 1 357-75 | TAA 1953 Sch 1 357-75(1) | TAA 1953 Sch 1 357-75(1A) | TAA 1953 Sch 1 357-75(1B) | TAA 1953 Sch 1 357-85 | TAA 1953 Sch 1 357-105 | TAA 1953 Sch 1 357-110 | TAA 1953 Sch 1 357-115 | TAA 1953 Sch 1 357-120 | TAA 1953 Sch 1 357-120(a) | TAA 1953 Sch 1 Div 358 | TAA 1953 Sch 1 358-5 | TAA 1953 Sch 1 358-5(3) | TAA 1953 Sch 1 358-5(4) | TAA 1953 Sch 1 358-10(1) | TAA 1953 Sch 1 358-10(2) | TAA 1953 Sch 1 358-15(1) | TAA 1953 Sch 1 358-20 | TAA 1953 Sch 1 358-20(2) | TAA 1953 Sch 1 Div 359 | TAA 1953 Sch 1 359-5 | TAA 1953 Sch 1 359-10 | TAA 1953 Sch 1 359-10(1) | TAA 1953 Sch 1 359-10(3) | TAA 1953 Sch 1 359-15 | TAA 1953 Sch 1 359-20(1) | TAA 1953 Sch 1 359-20(2) | TAA 1953 Sch 1 359-25(1) | TAA 1953 Sch 1 359-25(2) | TAA 1953 Sch 1 359-25(3) | TAA 1953 Sch 1 359-25(4) | TAA 1953 Sch 1 359-30 | TAA 1953 Sch 1 359-30(a) | TAA 1953 Sch 1 359-35 | TAA 1953 Sch 1 359-35(2)(a) | TAA 1953 Sch 1 359-40 | TAA 1953 Sch 1 359-40(2) | TAA 1953 Sch 1 359-40(3) | TAA 1953 Sch 1 359-45 | TAA 1953 Sch 1 359-50(2) | TAA 1953 Sch 1 359-50(3) | TAA 1953 Sch 1 359-55(1) | TAA 1953 Sch 1 359-55(2) | TAA 1953 Sch 1 359-55(5) | TAA 1953 Sch 1 359-60 | TAA 1953 Sch 1 359-60(3)(c) | TAA 1953 Sch 1 359-70 | TAA 1953 Sch 1 Div 360 | TAA 1953 Sch 1 360-5(1) | TAA 1953 Sch 1 360-5(2) | TAA 1953 Sch 1 360-5(2A) | TAA 1953 Sch 1 360-5(3) | TAA 1953 Sch 1 360-5(4) | TAA 1953 Sch 1 360-5(5) | TAA 1953 Sch 1 360-10 | TAA 1953 Sch 1 360-15 | TAA 1953 Sch 1 361-5 | TAA 1953 Sch 1 388-50 | TAA 1953 Sch 1 388-50(1A) | Product Grants and Benefits Administration Act 2000 8 | Small Superannuation Accounts Act 1995 | Superannuation Guarantee (Administration) Act 1992 31 | Superannuation Industry (Supervision) Act 1993 | Superannuation Industry (Supervision) Regulations 1994 | Superannuation (Unclaimed Money and Lost Members) Act 1999 | Minerals Resource Rent Tax Act 2012 | Minerals Resource Rent Tax (Imposition-Excise) Act 2012 | Minerals Resource Rent Tax (Imposition-Customs) Act 2012 | Minerals Resource Rent Tax (Imposition-General) Act 2012 | Tax Laws Amendment (Improvements to Self Assessment) Act (No. 2) 2005 | Tax Laws Amendment (Improvements to Self Assessment) Act 2005 (No. 2) 2005, Schedule 2, 29(1) | Tax Laws Amendment (Improvements to Self Assessment) Act 2005 (No. 2) 2005, Schedule 2, 29(2) | Tax Laws Amendment (Improvements to Self Assessment) Act (No. 2) 2005, Schedule 2, 29(3) | Tax Laws Amendment (2010 GST Administration Measures No. 2) Act 2010 | Tax Laws Amendment (2010 GST Administration Measures No. 2) Act 2010 46(2) | Tax Laws Amendment (2010 GST Administration Measures No. 2) Act 2010 46(3) | Tax Laws Amendment (2010 GST Administration Measures No. 2) Act 2010 46(4)",,"Risk Management CEI (link available internally only) Explanatory Memorandum to the Tax Laws Amendment (Improvements to Self Assessment) (No. 2) Bill 2005 Commonwealth of Australia Gazette Report on Aspects of Income Tax Self Assessment Commonwealth of Australia, The Treasury 2004, Canberra Review of the Legal Framework for the Administration of the GST , The Board of Taxation 2008, Canberra Edited private advice Schedule of documents containing precedential ATO views Taxpayers' Charter ORCLA (link available internally only) Public rulings manual (link available internally only)",False,True,https://www.ato.gov.au/law/view/document?docid=PSR/PS20083/NAT/ATO/00001,"This Practice Statement is being reviewed as a result of a court/tribunal decision. Refer to Decision Impact Statement: Commissioner of Taxation v Hacon Pty Ltd (Published 14 September 2018) . This Pratice Statement is being updated to cover the Pillar Two global and domestic minimum tax. During the interim period while this update occurs, guidance can be obtained at Global and domestic minimum tax or by emailing Pillar2Project@ato.gov.au , if required. This document incorporates revisions made since original publication. View its history and amending notices, if applicable. | EXCLUSIONS FROM THIS PRACTICE STATEMENT | Existing public indirect tax rulings prior to 1 July 2010 | Published materials produced for internal ATO purposes | Attachment A: Summary of levels of protection | Attachment B: Administratively binding advice - exhaustive list of topics | This law administration practice statement is issued under the authority of the Commissioner and must be read in conjunction with Law Administration Practice Statement PS LA 1998/1. ATO personnel, including non ongoing staff and relevant contractors, must comply with this law administration practice statement, unless doing so creates unintended consequences or is considered incorrect. Where this occurs, ATO personnel must follow their business line's escalation process. | Providing assistance in the form of advice and guidance on the application of the laws administered by the Commissioner is central to the role of the ATO. The provision of this assistance enables taxpayers to understand and meet their obligations and be aware of their rights and entitlements in a self-assessment system. | Advice provided by the ATO is binding on the Commissioner. It provides the highest level of protection for taxpayers who rely on it. | Guidance provided by the ATO is not binding on the Commissioner. It provides more general information that assists taxpayers in a wide variety of circumstances to deal with their tax obligations. | Advice on the application of the laws administered by the Commissioner is generally provided in the form of a binding ruling. | There are three types of binding rulings: public, private and oral. The expectation for product and class rulings (which are public rulings) as well as private and oral rulings is that the taxpayer or adviser should make a full and true disclosure of all relevant facts in relation to the matters on which advice is sought. | A ruling does not bind the taxpayer in any circumstance. The taxpayer is entitled to apply the law if it provides a more favourable result for the taxpayer than the ruling, subject to relevant time limits in the tax law. In other words, rulings operate as a shield for the taxpayer, not a sword for the Commissioner. | Advice provides the highest level of protection for taxpayers. This means that if the advice is incorrect and the taxpayer makes a mistake as a result, they are protected from paying tax that would otherwise be payable under the law and also from false or misleading statement penalty or interest charges. | A public ruling is a published statement that is intended to contain advice on the way the law applies in defined circumstances that are common to many taxpayers. Public rulings include product and class rulings. A taxpayer can rely on a public ruling if it coincides with their particular circumstances. | The primary audience for public rulings are tax professionals or taxpayers who have a technical understanding of the underlying law. However, the subject matter will influence the level of technical precision necessary, it being greater where the issues are complex at law. | A private ruling is provided in writing and applies to a particular taxpayer in relation to their specific circumstances. It is based on the facts relevant to the scheme defined in the taxpayer's ruling application, and on any assumptions that are made. In effect, it allows a taxpayer to be notionally assessed on an existing or proposed transaction. | A taxpayer can choose not to rely on the ruling, and can have the ruling reviewed if they disagree with it. | An oral ruling applies to an individual in relation to their specific circumstances and is generally given on a provision of the law applicable to individuals, such as personal income tax or Medicare levy. Oral rulings cannot be given on indirect tax, excise or Minerals Resource Rent Tax (MRRT) matters. | The taxpayer is advised that the advice constitutes a binding oral ruling. A taxpayer can also choose not to rely on an oral ruling but, unlike private rulings, oral rulings are not reviewable. | Some of the laws administered by the Commissioner do not enable advice to be provided in a legally binding form. In the interests of sound administration, the Commissioner will, in very limited circumstances, provide administratively binding advice in relation to these laws and in relation to a very limited range of other circumstances. If taxpayers rely on advice specified as administratively binding advice and it is later found to be incorrect, they will ordinarily not have to pay the tax that would otherwise be payable under the law. | ATO guidance is provided to help taxpayers understand their obligations and entitlements under the laws administered by the Commissioner. Guidance normally provides general assistance and, especially for published products, is simply expressed, often provides step by step guidance and does not cover all possibilities. | A taxpayer who relies on guidance that is found to be incorrect, or misleading and the taxpayer makes a mistake as a result, will have to pay the tax that would otherwise be payable under the law but will be protected against false or misleading statement penalty, and, if they have relied on the guidance reasonably and in good faith, against interest charges. | In limited circumstances, the ATO may produce documents that do not provide any protection. These documents should be clearly labelled. If a taxpayer relies on statements in these types of documents and they are found to be incorrect, or misleading and the taxpayer makes a mistake as a result, they will not be protected against the tax that would otherwise be payable under the law, nor will they be protected against false or misleading statement penalty or interest charges unless the Commissioner exercises his discretion. | Addition to the list of topics on which ABA can be provided. | Updated contact details and Chief Executive Instruction title. | Updated to include Siebel number. | Reference to PS LA 2006/2 replaced with PS LA 2012/5. | PS LA 2003/10 replaced with PS CM 2003/02 and PS LA 2012/1. | Change of references to ATOlaw and law.ato.gov.au to Legal Database. | Footnote 1 and throughout | Application of practice statement widened to ATO personnel. | Definitions of Legal Database added; changes to MRRT, PRRT and Wine tax law made consistent with format and language of other definitions. | Footnotes 22, 25, 27 & 32 | New footnotes provide where terms are defined. | Amended to provide consistency. | Paragraphs 17, 147 151, Footnote 201 | Included reference to MRRT. | Replaced 'priority technical issues procedures' with 'ATO's Enterprise Risk Management Framework'. | Removal of discussion of product ruling notification of intention to lodge. | Deletion of sentence stating there is no specific form for lodging a class ruling application. | Removal of TaxPack as an example of a public ruling. | Include complex case scenario, to bring that sentence in line with current policy for requests for further information. | Updated to include additional exceptions for excise and MRRT for which oral rulings cannot be provided. | Paragraphs 208, 209 and 212 and 213 | Insertions of material and new paragraphs to explain when taxpayers can be provided with written guidance on specific circumstances or issues and refers ATO personnel to ORCLA on how to provide written advice. | Contact business line and section | Insert the definition of MRRT and PRRT. | Updated to recognise that public and private rulings can be issued for MRRT purposes | Updated to recognise that reasonably arguable position penalty applies to MRRT | Updated as a result of TTTDM. | Amendments to reflect the changes made by the Tax Laws Amendment (2010 GST Administration Measures No. 2) Act 2010 and the Tax Laws Amendment (2010 Measures No. 1) Act 2010 . | 'Tax Office' updated to 'ATO' as per Style Guide recommendations. | Footnote 4 and references | [1] ATO personnel includes staff, employees, and officers. ATO personnel also includes contractors where their agreement or contract states that they will comply with ATO policies. | [2] The Treasury 2004 Report on Aspects of Income Tax Self Assessment Commonwealth of Australia , Canberra. | [3] This practice statement replaces Law Administration Practice Statement PS LA 2001/4 Provision of written advice by the Australian Taxation Office . | [4] A Commissioner's discretion may be exercised under a power conferred by an administrative provision or a provision affecting liability or an anti-avoidance provision. The granting of a substituted accounting period or of an extension of time to lodge a return are examples of discretions exercised under an administrative provision. A determination that a corporate distribution is included in the assessable income of the recipient is an example of a discretion exercised under a provision affecting liability. | [5] PS LA 2009/5 Provision of advice and guidance by the ATO in relation to the application of the Superannuation Industry (Supervision) Act 1993 and the Superannuation Industry (Supervision) Regulations 1994 to Self Managed Superannuation Funds . | [6] These products do not come within the rulings regime in Part 5-5 of Schedule 1 to the Taxation Administration Act 1953 . | [7] Refer to Law Administration Practice Statement PS LA 2008/15 Taxpayer Alerts . | [8] For a discussion of the meaning of 'entity' see Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number . The term entity is also defined in section 184-1 of the GST Act and is similar to the definition of entity in section 960-100 of the ITAA 1997. It is intended that the term entity has a common meaning across the A New Tax System (Australian Business Number) Act 1999 , GST and income tax Acts. See paragraphs 17 and 18 of MT 2006/1. | [9] This term is defined in section 195-1 of the GST Act. | [10] This term is defined in subsection 995-1(1) of the ITAA 1997. | [11] This term also includes (d) any other Act so far as it relates to any Act covered by paragraphs (a) to (c) and (e) regulations under any Act so far as they relate to any Act covered by paragraphs (a) to (d). | [12] This does not include penalty under subsections 284-75(2) regarding statements that are not reasonably arguable and 284-75(3) for failing to give a document to the Commissioner by the required time. | [13] For further information see Miscellaneous Taxation Ruling MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard and Miscellaneous Taxation Ruling MT 2008/2 Shortfall penalties: administrative penalty for taking a position that is not reasonably arguable . | [14] See subsection 284-75(6). This exemption applies provided the false or misleading statement did not result from intentional disregard by the agent of a taxation law or recklessness by the agent as to the operation of a taxation law. | [15] This term is defined in section 110-5 of the Fuel Tax Act 2006 . | [16] This term is defined in section 195-1 of the GST Act. | [17] This term also includes (e) any other Act, so far as it relates to any Act covered by paragraphs (a) to (d) (or to so much of that Act as is covered) and (f) regulations under any Act so far as they relate to any Act covered by paragraphs (a) to (d) (or to so much of that Act as is covered). | [18] Law Administration Practice Statement PS LA 2006/8 Remission of shortfall interest charge and general interest charge for shortfall periods contains guidelines on the remission of interest charges. | [20] This term is defined in section 27-1 of A New Tax System (Luxury Car Tax) Act 1999 . | [21] This term also includes (e) any other Act so far as it relates to any Act covered by paragraphs (a) to (d) and (f) regulations under any Act so far as they relate to any Act covered by paragraphs (a) to (e). | [22] This term is defined in section 300-1 of the Minerals Resource Rent Tax Act 2012 . | [23] This term is defined in section 300-1 of the Minerals Resource Rent Tax Act 2012 . | [24] This term also includes (d) any other Act so far as it relates to any Act covered by paragraphs (a) to (c) and (e) regulations under an Act so far as they relate to any Act covered by paragraphs (a) to (d). | [25] Law Administration Practice Statement PS LA 2012/5 Administration of shortfall penalty for false or misleading statement . | [26] This term is defined in section 995-1 of the ITAA 1997. | [27] Subsection 995-1(1) of the ITAA 1997. | [28] This includes the calculation of liabilities and entitlements for indirect taxes. | [30] This term is defined in section 33-1 of the A New Tax System (Wine Equalisation Tax) Act 1999 . | [31] This term also includes (e) any other Act so far as it relates to any Act covered by paragraphs (a) to (d) and (f) regulations under any Act so far as they relate to any Act covered by paragraphs (a) to (e). | [36] The term 'net fuel amount' is defined in subsection 995-1(1) of the ITAA 1997 and has the meaning given by section 60-5 of the Fuel Tax Act 2006 . | [40] If the scheme is not implemented in the way set out in the private ruling or as used for the basis of an oral ruling, or material facts were omitted from the ruling application, or misleading or inaccurately stated, the ruling does not bind the Commissioner, see paragraph 19 of Taxation Ruling TR 2006/11 Private Rulings . | [42] See subsections 357-60(5) and (6). | [43] This situation would only be expected to happen in very limited circumstances. For example, public rulings that are notified on the Public Rulings Program must be examined by the appropriate Public Rulings Panel before they are issued (however, there are some exceptions, for example Taxation Determinations and procedural or annual rulings). Each Rulings Panel comprises several of the most senior ATO staff and external representatives who are respected tax practitioners and/or academics. It is more likely that this could occur in relation to other materials that do not receive the same level of scrutiny and are expressed more generally because they endeavour to provide practical guidance to large numbers of taxpayers to help them meet their tax obligations. See paragraphs 66 to 69 of this practice statement. | [44] Paragraphs 35 and 114 of this practice statement explain when the Commissioner is legally bound by a ruling. | [46] The term 'relevant provision' is explained in paragraph 14 of this practice statement. | [47] See section 357-85 and also paragraph 49 of TR 2006/10 for public rulings and paragraph 51 of TR 2006/11 for private rulings. | [48] From 1 July 2010. See subsection 357-60(3). | [49] See subsection 357-60(3) and section 11-25 of the GST Act. | [50] See paragraph 357-60(1)(b) and the note to subsection 357-60(3). | [51] See subsection 357-60(4). | [52] For further information, see paragraphs 22 to 23 of TR 2006/10 and the Public rulings manual . | [53] See paragraphs 66 to 67 of this practice statement. | [54] See subsections 358-5(3) and 359-20(1). See paragraph 47 of this practice statement for special rules about indirect tax rulings issued before 1 July 2010. | [55] See Corporate Management Practice Statement PS CM 2003/02 Risk and issues management , Law Administration Practice Statement PS LA 2012/1 Management of high risk technical issues and engagement of officers in the Tax Counsel Network and the Public rulings manual . | [56] See paragraph 14 of this practice statement. | [58] Subsection 358-10(1). | [59] See subsection 358-10(2). From 1 July 2010 the Commissioner may revise an indirect tax or excise ruling at any time, whether or not the relevant scheme or tax period has commenced: see subsection 357-75(1). | [60] Subsection 358-10(2). | [61] If there is a change to the Commissioner's general administrative practice, ATO personnel must ensure that they follow PS LA 2011/27 to determine whether the ATO should only apply its view of the law prospectively. | [62] In some cases it may not be appropriate or possible for the Commissioner to change a general administrative practice by way of a public ruling. For example, where the general administrative practice concerns an issue beyond the scope of the rulings regime under Division 358. In such cases, some other product would be used to communicate the change. | [63] Item 3 in the table in subsection 357-75(1). | [64] Items 1 and 3 in the table in subsection 357-75(1). | [65] See subsection 357-75(1B). | [66] See subsection 357-75(1A). | [68] Subsection 358-15(1). Class Rulings and Product Rulings specify the periods for which the ruling has effect. | [69] Subsection 358-20(2). | [70] There are special rules that apply to rulings given to GST groups, joint ventures and incapacitated entities. See paragraph 19 of this practice statement for further explanation. | [71] Relying on a ruling means acting (or omitting to act) in accordance with the ruling: see paragraph 357-60(1)(b). | [72] Subsection 357-60(2). | [73] A taxpayer who is dissatisfied with their assessment may object to it - see section 175A of the Income Tax Assessment Act 1936 (ITAA 1936). | [74] See note to subsection 357-65(1). | [75] MT 2008/1 explains the meaning of reasonable care as well as other behaviours such as recklessness and intentional disregard. | [76] Subitem 29(1), Schedule 2, Tax Laws Amendment (Improvements to Self Assessment) Act (No. 2) 2005 . | [77] See subitem 46(3) in the Tax Laws Amendment (2010 GST Administration Measures No. 2) Act 2010 . | [78] See paragraph 14 of this practice statement. From 1 July 2010, as a result of the change to the definition of relevant provision a product ruling can now be given on indirect taxes or excise duties. | [79] See paragraphs 9 and 10 of Product Ruling PR 2007/71 The Product Rulings system for a discussion of the term 'product'. | [80] See paragraphs 82 to 88 of PR 2007/71. | [81] These include an agreement that the applicant abide by the terms of use of the product ruling and statements that the description of the scheme is accurate, covers all relevant features and that all parties named in the ruling consent to being named. See Chapter 15 of the Public rulings manual . | [82] See paragraph 14 of this practice statement. From 1 July 2010, as a result of the change to the definition of relevant provision a class ruling can now be given on indirect taxes or excise duties. | [83] See also paragraph 20 of CR 2001/1. | [84] These include a statement that the description of the scheme is accurate and covers all relevant features, that the parties named in the ruling consent to being named and a statement to the effect that the negotiated date for publication is acceptable. See Chapter 16 of the Public rulings manual . | [85] Subsection 358-5(4). | [86] The level of protection for written guidance is explained in paragraphs 214 to 217 of this practice statement. | [87] See former section 284-215, sections 298-20 and 361-5 and section 8AAG of the TAA. For statements made after 3 June 2010 see also subsection 284-75(5) and section 284-224. | [88] Subsection 358-10(2). From 1 July 2010 the Commissioner may revise an indirect tax or excise ruling at any time, whether or not the relevant scheme or tax period has commenced: see subsection 357-75(1). | [89] Income tax, miscellaneous tax, superannuation guarantee and superannuation contributions ruling series. | [90] For more information on rulings relating to superannuation issues see PS LA 2009/5 Provision of advice and guidance by the Australian Taxation Office (ATO ) in relation to the application of the Superannuation Industry (Supervision) Act 1993 and the Superannuation Industry (Supervision) Regulations 1994 to Self Managed Superannuation Funds. | [91] Federal Commissioner of Taxation v. Wade (1951) 84 CLR 105; (1951) 25 ALJ 626; (1951) 9 ATD 337; [1951] ALR 962[0] at 117. | [92] See paragraph 14 of this practice statement. | [93] Section 359-5. See also TR 2006/11. | [94] See Law Administration Practice Statement PS LA 2002/13 Authorisation of written binding advice . See also TR 2006/11. | [95] See paragraph 14 of this practice statement. | [97] Paragraph 359-30(a). Ensuring that a private ruling given to a trustee of a trust also applies to a beneficiary of a trust is not appropriate in the indirect tax context as the trust and beneficiaries are separate entities for indirect tax purposes. It is also not appropriate in the excise context as the excise legislation imposes the relevant obligations on the entity that manufactures/deals with excisable goods. If the trust is this entity then there will be no obligations on the beneficiaries. | [98] Sections 359-10 and 388-50. | [99] A separate approved form is available for applications for a private ruling on the exercise of the Commissioner's discretion for non-commercial business losses under section 35-55 of the ITAA 1997. Separate approved forms dealing with other matters may be developed as required. | [100] Subsection 388-50(1A). | [101] See paragraph 81 of this practice statement. | [102] Note that tax agents cannot obtain an oral ruling on behalf of a taxpayer. However, an oral ruling may be obtained by a taxpayer's legal personal representative - see subsection 360-5(1). | [107] Paragraph 357-120(a). | [111] In particular, case officers should have regard to paragraphs 9 to 13 of PS LA 2005/24 which concern the situation where the taxpayer has not requested a private ruling on Part IVA. | [112] See paragraph 359-35(2)(a). | [113] See paragraphs 3.81 and 3.90 of the Explanatory Memorandum to the Tax Laws Amendment (Improvements to Self Assessment) (No. 2) Bill 2005. | [114] See Law Administration Practice Statement PS LA 2008/5 Written binding advice (private) - requests for further information, notification of assumptions and intended use of information from sources other than the applicant . | [115] Section 359-35, section 3C of the TAA and paragraph 3.44 of the Explanatory Memorandum to the Tax Laws Amendment (Improvements to Self Assessment) (No. 2) Bill 2005. | [117] The term 'relevant provision' is explained in paragraph 14 of this practice statement. | [121] Paragraphs 177 to 182 of this practice statement discuss the circumstances when indicative advice may be provided prior to the issue of a private, class or product ruling. | [122] See PS LA 2003/ 3 . | [123] Subsection 359-20(1). | [124] Subsection 359-20(2). | [125] Subsection 359-20(2). | [127] Subsection 359-25(1). | [128] Subsection 359-25(2). | [129] Subsections 359-25(3) and (4). | [130] Subsection 357-75(1B) and the note to subsection 359-25(4). A private indirect tax or excise ruling may also cease to apply to the extent of any inconsistency if there is a later indirect tax or excise public ruling. See paragraph 35 of this practice statement for further explanation. | [132] However, this is subject to the special rules about GST groups, joint ventures and incapacitated entities. See subsection 357-60(5) and subsection 357-60(6). | [136] See former subsection 284-215(2). For statements made after 3 June 2010 see subsection 284-75(5) and section 284-224. MT 2008/1 explains the meaning of reasonable care. | [137] Subsections 284-75(2) and 284-90(1). See MT 2008/2 which explains the meaning of reasonably arguable position. | [141] See item 2 in the table in subsection 357-75(1). | [142] See subsection 357-75(1B). | [143] Subitem 29(2), Schedule 2, Tax Laws Amendment (Improvements to Self Assessment) Act (No. 2) 2005 . | [144] See subitem 46(2) in the Tax Laws Amendment (2010 GST Administration Measures No. 2) Act 2010 . Note: it was not possible to extend this to excise advice as only administratively binding advice and not rulings were able to be provided on these matters before 1 July 2010. | [145] See subitem 46(4) in the Tax Laws Amendment (2010 GST Administration Measures No. 2) Act 2010 . | [146] Subsections 359-55(1) and (2). | [147] Section 357-60 and 357-70. | [148] Subsection 357-75(1B). Note also the specific rule in subsection 359-55(5) which states that if a private indirect tax or excise ruling is revised and it specifies the time from which the revision begins to apply (which is a time after the revision is made) then the ruling in its initial form stops applying to you at the specified time. | [149] The ATO has put in place the priority private ruling process to manage the provision of advice for certain significant commercial transactions that meet particular criteria. The process is intended to mitigate the risk of being unable to provide advice in timeframes consistent with taxpayers' business needs around those transactions. In those cases, the requested timeframe for response is part of a case plan agreed with the applicant. The applicant is notified as soon as possible of any additional information requirements or changes to the case plan. See PS LA 2009/2. | [150] Subsection 359-50(2). | [151] Subsection 359-50(3) and paragraph 14ZW(1)(ba) of the TAA. An entity may make a written request that a late objection be dealt with as if it had been lodged within the objection period - see subsection 14ZW(2) and section 14ZX of the TAA. See also paragraphs 25 and 130 to 134 of Taxation Ruling TR 2011/5 Income tax : objections against income tax assessments and Law Administration Practice Statement PS LA 2003/7 Taxation objections - late lodgment . | [152] Section 14ZYB of the TAA. | [153] Section 14ZZ of the TAA. | [154] Other than the valuation of a gift or contribution for the purposes of Division 30 of the ITAA 1997. | [156] Subsections 359-40(2) and (3). | [157] Subsection 359-10(3). See also paragraphs 34 and 196 to 197 of TR 2011/5. | [158] Subsection 359-60(1). Appendix 1 to TR 2011/5 may provide guidance in relation to the right to object in the manner set out in Part IVC. | [159] See subsections 14ZW(1AAB) and (1A) of the TAA. An entity may make a written request that a late objection be dealt with as if it had been lodged within the objection period - see subsection 14ZW(2) and section 14ZX of the TAA. See also paragraphs 25 and 130 to 134 of TR 2011/5 and PS LA 2003/7. | [160] Section 359-60. The reference to a withholding tax matter also includes mining withholding tax. | [161] See paragraphs 28 and 150 to 151 of TR 2011/5. | [162] Section 14ZZ of the TAA. | [163] See paragraph 359-60(3)(c) of Schedule 1 to the TAA. | [164] See section 14ZVA of the TAA. | [165] See section 155 of the Excise Act 1901 . | [167] A reference to 'taxpayer' in this section about oral rulings under Division 360 means the individual or their legal personal representative. | [169] See paragraph 14 of this practice statement. | [170] Subsection 360-5(2) and section 360-15. | [171] In this context 'authorised tax officer' means an officer with the requisite skill set that specifically includes the providing of oral rulings. | [172] Subsections 360-5(1) and 360-5(2A). | [173] Subsection 360-5(3). | [174] Subsection 995-1(1) of the ITAA 1997. | [175] See paragraphs 167 to 170 of this practice statement for further information on the approved response. | [177] See paragraphs 249 to 261 of this practice statement for further information about oral guidance. | [178] See paragraphs 249 to 261 of this practice statement for further information about oral guidance. | [179] In this context 'authorised tax officer' means an officer with the requisite skill set that specifically includes the providing of oral rulings. | [180] SMART (Script Manager and Reference Tool) is an intranet reference tool for frontline contact ATO personnel. | [182] The procedures for obtaining clearance of the response by a technical specialist are set out in SMART. | [183] Subsection 360-5(4). | [184] Subsection 360-5(5). | [185] Subitem 29(3), Schedule 2, Tax Laws Amendment (Improvements to Self Assessment) Act (No. 2) 2005 . | [188] There is no provision in Division 360 that provides objection rights in relation to an oral ruling. | [189] The discussion about indicative advice in this section applies generally to private, class and product rulings. However, there are special procedures in the Public rulings manual which must be followed when issuing draft class or product rulings to the taxpayer. See Part 15 (for product rulings) and Part 16 (for class rulings). | [190] See the discussion under the Pre-lodgment meeting heading of PS LA 2009/2 which may also apply, as appropriate, to ruling applications other than priority cases. | [191] See paragraph 94 of this practice statement. | [192] See paragraph 24 of Law Administration Practice Statement PS LA 2001/8 ATO Interpretative Decisions . | [193] This should be distinguished from a situation where the request for advice is about the application of a relevant provision to a large number of persons who would be affected by the arrangement proposed by the entity requesting the advice - in which case the entity should request a class ruling. | [194] See paragraph 25 of this practice statement. | [195] Federal Commissioner of Taxation v. Wade (1951) 84 CLR 105; (1951) 25 ALJ 626; (1951) 9 ATD 337; [1951] ALR 962 [0]at 117. | [196] See former section 284-215 and sections 298-20 and 361-5 and section 8AAG of the TAA. For statements made after 3 June 2010 see also subsection 284-75(5) and section 284-224. | [197] See Taxpayers' Charter - Respecting your right to a review . | [198] Except for indirect tax, excise or MRRT matters for which oral rulings cannot be provided. | [199] See paragraphs 145 to 176 and footnote 198 of this practice statement. | [200] Written guidance includes the sections of a public or private ruling that do not form part of the binding ruling. The non-binding sections of a private ruling only provide guidance for the limited entities to which it applies. | [201] See former subsection 284-215(1) or for statements after 3 June 2010 section 284-224 and section 298-20. | [202] See paragraph 14 of this practice statement. | [204] PS LA 2006/8 contains guidelines on the remission of interest charges. | [205] See former subsection 284-215(1) and section 361-5. For statements made after 3 June 2010 see subsection 284-75(5), section 284-224 and section 361-5. | [206] See paragraphs 242 to 243 of this practice statement for the level of protection for publications stated to be non-binding. | [207] See paragraphs 214 to 217 of this practice statement. | [208] See paragraphs 214 to 217 of this practice statement. | [209] Taxpayer alerts are excluded from the scope of this practice statement - see paragraph 7 of this practice statement. | [210] See former subsection 284-215(1) and section 361-5. For statements made after 3 June 2010 see subsection 284-75(5), section 284-224 and section 361-5. | [212] See Law Administration Practice Statement PS LA 2009/9 Conduct of ATO litigation and engagement of Legal Services Branch . | [213] There is an exception for decision impact statements issued before 1 July 2010 concerning indirect taxes. Where the relevant decision impact statement, or parts of it, are labelled as a public ruling that decision impact statement, or the parts so labelled, will be treated as a public ruling under Division 358 from 1 July 2010. | [214] See paragraphs 214 to 217 of this practice statement. | [216] This is approach is consistent with Taxation Determination TD 2011/19, which outlines the circumstances in which a general administrative practice is established. | [217] See paragraphs 214 to 217 of this practice statement. | [218] See paragraphs 214 to 217 of this practice statement. | [219] See paragraphs 214 to 217 of this practice statement. | [220] See former subsection 284-215(1) and section 361-5. For statements made after 3 June 2010 see subsection 284-75(5), section 284-224 and section 361-5. | [221] Refer to Law Administration Practice Statement PS LA 2008/4 Publication of edited versions of written binding advice . | [222] See paragraphs 151 to 160 of this practice statement about the requirements for an oral ruling to be given. | [223] 'Precedential ATO view' is defined in PS LA 2003/3. This practice statement also identifies the ATO documents that contain those views. | [224] See paragraphs 86 to 92 of this practice statement, which explain the requirements for a valid application for a private ruling. | [225] This would include administratively binding advice (see paragraphs 190 to 204 of this practice statement) and written guidance (see paragraphs 210 to 217 of this practice statement). | [226] See former subsection 284-215(1). For statements made after 3 June 2010 see subsection 284-75(5) and section 284-224. | [227] See section 361-5 and section 8AAG of the TAA. | [228] The ATO's role in providing information or advice on the potential application of announced changes to the tax law, or where legislative change is contemplated but not announced, is explained in PS LA 2004/6. | [229] Paragraphs 190 to 204 of this practice statement explain when administratively binding advice may be provided to a taxpayer. | [230] Self Managed Superannuation Fund advice and guidance the ATO provides about the application of the Superannuation Industry (Supervision) Act 1993 and Superannuation Industry (Supervision) Regulations 1994 is not legally or administratively binding on the Commissioner. For more information see PS LA 2009/5. | File 05/13223; 06/4284; 06/8967; 06/12189; 1-5AD59XW | Federal Commissioner of Taxation v. Wade (1951) 84 CLR 105 (1951) 25 ALJ 626 (1951) 9 ATD 337 [1951] ALR 962 | Other Business Lines consulted | ATO Relations, Excise, GST, Large Business & International, Debt, Client Account Services, Micro Enterprises and Individuals, Small & Medium Enterprises, Superannuation | This Pratice Statement was originally published on 28 February 2008. Versions published from 22 December 2011 are available electronically - refer to the online version of the practice statement. Versions published prior to this date are not available electronically. If needed, these can be requested by emailing TCNLawPublishingandPolicy@ato.gov.au ."
PS LA 2008/4,Publication of edited versions of written binding advice,28 February 2008,28 February 2008,Law Administration Practice Statement,False,"1. What this Practice Statement is about: This Practice Statement sets out the policy in relation to preparing and publishing an edited version (EV) of written binding advice. To improve the integrity of our advice processes, we publish EVs of all written binding advice. The forms of written binding advice for which EVs are published are: • private rulings issued under Division 359 of Schedule 1 to the Taxation Administration Act 1953 • administratively binding advice issued to specific taxpayers. • private rulings issued under Division 359 of Schedule 1 to the Taxation Administration Act 1953 • administratively binding advice issued to specific taxpayers. We publish EVs of written binding advice internally on ATOlaw (link available internally only) and externally on the Legal database . All legislative references in this Practice Statement (including in Attachment A) are to Schedule 1 of the Taxation Administration Act 1953 , unless otherwise indicated. | 2. Taxpayer reliance on edited versions: Taxpayers cannot rely on EVs. EVs provide a public historical record of edited written binding advice we issue. [1] We are not bound by an EV in relation to any taxpayer. Importantly, an EV: • is not intended to provide taxpayers with advice or guidance • is not a publication approved in writing by the Commissioner • does not set out a general administrative practice of the ATO. • is not intended to provide taxpayers with advice or guidance • is not a publication approved in writing by the Commissioner • does not set out a general administrative practice of the ATO. Therefore, a taxpayer who relies on information contained in an EV which is incorrect or misleading is not protected from [2] : • tax that would otherwise be payable or repaying an otherwise overpaid entitlement • interest • penalties. • tax that would otherwise be payable or repaying an otherwise overpaid entitlement • interest • penalties. It is only the written binding advice that is provided to the taxpayer (from which the EV is created) that is binding on us, and only in relation to the taxpayer to whom it applies. | 3. The roles in the edited version process: Case officers and authorising officers When preparing an EV, case officers and authorising officers must ensure that: • The relevant precedential ATO view is correctly applied or created when the written binding advice is prepared and that it is technically correct. • The requirements of Chief Executive Instruction Privacy, taxpayer and registry confidentiality (Privacy CEI) (link available internally only), which include legislative obligations, are met in regard to the EV editing process. This will be achieved if the steps outlined in Attachment A to this Practice Statement, are followed. • The ATO style guide and the ATO standards for citations and references are applied when drafting the EV (links available internally only). • The relevant precedential ATO view is correctly applied or created when the written binding advice is prepared and that it is technically correct. • The requirements of Chief Executive Instruction Privacy, taxpayer and registry confidentiality (Privacy CEI) (link available internally only), which include legislative obligations, are met in regard to the EV editing process. This will be achieved if the steps outlined in Attachment A to this Practice Statement, are followed. • The ATO style guide and the ATO standards for citations and references are applied when drafting the EV (links available internally only). The authorising officer has ultimate responsibility for the quality of the EV issued to the taxpayer. Publishing officers Staff in the Law Publishing team (in the Office of the Chief Tax Counsel business line) publish EVs to ATOlaw and the Legal database. During the publishing process, publishing officers undertake a final review of EV content as issued to the taxpayer to ensure that the requirements of the Privacy CEI have been met and the steps in Attachment A to this Practice Statement followed. Law Publishing is also responsible for resolving comments received on an EV following its issue to a taxpayer (see section 6 of this Practice Statement). | 4. What needs to be taken into account when creating an edited version: The overall objective of the editing process is to prepare a version of the written binding advice that accurately reflects that advice and is suitable for publication. Taxation laws, primarily Division 355, impose confidentiality obligations on ATO staff. Further, obligations to protect the privacy of individuals are imposed by the Privacy Act 1988 (Privacy Act). Case officers must take particular care when preparing an EV to ensure there is no unauthorised disclosure of taxpayer information or interference with the privacy of an individual caused by the disclosure of personal information. The case officer must consider all submissions about EV content made by the taxpayer on privacy or confidentiality grounds at the time of their request for written binding advice. The case officer must document the reasons for not agreeing with any of the taxpayer's submissions. Any officer involved in creating or reviewing an EV must follow the 3-step editing process outlined in Attachment A to this Practice Statement. Examples illustrating the editing process can be found in Attachment B to this Practice Statement. | 5. Summary edited versions and when they are used: In exceptional cases, it may not be possible to accurately reflect the facts underlying the advice without identifying the parties or breaching confidentiality. A summary of the advice in general terms (referred to as a 'summary EV') must be prepared in these instances. Summary EVs are comprised only of the advice's questions and answers or, in rare cases, a brief statement (such as 'the Commissioner has ruled on each of the questions'). Privacy or commercial-in-confidence issues are the only reasons for the preparation of a summary EV. | 6. Process for comments and review: The case officer must send the authorised EV to the taxpayer for comment at the same time the written binding advice is issued. If the taxpayer does not provide comments about the EV within 28 days from the issue date of the written binding advice, the EV will undergo the publishing process. If the taxpayer does provide comments relating to privacy or confidentiality matters within 28 days or at any time prior to publication, these comments will be considered by a publishing officer, who may liaise with the case and authorising officers when resolving the issues raised by a taxpayer. | 7. Updating edited versions: Documents published to ATOlaw and the Legal database are intended to be a public historical record only. They are not updated to reflect changes in: • the law, or • our application of the law. • the law, or • our application of the law. However, an EV should be annotated where the: • underlying written binding advice is revised • original written binding advice is overturned during review processes, or • EV is found to be incorrect or misleading in regard to application of law and presents a risk in regard to incorrect use. • underlying written binding advice is revised • original written binding advice is overturned during review processes, or • EV is found to be incorrect or misleading in regard to application of law and presents a risk in regard to incorrect use. EVs are not annotated if the reason for it being incorrect is due to a change of legislation, or where we have publicly changed our application of the law on a prospective basis. A decision to annotate an EV on the basis of it being incorrect or misleading must be approved by an Executive Level 2 staff member or above. | 8. More information: This Practice Statement should be read in conjunction with Law Administration Practice Statement PS LA 2008/3 Provision of advice and guidance by the ATO . For assistance or queries regarding the EV process, email Law Publishing . See also: • ATO Privacy Policy • ATO style guide (link available internally only) • ATO standards for citations and references (link available internally only) • Australian Privacy Principles guidelines – Personal information • Chief Executive Instruction Privacy, taxpayer and registry confidentiality (link available internally only) • EVs on ATOlaw (internal link only) • EVs on the Legal database • ORCLA – Resources for Law Administration (link available internally only). • ATO Privacy Policy • ATO style guide (link available internally only) • ATO standards for citations and references (link available internally only) • Australian Privacy Principles guidelines – Personal information • Chief Executive Instruction Privacy, taxpayer and registry confidentiality (link available internally only) • EVs on ATOlaw (internal link only) • EVs on the Legal database • ORCLA – Resources for Law Administration (link available internally only). ATTACHMENT A – EDITING PROCESS This Attachment outlines the considerations you should follow when preparing an EV, including the relevant legislation and the 3-step process to follow when editing. | 1. Requirements when editing written binding advice: The overall objective of the editing process is to prepare a version of the written binding advice that accurately reflects that advice and is suitable for publishing. Ensuring it is suitable for publishing means that an EV: • meets the confidentiality requirements in Division 355 and does not disclose 'protected information' • meets the requirements of the Privacy Act in relation to the handling of 'personal information' • does not disclose any information provided on a commercial-in-confidence basis. • meets the confidentiality requirements in Division 355 and does not disclose 'protected information' • meets the requirements of the Privacy Act in relation to the handling of 'personal information' • does not disclose any information provided on a commercial-in-confidence basis. Confidentiality requirements Division 355 imposes strict prohibitions on ATO staff in regard to the disclosure of protected information. Protected information [3] is information that: (a) was disclosed or obtained under or for the purposes of a law that was a taxation law (other than the Tax Agent Services Act 2009 ) when the information was disclosed or obtained; and (b) relates to the affairs of an entity; and (c) identifies, or is reasonably capable of being used to identify, the entity. (a) was disclosed or obtained under or for the purposes of a law that was a taxation law (other than the Tax Agent Services Act 2009 ) when the information was disclosed or obtained; and (b) relates to the affairs of an entity; and (c) identifies, or is reasonably capable of being used to identify, the entity. Much of the information contained within written binding advice will fall within these categories and will therefore be considered protected information. Additionally, some of the information we obtain when providing written binding advice has been shared with us on a 'commercial-in-confidence' basis. Even if it is not protected information, we are obligated not to disclose commercial-in-confidence information without the consent of the person providing that information. Requirements of the Privacy Act The Privacy Act protects the privacy of individuals and regulates how personal information is handled. Section 6(1) of the Privacy Act defines 'personal information' as: … information or an opinion about an identified individual, or an individual who is reasonably identifiable: (a) whether the information or opinion is true or not; and (b) whether the information or opinion is recorded in a material form or not. Thirteen Australian Privacy Principles (APP) are set out in the clauses of Schedule 1 to the Privacy Act, of which the following directly apply to the EV process: • APP 1 – Open and transparent management of personal information • APP 11 – Security of personal information. • APP 1 – Open and transparent management of personal information • APP 11 – Security of personal information. More information about privacy and how the APPs should be applied can be found at Australian Privacy Principles and in the Office of the Australian Information Commissioner's Australian Privacy Principles guidelines. [4] | 2. Approach to the editing process: Case officers must follow a 3-step approach in performing the editing process. These steps will ensure that the requirements referred to in section 1 of this Attachment are met. Remember that overall, we are generally seeking to protect and keep confidential the information of any taxpayer or third party in this process – not just the primary applicant. However, there may be instances where the identity of third parties or the nature of transactions has been so widely publicised and advertised that the removal of all the information which might identify those third parties serves no useful purpose and may hinder the meaning of the EV. Examples of the sort of information relating to third parties (not the taxpayer) that may be published include the following (this list is not exhaustive): • the names or transactions of public companies where the information has been disclosed in - a prospectus - an annual report - a media release or press conference - a report to a stock exchange (for example, information concerning mergers or acquisitions, share buybacks, share splits) • the names and products of third parties that provide goods or services to significant numbers of the public (sufficient that the naming of the third party or their products could not identify the taxpayer), for example, - universities and other places of education - clubs and associations with large memberships - statutory authorities, such as councils and public utilities • information which has been previously published in a publicly available ATO document, such as a public ruling, media release or taxpayer alert • where the goods or services provided by a third party are advertised to the public and the client base is potentially large. In this case, the transaction or arrangement must be one that is very common and used by, or available to, large numbers of people or organisations. • the names or transactions of public companies where the information has been disclosed in - a prospectus - an annual report - a media release or press conference - a report to a stock exchange (for example, information concerning mergers or acquisitions, share buybacks, share splits) • the names and products of third parties that provide goods or services to significant numbers of the public (sufficient that the naming of the third party or their products could not identify the taxpayer), for example, - universities and other places of education - clubs and associations with large memberships - statutory authorities, such as councils and public utilities • information which has been previously published in a publicly available ATO document, such as a public ruling, media release or taxpayer alert • where the goods or services provided by a third party are advertised to the public and the client base is potentially large. In this case, the transaction or arrangement must be one that is very common and used by, or available to, large numbers of people or organisations. - a prospectus - an annual report - a media release or press conference - a report to a stock exchange (for example, information concerning mergers or acquisitions, share buybacks, share splits) - universities and other places of education - clubs and associations with large memberships - statutory authorities, such as councils and public utilities Examples of the editing process are contained in Attachment B to this Practice Statement and you can contact Law Publishing for further assistance if needed. Step 1 – remove information that directly identifies the taxpayer or a third party This step requires case officers to ensure that an EV does not contain any details which may directly identify the taxpayer or other entities involved. Common examples of such details include: • name (of individuals, companies and other entities) • address • tax file number • Australian business number • contact details (for example, phone numbers, email addresses and websites) • date of birth • employee identification numbers (for example, Australian Government Service numbers) • identification and reference numbers (for example, court reference details) • account numbers with financial institutions (for example, credit cards and bank account details) • licence numbers (for example, driver's licence and firearm's licence numbers) • Medicare number • signature. • name (of individuals, companies and other entities) • address • tax file number • Australian business number • contact details (for example, phone numbers, email addresses and websites) • date of birth • employee identification numbers (for example, Australian Government Service numbers) • identification and reference numbers (for example, court reference details) • account numbers with financial institutions (for example, credit cards and bank account details) • licence numbers (for example, driver's licence and firearm's licence numbers) • Medicare number • signature. Step 2 – remove or replace information that may allow the taxpayer or a third party to be identified Where the advice includes details that may otherwise reveal a taxpayer or third party's identity, these details must be replaced with more general terms. The EV must remain comprehensible and must still accurately reflect the written binding advice. You must not replace any details with false statements. Noting the exception for publicly available third-party information, other information which, when combined with other facts , may potentially identify taxpayers should also be removed or replaced with sanitised or generalised information. The following are examples: • gender (for example, consider using 'they' or 'their' in place of 'she' or 'him') • words denoting relationships (for example, consider using gender-neutral words like 'spouse', 'sibling' and 'relative') • quotes and extracts (including clause, condition, section and paragraph numbers) of contracts, constitutions and other taxpayer or related entity documents that are not in the public domain • titles or positions of persons, such as director, public officer or doctor • precise monetary amounts and foreign currencies • geographic locations (for example, it may be acceptable to leave a reference to a large city like Sydney or Melbourne in an EV, however, it may be prudent to remove the name of a rural town, like Cocklebiddy WA or Middleton Qld, which have much smaller populations) • jurisdiction-specific legislation or treaties • specific descriptions of work or business activity • relationships and associates • political associations • types and descriptions of assets, products and projects • matters considered by committees • medical conditions and treatments • membership of professional and other bodies • foreign or domestic government agencies • industry-specific terms or details (for example, stating that the taxpayer purchased an aircraft for commercial use greatly limits the number of entities that could be the taxpayer) • dates critical to the scheme being ruled upon • commentary or opinion about a person • information about income-producing activities which may carry a social stigma. • gender (for example, consider using 'they' or 'their' in place of 'she' or 'him') • words denoting relationships (for example, consider using gender-neutral words like 'spouse', 'sibling' and 'relative') • quotes and extracts (including clause, condition, section and paragraph numbers) of contracts, constitutions and other taxpayer or related entity documents that are not in the public domain • titles or positions of persons, such as director, public officer or doctor • precise monetary amounts and foreign currencies • geographic locations (for example, it may be acceptable to leave a reference to a large city like Sydney or Melbourne in an EV, however, it may be prudent to remove the name of a rural town, like Cocklebiddy WA or Middleton Qld, which have much smaller populations) • jurisdiction-specific legislation or treaties • specific descriptions of work or business activity • relationships and associates • political associations • types and descriptions of assets, products and projects • matters considered by committees • medical conditions and treatments • membership of professional and other bodies • foreign or domestic government agencies • industry-specific terms or details (for example, stating that the taxpayer purchased an aircraft for commercial use greatly limits the number of entities that could be the taxpayer) • dates critical to the scheme being ruled upon • commentary or opinion about a person • information about income-producing activities which may carry a social stigma. Case officers should also, as a rule, remove personal information, including details about: • the adoption of a child • a divorce • political associations • taxpayers engaged in income-producing activities which may carry a social stigma. • the adoption of a child • a divorce • political associations • taxpayers engaged in income-producing activities which may carry a social stigma. Step 3 – remove or replace commercial-in-confidence information This step requires you to remove or replace any information which has been supplied on a commercial-in-confidence basis (even though it may not identify the taxpayer or any third party). Confidential information is information which has: • the necessary quality of confidence • been given in circumstances where the ATO knew or should have known that it was confidential. • the necessary quality of confidence • been given in circumstances where the ATO knew or should have known that it was confidential. Information that is within the public domain cannot be confidential in nature. Information possessing a commercial value may include a trade secret (for example, a formula used in a business operation or other information concerning aspects of a business) which may provide an advantage over competitors. The presence of information having a commercial value may be indicated by the extent to which a person guards the confidentiality of the information, the value that the person or competitors place on the information and the investment undertaken to develop the information. We can only publish confidential information with the consent of the taxpayer who provided that information. If we publish confidential information without consent, there may be legal consequences. Further, if commercial-in-confidence information is also protected information under section 355-30, a tax officer will make an unlawful disclosure of protected information in contravention of section 355-25, even if the taxpayer has consented to the publication of the information – see section 355-35. The effect of this is that a taxpayer cannot consent to the disclosure of their protected information. The tax effectiveness of arrangements will not, of itself, be accepted as providing a basis for a claim of confidentiality. [5] Such arrangements can be described in the EV and must still be edited in accordance with the other requirements outlined in Steps 1 and 2 of this Attachment to protect the identity of the taxpayers and third parties. ATTACHMENT B – EXAMPLES The examples in this Attachment provide guidance in editing written binding advice to remove or replace information that may enable the identification of a taxpayer. Example 1 – clauses of a contract If it is necessary to quote specific clauses of an agreement or contract in a private ruling, omit or paraphrase such clauses in the EV. Instead of including: Clause 3.4 of ABC's Enterprise Agreement sets out …, the following is more appropriate and in line with our privacy and confidentiality requirements: You have provided relevant clauses of your agreement which detail the obligations of the parties . Example 2 – description of work and claim Where you are issuing a private ruling to a prominent rugby league player seeking advice on the deductibility of protective head gear, you could describe this as: You are a professional sportsperson. You wish to claim a deduction for the value of sporting equipment. Example 3 – business activity, geographic location Where you are issuing a private ruling to a company providing engineering services on resource installations in Area A of the Timor Gap (Zone of Cooperation), you could describe this as: You are an entity providing services on plant and structures located outside Australia. An international tax agreement does not exist between Australia and the country in which the services are being provided. Example 4 – dates Where dates (exact dates in particular) pose privacy risks, sanitise these by using more general dates or legislated dates. You might use the following instead: The contract was entered into during the relevant financial year. The contract was entered into after 20 September 1985. [6] The scheme commences in the year beginning 1 July 20xx. There is no need to over-sanitise years in general. For the most part, simply indicating that a scheme existed in 2025, for example, will not pose a privacy risk. Example 5 – relationships and associates, business activity Where you are issuing advice to a taxpayer who runs a takeaway food outlet with his wife and their son and daughter, and their respective spouses, you could describe this as: You and members of your family operate a small business. Example 6 – description of work A customs officer seeks a ruling about the deductibility of his legal costs associated with the successful defence of a criminal charge of receiving a bribe (in connection with the performance of his duties). The customs officer has left the Australian Border Force and now works in another government department but the defence of the charge was necessary for his continued prospects of employment. You could describe this as: You have expended legal costs associated with the successful defence of a serious criminal charge (in connection with the performance of your duties in order to preserve your continued prospects of employment). You have since left that place of employment and now work elsewhere. Example 7 – monetary amounts Monetary amounts can be replaced by general terms or mentioned with reference to legislated amounts. If this is not possible, approximations can be used. You might use the following: You incurred net medical expenses in the relevant financial year above the relevant medical expenses threshold. You incurred net medical expenses in the relevant financial year above $2,333 (the legislated amount). Example 8 – third party involved A taxpayer invests in a public company which has merged with another public company. As a result, there are capital gains tax implications for all shareholders of that company. In this instance, the mention of the name of the company and the facts of the merger will not identify the taxpayer, nor will it reveal information about the third-party company which is not already in the public domain. Therefore, you may retain this information in the EV. Example 9 – third party involved A taxpayer invests in a financial product which has not been the subject of a product ruling and asks about the tax effectiveness of the product. The product has been marketed publicly, is widely available to a large population and is supported by the issue of a prospectus and advertising. The naming of the product, the product promoter or the features of the product do not identify the taxpayer or reveal information about the product that is not in the public domain. Therefore, you may retain this information in the EV. Example 10 – third party involved A taxpayer operates a small business and wishes to know the tax effect of transactions it has entered into with another small business. You must remove the name of both businesses from the EV. You may also need to generalise the nature of the transaction if it is peculiar to those businesses. Example 11 – industry-specific terms or information An oil company writes to the ATO requesting a private ruling on a transaction involving the purchase and installation of oil refining equipment used in a new refining technique. In this case, you must edit the EV sufficiently to prevent oil companies, the manufacturers of the oil refining equipment and potential investors (knowledgable persons) from ascertaining the identity of the taxpayer or third party involved in the transaction. You must also maintain the confidentiality of information relating to the new refining technique. Example 12 – geographic location Using the facts described in Example 11 of this Attachment, if the oil company proposes to enter a transaction involving the purchase of land on which to construct the new refinery, the significant community would include those residing or doing business in the vicinity of the land to be purchased. In this example, you must consider whether this broader community would be able to identify the taxpayer or third party involved in the transaction. Example 13 – industry-specific terms or information A taxpayer seeks a ruling in relation to certain international financing arrangements for the leasing of an Airbus A350 aircraft. You could describe this as: You are seeking advice on the deductibility of interest incurred under a financing arrangement for leasing income-producing equipment. If you described the arrangement in the former terms, others in the aviation industry would probably be able to identify the taxpayer, so the industry-specific term (Airbus A350) needs to be generalised using a term such as 'income-producing equipment'. The phrase 'international financing arrangements' further generalises the transaction. Note, however, that if the international nature of the financing was an important aspect of the arrangement, the reference may need to be maintained. You would need to exercise judgment. Example 14 – third-party information A taxpayer is a shareholder in a small private company and asks for advice on transactions they have had with that company. In this case, identifying the company could allow a knowledgable person to identify the taxpayer and will also reveal information about the third-party company that is not in the public domain. You must remove the name of the third-party company from the EV. You may also need to generalise the nature of the transaction if it is specific to that company. Example 15 – description of arrangements Where you are issuing a private ruling to an employee gold miner seeking advice on the assessability of their salary in Papua New Guinea, you could describe this as The international tax agreement between Australia and Country Z (Country Z Agreement) operates to avoid the double taxation of income received by residents of Australia and Country Z.",PS LA 2008/3 | TAA 1953 Sch 1 Div 355 | TAA 1953 Sch 1 355-25 | TAA 1953 Sch 1 355-30 | TAA 1953 Sch 1 355-30(1) | TAA 1953 Sch 1 355-35 | TAA 1953 Sch 1 Div 359 | Tax Agent Services Act 2009 | Privacy Act 1988 6(1) | Privacy Act 1988 Sch 1 | 150 CLR 310 | 41 ALR 255,PS LA 2008/3,TAA 1953 Sch 1 Div 355 | TAA 1953 Sch 1 355-25 | TAA 1953 Sch 1 355-30 | TAA 1953 Sch 1 355-30(1) | TAA 1953 Sch 1 355-35 | TAA 1953 Sch 1 Div 359 | Tax Agent Services Act 2009 | Privacy Act 1988 6(1) | Privacy Act 1988 Sch 1,,"ATOlaw (link available internally only) ATO Privacy Policy ATO style guide (link available internally only) ATO standards for citations and references (link available internally only) Australian Privacy Principles Chief Executive Instruction Privacy, taxpayer and registry confidentiality (link available internally only) Legal database Office of the Australian Information Commissioner (2022) Australian Privacy Principles guidelines, https://www.oaic.gov.au ORCLA - Resources for Law Administration (link available internally only)",False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20084/NAT/ATO/00001,"Updated in line with current ATO style and accessibility guides. | Added requirement to adhere to Chief Executive Instruction Privacy, taxpayer and registry confidentiality . | Added further information in relation to reasoning for annotations, and approval requirements for misleading or incorrect annotations. | Examples updated for currency. | Updated for currency and to meet the requirements of the Privacy Act 1988 . | Changed to Attachment A and introduced Attachment B; updated Examples in Attachment B from alpha to numerical. | Updated to indicate that edited versions over 15 years are removed from the Legal database. | Updated responsible team name. | Added links to edited versions on ATOlaw and the Legal database. | Updated publication placement to ATOlaw and the Legal database, due to the relocation of EVs to those systems; updated responsible branch names and to reflect minor Style Guide changes. | Removed hyperlink, footnote, header and footer restrictions. | Updated net medical expense legislated amount. | Updated to new LAPS style and format. | Removed the Publication Advisory Committee process. | Updated to allow for annotation of edited versions where the underlying private ruling decision is overturned and where they are found to be incorrect or misleading. | Consolidation of the material from the EV Guidelines. | Updated to new business line of Tax Counsel Network. | Updated team name and references. | Inserted to provide clearer guidance to officers when preparing edited versions. | 'Tax Office' updated to ATO as per the ATO style guide; Practice Management Unit (PMU) updated to new name L&P Publishing Unit. | Deleted reference to section 105-60 of Schedule 1 to the TAA as it was removed by the Tax Laws Amendment (2010 GST Administration Measures No. 2) Act 2010 . | Deleted reference to section 284-215 of Schedule 1 to the TAA which was repealed by the Tax Laws Amendment (2010 Measures No. 1) Act 2010 . | Wording revised for clarity. | Law Infrastructure Branch updated to Law Practice Support Branch. | Paragraph 7 (dot points) of Attachment B | 'Description of work' moved to Step 3 and combined with 'business activity'; 'contract number and quotes' expanded to include more detail; 'title and/ positions of persons' moved to Step 3. | Paragraph 18 of Attachment B | Three questions clarified. | Paragraph 19 (dot points) of Attachment B | 'Important' inserted before 'matters'; 'Associates (for example spouse etc)' combined with Relationships, Country, states and territories' expanded for clarity; Medical conditions and treatments inserted; Professional bodies updated; 'Titles and/or positions or persons' moved from Step 1; 'Products' added to 'types and description of assets'. | Paragraph 10 and references | Update to secrecy provisions due to the Tax Laws Amendment (Confidentiality of Taxpayer Information) Act 2010 . | Subparagraph 3(c) of Attachment A | Emphasis removed from the word 'potentially'. | [1] EVs have been published in response to applications received after 31 March 2001 or, in respect of GST-specific private rulings, 30 June 2001. However, EVs over 15 years old are routinely removed from the Legal database. | [2] See subsections 284-224(1) and 361-5(1). | [3] Subsection 355-30(1). | [4] Office of the Australian Information Commissioner (2022) Australian Privacy Principles guidelines, https://www.oaic.gov.au | [5] See, for example, O'Brien v Komesaroff [1982] HCA 33. | [6] 20 September 1985 is a legislated date that does not pose a privacy risk, refer to section 124-15 of the Income Tax Assessment Act 1997 . | File 1-U4BNPD6; 1-15GEL893 | O'Brien v Komesaroff [1982] HCA 33 150 CLR 310 41 ALR 255 56 ALJR 681"
PS LA 2008/6,Fraud or evasion,20 March 2008,20 March 2008,Law Administration Practice Statement,False,"1. What is this Practice Statement about: This Practice Statement provides guidance to ATO staff considering fraud or evasion in the context of the unlimited time periods, which allow the Commissioner to amend assessments (or to seek the payment of indirect tax which has been underpaid) due to fraud or evasion. It deals specifically with the exceptions to the statutory time limits when we have formed an opinion of fraud or evasion. See Appendix 1 to this Practice Statement for the relevant legislative sections. This Practice Statement outlines: • what fraud or evasion is • the policy reasons for having an unlimited amendment period where there is fraud or evasion • the principles underpinning our approach to fraud or evasion • the procedures and work practices to be followed, including technical engagements and referrals, in considering fraud or evasion. • what fraud or evasion is • the policy reasons for having an unlimited amendment period where there is fraud or evasion • the principles underpinning our approach to fraud or evasion • the procedures and work practices to be followed, including technical engagements and referrals, in considering fraud or evasion. This Practice Statement is supplemented by the Fraud or evasion guideline (period of review) (PDF, 313KB) (Fraud guideline).The principles and processes set out in these documents recognise that fraud and evasion are both serious matters, and never to be inferred lightly. All legislative references in this Practice Statement are to the Taxation Administration Act 1953 , unless otherwise indicated. | 2. What is fraud or evasion: Although we discuss them together in this Practice Statement, fraud and evasion are 2 separate and distinct concepts. Fraud For the purposes of this Practice Statement, 'fraud' may be described as making false statements knowingly or without belief in their truth (including such as when made recklessly, careless as to whether it is true or false), to deceive the Commissioner. [1] Evasion The threshold for an opinion of evasion is not as high as fraud. A taxpayer's behaviour may not constitute fraud but be nevertheless sufficiently blameworthy to constitute evasion. 'Evasion' is best explained by reference to the judgment of Dixon J in Denver Chemical Manufacturing Co v Commissioner of Taxation [2] ( Denver ), in which his Honour noted it would be unwise to attempt to define the word 'evasion' but nevertheless suggested a 'blameworthy act or omission on the part of the taxpayer' was contemplated. [3] The High Court's guidance from Denver as to what constitutes evasion, including the notion that some blameworthy act or omission is contemplated, has been applied by the Federal Court and State Supreme Courts ever since. [4] Refer to Appendix 1 to the Fraud guideline for an overview of how evasion has been considered by the High Court. An opinion of evasion is a serious matter. It requires culpable conduct of the taxpayer, as described further below. What is a 'blameworthy act or omission' The notion of a 'blameworthy act or omission': • lies somewhere between innocent mistake and intention to defraud • usually involves (in a taxation context) making a wrong statement or taking an incorrect position without a credible explanation • involves culpable conduct; being something more than mere avoidance or the mere withholding of information or supplying misleading information, such as an intention to withhold information from the Commissioner on the basis they would likely take a different view of the tax outcome if the relevant act or omission (for example, omission to disclose information) had not occurred and instead accurate representations or disclosures had been made. • lies somewhere between innocent mistake and intention to defraud • usually involves (in a taxation context) making a wrong statement or taking an incorrect position without a credible explanation • involves culpable conduct; being something more than mere avoidance or the mere withholding of information or supplying misleading information, such as an intention to withhold information from the Commissioner on the basis they would likely take a different view of the tax outcome if the relevant act or omission (for example, omission to disclose information) had not occurred and instead accurate representations or disclosures had been made. The material facts must be examined to assess whether the relevant conduct is 'blameworthy'. Evasion is to be assessed objectively, based on the standard of a reasonable person in the position of the taxpayer. In other words, evasion involves conduct that a reasonable person seeking to comply with their tax obligations would not engage in. When does evasion arise in a self-assessment environment The leading High Court authorities for the meaning of evasion relate back to periods before the introduction of self-assessment into the tax system. So, although the meaning of evasion has not changed, the circumstances in which it arises have changed in some cases. Under self-assessment, taxpayers are not usually required to include detailed information in their tax returns. Consequently, evasion involving deliberate withholding of information does not usually occur at the return stage. Rather, such withholding of information might occur through a wilful or reckless failure to keep records or to supply information in the course of a tax audit. It may also occur in relation to a failure to provide information required by the Commissioner in a fuller return or schedule. However, simpler instances of evasion will arise at the return stage, for example, where income is intentionally omitted from a tax return with no credible explanation. We may, therefore, amend a taxpayer's assessment beyond the normal time limits because they evaded the payment of tax, even though the view has been formed that no fraud has been committed. | 3. What are the policy reasons for unlimited amendment periods where there is fraud or evasion: The policy of Australian taxation law is generally to provide certainty and finality after a specified period, both for the taxpayer and for the Commissioner, in regard to the tax liability of the taxpayer for a year of income or an accounting period. For instance, the statutory time limits that apply for amending income tax assessments (2 years or 4 years) emphasise our duty to make timely enquiries and appropriate assessments. [5] The time limits for amending assessments under a self-assessment system are premised on the good conduct of the taxpayer, tax agents and others concerned with the assessment. Fraud and evasion, however, involve culpable misconduct. The exceptions to the statutory time limits that apply where the Commissioner is of opinion that there has been fraud or evasion [6] make clear that a taxpayer is not entitled to the benefit of a time limit for an amended assessment if the previous assessment is less than it ought to be (or where refunds or credits have been over-claimed) because of dishonesty or other blameworthy conduct. | 4. What is our approach to fraud or evasion: Fraud and evasion are both serious matters, never to be lightly inferred. To form an opinion that there has been fraud or evasion, we must exercise sound judgment and fairness. This applies equally to deciding what, if any, action should be taken. To help ensure this, the opinion should be formed only: • by an Executive Level 2 (EL2) or a Senior Executive Service (SES) officer • in accordance with ATO policies and practices • bearing in mind the weight parliament has placed on the benefits of certainty and fairness for taxpayers. • by an Executive Level 2 (EL2) or a Senior Executive Service (SES) officer • in accordance with ATO policies and practices • bearing in mind the weight parliament has placed on the benefits of certainty and fairness for taxpayers. Amended assessments based on fraud or evasion are expected to be very much the exception to the rule. The making of an amended assessment based on fraud or evasion would normally be justified only if action to amend the assessment has been prevented by the fraud or evasion or prompted by its disclosure. The fraud or evasion exception to period of review is no basis for amending assessments that could and should have been made within the ordinary time limits but were not, for example, where an amended assessment to give effect to the outcome of a lengthy tax audit in which the issue of fraud or evasion was not raised was issued just outside the limited amendment period due to administrative error. As a matter of practice, in some instances it may not be necessary for the Commissioner to form an opinion that there was fraud or evasion to make any amendment. For instance, a tax shortfall involving fraud or evasion may be adjusted within the period of review. In other cases, the taxpayer may consent to legally extend the period of review. [7] Appendix 2 to this Practice Statement sets out the principles underpinning our approach to cases that raise issues of fraud or evasion and our commitment to ensure that these cases are resolved fairly, appropriately and as early as possible. | 5. What work practices apply in relation to fraud or evasion cases: Our work practices must provide assurance that the amendment power is being used appropriately and not merely to overcome period of review issues. To help ensure this, make sure you: • keep the taxpayer informed • seek specialist assistance, and • notify the appropriate areas. • keep the taxpayer informed • seek specialist assistance, and • notify the appropriate areas. You should consider if there is behaviour that may indicate fraud or evasion at the earliest practicable opportunity in an audit. This allows us to obtain and consider relevant evidence before any opinions of fraud or evasion are formed. In the normal course of communication, a taxpayer should also be made aware that you are looking into the issue of possible fraud or evasion. In exceptional cases, the taxpayer may not be informed that fraud or evasion is being considered, for example: • in the case of a covert audit • where there is a risk of evidence destruction or asset dissipation, or • where the outcome of an audit might otherwise be compromised. • in the case of a covert audit • where there is a risk of evidence destruction or asset dissipation, or • where the outcome of an audit might otherwise be compromised. In ordinary circumstances, you should advise the taxpayer of our preliminary view in a position paper and invite their comment before forming any opinion about fraud or evasion. The position paper should include details of the material facts and evidence relied upon. Seek specialist assistance The fraud or evasion exception carries risk that always warrants technical assistance. In the first instance, consult with the technical advisory area within your business line on matters of fraud or evasion. If the level of risk warrants it, you should also seek formal assistance from Tax Counsel Network (TCN) officers following the usual procedures. [8] However, sufficient TCN involvement in a fraud or evasion matter will usually be achieved through TCN's membership on the National Fraud or Evasion Advisory Panel (Panel). While a tax technical officer may be engaged to provide assistance, it is still the authorised opinion-maker who is responsible for forming the opinion of fraud or evasion. The opinion-maker is not obliged to form the same opinion as TCN or other technical advisors on whether fraud or evasion has occurred. However, we do not expect that an opinion-maker would come to a different judgment if advised by TCN that it is not open to form an opinion that there has been fraud or evasion. Referrals to the National Fraud or Evasion Advisory Panel You must obtain advice from the Panel before recommending or forming an opinion that there has been fraud or evasion in a particular case. You must also obtain further advice from the Panel if further material facts or evidence come to light. For example, if a taxpayer submits further material facts or evidence in response to a position paper. The Panel provides advice to case officers and opinion-makers to ensure that decisions on fraud or evasion are objective and consistent. The Panel advises on the case for forming an opinion of fraud or evasion, and related matters, consistent with our policies. In ordinary circumstances, a taxpayer should be made aware that fraud or evasion is being considered, prior to consideration of their particular case by the Panel. Generally, you should obtain advice from the Panel before you issue a position paper. Notify Fraud and Criminal Behaviours of all fraud opinions If you form an opinion of fraud for the purpose of period of review, you must notify the Fraud and Criminal Behaviours (FCB) business line. [9] The ATO reports on all instances of suspected fraud to the Australian Institute of Criminology under the Commonwealth Fraud Control Framework . Refer evasion to Fraud and Criminal Behaviours as appropriate Some cases of tax evasion may involve aggressive tax planning. Aggressive tax planning is the use of transactions or arrangements that have little or no economic substance and are created predominantly to obtain a tax benefit not intended by the law. If you come across an arrangement of this nature, refer the matter to the Promoters and Tax Exploitation Program (PTEP) area in the FCB business line. The PTEP considers what action is appropriate, including the possible application of the promoter penalty laws. [10] | 6. Who can form an opinion of fraud or evasion: Only EL2 or SES officers can form an opinion that a taxpayer or entity has been involved in fraud or evasion. [11] The EL2 or SES officer must form the opinion personally. However other ATO officers may, under the Taxation Authorisation Guidelines, make the actual adjustment. [12] | 7. Collection and recovery of GST, WET and LCT: Refer to the Taxation Authorisation Guidelines to ensure you are properly authorised to make a decision to extend the time to collect or recover underpayments of goods and services tax, wine equalisation tax or luxury car tax. [13] | 8. When is the opinion of fraud or evasion to be made: A separate opinion of fraud or evasion must be formed for each year or period of tax being amended outside the period of review. Duly authorised opinion-makers must also ensure that an opinion of fraud or evasion has been made: • after advice has been received from the Panel • before issuing an (amended) assessment. • after advice has been received from the Panel • before issuing an (amended) assessment. | 9. More information: For more information, see: • Chief Executive Instruction External fraud (link available internally only) • Fraud or evasion guideline (period of review) (PDF, 313KB) • Taxation Authorisation Guidelines (link available internally only) • Promoters Referrals (link available internally only, access restrictions apply) • PS LA 2012/1 Engagement of Tax Counsel Network on high risk technical issues • Referring suspected external fraud to Fraud and Criminal Behaviours (link available internally only) • Chief Executive Instruction External fraud (link available internally only) • Fraud or evasion guideline (period of review) (PDF, 313KB) • Taxation Authorisation Guidelines (link available internally only) • Promoters Referrals (link available internally only, access restrictions apply) • PS LA 2012/1 Engagement of Tax Counsel Network on high risk technical issues • Referring suspected external fraud to Fraud and Criminal Behaviours (link available internally only) Table 1: Exceptions to the statutory time limits where the Commissioner has formed an opinion of fraud or evasion The Commissioner must form an opinion that there has been fraud or evasion as a condition precedent [14] to ... ... under this provision amending an income tax assessment at any time subsection 170(1) of the ITAA 1936 amending an assessment of a net amount, net fuel amount or amount of indirect tax at any time in relation to tax periods or fuel tax periods starting on or after 1 July 2012 paragraph 155-60(c) of Schedule 1 seeking payment of any unpaid net amount, net fuel amount or amount of indirect tax after the period these amounts would normally cease to be payable [15] former paragraph 105-50(3)(b) of Schedule 1 [former subsection 105-50(4) is a sunset clause that limited section 105-50 to payments and refunds that relate to tax periods and fuel tax return periods that start before 1 July 2012. [16] Section 105-50 was repealed on 1 January 2017.] amending a fringe benefits tax assessment at any time [17] paragraph 74(3)(d) of the Fringe Benefits Tax Assessment Act 1986 amending a franking assessment at any time section 214-120 of the Income Tax Assessment Act 1997 (ITAA 1997) amending an excess non-concessional contributions tax assessment at any time section 292-320 of the ITAA 1997 making adjustments to correct tax cost-setting calculation errors section 705-315 of the ITAA 1997 amending an assessment of a person's taxable profit in relation to a petroleum project at any time paragraph 67(2)(a) of the Petroleum Resource Rent Tax Assessment Act 1987 [former subsection 105-50(4) is a sunset clause that limited section 105-50 to payments and refunds that relate to tax periods and fuel tax return periods that start before 1 July 2012. [16] Section 105-50 was repealed on 1 January 2017.] Principles The following principles outline the Commissioner's approach to cases that address the issues of fraud or evasion and our commitment to ensure that these cases are resolved fairly, appropriately and as early as possible. Principle 1 – we will consider fraud or evasion as soon as practicable during an audit or review The process of collecting evidence during an audit can be drawn out and complicated and may include the exercise of the Commissioner's formal access powers and enquiries with other revenue jurisdictions. As such, evidence of fraud or evasion may not come to hand until later in the review or audit process, once evidence collection is complete. We will ensure that consideration of fraud or evasion occurs as soon as practicable in the audit process, to determine whether action on an assessment that is outside the relevant period of review should continue. In cases where new information comes to light, it may be reasonable to reopen a case and re-examine periods which would otherwise be outside the period of review. Principle 2 – we will always distinguish between making general enquiries and making allegations of fraud or evasion Where we make enquiries in relation to periods outside the general periods of review, we will ensure that the taxpayer is informed that such enquiries do not imply that we are alleging fraud or evasion. If we consider that fraud or evasion may apply, we will generally express these concerns in a position paper sent to the taxpayer who will be given an opportunity to respond before an opinion is formed. In exceptional cases, the taxpayer may not be given an opportunity to respond before the opinion is formed, for example, in the case of a covert audit, where there is a risk of evidence destruction or asset dissipation, or where the outcome of an audit might otherwise be compromised. Principle 3 – we have a process in place to ensure we only make a finding of fraud when it is appropriate and where evidence of fraud exists In the ordinary case, we will first consider whether or not there was evasion. We will only make an opinion of fraud where the arguments applying the law to the relevant facts are strong and those facts are in turn supported by evidence. Reasonable inferences may be made from evidence in certain cases, where it is necessary to draw a conclusion based on an assessment of all facts and relevant circumstances. Principle 4 – the Taxation Authorisation Guidelines provide that an opinion of fraud or evasion must be made by an EL2 or an SES officer A finding of fraud or evasion can only be made by an ATO officer who has authority to do so. You must refer to the Taxation Authorisation Guidelines in determining whether you have authority to form an opinion of fraud or evasion. If you are considering fraud or evasion, you are required to apply our Practice Statement and Fraud guideline. It is not sufficient that a 'reason for decision' paper or a fraud or evasion submission has been submitted and reviewed by a technical panel consisting of an EL2 or an SES officer. A fraud or evasion submission must always be referred to an authorised opinion-maker (EL2 or SES officer) as a separate step to getting advice from a panel. The EL2 or SES officer must complete the opinion template which requires them to make an independent opinion. You must ensure that an opinion of fraud or evasion has been made before the issuing of an assessment. If we state in a 'reasons for decision' paper that we have made an opinion of fraud or evasion, we must ensure that an opinion has in fact been made before issuing the paper.",PS LA 2012/1 | ITAA 1997 214-120 | ITAA 1997 292-320 | ITAA 1997 705-315 | ITAA 1936 170(1) | ITAA 1936 170(7) | FBTAA 1986 74(3)(a) | FBTAA 1986 74(3)(b) | FBTAA 1986 74(3)(c) | FBTAA 1986 74(3)(d) | PRRTAA 1987 67(2)(a) | TAA 1953 Sch 1 105-80 | TAA 1953 Sch 1 155-60(c) | TAA 1953 Sch 1 Div 290 | TAA 1953 Sch 1 Div 298 | 2009 ATC 20-135 | 79 CLR 296 | [2008] NSWSC 1371 | 89 ATC 4540 | 2003 ATC 4375 | 98 CLR 263 | 30 ALJ 464 | 11 ATD 131 | [1956] ALR 1008 | 86 ATC 4477 | 93 ATC 4456 | 90 ATC 4088,PS LA 2012/1,ITAA 1997 214-120 | ITAA 1997 292-320 | ITAA 1997 705-315 | ITAA 1936 170(1) | ITAA 1936 170(7) | FBTAA 1986 74(3)(a) | FBTAA 1986 74(3)(b) | FBTAA 1986 74(3)(c) | FBTAA 1986 74(3)(d) | PRRTAA 1987 67(2)(a) | TAA 1953 Sch 1 105-50 | TAA 1953 Sch 1 105-50(3)(a) | TAA 1953 Sch 1 105-50(3)(b) | TAA 1953 Sch 1 105-50(4) | TAA 1953 Sch 1 105-50(4)(b) | TAA 1953 Sch 1 105-80 | TAA 1953 Sch 1 155-60(c) | TAA 1953 Sch 1 Div 290 | TAA 1953 Sch 1 Div 298,,"Commonwealth Fraud Control Framework External fraud CEI (link available internally only) Fraud or evasion guideline (period of review) (PDF, 313KB) Promoters referral (link available internally only, access restrictions apply) Referring suspected external fraud to Fraud and Criminal Behaviours (link available internally only) Taxation Authorisation Guidelines (link available internally only)",False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20086/NAT/ATO/00001,"Updated hyperlink to Fraud or evasion guideline (period of review). | Updated hyperlink to Referring suspected external fraud to Fraud and Criminal Behaviours. | Updated hyperlink to Fraud or evasion guideline (period of review) and Referring suspected external fraud to Fraud and Criminal Behaviours. | Updated to apply current ATO style and accessibility guides. | Provide more detail of work practices that apply in relation to fraud or evasion cases. | Provide the principles underpinning the Commissioner's approach to fraud or evasion. | Outline work practices to be followed when actioning cases where fraud or evasion is being considered. | Require referrals to the new National Fraud or Evasion Advisory Panel for advice before any opinion is formed. | Remove Appendixes summarising case law on fraud, evasion and judicial review of the Commissioner's opinion. These can now be found as Appendices to the Fraud or evasion guideline (period of review). | Update legislative references. | Included reference to subsection 105 50(4) to 2nd dot point; amended footnote 1and inserted footnote (2); inserted 3rd dot point. | Inserted new paragraph 8. | Updated heading to Tax Evasion Reporting Centre. | Inserted reference to paragraph 155 60(c). | Updated and inserted footnote; removed reference to the PTI process and TCN. | Inserted new paragraph 24. | Updated to reference paragraph 105 50(3)(b). | [1] Refer to Appendix 2 to the Fraud guideline for an overview of how fraud has been construed by the judiciary. | [4] Commissioner of Taxation v Burness (As Trustee for the Property of Bottazzi, A Bankrupt) [2009] FCA 1021; Kajewski v Commissioner of Taxation [2003] FCA 258; Commissioner of Taxation v Evenfont [2008] NSWSC 1371; Evans, R . J . v Commissioner of Taxation [1989] FCA 278; MacFarlane, M . v Commissioner of Taxation [1986] FCA 335; Saffron, A.G. v Commissioner of Taxation [1993] FCA 406. | [5] Subsection 170(1) of the Income Tax Assessment Act 1936 (ITAA 1936). | [6] For example, table item 5 of subsection 170(1) of the ITAA 1936. | [7] For example, subsection 170(7) of the ITAA 1936. | [8] Law Administration Practice Statement PS LA 2012/1 Engagement of Tax Counsel Network on high risk technical issues sets out when and how to engage officers of TCN on high-risk technical issues. | [9] See Referring suspected external fraud to Fraud and Criminal Behaviours (link available internally only). | [10] Division 290 of Schedule 1. | [11] Refer to paragraph 1.6.1 of the Taxation Authorisation Guidelines (link available internally only). You may need to consider if more specific guidelines apply if the authorised power falls within one of the topics listed in Chapters 2 to 7 of the Taxation Authorisation Guidelines (for example, Excise, Freedom of information, Goods and services tax, Superannuation and Registration). | [12] Refer to paragraph 1.3.4 of the Taxation Authorisation Guidelines. | [13] For tax periods commencing prior to 1 July 2012, refer to paragraphs 4.13.1 to 4.13.3 of the Taxation Authorisation Guidelines for determinations under former paragraph 105-50(3)(b) of Schedule 1. For tax periods starting on or after 1 July 2012, refer to paragraph 1.3.4 of the Taxation Authorisation Guidelines. | [14] McAndrew v Commissioner of Taxation [1956] HCA 62; Taxation, Commissioner of v Dalco [1990] HCA 3; 168 CLR 614 at [622]. | [15] Former section 105-50 of Schedule 1 restricts the Commissioner to collecting any unpaid net amount, net fuel amount or amount of indirect tax (together with any relevant general interest charge under section 105-80) within 4 years after it became payable unless the Commissioner has, within 4 years of the underpayment, required payment of the unpaid amount by giving a notice (former paragraph 105-50(3)(a)) or if the Commissioner is satisfied that the unpaid amount was avoided by fraud or evasion (former paragraph 105-50(3)(b)). | [16] Former section 105-50 of Schedule 1 is also limited by former paragraph 105-50(4)(b) to payments and refunds that relate to liabilities or payments that arose before 1 July 2012 where those payments or liabilities do not relate to any tax periods or fuel tax return periods. | [17] Paragraphs 74(3)(a) to (c) of the Fringe Benefits Tax Assessment Act 1986 must also be satisfied for the Commissioner to amend an assessment at any time on the basis of paragraph 74(3)(d). | Commissioner of Taxation v Burness (As Trustee for the Property of Bottazzi, A Bankrupt) [2009] FCA 1021 2009 ATC 20-135 [2010] ALMD 504 77 ATR 61 | Denver Chemical Manufacturing Co v Commissioner of Taxation [1949] HCA 25 [1949] ALR 1004 [1949] ALR 759 9 ATD 60 67 WN (NSW) 17 50 SR (NSW) 26 23 ALJR 327 79 CLR 296 | Commissioner of Taxation v Evenfont [2008] NSWSC 1371 74 ATR 203 | Evans, R.J. v Commissioner of Taxation [1989] FCA 278 20 ATR 922 89 ATC 4540 | Kajewski v Commissioner of Taxation [2003] FCA 258 2003 ATC 4375 52 ATR 455 | McAndrew v Commissioner of Taxation [1956] HCA 62 98 CLR 263 30 ALJ 464 11 ATD 131 [1956] ALR 1008 | MacFarlane, M. v Commissioner of Taxation [1986] FCA 335 67 ALR 624 86 ATC 4477 | Saffron, A.G. v Commissioner of Taxation [1993] FCA 406 26 ATR 57 93 ATC 4456 | Taxation, Commissioner of v Dalco [1990] HCA 3 168 CLR 614 64 ALJR 166 90 ALR 341 20 ATR 1370 90 ATC 4088"
PS LA 2008/9,Goods and services tax 'revenue-neutral' corrections,5 May 2008,5 May 2008,Law Administration Practice Statement,False,"1. What this Practice Statement is about: When an error is found in an activity statement, it must be corrected through revision or amendment of that activity statement. [1] If the correction results in an increased amount of GST being payable or a reduction in the GST credits claimable, general interest charge (GIC) is imposed on this amount from the original due date of the activity statement to the date the revision or amendment was made (the shortfall period). Because of the nature of GST, some corrections will be 'revenue-neutral'. For example, this occurs where a correction increasing GST for one party also gives rise to an entitlement to GST credits for another party equal to that increased GST. This Practice Statement sets out our policy in regard to remission of the GIC for the shortfall period where revenue-neutral corrections occur. Remission of GIC for late payment after the shortfall period is not covered by this Practice Statement [2] , nor is the application of administrative penalties. [3] | 2. General interest charge principles: Taxpayers have a responsibility to meet their payment obligations as and when their tax debts fall due for payment. The GIC is intended to encourage the timely payment of tax and to deny late payers an advantage over those who pay on time. The GIC also serves to compensate the revenue for the lost 'time value' of tax amounts not paid by the due date. However, we have a discretion to remit the GIC, in full or in part, under section 8AAG of the Taxation Administration Act 1953. All legislative references in this Practice Statement are to that Act, unless otherwise indicated. Where an amount remains unpaid after the due date, subsection 8AAG(2) provides that we may only remit all or part of the GIC in the circumstances set out in subsections 8AAG(3), (4) and (5). This Practice Statement is concerned with the remission of GIC under those subsections. Subsection 8AAG(3) requires that we be satisfied that the shortfall did not arise as a result of an act or omission of the person. Subsections 8AAG(4) and (5) both allow remission if certain criteria are met and we are satisfied that it is fair and reasonable to do so. [4] Paragraph 8AAG(5)(b) also allows remission if we are satisfied that it is otherwise appropriate to do so. [5] | 3. Examples of GST revenue-neutral corrections: The following are some examples of situations where GST revenue-neutral corrections occur: • Where a supplier fails to include GST in the price of a taxable supply and the recipient would have been entitled to claim full GST credits if they were issued with a valid tax invoice. • Where the wrong entity accounts for the GST or claims the GST credits; this may occur with associated entities, under a joint venture or similar type of 'partnership' arrangement, or an agency arrangement. • Where entities transact with each other as if they were members of a GST group, when they are not (for example, because one is not eligible to be a member). • Where a transaction has taken place, involving equal and offsetting GST amounts, but the Commissioner of Taxation declines to exercise their discretion to treat a document as a tax invoice or adjustment note. [6] • Where a supplier fails to include GST in the price of a taxable supply and the recipient would have been entitled to claim full GST credits if they were issued with a valid tax invoice. • Where the wrong entity accounts for the GST or claims the GST credits; this may occur with associated entities, under a joint venture or similar type of 'partnership' arrangement, or an agency arrangement. • Where entities transact with each other as if they were members of a GST group, when they are not (for example, because one is not eligible to be a member). • Where a transaction has taken place, involving equal and offsetting GST amounts, but the Commissioner of Taxation declines to exercise their discretion to treat a document as a tax invoice or adjustment note. [6] | 4. Remission requests: Requests for remission of the GIC for the shortfall period should indicate that the request is in respect of a GST revenue-neutral correction and set out all the relevant circumstances. This should include evidence to satisfy the guidelines for GIC remission in section 5 of this Practice Statement. It should also outline the action taken to remedy the error in respect of future transactions. If an entity does not meet the conditions for GIC remission in section 5 of this Practice Statement, the request should be considered in accordance with the GIC remission guidelines set out in Law Administration Practice Statement PS LA 2006/8 Remission of shortfall interest charge and general interest charge for shortfall periods, taking into account all the relevant circumstances. If you refuse the request for remission of the GIC (in whole or in part), you must notify the entity of your decision in writing and include the reasons for refusal. | 5. When remission of GIC for the shortfall period is appropriate: Where the following conditions are met, full or partial remission of GIC for the shortfall period in relation to GST revenue-neutral corrections can be considered. These are illustrated by the examples in this Practice Statement. Condition for partial remission Partial remission to the base rate of GIC can be considered when another entity is entitled to an equal and corresponding reduction in their net amount. Conditions for full remission Full remission can be considered for an entity when another entity is entitled to an equal and corresponding reduction in their net amount and • the entity can demonstrate that they received no comparative advantage over other entities which correctly accounted for GST, or • the entity can demonstrate that the correct amount of GST was accounted for in the correct period, but by the wrong entity, or • the entity who incorrectly claimed the GST credits demonstrates that the recipient has not included the GST credits in a previous activity statement. • the entity can demonstrate that they received no comparative advantage over other entities which correctly accounted for GST, or • the entity can demonstrate that the correct amount of GST was accounted for in the correct period, but by the wrong entity, or • the entity who incorrectly claimed the GST credits demonstrates that the recipient has not included the GST credits in a previous activity statement. These conditions are not intended to limit the circumstances in which you can exercise the discretion for GIC remission if you are satisfied that it is fair and reasonable or otherwise appropriate to do so in accordance with section 8AAG. That is, exercise of the discretion must not be approached in a rigid or inflexible way. Each case must be considered on its merits in accordance with administrative law principles. Note that the following should not factor into your decision: • the taxpayer's compliance history; however, compliance history may be relevant in the consideration of shortfall penalties [7] and if there was repeated non-compliance, to the consideration of penalties for failure to keep or retain records [8] • the effect of differing lodgment cycles or accounting methods (cash or accrual); the resulting timing differences can work either way and could balance each other out over time. • the taxpayer's compliance history; however, compliance history may be relevant in the consideration of shortfall penalties [7] and if there was repeated non-compliance, to the consideration of penalties for failure to keep or retain records [8] • the effect of differing lodgment cycles or accounting methods (cash or accrual); the resulting timing differences can work either way and could balance each other out over time. No comparative advantage Not including GST in the price of a supply may provide an advantage to a supplier by effectively reducing the price by one-eleventh. On the other hand, it is recognised that in some contexts, businesses deal with each other by reference to GST-exclusive prices and therefore purchasing decisions are not influenced by whether the supply is regarded as a taxable supply. Further, there can be factors other than price that influence a purchasing decision. When considering whether a benefit has been obtained, you should consider the situation at the time the error was made, not the situation that results from the correction. You should not consider factors such as an inability by the supplier to recover an increased amount for the GST, resulting from the correction. Accounted for by the wrong entity If the wrong entity has otherwise correctly accounted for the GST in a transaction and in the correct period, the revenue has not suffered a 'time-value' loss related to the amount. We have been in receipt of the correct GST payable from the correct due date. GST credits have been claimed by the wrong entity If the wrong entity has otherwise correctly claimed the GST credits for a transaction and the recipient has not, then the revenue has not suffered a time-value loss in relation to the amount. | 6. Examples: The examples in this Practice Statement are illustrative of some situations in which full or partial remission of GIC in relation to GST revenue-neutral corrections is appropriate. Other circumstances will arise for which full or partial remission is also appropriate. Partial remission Example 1 – GST not included on tax invoice; recipient would have been able to claim full GST credits Amity (annual turnover of $36 million) makes a supply to an arm's length party, Bunya, for the price of $100,000 for the monthly period ending 31 March 2009. The supply should have been subject to GST; however, Amity misinterpreted the legislation and treated the supply as non-taxable. As a consequence, the invoice issued by Amity for the supply does not show an amount of GST, nor does it state that the supply is GST-inclusive. In October 2009, Amity realises that it made an error and re-invoices Bunya for $110,000, including $10,000 on account of GST. Bunya pays Amity the additional $10,000. Bunya is then able to claim GST credits for $10,000 in their October 2009 activity statement. Amity lodges a revised March 2009 activity statement on 27 November 2009. Once the revision is made, GIC is imposed for the period from 21 April 2009 (the due date for the March activity statement) until the outstanding GST amount is paid. Amity requests that you partially remit the GIC based upon the transaction being a GST revenue-neutral correction. [9] Amity informs you that it has taken steps to correct its error for future taxable supplies. It would be appropriate for you to remit the GIC in this case to the base rate for the shortfall period (that is, 21 April 2009 until 26 November 2009). Example 2 – a comparative advantage may have been derived from the error Carina (annual turnover of $3 million) makes a supply to an arm's length party, Darra, for the price of $60,000 for the monthly period ending 30 April 2010. GST should have been charged on the supply; however, the invoice issued by Carina for the supply does not show an amount of GST, nor does it state that the supply is GST-inclusive. When this error is detected on 24 September 2010, Carina revises the April 2010 activity statement and pays GST of $5,454 on the same day. Carina had failed to secure an increased price from Darra. Carina re-invoices Darra to show a GST-inclusive price of $60,000. Darra then claims GST credits for $5,454 in the September 2010 period. Once the revision is made, GIC is imposed for the period from 21 May 2010 (the due date for the April activity statement) to 23 September 2010. Carina requests that you remit the GIC based upon the transaction being a GST revenue-neutral correction and that no comparative advantage was derived from the error, contending it was disadvantaged by the correction. In this instance, it would not be appropriate for you to grant full remission of GIC for the shortfall period, as the 'no comparative advantage' test is not satisfied. When the transaction was entered into, not charging GST might have allowed Carina to charge a lower price than competitors and this may have been a factor in Carina securing the supply. However, you could remit the GIC to the base rate for the shortfall period; that is, 21 May to 23 September 2010. Full remission Example 3 – no comparative advantage derived from the error, not grouped for GST purposes Ekibin (annual turnover of $650 million) makes a supply to a wholly owned subsidiary, Forestdale, for the price of $700,000 for the monthly period ending 28 February 2009. Ekibin had incorrectly assumed that it and Forestdale were grouped for GST purposes. GST should have been charged on the supply; however, the invoice issued by Ekibin for the supply does not show an amount of GST, nor does it state that the supply is GST-inclusive. Ekibin discovers the error and, on 25 June 2009, revises its February 2009 activity statement. On 9 July 2009, Ekibin pays the GST of $70,000 resulting from the revision. Ekibin re-invoices Forestdale for the full $770,000 and Forestdale pays Ekibin the increased price amount. Forestdale then claims GST credits for $70,000 in the June 2009 period. GIC is imposed on Ekibin for the period 23 March 2009 (the due date for the February activity statement) to 8 July 2009. Ekibin requests that you remit the GIC based upon the transaction being a GST revenue-neutral correction and no comparative benefit being derived from the error. Ekibin and Forestdale have since notified you of the formation of a GST group. In considering the remission request, you determine that the entities were non-arm's length and that, in practice, Ekibin was not competing with other parties for the provision of services to Forestdale. Consequently, it would be appropriate for you to accept that no comparative advantage was obtained by Ekibin at the time of the original transaction and grant full remission of the GIC for the shortfall period; that is, 23 March 2009 to 24 June 2009. Example 4 – no comparative advantage derived from the error, individual supplier Camille wishes to provide motivational training to her employees to assist with her business. She puts the training services out for tender. The tenderer is required to specify the GST-exclusive price they will charge for the training. Rohan specifies a GST-exclusive price of $100,000 and is the successful tenderer. When Rohan invoices for the work in August 2008, he does not charge GST, because he mistakenly concludes that his services are a GST-free educational supply. Camille later queries the GST-free treatment. Rohan seeks advice and, in October 2008, finds out that the supply of training was in fact a taxable supply. Rohan issues a tax invoice to Camille for $110,000, including $10,000 for GST. He submits a revised August 2008 activity statement and pays $10,000 of GST on 31 October 2008. Rohan has received no comparative advantage. Because the potential suppliers of the motivational training quoted their prices on a GST-exclusive basis and Rohan was selected as the successful tenderer on the basis of his GST-exclusive price, Rohan did not obtain a comparative advantage. Accordingly, it would be appropriate for you to remit the GIC in full for the shortfall period. Example 5 – no comparative advantage derived from the error, sole supplier Stretton, a monthly remitter, has a licensing agreement granting it the exclusive Australian rights for the importation, sale and servicing of specialised equipment manufactured overseas. Stretton imports equipment and, in September 2007, sells some of it to Tennyson, which uses the equipment in its operations. GST should have been charged on the supply but was not. This error is detected in November 2009. On 4 December 2009, Stretton revises its September 2007 activity statement and pays the additional GST. In November 2009, when Stretton issues a valid tax invoice for the supply, Tennyson pays the additional GST. Tennyson claims GST credits for this amount on its November 2009 activity statement (Tennyson had not claimed the GST credits at the time of the original transaction). GIC is imposed on Stretton for the period 22 October 2007 (the due date for the September activity statement) to 3 December 2009. Stretton requests that you remit the GIC based on the transaction being a GST revenue-neutral correction and that no comparative benefit was derived from the error. In the circumstances, you accept that there was no comparative advantage. Stretton was the only supplier from whom Tennyson could make the acquisition. Stretton's misclassification of the supply as non-taxable did not influence the purchasing decision. Therefore, it would be appropriate for you to remit the GIC for the shortfall period in full on the basis that Stretton received no comparative advantage at the time of the original error. Example 6 – GST has been accounted for in the correct period, albeit by the wrong entity Grange and Hendra engage in a GST joint venture. Grange, a monthly remitter, is both the joint venture operator and a participant; Hendra is a participant. In the monthly period ending 31 March 2007, Grange makes a taxable supply on behalf of Hendra under the joint venture to Ithaca. An error occurs and Hendra includes the GST related to the supply on its activity statement for that period and pays the GST. When the error is detected in August 2009, Grange (as the joint venture operator) revises the March 2007 activity statement for the joint venture operations to include the GST associated with the supply. Once the revision is made, GIC is imposed on Grange in its role as joint venture operator for the period 23 April 2007 (the due date of its March activity statement) until the day before the outstanding GST amount was paid. Grange requests that you remit the GIC based on the transaction being a GST revenue-neutral correction. Grange states that internal control processes for both itself and Hendra have been strengthened to prevent the error reoccurring. Grange explains that the GST relating to the original transaction was included in the March 2007 activity statement for Hendra. Evidence of this is included in the remission request. You accept that the correct amount of GST was paid in relation to the transaction in the correct period, but by the wrong entity. Therefore, it is appropriate for you to allow full remission of the GIC for the shortfall period. Example 7 – GST credits claimed by the wrong entity and the recipient has not included the GST credits in a previous activity statement In November 2006, Kedron, a monthly remitter, makes a $55,000 creditable acquisition from an unrelated party. In June 2009, an ATO audit of Kedron's GST affairs reveals that the $5,000 GST credits in relation to this supply was claimed by Kedron Services Trust, rather than by Kedron. The audit establishes that Kedron has not made any claim for GST credits in relation to the same supply. On 2 July 2009, a notice of assessment for $5,000 issues to Kedron Services Trust. This amount is paid on 10 July 2009. GIC is imposed for the period 21 December 2006 to 9 July 2009. Kedron Services Trust requests that you remit the GIC based upon the transaction being a GST revenue-neutral correction. Kedron Services Trust informs you of the steps it has taken to ensure the correct identification of the recipient for future GST credits claims. You remit the GIC in full for the shortfall period (21 December 2006 to 1 July 2009). GIC that has accrued on the shortfall amount from 2 July 2009 to 9 July 2009 is not remitted.",PS LA 2005/2 | PS LA 2006/8 | PS LA 2011/12 | PS LA 2012/5 | A New Tax System (Goods and Services Tax) (Correcting GST Errors) Determination 2023 | ANTS(GST)A 1999 29-70(1B) | ANTS(GST)A 1999 29-75(1) | TAA 1953 8AAG | TAA 8AAG(2) | TAA 8AAG(3) | TAA 8AAG(4) | TAA 8AAG(5) | TAA 8AAG(5)(b),PS LA 2005/2 PS LA 2006/8 PS LA 2011/12 PS LA 2012/5,ANTS(GST)A 1999 29-70(1B) | ANTS(GST)A 1999 29-75(1) | TAA 1953 8AAG | TAA 8AAG(2) | TAA 8AAG(3) | TAA 8AAG(4) | TAA 8AAG(5) | TAA 8AAG(5)(b),,A New Tax System (Goods and Services Tax) (Correcting GST Errors) Determination 2023,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20089/NAT/ATO/00001,"Updated in line with current ATO style and accessibility guides. | Updated to current LAPS format and style. | Removed reference to GST being a 'self-executing system' by 'self-assessment system' which became effective as of 1 July 2012. | Paragraphs 17, 19, 20, 21, 24, 33 and footnotes 8, 10 and 12 | Reference to Chapter 93 of the ATO Receivables Policy and PS LAs 2002/12, 2004/11 and 2006/2 updated to refer to their respective replacement products. | Paragraphs 6 and 7 and other references | Updated for the release of GSTE 2013/1 Goods and Services Tax: Correcting GST Errors Determination 2013 and the guide Correcting GST errors | Paragraphs 15, 20, 40 and 56 | Updated to reflect changes to the A New Tax System (Goods and Services Tax) Act 1999 under the Tax Laws Amendment (2010 GST Administration Measures No. 2) Act 2010. | Paragraphs 17, 21 and 24; footnotes 9, 11 and 13, and references section | Link to the ATO Receivables Policy added. | [1] Unless the conditions in A New Tax System (Goods and Services Tax) (Correcting GST Errors) Determination 2023 are met, allowing for correction on a later activity statement. | [2] See instead Law Administration Practice Statement PS LA 2011/12 Remission of General Interest Charge . | [3] See instead Law Administration Practice Statement PS LA 2012/5 Administration of the false or misleading statement penalty – where there is a shortfall amount . | [4] You should consider the question of whether it is fair and reasonable to remit not only from the perspective of the taxpayer, but also from the perspective of the broader community. It may not be fair and reasonable to remit GIC if remission provides the taxpayer with an advantage over others who meet their responsibilities in full. | [5] This is a broader discretion than the other provisions of section 8AAG, but before you exercise the discretion to remit GIC under paragraph 8AAG(5)(b), see the content under heading 'Where it is 'otherwise appropriate' to remit' in section 4 of PS LA 2011/12. | [6] Under subsections 29-70(1B) and 29-75(1) of the A New Tax System (Goods and Services Tax) Act 1999 . | [8] See Law Administration Practice Statement PS LA 2005/2 Penalty for failure to keep or retain records . | [9] Amity may wish to seek full remission of GIC if it can demonstrate that it has not received an advantage over other entities which correctly accounted for GST. | File 2008/6588; 1-23DEERY; 1-140KMA4W 1-23DEERY"
PS LA 2008/10,"SUBJECT: Application of section 45B of the Income Tax Assessment Act 1936 to share capital reductions PURPOSE: To provide instruction and practical guidance to tax officers on the application of section 45B of the Income Tax Assessment Act 1936 to a share capital reduction by a company (or certain unit trusts treated as a company or head company for consolidation purposes), including a non-share distribution to the extent to which it is a non-share capital return",15 May 2008,15 May 2008,Law Administration Practice Statement,False,"1. This practice statement should be followed by tax officers who are considering whether or not section 45B of the Income Tax Assessment Act 1936 (ITAA 1936), [1] will apply to an arrangement or proposed arrangement that is, or includes, a share capital reduction, including a non-share distribution to the extent to which it is a non-share capital return. 2. The practice statement follows the broad outline of section 45B covering scheme, capital benefit, obtaining a tax benefit, purpose and determinations. 3. The practice statement provides administrative and technical guidance on applying these elements of the section, and where appropriate includes further explanations or interpretations drawn from cited case law and Explanatory Memoranda. This practice statement documents what our practice has been in this area of the law since 1 July 1998. 4. Engagement of tax technical officers in Law and Practice on section 45B issues should be determined in accordance with PS LA 2012/1 Guide to managing high risk technical issues and engagement of tax technical officers in Law and Practice . In accordance with this practice statement, given the anti-avoidance nature of section 45B, where a decision to apply section 45B is made or is unable to be reached, engagement of tax technical officers in Law and Practice will be mandatory in order to determine whether the issue should be referred to the General Anti-Avoidance Panel for consideration. [2] However, if a business line determines that a section 45B issue is of sufficient risk to warrant Law engagement, tax technical officers in Law and Practice should also be engaged, regardless of the decision made by the business line to apply or not apply section 45B. | Share capital reductions: 5. A company may wish to reduce its issued share capital for various reasons, however this practice statement is concerned with the kind of reduction commonly referred to as a return of paid up share capital where the capital is surplus to needs or is replaced with debt. A company's share capital is the total amount of money representing what members, or persons proposing to be members of the company, have provided, or contractually bound themselves to provide, to the company, in cash or other value, for the company to use in its undertaking. The amount is provided in their capacity as members or intending members and not as creditors. [3] 6. A company cannot return share capital to members before a winding up except in accordance with the permitted processes set out in the Corporations Act 2001 (the Corporations Act). Under the Corporations Act a transaction under which share capital is distributed to a shareholder (and is therefore reduced) other than in the case of a winding up is called a share capital reduction. The Corporations Act specifies the circumstances in which a company may reduce its share capital, and the procedures which must be followed. 7. Share capital reductions not otherwise authorised under specific provisions of the Corporations Act are provided for in Division 1 of Part 2J.1 of the Corporations Act. Under section 256B of the Corporations Act a share capital reduction may be an equal or selective reduction and may or may not be accompanied by a cancellation of shares. Equal reductions relate only to ordinary shares, apply in proportion to the number of ordinary shares held and the terms of the reduction must be the same for each holder of ordinary shares. [4] Any reduction which does not meet these requirements is treated as a selective reduction for the purposes of the Corporations Act. Equal and selective reductions have different shareholder approval and notice requirements. 8. The tax consequences of a share capital reduction differ depending on whether it involves a share cancellation or not. In both cases however, to the extent that the distribution is debited against the share capital account it is not a dividend under subsection 6(1). [4] If the reduction does not involve a cancellation of shares, the distribution of share capital reduces the shareholder's cost base for the share under Capital Gains Tax (CGT) event G1. [6] To the extent that the distribution is in excess of the cost base of the share it will give rise to a capital gain under CGT event G1. [7] 9. In contrast, if the reduction does involve a cancellation of shares, the cancellation will result in CGT event C2 [8] happening and, as a result, the shareholder may make a capital gain or capital loss depending on the amount of the distribution received and the cost base (or reduced cost base) of the share. | Share buy-backs: 10. It should be noted that share buy-backs may involve a reduction in share capital. Share buy-backs are regulated by a different set of procedures in the Corporations Act, [9] and are identified as a separate type of transaction affecting share capital. Share buy-backs are also subject to specific tax treatment under Division 16K of Part III, which provides for tax consequences that are different from those arising from an equal or selective reduction, even if it includes a cancellation of shares. In particular, although a capital reduction can involve a dividend (to the extent the distribution exceeds the amount debited to the share capital account) and double tax on the dividend and capital gain is avoided by the application of section 118-20 of the Income Tax Assessment Act 1997 (ITAA 1997), there is no possibility of a capital loss being generated by the application of the anti-overlap rules. In contrast to a share capital reduction, the share buy-back rules under Division 16K of Part IIIreduce the consideration on disposal of the share by reference to the dividend component, and a loss may result. 11. The separate legislative approach in both the Corporations Act and the ITAA 1936 gives recognition in part to the commercial viewpoint of a share buy-back as a sale of the share as an item of property, even though this is contrary to the principle that the company is unable to own a claim against itself. [10] Ordinarily, what distinguishes a share buy-back from other forms of share capital reduction is that the shareholder to whom the company makes an offer to buy back may decide whether or not to 'sell'. In contrast, under other forms of share capital reduction the company can deprive shareholders of their shares without consent. [11] For these reasons, an arrangement which is a share buy-back within the meaning of section 159GZZZK is outside the scope of this practice statement. [12] 12. The Corporations Act also provides for other circumstances which may involve a reduction in share capital. [13] For instance, a company may cancel shares that have been forfeited under the terms on which the shares are on issue. A company may also reduce its share capital by cancelling any paid up share capital that is lost or is not represented by available assets as long as the company does not also cancel shares. 13. A reduction in share capital may also occur when there is redemption of redeemable preference shares out of the proceeds of a new issue of shares made for the purpose of the redemption under section 254K of the Corporations Act. It should be noted that this is subject to the definition of a 'dividend' in paragraph 6(1)(e). The definition provides that the redemption proceeds will be treated as a return of capital only to the extent that the proceeds represent a return of share capital attributable to that share, and if the company provides the relevant notice to the holder of the redeemable preference share. A reduction in share capital in the circumstances described in this and the preceding paragraph is also outside the scope of this practice statement. | Demergers: 14. The demerger of a company may also involve a reduction in share capital. Demergers that involve a reduction in share capital that occur on or after 1 July 2002 and fall within the definition of 'demerger' in section 125-70 of the ITAA 1997 are outside the scope of this practice statement. [14] This practice statement is relevant to demerger arrangements that involve reductions of share capital that occur before 1 July 2002, or otherwise do not satisfy the section 125-70 of the ITAA 1997 definition. | Unit trusts: 15. As a consequence of the consolidation rules in Division 713 of the ITAA 1997, section 45B can apply to distributions by corporate unit trusts and public trading trusts treated like a company or a head company of a consolidated group. The modifications to the applied law pursuant to section 713-140 of the ITAA 1997 provide that a reference to a dividend in the ITAA 1936 and ITAA 1997 includes a reference to a distribution from the trust out of profits and a reference to a share capital account includes a reference to the amount of the trust estate that is not attributable to profits. 16. However, corporate unit trusts and public trading trusts which are not subject to the consolidation rules and are treated as companies under Divisions 6B or 6C of Part III are subject to the rules against 'unit trust dividend' substitution at subsections 102L(18) and 102T(19) respectively and section 45B does not apply to them. | Non-share distributions to the extent to which they are a non-share capital return: 17. The debt/equity rules in Division 974 of the ITAA 1997 characterise an interest in a company as equity or debt for the purpose of determining the taxation treatment of the return on the interest. Under these rules, an equity interest may include an interest that is not in the form of a share and is called a 'non-share equity interest'. Certain distributions on a non-share equity interest, called 'non-share dividends', are entitled to be franked and are treated in the same way as a frankable dividend. However, it is also recognised through the concept of 'non-share capital returns' that not all non-share distributions will be dividends. 18. Subsection 45B(7) provides that, for the purposes of the application of section 45B, a non-share distribution to an equity holder is taken to be a distribution to the equity holder of share capital to the extent to which it is a non-share capital return. Thus, transactions that involve non-share capital returns are also susceptible to the application of section 45B. 19. A 'non-share distribution' is defined in Division 974 of the ITAA 1997 as a distribution to a holder of a non-share equity interest. An 'equity holder' is an entity that holds an 'equity interest' which, as defined in Division 974 of the ITAA 1997, may include a non-share interest. To the extent that a non-share distribution is not a non-share dividend [15] it is a 'non-share capital return.' A non-share distribution is not a non-share dividend to the extent to which the company debits the distribution against the company's non-share capital account or the company's share capital account (if permitted by the Corporations Act). [16] Thus, a non-share capital return is the amount of the non-share distribution that has been debited against the company's non-share capital account or share capital account. 20. A company's non-share capital account is a notional account required by Division 164 of the ITAA 1997 which records contributions to the company in respect of non-share equity interests and returns by it of those contributions. The account continues in existence even if the company ceases to have any non-share equity interests on issue; further, the balance of the account cannot fall below nil. [17] 21. The only credits and debits that can be made to the non-share capital account are specified in sections 164-15 and 164-20 of the ITAA 1997. Thus, the circumstances in which a company can validly debit its non-share capital account are limited. Subsection 164-20(1) of the ITAA 1997 provides that the company may debit the whole or a part of a non-share distribution against the company's non-share capital account: (a) to the extent to which the distribution is made as consideration for the surrender, cancellation or redemption of a non-share equity interest, or (b) to the extent to which the distribution is made in connection with a reduction in the market value of a non-share equity interest as long as the amount of the distribution is equal to the amount of the reduction in market value. (a) to the extent to which the distribution is made as consideration for the surrender, cancellation or redemption of a non-share equity interest, or (b) to the extent to which the distribution is made in connection with a reduction in the market value of a non-share equity interest as long as the amount of the distribution is equal to the amount of the reduction in market value. 22. The total of the amounts debited to the account in respect of a particular non-share equity interest cannot exceed the total of the amounts credited to the account in respect of the interest. [18] The other circumstance where a debit is permitted to the non-share capital account is in the case where the equity interest changes to a debt interest. [19] 23. Accordingly, distributions of non-share capital returns in consideration for the surrender, redemption or cancellation of a non-share equity interest or in connection with a reduction in the market value of a non-share equity interest will also be the subject of this practice statement, and will be referred to as non-share capital reductions. Some examples of non-share equity interests in respect of which non-share capital returns may be made include certain convertible notes or perpetual securities; the return on which are contingent on the profitability of the company. 24. Another example of a non-share equity interest in respect of which non-share capital returns may be made are certain loans made to companies which are often interest free, have no fixed repayment date for the principal and instead are repayable on demand by the lender. These interests are often called 'at call' loans. Prior to 1 July 2005, at call loans covered by subsection 974-75(4) of the ITAA 1997 were deemed to be debt interests and therefore section 45B could not apply to such interests. With effect from 1 July 2005, certain at call loans will continue to be treated as a debt interest if they meet the requirements in subsections 974-75(6) and (7) of the ITAA 1997. However, loans which do not meet the requirements of subsections 974-75(6) and (7) of the ITAA 1997, for instance because they are not made by a connected entity of the borrower company, or the borrower company has an annual turnover of $20 million or more at the end of any income year, may constitute non-share equity interests and thus section 45B may apply to non-share capital returns made in respect of such interests. | Background to section 45B: 25. In 1998 the Company Law Reform Bill 1997 removed some of the restrictions on share capital reductions by giving companies the ability to return capital subject to the reduction being fair and reasonable to shareholders as a whole and not prejudicial to creditors. Previously, a company could not undertake a share capital reduction without confirmation from the court as well as shareholder approval. Under the amendments a company would be permitted to reduce its capital after notification to Australian Securities and Investments Commission and approval by the appropriate majority of shareholders. This, in addition to earlier changes made to the Corporations Law in relation to share buy-backs, made it easier for companies to make distributions of capital to shareholders. Thus, the form of any distribution to shareholders became largely a matter of the company's choice. 26. As a result of these changes to the Corporations Law, the Taxation Laws Amendment (Company Law Review) Act 1998 amended the ITAA 1936 and introduced, amongst other provisions, section 45B. Section 45B (as it was introduced at that time) was a specific anti-avoidance provision concerned with providing a framework in the taxation law that would prevent companies from distributing what are effectively profits to shareholders as preferentially taxed capital rather than dividends. [20] 27. Section 45B was further amended in 2002 by the New Business Tax System (Consolidations, Value Shifting, Demergers and Other Measures) Act 2002 so that it could also act as an integrity rule in the circumstances of a demerger. The application of section 45B to demergers is discussed in Law Administration Practice Statement PS LA 2005/21 Application of Section 45B of the Income Tax Assessment Act 1936 to demergers . | The purpose of section 45B: 28. Subsection 45B(1) provides that the purpose of section 45B is to ensure that relevant amounts are treated as dividends for tax purposes if the capital and profit components of a demerger allocation do not reflect the circumstances of the demerger, or certain payments, allocations or distributions are made in substitution for dividends. 29. Thus, as observed at paragraph 18 in PS LA 2005/21, section 45B serves two objects, one concerned with the provision of 'demerger benefits' and the second concerned with the provision of 'capital benefits'. This practice statement addresses arrangements subject to the second object, as a share capital reduction results in the distribution of share capital to the shareholder and thus the provision of a 'capital benefit'. 30. In essence, the second object of section 45B is concerned with ensuring that companies do not distribute what are effectively profits to shareholders as preferentially-taxed capital rather than dividends. The substituted dividend rule of section 45B requires that the Commissioner identify and weigh all of the relevant circumstances surrounding the provision of a 'capital benefit' to the relevant taxpayer, in order to determine whether the object of delivering a tax preferred receipt to the shareholders constitutes a more than incidental purpose of the scheme. 31. Section 45B does not premise that a dividend would have been paid if the share capital had not been distributed, unlike Part IVA which operates on the basis of reasonable expectation of the alternative. Rather, the reference in section 45B to dividend substitution is a reference to the distribution being more readily attributable to the company's profits than its share capital. 32. As noted at paragraph 59 in PS LA 2005/21, section 45B is concerned not only with capital benefits provided in substitution for an ordinary dividend, but also the substitution of capital benefits for extraordinary dividends. | Section 45B is not a profits first rule: 33. Section 45B is not a 'profits first' rule. It is a sanction against schemes to provide shareholders with capital benefits, including distributions of share capital, which were entered into or carried out for a significant purpose of enabling the shareholder to benefit from receiving preferentially taxed capital rather than profit. 34. However, although section 45B does not apply on a profits first basis, by implication it does presuppose some objective non-tax basis for distributing capital rather than profits, where both are available. Essentially, profits are a gain to the company which, when surplus to the company's needs, are meant to be divided amongst the shareholders; hence the word 'dividend'. Share capital, on the other hand, is the money contributed by the company's members for carrying out its objects until some event or circumstance renders its retention unnecessary, whereupon it may be returned. 35. However, generation of surplus funds from carrying on business in the ordinary way is the occasion for the distribution of a dividend, not a return of capital. Indeed, the Corporations Law reflects this difference by imposing more onerous statutory requirements on a distribution of share capital. 36. Broadly, the Corporations Act provides that a distribution of profit is a matter for the discretion of the company's directors, provided profits are available [21] and the company is solvent. [22] A distribution of share capital, on the other hand, is a more restrictive exercise which requires the agreement of the shareholders acting in the certainty that the distribution is fair and reasonable to the company's shareholders as a whole and does not materially prejudice the company's ability to pay its creditors. [23] 37. In other words, profits are distributed by executive decision, but distribution of a company's share capital, which is the money contributed by its members for carrying out its objects, [24] requires the members' agreement that, in effect, it is no longer needed by the company for that purpose. 38. If, therefore, a company can choose to distribute either capital or profits, there should be compelling, objective and commercial reasons why a company would choose the difficulty of distributing share capital over the relative simplicity of distributing profits, other than the tax preference of shareholders. Section 45B provides for those reasons to be identified and considered in determining whether the requisite purpose for the application of the section is present in relation to the distribution. [25] | The application of section 45B to share capital reductions: 39. In so far as it relates to the provision of a capital benefit, subsection 45B(2) provides that section 45B applies where: • there is a scheme under which a person is provided with a capital benefit by a company • under the scheme, a taxpayer (the 'relevant taxpayer'), who may or may not be the person provided with the capital benefit, obtains a tax benefit, and • having regard to the relevant circumstances of the scheme, it would be concluded that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for a purpose (whether or not the dominant purpose but not including an incidental purpose) of enabling a taxpayer (the 'relevant taxpayer') to obtain a tax benefit. • there is a scheme under which a person is provided with a capital benefit by a company • under the scheme, a taxpayer (the 'relevant taxpayer'), who may or may not be the person provided with the capital benefit, obtains a tax benefit, and • having regard to the relevant circumstances of the scheme, it would be concluded that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for a purpose (whether or not the dominant purpose but not including an incidental purpose) of enabling a taxpayer (the 'relevant taxpayer') to obtain a tax benefit. | Scheme: 40. A 'scheme' for the purposes of section 45B of the ITAA 1936 is taken to have the same meaning as provided in subsection 177A(1) of Part IVA of the ITAA 1936 pursuant to the reference to 'scheme' in subsection 995-1 of the ITAA 1997 contained in section 45B(10) of the ITAA 1936. [26] That definition is widely drawn and includes any agreement, arrangement, understanding, promise, undertaking, scheme, plan or proposal. In particular, a scheme is anything that satisfies any of the terms in the statutory definition. It does not have to be a 'wide scheme' nor does its reach have to include matters covering its overall commercial result or its 'practical meaning': Commissioner of Taxation v. Hart . [27] However the 'scheme' is defined, it must be related to the tax benefit obtained. [28] For further discussion regarding the meaning of scheme reference should also be made to Law Administration Practice Statement PS LA 2005/24 Application of General Anti-Avoidance Rules, which provides practical guidance on the application of the general anti-avoidance rules . 41. Accordingly, a share capital reduction would normally constitute either a scheme or a part of a scheme for the purposes of section 45B. The identification of the scheme and, in particular, whether other transactions connected to the share capital reduction form part of the scheme or not, will depend on the circumstances of the case. The objective purpose required to be drawn by paragraph 45B(2)(c) is tested against a person who entered into or carried out the scheme or any part of the scheme. Thus, as long as the scheme gives rise to a tax benefit, whether the scheme is wider or narrower than other schemes that can be identified should not be relevant in determining whether section 45B applies or not. | Provided with a capital benefit: 42. The concept of being provided with a 'capital benefit' is explained in subsection 45B(5). The subsection indicates that a person is provided with a 'capital benefit' if: • they are provided with an ownership interest in a company • they receive distributions of share capital or share premium, or • something is done that increases the value of their ownership interest. • they are provided with an ownership interest in a company • they receive distributions of share capital or share premium, or • something is done that increases the value of their ownership interest. 43. Generally a capital benefit can be provided to a shareholder (or a non-shareholder) by issuing ownership interests, distributing share capital or share premium, or altering the character of an ownership interest in a way which increases its value in the hands of the owner, for example by adding preferential rights. This method of providing a capital benefit may not affect the company's economic position, but it nonetheless advantages the taxpayer economically by adding value to their ownership interests, which can subsequently be realised in their hands. 44. However, here we are primarily concerned with a share capital reduction by way of a return of share capital to the shareholder, which constitutes a capital benefit within the meaning of paragraph 45B(5)(b). A non-share capital reduction will also involve a person being provided with a capital benefit, being the distribution of share capital under paragraph 45B(5)(b), to the extent to which it involves the equity holder receiving a distribution of non-share capital return. This is because subsection 45B(7) provides that a non-share distribution to an equity holder is taken to be the distribution to the equity holder of share capital to the extent to which it is a non-share capital return. 45. Accordingly, a person is provided with a capital benefit to the extent to which a non-share equity interest is redeemed (and therefore repaid), or part of the interest is redeemed or repaid, and the company debits the non-share capital account to reflect this. | The relevant taxpayer: 46. The 'relevant taxpayer' is the taxpayer who obtains a tax benefit, within the meaning of subsection 45B(9), under the scheme. Under a share capital reduction or non-share capital reduction, the relevant taxpayer (or taxpayers) will ordinarily be one or more of the owners or shareholders of the company, as it is they who are provided with the capital benefit and thus, a tax benefit. However, there is no requirement that the relevant taxpayer be the person who is provided with the capital benefit. 47. This practice statement proceeds on the basis that the relevant taxpayer(s) are the owners or shareholders of the company in order to provide useful guidance on the application of section 45B. However, tax officers should recognise that there may be cases where the relevant taxpayer is someone other than a shareholder in the company. | Tax benefit: 48. Under subsection 45B(9) the relevant taxpayer obtains a tax benefit if an amount of tax payable, or any other amount payable under the ITAA 1936 and ITAA 1997, by the relevant taxpayer would, apart from section 45B, be less than the amount that would have been payable, or would be payable at a later time than it would have been payable, if the capital benefit had been a dividend. 49. As discussed in paragraphs 36 to 40 of PS LA 2005/21, the tax effect of paying the amount as a dividend must be taken into account in determining whether the taxpayer has obtained a tax benefit or not. In this regard, the tax payable (or any other amount payable under the Act) on the notional dividend is ascertained in a continuum and not just for the year in which the dividend is received. In other words, the provision acknowledges that the notional dividend might not give rise to an amount payable for the year in which it is received, due, for example, to the taxpayer's having carried forward losses or the dividend's being franked; but the provision also recognises that the absorption of those losses or the use of those franking credits means they are not available in future years to reduce tax in those years, as they would have been if a capital benefit had been paid instead of a dividend. Thus, the preservation of tax losses or franking credits for use in the future would ordinarily mean that a tax benefit is obtained within the meaning of subsection 45B(9). [23] However, if the notional dividend was received as 'non-assessable non-exempt income' [30] it could not absorb tax losses, being neither assessable nor exempt income, and would not therefore ordinarily result in tax (or any other amount) payable for either the year of receipt or for some later year. Accordingly, for the purposes of subsection 45B(9), the replacement of a non-assessable, non-exempt dividend with a capital benefit would not normally enable the shareholder, as the relevant taxpayer, to 'obtain a tax benefit'. | A more than incidental purpose of enabling a taxpayer to obtain a tax benefit: 50. Section 45B only applies if, having regard to the relevant circumstances of the scheme, it would be concluded that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for a purpose (whether or not the dominant purpose but not including an incidental purpose) of enabling a taxpayer to obtain a tax benefit. [31] In the majority of matters this will be the critical issue determining whether the provision applies or not. 51. Section 45B follows Part IVA in that the conclusion about the requisite purpose is drawn by having regard to a number of objective matters listed in subsection 45B(8) (with the exception of paragraph 45B(8)(j) which is relevant only to demergers), including the matters in subparagraphs 177D(b)(i) to (viii) which are introduced at paragraph 45B(8)(k). 52. Also similar to Part IVA, section 45B does not require any inquiry into the subjective motives of the relevant taxpayer or persons who entered into or carried out the scheme or any part of it. [32] Thus, section 45B is concerned with determining the objective purpose of the persons who entered into or carried out the scheme. | Whose purpose?: 53. Section 45B considers the purpose of any one of the persons who entered into or carried out the scheme or any part of the scheme. Relevant persons would include the company, its directors and managers, and its shareholders. In complex commercial transactions these persons will consult widely and rely upon professional advisers, and the 'actual parties to the scheme subjectively may not have any purpose, independent of that of a professional adviser.' [33] Where this is so, it may be appropriate to attribute the purpose of a professional adviser to one or more of the parties. [34] | A more than incidental purpose: 54. A more than incidental purpose includes a 'main or substantial purpose', but does not need to be the 'most influential or prevailing purpose'. It will not include circumstances where it occurs 'fortuitously or in subordinate conjunction with one of the main or substantial purposes...or merely follows that purpose as a natural incident.' [35] 55. A person (or persons) can be found objectively to have two or more purposes, none of which is merely incidental. In such a case, all that is necessary for section 45B to apply is that one of those purposes is a more than incidental purpose of obtaining a tax benefit (either as a demerger benefit or a capital benefit). For example, if persons entering into or carrying out a scheme of a return of capital, when considered objectively, have a substantial purpose of obtaining a tax benefit in the form of a capital benefit, the fact that they have other purposes that are more than incidental will not prevent section 45B from applying. | The relevant circumstances: 56. Subsection 45B(8) lists the relevant circumstances of the scheme which the Commissioner must have regard to when determining whether or not the requisite purpose exists. The list of circumstances is not exhaustive and the Commissioner may have regard to other circumstances which he regards as relevant. 57. The relevant circumstances listed in subsection 45B(8) encompass a range of matters which, when taken individually or collectively, will reveal whether the requisite purpose exists or not. Due to the diverse nature of these circumstances, some may be of no consequence in ascertaining whether or not that purpose exists. In all cases however, tax officers should have regard to all the circumstances, and determine whether they tend towards, against or are neutral as to the conclusion of a purpose of enabling the relevant taxpayer to obtain a tax benefit. 58. The factors which are used to determine purpose under Part IVA are included by virtue of paragraph 45B(8)(k). The Part IVA factors are to be given equal attention in determining purpose under section 45B(8); the Explanatory Memorandum to section 45B as originally enacted in 1998 indicated that in addition to the Part IVA matters, 'other matters more specifically relevant to schemes to obtain a tax benefit' were included to give 'further guidance' to the operation of this section. [36] | (1) The attribution question: 59. The first relevant circumstance (paragraph 45B(8)(a)) concerns the extent to which the capital benefit is attributable to capital and profits (realised and unrealised) of the company or of an associate (within the meaning of section 318) of the company. The implication of this inquiry at paragraph 45B(8)(a) is that despite a distribution taking the form of share capital it can be ascribed in fact to either the company's share capital or the profits of the company or its associates. 60. If the provision of share capital is attributable to profits, this would ordinarily lead to the conclusion that the persons, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for the purpose of enabling a taxpayer to obtain a tax benefit. This is because a distribution of share capital attributable to profits is, in effect, distributing profits. It is thus being made in substitution for a dividend and secures the associated tax deferral advantages for the shareholder. The result for the company is that share capital is distributed and functions as distributable profits and profits are changed into capital de facto without converting them into capital de jure . [37] 61. The inquiry contemplated by the words 'attributable to' is essentially a practical one concerned with determining whether there is a discernible connection between the amount distributed as share capital and the share capital and profits that are realistically available for distribution, including the profits of an associate of the company. The connection need not be that of a sole, dominant, direct or proximate cause and effect; a contributory causal connection is sufficient. [38] 62. Therefore, in determining whether the distribution of share capital is attributable to either share capital or profits, tax officers should take account of the pertinent characteristics of share capital and profits and the availability of each in the circumstances of the company (including the availability of profits in associates) and in the context of the pertinent scheme. These characteristics are discussed below. Tax officers should also have regard to the occasion for the share capital reduction, that is, the circumstances surrounding the making of the capital distribution. 63. A capital distribution that is attributable to share capital should reflect circumstances which show that the share capital distributed is genuinely surplus to the company's need of it and that it is not merely a cash distribution debited against share capital on the basis of shareholder tax preference. For instance, the capital distribution may coincide with the disposal of a significant part of the business structure which can be identified as releasing share capital. However, if the disposal also realises a profit the ensuing distribution should, subject to all the other relevant circumstances, be considered in terms of its attribution to both share capital and the profit from the disposal. 64. Broadly, the capital of a company is the money contributed, or agreed to be contributed by its members for carrying out its objects. [39] Generally, the money so contributed is to be retained as a permanent fund while the company pursues its objects. Company law requires, in the case of a company limited by shares, that the capital subscribed by the shareholder be maintained as a fund for the protection of creditors (the doctrine of maintenance of capital). One consequence of this doctrine is that a company may not pay a dividend except out of distributable profits. Another consequence is that a company must not distribute its issued capital to members prior to winding up. As discussed however, the Corporations Act contains a number of exceptions to the doctrine of maintenance of capital, including the case of an authorised share capital reduction. The exceptions generally contemplate some special event or circumstance affecting the enterprise of the company which renders the retention of capital unnecessary. 65. Whatever the circumstances may be, they would not ordinarily include generating more money than required for the purposes of the business. The generation of surplus funds from carrying on the business of the company in the ordinary way is the occasion for the distribution of a dividend, not a return of capital. 66. The doctrine of maintenance of capital continues to be an important part of company law. Share capital maintains its character as the shareholders' proportionate contribution to, and their measurement of, ownership of the corporate business. It is also the fixed sum by reference to which the growth of the business is measured and identified as distributable profits. Under the corporate paradigm, contributed capital is meant to be invested in the objects of the business and, generally, to provide lasting support to the business. Profits which are excess to the requirements of the business are meant to be distributed to the shareholders. 67. As mentioned previously in paragraphs 35 to 37 of this practice statement, a distribution of profits to the members is a discretionary matter for the company's board of directors, whose responsibility it is to supervise the management of the corporation's business on behalf of the members. In contrast, a distribution of share capital to the members, though recommended by the board of directors, must be approved by a majority of the members as it is a matter which goes to the essential structure of the business. 68. Therefore, a distribution of profit would normally be expected to be a relatively ordinary corporate event and a distribution of capital a relatively extraordinary one. A decision to reduce capital would generally be expected to coincide with and be influenced by some other commercial circumstance. For example, a release of the capital from a disposal of part of the business structure, some other business structural change, or in some circumstances its replacement with debt capital where it is shown to be more profitable for shareholders. It should be noted, however, that the fact that the capital distribution has been funded from debt does not preclude it from being attributable to profits. 69. The profit to be taken into account under paragraph 45B(8)(a) includes profits, whether realised or unrealised, of the company making the distribution, or of an associate of the company. This means, for instance, that profits of subsidiaries may be taken into account for the purposes of determining whether the capital distribution is attributable to profits. 70. The term 'profits' is not defined in the income tax law and takes its ordinary meaning. It has a wide scope and is not limited to the Corporations Act's conception of the term. [40] The word profits, as it is generally understood, implies a gain made by a business and disclosed by a comparison between the state of that business at one point in time and its state at another. [41] Thus, in strict legal terms, an unrealised gain, whether or not it is of a 'permanent character' and whether or not it meets the technical requirements for distribution of the Corporations Act, constitutes profits for the purposes of paragraph 45B(8)(a). [42] It should also be noted that a company can pay dividends out of current year profits despite having accumulated losses. [42] The discussion in Taxation Ruling TR 2003/8 Income tax: distribution of property by companies to shareholders - amounts to be included as an assessable dividend, of the meaning of 'profits derived' in the context of subsection 44(1) is also relevant in determining whether there are profits or not. 71. Therefore, the notion of 'profits' in paragraph 45B(8)(a) may be wider than that under the Corporations Act. The attribution inquiry extends beyond profits legally distributable by the company to profits which, as a practical matter of fact, are available to be harvested by the company for distribution at that time or at a future time. 72. Nevertheless, tax officers should also take account of the nature and circumstances of the particular company, its distribution culture and whether there are commercial concerns with distributing the profits, including distributing any unrealised profits if relevant, in determining whether section 45B applies. For example, a corporate group could have some unrealised profit that may be so ephemeral as to render its distribution imprudent. Aspects of corporate distributions are discussed further with respect to the relevant circumstances identified in paragraphs 45B(8)(b) and 45B(8)(k). [44] The mere existence of profits will not automatically trigger the application of section 45B; rather, the availability of profits is but one matter to be considered in the attribution inquiry posed by paragraph 45B(8)(a). 73. As discussed at paragraph 57 in PS LA 2005/21, if the capital distribution is attributable to the disposal of assets of the business, a reasonable approach should be taken in determining the extent to which share capital was invested in the disposed assets and is available to be distributed to shareholders. In some instances the capital may be traced directly to the asset and in others it may be a matter of inferring its allocation on a reasonable basis. For example, it may be appropriate to allocate capital across the enterprise as a whole, based on valuing assets according to their market value. This is sometimes referred to as the 'slice approach' to the compilation of assets as between capital and profit. 74. Similarly, if the occasion for the share capital reduction is to increase the company's gearing ratio (the debt to equity ratio) it should be borne in mind that equity includes both retained profits and share capital and that this is an occasion that affects both. This means that an increase in the gearing ratio can be achieved just as effectively by returning profits as reducing share capital, including by way of dividend. Generally, in the absence of other relevant factors which indicate otherwise, tax officers should regard the capital distribution as being attributable to the share capital and retained earnings on a proportionate basis. 75. With respect to non-share capital reductions and whether it can be said that the distribution of non-share capital is attributable to profits, the policy underlying the debt/equity rules should be acknowledged. It provides that equity interests are to be treated similarly, regardless of whether they are shares in legal form or not, for the purposes of determining the taxation treatment of returns. [45] Non-share equity is generally regarded as serving a similar function in relation to a company as a share does. Accordingly, the discussion above is also applicable to non-share equity. 76. However, tax officers should also take account of any specific circumstances of the company, including its particular funding needs, and the nature of the non-share equity interest when determining whether a distribution of non-share capital is attributable to profits or not. | (2) The distribution culture: 77. Paragraph 45B(8)(b) directs attention to the pattern of distributions of dividends, bonus shares and returns of capital or share premium by the company or an associate (within the meaning in section 318) of the company. This includes any special dividends and share buy-backs. The inference here is that an interruption to the normal pattern of profit distribution and its replacement with a distribution of capital may suggest dividend substitution. It may become apparent after having regard to the general pattern of distributions of the company that the company has a pattern of making capital distributions (with the capital performing the function of dividends). 78. The fact that the company has maintained its ordinary dividend policy does not preclude a distribution of share capital occurring in place of an extraordinary distribution of profit and does not necessarily, depending on the circumstances, point away from the requisite purpose. Also, the fact that the company may not have made any distributions previously, whether of profit or share capital, does not point away from the requisite purpose. 79. However, tax officers should also have regard to the company's distribution culture and other relevant commercial exigencies that impact on the company's ability to make distributions, whether of dividends or capital, in evaluating this relevant circumstance. For example, companies may consider the perceptions and expectations of shareholders when deciding whether to increase ordinary dividend distributions. Tax officers should also be alert to any change in a company's distribution culture brought about by a change to its guiding mind. 80. Some companies may have a policy of maintaining a certain level of distributable profits (a buffer). For example, a company may have a history of retaining excess profits when profits are higher so as to be able to distribute dividends when profits are lower. If, objectively, this is done to maintain consistent dividend payouts or to counter downturns in the business cycle, these are factors which should be taken into account by tax officers and would point against the requisite purpose. | (3) Characteristics of shareholders: 81. Paragraphs 45B(8)(c) to (f) require that consideration be given to the tax characteristics of the shareholders in order to determine the tax effects of the scheme. If the tax characteristics of the shareholders of the company are such as to indicate there is a tax preference for one form of distribution over another, this may be suggestive of a more than incidental purpose of delivering a tax benefit, particularly if the composition of the distribution does not follow the substance of what was provided. 82. In the case of public companies, particularly those which do not have a key significant shareholder (or group of shareholders with particular characteristics), it can be inferred objectively that the head entity and its subsidiaries would generally be aware of the broad tax characteristics of the shareholders of the company, but not their more detailed tax characteristics. Nevertheless, a public company may enter into a scheme, without knowing the precise tax profile of each of its shareholders, upon the premise that large numbers of its shareholders will have tax characteristics that will enable them to secure a tax advantage by a particular form of distribution, and for that purpose. 83. In the case of a closely held group, the more detailed tax characteristics of the shareholders of the company are more likely to be known to the group. 84. To the extent that the shareholders' tax characteristics are known, they should be considered thoroughly to discern whether it indicates the requisite purpose. However, it should also be borne in mind that the application of section 45B turns upon facts objectively determined, so the relevant taxpayers' tax characteristics would not be excluded from consideration because the company, its associated entities or any other person who entered into or carried out the scheme were subjectively unaware of them. Capital losses 85. Paragraph 45B(8)(c) considers whether the shareholders of a company receiving a capital benefit have any capital losses they could apply to the capital benefit as this would result in reduced or no CGT implications for shareholders. Where shareholders have capital losses that can be applied against the capital benefit this would suggest that the capital benefit was provided for the purpose of securing a tax benefit. Pre-CGT ownership interests 86. Paragraph 45B(8)(d) directs attention to whether some or all of the ownership interests held by the shareholders of the company were acquired or are taken to have been acquired by them before 20 September 1985. Where taxpayers receive a capital distribution in respect of a pre-CGT asset there would ordinarily be no CGT implications for the shareholders and this could influence the company's decision to return capital to shareholders. However, if the capital reduction involves cancellation of a resident shareholder's pre-CGT share (CGT event C2), tax officers should be mindful that CGT event K6 [46] might also happen. Residency of the shareholders of the company 87. Paragraph 45B(8)(e) requires consideration of whether the shareholders of the company are non-residents. The implication of non-residency is that it would normally point towards a tax preference for a distribution of capital over profit. Non-residents are normally taxed on dividends at the rate of 15%, but they are not exposed to capital gains on the disposal of shares unless those shares are 'indirect Australian real property interests' as defined in section 855-25 of the ITAA 1997. [47] Cost base of the ownership interests 88. Paragraph 45B(8)(f) directs that attention be paid to whether the cost base (for the purposes of ITAA 1997) of the relevant ownership interest is not substantially less than the value of the capital benefit. Where the cost base of the ownership interest is similar or greater in value than the capital benefit provided, the capital distribution will not expose the relevant taxpayer to a capital gain under CGT event G1 or CGT event C2 where the provision of the capital benefit involves the subsequent cancellation of a share. This could point towards a tax preference for capital over profit. Nature of interest after the return of capital 89. Paragraph 45B(8)(h) requires that regard be had to whether the interest held by the shareholders after the share capital reduction is the same as the interest would have been if an equivalent dividend had been paid. This matter examines the effect of the capital reduction on the substance of the shareholder's interest in the company directly and relative to other shareholders. 90. This relevant circumstance proceeds from the premise that when a dividend is paid the shareholder's interest remains unchanged, and that a distribution of capital made in similar circumstances may be performing the same function as a dividend and be made in substitution for it. It has regard not only to whether there has been a cancellation or variation in the shareholder's interest, but also to whether the shareholder's interest has remained the same comparative with other shareholders. 91. An equal share capital reduction under which no shares are cancelled (often called a pro-rata return of capital) does not affect the shareholder's substantive interests, either individually or inter se and thus the interests remain the same as if a dividend had been paid instead. From the shareholders' perspective a reduction of capital without a cancellation of shares is not dissimilar economically to a special dividend in that cash is distributed to them while they retain the share with all of its rights intact. 92. Pursuant to an equal share capital reduction, whereby a proportion of shares is cancelled for each shareholder, the shareholders' interests are affected individually, in that they own less shares in the company. However, on a comparative basis the interests of shareholders in the company before and after the reduction remain largely the same; their proportionate voting rights and, indeed, their other rights and obligations as shareholders remain substantially unchanged. Thus, this aspect of an equal share capital reduction by way of share cancellation may point towards the capital reduction being made in substitution for a dividend. 93. In contrast, a selective share capital reduction which involves cancellation of shares does affect proportionate shareholder interests in the company such that they would be less than the taxpayer's pre-reduction interest. Depending on the facts, a selective capital reduction may point away from the capital reduction being made in substitution for a dividend. [48] Scheme involving the later disposal of ownership interests 94. Paragraph 45B(8)(i) directs attention to those cases where the scheme involves the provision of ownership interests and the later disposal of those interests, or an increase in the value of ownership interests and the later disposal of those interests; recognising that the proceeds on disposal of such ownership interests may provide the equivalent of a cash dividend in a more tax-effective form. Such a scheme would not necessarily involve a share capital reduction, but it does point to a preference for a capital benefit over a dividend. 95. Generally, share capital reductions involve a distribution of share capital (in the form of cash) and do not involve the provision of ownership interests and in such a case this circumstance is irrelevant. However, there may be cases where the cash is received and compulsorily subscribed by shareholders in return for further ownership interests. The initial distribution when judged on its merits may not look like dividend substitution, but in combination with the subsequent disposal of the further ownership interests the two may suggest dividend substitution. There may also be cases where the share capital reduction is in fact satisfied by the transfer of shares (for example, in a subsidiary) in circumstances which do not constitute a tax law demerger. Such transactions, if coupled with a subsequent disposal may equally suggest dividend substitution. 96. It is a question of fact whether the scheme of a share capital reduction involves the later disposal of the ownership interests or not. In determining whether the scheme of provision and later disposal of ownership interests is suggestive of obtaining a tax benefit, it is necessary to have regard to such factors as the length of time the ownership interests are held, any arrangements to reduce the risk of holding them, and the temporal nexus between the share capital reduction and the arrangement for the disposal of the ownership interests. Transactions between the entity and an associate 97. Paragraph 45B(8)(j) is expressed to concern demergers within the meaning of section 125-70 of the ITAA 1997 only and is therefore not dealt with in this practice statement. [49] The Part IVA matters 98. Paragraph 45B(8)(k) requires that regard be had to any of the matters referred to in subparagraphs 177D(b)(i) to (viii). The matters referred to in these subparagraphs are matters of reference for 'the dominant purpose' test in Part IVA. However, in the context of section 45B they facilitate the 'more than incidental purpose test' and do not introduce a different purpose test. Furthermore, they are matters by reference to which one is able to examine a return of capital from a broad, practical perspective in order to identify and compare its tax and non-tax objectives. 99. The subparagraphs 177D(b)(i) to (viii) matters operate together to direct attention to the means by which the tax benefit has been obtained, and broadly include the manner in which the scheme was entered into or carried out, the form and substance of the scheme, the timing of the scheme, the financial, tax and non-tax effects of the scheme and the nature of any connection between the taxpayer and other parties to the scheme. Many of the relevant circumstances discussed above amplify or elaborate on the subparagraphs 177D(b)(i) to (viii) matters and to this extent there may be some overlap. 100. One of the chief indicators against the application of section 45B will be the non-tax objects or effects of the return of capital scheme. The eight matters in paragraph 177D(b) constitute the essential facts and circumstances of a scheme, including the outcomes for the parties to the scheme, by reference to which the tax and non-tax objects of the scheme are able to be revealed and contrasted from an objective point of view. Subparagraph 177D(b)(i) 101. Subparagraph 177D(b)(i) refers to the manner in which the scheme was entered into or carried out. This is a reference to consideration of the way in which a method or procedure by which the particular scheme in question was established; in other words consideration of the decisions, steps and events that combine to make up the scheme. Subparagraph 177D(b)(ii) 102. Subparagraph 177D(b)(ii) refers to the form and substance of the scheme. The form of the scheme is the visible aspect of the scheme; the substance of the scheme is its essential nature which is normally determined from its commercial and economic implications. 103. A share capital reduction, a distribution of share capital, would constitute the form of a scheme and the substance of it would be determined from the effects of the scheme on the commercial and economic circumstances of the shareholders and the company. For example, where a company returns excess capital, which is referable to a disposal of part of its business, as long as the amount returned to shareholders is attributable to the share capital invested in that part of the business, the substance of the scheme would accord with its form. Subparagraph 177D(b)(iii) 104. Subparagraph 177D(b)(iii) directs attention to the time at which the scheme was entered into and the length of the period during which the scheme was carried out. This factor requires not only reference to time measurement but also reference to the timing of the scheme from the point of view of the scheme's coincidence with events or circumstances beyond the scheme itself. In particular, it enables consideration of the extent to which the timing and duration of the scheme go towards delivering the relevant tax benefit or are related to commercial opportunities or requirements. 105. For example, the company may have raised share capital for the purposes of making a significant corporate acquisition which due to intervening circumstances did not occur, and the company now has no need for the funds raised. In such a case, the timing of the share capital reduction with the occasion of the share capital becoming surplus to company requirements points to a non-tax purpose. Subparagraph 177D(b)(iv) 106. Subparagraph 177D(b)(iv) requires that consideration be given to 'the result in relation to the operation of this Act that, but for this Part, would be achieved by the scheme'. 107. The reference to 'this Part' could present an interpretational difficulty when applied in the context of section 45B. In its original context it is a reference to Part IVA. In the context of section 45B, however, 'this Part' could be interpreted as a reference to Part III which includes both sections 44 and 45B. 108. However, subparagraph 177D(b)(iv) should not be disregarded in relation to section 45B. The reference in paragraph 45B(8)(k) to ' any of the matters referred to in subparagraphs 177D(b)(i) to (viii)' suggests that the legislature intended that subparagraph 177D(b)(iv) should apply in the context of section 45B; in which case, the most sensible construction of the words of subparagraph 177D(b)(iv) is to read 'this Part' to mean 'this section'. The issue then becomes a matter of identifying the tax results of the scheme if section 45B were not to apply. In regard to this matter, it is critical to consider just what constitutes the scheme, as this will have a direct bearing on the breadth and scope of the tax results for the relevant taxpayers that are taken into consideration. 109. The more immediate result under the ITAA 1936 and ITAA 1997 of a share capital reduction is that because the distribution is debited against the company's share capital account the distribution carries the tax advantage of falling outside the definition of dividend in subsection 6(1) of the ITAA 1936, and is not received as income in the shareholder's hands. Instead, in the case of a pro-rata return of capital which involves no cancellation of shares the cost base of the affected shares will be reduced by the amount of the capital returned under CGT event G1, [50] and shareholders will realise a capital gain to the extent that the capital distribution exceeds the shareholder's cost base in the shares. 110. In the case of a share capital reduction which involves a cancellation of shares, the cancellation results in CGT event C2 happening to the shareholder. [51] If the capital distribution is more than the asset's cost base, the taxpayer will make a capital gain. If the capital distribution is less than the asset's reduced cost base, the shareholder will make a capital loss. 111. In the case of a non-share capital reduction, by debiting the distribution against the company's non-share capital account or share capital account (if permitted by the Corporations Act) the distribution is not a non-share dividend under subsection 974-120(2) of the ITAA 1997 and is not assessable to the shareholder under section 44. If the non-share capital return is made for the surrender, cancellation or redemption of the non-share equity interest and it is a traditional security any gain or loss will be assessable or deductible under sections 26BB and 70B. The capital gains tax provisions will also apply; CGT event C2 is relevant. Double taxation is prevented by section 118-20 of the ITAA 1997. Often the consideration received for the cancellation will be equal to the cost base of the non-share equity interest, resulting in no capital gain or loss to the shareholder. 112. However, if a non-share capital return is made in connection with a reduction in the market value of the non-share equity interest (and there is no cancellation of the interest) CGT event G1 cannot apply, as it is expressed to apply if a company makes a payment to a taxpayer in respect of a share. A 'share' is defined under section 995-1 of the ITAA 1997 to mean a share in the capital of the company, and includes stock and does not include a non-share equity interest in a company. The repayment may be treated as a partial redemption (with a cost base attributable to that part of the interest that has been redeemed) and CGT event C2 would apply in relation to the partial redemption. A partial redemption may also be subject to the traditional securities regime. 113. Another tax consequence resulting from share and non-share capital reductions is that the company can preserve franking credits by distributing share capital rather than paying a dividend. If the company has scarce franking credits, this would be significant and could suggest that the company has distributed capital and not profits on the basis of the shareholders' tax preference. Subparagraph 177D(b)(v) 114. Subparagraph 177D(b)(v) directs attention to any change in the financial position of the shareholders that results, will result or may reasonably be expected to result from the share capital reduction scheme. The most significant financial change for shareholders is that they receive a cash distribution or some other benefit from the company. If the scheme is an equal share capital reduction, the shareholders will receive the distribution with their proportionate interests in the company (that is, their income producing investment) remaining essentially the same. This would point towards the requisite purpose. On the other hand, if the scheme is a selective share capital reduction the receipt of the distribution would give rise to a reduction in the shareholder's investment and hence point away from the requisite purpose. Subparagraph 177D(b)(vi) 115. Subparagraph 177D(b)(vi) requires that consideration be given to any change in the financial position of any person who has, or has had, any connection with the relevant taxpayer, that is the shareholders. In relation to a share capital reduction the company would generally be the only other party whose financial position will change as a result of the scheme. 116. The financial result for a company of returning capital to the shareholders is that it divests itself of that amount of value. A less direct financial result may be that a distribution of share capital would forestall shareholder demand for the comparable alternative of a franked distribution, and, in turn, the need for the company to ensure that it has sufficient franking credits to make such a franked distribution. 117. A share capital reduction may also increase the company's gearing ratio regardless of whether equity is substituted by new debt or existing debt, although the effect is enhanced if new debt is taken on. Practically from a market perspective, as equity can be more expensive than debt (depending on prevailing interest rates), substituting debt for equity can reduce the company's cost of funds, which in turn may increase company profitability, shareholder returns and the share price. Of course, a company's profitability can depend also on a range of other factors. 118. In evaluating the financial effect of increasing gearing, tax officers should have regard to the nature of the company's business, the company's gearing history, whether the reduction will result in a substantial change to gearing levels and the relative benefits for the company (and shareholders) resulting from the substitution of debt for equity. 119. As previously noted however, gearing can also be increased by paying out dividends, in particular by way of a special dividend. Thus, when examining these aspects of a company's enterprise tax officers should also have regard to the company's distribution culture and any objective consequences arising from it. Subparagraph 177D(b)(vii) 120. Subparagraph 177D(b)(vii) directs attention to any 'other' consequence of the return of capital scheme for the shareholders or the company. 121. The decision to reduce share capital as opposed to paying out a dividend may be a consequence of the distribution culture of the particular company. Accordingly, tax officers should have regard to the objective consequences of the share capital reduction on the company with respect to its dividend history and its ability to provide stable dividends in the future. Thus, this provision requires that regard be given to the nature of the company's business and how this impacts on its ability to pay dividends, as well as objective shareholder and 'market' expectations in relation to the company's distributions. Furthermore, particularly in the case where the return is attributable to unrealised profits, regard should also be had to whether, in the company's circumstances, it would be commercially responsible to distribute profits. In other words, tax officers might consider what an objective, prudent director would do in the company's circumstances. 122. A share capital reduction that involves the cancellation of shares will result in the reduction of the number of shares on issue and therefore may impact on the earnings per share (EPS) performance indicator that investors have regard to; the company's earnings will be referable to a smaller number of shares. However, whether EPS increases or not as a result of the share cancellation is subject to other factors; in particular, future company performance and whether the company finances the cancellation with new debt rather than paying out assets. 123. With respect to non-share capital reductions, the nature of the interest and any commercial or regulatory consequences arising from its repayment or redemption should also be considered by tax officers. For example, in legal form the non-share equity interest may be debt and thus there may be commercial expectations or practices in relation to its redemption or reduction. Subparagraph 177D(b)(viii) 124. Subparagraph 177D(b)(viii) requires consideration of the nature of any connection (whether of a business, family or other nature) between the shareholders and any person referred to in paragraph (vi); ordinarily that would be the company that is distributing share capital to the shareholders. The connection between the two parties is the relationship of shareholder and company. 125. This relationship has a bearing on the nature of corporate distributions, including decisions regarding the particular form of a distribution. Broadly, the company, through its board of directors, manages the corporate business enterprise in the interests of the shareholders who, in turn, benefit from corporate distributions. Ordinarily, whether the distribution takes the form of capital or profits is a decision made in the interests of both shareholders and the business, as these interests converge. | Section 45B determinations and their effect: 126. If the conditions for application in subsection 45B(2) are met, the Commissioner is empowered under subsection 45B(3) to make a determination that section 45C applies in relation to the whole, or a part, of the capital benefit. 127. A determination under subsection 45B(3) will be made where it is considered there is a more than incidental purpose of enabling a taxpayer to obtain a tax advantage through the provision of a capital benefit in substitution for a dividend. 128. The effect of section 45C is that the amount of the capital benefit, or part of the benefit, is taken, for the purposes of the ITAA 1936 and ITAA 1997, to be an unfranked and unrebatable dividend that is paid by the company out of profits of the company to the shareholder or relevant taxpayer at the time that the shareholder or relevant taxpayer is provided with the capital benefit (subsections 45C(1) and (2)). The result is that the whole or part of the capital benefit in respect of which the determination is made is fully assessable, or subject to withholding tax, in the hands of the recipient. 129. The Commissioner's written determination under subsection 45B(3) applying section 45C will ordinarily be made in the name of a Deputy Commissioner of the relevant Business Service Line by officers in that line at the level of Executive Level 2 or above. [52] An example of a written determination is included at the end of this practice statement. 130. In addition, under subsection 45C(3) the Commissioner is empowered to make a further determination that the whole or part of the capital benefit was paid under a scheme for which a purpose, other than an incidental purpose, was to avoid franking debits arising in relation to the distribution from the company if the Commissioner has made a determination in respect of the capital benefit under paragraph 45B(3)(b). Such a further determination would result in an additional franking debit arising in the company's franking account. [53] 131. The ability to make a further determination under subsection 45C(3) recognises that the preservation of franking credits in the company's accounts may be a more than incidental purpose of the parties to a scheme to provide capital benefits in substitution for dividends. The amount of the franking debit is equal to the franking debit that would have arisen if the amount in respect of which the determination is made had been a fully franked dividend and arises on the day on which notice of the determination is served on the company. | Case examples: 132. The following case examples are included in the practice statement to assist tax officers with the process of considering and weighing a range of circumstances in which capital reductions could occur. However, the examples should not be relied on as precedents, as each case the Commissioner is presented with will have its own particular circumstances, some of which may be similar to those covered by the examples and others of which will not be similar but will nonetheless influence whether or not section 45B should apply. Tax officers are also reminded that in considering the application of section 45B to a scheme they must have regard to all of the relevant circumstances of the scheme and consider whether, and to what extent, each points to, or away from, the requisite purpose, or is neutral in that regard. | Example 1: 133. Largeco Limited (Largeco) is a listed company heading up a group which carries on three different core businesses, each through a separate, wholly-owned, subsidiary company and each with a different economic cycle. The subsidiaries' profit is generally fully franked and distributed annually to their parent, Largeco. 134. Largeco's balance sheet records a net asset position of $600 million comprising paid up share capital of $275 million, fully frankable retained earnings of $25 million and unrealised profit of $300 million, which is essentially the accretion to value of the capital invested in the business infrastructures of the three subsidiary companies. 135. Largeco has had in place a borrowing facility of $30 million for the past 6 months, which the company had arranged to purchase a business rival of one of their subsidiaries. The purchase has fallen through, but the loan facility is at such a favourable rate of interest that Largeco can demonstrate that it is in the company's financial interest, and, by extension, its shareholders' interest, to use the facility to make an equal capital reduction to the shareholders and incur the cost of the borrowed capital, that is, the interest payable, as a deductible expense. [53] 136. Also, Largeco does not want to pay out its retained earnings, $15 million of which is earmarked for the next semi-annual dividend and the remaining $10 million has for the past ten years been retained as a buffer against the possible repeat of its three core businesses suffering a downturn at the one time. 137. These circumstances suggest that the return of capital is not attributable to profit, is not inconsistent with the company's distribution culture and is explainable as being commercially advantageous to both the company and the shareholders; they point away from the requisite purpose in paragraph 45B(2)(c). | Example 2: 138. Shaftco Ltd (Shaftco) is an opal prospector and miner which was formed and listed four years ago. It runs its mining operations through Pitco Pty Ltd (Pitco) and its prospecting operation through Seekco Pty Ltd (Seekco), both wholly-owned subsidiary companies. 139. Shaftco's balance sheet records negative earnings of $6 million and paid-up share capital of $10 million. $9million of the paid-up capital was invested in Pitco which used it to purchase two opal mines, Twinkle for $7 million and Sparkle for $2 million. The remaining $1 million of share capital was invested in Seekco. Half of it has been spent on exploration fees, but so far no new opal deposits have been found. 140. Twinkle has produced very little opal and a recent assay has resulted in its being devalued to $1 million, hence the negative earnings figure of $6 million on the Shaftco balance sheet. Sparkle, on the other hand, has held its value and its opal production has realised a net accounting profit for 2006 of $2.5 million and for 2007 of $2.75 million. Capital allowances have reduced Pitco's accounting profit to a nil taxable income each year. 141. Shaftco has never paid a dividend, but it recently announced a pro-rata return of capital of $4 million 'to enable investors to share in the good fortune of the Sparkle mine'. The company also indicated that the return of capital is to be funded by a loan to Shaftco from Pitco. 142. The circumstances described above indicate that as a practical matter of fact 90% of Shaftco's paid up capital was invested in two mines which have been written down in value to $3 million and the remaining 10% is being expended on prospecting for new opal deposits. In other words, the availability of capital to return to shareholders is not supported by the facts. However, Pitco has distributable profits which will be used to fund the return of capital. 143. These circumstances suggest strongly that the return of capital is attributable to the profits of Pitco from the sale of opal, rather than the paid up capital of Shaftco and therefore point towards the requisite purpose in paragraph 45B(2)(c). | Example 3: 144. Motorco Ltd (Motorco) is a listed manufacturer of sports cars and motorcycles, the latter being manufactured in a wholly owned subsidiary, Victor Pty Ltd (Victor). Motorco's balance sheet records paid up share capital of $500 million, retained earnings of $30 million that is frankable to 50% and unrealised profit of $300 million that is accounted for in the accretion to value of manufacturing plant. 145. Motorco purchased Victor as a going concern twenty years ago. Victor performed well for several years but motorcycle sales have been in decline for some time and have reached the point where the business has recorded significant losses for the past three years. 146. However, Motorco was recently made an offer for Victor by the motorcycle manufacturer, Royal Speedster Corporation Ltd (Royal Speedster), based in India. Royal Speedster's plan is to buy the shares in Victor from Motorco for $400 million, sell off the real estate and move Victor's manufacturing plant, stock and intellectual property to India. 147. Motorco was happy to dispose of Victor for what amounted to a reasonable capital profit over the cost base of its Victor shares. As a consequence of the sale of Victor, Motorco announced an imminent reduction of its share capital by way of a return of capital to its shareholders and, subject to Motorco's continuing to trade profitably in the following year, to pay a partially franked, special dividend. 148. The companies' shared financial history is not altogether clear. Motorco's original purchase of Victor was financed from a mix of Motorco's paid up capital and borrowings which it eventually repaid from profit. Also, ten years ago, Motorco guaranteed two third-party loans to Victor, which it ultimately repaid on Victor's behalf but was never reimbursed by Victor. The extent that Motorco's repayment of the loans was sourced in either share capital or profit is also unclear. 149. In the absence of actual evidence of the application of Motorco's share capital to its investment in Victor, Motorco has decided to adopt a slice approach and apportion its share capital across all of its assets. Motorco's investment in Victor accounts for half of its net assets and, accordingly, accounts for $250 million of its share capital which it now proposes to return to its shareholders. 150. In Motorco's circumstances, it is reasonable to attribute $250 million of its share capital to the asset represented by the Victor shares. It is also reasonable to infer its release from the disposal of those shares and its availability for repayment to the Motorco shareholders. Further, the fact that profit from the disposal of the Victor shares has been earmarked for distribution to the shareholders by way of a special dividend suggests that Motorco is not distributing share capital and retaining profit on the basis of the tax preference of its shareholders. In short, these circumstances point away from the requisite purpose in paragraph 45B(2)(c). | Example 4: 151. In 2004 Fred Alcove borrowed $100,000, on the security of a First Mortgage over his private residence and, with his savings of $20,000, used the borrowed money to capitalise a newly formed company, Niche Pty Ltd (Niche), to carry on a modest transport business he controlled. Niche invested the capital in the acquisition of a second hand prime mover. 152. After three years of successful trading, Mr Alcove's equity in Niche comprises share capital of $120,000 and retained earnings of $250,000. 153. Mr Alcove wants to remove the Mortgage Security over his home and thus free his main private asset from exposure to creditors. He understands the different tax consequences between paying a dividend and distributing capital. 154. As the guiding mind of Niche, Mr Alcove decided to reduce the company's capital by $100,000 and distribute it to himself as shareholder so he could pay back his loan and disencumber his private residence. Mr Alcove's essential purpose therefore was to recover his equity in Niche to repay the private loan which financed it. His equity in Niche included Niche's paid up capital and its realised profit (retained earnings). 155. Setting aside tax implications, in terms of withdrawing equity from the company it would appear that it makes no difference to Mr Alcove whether the distribution is sourced in share capital or profit, or both. Nor does it make any real financial difference to Niche whether it distributes capital and retains profits, or distributes profits and retains capital. Also, the legal formality which differentiates a distribution of capital from one of profit is less likely to be an impediment where the company's executive and membership are indistinguishable. 156. Notwithstanding that share capital and profit might appear to be substantially interchangeable in the case of closely held companies, the fact remains that from the company's perspective the fund of profit that might have been divided and distributed as a dividend has been impounded to replace the capital of the business de facto and the fund of paid up capital has been reduced simply to provide a cash distribution to the shareholder, Mr Alcove. 157. In these circumstances, the shareholder's tax preference for capital over profits would appear objectively to be a significant factor in the decision to distribute the money from the company as return of share capital rather than a dividend out of profit. This suggests the presence of the requisite purpose in paragraph 45B(2)(c). | Example 5: 158. Famco Pty Ltd (Famco) is a medium sized, closely held company which manufactures leather accessories. The shareholding in Famco has been held equally by husband and wife Charles and Alice and their two sons, Dick and Harry, since its incorporation in 1988 when Famco also began trading with start up share capital of $2 million. Famco has grown steadily to the point where it now has net assets of $20 million. The company last paid a dividend in 1993, which Charles and Alice used to finance the purchase of their new residence. 159. Among its assets Famco holds the issued shares in Champers Pty Ltd (Champers), which it bought in 1998. Champers runs a vineyard in the Hunter Valley. The family members are all employed in the leather business except Harry who manages the vineyard for Champers. 160. As a result of his experience with Champers Harry has decided to strike out on his own as a wine grower and would therefore like to liquidate his interest in Famco in order to fund his new project. The other family members are not interested in acquiring Harry's shares in Famco, but the family do not want him to sell his shares to a third party. After seeking advice, Harry convinces the other members of the family to agree to the creation of Headco Pty Ltd (Headco) and its capitalisation with Famco shares which they exchange for Headco shares, choosing CGT rollover relief under subdivision 124-G of the ITAA 1997. 161. The other family members, as shareholders in Headco, also agree to a selective capital reduction and cancellation of Harry's shares in Headco for full market value. The distribution of capital was received by Harry as the capital proceeds for the cancellation of his shares in Headco. [54] The cost base of Harry's shares is $500,000 and his capital gain from the cancellation is $4.5 million 50% of which (that is, $2.25 million) is included in his assessable income. [55] 162. In the absence of objective evidence to the contrary, the interposition of Headco, which has effectively capitalised the profits of Famco, appears to have no other purpose than to facilitate the subsequent capital reduction. In these circumstances, it seems reasonable to infer that the interposition of Headco and the subsequent selective capital distribution and cancellation of Harry's shares constitute a scheme for the purposes of subsection 45B. 163. The known circumstances of the scheme indicate that the distribution of capital is attributable to profit of Famco and that the scheme has been entered into and carried out for a substantial purpose of delivering a share of that profit to Harry in a tax preferred form. This is the requisite purpose in paragraph 45B(2)(c). | Example 6: 164. Freshco Pty Limited (Freshco) runs a fruit market business at several suburban outlets. Ron and Nancy, the sole shareholders, financed the company in July 2005 with paid-up capital of $10 and an at-call interest-free loan of $6 million which was used by Freshco to set up its market sites, that is, the profit yielding structure of the company's business. 165. The company generates an annual GST turnover of $22 million. For income tax purposes these features combine to characterise the loan as an equity interest [56] and loan repayments to be deemed a non - share capital return . [57] 166. Subsection 45B(7) will deem the non-share capital return to be a distribution of share capital for the purposes of section 45B and hence the provision of a capital benefit under subsection 45B(5). 167. Freshco's business has performed consistently well and the company has distributed its annual after tax profit for the 2006 and 2007 income years to Ron and Nancy as fully franked dividends. Ron and Nancy have other investments, their marginal tax rates are both 45%. 168. In January 2008, following an attractive offer from a property developer, Freshco sold one of its market outlets for $3 million, realising a profit of $1 million, not all of which was subject to company tax. Their accountant advised Ron and Nancy that if they would like to share in the profit from the site, the company could pay them a partially franked special dividend or repay part of their loan. Ron and Nancy decide to seek a private binding ruling from the Commissioner, in particular, whether section 45B would apply to a non-share capital return of $1 million. 169. In this instance, there is a strong suggestion that the provision of the capital benefit (the part repayment of at-call loan capital) is attributable to the profit from the sale of the market site. Furthermore, whilst the at-call loan is clearly designed to put Ron and Nancy in the position of creditors of the company, there has been no prior indication of any intention on their part to have the loan repaid or partly repaid, nor is there indication of financial need on their part which would ordinarily trigger its repayment. It is also noteworthy that the remaining proceeds of $2 million from the sale of the market site have been committed to the establishment of a new market in a newly created suburb. 170. The circumstances in this case, in the absence of other evidence to the contrary, suggest a significant purpose on the part of Ron and Nancy, as directors of Freshco, of enabling themselves, as shareholders and taxpayers, to have access to the profit from the sale of the market site in a tax effective way. This is the requisite purpose in paragraph 45B(2)(c). | An example of a determination under subsection 45B(3): 171. The following is an example of a determination made under subsection 45B(3). DETERMINATION MADE PURSUANT TO SUBSECTION 45B(3) OF THE INCOME TAX ASSESSMENT ACT 1936 The shareholders of BIG Co Limited I, (name), Deputy Commissioner of Taxation, Large Business and International, in the exercise of the powers and functions delegated to me by the Commissioner of Taxation by instrument of delegation signed and dated on the 2nd day of August 2007 determine under paragraph 45B(3)(b) of the Income Tax Assessment Act 1936 (the Act) that section 45C of the Act applies to the distribution of $1.50 per share paid by BIG Co Limited on 1 April 2008 to its shareholders registered on the Record Date, being 15 March 2008. In accordance with section 45C of the Act, the distribution of $1.50 per share is taken for the purposes of the Act to be an unfranked dividend paid out of the profits of the company to each of its shareholders (the taxpayers) and shall be included in the assessable income of the taxpayers for the income year in which they derive the distributions. Signed at Sydney, this 1st day of May 2008 (Name) Deputy Commissioner of Taxation, Large Business and International I, (name), Deputy Commissioner of Taxation, Large Business and International, in the exercise of the powers and functions delegated to me by the Commissioner of Taxation by instrument of delegation signed and dated on the 2nd day of August 2007 determine under paragraph 45B(3)(b) of the Income Tax Assessment Act 1936 (the Act) that section 45C of the Act applies to the distribution of $1.50 per share paid by BIG Co Limited on 1 April 2008 to its shareholders registered on the Record Date, being 15 March 2008. In accordance with section 45C of the Act, the distribution of $1.50 per share is taken for the purposes of the Act to be an unfranked dividend paid out of the profits of the company to each of its shareholders (the taxpayers) and shall be included in the assessable income of the taxpayers for the income year in which they derive the distributions. Signed at Sydney, this 1st day of May 2008 (Name) Deputy Commissioner of Taxation, Large Business and International","TR 95/25 | TR 2003/8 | PS LA 2005/21 | PS LA 2005/24 | PS LA 2007/9 | PS LA 2012/1 | Explanatory Memorandum | ITAA 1936 6(1) | ITAA 1936 6(4) | ITAA 1936 Part III | ITAA 1936 26BB | ITAA 1936 44 | ITAA 1936 44(1) | ITAA 1936 45A | ITAA 1936 45B | ITAA 1936 45B(1) | ITAA 1936 45B(2) | ITAA 1936 45B(2)(a) | ITAA 1936 45B(2)(c) | ITAA 1936 45B(3) | ITAA 1936 45B(3)(b) | ITAA 1936 45B(5) | ITAA 1936 45B(5)(b) | ITAA 1936 45B(7) | ITAA 1936 45B(8) | ITAA 1936 45B(8)(a) | ITAA 1936 45B(8)(b) | ITAA 1936 45B(8)(c) | ITAA 1936 45B(8)(d) | ITAA 1936 45B(8)(e) | ITAA 1936 45B(8)(f) | ITAA 1936 45B(8)(g) | ITAA 1936 45B(8)(h) | ITAA 1936 45B(8)(i) | ITAA 1936 45B(8)(j) | ITAA 1936 45B(8)(k) | ITAA 1936 45B(9) | ITAA 1936 45B(10) | ITAA 1936 45C | ITAA 1936 45C(1) | ITAA 1936 45C(2) | ITAA 1936 45C(3) | ITAA 1936 70B | ITAA 1936 Div 6C Part III | ITAA 1936 102L(18) | ITAA 1936 102T(19) | ITAA 1936 159GZZZK | ITAA 1936 Part IVA | ITAA 1936 177D(b)(iv) | ITAA 1936 177D(b)(v) | ITAA 1936 177D(b)(vi) | ITAA 1936 177D(b)(vii) | ITAA 1936 177D(b)(viii) | ITAA 1936 318 | ITAA 1997 104-25 | ITAA 1997 104-135 | ITAA 1997 104-135(3) | ITAA 1997 104-230 | ITAA 1997 SubDiv 115-A | ITAA 1997 SubDiv 115-B | ITAA 1997 118-20 | ITAA 1997 Div 125 | ITAA 1997 125-70 | ITAA 1997 Div 164 | ITAA 1997 164-10(2) | ITAA 1997 164-10(3) | ITAA 1997 164-15 | ITAA 1997 164-20 | ITAA 1997 164-20(1) | ITAA 1997 164-20(2) | ITAA 1997 164-20(3) | ITAA 1997 164-20(4) | ITAA 1997 Div 713 | ITAA 1997 713-140 | ITAA 1997 855-25 | ITAA 1997 Div 974 | ITAA 1997 974-70(1) | ITAA 1997 974-75(4) | ITAA 1997 974-75(6) | ITAA 1997 974-75(7) | ITAA 1997 974-120 | ITAA 1997 974-120(2) | ITAA 1997 974-125 | ITAA 1997 995-1 | Company Law Reform Bill 1997 | Corporations Act 2001 | Corporations Act 2001 Div 1 Part 2J.1 | Corporations Act 2001 Div 2 Part 2J.1 | Corporations Act 2001 Div 3 Part 2J.1 | Corporations Act 2001 254K | Corporations Act 2001 254T | Corporations Act 2001 256B | Corporations Act 2001 256B(2) | Corporations Act 2001 257A | Corporations Act 2001 257J | Corporations Act 2001 257H | Corporations Act 2001 258A | Corporations Act 2001 258F | Corporations Act 2001 588G | New Business Tax System (Consolidations, Value Shifting, Demergers and Other Measures) Act 2002 | Taxation Laws Amendment (Company Law Review) Act 1998 | Tax Laws Amendment (Repeal of Inoperative Provisions) Act 2006 Sch 1 | 2004 ATC 4599 | 2001 ATC 4343 | 84 ATC 4883 | 2005 ATC 4955 | 96 ATC 5201 | [1911] 1 Ch 92 | (1916) 22 CLR 212 at 253 | (1986) 86 ATC 4477 | [1978] 1 All ER 510 | [1978] ICR 1216 | (1922) 30 CLR 450",PS LA 2005/21 PS LA 2005/24 PS LA 2007/9 PS LA 2012/1,"ITAA 1936 6(1) | ITAA 1936 6(1)(e) | ITAA 1936 6(4) | ITAA 1936 Part III | ITAA 1936 23AJ | ITAA 1936 26BB | ITAA 1936 44 | ITAA 1936 44(1) | ITAA 1936 45A | ITAA 1936 45B | ITAA 1936 45B(1) | ITAA 1936 45B(2) | ITAA 1936 45B(2)(a) | ITAA 1936 45B(2)(c) | ITAA 1936 45B(3) | ITAA 1936 45B(3)(b) | ITAA 1936 45B(5) | ITAA 1936 45B(5)(b) | ITAA 1936 45B(7) | ITAA 1936 45B(8) | ITAA 1936 45B(8)(a) | ITAA 1936 45B(8)(b) | ITAA 1936 45B(8)(c) | ITAA 1936 45B(8)(d) | ITAA 1936 45B(8)(e) | ITAA 1936 45B(8)(f) | ITAA 1936 45B(8)(g) | ITAA 1936 45B(8)(h) | ITAA 1936 45B(8)(i) | ITAA 1936 45B(8)(j) | ITAA 1936 45B(8)(k) | ITAA 1936 45B(9) | ITAA 1936 45B(10) | ITAA 1936 45C | ITAA 1936 45C(1) | ITAA 1936 45C(2) | ITAA 1936 45C(3) | ITAA 1936 46 | ITAA 1936 46A | ITAA 1936 46AB | ITAA 1936 46F | ITAA 1936 70B | ITAA 1936 Div 6B Part III | ITAA 1936 Div 6C Part III | ITAA 1936 102L(18) | ITAA 1936 102T(19) | ITAA 1936 159GZZZK | ITAA 1936 Part IIIAA | ITAA 1936 160AOAA | ITAA 1936 160APA | ITAA 1936 Part IVA | ITAA 1936 177A(1) | ITAA 1936 177D(b) | ITAA 1936 177D(b)(i) | ITAA 1936 177D(b)(ii) | ITAA 1936 177D(b)(iii) | ITAA 1936 177D(b)(iv) | ITAA 1936 177D(b)(v) | ITAA 1936 177D(b)(vi) | ITAA 1936 177D(b)(vii) | ITAA 1936 177D(b)(viii) | ITAA 1936 318 | ITAA 1997 104-25 | ITAA 1997 104-135 | ITAA 1997 104-135(3) | ITAA 1997 104-230 | ITAA 1997 SubDiv 115-A | ITAA 1997 SubDiv 115-B | ITAA 1997 118-20 | ITAA 1997 Div 125 | ITAA 1997 125-70 | ITAA 1997 136-25 | ITAA 1997 Div 164 | ITAA 1997 164-10(2) | ITAA 1997 164-10(3) | ITAA 1997 164-15 | ITAA 1997 164-20 | ITAA 1997 164-20(1) | ITAA 1997 164-20(2) | ITAA 1997 164-20(3) | ITAA 1997 164-20(4) | ITAA 1997 Div 713 | ITAA 1997 713-140 | ITAA 1997 855-25 | ITAA 1997 Div 974 | ITAA 1997 974-70(1) | ITAA 1997 974-75(4) | ITAA 1997 974-75(6) | ITAA 1997 974-75(7) | ITAA 1997 974-120 | ITAA 1997 974-120(2) | ITAA 1997 974-125 | ITAA 1997 995-1 | Company Law Reform Bill 1997 | Corporations Act 2001 | Corporations Act 2001 Div 1 Part 2J.1 | Corporations Act 2001 Div 2 Part 2J.1 | Corporations Act 2001 Div 3 Part 2J.1 | Corporations Act 2001 254K | Corporations Act 2001 254T | Corporations Act 2001 256B | Corporations Act 2001 256B(2) | Corporations Act 2001 257A | Corporations Act 2001 257J | Corporations Act 2001 257H | Corporations Act 2001 258A | Corporations Act 2001 258F | Corporations Act 2001 588G | New Business Tax System (Consolidations, Value Shifting, Demergers and Other Measures) Act 2002 | Taxation Laws Amendment (Company Law Review) Act 1998 | Tax Laws Amendment (Repeal of Inoperative Provisions) Act 2006 Sch 1",dividend streaming arrangements non-share equity interest return of capital on shares share capital reduction,"Explanatory Memorandum to the Taxation Laws Amendment (Company Law Review) Bill 1998 Explanatory Memorandum to the New Business Tax System (Debt and Equity) Bill 2001Ford H.A.J., Austin R.P., and Ramsay I.M., 2003, Ford's Principles of Corporations Law (11th ed) LexisNexis Butterworths, SydneyMedia Alert C104/02 (released by the Minister for Revenue and Assistant Treasurer dated 27 September 2002)",False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS200810/NAT/ATO/00001,"Retrospective tax law changes have effect for a period before the date of enactment once the legislation is passed. See Administrative treatment of retrospective legislation . | HOW TO USE THIS LAW ADMINISTRATION PRACTICE STATEMENT | This practice statement is issued under the authority of the Commissioner of Taxation and must be read in conjunction with Law Administration Practice Statement PS LA 1998/1. It must be followed by tax officers unless doing so creates unintended consequences or where it is considered incorrect. Where this occurs, tax officers must follow their business line's escalation process. | Updated to current style guide and updated legislative references. | Renumbered to footnote 2. | Paragraphs 89, 90 and footnotes 47 and 53 | Related practice statements | Paragraph 4 & footnote 1A | [1] All subsequent legislative references in this practice statement are to the ITAA 1936 unless otherwise specified. | [2] See PS LA 2005/24 Application of General Anti Avoidance Rules for details on the role and operation of this Panel. | [3] Ford H.A.J., Austin R.P., and Ramsay I.M., 2003, Ford's Principles of Corporations Law (11th ed) LexisNexis Butterworths, Sydney at paragraph [17.100]. | [4] Subsection 256B(2) of the Corporations Act. | [5] To the extent that a distribution in consideration for the cancellation of a share is not debited against share capital it will be received as a dividend under subsection 6(1), unless it comes within the exception in subsection 6(4), and would ordinarily be received as income. | [6] Section 104-135 of the ITAA 1997. | [7] Subsection 104-135(3) of the ITAA 1997. | [8] Section 104-25 of the ITAA 1997. | [9] Division 2 of Part 2J.1, being sections 257A to 257J of the Corporations Act. | [10] This is despite the fact that section 257H of the Corporations Act provides that entry into an agreement to buy back a share will trigger the suspension of all rights attaching to the share and once bought back the share is cancelled immediately after its transfer to the company is registered. | [11] For instance, under an equal share capital reduction once approved by ordinary resolution of members all shareholders will be proportionately affected, whether they voted for it or not. | [12] The tax implications of share buy-backs are covered by Law Administration Practice Statement PS LA 2007/9 Share Buy-Backs, which includes a discussion on section 45B. | [13] Division 3 of Part 2J.1, being sections 258A to 258F of the Corporations Act. | [14] The application of section 45B of the ITAA 1936 to demergers within the meaning of Division 125 of the ITAA 1997 is covered by Law Administration Practice Statement PS LA 2005/21 Application of Section 45B of the Income Tax Assessment Act 1936 to demergers. | [15] Section 974 -125 of the ITAA 1997. | [16] Section 974 -120 of the ITAA 1997. | [17] Subsections 164-10(2) and (3) of the ITAA 1997. | [18] Subsection 164-20(2) of the ITAA 1997. | [19] Subsections 164-20(3) and (4) of the ITAA 1997. (In the event of the re-characterisation of an equity interest into debt, a person is not ordinarily provided with a capital benefit within the meaning of paragraph 45B(2)(a) and therefore section 45B cannot apply. Consequently, this scenario is not discussed further in this practice statement.) | [20] Explanatory Memorandum for the Taxation Laws Amendment (Company Law Review) Bill 1998, at paragraph 1.5. | [21] Section 254T of the Corporations Act. | [22] Section 588G of the Corporations Act. | [23] Section 256B of the Corporations Act. | [24] Knowles And Haslem v. Ballarat Trustees , Executors And Agency Co. Ltd (1916) 22 CLR 212 at 253. | [25] Subsection 45B(8) provides for all of the relevant circumstances of the scheme to distribute share capital to be considered in coming to an objective conclusion as to whether the requisite purpose for the section to apply is present. Paragraph 45B(8)(k) is especially pertinent to exploring the non-tax reasons for the capital distribution. | [26] Section 45B(10) of the ITAA 1936 was amended by Item 126 of Schedule 6 of the Tax Laws Amendment (2010 Measures No. 1) Act 2010 with effect from 3 June 2010. | [27] (2004) 217 CLR 216; 2004 ATC 4599; 55 ATR 712 per Gummow and Hayne JJ at CLR 238-239; ATC 4610-4611; ATR 725-726. | [28] Commissioner of Taxation v. Hart (2004) 217 CLR 216; 2004 ATC 4599; 55 ATR 712 per Gleeson CJ and McHugh J at CLR 225; ATC 4603; ATR 716-717. | [29] Explanatory Memorandum for the Taxation Laws Amendment (Company Law Review) Bill 1998 at paragraphs 1.26 and 1.27. | [31] Paragraph 45B(2)(c). | [32] Federal Commissioner of Taxation v. Spotless Services Ltd (1996) 186 CLR 404; 96 ATC 5201; 34 ATR 183 at CLR 421; ATC 5201; ATR 192; Federal Commissioner of Taxation v. Hart (2004) 217 CLR 216; 2004 ATC 4599; 55 ATR 712 at [65] per Gummow and Hayne JJ. | [33] FC of T v. Consolidated Press Holdings Ltd & Anor (2001) 207 CLR 235; 2001 ATC 4343; 47 ATR 229. | [34] FC of T v. Consolidated Press Holdings Ltd & Anor (2001) 207 CLR 235; 2001 ATC 4343; 47 ATR 229. | [35] The Explanatory Memorandum (House of Representatives) to Taxation Laws Amendment (Company Law Review) Bill 1998, at paragraphs 1.31 and 1.32. | [36] The Explanatory Memorandum (House of Representatives) to Taxation Laws Amendment (Company Law Review) Bill 1998, at paragraphs 1.34 and 1.35. | [37] Webb v. FC of T (1922) 30 CLR 450 at 467 per Isaacs J | [38] Commissioner of Taxation (Cth) v Sun Alliance Investments Pty Ltd (in liq) (2005) 222 ALR 286 at 304 [80] to [82] as per Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ referring to Donaldson J in Walsh v Rother District Council [1978] 1 All ER 510 at 514 | [39] Knowles And Haslem v. Ballarat Trustees , Executors And Agency Co. Ltd (1916) 22 CLR 212 at 253. | [40] MacFarlane v. FC of T (1986) 67 ALR 624 at 644-645. | [41] In Re Spanish Prospecting Company (1911) 1 Ch 92 per Fletcher Moulton LJ at 98, FC of T v. Slater Holdings Ltd (1984) 156 CLR 447; 84 ATC 4883; 15 ATR 1299 at CLR 460; ATC 4889; ATR 1306, FC of T v. Sun Alliance Investments Pty Ltd (In liq ) [2005] HCA 70 at [67]. | [42] MacFarlane v. FC of T (1986) 67 ALR 624 at 644-645, FC of T v. Sun Alliance Investments Pty Ltd (In liq ) [2005] HCA 70 at [61] to [68]. | [43] Ammonia Soda Co v. Chamberlain [1918] 1 Ch 266, Lee v. Neuchatel Asphalte Co . (1889) 41 Ch D 1. | [44] See paragraph 108 of this practice statement. | [45] The Explanatory Memorandum to the New Business Tax System (Debt and Equity) Bill 2001, at paragraphs 1.11 and 2.68. | [46] Section 104-230 of the ITAA 1997. | [47] Section 855-25 was introduced into the ITAA 1997 in 2006 and applies to CGT events that happen after 12 December 2006. Prior to that amendment, section 136-25 of the ITAA 1997 had a similar effect in relation to shares with the necessary connection to Australia. | [48] Depending on the wider circumstances however, tax officers may consider whether a selective capital reduction could suggest capital streaming for the purposes of section 45A. | [49] For further information refer to PSLA 2005/21 at paragraphs 81 to 83. | [50] Section 104-135 of the ITAA 1997. | [51] Section 104-25 of the ITAA 1997. | [52] Tax officers should refer to the Taxation Authorisations Guidelines on the Intranet to ensure they are authorised to make the determination. | [53] Taxation Ruling TR 95/25 Income tax: deductions for interest under subsection 51(1) of the Income Tax Assessment Act 1936 following FC of T v. Roberts; FC of T v. Smith should be consulted for its discussion of the deductibility of interest on money borrowed to replace share capital. | [54] CGT event C2 under section 104-25 of the ITAA 1997. | [55] Subdivisions 115-A and B of the ITAA 1997. | [56] Subsection 974-70(1) of the ITAA 1997. | [57] Section 974-125 of the ITAA 1997. | Ammonia Soda Co v. Chamberlain [1918] 1 Ch 266 | Commissioner of Taxation v Hart (2004) 217 CLR 216 2004 ATC 4599 55 ATR 712 | FC of T v. Consolidated Press Holdings Ltd & Anor (2001) 207 CLR 235 2001 ATC 4343 47 ATR 229 | FC of T v. Slater Holdings Ltd (1984) 156 CLR 447 84 ATC 4883 15 ATR 1299 | FC of T v. Sun Alliance Investments Pty Ltd (in liq) (2005) 225 CLR 488 (2005) 222 ALR 286 [2005] HCA 70 2005 ATC 4955 (2005) 60 ATR 560 | Federal Commissioner of Taxation v. Spotless Services Ltd (1996) 186 CLR 404 96 ATC 5201 34 ATR 183 | In Re Spanish Prospecting Company [1911] 1 Ch 92 | Knowles And Haslem v. Ballarat Trustees, Executors And Agency Co. Ltd (1916) 22 CLR 212 at 253 | Lee v. Neuchatel Asphalte Co. (1889) 41 Ch D 1 | MacFarlane v. FC of T (1986) 13 FCR 356 (1986) 67 ALR 624 (1986) 86 ATC 4477 17 ATR 808 | Walsh v Rother District Council (1978) 77 LGR 111 [1978] 1 All ER 510 (1978) 143 JP 33 [1978] ICR 1216 | Webb v. FC of T (1922) 30 CLR 450 | Other business lines consulted"
PS LA 2008/12,"SUBJECT: Public advice and guidance products: selection, development, publication and review processes PURPOSE: To provide direction on: • the processes that must be followed in the selection of public advice and guidance products • for paper publications and web based products, the: - development, editorial clearance, technical clearance, approval and publishing processes, and - post-publishing requirements to ensure those products remain current and accurate.",26 June 2008,26 June 2008,Law Administration Practice Statement,False,"1. Law Administration Practice Statement PS LA 2008/3 Provision of advice and guidance by the ATO explains what constitutes public advice and guidance, the forms it can take (products), and the levels of protection available to taxpayers who rely on those products. 2. This practice statement applies to products that provide advice and guidance to taxpayers dealing with the application of any of the laws administered by the Commissioner, where those products are made available to the entire community. This includes products that deal with the administration or collection aspects of the taxes, levies or duties payable under that law. 3. This practice statement does not apply to products not made available to the entire community, such as bulk mail-outs of letters personally addressed to specific taxpayers. 4. This practice statement also does not apply to the: • tax-time suite of products, • FBT return tax time products. • tax-time suite of products, • FBT return tax time products. 5. This practice statement provides direction to ATO personnel on the factors to consider in the selection of the appropriate public advice or guidance product to address a certain risk. 6. Subject to paragraph 7, this practice statement also provides direction on the processes for development, approval and post-publishing obligations for paper publications and web based products. For example: • general public guidance material, information pages or booklets • liability calculators and similar tools. • general public guidance material, information pages or booklets • liability calculators and similar tools. 7. Paragraphs 25 to 78 of this practice statement set out the processes for developing and maintaining public advice and guidance. These processes do not apply to the public advice and guidance products listed below. The requirements for the development, approval and post-publishing obligations for these products are covered by other product specific policies and procedures, as indicated: • Public rulings (including class and product rulings) - TR 2006/10 Public Rulings and the Public advice and guidance manual • Decision impact statements - PS LA 2009/9 Conduct of ATO litigation and engagement of ATO Dispute Resolution • ATO Interpretative Decisions - PS LA 2001/8 ATO Interpretative Decisions • Law Administration Practice Statements - PS LA 1998/1 Law Administration Practice Statements • Taxpayer Alerts - PS LA 2008/15 Taxpayer Alerts • Speeches - Speech/presentation checklist • Technical skilling material (where made available externally) - Technical clearance for learning solutions. Links to the above policies and procedures are contained in the Other references section at the conclusion of this practice statement. • Public rulings (including class and product rulings) - TR 2006/10 Public Rulings and the Public advice and guidance manual • Decision impact statements - PS LA 2009/9 Conduct of ATO litigation and engagement of ATO Dispute Resolution • ATO Interpretative Decisions - PS LA 2001/8 ATO Interpretative Decisions • Law Administration Practice Statements - PS LA 1998/1 Law Administration Practice Statements • Taxpayer Alerts - PS LA 2008/15 Taxpayer Alerts • Speeches - Speech/presentation checklist • Technical skilling material (where made available externally) - Technical clearance for learning solutions. Links to the above policies and procedures are contained in the Other references section at the conclusion of this practice statement. 8. The development of public advice and guidance products on the interpretation and application of the law is one of many strategies the Commissioner employs to address risks within the tax and superannuation system. [1] 9. Public advice and guidance products provide the Commissioner's view on how the laws administered by the Commissioner apply. They assist taxpayers to understand their rights and entitlements and to meet their obligations under a self-assessment system. 10. Public advice and guidance products must be accurate, consistent, written in plain language with a minimum of qualifying statements, accessible to the general public [2] and suitable for their intended audience. Consequently, ATO personnel need to follow corporate processes to ensure the quality and appropriateness of these published products. | Public advice products: 11. Advice products are binding on the Commissioner and public advice is generally provided in the form of a public ruling. 12. There are different levels of protection afforded to taxpayers who rely on public rulings, and the level of protection is outlined in each ruling which issues. For the purposes of this practice statement, an advice product means only those public rulings which are either legally or administratively binding [3] or another form of public administratively binding advice. [4] | Public guidance products: 13. Public guidance products are not binding on the Commissioner, [5] and are provided to help taxpayers to understand their obligations and entitlements. Public guidance products provide general assistance, are usually simply expressed, and may not cover all possibilities. Examples of public guidance products are law administration practice statements, media releases, ATO publications and web pages. | Selection of product: 14. Selection of the appropriate public advice and guidance product for a given risk requires consideration of a number of related factors, including: • the extent of information already available on the matter, and where the product should fit into any existing hierarchy of advice and guidance • the purpose of the product • any restraints imposed by time or resources • the urgency of the issue for taxpayers, and • the compliance outcome sought. • the extent of information already available on the matter, and where the product should fit into any existing hierarchy of advice and guidance • the purpose of the product • any restraints imposed by time or resources • the urgency of the issue for taxpayers, and • the compliance outcome sought. 15. These considerations are further explained in paragraphs 16 to 20 below. Differing weight might be applied to different factors depending on the risk under consideration. | General considerations: 16. When selecting the most appropriate product, it is important to consider the overall framework within which the product will sit. The other information already publicly available on the topic should be reviewed, including consideration of the protection that the existing products provide to taxpayers. Public advice and guidance should exist, whenever possible, in a hierarchical structure, where broader guidance material supports more specific public advice products. Particular attention should be paid to avoiding duplication of material, and having products that provide inconsistent protection levels for the same level of material. 17. It is also important to consider the purpose for which the product is to be produced, for example to caution or to provide clarity, and the compliance outcome sought, as this may affect the type of product selected. The source of the demand for the product will also factor into this consideration. 18. While all products must be produced to a high standard of quality and should be the appropriate product for the situation, timing and resources must factor into the selection process. Public advice products, because of their binding nature, generally require due consideration of issues, public consultation on a draft product, and approval by the most senior technical officers within the ATO. Thus, while all efforts can be made to streamline the process of development of public rulings, in most instances they take considerable resources to produce and a considerable length of time to finalise. 19. In some instances where a public advice product is warranted, urgency may require an interim solution be found through the issue of public guidance, while the binding advice product is being developed. 20. Another solution in the case of urgency may be to issue taxation determinations (which due to the fact that they concentrate on a single question and answer scenario, may take less time to produce) on specific factual scenarios pertaining to a piece of law, while the ATO view on the broader application of the law is being considered. | Public advice: 21. Subject to the considerations set out in paragraphs 16 to 20 of this practice statement, a public advice product will normally be suitable where: • the audience for the product can be clearly defined with certain common characteristics, or the transaction or scenario which will be discussed in the product can be clearly defined • there is a high level of external concern over the issue (because of the dollar value of the transactions or because it affects a significant subset of taxpayers) and consequently a high demand for certainty on the issue. • the audience for the product can be clearly defined with certain common characteristics, or the transaction or scenario which will be discussed in the product can be clearly defined • there is a high level of external concern over the issue (because of the dollar value of the transactions or because it affects a significant subset of taxpayers) and consequently a high demand for certainty on the issue. 22. It is important to remember that public rulings can only issue in relation to certain provisions as outlined in section 357-55 of Schedule 1 to the Taxation Administration Act 1953 (TAA), and that there is an exhaustive list of topics on which administratively binding advice can issue. [6] 23. In addition, in some instances, the content of a proposed product may simply be unable to be binding, because of the fact that a taxpayer following the advice in that product could not have a tax shortfall as a consequence of doing so. A product may also be unable to be binding because it is outlining guidelines for exercising a discretion rather than providing definitive instruction. In instances where the content cannot be binding, a public advice product will not be warranted. | Public guidance: 24. Subject to the considerations set out in paragraphs 16 to 20 of this practice statement, a public guidance product will normally be suitable where: • the audience for the product is wide and diverse, or the transaction may apply in different ways to different circumstances, such that the information provided is unable to adequately cover all circumstances and is thus necessarily more general in nature, or • the issue is of less external concern, for example because of the law in the area being quite straightforward, or • the content of the product is unable to be binding (see paragraphs 22 and 23 of this practice statement). • the audience for the product is wide and diverse, or the transaction may apply in different ways to different circumstances, such that the information provided is unable to adequately cover all circumstances and is thus necessarily more general in nature, or • the issue is of less external concern, for example because of the law in the area being quite straightforward, or • the content of the product is unable to be binding (see paragraphs 22 and 23 of this practice statement). | Corporate web governance roles: Web presence enterprise business owner 25. The role of Web presence enterprise business owner lies with the First Assistant Commissioner of the ATO Corporate business line. This officer is ultimately accountable for and is the custodian of the ATO web presence. The role includes responsibility for: • developing the strategic direction for the ATO web presence (in line with whole of government and ATO direction). This involves gaining organisational support for strategies and improvements in relation to the ATO's web presence and the user experience of the ATO web presence • appointing and providing guidance to the Web presence enterprise gatekeeper. • developing the strategic direction for the ATO web presence (in line with whole of government and ATO direction). This involves gaining organisational support for strategies and improvements in relation to the ATO's web presence and the user experience of the ATO web presence • appointing and providing guidance to the Web presence enterprise gatekeeper. Web presence enterprise gatekeeper 26. The Web presence enterprise gatekeeper is appointed by the Web presence enterprise business owner, and is responsible for the management of the ATO's web presence in accordance with relevant web governance and corporate standards. This officer will implement the strategic direction and improvements to the ATO web presence - ensuring that the user experience is continually improved, based on measurement, consultation, collaboration and co-design. The Web presence enterprise gatekeeper institutes and leads a collaborative approach for the agency web presence by engaging with key stakeholders across the ATO. Segment owners 27. Segment owners provide and maintain a strategic focus for their assigned segments. They are accountable for their segment content and user experience in accordance with relevant web governance and corporate standards. Segment owners appoint a segment coordinator and an appropriate number of BSL coordinators (see paragraph 28 of this practice statement) and provide clearance, ensuring initiatives fit the direction of the segment and related segments. | Roles involved in product development: 28. Subject to the oversight of the above corporate roles, officers in the following roles work collaboratively to develop and publish content. • SES risk owner (or delegate) - is responsible for approving the need for a new product, and will assign a product owner through a consultation process with key stakeholders (noting that there can only be one product owner for a product). They will identify appropriate subject matter expert/s to liaise with the account manager and segment coordinator to determine which products best suit the communication objectives and to identify existing content or products. Where products require revision, it is the SES risk owner's responsibility to confirm that the existing communication strategy is appropriate. The SES risk owner may or may not be the SES product owner (see below). • SES product owner (or delegate) - is responsible for the quality of the product, and will ensure the relevant technical experts are engaged for technical clearance. They will have a strong understanding and knowledge of the content for the product under development and understand the needs of their audience. SES product owners must ensure timely reviews of products (see paragraph 64 of this practice statement) and manage corrective action in situations where errors are identified in published content. The SES product owner may or may not be also the SES risk owner. • Segment coordinator - provides advice and support on corporate web standards. They have early and ongoing engagement with account managers and SES product owners to ensure appropriate product selection and a quality user experience on the ATO web presence. Segment coordinators are responsible for business approval of changes to the information architecture and/or content of the segment. They maintain a thorough knowledge of segment content and ensure that content is developed in line with publishing processes and segment requirements. • BSL coordinator - liaises with the segment coordinator and content authors. They coordinate the development and delivery of content through the operational publishing environment. • Account manager (in ATO Corporate Publishing) - represents the Web presence enterprise gatekeeper and promotes the user experience in accordance with relevant web governance and corporate standards. They liaise with the segment coordinator and SES product owner to determine what products and channel best suit the communication objectives in line with the strategic direction of the ATO, whole-of-government approaches and legislation. They also provide expertise if required in web search and contact centre analytics. • Web publishers (in ATO Corporate Publishing) - are responsible for the day to day publishing of approved products to the website, and ensure that content conforms to ATO web publishing standards. • Editors - edit communication products so they meet corporate publishing brand, style and design standards and work collaboratively with the account managers and relevant stakeholders in regard to editorial aspects of the content development process. • Subject matter and/or technical experts - will usually be the primary contributors to the content of the product, from the business area. They have a sound understanding of the subject matter and are responsible for the technical clearance of the products. • Other stakeholders - may also be relevant in the development of a product, for example, the Charter and Complaints team (where a product discusses an approach for handling taxpayers or complaints, or mentions the Charter), Customer Services and Solutions (CS&S) (to understand user behaviour) and Design Studio. • SES risk owner (or delegate) - is responsible for approving the need for a new product, and will assign a product owner through a consultation process with key stakeholders (noting that there can only be one product owner for a product). They will identify appropriate subject matter expert/s to liaise with the account manager and segment coordinator to determine which products best suit the communication objectives and to identify existing content or products. Where products require revision, it is the SES risk owner's responsibility to confirm that the existing communication strategy is appropriate. The SES risk owner may or may not be the SES product owner (see below). • SES product owner (or delegate) - is responsible for the quality of the product, and will ensure the relevant technical experts are engaged for technical clearance. They will have a strong understanding and knowledge of the content for the product under development and understand the needs of their audience. SES product owners must ensure timely reviews of products (see paragraph 64 of this practice statement) and manage corrective action in situations where errors are identified in published content. The SES product owner may or may not be also the SES risk owner. • Segment coordinator - provides advice and support on corporate web standards. They have early and ongoing engagement with account managers and SES product owners to ensure appropriate product selection and a quality user experience on the ATO web presence. Segment coordinators are responsible for business approval of changes to the information architecture and/or content of the segment. They maintain a thorough knowledge of segment content and ensure that content is developed in line with publishing processes and segment requirements. • BSL coordinator - liaises with the segment coordinator and content authors. They coordinate the development and delivery of content through the operational publishing environment. • Account manager (in ATO Corporate Publishing) - represents the Web presence enterprise gatekeeper and promotes the user experience in accordance with relevant web governance and corporate standards. They liaise with the segment coordinator and SES product owner to determine what products and channel best suit the communication objectives in line with the strategic direction of the ATO, whole-of-government approaches and legislation. They also provide expertise if required in web search and contact centre analytics. • Web publishers (in ATO Corporate Publishing) - are responsible for the day to day publishing of approved products to the website, and ensure that content conforms to ATO web publishing standards. • Editors - edit communication products so they meet corporate publishing brand, style and design standards and work collaboratively with the account managers and relevant stakeholders in regard to editorial aspects of the content development process. • Subject matter and/or technical experts - will usually be the primary contributors to the content of the product, from the business area. They have a sound understanding of the subject matter and are responsible for the technical clearance of the products. • Other stakeholders - may also be relevant in the development of a product, for example, the Charter and Complaints team (where a product discusses an approach for handling taxpayers or complaints, or mentions the Charter), Customer Services and Solutions (CS&S) (to understand user behaviour) and Design Studio. | Development of a product: 29. The rigour of the approach taken to the development of a product will depend on the assessment of the particular risk that is being addressed. The requirements below should be read with this in mind. Analysing the task 30. When a need to create a new product is identified, a collaborative approach is required to assess the: • appropriate type of product and channel based on: - key messages - intended audience and their needs, based on research and intelligence - timeframes to respond to the risk • key stakeholders • requirement for funding and resources • requirement for involvement of the Enterprise Solutions and Technology business line. • appropriate type of product and channel based on: - key messages - intended audience and their needs, based on research and intelligence - timeframes to respond to the risk • key stakeholders • requirement for funding and resources • requirement for involvement of the Enterprise Solutions and Technology business line. - key messages - intended audience and their needs, based on research and intelligence - timeframes to respond to the risk 31. Involved in these discussions will be business line representatives (including the SES risk owner, SES product owner or delegates, technical or subject matter experts), the account manager and the segment coordinator, as well as any other relevant stakeholders. Creating the product 32. Creation of the product will normally be progressed by a technical or subject matter expert. The appropriate course of action for development of a product will depend upon the particular product type and the channel chosen for that product, but should include a process of consultation, collaboration and co-design with the key stakeholders (see paragraph 30 of this practice statement). 33. Content of any product must be aligned with the principles set out in the Taxpayers' Charter. This includes a focus on providing professional service and assistance to help taxpayers to understand and meet their obligations, and providing advice and guidance that is accurate and consistent and which aligns with the precedential ATO view. 34. In developing the product, authors must ensure that they follow corporate requirements, including the: • standards set out in the Style guide • ATO Standards for citations and references • guidelines provided in Writing for the Web • policy and procedures outlined in Chief Executive Instruction Brand management. [7] Hyperlinks to these products are contained in the Other references section at the conclusion of this practice statement. • standards set out in the Style guide • ATO Standards for citations and references • guidelines provided in Writing for the Web • policy and procedures outlined in Chief Executive Instruction Brand management. [7] Hyperlinks to these products are contained in the Other references section at the conclusion of this practice statement. 35. A number of corporate resources are available on the ATO Corporate intranet site to provide guidance on the requirements for developing products. A hyperlink to this site is available from the Other references section at the conclusion of this practice statement. Date of effect 36. All products should specify either a date of effect or a period of effect. Products may apply either: • from a specified date • before and after the date of issue • for a specified period only. • from a specified date • before and after the date of issue • for a specified period only. 37. In considering date of effect, the authors should consider PS LA 2011/27 Determining whether the ATO's view of the law should be applied prospectively only. Where the ATO is changing a public interpretation or general administrative practice to the detriment of taxpayers, that change should become effective prospectively and, where necessary, from a future date that allows affected taxpayers reasonable time to become aware of, and act upon, that new interpretation. Documents which contain precedential ATO views 38. PS LA 2003/3 Precedential ATO view outlines what a precedential ATO view is, and their application within the ATO. 39. In the main, precedential ATO views are set out in specific document types, such as public rulings, ATO Interpretative Decisions (ATO ID) and Decision Impact Statements. However, precedential ATO views are also set out in other documents which are listed in the Schedule of Documents containing Precedential ATO views (Schedule of documents). A link to the Schedule of documents is contained in the Other references section at the conclusion of this practice statement. 40. If it is intended to make a new document (that is not a public ruling, ATO ID or Decision Impact Statement) a precedential ATO view document, that document will need to be added to the Schedule of documents. The procedure to do this is contained in the Schedule of documents. 41. All documents, including those on the Schedule of documents, must be published or mirrored on the Legal Database, as that Database is the official repository for precedential ATO views. Therefore, if a print publication or a document published on ato.gov.au is added to the Schedule of documents, or if changes are made to existing Schedule documents, the Legal Database team in the Tax Counsel Network must be informed by email. Commitment statements 42. Any publication which contains technical content (see paragraphs 47 and 48 of this practice statement) must contain a commitment statement which sets out the level of protection available to taxpayers who rely on that product. 43. The ATO website carries a general commitment statement that describes the protection available to products. This general commitment statement is automatically applied to the printer friendly version of web pages on ato.gov.au. 44. For paper publications, guidelines apply as to which commitment statement should be used. A link to these guidelines is provided in the Other references section at the conclusion of this practice statement. The Charter and Complaints team can be consulted to provide advice on the appropriate commitment statement, including when no commitment statement is necessary. 45. It is important that if the level of protection for the product is to be less than that described by the general commitment statement, for example if the product is to have no protection, that an appropriate protection or disclaimer statement be applied to that product. Copyright obligations 46. Chief Executive Instruction Managing intellectual property and the ATO Copyright Guide set out the obligations on ATO personnel in regard to copyright. Because they will be aware of all the sources used to compile the document, it is the author's responsibility to ensure that these obligations are met. Technical clearance 47. A product will require technical clearance if it contains technical content. Technical content for the purposes of this practice statement is content, that if relied upon by a taxpayer or a third party (regardless of the level of protection applied to it) could: • affect a liability or entitlement under laws administered by the Commissioner, or • result in interest or a penalty being imposed. Technical content thus includes administrative and collection aspects of the taxes, levies or duties imposed under those laws. • affect a liability or entitlement under laws administered by the Commissioner, or • result in interest or a penalty being imposed. Technical content thus includes administrative and collection aspects of the taxes, levies or duties imposed under those laws. 48. Technical content does not include content that: • gives information about the operational aspects of the tax system (for example, where to lodge a tax return, or how to use a portal) • guides a taxpayer on how to complete a part of a form that would not affect the assessment of a liability or entitlement if it were found to be misleading or incorrect (for example, how a taxpayer can elect to use the electronic funds transfer facility) • describes a procedure that would not affect how a taxpayer self-assesses a liability or entitlement if it were to be misleading or incorrect (for example, the steps to download e-tax). • gives information about the operational aspects of the tax system (for example, where to lodge a tax return, or how to use a portal) • guides a taxpayer on how to complete a part of a form that would not affect the assessment of a liability or entitlement if it were found to be misleading or incorrect (for example, how a taxpayer can elect to use the electronic funds transfer facility) • describes a procedure that would not affect how a taxpayer self-assesses a liability or entitlement if it were to be misleading or incorrect (for example, the steps to download e-tax). 49. Technical clearance is not mandatory where technical content is sourced from content in another product that has undergone a technical clearance process (for example, where wording is adapted from a public ruling). However, this only applies where the technical content is materially the same as the content that is sourced from the other product. If there is any doubt whether content requires clearance, authors should err on the side of caution and consult an appropriate technical expert. 50. The intent of technical clearance is to ensure that the content of the product is correct and accurate. 51. The appropriate officer to technically clear a particular product will depend on the assessment of risk for that issue. Authors should follow any relevant business line or cross business line technical clearance processes. 52. If the risk underlying the issue is sufficiently high, technical officers from the Tax Counsel Network should be engaged to assist with development of the product, and should also provide the technical clearance. PS LA 2012/1 Engagement of Tax Counsel Network on high risk technical issues provides guidance on when technical officers from the Tax Counsel Network should be engaged. 53. When providing technical clearance, officers should ensure that: • there has been correct application of the precedential ATO view where this is applicable • there has been correct application of case law where this is applicable • references made to legislation, precedential ATO view documents and case law are correct and appropriate to the content • if the product is intended to document a new precedential ATO view (see paragraphs 38 to 41 of this practice statement re Schedule of documents) that overturns an existing precedential ATO view or general administrative practice, [8] that the matter is drawn to the attention of the relevant Deputy Chief Tax Counsel and proper consideration is given to the date of effect of that precedential ATO view [9] • information about proposed changes to the law follows the requirements of PS LA 2004/6 Giving advice on proposed changes to the tax law before royal assent or registration on the Federal Register of Legislation • any content which relates to legislation or policies administered by another government agency has been cleared by that agency • any consequential amendments required to other material are being progressed. • there has been correct application of the precedential ATO view where this is applicable • there has been correct application of case law where this is applicable • references made to legislation, precedential ATO view documents and case law are correct and appropriate to the content • if the product is intended to document a new precedential ATO view (see paragraphs 38 to 41 of this practice statement re Schedule of documents) that overturns an existing precedential ATO view or general administrative practice, [8] that the matter is drawn to the attention of the relevant Deputy Chief Tax Counsel and proper consideration is given to the date of effect of that precedential ATO view [9] • information about proposed changes to the law follows the requirements of PS LA 2004/6 Giving advice on proposed changes to the tax law before royal assent or registration on the Federal Register of Legislation • any content which relates to legislation or policies administered by another government agency has been cleared by that agency • any consequential amendments required to other material are being progressed. Editorial clearance 54. It is the intent of editorial clearance to ensure that the product meets quality writing standards, while keeping the accuracy and integrity of any technical content intact. 55. Editorial clearance for a product is provided by various participants through the publishing process, and is not intended to be a linear approval process. Development of a product should be a collaborative exercise between business line technical experts and any publishing and design officers who are involved in the development of the product. 56. However, a large part of the editorial work will necessarily take place toward the end of the development process. 57. In the event that final agreement on language cannot be reached, the SES product owner is to resolve and provide a final decision on that issue. Approval to publish 58. All products that are published must be approved by the SES product owner, or for low risk products, an officer at the EL2 level authorised by the SES product owner before proceeding to publication. 59. The SES product owner or delegate must ensure that: • appropriate technical and editorial clearances have been obtained • the date or period of effect is stated • where applicable, a suitable protection statement has or will be applied to the product • where applicable, funding for publication of the product is available • for paper products, the appropriate assessments have been conducted to determine whether it is necessary for the product to be published on paper • where applicable, a suitable time for review of the product has been determined. A review may not be required for some products, for example products that apply to specific years of income, speeches, minutes and media releases. • appropriate technical and editorial clearances have been obtained • the date or period of effect is stated • where applicable, a suitable protection statement has or will be applied to the product • where applicable, funding for publication of the product is available • for paper products, the appropriate assessments have been conducted to determine whether it is necessary for the product to be published on paper • where applicable, a suitable time for review of the product has been determined. A review may not be required for some products, for example products that apply to specific years of income, speeches, minutes and media releases. | Publishing of products: 60. Publication of approved content is done through the publishing process. Authors or product owners should ensure that web publishers are fully informed of any requirements peculiar to the product, such as subscription requirements (see paragraphs 62 and 63 of this practice statement). 61. Publishing officers must ensure that officers providing approvals and clearances for the product are recorded. Subscriptions 62. Certain content on ato.gov.au can enable subscriptions by either really simple syndication (RSS) news feeds, or by email. These allow readers who choose to subscribe to that content, to be alerted on new information or important changes to existing content. 63. Details of a new or changed document which goes out in subscriptions will also appear in 'What's New'. | Review of products: 64. For most products, a regular review is necessary to ensure that the ATO provides guidance that is current and accurate. Paragraph 59 of this practice statement outlines examples of the exceptions to this rule. 65. Where it is necessary, SES product owners must ensure that an appropriately scheduled review of a product occurs. In addition, they must ensure a review of a product when: • there is a change in legislation or regulations which impacts on the product • there is a change in the way the Commissioner will apply the law (for example, as a consequence of a court decision) and this impacts on the product • an incorrect or misleading statement is identified in that product (see paragraphs 67 and 68 of this practice statement) • users are seeking improvement or further clarity of the product. • there is a change in legislation or regulations which impacts on the product • there is a change in the way the Commissioner will apply the law (for example, as a consequence of a court decision) and this impacts on the product • an incorrect or misleading statement is identified in that product (see paragraphs 67 and 68 of this practice statement) • users are seeking improvement or further clarity of the product. 66. The outcome of a review may be confirmation of existing content, an amendment to the content, or withdrawal of the content or a change to the channel on which it is published. Where an incorrect or misleading statement is identified in the product 67. Where an incorrect or misleading statement is identified in the product, the SES product owner must do a risk assessment of the error, and from that assessment, develop an appropriate error-handling strategy. 68. The error-handling strategy must include: • a summary of the risk assessment • a description of the corrective action • reasons for the corrective action (or for not undertaking corrective action) • any communication protocol to be established (including communication to affected areas of the ATO, and, if necessary, to affected taxpayers) • the timeframe for completion of the corrective action. • a summary of the risk assessment • a description of the corrective action • reasons for the corrective action (or for not undertaking corrective action) • any communication protocol to be established (including communication to affected areas of the ATO, and, if necessary, to affected taxpayers) • the timeframe for completion of the corrective action. Amendment of products 69. If the outcome of a review identifies that amendment of a product is required, the process for doing so, and for obtaining approval for that amendment, will depend on the extent of that amendment. 70. A minor amendment which does not affect the technical content, for example correcting a typographical error or problem with formatting, can be processed without technical clearance. 71. Any other amendments must follow the same processes as outlined in paragraphs 29 to 65 of this practice statement. Amendments to precedential ATO view documents 72. Precedential ATO view documents must set out details of any changes made to their content. For those Schedule documents that are republished annually, this will include changes made from year to year, by way of a 'What's changed' section or similar. Any changes made throughout the year (for example, to correct errors) must also be detailed however, in an amendment history. The Legal Database team in the Tax Counsel Network must be informed by email of any amendments to precedential ATO view documents. Withdrawal of products 73. The outcome of a review may identify that withdrawal of a product is required. If it is considered that withdrawal is appropriate, consideration must be given to whether a replacement product is needed. 74. The SES product owner has responsibility for approving the withdrawal of the product. 75. If a replacement product is appropriate, that product should be published, as soon as practicable, after the withdrawal of the former product. 76. When progressing a withdrawal, the responsible officer must research or consult with relevant subject matter experts to determine whether the withdrawal of the product will impact on other existing products. 77. Publishing officers must ensure that officers providing approval for the withdrawal are recorded. 78. If the product being withdrawn is a precedential ATO view document, the Legal Database team in the Tax Counsel Network must be informed by email.",PS LA 1998/1 | TR 2006/10 | TD 2011/19 | Law Administration Practice Statements | PS LA 2001/8 | ATO Interpretative Decisions | PS LA 2003/3 | Precedential ATO view | PS LA 2004/6 | Giving advice on proposed changes to the tax law before royal assent or registration on the Federal Register of Legislation | PS LA 2008/3 | Provision of advice and guidance by the ATO | PS LA 2008/15 | Taxpayer Alerts | PS LA 2009/9 | Conduct of ATO litigation and engagement of ATO Dispute Resolution | PS LA 2011/27 | Determining whether the ATO's views of the law should be applied prospectively only | PS LA 2012/1 | Engagement of Tax Counsel Network on high risk technical issues,PS LA 1998/1 Law Administration Practice Statements PS LA 2001/8 ATO Interpretative Decisions PS LA 2003/3 Precedential ATO view PS LA 2004/6 Giving advice on proposed changes to the tax law before royal assent or registration on the Federal Register of Legislation PS LA 2008/3 Provision of advice and guidance by the ATO PS LA 2008/15 Taxpayer Alerts PS LA 2009/9 Conduct of ATO litigation and engagement of ATO Dispute Resolution PS LA 2011/27 Determining whether the ATO's views of the law should be applied prospectively only PS LA 2012/1 Engagement of Tax Counsel Network on high risk technical issues,TAA 1953 Sch 1 357-55,,"ATO Corporate - Publishing site (link available internally only) ATO Standards for citations and references (link available internally only) ATO Style guide (link available internally only)Chief Executive Instruction Risk Management (link available internally only)Chief Executive Instruction Managing Intellectual Property (link available internally only)Chief Executive Instruction Brand Management (link available internally only) Schedule of Documents containing Precedential ATO Views Speech/presentation checklist (link available internally only) ATO copyright guide (link available internally only) Taxpayers' Charter The Treasury 2004, Report on Aspects of Income Tax Self Assessment , Commonwealth of Australia, Canberra Which commitment statement do I use? (link available internally only) Writing for the web (link available internally only)",False,True,https://www.ato.gov.au/law/view/document?docid=PSR/PS200812/NAT/ATO/00001,"This law administration practice statement is issued under the authority of the Commissioner and must be read in conjunction with Law Administration Practice Statement PS LA 1998/1 . ATO personnel, including non ongoing staff and relevant contractors, must comply with this law administration practice statement, unless doing so creates unintended consequences or is considered incorrect. Where this occurs, ATO personnel must follow their business line's escalation process. | Updated to correct titles of referenced documents. | • include new section on choice of product • reflect post TTTDM procedures • reflect new web governance structure. | Paragraphs deleted to reflect measures in the Tax Laws Amendment (2010 GST Administration Measures No. 2) Act 2010 to include indirect tax rulings in the general rulings regime. | Insert exclusion (this LAPS does not apply to the ATO Receivables Policy) | Updated paragraph reference | [1] See also Chief Executive Instruction Risk management. | [2] Recommendation 2.8 of The Treasury 2004, Report on Aspects of Income Tax Self Assessment, Commonwealth of Australia, Canberra (ROSA report). | [3] A full list of the binding status of each ruling type issued is provided in Part 2 of the Public advice and guidance manual. A link to this document is provided in the Other references section at the end of this document. Paragraphs 29 to 79 of PS LA 2008/3 also provide details of the level of protection afforded to taxpayers by the different types of public rulings. | [4] Refer to paragraphs 190 to 204 and Attachment B of PS LA 2008/3 for further information on administratively binding advice. | [5] Refer to paragraphs 214 to 217 of PS LA 2008/3 for a full explanation of the level of protection afforded by guidance products. | [6] Refer to Attachment B of PS LA 2008/3. | [7] The ATO's Brand Management System incorporates Australian Government Design Guidelines and outlines all standards and design requirements associated with the application of ATO brand qualities and visual design. | [8] See TD 2011/19 Tax administration: what is a general administrative practice for the purposes of protection from administrative penalties and interest charges? | [9] Refer to PS LA 2011/27. | File 08/1593 1-25VX9RA 1-4MU9NEA | Other Business Lines consulted | This practice statement was originally published on 26 June 2008. Versions published from 5 June 2009 available electronically - refer to the online version of the practice statement. Versions published prior to this date are not available electronically. If needed, these can be requested by emailing TCNLawPublishingandPolicy@ato.gov.au ."
PS LA 2008/15,Taxpayer Alerts,23 October 2008,23 October 2008,Law Administration Practice Statement,False,"1. What this practice statement is about: We issue Taxpayer Alerts (Alerts) to warn taxpayers and advisers of arrangements we are concerned represent a high risk. This Practice Statement outlines: • our Alert framework, including why we issue Alerts • factors to consider when deciding whether an Alert is appropriate • key activities in developing and issuing an Alert • post-publication responsibilities, including follow-up guidance, evaluation activities and maintenance • the governance of the Alert program, and • where to find further information on procedures for issuing Alerts. • our Alert framework, including why we issue Alerts • factors to consider when deciding whether an Alert is appropriate • key activities in developing and issuing an Alert • post-publication responsibilities, including follow-up guidance, evaluation activities and maintenance • the governance of the Alert program, and • where to find further information on procedures for issuing Alerts. | 2. What is an Alert?: An Alert is an early warning to the community about a new or emerging activity or arrangement that is causing the ATO concern. | 3. Why do we issue Alerts?: We issue Alerts to: • enable taxpayers who have entered into an arrangement, or may be contemplating doing so, to make informed decisions about their tax affairs • prevent widespread adoption or promotion of higher-risk arrangements, and • build community confidence in the integrity of the tax and superannuation systems by showing our ability to detect risks and our willingness to deal with them. • enable taxpayers who have entered into an arrangement, or may be contemplating doing so, to make informed decisions about their tax affairs • prevent widespread adoption or promotion of higher-risk arrangements, and • build community confidence in the integrity of the tax and superannuation systems by showing our ability to detect risks and our willingness to deal with them. We communicate our concerns early about arrangements in the interests of open and transparent tax administration. Doing so supports voluntary compliance and can also lead to reduced post-lodgment compliance activity and fewer disputes. | 4. When we issue Alerts: Alerts form part of a broader strategy for treating an identified risk. We issue Alerts based on intelligence of what is happening in the market. The community expects us to give timely warnings about risky arrangements. An Alert can issue before the extent of the risk is fully known, where we have information that the risk has sufficient prevalence or has the potential to become widespread and have a revenue impact. We can issue an Alert before we have finalised our view on how the law applies to the arrangement. Alerts are not a source of the precedential ATO view [1] and should not be used to provide advice or guidance on technical or administrative issues arising from a particular arrangement. Types of arrangements that may be the subject of an Alert Alerts target significant, higher-risk tax planning and superannuation arrangements. Other types of significant arrangements that we have under risk assessment may also become the subject of an Alert. Typically, such arrangements are new or emerging. However, we may also issue Alerts to address recurrences of arrangements that have previously been risk-assessed where there is information that indicates a need to take immediate action. It does not matter that a published ATO view may already exist on the issue. Alerts commonly address schemes or arrangements that go beyond the policy intent of the law or involve deliberate approaches to avoid any type of tax or superannuation obligation. Alerts are not limited to mass marketed schemes or to arrangements that constitute aggressive tax planning. More sophisticated tax planning activities may be suitable for an Alert where we believe taxpayers may not be complying with the law and there are significant risks for the tax and superannuation systems. Circumstances when we may consider issuing an Alert include where: • we are considering the application of specific, or the general anti-avoidance provisions • the arrangement constitutes a sham or is legally ineffective • the arrangement involves exploitation or deliberate misapplication of the law • we are considering the application of the promoter penalty laws • the purported tax result of the arrangement is not reasonably arguable, or • we consider there may be fraud or evasion. • we are considering the application of specific, or the general anti-avoidance provisions • the arrangement constitutes a sham or is legally ineffective • the arrangement involves exploitation or deliberate misapplication of the law • we are considering the application of the promoter penalty laws • the purported tax result of the arrangement is not reasonably arguable, or • we consider there may be fraud or evasion. | 5. Factors to consider when deciding whether to develop an Alert: Key factors to consider in deciding if an Alert is appropriate include: • the nature of the arrangement or activity and our concerns • the revenue at risk (where quantifiable) • participant population and any promotion of the arrangement or potential for it to be promoted or become more widespread • what influence we can have on the behaviours and attitudes of advisers and the community, even beyond those involved in the activities • what action we expect taxpayers, advisers, or both to take in response to the release of the Alert • how the Alert fits into the overall strategy for treating the identified concerns or risks (for example, early engagement reviews or other compliance activities, marketing and education campaigns, published advice or guidance on the ATO view, law reform) • whether alternative products or channels are more appropriate for communicating our concerns quickly and to the intended audience based on information available, and • the risks that may arise from issuing, or not issuing, the Alert, including reputational risks, risk to relationships with other agencies, increased uncertainty and reduced community confidence in the tax system. • the nature of the arrangement or activity and our concerns • the revenue at risk (where quantifiable) • participant population and any promotion of the arrangement or potential for it to be promoted or become more widespread • what influence we can have on the behaviours and attitudes of advisers and the community, even beyond those involved in the activities • what action we expect taxpayers, advisers, or both to take in response to the release of the Alert • how the Alert fits into the overall strategy for treating the identified concerns or risks (for example, early engagement reviews or other compliance activities, marketing and education campaigns, published advice or guidance on the ATO view, law reform) • whether alternative products or channels are more appropriate for communicating our concerns quickly and to the intended audience based on information available, and • the risks that may arise from issuing, or not issuing, the Alert, including reputational risks, risk to relationships with other agencies, increased uncertainty and reduced community confidence in the tax system. A decision to proceed with the development of an Alert is a matter of judgment. We need to weigh up the desirability of providing an early warning to taxpayers with the legal, administrative and commercial risks which may arise following its publication. Depending on other circumstances that may be present, factors that may weigh against issuing an Alert include: • the risk or issue is isolated to a particular region, adviser or taxpayer – this would need to be weighed against the likelihood or prospect of the risk becoming widespread or systemic • we do not yet have sufficient information to assess if there is a significant population affected, revenue at risk, or both, and • the arrangement concerns taxpayers not understanding how the law applies, rather than deliberate exploitation or misapplication of the law. • the risk or issue is isolated to a particular region, adviser or taxpayer – this would need to be weighed against the likelihood or prospect of the risk becoming widespread or systemic • we do not yet have sufficient information to assess if there is a significant population affected, revenue at risk, or both, and • the arrangement concerns taxpayers not understanding how the law applies, rather than deliberate exploitation or misapplication of the law. Communicating our concerns in each of the above factors would require a consideration of whether our objectives could be achieved through other more appropriate products or (targeted) educational campaigns. | 6. Notifying your intention to issue an Alert: If you identify an issue that may be suitable for an Alert, you must advise your business line's Public Advice and Guidance Unit (PAG Unit), which can advise you on the suitability of the Alert, as well as any business line specific requirements for its development. The responsible business line's PAG Unit must, via the PAG Steering Committee notification processes [2] , advise PAG Units from all other business lines, as soon as the need for an Alert is identified. As a general rule, the PAG Unit from the responsible business line should keep all other PAG Units informed throughout the Alert's development. However, this will not be necessary where another business line's PAG Unit confirms the issues and risks covered by the Alert are not relevant to its market segment. | 7. What should you include in an Alert?: Each Alert must clearly describe: • the issue or mischief at a high level – that is, why we are concerned • the key features of the activity, arrangement or transaction • our specific technical or administrative concerns (while we need not have settled technical views on all issues, Alerts must not make statements about the potential application of the law without a reasonable basis) • what action we are taking, or are proposing to take, to better understand the risk and how we may treat it • any action taxpayers should take if they are considering entering into the arrangement or have already done so, and • a contact officer. • the issue or mischief at a high level – that is, why we are concerned • the key features of the activity, arrangement or transaction • our specific technical or administrative concerns (while we need not have settled technical views on all issues, Alerts must not make statements about the potential application of the law without a reasonable basis) • what action we are taking, or are proposing to take, to better understand the risk and how we may treat it • any action taxpayers should take if they are considering entering into the arrangement or have already done so, and • a contact officer. The scope of an Alert should be clear to reduce uncertainty for taxpayers who are not intended to be affected by it and to assist certain taxpayers in determining whether arrangements need to be disclosed in the reportable tax position schedule to their tax returns. [3] | 8. The process for issuing an Alert: Each business line is responsible for the strategy, development and arranging the approval of its own Alerts. This includes: • developing the Alert package • arranging technical and editorial clearances by the business line and an Assistant Commissioner in the Tax Counsel Network [4] • coordinating and managing consultation • engaging the relevant Marketing and Communications audience team, the Media Unit, or both to develop the communication strategy [5] • obtaining approvals and endorsement, and • arranging publication of the Alert on the ATO Legal Database. • developing the Alert package • arranging technical and editorial clearances by the business line and an Assistant Commissioner in the Tax Counsel Network [4] • coordinating and managing consultation • engaging the relevant Marketing and Communications audience team, the Media Unit, or both to develop the communication strategy [5] • obtaining approvals and endorsement, and • arranging publication of the Alert on the ATO Legal Database. The key steps and timeframes for issuing an Alert are mapped in the Alert process outline (link available internally only). The Alert package The Alert package includes: • the Alert • an Office Minute to the Second Commissioner, Client Engagement Group and Second Commissioner, Law Design and Practice Group • a media brief, media release, or both (depending on the communications strategy), and • messaging for the Minister's office. [6] • the Alert • an Office Minute to the Second Commissioner, Client Engagement Group and Second Commissioner, Law Design and Practice Group • a media brief, media release, or both (depending on the communications strategy), and • messaging for the Minister's office. [6] Consultation The timeframes for developing your Alert need to allow for consultation. Alerts often deal with sensitive topics and can have a powerful impact on the market. An external perspective can assist in ensuring the scope of the arrangements and our concerns are clearly articulated and properly targeted. This minimises uncertainty for sections of the community who are not intended to be impacted by the Alert. Generally, we consult externally on a confidential basis. In deciding when, with whom and how much to consult, you need to balance the benefits of accessing a range of expert views with supporting the timely communication of information to the community. Prior to commencing any external consultation, your business line Senior Executive Service sponsor must approve the draft Alert and be briefed on your nominated stakeholders. Internal stakeholders should be consulted before this point. We consult externally in all but exceptional circumstances. A decision not to consult externally must be made by your business line's Deputy Commissioner. Communicating our concerns You should consider communication strategies as early as possible in the development of an Alert. This includes: • developing the key messages that you want to convey in relation to the arrangement and tailoring these for the different audiences (including ATO staff), and • identifying the most appropriate channels to ensure the Alert reaches the target audience (it may involve a mix including the press and social media). • developing the key messages that you want to convey in relation to the arrangement and tailoring these for the different audiences (including ATO staff), and • identifying the most appropriate channels to ensure the Alert reaches the target audience (it may involve a mix including the press and social media). An effective communication strategy will strike the right balance in conveying our concerns but not undermine community confidence in the tax and superannuation systems. Approvals and endorsements The Alert package must be approved by your business line's Deputy Commissioner, who will then seek endorsement from the Second Commissioner, Client Engagement Group and Second Commissioner, Law Design and Practice Group for the Alert to issue. | 9. What you need to do after publishing the Alert: Each business line is responsible for implementing the broader strategy to address the issues covered in its Alert. Public advice and guidance The publication of an Alert can create uncertainty for taxpayers about the tax treatment of their arrangements. You must consider whether we ought to provide timely public advice or guidance on how the law applies to the arrangement covered by the Alert to support taxpayers in managing their tax affairs. The most appropriate form of public advice or guidance will depend on the nature of the issue. Binding advice is often the most appropriate. The need for public guidance, and the form and content of that guidance, will also be informed by community and industry feedback in response to the Alert's release. Not all Alerts need to be followed by further public advice or guidance. For example, we would rarely issue public advice or guidance to further explain when an arrangement is a sham or when general anti-avoidance rules would apply. The Alert should include a statement if no follow up public advice or guidance will be provided. Contact your business line's PAG Unit in the first instance to discuss possible options for public advice or guidance. [7] Evaluating the effectiveness of Alerts Your responsibilities after publication of the Alert include undertaking evaluation activities for your Alert. Considering the factors listed in section 5 of this Practice Statement will assist in identifying sources of evidence that can assist in measuring the impact of the Alert and its effectiveness. | 10. Amending, annotating or withdrawing an Alert: Each business line is responsible for maintaining the currency of its Alerts and should review its Alerts every 2 years to ensure they have been appropriately amended, annotated, or withdrawn. [8] Requests to amend, annotate or withdraw an Alert should be arranged through your business line's PAG Unit who can also assist with the notifications. Amending Alerts Occasionally, we may need to amend an Alert after it has published to clarify the description of the issue, the arrangement or our concerns. While an Alert does not need to deal with every possible variation of an arrangement, there are circumstances when it is advisable to add variations. If we see new variations or features becoming more common in arrangements, and it is not clear whether these fall within the scope of the original Alert, an amendment is appropriate. [9] Prepare an update to the Alert and include reasons for the amendment. An amendment will require (at a minimum) approval from your business line's SES who has responsibility for the risk that is the subject of the Alert. Further approvals will be subject to the judgment of that SES and the type of amendment. Annotating Alerts An Alert may be annotated during its currency if there are legislative changes, court decisions or other events that impact on the content on the Alert that need to be communicated quickly to readers. Annotations are a short-term fix that should be followed up by an amendment to the Alert. Withdrawing Alerts Alerts must be withdrawn where we reach a view that there are no concerns with the arrangement. A withdrawn Alert will be annotated to: • reference any public advice or guidance that sets out our final view on how the law applies to the arrangement (or features of it), or • note any legislative changes or court decisions that address some or all of our concerns with the arrangement. • reference any public advice or guidance that sets out our final view on how the law applies to the arrangement (or features of it), or • note any legislative changes or court decisions that address some or all of our concerns with the arrangement. Withdrawals will require approval from your business line's SES who has responsibility for the risk that is the subject of the Alert. Withdrawn Alerts are archived on the Legal database. | 11. Post-issue governance: Each business line is responsible for ensuring there are appropriate post-issue governance arrangements in respect to the Alerts it has issued. This includes ensuring: • follow-up activities are being progressed in relation to the risk addressed in the Alert, with a focus on whether public advice or guidance is being progressed (where appropriate), and • appropriate evaluation activities occur for individual Alerts. • follow-up activities are being progressed in relation to the risk addressed in the Alert, with a focus on whether public advice or guidance is being progressed (where appropriate), and • appropriate evaluation activities occur for individual Alerts. The PAG Steering Committee provides governance of the ATO's PAG and has decision-making authority to request and endorse post-implementation reviews for Alerts. | 12. More information: For more information, see: • Alerts on the ATO Legal database • the Taxpayer Alerts SharePoint pages for contact details, templates and process outline (links available internally only) • the PAG Steering Committee Charter (link available internally only) • Alerts on the ATO Legal database • the Taxpayer Alerts SharePoint pages for contact details, templates and process outline (links available internally only) • the PAG Steering Committee Charter (link available internally only) You can also email your business line's PAG Unit: Table 1: Business line PAG Units Subject matter or business line Contact email addresses Goods and services tax matters GSTPAG@ato.gov.au Individuals and Intermediaries IAIPAG@ato.gov.au Private Wealth PAGPW & FCB@ato.gov.au Fraud and Criminal Behaviours PAGPW & FCB@ato.gov.au Public Groups PGIPAGUnit@ato.gov.au International, Support and Programs (non-GST matters) PGIPAGUnit@ato.gov.au Small Business PAGSMB@ato.gov.au Superannuation and Employer Obligations PAGSEO@ato.gov.au Service Delivery PAGSD@ato.gov.au",PS LA 1998/1 | PS LA 2003/3,PS LA 1998/1 PS LA 2003/3,,,Alert process outline (link available internally only) ATO Legal database Care and maintenance (link available internally only) Taxpayer Alerts SharePoint (link available internally only) Process outline (links available internally only) PAG Steering Committee Charter (link available internally only) Producing PAG product (link available internally only),False,True,https://www.ato.gov.au/law/view/document?docid=PSR/PS200815/NAT/ATO/00001,"Updated to include reference to the PAG Steering Committee notification process. | Updated hyperlink for Alert process outline. | Updated to reflect that any public advice or guidance must be developed following the processes in the Producing PAG product procedure which, along with other Enterprise Knowledge Management system processes, is progressively replacing the PAG manual. | Updated to include the PAG Steering Committee's governance of the ATO's PAG and its decision-making authority to request and endorse post-implementation reviews for Alerts. | Updated contact details and hyperlinks. | Updated in line with current ATO style and accessibility requirements. | Updated to reflect that each business line PAG Unit is responsible for notifying and updating other business line PAG Units of the intention to issue an Alert and provide updates as required. | Updated to reflect the removal of the Alert governance panel and the introduction of the requirement for each business line to maintain a post issue governance process for Alerts it issues. | Numerous changes made to style/language that align with current Practice Statement format. | Provides a framework for staff on when and how we issue Alerts, confirming Alerts are not confined to aggressive tax planning arrangements and that a range of factors are to be considered in deciding whether an Alert is appropriate. | Introduces the new governance framework for Alerts, including the establishment of a cross business line panel of senior officers to assure the progress of follow up activities, and for the evaluation of individual Alerts, and the program, generally. | Updated to reflect the issue of PS LA 2012/1 and the withdrawal of PS LA 2003/10. | Update contact details and styles. | Update description of Taxpayer Alert. | Included reference to Second Commissioner of Compliance. | Include ATO view clarification. | Attachment renumbered to Attachment 1 and diagram updated. | [1] Precedential ATO view document types are defined in Law Administration Practice Statement PS LA 2003/3 Precedential ATO view . | [2] As part of the Producing PAG product procedure (link available internally only) | [3] Certain large business taxpayers are required to disclose reportable arrangements that relate to an arrangement described in an Alert as part of the reportable tax position schedule to the company tax return. | [4] The Tax Counsel Network Assistant Commissioner must confirm that the Alert is not inconsistent or incompatible with the ATO view, and that there is a reasonable basis for statements about the potential application of the law. The Chief Tax Counsel or Deputy Chief Tax Counsel ought to be consulted to ensure that the Alert is strategically appropriate, including any strategy for subsequent public advice and guidance. | [5] Supporting documents such as scripting for frontline staff must also be prepared. | [6] Details of the Alert are included in the monthly Forward Work Program sent to the Minister's office which outlines noteworthy public advice and guidance products the ATO plans to issue over the upcoming 2 months. | [7] Any public advice or guidance must be developed following the processes in the Producing PAG product procedure (link available internally only) and other relevant processes on the Enterprise Knowledge Management system. | [8] It is important to maintain the currency of Alerts, noting that current Alerts may affect disclosures in the reportable tax position schedule to the company tax return. | [9] Updates to Alerts should consider the care and maintenance definition (link available internally only). Those updates that go beyond a care and maintenance change will need to be priority assessed and notified to the PAG Steering Committee. They may also require higher levels of approval and Tax Counsel Network engagement, depending on priority level."
PS LA 2008/18,SUBJECT: Interaction between Subdivisions 284-B and 284-C of Schedule 1 to the Taxation Administration Act 1953 PURPOSE: To provide guidance to officers on the assessment of penalties under Division 284 of Schedule 1 to the Taxation Administration Act 1953 when assessments which rely on adjustment provisions (including the general anti-avoidance provisions) are issued,27 November 2008,27 November 2008,Law Administration Practice Statement,False,"1. Unless otherwise indicated, all legislative references in this Practice Statement are to Schedule 1 to the Taxation Administration Act 1953 (TAA). 2. Division 284 provides an administrative penalty regime for all taxation laws to enable administrative penalties to apply to entities that fail to meet their taxation obligations in a number of circumstances. 3. Subdivision 284-B imposes administrative shortfall penalties on an entity for conduct that includes: • making a statement which is false or misleading in a material particular (subsection 284-75(1)), and • taking a position on the operation of an income tax law that is not reasonably arguable (subsection 284-75(2)). • making a statement which is false or misleading in a material particular (subsection 284-75(1)), and • taking a position on the operation of an income tax law that is not reasonably arguable (subsection 284-75(2)). 4. Subdivision 284-C imposes administrative penalties on an entity that gets a scheme benefit under a scheme. 5. It is not the intention of this Practice Statement to provide comprehensive guidance on the operation of the penalty regime in Division 284. The purpose of this Practice Statement is to explain the interaction between Subdivisions 284-B [1] and 284-C, when either or both may apply. Law Administration Practice Statement PS LA 2012/5 Administration of the false or misleading statement penalty - where there is a shortfall amount provides comprehensive guidance on the application of administrative penalties for making false or misleading statements pursuant to subsection 284-75(1). 6. General provisions such as sections 6-5 and 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) set out the substantive requirements for a particular tax treatment. 7. An adjustment (or scheme) provision is an anti-avoidance provision such as the general anti-avoidance rule in Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936), which is applied to cancel a tax benefit otherwise obtainable under a general provision of the tax law. 8. In Brown and Commissioner of Taxation [2006] AATA 1107 ( Brown ), the Administrative Appeals Tribunal (AAT) held that a penalty cannot be imposed under Subdivision 284-C where a deduction has been disallowed otherwise than under an adjustment provision. In the Decision impact statement on Brown , the ATO accepted the decision. 9. In many cases involving a tax avoidance scheme, it will not be known whether an adjustment provision will apply at the time of making the primary assessment. To ensure that an appropriate amount of penalty is ultimately payable by the taxpayer, it is necessary to consider the imposition of penalty under Subdivisions 284-B and/or 284-C. | The imposition of penalties where no adjustment provision applies: 10. If an entity has a shortfall amount that is not related to a scheme, Subdivision 284-C will not need to be considered. In these situations, the shortfall will arise from applying a general provision and penalties under Subdivision 284-B for making a false or misleading statement or not taking a reasonably arguable position on an income tax law should be considered. | The imposition of penalties when the assessment is made on alternative grounds: 11. If an entity has a shortfall amount from participating in a scheme, the entity's primary tax assessment will still usually be made in reliance on a general provision (or provisions), with an adjustment provision relied on in the alternative. In these cases, the penalty will typically be similarly assessed in reliance on Subdivision 284-B and reliance on Subdivision 284-C in the alternative. 12. Where the penalty amounts arising respectively under Subdivisions 284-B and 284-C are the same, then the final penalty payable will normally be equal to that amount (that is, penalties will not be imposed cumulatively). 13. However, if the alternative penalty amounts are different, the amount payable under the penalty assessment will be the greater of the amounts calculated under Subdivisions 284-B and 284-C. The entity should be provided with an explanation of the amount payable including details of the separate penalty calculations and the circumstances in which the lesser penalty amount may apply. | The imposition of penalties where an adjustment provision applies: 14. Where an entity enters into a scheme and obtains a scheme benefit that is cancelled pursuant to an adjustment provision (that is, where the scheme benefit is allowable under general provisions and the adjustment provision applies to cancel the scheme benefit), penalties will be imposed under Subdivision 284-C. However, Subdivision 284-B penalty should also be considered where the conditions for its imposition are or may be satisfied. It does not necessarily follow that because Subdivision 284-C does apply Subdivision 284-B does not apply. 15. Penalties may be imposed cumulatively under both Subdivisions. That is, where an entity has entered into a scheme and has made a false or misleading statement in relation to the scheme, penalties can be imposed under both Subdivisions 284-B and 284-C. 15A. Depending on the circumstances, we may exercise the discretion to remit the resulting cumulative penalty amount to a reduced penalty amount. For example, the total penalty may be remitted to: • the Subdivisions 284-B or 284-C amount, if they are the same, or • the greater of the Subdivisions 284-B and 284-C amounts, if they are different. • the Subdivisions 284-B or 284-C amount, if they are the same, or • the greater of the Subdivisions 284-B and 284-C amounts, if they are different. 16. However, the cumulative bases for the penalty imposition are maintained and the penalty notice should not purport to remit the excess penalty under any specific Subdivision. 17. We are entitled to rely upon both Subdivisions 284-B and 284-C to support an assessment of the amount of penalty which we consider to be appropriate. By making an assessment, we fix the amount of penalty which is payable. In fixing that amount, we may rely on cumulative or alternative grounds of liability (which may be inconsistent). On review or appeal, the onus will be on the entity to show that the amount of penalty made payable under the assessment is excessive. 18. To explain the imposition (and subsequent remission, where appropriate) of cumulative penalties to the entity, it is recommended that the decision-maker use the following standard wording to advise the entity: You are liable for a penalty of $X under item ... (to be inserted) of subsection 284-90(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA) for (failure to take reasonable care/recklessness/intentional disregard) as to the operation of a tax law. A further $Y penalty applies under section 284-160 of Schedule 1 to the TAA in relation to the tax benefit you obtained from participating in a scheme. This results in a cumulative penalty of $(X+Y). However, by the exercise of the Commissioner's discretion under section 298-20 of Schedule 1 to the TAA, your overall penalty amount has been remitted to Z. The reasons for the imposition of both penalties and the remission decision are set out below. 19. The principles discussed in this Practice Statement are illustrated in the examples in paragraphs 38 to 48 of this Practice Statement. | Statutory framework: 20. An entity has a shortfall amount for the purposes of Subdivision 284-B if one of the items in the table in subsection 284-80(1) applies. The shortfall amount is the amount by which the relevant tax-related liability is less than, or relevant payment or credit is more than, it would have been if the false or misleading statement had not been made. In this context, the expression 'tax-related liability' as used in Subdivision 284-B and as defined in subsection 995-1(1) of the ITAA 1997 includes a liability worked out under an adjustment provision. 21. The base penalty amount under Subdivision 284-B is calculated as a percentage of that shortfall amount. [2] 22. The base penalty amount under Subdivision 284-C is calculated as a percentage of the relevant entity's scheme shortfall amount. 23. A scheme shortfall amount is the amount by which the entity's liability is less than or payment or credit is more than it would have been but for the application of an adjustment provision (section 284-150). | The imposition of penalties under Subdivision 284-B: 24. Tax officers should refer to PS LA 2012/5 for detailed guidance on the imposition of penalties under subsection 284-75(1) for making a false or misleading statement. 25. Penalties are imposed under Subdivision 284-B for: • making a statement that is false or misleading in a material particular, which results in a shortfall amount • taking a position on the operation of an income tax law that is not reasonably arguable, which results in a shortfall amount, and • failing to provide the Commissioner with the necessary documents, thereby requiring the Commissioner to determine tax liability without those documents (not discussed in this Practice Statement). • making a statement that is false or misleading in a material particular, which results in a shortfall amount • taking a position on the operation of an income tax law that is not reasonably arguable, which results in a shortfall amount, and • failing to provide the Commissioner with the necessary documents, thereby requiring the Commissioner to determine tax liability without those documents (not discussed in this Practice Statement). 26. Where a shortfall amount arises from the operation of a general or non-scheme provision of the tax law, we must consider the imposition of penalties under Subdivision 284-B. 27. Base penalty amounts under Subdivision 284-B may be 25%, 50% or 75% of the shortfall amount, depending on the grounds for the imposition of the penalty. The base penalty amount may be reduced or increased (under sections 284-220 and 284-225), depending on the individual circumstances of the case. | The imposition of penalties under Subdivision 284-C: 28. Subdivision 284-C applies to scheme shortfall amounts resulting from participating in a scheme to which an adjustment provision applies. 29. Subdivision 284-C imposes a base penalty amount of 50% of the scheme shortfall amount, or 25% if it is reasonably arguable that the adjustment provision does not apply to the scheme. [3] | The imposition of penalties when the primary tax assessment is made on alternative grounds: 30. The AAT's decision in Brown has confirmed that penalty under Subdivision 284-C cannot apply to a scheme to which an adjustment provision does not apply (that is, a failed scheme). 31. In a typical case involving a tax avoidance scheme, it will not be known whether an adjustment provision applies at the time of making the primary assessment. To ensure that an appropriate amount of penalty is ultimately payable, the penalty assessment will typically need to be raised on alternative grounds (that is, Subdivisions 284-B, and 284-C in the alternative). Thus, the penalty assessment will be made pursuant to the penalty provision relating to the primary ground of assessment, with the penalty provision corresponding to the alternative ground similarly relied on in the alternative. | The imposition of cumulative penalties: 32. Where an entity has been involved in a scheme (penalised under Subdivision 284-C) and makes a false or misleading statement in relation to the scheme (penalised under Subdivision 284-B), the entity may be subject to cumulative penalties, as Division 284 allows for the concurrent application of administrative penalties under both Subdivisions. 33. If a tax benefit has been obtained under the general provisions and an adjustment provision is relied on to cancel the tax benefit, Subdivision 284-C penalty would be applicable. The application of penalties for making a false or misleading statement under Subdivision 284-B should also be considered where appropriate. 34. In practice, cumulative penalties will only be imposed in exceptional cases. What will constitute an exceptional case is a matter of fact to be determined by considering an entity's particular circumstances. 35. If cumulative penalties are imposed and the resulting amount is considered excessive for the particular circumstances, we may exercise the discretion to remit so much of the penalty as is considered appropriate. The remission decision should not purport to remit the penalty under any specific provision but rather reduce the overall penalty to an amount considered reasonable in the circumstances. That is, the remission should not be attributed to any particular penalty type. 36. In determining whether a penalty amount is excessive, tax officers should only consider the total base penalty amount of penalty and not any subsequent penalty loading pursuant to sections 284-220 and 284-225 resulting from the entity's conduct. | Examples: 37. Paragraphs 38 to 48 of this Practice Statement provide examples of situations where penalties are imposed. Note that Examples 1 and 2 do not have a scheme component and are intended to exemplify the grounds for imposing Subdivision 284-B penalty, in order to provide the context for the imposition of such penalty where Subdivision 284-C may also apply. | Example 1: false or misleading statement: 38. When filling out her tax return, Marina does not include the income she received from her managed fund. This results in a shortfall amount, which occurred as a result of a failure to take reasonable care. Therefore, Marina will be subject to a base penalty amount of 25% under Subdivision 284-B. | Example 2: not taking a reasonably arguably position: 39. Marina claims a deduction for margin payments made in respect of exchange-traded option contracts. These fees are disallowed under section 8-1 of the ITAA 1997 as outlined in Taxation Determination TD 2006/25 Income tax: are margin payments made in respect of exchange-traded option and futures contracts deductible under section 8-1 of the Income Tax Assessment Act 1997? Marina disagreed with our interpretation of the relevant laws and treated the tax law as applying to her in a different way. However, her position was not reasonably arguable. Therefore, she will be subject to a penalty of 25% of the shortfall amount under Subdivision 284-B. | Example 3: scheme participation with a reasonably arguable position: 40. Marina enters into a managed investment scheme and claims a deduction under section 8-1 of the ITAA 1997 for a management fee. 41. Part IVA of the ITAA 1936 applies and we make a determination to cancel the tax benefit obtained by way of the deduction for the management fee. It is reasonably arguable that Part IVA does not apply. Marina will be subject to a 25% penalty under Subdivision 284-C. | Example 4: assessment supported on alternative grounds: 42. Marina enters into a managed investment scheme and claims a deduction for a management fee. The management fee is capital in nature and is not an allowable deduction under section 8-1 of the ITAA 1997. This is reflected in the primary assessment that is issued to Marina. The resulting shortfall amount occurs as a result of failure to take reasonable care on Marina's part. Therefore, a penalty under Subdivision 284-B will be imposed at a rate of 25%. 43. Alternatively, if the management fee is allowable under section 8-1 of the ITAA 1997, there is a tax benefit that is cancelled under Part IVA of the ITAA 1936. It is not reasonably arguable that Part IVA will not apply, so a 50% penalty will be payable under Subdivision 284-C. As Marina's primary assessment is made on alternative grounds, her penalty assessment is similarly made on alternative grounds. 44. As the alternative penalty amounts differ, Marina's penalty assessment will be for the greater amount, that is, 50%. A letter explaining how the lesser penalty may apply should accompany the penalty notice. | Example 5: cumulative penalties: 45. Marina, a resident taxpayer, and her employer enter into a scheme to convert Marina's assessable income into exempt income. On 30 April 2008, the Full Federal Court decides that another entity who participated in an identical scheme had obtained a tax benefit under Part IVA of the ITAA 1936 equal to that entity's exempt income under the scheme. Marina lodges her return for the 2007-08 year on 31 October 2008 and does not disclose her purportedly exempt income. 46. On the basis of the applicable judicial authority, Marina will not have a reasonably arguable position in relation to Part IVA of the ITAA 1936. Therefore, she will be subject to 50% penalty under Subdivision 284-C. 47. Subdivision 284-B penalty may also be applicable, as Marina has made a false or misleading statement in her tax return by omitting from it her purportedly exempt income. In the circumstances, which include Marina's disregard of applicable judicial authority, Marina's shortfall has occurred as a result of recklessness with regard to the operation of the law. Therefore, Marina will be liable to Subdivision 284-B administrative penalty of 50%. 48. Marina is liable to a cumulative penalty on her shortfall amount of 100%. However, with regard to circumstances, the resulting penalty is considered unreasonably high and we exercise the discretion to remit the total amount to 75%. The penalty notice that issues does not purport to remit the penalty under a specific penalty provision, but rather reduces the overall total penalty to 75%.",PS LA 2012/5 | Decision impact statement | ITAA 1997 6-5 | ITAA 1997 8-1 | ITAA 1997 995-1(1) | ITAA 1936 Pt IVA | TAA 1953 Sch 1 | TAA 1953 Sch 1 Div 284 | TAA 1953 Sch 1 Subdiv 284-B | TAA 1953 Sch 1 284-75(1) | TAA 1953 Sch 1 284-75(2) | TAA 1953 Sch 1 284-75(3) | TAA 1953 Sch 1 284-80(1) | TAA 1953 Sch 1 284-90(1) | TAA 1953 Sch 1 Subdiv 284-C | TAA 1953 Sch 1 284-150 | TAA 1953 Sch 1 284-160 | TAA 1953 Sch 1 284-220 | TAA 1953 Sch 1 284-225 | TAA 1953 Sch 1 298-20 | 2006 ATC 2573,PS LA 2012/5,ITAA 1997 6-5 | ITAA 1997 8-1 | ITAA 1997 995-1(1) | ITAA 1936 Pt IVA | TAA 1953 Sch 1 | TAA 1953 Sch 1 Div 284 | TAA 1953 Sch 1 Subdiv 284-B | TAA 1953 Sch 1 284-75(1) | TAA 1953 Sch 1 284-75(2) | TAA 1953 Sch 1 284-75(3) | TAA 1953 Sch 1 284-80(1) | TAA 1953 Sch 1 284-90(1) | TAA 1953 Sch 1 Subdiv 284-C | TAA 1953 Sch 1 284-150 | TAA 1953 Sch 1 284-160 | TAA 1953 Sch 1 284-220 | TAA 1953 Sch 1 284-225 | TAA 1953 Sch 1 298-20,,Decision impact statement Brown v Commissioner of Taxation,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS200818/NAT/ATO/00001,"Updated in line with current ATO style and accessibility requirements. | Updated reference from PS LA 2006/2 to PS LA 2012/5. | [1] Note that imposition of penalties under subsection 284-75(3) of Subdivision 284-B is beyond the scope of this Practice Statement. | [2] This applies to shortfall amounts under subsections 284-75(1) and (2). Note that different rules apply to calculating the shortfall amount under subsection 284-75(3), however this is beyond the scope of this Practice Statement. | [3] Subdivision 284-C also provides for base penalty amounts of 25% and 10% in respect of certain situations involving international agreements, however, consideration of this is beyond the scope of this Practice Statement. | Brown and Commissioner of Taxation [2006] AATA 1107 2006 ATC 2573 (2006) 65 ATR 172"
PS LA 2008/19,Requests to amend income tax assessments,17 December 2008,17 December 2008,Law Administration Practice Statement,False,"1. What this Practice Statement is about: This Practice Statement provides guidance on dealing with requests from taxpayers to amend their income tax assessments and, in the course of this, how to differentiate between amendment requests and objections to ATO decisions. The laws, rights of review and service standards for objections are not the same as those that apply to requests for amendments. They are also processed differently. Amendment requests are designed to correct mistakes or omissions the taxpayer may have inadvertently made on a tax return or that we may have made in our assessment. Objections are formal avenues for disputing some ATO decisions. This Practice Statement does not apply to an amendment request where the taxpayer is being audited. | 2. Determining if the taxpayer is objecting or requesting an amendment: Just because a taxpayer (or their agent) uses words like 'objection', 'amendment' or 'review' does not necessarily mean that they are actually requesting any of those things. Contact the taxpayer or use your judgment to decide whether it is an objection or an amendment request. Consider each case on its own merits, referring to the following examples to guide you. When you are making your determination, think about: • the words the taxpayer used in the request • the taxpayer's apparent intention, and • the context of the request. • the words the taxpayer used in the request • the taxpayer's apparent intention, and • the context of the request. It is a request for an amendment if: • the language clearly indicates that is what the taxpayer wants • they have used words such as 'please amend' or 'I request an amendment', and • the taxpayer is requesting that we correct an error or omission, whether theirs or ours. • the language clearly indicates that is what the taxpayer wants • they have used words such as 'please amend' or 'I request an amendment', and • the taxpayer is requesting that we correct an error or omission, whether theirs or ours. It is an objection if: • the taxpayer is disputing facts, issues or the way we have interpreted the law • they are not sure whether or not they have included all their income and entitlements, or • they want to preserve their right to seek an external review. • the taxpayer is disputing facts, issues or the way we have interpreted the law • they are not sure whether or not they have included all their income and entitlements, or • they want to preserve their right to seek an external review. Examples The examples in Tables 1 and 2 of this Practice Statement are possible wording that might be in a request from a taxpayer. Table 1: Requests for amendment Example number Taxpayer's statement Reason 1 I entered the wrong amount at question [x] on my tax return. Please change the figure from $[y] to $[z]. It is clear from the wording that the taxpayer has made an error and would like it corrected. 2 I did not realise I could claim the [x] offset of $[y]. The relevant details are [ … ]. I would like my return amended to include it. The words used by the taxpayer suggest their intent. Even though the taxpayer is providing additional information, there is no cause to doubt that the request for an amendment is appropriate; the taxpayer knows the additional claim is valid and clearly wants the omission corrected. 3 Please fix my return. I forgot to complete my spouse details when I sent it in and you charged me the Medicare levy surcharge. The details of my spouse are [ … ] The taxpayer in this case has stated their omission and is clearly requesting that we amend their assessment. The wording is unambiguous. 4 I am entitled to the [x] offset and claimed this in my return. However, it has not been included in my assessment and you have not explained why. Can you please fix this for me? This wording in this request suggests we may have made an error when we processed the return. If, when we reviewed the return, it became apparent that there was an oversight on our part, then we would need to correct that oversight and amend the assessment. 5 I object to the tax assessment you sent me. I entered the wrong figure at item [x] on my tax return. Please change the figure from $[y] to $[z]. This example is similar to Example 1 of this Table, with the addition of a first sentence that includes the words 'I object'. Even though the taxpayer has used the word 'object', it doesn't automatically mean this request is an objection. It is a request to correct an error and treating it as an amendment would produce a timelier result for the taxpayer. Where a request appears to be a request for an amendment but uses the words 'object' or 'objection', you should consider the request's context. This could include checking internal ATO systems or contacting the taxpayer. If we decide not to amend the assessment, it may be appropriate to treat this as an objection so that the taxpayer's rights of review are preserved. Table 2: Objections Example number Taxpayer's statement Reason 1 Before I put my return in, I rang the ATO and was told that I could not claim [x]. Yesterday I read an article in the paper which says that people in my situation are entitled to claim it. My situation is [ … ]. Could you please decide if I am entitled to this? This request does not use the word 'objection' but it is expressing doubt about the earlier guidance we provided and that the taxpayer followed. We would need to consider the facts and how the law applies to the taxpayer's specific circumstances. 2 I want to question my 20xx tax assessment because I have been incorrectly assessed for the Medicare levy surcharge. I had private health insurance for the whole of 20xx. My wife did not. I can understand why she would need to pay the Medicare levy surcharge. However, given I had private health insurance I was surprised to hear I also had to pay the surcharge. The taxpayer is clearly questioning the action we took, believing it to be incorrect. The taxpayer has provided some additional information. This case requires that we consider the facts independently and determine how the law should be applied to them. 3 When I lodged my return, I didn't think I was entitled to claim [x] but now I think I might be because of the following factors [ … ]. This is not a straightforward request for an amendment because the taxpayer is expressing doubt about whether or not the new claim is valid. Under those circumstances, this request might more properly be an objection. We would need to consider the facts independently and determine how the law applies specifically to this case. 4 I wish to object to my assessment for the year 20xx. When I lodged the return, I was unsure whether I was entitled to claim a deduction for [y]. I did not have time to investigate this matter before lodging the return, so I did not include the claim. I would like the ATO to determine if this claim is allowable. Full information below [ … ]. It is clear that the taxpayer is asking us to examine the matter, to reconsider the facts and make an independent decision about their particular case. 5 At the time I lodged my return, I believed that all my income was assessable. However, I now understand that some of my income may be exempt. I would like the Commissioner to consider the following facts and arguments and make a decision about whether this income is exempt and amend my return accordingly. While the example asks us to 'amend' the return, it is clear that a decision is required on how the law applies to newly provided facts. 6 I wish to object to my assessment. The adjustments made by ATO are without foundation and are contested on the following grounds [ … ]. The taxpayer is clearly expressing dissatisfaction with an assessment and providing arguments about why it should be changed. It is clear that we would need to consider our earlier actions and advise the taxpayer accordingly. 7 I refer to my income tax assessment for the 20xx year. In accordance with section 170 of the Income Tax Assessment Act 1936, I hereby request an amendment to that assessment on the following basis and for the reasons stated. In order to protect my interests in this matter, this request should be treated as an objection. The taxpayer is challenging the correctness of the assessment. The wording suggests that there is some doubt that we would agree with the taxpayer's arguments. In any case, the taxpayer is requesting that their rights of review are protected. This can only be achieved if the request is treated as an objection. 8 When I was audited 4 months ago, I was asked to provide a diary of my overseas travel to support my claim. I was not able to do so and the auditor disallowed my claim. I have now found my diary; please amend my tax return to allow these expenses. The taxpayer clearly believes that because they have now supplied the requested information the expenses will be allowed. However, this may not be the case. The expenses must not only have been incurred but must also be allowable. An objection case officer must consider both matters. Where a request appears to be a request for an amendment but uses the words 'object' or 'objection', you should consider the request's context. This could include checking internal ATO systems or contacting the taxpayer. If we decide not to amend the assessment, it may be appropriate to treat this as an objection so that the taxpayer's rights of review are preserved. | 3. Information the taxpayer needs to provide in their request for an amendment: An amendment request must be in writing and, although it is not compulsory, we encourage taxpayers to use our Request for amendment of income tax return for individuals . Although it is the taxpayer's responsibility to make sure the information they provide is accurate, you should make sure that their request includes: • their name • their tax file number • the year on the assessment that the taxpayer wants to amend • the tax return item number and description • the amount of income or deductions to be added or taken away, if relevant • the amount of tax offsets to be increased or reduced, if relevant • the claim type code, if one applies to the item being changed • the cause of the omission or mistake • a declaration as follows: 'I certify that the information contained in this document, and any attached documents, is true and correct'. • their name • their tax file number • the year on the assessment that the taxpayer wants to amend • the tax return item number and description • the amount of income or deductions to be added or taken away, if relevant • the amount of tax offsets to be increased or reduced, if relevant • the claim type code, if one applies to the item being changed • the cause of the omission or mistake • a declaration as follows: 'I certify that the information contained in this document, and any attached documents, is true and correct'. The request for amendment should be dated and signed. | 4. Time limits for amendments: Generally, an individual or a small business has 2 years to request an amendment. Other taxpayers have 4 years. If the amendment period has lapsed, taxpayers cannot ask for extensions. They may, however, be able to request an extension so they can lodge an objection (see Law Administration Practice Statement PS LA 2003/7 How to treat a request to lodge a late objection). However, there are certain situations where the law allows the Commissioner to amend an assessment even if the 2-year or 4-year amendment period has passed. These situations are covered in provisions within section 170 of the Income Tax Assessment Act 1936 (ITAA 1936). The situations in which we can amend an assessment after the period has ended are as follows: • We received the taxpayer's request before the end of the amendment period and the claims are not considered allowable until after the period has ended. [1] • The taxpayer applied for a private ruling before the end of the amendment period and the ruling allowing an entitlement is made after the amendment period. [2] • The taxpayer included an amount in assessable income which is subsequently repaid after the amendment period has ended and the repayment cannot be deducted in any income year – for example, the taxpayer is not carrying on a business. [3] • We received the taxpayer's request before the end of the amendment period and the claims are not considered allowable until after the period has ended. [1] • The taxpayer applied for a private ruling before the end of the amendment period and the ruling allowing an entitlement is made after the amendment period. [2] • The taxpayer included an amount in assessable income which is subsequently repaid after the amendment period has ended and the repayment cannot be deducted in any income year – for example, the taxpayer is not carrying on a business. [3] | 5. Consideration of a request for amendment: The responsibility for the accuracy of an amendment request rests with the taxpayer. We may accept the request for amendment without detailed checking of the facts or accuracy of the claim. | 6. Not all amendment requests are granted: We may decide not to grant an amendment request because: • the request was not made within the time limit • the taxpayer did not provide enough information, even though we made attempts to get it • it is not possible to process the adjustment (for example, if it relates to a law that has not yet been enacted) • the requested adjustment will not affect the final assessment • it would be more appropriate to deal with the request in another way – for example, as an objection. • the request was not made within the time limit • the taxpayer did not provide enough information, even though we made attempts to get it • it is not possible to process the adjustment (for example, if it relates to a law that has not yet been enacted) • the requested adjustment will not affect the final assessment • it would be more appropriate to deal with the request in another way – for example, as an objection. | 7. If we refuse to amend an assessment, the taxpayer can lodge an objection: If we refuse to grant an amendment request, a taxpayer may lodge an objection against the assessment. The objection must state, in writing and in detail, the grounds on which they are objecting to the assessment, and it must be lodged within the specific time limit. If the specific time period has expired, the taxpayer must lodge an application with the objection requesting us to treat the objection as it were lodged within time. | 8. More information: For more information: • on how taxpayers should request an amendment, see Amend your tax return • on what decisions taxpayers can object to and how they should object, see If you disagree with an ATO decision • to obtain copies of objection forms, see Complete and lodge your objection . • on how taxpayers should request an amendment, see Amend your tax return • on what decisions taxpayers can object to and how they should object, see If you disagree with an ATO decision • to obtain copies of objection forms, see Complete and lodge your objection .",PS LA 2003/7 | ITAA 1936 170 | ITAA 1936 170(5) | ITAA 1936 170(6) | ITAA 1936 170(10AA),PS LA 2003/7,ITAA 1936 170 | ITAA 1936 170(5) | ITAA 1936 170(6) | ITAA 1936 170(10AA),,Amend your tax return Complete and lodge your objection If you disagree with an ATO decision,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS200819/NAT/ATO/00001,"Updated in line with current ATO style and accessibility requirements. | Revised to new practice statement style and format. | Footnotes 6, 13 & References | Replaced 'PS LA 2006/2' with 'PS LA 2012/5' and 'MT 2008/3' with 'MT 2012/3'. | Paragraph 32, footnote 2 and related rulings references | Updated draft TR 2010/D10 to final TR 2011/5 | Updated ruling reference as TR 96/12 has been replaced by TR 2010/D10. | 'Tax Office' updated to 'ATO' as per Style Guide recommendations. | [1] Subsection 170(5) of the ITAA 1936. | [2] Subsection 170(6) of the ITAA 1936. | [3] Table item 22 of subsection 170(10AA) of the ITAA 1936."
PS LA 2007/3,"Remission of penalty for failure to comply with requirements in relation to tax invoices, adjustment notes or third party adjustment notes",16 February 2007,16 February 2007,Law Administration Practice Statement,False,"1. What this Practice Statement is about: Schedule 1 of the Taxation Administration Act 1953 (TAA) imposes administrative penalties if: • an entity fails to issue a tax invoice, adjustment note or third party adjustment note as required under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) [1] • both an entity and its agent issue separate tax invoices relating to the same taxable supply, or separate adjustment notes or third party adjustment notes for the same decreasing adjustment. [2] • an entity fails to issue a tax invoice, adjustment note or third party adjustment note as required under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) [1] • both an entity and its agent issue separate tax invoices relating to the same taxable supply, or separate adjustment notes or third party adjustment notes for the same decreasing adjustment. [2] This Practice Statement provides guidance on how and when remission of the penalties is warranted. All legislative references in this Practice Statement are to the GST Act, unless otherwise indicated. | 2. About the requirements: The obligations in relation to tax invoices, adjustment notes and third party adjustment notes are as set out in this Practice Statement. Note that we are able to make a determination varying the 28-day limits mentioned for adjustment notes and third party adjustment notes. [3] Tax invoices The supplier of a taxable supply with a value of $75 or greater must give the recipient of the supply a tax invoice within 28 days of the recipient requesting it (unless it is a recipient-created tax invoice). [4] If the supply is made through an agent, the tax invoice can be supplied by either the principal or the agent, but not both. [5] Adjustment notes The supplier of a taxable supply must give the recipient of the supply an adjustment note for a decreasing adjustment [6] of $75 or more that arises from an adjustment event [7] which relates to a taxable supply within: • 28 days of the recipient requesting it, or • if a tax invoice has been issued, or the recipient has requested a tax invoice, and the supplier becomes aware of the adjustment before an adjustment note is requested, within 28 days after becoming aware of that fact (unless the tax invoice for the supply would have been a recipient-created tax invoice). [8] • 28 days of the recipient requesting it, or • if a tax invoice has been issued, or the recipient has requested a tax invoice, and the supplier becomes aware of the adjustment before an adjustment note is requested, within 28 days after becoming aware of that fact (unless the tax invoice for the supply would have been a recipient-created tax invoice). [8] Third party adjustment notes The payer of a third-party payment must give to the recipient (payee) of the payment a third party adjustment note for a decreasing adjustment [9] of $75 or more relating to a taxable supply within: • 28 days after the recipient requests it, or • if the payer becomes aware of the adjustment before a third party adjustment note is requested, within 28 days after becoming aware of that fact. [10] • 28 days after the recipient requests it, or • if the payer becomes aware of the adjustment before a third party adjustment note is requested, within 28 days after becoming aware of that fact. [10] | 3. Liability to a penalty: Liability to a penalty will arise if there is evidence that the above requirements are not met and there are no facts or circumstances under genuine dispute. In circumstances where there are multiple failures to issue the required documents, a penalty will arise in relation to each document. | 4. Before making the remission decision: You need to make a decision on remission in all instances where the entity is liable to pay an administrative penalty as outlined in sections 1 and 3 of this Practice Statement. Before you make your decision, you should provide the entity with an opportunity to comply with the obligations. You should: • explain the obligations to the entity • provide them information on how to comply with their obligations • allow them a reasonable time to comply. • explain the obligations to the entity • provide them information on how to comply with their obligations • allow them a reasonable time to comply. You should also note that where there are indicators of serious non-compliance (such as falsifying records) or where previous penalties have failed to improve the entity's behaviour, you can consider referring the case for prosecution as an alternative to the penalty. | 5. General principles in relation to the remission decision: The following are the general principles you need to bear in mind when making the remission decision: • your decision should be made based on the individual circumstances of the case • your decision should be consistent with the principles of Our Charter and the Compliance model , recognising - most entities want to comply with tax laws if they are helped to understand them and they are treated fairly - an entity should be treated as honest unless there is reason to conclude otherwise - the more evidence of reluctance by an entity to comply with their obligations under the law, the higher the likelihood of compliance activity, and the less likely penalty remissions will be appropriate - the more evidence of improvement in an entity's willingness to comply with their obligations under the law, the higher the likelihood of penalty remission • penalties imposed should not be remitted without just cause, arbitrarily or as a matter of course, your decision needs to be made in good faith and must be reasonable, considering all relevant matters and no irrelevant matters • we must administer the discretion to remit penalties in a way that affects improvements in future compliance by taxpayers and provides certainty for those taxpayers, however, this objective should be achieved without causing unintended or unjust results. • your decision should be made based on the individual circumstances of the case • your decision should be consistent with the principles of Our Charter and the Compliance model , recognising - most entities want to comply with tax laws if they are helped to understand them and they are treated fairly - an entity should be treated as honest unless there is reason to conclude otherwise - the more evidence of reluctance by an entity to comply with their obligations under the law, the higher the likelihood of compliance activity, and the less likely penalty remissions will be appropriate - the more evidence of improvement in an entity's willingness to comply with their obligations under the law, the higher the likelihood of penalty remission • penalties imposed should not be remitted without just cause, arbitrarily or as a matter of course, your decision needs to be made in good faith and must be reasonable, considering all relevant matters and no irrelevant matters • we must administer the discretion to remit penalties in a way that affects improvements in future compliance by taxpayers and provides certainty for those taxpayers, however, this objective should be achieved without causing unintended or unjust results. - most entities want to comply with tax laws if they are helped to understand them and they are treated fairly - an entity should be treated as honest unless there is reason to conclude otherwise - the more evidence of reluctance by an entity to comply with their obligations under the law, the higher the likelihood of compliance activity, and the less likely penalty remissions will be appropriate - the more evidence of improvement in an entity's willingness to comply with their obligations under the law, the higher the likelihood of penalty remission | 6. Making the remission decision: Tax invoices and adjustment notes are key integrity measures under the goods and services tax (GST) system. They provide an audit trail and allow parties to the transaction to fulfil their obligations. In making your decision about remission, you need to distinguish between those entities that are making a genuine effort to comply and those entities that make little or no effort to comply. Consider what steps the entity has taken to satisfy its obligations. The amount of remission should reflect the efforts the entity has made. Full remission may be appropriate for entities that have a good overall compliance attitude and make a genuine attempt to comply with their tax invoice, adjustment note or third party adjustment note obligations. In cases where an entity has made some attempt to understand its obligations and their compliance history has been good, but their efforts are considered insufficient for the penalty to be remitted in full, a 50% remission may be appropriate. Where an entity makes no effort to comply, no remission would be appropriate. Where there is evidence of fraud or evasion or deliberate avoidance, remission will also not be appropriate. If an entity has previously been penalised for failing to meet its tax invoice, adjustment note or third party adjustment note obligations and it continues to deliberately avoid or ignore its obligations, no remission of the penalty will be warranted. | 7. Specific considerations relevant to the remission decision: This section of the Practice Statement provides specific situations which you may come across and the considerations relevant to each. Where we have exercised the discretion to treat a document as a tax invoice We have the discretion in certain instances to treat a document as a tax invoice, adjustment note or third party adjustment note, even if that document does not otherwise meet the requirements. Guidelines in relation to the exercising of this discretion are set out in Law Administration Practice Statement PS LA 2004/11 Treating a document as a tax invoice or adjustment note. However, even if this discretion is exercised, the supplier will still be liable to a penalty. You should apply the guidelines in this Practice Statement to your decision. Where there are multiple failures to issue required documents A penalty will be imposed on each occasion that an entity fails to fulfil its obligations. Often though, there is a singular offence which leads to the multiple failures and, in these instances, it may be appropriate to only raise a penalty once. This will not apply though where the entity has a history of disregarding their obligations. Where there is genuine uncertainty about the need to issue documents In some cases, the supplier may have failed in their obligations because they genuinely believed that their supply was not a taxable supply. In these instances, you should provide the supplier a reasonable opportunity to comply with their obligations. A reasonable opportunity is usually 28 days from the time they become aware, but this will depend on the circumstances of the case. If they have still failed in their obligations after this time has elapsed, it will usually be appropriate not to remit the penalty. | 8. Recording your decision: Your remission decision must be documented and this should include: • facts relating to the failure to comply with the obligations in relation to tax invoices, adjustment notes or third party adjustment notes, and any evidence (or other material) relating to that failure • facts relating to the entity's effort to comply and any evidence (or other material) relating to their efforts • whether the entity was aware of its obligations, and details of any opportunity provided to the entity to comply with their obligations in relation to tax invoices, adjustment notes or third party adjustment notes • the remission decision • the reasons for the remission decision (that is, your consideration of the circumstances relevant to the remission decision) • any other relevant information. • facts relating to the failure to comply with the obligations in relation to tax invoices, adjustment notes or third party adjustment notes, and any evidence (or other material) relating to that failure • facts relating to the entity's effort to comply and any evidence (or other material) relating to their efforts • whether the entity was aware of its obligations, and details of any opportunity provided to the entity to comply with their obligations in relation to tax invoices, adjustment notes or third party adjustment notes • the remission decision • the reasons for the remission decision (that is, your consideration of the circumstances relevant to the remission decision) • any other relevant information. | 9. Notifying the entity: If you have not remitted the penalty in full, you are required [11] to give the entity written notice of their liability to pay the penalty and of the reasons why. However, even if the penalty is remitted in full, you should advise the entity of your decision in writing. In order to encourage future compliance, this notice should outline: • the opportunity provided for them to comply • why they are liable to the penalty • the amount of the penalty imposed by law • our discretion to remit the penalty • the factors considered in the remission decision • the evidence (or other material) relied on in making the remission decision • the remission decision • the amount of remission, if any • the amount of penalty payable, if any, after remission. • the opportunity provided for them to comply • why they are liable to the penalty • the amount of the penalty imposed by law • our discretion to remit the penalty • the factors considered in the remission decision • the evidence (or other material) relied on in making the remission decision • the remission decision • the amount of remission, if any • the amount of penalty payable, if any, after remission. The due date for any remaining penalty must be at least 14 days after the notice is given to the entity. [12] | 10. Right of review: If the penalty remaining after your decision is more than 2 penalty units, an entity has the right to object against your decision. [13] | 11. Examples: Example 1 – treating tax invoices as valid when errors are present Tom and Jeff operate a GST-registered partnership that manufactures toys. The partnership has been issuing tax invoices since the start of GST to recipients who are generally wholesalers registered for GST. Jeff discovered there is a transposition error in the partnership's Australian business number (ABN) on the system which produces the tax invoices and the partnership ABN cannot be clearly ascertained. The partnership has requested we treat the invoices issued as valid tax invoices. The guidelines contained in PS LA 2004/11 are satisfied and, having given consideration to the administration costs related to correcting these documents and as these supplies were correctly treated by the supplier, we exercise the discretion to treat the invoices as valid tax invoices. In this situation, section 444-30 of Schedule 1 to the TAA applies making each partner jointly and severally liable for a penalty for failing to issue tax invoices as required since the tax invoices issued do not provide sufficient information to clearly ascertain the correct ABN of the supplier. Given we have exercised the discretion to treat these documents as valid tax invoices, the penalty should be remitted in full. Example 2 – addressing multiple instances of errors when issuing tax invoices Angela is registered for GST. She makes supplies in the course of her enterprise both directly and through an agent. It was established during an audit that Angela and her agent had both issued tax invoices in relation to the same supplies. Angela and her agent were subsequently provided with education and assistance. The penalty which was imposed was remitted in full for this occurrence due to her good compliance history and because Angela was new to the GST system. She is advised of the decision to remit the penalty in full, the evidence relied on and the reasons to support this decision. Angela and her agent discuss methods of avoiding issuing separate tax invoices for the same supply. They establish procedures where Angela would issue tax invoices for the supplies she made directly to recipients and no tax invoices would be issued by her for supplies made through her agent. While this procedure was implemented, systems were not updated sufficiently to ensure this occurred in relation to 100% of supplies made through her agent. Another occurrence of Angela and the agent issuing tax invoices in relation to the same supply is discovered. She is liable to a penalty. The penalty is remitted to 50% as: • Angela has made some effort to comply but, in the circumstances, she has not made a sufficient effort to be compliant. She put in place a process but did not ensure the system supported the process, nor did she take steps to test if it worked. • While one occurrence of non-compliance does not in itself establish a 'past history', it would in this case support the finding of insufficient effort given the educative support provided. • Angela has made some effort to comply but, in the circumstances, she has not made a sufficient effort to be compliant. She put in place a process but did not ensure the system supported the process, nor did she take steps to test if it worked. • While one occurrence of non-compliance does not in itself establish a 'past history', it would in this case support the finding of insufficient effort given the educative support provided. The decision, the evidence relied on and the reasons for partial remission would be provided to Angela in a written notice. Example 3 – addressing multiple instances of separate errors Elisa is registered for GST. During an audit, it was brought to Elisa's attention that the tax invoices she was issuing in relation to her supplies did not satisfy the requirements for a valid tax invoice. While Elisa had upgraded her systems at the introduction of GST, there were deficiencies, including the lack of the recipient's ABN or identity for supplies of at least $1,000, a description of the supplies and the quantity of goods supplied. As the correct amount of GST had been reported on each supply, and because of Elisa's good compliance history, the penalty was remitted in full. Elisa was subsequently provided with education and assistance. She was advised of the decision to remit the penalty which arose including the reasons for this decision. Elisa revises the system that generates tax invoices in relation to her supplies. This new system is fully compliant in all but one aspect in that the description of the goods supplied is ambiguous. As such, there is not sufficient information to clearly ascertain what is supplied. This was written into the template by Elisa in the genuine belief that the description given to the supply was correct. Elisa issues several invoices that use the insufficient description. A review of one of her customers brings this to our attention. Elisa explains the full extent of the actions she had undertaken to revise the tax invoices. Elisa is liable to a penalty for failure to issue a tax invoice as required. However, she has made a genuine attempt to comply and the penalty is remitted in full. Elisa is advised of this decision, the evidence relied on and the reasons for the decision. In this case, the reasons for the decision to remit the penalty would have included the efforts made by Elisa following the earlier audit. She made a reasonable effort to improve her systems within a short timeframe once becoming aware of the problem.",comparison table | GSTR 2000/19 | PS LA 2004/11 | TAA 1953 Sch 1 288-45 | TAA 1953 Sch 1 288-50 | TAA 1953 Sch 1 298-15 | TAA 1953 Sch 1 298-20 | TAA 1953 Sch 1 298-20(3) | TAA 1953 Sch 1 444-30 | ANTS(GST)A 1999 29-70(2) | ANTS(GST)A 1999 29-75(2) | ANTS(GST)A 1999 29-75(3) | ANTS(GST)A 1999 29-80(1) | ANTS(GST)A 1999 29-80(2) | ANTS(GST)A 1999 Div 19 | ANTS(GST)A 1999 Div 134 | ANTS(GST)A 1999 134-20(2) | ANTS(GST)A 1999 134-20(3) | ANTS(GST)A 1999 153-15 | ANTS(GST)R 1999 29-80.01 | ANTS(GST)R 1999 29-80.02,PS LA 2004/11,TAA 1953 Sch 1 288-45 | TAA 1953 Sch 1 288-50 | TAA 1953 Sch 1 298-15 | TAA 1953 Sch 1 298-20 | TAA 1953 Sch 1 298-20(3) | TAA 1953 Sch 1 444-30 | ANTS(GST)A 1999 29-70(2) | ANTS(GST)A 1999 29-75(2) | ANTS(GST)A 1999 29-75(3) | ANTS(GST)A 1999 29-80(1) | ANTS(GST)A 1999 29-80(2) | ANTS(GST)A 1999 Div 19 | ANTS(GST)A 1999 Div 134 | ANTS(GST)A 1999 134-20(2) | ANTS(GST)A 1999 134-20(3) | ANTS(GST)A 1999 134-25(4) | ANTS(GST)A 1999 134-25(6) | ANTS(GST)A 1999 153-15 | ANTS(GST)R 1999 29-80.01 | ANTS(GST)R 1999 29-80.02,,Compliance model Our Charter,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20073/NAT/ATO/00001,"A comparison table which provides the replacement provisions in the A New Tax System (Goods and Services Tax) Regulations 2019 for regulations which are referenced in this LAPS is available. | Content checked for technical accuracy and currency. Updated in line with current ATO style and accessibility requirements. | Updated to new format for Practice Statements. | Inserted (As Amended) to first dot point. | Related Rulings / Determinations | Inserted GSTR 2013/2. Deleted GSTR 2000/1 Inserted reference to AN2013/1 | Inserted: ANTS(GST) Adjustment Note Information Requirements Determination 2012/1 (As Amended) ANTS(GST) Adjustment Note Information Requirements Amendment Determination 2013 | Insert references to the GST Act. | Paragraph 18 and references | Update reference from 'A New Tax System (Goods and Services Tax) Adjustment Note Information Requirements Determination (No.1) 2000' to 'A New Tax System (Goods and Services Tax) Adjustment Note Information Requirements Determination 2012'. | Removal of current value of penalty unit. | Related practice statements | Subject and Purpose headings | Insert reference to 'third party adjustment notes' | Paragraphs 4-5, 9, 18, 19, 22, 33-36, 38-41, 52-54 and 57-58 | Insert reference to subsection 134-20(2) of the GST Act | Insert reference to 134-20(4) of the GST Act | Insert reference to subsection 134-20(3) of the GST Act | Insert reference to TPANI 2010/1 | Insert reference to third party adjustment note tax obligations | Insert reference to Commissioner's discretion for third party adjustment notes | Insert reference to 134-20 of the GST Act | Insert reference to penalty liability for failure to issue a third party adjustment note | Insert reference to third party payments | Insert term 'GST third party adjustment notes' | Insert reference to ANTS(GST)A 1999 Div 134 and ANTS(GST) Third Party Adjustment Note Information Requirements Determination TPANI 2010/1 | Updates from 7 April 2010 removed. | Update value of adjustment event to exceed $75 (increased from $50), effective 1 July 2010. | Insert reference to value of adjustment event. | Insert reference to GSTR 2000/1 | Insert reference to 29-80.02 of GST Regulations | Reference to MT 2008/D1 replaced with MT 2008/1 | Reference to TR 94/4 replaced with MT 2008/D1 | Increase value of taxable supply to $75 | Update reference to GST Regulations | [1] Section 288-45 of Schedule 1 to the TAA. | [2] Section 288-50 of Schedule 1 to the TAA. | [3] Subsections 29-75(3), 134-25(4) and 134-25(6). | [4] Subsections 29-70(2) and 29-80(1), as well as section 29-80.01 of the A New Tax System (Goods and Services Tax) Regulations 2019 (GST Regulations). | [6] See subsection 29-80(2) of the Act and section 29-80.02 of the GST Regulations. | [7] Refer to Division 19 and Goods and Services Tax Ruling GSTR 2000/19 Goods and services tax: making adjustments under Division 19 for adjustment events for an explanation of adjustment events. | [9] Refer to Division 134 and GSTR 2000/19 for an explanation of third-party adjustments. | [10] Subsections 134-20(2) and (3). | [11] Section 298-20 of Schedule 1 to the TAA. | [12] Section 298-15 of Schedule 1 to the TAA. | [13] Subsection 298-20(3) of Schedule 1 to the TAA. | File 05/4224; 1-2AOXOT0; 1-13WH0Y5U | This Practice Statement was originally published on 16 February 2007. Versions published from 2 September 2008 are available electronically - refer to the online version of the practice statement. Versions published prior to this date are not available electronically. If needed, these can be requested from Law Practice Management in Law and Practice by emailing TCNLawPublishingandPolicy@ato.gov.au"
PS LA 2007/4,Remission of penalty for failure to comply with GST registration obligations,16 February 2007,16 February 2007,Law Administration Practice Statement,False,"1. What this Practice Statement is about: A penalty is imposed under section 288-40 of Schedule 1 to the Taxation Administration Act 1953 (TAA) if an entity fails to either: • apply to register for GST, or • cancel a GST registration, • apply to register for GST, or • cancel a GST registration, when required by the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). This penalty may be remitted under subsection 298-20(1) of Schedule 1 to the TAA. This Practice Statement provides guidance on how and when remission of the penalty is warranted. All legislative references in this Practice Statement are to Schedule 1 to the TAA, unless otherwise indicated. | 2. GST registration obligations for an entity: The legislative requirements in regard to registering for GST or cancelling GST registration are provided in the Attachment to this Practice Statement. | 3. Remission of the penalty - general principles: You need to consider remission in all cases where an entity is liable to pay the penalty. Generally (unless there is evidence of fraud or evasion), before making your remission decision, you should give the entity the opportunity to comply with its registration obligations. You should: • explain their registration obligations • explain how to comply with the obligations, and • allow them a reasonable time to comply. • explain their registration obligations • explain how to comply with the obligations, and • allow them a reasonable time to comply. When making a decision about remission of the penalty, you should have regard to the objectives which underpin the penalty regime, meaning you should: • Base your decision on the individual circumstances of the case. • Ensure your decision is consistent with the principles of Our Charter and the Compliance model . Most entities want to comply if they are helped to understand the rules and are treated fairly. They should be treated as honest, unless there is a reason to conclude otherwise. However, if there is evidence of reluctance by the entity to comply with their obligations, the less likely we are to remit the penalty. Similarly, if the entity has a history of non-compliance, it would be likely that no penalty remission would be appropriate, unless there was clear evidence that non-remission of the penalty would be unfair or unjust. • Promote consistent treatment in respect of the penalty - the penalty should not be remitted without just cause, arbitrarily or as a matter of course. • Be reasonable and make your decision in good faith - you should follow the Good decision-making model (link available internally only). • Take into account all relevant facts and circumstances. • Aim to improve future compliance by the taxpayer. • Base your decision on the individual circumstances of the case. • Ensure your decision is consistent with the principles of Our Charter and the Compliance model . Most entities want to comply if they are helped to understand the rules and are treated fairly. They should be treated as honest, unless there is a reason to conclude otherwise. However, if there is evidence of reluctance by the entity to comply with their obligations, the less likely we are to remit the penalty. Similarly, if the entity has a history of non-compliance, it would be likely that no penalty remission would be appropriate, unless there was clear evidence that non-remission of the penalty would be unfair or unjust. • Promote consistent treatment in respect of the penalty - the penalty should not be remitted without just cause, arbitrarily or as a matter of course. • Be reasonable and make your decision in good faith - you should follow the Good decision-making model (link available internally only). • Take into account all relevant facts and circumstances. • Aim to improve future compliance by the taxpayer. At all times, over and above these factors, your decision should ensure that there are no unintended or unjust results. | 4. Amount of remission - considerations: It is envisaged that the penalty will generally be imposed in full or remitted in full. However, in some cases only partial remission may be warranted. Remission decisions should be made after considering all the circumstances relevant to the failure of the entity to comply with its registration obligations, including: • the entity's efforts and willingness to comply with other taxation obligations • whether the entity was aware of their registration obligations • any opportunity provided to the entity to comply with their registration obligations, and • whether there is an unjust result. • the entity's efforts and willingness to comply with other taxation obligations • whether the entity was aware of their registration obligations • any opportunity provided to the entity to comply with their registration obligations, and • whether there is an unjust result. The amount of penalty remitted should generally reflect the level of effort made by the entity to comply with its registration obligations and its overall compliance attitude. No remission of penalty is appropriate in cases exhibiting indicators of fraud or evasion or the deliberate and ongoing avoidance of an entity to comply with their registration obligations. Full remission of penalty may be appropriate for entities that have a good overall compliance attitude and make a genuine attempt to comply with their obligations. Partial remission of 50% of penalty may be appropriate where an entity has made some attempt to understand or comply with its registration obligations and its overall compliance history has been good; however, the efforts made are considered insufficient for full remission. Factors that may be relevant to determining only partial remission of penalty is warranted include: • the overall compliance attitude of the entity is not good • an advantage has been gained by the entity in not complying • the period of non-compliance, and • any disruption to other participants in the tax system. • the overall compliance attitude of the entity is not good • an advantage has been gained by the entity in not complying • the period of non-compliance, and • any disruption to other participants in the tax system. | 5. Remission of the penalty - specific examples: Entity complies with its registration obligations before being contacted by the ATO If an entity complies with its registration obligations after it was required to do so, but before being contacted by us, we would (unless there is evidence to the contrary) consider that they are making a genuine attempt to comply. Therefore, in these instances, you should generally remit any penalty in full. Entity complies with its registration obligations after being contacted by the ATO If, having been advised of its registration obligations, an entity complies within a reasonable timeframe, full remission of the penalty may be appropriate. A 'reasonable timeframe' depends on the circumstances of the case, but 28 days would normally be considered reasonable. | 6. Recording the remission decision: You should record the following information on the appropriate case management system: • facts relating to the failure to comply and their efforts to comply or reasons for non-compliance with the registration obligations and any evidence (or other material) relating to that failure • whether the entity was aware of their obligations • details of the opportunity provided to the entity to comply with the registration obligations or reasons why this was not appropriate in this case • the remission decision • the reasons for the remission decision (that is, our consideration of the circumstances relevant to the remission decision), and • any other relevant information. • facts relating to the failure to comply and their efforts to comply or reasons for non-compliance with the registration obligations and any evidence (or other material) relating to that failure • whether the entity was aware of their obligations • details of the opportunity provided to the entity to comply with the registration obligations or reasons why this was not appropriate in this case • the remission decision • the reasons for the remission decision (that is, our consideration of the circumstances relevant to the remission decision), and • any other relevant information. | 7. Notifying the taxpayer: If the penalty is not remitted in full, the legislation requires you to give the entity written notice of their liability to pay the penalty and the reasons why they are liable. The amount of penalty notified should be the amount remaining after any remission. This can be included in the penalty notice. However, in all instances, you should also provide the entity with a written explanation of: • the opportunity provided for them to comply if appropriate to provide • why they are liable to the penalty • the amount of the penalty imposed by law • the Commissioner's discretion to remit the penalty • the factors considered in the remission decision • the evidence (or other material) relied on to make the remission decision • the remission decision • the amount of remission, if any, and • the amount of penalty payable, if any, after remission. • the opportunity provided for them to comply if appropriate to provide • why they are liable to the penalty • the amount of the penalty imposed by law • the Commissioner's discretion to remit the penalty • the factors considered in the remission decision • the evidence (or other material) relied on to make the remission decision • the remission decision • the amount of remission, if any, and • the amount of penalty payable, if any, after remission. | 8. Review rights: If you make the decision not to fully remit the penalty, the entity may object against that decision [1] , but only if the penalty payable after any remission is more than 2 penalty units. The entity may also object to the requirement to register or to cancel its registration. [2] If it is successful, there will be no liability to the penalty. | 9. Other options available: As an alternative to imposing the penalty, we may consider the following options: • In cases where there is serious non-compliance such as falsifying records or other fraud, seek to have the offence prosecuted by referring the matter to the Director of Public Prosecutions. • If the entity does not register voluntarily when given the opportunity, we would compulsorily register the entity under subsection 25-5(2) of the GST Act, if satisfied that the entity is required to be registered. Once registered, assessments can be made of the net amount or assessed net amount [3] of indirect tax payable under the TAA and proceed to recover the amounts. Assessments of the penalty can also be made. [4] • If an entity is registered when not carrying on an enterprise and we are satisfied that it did not carry on an enterprise or it will not do so for the next 12 months, compulsorily cancel the registration under subsection 25-55(2) of the GST Act. • In cases where there is serious non-compliance such as falsifying records or other fraud, seek to have the offence prosecuted by referring the matter to the Director of Public Prosecutions. • If the entity does not register voluntarily when given the opportunity, we would compulsorily register the entity under subsection 25-5(2) of the GST Act, if satisfied that the entity is required to be registered. Once registered, assessments can be made of the net amount or assessed net amount [3] of indirect tax payable under the TAA and proceed to recover the amounts. Assessments of the penalty can also be made. [4] • If an entity is registered when not carrying on an enterprise and we are satisfied that it did not carry on an enterprise or it will not do so for the next 12 months, compulsorily cancel the registration under subsection 25-55(2) of the GST Act. | 10. Examples: Example 1 Phillip purchased a franchise and attended training provided by the franchisor. This training included the requirement that each franchisee obtain an Australian business number (ABN) and register for GST if required to do so. Phillip obtained an ABN. However, he was unsure whether he was required to register for GST. Phillip contacted the franchisor for a further explanation and also contacted one of his mates who had been involved with this industry for several years. Both individuals provided Phillip with erroneous advice when they told him he only needed to register for GST when his enterprise made a profit of $75,000 per year. Phillip was certain the expenses associated with the enterprise were of a sufficient level to keep the profit for the first year well below $75,000. Phillip issued invoices for the enterprise's services, but these were not tax invoices and did not include a specific GST component. We conducted an audit of Phillip's enterprise and determined that he was required to be registered for GST. When questioned why he had not registered for GST, Phillip explained how he had contacted the franchisor and another business operator in this industry and the advice he received was that the requirement to register was determined by the amount of profit. Phillip voluntarily registered for GST once his obligation was clearly explained to him. Phillip was liable to a penalty because: • the enterprise was required to be registered in the first month of operation based upon the projected GST turnover of the enterprise exceeding the registration turnover threshold, and • the enterprise did not apply for registration within 21 days after becoming required to be registered. • the enterprise was required to be registered in the first month of operation based upon the projected GST turnover of the enterprise exceeding the registration turnover threshold, and • the enterprise did not apply for registration within 21 days after becoming required to be registered. The following factors would be considered in making any remission decision: • Phillip had sought advice on whether he was required to be registered from both the franchisor and another enterprise in the industry indicating a genuine attempt to comply. • Phillip had no previous history of non-compliance. • Although the advice Phillip had received from the franchisor and the other business operator was incorrect, Phillip had no reason to believe the advice was incorrect. • There was no evidence to suggest that Phillip had sought to gain an advantage by not registering for GST. • Phillip had sought advice on whether he was required to be registered from both the franchisor and another enterprise in the industry indicating a genuine attempt to comply. • Phillip had no previous history of non-compliance. • Although the advice Phillip had received from the franchisor and the other business operator was incorrect, Phillip had no reason to believe the advice was incorrect. • There was no evidence to suggest that Phillip had sought to gain an advantage by not registering for GST. We determined that Phillip was confused about his registration obligation but had made a genuine attempt to understand his obligation. There was no reason for Phillip not to accept the advice as correct. When provided with a clear explanation of the registration obligation, Phillip promptly applied for registration. Full remission of the penalty would be appropriate in such a case. Example 2 JZE Pty Ltd (JZE) operates a number of enterprises through independent branches of the company. One of the branches, XEL's, which is registered as a GST branch of JZE, ceases to operate an enterprise. The JZE directors decide that they will not de-register XEL's for GST purposes as a new enterprise was to be purchased and would operate through XEL's. A number of factors result in a change of business direction and the new enterprise is not purchased. JZE does not carry on an enterprise through the branch, XEL's, for a period of 6 months when we commence an audit. There are no current plans for JZE to operate an enterprise through XEL's. As we are satisfied that JZE is not carrying on an enterprise through XEL's and unlikely to carry on an enterprise for a period of 12 months, the GST registration is cancelled. JZE is correctly reporting its taxation obligations, keeps good records and is up to date in its lodgments. While JZE is aware of its registration obligations, they have not sought to gain an advantage nor disrupted other participants in the tax system by failing to apply for cancellation of XEL's GST registration. The decision not to cancel the registration as required was made on the basis that JZE would commence carrying on an enterprise through XEL's within a short period. JZE is liable to a penalty for failing to apply for the cancellation of the registration of XEL's within 21 days. The following factors would be considered in making any remission decision: • There is no prior history of non-compliance by JZE in relation to registration or other taxation obligations. • There is no evidence to suggest that JZE sought to gain an advantage by failing to apply to cancel the registration of the branch. • There is no prior history of non-compliance by JZE in relation to registration or other taxation obligations. • There is no evidence to suggest that JZE sought to gain an advantage by failing to apply to cancel the registration of the branch. Full remission of the penalty would be appropriate in such a case. | 11. More information: For more information, see: • Registering for GST - on the requirements in regard to registering for GST. • Cancelling your GST registration - on when entities are required to cancel their GST registration. • Registering for GST - on the requirements in regard to registering for GST. • Cancelling your GST registration - on when entities are required to cancel their GST registration. Attachment - legislative framework in regard to registration obligations When an entity needs to apply for GST registration Section 25-1 of the GST Act specifies when an entity must apply for GST registration. An entity must apply, in the approved form, to be registered if the entity: • is not registered, and • is required to be registered. • is not registered, and • is required to be registered. Table 1 of this Practice Statement contains the provisions of the GST Act that specify when an entity or branch is required to be registered. Table 1: Provisions of the GST Act that specify when an entity or branch is required to be registered Provision Description 23-5 Entity carrying on an enterprise [5] and the GST turnover meets the registration turnover threshold [6] 23-20 Entity is treated as not having been required to be registered if registration could not take effect because of subsection 25-10(1A) [7] 25-5(2) Commissioner is required to register an entity, even if the entity has not applied for registration, if the Commissioner is satisfied the entity is required to be registered 54-5 Commissioner is required to register a branch of a registered entity as a separate GST branch if certain conditions are met 57-20 A resident agent acting as an agent for a non-resident that is registered or required to be registered 58-20 A representative of an incapacitated entity if the incapacitated entity is registered or required to be registered 83-25 A non-resident need not apply to be registered despite section 25-1 of the GST Act if certain conditions are met Division 63 Special rules allow some kinds of non-profit entities to choose to have some (or all) of their separately identifiable branches treated as separate entities for GST purposes. The sub-entities may fall below the non-profit sub-entity registration threshold and thus be exempt from registration. 144-5 If, in carrying on the enterprise, the entity supplies taxi travel, regardless of the entity's GST turnover When an entity needs to cancel its registration There are also provisions under the GST law that require an entity that is registered for GST to apply for cancellation of its GST registration or the registration of one of its branches. [8] These provisions within the GST Act are set out in Table 2 of this Practice Statement. Table 2: Provisions of the GST Act that specify when an entity is required to cancel their GST registration Section Description 25-50 A registered entity that is not carrying on an enterprise 54-70 An entity that has a GST registered branch and the entity is not carrying on an enterprise through the branch 63-30 A GST registered non-profit sub-entity that does not meet the requirements of paragraphs 63-15(1)(a), (b) and (c) of the GST Act When an entity applies for cancellation of its GST registration in the approved form, the Commissioner must cancel that registration when, at the time the entity applied for cancellation of registration, the entity had been registered for 12 months and the Commissioner is satisfied that the entity is not required to be registered. [9] If the entity has been registered for less than 12 months at the time the entity applies for cancellation of their registration in the approved form, the Commissioner may cancel the registration if satisfied that the entity is not required to be registered. [10] The Commissioner must cancel the GST registration of an entity, even if the entity has not applied for cancellation of its registration, if satisfied that the entity is not carrying on an enterprise and the Commissioner believes, on reasonable grounds, that the entity will not do so for at least 12 months. [11] Divisions of the GST Act provide that section 25-50 and subsection 25-55(2) of the GST Act do not apply to certain classes of entities and provide special rules relating to cancellation of registration for these classes of entities. Table 3 of this Practice Statement outlines these divisions. Table 3: Divisions of the GST Act Divisions Class of entity 54 GST branches 57 Resident agents acting for non-residents 63 Non-profit sub-entities 58 Representatives of an incapacitated entity 149 Government entities",MT 2006/1 | TAA 1953 Sch 1 110-50 | TAA 1953 Sch 1 288-40 | TAA 1953 Sch 1 298-20 | TAA 1953 Sch 1 298-20(1) | TAA 1953 Sch 1 298-30 | ANTS(GST)A 1999 23-5 | ANTS(GST)A 1999 23-15 | ANTS(GST)A 1999 23-20 | ANTS(GST)A 1999 25-1 | ANTS(GST)A 1999 25-5(2) | ANTS(GST)A 1999 25-10(1A) | ANTS(GST)A 1999 25-50 | ANTS(GST)A 1999 25-55(1) | ANTS(GST)A 1999 25-55(2) | ANTS(GST)A 1999 25-57(1) | ANTS(GST)A 1999 Div 54 | ANTS(GST)A 1999 54-5 | ANTS(GST)A 1999 54-70 | ANTS(GST)A 1999 Div 57 | ANTS(GST)A 1999 57-20 | ANTS(GST)A 1999 Div 58 | ANTS(GST)A 1999 58-20 | ANTS(GST)A 1999 Div 63 | ANTS(GST)A 1999 63-15(1)(a) | ANTS(GST)A 1999 63-15(1)(b) | ANTS(GST)A 1999 63-15(1)(c) | ANTS(GST)A 1999 63-30 | ANTS(GST)A 1999 83-25 | ANTS(GST)A 1999 144-5 | ANTS(GST)A 1999 Div 149 | ANTS(GST)R 1999 23-15.01 | ANTS(GST)R 1999 23-15.02,,TAA 1953 Sch 1 110-50 | TAA 1953 Sch 1 288-40 | TAA 1953 Sch 1 298-20 | TAA 1953 Sch 1 298-20(1) | TAA 1953 Sch 1 298-30 | ANTS(GST)A 1999 23-5 | ANTS(GST)A 1999 23-15 | ANTS(GST)A 1999 23-20 | ANTS(GST)A 1999 25-1 | ANTS(GST)A 1999 25-5(2) | ANTS(GST)A 1999 25-10(1A) | ANTS(GST)A 1999 25-50 | ANTS(GST)A 1999 25-55(1) | ANTS(GST)A 1999 25-55(2) | ANTS(GST)A 1999 25-57(1) | ANTS(GST)A 1999 Div 54 | ANTS(GST)A 1999 54-5 | ANTS(GST)A 1999 54-70 | ANTS(GST)A 1999 Div 57 | ANTS(GST)A 1999 57-20 | ANTS(GST)A 1999 Div 58 | ANTS(GST)A 1999 58-20 | ANTS(GST)A 1999 Div 63 | ANTS(GST)A 1999 63-15(1)(a) | ANTS(GST)A 1999 63-15(1)(b) | ANTS(GST)A 1999 63-15(1)(c) | ANTS(GST)A 1999 63-30 | ANTS(GST)A 1999 83-25 | ANTS(GST)A 1999 144-5 | ANTS(GST)A 1999 Div 149 | ANTS(GST)R 1999 23-15.01 | ANTS(GST)R 1999 23-15.02,,Cancelling your GST registration Compliance model Good decision making model Our Charter Registering for GST,False,True,https://www.ato.gov.au/law/view/document?docid=PSR/PS20074/NAT/ATO/00001,"Updated to align with current ATO style and accessibility requirements. | Reference brought up into text. | Deleted as referenced practice statements have been withdrawn. | Moved to before References. Wording clarified. | Updated to new LAPS format and style. | Related practice statements | Inclusion of section 23-20. | Inclusion of assessed net amount under the TAA. | Removal of current value of penalty unit. | 'Tax Office' updated to 'ATO'. | Update legislative references regarding representatives of incapacitated entities. | Updated from Div 177 to Div 58 which was amended by 118 of 2009, effective 4/12/2009. | Updated the GST registration threshold from $50,000 to $75,000 specified by regulation 23-15.01. Changed the term 'annual turnover' to 'GST turnover' as per the Tax Laws Amendment (Small Business) Act 2007 . | Inserted ANTS(GST)R 1999 23-15.01 and 23-15.02 | [3] For tax periods that start on or after 1 July 2012, the term 'assessed net amount' applies. | [5] Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number. | [6] Section 23-15 of the GST Act, and sections 23-15.01 and 23-15.02 of the A New Tax System (Goods and Services Tax) Regulations 2019. | [7] Subsection 25-10(1A) of the GST Act provides that from 1 July 2012, the date of effect of GST registration must not be a day that occurred more than 4 years before the day of the decision to register an entity, unless the Commissioner is of the opinion there has been fraud or evasion. | [8] Division 54 of the GST Act. | [9] Subsection 25-55(1) of the GST Act. | [10] Subsection 25-57(1) of the GST Act. | [11] Subsection 25-55(2) of the GST Act. | This practice statement was originally published on 16 February 2007. Versions published from 5 March 2008 are available electronically - refer to the online version of the practice statement. Versions published prior to this date are not available electronically. If needed, these can be requested by emailing TCNLawPublishingandPolicy@ato.gov.au"
PS LA 2007/6,SUBJECT: Guidelines for settlement of widely based tax disputes PURPOSE: To set out practical guidance for the settlement of widely based tax disputes including but not limited only to disputes involving taxpayers who have participated in tax planning arrangements (whether subject to the general anti-avoidance provisions or otherwise).,21 February 2007,18 November 2004,Law Administration Practice Statement,False,"1. This Practice Statement provides guidance about proposals for settlement of widely based tax disputes. It must be read in conjunction with the Code of settlement (Code), which provides general guidance about settlement of taxation disputes. 2. Widely based tax disputes include tax avoidance arrangements, whether considered by us not to be effective by operation of the ordinary provisions of the law or application of a specific or general anti-avoidance rule (such as Part IVA of the Income Tax Assessment Act 1936 for income tax). 3. A Widely based Settlement Panel (Panel) (link available internally only) has been established to provide advice to decision-makers about offers and proposals to settle widely based tax disputes involving at least 20 taxpayers. 4. The purpose of the Panel is to ensure that the terms and conditions of widely based settlement proposals adopted by us are consistent and appropriate and that the reasons for the adopted proposals are transparent. 5. A widely based settlement proposal means a proposal by us to offer certain terms of settlement to taxpayers or a proposal made to us by or on behalf of taxpayers to settle their disputes. 6. Before making a decision to give effect to a widely based settlement proposal, a decision-maker is required to ensure: • that a dispute can be settled in accordance with the Code, and • they seek the Panel's advice. • that a dispute can be settled in accordance with the Code, and • they seek the Panel's advice. 7. This Practice Statement sets out factors to be considered by decision-makers and the principles that the Panel will apply when formulating advice to a decision-maker about a widely based settlement proposal. In formulating its advice, the Panel will also consider the principles and guidelines in the Code, Our Charter and the Compliance model . 8. When deciding whether to make, accept or reject a widely based settlement proposal, the decision-maker must consider the Panel's advice. However, the Panel's advice does not fetter the decision-maker in the ultimate exercise of their delegation or authorisation to make, accept or reject a settlement proposal. | General matters: 9. The Widely based Settlement Panel is a panel of senior tax officers set up to consider widely based settlement proposals and to advise decision-makers in situations where a widely based settlement proposal may be appropriate. 10. When considering a settlement proposal, the objective of the Panel is to ensure: • consistency in the factors taken into consideration when a decision-maker is contemplating whether to make, accept or reject a settlement proposal • consistency in similar situations about the way factors are applied and the elements, terms and conditions of widely based settlement proposals • appropriate differentiation and weighting of factors according to differences in the circumstances of the taxpayers involved in the dispute, and • transparency around the advice and reasons for recommending whether a proposal should be accepted, modified or rejected. • consistency in the factors taken into consideration when a decision-maker is contemplating whether to make, accept or reject a settlement proposal • consistency in similar situations about the way factors are applied and the elements, terms and conditions of widely based settlement proposals • appropriate differentiation and weighting of factors according to differences in the circumstances of the taxpayers involved in the dispute, and • transparency around the advice and reasons for recommending whether a proposal should be accepted, modified or rejected. 11. These guidelines, the quality of the Panel's advice and the way widely based settlement proposals are managed will be periodically reviewed and this will involve public consultation. 12. Proposals for widely based settlements of tax disputes may arise: • externally – for example, by one or more participants in a tax planning arrangement proposing a settlement offer to us, or • internally – for example, by way of a general settlement offer or invitation from us to a group of taxpayers, such as participants in a particular tax planning scheme arrangement. • externally – for example, by one or more participants in a tax planning arrangement proposing a settlement offer to us, or • internally – for example, by way of a general settlement offer or invitation from us to a group of taxpayers, such as participants in a particular tax planning scheme arrangement. 13. A widely based settlement proposal is one where there are at least 20 taxpayers disputing the ATO view in relation to the same or similar arrangement including tax avoidance arrangements which are not effective because of the operation of the ordinary provisions of the law or the application of a specific or general anti-avoidance provision (such as Part IVA of the Income Tax Assessment Act 1936). Also within the scope of this Practice Statement are disputes of a non-scheme nature which nevertheless affect a large number of taxpayers. 14. Decision-makers are also required to seek the advice of the Panel on settlement proposals involving less than 20 taxpayers where the settlement proposal may have broader implications on community confidence in the administration of the tax system or where the case involves issues and factors which may be applicable to settlement of other disputes involving larger numbers of taxpayers. Where there is uncertainty about whether a proposal should be referred to the Panel for advice, decisions-makers are expected to seek clarification from the chair of the Panel (Chair) and to consider the amount of revenue involved as well as the Code – noting that, of itself, the amount of revenue is not a reason for the proposal to be referred to the Panel). 15. For the purposes of this Practice Statement, 'dispute' has a broad meaning. The term 'dispute' includes a reference to a disputed liability or entitlement involving primary tax, penalties, payments, franking credits and debits, foreign tax credits, credits and refunds of indirect taxes, general interest charge (GIC) and interest. A settlement proposal can be considered prior to formal assessments being raised – for example, during the course of an audit after taxpayers involved in the matter have considered a position paper from us or other communication of our thinking. 16. This Practice Statement does not apply to any settlement or any component of a settlement which concerns compensation or similar monetary claims against us, as described in Chief Executive Instruction Making payments (link available internally only). | Code of settlement: 17. The Code provides general guidance about settlement of taxation disputes. Settlement, as an alternative to litigation of the substantive issues in dispute, will be appropriate where considerations of sensible administration and good management of the tax system outweigh the general rule that we do not forego tax properly payable (including shortfall penalty and GIC). The 'good management rule' that underpins our approach to settling a dispute also has application to settlement of widely based tax disputes, including marketed tax planning arrangements, although the factors taken into consideration and the elements of the settlement offer can often be different in a widely based dispute to those discussed in the Code. 18. While the terms of a settlement proposal will always turn on the particular facts of the issue, as well as the behaviours or special circumstances of the taxpayers and others involved, scrutiny of our administration of mass-marketed investment schemes and employee benefit arrangements has shown that we also need to give particular attention to questions of fairness, consistency and transparency of widely based settlement proposals across groups of taxpayers and across different kinds of arrangements. The guidelines in this Practice Statement therefore supplement the Code by dealing with the issues relevant in the context of settlement of a widely based dispute. | Decision-makers: 19. The power to settle a dispute in accordance with the Code is delegated only to senior officers. While these delegated officers may authorise other officers to carry out their responsibilities, the intention is to limit the exercise of the power to settle taxation disputes to a restricted range of taxation officers. 20. The Panel does not exercise a delegated power to settle disputes. Its role is purely advisory. All decision-makers referring settlement proposals to the Panel for advice must ensure that duly made delegations and authorisations are in place. 21. The basic principle that there should be no unilateral decision-making in relation to settlements applies to widely based tax disputes. This means that a case officer or team leader who is approached with an offer to settle a dispute or who reaches a view that it may be appropriate to make a settlement offer to the participants must refer the matter to an officer at an appropriate level external to the team to decide whether the settlement process should be initiated. 22. Once it is decided that a matter needs to be referred to the Panel for advice, the submission to the Panel must be made by a senior officer who holds a delegation or authorisation to conclude a settlement. | Approach to resolving disputes through a widely based settlement: 23. The settlement of a widely based dispute is to be approached in 3 stages: • identifying the 'base settlement proposal' • identifying appropriate differentiations from the base settlement proposal, and • taking a taxpayer's unique individual circumstances into account in his or her individual settlement. • identifying the 'base settlement proposal' • identifying appropriate differentiations from the base settlement proposal, and • taking a taxpayer's unique individual circumstances into account in his or her individual settlement. 24. The first stage involves taking into account characteristics of the arrangement and circumstances that are common to all individual affected taxpayers. These common characteristics and circumstances are relevant to the formulation of the components of the base settlement proposal that is intended to be common to all participants. 25. The second stage involves taking into account circumstances not common to all individual affected taxpayers, to determine if there should be a differentiation to the base settlement for certain taxpayers or groups of taxpayers involved in the dispute (for example, whether there should be a differentiation between those who merely invested in an arrangement and those who additionally were associated with the promotion or sale of the arrangement to others). 26. The third stage involves giving consideration to any unique individual circumstances raised by a taxpayer when formulating the individual settlement for that taxpayer (for example, the terms of the settlement may involve special payment arrangements in light of a taxpayer's particular financial situation). When there are large numbers of taxpayers involved in a dispute, submissions from decision-makers will need to include appropriate procedures to ensure that taxpayers have the opportunity to raise unique individual circumstances. | Role and operation of the Widely based Settlement Panel: 27. The role of the Panel is to assist us in our administration of settlement proposals for widely based tax disputes to: • ensure that the terms and conditions of widely based settlement proposals are consistent and appropriate • ensure that the reasons for settling a dispute, including any differentiation to a base settlement for certain taxpayers or groups of taxpayers involved in the dispute are transparent • provide objective advice to a decision-maker on the above list points, including advice regarding the primary tax matter, appropriate imposition and remission of penalties and remission of interest, and • ensure that the principles and guidelines set out in this Practice Statement and in the Code have been applied and followed. • ensure that the terms and conditions of widely based settlement proposals are consistent and appropriate • ensure that the reasons for settling a dispute, including any differentiation to a base settlement for certain taxpayers or groups of taxpayers involved in the dispute are transparent • provide objective advice to a decision-maker on the above list points, including advice regarding the primary tax matter, appropriate imposition and remission of penalties and remission of interest, and • ensure that the principles and guidelines set out in this Practice Statement and in the Code have been applied and followed. 28. The Panel will also provide advice to a decision-maker about whether it may be appropriate to enter into a widely based settlement for a particular dispute and, if so, appropriate terms and conditions of a base settlement proposal and appropriate differentiations to the base settlement proposal. 29. Where administrative difficulties arise, or might arise, in implementing a widely based settlement, the decision-maker can obtain the advice of the Chair. 30. Except for individual circumstances as outlined in paragraph 26 of this Practice Statement, if a decision-maker decides not to follow the Panel's advice, they are required to discuss this with the Chair before implementing that decision. A decision-maker is also required to provide the Panel with information about the final settlement, including reasons for any variations from the Panel's advice. 31. Meetings of the Panel, including its conclusions and recommendations, will be documented and stored in accordance with our records management system. 32. We will publish the general terms of widely based settlements and the factors and principles applied at Widely based settlement arrangements . 33. All decisions on widely based settlement proposals, including any variations in individual cases, will also be recorded in the Siebel case management system. | Submissions to the Widely based Settlement Panel: 34. A submission to the Panel will be prepared when a decision-maker decides that a widely based settlement proposal should be escalated to the Panel for advice. The submission needs to address the guidelines outlined in this Practice Statement and the Code. If the risk involved in the settlement proposal warrants it, advice on the submission may be sought from the Tax Counsel Network [1] or external legal advice may be sought. Any advice received should form part of the submission. 35. When a matter referred to the Panel is in response to a settlement proposal generated externally, the decision-maker will: • provide an outline of the nature of the dispute, the steps taken by us to identify the issues in dispute, the number of taxpayers involved in the dispute, the amount of revenue involved and how the matter reached the stage where a settlement proposal was made • indicate whether the proposal was made on behalf of all of the taxpayers involved in the arrangement subject to dispute, and if the proposal was made on behalf of a particular group of taxpayers, outline whether the settlement proposal should be made available to the other taxpayers involved in the disputed arrangement • provide copies of external submissions or, where the number of submissions makes this impractical, a representative set of submissions, and • provide any other papers, submissions and information relevant to the history and conduct of the dispute. • provide an outline of the nature of the dispute, the steps taken by us to identify the issues in dispute, the number of taxpayers involved in the dispute, the amount of revenue involved and how the matter reached the stage where a settlement proposal was made • indicate whether the proposal was made on behalf of all of the taxpayers involved in the arrangement subject to dispute, and if the proposal was made on behalf of a particular group of taxpayers, outline whether the settlement proposal should be made available to the other taxpayers involved in the disputed arrangement • provide copies of external submissions or, where the number of submissions makes this impractical, a representative set of submissions, and • provide any other papers, submissions and information relevant to the history and conduct of the dispute. 36. If the decision-maker is not in agreement with the settlement proposal, an alternative view on an appropriate basis of settlement or management of the dispute in the absence of a settlement should be included with the submission. | Considerations – overview: 37. The decision-maker must take into account the following considerations in preparing a submission to the Panel. These must also be considered by the Panel in formulating its advice about the base settlement proposal and any differentiations to the base settlement: • the cost to revenue of the settlement proposal, the impact of the settlement on compliance attitudes and behaviours of the parties to the settlement and the community generally • justifiability of the settlement proposal in terms of consistency in the application of factors and outcomes in similar settlements, appropriate differentiation where circumstances are not comparable, and standards and expectations in the management of widely based tax disputes that reflect community expectations and promote community confidence in the administration of the tax system • the circumstances surrounding affected taxpayers involved in the dispute, which, in the case of widely based tax planning arrangements, includes the – circumstances surrounding participants' entry into the arrangement – manner in which the arrangement was put into practice – extent to which participants could have been reasonably expected to rely on the professional advice given, marketed or obtained, and – ability of the participants to implement the terms of the settlement proposal • other considerations relevant to the specific circumstances of the settlement proposal • litigation issues, including whether there is already a well-established ATO view of the law, whether the disputed arrangement has been subject to litigation in a court and the outcome of that litigation and whether a previous proposal to settle without proceeding to litigation of the issue in dispute has been rejected. The guidelines in the Code must be followed when deciding that settlement is preferable to litigation of the substantive technical issues involved in the dispute. Given that the purpose of a settlement is to not proceed to litigation of a dispute where good management of the tax system makes settlement of the issue justifiable, it is unlikely that second or subsequent proposals, made during the litigation processes, would be accepted on more favourable terms. • the cost to revenue of the settlement proposal, the impact of the settlement on compliance attitudes and behaviours of the parties to the settlement and the community generally • justifiability of the settlement proposal in terms of consistency in the application of factors and outcomes in similar settlements, appropriate differentiation where circumstances are not comparable, and standards and expectations in the management of widely based tax disputes that reflect community expectations and promote community confidence in the administration of the tax system • the circumstances surrounding affected taxpayers involved in the dispute, which, in the case of widely based tax planning arrangements, includes the – circumstances surrounding participants' entry into the arrangement – manner in which the arrangement was put into practice – extent to which participants could have been reasonably expected to rely on the professional advice given, marketed or obtained, and – ability of the participants to implement the terms of the settlement proposal • other considerations relevant to the specific circumstances of the settlement proposal • litigation issues, including whether there is already a well-established ATO view of the law, whether the disputed arrangement has been subject to litigation in a court and the outcome of that litigation and whether a previous proposal to settle without proceeding to litigation of the issue in dispute has been rejected. The guidelines in the Code must be followed when deciding that settlement is preferable to litigation of the substantive technical issues involved in the dispute. Given that the purpose of a settlement is to not proceed to litigation of a dispute where good management of the tax system makes settlement of the issue justifiable, it is unlikely that second or subsequent proposals, made during the litigation processes, would be accepted on more favourable terms. – circumstances surrounding participants' entry into the arrangement – manner in which the arrangement was put into practice – extent to which participants could have been reasonably expected to rely on the professional advice given, marketed or obtained, and – ability of the participants to implement the terms of the settlement proposal | Revenue cost and compliance impact: 38. The impact of the proposed settlement on compliance behaviours of the relevant group of taxpayers and the broader taxpaying community will be considered. The Panel may take into account the loss of revenue, potential litigation savings, whether settlement will lead to ongoing compliance by the taxpayers involved and how the settlement might affect compliance attitudes and behaviours among the community generally. 39. In disputes involving aggressive tax planning, the Panel will also consider whether the settlement proposal effectively deals with the tax mischief underlying the scheme. In forming the settlement terms in these cases, the Panel's advice may include considerations about changes in the compliance behaviours of the affected taxpayers over time up to and including their current income tax assessment. | Consistency with previous settlements of the same or similar matters: 40. The Panel will be informed by the facts, circumstances and terms of previous widely based settlements that are similar to the settlement proposal under consideration. The Panel will also seek to ensure that a widely based settlement proposal will broadly apply to all affected taxpayers. This may include taxpayers who have previously negotiated (on less favourable terms) an individual settlement of the dispute that is the subject of the settlement proposal being considered, as well as taxpayers who are awaiting the outcome of test case litigation or a lead case. 41. In considering the terms of a widely based settlement proposal, the Panel will take into account whether there is a clearly articulated ATO view on the issues in dispute, such as a view contained in a public ruling. Also relevant to the Panel's advice will be whether we have issued a Taxpayer Alert or other publication if the dispute arose from a tax avoidance arrangement and whether our earlier actions may be relevant to the matters in dispute. | Impact on community confidence: 42. The Panel will consider the likely impact of reaching settlement with a group of taxpayers on the confidence the wider community has in the administration of the tax system. The making of a settlement proposal which pertains to a tax avoidance arrangement would not, unless other factors are present, justify a reduction in tax, penalty, shortfall interest charge or GIC where those outcomes are out of step with community expectations. For example, it cannot be expected that settlements in tax avoidance scheme disputes will be so generous that promoters or participants would see no real downside to promoting or participating in tax avoidance arrangements. | Circumstances of affected taxpayers: 43. The decision-maker and the Panel will consider any relevant circumstances for groups of affected taxpayers when considering the base settlement offer. These circumstances may include: • the method of marketing of a scheme or arrangement to the participants • the compliance history of affected taxpayers • whether the taxpayers have been misled in any way by another person • the timing and nature of our information and enquiries in relation to a scheme or arrangement • the level of uncertainty surrounding the law with respect to the scheme or arrangement including, for example, whether there is a test case on the issue under the Test Case Litigation Program , and • the ability of the parties to meet the terms and conditions of the proposed settlement. • the method of marketing of a scheme or arrangement to the participants • the compliance history of affected taxpayers • whether the taxpayers have been misled in any way by another person • the timing and nature of our information and enquiries in relation to a scheme or arrangement • the level of uncertainty surrounding the law with respect to the scheme or arrangement including, for example, whether there is a test case on the issue under the Test Case Litigation Program , and • the ability of the parties to meet the terms and conditions of the proposed settlement. 44. The decision-maker will include any proposed differentiations to the base settlement for groups of affected taxpayers where the characteristics demonstrate material differences from other taxpayers, or groups of taxpayers. These circumstances may include: • in relation to the particular arrangement, whether some of the affected taxpayers had a real knowledge of what the arrangement involved • the compliance history of the taxpayers involved or affected, and • the level of tax mischief in how they personally implemented the arrangement. • in relation to the particular arrangement, whether some of the affected taxpayers had a real knowledge of what the arrangement involved • the compliance history of the taxpayers involved or affected, and • the level of tax mischief in how they personally implemented the arrangement. | Likelihood of the proposal being accepted by all affected taxpayers: 45. The Panel will consider the likelihood of a widely based settlement proposal being accepted by the affected taxpayers. When considering this matter, the Panel will closely consider any external submissions provided with the proposal. A settlement proposal is unlikely to be made or accepted unless there is sufficient prospect of acceptance by a large proportion of affected taxpayers. | Special terms or conditions that are appropriate to place on the settlement: 46. In some circumstances, the Panel may provide advice on special terms and conditions beyond those contemplated in the Model settlement deeds of the Code. Without intending to limit the terms that may be applied, the Panel may provide advice about: • whether there is to be a comprehensive settlement or a minimum number of participants who must agree before a settlement proposal is made or accepted, and • the period for which the settlement offer is, or particular terms in the settlement offer are, available, for example – where a term of settlement includes a remission of GIC, it may only be available up to a certain date (affected taxpayers would still be able to settle after that date but the GIC remission would not be available to them), or – a settlement offer may only be available until a court decision has been handed down in a specified case. • whether there is to be a comprehensive settlement or a minimum number of participants who must agree before a settlement proposal is made or accepted, and • the period for which the settlement offer is, or particular terms in the settlement offer are, available, for example – where a term of settlement includes a remission of GIC, it may only be available up to a certain date (affected taxpayers would still be able to settle after that date but the GIC remission would not be available to them), or – a settlement offer may only be available until a court decision has been handed down in a specified case. – where a term of settlement includes a remission of GIC, it may only be available up to a certain date (affected taxpayers would still be able to settle after that date but the GIC remission would not be available to them), or – a settlement offer may only be available until a court decision has been handed down in a specified case. | Quality assurance of the process: 47. These matters are dealt with in the Code, which all decision-makers are required to apply. However, the Panel will conduct regular reviews of the settlements it has endorsed to determine the success or otherwise of the proposal in order to better inform future decisions. | Application: 48. This Practice Statement applies to widely based settlement proposals arising after 18 November 2004. 49. This Practice Statement also applies to widely based settlement proposals that were under consideration as at 18 November 2004.",PS LA 2015/1 | ITAA 1936 Pt IVA,PS LA 2015/1,ITAA 1936 Pt IVA,,Chief Executive Instruction Making payments (link available internally only) Code of settlement Compliance model Model settlement deeds Our Charter Test Case Litigation Program Widely based Settlement Panel (link available internally only) Widely based settlement arrangements,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20076/NAT/ATO/00001,"Considerations – additional explanation | Updated in line with current ATO style and accessibility requirements. | Removed old paragraph 28: role of TCN Network. | Updated following the issue of PS LA 2012/1. | Attachment 1: Referral Process | Updated 'ATO settlement Register' to 'Siebel case management system'. | Additional hyperlinks to guidelines included. | Contact details and general update | Updated contact details & changed reference to Tax Officer to ATO throughout the document. | [1] Refer to Law Administration Practice Statement PS LA 2012/1 Engaging Tax Counsel Network on tax technical issues . | File 06/20384; 1-385IFLG; 1-14SD5BPK | This Practice Statement was originally published on 21 February 2007. Versions published from 1 July 2011 are available electronically - refer to the online version of the Practice Statement. Versions published prior to this date are not available electronically. If needed, these can be obtained from Law Publishing in the Office of the Chief Tax Counsel."
PS LA 2007/7,Making default assessments of taxable income in respect of attributable income,28 February 2007,28 February 2007,Law Administration Practice Statement,False,"1. What this Practice Statement is about: When a taxpayer does not lodge a return or we are not satisfied with the return they did lodge, we can make a default assessment under section 167 of the Income Tax Assessment Act 1936 . All legislative references in this Practice Statement are to the Income Tax Assessment Act 1936 , unless otherwise indicated. This Practice Statement provides guidelines on issuing such a default assessment in situations where attribution regimes operate to attribute certain income to Australian residents who have interests in a foreign company or trust, or who have transferred property or services to a foreign trust. The attribution regimes include: • the controlled foreign company (CFC) regime • foreign investment fund (FIF) regime (applicable to 2009-10 and prior years of income), and • transferor trust regimes. • the controlled foreign company (CFC) regime • foreign investment fund (FIF) regime (applicable to 2009-10 and prior years of income), and • transferor trust regimes. | 2. When taxpayers might be affected by attribution regimes: A taxpayer may be affected by the attribution regimes where available information indicates that the taxpayer: • has transferred property (including funds) or services to an offshore entity in a nil, low or preferential tax jurisdiction • is a shareholder in an offshore entity in a nil, low or preferential tax jurisdiction • exercises control over an offshore entity in a nil, low or preferential tax jurisdiction • has an interest in, or is entitled to acquire an interest in an offshore entity in a nil, low or preferential tax jurisdiction, or • is an associate of an entity with any of the above-mentioned attributes. • has transferred property (including funds) or services to an offshore entity in a nil, low or preferential tax jurisdiction • is a shareholder in an offshore entity in a nil, low or preferential tax jurisdiction • exercises control over an offshore entity in a nil, low or preferential tax jurisdiction • has an interest in, or is entitled to acquire an interest in an offshore entity in a nil, low or preferential tax jurisdiction, or • is an associate of an entity with any of the above-mentioned attributes. | 3. Making the default assessment: Once you have determined that a taxpayer may be affected by the attribution regimes, and the general circumstances which allow section 167 to be used, you should make a default assessment in line with the following guidelines. This should be done as soon as there is sufficient information to allow you to make a reasonable calculation of the attributable (and, therefore, taxable) income. In most circumstances, the taxpayer should be informed of your intention to make a default assessment, as well as the basis upon which it will be calculated, prior to the assessment being made. An exception to this general rule would be where an assessment needs to issue urgently. As examples, this may be where there is a risk of: • the taxpayer leaving Australia to avoid their tax obligations, or • dilution or dissipation of assets. • the taxpayer leaving Australia to avoid their tax obligations, or • dilution or dissipation of assets. | 4. Determining the facts: When making a default assessment, we are able to draw conclusions of fact or make underlying calculations which allow us to determine the final taxable income. [1] Controlled foreign companies - Part X When considering the attribution rules for CFCs, we need to adopt a reasonable basis from available evidence for determining each of the following matters: • Assuming the company is determined to be a resident of a listed country or of an unlisted country (as defined by subsection 320(1)), the degree of control or influence capable of being exercised by a taxpayer over a person or entity, including whether the taxpayer's circumstances meet the tests for - strict control, under paragraph 340(a) - assumed control, under paragraph 340(b), and - de facto control, under paragraph 340(c). • Whether a taxpayer is an associate of a person or entity for the purposes of the section 318 associate test, including whether they have sufficient influence over that person or entity. • Whether a taxpayer has an entitlement to acquire an interest in a CFC under the definition contained within section 322, including in situations where the taxpayer might otherwise not be an attributable taxpayer. For example, where they might have a contingent interest and the entitlement to acquire would crystallise this contingency, if exercised. • For the strict control test under paragraph, 340(a), whether the taxpayer is an Australian 1% entity under section 317. • The amount of an associate-inclusive control interest for the purposes of section 349, being the aggregate of - the amount of direct control interests for the purposes of sections 350 and 351, and - the amount of indirect control interests for the purposes of section 352. • Having determined that the taxpayer has an interest in a CFC, then determining if they are an attributable taxpayer for the purposes of section 361. • The amount of a direct attribution interest for the purposes of subsection 356(1), including determining the nature of an interest that a taxpayer may be entitled to acquire in an entity under section 322. • Whether an indirect attribution interest exists under subsection 357(1), including determining the nature and extent of any tracing interests that may exist in entities within a chain of ownership. • An attribution percentage for an attributable taxpayer under section 362, based upon determining indirect and direct shareholdings, taking into account surrounding economic circumstances (including a finding of paragraph 340(c) de facto control) that indicate the likely presence of paragraph 340(a) or 340(b) control through relevant shareholdings. • The attributable income of a CFC under Division 7 of Part X, or any element within that calculation. • Whether the active income test is satisfied for a CFC under Division 8 of Part X, or any element relevant to that test. • The amount of attributable income of a CFC that should form part of the section 167 taxable income of an attributable taxpayer for the purposes of section 166 as a result of section 456. • Assuming the company is determined to be a resident of a listed country or of an unlisted country (as defined by subsection 320(1)), the degree of control or influence capable of being exercised by a taxpayer over a person or entity, including whether the taxpayer's circumstances meet the tests for - strict control, under paragraph 340(a) - assumed control, under paragraph 340(b), and - de facto control, under paragraph 340(c). • Whether a taxpayer is an associate of a person or entity for the purposes of the section 318 associate test, including whether they have sufficient influence over that person or entity. • Whether a taxpayer has an entitlement to acquire an interest in a CFC under the definition contained within section 322, including in situations where the taxpayer might otherwise not be an attributable taxpayer. For example, where they might have a contingent interest and the entitlement to acquire would crystallise this contingency, if exercised. • For the strict control test under paragraph, 340(a), whether the taxpayer is an Australian 1% entity under section 317. • The amount of an associate-inclusive control interest for the purposes of section 349, being the aggregate of - the amount of direct control interests for the purposes of sections 350 and 351, and - the amount of indirect control interests for the purposes of section 352. • Having determined that the taxpayer has an interest in a CFC, then determining if they are an attributable taxpayer for the purposes of section 361. • The amount of a direct attribution interest for the purposes of subsection 356(1), including determining the nature of an interest that a taxpayer may be entitled to acquire in an entity under section 322. • Whether an indirect attribution interest exists under subsection 357(1), including determining the nature and extent of any tracing interests that may exist in entities within a chain of ownership. • An attribution percentage for an attributable taxpayer under section 362, based upon determining indirect and direct shareholdings, taking into account surrounding economic circumstances (including a finding of paragraph 340(c) de facto control) that indicate the likely presence of paragraph 340(a) or 340(b) control through relevant shareholdings. • The attributable income of a CFC under Division 7 of Part X, or any element within that calculation. • Whether the active income test is satisfied for a CFC under Division 8 of Part X, or any element relevant to that test. • The amount of attributable income of a CFC that should form part of the section 167 taxable income of an attributable taxpayer for the purposes of section 166 as a result of section 456. - strict control, under paragraph 340(a) - assumed control, under paragraph 340(b), and - de facto control, under paragraph 340(c). - the amount of direct control interests for the purposes of sections 350 and 351, and - the amount of indirect control interests for the purposes of section 352. Foreign investment funds - former Part XI (applicable to 2009-10 and prior income years only) When considering the attribution rules for FIFs, we need to adopt a reasonable basis from available evidence for determining each of the following matters: • Whether a taxpayer has an interest in a foreign company for the purposes of former paragraph 483(1)(a). • Whether a taxpayer has an entitlement to acquire an interest (under former section 475) in a foreign company as a FIF for the purposes of former paragraph 483(1)(b), including in situations where the taxpayer might otherwise not hold such an interest. For example, where they might have a contingent interest and the entitlement to acquire would crystallise this contingency, if exercised. • Whether a taxpayer has an interest in a foreign trust for the purposes of former paragraph 483(2)(a). • Whether a taxpayer has an entitlement to acquire an interest (under former section 475) in a foreign trust as a FIF for the purposes of former paragraph 483(2)(b), including in situations where the taxpayer might otherwise not hold such an interest. For example, where they might have a contingent interest and the entitlement to acquire would crystallise this contingency, if exercised. • Whether a taxpayer has an interest in a foreign life policy (FLP) for the purposes of former subsection 483(3). • Whether an interest in a FIF or FLP is held by a bare trust under which a taxpayer is absolutely entitled for the purposes of former section 484. • What the notional accounting period for a FIF under former section 486 should be. • What the notional accounting period for a FLP under former section 487 should be. • Whether a taxpayer is an associate of a person or entity for the purposes of the section 318 associate test, as modified by former section 491, including whether they have sufficient influence over that person or entity. • Whether there has been a disposal or acquisition of an interest in a FIF for the purposes of former section 489, at the time specified in former section 489 for the consideration specified in former section 490. • Whether a taxpayer qualifies for an exemption specified in Divisions 2 to 15 of former Part XI in respect of their interest in certain FIFs, including calculations necessary to determine such eligibility. • The amount of FIF income to be included in the assessable income of a taxpayer with an interest in a FIF or FLP for the purposes of Division 16 of former Part XI, including any elements in calculations necessary under Division 18 of that Part. • The amount of FIF losses applicable under Division 17 of former Part XI, including any elements in calculations necessary. • The amount involved in any FIF attribution account transaction for the purposes of Divisions 19 and 20 of former Part XI. • Whether a taxpayer has an interest in a foreign company for the purposes of former paragraph 483(1)(a). • Whether a taxpayer has an entitlement to acquire an interest (under former section 475) in a foreign company as a FIF for the purposes of former paragraph 483(1)(b), including in situations where the taxpayer might otherwise not hold such an interest. For example, where they might have a contingent interest and the entitlement to acquire would crystallise this contingency, if exercised. • Whether a taxpayer has an interest in a foreign trust for the purposes of former paragraph 483(2)(a). • Whether a taxpayer has an entitlement to acquire an interest (under former section 475) in a foreign trust as a FIF for the purposes of former paragraph 483(2)(b), including in situations where the taxpayer might otherwise not hold such an interest. For example, where they might have a contingent interest and the entitlement to acquire would crystallise this contingency, if exercised. • Whether a taxpayer has an interest in a foreign life policy (FLP) for the purposes of former subsection 483(3). • Whether an interest in a FIF or FLP is held by a bare trust under which a taxpayer is absolutely entitled for the purposes of former section 484. • What the notional accounting period for a FIF under former section 486 should be. • What the notional accounting period for a FLP under former section 487 should be. • Whether a taxpayer is an associate of a person or entity for the purposes of the section 318 associate test, as modified by former section 491, including whether they have sufficient influence over that person or entity. • Whether there has been a disposal or acquisition of an interest in a FIF for the purposes of former section 489, at the time specified in former section 489 for the consideration specified in former section 490. • Whether a taxpayer qualifies for an exemption specified in Divisions 2 to 15 of former Part XI in respect of their interest in certain FIFs, including calculations necessary to determine such eligibility. • The amount of FIF income to be included in the assessable income of a taxpayer with an interest in a FIF or FLP for the purposes of Division 16 of former Part XI, including any elements in calculations necessary under Division 18 of that Part. • The amount of FIF losses applicable under Division 17 of former Part XI, including any elements in calculations necessary. • The amount involved in any FIF attribution account transaction for the purposes of Divisions 19 and 20 of former Part XI. Transferor trusts - Division 6AAA of Part III When considering the attribution rules for transferor trusts, we need to adopt a reasonable basis from the available evidence for determining each of the following matters: • Whether an entity is in a position to control a trust estate for the purposes of section 102AAG. • Whether a taxpayer has transferred property or services to a trust estate for the purposes of section 102AAJ. • Whether a taxpayer is deemed to have transferred property or services to a trust estate for the purposes of section 102AAK, including any calculations necessary. • The amount of interest payable on distributions from certain non-resident trust estates for the purposes of section 102AAM, including any calculations necessary. • Whether a taxpayer is an attributable taxpayer for the purposes of section 102AAT. • The amount of attributable income of a trust estate for the purposes of sections 102AAU to 102AAZC (inclusive), including any calculations necessary. • Whether an entity is in a position to control a trust estate for the purposes of section 102AAG. • Whether a taxpayer has transferred property or services to a trust estate for the purposes of section 102AAJ. • Whether a taxpayer is deemed to have transferred property or services to a trust estate for the purposes of section 102AAK, including any calculations necessary. • The amount of interest payable on distributions from certain non-resident trust estates for the purposes of section 102AAM, including any calculations necessary. • Whether a taxpayer is an attributable taxpayer for the purposes of section 102AAT. • The amount of attributable income of a trust estate for the purposes of sections 102AAU to 102AAZC (inclusive), including any calculations necessary. Subject to the amounts relevant to the de minimis exclusion under section 102AAZE, the amount of attributable income of a trust estate to be included in the section 167 taxable income of an attributable taxpayer under section 102AAZD, including any calculations necessary. | 5. Gathering information to make the assessment: When gathering information to ascertain the possible application of the attribution rules, you should generally first request the information on an informal basis - either from the taxpayer themselves or relevant third parties. However, if this is not successful, you should then consider using our formal powers, including: • making a request under section 353-25 of Schedule 1 of the Taxation Administration Act 1953 (TAA) that a taxpayer produce information or documents that the Commissioner has reason to believe may be held offshore relating to that taxpayer's assessable income • serving upon an attributable taxpayer a substantiation notice under section 453 requesting that the taxpayer provide evidence that a CFC has passed the active income test, and • making a request from a treaty partner country for an exchange of information held by the revenue authorities in that country regarding any transactions that may relate to a taxpayer's attributable income. • making a request under section 353-25 of Schedule 1 of the Taxation Administration Act 1953 (TAA) that a taxpayer produce information or documents that the Commissioner has reason to believe may be held offshore relating to that taxpayer's assessable income • serving upon an attributable taxpayer a substantiation notice under section 453 requesting that the taxpayer provide evidence that a CFC has passed the active income test, and • making a request from a treaty partner country for an exchange of information held by the revenue authorities in that country regarding any transactions that may relate to a taxpayer's attributable income. For more details about our formal information gathering powers, see Our approach to information gatheringOur approach to information gathering . EXAMPLES The following are examples of how to use section 167 in some common situations involving attributable income. Example 1 Emails and letters between 2 Australian-resident individual taxpayers (Axel and Banjo) and an offshore service provider obtained from domestic information gathering indicates that the taxpayers established an offshore company (Haven Co) in a tax haven. Banking information for the 2 taxpayers also indicates that they each transferred $5 million to a bank account in the name of the company. Haven Co operates for 5 years and neither Axel nor Banjo reports any direct or indirect controlling interest in a foreign company, or any profits received from or attributable income in respect of the entity, in their tax returns for those years. No further information is provided by Axel & Banjo, notwithstanding our requests (including a notice under section 353-25 of Schedule 1 of the TAA), and no further information arises from third party enquiries. Given the evidence relating to the establishment of the offshore company and the transfer of funds to it, the case officer concludes that the taxpayers are affected by the CFC regime. The case officer also identifies the relevant steps in applying the attribution provisions and reaches the following conclusions in respect of those provisions: • Haven Co is a CFC under paragraph 340(a), including a finding that it is a resident of the tax haven, which is an unlisted country. • Axel and Banjo each have 50% associate-inclusive control interests in Haven Co and are therefore attributable taxpayers in relation to Haven Co. • Axel and Banjo are 50% shareholders in Haven Co and have an attributable interest in the company. • All of Haven Co's income is passive and therefore attributable income of the CFC. • The amount of attributable income is calculated by reference to the average of the Australian bond rate of return (compounding) for each of the 5 years. • Axel & Banjo should have equal attribution percentages and therefore have 50% of the calculated attributable income of Haven Co attributed to them on the basis of the above calculations. • Haven Co is a CFC under paragraph 340(a), including a finding that it is a resident of the tax haven, which is an unlisted country. • Axel and Banjo each have 50% associate-inclusive control interests in Haven Co and are therefore attributable taxpayers in relation to Haven Co. • Axel and Banjo are 50% shareholders in Haven Co and have an attributable interest in the company. • All of Haven Co's income is passive and therefore attributable income of the CFC. • The amount of attributable income is calculated by reference to the average of the Australian bond rate of return (compounding) for each of the 5 years. • Axel & Banjo should have equal attribution percentages and therefore have 50% of the calculated attributable income of Haven Co attributed to them on the basis of the above calculations. Accordingly, the case officer issues section 167 assessments in respect of attributable income for both taxpayers. The case officer records in the ATO management systems the basis for each of their decisions, including the steps taken to apply the particular provisions and the conclusions of fact required to support the application of those provisions. Example 2 Emails, letters and file notes obtained from domestic information gathering indicates that the directors (Cassie, Duncan, Estella and Fernando) of an Australian company, Ozzz Pty Ltd establish an offshore company (International Oz Co) in a tax haven to benefit Ozzz Pty Ltd's employees. Documents obtained indicate that the class of employees covered by the documents establishing International Oz Co includes the directors and their spouses, in addition to other employees. Banking information indicates that Ozzz Pty Ltd pays $1 million into International Oz Co each year for 4 years. From information obtained, after 4 years of operation, there is no evidence that International Oz Co has made distributions to any of the employees, although it has made interest-free non-recourse loans to Cassie and her husband. Neither Ozzz Pty Ltd nor Cassie, Duncan, Estella or Fernando report any direct or indirect controlling interest in a foreign company, or any profits received from or attributable income in respect of, International Oz Co in their tax returns for those years. No further information is provided by Ozzz Pty Ltd or Cassie, Duncan, Estella or Fernando, notwithstanding ATO requests (including a notice under section 353-25 of Schedule 1 of the TAA), and no further information arises from third-party enquiries. Given the evidence relating to the establishment of International Oz Co, and the transactions with it, the case officer concludes that the taxpayers are affected by the CFC regime. The case officer also identifies the relevant steps in applying the attribution provisions and reaches the following conclusions in respect of those provisions (notwithstanding any other decisions about the deductibility of the payments made by Ozzz Pty Ltd to International Oz Co): • International Oz Co is a CFC under paragraph 340(a), including a finding that it is a resident of the tax haven, which is an unlisted country. • Cassie, Duncan, Estella and Fernando each have 25% associate-inclusive control interests in International Oz Co and are therefore attributable taxpayers in relation to International Oz Co. • The amounts 'loaned' to Cassie and her husband are distribution benefits paid to an associate of the CFC under section 47A and properly income of Cassie and her husband. • All the amounts received from Ozzz Pty Ltd are tainted services income of International Oz Co and therefore attributable income of the CFC. • International Oz Co's ongoing income from the investment of its received fees is passive and therefore attributable income of the CFC. • The amount of passive income is calculated by reference to the average of the Australian bond rate of return (compounding) for each of the 4 years, less the amount assessable to Cassie under section 47A. • Aside from the amount assessable to Cassie under section 47A, Cassie, Duncan, Estella and Fernando should have equal attribution percentages, and therefore have 25% of the attributable income of International Oz Co attributed to them on the basis of the above calculations. • International Oz Co is a CFC under paragraph 340(a), including a finding that it is a resident of the tax haven, which is an unlisted country. • Cassie, Duncan, Estella and Fernando each have 25% associate-inclusive control interests in International Oz Co and are therefore attributable taxpayers in relation to International Oz Co. • The amounts 'loaned' to Cassie and her husband are distribution benefits paid to an associate of the CFC under section 47A and properly income of Cassie and her husband. • All the amounts received from Ozzz Pty Ltd are tainted services income of International Oz Co and therefore attributable income of the CFC. • International Oz Co's ongoing income from the investment of its received fees is passive and therefore attributable income of the CFC. • The amount of passive income is calculated by reference to the average of the Australian bond rate of return (compounding) for each of the 4 years, less the amount assessable to Cassie under section 47A. • Aside from the amount assessable to Cassie under section 47A, Cassie, Duncan, Estella and Fernando should have equal attribution percentages, and therefore have 25% of the attributable income of International Oz Co attributed to them on the basis of the above calculations. Accordingly, the case officer issues section 167 assessments in respect of attributable income for each of Cassie, Duncan, Estella and Fernando and in respect of deemed dividends received by Cassie and her husband. The case officer records in the ATO management systems the basis for each of their decisions, including the steps taken to apply the particular provisions and the conclusions of fact required to support the application of those provisions. Example 3 Company formation documents obtained from another country under one of Australia's tax treaties indicates that Gaia, an Australian-resident individual taxpayer, is a guarantee member of an international business company (IB Co) located in a tax haven. IB Co has 2 shares (held by Humphrey & Iga respectively), each with a face value of $1. Evidence obtained from domestic information gathering indicates that Gaia transfers $1 million in intellectual property to IB Co for nil consideration. IB Co then uses this property for the following 6 years in transactions with third parties. Gaia does not report either the initial transfer, or any capital gains applicable to it, in their return for that year. Gaia also does not report any interest in, or any profits received from or attributable income in respect of, IB Co's activities in the following 6 years. Limited and conflicting information is provided by Gaia following multiple ATO requests (including a notice under section 353-25 of Schedule 1 of the TAA), and no further information arises from third-party enquiries. Given the evidence relating to the establishment of the offshore company, and the transfer of the intellectual property to it, the case officer concludes that the taxpayers are affected by the CFC regime. The case officer also identifies the relevant steps in applying the attribution provisions and reaches the following conclusions in respect of those provisions: • IB Co is a CFC under paragraph 340(a), including a finding that it is a resident of the tax haven, which is an unlisted country. • Gaia has a 100% associate-inclusive control interest in IB Co, and is therefore an attributable taxpayer in relation to IB Co. • Gaia, as a guarantee member, is a shareholder in IB Co and has an attribution interest in the company. • Gaia is assessable on the calculated difference between the market value of the intellectual property and its cost base as a capital gain at the time of the transfer. • The income earned by IB Co from the use of the intellectual property is passive income and therefore attributable income of the CFC. • The value of the income earned by IB Co will be calculated by reference to the average of Australian Bureau of Statistics figures for the return on investment from intellectual property of the relevant type over the 6 years. • Gaia's attribution interest in IB Co is 100%, notwithstanding the inconsequential interests notionally held by Humphrey and Iga. • Gaia's attribution percentage in respect of the attributable income of IB Co is 100%. • All the attributable income of IB Co is assessed to Gaia on the basis of the above calculations. • IB Co is a CFC under paragraph 340(a), including a finding that it is a resident of the tax haven, which is an unlisted country. • Gaia has a 100% associate-inclusive control interest in IB Co, and is therefore an attributable taxpayer in relation to IB Co. • Gaia, as a guarantee member, is a shareholder in IB Co and has an attribution interest in the company. • Gaia is assessable on the calculated difference between the market value of the intellectual property and its cost base as a capital gain at the time of the transfer. • The income earned by IB Co from the use of the intellectual property is passive income and therefore attributable income of the CFC. • The value of the income earned by IB Co will be calculated by reference to the average of Australian Bureau of Statistics figures for the return on investment from intellectual property of the relevant type over the 6 years. • Gaia's attribution interest in IB Co is 100%, notwithstanding the inconsequential interests notionally held by Humphrey and Iga. • Gaia's attribution percentage in respect of the attributable income of IB Co is 100%. • All the attributable income of IB Co is assessed to Gaia on the basis of the above calculations. Accordingly, the case officer issues section 167 assessments in respect of attributable income for Gaia. The case officer records in the ATO management systems the basis for their decision, including the steps taken to apply the particular provisions and the conclusions of fact required to support the application of those provisions. Example 4 Letters, emails and witness statements obtained from domestic information gathering indicates that Junip Pty Ltd, an Australian-resident company controlled by Juniper, established an international company (Intl Co) located in a tax haven. This evidence indicates that Intl Co has a single share with a face value of $1, held by Kratz who works for a tax planning and asset protection services entity in the tax haven. This evidence also indicates that Junip Pty Ltd conducts a series of transactions to allegedly obtain goods from Intl Co over a 4-year period and tax returns indicate that Junip Pty Ltd claims deductions for those costs in its tax return for each year. From those returns, Junip Pty Ltd does not report any interest in, or any profits received from or attributable in respect of, Intl Co's activities in the 4 years. In addition, the evidence indicates that Juniper obtained an interest free loan from Intl Co in the second, third and fourth years for 85% of the amount charged by Intl Co. Furthermore, in their tax returns, Juniper does not report any interest in, or any profits received from or attributable in respect of, Intl Co's activities in any of the 4 years. Limited information is provided by Junip Pty Ltd and Juniper, notwithstanding multiple ATO requests (including a notice under section 353-25 of Schedule 1 of the TAA to each taxpayer), and no further information arises from third-party enquiries. Given the evidence relating to the establishment of the offshore company, and the nature of the transactions between Intl Co and Junip Pty Ltd, the case officer concludes that the taxpayers are affected by the CFC regime. The case officer also identifies the relevant steps in applying the attribution provisions and reaches the following conclusions in respect of those provisions (ignoring the potential application of Divisions 13 or 815 of the Income Tax Assessment Act 1997, as applicable, in respect of transfer pricing and any questions in relation to the deductibility of the expenses under section 8-1 of the Income Tax Assessment Act 1997): • Intl Co is a CFC under paragraph 340(a), including a finding of fact that Intl Co is a resident of the tax haven, which is an unlisted country. • Kratz is a nominee of Junip Pty Ltd in respect of the single share in Intl Co meaning Junip Pty Ltd has an entitlement to acquire that share and a 100% associated-inclusive control interest in Intl Co, and is therefore an attributable taxpayer in relation to Intl Co. • The amounts 'loaned' to Juniper are distribution benefits paid to an associate of the CFC under section 47A and properly income of Juniper. • The income earned by Intl Co from the provision of the goods is tainted as the goods were not substantially altered or transformed by Intl Co and therefore is attributable income of the CFC. • Junip Pty Ltd's attribution interest in Intl Co is 100%, notwithstanding the nominee shareholding notionally held by Krazt. • Junip Pty Ltd's attribution percentage in respect of the attributable income of Intl Co is 100%. • All the attributable income of Intl Co is assessed to Junip Pty Ltd on the basis of the above calculations. • Intl Co is a CFC under paragraph 340(a), including a finding of fact that Intl Co is a resident of the tax haven, which is an unlisted country. • Kratz is a nominee of Junip Pty Ltd in respect of the single share in Intl Co meaning Junip Pty Ltd has an entitlement to acquire that share and a 100% associated-inclusive control interest in Intl Co, and is therefore an attributable taxpayer in relation to Intl Co. • The amounts 'loaned' to Juniper are distribution benefits paid to an associate of the CFC under section 47A and properly income of Juniper. • The income earned by Intl Co from the provision of the goods is tainted as the goods were not substantially altered or transformed by Intl Co and therefore is attributable income of the CFC. • Junip Pty Ltd's attribution interest in Intl Co is 100%, notwithstanding the nominee shareholding notionally held by Krazt. • Junip Pty Ltd's attribution percentage in respect of the attributable income of Intl Co is 100%. • All the attributable income of Intl Co is assessed to Junip Pty Ltd on the basis of the above calculations. Accordingly, the case officer issues section 167 assessments in respect of attributable income for Junip Pty Ltd and deemed dividends for Juniper. The case officer records in the ATO management systems the basis for each of their decisions, including the steps taken to apply the particular provisions and the conclusions of fact required to support the application of those provisions. Example 5 Third-party documentary evidence (loan application documents and emails) obtained from domestic information gathering indicates that Li, an Australian resident individual for all relevant years, caused the creation of a discretionary foreign trust Heaven Trust, with its sole trustee being Mercy Co, a company which is a resident in a tax haven. In addition, this evidence indicates that members of Li's family, who are Australian residents, are listed as potential beneficiaries. Banking and AUSTRAC information indicates that over a 6-year period, Li makes a series of transactions with Heaven Trust that includes direct or indirect transfers of funds valued at $1 million (Year 1). In addition, a media article from a reputable financial publication about tax haven investment trusts lists the assets of Heaven Trust as being the equivalent of $10 million in Year 1. Tax returns indicate that Li does not report these transfers, or any profits received from or attributable income in respect of, Heaven Trust's activities in the 6 years. Enquiries have identified no other taxpayer who may have been an attributable taxpayer in respect of Heaven Trust and there are no indications from the available evidence of any actual distributions to Li's family during those years. Limited information is provided by Li, notwithstanding multiple ATO requests (including a notice under section 353-25 of Schedule 1 of the TAA), and no further information arises from third party enquiries (including an exchange of information with a treaty partner involved in an audit of Mercy Co's activities as a promoter of tax avoidance schemes). Given the evidence relating to the establishment of the offshore company, and the transfer of funds to it, the case officer concludes that the taxpayers are affected by the transferor trust regime. The case officer also identifies the relevant steps in applying the attribution provisions and reaches the following conclusions in respect of those provisions: • Heaven Trust is a discretionary trust, with a finding of fact that its sole trustee (Mercy Co) is a resident in an unlisted country (the tax haven). • Li is an attributable taxpayer in respect of Heaven Trust based upon the direct and indirect transfers of funds. • Based upon the evidence, Li could obtain information necessary to calculate the attributable income of Heaven Trust, despite the lack of response to ATO enquiries, meaning that section 102AAZD(4) will not apply. • Based upon the reported assets of HeavenTrust, the notional attributable income will be calculated on the value of $10 million in Year 1, compounding through years 2 to 6, calculated by reference to the average of Australian Bureau of Statistics figures for the net return on investment from foreign investments over the 6 years. • Li has not provided complete information in an approved form regarding other persons who made transfers of property or services to Heaven Trust, meaning that section 102AAZD(3) will not apply. • Li's attribution percentage in respect of the attributable income of Heaven Trust will be 100%. • All of the attributable income of Heaven Trust is assessed to Li, on the basis of the above calculations. • Heaven Trust is a discretionary trust, with a finding of fact that its sole trustee (Mercy Co) is a resident in an unlisted country (the tax haven). • Li is an attributable taxpayer in respect of Heaven Trust based upon the direct and indirect transfers of funds. • Based upon the evidence, Li could obtain information necessary to calculate the attributable income of Heaven Trust, despite the lack of response to ATO enquiries, meaning that section 102AAZD(4) will not apply. • Based upon the reported assets of HeavenTrust, the notional attributable income will be calculated on the value of $10 million in Year 1, compounding through years 2 to 6, calculated by reference to the average of Australian Bureau of Statistics figures for the net return on investment from foreign investments over the 6 years. • Li has not provided complete information in an approved form regarding other persons who made transfers of property or services to Heaven Trust, meaning that section 102AAZD(3) will not apply. • Li's attribution percentage in respect of the attributable income of Heaven Trust will be 100%. • All of the attributable income of Heaven Trust is assessed to Li, on the basis of the above calculations. Accordingly, the case officer issues section 167 assessments in respect of attributable income for Li. The case officer records in the ATO management systems the basis for their decision, including the steps taken to apply the particular provisions and the conclusions of fact required to support the application of those provisions.",ITAA 1936 47A | ITAA 1936 Pt III Div 6AAA | ITAA 1936 102AAG | ITAA 1936 102AAJ | ITAA 1936 102AAK | ITAA 1936 102AAM | ITAA 1936 102AAT | ITAA 1936 102AAU | ITAA 1936 102AAV | ITAA 1936 102AAW | ITAA 1936 102AAY | ITAA 1936 102AAZ | ITAA 1936 102AAZB | ITAA 1936 102AAZBA | ITAA 1936 102AAZC | ITAA 1936 102AAZD | ITAA 1936 102AAZD(3) | ITAA 1936 102AAZD(4) | ITAA 1936 102AAZE | ITAA 1936 166 | ITAA 1936 167 | ITAA 1936 Pt X | ITAA 1936 Pt X Div 7 | ITAA 1936 Pt X Div 8 | ITAA 1936 317 | ITAA 1936 318 | ITAA 1936 320(1) | ITAA 1936 322 | ITAA 1936 340(a) | ITAA 1936 340(b) | ITAA 1936 340(c) | ITAA 1936 349 | ITAA 1936 350 | ITAA 1936 351 | ITAA 1936 352 | ITAA 1936 356(1) | ITAA 1936 357(1) | ITAA 1936 361 | ITAA 1936 362 | ITAA 1936 453 | ITAA 1936 456 | ITAA 1936 475 (repealed) | ITAA 1936 483(1)(a) (repealed) | ITAA 1936 483(1)(b) (repealed) | ITAA 1936 483(2)(a) (repealed) | ITAA 1936 483(3) (repealed) | ITAA 1936 484 (repealed) | ITAA 1936 486 (repealed) | ITAA 1936 487 (repealed) | ITAA 1936 489 (repealed) | ITAA 1936 490 (repealed) | ITAA 1936 491 (repealed) | ITAA 1997 8-1 | ITAA 1997 Div 13 | ITAA 1997 Div 815 | TAA 1953 Sch 1 353-10 | 77 ATC 4096 | 90 ATC 4088,,ITAA 1936 47A | ITAA 1936 Pt III Div 6AAA | ITAA 1936 102AAG | ITAA 1936 102AAJ | ITAA 1936 102AAK | ITAA 1936 102AAM | ITAA 1936 102AAT | ITAA 1936 102AAU | ITAA 1936 102AAV | ITAA 1936 102AAW | ITAA 1936 102AAY | ITAA 1936 102AAZ | ITAA 1936 102AAZB | ITAA 1936 102AAZBA | ITAA 1936 102AAZC | ITAA 1936 102AAZD | ITAA 1936 102AAZD(3) | ITAA 1936 102AAZD(4) | ITAA 1936 102AAZE | ITAA 1936 166 | ITAA 1936 167 | ITAA 1936 Pt X | ITAA 1936 Pt X Div 7 | ITAA 1936 Pt X Div 8 | ITAA 1936 317 | ITAA 1936 318 | ITAA 1936 320(1) | ITAA 1936 322 | ITAA 1936 340(a) | ITAA 1936 340(b) | ITAA 1936 340(c) | ITAA 1936 349 | ITAA 1936 350 | ITAA 1936 351 | ITAA 1936 352 | ITAA 1936 356(1) | ITAA 1936 357(1) | ITAA 1936 361 | ITAA 1936 362 | ITAA 1936 453 | ITAA 1936 456 | ITAA 1936 475 (repealed) | ITAA 1936 483(1)(a) (repealed) | ITAA 1936 483(1)(b) (repealed) | ITAA 1936 483(2)(a) (repealed) | ITAA 1936 483(3) (repealed) | ITAA 1936 484 (repealed) | ITAA 1936 486 (repealed) | ITAA 1936 487 (repealed) | ITAA 1936 489 (repealed) | ITAA 1936 490 (repealed) | ITAA 1936 491 (repealed) | ITAA 1936 Pt XI Div 2 (repealed) | ITAA 1936 Pt XI Div 3 (repealed) | ITAA 1936 Pt XI Div 4 (repealed) | ITAA 1936 Pt XI Div 5 (repealed) | ITAA 1936 Pt XI Div 6 (repealed) | ITAA 1936 Pt XI Div 7 (repealed) | ITAA 1936 Pt XI Div 8 (repealed) | ITAA 1936 Pt XI Div 9 (repealed) | ITAA 1936 Pt XI Div 10 (repealed) | ITAA 1936 Pt XI Div 11 (repealed) | ITAA 1936 Pt XI Div 11A (repealed) | ITAA 1936 Pt XI Div 12 (repealed) | ITAA 1936 Pt XI Div 13 (repealed) | ITAA 1936 Pt XI Div 14 (repealed) | ITAA 1936 Pt XI Div 15 (repealed) | ITAA 1936 Pt XI Div 16 (repealed) | ITAA 1936 Pt XI Div 17 (repealed) | ITAA 1936 Pt XI Div 18 (repealed) | ITAA 1936 Pt XI Div 19 (repealed) | ITAA 1936 Pt XI Div 20 (repealed) | ITAA 1997 8-1 | ITAA 1997 Div 13 | ITAA 1997 Div 815 | TAA 1953 Sch 1 353-10,,Our approach to information gathering,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20077/NAT/ATO/00001,"Updated in line with current ATO style and accessibility requirements. | Updated to new LAPS format and style. | Updated to current corporate publishing style. | Insert: applicable to 2009-10 and prior years of income for a taxpayer. | Insert: Note: this section only applies to 2009-10 and prior years of income for a taxpayer. Part XI has been repealed and will no longer apply to 2010-11 year of income for a taxpayer and later years of income. | Amended to correct references. | [1] See Bailey v Commissioner of Taxation (Cth) [1977] HCA 11; 136 CLR 214 at [217] and Commissioner of Taxation v Dalco [1990] HCA 3; 168 CLR 614 at [630]. | Bailey v Commissioner of Taxation (Cth) [1977] HCA 11 (1977) 136 CLR 214 77 ATC 4096 (1977) 7 ATR 251 51 ALJR 429 13 ALR 41 | Commissioner of Taxation v Dalco [1990] HCA 3 [1989-1990] 168 CLR 614 90 ATC 4088 (1990) 20 ATR 1370 64 ALJR 166 90 ALR 341 | This Practice Statement was originally published on 28 February 2007. Versions published from 15 November 2011 are available electronically - refer to the online version of the Practice Statement. Versions published prior to this date are not available electronically. If needed, these can be requested by emailing TCNLawPublishingandPolicy@ato.gov.au ."
PS LA 2007/8,"SUBJECT: Treatment of non-resident captive insurance arrangements PURPOSE: To provide ATO staff with direction on the treatment of non-resident captive insurance arrangements, including determining commercial purpose and manner of the arrangement",12 April 2007,12 April 2007,Law Administration Practice Statement,False,"1. Legislative references in this practice statement are to the Income Tax Assessment Act 1936 (ITAA 1936) or the Income Tax Assessment Act 1997 (ITAA 1997). 2. Where officers encounter arrangements involving deductions for premiums paid to captive insurance entities, they must determine the taxation consequences of the insurance premiums paid, including whether they are allowable deductions. The following facts and circumstances of the particular arrangement should be considered: • Whether the captive insurance entity: (a) is exposed to incur a significant loss under the arrangement (b) assumes a significant insurance risk (c) is authorised and registered to conduct an insurance business in the local jurisdiction (d) actually has the financial capacity to pay any insurance claim that it is required to make in relation to the risk insured, and (e) has entered into an arrangement which may be a sham designed to mask the true economic and legal implications that flow from the arrangement. • Whether the captive insurance entity: (a) is exposed to incur a significant loss under the arrangement (b) assumes a significant insurance risk (c) is authorised and registered to conduct an insurance business in the local jurisdiction (d) actually has the financial capacity to pay any insurance claim that it is required to make in relation to the risk insured, and (e) has entered into an arrangement which may be a sham designed to mask the true economic and legal implications that flow from the arrangement. (a) is exposed to incur a significant loss under the arrangement (b) assumes a significant insurance risk (c) is authorised and registered to conduct an insurance business in the local jurisdiction (d) actually has the financial capacity to pay any insurance claim that it is required to make in relation to the risk insured, and (e) has entered into an arrangement which may be a sham designed to mask the true economic and legal implications that flow from the arrangement. These factors will help to determine the commercial legitimacy of the insurance arrangement and whether an actual insurance business is being conducted. The following factors may impact on the taxation consequences of insurance premiums paid to a captive insurance entity, which in turn will determine the deductibility of the premiums in Australia, as well as any Australian taxation consequences to the captive insurance entity itself: • Whether the amount of deductions claimed under section 8-1 of the ITAA 1997 is properly referable and proportionate to the actual insurance coverage provided, or whether the expense may be excessive. • Whether the deduction claimed for the insurance coverage is acceptable for transfer pricing purposes under Division 13 of Part III of the ITAA 1936, or whether the profitability of the captive insurance entity is a profit expected to accrue to the captive insurance entity for the purposes of Article 9/ Associated Enterprises Article (generally) of our treaties - note the various Taxation Rulings on the application of Division 13 and/or Article 9/ Associated Enterprises Articles. • Where the captive insurance entity is properly a resident of Australia under the definition of resident in subsection 6(1) of the ITAA 1936 and a member of a consolidated group, the income tax consequences of the insurance arrangement between the captive insurance entity and another member of the same consolidated group are ignored as the head company is taken to be both insured and insurer. [F1] In determining residency, consideration should be given to the place of central management and control of the entity - note Taxation Ruling TR 2018/5 Income tax: central management and control test of residency . • Where the captive insurance entity is not a resident of Australia, whether the income it receives is properly Australian-sourced income for the purposes of subsection 6-5(3) of the ITAA 1997. • Whether premiums paid or payable to a non-resident captive insurance entity should be included in its Australian assessable income under Division 15 of Part III of the ITAA 1936. • Where the captive insurance entity is not a resident of Australia, whether it may be a controlled foreign company (CFC) under Part X of the ITAA 1936. Where there are resident taxpayers investing into the captive insurance entity, officers should consider if any may be an attributable taxpayer under that Part in respect of the captive insurance entities income, including both tainted sales income (under section 447 of ITAA 1936), and tainted services income (under section 448 of ITAA 1936). [F2] • Whether Part IVA of the ITAA 1936 may apply on the basis that the captive insurance arrangement was entered into for the dominant purpose of obtaining a tax benefit - note Law Administration Practice Statement PS LA 2005/24 Application of General Anti-Avoidance Rules. • Whether the amount of deductions claimed under section 8-1 of the ITAA 1997 is properly referable and proportionate to the actual insurance coverage provided, or whether the expense may be excessive. • Whether the deduction claimed for the insurance coverage is acceptable for transfer pricing purposes under Division 13 of Part III of the ITAA 1936, or whether the profitability of the captive insurance entity is a profit expected to accrue to the captive insurance entity for the purposes of Article 9/ Associated Enterprises Article (generally) of our treaties - note the various Taxation Rulings on the application of Division 13 and/or Article 9/ Associated Enterprises Articles. • Where the captive insurance entity is properly a resident of Australia under the definition of resident in subsection 6(1) of the ITAA 1936 and a member of a consolidated group, the income tax consequences of the insurance arrangement between the captive insurance entity and another member of the same consolidated group are ignored as the head company is taken to be both insured and insurer. [F1] In determining residency, consideration should be given to the place of central management and control of the entity - note Taxation Ruling TR 2018/5 Income tax: central management and control test of residency . • Where the captive insurance entity is not a resident of Australia, whether the income it receives is properly Australian-sourced income for the purposes of subsection 6-5(3) of the ITAA 1997. • Whether premiums paid or payable to a non-resident captive insurance entity should be included in its Australian assessable income under Division 15 of Part III of the ITAA 1936. • Where the captive insurance entity is not a resident of Australia, whether it may be a controlled foreign company (CFC) under Part X of the ITAA 1936. Where there are resident taxpayers investing into the captive insurance entity, officers should consider if any may be an attributable taxpayer under that Part in respect of the captive insurance entities income, including both tainted sales income (under section 447 of ITAA 1936), and tainted services income (under section 448 of ITAA 1936). [F2] • Whether Part IVA of the ITAA 1936 may apply on the basis that the captive insurance arrangement was entered into for the dominant purpose of obtaining a tax benefit - note Law Administration Practice Statement PS LA 2005/24 Application of General Anti-Avoidance Rules. 3. A captive insurance entity is an insurance entity where the parent company is not primarily engaged in the business of insurance. It is usually formed to insure the risks of its parent and affiliates, but it can also be used to insure third party risks. A captive insurance entity can retain the risks or it can pass on the whole or a part of the risks. A captive insurance entity would normally operate in a similar way to other general insurance or reinsurance companies. 4. For the purposes of this practice statement a captive insurance arrangement is a contract of insurance with an offshore captive insurance entity: • that is either directly or indirectly controlled (for example consider the control rules under Part X of the ITAA 1936) by an Australian resident parent entity (including a consolidated group), and • whose insurance business is principally that of providing indemnity for insurance risks of the resident parent and/or other entities in an associated group. • that is either directly or indirectly controlled (for example consider the control rules under Part X of the ITAA 1936) by an Australian resident parent entity (including a consolidated group), and • whose insurance business is principally that of providing indemnity for insurance risks of the resident parent and/or other entities in an associated group. 5. Under a captive insurance arrangement, an Australian resident entity pays premiums to the captive insurance entity so as to be indemnified for loss or damage arising upon the happening of a specified insurable event. | Commerciality of risks covered and premiums charged: 6. Officers should evaluate the evidence, in particular the contract of insurance, to determine whether the captive insurance arrangement results in a legitimate commercial coverage of risks (refer to Taxation Ruling TR 96/2), as opposed to an arrangement for the purposes of taxation consequences only. The commercial legitimacy of the insurance arrangement could impact on these taxation consequences. Indicators which will assist in demonstrating the commerciality legitimacy include: • the risk insured under the arrangement is capable of being insured in accordance with insurance law and commercial practices • there has been a transfer of significant insurance risk from the insured to the captive insurance entity, with indemnity provided • the insurance indemnity must exist and must not be compromised (for example via a loan back arrangement or via a refund of premiums) • premiums paid for risk cover are not excessive when compared to what premiums would be paid to an arm's length insurance company for the risk covered, and • the captive insurance entity has the financial capacity available to meet the liabilities required to be paid. • the risk insured under the arrangement is capable of being insured in accordance with insurance law and commercial practices • there has been a transfer of significant insurance risk from the insured to the captive insurance entity, with indemnity provided • the insurance indemnity must exist and must not be compromised (for example via a loan back arrangement or via a refund of premiums) • premiums paid for risk cover are not excessive when compared to what premiums would be paid to an arm's length insurance company for the risk covered, and • the captive insurance entity has the financial capacity available to meet the liabilities required to be paid. | Commercial purpose: 7. Officers should evaluate the evidence to determine whether the captive insurance entity was established for commercial purposes (for example see the decision in WD & HO Wills (Australia) Pty Ltd v. FC of T 96 ATC 4223; (1996) 32 ATR 168; (1996) 65 FCR 298). Indicators which might demonstrate this include: • there has been expert advice obtained to support the commercial reasons for establishment of the captive insurance entity, and • there has been a report by a qualified actuary to support that the level of premiums charged are reasonable for the nature of the risk to be carried by the captive insurance entity. • there has been expert advice obtained to support the commercial reasons for establishment of the captive insurance entity, and • there has been a report by a qualified actuary to support that the level of premiums charged are reasonable for the nature of the risk to be carried by the captive insurance entity. | Commercial manner of operation: 8. Officers should evaluate the available evidence to determine whether the captive insurance entity operates in a commercial manner. Indicators which might demonstrate this include: • there is a documented investment strategy for the investments to be made by the captive insurance entity • the types of investment made by the captive insurance entity are typical of those made by arm's length insurers (for example, investments are made by the captive insurer outside the group rather than back into the group) • there have been business and profit plans and projections made for the captive insurance entity on an ongoing basis • there are regular reports by a qualified actuary that satisfy all local licensing requirements to support the adequacy of the insurance reserves to meet the ongoing obligations of the captive insurance entity, and • claims are made or settled in the way they would be under an arm's length general insurance arrangement. • there is a documented investment strategy for the investments to be made by the captive insurance entity • the types of investment made by the captive insurance entity are typical of those made by arm's length insurers (for example, investments are made by the captive insurer outside the group rather than back into the group) • there have been business and profit plans and projections made for the captive insurance entity on an ongoing basis • there are regular reports by a qualified actuary that satisfy all local licensing requirements to support the adequacy of the insurance reserves to meet the ongoing obligations of the captive insurance entity, and • claims are made or settled in the way they would be under an arm's length general insurance arrangement. | Transfer of significant insurance risk: 9. It is necessary that the arrangement indemnifies the insured and that there is a transfer of significant insurance risk. | Taxation issues: 10. The following issues are relevant to determining the taxation effect of a captive insurance arrangement: • Deductibility of premiums - If officers conclude that the premiums claimed are excessive given the actual insurance coverage provided in respect of insurable risks actually transferred, then the amount of deductions allowable under section 8-1 of the ITAA 1997 are to be fully considered. Officers should refer to Fletcher v. FCT (1991) 103 ALR 97; 91 ATC 4950. • Transfer pricing - If officers conclude that the premiums paid by the insured are not acceptable for transfer pricing purposes, then a determination for the purposes of Division 13 of Part III of the ITAA 1936 must be made accordingly. Alternatively if profits expected to be accrued to the captive insurance entity have not been so accrued, then such profits may be taxed to the captive insurance entity under Article 9/ Associated Enterprises Article (generally) of the treaties. [F3] • Residence - If officers conclude that the captive insurance entity is properly a resident of Australia under the definition of resident in subsection 6(1) of the ITAA 1936, and is also a member of a consolidated group, the single entity rule contained in section 701-1 of the ITAA 1997 will have the effect that the income tax consequences of intra-group insurance arrangements will be ignored. Officers should refer in particular to Taxation Ruling TR 2018/5 in determining residency questions. • Australian taxation of non-resident captive insurance entities - Where the captive insurance entity is not a resident of Australia, and the income it receives in respect of the captive insurance arrangement is properly Australian-sourced income, the assessment of non-resident insurers is governed by Division 15 of Part III of the ITAA 1936 (sections 142 and 143). Officers should consider whether the Division applies to include premiums paid or payable to the captive insurance entity in its Australian assessable income. However, the Division only applies to genuine insurance arrangements. Accordingly, where a captive arrangement is not accepted as a genuine insurance arrangement for taxation purposes then Division 15 will have no application. • Double Taxation Agreements - Officers should consider the implications of any double tax agreements between Australia and the jurisdiction where the captive insurance entity is located. • Controlled foreign company regime - Where the captive insurance entity is not a resident of Australia, officers should consider if it may be a CFC under Part X of the ITAA 1936. Where there are resident taxpayers investing into the captive insurance entity, officers should consider if any may be an attributable taxpayer under that Part in respect of the captive insurance entities income, including both tainted sales income (under section 447 of ITAA 1936) and tainted services income (under section 448 of ITAA 1936). [F4] • Sham - If officers conclude that a purported captive insurance arrangement is a sham and of no legal effect, then no deduction will be allowable for any expenses incurred under that purported arrangement. • Part IVA of the ITAA 1936 - Officers should consider whether Part IVA of the ITAA 1936 may apply on the basis that the captive insurance arrangement was entered into for the dominant purpose of obtaining a tax benefit - see PS LA 2005/24. • Deductibility of premiums - If officers conclude that the premiums claimed are excessive given the actual insurance coverage provided in respect of insurable risks actually transferred, then the amount of deductions allowable under section 8-1 of the ITAA 1997 are to be fully considered. Officers should refer to Fletcher v. FCT (1991) 103 ALR 97; 91 ATC 4950. • Transfer pricing - If officers conclude that the premiums paid by the insured are not acceptable for transfer pricing purposes, then a determination for the purposes of Division 13 of Part III of the ITAA 1936 must be made accordingly. Alternatively if profits expected to be accrued to the captive insurance entity have not been so accrued, then such profits may be taxed to the captive insurance entity under Article 9/ Associated Enterprises Article (generally) of the treaties. [F3] • Residence - If officers conclude that the captive insurance entity is properly a resident of Australia under the definition of resident in subsection 6(1) of the ITAA 1936, and is also a member of a consolidated group, the single entity rule contained in section 701-1 of the ITAA 1997 will have the effect that the income tax consequences of intra-group insurance arrangements will be ignored. Officers should refer in particular to Taxation Ruling TR 2018/5 in determining residency questions. • Australian taxation of non-resident captive insurance entities - Where the captive insurance entity is not a resident of Australia, and the income it receives in respect of the captive insurance arrangement is properly Australian-sourced income, the assessment of non-resident insurers is governed by Division 15 of Part III of the ITAA 1936 (sections 142 and 143). Officers should consider whether the Division applies to include premiums paid or payable to the captive insurance entity in its Australian assessable income. However, the Division only applies to genuine insurance arrangements. Accordingly, where a captive arrangement is not accepted as a genuine insurance arrangement for taxation purposes then Division 15 will have no application. • Double Taxation Agreements - Officers should consider the implications of any double tax agreements between Australia and the jurisdiction where the captive insurance entity is located. • Controlled foreign company regime - Where the captive insurance entity is not a resident of Australia, officers should consider if it may be a CFC under Part X of the ITAA 1936. Where there are resident taxpayers investing into the captive insurance entity, officers should consider if any may be an attributable taxpayer under that Part in respect of the captive insurance entities income, including both tainted sales income (under section 447 of ITAA 1936) and tainted services income (under section 448 of ITAA 1936). [F4] • Sham - If officers conclude that a purported captive insurance arrangement is a sham and of no legal effect, then no deduction will be allowable for any expenses incurred under that purported arrangement. • Part IVA of the ITAA 1936 - Officers should consider whether Part IVA of the ITAA 1936 may apply on the basis that the captive insurance arrangement was entered into for the dominant purpose of obtaining a tax benefit - see PS LA 2005/24. 11. Example 1 • Australian Group sets up a captive insurance entity in Bermuda. • The captive insurance entity provides insurance cover to all members of the group for all types of insurance needs. • Each group member pays a commercial and arm's length rate of insurance premium for the cover provided, with a commercial rate of excess agreed. • The captive insurance entity is able to reinsure its own insurance risk with an independent insurance provider, enabling the captive to payout on any insurance claims. • Australian Group sets up a captive insurance entity in Bermuda. • The captive insurance entity provides insurance cover to all members of the group for all types of insurance needs. • Each group member pays a commercial and arm's length rate of insurance premium for the cover provided, with a commercial rate of excess agreed. • The captive insurance entity is able to reinsure its own insurance risk with an independent insurance provider, enabling the captive to payout on any insurance claims. This scenario would be acceptable as an insurance arrangement for the following reasons: 1. There is a genuine transfer of insurance risk to the captive insurance entity (and reinsurer) from each member of the group. 2. Premiums are commercial and arm's length relative to the insurance provided. 3. The captive insurance entity can and does pay out on any insurance claims made by members of the group. 4. The arrangement is commercial in nature due to the number of parties involved and the manner of the operation and insurance provided. 1. There is a genuine transfer of insurance risk to the captive insurance entity (and reinsurer) from each member of the group. 2. Premiums are commercial and arm's length relative to the insurance provided. 3. The captive insurance entity can and does pay out on any insurance claims made by members of the group. 4. The arrangement is commercial in nature due to the number of parties involved and the manner of the operation and insurance provided. 12. Example 2 • Australian Parent sets up a captive insurance entity in Guernsey. • Parent takes out insurance contract with the captive insurance entity for $200 million insurance cover and pays $20 million premium to the captive insurance entity for that coverage. • The captive insurance entity retains $17 million premium and $170 million insurance risk. • Captive insurance entity takes out a reinsurance contract for $30 million and pays $3 million premium. • The captive insurance entity has recourse to the reinsurance contract for the first $30 million plus the $17 million retained premium (plus investment earnings) to cover insurance claims made by the parent. • The captive insurance entity does not have any other financial capacity to cover the $200 million policy and needs to meet the balance of any insurance claim from other sources. • Actuaries have determined that there is a reasonable likelihood of the captive insurance entity receiving claims of not greater than $30 million (which the Captive would fund by recourse to the reinsurance contract with the London Insurance Market). • The reinsurance premium of $3 million paid to the London Insurance Market is considered to be an arm's length price for the $30 million cover. • Australian Parent sets up a captive insurance entity in Guernsey. • Parent takes out insurance contract with the captive insurance entity for $200 million insurance cover and pays $20 million premium to the captive insurance entity for that coverage. • The captive insurance entity retains $17 million premium and $170 million insurance risk. • Captive insurance entity takes out a reinsurance contract for $30 million and pays $3 million premium. • The captive insurance entity has recourse to the reinsurance contract for the first $30 million plus the $17 million retained premium (plus investment earnings) to cover insurance claims made by the parent. • The captive insurance entity does not have any other financial capacity to cover the $200 million policy and needs to meet the balance of any insurance claim from other sources. • Actuaries have determined that there is a reasonable likelihood of the captive insurance entity receiving claims of not greater than $30 million (which the Captive would fund by recourse to the reinsurance contract with the London Insurance Market). • The reinsurance premium of $3 million paid to the London Insurance Market is considered to be an arm's length price for the $30 million cover. This scenario would not be accepted as a captive insurance arrangement for the following reasons: 1. Actuaries have determined that insurance claims by the Australian Parent in excess of $30 million would only arise from the occurrence of 1 in 1000 year events. The probability of the captive insurance entity needing to fund claims from sources other than by recourse to the reinsurance contract is therefore remote. 2. As the arm's length price for $30 million cover is $3 million, and the probability of claims becoming payable in excess of $30 million is lower than for claims becoming payable under $30 million, a reasonable person might conclude that an arm's length premium for the $170 million cover retained by the captive insurance entity would be less than the $17 million premium retained. 3. The captive insurance entity does not have the financial capacity to satisfy the $200 million coverage provided. 4. The transfer pricing provisions and possible implications of this arrangement under Part IVA of the ITAA 1936 would need to be given full consideration. 1. Actuaries have determined that insurance claims by the Australian Parent in excess of $30 million would only arise from the occurrence of 1 in 1000 year events. The probability of the captive insurance entity needing to fund claims from sources other than by recourse to the reinsurance contract is therefore remote. 2. As the arm's length price for $30 million cover is $3 million, and the probability of claims becoming payable in excess of $30 million is lower than for claims becoming payable under $30 million, a reasonable person might conclude that an arm's length premium for the $170 million cover retained by the captive insurance entity would be less than the $17 million premium retained. 3. The captive insurance entity does not have the financial capacity to satisfy the $200 million coverage provided. 4. The transfer pricing provisions and possible implications of this arrangement under Part IVA of the ITAA 1936 would need to be given full consideration.",TR 96/2 | TR 2004/11 | TR 2018/5 | PS LA 1998/1 | PS LA 2005/24 | ITAA 1936 6(1) | ITAA 1936 Pt III Div 15 | ITAA 1936 142 | ITAA 1936 143 | ITAA 1936 Pt IVA | ITAA 1936 Pt X | ITAA 1936 446(4) | ITAA 1936 447 | ITAA 1936 448 | ITAA 1997 6-5(3) | ITAA 1997 8-1 | ITAA 1997 Pt 3-90 | ITAA 1997 701-1 | 91 ATC 4950 | 96 ATC 4223,PS LA 1998/1 PS LA 2005/24,ITAA 1936 6(1) | ITAA 1936 Pt III Div 13 | ITAA 1936 Pt III Div 15 | ITAA 1936 142 | ITAA 1936 143 | ITAA 1936 Pt IVA | ITAA 1936 Pt X | ITAA 1936 446(4) | ITAA 1936 447 | ITAA 1936 448 | ITAA 1997 6-5(3) | ITAA 1997 8-1 | ITAA 1997 Pt 3-90 | ITAA 1997 701-1,captive insurance transfer pricing commercial purpose,,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20078/NAT/ATO/00001,This practice statement is issued under the authority of the Commissioner and must be read in conjunction with Law Administration Practice Statement PS LA 1998/1. It must be followed by ATO staff unless doing so creates unintended consequences or is considered incorrect. Where this occurs ATO staff must follow their business line's escalation process. | Changed references from TR 2004/15 to TR 2018/5. | Changed reference from TR 2004/15 to TR 2018/5. | Contact details & general style update | Updated & changed reference to Tax Office to ATO | [F1] 1 See Taxation Ruling TR 2004/11 Income tax: consolidation: the meaning and application of the single entity rule in Part 3-90 of the Income Tax Assessment Act 1997 . | [F2] 2 Note both provisions are possibly modified by subsection 446(4) of ITAA 1936. | [F3] 3 Note: Officers must comply with the various Taxation Rulings on the application of Division 13 and/or Article 9/Associated Enterprises Article and the existing business process required for such determinations to be made. | [F4] 4 Note both provisions are possibly modified by subsection 446(4) of ITAA 1936. | Other business lines consulted
PS LA 2007/9,SUBJECT: Share buy-backs PURPOSE: To provide instruction and practical guidance to staff on the application of various taxation laws in connection with on-market and off-market share buy-backs.,2 May 2007,2 May 2007,Law Administration Practice Statement,False,"APPENDIX B: INCOME TAX ASSESSMENT ACT 1936 DETERMINATION UNDER PARAGRAPH 177EA(5)(a) Name of Company ABN Address for Service of Notices I, Delegate, in the exercise of the powers and functions conferred upon me as Assistant Commissioner LB&I, by delegation from the Commissioner of Taxation pursuant to section 8 of the Taxation Administration Act 1953 , DO HEREBY DETERMINE for the purposes of paragraph 177EA(5)(a) of the Income Tax Assessment Act 1936 ('the Act'). IN RESPECT OF Name of Company ('the Taxpayer') who was a party to a scheme for a disposition of shares in a company to which section 177EA applies, and who paid a franked dividend to shareholders on or about date. THAT a franking debit of the Taxpayer arises in respect of the dividend paid to shareholders on or about date. In accordance with the provisions of paragraph 177EA(5)(a) of the Act, I HEREBY DETERMINE that a franking debit of a total amount of Amount in words and figures arises in respect of the dividend. Signed at Place, Date ............................................................... Assistant Commissioner LARGE BUSINESS & INTERNATIONAL",TD 2004/22 | CR 2005/29 | CR 2005/87 | PS LA 2003/3 | PS LA 2003/9 | PS LA 2005/24 | Explanatory Memorandum | ITAA 1936 6(1) | ITAA 1936 6(4) | ITAA 1936 44 | ITAA 1936 45 | ITAA 1936 45A | ITAA 1936 45A(3) | ITAA 1936 45A(5) | ITAA 1936 45B | ITAA 1936 45B(3) | ITAA 1936 45B(5) | ITAA 1936 45B(8) | ITAA 1936 45B(8)(k) | ITAA 1936 45B(9) | ITAA 1936 45C | ITAA 1936 128B | ITAA 1936 128B(3)(ga) | ITAA 1936 Pt III Div 16K | ITAA 1936 159GZZZIA | ITAA 1936 159GZZZJ | ITAA 1936 159GZZZK | ITAA 1936 159GZZZL | ITAA 1936 159GZZZM | ITAA 1936 159GZZZN | ITAA 1936 159GZZZP | ITAA 1936 159GZZZQ | ITAA 1936 159GZZZQ(2) | ITAA 1936 159GZZZR | ITAA 1936 159GZZZS | ITAA 1936 177D | ITAA 1936 177D(b) | ITAA 1936 177EA | ITAA 1936 177EA(3) | ITAA 1936 177EA(5) | ITAA 1936 177EA(5)(a) | ITAA 1936 177EA(5)(b) | ITAA 1936 177EA(17) | ITAA 1997 Division 125 | ITAA 1997 202-40 | ITAA 1997 202-45 | ITAA 1997 202-45(c) | ITAA 1997 202-75 | ITAA 1997 202-75(2) | ITAA 1997 202-80 | ITAA 1997 202-80(2) | ITAA 1997 202-80(3) | ITAA 1997 203 | ITAA 1997 204-30 | ITAA 1997 204-30(1) | ITAA 1997 204-30(3) | ITAA 1997 204-30(4) | ITAA 1997 204-30(5) | ITAA 1997 204-30(6) | ITAA 1997 204-30(8) | ITAA 1997 204-30(9) | ITAA 1997 205-30 | ITAA 1997 207-20(1) | ITAA 1997 207-20(2) | ITAA 1997 207-35 | ITAA 1997 207-145(1)(a) | ITAA 1997 725-50 | ITAA 1997 725-70 | ITAA 1997 725-230 | ITAA 1997 725-230(2) | ITAA 1997 725-230(3) | ITAA 1997 727-100 | ITAA 1997 727-110 | ITAA 1997 727-105 | ITAA 1997 727-550 | ITAA 1997 727-755 | ITAA 1997 727-615 | ITAA 1997 727-780 | ITAA 1997 Subdiv 727L | TAA 1953 8 | TAA 1953 Sch 1 388-55 | 2001 ATC 4343,PS LA 2003/3 PS LA 2003/9 PS LA 2005/24,ITAA 1936 Pt IIIAA Div 1A | ITAA 1936 6(1) | ITAA 1936 6(4) | ITAA 1936 44 | ITAA 1936 45 | ITAA 1936 45A | ITAA 1936 45A(3) | ITAA 1936 45A(5) | ITAA 1936 45B | ITAA 1936 45B(3) | ITAA 1936 45B(5) | ITAA 1936 45B(8) | ITAA 1936 45B(8)(k) | ITAA 1936 45B(9) | ITAA 1936 45C | ITAA 1936 128B | ITAA 1936 128B(3)(ga) | ITAA 1936 Pt III Div 16K | ITAA 1936 159GZZZIA | ITAA 1936 159GZZZJ | ITAA 1936 159GZZZK | ITAA 1936 159GZZZL | ITAA 1936 159GZZZM | ITAA 1936 159GZZZN | ITAA 1936 159GZZZP | ITAA 1936 159GZZZQ | ITAA 1936 159GZZZQ(2) | ITAA 1936 159GZZZR | ITAA 1936 159GZZZS | ITAA 1936 160APHJ | ITAA 1936 160APHM | ITAA 1936 160APHM(2) | ITAA 1936 160APHO | ITAA 1936 160APHO(1)(a) | ITAA 1936 177D | ITAA 1936 177D(b) | ITAA 1936 177EA | ITAA 1936 177EA(3) | ITAA 1936 177EA(5) | ITAA 1936 177EA(5)(a) | ITAA 1936 177EA(5)(b) | ITAA 1936 177EA(17) | ITAA 1997 Division 125 | ITAA 1997 202-40 | ITAA 1997 202-45 | ITAA 1997 202-45(c) | ITAA 1997 202-75 | ITAA 1997 202-75(2) | ITAA 1997 202-80 | ITAA 1997 202-80(2) | ITAA 1997 202-80(3) | ITAA 1997 203 | ITAA 1997 204-30 | ITAA 1997 204-30(1) | ITAA 1997 204-30(3) | ITAA 1997 204-30(4) | ITAA 1997 204-30(5) | ITAA 1997 204-30(6) | ITAA 1997 204-30(8) | ITAA 1997 204-30(9) | ITAA 1997 205-30 | ITAA 1997 207-20(1) | ITAA 1997 207-20(2) | ITAA 1997 207-35 | ITAA 1997 207-145(1)(a) | ITAA 1997 725-50 | ITAA 1997 725-70 | ITAA 1997 725-105 | ITAA 1997 725-230 | ITAA 1997 725-230(2) | ITAA 1997 725-230(3) | ITAA 1997 727-100 | ITAA 1997 727-110 | ITAA 1997 727-105 | ITAA 1997 727-550 | ITAA 1997 727-755 | ITAA 1997 727-615 | ITAA 1997 727-780 | ITAA 1997 Subdiv 727L | TAA 1953 8 | TAA 1953 Sch 1 388-55,cancellation of shares dividend streaming arrangements frankable dividends franked dividends general value shifting regime holding period rule qualified person related payment rule share buy-backs withholding taxes,Explanatory Memorandum to the New Business Tax System (Imputation) Bill 2002 Explanatory Memorandum to the Taxation Laws Amendment (Company Law Review) Bill 1998,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20079/NAT/ATO/00001,"The Government has announced that from 7:30pm AEDST on 25 October 2022, there will no longer be a dividend component in respect of the price paid by a listed public company undertaking an off-market share buy-back. The entire buy-back price paid for the share will be treated as capital proceeds for a share held on capital account, or as the entire proceeds for a share held as trading stock or on revenue account (but not as trading stock). | Retrospective tax law changes have effect for a period before the date of enactment once the legislation is passed. See Administrative treatment of retrospective legislation . | On-market share buy-backs | The anti-avoidance provisions | General value shifting regime: Divisions 725 and 727 | Other share buy-back matters | Is this arrangement a share buy-back? | First announcement date of share buy-back | Ex-Dividend Adjustment and TD 2004/22 | Capital-only off-market share buy-back and TD 2004/22 | Fixed price off-market share buy-back and TD 2004/22 | The dividend/capital 'split' | Average capital per share | Share capital/retained earnings ratio (Slice Approach) | Preferred ATO methodology | The related payments rule | Share buy-back timetables | The discretion in subsection 177EA(5) | Application of section 204-30 | Meaning of 'imputation benefit' | Meaning of 'greater benefit from franking credits' | Effect of Commissioner's determination | Value shift prior to a share buy-back | Off-market share buy-back at a discount - direct value shift | Off-market share buy-back at a premium - direct value shift | Direct value shift under a share buy-back causes an indirect value shift | GVSR consequences: thresholds and detailed application | Withholding tax: section 128B | Section 205-30: on-market buy-backs | Unfrankable distributions | This law administration practice statement is issued under the authority of the Commissioner and must be read in conjunction with Law Administration Practice Statement PS LA 1998/1 . ATO personnel, including non ongoing staff and relevant contractors, must comply with this law administration practice statement, unless doing so creates unintended consequences or is considered incorrect. Where this occurs, ATO personnel must follow their business line's escalation process. Taxpayers can rely on this law administration practice statement to provide them with protection from interest and penalties in the way explained below. If a statement turns out to be incorrect and taxpayers underpay their tax as a result, they will not have to pay a penalty. Nor will they have to pay interest on the underpayment provided they reasonably relied on this law administration practice statement in good faith. However, even if they don't have to pay a penalty or interest, taxpayers will have to pay the correct amount of tax provided the time limits under the law allow it. | 1. This practice statement is designed to assist tax officers to resolve technical issues in connection with on-market and off-market share buy-backs. | 2. Tax officers proposing to provide Administratively Binding Advice, Private Rulings or Class Rulings in connection with share buy-backs should follow this practice statement. However, nothing in this practice statement should be taken to require the exercise of a legal discretion without properly taking into account the particular facts of the case. | 3. The practice statement considers most provisions likely to be encountered in the provision of advice to the purchaser company and vendor shareholders in a buy-back. Tax officers engaged in the provision of advice by way of a publicly-issued ruling (for example, Class Ruling) must also follow the rules set out in the Public Rulings Manual. | 4. The practice statement provides administrative guidance on applying various taxation laws and also includes further explanations or interpretations drawn from cited case law. | Background: 5. The Corporations Act 2001 governs what is permissible when a company buys back its shares. Division 16K of Part III of the Income Tax Assessment Act 1936 (ITAA 1936) provides the basic consequences of a buy back for income tax purposes. However, several anti-avoidance provisions may alter those consequences. | 6. Taxpayers commonly seek Private Rulings or Class Rulings in order to ensure that the Commissioner agrees that the terms of Division 16K of Part III of the ITAA 1936 apply in a particular way, that the anti-avoidance rules do not apply, or, if they do, that they also apply in a particular way. | 7. The purpose of this practice statement is to indicate when a Private Ruling or Class Ruling may confidently be given that the provisions of tax law apply in a particular way, or do not apply at all. | 8. For convenience of language, issuing a Private Ruling or Class Ruling in accordance with the taxpayer's application is commonly referred to as 'approving' the proposed buy-back. However, tax officers and taxpayers need to bear in mind that companies are entitled to buy-back shares in any way permitted by the Corporations Act 2001 . | 9. Furthermore, when a proposed transaction is not one that meets the requirements of this practice statement for 'approval', the practice statement does not necessarily specify the tax consequences, favourable or adverse, for that transaction, which must be considered in accordance with its particular facts, although a general indication of the likely result may be given. | Scope: 10. The practice statement is divided into Statement and Explanation. Propositions contained in the practice statement are, where necessary, explained, clarified by example, supported by case law authority, or discussed. | 11. This practice statement does not cover demergers (section 45B of the ITAA 1936) that satisfy the conditions of Division 125 of the Income Tax Assessment Act 1997 (ITAA 1997). | The dividend/capital split: off-market share buy-backs: 12. The Australian Taxation Office (ATO) considers that, prima facie , the Average Capital Per Share methodology is the preferred methodology for determining the 'Dividend/Capital Split' in an off-market share buy-back. In the absence of exceptional circumstances, Average Capital Per Share will be applied to determine the capital component (see paragraphs 59 to 70 of this practice statement). | TD 2004/22: market value: 13. The ATO considers that 'market value' in an off-market share buy-back by a listed company (comprising capital/dividend) continues to be governed by Taxation Determination TD 2004/22 (see paragraphs 43 to 58 of this practice statement). | 14. TD 2004/22 does not, however, apply to off-market share buy-backs comprised of capital only which are conducted at arm's-length (see paragraph 54 of this practice statement). | The 45 Day Rule: 15. The Commissioner will generally consent to a buy-back timetable that allows shares to trade ex-entitlement for three (3) clear business days after the Announcement Date and before the Record Date (see paragraphs 71 to 94 of this practice statement). | 16. This period may be extended up to a maximum of seven (7) clear business days between Announcement Date and Record Date where there are strong commercial reasons requiring a longer period. | On-market share buy-backs: 17. Companies undertaking on-market share buy-backs are required to debit their franking account as if the company had purchased the shares off-market: section 205-30 of the ITAA 1997, item 9 (see paragraphs 162 to 164 of this practice statement). | Section 45A: 18. Section 45A of the ITAA 1936 is capable of application to share buy-backs in certain circumstances (see paragraphs 95 to 98 of this practice statement). | Section 45B: 19. Section 45B of the ITAA 1936 is capable of application to share buy-backs in certain circumstances (see paragraphs 99 to 110 of this practice statement). | 20. Section 177EA of the ITAA 1936 is capable of application to off-market share buy-backs in certain circumstances (see paragraphs 111 to 126 of this practice statement). In particular, it will be applied to compensate the revenue for the avoided wastage of franking credits where a non-resident shareholder population exists (see Example 5 at paragraph 126 of this practice statement). | 21. The Commissioner has outlined a formula under which the revenue will be compensated for the avoided wastage of franking credits (see paragraph 126 of this practice statement). | (a) the Commissioner will generally exercise his discretion in such a way that paragraph 177EA(5)(a) of the ITAA 1936 would be applied to cases where an acceptable level of discount in an off-market share buy-back is proposed (see paragraphs 117 to 126 of this practice statement), and (b) the Commissioner reserves his right to apply paragraph 177EA(5)(b) of the ITAA 1936 in cases where, inter alia , there is an unacceptable level of discount proposed (see paragraphs 117 to 126 of this practice statement). | Section 204-30: 23. Section 204-30 of the ITAA 1997 is capable of application to off-market share buy-backs in certain circumstances. The Commissioner will generally not make a Determination pursuant to subsection 204-30(3) of the ITAA 1997 in cases where he intends exercising his discretion under section 177EA of the ITAA 1936 (see paragraphs 127 to 142 of this practice statement). | General value shifting regime: Divisions 725 and 727: 24. The tax consequences for the capital component of a share buy-back may be affected by the application of Division 725 or Division 727 of the ITAA 1997. The consequences may flow from a value shift prior to the buy-back, or from a value shift under the buy-back itself. There may also be associated consequences for interests not bought back. (see paragraphs 143 to 156 of this practice statement). As there are control thresholds for the application of the general value shifting regime (GVSR), there will not ordinarily be any consequences under the GVSR in relation to the buy-back of listed public company shares. | Distribution statement: 25. The Commissioner will generally exercise a discretion to defer the time within which an approved form is to be supplied in a share buy-back (see paragraphs 168 to 171 of this practice statement). | Other share buy-back matters: (a) Withholding tax : section 128B of the ITAA 1936 (see paragraph 157 of this practice statement). (b) Dividends : section 44 and subsection 6(4) of the ITAA 1936 (see paragraphs 158 to 161 of this practice statement). (c) Frankable distributions : section 202-40 of the ITAA 1997 (see paragraph 165 of this practice statement). (d) Unfrankable distributions : section 202-45 of the ITAA 1997 (see paragraphs 166 and 167 of this practice statement). | Division 16K: 27. Share buy-backs are mainly governed, for taxation purposes, by Division 16K of Part III of the ITAA 1936 (Division 16K). Division 16K was enacted in 1990 to deal with changes to the Corporations Law that permitted companies to buy-back their own shares. | 28. The Division applies where a company buys a share (or a non-share equity) in itself from a shareholder and cancels the share. On-market and off-market share buy-backs are defined in section 159GZZZK of the ITAA 1936. If the share is listed on a stock exchange and the purchase is made in the ordinary course of business of that stock exchange, the buy-back will be an on-market purchase. All other buy-backs are treated as off-market purchases for taxation purposes. | 29. The purchase price paid by the company to the shareholder is the amount of money and/or the market value of any property the shareholder receives as consideration for the buy-back: section 159GZZZM of the ITAA 1936. | 30. There are no income tax or capital gains tax (CGT) consequences for the company that carries out the buy-back: section 159GZZZN of the ITAA 1936. However, a company may be required to debit its franking account balance in respect of an on-market or off-market share buy-back (see paragraphs 111 to 126 and 138 of this practice statement). | 31. In an on-market share buy-back, no part of the purchase price is taken to be a dividend in the hands of the seller: section 159GZZZR of the ITAA 1936. The purchase price forms the consideration or capital proceeds for the purposes of determining the seller's liability to CGT. | 32. In an off-market buy-back of shares, the difference between the purchase price and the part of the purchase price in respect of the buy-back which is debited against the company's share capital account is taken to be a dividend paid by the company to the seller. This dividend is paid to the seller as a shareholder out of profits derived by the company on the day the buy-back occurs: section 159GZZZP of the ITAA 1936. Franking credits may be available in respect of this dividend. | 33. In an off-market share buy-back, the consideration paid to a vendor shareholder will generally comprise a return of capital and a fully/partly/unfranked dividend. Dividends are considered at paragraphs 158 to 161 of this practice statement.[0] | 34. Section 159GZZZQ of the ITAA 1936 will determine the amount taken as consideration for the CGT position of the seller or for assessable profits or deductible losses where the seller is a share-trader. | 35. Tax officers should also note the existence of off-market proposals that are entirely composed of capital (that is, no dividend attached). It is possible to conduct a capital-only off-market share buy-back: see for example Class Ruling CR 2004/32 and Class Ruling CR 2005/6. Such off-market buy-backs may have the final price set by a fixed price method or a tender process. | 36. Since Division 16K has been in the ITAA 1936 the overwhelming number of off-market buy-backs have been 'floating price' arrangements. In these cases the buy-back price has generally been determined as the volume weighted average price (VWAP) of the company's shares on the Australian Stock Exchange (ASX) over a certain number of trading days before the formal announcement of the buy-back, adjusted for the percentage change in the Standard & Poors/Australian Stock Exchange 200 Index from the commencement of trading on the announcement date to the close of trading on the day the buy-back closes. Some other cases, where for example the purchase price was wholly debited to the company's share capital account, have undertaken a 'fixed' price buy-back arrangement involving a variation on this methodology - using only the VWAP for a period immediately prior to the announcement time without further adjustment. | 37. Recently, a new method of setting the buy-back price using a tender process has been adopted. This is sometimes referred to as a 'Dutch Auction'. Shareholders have been asked to nominate, within a set range, the amount of the purchase price they would accept as consideration for the buy-back. That is, in a tender process, shareholders are invited to sell some or all of their shares to the company by tendering parcels of shares at either a specified price within a specified price range, or as a final price tender. A final price tender is an offer to sell at the buy-back price, whatever it is determined to be by the tender process, after the tender period closes. Typically, the low point of the price range is set at a discount to the market price prevailing immediately before the detailed formal announcement of the tender process. | 38. A variation of this tender process involves shareholders offering to sell at various nominated levels of discount to market price. A final price tender option also exists under this method. | Is this arrangement a share buy-back?: 39. Share buy-backs involve the purchase and cancellation of shares bought back by the company. | • Is one dominant shareholder buying-out other shareholders? • Is there some other change in the underlying ownership of shares in the subject business? • Is part of the business being sold? • Is this a transaction between shareholders? | 41. The taxation consequences of any of these transactions for vendor shareholders will be very different to those attaching to an off-market share buy-back performed under Division 16K. | • Has the company sold assets/businesses thereby providing capital excess to requirements? • Does the company fail the objective purpose tests in section 45B and section 177D of the ITAA 1936 so as to produce a tax benefit? • Other relevant events or reasons? | Market value: TD 2004/22: 43. There are competing market forces at work in a tender process off-market share buy-back. On the one hand, companies strive to buy-back shares at the lowest possible price, often stating it is in the interests of remaining shareholders. On the other hand, the price paid for shares may not accord with the 'market value' of those shares as required by the special rule in subsection 159GZZZQ(2) of the ITAA 1936. | 44. Tax officers should also note that the ATO has issued TD 2004/22 in respect of the special rule in subsection 159GZZZQ(2) of the ITAA 1936 concerning 'market value'. This will apply to listed public company shares. The TD provides a methodology that should be used to ascertain market value for taxation purposes. | 45. The special rule in subsection 159GZZZQ(2) of the ITAA 1936 applies where the purchase price of a share in an off-market share buy-back is less than its market value. The rule requires that the amount of consideration that a seller is taken to have received is the amount that would have been the market value of the share at the time of the buy-back if the buy-back did not occur and was never proposed to occur . In effect, the amount of any deemed increase pursuant to the special rule is taken to be a capital receipt and alters the CGT position of the seller (usually decreasing any capital loss otherwise available). Likewise, the amount of any assessable revenue gain would be increased, and any deductible loss decreased, by the difference between the actual consideration and the substituted market value amount. | 46. The object of the special rule is to exclude the distortionary effect of the buy-back on the share's value for tax purposes by providing that the consideration the shareholder is taken to have received for tax purposes is not to be affected in any way by the share buy-back. As such, subsection 159GZZZQ(2) of the ITAA 1936 is an acknowledgement that the very fact of a buy-back can affect the value of the share being bought back. Companies requesting a variation to the formula in TD 2004/22 need to make out a case that their alternative formula gives a more accurate reflection of the share's market value than the approach in the Determination. | 47. In other words, the actual amount received by vendor shareholders under the tender process may not accord with either the prevailing ASX price or their position under taxation law. | • section 45A of the ITAA 1936 • section 45B of the ITAA 1936 • vendor shareholders returning the full market value of any shares sold into the buy-back pursuant to subsection 159GZZZQ(2) of the ITAA 1936 as prescribed in TD 2004/22, and • the anti-streaming provisions of section 177EA of the ITAA 1936 and section 204-30 of the ITAA 1997 [ or the Commissioner determines that streaming has occurred and the company agrees to a debit to its franking account ] see generally paragraphs 111 to 126 and 127 to 142 of this practice statement. | The level of discount in an off-market share buy-back conducted by means of a tender process is discussed fully at paragraphs 117 to 126 of this practice statement. Tax officers should note carefully this matter when dealing with Ruling applications. | First announcement date of share buy-back: 2. The first announcement date will be taken to be the first time the company indicated to the market place that the buy-back was in serious contemplation. This may be earlier in time than when the company officially announces the details of the buy-back. | MegaMetal Ltd is investigating capital management initiatives of up to $1 billion. MegaMetal is currently reviewing the various means of returning capital, including the use of share buy-backs, so as to optimise value, with the exact amount and timing of any return being dependent upon market conditions. | On 1 March MegaMetal Ltd announces to the ASX an off-market share buy-back of $800 million to be conducted in April - May. | The ATO would regard 1 March as the first announcement date in this case. | The Board is currently assessing capital management initiatives to reward shareholders, including an off-market share buy-back in the order of $50 million. Details will be announced once a final decision has been made. | On 1 May Stationery Inc. announces to the ASX an off-market share buy-back of up to $50 million to be conducted prior to 30 June. | The ATO would regard 1 May as the first announcement date in this case. | The Four Pillars Bank Ltd makes the following statement at its profit results announcement on 1 November: | Four Pillars Bank Ltd is still finalising the details associated with the issue of a new Tier 1 capital instrument. Four Pillars Bank is also presently considering undertaking a share buy-back in the first quarter of next year. | On 1 December Four Pillars Bank Ltd announces to the ASX an off-market share buy-back of up to $500 million to be conducted early in the new year. | The ATO would regard 1 December as the first announcement date in this case. | The Big Emporium Ltd is presently considering undertaking an off-market share buy-back of up to $600 million in the first quarter of next year. | On 1 December The Big Emporium Ltd announces to the ASX an off-market share buy-back of up to $600 million to be conducted early in the new year. | • detail of timing • detail on size of buy-back • detail that it is an off-market share buy-back, and • indication that the buy-back is in serious contemplation by the company. | Ex-Dividend Adjustment and TD 2004/22: 51. For off-market share buy-backs of listed company shares, TD 2004/22 prescribes a methodology for obtaining the 'market value' of a share as required by subsection 159GZZZQ(2) of the ITAA 1936. TD 2004/22 acknowledges the possibility that a company's share price may be affected by matters other than the off-market share buy-back. | 52. The most commonly encountered event in an off-market share buy-back that may give rise to an adjustment, as envisaged by the formula, is a company share being cum-dividend for part of the buy-back period. | 53. The ATO will allow companies to adjust the market value calculation to exclude the effect of the share being cum-dividend at the time of the buy-back, on a pro-rata basis: See Attachment A . | Capital-only off-market share buy-back and TD 2004/22: 54. The ATO will not apply TD 2004/22 in cases of capital-only off-market share buy-backs (refer to paragraph 35 of this practice statement) conducted at arm's-length. | Fixed price off-market share buy-back and TD 2004/22: 55. Off-market share buy-backs are sometimes conducted on a fixed-price basis. That is, the company nominates a price that it intends to buy-back its shares and shareholders are invited to sell their shares to the company at that price. For the purposes of taxation law, the following matters should be noted. | 56. First, the special rule in subsection 159GZZZQ(2) of the ITAA 1936 (see paragraphs 43 to 48 of this practice statement) still applies to fixed price buy-backs to determine market value: TD 2004/22. | 57. Secondly, the point of calculation of an acceptable level of discount may be modified in the case of a fixed price buy-back. Normally, the acceptable level of maximum discount is measured at the closing date of the buy-back (see paragraphs 119 to 126 of this practice statement). In a fixed price buy-back, because the buy-back price is known, it may be acceptable to calculate the discount by reference to the VWAP of the shares over the five (5) days immediately following the detailed announcement of the buy-back. The announcement should contain full details of the buy-back including the capital/dividend split for this practice to be applied: see for example Class Ruling CR 2005/29 and Class Ruling CR 2005/87. | 58. Thirdly, the acceptable level of maximum discount (see paragraphs 119 to 126 of this practice statement) still applies to fixed price off-market share buy-backs. | The dividend/capital 'split': • 'capital' is debited against the company's share capital account, and • the balance of the purchase price is a dividend. | The 'split' is nominated by the company. However, the ATO will have regard to the various anti-avoidance and integrity rules in the provision of written advice to the company. | 60. For example, a 'split' that has too low a capital component will both stream dividends and artificially increase capital losses to vendor shareholders. Conversely, a capital component that is too high will provide or stream capital benefits at the expense of dividends. Neither of these outcomes is desirable. | 61. The ATO considers that there are a number of acceptable methodologies for ascertaining the capital/dividend split, although not all have equal applicability in every case. The following discussion is designed to provide guidance to tax officers in deciding whether to accept the dividend/capital split proposed or to apply one of the various anti-avoidance provisions of the ITAA 1936. All of these methodologies have been accepted by the ATO in cases involving share buy-backs. The question becomes which is the most appropriate methodology in each case. | 62. One method used to determine the 'split' is for the company to work out its average capital per share (ACPS). This is obtained by dividing a company's ordinary issued capital by the number of shares on issue. The amount so derived is a reasonable estimate of any capital component of the split. The balance of any buy-back price would be a dividend. This method does overcome the dilution issue discussed at paragraph 63 of this practice statement. Another clear advantage is that ACPS gives rise to a strong presumption that sections 45A and 45B of the ITAA 1936 would not apply to the buy-back. Tax officers should examine recent financial year data as well as projected movements in the average. Evidence of recent capital injections just before a share buy-back may attract the anti-avoidance provisions. ACPS should, prima facie , be applied to determine the capital component in an off-market share buy-back. The other methods discussed below may have particular relevance or application in specific instances only. | 63. Another acceptable method of determining the capital/dividend split, in an established company, is to calculate the ratio of share capital to retained earnings on a company's most recent balance sheet. It is sometimes referred to as the 'Slice Approach'. This ratio should then be reflected in any capital/dividend split proposed. This method seems to more accurately reflect splits in established companies as newer companies do not have a history of retained earnings. However, companies that conduct successive off-market share buy-back may contribute to significant dilution of share capital over time if they continue to use this method. This may require an examination for possible breaches of section 45B of the ITAA 1936. For this reason, it is preferable to use the ACPS method. | 64. There may be particular circumstances where the use of the 'Slice Approach' is appropriate. For instance, a decision by a taxpayer company to sell-off a particular business and return that capital to shareholders is a case in point. Should the proceeds from that sale be comprised of both capital and profits, and the company proposed a distribution reflective of that capital/profits split, the ATO would probably consider that split more appropriate than ACPS. Any distribution should be capital and dividend proportionately to the interest of the shareholder in them. | 65. There may be other instances where a 'Slice Approach' would be acceptable to the ATO. Tax officers should fully and critically examine the commercial rationale behind a buy-back proposal for these reasons. | 66. The concept of 'embedded value' is an actuarial calculation reflecting the amount of value (usually for CGT purposes) per share in a demutualised entity. Former mutual companies that become companies limited by shares have used this method to attribute values to shares issued to former policy holders or members. | 67. It is acceptable for a recently demutualised company to have a capital/dividend split that approximates the embedded value/retained earnings ratio. It will become less acceptable, to the ATO, over time to use this method. | 68. It is similarly acceptable for a recently established listed company (without a history of retained earnings) to adopt such a method in setting its split. For example, a company 'spun-off' from an existing listed entity may propose the issue price as a capital amount. Once again, this amount (and method) loses its relevance over time. | Preferred ATO methodology: 69. Tax officers should apply ACPS for share buy-backs unless companies can demonstrate exceptional circumstances for the use of an alternative methodology. | 70. The 'split' should be tested against all aspects of the buy-back arrangement, including the tender buy-back process. In such a process, the ratios will change according to the final tender price. Arrangements presented to the ATO often take an average or mid-point share price. ATO advice will be based on the arrangement outlined in the Ruling application. | 71. A shareholder who receives a franked dividend must be a 'qualified person' in relation to that dividend in order to be entitled to a tax offset under subsection 207-20(2) of the ITAA 1997. That requirement is set out in paragraph 207-145(1)(a) of the ITAA 1997, and applies where the shareholder receives the dividend directly. There are different provisions dealing with entities to whom franked distributions flow indirectly, for example, through a trust or partnership. | 72. This practice statement does not deal with any other means by which a shareholder may become a qualified person in respect of a dividend. | 73. One of the principles of the imputation system is that the benefits of franking credits should only be available to the true economic owner of shares, that is, the person who bears the economic risks of loss involved in, and the opportunities for gain resulting from, ownership of shares. | 74. A shareholder can show that they are a 'qualified person' in relation to the dividend component of the buy-back price if they satisfy both the holding period rule and the related payments rule, found in former Division 1A of Part IIIAA of the ITAA 1936. | The Holding Period Rule: 75. Where a company is buying back its ordinary shares, the holding period rule in section 160APHO of the ITAA 1936 requires a shareholder to have held their shares on which a dividend has been paid for at least 45 days 'at risk' within a certain period. It is a once and for all test. That period is 90 days if the shares are preference shares (broadly, defined as shares that have a fixed dividend entitlement or are less risky than ordinary shares). | 76. The period in which the shareholder must have held their shares at risk begins on the date those shares were acquired and ends 45 days (or 90 days in the case of preference shares) after the shares become ex-dividend. This is called the 'primary qualification period' in paragraph 160APHO(1)(a) of the ITAA 1936. | 77. In counting the number of days that a shareholder has held the shares during the primary qualification period, one must exclude the days of acquisition and disposal, and those days where the shareholder is not 'at risk', that is, where the shareholder has materially diminished risks of loss or opportunities for gain in respect of the shares. | 78. It is possible to work out the last day upon which a shareholder can acquire shares, dispose of them into the buy-back and still satisfy the holding period rule. This is done by taking the day on which the shares are disposed of into the buy-back, and counting back 45 clear days. Generally this day will be the date that the offer to sell shares is accepted by the company undertaking the buy-back. | 79. For example, a company states that it will determine acceptances on 15 May 2005. Ignoring 15 May 2005 (day 135 of the year) and counting back 45 clear days, one must have acquired shares no later than 30 March 2005 (day 89 of the year) in order to be a qualified person. | 80. Under subsection 160APHM(2) of the ITAA 1936, a shareholder is taken to have materially diminished risks of loss or opportunities for gain in respect of shares where they are exposed to less than 30% of those risks and opportunities. This exposure requires the 'net position' of the shareholder to be worked out, using the financial concept of a delta: section 160APHJ of the ITAA 1936. | 81. The net position of each shareholder will differ according to what positions they have entered into. Derivatives such as call and put options, or futures contracts will affect the extent to which a shareholder is exposed to the risks and opportunities of share ownership. This is not an exhaustive list. | 82. The many different circumstances that a shareholder may find themselves in means that a Class Ruling can only set out the taxation consequences for a participating shareholder in respect of the holding period rule. It will still be incumbent upon the shareholder to satisfy themselves that they have held their shares 'at risk'. | Effect of announcement: 83. Tax officers may need to consider whether the company's announcement of the share buy-back process will result in a materially diminished risk of loss or opportunities for gain. | 84. The Commissioner does not regard the making of a detailed announcement of a buy-back process as having an effect on whether the shares are held at risk in circumstances where the company is not under any obligation to proceed with the buy-back until acceptances are completed. | Last In First Out Rule: 85. The holding period rule operates on a last-in-first-out basis, so that shareholders will be deemed to have disposed of their most recently acquired shares first for the purposes of working out whether they have held shares on which a dividend has been paid at risk for at least 45 days. | 86. The Commissioner is of the view that additional shares acquired by a shareholder that do not have an entitlement to participate in the share buy-back will not be taken to have been disposed of in the share buy-back. Shares acquired on an ex-entitlement basis, that is on or after the ex-entitlement date, will not carry any entitlement to participate. | The related payments rule: 88. A related payment is any arrangement whereby the taxpayer or an associate of the taxpayer passes on the benefit of a dividend or distribution to another party. Where a taxpayer, or associate, is required to make a related payment in respect of a dividend, there are more stringent rules that need to be satisfied in order to show that one is a qualified person. | 89. The Commissioner cannot address in a Class Ruling the question of how the related payments rule applies because it is dependant upon the individual facts and circumstances of the shareholder, and therefore is outside the description of the arrangement. | Share buy-back timetables: 90. A further policy underlying the imputation system is that imputation benefits will, over time, be spread more or less evenly across shareholders in proportion to their shareholding. The acquisition of shares in a company by an investor with the purpose of disposing of them into an announced buy-back, thereby accessing the benefits of franking credits attached to the dividend component of the buy-back price, is contrary to that policy and may attract the operation of section 177EA of the ITAA 1936. | 91. Opportunities for this will be eliminated where the detailed announcement date corresponds to, or is later than, the last day that a person may acquire shares and still be a qualified person in relation to the dividend paid on shares sold into the buy-back. A share buy-back timetable structured in this way cannot be said to be facilitating the taking of a position in a company by non-shareholders in order that they may access the often abnormally large dividend component (compared to the usual pattern of distributions on ordinary dividends) and associated franking benefits. | 92. To the extent that a company is a party to such a scheme through the structuring of such a timetable, it may be appropriate for the Commissioner to make a determination under paragraph 177EA(5)(a) of the ITAA 1936 that a franking debit arises in that company's franking account. | 93. The ASX Listing Rules require there to be at least seven (7) clear business days between the Announcement Date of an equal access share buy-back and the Record Date. Consequently, where this minimum period is used, shares will trade ex-entitlement three (3) clear business days after the Announcement Date. | 94. There may be strong commercial reasons dictating a need for a longer period between the Announcement Date and the acceptance of offers/tenders in relation to the buy-back. Where this is the case, a share buy-back timetable that caters for a maximum of seven clear business days between the Announcement Date and Record Date (consistent with the minimum requirements under ASX Listing Rules) is acceptable to the ATO. | Section 45A: 95. Section 45A of the ITAA 1936 applies where a company streams the provision of capital benefits and the payment of dividends in such a way that capital benefits are received by 'advantaged shareholders' who thereby derive a greater benefit from the capital benefits than other shareholders (who receive dividends). | 96. The Commissioner may make a Determination to the effect that section 45C of the ITAA 1936 applies to all or part of a capital benefit. Such a capital benefit is then deemed to be an unfranked dividend. | 97. Potential capital benefits are outlined in subsection 45A(3) of the ITAA 1936. Section 45A of the ITAA 1936 does not apply if it is reasonable to assume that the disadvantaged shareholders have received (or will receive) fully franked dividends: subsection 45A(5) of the ITAA 1936. | 98. The ATO will examine all arrangements for evidence of capital streaming. | Section 45B: 99. Relevantly, section 45B of the ITAA 1936 applies where a 'capital benefit' is provided under a scheme for a 'more than incidental purpose' of conferring a tax benefit. Subsection 45B(5) provides that the provision of a 'capital benefit' includes a distribution of share capital. Subsection 45B(9) provides that a capital benefit constitutes a tax benefit in the hands of the shareholder because it is less onerous tax-wise than a dividend. In other words, the mischief addressed by the section is that of a company distributing capital in substitution for a dividend substantially because of its preferential tax treatment in the hands of shareholders. | 100. Speaking practically, to apply section 45B of the ITAA 1936 to a share buy-back requires objective evidence of a substantial tax purpose of substituting share capital for a part of the purchase price which would otherwise be a dividend. Details of the purpose test on which section 45B turns are explained below. Before turning to the test, however, it is appropriate to discuss the character of the buy-back price in the hands of the vendor and, more particularly, whether it can include a distribution of share capital. These are issues that are resolved by Division 16K and which depend in the main on whether the share buy-back is undertaken off-market or on-market. | 101. The operation of Division 16K in relation to off-market buy-backs is predicated on characterising the constitution of the purchase price in the hands of the vendor shareholder according to the manner of its debiting in the accounts of the company. To the extent that the purchase price is not debited against share capital it is taken, for the purposes of the Act, to be a dividend paid to the vendor shareholder out of profits (section 159GZZZP of the ITAA 1936). Inferentially, the balance of the purchase price, which is debited against share capital, would be taken to be a distribution of share capital. This statutory bifurcation of the price into share capital and profit displaces the character of an 'indivisible lump sum' of distribution that it would otherwise have in the hands of the shareholder under common law: Thornett v. FCT (1938) 59 CLR 787. | 102. In regard to on-market buy-backs, Division 16K provides that no part of an on-market purchase price is a dividend (section 159GZZZR of the ITAA 1936). It also provides that, for the purposes of the Act, the whole of the purchase price is taken to be consideration for the sale of the share (section 159GZZZS of the ITAA 1936), which is not inconsistent with the common law characterisation of the purchase price as 'an indivisible lump sum' in the hands of the vendor shareholder. In the absence of Division 16K, the price of share buy-backs would similarly be statutorily bifurcated for the purposes of the Act by the definition of 'dividend' in subsection 6(1) of the ITAA 1936. However, the definition, which deems distributions to shareholders not debited against share capital to be a dividend, would not distinguish between off-market and on-market buy-backs. | 103. As no part of the purchase price for an on-market buy-back of shares is received by the vendor shareholder as a dividend, from a tax perspective it is immaterial to the shareholder whether or in what proportions the company debits the purchase price to profit or share capital. On the other hand, because an off-market buy-back price preserves the character of profit and share capital in the hands of the vendor it is inherently flexible in the way it is sourced between share capital and profit. It is feasible therefore that the element of the price sourced in share capital, the receipt of which is taxed preferentially, could be inflated relative to the profit element of the price so as to enable the shareholder to gain a tax advantage. This could occur, for example, where the company has limited franking that would otherwise shelter the dividend element of the off-market buy-back price from tax in the hands of the shareholder; so the company might debit more of the purchase price to share capital and less to profit than is defensible on grounds unrelated to tax advantage. | 104. Division 16K is silent in regard to the proportions of an off-market buy-back price debited against share capital and profit. However, by definition, the purpose test in section 45B of the ITAA 1936 examines why the proportions have been chosen as they have and if the objective circumstances in subsection 45B(8) on which the test relies point to a significant tax purpose for the choice then subsection 45B(3) would authorise an adjustment. | 105. The purpose of any one of the persons who entered into or carried out the scheme is sufficient to attract the operation of section 45B of the ITAA 1936. Relevant persons would include the company and its shareholders. In complex commercial transactions these persons will widely consult and rely upon professional advisers, and the 'actual parties to the scheme subjectively may not have any purpose, independent of that of a professional adviser.' [1] Where this is so, it may be appropriate to attribute the purpose of a professional adviser to one or more of the parties: FC of T v. Consolidated Press Holdings Ltd & Anor . [2] | 106. A more than incidental purpose includes the 'main or substantial purpose' but does not need to be the most 'influential or prevailing purpose' and will not include a purpose which occurs 'fortuitously or in subordinate conjunction with one of the main or substantial purposes...or merely follows that purpose as a natural incident.' [3] A person (or persons) can be found objectively to have two or more purposes, none of which is merely incidental. In such a case, all that is necessary for section 45B of the ITAA 1936 to apply is that one of those purposes is a more than incidental purpose of obtaining a tax benefit. For example, if, objectively speaking, persons entering into or carrying out a scheme of distributing capital have a substantial purpose of obtaining a tax benefit in the form of a capital benefit, the fact that they have other purposes that are more than incidental will not prevent the section from applying. | 107. The presence of the requisite 'more than incidental' purpose is to be inferred objectively from the circumstances of the arrangement. To facilitate the test and reveal the requisite purpose the section includes a non-exhaustive list of 'relevant circumstances' in subsection 45B(8) of the ITAA 1936 which must be considered in that regard. The relevant circumstances listed therein encompass a range of matters which taken individually or collectively will reveal whether the requisite purpose exists or not. Due to the diverse nature of these circumstances, some may be of little or no weight in ascertaining whether or not the purpose exists. In all cases however, tax officers must consider all of the circumstances and determine whether they tend to, against or are neutral as to the conclusion of a purpose of enabling the relevant taxpayer to obtain a tax benefit. The relevant taxpayer in a buy-back scheme is the vendor shareholder. | 108. The circumstances fall into three broad categories which include: the position of the company and its associates in relation to capital and profit (realised and unrealised) and its distribution culture; the tax profiles of the shareholders; and the eight matters from paragraph 177D(b) of the ITAA 1936 that enable the wider tax and non-tax effects of the buy-back scheme to be identified, compared and weighed. The matters in paragraph 177D(b) which are relied on to determine purpose under Part IVA of the ITAA 1936 are included by virtue of paragraph 45B(8)(k) of the ITAA 1936. The Part IVA matters are to be given equal attention with the other matters included in subsection 45B(8). Indeed, the Explanatory Memorandum to section 45B as enacted in 1998 suggested that the Part IVA matters were the core of the purpose test and the other, more specific circumstances included to give 'further guidance' to the operation of the section. [4] So if a share buy-back has been structured for a substantial purpose of distributing share capital preferentially for tax reasons, it should be revealed from reference to circumstances in subsection 45B(8). | 109. If section 45B of the ITAA 1936 is found to apply the Commissioner is empowered under subsection 45B(3) to make a determination that section 45C of the ITAA 1936 applies to the whole or a part of the capital benefit. The effect of section 45C is that the amount of the capital benefit, or part of it, is taken, for the purposes of the ITAA 1936, to be an unfranked dividend paid to the shareholder by the company out of profits. Thus, the capital benefit, or that part of it, becomes fully assessable income of the shareholder. | 110. Subsection 45C(3) of the ITAA 1936 also empowers the Commissioner to make a further determination that the whole or part of the capital benefit was paid under a scheme for which a more than incidental purpose was to avoid franking debits arising in relation to the distribution. A company is required to adhere to a franking benchmark within a given period pursuant to Division 203 of the ITAA 1997. The further determination results in a class C franking debit arising, which, however, has no meaning under the new simplified imputation laws; pertinent amendments to the law have nevertheless been foreshadowed. [5] | 111. Section 177EA of the ITAA 1936 is a general anti-avoidance provision that applies to a wide range of schemes to obtain a tax advantage in relation to imputation benefits. In essence, it applies to schemes for the disposition of shares or an interest in shares, where a franked distribution is paid or payable in respect of the shares or an interest in shares. This would include an off-market share buy-back with a franked dividend component. | (i) a frankable distribution has been paid, or is payable or expected to be payable, to a person in respect of the membership interests; or (ii) a frankable distribution has flowed indirectly, or flows indirectly or is expected to flow indirectly, to a person in respect of membership interests, as the case may be; and | 113. Accordingly, the issue is whether, having regard to the relevant circumstances of the scheme, it would be concluded that, on the part of a company, its shareholders or any other relevant party, there is a purpose more than merely an incidental purpose of conferring an imputation benefit under the scheme. Under this arrangement the relevant taxpayer is the participating shareholder and the scheme comprises the circumstances surrounding the buy-back. | 114. In arriving at a conclusion, the Commissioner must have regard to the relevant circumstances of the scheme which include, but are not limited to, the circumstances set out in subsection 177EA(17) of the ITAA 1936. The relevant circumstances listed there encompass a range of circumstances which taken individually or collectively could indicate the requisite purpose. Due to the diverse nature of these circumstances some may not be present at any one time in any one scheme. | • the delivery of franking credits in excess of what would have otherwise been distributed in the ordinary course of dividend declaration • the greater attraction of the buy-back to resident shareholders who could fully utilise the franking credits than to non-resident shareholders who could not (see Example 5 at paragraph 126 of this practice statement) • the greater attraction of the buy-back to some resident shareholders with a low marginal tax rate than other resident shareholders (for example, whereas superannuation funds are taxed at 15% and corporations at 30% individuals can be taxed at a marginal tax rate up to 45%), and • that participating shareholders were more likely than not to make an economic gain, but a loss for taxation purposes, from their participation. | 116. The ATO will challenge arrangements that cause an avoidance of 'wastage' of franking credits outside of shareholding patterns. The Explanatory Memorandum to section 177EA of the ITAA 1936 makes it patently clear that it is expected that wastage of franking credits will occur. A commonly encountered situation concerns the presence of non-residents on a company's shareholder register. A typical off-market share buy-back will stream dividends away from non-residents to residents, thus attracting the provision (see Example 5 at paragraph 126 of this practice statement). | The discretion in subsection 177EA(5): 117. Section 177EA of the ITAA 1936 is widely drafted, as an anti-avoidance provision, and invariably applies to most off-market share buy-backs. A survey of Class Rulings issued by the ATO will bear this out. | 118. Where section 177EA of the ITAA 1936 applies, the Commissioner has a discretion, pursuant to subsection 177EA(5), to make a determination to debit the company's franking account pursuant to paragraph 177EA(5)(a), or deny the imputation benefit to each shareholder pursuant to paragraph 177EA(5)(b). | 119. The Commissioner will examine the proposed maximum discount level/minimum buy-back price in any off-market share buy-back arrangement. That is, the ATO will examine the tender process to ascertain the level of discount at which the company proposes to buy-back its shares. | 120. The Commissioner regards the discount level as a relevant consideration in the appropriate exercise of his discretion in subsection 177EA(5) of the ITAA 1936. | 121. Generally speaking, the Commissioner will exercise his discretion in such a way that paragraph 177EA(5)(a) of the ITAA 1936 would be applied to cases where there is an acceptable level of discount proposed or achieved. | 122. The Commissioner may seek to apply paragraph 177EA(5)(b) of the ITAA 1936 in cases where there is an unacceptable level of discount proposed or achieved. | 123. Presently, the maximum acceptable level of discount in a tender process buy-back is 14%, calculated by reference to the VWAP of the shares for the five days up to and including the closing date of the buy-back. | 124. This figure may be revised from time to time. As to currently acceptable levels of discount, reference should be made to the most recent Class Rulings on off-market share buy-backs. These documents reflect the current technical views of the ATO. | 125. Section 177EA of the ITAA 1936 will normally be administered by the Commissioner so as to exercise his discretion in a way that applies paragraph 177EA(5)(a). The effect of this is to debit an appropriate amount to the franking credit account of the company conducting the buy-back, to compensate the revenue for avoided wasted, or streamed, franked dividends. An example of a typical paragraph 177EA(5)(a) Instrument of Determination is attached as Attachment B . | MegaMetal Ltd proposes to conduct an off-market share buy-back on the following basis: | Number of shares to be bought back | Dividend Component, 100% franked | MegaMetal Ltd has a non-resident shareholder population on its share registry of 30% (29% in tax treaty nations; 1% in non-treaty nations). | The debit would seek to capture the avoided wastage of franking credits by the streaming of dividends to resident shareholders (to whom the buy-back is attractive) as against non-resident shareholders (to whom the buy-back is not attractive). | Typically, the Commissioner would calculate a paragraph 177EA(5)(a) debit, in the absence of unusual circumstances, in the following manner: | Number of shares bought back x Franking credit attaching to each x Non-residents x 0.5* 30, 000, 000 x $2.31 x 0.29 x 0.5 = $10, 048, 500 * takes into account the fact that franking credit offsets withholding tax liability of 15% | Section 204-30: 127. Section 204-30 of the ITAA 1997 applies where a company streams the payment of franked distributions to its shareholders in such a way that the imputation benefits attaching to the distribution are received by those shareholders who derive a greater benefit from them and other shareholders receive lesser imputation benefits, or no imputation benefits. | 128. Section 204-30 of the ITAA 1997 applies where an entity streams distributions in such a way as to give those members who can benefit most from imputation credits a greater imputation benefit than those who benefit less. | 129. Where section 204-30 of the ITAA 1997 applies, the Commissioner has a discretion to make one or more determinations pursuant to subsection 204-30(3). | 130. The terms 'stream' and 'streaming' are not defined in the Act. However, the Explanatory Memorandum to the New Business Tax System (Imputation) Bill 2002 defines streaming as ' selectively directing the flow of franked distributions to those members who can most benefit from imputation credits' . | 3.29 It will normally be apparent on the face of an arrangement that a strategy for streaming is being implemented. The distinguishing of members on the basis of their ability to use franking benefits is a key element of streaming. | 3.30 Where one class [of members] is predominantly able to use imputation credits, and the other is predominantly not, it may be apparent that an arrangement is streaming, notwithstanding the presence in each class of a small minority of the other type of member. | Broadly speaking, any strategy directing the flow of franked distributions to members who can most benefit from them to the exclusion of other members may amount to streaming. | Example 3.2 Share buy-back - Limited franking surplus | A corporate tax entity has members with differing abilities to benefit from franking and a limited supply of franking credits. It makes a franked distribution by buying back off-market the shares owned by taxable residents to stream the limited franking credits available to those who can most benefit from them. | This would constitute streaming. Alternatively, where there remain sufficient franking credits to frank distributions to the remaining shareholders, streaming would not occur, absent other special features. | Example 3.3 Share buy-back - Excess credits | A corporate tax entity has excess franking credits that is, more franking credits than it is reasonably likely to use to frank its ordinary distributions. It buys back shares off-market predominantly from members most able to benefit from imputation credits because the terms of the buy-back are not attractive to the other members. As a result of the buy-back it uses profits it would not normally distribute, thereby directing a large franked distribution predominantly to those who benefit most from imputation credits. | This would be streaming. In this case avoiding wastage of franking credits is not a matter of concentrating scarce credits there may well be sufficient credits to frank distributions to other members. (This type of arrangement may result in a proportionately greater interest in the corporate tax entity being held by members less able to benefit from imputation credits, and a value shift in favour of the shares not bought back). | Application of section 204-30: • an imputation benefit would be received by a member of the entity as a result of the distribution(s) • that member would derive a greater benefit from franking credits than another member of the entity, and • the other member will receive lesser (or nil) imputation benefits. | The streaming may take place in a single franking period or over a number of franking periods. The member that derives the greater benefit is the favoured member . The member that receives the lesser benefits is the disadvantaged member . | Meaning of 'imputation benefit': • a entitlement to a tax offset or, if the member is a corporate tax entity, a franking credit • an amount that would be included in the members assessable income as a result of the distribution because of the operation of section 207-35 of the ITAA 1997, or • an exemption from withholding tax (relevant if the member is a non-resident). | Meaning of 'greater benefit from franking credits': 135. For section 204-30 of the ITAA 1997 to apply, members to whom distributions are streamed must derive a greater benefit from franking credits than other members. | • the residency of the members (non-residents cannot fully use imputation credits) • whether one of the members would not gain the full benefit of the tax offset from the franking credit (for example, corporate tax entities are not entitled to a refund of excess imputation credits) • if one of the members is a corporate tax entity, whether it would not be entitled to franking credits (for example, because it is a mutual life insurance company), and • if one of the members is a corporate tax entity, whether it would be unable to make a franked distribution to its members (and therefore would be unable to distribute the franking credits it has received). | 137. A difference in marginal tax rates of members of a corporate tax entity does not, by itself, indicate that some members derive a greater benefit from franking credits than others. However, taken in conjunction with the other aspects of the share buy-back, the Commissioner may conclude that some members have derived a greater benefit from franking credits. | Effect of Commissioner's determination: • a franking debit arises in the franking account of the streaming entity for a specific distribution made (or other benefit provided) to a disadvantaged member • an exempting debit arises in the exempting account of the streaming entity for a specific distribution made, or other benefit provided, to a disadvantaged member, and • no imputation benefit is to arise in respect of a specific streamed distribution made to a favoured member. | • the Commissioner may specify the franking percentage or exempting percentage to be used in working out the amount of the debit, or • specify the date or period when the distribution was made, and the member or class of members to whom it was made. | 140. The determination made by the Commissioner can be revoked or varied and can be made at any time after the streaming has occurred. | 141. The ATO holds the view that the structure of an off-market share buy-back is a means whereby franking credits may be streamed to resident shareholders as a class, who will receive a greater benefit from franking credits than non-resident shareholders as a class. | 142. The Commissioner will generally not make a Determination pursuant to subsection 204-30(3) of the ITAA 1997 in cases where he intends exercising his discretion under section 177EA of the ITAA 1936. | 143. The tax outcomes for the capital component of a share buy-back may be affected by the operation of the general value shifting rules in Division 725 of the ITAA 1997 (entity interests direct value shifting) or Division 727 of the ITAA 1997 (indirect value shifting). There may also be associated consequences for shares not bought back. | 144. The following explanation assumes that the shares are held on capital account. However, tax officers should be aware that the value shifting rules may also apply to interests that are characterised as revenue assets or trading stock and that there are additional consequences in those circumstances. | • value shift prior to a share buy-back • off-market share buy-back at a discount - direct value shift • off-market share buy-back at a premium - direct value shift, and • direct value shift under a share buy-back causes an indirect value shift. | Value shift prior to a share buy-back: • a direct value shift prior to the buy-back affecting the value of interests in the entity buying back its shares, or • an indirect value shift prior to the buy-back affecting the value of the entity buying back its shares and indirectly affecting the market value of the shares being bought back. | Direct value shift: 147. If a direct value shift prior to the buy-back attracts the operation of Division 725 of the ITAA 1997 the CGT cost bases or reduced cost bases of the shares being bought back may be reset. Such resets affect the amount of the gain or loss on the capital component that subsequently arises under the buy-back. | Indirect value shift: - adjustments as at the time of the value shift are made under section 727-755 of the ITAA 1997 to the shares in the entities between which value is shifted - these adjustments compensate (or partly compensate if the loss-focussed basis of adjustment under section 727-780 of the ITAA 1997 is adopted) for the impact of the value shift on the market values of the shares in the entities between which value is shifted, and - as a consequence, the amount of the gain or loss on the capital component of the shares subsequently bought back is affected. | Off-market share buy-back at a discount - direct value shift: 149. The buy-back of shares under an off-market buy-back for less than their market value causes value to be shifted from the shares bought back to the shares being retained. In this situation, the distortionary effect of the discount is addressed by the market value substitution rule in subsection 159GZZZQ(2) of the ITAA 1936 (see paragraphs 43 to 47 of this practice statement). | 150. Subsection 725-230(2) of the ITAA 1997 provides that, where subsection 159GZZZQ(2) of the ITAA 1936 applies, the adjustable value of a down interest is not reduced and there is no taxing event generating a gain. However, subsection 725-230(3) of the ITAA 1997 may provide compensating upwards adjustments to the CGT cost bases of the retained shares. | Off-market share buy-back at a premium - direct value shift: 151. The buy-back of shares under an off-market buy-back for more than their market value presents a real possibility of a direct value shift from the shares being retained to the shares that are bought back. | • downwards adjustments to the CGT cost bases of the retained shares from which value is shifted • upwards adjustments to the CGT bases of the shares bought back (the shares to which value has been shifted), thus affecting the amount of gain or loss on the capital component under the buy-back, and • where there are unrealised gains on the retained shares, inclusion of an assessable gain for the holders of those shares. | Direct value shift under a share buy-back causes an indirect value shift: 153. Where the equity or loan interests from which value is shifted under a direct value shift are held by a company or trust, there may also be an indirect value shift out of the interests in the company or trust. The indirect value shifting rules in Division 727 of the ITAA 1997, as modified by Subdivision 727-L of the ITAA 1997, will apply to interests in the company or trust and, where an interest to which value is shifted under the direct value shift is also held by a company or trust, to interests in that company or trust. | GVSR consequences: thresholds and detailed application: • The transacting entities in the non-market value arrangement and the entity interests that are affected by it are not within a control or common ownership framework: see sections 725-55, 727-105 and 727-110 of the ITAA 1997. Therefore, there would not ordinarily be any value shifting consequences for the buy-back of listed public company shares . • Arrangements that commence before 27 June 2002. However, in these situations, there may be consequences under the former value shifting rules in Divisions 138 and 140 of the ITAA 1997. | • for direct value shifts affecting interests in companies, sections 725-50 and 725-70 of the ITAA 1997; and • for indirect value shifts, section 727-100 of the ITAA 1997. | 156. Where the value shifting rules potentially impact the taxation consequences of a share buy-back, the Guide to the general value shifting regime (NAT 8366), listed on the schedule of precedential ATO view documents referred to in PS LA 2003/3, will assist tax officers in working through the detail of the rules. | Withholding tax: section 128B: 157. The share registers of many companies contain non-resident shareholders. In cases where the off-market share buy-back has a fully-franked Dividend Component, participating non-resident shareholders are not liable for Australian withholding tax under paragraph 128B(3)(ga) of the ITAA 1936. | 158. Vendor shareholders will include in their assessable income the Dividend Component under section 44 of the ITAA 1936 and an amount equal to the franking credit on the Dividend Component under subsection 207-20(1) of the ITAA 1997. Vendor shareholders will ordinarily be entitled to a tax offset equal to the amount of the franking credit of the Dividend Component pursuant to subsection 207-20(2) of the ITAA 1997. | 159. Subsection 6(1) of the ITAA 1936 defines a dividend. | 6(4) [Limit on application of dividend] | (a) a person pays or credits any money or gives property to the company and the company credits its share capital account with the amount of the money or the value of the property; and (b) the company pays or credits any money, or distributes property to another person, and debits its share capital account with the amount of the money or the value of the property so paid, credited or distributed. | 161. Tax officers should therefore be aware that subsection 6(4) of the ITAA 1936 can deem certain payments made out of a company's share capital account to be dividends in the hands of recipient shareholders where there has been an arrangement under which the company has raised share capital from certain shareholders and then uses those funds to make a distribution to other shareholders. | Section 205-30: on-market buy-backs: 162. As discussed elsewhere in this practice statement, on-market buy-backs are not comprised of a dividend component. By virtue of Division 16K, they are constituted entirely of capital. However, the taxation law requires the company undertaking the on-market buy-back to make a debit to its franking account as if the company had purchased the shares off-market: section 205-30 of the ITAA 1997, item 9. Tax officers providing written advice on on-market buy-backs should familiarise themselves with section 205-30 of the ITAA 1997, of which item 9 is broadly applicable. | 163. In cases where the on-market buy-back is sourced by debiting the company's share capital account only, then item 9 has no application. | 164. In cases where the on-market buy-back is sourced by debiting (in full or in part) retained earnings then an item 9 debit is appropriate. The effect of item 9 is to apply section 159GZZZP of the ITAA 1936 to the on-market purchase so that any part of the purchase price not debited to the share capital account is deemed to be a dividend paid to the vendor shareholder (for the purpose of calculating the item 9 franking account debit). | 165. Tax officers should be aware that companies undertaking buy-backs will usually ensure that franked dividends are available to vendor shareholders. This is far more attractive to potential vendor shareholders. As well as having sufficient franking credits, a company will ensure that the dividend component of a buy-back price is franked (if possible to 100%). The legislation governing frankable distributions is contained at section 202-40 of the ITAA 1997. Quite simply, a distribution is a frankable distribution to the extent that it is not unfrankable under section 202-45 of the ITAA 1997 (see paragraphs 166 to 167 of this practice statement). | (c) where the purchase price on the buy-back of a *share by a *company from one of its *members is taken to be a dividend under section 159GZZZP of that Act - so much of that purchase price as exceeds what would be the market value (as normally understood) of the share at the time of the buy-back if the buy-back did not take place and were never proposed to take place; | 167. Paragraph 202-45(c) of the ITAA 1997 covers a situation outlined in TD 2004/22 where the purchase price exceeds the market value of a share and is deemed an unfranked dividend: see paragraph 12 of TD 2004/22. | 168. A company that pays a franked distribution has an obligation under section 202-75 of the ITAA 1997 to give the receiving shareholder a distribution statement. That statement must contain details about the distribution as set out in subsection 202-80(3) of the ITAA 1997 including details of any franking credits attached to the distribution. | 169. The distribution statement must be given on or before the day on which the distribution is made: see subsection 202-75(2) of the ITAA 1997. In the context of a share buy-back, that day will be the day on which the share buy-back is completed and is ordinarily a few days after the close of the offer or tender period. The monies payable to shareholders in respect of their shares disposed of into the buy-back are usually paid soon thereafter. | 170. The distribution statement must be in the approved form: see subsection 202-80(2) of the ITAA 1997. Companies are able to request the Commissioner exercise his discretion under section 388-55 of Schedule 1 to the Taxation Administration Act 1953 to defer the time within which an approved form is required to be given to another entity. | 171. Provided such a request is made prior to the day on which the distribution is made, the Commissioner will generally exercise that discretion favourably where there is not an unreasonable delay between the completion of the buy-back and the provision of the distribution statement. | The Trustee's Friend Pty Ltd undertook an off-market share buy-back by way of a tender process. The first announcement date of the off-market share buy-back was 6 February 2007 and the tender period closed on 12 April 2007. | Determine 5-day VWAP prior to the first announcement of the off-market share buy-back | -Total (grossed up for franking) | The Buy-Back Price will be set on an ex-dividend basis, therefore the 5-day VWAP needs to be adjusted for the grossed up value of the final dividend. | Ex-Date for 2006 interim dividend | Last day for VWAP period prior to announcement date | Days trading cum 2006 dividend: Interim dividend ex-date to off-market share buy-back announcement date | Total days between Ex-dividend dates for the 2006 interim dividend and 2006 final dividend (11 February 07) | Days trading cum 2006 final dividend as a % of total | The shares traded 162 days cum the 2006 final dividend, prior to the announcement date of 6 February 2007. As a result the 5-day VWAP is adjusted for 96.4% of the grossed up value of the dividend, which reduces the 5-day VWAP by $0.11. | 5-day VWAP prior to first announcement of the off-market share buy-back | Deduct apportioned FY06 final dividend ($0.11 x 96.4%) | Implied 5-day VWAP, adjusted for interim dividend, on first announcement of the buy-back | Opening Level of S&P/ASX 200 Index on 6 February 2007 (announcement date) [6] | Closing Level of S&P/ASX 200 Index on 12 April 2007 (tender closing date) | Movement in S&P/ASX 200 Index over Buy-Back period | 5-day VWAP over 5 days prior to announcement on 6 February 2007 | Movement in S&P/ASX 200 Index | Market Value of shares as per TD 2004/22 | Update to current corporate publication style. | [1] FC of T v. Consolidated Press Holdings Ltd & Anor (2001) 207 CLR 235; 2001 ATC 4343 at 4360; 47 ATR 229. | [2] (2001) 207 CLR 235; 2001 ATC 4343; 47 ATR 229. | [3] The Explanatory Memorandum to the Taxation Laws Amendment (Company Law Review) Bill 1998, at paragraphs 1.31 and 1.32. | [4] The Explanatory Memorandum to the Taxation Laws Amendment (Company Law Review) Bill 1998, at paragraphs 1.34 and 1.35. | [5] On 27 September 2002, the Minister for Revenue and Assistant Treasurer announced the Government's intention to introduce various consequential amendments with effect from 1 July 2002 dealing with the simplified imputation system [ Minister for Revenue and Assistant Treasurer Press Release C104/02 ]. This practice statement deals only with the law as presently enacted and does not extend to the application of these proposed laws. | [6] must be the same as the Closing Index on 5 February 2007. | Thornett v. F. C. of T. (1938) 59 CLR 787 | F.C. of T. v. Consolidated Press Holdings Ltd & Anor (2001) 207 CLR 235 2001 ATC 4343 47 ATR 229 | Other business lines consulted"
PS LA 2007/10,Making default assessments: section 36 of the Superannuation Guarantee (Administration) Act 1992,26 April 2007,26 April 2007,Law Administration Practice Statement,False,"1. What this practice statement is about: Employers are required to make the minimum prescribed superannuation guarantee (SG) contributions for employees. In doing so, they also need to comply with the choice of fund requirements. [1] If they do not meet either of these obligations, employers will have an SG shortfall and must lodge an SG statement for the relevant quarter by the due date [2] - which is the 28th day of the second month after the end of the quarter. The first statement lodged for a quarter is taken to be an assessment of the SG charge. If an employer does not lodge the SG statement and we are of the opinion that the employer is liable to pay the SG charge (SGC) [3] for the quarter, we may then make a default assessment of the SG shortfall and the SGC payable on the shortfall. [4] This Practice Statement outlines when a default assessment can be made and the factors to consider in making the default assessment. These principles apply equally to amending an existing assessment - either one lodged by an employer or a default assessment previously made. All legislative references in this Practice Statement are to the Superannuation Guarantee (Administration) Act 1992 (SGAA), unless otherwise indicated. | 2. Points to consider before making a default assessment under section 36 of the Superannuation Guarantee (Administration) Act 1992: When making your decision, consideration should be given to: • Has the employer lodged an SG statement? If so, you cannot make a default assessment under section 36. However, you can amend an assessment under section 37. • In all but very limited circumstances, employers should be informed of your intention to make a default assessment, as well as the basis upon which it will be calculated, prior to the assessment being made. • Has the employer lodged an SG statement? If so, you cannot make a default assessment under section 36. However, you can amend an assessment under section 37. • In all but very limited circumstances, employers should be informed of your intention to make a default assessment, as well as the basis upon which it will be calculated, prior to the assessment being made. This allows employers the opportunity to ensure that an accurate assessment of their SG liability has been made. It will ease costs for the employer in meeting their obligations and may also lead to a reduction in disputes. Exceptions to this general principle would be where there is: • a risk of flight by the employer • a risk of the dissipation of assets or movement of funds, or • a history of the employer being uncooperative. • a risk of flight by the employer • a risk of the dissipation of assets or movement of funds, or • a history of the employer being uncooperative. | 3. Gathering information to make an assessment: When gathering information to ascertain whether the employer has an SG liability, best practice is to start with the employer themselves. Before invoking our formal access and information-gathering powers, you should initially request the information on an informal basis. However, if the employer does not respond satisfactorily to informal requests for information, you should then consider whether our formal powers will be more appropriate. Our formal powers include: • issuing a notice [5] requiring an employer to provide a written statement in the approved form stating if the person has an SG shortfall, and • issuing a notice under subsection 353-10(1) of Schedule 1 of the Taxation Administration Act 1953 , requiring a person to do all or any of the following - give the Commissioner any information or documents under their control, and - attend and give evidence before the Commissioner. • issuing a notice [5] requiring an employer to provide a written statement in the approved form stating if the person has an SG shortfall, and • issuing a notice under subsection 353-10(1) of Schedule 1 of the Taxation Administration Act 1953 , requiring a person to do all or any of the following - give the Commissioner any information or documents under their control, and - attend and give evidence before the Commissioner. - give the Commissioner any information or documents under their control, and - attend and give evidence before the Commissioner. | 4. Making the default assessment: Where no information is provided or the information provided is not satisfactory, you may make a default assessment based on the information we have available. Information sources, other than the employer, that may provide a reasonable basis for the default assessment to be made include: • the employee - via an employee notification form or employee questionnaire • ATO systems - for example, payment summaries, previously lodged SG statements, Single Touch Payroll data, employer or employee tax returns or superannuation fund data, and • third parties - including superannuation funds and the Australian Bureau of Statistics, which has statistical data regarding different industries. • the employee - via an employee notification form or employee questionnaire • ATO systems - for example, payment summaries, previously lodged SG statements, Single Touch Payroll data, employer or employee tax returns or superannuation fund data, and • third parties - including superannuation funds and the Australian Bureau of Statistics, which has statistical data regarding different industries. Your decision in relation to the default assessment must be defensible, sound and in accordance with: • relevant laws • the commitments made in Our Charter • the principles of the Compliance model , and • the Good decision-making model (link available internally only). • relevant laws • the commitments made in Our Charter • the principles of the Compliance model , and • the Good decision-making model (link available internally only). Your decision must be documented in the relevant ATO case management systems, outlining why you decided the employer has an SG shortfall and the process you used to calculate the SGC. As a general rule, we will only make assessments for quarters that the employer is required to have retained records. However, if there is sufficient written evidence of an SG shortfall, and that liability can be determined [6] with a fair degree of certainty, you are able to raise assessments for previous quarters. Written evidence which may sufficiently quantify an SG shortfall includes, but is not limited to: • payment summaries • payslips, and • superannuation fund statements. • payment summaries • payslips, and • superannuation fund statements. The Commissioner must give written notice of the default assessment. | 5. Employer defences: When formulating your decision to make a default assessment, you must also consider the scenarios outlined in PS LA 2007/1 (GA). The employer may also provide other supporting documentation (for example, bank statements) that may indicate evidence that SG contributions have already been made, which could demonstrate that they do not have an SG liability. However, if the employer does not keep the required records, they are not able to raise their own failure as a defence against the making of a default assessment. [7] An exception to this may apply where employers are impacted by a natural disaster and relevant records are lost or damaged. In this situation, an employer may seek assistance from us to estimate how much SG to pay. If an employer has to wind up their business as a result of a disaster, they will still need to pay any outstanding super obligations for their employees before finishing up. We recommend that employers in this situation lodge an SGC statement as soon as possible. | 6. Penalties - additional SGC: If an employer (other than a government body) refuses or fails to provide, when and as required under the SGAA: • an SG statement, or • other information relevant to assessing the employer's liability to pay the superannuation guarantee charge, • an SG statement, or • other information relevant to assessing the employer's liability to pay the superannuation guarantee charge, the employer is liable to pay a penalty of additional SGC - equal to double the amount of SGC payable for the quarter. [8] Note: An administrative penalty may also apply under the TAA where we raise a default assessment. However, the penalty should generally be remitted in full. Law Administration Practice Statement PS LA 2021/3 Remission of additional superannuation guarantee charge provides guidance on remission of this penalty when additional SGC penalty is assessed. | 7. Review rights: An employer who is dissatisfied with a default assessment or amended assessment may object to the assessment under Part IVC of the Taxation Administration Act 1953. | 8. Judicial examples of sustainable default or amended assessments: Pye and Commissioner of Taxation In the case of Pye and Commissioner of Taxation [2004] AATA 143, default assessments were made based on copies of payment summaries lodged by the applicant with the Commissioner. The figures obtained from the payment summaries were used to calculate the shortfall, which represented an amount that, in the Commissioner's opinion, was reasonably expected to be the shortfall. The SGC had thus been correctly imposed. David Christie as Trustee for the Moreton Bay Trading Company and Commissioner of Taxation In the case of David Christie as Trustee for the Moreton Bay Trading Company and Commissioner of Taxation [2004] AATA 1396, the Commissioner relied on payment summaries and some pay records to make default assessments. The employer objected against the default assessments and the objection decisions were affirmed. McCabe J was unable to fault the reasoning or calculations contained in the objection decisions. Favaro, Gerald Antonio & Anor v Commissioner of Taxation In the case of Favaro, Gerald Antonio & Anor v Commissioner of Taxation [1996] FCA 877, the ATO used Australian Bureau of Statistics Household Expenditure Survey data to estimate the applicants' living and personal expenses. The applicants claimed that they lived, in the relevant years, more frugally than the hypothetical average individual. However, the Federal Court held that the Commissioner had not acted on a wrong basis so far as his estimates of the applicants' living and personal expenses were concerned. Case A17 A similar result was found in Case A17 1 NZTC 60, where the taxpayer's earnings were estimated by comparison with the earnings of other taxi drivers, although the assessment was reduced on the basis of evidence of greater than average fuel consumption for that particular taxpayer. Armirthalingam and Commissioner of Taxation In the case of Armirthalingam and Commissioner of Taxation [2012] AATA 449, amended assessments showing understated income were made relying on 'player rating transaction reports' and 'player monthly transaction reports' created by a casino. The Administrative Appeals Tribunal held that the reports were sufficiently accurate to be relied upon when making the assessment. | 9. Other examples: Example 1 - reason to amend default assessment We make a default assessment that relates to 5 employees. Information becomes available that clearly shows the employer has an SG obligation for a sixth employee. We may amend the default assessment. Example 2 - correcting or amending assessment The employer gives us an SG statement showing details of an SG liability for 3 employees. It is identified, either by us or the employer, that there is an obligation for a fourth employee. You may amend the assessment to make additions or corrections you think necessary to correct the assessment, or you may amend the assessment at the request of the employer. Example 3 - amending assessment after record-keeping period has ended An employee notifies us that their former employer has not paid superannuation guarantee for them for a period more than 5 years ago. The employer is not required to have retained their records and therefore we require sufficient written evidence from the employee to determine the liability exists. The employee provides payslips, a payment summary and their superannuation fund statement which proves an unpaid SG liability exists. As a result, we may raise a default assessment for the SG shortfall and the SGC payable on the shortfall for the period that the employee has supporting documentary evidence. | 10. More information: For more information, see: • Law Administration Practice Statement PS LA 2007/1 (GA) Assessing superannuation guarantee charge where the employers have done what they could reasonably be expected to do to comply with the law by the due date • Law Administration Practice Statement PS LA 2014/4 Default assessment penalt • Law Administration Practice Statement PS LA 2021/3 Remission of additional superannuation guarantee charge • Law Administration Practice Statement PS LA 2007/1 (GA) Assessing superannuation guarantee charge where the employers have done what they could reasonably be expected to do to comply with the law by the due date • Law Administration Practice Statement PS LA 2014/4 Default assessment penalt • Law Administration Practice Statement PS LA 2021/3 Remission of additional superannuation guarantee charge",PS LA 2007/1 (GA) | PS LA 2014/4 | PS LA 2021/3 | SGAA 1992 32C | SGAA 1992 33(1) | SGAA 1992 33(1A) | SGAA 1992 34 | SGAA 1992 36 | SGAA 1992 37 | SGAA 1992 59 | TAA 1953 Pt IVC | TAA 1953 353-10(1) | 2012 ATC 10-260 | 2005 ATC 2009 | 96 ATC 4975 | 2004 ATC 2029,PS LA 2007/1 (GA) PS LA 2014/4 PS LA 2021/3,SGAA 1992 32C | SGAA 1992 33(1) | SGAA 1992 33(1A) | SGAA 1992 34 | SGAA 1992 36 | SGAA 1992 37 | SGAA 1992 59 | TAA 1953 Pt IVC | TAA 1953 353-10(1),,Compliance model Good decision-making model (link available internally only) Our Charter,False,True,https://www.ato.gov.au/law/view/document?docid=PSR/PS200710/NAT/ATO/00001,"6. Penalties - additional superannuation guarantee charge | Updated in line with current ATO style and accessibility requirements. | Updated to new LAPS format and style. | Footnote 8 and other references to PS LA 2002/16. | References to PS LA 2002/16 deleted as it has been withdrawn. | Minor Style guide and punctuation changes. | Paragraph 16, 17, 25, 43 & footnote 6 | Some references of the term 'tax officer/s' were unnecessarily capitalised, which is inconsistent with the Style guide. | Paragraph 52 now refers to PS LA 2011/28 instead of the now withdrawn PS LA 2006/1. | Minor revisions to update 'Tax Office' to 'ATO' and improve the technical currency of the document. | Inserted to reference subsection 19(2) (minimum prescribed level of super contributions to avoid the SGC). | [1] Section 32C of the Superannuation Guarantee (Administration) Act 1992 (SGAA). | [2] Subsection 33(1) of the SGAA. Note: The Commissioner may allow an employer to lodge an SG statement on a later date under subsection 33(1A) of the SGAA. | [3] Law Administration Practice Statement PS LA 2007/1 (GA) Assessing superannuation guarantee charge where the employers have done what they could reasonably be expected to do to comply with the law by the due date provides additional guidance regarding the SGC and whether it will apply. | [4] Section 36 of the SGAA. | [5] Section 34. Note: A notice may only be issued under section 34 if the employer did not lodge an SG statement for a quarter during which they were at any time an employer. | [6] The amount of a shortfall can be more easily determined than a decision as to whether a worker is an employee for superannuation purposes. The status of a worker can generally only be determined with evidence from both parties. | ... if he chooses to keep them so as to afford no sufficient internal evidence of the nature of the transaction they record, he must be prepared to take the consequences of his own omission. | Armirthalingam and Commissioner of Taxation [2012] AATA 449 2012 ATC 10-260 90 ATR 204 | Case A17 1 NZTC 60, 144 Board of Review | David Christie as Trustee for the Moreton Bay Trading Company and Commissioner of Taxation [2004] AATA 1396 2005 ATC 2009 58 ATR 1142 | Favaro, Gerald Antonio & Anor v Commissioner of Taxation [1996] FCA 877 96 ATC 4975 (1996) 34 ATR 1 | Pye and Commissioner of Taxation [2004] AATA 143 2004 ATC 2029 55 ATR 1024 | Stone v Federal Commissioner of Taxation (1918) HCA 67 (1918) 25 CLR 389"
PS LA 2007/11,Administrative treatment of taxpayers affected by announced but unenacted legislative measures which will apply retrospectively when enacted,24 May 2007,24 May 2007,Law Administration Practice Statement,False,"1. When does this Practice Statement apply?: Usually, changes to the laws we administer take effect and create rights and obligations after they have been enacted by the Australian Parliament. However, sometimes the changes are applied retrospectively and affect earlier rights and obligations. Reasons for this include where an unintended consequence is being corrected, the change is favourable to taxpayers, or there is a delay in passing the bill. In these instances, we need to consider our approach and our guidance to taxpayers on the implications should they comply with the law as it is or if they anticipate the proposed changes. | 2. Who decides on the approach we will take and puts it in place?: Project managers are accountable for the end-to-end implementation of announced tax and superannuation measures, including making recommendations about the approach to be taken in these circumstances. Once endorsed by the Project Sponsor, these recommendations are presented for consideration to the Policy Implementation Committee (PIC), which makes the decision about the administrative approach. The Project Manager is responsible for ensuring that the decisions endorsed by the PIC are implemented. | 3. What do you need to consider in making recommendations?: The Project Manager should take into account the advice for taxpayers outlined in Administrative treatment of retrospective legislation when preparing recommendations, to ensure consistency of advice. The recommendations to the PIC should include: • what advice will need to be provided or amended (for example, draft Law Companion Rulings) to taxpayers to allow them to manage their affairs appropriately (for example, where record keeping or business systems need to change) • what other communication is required • reference to timing issues, including due dates that may be relevant for tax returns, activity statements or other documents. • what advice will need to be provided or amended (for example, draft Law Companion Rulings) to taxpayers to allow them to manage their affairs appropriately (for example, where record keeping or business systems need to change) • what other communication is required • reference to timing issues, including due dates that may be relevant for tax returns, activity statements or other documents. | 4. When do recommendations need to be made?: Recommendations should be made to the PIC at the earliest practicable time after the announcement of the proposed retrospective change. If the passage of a bill is significantly delayed or if a measure is unlikely to proceed, the recommendations will need to be reconsidered by the PIC. | 5. What is our policy on penalties and interest in these circumstances?: When a change to the law that has a retrospective effect is enacted, some taxpayers may have either underpaid or overpaid the amount of tax now properly payable for an earlier period. Generally, for taxpayers who exercise reasonable care and follow the existing law, there will be no tax shortfall penalties and nil general interest charge (GIC) or shortfall interest charge (SIC) up to the date of enactment of the legislative change. In addition, taxpayers will be given a 'reasonable time' to get their affairs in order, post-enactment of the measure, without incurring any GIC or SIC. The reasonable time will need to be determined having regard to the measure and a taxpayer's circumstances. Where a taxpayer 'anticipates' the proposed law change, they may be liable to GIC or SIC at the base interest rate if the proposed measure is not enacted or if the change is enacted and the taxpayer has understated their liability. However, if the law is enacted and the taxpayer overstates their liability, they would generally be entitled to a credit amendment and interest on the overpayment once the amending legislation is enacted. If the amendments or revisions will reduce a taxpayer's liability, appropriate interest on any overpayments will be paid. | 6. More information: For more information, see Administrative treatment of retrospective legislation . SCENARIOS Scenario 1 – taxpayers who lodge on time in accordance with the existing law If: • a taxpayer lodges a return or activity statement in accordance with existing law, and • later debit amendments or activity statement revisions are needed because of the effect of retrospective legislative changes, • a taxpayer lodges a return or activity statement in accordance with existing law, and • later debit amendments or activity statement revisions are needed because of the effect of retrospective legislative changes, then: • no tax shortfall penalties will apply, and • any interest attributable to the shortfall will be remitted to nil up to the date of enactment of the new legislative measure. • no tax shortfall penalties will apply, and • any interest attributable to the shortfall will be remitted to nil up to the date of enactment of the new legislative measure. In addition, any interest that may have accrued post the enactment of the new legislation measure will be remitted for taxpayers who actively seek to appropriately amend their returns or revise their activity statements within a reasonable time after the enactment of the new law. If the taxpayer does not lodge an amendment request or revise their activity statement within a reasonable time, full interest will apply from the date of enactment. Scenario 2 – taxpayers who anticipate an announced change to the law If: • a taxpayer lodges a return or activity statement on the basis of anticipated changes to the law, and • later amendments or revisions which result in a reduction to an entitlement or an increase in liability are needed because of the effect of retrospective legislative changes, • a taxpayer lodges a return or activity statement on the basis of anticipated changes to the law, and • later amendments or revisions which result in a reduction to an entitlement or an increase in liability are needed because of the effect of retrospective legislative changes, then: • no tax shortfall penalties will apply on the basis that it is reasonable that the taxpayer has followed an announced government policy and that the existence of such an announcement represents special circumstances for remission, and • any interest accrued in respect of the amendment will be remitted to the base interest rate up to the date of enactment of the new legislative measure. In addition, any interest, in excess of the base rate, that accrues post the enactment of the new legislative measure, will be remitted for taxpayers who actively seek to appropriately amend their returns or revise their activity statements within a reasonable time after the enactment of the new law. • no tax shortfall penalties will apply on the basis that it is reasonable that the taxpayer has followed an announced government policy and that the existence of such an announcement represents special circumstances for remission, and • any interest accrued in respect of the amendment will be remitted to the base interest rate up to the date of enactment of the new legislative measure. In addition, any interest, in excess of the base rate, that accrues post the enactment of the new legislative measure, will be remitted for taxpayers who actively seek to appropriately amend their returns or revise their activity statements within a reasonable time after the enactment of the new law. If the taxpayer does not lodge an amendment request or revise their activity statement within a reasonable time, interest will revert to the full rate from the date of enactment. This approach will be conditional on the taxpayer having acted reasonably when lodging the original return or activity statement. Where there is an overpayment by the taxpayer, a 'time value of money' concept is appropriate in providing symmetry in circumstances where interest on overpayments would be payable. If anticipation of the announcement has the effect of resulting in a refund to a taxpayer, the ATO will either hold the processing of the assessment or activity statement or adjust the return or activity statement in accordance with existing law. Where it is unclear whether the taxpayer has anticipated a change to the law, a decision about further investigation and possible mediation will need to be made. Such a decision should be based on the principles of proper use of ATO resources and appropriate risk analysis. Scenario 3 – announcements not enacted In some cases, a taxpayer may have anticipated a proposed change that intends to remove a liability, which is ultimately not enacted. This may require an amendment which increases their tax liability. Alternatively, they may have lodged in accordance with the existing law and then delayed payment in anticipation of the proposed measure passing. In these cases, the ATO will publicly advise taxpayers that the law has not passed, explaining the circumstances and requiring that the relevant amendment requests and activity statement revisions be lodged or relevant payments made. The advice could be provided through publication on our website, media release, agent flyer, letters to relevant professional associations, letters to individual taxpayers, and so on, depending on the nature of the measure and the taxpayer base affected. The principles set out in Scenario 2 of this Practice Statement will apply, as the taxpayer has anticipated the proposed change. Taxpayers will have reasonable time to lodge amendments, make revisions and make payment, after which time the interest applied to the taxpayer's case would revert to the full statutory rate. Regard will be paid to such factors as agent workloads and other appropriate circumstances to determine the reasonable time in this situation.",,,,,,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS200711/NAT/ATO/00001,"If taxpayers rely on this Practice Statement, they will be protected from interest and penalties in the following way. If a statement turns out to be incorrect and taxpayers underpay their tax as a result, they will not have to pay a penalty, nor will they have to pay interest on the underpayment provided they reasonably relied on this Practice Statement in good faith. However, even if they do not have to pay a penalty or interest, taxpayers will have to pay the correct amount of tax provided the time limits under the law allow it. | Changes made to apply latest formatting and style, and clarify content | Updated to ensure currency, and to latest format | Updated to current publication style | Updated legislative reference | Inserted PS LA references | Removed reference to the ATO Receivables Policy | Removed reference to the ATO Receivables Policy and replaced with PS LA 2011/12 | Updated legislative references (Part VI of the ITAA 1936 rewrite) | Paragraphs 37, 38 and 42. | Removal of the word 'tax' from 'tax agent' to reflect that agents may also be BAS (business activity statement) agents | Paragraphs 1, 2, 9, 13, 15, 16, 17, 18, 23 and 28 | Text deleted from and inserted into this version to update and clarify the Practice Statement | Has been moved up into paragraph 4 | Paragraphs 31, 32, 33 and 34"
PS LA 2007/21,Substituted accounting periods (SAPs),29 August 2007,29 August 2007,Law Administration Practice Statement,False,"1. Context and scope: 1A. While the Income Tax Assessment Act 1936 expresses an intention that an entity's annual accounting period is ordinarily to be the 12 month period ending on 30 June [2] , section 18 provides for an entity to adopt an alternative annual accounting period with leave of the Commissioner. 1B. This Practice Statement sets out the factors you need to consider when actioning a request to allow an alternative accounting period (known as a substituted accounting period or SAP). All legislative references in this Practice Statement are to the Income Tax Assessment Act 1936 . | 2. Principles: 2A. A decision on whether to allow an entity to adopt a SAP involves balancing the interests of that entity with the general public interest of an efficiently administered income tax system. It is not possible to set out all the circumstances in which leave may or may not be granted. Each case must be considered on its merits, taking into account all the relevant facts. 2B. We will generally allow a SAP where it can be demonstrated that the circumstances take the case out of the 'ordinary run'. [3] Factors generally relevant to determining what is out of the ordinary run include the typical business needs of an entity in the market in which the applicant operates. 2C. In considering whether allowing an entity to adopt a SAP would be detrimental to the efficient administration of the income tax system, you should consider the consequences of making the same decision in relation to like-situated entities and the potential effect of granting SAPs to such entities generally. 2D. The following principles must be taken into account when considering applications for a SAP: • There is a presumption that an annual accounting period ending on 30 June is appropriate in most cases. • As far as possible, the income tax law must be administered to operate fairly over the whole range of entities so that no one entity is advantaged or disadvantaged in relation to others. • While taking into account our commitments under Our Charter and the Compliance model , the Commissioner has a responsibility to ensure that the ATO operates in an efficient and business-like manner. • The requesting entity must establish that the granting of a SAP is warranted and provide any evidence needed to support their claim. • Applications for SAPs must be submitted in writing. The Application for a substituted accounting period (SAP ) (NAT 5087) form is available on our website. Applications should be lodged in a timely fashion, ideally when the circumstances that give rise to need for the SAP first arise. • There is a presumption that an annual accounting period ending on 30 June is appropriate in most cases. • As far as possible, the income tax law must be administered to operate fairly over the whole range of entities so that no one entity is advantaged or disadvantaged in relation to others. • While taking into account our commitments under Our Charter and the Compliance model , the Commissioner has a responsibility to ensure that the ATO operates in an efficient and business-like manner. • The requesting entity must establish that the granting of a SAP is warranted and provide any evidence needed to support their claim. • Applications for SAPs must be submitted in writing. The Application for a substituted accounting period (SAP ) (NAT 5087) form is available on our website. Applications should be lodged in a timely fashion, ideally when the circumstances that give rise to need for the SAP first arise. | 3. Making the decision – do the entity's circumstances warrant granting a SAP: 3A. When making decisions that affect an entity, Our Charter and the Compliance model require you to: • adopt a fair and reasonable approach, and • consider the issues faced by entities in meeting their obligations. • adopt a fair and reasonable approach, and • consider the issues faced by entities in meeting their obligations. 3B. You should apply this approach when making any decision, including a decision on whether to approve a request for a SAP. The discretion in section 18 is broad and you need to consider the entity's particular circumstances, as well as the Commissioner's obligation to ensure that tax laws are efficiently and fairly administered. 3C. Proper consideration of a SAP application requires you deciding whether there is a demonstrated business need that makes 30 June inappropriate or impractical as a balance date. The type of entity requesting a SAP may mean that additional factors have to be considered when reaching your decision. Demonstrated business need that makes 30 June inappropriate or impractical as a balance date 3D. As stated in section 2 of this Practice Statement, an entity will generally be allowed to adopt a SAP where it can be demonstrated that their circumstances are out of the ordinary run. Circumstances indicative of being out of the ordinary run include, but are not limited to: • an ongoing event, industry practice, business driver or other ongoing circumstance that makes 30 June inappropriate or impractical as a basis to calculate taxable income, or • membership of an economic group where a SAP would allow synchronised balance dates. • an ongoing event, industry practice, business driver or other ongoing circumstance that makes 30 June inappropriate or impractical as a basis to calculate taxable income, or • membership of an economic group where a SAP would allow synchronised balance dates. Ongoing circumstances that make 30 June inappropriate or impractical 3E. Whether an entity is able to demonstrate that their business involves an ongoing event, industry practice, business driver or other ongoing circumstance that takes them out of the ordinary run will be determined on a case-by-case basis. 3F. While it is not possible to set out all the circumstances in which the discretion may or may not be exercised, the examples in this Practice Statement provide an indication of the facts and circumstances that may be relevant and how they could be weighed up. Cases that appear similar in nature may have different outcomes depending on the specific circumstances. Example 1 – an ongoing event 3G. A vast cattle station in northern Australia finds that it is impractical to ascertain an accurate inventory for stock valuation purposes as at 30 June. Muster can extend over several months and its timing depends on the cattle season, which extends from April to November. Stock valuations can therefore only be made at certain times of the year. These circumstances make an accurate calculation of taxable income at 30 June impractical and it may therefore be appropriate to grant the entity leave to adopt a SAP. Example 2 – a business driver 3H. To retain its place in first-class competition, a premier league football club is required to report its financial status to a governing authority at the end of the playing season, which does not end on 30 June. While on its own this requirement does not make a 30 June balance date inappropriate or impractical, the additional costs associated with having multiple financial reporting requirements could be a determining factor in deciding whether to approve a SAP request. Example 3 – an ongoing circumstance 3I. A company operates under a franchise. The franchisee is not a subsidiary of the franchisor but is an independent entity. The terms of the franchise agreement require the franchisee to report its annual financial position to the franchisor as at 31 May each year. In these circumstances, it may be appropriate to grant the franchisee a SAP on the basis of the additional costs associated with satisfying multiple financial reporting requirements. Example 4 – an ongoing circumstance 3J. A strata title body corporate has an audit date on the anniversary of its incorporation. To avoid having 2 financial reporting dates, a SAP to align with its audit date is requested. If there are no other factors to support the entity's request, aligning reporting with an audit date is not considered to take an entity's circumstance out of the ordinary run. Competitive edge not in itself a basis for refusing leave 3K. A savings in tax or the gaining of a competitive edge over other entities does not constitute a demonstrated business need for a SAP. However, if an entity has otherwise justified being allowed a SAP, the consequence that it would gain an advantage over its competitors has been held not to be a ground in itself to disallow a SAP. [4] Synchronisation of accounting periods 3L. For the purposes of this Practice Statement, an economic group (referred to as a 'SAP group') exists where an entity exercises control over another entity or entities. In these circumstances, there is usually an interrelationship between the financial reporting requirements of group members. This interrelationship is what makes alignment of accounting periods relevant in deciding whether to allow a SAP. 3M. We expect that all entities (both resident and non-resident) that are members of the same SAP group will synchronise their balance dates. For example, if the controlling entity of a SAP group is allowed to adopt a balance date other than 30 June, we expect that all entities within the SAP group will apply for the same balance date. 3N. Synchronisation often arises in relation to SAP groups in the following circumstances: • Australian subsidiaries seek to align with the balance date of a non-resident controlling entity (but not an individual) • Australian subsidiaries seek a balance date up to 3 months prior to the balance date of a non resident controlling entity • subsidiary members seek to align with the balance date of a resident controlling entity. • Australian subsidiaries seek to align with the balance date of a non-resident controlling entity (but not an individual) • Australian subsidiaries seek a balance date up to 3 months prior to the balance date of a non resident controlling entity • subsidiary members seek to align with the balance date of a resident controlling entity. 3O. While there is no obligation or requirement for a subsidiary to align with the balance date of its non resident controlling entity, it has been our practice to allow such subsidiaries to align their balance date with that of the controlling entity. This practice also extends to branches of such entities. Evidence of the non-resident controlling entity's balance date may be required if it is not the normal balance date in the foreign tax jurisdiction. 3P. It has equally been the practice for many years to allow a balance date not more than 3 months prior to the balance date of the non-resident controlling entity. A letter or other evidence from the non-resident controlling entity will be required in support of an application for a SAP on this basis. For example, the subsidiary of a Japanese parent company (Japan has a standard 31 March balance date) that applies for a 31 December year-end will be asked to provide evidence that the parent company requires its subsidiaries to balance on that date. 3Q. An application for a SAP for the purpose of aligning balance dates is strengthened if it results in all members with a reporting obligation sharing the same balance date. You should look at the balance date of the entire SAP group when considering a SAP application and encourage any non-aligned members with a reporting obligation to take advantage of the current request to align all SAP group members. 3R. Most countries make similar provision to Australia in allowing a SAP. Where a SAP group has subsidiaries or branches in foreign tax jurisdictions but the group is based in Australia, we expect that the offshore subsidiaries should first seek leave from the relevant foreign tax authority to adopt a 30 June year end. 3S. However, where the foreign jurisdiction makes no provision for allowing a SAP or the foreign jurisdiction is a tax haven and all the group's business activity is being conducted in that jurisdiction (that is, the Australian resident head entity does not have any active business activities in its own right in Australia), you should consider approving a SAP. For example, an Australian resident holding company may have several subsidiaries in China, where the balance date is 31 December and there is no provision for SAPs. The Australian entity has no way of avoiding the additional costs of meeting its obligation to balance on 31 December, making it impractical to retain a 30 June year-end in Australia. 3T. Where a group has active businesses in both Australia and other jurisdictions, you should consider factors such as the nature and size of those activities in the context of the group as a whole in determining the merits of the application. For example, an Australian-resident group may have one subsidiary in China, but the bulk of the group's activities and income is derived in Australia. Additional considerations for particular types of entities Individuals 3U. There are no restrictions on who can apply for a SAP but it is difficult to identify in what circumstances we would allow a SAP for individual taxpayers. Partnerships and trusts 3V. While partnerships and trusts are not 'persons' for tax purposes, we have a longstanding practice of allowing such entities to adopt a SAP where they can demonstrate circumstances out of the ordinary run. [5] 3W. The net income of a partnership or a partnership loss is not attributable to a partner until the end of the partnership income year. Therefore, a partner with a different income year to the partnership must include their share of the net income or loss of the partnership in their tax return for the income year in which the partnership income year ends. 3X. Where one or more partners in a partnership have been allowed to adopt a SAP, the following principles apply: • where all partners share the same SAP, the partnership will generally be allowed to adopt the same SAP, but they must apply for it • where 2 or more partners do not share common income tax balance dates and there is no clear control by any partner, the partnership would be expected to retain a 30 June balance date, unless it was able to demonstrate circumstances that take it out of the ordinary run. • where all partners share the same SAP, the partnership will generally be allowed to adopt the same SAP, but they must apply for it • where 2 or more partners do not share common income tax balance dates and there is no clear control by any partner, the partnership would be expected to retain a 30 June balance date, unless it was able to demonstrate circumstances that take it out of the ordinary run. Joint ventures 3Y. SAP applications by parties in a joint venture are considered differently to applications by partners in a partnership. Broadly, a joint venture is 2 separate entities coming together for only a limited period or purpose. A joint venture does not require a tax file number, although the joint venturers require an Australian business number. 3Z. A SAP application by a party in a joint venture should be considered on the basis of the business of the joint venture or the type of entity it is – that is, company or trust. The business or entity type of the other joint venturers is not relevant. Widely-held trusts 3AA. Where a widely-held trust applies for a SAP, the balance dates of the trust's manager, beneficiaries or unit holders and any other related trusts will be relevant in determining whether the trust's circumstances are out of the ordinary run. When assessing the merits of the application, you should also take into account the following guidelines: • The trust itself does not necessarily form part of the SAP group of the trustee – the circumstances of the trust itself must be out of the ordinary run to warrant granting a SAP. • Synchronisation of related trusts that are similarly managed may provide sufficient grounds to take a particular trust out of the ordinary run, particularly where there is a significant cross holding of units or where the trusts are interrelated. • Alignment with the balance date of the major unit holder in a widely-held trust would generally satisfy the synchronisation requirements. • The trust itself does not necessarily form part of the SAP group of the trustee – the circumstances of the trust itself must be out of the ordinary run to warrant granting a SAP. • Synchronisation of related trusts that are similarly managed may provide sufficient grounds to take a particular trust out of the ordinary run, particularly where there is a significant cross holding of units or where the trusts are interrelated. • Alignment with the balance date of the major unit holder in a widely-held trust would generally satisfy the synchronisation requirements. | 4. How and when the entity transitions to a SAP: (a) Determining how a SAP relates to a 30 June year-end – Late or early balancing 4A. When an entity has been allowed to adopt a SAP, the new accounting period will involve either late or early balancing: • Where a SAP ends on any date between 1 July and 30 November, the SAP is in lieu of the income year ending on the preceding 30 June – this is a 'late' balance date. • Where a SAP ends on any date between 1 December and 31 May, the period adopted is in lieu of the income year ending on the succeeding 30 June – this is an 'early' balance date. • Where a SAP ends on any date between 1 July and 30 November, the SAP is in lieu of the income year ending on the preceding 30 June – this is a 'late' balance date. • Where a SAP ends on any date between 1 December and 31 May, the period adopted is in lieu of the income year ending on the succeeding 30 June – this is an 'early' balance date. 4B. There will always be a period that is common to both a year ending on 30 June and a SAP year. Example 5 – early December SAP 4C. For the 2009-10 income year, a tax return would normally cover the period 1 July 2009 to 30 June 2010. However, an entity allowed to adopt a SAP ending on 31 December would be regarded as an early balancer - that is, the SAP balance date is in lieu of the following 30 June. The entity's tax return for the 2009-10 income year would cover the period from 1 January 2009 to 31 December 2009. The period 1 July 2009 to 31 December 2009 is common to both the normal income year ending on 30 June 2010 and the SAP year. Refer to Diagram 1 of this Practice Statement for a visual representation of this example. Example 6 – late November SAP 4D. An entity allowed to adopt a SAP ending on 30 November would be regarded as a late balancer – that is, the SAP balance date is in lieu of the preceding 30 June. Its tax return for the 2009-10 income tax year would cover the period 1 December 2009 to 30 November 2010, of which the period 1 December 2009 to 30 June 2010 is common to both the normal income year ending on 30 June 2010 and the SAP year. Refer to Diagram 2 of this Practice Statement for a visual representation of this example. (b) Determining the length of a transitional period 4E. The changeover from one balance date to another (whether from the normal income year to a SAP or from one SAP to another) requires a return to be lodged for the transitional period. Although the transitional period will necessarily be for a period of other than 12 months and therefore will not constitute an accounting period or year of income for which a return is required, the Commissioner has the power under sections 162 and 168 to require a return of income for a transitional period when an entity's balancing date changes. 4F. The length of a transitional period depends on the entity's current accounting period and its new SAP and will be less than or greater than 12 months. For example, an entity changing from a balancing period ending on 30 June to a SAP ending on 31 March (that is, an early balance date) would have a 9-month SAP transitional period. Table 1 of this Practice Statement shows the length of transitional periods: 4G. We recognise that, in practical terms, a transitional period of less than 3 months would be administratively inconvenient. Therefore, where application of the normal rules would result in an entity (other than a newly registered or dormant entity) having a transitional period of less than 3 months, we allow a transitional period of 13 or 14 months instead. This situation is indicated by # in Table 1 of this Practice Statement and will mean that the entity 'misses' a year. For income tax purposes, there are no adverse tax consequences from missing a year. 4H. A newly registered or dormant entity that is allowed a SAP will be treated as though the SAP year is its first year. The first year will be the period starting on the entity's date of incorporation or commencement of trading and ending on the first balance date of their requested SAP. The first tax return will therefore be limited to a maximum period of 12 months. RI. Where the transitional period is not a multiple of 3 months, there will be a 1 or 2-month adjustment to an activity statement in the transitional period. For example, a June to late July balance date results in a 13-month transitional period, which requires 4 activity statements covering 3 months each and 1 activity statement covering 1 month. (c) Determining when the transitional period will occur 4J. The normal lodgment date, which affects the entity's ongoing tax obligations, applies until a SAP has been allowed. To minimise costs for both the entity and us, we prefer that an application for a SAP is made on a prospective basis as this allows the transition to occur in either a current or future year. 4K. An application for a SAP should be made as soon as the change in circumstances arises. For a newly registered entity, a SAP application can be made in conjunction with an application for a tax file number. 4L. To ensure the lodgment date can be updated in ATO systems before the lodgment date has passed, a SAP application should be lodged at least 28 days before the earlier of the due date for lodgment of the tax return for the: • current accounting period, and • proposed new accounting period. • current accounting period, and • proposed new accounting period. Example 7 – newly incorporated entities 4M. Company A was incorporated on 15 January 2008 and Company B was incorporated on 15 March 2008. Both have a business need for an early March balance date. The lodgment due date for the year ending 31 March 2008 is 15 October 2008. Therefore, both companies should apply by 17 September 2008 (28 days before 15 October, the lodgment due date for early March balance date) in order for the application to be considered for transition in the current (2007-08) year. The length of the transitional period is 15 January 2008 to 31 March 2008 for Company A and 15 March 2008 to 31 March 2008 for Company B. Example 8 – existing entity 4N. Company X has an existing SAP with an early March balance date and is acquired in July 2008 by a group with a late September balance date. It needs to change its balance date to synchronise reporting. The existing early March balance date has the earlier lodgment due date, being 15 October 2008 for the 2007-08 income year. For a transition in 2008, the application should be lodged by 17 September 2008. Since Company X already has a SAP, it should apply when its circumstances change; that is, in July 2008 when the company is acquired. The length of the transitional period is 1 April 2007 to 30 September 2008. Applications for retrospective SAPs 4O. Approval of a retrospective SAP may result in the need to update our systems to correct situations, such as: • pay as you go instalments being allocated to the wrong year • incorrect lodgment due dates being recognised • delays in the processing of refunds, and • inappropriate penalties. • pay as you go instalments being allocated to the wrong year • incorrect lodgment due dates being recognised • delays in the processing of refunds, and • inappropriate penalties. 4P. As such, when considering a request to approve a SAP on a retrospective basis, it is appropriate to take into account the extent to which our records will need to be updated to give effect to the changed balance date. 4Q. Having regard to the above, where an entity has otherwise justified being allowed a SAP and the changes to our records are minor (for example, no tax returns have been lodged or there are no historical pay as you go instalments), the fact that an application is retrospective is not of itself a ground to disallow the request. | 5. Advising the applicant: 5A. We notify the applicant in writing of the outcome of their SAP request. Where the request is allowed, the notification will contain details of the transitional period and other information on forthcoming obligations. Where disallowed in part or in full, the notification will include the reasons and invite the applicant to contact the case officer if they have any questions. 5B. We will normally notify applicants of the outcome within 28 days, unless we need to contact them (normally within 14 days) for additional information, at which point a finalisation date will be negotiated. Where we decide not to allow a SAP, we will provide a full explanation of the reasons, along with information on how the applicant can seek to have the decision reviewed. Review rights 5C. Where an entity is dissatisfied with our decision not to allow a SAP, or not to allow a SAP to start in a prior year, we encourage them to discuss their concerns with the case officer in the first instance. We also provide the opportunity for an entity to request a review of such decisions. 5D. A request for review needs to be in writing and provide the reasons why the applicant feels the decision is incorrect. The request should be headed 'Request for Review of Decision', quote the case reference number and be sent to the address given on the SAP application form. 5E. While there are no objection rights against a decision not to allow a SAP, the entity may seek to have the decision reviewed by the Federal Court under the Administrative Decisions (Judicial Review) Act 1977 . | 6. Ongoing administation of SAPs: Tax return lodged for a different balance date to that recorded in ATO systems 6A. Where an entity has not formally applied for a SAP, but lodges a return for a period other than the income year ending on 30 June, the entity should be requested to either: • submit a SAP application, or • provide evidence that the Commissioner previously approved a SAP. • submit a SAP application, or • provide evidence that the Commissioner previously approved a SAP. 6B. If, as a result of the lodgment of the SAP application, the entity's circumstances warrant the granting of leave, then the Commissioner may deem lodgment requirements to have been met and our records updated. 6C. If a SAP is not approved, tax returns should be returned as incomplete and amendments sought to processed returns. Change in circumstances that gave rise to a SAP 6D.An entity with a SAP is not required to advise the Commissioner of any material change in the circumstances that gave rise to that SAP. 6E. A SAP remains in effect until the entity applies for and is granted leave to adopt another balance date. Where an entity seeks to revert to a 30 June balance date, it is required to submit a SAP application. Consolidated groups 6F. A subsidiary member of a tax consolidated group has no payment, reporting and lodgment obligations – these are based on the tax accounting period of the head company of that group. As such, there is no requirement or need for a subsidiary member to align with the balance date of the head company and it retains its existing balance date. 6G. An entity that is exiting a consolidated group may seek to align its balance date with the balance date of the head entity on the basis that its existing systems reflect the balance date of the head entity. In such circumstances, it may be appropriate to grant the entity a SAP in view of the costs associated with adjusting its reporting systems to a new balance date. Existing SAPs with a late December balance date 6H. While a small number of entities retain a balance date of 31 December in lieu of the preceding 30 June (late December balancers), all new applicants seeking a 31 December year-end will receive an early December balancing date. 6I. If an entity transitions from a late to early December, they will effectively miss a year in the sequence of their tax returns. As mentioned in this Practice Statement, there are no adverse income tax consequences from missing a year. Tax return forms 6J. You should advise taxpayers who are unable to lodge electronically or where the relevant paper tax return is not yet available at the lodgment due date to lodge using a prior year paper return, clearly marking the year they are lodging. In addition, the entity should indicate the start and end dates covered by the return. Should the income tax labels change, additional information as required on the return form and schedule for the year in lieu of which the accounting period has been adopted is to be provided within a reasonable time. Failure to do so may result in the lodged return being rejected. Should the income tax labels change, additional information as required on the return form and schedule for the year in lieu of which the accounting period has been adopted is to be provided within a reasonable time. Failure to do so may result in the lodged return being rejected.",IT 2360 | IT 2497 | TD 35/32 | ITAA 1936 18 | ITAA 1936 162 | ITAA 1936 168 | AD(JR)Act 1977 | 2003 ATC 5133,,ITAA 1936 18 | ITAA 1936 162 | ITAA 1936 168 | AD(JR)Act 1977,,Application for a substituted accounting period (SAP) Compliance model Our Charter,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS200721/NAT/ATO/00001,"6. Ongoing administration of SAPs | Updated in line with current ATO style and accessibility requirements. | Inserted numbered paragraphs, minor formatting. | Updated to new LAPS format and style. | Error corrected: '2008' updated to 2010. | [2] See comments made by Lindgren J in MLC Investments Ltd v . Commissioner of Taxation (2003) 137 FCR 288; 2003 ATC 5133; (2003) 54 ATR 671 ( MLC case ) at FCR [2]; ATC 5135; ATR 673. | [5] Note that certain limited partnerships are treated as companies for Australian income tax purposes. | MLC Investments Ltd v. Commissioner of Taxation [2003] FCA 1487 (2003) 137 FCR 288 2003 ATC 5133 (2003) 54 ATR 671 | Refer to end of document for amendment history. Prior versions can be requested by emailing TCNLawPublishingandPolicy@ato.gov.au if required."
PS LA 2007/22,Remission of penalties for failure to withhold,8 October 2007,1 July 2002,Law Administration Practice Statement,False,"1. What this Practice Statement is about: This Practice Statement sets out what you need to consider when deciding whether to remit, in full or in part, the failure to withhold penalties imposed under Division 16 of Schedule 1 to the Taxation Administration Act 1953 (TAA) for entities failing to withhold or pay amounts under a pay as you go withholding (PAYGW) obligation. [1] All further legislative references in this Practice Statement are to Schedule 1 to the TAA, unless otherwise indicated. | 2. Failure to withhold penalty: An entity registered for PAYGW needs to withhold from certain payments made to others and pay it to the ATO. If an entity fails to withhold an amount from a payment that is subject to withholding, they are liable to a failure to withhold penalty. The penalty amount is equal to the amount they should have withheld from the payment. [2] The liability to penalty arises at the time the entity fails to withhold or pay an amount. If an entity disagrees with the penalty imposed on them, they may request a partial or full remission. [3] A decision to remit the penalty can be made before or after it is imposed and a notice is issued. You should not remit the penalty where you consider the case warrants referral for criminal investigation or prosecution. Payer's right to recover amounts of penalty for certain withholding taxes A payer may recover an amount equal to the amount of penalty from the person liable to pay the withholding tax, or mining withholding tax, for the withholding payment [4] , if a payer has paid an amount of penalty [5] for a withholding payment relating to: • dividend, interest or royalty payment • departing Australia superannuation payment • labour mobility programs • mining payment • distributions of withholding managed investment trust income. • dividend, interest or royalty payment • departing Australia superannuation payment • labour mobility programs • mining payment • distributions of withholding managed investment trust income. | 3. Remission of penalties for failing to withhold: The individual circumstances of each case must be assessed to determine whether, and to what extent, remission is appropriate. Remission is granted only in exceptional circumstances. Remission decision considerations include but are not limited to: • the objectives of administrative penalties generally – that is, to encourage entities to take reasonable care in complying with their tax obligations and to promote consistent treatment between all taxpayers • the appropriateness of remitting any of the penalty • the entity's compliance history • the circumstances leading to the penalty liability • the impact to revenue resulting from the failure to withhold • whether we became aware of the failure to withhold as a result of the entity's voluntary disclosure or because of our compliance efforts • the entity's attitude towards complying with the tax laws • if the case warrants referral for criminal investigation or prosecution • if the payer has a right to recover amounts of a penalty • if a deduction has been denied for not complying with certain PAYGW obligations • the level of record keeping maintained by the entity • any other relevant factors. • the objectives of administrative penalties generally – that is, to encourage entities to take reasonable care in complying with their tax obligations and to promote consistent treatment between all taxpayers • the appropriateness of remitting any of the penalty • the entity's compliance history • the circumstances leading to the penalty liability • the impact to revenue resulting from the failure to withhold • whether we became aware of the failure to withhold as a result of the entity's voluntary disclosure or because of our compliance efforts • the entity's attitude towards complying with the tax laws • if the case warrants referral for criminal investigation or prosecution • if the payer has a right to recover amounts of a penalty • if a deduction has been denied for not complying with certain PAYGW obligations • the level of record keeping maintained by the entity • any other relevant factors. Your decision to remit should: • consider the merits of each case, the matters relevant to the penalty and not irrelevant matters • be made with just cause and not arbitrarily • be made in good faith • consider the payer's behaviour consistent with the principles of the ATO Charter and the compliance model . • consider the merits of each case, the matters relevant to the penalty and not irrelevant matters • be made with just cause and not arbitrarily • be made in good faith • consider the payer's behaviour consistent with the principles of the ATO Charter and the compliance model . Specific considerations to remit the penalty for failure to withhold under Subdivision 12-F (dividend, interest and royalty payments to overseas persons) If a payer: • fails to withhold from a dividend, interest and royalty payment or withholds less than required, they are liable to a penalty equal to the amount that they failed to withhold • has paid the penalty, the payee is entitled to a credit equal to the amount of the penalty. [6] • fails to withhold from a dividend, interest and royalty payment or withholds less than required, they are liable to a penalty equal to the amount that they failed to withhold • has paid the penalty, the payee is entitled to a credit equal to the amount of the penalty. [6] The combination of these points will usually mean that the withholding tax liability has been met or paid. However, if the payer is granted remission of the penalty, the payee's credit is reduced by the amount of the remission. This will mean that the withholding tax liability is not paid and remission will generally not be appropriate unless the payer agrees to it. | 4. Notifying the payer: You must provide the entity with written notice of your decision [7] , including your reasons and the penalty amount to be paid. Due date for payment must be at least 14 days after the notice is given. [8] If the penalty is remitted in full, you are not required by law to give reasons for your decision to the taxpayer [9] , although it is preferable to do so. However, regardless of the outcome, you must maintain suitable records of the reasons and your decisions. | 5. Examples: Example 1 – decision to remit in full Marta has recently immigrated to Australia from Eastern Europe and runs a small bakery employing 2 family members. She is somewhat aware of an obligation by some employers to withhold amounts of PAYGW from employees' wages but assumes that it is only applicable to businesses with 100 or more employees. At an audit for the 2021–22 financial year, she is informed of her obligation to withhold from wages paid to any employee. Marta has retained comprehensive records of her business and immediately provides copies of bank statements to the auditor, identifying direct transfers of wages into the employees' accounts. Marta responds promptly to the auditor's requests and takes steps to better understand her tax obligations. She engages a tax agent to handle all business and personal tax matters and liaises with them often to ensure her account is up to date. The auditor considers Marta's lack of experience in Australian business and taxation affairs, and the importance of encouraging her to meet her PAYGW obligations in future. As Marta's positive cooperation helped resolve the audit and there are no other concerns with her compliance history Marta's penalty is remitted in full, a written notice is sent to Marta, and further education is provided to aid future compliance. Example 2 – decision to partially remit Alia runs a plastering business as a sole trader and has been in business for 4 years. Alia draws cash from her account to pay for additional casual labour each week and keeps basic records of the names and amounts for each payment. The payments from which she is required to withhold and does not, are relatively substantial and repetitive. Alia has a tax agent but does not discuss her business obligations or tax treatment for labourers with them. She merely provides a summary of her labour expenses at the end of each year with casual labour amounting to around 25% of her total expenses for each year. The auditor concludes Alia didn't take sufficient steps to understand and meet her obligations relating to labour payments, especially considering the size and volume of payments made, and the duration of non-compliance. Alia was receptive to the education provided and demonstrates she has implemented measures to meet her withholding obligations in future. The penalty is therefore remitted in part as while Alia repeatedly failed to meet her obligations, she has also demonstrated corrective measures to prevent recurrence. A written notice is sent to Alia notifying her of the penalty amount, the reasons for the partial remission decision, and a due date for the payment of the penalty. Example 3 – decision to not remit Sam runs a restaurant for many years and pays wages to several full-time employees. Sam obtains tax file number declarations from these employees, withholds the required amount of tax, and reports these payments and withholding amounts to the ATO. In the 2019–20 and 2020–21 financial years, Sam engages a number of casual employees. These employees are paid in cash and Sam does not record details or withhold amounts from these payments. Sam advises the ATO that it is difficult to obtain and maintain casual staff and therefore he pays them in cash from the business takings. Sam is aware that he should be withholding from these payments. Sam offers no explanation or reason for why he failed to withhold for some staff and not others. As the cash wages were paid to unidentified recipients, the auditor considers the low likelihood of income being declared, and tax being paid by the payees. In accordance with the objective of administrative penalties, it would be inappropriate to remit any of the penalty imposed upon Sam. A written notice is sent to Sam notifying him of the penalty amount, the reasons for the decision not to remit, and a due date for the payment of the penalty. | 6. More information: For more information, see: • Chief Executive Instruction External fraud (link available internally only) for policy on criminal investigation and prosecution decisions • Law Administration Practice Statement PS LA 2011/12 Remission of General Interest Charge for remission of the general interest charge that accrues on any unpaid penalty amounts. • Chief Executive Instruction External fraud (link available internally only) for policy on criminal investigation and prosecution decisions • Law Administration Practice Statement PS LA 2011/12 Remission of General Interest Charge for remission of the general interest charge that accrues on any unpaid penalty amounts.",PS LA 2011/12 | TAA 1953 Sch 1 Subdiv 12-F | TAA 1953 Sch 1 Div 16 | TAA 1953 Sch 1 16-30 | TAA 1953 Sch 1 16-35 | TAA 1953 Sch 1 16-40 | TAA 1953 Sch 1 16-195 | TAA 1953 Sch 1 18-35 | TAA 1953 Sch 1 298-10 | TAA 1953 Sch 1 298-15 | TAA 1953 Sch 1 298-20 | TAA 1953 Sch 1 298-20(2),PS LA 2011/12,TAA 1953 Sch 1 Subdiv 12-F | TAA 1953 Sch 1 Div 16 | TAA 1953 Sch 1 16-30 | TAA 1953 Sch 1 16-35 | TAA 1953 Sch 1 16-40 | TAA 1953 Sch 1 16-195 | TAA 1953 Sch 1 18-35 | TAA 1953 Sch 1 298-10 | TAA 1953 Sch 1 298-15 | TAA 1953 Sch 1 298-20 | TAA 1953 Sch 1 298-20(2),,ATO Charter Compliance model External fraud (link available internally only),False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS200722/NAT/ATO/00001,"Updated in line with current ATO style and accessibility requirements. | Sections 2, 4 and More information | Included 'referral for criminal investigation'. | Updated to new LAPS format and style. | Changed from 23 June 2006 to 1 July 2002 due to withdrawal of PS LA 2003/11. | [5] Under section 16-30, 16-35 or 16-40. | [7] See subsection 298-20(2). | File 2003/014849; 1-13MSSDLA; 1-187P23R7"
PS LA 2007/24,Making default assessments: section 167 of the Income Tax Assessment Act 1936,20 December 2007,20 December 2007,Law Administration Practice Statement,False,"1. When section 167 of the Income Tax Assessment Act 1936 may be used: All legislative references in this Practice Statement are to the Income Tax Assessment Act 1936 (ITAA 1936), unless otherwise indicated. Section 167 allows the Commissioner of Taxation to make an assessment of the amount on which, in their judgment, income tax ought to be levied. That amount becomes the person's taxable income for the purpose of section 166. It can be used where: • a person defaults in lodging a return • we are not satisfied with the return a person has lodged • we have reason to believe a person who has not lodged a return has derived taxable income. • a person defaults in lodging a return • we are not satisfied with the return a person has lodged • we have reason to believe a person who has not lodged a return has derived taxable income. Such an assessment is called a 'default assessment'. Note: The principles in this Practice Statement relating to section 167 should also be applied to similar provisions, where appropriate, such as: • section 73 of the Fringe Benefits Tax Assessment Act 1986, and • section 63 of the Petroleum Resource Rent Tax Assessment Act 1987. • section 73 of the Fringe Benefits Tax Assessment Act 1986, and • section 63 of the Petroleum Resource Rent Tax Assessment Act 1987. The principles also apply to goods and services tax (GST) and other assessments made under section 155-5 of Schedule 1 to the Taxation Administration Act 1953 (TAA), in circumstances equivalent to those made under section 167. Refer also to Law Administration Practice Statement PS LA 2007/10 Making default assessments: section 36 of the Superannuation Guarantee (Administration) Act 1992. You should also refer to the procedures on making default assessments listed in section 13 of this Practice Statement. | 2. Making default assessments – general principles: In making a default assessment, you must ensure that: • you are authorised to do so • your decision is fair and made in good faith • your decision has been made independently, and not at the direction of a third party, such as another government agency (see also section 6 of this Practice Statement) • the assessment is valid (see section 3 of this Practice Statement) • your decision is based on reasonable grounds and is defensible (see section 5 of this Practice Statement) • there is sufficient information to support your decision • you have considered all the relevant individual circumstances in accordance with the law • you have considered the commitments made in Our Charter and the principles of the Compliance model . • you are authorised to do so • your decision is fair and made in good faith • your decision has been made independently, and not at the direction of a third party, such as another government agency (see also section 6 of this Practice Statement) • the assessment is valid (see section 3 of this Practice Statement) • your decision is based on reasonable grounds and is defensible (see section 5 of this Practice Statement) • there is sufficient information to support your decision • you have considered all the relevant individual circumstances in accordance with the law • you have considered the commitments made in Our Charter and the principles of the Compliance model . | 3. Making a valid default assessment: A default assessment is subject to the same legal principles as any other assessment in order to be valid, that is: • the assessment must be the result of an 'act or operation of the Commissioner' [1] • the assessment must lead to an ascertainment, on consideration of all relevant circumstances, of the taxpayer's taxable income and their tax payable [2] • the assessment must be definitive in character, and not tentative or provisional [3] • the notice of assessment must be served on the taxpayer. [4] • the assessment must be the result of an 'act or operation of the Commissioner' [1] • the assessment must lead to an ascertainment, on consideration of all relevant circumstances, of the taxpayer's taxable income and their tax payable [2] • the assessment must be definitive in character, and not tentative or provisional [3] • the notice of assessment must be served on the taxpayer. [4] Relevant legal cases with respect to default assessment are provided in section 13 of this Practice Statement. The combined effect of section 175 and table item 2 of subsection 350-10(1) of Schedule 1 to the TAA [5] (formerly subsection 177(1)) means that if we have made a genuine attempt to ascertain the taxpayer's taxable income, the taxpayer cannot challenge the assessment except by lodging a taxation objection under Part IVC of the TAA. Errors in calculating a taxpayer's taxable income during the process of making the default assessment do not mean that the assessment is invalid. We are not limited to using a particular methodology to calculate an amount on which to tax the taxpayer. The assessment is valid provided that we have undertaken a logical process to arrive at that amount. Circumstances that do not amount to a genuine attempt to assess include simply plucking a figure from the air or where the assessment is made upon no intelligible basis. A genuine attempt will arrive at a definitive taxable income for the taxpayer. The fact that an assessment may be amended later (for example, on the provision of further information) or that alternative assessments are issued does not mean that it is not definitive. An assessment will be invalid if it is motivated by an improper or collateral purpose (for example, if it is issued to cause a taxpayer to talk to us or is based on facts that are known to be untrue). [6] | 4. Gathering the information to make the default assessment: The following sources should, depending on the circumstances, be used to obtain the information required to make the assessment. The taxpayer The taxpayer is the best starting point for information because they should possess information about their own taxation affairs. Note: Different procedures may be adopted if an audit is being undertaken without informing the taxpayer (for example, due to safety concerns or the audit is being conducted covertly). Taxpayers who have not kept records cannot use this as the basis of an objection. [7] The High Court said [8] : In the absence of some record in the mind or in the books of the taxpayer, it would often be quite impossible to make a correct assessment. The assessment would necessarily be a guess to some extent, and almost certainly inaccurate in fact. There is every reason to assume that the legislature did not intend to confer upon a potential taxpayer the valuable privilege of disqualifying himself in that capacity by the simple and relatively unskilled method of losing either his memory or his books. In cases where the taxpayer's records have been lost or destroyed, you should note the policy in Law Administration Practice Statement PS LA 2011/25 Reconstructing records and making reasonable estimates for taxpayers affected by a disaster. Third parties Where complete information may not be available from the taxpayer, you can seek to obtain information from third parties, including but not limited to: • Australian government agencies, such as, other Commonwealth agencies, local council authorities, utilities providers and transport departments • employers, commercial entities and financial institutions • foreign governments (subject to applicable tax treaties) • information provided to us by the public. • Australian government agencies, such as, other Commonwealth agencies, local council authorities, utilities providers and transport departments • employers, commercial entities and financial institutions • foreign governments (subject to applicable tax treaties) • information provided to us by the public. Formal access powers The Commissioner's formal access powers may be used in appropriate circumstances to obtain information from the taxpayer or third parties. You should follow the guidelines in Our approach to information gathering and Access and Information gathering (link available internally only) when seeking to use these powers. | 5. Determining reasonable grounds on which to make the assessment: When making a default assessment, you should generally make allowance for usually incurred deductions. However, due to the nature of a default assessment, it is not necessary to calculate assessable income and then applicable deductions; depending on the circumstances, it may be entirely appropriate for you to make a direct judgment of taxable income. [9] Reasonable grounds on which a default assessment may be made include: • information provided by third parties • information obtained from data matching • the application of industry benchmarks • relevant economic statistics – for example, Australian Bureau of Statistics (ABS) cost-of-living figures [10] • extrapolation from previous year returns. • information provided by third parties • information obtained from data matching • the application of industry benchmarks • relevant economic statistics – for example, Australian Bureau of Statistics (ABS) cost-of-living figures [10] • extrapolation from previous year returns. Indirect audit methodologies, including 'T' accounts [11] and asset betterment calculations [12] , have been upheld by the courts as proper bases on which an assessment may be raised. There is no requirement to allow deductions for expenses identified using an indirect audit methodology unless you are satisfied that the amount is deductible. Similarly, there is no requirement to allow GST credits when making a GST default assessment unless you are satisfied that the entitlement is correct. | 6. Documenting your decision: You must accurately document the basis on which the default assessment is made. The importance for doing so underlies our ability to rebut claims the assessment was not validly made or is excessive. You must also record all dealings with third parties, including other government agencies. Keeping accurate contemporary records should reflect the fact that the assessment is made solely for income tax law purposes. Failure to do so may give rise to the risk of an allegation that the assessment was made for an improper purpose. | 7. Interaction with prosecution: Non-lodgment of tax returns is pursued through the reminder correspondence, final notice and prosecution actions. [13] However, it may be appropriate to issue default assessments instead of enforcing lodgment in the following circumstances: • There is a risk that a taxpayer would remove themselves or their assets from Australia (that is, in conjunction with issuing a departure prohibition order or seeking a freezing order, also known as Mareva injunction). • There is a risk that money available to satisfy the tax debt would become irrecoverable unless garnishee action was taken. • It appears that a taxpayer will pay fines resulting from prosecution action, but continues not to lodge outstanding returns. • There may be significant administrative advantages in making default assessments as non-lodgment is rife in a particular industry or occupation, or as a result of a scheme or arrangement. • An independent decision based on whole-of-government initiatives indicates issuing a default assessment is more appropriate. • There is a risk that a taxpayer would remove themselves or their assets from Australia (that is, in conjunction with issuing a departure prohibition order or seeking a freezing order, also known as Mareva injunction). • There is a risk that money available to satisfy the tax debt would become irrecoverable unless garnishee action was taken. • It appears that a taxpayer will pay fines resulting from prosecution action, but continues not to lodge outstanding returns. • There may be significant administrative advantages in making default assessments as non-lodgment is rife in a particular industry or occupation, or as a result of a scheme or arrangement. • An independent decision based on whole-of-government initiatives indicates issuing a default assessment is more appropriate. Once a default assessment has been made, we would not normally continue with prosecution action. However, a default assessment can be made after prosecution for non-lodgment if the taxpayer has subsequently failed to comply with the court order to lodge. Note: You should consult the tax officer in charge of the prosecution before raising a default assessment. | 8. Applying penalties: You need to consider the application of administrative penalties when making a default assessment. Refer to Divisions 284 and 286 of Schedule 1 to the TAA and the relevant policies on administrative penalties listed in section 13 of this Practice Statement. | 9. Notifying the taxpayer: In accordance with usual audit practices, you should advise the taxpayer that you intend to raise a default assessment and provide them with the opportunity to comment on that proposed default assessment. [14] Note: Even if you make adjustments based on any information a taxpayer provides, it is still a default assessment. It may not always be appropriate to give a taxpayer advance notice of your intention to issue a default assessment. Such instances include where: • the taxpayer poses a flight risk • there is a risk of the dissipation of assets, such as the transfer or movement of liquid assets and funds, especially out of Australia • the default assessment is used in conjunction with another tax remedy, such as a departure prohibition order, or where there is a personal safety risk to a tax officer (for example, in audits of taxpayers linked to organised crime). • the taxpayer poses a flight risk • there is a risk of the dissipation of assets, such as the transfer or movement of liquid assets and funds, especially out of Australia • the default assessment is used in conjunction with another tax remedy, such as a departure prohibition order, or where there is a personal safety risk to a tax officer (for example, in audits of taxpayers linked to organised crime). | 10. Debt collection issues: You should contact the Frontline Compliance business line to discuss collection and any associated risks as early as possible before issuing a default assessment. Frontline Compliance needs information on any identified assets in order to maximise the likelihood of collection and recovery. | 11. Review and objection rights: A taxpayer has the usual internal and external review and objection rights, including objecting against a default assessment (under Part IVC of the TAA). | 12. Examples: Example 1 – unexplained deposits A taxpayer who has not lodged any tax returns uses funds sourced from a series of significant cash bank deposits over several years to pay for living expenses for himself and his family. The taxpayer provides several unsatisfactory explanations for these deposits. A default assessment under section 167 is made for the amounts of unexplained deposits in each year as taxable income. The assessment does not include any allowable deductions based on the insufficient evidence concerning the source of the funds. Example 2 – asset betterment or 'T' account A taxpayer lodges returns for a number of years, disclosing consistent losses from business activities. An audit of the taxpayer's affairs reveals a significant increase in the value of the taxpayer's assets and evidence of a lavish lifestyle inconsistent with the reported ongoing losses. The taxpayer is uncooperative. An indirect financial analysis is conducted ('T' account), which quantifies the shortfall of non-disclosed business income on which to raise a default assessment. Example 3 – extrapolation from prior year returns and third-party information A taxpayer fails to lodge returns for several years. The last 2 lodged returns contain stable income details for the taxpayer's business activity. Following a lack of response, the ATO uses third-party information to confirm the taxpayer is still conducting the same business. Section 167 default assessments, based on an extrapolation of the last 2 lodged returns (taking into account assessable income and allowable deductions) and increased by the ABS inflation rate for the relevant periods, are raised. The tax officer also advises the Frontline Compliance business line of the third parties that the taxpayer is apparently trading with in order to aid debt collection activity. Example 4 – use of external economic statistics Australian Transaction Reports and Analysis Centre (AUSTRAC) data shows a taxpayer sent large sums of money offshore. The income included in the taxpayer's tax returns does not indicate that the taxpayer had sufficient funds available to make the transfers. The taxpayer did not explain the source of the funds transferred offshore, the reason for transferring the funds or provide any details of returns on these funds. After considering the evidence, the taxpayer is assessed on the unexplained funds that were transferred offshore as taxable income. Additionally, ABS data on net return on foreign investments is used to calculate the taxpayer's taxable (not assessable) income and section 167 default assessments are raised. Example 5 – lost records for individual A self-employed individual taxpayer's taxation records are destroyed by a fire at the business premises. The taxpayer is unable to easily reconstruct the records as they largely related to cash receipts and payments. The taxpayer has a good compliance history and a reasonably stable taxable income over the prior 5 years. As a result, the tax officer responsible for the taxpayer's lodgment enforcement case decides to issue a section 167 default assessment for the relevant financial year. The ATO officer contacts the taxpayer and discusses an appropriate basis for calculating the taxpayer's taxable income, including the taxpayer's estimates of their assessable income and allowable deductions. The tax officer raises a default assessment on the basis agreed with the taxpayer (calculated as the average of the last 3 years' taxable incomes, which was consistent with the taxpayer's estimate). | 13. More information: For judicial interpretation on valid assessments generally and default assessments under section 167, refer to: • Bailey v Commissioner of Taxation (Cth) [1977] HCA 11 • Batagol v Commissioner of Taxation (Cth) [1963] HCA 51 • Buzadzic v Commissioner of Taxation [2024] FCAFC 50 • Case B18 (1951) 2 TBRD 88 • Commissioner of Taxation v Bazzo [2024] FCA 452 • Darrell Lea Chocolate Shops Pty Ltd v Commissioner of Taxation for the Commonwealth of Australia [1996] FCA 1129 • Deputy Commissioner of Taxation of (WA) & Ors v. Briggs, P. [1987] FCA 163 • Eldridge, K.S. v. Commissioner of Taxation [1990] FCA 523 • Favaro, Gerald Antonio & Anor v Commissioner of Taxation [1996] FCA 877 • Federal Commissioner of Taxation v S Hoffnung & Company Limited [1928] HCA 49 • FJ Bloemen Pty Ltd v Commissioner of Taxation (Cth); Simons v Commissioner of Taxation (Cth) [1981] HCA 27 • Gamini Bus Co Ltd v Commissioner of Income Tax, Colombo (1952) AC 571 • Gashi v Commissioner of Taxation [2013] FCAFC 30 • George v Commissioner of Taxation (Cth) [1952] HCA 21 • Liang v Commissioner of Taxation [2024] FCA 535 • Madden, Alexander William v Madden, Joan Lillian & Ors [1996] FCA 200 • Martin, J.B. v. Commissioner of Taxation [1993] FCA 945 • McAndrew v Commissioner of Taxation [1956] HCA 62 • McCleary, Grant v Commissioner of Taxation of the Commonwealth of Australia [1997] FCA 182 • R v Deputy Federal Commissioner of Taxation (SA) [1926] HCA 3 • Rigoli v Commissioner of Taxation [2014] FCAFC 29 • Rusanov v Commissioner of Taxation [2024] FCA 777 • Stone v Federal Commissioner of Taxation [1918] HCA 67 • Taxation, Commissioner of v Dalco [1990] HCA 3 • Trautwein v Federal Commissioner of Taxation [1936] HCA 77 • Wang v Commissioner of Taxation [2024] FCA 585. • Bailey v Commissioner of Taxation (Cth) [1977] HCA 11 • Batagol v Commissioner of Taxation (Cth) [1963] HCA 51 • Buzadzic v Commissioner of Taxation [2024] FCAFC 50 • Case B18 (1951) 2 TBRD 88 • Commissioner of Taxation v Bazzo [2024] FCA 452 • Darrell Lea Chocolate Shops Pty Ltd v Commissioner of Taxation for the Commonwealth of Australia [1996] FCA 1129 • Deputy Commissioner of Taxation of (WA) & Ors v. Briggs, P. [1987] FCA 163 • Eldridge, K.S. v. Commissioner of Taxation [1990] FCA 523 • Favaro, Gerald Antonio & Anor v Commissioner of Taxation [1996] FCA 877 • Federal Commissioner of Taxation v S Hoffnung & Company Limited [1928] HCA 49 • FJ Bloemen Pty Ltd v Commissioner of Taxation (Cth); Simons v Commissioner of Taxation (Cth) [1981] HCA 27 • Gamini Bus Co Ltd v Commissioner of Income Tax, Colombo (1952) AC 571 • Gashi v Commissioner of Taxation [2013] FCAFC 30 • George v Commissioner of Taxation (Cth) [1952] HCA 21 • Liang v Commissioner of Taxation [2024] FCA 535 • Madden, Alexander William v Madden, Joan Lillian & Ors [1996] FCA 200 • Martin, J.B. v. Commissioner of Taxation [1993] FCA 945 • McAndrew v Commissioner of Taxation [1956] HCA 62 • McCleary, Grant v Commissioner of Taxation of the Commonwealth of Australia [1997] FCA 182 • R v Deputy Federal Commissioner of Taxation (SA) [1926] HCA 3 • Rigoli v Commissioner of Taxation [2014] FCAFC 29 • Rusanov v Commissioner of Taxation [2024] FCA 777 • Stone v Federal Commissioner of Taxation [1918] HCA 67 • Taxation, Commissioner of v Dalco [1990] HCA 3 • Trautwein v Federal Commissioner of Taxation [1936] HCA 77 • Wang v Commissioner of Taxation [2024] FCA 585. For procedures on making default assessments, refer to: • Default assessment under s167 method (link available internally only) • Default assessment under s167 method support (link available internally only). • Default assessment under s167 method (link available internally only) • Default assessment under s167 method support (link available internally only). For relevant policies on administrative penalties, refer to: • Law Administration Practice Statement PS LA 2011/19 Administration of the penalty for failure to lodge on time • Law Administration Practice Statement PS LA 2012/4 Administration of the false or misleading statement penalty – where there is no shortfall amount • Law Administration Practice Statement PS LA 2012/5 Administration of the false or misleading statement penalty – where there is a shortfall amount • Law Administration Practice Statement PS LA 2014/4 Default assessment penalty • Taxation Ruling TR 94/3 Income tax: tax shortfall penalties: calculation of a tax shortfall and allocation of additional tax • Taxation Ruling TR 94/7 Income tax: tax shortfall penalties: guidelines for the exercise of the Commissioner's discretion to remit penalty otherwise attracted. • Law Administration Practice Statement PS LA 2011/19 Administration of the penalty for failure to lodge on time • Law Administration Practice Statement PS LA 2012/4 Administration of the false or misleading statement penalty – where there is no shortfall amount • Law Administration Practice Statement PS LA 2012/5 Administration of the false or misleading statement penalty – where there is a shortfall amount • Law Administration Practice Statement PS LA 2014/4 Default assessment penalty • Taxation Ruling TR 94/3 Income tax: tax shortfall penalties: calculation of a tax shortfall and allocation of additional tax • Taxation Ruling TR 94/7 Income tax: tax shortfall penalties: guidelines for the exercise of the Commissioner's discretion to remit penalty otherwise attracted.",PS LA 2011/19 | PS LA 2012/4 | PS LA 2012/5 | PS LA 2014/4 | TR 94/3 | TR 94/7 | PS LA 2007/10 | PS LA 2011/25 | ITAA 1936 166 | ITAA 1936 167 | ITAA 1936 175 | ITAA 1997 4-15(1) | ITAA 1997 4-15(2) | TAA 1953 Pt IVC | TAA 1953 Sch 1 155-5 | TAA 1953 Sch 1 Div 284 | TAA 1953 Sch 1 Div 286 | TAA 1953 Sch 1 350-10 | TAA 1953 Sch 1 350-10(1) | FBTAA 1986 73 | PRRTAA 1987 63 | SGAA 1992 36 | 77 ATC 4096 | 109 CLR 243 | [1964] ALR 480 | 13 ATD 202 | 2024 ATC 20-903 | 2024 ATC 20-907 | 97 ATC 4040 | 87 ATC 4278 | 90 ATC 4907 | 96 ATC 4975 | 42 CLR 39 | 1 ATD 310 | 34 ALR 329 | 81 ATC 4280 | 2013 ATC 20-377 | 86 CLR 183 | 10 ATD 65 | 26 ALJ 441 | 2024 ATC 20-910 | 96 ATC 4268 | 93 ATC 5200 | 98 CLR 263 | [1956] ALR 1008 | 11 ATD 131 | 30 ALJ 464 | 97 ATC 4266 | 37 CLR 368 | 32 ALR 101 | 2014 ATC 20-446 | 2024 ATC 20-922 | 90 ATC 4088 | 56 CLR 63 | 2024 ATC 20-913,PS LA 2007/10 PS LA 2011/19 PS LA 2011/25 PS LA 2012/4 PS LA 2012/5 PS LA 2014/4,ITAA 1936 166 | ITAA 1936 167 | ITAA 1936 175 | ITAA 1936 177(1) | ITAA 1997 4-15(1) | ITAA 1997 4-15(2) | TAA 1953 Pt IVC | TAA 1953 Sch 1 155-5 | TAA 1953 Sch 1 Div 284 | TAA 1953 Sch 1 Div 286 | TAA 1953 Sch 1 350-10 | TAA 1953 Sch 1 350-10(1) | FBTAA 1986 73 | PRRTAA 1987 63 | SGAA 1992 36 | Judiciary Act 1903 39B,,Access and Information gathering (link available internally only) Compliance model Default assessments for overdue lodgments Default assessment under s167 method (link available internally only) Default assessment under s167 method support (link available internally only) Non-lodgment prosecution guideline (link available internally only) Our approach to information gathering Our Charter,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS200724/NAT/ATO/00001,"Include reference to other provisions where the principles relating to section 167 should also be applied. | Include paragraph regarding deductions when an indirect audit methodology is used and GST credits when making a default GST assessment. | New footnotes 9, 11 and 12. | Updated examples 4 and 5. | Include recent judicial decisions relating to section 167. | Updated in line with current ATO style and accessibility requirements. | Include reference to internal procedures on making default assessment and updated for currency of format and style. | Updated to new LAPS format and style. | Include reference to subsection 285 75(4). | Include reference to subsection 285 75(4) and replace reference to PS LA 2006/2 with PS LA 2012/4 and PS LA 2012/5 | Updated to current corporate publication style. | References to Superannuation Guarantee (Administration) Act 1992 and PS LA 2007/10 included. | Reference to PS LA 2011/25 included. | Updated and reference to PS LA 2011/19 included. | Updated and references to PS LA 2011/13 and PS LA 2011/18 included. | Updated to include Superannuation Guarantee (Administration) Act 1992. | Related practice statements | Updated to include PS LA 2007/10, 2011/13, 2011/18, 2011/19, 2011/25. | Contact officer & reference to Tax Office | Details updated & references to Tax Office changed to ATO. | Paragraphs 85, 89, 91, 95, 98 and Related practice statements | Link to the policy added to 'Other references'. | [1] R v Deputy Federal Commissioner of Taxation SA ) [1926] HCA 3; 37 CLR 368 at [373]. | [3] Federal Commissioner of Taxation v S Hoffnung & Company Limited [1928] HCA 49; FJ Bloemen Pty Ltd v Commissioner of Taxation (Cth) ; Simons v Commissioner of Taxation (Cth) [1981] HCA 27. | [4] Batagol v Commissioner of Taxation (Cth) [1963] HCA 51; 109 CLR 243 at [252]. | [5] Section 175 protects the validity of an assessment in the event of non-compliance with provisions of the ITAA 1936. Section 350-10 of Schedule 1 to the TAA provides the production of a notice of assessment is conclusive evidence of making that assessment. | [6] Section 39B of the Judiciary Act 1903 . | [8] Latham CJ in Trautwein v Federal Commissioner of Taxation [1936] HCA 77 at [2]. | [9] Default assessments are not subject to the taxable income method statement in subsection 4-15(1) of the Income Tax Assessment Act 1997 - see table item 5 of subsection 4-15(2) of that Act. | [10] Refer to Favaro, Gerald Antonio & Anor v Commissioner of Taxation [1996] FCA 877; Gamini Bus Co Ltd v Commissioner of Income Tax, Colombo (1952) AC 571 and Case B18 (1951) 2 TBRD 88. | [11] The 'T' account method compares cash available at the beginning of a period plus cash received during the period with cash expended during the period plus cash on hand at the end of that period. Where these amounts are not the same, there may be undisclosed income. | [12] The asset betterment method compares the value of a taxpayer's net assets at the end of each relevant year with the value at the beginning of the year to estimate the annual asset growth. | [13] Refer to Non-lodgment prosecution guideline (link available internally only). | [14] Refer to Default assessments for overdue lodgments . | File 07/18030; 1-1441XFIA | Bailey v Commissioner of Taxation (Cth) [1977] HCA 11 136 CLR 214 77 ATC 4096 7 ATR 251 13 ALR 41 | Batagol v Commissioner of Taxation (Cth) [1963] HCA 51 109 CLR 243 [1964] ALR 480 13 ATD 202 37 ALJR 235 | Buzadzic v Commissioner of Taxation [2024] FCAFC 50 2024 ATC 20-903 | Commissioner of Taxation v Bazzo [2024] FCA 452 2024 ATC 20-907 | Darrell Lea Chocolate Shops Pty Ltd v Commissioner of Taxation for the Commonwealth of Australia [1996] FCA 1129 72 FCR 175 97 ATC 4040 34 ATR 491 141 ALR 713 | Deputy Commissioner of Taxation of (WA) & Ors v. Briggs, P. [1987] FCA 163 14 FCR 249 87 ATC 4278 18 ATR 570 72 ALR 365 | Eldridge, K.S. v. Commissioner of Taxation [1990] FCA 523 21 FCR 897 90 ATC 4907 21 ATR 897 | Favaro, Gerald Antonio & Anor v Commissioner of Taxation [1996] FCA 877 96 ATC 4975 34 ATR 1 | Federal Commissioner of Taxation v S Hoffnung & Company Limited [1928] HCA 49 42 CLR 39 1 ATD 310 1 ALJR 354 34 ALR 329 | FJ Bloemen Pty Ltd v Commissioner of Taxation (Cth); Simons v Commissioner of Taxation (Cth) [1981] HCA 27 147 CLR 360 81 ATC 4280 11 ATR 914 35 ALR 104 | Gamini Bus Co Ltd v Commissioner of Income Tax, Colombo (1952) AC 571 (1952) TR 44 | Gashi v Commissioner of Taxation [2013] FCAFC 30 209 FCR 301 2013 ATC 20-377 91 ATR 1 296 ALR 497 | George v Commissioner of Taxation (Cth) [1952] HCA 21 86 CLR 183 10 ATD 65 [1952] ALR 961 26 ALJ 441 | Liang v Commissioner of Taxation [2024] FCA 535 2024 ATC 20-910 | Madden, Alexander William v Madden, Joan Lillian & Ors [1996] FCA 200 65 FCR 354 96 ATC 4268 32 ATR 223 136 ALR 98 | Martin, J.B. v. Commissioner of Taxation [1993] FCA 945 93 ATC 5200 27 ATR 282 | McAndrew v Commissioner of Taxation [1956] HCA 62 98 CLR 263 [1956] ALR 1008 11 ATD 131 30 ALJ 464 | McCleary, Grant v Commissioner of Taxation of the Commonwealth of Australia [1997] FCA 182 97 ATC 4266 35 ATR 318 | R v Deputy Federal Commissioner of Taxation (SA) [1926] HCA 3 37 CLR 368 32 ALR 101 (1926) R and McG 70 | Rigoli v Commissioner of Taxation [2014] FCAFC 29 2014 ATC 20-446 96 ATR 19 141 ALD 529 [2016] ALMD 4784 | Rusanov v Commissioner of Taxation [2024] FCA 777 2024 ATC 20-922 | Stone v Federal Commissioner of Taxation [1918] HCA 67 25 CLR 389 [1918] VLR 567 (1918) R and McG 13 | Taxation, Commissioner of v Dalco [1990] HCA 3 168 CLR 614 90 ATC 4088 20 ATR 1370 64 ALJR 166 | Trautwein v Federal Commissioner of Taxation [1936] HCA 77 56 CLR 63 10 ALJR 247 [1936] ALR 425 4 ATD 48 | Wang v Commissioner of Taxation [2024] FCA 585 2024 ATC 20-913 | This practice statement was originally published on 20 December 2007. Versions published from 11 September 2008 are available electronically - refer to the online version of the practice statement. Versions published prior to this date are not available electronically. If needed, these can be requested by emailing TCNLawPublishingandPolicy@ato.gov.au ."
PS LA 2006/4,SUBJECT: Ability of the Internal Revenue Service of the United States of America to gather taxpayer-specific information from the United States Virgin Islands and several other Territories (formerly known as Possessions) of the United States of America PURPOSE: To alert ATO staff to the ability of the Internal Revenue Service to obtain taxpayer-specific information from the United States Virgin Islands and several other Territories of the United States of America under their domestic tax law and provide such information to Australia under Article 25 of the Australia-United States of America Double Tax Convention.,29 March 2006,29 March 2006,Law Administration Practice Statement,False,"1. The Internal Revenue Service (IRS) of the United States of America (United States) is able to obtain taxpayer-specific information from the United States Virgin Islands (USVI) and several other United States Territories under United States domestic tax law and provide such information to Australia under Article 25 of the Australia-United States Double Tax Convention [1] (the Convention). | Tax implementation agreement between the United States and the USVI: 2. The United States and the USVI have a tax implementation agreement [2] (Agreement) that provides for the exchange of tax information between the 2 governments. Under the Agreement, the USVI is required routinely to provide the United States with information which may be relevant to third countries, such as '... information about the ownership interests of all corporations subject to Virgin Islands tax with non-Virgin Islands source income that receive a rebate, subsidy or reduction of Virgin Islands taxes ...' [3] . This information may be redisclosed by the United States in accordance with the provisions 'of an applicable treaty' with a third country. Thus, if a third country-treaty partner were to make a request to the United States for USVI information that has been provided to the United States under the Agreement, the United States could provide the information to the third country. | Use of Compulsory Process: 3. The USVI is within the jurisdiction of the United States' federal courts. Thus the United States can use its compulsory powers to secure the information in the USVI without regard to the local laws in the USVI. The Agreement between the United States and the USVI explicitly acknowledges that the administrative summons authority of the IRS extends to the USVI. If a third country treaty partner were to make an authorised request to the United States for USVI information that was not in the possession of the United States, the United States would secure that information. TD 93/221 Income tax: does the definition of ""United States"" in the Australia-United States Double Tax Convention include United States possessions? 4. According to Taxation Determination TD 93/221 Income tax: does the definition of ""United States"" in the Australia-United States Double Tax Convention include United States possessions?, the definition of 'United States' in the Convention (when used in a geographical sense) does not include the USVI (or other United States' Possessions – now known as Territories). However, in relation to exchange of information, most of Australia's tax treaties have specific provisions authorising the exchange of information relating to residents of third jurisdictions. While Article 25 of the Convention does not contain such a specific authorisation, advice received from the Attorney-General's Department has confirmed that it is permissible for such exchanges to occur between the competent authorities of Australia and the United States, provided such exchanges are in relation to the taxes covered by the Convention. Therefore, the operation of United States domestic law and the Agreement between the United States and the USVI allows for an effective Australian request for information regarding the USVI from the United States. | Other United States Territories: 5. The IRS has previously advised that in addition to the USVI, the United States also has similar formal working agreements with American Samoa, Guam, Northern Mariana Islands and Puerto Rico. Thus the IRS is able to obtain tax information from these United States Territories and provide such information to Australia under the Convention. | Process of exchange of information requests: 6. For more information on how to frame an exchange of information request to the United States or another tax treaty partner, contact australiancompetentauthority@ato.gov.au .",TD 93/221,,,,Convention between the Government of Australia and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income [1983] ATS 16 Tax Implementation Agreement Between the United States of America and the Virgin Islands,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20064/NAT/ATO/00001,"Updated to align with current ATO style and accessibility guidance. | [2] United States Internal Revenue Service (1987), Tax Implementation Agreement Between The United States of America and The Virgin Islands , https://www.irs.gov/pub/irs-lbi/tax_implementation_agreement_between_the_us_and_virgin_islands.pdf . | [3] See paragraph 2.b)(iii) of Article 4 of the Agreement."
PS LA 2006/7,Alternative assessments,27 July 2006,27 July 2006,Law Administration Practice Statement,False,"1. What this Practice Statement is about: We may issue multiple assessments in which the same underlying amount is assessed if there is genuine doubt about where the 'final' liability to tax rests. These assessments are referred to as 'alternative assessments'. They are usually issued to different taxpayers but can be issued to the same taxpayer in some situations. This Practice Statement sets out when we issue alternative assessments and our approach to collecting the tax payable under alternative assessments. This Practice Statement does not apply to compensating adjustments pursuant to subsection 177F(3) of the Income Tax Assessment Act 1936 (ITAA 1936) – instead, refer to Law Administration Practice Statement PS LA 2005/24 Application of General Anti-Avoidance Rules. | 2. When alternative assessments can be made: Alternative assessments can be made for: • income tax assessments: the ITAA 1936 • fringe benefits tax assessments: the Fringe Benefits Tax Assessment Act 1986 (FBTAA) • penalty assessments: the Taxation Administration Act 1953 (TAA) • goods and services tax (GST) assessments: the TAA. • income tax assessments: the ITAA 1936 • fringe benefits tax assessments: the Fringe Benefits Tax Assessment Act 1986 (FBTAA) • penalty assessments: the Taxation Administration Act 1953 (TAA) • goods and services tax (GST) assessments: the TAA. You cannot issue more than one assessment of taxable income, fringe benefits taxable amount or a GST net amount to the same taxpayer for the same income year (or tax period). [1] There are some circumstances where alternative assessments can issue to the same taxpayer for the same income year (or tax period) under the same Act when different authorising provisions create the liability [2] – see section 5 of this Practice Statement. | 3. When alternative assessments should be made: Alternative assessments are made only when good administration requires them. They are made on the basis of the information available to us at the time. There must be genuine doubt about which assessment is appropriate because we hold the view each assessment is capable of being correct. Usually, alternative assessments will be made where the uncertainty on the facts or operation of the law cannot be practicably resolved to ensure a single correct assessment is made within a time limit. | 4. Making a valid alternative assessment: Any alternative assessment made must still meet the requirements of a valid assessment. Case law has established principles for a valid assessment, which include: • The assessment must be the result of an 'act or operation of the Commissioner'. [3] • The assessment must lead to an ascertainment on consideration of all relevant circumstances, of the amount being assessed. For example, in the case of income tax, the taxpayer's taxable income and their tax payable. [4] • The assessment must be definitive in character, rather than tentative or provisional. [5] • The assessment must be the result of an 'act or operation of the Commissioner'. [3] • The assessment must lead to an ascertainment on consideration of all relevant circumstances, of the amount being assessed. For example, in the case of income tax, the taxpayer's taxable income and their tax payable. [4] • The assessment must be definitive in character, rather than tentative or provisional. [5] In some cases, raising an alternative assessment relies on using section 167 of the ITAA 1936 (default assessments). You should refer to Law Administration Practice Statement PS LA 2007/24 Making default assessments: section 167 of the Income Tax Assessment Act 1936 for more details on the use of that section. | 5. Circumstances where the issue of alternative assessments is appropriate: Alternative assessments issued pursuant to separate tax Acts You may issue alternative assessments to the same taxpayer (or to different taxpayers) pursuant to more than one tax Act in respect of the same income, benefit or transaction. For example, where there is a complex tax avoidance arrangement, an income tax assessment may be made under the ITAA 1936 and a fringe benefits tax assessment may be made under the FBTAA in respect of the same income or benefit. Alternative assessments issued to multiple taxpayers under the same tax Act You may issue alternative assessments to different taxpayers in respect of the same income, benefit or transaction and the same income year (or tax period). [6] For example, you may issue an assessment to the trustee of a trust and also issue assessments to the trust beneficiaries where there is uncertainty as to whether the beneficiaries are presently entitled to income of the trust. There may also be circumstances where the one transaction (or a series of transactions undertaken under an arrangement) gives rise to alternative GST assessments to different entities where it is unclear which entity should be assessed. For example, it may be unclear which entity has made a taxable supply or taxable importation. A series of transactions undertaken as part of a scheme may give rise to alternative GST assessments where it is unclear which entity has obtained a GST benefit. Alternative assessments issued to the same taxpayer for different income years (or tax periods) Alternative assessments may be issued to the same taxpayer for different income years (or tax periods) in respect of the same income, benefit or transaction where it is not clear in which income year the income or benefit has been derived. [7] Alternative assessments issued pursuant to different authorising provisions of the same tax Act There are some circumstances where you may issue alternative assessments to the same taxpayer for the same income year (or tax period) pursuant to more than one authorising provision of the same Act. For example, if we have assessed the taxable income of a taxpayer for an income year, an assessment of something other than taxable income can still be issued to the taxpayer. Where a taxpayer has a shortfall amount from participating in a scheme and alternative assessments are made (the alternative in reliance on an adjustment provision), alternative penalty assessments may be issued under Subdivisions 284-B and 284-C of Schedule 1 to the TAA (refer to Law Administration Practice Statement PS LA 2008/18 Interaction between Subdivisions 284-B and 284-C of Schedule 1 to the Taxation Administration Act 1953). | 6. Circumstances where the issue of alternative assessments is not appropriate: An alternative assessment is not made when any uncertainty of the facts or operation of the law gives rise to alternative views in respect of the one assessment for a taxpayer. For example, uncertainty as to whether an amount is ordinary income or statutory income of a taxpayer but either amount is assessable income and ultimately forms part of the taxpayer's taxable income for that income year. In these instances, we will generally issue an assessment to give effect to the highest amount we consider is correct from these alternative views. | 7. Recovering the tax payable to the ATO: The production of a notice of assessment is conclusive evidence of the due making of an assessment and, except in proceedings in relation to a review or appeal, that the assessment is valid and the amount and particulars of the assessment are correct. When tax becomes due and payable under a notice of assessment, it becomes a legally binding debt of that taxpayer. Despite the standing of alternative assessments once issued and the binding debt created, we do not undertake double recovery of the tax. [8] We will ultimately collect the relevant amount of tax payable on the alternative assessments only to the extent they prove correct to the exclusion of others. You should commence the usual debt collection procedures for amounts owing under alternative assessments. We have discretion as to which assessments are collected on and as to the amounts collected under each assessment, but there is an obligation to ensure these actions are not oppressive. [9] We do not normally commence proceedings to recover the aggregate amount of tax owing under all alternative assessments. However, we may seek to recover the amount of tax payable or take action to secure the assets of a taxpayer where the tax payable under any of the assessments is at risk because the taxpayer is dissipating assets or taking other action to stop us being able to collect. When undertaking debt collection activity where alternative assessments have issued, you should also note our policy on remission of general interest charge where all undisputed tax is paid and at least 50% of the disputed liability is paid – see Law Administration Practice Statement PS LA 2011/4 Collection and recovery of disputed debts. | 8. Advising the taxpayer when an alternative assessment is issued: You should ordinarily issue a letter to the relevant taxpayer or taxpayers prior to the issue of alternative assessments. However, there may be circumstances which mean the letter issues at the same time as, or shortly after, the issue of the alternative assessments. The letter should advise each taxpayer: • that alternative assessments are being issued as, on the available information, there is uncertainty on the facts or operation of the law which indicates any of the assessments are capable of ultimately being correct • how much of the tax payable is the subject of an alternative assessment (the relevant amount of tax) • that we are only permitted to ultimately collect the relevant amount of tax and we will not automatically recover the aggregate amount of all assessments, but we may take steps to secure the collection of the relevant amount of tax • what payments of tax we require be made in respect of their assessment • that the taxpayer may object against the assessment, having regard to the time limits allowed for lodging objections • that once the 'final' liability has been determined, either by way of agreement with the taxpayer or resolved through an appeal process, the relevant assessments will be amended. We will not ultimately collect more than the final liability. • that alternative assessments are being issued as, on the available information, there is uncertainty on the facts or operation of the law which indicates any of the assessments are capable of ultimately being correct • how much of the tax payable is the subject of an alternative assessment (the relevant amount of tax) • that we are only permitted to ultimately collect the relevant amount of tax and we will not automatically recover the aggregate amount of all assessments, but we may take steps to secure the collection of the relevant amount of tax • what payments of tax we require be made in respect of their assessment • that the taxpayer may object against the assessment, having regard to the time limits allowed for lodging objections • that once the 'final' liability has been determined, either by way of agreement with the taxpayer or resolved through an appeal process, the relevant assessments will be amended. We will not ultimately collect more than the final liability. There may be instances where a taxpayer experiences financial difficulties as a result of alternative assessments, such as the ability to obtain credit. If we are advised of these situations, we will work with the taxpayer to help in dealing with these consequences. | 9. More information: Other relevant Practice Statements include: • PS LA 2005/24 Application of General Anti Avoidance Rules • PS LA 2007/24 Making default assessments: section 167 of the Income Tax Assessment Act 1936 • PS LA 2008/18 Interaction between Subdivisions 284 B and 284 C of Schedule 1 to the Taxation Administration Act 1953 • PS LA 2010/1 Approach to cases involving Division 6 (trust income) of the Income Tax Assessment Act 1936 • PS LA 2011/4 Collection and recovery of disputed debts • PS LA 2015/2 Time limits for trustee assessments . • PS LA 2005/24 Application of General Anti Avoidance Rules • PS LA 2007/24 Making default assessments: section 167 of the Income Tax Assessment Act 1936 • PS LA 2008/18 Interaction between Subdivisions 284 B and 284 C of Schedule 1 to the Taxation Administration Act 1953 • PS LA 2010/1 Approach to cases involving Division 6 (trust income) of the Income Tax Assessment Act 1936 • PS LA 2011/4 Collection and recovery of disputed debts • PS LA 2015/2 Time limits for trustee assessments .",PS LA 2005/24 | PS LA 2007/24 | PS LA 2008/18 | PS LA 2010/1 | PS LA 2011/4 | PS LA 2015/2 | ITAA 1936 167 | ITAA 1936 177F(3) | TAA 1953 Sch 1 Subdiv 284-B | TAA 1953 Sch 1 Subdiv 284-C | FBTAA | 2002 ATC 5169 | 70 CLR 362 | 97 ATC 4001 | 95 ATC 4067 | 42 CLR 39 | 1 ATD 310 | 34 ALR 329 | 81 ATC 4280 | 2000 ATC 4812 | 77 CLR 78 | 22 ALJ 493 | 8 ATD 388 | 37 CLR 368 | 48 CLR 192 | 87 ATC 4655,PS LA 2005/24 PS LA 2007/24 PS LA 2008/18 PS LA 2010/1 PS LA 2011/4 PS LA 2015/2,ITAA 1936 167 | ITAA 1936 177F(3) | TAA 1953 Sch 1 Subdiv 284-B | TAA 1953 Sch 1 Subdiv 284-C | FBTAA,,,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20067/NAT/ATO/00001,"If taxpayers rely on this Practice Statement, they will be protected from interest and penalties in the following way. If a statement turns out to be incorrect and taxpayers underpay their tax as a result, they will not have to pay a penalty, nor will they have to pay interest on the underpayment provided they reasonably relied on this Practice Statement in good faith. However, even if they do not have to pay a penalty or interest, taxpayers will have to pay the correct amount of tax provided the time limits under the law allow it. | Reviewed by PW for technical accuracy. Updated in line with current ATO style and accessibility requirements. | Updated to new LAPS style and format. | Corrected typographical error. | Updated wording to refer to PS LA 2011/4. | Updated wording to be consistent with current style. | Replaced paragraphs with new paragraph 2. | Include statement 'the relevant amount of tax'. | Related practice statements | Reference to PS LA 2006/11 removed. | Link to the ATO Receivables Policy inserted. | Update references to PS LA 2006/11. | [1] Commissioner of Taxation of the Commonwealth of Australia v Stokes, Kerry Matthew [1996] FCA 1128. | [2] Lever Bros Pty Ltd v Commissioner of Taxation (Cth) [1948] HCA 25; Cadbury-Fry-Pascall Pty Ltd v Federal Commissioner of Taxation [1944] HCA 31. | [3] R v Deputy Federal Commissioner of Taxation (SA) [1926] HCA 3; 37 CLR 368, per Isaacs J. at [373]. | [4] R v Deputy Federal Commissioner of Taxation (SA) [1926] HCA 3. | [5] Federal Commissioner of Taxation v S Hoffnung & Co Ltd [1928] HCA 49; FJ Bloemen Pty Ltd v Commissioner of Taxation (Cth); Simons v Commissioner of Taxation (Cth) [1981] HCA 27. | [6] Deputy Commissioner of Taxation v Richard Walter Pty Ltd [1995] HCA 23; Kordan Pty Ltd v Commissioner of Taxation [2000] FCA 1807. | [7] BHP Billiton Petroleum (Bass Strait) Pty Ltd v Commissioner of Taxation [2002] FCAFC 433. | [8] Richardson v Federal Commissioner of Taxation [1932] HCA 67. | [9] Winter, H.V. v Deputy Commissioner of Taxation [1987] FCA 408. | BHP Billiton Petroleum (Bass Strait) Pty Ltd v Commissioner of Taxation [2002] FCAFC 433 126 FCR 119 2002 ATC 5169 51 ATR 520 | Cadbury-Fry-Pascall Pty Ltd v Federal Commissioner of Taxation [1944] HCA 31 70 CLR 362 [1944] ALR 401 | Commissioner of Taxation of the Commonwealth of Australia v Stokes, Kerry Matthew [1996] FCA 1128 72 FCR 160 97 ATC 4001 34 ATR 478 | Deputy Commissioner of Taxation v Richard Walter Pty Ltd [1995] HCA 23 183 CLR 168 95 ATC 4067 29 ATR 644 127 ALR 21 | Federal Commissioner of Taxation v S Hoffnung & Company Limited [1928] HCA 49 42 CLR 39 1 ATD 310 1 ALJR 354 34 ALR 329 | FJ Bloemen Pty Ltd v Commissioner of Taxation (Cth); Simons v Commissioner of Taxation (Cth) [1981] HCA 27 147 CLR 360 81 ATC 4280 11 ATR 914 35 ALR 104 | Kordan Pty Ltd v Commissioner of Taxation [2000] FCA 1807 2000 ATC 4812 46 ATR 191 | Lever Bros Pty Ltd v Commissioner of Taxation (Cth) [1948] HCA 25 77 CLR 78 22 ALJ 493 8 ATD 388 | R v Deputy Federal Commissioner of Taxation (SA) [1926] HCA 3 37 CLR 368 | Richardson v Federal Commissioner of Taxation [1932] HCA 67 48 CLR 192 2 ATD 19 | Winter, H.V. v Deputy Commissioner of Taxation [1987] FCA 408 87 ATC 4655 75 ALR 104 19 ATR 244"
PS LA 2006/8,Remission of shortfall interest charge and general interest charge for shortfall periods,1 August 2006,1 July 2005,Law Administration Practice Statement,False,"1. What this practice statement is about: 1A. This practice statement sets out circumstances in which you should consider remitting interest charges that are imposed on shortfalls and accrue during the shortfall period. [1] Where this practice statement mentions 'interest charges' it is talking about: • Shortfall interest charge (SIC) • 'Shortfall' general interest charge (GIC) - that is, GIC accrued during the shortfall period on the shortfall amount, and • Interest and GIC imposed under section 170AA of the Income Tax Assessment Act 1936 (ITAA 1936). • Shortfall interest charge (SIC) • 'Shortfall' general interest charge (GIC) - that is, GIC accrued during the shortfall period on the shortfall amount, and • Interest and GIC imposed under section 170AA of the Income Tax Assessment Act 1936 (ITAA 1936). 1B. A summary of the relevant legislation and the main provisions relating to the imposition of interest charges is provided at the end of this practice statement. Note: This practice statement does not apply to: • Remission of GIC that is not shortfall GIC (generally GIC for late payment) • Remission of shortfall GIC imposed on superannuation guarantee charge For guidelines on these, see PS LA 2011/12 • Remission of General Interest Charge. [2] • Remission of GIC that is not shortfall GIC (generally GIC for late payment) • Remission of shortfall GIC imposed on superannuation guarantee charge For guidelines on these, see PS LA 2011/12 • Remission of General Interest Charge. [2] | 2. Why do we have interest charges?: 2A. Taxpayers have a responsibility to lodge, report correctly and pay their tax debts on time. GIC and SIC are intended to encourage the timely payment of tax. They also deny late payers, including people who have paid late because they have reported too little in tax or claimed too much, an advantage over those who pay on time. Taxpayers who have underpaid have had the use of those moneys. 2B. Interest charges also serve to compensate the Australian Government and the community for the impact of late payments. | 3. What is the shortfall period?: 3A. The shortfall period starts on the day the tax debt was due for payment (or would have been due for payment had the shortfall been correctly reported) and ends on the day before the Commissioner gives the taxpayer a notice of assessment which includes the shortfall amount (or an equivalent notification for taxes other than income tax). 3B. Example: Taxpayer has an income tax liability for the 2004-05 income tax assessment of $500 due for payment on 21 November 2005. The taxpayer requests amendment of the assessment on 1 March 2006. An amended notice of assessment is given to the taxpayer on 20 March 2006 increasing the tax payable by $125 to $625. The shortfall amount is $125 and the shortfall period is from 21 November 2005 to 19 March 2006. | 4. What is the relationship between shortfall interest charges and penalties?: 4A. Interest charges are intended to restore a fair balance between taxpayers, as mentioned above. They apply regardless of whether or not the taxpayer is liable to any administrative penalty, and do not depend upon, nor imply, culpability on the part of the taxpayer. 4B. Shortfall penalties, however, relate to the taxpayer's behaviour leading up to and making a statement that results in a shortfall amount. Imposition of a shortfall penalty or reduced or remitted shortfall penalty does not mean a reduction or remission of the shortfall interest charge will be given. | 5. Can we consider remitting shortfall interest charges?: 5A. Yes, the Commissioner may remit all or part of the shortfall interest charges where the Commissioner considers it fair and reasonable to do so. The legislation for SIC says that when we do so however, we must have regard to the principle that remission should occur where the circumstances justify the Commonwealth bearing part or all of the cost of delayed payments. [3] 5B. The extent of any remission must take into account the individual circumstances of a case and the extent to which factors beyond the taxpayer's control were responsible for the size and duration of the shortfall. | 6. Who can initiate the possible remission of shortfall interest charges?: Audit cases 6A. The Commissioner will make a GIC or SIC remission decision in audit cases where there is a shortfall period regardless of whether the taxpayer requests remission or supplies information to the ATO, except for fully automated data matching audit cases. Taxpayers can supply information to support a remission request or request remission at any time during the audit. 6B. Automatic amendment and fully automated data matching cases are not reviewed by a case officer and the ATO is generally not in a position to consider remission. However, a taxpayer may request remission once they receive the amended notice of assessment, which includes the SIC amount or an equivalent notification. At this point consideration will be given to the circumstances relevant to remission and remission may be granted. Amendment requests 6C. Where the taxpayer has requested an amendment and a shortfall occurs because of the amendment, the Commissioner may remit in limited circumstances to address processing delays or certain offsetting credits without the taxpayer providing any information. 6D. Taxpayers are required to contact the ATO and provide information relevant to remission for further remission. They can request remission at any time. The taxpayer can request remission or provide information for the Commissioner to consider remission by calling or writing to the ATO. 6E. If a remission decision has been made during an audit, the taxpayer will need to write to the ATO requesting a review of the remission decision. [4] | 7. When should shortfall interest charges be remitted?: 7A. Examples of particular circumstances in which remission may or may not be appropriate are provided in this practice statement. These are not exhaustive, and are not intended to limit the discretion to otherwise remit shortfall interest charges when it is fair and reasonable to do so. 7B. Also, you should note that more than one circumstance might apply to an individual case. | 8. What is the base rate?: 8A. GIC and SIC accrue each day on a daily compounding basis. The interest charge rates are set by law and are reviewed and generally change every three months. The law uses an established bank rate calculation as the base rate for interest charges. A further 3 percentage points is added to the base rate for SIC rate, and 7 percentage points for GIC. See section 34 for more details. 8B. Remission to base rate is the recommended outcome in some situations in this practice statement. | 9. Partial remission for 2003-04 and earlier income years: 9A. SIC only applies to income shortfalls for the 2004-05 and later income years. GIC applies to income shortfalls for earlier years. This can have the effect of being inequitable to those taxpayers whose assessments were amended before the introduction of the SIC, and at odds with Parliament's decision that the GIC rate was excessive during a shortfall period. 9B. Therefore, it is considered fair and reasonable that shortfall GIC (for income tax shortfalls only) generally be remitted to the SIC rate for the period from 1 July 2005 to the day before the amended assessment is issued. 9C. Example: An amendment to Service Pty Ltd's 2002-03 income tax assessment issues on 15 March 2006. Shortfall GIC accrues from 1 December 2003. 9D. The GIC would be remitted to the SIC rate for the period from 1 July 2005 to 14 March 2006. Further remission during the shortfall period may occur if some other circumstance exists which would warrant further remission in accordance with the guidelines contained in this practice statement. 9E. GIC applies to most other taxes for the shortfall period. Remission to the SIC rate does not apply for these taxes. | 10. Where there is a delay in commencing an audit: 10A. The timeframe for commencing an audit after self-assessment by a taxpayer depends on the allocation of ATO resources. 10B. As a rule of thumb, it could be expected that an audit will commence by halfway through the relevant period of review. However, audits may commence later, for example, where information is provided to the ATO at a later time. 10C. Where there has been an unreasonable delay in the ATO allocating a case for audit, it may be appropriate for you to remit shortfall interest charges to the base rate for the period of the delay, that is, usually from 50% of the period of review to the day prior to the commencement of the audit. If the audit only commenced because of new information received after halfway through the period of review, remission to base rate may be more appropriate from the later date. Note: If an unlimited period of review applies, you should adopt the standard period of review applicable to the year being adjusted. For Pay as you go withholding, you should use a nominal period of review of four years. 11. Where the expected audit completion date was exceeded [5] 11A. When notifying a taxpayer of an intention to audit, the ATO will generally provide an expected audit completion date in that notice. [6] This date is based on cycle timeframes we have set for specific types of audit activity, or a shorter time having regard to the circumstances of the case. 11B. Providing the scope of the audit remains much the same throughout the course of the audit, you may remit shortfall interest charges to the base rate for the period the audit goes beyond the expected completion date. 11C. This will not apply, however, if the taxpayer has caused the delay unreasonably, or obstructs the progress of the audit, for example, by repeatedly failing to: • keep appointments or supply information, or • respond adequately to reasonable requests for information. This will include excessive or repeated delays in responding, not replying to the request for information, giving information that is not relevant or does not address all the issues in the request or supplying inadequate information. • keep appointments or supply information, or • respond adequately to reasonable requests for information. This will include excessive or repeated delays in responding, not replying to the request for information, giving information that is not relevant or does not address all the issues in the request or supplying inadequate information. 11D. Example: The GST record keeping audit cycle timeframe is 30 days. If the GST audit takes 40 days, remission to base rate for the 10 days exceeding the cycle time may be appropriate. 11E. Example: A specific GST audit of a taxpayer's business is commenced by a GST case office on 23 June 2014. The audit cycle timeframe is 90 days. However, on 26 July 2014, 33 days into the audit, it becomes apparent to the auditor that there are several risks involved in the case and that the work is more appropriately considered a GST comprehensive audit with a 240 days cycle timeframe. On 28 August 2014 the case is transferred to a GST field auditor for completion. The cycle timeframe will extend to 240 days from 23 June 2014. Any remission for exceeding the expected audit completion date will be from 18 February 2015, 240 days after the audit commenced. 11F. Example: An audit commenced on 10 February 2015 with a cycle time of 180 days. After initial discussions, the auditor concludes that a further risk has been identified and needs to be examined, the taxpayer has advised they will need some time to obtain some of the records, and the factual situation for some transactions are quite complicated. After discussions with the taxpayer regarding the information needed, it is agreed that the audit cycle time will be extended from 9 August 2015 to 13 October 2015. The extended audit completion date or cycle time, while agreed to by the taxpayer, does not change the remission principle, and remission to base rate will generally be given from 9 August 2015 11G. Example: A tax audit for PAYG withholding amounts and superannuation commenced. It has an audit cycle timeframe of 120 days. The taxpayer is notified of the liability for the PAYG amounts on day 110 and of superannuation guarantee liability on day 135. Although the audit continued to day 135, the shortfall period for the PAYG withholding amounts ceased on day 110, and so the expected audit completion date is not exceeded, and it is not necessary to consider remission of GIC on this ground. However, the GIC that accrued on the shortfall amount for the superannuation guarantee liabilities would be remitted to base rate from day 121 to day 135 for exceeding the expected audit completion date. 11H. It may still be appropriate for you to remit shortfall interest charges for periods during the cycle timeframe if there are other grounds for remission. But if you do so, you may need to take defer remission for the period beyond the expected completion date. 11I. Example: An audit commences on 1 February 2012 and has an expected audit completion date of 30 June 2012. The audit is not completed until 30 September 2012. Due to an unreasonable ATO delay (see section 12 for further explanation of this ground), full remission is granted for the period 1 April 2012 to 31 May 2012. Normally remission to the base rate would be applicable for the three month period which exceeded the expected audit completion date - 1 July 2012 to 30 September 2012. However, as full remission has already been granted for a period of two months, remission to the base rate is only appropriate for one month - 1 September 2012 to 30 September 2012. 11J. Example: Company 1 Pty Ltd claimed losses in its 2009-10 income tax return. The auditor asked for a copy of the loss schedule and other information, which should have been prepared in order to lodge the return, to be provided within 28 days. On the 30th day following the request, Company 1 Pty Ltd advised that it had overlooked the enquiry, and would deal with it quickly. Fourteen days later the auditor contacted the company and was unable to speak with anyone who knew about the request. The auditor then sent a further request for information to the company. At the end of the 28 day period after the second request, the auditor received a copy of the profit and loss statement for the 2009-10 year but not the loss schedule and the remaining information was only partially provided. This would be a delay due to the taxpayer's conduct. Remission under this section would not be warranted unless the taxpayer could adequately explain the delay and lack of information being provided. 11K. If you are a case authorising officer for an audit case that is completed after the expected audit completion date, you must undertake a full review of the reasons for the delay to determine whether further remission grounds apply. | 12. Unreasonable delay by ATO: 12A. Even if an audit is completed before the audit completion date, remission of interest charges might still be appropriate if there have been unreasonable delays or periods of inactivity during the audit that were outside the control of the taxpayer. 12B. As a general rule, where there has been no action on a case for 30 days or more and it was possible for the case to progress during that time, you should remit the shortfall interest charges for the period of unreasonable delay (the number of days exceeding 30 consecutive days). 12C. Example: An audit of John's 2011-12 income tax return commences on 1 July 2013 with an expected audit completion date of 27 November 2013. 12D. On 2 September 2013 the auditor seeks more information from the taxpayer, which requires a response by 30 September 2013. 12E. By 30 September 2013, all the necessary information to determine a shortfall has been received and interviews have occurred. 12F. On 2 October 2013 the auditor submits his final audit report to his team leader to authorise the case result. The team leader does not review the submission until 15 November 2013 and then authorises the result without change. The amendment issues on 20 November 2013. 12G. Assuming there are no other circumstances relevant to the remission of interest charges, full remission of the SIC will be appropriate from 2 November 2013 to 15 November 2013 (the total period of inactivity which exceeds 30 days). 12H. The cycle timeframe is set to enable ATO auditors to complete the audit as well as carry out other appropriate duties that may occur concurrently in the majority of cases. Therefore, provided the audit completion date is met, ordinary delays of up to 30 days where the auditor did not work on the audit would not, of themselves, warrant remission. | 13. Delay in obtaining information from a third party: 13A. Where either the ATO or the taxpayer experiences delay when actively seeking information from a third party and this information is not otherwise available to the taxpayer, you may remit interest charges to the base rate for any excessive period of the delay. 13B. However, you should generally not grant remission if the third party is an associate of the taxpayer or is not dealing at arms-length with the taxpayer, unless the delay is reasonable and beyond anyone's control. 13C. Example: A tax agent is unable to provide the information requested for several weeks due to their commitments under their tax agent lodgment program and other compliance obligations. This delay is attributable to the taxpayer. However if the delay is reasonable, interest charges may be remitted to the base rate for the period of delay. | 14. Longer resolution times due to complexity of issues: 14A. Where the issues underlying a shortfall are complex, it may naturally take the ATO longer to come to a view as to the proper operation of the law. 14B. Resolution of the issues, including through referral to specialists, does not in itself constitute a delay that would warrant remission of interest charges. The cycle timeframes for the audit generally factor in issues of complexity and the time taken for their resolution. 14C. However, you should consider remission to the base rate where the resolution of the issue took longer than would be reasonably expected and resulted in the case exceeding the expected audit completion date. | 15. Large Corporate audits - delay based upon a reasonable time for completion of audit: 15A. For Large Corporate audits that commenced on or after 1 July 2005, you should remit shortfall GIC and SIC to the base interest rate for the period that the audit extends beyond two years. [7] 15B. The only exceptions will be cases involving blatant obstruction, delays or obfuscation. | 16. Cases involving fraud or evasion: 16A. Where a case involves fraud or evasion, you should not normally remit the shortfall interest charges. This is so notwithstanding that there may have been some delay attributable to the ATO or that the expected audit completion date is exceeded. 16B. Remission in these cases would still be considered on a case by case basis, but having due regard to the circumstances giving rise to the shortfall. In such cases, the taxpayer would have been aware of the potential shortfall and could have taken steps to reduce their exposure to interest charges. | 17. Where the delay is outside the taxpayer's control: 17A. It may be appropriate for you to grant full remission for the period of a delay where the taxpayer can demonstrate the delay in supplying information or documents for the audit was directly attributable to: • natural disasters (such as flood, fire, drought, and earthquake) • other disasters that may have, or have had, a significant impact on the taxpayer or region, or • the serious illness of the taxpayer or key personnel where there is no other person that could have mitigated the length of the delay. • natural disasters (such as flood, fire, drought, and earthquake) • other disasters that may have, or have had, a significant impact on the taxpayer or region, or • the serious illness of the taxpayer or key personnel where there is no other person that could have mitigated the length of the delay. 17B. However, it would not be appropriate to remit the interest charges where the reasons for the delay are within the taxpayer's control - for example, where the taxpayer takes an extended vacation after the commencement of the audit. In that example though, if the taxpayer had booked the vacation prior to the commencement of the audit or needed to travel overseas for business purposes, you could take those circumstances into account in considering remission to the base rate. | 18. Where the taxpayer requires further time: 18A. Taxpayers may request a deferment of action during an audit, for example, by requesting significant further time to supply information. If the circumstances indicate that the extra time is necessary, you may remit the shortfall interest charges to the base rate for the period of extra time. 18B. However, where the ATO experiences delay in obtaining information because the taxpayer has been unwilling or unable to supply information that they should have, or that they are readily able to obtain, you should generally not grant remission. 18C. Where, for example, at the request of the management of a taxpayer group, amended assessments are deferred until the completion of the audit of the group, interest charges would not normally be remitted for the period of that particular delay. | 19. Claims for legal professional privilege or access to professional advisors' working papers: 19A. Taxpayers may seek advice from professional advisors on issues such as the application of legal professional privilege to certain documents or the right of access to professional accounting advisors' working papers. Such claims form part of the normal dealings of a taxpayer with the ATO. Should reasonable claims lead to the case being completed beyond the expected audit completion date, then interest charges would generally be remitted to the base rate for the period beyond the expected completion date attributable to obtaining that advice. | 20. 'Unprompted' voluntary disclosure: 20A. Where a taxpayer makes a voluntary disclosure of a shortfall amount prior to being told that an audit or review is commencing (often referred to as a self-amendment request), the disclosure itself is not a ground for remission. 20B. A taxpayer, who has self-assessed incorrectly, even if reasonable care was exercised, should not end up in a more beneficial position than a taxpayer who has self-assessed and reported and paid correctly. 20C. However, there may be some cases where the circumstances surrounding the voluntary disclosure will make it fair and reasonable to remit interest charges. Where remission on the basis of a voluntary disclosure is considered appropriate, it will generally be to the base rate. 20D. When considering any remission of shortfall interest charges on the basis of a voluntary disclosure, you should have regard to the following: • the timeliness of the disclosure after the error was first detected • whether the disclosure was made before being told of the commencement of an examination, or publication of a ATO initiative which may have led to the discovery of the shortfall by the Commissioner (remission is more unlikely if such notification or publication had occurred) • whether the Commonwealth in any way contributed to the taxpayer taking their original position • the size of the shortfall, either in monetary terms or in relation to the whole of the taxpayer's affairs, and • the taxpayer's compliance history, including the number of times a taxpayer has had to disclose shortfalls following an initial self-assessment of liability. • the timeliness of the disclosure after the error was first detected • whether the disclosure was made before being told of the commencement of an examination, or publication of a ATO initiative which may have led to the discovery of the shortfall by the Commissioner (remission is more unlikely if such notification or publication had occurred) • whether the Commonwealth in any way contributed to the taxpayer taking their original position • the size of the shortfall, either in monetary terms or in relation to the whole of the taxpayer's affairs, and • the taxpayer's compliance history, including the number of times a taxpayer has had to disclose shortfalls following an initial self-assessment of liability. 20E. Example: Big Co. Ltd. has an internal assurance practice of reviewing its previous income tax return in preparation for lodging its next return. As part of this process Big Co. Ltd identifies a shortfall and immediately lodges an amendment request. The ATO was not conducting an audit. Remission of interest charges to the base rate would be appropriate in this case. | 21. Delay in processing requests for amendment by taxpayers: 21A. The ATO has published service commitments for processing amendments or adjustments (where the taxpayer voluntarily seeks to correct an error in an earlier return or statement). [8] 21B. Once the ATO has all information needed to process the amendment or adjustment, the Commissioner will generally remit in full the shortfall interest charges for any delay beyond the published standard. 21C. Example: Raji lodges a 2013-14 amendment request on 2 January 2015. All the information is included in the request. This amendment is lodged in writing, and should be processed within 50 business days of receipt, that is by 13 March 2015. Because of a backlog in work, the amended notice of assessment is not given to the taxpayer until 31 March 2015. Remission in full should occur for the period from 14 March 2015 to 30 March 2015. 21D. This does not apply to a voluntary disclosure that is made after the taxpayer has been told a review or audit has started or will start for that period. | 22. Advance payment of shortfall amount: 22A. Paying the shortfall amount before the issue of an amended assessment does not stop SIC accruing. [9] That is, the SIC is calculated to the day before the amended assessment is given to the taxpayer and on the total shortfall, regardless of whether the shortfall amount has been paid in full or in part before that date. 22B. However, any benefit a taxpayer may have from not paying the shortfall amount ceases when full payment is made. 22C. Therefore, you should remit the SIC for the period after payment in full, reduced by the amount of any interest on early payment (IEP) [10] that accrues to the taxpayer between the date of payment and the day before the notice of amended assessment is given to the taxpayer. Where a part payment of the shortfall has been made, a partial remission reflecting the portion of the shortfall paid will be given for the post-payment period. 22D. Example: After discovering a shortfall, on 1 July 2006 Compliant Pty Ltd lodged an amendment request and on the same date made payment of $1,000 - the tax payable on the shortfall. An amended assessment for the $1,000 shortfall is given to the taxpayer on 1 August 2006 and is due for payment on 22 August 2006. 22E. Under the law SIC on the $1,000 shortfall is payable for the period from 1 December 2005, the due date of Compliant Pty Ltd's original assessment, to 31 July 2006, the day before the notice of amended assessment is given to the taxpayer. 22F. However, as payment of the shortfall was made on 1 July 2006, remission of SIC for the period 1 July 2006 to 31 July 2006 is justified. 22G. As Compliant Pty Ltd is entitled to interest on early payment for the period from 1 July 2006 (the day the early payment was made) to 22 August 2006 (the due date of the amended assessment) the amount of the SIC remission would be determined as follows: SIC for period 1 July 2006 to 31 July 2006 less interest on early payment entitlement for period 1 July 2006 to 31 July 2006. SIC for period 1 July 2006 to 31 July 2006 less interest on early payment entitlement for period 1 July 2006 to 31 July 2006. | 23. Income incorrectly apportioned between taxpayers: 23A. Where income has been incorrectly apportioned between taxpayers and one taxpayer has paid the tax on that income, some remission may be appropriate when the amendment to correct the error occurs. 23B. Having regard to the principles behind the imposition of interest charges though, any remission would be to the extent of offsetting the disadvantage (if any) to the revenue, and take into account the timing of the payment, any entitlement to interest on overpayment, and the extent of the shortfall. 23C. Example: John and Mary have a joint bank account and in the 2012 income year receive $5,200 interest. Initially John declared all the interest in his return. Both John's and Mary's assessments are due on 21 November 2012. They have the same marginal rate of tax. 23D. Subsequently both John and Mary sought to have their 2012 assessments amended; John by reducing his taxable income by $2,600 and Mary by increasing hers by $2,600. The amended notices of assessment issued on 1 September 2013. Mary's shortfall is $819 ($2,600 ? 31.5%, 31.5% being Mary's marginal tax rate of 30% plus Medicare levy of 1.5%). 23E. Mary would be liable to SIC on $819 for the period from 21 November 2012, the due date of her original assessment, to 31 August 2013, the day before notice is given of the amended assessment. Assuming a SIC rate of 6.6% per annum during this period, SIC of $56.67 will be imposed. 23F. If John had paid his original assessment on 21 November 2012, then some remission of Mary's SIC is warranted for the period from when John had made payment. John is entitled to interest on overpayment of $36.47, which in this example would be at a rate of 3.6% per annum. He is entitled from the date of payment to the day before the notice is given to him. That is, from 21 November 2012 to 31 August 2013. Mary's SIC would be remitted by $20.20 and SIC of $36.47 would remain payable with the amended assessment. 23G. If on the other hand John had not paid his original assessment, then no remission of Mary's SIC is warranted as the Commonwealth will continue to bear the $819 shortfall until Mary pays that amount. | 24. Offset because of increase in pay as you go (PAYG) withholding or other credits in amendment: 24A. SIC or shortfall GIC on income tax shortfalls is calculated on the additional amount of income tax that is properly payable, and doesn't take into account certain credits such as PAYG withholding credits. [11] 24B. However, where an additional amount of credit is also included on the amended assessment but does not form part of the assessment, it would be appropriate for you to grant full remission of SIC to the extent of the additional credit. 24C. Example: After the issue of her 2012 assessment Betty received a payment summary from a former employer. The payment summary showed $5,000 income and $1,200 PAYG withholding credits. She had not declared this income or the credits in her 2012 return. 24D. Betty requested an amendment of her assessment to reflect the additional income. The additional tax payable under the amended assessment was $1,575 but after the PAYG withholding credit of $1,200 was applied against this amount Betty was required to pay $375. 24E. As SIC is calculated on the additional tax payable because of the assessment (shortfall) of $1,575, remission equivalent to the amount of SIC calculated on $1,200 for the entire shortfall period will be given. That is, after remission only the SIC on $375 will remain for the shortfall period. | 25. Remission as an incentive for some compliance programs: 25A. The Commissioner sometimes may remit interest charges according to specific interest rate remission guidelines adopted as part of particular compliance programs or to ensure consistency of treatment with similar situations that have already been determined and announced. 25B. However, this does not rule out other remission grounds consistent with these guidelines having regard to the facts and circumstances of the particular case. | 26. Costs of administration: 26A. The Commissioner may remit amounts because the amount of the interest charge is minimal. For example, the imposition of an amount of SIC or GIC below a small threshold amount will result in remission as part of the ATO's automated processes. | 27. Reliance on ATO advice or general administrative practice: 27A. Under the law [12] a taxpayer will be protected from the interest charges that relates to a shortfall if: • the taxpayer relies in good faith on advice given to them or their agent by the Commissioner or a statement in a publication approved in writing by the Commissioner, unless the advice or the statement or publication is labelled as non-binding, or • the taxpayer relies in good faith on the Commissioner's general administrative practice. • the taxpayer relies in good faith on advice given to them or their agent by the Commissioner or a statement in a publication approved in writing by the Commissioner, unless the advice or the statement or publication is labelled as non-binding, or • the taxpayer relies in good faith on the Commissioner's general administrative practice. 27B. A general administrative practice is a practice which is applied by the Commissioner generally as a matter of administration and which consists of the repeated adoption of a view in multiple cases. Taxation Determination TD 2011/19 Tax administration: what is a general administrative practice for the purposes of protection from administrative penalties and interest charges provides our view on what we will consider to be a general administrative practice. 27C. This statutory protection applies to interest charges under most of the tax laws, [13] including income tax, Medicare levy, fringe benefits tax, indirect taxes and Petroleum resource rent tax (PRRT). However, even where the shortfall technically is not afforded protection from the shortfall interest charges under the law (for example, because it is about a tax law that is not covered), provided the taxpayer has in good faith relied on ATO advice, a statement in a publication approved in writing by the Commissioner or a general administrative practice, you should remit the shortfall interest charges in full. | 28. Reliance on subsequently overturned judicial interpretation: 28A. There will be situations where a taxpayer prepares a return or activity statement in a particular way, having regard to a decision of an independent tribunal or a court and, subsequent to lodgment of the return or activity statement, a court of higher authority overturns that decision, resulting in an unexpected shortfall. 28B. You should remit shortfall interest charges in full in this situation, provided that: • the court or tribunal decision relied upon in the preparation of the return clearly applied to the taxpayer's circumstances, and • appropriate amendment requests are lodged within a reasonable time after the date of the final court decision. (There may be some circumstances where the ATO will initiate amendments after the date of the final court decision.) • the court or tribunal decision relied upon in the preparation of the return clearly applied to the taxpayer's circumstances, and • appropriate amendment requests are lodged within a reasonable time after the date of the final court decision. (There may be some circumstances where the ATO will initiate amendments after the date of the final court decision.) 28C. If the taxpayer did not lodge an amendment request within a reasonable time, then you should generally not remit any interest charges that accrue from the date of the final court decision. | 29. Taxpayer could not have been aware of shortfall when lodging return: 29A. A shortfall amount may arise in situations where the taxpayer did not know and could not have known that a shortfall would arise when they lodged their original return or activity statement. This would occur where the return or activity statement is correct, and it is only future events that trigger the need to adjust a liability. Examples of this include: • Where a taxpayer becomes entitled to a receipt of compensation in a particular year, which may in some circumstances trigger an adjustment to capital proceeds and affect capital gains or losses in an earlier year's return • Where member companies of a consolidated group are affected by the requirements of section 701-70 of the Income Tax Assessment Act 1997 (ITAA 1997), when the head company makes an election to consolidate after the member company has already lodged its income tax return for the year • Where the Commissioner makes an amended assessment of Division 293 tax for an individual, after a superannuation provider amended their Member contribution statement (MCS) or self-managed super fund annual report and the fund's reporting is outside the control of the individual. (Remission will not be warranted if the fund is a self-managed superannuation fund and the individual is a trustee, as it would be considered that the individual should have been aware of the potential shortfall.) • Where a taxpayer becomes entitled to a receipt of compensation in a particular year, which may in some circumstances trigger an adjustment to capital proceeds and affect capital gains or losses in an earlier year's return • Where member companies of a consolidated group are affected by the requirements of section 701-70 of the Income Tax Assessment Act 1997 (ITAA 1997), when the head company makes an election to consolidate after the member company has already lodged its income tax return for the year • Where the Commissioner makes an amended assessment of Division 293 tax for an individual, after a superannuation provider amended their Member contribution statement (MCS) or self-managed super fund annual report and the fund's reporting is outside the control of the individual. (Remission will not be warranted if the fund is a self-managed superannuation fund and the individual is a trustee, as it would be considered that the individual should have been aware of the potential shortfall.) 29B. Each case must be examined on its merits. In the above examples, it may be appropriate for you to grant full remission of interest charges related to the shortfall, usually on the condition that appropriate amendment requests are lodged within a reasonable time after the need to amend arises, if required. 29C. Remission does not apply to taxpayers who, for example, mistakenly believed the law operated in a way such that a shortfall would not arise. | 30. Change or potential change in legislation with retrospective effect: Income tax 30A. If a change in legislation has retrospective effect and results in a shortfall, you should remit the shortfall interest charges in full, provided the taxpayer seeks to amend their returns within a reasonable time after the enactment of the new legislation. If they do not, then interest charges will apply from 28 days after the amending law receives Royal Assent. 30B. Where a proposed legislative change has been announced but not enacted and a taxpayer acts reasonably but still underestimates their income, you should remit interest to the base rate, provided the taxpayer seeks to amend their returns within a reasonable time after the enactment of the new law. Indirect taxes 30C. Amending Acts to indirect taxes cannot impose penalties or general interest charge earlier than 28 days after Royal Assent is given to the particular Act. [14] 30D. Therefore if an indirect tax law has retrospective effect, GIC in respect of the increased liability will only apply from 28 days after the amending Act receives Royal Assent. | 31. GST 'revenue neutral' corrections: 31A. Because of the nature of GST, some corrections to reporting errors will be revenue neutral. This occurs where a correction increasing GST for one party also gives rise to an entitlement to an input tax credit equal to that increased GST, or where the correction involves equal and offsetting GST or input tax credits for the same transaction. 31B. Law Administration Practice Statement PS LA 2008/9 GST 'revenue neutral' corrections provides details of the policy on remission of the shortfall GIC for GST 'revenue neutral' corrections. | 32. More information: 32A. For more information on: • The relevant SIC rate for a period - see https://www.ato.gov.au/Rates/Shortfall-interest-charge-(SIC)-rates/ • The relevant GIC rate for a period - see https://www.ato.gov.au/Rates/General-interest-charge-(GIC)-rates/ • What constitutes a general administrative practice - see Taxation Determination TD 2011/19 Tax administration: what is a general administrative practice for the purposes of protection from administrative penalties and interest charges • Law Administration Practice Statement PS LA 2008/9 GST 'revenue neutral' corrections • Our commitments to service (or service standards) - see Our commitments to service • The relevant SIC rate for a period - see https://www.ato.gov.au/Rates/Shortfall-interest-charge-(SIC)-rates/ • The relevant GIC rate for a period - see https://www.ato.gov.au/Rates/General-interest-charge-(GIC)-rates/ • What constitutes a general administrative practice - see Taxation Determination TD 2011/19 Tax administration: what is a general administrative practice for the purposes of protection from administrative penalties and interest charges • Law Administration Practice Statement PS LA 2008/9 GST 'revenue neutral' corrections • Our commitments to service (or service standards) - see Our commitments to service IMPOSITION OF INTEREST CHARGES | 33. What interest charges apply to shortfalls?: 33A. The SIC was introduced for shortfall amounts for income tax [15] amendments for the 2004-05 and later income years. It is charged at a lower rate, for the reason that taxpayers who are genuinely unaware of the shortfall may be unable to take any steps to reduce their exposure to GIC. 33B. Shortfalls in respect of other taxes, and shortfalls that relate to income tax liabilities for the income years 2000-01 to 2003-04 will attract GIC from the original due date for payment. 33C. Income tax amendments for the 1999-2000 and earlier years attract interest in the shortfall period under section 170AA of the ITAA 1936. Although, for shortfall periods from 1 July 1999 this interest is imposed as GIC. 33D. The following table details the main provisions relating to the imposition of interest charges during the shortfall period. Type of shortfall Period to which shortfall relates: Interest type Legislative references Income tax 1999-2000 and earlier income years: i. periods up to and including 30 June 1999 interest Sections 170AA and 214A of the ITAA 1936 ii. periods after 30 June 1999 general interest charge Section 170AA of the ITAA 1936 and Part IIA of the TAA 2000-01 to 2003-04 income years general interest charge Section 5-1 of the ITAA 1997 and Part IIA of the TAA 2004-05 and later income years shortfall interest charge Division 280 of Schedule 1 to the TAA Excess non-concessional contributions tax 2007-08 and later income years shortfall interest charge Section 280-102A of Schedule 1 to the TAA Division 293 tax 2012-13 and later income years shortfall interest charge Section 280-102B of Schedule 1 to the TAA Petroleum resource rent tax (PRRT) 2006-07 and later financial years shortfall interest charge Section 280-102 of Schedule 1 to the TAA Minerals resource rent tax (MRRT) 2012-13 and later MRRT years shortfall interest charge Former section 280-101 of Schedule 1 to the TAA Fringe benefits tax amounts that are due to be paid on or after 1 July 1999 general interest charge Section 93 of the Fringe Benefits Tax Assessment Act 1986 and Division 1 of Part IIA of the TAA Indirect taxes - goods and services taxes (GST), wine equalisation tax (WET) and luxury car tax (LCT) all periods general interest charge Subdivision 105-D of Part IIA of the TAA Pay as you go withholding (PAYG(W)) all periods general interest charge Section 16-80 of Schedule 1 and Division 1 of Part IIA of the TAA RELEVANT LEGISLATIVE PROVISIONS This section provides some further information on some of the legislative provisions for imposition, notification and remission of SIC and GIC. | 34. Shortfall interest charge: 34A. The SIC provisions are contained in Division 280 of Schedule 1 to the TAA. 34B. A taxpayer is liable to pay SIC on any additional amount of income tax payable as a result of an amended assessment for an income year (subsection 280-100(1) of Schedule 1 to the TAA). 34C. The liability to SIC is for each day in the period: (a) beginning at the start of the day on which income tax under the first assessment for that income year was due to be paid, or would have been due to be paid if there had been any, and (b) ending at the end of the day before the day on which the Commissioner gave notice of the amended assessment (subsection 280-100(2) of Schedule 1 to the TAA). (a) beginning at the start of the day on which income tax under the first assessment for that income year was due to be paid, or would have been due to be paid if there had been any, and (b) ending at the end of the day before the day on which the Commissioner gave notice of the amended assessment (subsection 280-100(2) of Schedule 1 to the TAA). 34D. However, if an amended assessment reinstates all, or part of, a particular item that had been reduced by an earlier amended assessment, the SIC calculation period for the reinstated liability starts from the due date of the earlier amended assessment. If the earlier amended assessment was a net credit, then the calculation starts from the day any tax would have been payable (subsection 280-100(3) of Schedule 1 to the TAA). This later start date is because the shortfall does not arise from an error in the original assessment, but from the taxpayer subsequently requesting an amendment that incorrectly reduces their liability. 34E. The SIC rate for a day is worked out by adding three percentage points to the base interest rate for that day and dividing that total by the number of days in the calendar year (subsection 280-105(2) of Schedule 1 to the TAA). This has the effect of producing a SIC rate that reflects benchmark business borrowing rates. 34F. For each day in a particular quarter of the year, the base interest rate equals the monthly average yield of 90 day Bank Accepted Bills for a prescribed previous month. For example, for the quarter 1 January to 31 March, the base interest rate is the monthly average yield of 90 day Bank Accepted Bills for the preceding November (subsection 8AAD(2) of the TAA). 34G. The SIC is worked out daily on a compounding basis (subsection 280-105(1) of Schedule 1 to the TAA). 34H. The Commissioner must give the taxpayer a notice stating the amount of the SIC liability. This amount can be included in another notice that the Commissioner gives to the taxpayer, such as the notice of amended assessment (subsections 280-110(1) and (2) of Schedule 1 to the TAA). 34I. The SIC is due and payable 21 days from when notice of the amount of the charge is given to the taxpayer (subsection 5-10 of the ITAA 1997). 34J. The Commissioner may remit all, or part of, an amount of SIC if the Commissioner considers it fair and reasonable to do so (subsection 280-160(1) of Schedule 1 to the TAA). 34K. Without limiting the general remission power, in deciding whether to remit the Commissioner must have regard to: (i) the principle that remission should not occur just because the benefit received from the temporary use of the shortfall amount is less than the SIC, and (ii) the principle that remission should occur where the circumstances justify the Commonwealth bearing part or all of the cost of delayed payments (subsection 280-160(2) of Schedule 1 to the TAA). (i) the principle that remission should not occur just because the benefit received from the temporary use of the shortfall amount is less than the SIC, and (ii) the principle that remission should occur where the circumstances justify the Commonwealth bearing part or all of the cost of delayed payments (subsection 280-160(2) of Schedule 1 to the TAA). 34L. If a remission request is made in the approved form, the Commissioner must give a written statement of the reasons for a decision not to remit an amount of SIC (section 280-165 of Schedule 1 to the TAA). 34M. However if a remission request is not made in the approved form, it does not prevent the Commissioner from considering the request. Where this happens, the Commissioner will generally provide written reasons of the decision. 34N. The content of a statement of reasons for a decision is provided in section 25D of the Acts Interpretation Act 1901. That section states '... the instrument giving the reasons shall also set out the findings on material questions of fact and refer to the evidence or other material on which those findings were based'. 34O. A taxpayer may object using the provisions in Part IVC of the TAA against a decision of the Commissioner not to remit an amount of SIC where the amount not remitted is more than 20% of the additional amount of income tax on which it is calculated (section 280-170 of Schedule 1 to the TAA). Example: SIC of $2,000 is payable in respect of a shortfall of $8,000. The Commissioner makes a decision not to remit any SIC. As the amount of SIC not remitted ($2,000) exceeds 20% of the shortfall ($2,000/$8,000 = 25%) then the taxpayer may object to the remission decision. If the Commissioner had remitted $500 SIC so that $1,500 remained payable then the taxpayer would not be able to object to the decision as the SIC not remitted does not exceed 20% of the shortfall ($1,500/$8,000 = 18.75%) 34P. The rights to a statement of reasons and the formal objection rights relating to decisions not to remit an amount of SIC are in addition to, and do not replace, existing rights under the Administrative Decisions (Judicial Review) Act 1977 (ADJR). | 35. General interest charge: 35A. The legislative scheme for GIC is in two parts. Liability to GIC is dealt with in various provisions in the tax laws. For example liability to GIC in respect of late payment of an income tax liability is provided at section 5-15 of the ITAA 1997. The second part of the scheme, which describes the basis for calculation of GIC, is set out in Part IIA of the TAA. 35B. The liability to GIC for late payment is for each day in the period: (i) starting at the beginning of the day by which the tax was due to be paid, and (ii) finishing at the end of the last day on which, at the end of the day, any of the tax (or GIC on that tax) remains unpaid. (i) starting at the beginning of the day by which the tax was due to be paid, and (ii) finishing at the end of the last day on which, at the end of the day, any of the tax (or GIC on that tax) remains unpaid. 35C. The GIC rate for a day is currently worked out by adding seven percentage points to the base interest rate for that day and dividing that total by the number of days in the calendar year (subsection 8AAD(1) of the TAA). This has the effect of producing a GIC rate that may be high (compared with indicator rates for commercial borrowing) for many taxpayers to encourage prompt payment of tax liabilities. 35D. The base interest rate is the same as that used for SIC (see paragraph 34 of this practice statement). 35E. GIC is worked out daily on a compounding basis (section 8AAC of the TAA). 35F. There are no notification requirements for GIC; it is payable at the end of each day (section 8AAE of the TAA). 35G. The Commissioner may remit all, or part of, GIC (section 8AAG of the TAA). However, remission can only be made if circumstances set out in the law are met (subsections 8AAG(2) to (5) of the TAA). These include special circumstances where it is fair and reasonable to remit. 35H. When notifying a decision not to remit GIC, the Commissioner will provide the reasons for the decision. 35I. While a taxpayer can, in some circumstances, object against a decision not to remit SIC, there are no objection rights under the taxation law against a remission decision relating to GIC. A taxpayer can seek formal review of remission decisions under the ADJR. 35J. This practice statement only deals with remission of GIC that accrues during the shortfall period. PS LA 2011/12, details the policy for remission of GIC in other circumstances.",Future Made in Australia (Production Tax Credits and Other Measures) Act 2025 | TD 2011/19 | PS LA 2008/9 | PS LA 2003/2 | PS LA 2004/11 | PS LA 2011/1 | PS LA 2011/2 | PS LA 2011/4 | PS LA 2011/12 | PS LA 2011/14 | PS LA 2011/23 | Administrative Decisions (Judicial Review) Act 1977 | Acts Interpretation Act 1901 25D | FBTAA 1986 93 | ITAA 1997 5-1 | ITAA 1997 5-10 | ITAA 1997 5-15 | ITAA 1997 Div 293 | ITAA 1997 701-70 | Product Grants and Benefits Administration Act 2000 8 | TAA 1953 Pt IIA | TAA 1953 8AAC | TAA 1953 8AAD(1) | TAA 1953 8AAD(2) | TAA 1953 8AAE | TAA 1953 8AAG | TAA 1953 8AAG(2) | TAA 1953 8AAG(3) | TAA 1953 8AAG(4) | TAA 1953 8AAG(5) | TAA 1953 Pt IVC | TAA 1953 40 | TAA 1953 Sch 1 16-80 | TAA 1953 Sch 1 Subdiv 105-D | TAA 1953 Sch 1 280-100(1) | TAA 1953 Sch 1 280-100(2) | TAA 1953 Sch 1 280-100(3) | TAA 1953 Sch 1 280-105(1) | TAA 1953 Sch 1 280-105(2) | TAA 1953 Sch 1 280-110(1) | TAA 1953 Sch 1 280-160(1) | TAA 1953 Sch 1 280-160(2) | TAA 1953 Sch 1 280-160(2)(b) | TAA 1953 Sch 1 280-165 | TAA 1953 Sch 1 280-170 | TAA 1953 Sch 1 284-75 | TAA 1953 Sch 1 357-55 | TAA 1953 Sch 1 361-5 | TAA 1953 Sch 1 361-5(1) | TAA 1953 Sch 1 361-5(2) | Taxation (Interest on Overpayments and Early Payments) Act 1983 Pt IIA,PS LA 2003/2 PS LA 2004/11 PS LA 2008/9 PS LA 2011/1 PS LA 2011/2 PS LA 2011/4 PS LA 2011/12 PS LA 2011/14 PS LA 2011/23,Administrative Decisions (Judicial Review) Act 1977 | Acts Interpretation Act 1901 25D | FBTAA 1986 93 | ITAA 1936 170AA | ITAA 1936 214A | ITAA 1997 5-1 | ITAA 1997 5-10 | ITAA 1997 5-15 | ITAA 1997 Div 293 | ITAA 1997 701-70 | Product Grants and Benefits Administration Act 2000 8 | TAA 1953 Pt IIA | TAA 1953 8AAC | TAA 1953 8AAD(1) | TAA 1953 8AAD(2) | TAA 1953 8AAE | TAA 1953 8AAG | TAA 1953 8AAG(2) | TAA 1953 8AAG(3) | TAA 1953 8AAG(4) | TAA 1953 8AAG(5) | TAA 1953 Pt IVC | TAA 1953 40 | TAA 1953 46A | TAA 1953 Sch 1 16-80 | TAA 1953 Sch 1 Subdiv 105-D | TAA 1953 Sch 1 Div 280 | TAA 1953 Sch 1 280-100(1) | TAA 1953 Sch 1 280-100(2) | TAA 1953 Sch 1 280-100(3) | TAA 1953 Sch 1 280-105(1) | TAA 1953 Sch 1 280-105(2) | TAA 1953 Sch 1 280-110(1) | TAA 1953 Sch 1 280-110(2) | TAA 1953 Sch 1 280-160(1) | TAA 1953 Sch 1 280-160(2) | TAA 1953 Sch 1 280-160(2)(b) | TAA 1953 Sch 1 280-165 | TAA 1953 Sch 1 280-170 | TAA 1953 Sch 1 284-75 | TAA 1953 Sch 1 357-55 | TAA 1953 Sch 1 361-5 | TAA 1953 Sch 1 361-5(1) | TAA 1953 Sch 1 361-5(2) | Taxation (Interest on Overpayments and Early Payments) Act 1983 Pt IIA,,,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20068/NAT/ATO/00001,"The changes extend the imposition of shortfall interest charge to overclaimed tax offsets refunds and apply to amended assessments made on or after 1 April 2025. | For more information, see Strengthen penalty and shortfall interest charge provisions . | This Practice Statement is being reviewed to ensure alignment of the ATO's approach to remission of interest and penalties charges. | Minor updates, plus correction to the section in footnote 1. | Updated to new format for LAPS. | Example updated to reflect new service commitment. | Added cross reference to GST revenue neutral corrections. | Corrected 'October' to 'November'. | Removed reference to ATO Receivables Policy and also updated references. | Clarify circumstances relating to remission. | Clarify period of review adopted for PAYG-W. | New example on remission to base rate for period where audit exceeds expected completion date, as requested by MEI. | Clarify that remission of interest is for delay exceeding 30 days. | Inserted example with Division 293 scenario warranting full remission, as requested by Superannuation. | Updated 'amended notice of assessment' to 'notice of amended assessment'. | Updated 'shortfall tax' to 'shortfall amount'. | Clarify what is meant by 'notifies'. | Added dot point on Division 293 liabilities | Updated to current ATO publication style. | Update table to recognise that SIC also applies to MRRT and PRRT | This confirms that a consistent approach with income tax will be taken to administering SIC for both MRRT and PRRT. Also paragraph references have been updated to accommodate this new paragraph. | New paragraph 104 (previously 103) | Updated to recognise that rulings can be issued for MRRT. | Dot points inserted for additional taxes that section 357-55 of Schedule 1 to the TAA may apply to. | Updated legislative references (Part VI of the ITAA 1936 rewrite). | Paragraphs 119 to 121 (including heading)Paragraph 5 and references | Change to the definition of 'commencement of audit'. | Clarification of definition of 'completion of audit'. | Clarification of definition of 'shortfall amount'. | Clarification of definition of 'shorfall period'. | Second example clarified. | Change to date the auditor phones in the Example. | Words 'the notification of' added to second dot point. | Extra dot point regarding net fuel amount etc added. | Heading and section reference updated. | [1] A shortfall for the purposes of GIC will be the same as a shortfall amount for statement penalties as defined in section 284-80 of Schedule 1 to the Taxation Administration Act 1953 (TAA). However, for SIC the amount a taxpayer is liable to pay because the Commissioner amends their assessment, which is used for SIC calculations, is not necessarily the same as a shortfall amount. Accordingly, the term shortfall rather than shortfall amount has been used in this practice statement. | [2] The SGC is an amount collected by the Commissioner on behalf of employees. GIC imposed on unpaid SGC is payable to the employees' superannuation funds to compensate the employees for loss of earnings that result when the SGC is paid late. Therefore it is not appropriate for the remission guidelines provided in this practice statement to apply to GIC imposed in respect of unpaid SGC. | [3] Paragraph 280-160(2)(b) of Schedule 1 to the TAA. | [4] Where a remission decision has been made in writing to the taxpayer, full remission has not been given, and there are no objection rights, the taxpayer may request an informal review of the decision. | [5] This ground generally applies after 1 July 2006, when cycle times for audits were first published. See paragraph 14 below in relation to audits on large corporates. | [6] There will be some circumstances when notification will not be appropriate, for example, where it is suspected a case involves fraud or evasion or other criminal activity. | [7] With the exception of transfer pricing audits subject to a Mutual Agreement Procedure that are covered by other arrangements in Law Administration Practice Statements PS LA 2011/1 ATO's Advance Pricing Arrangement Program , PS LA 2011/4 Recovering disputed debts , PS LA 2011/12 Remission of General Interest Charge and Taxation Ruling TR 2000/16. | [8] These service standards are published on our external website, under 'Our commitments to service'. | [9] Where a shortfall amount is subject to shortfall GIC, making a payment will stop the accruing of GIC to the extent of the payment. The shortfall amount has a due and payable date that is in the past rather than the future, and GIC accrues on a daily basis. | [10] See the Taxation ( Interest on Overpayments and Early Payments ) Act 1983 . For further information refer to Law Administration Practice Statement PS LA 2011/23 Credit interest , which discusses the credit interest regime administered by the Commissioner and details when interest is payable. | [11] PAYG withholding amounts and similar items do not form part of the assessment although they are included on the notice of assessment. They are simply part of the statement of account for the period. See Cassaniti v Commissioner of Taxation [2010] FCA 641; (2010) 186 FCR 480 | [12] Subsection 361-5(1) of Schedule 1 to the TAA, applicable from 1 January 2006. | [13] See section 357-55 of Schedule 1 to the TAA for the complete list of relevant provisions. | [14] Section 105-85 of Schedule 1 to the TAA | [15] Note that a reference to income tax will apply to the MRRT and PRRT as well."
PS LA 2006/10,SUBJECT: The Commissioner's discretion to vary foreign resident withholding amounts PURPOSE: To provide guidance on the use of the Commissioner's discretion under section 15-15 of Schedule 1 to the Taxation Administration Act 1953 to vary amounts required to be withheld from a withholding payment,4 September 2006,1 July 2004,Law Administration Practice Statement,False,"1. All legislative references in this Practice Statement are to Schedule 1 to the Taxation Administration Act 1953, unless otherwise indicated. 2. The pay as you go (PAYG) withholding obligations, contained in Part 2-5, were extended from 1 July 2003 [1] to enable application to payments prescribed in the Taxation Administration Regulations 2017 (Regulations) which are made to foreign residents. 3. Sections 12-315 and 12-317, which contain these withholding obligations, have not been included in the general exception from withholding for exempt income in subsection 12-1(1). Consequently, withholding from prescribed payments to foreign entities who are not employees is required regardless of whether the payment is exempt income in the hands of the foreign entity. 4. Amounts required to be withheld have been specified in the Regulations. In some cases, the specified amounts may result in an amount of withholding which exceeds the final tax liability of the foreign entity. 5. Under section 15-15, we may vary the amount which would otherwise be withheld from withholding payments. For foreign entities, we will use this power to reduce the rate of withholding to nil if the relevant income is not assessable in Australia, or to reduce the rate of withholding to a more appropriate level, where the prescribed withholding rates are excessive in comparison to the amount of tax which will ultimately be payable by the foreign entity. 6. This Practice Statement provides you with guidance on how the discretion to vary the amount to be withheld as provided by section 15-15 may be exercised. 7. It is not possible to set out all the circumstances in which the discretion may or may not be exercised. Cases that appear similar in nature may have different outcomes based upon their particular facts. Each case has to be considered on its merits and on the basis of all the relevant facts. You must take care not to consider irrelevant considerations and must exercise your own judgment in arriving at an appropriate decision. The decision should be made in good faith, without bias and not by the direction of another person. 8. While this Practice Statement instructs you on the exercise of this discretion, foreign entities should not use the statement to anticipate the exercise of the discretion in their particular circumstances, as this may result in the entity being subject to failure to withhold penalties under section 16-30. Foreign entities should be encouraged to approach us for advice on their particular circumstances and, if necessary, apply for a variation using the PAYG foreign resident withholding variation (FRWV) application form. 9. The PAYG withholding system is contained in Part 2-5. 10. Section 12-315 of Subdivision 12-FB requires an entity to withhold amounts if they: • carry on an enterprise, and • make a payment of the kind prescribed in the Regulations to a foreign resident. • carry on an enterprise, and • make a payment of the kind prescribed in the Regulations to a foreign resident. 11. Withholding is also required under section 12-317 of Subdivision 12-FB by an entity that receives a prescribed payment on behalf of a foreign resident. 12. Both sections 12-315 and 12-317 have rules to assist payers in ascertaining their obligation to withhold where the residency status of the recipient is not known to the payer. | Prescribed payments for foreign resident withholding purposes: 13. The prescribed payments for foreign resident withholding purposes are payments made or received on or after 1 July 2004. | Gaming junket activities: 14. Section 31 of the Regulations prescribes a payment for operating or promoting casino gaming junket activities for the purpose of Subdivision 12-FB. Section 49 of the Regulations prescribes that the amount required to be withheld is 3% of the total payment. | Entertainment or sports activities: 15. Section 32 of the Regulations prescribes payments for entertainment or sports activities for the purposes of Subdivision 12-FB. These include the activities of a performing artist or sportsperson [2] and payments to support staff whose activities relate to the activity of the performing artist or sportsperson. 16. Section 50 of the Regulations specifies 2 ways to calculate the amount required to be withheld from payments for entertainment or sports activities. If the foreign entity is a company, the amount to be withheld is worked out by applying to the payment the company rate of tax. [3] If the foreign entity is an individual, the amount to be withheld is worked out by applying to the payment the non-resident marginal rates. [4] | Construction and related activities: 17. Section 33 of the Regulations prescribes payments that are made under a contract entered into after 30 June 2004 for works or related activities and Section 51 of the Regulations specifies an amount to be withheld equal to 5% of each payment under such a contract. | Payments excluded for foreign resident withholding purposes: 18. Payments excluded from the foreign resident withholding provisions are those already covered by existing withholding provisions such as dividends, interest and royalties, departing Australia superannuation payments, natural resource payments and mining payments. | Withholding rules: 19. Foreign resident withholding is a mechanism to collect tax throughout the year as income is earned by foreign entities and is a compliance measure. Amounts withheld are remitted by the payer for credit against the foreign entity's tax liability for the year of income. 20. The withholding obligation is separate from the liability to taxation and hence the foreign entity who is subject to withholding under sections 12-315 or 12-317 is still required to lodge a tax return. 21. Subsection 12-5(1) states that where more than one provision covers a payment, only one amount is to be withheld from that payment. The provision to be applied is determined by the specific priority rules contained in subsections 12-5(2) and (3). Pursuant to subsection 12-5(3), foreign resident withholding applies only if a payment is not subject to withholding under any other withholding provision specified in the table (for example, a payment under a labour hire arrangement). | Exemption from foreign resident withholding: 22. In some circumstances we may, under section 12-319, grant a foreign entity an exemption from withholding if we are satisfied that the foreign entity: • has an established history of compliance with Australian taxation laws, and • is likely to continue to comply with those obligations in the future. • has an established history of compliance with Australian taxation laws, and • is likely to continue to comply with those obligations in the future. 23. This Practice Statement does not deal with applications for exemption. | Underlying policy: 24. The foreign resident withholding rules require amounts to be withheld from the payments prescribed in the Regulations. In some cases, the payments may be exempt from Australian tax or non-assessable under Australia's domestic taxation laws. This is a specific design element that ensures that where foreign entities claim their income to be exempt, that claim can be considered by us. It is often the case that the claim to exemption can only be established on the facts after the event – for instance, the time spent in Australia may be relevant which will be affected by many local factors notwithstanding what was intended or contracted for at the outset. 25. The rules also address the risk that foreign entities may avoid withholding on the basis of unverified claims that the income is exempt – for example, due to the operation of a tax treaty or a misunderstanding of the particular provisions. 26. The withholding rules do not override the operation of a tax treaty as they do not impose tax on amounts which will, by operation of the treaty, be relieved of taxation. Rather, the withholding arrangements facilitate the efficient collection of amounts to be put towards discharging any liability by the foreign entity to taxation on assessment. 27. Section 15-15 provides the authority for us to vary the amounts required to be withheld from withholding payments for the purpose of meeting the special circumstances of a case or class of cases. This includes the authority to vary the amount to be withheld to nil. 28. Where a foreign entity believes that the payment is income which is exempt from Australian tax or non-assessable under Australia's domestic tax laws, they may apply to us for a variation of the amount to be withheld to nil. 29. We may grant a variation where special circumstances exist. Our policy is that a variation will be granted to ensure the amounts withheld match as closely as possible the amount of tax which will be payable when an entity lodges a tax return for the relevant year. Where it can be established that there is no tax liability or likely to be no tax liability on the payment, we will issue a variation to nil. However, a variation to nil does not preclude the foreign entity from the obligation to lodge a tax return for the year the variation is granted. Refer to the appropriate legislative instruments for more information regarding income tax lodgment for foreign residents that are deriving Australian-sourced income. [5] 30. Where the income tax liability on assessment is less than the amounts withheld during the income year, the foreign entity is entitled to a refund of the excess amounts withheld. 31. Where the income tax liability on assessment is more than the amounts withheld during the income year, the foreign entity will receive a debit assessment requiring payment of the difference. | Requirements for processing a foreign resident withholding variation application: 32. Where a variation is sought, the foreign entity must complete a PAYG FRWV application for the financial year in which they will receive payments. A financial year for the purpose of this application is from 1 July to 30 June. If payments span 2 financial years, a separate application is required for each year. 33. Variation applications must be lodged using the correct version of our approved form – PAYG foreign resident withholding variation (FRWV) application . 34. The variation application can be lodged electronically or in paper format. 35. The foreign entity must provide all necessary information on the variation application including their reason for requesting a variation, evidence of identity, tax file number or Australian business number, as per the application and instructions. 36. The foreign entity must also provide any additional information required to process the variation application, as requested by us. 37. It will generally be appropriate to approve a variation application if the foreign entity: • has lodged required tax returns or notified us in writing if they have not been required to lodge tax returns in earlier years • did not receive a debit assessment on their last tax assessment if they had an approved variation application for that year • does not have any outstanding tax unpaid after its due date and does not have any outstanding debts under any other Acts administered by the Commissioner • supplies all the information requested by us, and • has demonstrated sufficient reasons to justify the variation – for example, the deductions claimed in the application are allowable deductions under Australia's tax laws or the application demonstrates that a particular tax treaty applies. • has lodged required tax returns or notified us in writing if they have not been required to lodge tax returns in earlier years • did not receive a debit assessment on their last tax assessment if they had an approved variation application for that year • does not have any outstanding tax unpaid after its due date and does not have any outstanding debts under any other Acts administered by the Commissioner • supplies all the information requested by us, and • has demonstrated sufficient reasons to justify the variation – for example, the deductions claimed in the application are allowable deductions under Australia's tax laws or the application demonstrates that a particular tax treaty applies. 38. If, in our opinion, the foreign entity's application contains income that is understated or deductions that are overstated or not allowable under Australia's tax laws, we will provide either written advice to the foreign entity outlining a decision to make adjustments to this information (which in turn adjusts the requested withholding rate) or a decision to not grant a variation. Paragraphs 52 to 54 of this Practice Statement outline the review rights available to the foreign entity if the application is not approved. 39. If a foreign entity is granted a variation, it does not mean that we have accepted the tax treatment of the income and deductions in the foreign entity's application. If the foreign entity is required to lodge a tax return, their actual tax liability will be determined following lodgment of that return. 40. The foreign entity must keep records of their income and deductions in accordance with the requirements of the income tax laws. | Variation amendments: 41. Should the foreign entity's circumstances change during the variation period, they can apply for an amendment to their variation application by lodging another variation application form with amended details. | Subsequent or multiple variations: 42. The variation system allows foreign entities to lodge subsequent or multiple variation applications. | Class variations: 43. In addition to individual variations, we have the power to vary the amount required to be withheld from withholding payments in order to meet the special circumstances of a class of cases under section 15-15. We will consider applications on behalf of multiple entities that will have no tax or a lower tax liability in Australia – for example, when a group of performers from a not-for-profit company undertake performances in Australia and are paid token amounts which will not be sufficient to cover the expenses related to their performance. 44. Class variations can be lodged by payers or authorised representatives on behalf of a number of foreign entities. These applications must be lodged in a letter format on the payer's or authorised representative's letterhead. 45. In making a request for us to vary the amount required to be withheld from withholding payments to meet the special circumstances of a class of cases, the payer makes a declaration about the relevant tax outcomes on behalf of those entities. For example, where claims for deductions are involved, the declaration states that the expenditure can reasonably be expected to be deductible on assessment. The payer should ensure that they are able to correctly make a declaration on behalf of all entities included in the request. Entities for whom the payer is unable to make this declaration can apply individually for a variation. | Processing timeframes: 46. Variation applications will aim to be processed within published timeframes upon our receipt of all required information. | Variation application outcomes: 47. If a foreign entity's application is approved, a written notice is sent to the payer confirming the new withholding rate. A letter confirming the approval of the variation will also be sent to the foreign entity. 48. The payer must match the entity identity details on the notice with the entity identity details they have in their records. If the payer: • cannot match the details, they must contact us via the phone number provided on the notice • can match the details, they must use the rate to calculate how much to withhold from any future payments they make to the foreign entity that are covered by the variation. The payer must continue to do so until the expiry date shown on the notice or until we advise the payer otherwise. • cannot match the details, they must contact us via the phone number provided on the notice • can match the details, they must use the rate to calculate how much to withhold from any future payments they make to the foreign entity that are covered by the variation. The payer must continue to do so until the expiry date shown on the notice or until we advise the payer otherwise. 49. The payer must keep a copy of the variation notice with their business records for at least 5 years. 50. If a foreign entity's application is not approved, a letter advising the reason the application was not approved is sent to the foreign entity. This letter will contain a phone number so that the entity can phone us to discuss the matter if they think that the decision is not correct. 51. If a payer's application for a class variation is not approved, a letter advising the reason the application was not approved is sent to the payer. This letter will contain a phone number so that the payer can phone us to discuss the matter if they think that the decision is not correct. | Review of decision: 52. A foreign entity can apply for a review of the decision if their application is not approved. 53. The foreign entity must apply in writing, explaining why the decision should be overturned and should include any additional information in support of their claims. 54. For information on justifying decisions and our review process, Our Charter outlines the taxpayer's rights under taxation law, their responsibilities in meeting their obligations and the service and standards they can expect from us. | Valid period of variation: 55. The valid period of variation is shown on the foreign entity's approval letter and the payer's notice of FRWV. If a payment is due before the variation is processed, the foreign entity or payer should contact us for advice. 56. When the reason for variation is 'tax-deductible expenses', the valid period of variation will be from the issue date on the notice of FRWV until the expiry date shown on the notice. 57. When the reason for variation is 'tax treaty applies' or 'exempt income – non-tax treaty', the valid period of variation will be from date of first payment as nominated by the foreign entity on their variation application until the expiry date shown on the notice.",ITAA 1997 405-25 | TAA 1953 Sch 1 | TAA 1953 Sch 1 12-1(1) | TAA 1953 12-5(1) | TAA 1953 12-5(2) | TAA 1953 12-5(3) | TAA 1953 Sch 1 Pt 2-5 Subdiv 12-FB | TAA 1953 Sch 1 12-315 | TAA 1953 Sch 1 12-317 | TAA 1953 Sch 1 12-319 | TAA 1953 Sch 1 15-15 | TAA 1953 Sch 1 16-30 | TAR 2017 33 | TAR 2017 49 | TAR 2017 50 | TAR 2017 51 | Income Tax Rates Act 1986 23 | Income Tax Rates Act 1986 Schedule 7 Pt II,,ITAA 1997 405-25 | TAA 1953 Sch 1 | TAA 1953 Sch 1 Pt 2-5 | TAA 1953 Sch 1 12-1(1) | TAA 1953 12-5(1) | TAA 1953 12-5(2) | TAA 1953 12-5(3) | TAA 1953 Sch 1 Pt 2-5 Subdiv 12-FB | TAA 1953 Sch 1 12-315 | TAA 1953 Sch 1 12-317 | TAA 1953 Sch 1 12-319 | TAA 1953 Sch 1 15-15 | TAA 1953 Sch 1 16-30 | TAR 2017 31 | TAR 2017 32 | TAR 2017 33 | TAR 2017 49 | TAR 2017 50 | TAR 2017 51 | Income Tax Rates Act 1986 23 | Income Tax Rates Act 1986 Schedule 7 Pt II,,Our Charter PAYG foreign resident withholding variation (FRWV) application ATOlaw (link available internally only) Legal database,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS200610/NAT/ATO/00001,Principles of foreign resident withholding variation | Updated in line with current ATO style and accessibility requirements. | Updated to current preamble. | Updated Taxation Administration Regulations 1976 to Taxation Administration Regulations 2017 . | [1] Applies to prescribed payments made or received on or after 1 July 2004. | [2] 'Performing artist' and 'sportsperson' are defined in section 405-25 of the Income Tax Assessment Act 1997 . | [3] Section 23 of the Income Tax Rates Act 1986 . | [4] Part II of Schedule 7 to the Income Tax Rates Act 1986 . | [5] These legislative instruments will change every year. They are available on ATOlaw (link available internally only) and the Legal database .
PS LA 2006/15,"SUBJECT: Consolidation regime - administration of * the administrative penalty for shortfall amounts resulting from a false or misleading statement * the shortfall interest charge, and * the shortfall general interest charge arising from certain adjustments required under the consolidation regime. PURPOSE: To provide guidance on: • the application of the administrative penalty for shortfall amounts resulting from a false or misleading statement, and • the remission of the shortfall interest charge and the shortfall general interest charge when a member entity's income tax assessment is amended to reflect the adjustments required under section 701-70 of the Income Tax Assessment Act 1997.",14 November 2006,1 July 2002,Law Administration Practice Statement,False,"arising from certain adjustments required under the consolidation regime.: 1. All legislative refences in this Practice Statement are to the Income Tax Assessment Act 1997 , unless otherwise indicated. | Sections 701-70 and 703-50 (or 719-50): 2. Section 701-70 applies when, at the time of joining a consolidated group [1] , a member entity [2] is or has been receiving or incurring amounts under an ongoing arrangement it has with either the head company [3] or another member of the consolidated group. The purpose of section 701-70 is to align each entity's tax position at the joining time with the proportion of all things it has actually provided or received. Under this provision, the member entity may be required to include certain amounts in assessable income or claim allowable deductions in respect of all things done under arrangements for the income year ended (or taken to have ended) just before the joining time. 3. Section 703-50 (or section 719-50 in the case of a multiple entry consolidated (MEC) group) allows a head company to make a choice (in writing) that a consolidatable group is taken to be consolidated on and after the day that is specified in the choice (and is after the 30 June 2002). Section 703-58 (or section 719-76) requires the head company to notify the Commissioner (in the approved form) of the choice at any time after the date on which the choice is to take effect (on or after 1 July 2002) up until the day on which it lodges the first tax return for the consolidated group. It was the intent of the legislation that head companies be given sufficient time to make the choice to consolidate, particularly since the choice, once made, is irrevocable. The law allows a head company to choose a retrospective start date for consolidation. 4. The interaction between section 701-70, the choice provision in section 703-50 and the section 703-58 notification of that choice can give rise to some unintended consequences. This is because the decision to consolidate, its date of effect and the notification of that choice are within the control of the head company and are likely to be outside the control of a subsidiary member entity. Consequently, a member entity may have lodged its tax return for the income year in which the adjustment under section 701-70 is required before the head company gives the Commissioner the notice (in the approved form) setting out its choice to consolidate under section 703-50 (or section 719-50 in the case of a MEC group). Alternatively, a member entity may not fully appreciate the implications of the adjustments required under section 701-70 and lodge its relevant tax return after the choice to consolidate is made. | Interest charges: 5. The shortfall interest charge (SIC) replaces the shortfall general interest charge (shortfall GIC) for the period between the due date for an original assessment and the correction of a tax shortfall. SIC for amended assessments only applies to income tax shortfalls for the 2004–05 and later income years. 6. Our general approach to the remission of penalties and the SIC and shortfall GIC is reflected in relevant practice statements. This Practice Statement should be read in conjunction with Law Administration Practice Statements PS LA 2006/8 Remission of shortfall interest charge and general interest charge for shortfall periods and PS LA 2011/12 Remission of general interest charge. 7. For ease of reference, the remainder of this Practice Statement focuses on the choice made by the head company of a consolidated group under section 703-50 (that is notified under section 703-58). However, the principles set out in this document apply equally in the case of MEC groups where the choice to consolidate is made under section 719-50 (and notified under section 719-76). | When this Practice Statement applies: 8. This Practice Statement applies to the 2001–02 income year and all later years. 9. The principles in this Practice Statement apply where a member entity's most recent assessment for an income year requires an amendment to reflect the adjustments required under section 701-70 and those adjustments were not incorporated in the member entity's tax return for that relevant income year because: (a) at the time of lodgment of that return (by the member entity), the head company had not formally given us the notice (in the approved form) setting out its choice to consolidate, or (b) the head company gave us the notice (in the approved form) setting out its choice to consolidate not more than 14 days (subject to paragraph 22 of this Practice Statement) before the member entity lodged its tax return. (a) at the time of lodgment of that return (by the member entity), the head company had not formally given us the notice (in the approved form) setting out its choice to consolidate, or (b) the head company gave us the notice (in the approved form) setting out its choice to consolidate not more than 14 days (subject to paragraph 22 of this Practice Statement) before the member entity lodged its tax return. 10. This Practice Statement applies to interest charges that are imposed on tax shortfalls and that accrue during the shortfall period. [4] This is: • the SIC – payable in respect of amended income tax liabilities for the 2004–05 and later income years • shortfall GIC – payable in respect of amended income tax liabilities for the 2000–01 to 2003–04 income years. Shortfall GIC is the GIC accrued during the shortfall period on the tax shortfall. • the SIC – payable in respect of amended income tax liabilities for the 2004–05 and later income years • shortfall GIC – payable in respect of amended income tax liabilities for the 2000–01 to 2003–04 income years. Shortfall GIC is the GIC accrued during the shortfall period on the tax shortfall. | When this Practice Statement does not apply: 11. This Practice Statement does not apply where the: • head company of an existing consolidated group acquires a new member entity • head company is required to give us, under subsection 703-60(1), a notice in the approved form within 28 days of the new member joining the group, and • new member entity is required to make adjustments under section 701-70. This is because the new member entity will lodge its tax return for which an amendment will be required under section 701-70 after the head company gives us the approved form advising of the joining of a new member entity. In such cases, the new member entity joining the group will be aware of any adjustments that need to be included in its tax return for the income year in which the joining time occurs. • head company of an existing consolidated group acquires a new member entity • head company is required to give us, under subsection 703-60(1), a notice in the approved form within 28 days of the new member joining the group, and • new member entity is required to make adjustments under section 701-70. This is because the new member entity will lodge its tax return for which an amendment will be required under section 701-70 after the head company gives us the approved form advising of the joining of a new member entity. In such cases, the new member entity joining the group will be aware of any adjustments that need to be included in its tax return for the income year in which the joining time occurs. | Example 1 – where this Practice Statement does not apply: 12. Head Co (the head company) of an existing consolidated group acquires New Sub Co (a new member entity) on 1 November 2005. Head Co is required to advise the Commissioner by 29 November 2005 that it has acquired a new member entity. New Sub Co will need to make adjustments required under section 701-70 in its tax return for the period 1 July 2005 to 31 October 2005, which will need to be lodged by 15 January 2007. 13. This Practice Statement does not apply to adjustments required under section 701-75 when an entity ceases to be a member of the consolidated group. In such cases, the member entity leaving the group should be aware of any adjustments that need to be included in its tax return for the income year in which the leaving time occurs. 14. This Practice Statement does not apply where an amendment request is made to include the section 701-70 adjustment in an earlier assessment – that is, not the most recent assessment for an income year. In this case, you should be guided by our general approach to the remission of penalties and the SIC and shortfall GIC (see paragraph 6 of this Practice Statement). 15. This Practice Statement does not apply to GIC that is not shortfall GIC – that is, where there is a late payment of the tax shortfall or interest charges and the GIC may be imposed (see Part IIA of the Taxation Administration Act 1953 (TAA)). Guidelines for remission of this GIC for late payment are contained in PS LA 2011/12. | Imposition of penalty and remission of interest charges: 16. A penalty for a shortfall amount for a false or misleading statement will not arise under subsection 284-75(1) of Schedule 1 to the TAA merely because the amendment of a member entity's assessment to account for an adjustment required under section 701-70 has the effect of increasing the member entity's assessed tax. The imposition of a penalty will depend on whether all the conditions in subsection 284-75(1) are satisfied and whether any exceptions apply. 17. When a member entity applies to have its income tax assessment amended to include an adjustment required under section 701-70, you need to have regard to all of the relevant facts in determining whether the administrative penalty for shortfall amounts resulting from a false or misleading statement is imposed or the SIC or shortfall GIC remitted, including the: • day on which the head company gave us the notice (in the approved form) setting out its choice to consolidate under section 703-50 • day on which the member entity lodged its tax return for the income year in which the adjustment required is made • reason an adjustment required under section 701-70 was not incorporated in the relevant tax return • day on which the member entity lodges its amendment request, and • day on which the member entity pays the tax shortfall. • day on which the head company gave us the notice (in the approved form) setting out its choice to consolidate under section 703-50 • day on which the member entity lodged its tax return for the income year in which the adjustment required is made • reason an adjustment required under section 701-70 was not incorporated in the relevant tax return • day on which the member entity lodges its amendment request, and • day on which the member entity pays the tax shortfall. Where, at the time of lodgment of the member entity return, the head company had not given us the approved form setting out its choice to consolidate 18. Where the features in paragraph 9(a) of this Practice Statement are present and the adjustment required under section 701-70 has the effect of increasing the income tax assessed to a member entity: • An administrative penalty for a shortfall amount under subsection 284-75(1) of Schedule 1 to the TAA for a false or misleading statement will not arise because at the time the statement was made, it was not false or misleading (subject to paragraph 31 of this Practice Statement). • Remission of the SIC or shortfall GIC will be decided for each case on its own merits. It is expected that the discretion under section 280-160 of Schedule 1 to the TAA in respect of the SIC and under subsection 8AAG(3) of the TAA in respect of shortfall GIC would ordinarily be exercised to remit the relevant interest charge in full where the member entity seeks an amendment of its assessment, within a reasonable period (see paragraphs 20 and 21 of this Practice Statement) after the head company has given the Commissioner the approved form setting out its choice to consolidate. We would generally exercise the power to remit the SIC or shortfall GIC that has accrued from the date that the income tax was due and payable on the original assessment of the member entity until the end of the shortfall period. This paragraph should be read in conjunction with PS LA 2006/8 in respect of the advanced payment of the tax shortfall and the remission of the SIC. • An administrative penalty for a shortfall amount under subsection 284-75(1) of Schedule 1 to the TAA for a false or misleading statement will not arise because at the time the statement was made, it was not false or misleading (subject to paragraph 31 of this Practice Statement). • Remission of the SIC or shortfall GIC will be decided for each case on its own merits. It is expected that the discretion under section 280-160 of Schedule 1 to the TAA in respect of the SIC and under subsection 8AAG(3) of the TAA in respect of shortfall GIC would ordinarily be exercised to remit the relevant interest charge in full where the member entity seeks an amendment of its assessment, within a reasonable period (see paragraphs 20 and 21 of this Practice Statement) after the head company has given the Commissioner the approved form setting out its choice to consolidate. We would generally exercise the power to remit the SIC or shortfall GIC that has accrued from the date that the income tax was due and payable on the original assessment of the member entity until the end of the shortfall period. This paragraph should be read in conjunction with PS LA 2006/8 in respect of the advanced payment of the tax shortfall and the remission of the SIC. Where the head company gave the notice to us (in the approved form) setting out its choice to consolidate not more than 14 days before the member entity lodged its tax return 19. Where the features in paragraph 9(b) of this Practice Statement are present and the adjustment required under section 701-70 has the effect of increasing the income tax assessed to a member entity: • An administrative penalty for a shortfall amount under subsection 284-75(1) of Schedule 1 to the TAA for a false or misleading statement will not arise as, even though there is a false or misleading statement and there is a shortfall amount, the taxpayer has exercised reasonable care because they have lodged their return shortly after (see paragraph 21 of this Practice Statement) the head company has lodged its choice to consolidate. • The remission of the SIC or shortfall GIC will be decided for each case on its own merits. It is expected that the SIC or shortfall GIC would generally be remitted in full where the member entity seeks an appropriate amendment of its assessment within a reasonable period (see paragraphs 20 and 21 of this Practice Statement) after the head company has given the notice to us (in the approved form) setting out its choice to consolidate. The member entity should, if the head company notifies us of the choice to consolidate not more than 14 days before the member entity has lodged its tax return, seek an amendment within the reasonable period. This paragraph should be read in conjunction with PS LA 2006/8 in respect of the advanced payment of the tax shortfall and the remission of the SIC. • An administrative penalty for a shortfall amount under subsection 284-75(1) of Schedule 1 to the TAA for a false or misleading statement will not arise as, even though there is a false or misleading statement and there is a shortfall amount, the taxpayer has exercised reasonable care because they have lodged their return shortly after (see paragraph 21 of this Practice Statement) the head company has lodged its choice to consolidate. • The remission of the SIC or shortfall GIC will be decided for each case on its own merits. It is expected that the SIC or shortfall GIC would generally be remitted in full where the member entity seeks an appropriate amendment of its assessment within a reasonable period (see paragraphs 20 and 21 of this Practice Statement) after the head company has given the notice to us (in the approved form) setting out its choice to consolidate. The member entity should, if the head company notifies us of the choice to consolidate not more than 14 days before the member entity has lodged its tax return, seek an amendment within the reasonable period. This paragraph should be read in conjunction with PS LA 2006/8 in respect of the advanced payment of the tax shortfall and the remission of the SIC. | Reasonable period: 20. A 'reasonable period' is considered to be, in most cases, a period of 28 days after the day on which the head company gives the notice to us (in the approved form) setting out its choice to consolidate. 21. However, there may be circumstances where a member entity can establish that a period longer than 28 days would be considered reasonable. Examples of such circumstances include, but are not limited to, natural disasters such as fire, floods or drought, and industrial action. Generally, the 28-day period will not be extended where the delay was caused by a breakdown in communication between the head company and its subsidiary entity regarding the notification of the choice to consolidate. You should therefore clarify the reason for the member entity's delay in seeking an appropriate amendment if this is not adequately explained in the amendment request. Any further references in this Practice Statement to a period of 28 days in the context of 'reasonable period' should be read as subject to the potential application of an extension due to these reasonable circumstances. | Shortly after: 22. 'Shortly after' is considered to be, in most cases, a period of not more than 14 days after the day on which the head company gives the notice to us (in the approved form) setting out its choice to consolidate. However, there may be circumstances, such as those outlined in paragraph 21 of this Practice Statement, where a member entity can establish that a period longer than 14 days would be considered shortly after. Any further references in this Practice Statement to a period of 14 days in the context of 'shortly after' should be read as subject to the potential application of an extension due to these reasonable circumstances. | Where the member entity's amendment request is not lodged within a reasonable period: 23. Entities that do not lodge an appropriate amendment request within a reasonable period in the circumstances described in paragraph 9 of this Practice Statement will not necessarily be entitled to a full remission of the SIC or shortfall GIC payable. 24. Where the entity has not lodged the amendment request within a reasonable period, we will generally exercise the power to remit the SIC and shortfall GIC that has accrued from the date that the income tax was due and payable on the original assessment of the member entity: • Remission in full will be granted until the expiration of the reasonable period after the head company lodges its choice to consolidate. • From that date until the date the amendment request is received (if within a further reasonable period – another 28 days), the SIC or shortfall GIC will be remitted to the base interest rate. [5] • After this date, the SIC or shortfall GIC will revert to the full statutory rate. Any further remission of the SIC or shortfall GIC accruing after that day will be determined in accordance with the general principles set out in PS LA 2006/8. • Remission in full will be granted until the expiration of the reasonable period after the head company lodges its choice to consolidate. • From that date until the date the amendment request is received (if within a further reasonable period – another 28 days), the SIC or shortfall GIC will be remitted to the base interest rate. [5] • After this date, the SIC or shortfall GIC will revert to the full statutory rate. Any further remission of the SIC or shortfall GIC accruing after that day will be determined in accordance with the general principles set out in PS LA 2006/8. | Example 2 – member entity's amendment request is not lodged within a reasonable period: 25. Head Co decides to consolidate on 1 July 2005 and advises us of its choice to consolidate on 1 December 2005. Member entity lodges its 2004–05 tax return on 9 December 2005 and lodges a request for amendment to this return on 24 June 2006. 26. In this example, we remit the SIC in full from the date the assessment for 2004–05 was due and payable until 29 December 2005. 27. From 30 December 2005 to 26 January 2006 (a further 28 days), we remit the SIC to the base interest rate. 28. After 26 January 2006, any remission of the SIC is determined in accordance with the general principles set out in PS LA 2006/8. 29. This approach promotes a fairer tax system. You should ensure that entities which do not make a genuine attempt to comply with the provisions of section 701-70 do not receive the same level of remission as entities that have made a genuine attempt to comply. Where the member entity lodges its tax return more than shortly after the head company notifies the choice to consolidate 30. If a head company notifies us (in the approved form) of its choice to consolidate more than 14 days before the member entity is required to lodge its return, the member entity should make the adjustment required under section 701-70 in its return. 31. Where the member entity fails to make the adjustment required under section 701-70 in its tax return lodged more than shortly after the head company notifies its choice to consolidate and subsequently makes a section 701-70 amendment request: • An administrative penalty for a shortfall amount for a false or misleading statement will arise, as it would be considered that the member entity has not exercised reasonable care in not including the adjustments required under section 701-70 in its tax return. However, - even if the facts show that reasonable care was not taken, the penalty imposed by the legislation is still reduced by at least 80% under subsection 284-225(2) of Schedule 1 to the TAA if an unprompted voluntary disclosure is made. - any penalty which remains after the statutory reduction will generally be remitted in full unless there is information to indicate that the entity did not make an honest mistake or it can be reasonably inferred that it was not an honest mistake. [6] It is considered that the circumstances described in paragraph 65 of this Practice Statement would generally warrant remitting the remaining penalty to nil where the amendment request is made shortly after the member entity lodges its tax return. • We may remit any SIC or shortfall GIC charged. Where a taxpayer makes an unprompted voluntary disclosure of a shortfall through an amendment request, remission of interest charges to the base interest rate may be considered in accordance with PS LA 2006/8. • An administrative penalty for a shortfall amount for a false or misleading statement will arise, as it would be considered that the member entity has not exercised reasonable care in not including the adjustments required under section 701-70 in its tax return. However, - even if the facts show that reasonable care was not taken, the penalty imposed by the legislation is still reduced by at least 80% under subsection 284-225(2) of Schedule 1 to the TAA if an unprompted voluntary disclosure is made. - any penalty which remains after the statutory reduction will generally be remitted in full unless there is information to indicate that the entity did not make an honest mistake or it can be reasonably inferred that it was not an honest mistake. [6] It is considered that the circumstances described in paragraph 65 of this Practice Statement would generally warrant remitting the remaining penalty to nil where the amendment request is made shortly after the member entity lodges its tax return. • We may remit any SIC or shortfall GIC charged. Where a taxpayer makes an unprompted voluntary disclosure of a shortfall through an amendment request, remission of interest charges to the base interest rate may be considered in accordance with PS LA 2006/8. - even if the facts show that reasonable care was not taken, the penalty imposed by the legislation is still reduced by at least 80% under subsection 284-225(2) of Schedule 1 to the TAA if an unprompted voluntary disclosure is made. - any penalty which remains after the statutory reduction will generally be remitted in full unless there is information to indicate that the entity did not make an honest mistake or it can be reasonably inferred that it was not an honest mistake. [6] It is considered that the circumstances described in paragraph 65 of this Practice Statement would generally warrant remitting the remaining penalty to nil where the amendment request is made shortly after the member entity lodges its tax return. | Multiple adjustments: 32. To the extent that the SIC or shortfall GIC has accrued in respect of multiple adjustments made to the member entity's assessment or from other underestimated instalment amounts, only that portion of the SIC or shortfall GIC that relates to the adjustment required under section 701-70 should be remitted in accordance with the principles set out in this Practice Statement. Processing section 701-70 amendment requests and general interest charge and shortfall interest charge remissions 33. When applying for an amendment, the member entity's request should clearly indicate that the amendment arises from the operation of section 701-70. If the amendment request deals with multiple adjustments, the member entity should identify the extent to which the request relates to an amendment required under section 701-70. 34. As the processing of the amendment request will automatically generate imposition of an administrative penalty and liability to the SIC and the shortfall GIC under the law, ATO staff responsible for considering the amendment request should ensure the simultaneous processing of the administrative penalty and the SIC and shortfall GIC impositions and remissions, having regard to the principles outlined in this Practice Statement. 35. Under Part IIIA of the Taxation (Interest on Overpayments and Early Payments) Act 1983, the Commissioner may be liable to pay interest on the amount of the SIC and the shortfall GIC that has been paid by a member entity and remitted to the entity where the remission takes place more than 30 days after a request for remission is made. | Recording requirements when considering amendment requests required under section 701-70: 36. You must record all the factors you take into account when exercising the discretion to remit the administrative penalty and the SIC or shortfall GIC. You also have to record: • whether reasonable care has been exercised • whether a voluntary disclosure has been made • the reasons for accepting a voluntary disclosure, and • the factors taken into account in remitting any penalty that remains after the voluntary disclosure statutory reduction. • whether reasonable care has been exercised • whether a voluntary disclosure has been made • the reasons for accepting a voluntary disclosure, and • the factors taken into account in remitting any penalty that remains after the voluntary disclosure statutory reduction. 37. The reason for the amendment request should also be recorded on the relevant case management system by way of a note in accordance with local procedures, so that the member entity is not prejudiced in the remittance of any future liabilities. | Administrative penalty: 38. If a decision is made not to remit the penalty or to remit only part of the penalty, we must give written notice of the decision to the member entity. The member entity should be provided with written reasons as to why the penalty has not been remitted in full. | Shortfall general interest charge: 39. If, after applying the principles of this Practice Statement, a member entity is still liable to pay an amount of shortfall GIC, the member entity should be provided with a notice which sets out their liability and, where appropriate, the extent to which the GIC has already been remitted. | Shortfall interest charge: 40. In respect of the SIC, we must provide reasons for the decision where a taxpayer requests remission of the SIC and a decision is made not to remit the entire amount. See section 280-165 of Schedule 1 to the TAA and section 25D of the Acts Interpretation Act 1901, which outlines the rules about the contents of a statement of reasons. | Review rights: 41. A member entity that is dissatisfied with an assessment or our refusal to remit an amount of administrative penalty (and the amount of penalty payable after the refusal is more than 2 penalty units) imposed under Division 284 may object against it in the manner set out in Part IVC of the TAA. [7] 42. Where the unremitted SIC exceeds 20% of the tax shortfall, the objection, review and appeal rights in Part IVC of the TAA will be available. [8] 43. A member entity that is dissatisfied with our decision on the remission of the shortfall GIC may only seek a review of that decision under the Administrative Decisions (Judicial Review) Act 1977. | When section 701-70 applies: 44. Section 701-70 applies where there is a pre-existing arrangement between: • entities which become subsidiary members of a consolidated group at the same time, or • the head company and a joining entity. • entities which become subsidiary members of a consolidated group at the same time, or • the head company and a joining entity. 45. Specifically, the arrangement must be one where the entity incurring expenditure under the arrangement and the entity deriving the corresponding amount as income are: • entities that become subsidiary members of the consolidated group at the same time, or • the head company and a member entity that is joining the consolidated group. • entities that become subsidiary members of the consolidated group at the same time, or • the head company and a member entity that is joining the consolidated group. 46. The types of arrangements to which section 701-70 would typically apply include loan arrangements, leasing arrangements or other arrangements involving expenditure incurred for goods or services to be provided in the future. | Adjustments required under section 701-70: 47. Where the period of the arrangement extends beyond the time when an entity becomes a member of a consolidated group, section 701-70 seeks to align the income tax position of each consolidating entity at the point just before they consolidate. This is achieved by adjusting each entity's taxable income so that the following amounts equate to the amount that is attributable to the period over which services were provided under the arrangement, up until the joining time: • deductions for expenditure incurred under the arrangement, and • amounts derived under the arrangement that have been included in assessable income. • deductions for expenditure incurred under the arrangement, and • amounts derived under the arrangement that have been included in assessable income. 48. The income year in which the adjustment required under section 701-70 arises will depend on when the joining time occurs (subsection 701-70(3)). In the case where the entity becomes a member of the consolidated group at the start of its income year, any adjustments required under section 701-70 will need to be included in the member entity's tax return for the income year ended just before the entity became a member. | Interaction between section 701-70 and the choice rule in section 703-50: 49. The interaction between section 701-70 and the choice to form a consolidated group provision in section 703-50 can give rise to some unintended consequences. 50. Section 703-50 allows a head company to make a choice in writing that a consolidatable group is taken to be consolidated on and after the day that is specified in the choice (and is after the 30 June 2002). This choice (in writing) may be made by the head company after the day the group is specified or taken to be consolidated on and from (after the date of effect) but before or by no later than the date on which the head company lodges the first tax return for the consolidated group. Section 703-58 also requires the head company to notify the Commissioner (in the approved form) of the choice at any time after the date of effect up until the day on which it lodges the first tax return for the consolidated group 51. Once a valid and effective section 703-50 choice to consolidate a consolidatable group (on and after a particular day) has been made in writing by the head company, it cannot be revoked, nor can the date from which consolidation is to take effect be varied. 52. The operation of section 703-50 allows for a group to be consolidated retrospectively from the start of an income year and section 703-58 notification of that choice to be made (to the Commissioner) sometime later or by the time the first tax return for the consolidated group for that income year is lodged by the head company. This means the choice may be made after a member entity has lodged its return for the income year that ended before the date the group is taken to be consolidated. 53. The effect of choosing to consolidate retrospectively from the start of an income year is that a member entity joining the consolidated group would need to seek an amendment of its assessment for the income year that preceded consolidation if section 701-70 requires adjustments to its taxable income for that year. | Example 3 – interaction between sections 701-70 and 703-50: 54. In the case of a 30 June balancing subsidiary and head company, if a choice to consolidate is made with effect from 1 July 2002 and the head company gives us the approved form showing it is making this choice when it lodges its 2002–03 return on 15 January 2004, any section 701-70 adjustment would arise for the 2001–02 income year. As the member entity would already have lodged its return for the 2001–02 year, it would need to seek an amendment to the relevant assessment. 55. The following discussion explains the application of the penalty provisions and provides guidance on our approach to the remission of the SIC and shortfall GIC in the situations to which this Practice Statement applies. | Imposition of administrative penalty under subsection 284-75(1) of Schedule 1 to the TAA: 56. Subsection 284-75(1) of Schedule 1 to the TAA imposes an administrative penalty on an entity where: • a statement is made to the Commissioner by the entity or its tax agent • the statement is false or misleading in a material particular, and • there is a shortfall amount as a result of the statement. For a detailed discussion of administrative penalties in respect of false or misleading statements, see Law Administration Practice Statement PS LA 2012/5 Administration of the false or misleading statement penalty – where there is a shortfall amount. • a statement is made to the Commissioner by the entity or its tax agent • the statement is false or misleading in a material particular, and • there is a shortfall amount as a result of the statement. For a detailed discussion of administrative penalties in respect of false or misleading statements, see Law Administration Practice Statement PS LA 2012/5 Administration of the false or misleading statement penalty – where there is a shortfall amount. 57. Importantly, a penalty in respect of a false or misleading statement will not arise merely because the amendment of a member entity's assessment to account for an adjustment required under section 701-70 has the effect of increasing the member entity's assessed tax. The imposition of a penalty will depend on whether all the conditions in subsection 284-75(1) of Schedule 1 to the TAA are satisfied and whether any exceptions apply. 58. Where an adjustment required under section 701-70 affects a member entity's most recent income tax assessment, you will need to consider all the facts of the case to establish whether the prerequisites for the imposition of an administrative penalty exist, including the: • day on which the head company gave us the notice (in the approved form) setting out its choice to consolidate under section 703-50 • day on which the member entity lodged its tax return for the income year in which the adjustment required is made • reason the adjustment required under section 701-70 was not incorporated in the relevant tax return • day on which the member entity lodges its amendment request, and • day on which the member entity pays the tax shortfall. • day on which the head company gave us the notice (in the approved form) setting out its choice to consolidate under section 703-50 • day on which the member entity lodged its tax return for the income year in which the adjustment required is made • reason the adjustment required under section 701-70 was not incorporated in the relevant tax return • day on which the member entity lodges its amendment request, and • day on which the member entity pays the tax shortfall. Where, at the time of lodgment of the member entity return, the head company had not given us the notice (in the approved form) setting out its choice to consolidate 59. Where the features of paragraph 9(a) of this Practice Statement are present, a member entity will not be liable for a false or misleading statement penalty. This is because for the purposes of subsection 284-75(1) of Schedule 1 to the TAA it is the nature of the statement at the time that it was made that is relevant. On the basis of the facts at the time the statement was made, the statement was not false or misleading. Where the head company gave us the notice (in the approved form) setting out its choice to consolidate not more than 14 days before the member entity lodged its tax return 60. Where the features of paragraph 9(b) of this Practice Statement are present, whether a false or misleading statement penalty applies would depend on whether the member entity has exercised reasonable care in making the statements in their return. 61. Reasonable care is not a new concept. It is explained in Miscellaneous Taxation Ruling MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard. The test continues to be whether, in making a statement, or in acting or omitting to act, the member entity has exercised the level of care that a reasonable person in the member entity's circumstances would have taken to fulfil the member entity's tax obligations (see also PS LA 2012/5). 62. A member entity would generally be considered to have exercised reasonable care if the head company only lodged its notification to consolidate with us not more than 14 days before the member entity lodged its tax return. It would be reasonable in these circumstances for us to consider that a member entity had exercised reasonable care in lodging its return having not made the adjustments. Therefore, in this situation, no administrative penalty would arise for a false or misleading statement. Where the member entity lodges its tax return more than shortly after the head company has given us the notice (in the approved form) setting out its choice to consolidate 63. An administrative penalty in respect of a shortfall amount would arise if the adjustments required under section 701-70 were not incorporated in the member entity's tax return for the relevant income year and the head company had lodged its choice to consolidate more than 14 days before the member entity's return was lodged. 64. This is because it would be considered that the member entity had not exercised reasonable care in making the statements in their return. It is expected that a member entity or agent would not have exercised reasonable care if it did not have in place procedures that would enable it to establish whether a member entity's head company had made a decision to consolidate prior to the lodging of any relevant return of the member entity. Such procedures may include discussions with the head company, prior to lodging the member entity's return, as to whether the head company was thinking of consolidating. If the notice was lodged more than 14 days before the member entity return was lodged, these procedures should have alerted the member entity or its agent to make the required adjustments. | Where a member entity makes a voluntary disclosure: 65. As mentioned in paragraph 31 of this Practice Statement, even if the facts show that reasonable care was not taken, the penalty imposed by the legislation is still reduced by at least 80% under subsection 284-225(2) of Schedule 1 to the TAA if an unprompted voluntary disclosure is made. Further, any penalty which remains after the statutory reduction will generally be remitted in full unless there is information to indicate that the entity did not make an honest mistake or it can be reasonably inferred that it was not an honest mistake. It is considered that the circumstances described in paragraph 63 of this Practice Statement would generally warrant remitting the remaining penalty to nil where the amendment request is made shortly after the member entity lodges its tax return. | Shortfall interest charge and shortfall general interest charge: 66. The SIC regime is contained in Division 280 of Schedule 1 to the TAA. For a discussion of the SIC regime, see PS LA 2006/8. 67. Section 8AAB of the TAA lists the various provisions and taxation laws under which a taxpayer may be liable to pay the GIC. 68. A member entity may be liable to the GIC under one or more of the following provisions where an assessment is amended to incorporate the adjustment required under section 701-70: • A member entity would be liable to pay the shortfall GIC under subsection 5-15 where the amendment required under section 701-70 results in an increase in the member entity's taxable income for the 2001–02 to 2003–04 income years. The GIC would also be payable on any increased tax liability that remains unpaid after the statutory due date for tax payable for the relevant income year (this type of GIC is not the subject of this Practice Statement). • A member entity may also be liable to pay the shortfall GIC under Subdivision 45-G of Part 2-10 of Schedule 1 to the TAA for an underestimation of pay as you go (PAYG) instalments. - This is where the member entity has chosen to work out its instalments using a varied instalment rate that is lower than the one notified by us or by using the member entity's own estimate of its benchmark tax that is lower than the gross domestic product-adjusted notional tax or notional tax notified by us for that income year. - More specifically, if the member entity's assessment for the income year just before the consolidation transitional year is amended to incorporate an adjustment required under section 701-70, the shortfall GIC is imposed if that adjustment has the effect of increasing the member entity's assessable income (and thus the member entity's benchmark tax for the year) by such an amount that the varied instalment rate or the estimated benchmark tax exceeds the 15% margin of error. • A member entity would be liable to pay the shortfall GIC under subsection 5-15 where the amendment required under section 701-70 results in an increase in the member entity's taxable income for the 2001–02 to 2003–04 income years. The GIC would also be payable on any increased tax liability that remains unpaid after the statutory due date for tax payable for the relevant income year (this type of GIC is not the subject of this Practice Statement). • A member entity may also be liable to pay the shortfall GIC under Subdivision 45-G of Part 2-10 of Schedule 1 to the TAA for an underestimation of pay as you go (PAYG) instalments. - This is where the member entity has chosen to work out its instalments using a varied instalment rate that is lower than the one notified by us or by using the member entity's own estimate of its benchmark tax that is lower than the gross domestic product-adjusted notional tax or notional tax notified by us for that income year. - More specifically, if the member entity's assessment for the income year just before the consolidation transitional year is amended to incorporate an adjustment required under section 701-70, the shortfall GIC is imposed if that adjustment has the effect of increasing the member entity's assessable income (and thus the member entity's benchmark tax for the year) by such an amount that the varied instalment rate or the estimated benchmark tax exceeds the 15% margin of error. - This is where the member entity has chosen to work out its instalments using a varied instalment rate that is lower than the one notified by us or by using the member entity's own estimate of its benchmark tax that is lower than the gross domestic product-adjusted notional tax or notional tax notified by us for that income year. - More specifically, if the member entity's assessment for the income year just before the consolidation transitional year is amended to incorporate an adjustment required under section 701-70, the shortfall GIC is imposed if that adjustment has the effect of increasing the member entity's assessable income (and thus the member entity's benchmark tax for the year) by such an amount that the varied instalment rate or the estimated benchmark tax exceeds the 15% margin of error. Remission of the shortfall interest charge or shortfall general interest charge arising from section 701-70 adjustments 69. Under section 280-160 of Schedule 1 to the TAA, the Commissioner may remit all or part of an amount of the SIC if the Commissioner considers it fair and reasonable to do so. 70. Section 8AAG of the TAA provides the Commissioner with a general power to remit all, or part of, any GIC payable by a taxpayer. 71. A detailed explanation of the general remission guidelines for the SIC and shortfall GIC are contained in PS LA 2006/8. Where the member entity lodges the amendment request required under section 701-70 within a reasonable period 72. It is expected that the SIC or shortfall GIC (imposed under subsection 5-15 for the 2001–02 to 2003–04 income years) would generally be remitted in full where the member entity seeks an amendment of its assessment, within a reasonable period (see paragraphs 20 and 21 of this Practice Statement) after the head company has given us its choice to consolidate. 73. Such an approach would ensure that the SIC or shortfall GIC remission policy gives effect to and operates consistently with the way the consolidation legislation is intended to apply. In these unique circumstances, it would be inappropriate for the SIC or shortfall GIC to be payable when the legislation allows for retrospective consolidations and where the liability to further tax (because of an adjustment required under section 701-70) will never arise unless and until the head company makes an effective choice to consolidate. 74. This policy is intended to ensure that entities receive the same treatment in similar situations. Head companies have been encouraged to give us the approved form in which they make their choice to consolidate before they lodge their first consolidated return. If they do so, and a member entity that does not fully appreciate the implications of the adjustments required under section 701-70 lodges its relevant tax return within a short period of the choice, that entity should not be disadvantaged by the head company's early notification. Where the member entity does not lodge the amendment request required under section 701-70 within a reasonable period 75. Entities that do not lodge an amendment request within a reasonable period will not necessarily be entitled to a full remission of the SIC or shortfall GIC. However, we would generally remit the SIC or shortfall GIC that has accrued from the date that the income tax was due and payable on the original assessment of the member entity, until the expiration of the reasonable period after the date on which the head company gives us the approved form setting out its choice to consolidate. This is because it is fair and reasonable to give the member entity a reasonable period to make the adjustment by requesting an amendment. 76. From the expiration of the reasonable period until the date the amendment request is received (if within a further reasonable period – another 28 days), the SIC or shortfall GIC will be remitted to the base interest rate. After this date, the SIC or shortfall GIC will revert to the full statutory rate. Any further remission of the SIC and shortfall GIC accruing after that day will be determined in accordance with the general principles set out in PS LA 2006/8. Where the member entity's return is lodged more than 'shortly after' the head company notifies the choice 77. We would generally not remit any interest charged if the member entity does not make the adjustment in their return where the member entity's return is lodged more than shortly after the head company notifies the choice and the member entity subsequently makes an amendment request. Where a taxpayer makes an unprompted voluntary disclosure through a self amendment of a shortfall, remission of interest charges to the base interest rate may be considered in accordance with PS LA 2006/8. | General interest charge on underestimation of PAYG instalments: 78. If the member entity varied down any of its PAYG instalments for the income year for which the adjustments have to be made, an adjustment required under section 701-70 will increase the benchmark tax as worked out by us for that income year. It may have the effect that the member entity has varied to an instalment rate or an estimated benchmark tax that exceeds the 15% margin of error. 79. In such a case, an underestimate of an instalment will have occurred and the member entity is liable to pay the shortfall GIC on underestimated PAYG instalments. Under section 45-240 of Schedule 1 to the TAA, we may only remit the shortfall GIC if there are special circumstances that would make remission fair and reasonable. 80. The question of what constitutes a 'special circumstance' will depend on the facts of the particular case. The various factors that we would generally consider are outlined in PS LA 2011/12. 81. In the specific cases where this Practice Statement is intended to apply, it is expected that the shortfall GIC on a shortfall of PAYG instalments caused by an adjustment required under section 701-70 would ordinarily be remitted in full, subject to paragraph 70 of this Practice Statement. 82. This approach recognises that, in most cases, the decision to consolidate, its date of effect and the notification of that choice are likely to be outside the control of a subsidiary member entity. The potential operation of section 701-70 is only triggered once an effective choice to consolidate has been provided to us by the head company of the group. 83. A head company, in choosing a retrospective start date for consolidation, is acting in accordance with the law. It was the intent of the legislation that head companies be given sufficient time to make the choice to consolidate, particularly since the choice, once made, is irrevocable. For this reason, it would generally be considered fair and reasonable for the GIC to be remitted in full where an adjustment required under section 701-70 leads to an underestimation of PAYG instalments. 84. In deciding whether to remit all of the shortfall GIC, you may need to consider whether it was reasonably foreseeable when the approved form setting out the choice to consolidate would be given to us and the date from which consolidation would take effect. The extent to which the shortfall GIC is remitted should take account of a member entity's attempts to remedy a potential underestimation, for example, by increasing later instalments for that income year. | Further examples: Example 4 –where the features of paragraph 9(a) of this Practice Statement are present – within a reasonable period 85. The following is an example where the features of paragraph 9(a) of this Practice Statement are present: • date of consolidation: 1 July 2002 • date of notification of choice to consolidate by head company: 1 November 2002 • a member entity lodges its 2001–02 tax return: 31 October 2002 • the head company has a pre-existing loan with member entity at the joining time. • date of consolidation: 1 July 2002 • date of notification of choice to consolidate by head company: 1 November 2002 • a member entity lodges its 2001–02 tax return: 31 October 2002 • the head company has a pre-existing loan with member entity at the joining time. 86. The member entity will need to amend its 2001–02 return to account for any adjustment required under section 701-70. 87. Our view: • No penalty in respect of a false or misleading statement will be payable if the shortfall amount arises from a section 701-70 adjustment as the choice to consolidate is not made by the date the member entity lodges their prior-year's return. • Shortfall GIC should be remitted in full subject to an amendment request being made within a reasonable period of the head company notifying the choice to consolidate, namely within 28 days of 1 November 2002 (by 29 November 2002). • No penalty in respect of a false or misleading statement will be payable if the shortfall amount arises from a section 701-70 adjustment as the choice to consolidate is not made by the date the member entity lodges their prior-year's return. • Shortfall GIC should be remitted in full subject to an amendment request being made within a reasonable period of the head company notifying the choice to consolidate, namely within 28 days of 1 November 2002 (by 29 November 2002). Example 5 – where the features of paragraph 9(b) of this Practice Statement are present – within a reasonable period 88. The following is an example where the features of paragraph 9(b) of this Practice Statement are present: • date of consolidation: 1 July 2002 • date of notification of choice to consolidate by head company: 31 December 2002 • a member entity lodges 2001–02 tax return: 5 January 2003 • the head company has a pre-existing loan with the member entity at the joining time. • date of consolidation: 1 July 2002 • date of notification of choice to consolidate by head company: 31 December 2002 • a member entity lodges 2001–02 tax return: 5 January 2003 • the head company has a pre-existing loan with the member entity at the joining time. 89. A request for an amended assessment from the member entity is received by us, as the member entity is required under subsection 701-70(3) to amend its 2001–02 tax return by including in its assessable income for that year an amount calculated under subsection 701-70(4). 90. Our view: • It is considered that reasonable care has been exercised as the head company lodges its notice of choice to consolidate only 5 days before the member entity lodges its tax return and no false or misleading statement penalty should apply. • The member entity should get 28 days from date of lodgment of the head company's notice to make the adjustment by requesting an amendment. • Shortfall GIC should be remitted in full if the amendment request is made within these 28 days. • It is considered that reasonable care has been exercised as the head company lodges its notice of choice to consolidate only 5 days before the member entity lodges its tax return and no false or misleading statement penalty should apply. • The member entity should get 28 days from date of lodgment of the head company's notice to make the adjustment by requesting an amendment. • Shortfall GIC should be remitted in full if the amendment request is made within these 28 days. Example 6 – where the features of paragraph 9(a) of this Practice Statement are present – not within a reasonable period 91. The following is an example where the features of paragraph 9(a) of this Practice Statement are present: • date of consolidation: 1 July 2002 • date of notification of choice to consolidate by head company: 15 January 2004 • a member entity lodges 2001–02 tax return: 15 January 2003 • the head company has a pre-existing loan with the member entity at the joining time. • date of consolidation: 1 July 2002 • date of notification of choice to consolidate by head company: 15 January 2004 • a member entity lodges 2001–02 tax return: 15 January 2003 • the head company has a pre-existing loan with the member entity at the joining time. 92. On 10 June 2004, a request for an amended assessment is received by us, as the member entity is required under subsection 701-70(3) to amend its 2001–02 tax return by including in its assessable income for that year an amount calculated under subsection 701-70(4). 93. On 25 August 2004, we issue a notice of amended assessment in respect of the 2001–02 year, which includes an increase in tax payable. 94. The due date for payment of the increase in tax payable is 2 December 2002, being the statutory due date for payment of tax in respect of the 2001–02 year (subsection 5-5). 95. On 1 September 2004, we receive payment of the amount of additional tax payable as a result of the section 701-70 adjustment. 96. The shortfall GIC accrued is imposed onto the account on 10 September 2004 and a notice issued to the member entity. 97. Our view: • No penalty in respect of a false or misleading statement will be payable as the choice to consolidate is not made by the date the member entity lodges their prior-year's return. • Prior to 15 January 2004, there is no practical impact on the member entity in relation to the section 701-70 adjustment and shortfall GIC accrued prior to that date should be remitted in full. • This Practice Statement provides guidance that a reasonable period is considered to be 28 days. It is to be remembered that under self-assessment, the member entity could have paid the amount at any time following 15 January 2004 and the member entity could have paid the amount when the amendment request was lodged. • No penalty in respect of a false or misleading statement will be payable as the choice to consolidate is not made by the date the member entity lodges their prior-year's return. • Prior to 15 January 2004, there is no practical impact on the member entity in relation to the section 701-70 adjustment and shortfall GIC accrued prior to that date should be remitted in full. • This Practice Statement provides guidance that a reasonable period is considered to be 28 days. It is to be remembered that under self-assessment, the member entity could have paid the amount at any time following 15 January 2004 and the member entity could have paid the amount when the amendment request was lodged. 98. However, in respect of the periods, the following would be the case: • For the period 2 December 2002 to 12 February 2004 - The amendment in respect of the 2001–02 year is raised as a direct result of the member entity entering into a consolidated regime. The member entity could not have been expected to have known on 2 December 2002 of the impending liability that would arise when they were to enter into the consolidated regime at some future time. Further, until 15 January 2004, they would not have known or could have been expected to have known the outcome of entering into a consolidated regime. - The shortfall GIC accrued from 2 December 2002 to 12 February 2004 would normally be remitted in full as this is the date of head company's notice plus 28 days. • For the period 13 February 2004 to 11 March 2004, after the reasonable period until the date the amendment request is received (if within a further reasonable period – another 28 days), the SIC or shortfall GIC will be remitted to the base interest rate. • For the period 12 March 2004 to 10 June 2004 - After this date, the SIC or shortfall GIC will revert to the full statutory rate. Any further remission of the SIC and shortfall GIC accruing after that day will be determined in accordance with the general principles set out in PS LA 2006/8. - The member entity applies for further remission for the period 13 February 2004 to 10 June 2004 based on the following circumstances o this is a one-off event – the member entity otherwise has an exemplary payment record with us and all lodgments have been made in accordance with the statutory provisions o while the time delay in lodging the amendment is outside the 28-day reasonable period, the reasons provided by the member entity's head company were that the priority was to lodge a correct tax return for the 2002–03 year, being the first consolidated return and the member entity was not advised that the head company had lodged the notification to consolidate until the head company had lodged its consolidated return o the amendment request was lodged within 2 weeks of the completion of the first consolidated return, and o it is also an unprompted voluntary self amendment. In this case, it is considered that shortfall GIC should be remitted down to the base interest rate for the period 13 February 2004 to 10 June 2004. • For the period 11 June 2004 to 1 September 2004 there would be no remission, as the self-assessment system is based around payments being made by statutory due dates, not on the arrival of amended notices of assessment nor delays in processing. It would not be considered fair and reasonable to remit and it would be expected that the member entity would lodge their payment with their amendment request. • For the period 2 December 2002 to 12 February 2004 - The amendment in respect of the 2001–02 year is raised as a direct result of the member entity entering into a consolidated regime. The member entity could not have been expected to have known on 2 December 2002 of the impending liability that would arise when they were to enter into the consolidated regime at some future time. Further, until 15 January 2004, they would not have known or could have been expected to have known the outcome of entering into a consolidated regime. - The shortfall GIC accrued from 2 December 2002 to 12 February 2004 would normally be remitted in full as this is the date of head company's notice plus 28 days. • For the period 13 February 2004 to 11 March 2004, after the reasonable period until the date the amendment request is received (if within a further reasonable period – another 28 days), the SIC or shortfall GIC will be remitted to the base interest rate. • For the period 12 March 2004 to 10 June 2004 - After this date, the SIC or shortfall GIC will revert to the full statutory rate. Any further remission of the SIC and shortfall GIC accruing after that day will be determined in accordance with the general principles set out in PS LA 2006/8. - The member entity applies for further remission for the period 13 February 2004 to 10 June 2004 based on the following circumstances o this is a one-off event – the member entity otherwise has an exemplary payment record with us and all lodgments have been made in accordance with the statutory provisions o while the time delay in lodging the amendment is outside the 28-day reasonable period, the reasons provided by the member entity's head company were that the priority was to lodge a correct tax return for the 2002–03 year, being the first consolidated return and the member entity was not advised that the head company had lodged the notification to consolidate until the head company had lodged its consolidated return o the amendment request was lodged within 2 weeks of the completion of the first consolidated return, and o it is also an unprompted voluntary self amendment. In this case, it is considered that shortfall GIC should be remitted down to the base interest rate for the period 13 February 2004 to 10 June 2004. • For the period 11 June 2004 to 1 September 2004 there would be no remission, as the self-assessment system is based around payments being made by statutory due dates, not on the arrival of amended notices of assessment nor delays in processing. It would not be considered fair and reasonable to remit and it would be expected that the member entity would lodge their payment with their amendment request. - The amendment in respect of the 2001–02 year is raised as a direct result of the member entity entering into a consolidated regime. The member entity could not have been expected to have known on 2 December 2002 of the impending liability that would arise when they were to enter into the consolidated regime at some future time. Further, until 15 January 2004, they would not have known or could have been expected to have known the outcome of entering into a consolidated regime. - The shortfall GIC accrued from 2 December 2002 to 12 February 2004 would normally be remitted in full as this is the date of head company's notice plus 28 days. - After this date, the SIC or shortfall GIC will revert to the full statutory rate. Any further remission of the SIC and shortfall GIC accruing after that day will be determined in accordance with the general principles set out in PS LA 2006/8. - The member entity applies for further remission for the period 13 February 2004 to 10 June 2004 based on the following circumstances o this is a one-off event – the member entity otherwise has an exemplary payment record with us and all lodgments have been made in accordance with the statutory provisions o while the time delay in lodging the amendment is outside the 28-day reasonable period, the reasons provided by the member entity's head company were that the priority was to lodge a correct tax return for the 2002–03 year, being the first consolidated return and the member entity was not advised that the head company had lodged the notification to consolidate until the head company had lodged its consolidated return o the amendment request was lodged within 2 weeks of the completion of the first consolidated return, and o it is also an unprompted voluntary self amendment. o this is a one-off event – the member entity otherwise has an exemplary payment record with us and all lodgments have been made in accordance with the statutory provisions o while the time delay in lodging the amendment is outside the 28-day reasonable period, the reasons provided by the member entity's head company were that the priority was to lodge a correct tax return for the 2002–03 year, being the first consolidated return and the member entity was not advised that the head company had lodged the notification to consolidate until the head company had lodged its consolidated return o the amendment request was lodged within 2 weeks of the completion of the first consolidated return, and o it is also an unprompted voluntary self amendment. Example 7 – where the features of paragraph 9(a) of this Practice Statement are present – substituted accounting period – within a reasonable period 99. The following is an example where the features of paragraph 9(a) of this Practice Statement are present: • the head company and the member entity's income year is based on the 12-month accounting period 1 January to 31 December • date of consolidation: 1 January 2004 • date of notification of choice to consolidate: 2 June 2004 • a member entity lodges its 2003–04 tax return (1 January 2003 to 31 December 2003): 1 June 2004 • the head company lodges its consolidated 2004–05 tax return (1 January 2004 to 31 December 2004): 1 June 2005 • the head company has a pre-existing loan with the member entity at the joining time. • the head company and the member entity's income year is based on the 12-month accounting period 1 January to 31 December • date of consolidation: 1 January 2004 • date of notification of choice to consolidate: 2 June 2004 • a member entity lodges its 2003–04 tax return (1 January 2003 to 31 December 2003): 1 June 2004 • the head company lodges its consolidated 2004–05 tax return (1 January 2004 to 31 December 2004): 1 June 2005 • the head company has a pre-existing loan with the member entity at the joining time. 100. Our view: • The member entity may need to request an amendment to its 2003–04 assessment to account for any adjustments required under section 701-70. • No penalty for a false or misleading statement should be payable if the shortfall amount arises from a section 701-70 adjustment solely because the choice to consolidate had not been made by the date the member entity lodged their prior-year's return. • Shortfall GIC should be remitted in full subject to the amendment request being made within 28 days of the head company notifying us of their choice to consolidate under section 703-50 – that is, by 30 June 2004. • The member entity may need to request an amendment to its 2003–04 assessment to account for any adjustments required under section 701-70. • No penalty for a false or misleading statement should be payable if the shortfall amount arises from a section 701-70 adjustment solely because the choice to consolidate had not been made by the date the member entity lodged their prior-year's return. • Shortfall GIC should be remitted in full subject to the amendment request being made within 28 days of the head company notifying us of their choice to consolidate under section 703-50 – that is, by 30 June 2004.",MT 2008/1 | PS LA 2006/8 | PS LA 2011/12 | PS LA 2012/5 | ITAA 1997 5-5 | ITAA 1997 5-15 | ITAA 1997 701-70 | ITAA 1997 701-70(3) | ITAA 1997 701-70(4) | ITAA 1997 701-75 | ITAA 1997 703-5 | ITAA 1997 703-15 | ITAA 1997 703-15(2) | ITAA 1997 703-50 | ITAA 1997 703-60(1) | ITAA 1997 719-25 | ITAA 1997 719-50 | ITAA 1997 719-75 | TAA 1953 8AAB | TAA 1953 8AAG | TAA 1953 8AAG(3) | TAA 1953 Pt IVC | TAA 1953 Sch 1 Pt 2-10 Subdiv 45-G | TAA 1953 Sch 1 45-240 | TAA 1953 Sch 1 Div 280 | TAA 1953 Sch 1 280-160 | TAA 1953 Sch 1 280-165 | TAA 1953 Sch 1 280-170 | TAA 1953 Sch 1 Div 284 | TAA 1953 Sch 1 284-75(1) | TAA 1953 Sch 1 284-225(2) | TAA 1953 Sch 1 298-20(3) | Taxation (Interest on Overpayments and Early Payments) Act 1983 Pt IIIA | Acts Interpretation Act 1901 25D | AD(JR) Act 1977,PS LA 2006/8 PS LA 2011/12 PS LA 2012/5,ITAA 1997 5-5 | ITAA 1997 5-15 | ITAA 1997 701-70 | ITAA 1997 701-70(3) | ITAA 1997 701-70(4) | ITAA 1997 701-75 | ITAA 1997 703-5 | ITAA 1997 703-15 | ITAA 1997 703-15(2) | ITAA 1997 703-50 | ITAA 1997 703-60(1) | ITAA 1997 719-25 | ITAA 1997 719-50 | ITAA 1997 719-75 | TAA 1953 8AAB | TAA 1953 8AAG | TAA 1953 8AAG(3) | TAA 1953 Pt IVC | TAA 1953 Sch 1 Pt 2-10 Subdiv 45-G | TAA 1953 Sch 1 45-240 | TAA 1953 Sch 1 Div 280 | TAA 1953 Sch 1 280-160 | TAA 1953 Sch 1 280-165 | TAA 1953 Sch 1 280-170 | TAA 1953 Sch 1 Div 284 | TAA 1953 Sch 1 284-75(1) | TAA 1953 Sch 1 284-225(2) | TAA 1953 Sch 1 298-20(3) | Taxation (Interest on Overpayments and Early Payments) Act 1983 Pt IIIA | Acts Interpretation Act 1901 25D | AD(JR) Act 1977,,,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS200615/NAT/ATO/00001,"Updated in line with current ATO style and accessibility requirements. | Updated to current corporate publishing style. | Reference to ATO Receivables Policy removed; reference to PS LA 2011/12 added. | Minor editorial amendments as per ATO Style Guide (for example, Tax Office updated to ATO). | Updated legislative references (Part VI of the ITAA 1936 rewrite). | Paragraph 5 and references | Reference to PS LA 2006/11 removed; references to ATO Receivables Policy added. | [1] For the meaning of 'consolidated group', see section 703-5. | [2] For the purposes of this Practice Statement, a 'member entity' means a subsidiary member of a consolidated group, see section 703-15. For multiple entry consolidated (MEC) groups, see section 719-25. | [3] The term 'head company' is defined in subsection 703-15(2) and, for MEC groups, in section 719-75. | [4] The shortfall period starts from the day the tax debt was due for payment or would have been due for payment had the shortfall been correctly reported and ceases on the day before the Commissioner gives the taxpayer an amended notice of assessment (or an equivalent notification for taxes other than income tax). See also paragraph 24 of PS LA 2006/8. | [5] The term 'base interest rate' is explained in paragraph 34F of PS LA 2006/8. It is a rate set by law which is used as a base for calculating SIC and GIC. For each day in a particular quarter of the year, the base interest rate equals the monthly average yield of 90-day Bank Accepted Bills for a prescribed previous month. For example, for the quarter 1 January to 31 March, the base interest rate is the monthly average yield of 90-day Bank Accepted Bills for the preceding November (subsection 8AAD(2) of the TAA). | [6] See paragraph 17AD of PS LA 2012/5. | [7] See subsection 298-20(3) of Schedule 1 to the TAA. | [8] See section 280-170 of Schedule 1 to the TAA. | This Practice Statement was originally published on 1 August 2006. Versions published from 5 May 2008 are available electronically - refer to the online version of the Practice Statement. Versions published prior to this date are not available electronically. If needed, these can be obained from the Law Publishing team in the Office of the Chief Tax Counsel."
PS LA 2006/16,"SUBJECT: GST-free exports - the Commissioner's discretion to extend the time to export PURPOSE: To set out the: • procedures to be followed where goods have not been, or will not be, exported within the period allowed in the goods and services tax law • issues that will be considered in exercising the discretion to provide an extension of time to export.",22 November 2006,22 November 2006,Law Administration Practice Statement,False,"1. Section 38-185 of the A New Tax System (Goods and Services Tax Act) 1999 provides for goods to be supplied GST-free if they are exported within 60 days or such further period as the Commissioner of Taxation allows. 2. All legislative references in this Practice Statement are to the A New Tax System (Goods and Services Tax Act) 1999, unless otherwise indicated. 3. From 1 July 2015, the term 'Australia' was replaced in nearly all instances within the GST, luxury car tax and wine equalisation tax legislation with the term 'indirect tax zone'. The scope of the new term, however, remains the same as the now repealed definition of 'Australia' used in those Acts. This change was made for consistency of terminology across the tax legislation, with no change in policy or legal effect. In this Practice Statement, the 'indirect tax zone' is referred to as 'Australia'. 4. Supplies of new recreational boats [1] may be GST-free where they are exported within 12 months after the receipt day or such further period as we allow. All requests for an extension of time to export goods (including requests for further extensions) are to be referred to Technical Advice and Leadership – GST (TLA-GST). Any decision to exercise the discretion must be approved by a TLA-GST Executive Level 2 or Senior Executive Service officer. 5. The following is an outline of advice to be provided to suppliers on the application of the GST-free export provisions where the supplier exports goods (other than new recreational boats) from Australia outside the 60-day period allowed [2] : • Where goods will not be exported within the 60-day period allowed for in the legislation, an application for extension of time to export is required if the supplier wants the export to have a GST-free status. • Exceptions to this general rule, where an extension of time is automatically granted, are outlined in Goods and Services Tax Ruling GSTR 2002/6 Goods and Services Tax: Exports of goods, items 1 to 4A of the table in subsection 38-185(1) of the A New Tax System (Goods and Services Tax) Act 1999. [3] • Applications for extensions of time to export can be made before the 60-day period has expired, after the 60-day period has expired or after the goods have been exported. [4] Applications should be made as soon as the supplier realises that the time period will not be or has not been met. • Extensions of time to export will usually be granted where there are physical, practical or commercial circumstances that reasonably explain the delay. [5] • The period of the extension will depend on the circumstances in each case. • Further extensions will not normally be granted unless there are exceptional circumstances. • Where industry arrangements give assurance that there is an effective compliance trail we may consider implementing broader approvals for classes of transactions. • Evidence of export, as outlined in GSTR 2002/6, is required. [6] • An adjustment [7] will be required where there is insufficient evidence of export or if export was outside the period allowed (60 days or such further period as we allow). • Instalment contracts, which conform to industry practice or reasonable commercial terms, can be used by suppliers where the goods are not to be exported within 60 days. For instalment contracts, the 60-day period begins when the final payment is made or invoice is given. [8] • Where goods will not be exported within the 60-day period allowed for in the legislation, an application for extension of time to export is required if the supplier wants the export to have a GST-free status. • Exceptions to this general rule, where an extension of time is automatically granted, are outlined in Goods and Services Tax Ruling GSTR 2002/6 Goods and Services Tax: Exports of goods, items 1 to 4A of the table in subsection 38-185(1) of the A New Tax System (Goods and Services Tax) Act 1999. [3] • Applications for extensions of time to export can be made before the 60-day period has expired, after the 60-day period has expired or after the goods have been exported. [4] Applications should be made as soon as the supplier realises that the time period will not be or has not been met. • Extensions of time to export will usually be granted where there are physical, practical or commercial circumstances that reasonably explain the delay. [5] • The period of the extension will depend on the circumstances in each case. • Further extensions will not normally be granted unless there are exceptional circumstances. • Where industry arrangements give assurance that there is an effective compliance trail we may consider implementing broader approvals for classes of transactions. • Evidence of export, as outlined in GSTR 2002/6, is required. [6] • An adjustment [7] will be required where there is insufficient evidence of export or if export was outside the period allowed (60 days or such further period as we allow). • Instalment contracts, which conform to industry practice or reasonable commercial terms, can be used by suppliers where the goods are not to be exported within 60 days. For instalment contracts, the 60-day period begins when the final payment is made or invoice is given. [8] 6. In providing advice to suppliers who are making supplies to unregistered recipients for export and relying on subsection 38-185(3), it should be advised that: • It is the supplier's choice to supply goods GST-free to recipients for export and the supplier bears the risk of the goods not being exported. If the goods are not exported, the supplier will be liable for GST. • There are specific provisions for aircraft and ships (excluding new recreational boats) exported by the recipient. [9] • The supplier is liable for GST unless it has documentary evidence from the recipient, who is not registered or required to be registered, that the goods have - been exported by the recipient - not been used or altered prior to export, and - been entered for export. • Evidence of export [10] , as outlined in GSTR 2002/6, is required. [11] An indication of intent to export by the recipient or a photocopy of the recipient's airline ticket or passport is not sufficient evidence. • Applications for extensions of time to export can be made before the 60-day period has expired, after the 60-day period has expired or after the goods have been exported. Applications should be made as soon as it is realised that the time period will not be or has not been met. • We can only give a determination on an extension of time to export to the supplier. The recipient and supplier can jointly apply for an extension of time to export so that the recipient is kept informed. The recipient can request advice on whether it is likely that an extension of time to export would be granted if applied for by the supplier. • The goods can be supplied GST-inclusive to a recipient, who is not registered or required to be registered, and the GST component reimbursed by the supplier when the supplier is provided with evidence that the goods have been exported and that the goods have not been used or altered prior to export, except to the extent necessary to prepare them for export. Where export is outside the 60-day period, an application for extension of time to export should be made and will need to be granted before such reimbursement can be given. We are not required to grant extensions. Suppliers remain liable for GST if an extension is not granted regardless of whether they reimbursed an amount of GST. We cannot require the supplier to process an adjustment to GST or apply for an extension of time to export. • It is the supplier's choice to supply goods GST-free to recipients for export and the supplier bears the risk of the goods not being exported. If the goods are not exported, the supplier will be liable for GST. • There are specific provisions for aircraft and ships (excluding new recreational boats) exported by the recipient. [9] • The supplier is liable for GST unless it has documentary evidence from the recipient, who is not registered or required to be registered, that the goods have - been exported by the recipient - not been used or altered prior to export, and - been entered for export. • Evidence of export [10] , as outlined in GSTR 2002/6, is required. [11] An indication of intent to export by the recipient or a photocopy of the recipient's airline ticket or passport is not sufficient evidence. • Applications for extensions of time to export can be made before the 60-day period has expired, after the 60-day period has expired or after the goods have been exported. Applications should be made as soon as it is realised that the time period will not be or has not been met. • We can only give a determination on an extension of time to export to the supplier. The recipient and supplier can jointly apply for an extension of time to export so that the recipient is kept informed. The recipient can request advice on whether it is likely that an extension of time to export would be granted if applied for by the supplier. • The goods can be supplied GST-inclusive to a recipient, who is not registered or required to be registered, and the GST component reimbursed by the supplier when the supplier is provided with evidence that the goods have been exported and that the goods have not been used or altered prior to export, except to the extent necessary to prepare them for export. Where export is outside the 60-day period, an application for extension of time to export should be made and will need to be granted before such reimbursement can be given. We are not required to grant extensions. Suppliers remain liable for GST if an extension is not granted regardless of whether they reimbursed an amount of GST. We cannot require the supplier to process an adjustment to GST or apply for an extension of time to export. - been exported by the recipient - not been used or altered prior to export, and - been entered for export. 7. The following is an outline of advice to be provided to suppliers or recipients on the application of the GST-free export provisions where a new recreational boat [12] is exported from Australia outside the 12-month period allowed: • Table item 4A of subsection 38-185(1) applies to supplies of new recreational boats [13] that are exported by the supplier or the recipient within 12 months after the receipt day [14] or such further period that we allow. • Where the boat is exported by the recipient, the supplier is required to obtain documentary evidence of the export from the recipient. The proof of export requirements for new recreational boats are the same as for goods under the 60-day export rules as outlined in GSTR 2002/6. [15] If the boat is not exported, then this gives rise to an adjustment event. [16] • For the supply of the boat to be GST-free, the boat must not be used for certain disqualifying activities prior to being exported. [17] The supplier should be satisfied that this condition is met in order to continue to treat the supply as GST-free. • Applications for extensions of time to export can be made before the 12-month period has expired, after the 12-month period has expired or after the boat has been exported. Applications should be made as soon as it is realised that the time period will not be, or has not been, met. • If a new recreational boat cannot be exported within the 12-month export period, the supplier or recipient (or the supplier and recipient jointly) may apply to us seeking an extension of time for the export to occur. [18] • The boat can be supplied GST-inclusive to a recipient and the GST component reimbursed by the supplier when the supplier is provided with evidence that the boat has been exported and that the boat has not been used for a disqualifying activity prior to export. Where export is outside the 12-month period, an application for extension of time to export should be made and will need to be granted before such reimbursement can be given. We are not required to grant extensions. Suppliers remain liable for GST if an extension is not granted regardless of whether they reimbursed an amount of GST. We cannot require the supplier to process an adjustment to GST or apply for an extension of time to export. • Table item 4A of subsection 38-185(1) applies to supplies of new recreational boats [13] that are exported by the supplier or the recipient within 12 months after the receipt day [14] or such further period that we allow. • Where the boat is exported by the recipient, the supplier is required to obtain documentary evidence of the export from the recipient. The proof of export requirements for new recreational boats are the same as for goods under the 60-day export rules as outlined in GSTR 2002/6. [15] If the boat is not exported, then this gives rise to an adjustment event. [16] • For the supply of the boat to be GST-free, the boat must not be used for certain disqualifying activities prior to being exported. [17] The supplier should be satisfied that this condition is met in order to continue to treat the supply as GST-free. • Applications for extensions of time to export can be made before the 12-month period has expired, after the 12-month period has expired or after the boat has been exported. Applications should be made as soon as it is realised that the time period will not be, or has not been, met. • If a new recreational boat cannot be exported within the 12-month export period, the supplier or recipient (or the supplier and recipient jointly) may apply to us seeking an extension of time for the export to occur. [18] • The boat can be supplied GST-inclusive to a recipient and the GST component reimbursed by the supplier when the supplier is provided with evidence that the boat has been exported and that the boat has not been used for a disqualifying activity prior to export. Where export is outside the 12-month period, an application for extension of time to export should be made and will need to be granted before such reimbursement can be given. We are not required to grant extensions. Suppliers remain liable for GST if an extension is not granted regardless of whether they reimbursed an amount of GST. We cannot require the supplier to process an adjustment to GST or apply for an extension of time to export. 8. If you identify instances where goods or new recreational boats have not been exported within the allowed period by the supplier or recipient, in circumstances where an extension of time may be granted, you can request advice from TLA-GST that will form the basis for the audit decision. TLA-GST will endeavour to provide a decision within the audit timeframe. To assist in this process, you should provide all relevant information to TLA-GST, including a report on the available evidence of export and other requirements under the provisions. 9. Section 38-185 provides for the GST-free export of goods and new recreational boats. This provision provides, in relation to table items 1 to 4 of subsection 38-185(1), that goods be exported from Australia within 60 days (or such further period as the Commissioner allows). Table item 4A of subsection 38-185(1) provides that new recreational boats be exported from Australia within 12 months (or such further period as the Commissioner allows). 10. GSTR 2002/6 sets out our views on: • the meaning of 'the supplier exports' • when the export of goods occurs • when an exporter satisfies the condition that the export of goods must occur within specified time limits, and • the types of documents that a supplier needs to keep as evidence of satisfying the requirements for an export of goods to be GST-free. • the meaning of 'the supplier exports' • when the export of goods occurs • when an exporter satisfies the condition that the export of goods must occur within specified time limits, and • the types of documents that a supplier needs to keep as evidence of satisfying the requirements for an export of goods to be GST-free. 11. GSTR 2002/6 addresses the operation of subsection 38-185(3) that applies where the recipient exports the goods and how that subsection expands the scope of table items 1 and 2 of subsection 38-185(1) in certain circumstances. [19] 12. GSTR 2002/6 also discusses subsections 38-185(5) and (6), which are relevant to the export of new recreational boats in table item 4A of subsection 38-185(1). [20] 13. This Practice Statement provides additional guidance on the practical application of the Commissioner's discretion to extend the specified time periods to export goods or new recreational boats. 14. The 60-day rule is intended to provide suppliers with adequate time to arrange and export goods. The Commissioner's discretion overcomes any unintended consequences (such as goods in transit) of the strict application of the 60-day rule. 15. In addition to the 60-day rule, a 12-month export period is allowed for new recreational boats. This Practice Statement also provides guidance on the practical application of the Commissioner's discretion to extend the 12-month export period. 16. Beyond the situations outlined in GSTR 2002/6 where the Commissioner's discretion would normally operate, it is also noted that the discretion would be granted where there are physical, practical or commercial circumstances that reasonably explain the delay in meeting the specified time period to export. This assessment will generally be made on a case-by-case basis. Relevant case law indicates that each case should be decided on its own merits after having proper regard to all relevant facts. The decision to exercise the discretion should not be tied to a prescriptive formula. Some industries may have arrangements that will provide reasonable assurance that goods are exported. In this situation, broader approvals for classes of transactions may be approved by us. 17. TLA-GST is responsible for considering and approving requests for extension of time to export to ensure that a consistent approach is taken. 18. Applications for extension of time to export can be made before the relevant period has expired, after the period has expired or after the goods or new recreational boat have been exported. [21] There is no restriction in the legislation that requires an application to be made prior to the end of the 60 days or 12 months. However, applications should be made as soon as it is realised that the time period will not be or has not been met. A factor that may be taken into account in the consideration of a retrospective application is where the supplier has indicated that it was not aware of the 60-day requirement. This factor will not apply to the 12-month period for new recreational boats. 19. Where a supplier of goods finds that it has exceeded the 60-day export period, TLA-GST can provide a decision on an extension of time to export. Requests for the discretion to be exercised should be made in writing to us by or on behalf of the supplier, or the supplier and recipient jointly. 20. If a new recreational boat cannot be exported within the 12-month export period, TLA-GST can provide a decision on an extension of time to export. Requests for the discretion to be exercised should be made in writing to us by or on behalf of the supplier, the recipient or the supplier and recipient jointly. If an extension of time is granted at the recipient's request, the recipient must inform the supplier of the extension. 21. We will advise the party that made the request, in writing, whether the discretion has been exercised. If the discretion is not exercised, we will include reasons in the response. 22. The information required to be submitted to request an extension of the 60-day period to export is: • description of goods, quantity, recipient and destination • date of supply, invoice and consideration • length of time needed for extension • date exported or proposed date of export • carrier or mode of export • where the goods have already been exported – evidence of export, and • the explanation for the delay and reason an extension of time to export should be granted. • description of goods, quantity, recipient and destination • date of supply, invoice and consideration • length of time needed for extension • date exported or proposed date of export • carrier or mode of export • where the goods have already been exported – evidence of export, and • the explanation for the delay and reason an extension of time to export should be granted. 23. If you identify instances where goods have not been exported within the 60-day period by the supplier or recipient, you will need to consider whether there are physical, practical or commercial circumstances that reasonably explain the delay. If the supplier wishes to apply for an extension of time to export and it is considered that the Commissioner's discretion may be exercised, the issue should be referred to TLA-GST for a decision. A report setting out the details of the transaction, whether the goods have been exported or are likely to be exported and a recommendation based on the factors outlined will assist the decision. 24. Where goods are paid for in instalments, the GST law [22] provides that the 60-day period commences on the date that the supplier receives any of the final instalment or the date that the supplier gives the invoice for the final instalment (whichever is earlier). In the case of an aircraft or ship sold by instalments [23] under a contract that requires the recipient to export it, the earliest date will also include the date of delivery to the recipient or another person. Where suppliers have forward orders of goods, they can structure their arrangements to utilise table item 2 of subsection 38-185(1), provided that the contracts conform to industry practice or reasonable commercial terms. Extensions of time to export can also be applied for where goods sold under an instalment arrangement cannot be exported within 60 days of the final payment or invoice. 25. The following factors will be considered in determining whether an extension to the 60-day period will be granted: • the facts and circumstances of each application • the overall situation - why an extension is required - whether alternatives were available - whether there was a choice to structure the arrangement in this way - whether the arrangement was entered into despite the 60-day restriction - any extenuating circumstances • the supplier's compliance history, noting in particular - a good compliance record is required - whether requests for extension are common and the circumstances of those requests • commercial circumstances in the industry – that is, the commercial practices within an industry that may lead to extensions being required, such as subscriptions to publications • the risk of the goods not being exported or going into use in Australia - whether the goods are to be separately stored or will go into common stock - risk of the goods not being exported within the period allowed by us • circumstances outside the control of the supplier or exporter, such as - strikes - breakdowns - transport company delays or hold-ups - illness (animals) - vaccinations or quarantine, or - delays in preparation for export • for goods to be exported by the recipient, whether - the recipient is not registered or required to be registered - the goods have or will not be used or altered in any way, and - if the goods have already been exported – the goods have been entered for export and there is sufficient documentary evidence of export by the recipient. • the facts and circumstances of each application • the overall situation - why an extension is required - whether alternatives were available - whether there was a choice to structure the arrangement in this way - whether the arrangement was entered into despite the 60-day restriction - any extenuating circumstances • the supplier's compliance history, noting in particular - a good compliance record is required - whether requests for extension are common and the circumstances of those requests • commercial circumstances in the industry – that is, the commercial practices within an industry that may lead to extensions being required, such as subscriptions to publications • the risk of the goods not being exported or going into use in Australia - whether the goods are to be separately stored or will go into common stock - risk of the goods not being exported within the period allowed by us • circumstances outside the control of the supplier or exporter, such as - strikes - breakdowns - transport company delays or hold-ups - illness (animals) - vaccinations or quarantine, or - delays in preparation for export • for goods to be exported by the recipient, whether - the recipient is not registered or required to be registered - the goods have or will not be used or altered in any way, and - if the goods have already been exported – the goods have been entered for export and there is sufficient documentary evidence of export by the recipient. - why an extension is required - whether alternatives were available - whether there was a choice to structure the arrangement in this way - whether the arrangement was entered into despite the 60-day restriction - any extenuating circumstances - a good compliance record is required - whether requests for extension are common and the circumstances of those requests - whether the goods are to be separately stored or will go into common stock - risk of the goods not being exported within the period allowed by us - strikes - breakdowns - transport company delays or hold-ups - illness (animals) - vaccinations or quarantine, or - delays in preparation for export - the recipient is not registered or required to be registered - the goods have or will not be used or altered in any way, and - if the goods have already been exported – the goods have been entered for export and there is sufficient documentary evidence of export by the recipient. 26. The Attachment to this Practice Statement provides some examples of requests for extension to the 60-day period. 27. The information required to be submitted to request an extension of time to export a new recreational boat is: • details of the supplier • details of the recipient • date of supply, invoice and consideration • length of time needed for extension • date exported or proposed date of export • mode of export • where the boat has already been exported – evidence of export • the explanation for the delay; that is, the circumstances explaining why an extension of the 12-month export period is required, and • reasons why an extension of time to export should be granted. • details of the supplier • details of the recipient • date of supply, invoice and consideration • length of time needed for extension • date exported or proposed date of export • mode of export • where the boat has already been exported – evidence of export • the explanation for the delay; that is, the circumstances explaining why an extension of the 12-month export period is required, and • reasons why an extension of time to export should be granted. 28. It may be appropriate to exercise the discretion to extend the 12-month export period for a new recreational boat where the delay is due to circumstances beyond the exporter's control. Circumstances could include: • breakdown or accidental damage to the boat which is sufficiently serious to require repair before departure • serious illness to a crew member, or • delayed departure due to unseasonal bad weather making it too dangerous to sail. • breakdown or accidental damage to the boat which is sufficiently serious to require repair before departure • serious illness to a crew member, or • delayed departure due to unseasonal bad weather making it too dangerous to sail. 29. Unseasonal weather could be: • cyclones outside the specified season of 1 November to 30 April, or • cyclone occurrences outside the regions associated with most tropical cyclone activity – that is, outside the region between Exmouth and Broome in northwest Western Australia and the northeast Queensland region between Port Douglas and Maryborough. • cyclones outside the specified season of 1 November to 30 April, or • cyclone occurrences outside the regions associated with most tropical cyclone activity – that is, outside the region between Exmouth and Broome in northwest Western Australia and the northeast Queensland region between Port Douglas and Maryborough. | Review rights: 30. A decision on the exercise of this discretion is not a reviewable GST decision under section 110-50 of Schedule 1 to the Taxation Administration Act 1953. Therefore, if the supplier or recipient is dissatisfied with the decision, they may request a review under the Administrative Decisions (Judicial Review) Act 1977. GSTR 2002/6 provides the ATO view on the operation of section 38-185 that sets out when supplies of goods are GST-free exports. Of particular relevance are paragraphs 32 to 39, 71 and 209 to 214 of that Ruling. The following examples are illustrative of the general application of this Practice Statement to requests for extension of time to export goods. They are not definitive. Each application will be considered on its own merits by TLA-GST. | Example 1 – recipient storing goods prior to export of bulk acquisitions: Goods are sold to an unregistered non-resident who accumulates them at a facility under the control of the non-resident until there is a container load that is then exported. Additional time to export would not be granted as the failure to export within 60 days is the recipient's choice. The accumulation of goods for future export carries an increased risk that the goods will not be exported and diverted for home consumption. Had the goods been accumulated at a facility operated by an international transport provider [24] , then an extension would normally be granted. The security of the goods and the risk of diversion would be relevant considerations. Additionally, other alternatives exist to comply with the GST law: • goods could be sold under an instalment contract where the invoice for the final instalment defines the start of the 60-day period • if the non-resident is conducting an enterprise in their own country, they can apply for a GST-only registration (Division 25) • the non-resident recipient can establish themselves in Australia and register for GST. • goods could be sold under an instalment contract where the invoice for the final instalment defines the start of the 60-day period • if the non-resident is conducting an enterprise in their own country, they can apply for a GST-only registration (Division 25) • the non-resident recipient can establish themselves in Australia and register for GST. | Example 2 – storing goods sold until recipient requests delivery: Goods are sold to an unregistered non-resident who requires that they be stored and delivered (exported) on request which may be beyond 60 days. An extension would not normally be granted as it is the recipient's choice not to export the good within the required 60 days and there is an increased risk that the goods may be diverted for home consumption. Other alternatives exist to comply with the 60-day requirement, such as instalment contracts that require an invoice for final payment when delivery is requested. Storage of the goods in a secure facility ready for export and a viable audit trail may be considered as risk mitigation. | Example 3 – applying for an extension post export beyond 60-day period: Goods are exported outside the 60-day period, and any extension previously granted by us, and an extension of time to export is applied for. The fact that the goods have been exported does not automatically mean that an extension of time will be granted. If the reasons for the delay would have failed to satisfy a request for an extension of time to export, had it been made before the period had expired, an extension of time would not be granted. To do otherwise would encourage non-compliance with the law and would result in inequitable outcomes. | Example 4 – non-resident recipient requesting a refund: A non-resident purchases goods GST-inclusive from a supplier and requests a refund from the supplier when the goods are exported. The recipient provides the supplier with evidence of export and satisfies other conditions of subsection 38-185(3). The recipient and supplier can jointly apply for an extension of time to export if the 60-day period has been exceeded. The same factors would be considered in deciding whether to grant an extension of time to export. While there is no risk of diversion as the goods have been exported, it is still necessary to demonstrate a practical or commercial reason the goods could not be exported within the 60 days allowed in the GST law. | Example 5 – supplier unable to meet delivery date: The supplier is unable to deliver goods to the freight forwarder until after the container for the non-resident client or destination has been despatched. The next container is not due for despatch until after the 60-day period has expired. In considering a request for extension of time to export, the following factors would need to be considered: • why the consignment was missed • time to next consignment • storage of goods in the meantime (have the goods been delivered to the international transport facility), and • risk of goods being diverted for home consumption. • why the consignment was missed • time to next consignment • storage of goods in the meantime (have the goods been delivered to the international transport facility), and • risk of goods being diverted for home consumption. | Example 6 – refilling the order: A supplier receives an order for goods from a non-resident recipient. The supplier sources the goods, invoices the recipient and transports the goods to the recipient's freight forwarder. During the transport to the freight forwarder, the goods are damaged, lost or stolen. Rather than cancelling the invoice (no supply), replacing the goods and re-invoicing the recipient, the supplier refills the order. The delay caused by refilling the order means that the 60-day period from the original invoice is exceeded. In these circumstances, an extension of time to export is likely to be granted. While there is an element of choice in not reissuing the invoice for the replacement goods, this may be impractical for the supplier. Evidence of the loss, damage or theft in the form of insurance claims or police report may be required. The compliance record of the supplier and recipient would be a factor considered. A blanket extension could not be given in case such an incident occurred. | Example 7 – export delayed due to receiving jurisdiction: A supplier is exporting goods into a new market and encounters difficulties in organising the delivery of the goods into the foreign country. The goods are exported outside of the 60-day period. Where the difficulties encountered were outside the supplier's and recipient's control, an extension would likely be granted. | Example 8 – purchasing prior to manufacture: Goods are sold before they are manufactured for delivery when completed. For example, the entire vintage is purchased from a winery before the grapes are picked, wine made, bottled, labelled and matured. An extension would not be granted as it is the recipient's choice to pre-purchase so that export cannot be achieved within the 60-day requirement and there is an increased risk that the goods may be diverted for home consumption. Other alternatives exist to comply with the 60-day requirement, such as instalment contracts that require an invoice for final payment when delivery is requested. | Example 9 – supplier administration practices: A supplier has been granted extensions of time to export in the past where there were extenuating circumstances why goods could not be exported within the 60-day limit. The supplier's practices become relaxed and exports are made outside the 60-day limit because it suits the supplier or recipient. No extensions have been applied for. The supplier reviews its operations and applies for extensions of time in respect of all the out-of-time exports. In the absence of other extenuating circumstances and taking into account the supplier's knowledge of the 60-day rule and their subsequent compliance behaviour, the extensions would not be granted and adjustments would be required. | Example 10 – facilitating intended use: A thoroughbred yearling purchased at auction is broken-in and barrier-trialled prior to being exported. The horse is intended to be used in racing for prize money and for commercial breeding. GST-free status will not be denied if the horse is merely broken-in and barrier-trialled prior to export. This is because the breaking-in or barrier-trialling merely facilitates the ultimate intended use and is not considered to be a disqualifying use in Australia. Where the breaking-in and barrier-trialling prior to export is necessary to comply with the requirements of the country to which the horse is being exported, additional time to export can be granted. However, if the horse is used for a commercial purpose prior to export (such as racing for prize money and commercial breeding), the supply will no longer be GST-free. | Example 11 – trialling goods for quality assurance: A ship (other than a new recreational boat) is purchased in Australia. The recipient will export the ship by means other than under its own power. There may be some requirement for sea trials so that any changes or warranty repairs can be made prior to export. These trials may be considered as part of the preparation for export and additional time allowed. Where the use is more than a trial (for example, participation in an ocean race), this would be considered to be use in Australia and the supply of the ship would no longer qualify for GST-free status. | Example 12 – withholding period for vaccinated livestock: Livestock is purchased for export but requires vaccination (with a withholding period) or quarantine before export. This requirement takes the livestock past the 60-day period for export. An extension of time to export would be granted provided the export occurred as soon as practicable after the withholding period. | Additional scenarios: Where there is a supply of customised goods to be exported by the recipient and it is necessary that it be demonstrated that they are fit for purpose, this could be done by the supplier before they are supplied to the recipient. This would enable both the supplier and recipient to be satisfied that the goods are fit for purpose before the supply for export is undertaken, allowing a full 60 days for the goods to leave Australia. If a recipient rides a motorcycle purchased for export from the dealership directly to an export facility it may be considered as necessary to prepare it for export and maintain the GST-free status. Riding the motorcycle cross-country to another city or port would not generally be a use necessary for export.",GSTR 2002/6 | ANTS(GST)A 1999 19-10(1)(c) | ANTS(GST)A 1999 Div 25 | ANTS(GST)A 1999 38-185 | ANTS(GST)A 1999 38-185(1) | ANTS(GST)A 1999 38-185(3) | ANTS(GST)A 1999 38-185(5) | ANTS(GST)A 1999 38-185(6) | TAA 1953 Sch 1 110-50 | ADJR 1977,,ANTS(GST)A 1999 19-10(1)(c) | ANTS(GST)A 1999 Div 25 | ANTS(GST)A 1999 38-185 | ANTS(GST)A 1999 38-185(1) | ANTS(GST)A 1999 38-185(3) | ANTS(GST)A 1999 38-185(5) | ANTS(GST)A 1999 38-185(6) | TAA 1953 Sch 1 110-50 | ADJR 1977,,,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS200616/NAT/ATO/00001,"ATTACHMENT – EXTENSION OF TIME TO EXPORT GOODS - EXAMPLES | Updated in line with current ATO style and accessibility requirements. | Attachment A – Use in Australia | Removed and replaced reference to 'breaking and barrier trials'. | Removed reference to 'breaking and barrier trials'. | New paragraphs 4, 9, 11, 20, 21, 22 and 23 inserted and existing paragraphs amended | Updated for new table item 4A of subsection 38-185(1). | References to GST IA amended to ITX IA and reference to the energy and mining team deleted. | Reference to new fact sheet added. | Subsections 38-185(5) & (6) added. | New recreational boat added. | Paragraphs 1, 4, 10, 13, 15 and Attachment A | References to the GST International Team amended to GST Interpretative Assistance (GST IA). | [1] Under contracts entered into on or after 1 July 2011. | [2] Subsection 38-185(1). | [3] Paragraphs 36 to 38, 69 to 70 and 208 to 209 of GSTR 2002/6. | [4] Paragraph 212 of GSTR 2002/6. | [5] Paragraph 212 of GSTR 2002/6. | [6] Paragraph 43 and Appendix B of GSTR 2002/6. | [7] Paragraph 19-10(1)(c). | [8] Table item 2 of subsection 38-185(1). | [9] Table items 3 and 4 of subsection 38-185(1). | [10] Paragraph 38-185(3)(e). | [11] Paragraph 43 and Appendix B of GSTR 2002/6. | [12] Section 195-1 provides that 'new recreational boat' has the meaning given by subsection 38-185(5). | [13] Under contracts entered into on or after 1 July 2011. | • the recipient takes physical possession of the boat • if consideration for the supply is provided in instalments under a contract that requires the boat to be exported – the supplier receives any of the final instalment, or • if consideration for the supply is provided in instalments under a contract that requires the boat to be exported – the supplier gives an invoice for the final instalment. | [15] Paragraphs 66G to 66I of GSTR 2002/6. | [16] Paragraph 66J of GSTR 2002/6. | [17] Subsection 38-185(6). Also see paragraphs 66E and 235S to 235ZB of GSTR 2002/6. | [18] Paragraph 235R of GSTR 2002/6. | [19] Paragraphs 67 to 81 and 237 to 294 of GSTR 2002/6. | [20] Paragraphs 66A to 66K and paragraphs 235A to 235ZB of GSTR 2002/6. | [21] Paragraph 212 of GSTR 2002/6. | [22] Table item 2 of subsection 38-185(1). | [23] Table item 4 of subsection 38-185(1). | [24] International transport provider is the entity that the supplier has engaged to carry or arrange the carriage of the goods to the overseas destination. This includes entities such as a freight forwarder, consolidator, air express courier or postal agency as well as a shipping line or airline (paragraph 36 of GSTR 2002/6). | File 05/5662; 1-6JKM4I8; 1-13LF81WV | This practice statement was originally published on 22 November 2006. Versions published from September 2009 are available electronically - refer to the online version of the practice statement. Versions published prior to this date are not available electronically. If needed, these can be requested by emailing TCNLawPublishingandPolicy@ato.gov.au ."
PS LA 2006/17,Self-managed superannuation funds - disqualification of individuals to prohibit them from acting as a trustee of a self-managed superannuation fund,30 November 2006,30 November 2006,Law Administration Practice Statement,False,"What this Practice Statement is about: 1. An individual [1] may be disqualified from acting as a trustee of a self-managed super fund (SMSF) in 2 ways – through the operation of law [2] or by a decision of the Commissioner of Taxation under section 126A of the Superannuation Industry (Supervision) Act 1993 (SISA). 2. All further legislative references in this Practice Statement are to the SISA, unless otherwise indicated. 3. This Practice Statement sets out what you need to consider when making a decision under section 126A. 4. A person must not act as a trustee of an SMSF or a responsible officer of a corporate trustee when they know they are a disqualified person. By doing so, the person is committing an offence. [3] 5. Under section 120, an individual is a disqualified person by operation of law where they have been or are: • convicted of an offence involving dishonesty (subparagraph 120(1)(a)(i)) • subject to a civil penalty order (subparagraph 120(1)(a)(ii)) • an undischarged bankrupt (paragraph 120(1)(b)) • disqualified by the Commissioner under section 126A (subparagraph 120(1)(c)(i)). • convicted of an offence involving dishonesty (subparagraph 120(1)(a)(i)) • subject to a civil penalty order (subparagraph 120(1)(a)(ii)) • an undischarged bankrupt (paragraph 120(1)(b)) • disqualified by the Commissioner under section 126A (subparagraph 120(1)(c)(i)). | When an individual can be disqualified under section 126A: 6. Under section 126A, an individual can be disqualified if: • they contravene the SISA or the Financial Sector (Collection of Data) Act 2001 and the nature, seriousness or number of the contravention or contraventions provide grounds for disqualification [4] , or • the Commissioner is satisfied that the individual is otherwise not a fit and proper person. [5] • they contravene the SISA or the Financial Sector (Collection of Data) Act 2001 and the nature, seriousness or number of the contravention or contraventions provide grounds for disqualification [4] , or • the Commissioner is satisfied that the individual is otherwise not a fit and proper person. [5] 7. Subsection 126A(3) uses the phrase is 'otherwise' not a fit and proper person. The use of that word does not mean that subsections 126A(1) and (2) raise completely different issues. Whether there have been contraventions of the SISA will be one of the factors in deciding whether the person is not a fit and proper person. [6] 8. An individual can be disqualified under subsections 126A(1) and (2) for contraventions of the SISA that happened when the entity was a regulated super fund and meets the definitions under sections 10 and 19. 9. Even where a regulated super fund never existed, it is possible to disqualify an individual under the fit and proper provisions contained in subsection 126A(3). 10. If an individual is not presently acting or has never acted as a trustee of an SMSF, they may still be disqualified as a preventative measure because they present a future compliance risk. In these instances, the disqualification can only be under subsection 126A(3) – not being a fit and proper person. 11. Where there is sufficient evidence to identify contraventions which justify a disqualification under subsections 126A(1) or (2), and the evidence also provides grounds to disqualify under subsection 126A(3), the individual may be disqualified under both limbs. [7] | Disqualification – general considerations: 12. When making a decision about disqualification, you should keep in mind the overarching principles of the: • ATO Charter • Compliance model • Good decision-making model (link available internally only). • ATO Charter • Compliance model • Good decision-making model (link available internally only). 13. Disqualification under section 126A is primarily aimed at protecting the integrity of the superannuation system. It should be applied where we are concerned that allowing the individual to remain in the position of trustee would present a future compliance risk. [8] 14. Where an individual removes themselves voluntarily from the position of trustee prior to the decision being made, disqualification may no longer be necessary. However, if the offer to remove themselves is not considered to be bona fide, disqualification may still be an appropriate step. 15. Disqualification may be done in isolation or in conjunction with other compliance options. However, the seriousness and nature of the contraventions and a person's fitness to be a trustee must be considered on a case-by-case basis to determine if disqualification is still an appropriate course of action. | Options other than disqualification that can be taken in relation to a contravention: 16. Options other than disqualification include: • administrative penalties in relation to SMSFs [9] • issuing a direction to undertake education if the contravention occurred after 1 July 2014 [10] • issuing a direction to rectify a contravention if the contravention occurred after 1 July 2014 [11] • accepting an undertaking from the trustee to rectify the contraventions [12] • issuing the fund with a notice of non-compliance [13] • as part of an investigation, freezing the assets of the fund where there is a risk of the members' benefits being eroded or further eroded [14] • consideration of other applicable Commonwealth laws available to us. • administrative penalties in relation to SMSFs [9] • issuing a direction to undertake education if the contravention occurred after 1 July 2014 [10] • issuing a direction to rectify a contravention if the contravention occurred after 1 July 2014 [11] • accepting an undertaking from the trustee to rectify the contraventions [12] • issuing the fund with a notice of non-compliance [13] • as part of an investigation, freezing the assets of the fund where there is a risk of the members' benefits being eroded or further eroded [14] • consideration of other applicable Commonwealth laws available to us. | Our process: 17. Where appropriate, prior to disqualification you should allow the individual to preserve their benefits, but clearly set out the time limits in which they must do so. For example, we may provide the individual with the opportunity to rollover the funds to a super fund regulated by the Australian Prudential Regulation Authority, wind up their SMSF or appoint a registrable superannuation entity licensee [15] . 18. Where a decision is made to disqualify one particular individual, this does not lead to the conclusion that all other individuals who are or were trustees of the same fund should be disqualified. The circumstances surrounding each individual's actions must be considered with a holistic view of the facts. 19. Once a decision has been made to disqualify an individual, you must: • give the individual written notice of the disqualification [16] , and • publish details of the disqualification in the Federal Register of Legislation as a notifiable instrument, in accordance with Disqualifying an individual under SISA (link available internally only). [17] • give the individual written notice of the disqualification [16] , and • publish details of the disqualification in the Federal Register of Legislation as a notifiable instrument, in accordance with Disqualifying an individual under SISA (link available internally only). [17] | General considerations: 20. When considering disqualification in relation to contraventions of the relevant legislation, you should: • consider the nature, number and seriousness of the contraventions • look at the acts of the individual • consider all the facts of the case • consider whether there is a future compliance risk. [18] • consider the nature, number and seriousness of the contraventions • look at the acts of the individual • consider all the facts of the case • consider whether there is a future compliance risk. [18] 21. The nature, number and seriousness of contraventions are a question of fact and degree, and it is not possible to apply prescriptive rules to the decision to disqualify. 22. Each case has to be considered individually. Some examples of relevant considerations when determining the seriousness of a contravention are the: • behaviour of the trustee in relation to the contravention – for example, deliberate actions made in the knowledge that they are in breach of the trust deed and superannuation laws or where third-party professionals have provided clear advice that superannuation laws have been contravened [19] • extent to which the fund's assets were affected by the contravention [20] , including whether the conduct of the trustee exposed the fund to a real risk of permanent depletion of assets or sustained illiquidity [21] • extent to which the fund's assets were exposed to financial risk and whether there was any loss to the value of the fund [22] , including whether the fund was left with minimal or no available funds for a prolonged period [23] • number and extent of contraventions over a period of time [24] , including repeated non-compliance or ongoing failures to meet statutory obligations [25] • extent to which the trustee's conduct undermined the integrity of the superannuation system, including when the fund's assets were accessed to meet personal financial needs [26] • extent to which the arrangements were genuinely commercial in nature and reflect an arm's-length dealing [27] • nature of the contravention in the overall scheme of the legislation – for example, a contravention involving an artificial arrangement intended to undermine the regulatory provisions or the tax concessions offered to SMSFs is likely to be serious. [28] • behaviour of the trustee in relation to the contravention – for example, deliberate actions made in the knowledge that they are in breach of the trust deed and superannuation laws or where third-party professionals have provided clear advice that superannuation laws have been contravened [19] • extent to which the fund's assets were affected by the contravention [20] , including whether the conduct of the trustee exposed the fund to a real risk of permanent depletion of assets or sustained illiquidity [21] • extent to which the fund's assets were exposed to financial risk and whether there was any loss to the value of the fund [22] , including whether the fund was left with minimal or no available funds for a prolonged period [23] • number and extent of contraventions over a period of time [24] , including repeated non-compliance or ongoing failures to meet statutory obligations [25] • extent to which the trustee's conduct undermined the integrity of the superannuation system, including when the fund's assets were accessed to meet personal financial needs [26] • extent to which the arrangements were genuinely commercial in nature and reflect an arm's-length dealing [27] • nature of the contravention in the overall scheme of the legislation – for example, a contravention involving an artificial arrangement intended to undermine the regulatory provisions or the tax concessions offered to SMSFs is likely to be serious. [28] 23. Depending on the facts of the case, it is possible that some factors may be more relevant than others in certain cases. For example, the nature and number of the contraventions and the behaviour of the individual may increase the seriousness of the contraventions, even if there is little financial impact on the fund. [29] 24. Further, the role of a trustee carries significant statutory responsibilities, and individuals who choose to assume this role have an obligation to inform themselves of these responsibilities and to ensure compliance. [30] An individual's lack of financial sophistication does not override this obligation, nor does it excuse serious contraventions. [31] | Assessing the future compliance risk: 25. Disqualification is designed to protect the investing public against the risk that people with a history of non-compliance will re-offend. [32] A key factor in making the decision to disqualify an individual is whether, by not taking such action, there will be a future compliance risk. [33] 26. An individual will be considered to have a future compliance risk if: • it is reasonable to draw that conclusion from their compliance history • they have not demonstrated a willingness and readiness to comply with super laws. [34] • it is reasonable to draw that conclusion from their compliance history • they have not demonstrated a willingness and readiness to comply with super laws. [34] 27. An individual's compliance history includes considering matters in relation to their SMSF, their own personal tax affairs, or that of any other entity in which they have been in a position of responsibility. 28. Consideration should be given to all 5 of the following aspects of compliance, both before and after a contravention: • registration – whether the trustee is registered for all relevant roles • lodgment – whether the individual has lodged all returns in the correct format on time without prompting from us [35] • reporting – whether the individual has reported correctly • payment of debt – whether the individual paid debts voluntarily by their due dates – further, if the individual has an outstanding debt, whether they have entered into a payment arrangement and fulfilled their payment obligations under the arrangement • evidence of change in behaviour – whether the individual has provided factual evidence of change in management or administration (or both), to ensure compliance, noting that expressions of regret, remorse and future compliance alone, without such evidence, are of limited weight where the contraventions are extensive or serious, or both. [36] • registration – whether the trustee is registered for all relevant roles • lodgment – whether the individual has lodged all returns in the correct format on time without prompting from us [35] • reporting – whether the individual has reported correctly • payment of debt – whether the individual paid debts voluntarily by their due dates – further, if the individual has an outstanding debt, whether they have entered into a payment arrangement and fulfilled their payment obligations under the arrangement • evidence of change in behaviour – whether the individual has provided factual evidence of change in management or administration (or both), to ensure compliance, noting that expressions of regret, remorse and future compliance alone, without such evidence, are of limited weight where the contraventions are extensive or serious, or both. [36] 29. It is imperative to remember that sometimes mistakes are made. What is important is that the individual demonstrates a willingness and readiness to comply with their obligations. | What to take into account when assessing an individual as fit and proper: 30. You need to consider 2 things when deciding whether an individual is a fit and proper person. • The fitness of the person – which is determined with reference to the skills required for them to satisfy the obligations as trustee, including their qualifications, experience and competence. Factors to consider, in relation to fitness of the person, include whether the person – possesses a reasonable level of skills, knowledge, expertise, experience, diligence and soundness of judgment to undertake and fulfil particular duties and responsibilities of being an SMSF trustee [37] – demonstrates a genuine understanding of the obligations in the trustee declaration that they signed on establishment of their SMSF [38] – answers questions from us in a manner that is reasonable in the circumstances. • Deciding whether an individual is a proper person to be a trustee entails looking at their general behaviour and conduct in the discharge of their duties, and also their reputation and character in relation to the conduct of any relevant business activities. [39] Some considerations, in relation to whether an individual is a proper person to be a trustee, are whether they have: – contravened the SISA – the circumstances surrounding the contravention – demonstrated a willingness to comply with regulatory or other professional requirements [40] – carried out their role with proper independence (whether their relationship with other trustees has impacted their ability to perform their trustee duties) – been reprimanded or otherwise sanctioned by a professional or regulatory body under any other relevant laws (relevant laws in this instance would generally include those laws dealing with financial responsibilities, honesty and business transactions) – managed their personal debts – demonstrated a high level of integrity – been substantially involved in the management of entities which have been wound up or failed – been remorseful and accepted responsibility for their wrongdoing [41] – continued to act as a trustee or responsible officer after becoming a disqualified person [42] – did what they understood was right versus what suited their own convenience or comfort. [43] • The fitness of the person – which is determined with reference to the skills required for them to satisfy the obligations as trustee, including their qualifications, experience and competence. Factors to consider, in relation to fitness of the person, include whether the person – possesses a reasonable level of skills, knowledge, expertise, experience, diligence and soundness of judgment to undertake and fulfil particular duties and responsibilities of being an SMSF trustee [37] – demonstrates a genuine understanding of the obligations in the trustee declaration that they signed on establishment of their SMSF [38] – answers questions from us in a manner that is reasonable in the circumstances. • Deciding whether an individual is a proper person to be a trustee entails looking at their general behaviour and conduct in the discharge of their duties, and also their reputation and character in relation to the conduct of any relevant business activities. [39] Some considerations, in relation to whether an individual is a proper person to be a trustee, are whether they have: – contravened the SISA – the circumstances surrounding the contravention – demonstrated a willingness to comply with regulatory or other professional requirements [40] – carried out their role with proper independence (whether their relationship with other trustees has impacted their ability to perform their trustee duties) – been reprimanded or otherwise sanctioned by a professional or regulatory body under any other relevant laws (relevant laws in this instance would generally include those laws dealing with financial responsibilities, honesty and business transactions) – managed their personal debts – demonstrated a high level of integrity – been substantially involved in the management of entities which have been wound up or failed – been remorseful and accepted responsibility for their wrongdoing [41] – continued to act as a trustee or responsible officer after becoming a disqualified person [42] – did what they understood was right versus what suited their own convenience or comfort. [43] – possesses a reasonable level of skills, knowledge, expertise, experience, diligence and soundness of judgment to undertake and fulfil particular duties and responsibilities of being an SMSF trustee [37] – demonstrates a genuine understanding of the obligations in the trustee declaration that they signed on establishment of their SMSF [38] – answers questions from us in a manner that is reasonable in the circumstances. – contravened the SISA – the circumstances surrounding the contravention – demonstrated a willingness to comply with regulatory or other professional requirements [40] – carried out their role with proper independence (whether their relationship with other trustees has impacted their ability to perform their trustee duties) – been reprimanded or otherwise sanctioned by a professional or regulatory body under any other relevant laws (relevant laws in this instance would generally include those laws dealing with financial responsibilities, honesty and business transactions) – managed their personal debts – demonstrated a high level of integrity – been substantially involved in the management of entities which have been wound up or failed – been remorseful and accepted responsibility for their wrongdoing [41] – continued to act as a trustee or responsible officer after becoming a disqualified person [42] – did what they understood was right versus what suited their own convenience or comfort. [43] 31. Both fitness and propriety need to be considered in light of the reasonable risks of the individual: • misappropriating fund monies • dealing with fund assets in an illegal way • failing to keep proper records • knowingly providing inaccurate or misleading information to us, and • repeatedly and or deliberately failing to provide information to us in compliance with their reporting obligations. • misappropriating fund monies • dealing with fund assets in an illegal way • failing to keep proper records • knowingly providing inaccurate or misleading information to us, and • repeatedly and or deliberately failing to provide information to us in compliance with their reporting obligations. 32. A trustee who allows or acquiesces to a contravention by another trustee can be grounds to find that the individual is not a fit or proper person. A trustee should also perform their duties in a manner that does not allow another trustee to contravene super laws and should notify the Regulator as soon as is reasonably practicable after becoming aware of a contravention by another trustee. 33. All circumstances of the case should be considered holistically. | Review rights: 34. The decision to disqualify is for an indefinite period, subject to any applications the individual makes to have the decision revoked under subsection 126A(5) or reviewed under section 344. [44] 35. Both the decision to disqualify under subsections 126A(1), (2) and (3) and the refusal to revoke the disqualification are reviewable decisions. [45] 36. A request to reconsider must be made in writing, setting out the reasons for making the request, and be made within 21 days after the person receives notice of the decision, or within such further time that the Regulator allows. 37. Where a request for a review of the disqualification decision is made under subsection 344(1), the Commissioner does not have the power to stay the decision. However, the trustee can apply to the Administrative Review Tribunal to have the decision stayed pending a review of the decision. [46] | More information: 38. For more information on: • accepting an undertaking from a trustee, refer to Law Administration Practice Statement PS LA 2006/18 Self-managed superannuation funds – enforceable undertakings • issuing notices of non-compliance, refer to Law Administration Practice Statement PS LA 2006/19 Self-managed superannuation funds – issuing a notice of non–compliance • disqualified trustees who are continuing to act, refer to CTU advice. • accepting an undertaking from a trustee, refer to Law Administration Practice Statement PS LA 2006/18 Self-managed superannuation funds – enforceable undertakings • issuing notices of non-compliance, refer to Law Administration Practice Statement PS LA 2006/19 Self-managed superannuation funds – issuing a notice of non–compliance • disqualified trustees who are continuing to act, refer to CTU advice.",PS LA 2006/18 | PS LA 2006/19 | Superannuation Industry (Supervision) Bill 1993 | SISA 1993 10 | SISA 1993 19 | SISA 1993 120 | SISA 1993 120(1)(a)(i) | SISA 1993 120(1)(a)(ii) | SISA 1993 120(1)(b) | SISA 1993 120(1)(c)(i) | SISA 1993 126A | SISA 1993 126A(1) | SISA 1993 126A(2) | SISA 1993 126A(3) | SISA 1993 126A(5) | SISA 1993 126A(6) | SISA 1993 126A(7) | SISA 1993 126K | SISA 1993 159 | SISA 1993 160 | SISA 1993 166 | SISA 1993 264 | SISA 1993 344 | SISA 1993 344(1) | SISA 1993 344(10) | Administrative Review Tribunal Act 2024 32(2) | Corporations Act 2001 256B | 170 CLR 321 | 60 ATR 518 | [2024] AATA 2592 | [2018] AATA 1267 | [2024] AATA 1102 | 2024 ATC 10-708 | [2025] ARTA 553 | [2005] AATA 748 | 60 ATR 1137 | 87 ALD 629 | [1999] AATA 6 | [2026] ARTA 342 | 51 ATR 1192,PS LA 2006/18 PS LA 2006/19,SISA 1993 10 | SISA 1993 19 | SISA 1993 120 | SISA 1993 120(1)(a)(i) | SISA 1993 120(1)(a)(ii) | SISA 1993 120(1)(b) | SISA 1993 120(1)(c)(i) | SISA 1993 126A | SISA 1993 126A(1) | SISA 1993 126A(2) | SISA 1993 126A(3) | SISA 1993 126A(5) | SISA 1993 126A(6) | SISA 1993 126A(7) | SISA 1993 126K | SISA 1993 159 | SISA 1993 160 | SISA 1993 166 | SISA 1993 264 | SISA 1993 344 | SISA 1993 344(1) | SISA 1993 344(10) | Administrative Review Tribunal Act 2024 32(2) | Financial Sector (Collection of Data) Act 2001 | Corporations Act 2001 256B,,Compliance model Good decision-making model (link available internally only) Our Charter Superannuation Industry (Supervision) Bill 1993 TA 2015/1,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS200617/NAT/ATO/00001,"Disqualifying under subsections 126A(1) or (2) – contraventions | Disqualifying under subsection 126A(3) – fit and proper person | Updated to include references to the relevant legislation, relevant case laws and ATO views. | Minor editorial changes were made. | Updated wording to remove the term 'considered' for clarity. The provision now states that a disqualified person commits an offence if they continue to act as a trustee or responsible officer. | Added new paragraph 11 to reflect the decision in Hart and Commissioner of Taxation [2018] AATA 1267. | Updated to include a reference to the decision in Goulopoulos and Commissioner of Taxation [2022] AATA 2540. | The winding-up option has been included to allow an individual the opportunity to wind up their SMSF before they become disqualified. | Updated to include reference to the decision in Fitzmaurice and Commissioner of Taxation [2019] AATA 2217 at 105-113. | Added an example to reflect the decision in Omibiyi and Commissioner of Taxation [2025] ARTA 553. | Updated to include a reference to the decision in Australian Prudential Regulation Authority v Derstepanian [2005] FCA 1121. | Updated to include a reference to the decision in ""QX971"" and Australian Prudential Regulation Authority [1999] AATA 6 at 60. | Updated to include a reference to sections 66 and 71. | Updated to include a reference to TA 2015/1. | Added a new paragraph to reflect the decision in Fitzmaurice and Commissioner of Taxation [2019] AATA 2217. | Updated to reflect the decision in Sherallene Alicer and Joshua Ramos and Commissioner of Taxation [2026] ARTA 342. | Updated to include the decision in Goulopoulos and Commissioner of Taxation [2022] AATA 2540. | Updated to include section 35D. | Added a new paragraph to reflect the decision in Hart and Commissioner of Taxation [2018] AATA 1267 at 174. | Updated to include a refence to the decision in Australian Broadcasting Tribunal and Bond (1990) 170 CLR 321. | Updated to include the decision in Coronica and Commissioner of Taxation [2024] AATA 2592. | Added a new paragraph to reflect the decisions in Goulopoulos and Commissioner of Taxation [2022] AATA 2540; Fitzmaurice and Commissioner of Taxation [2019] AATA 2217 at [110]. | Added a new paragraph to reflect section 126K. | Added a new paragraph to reflect the decision in Goulopoulos and Commissioner of Taxation [2022] AATA 2540. | Updated to align with amended Practice Statement style and formatting requirements. | Updated in line with current ATO style and accessibility requirements. | Updated the last dot point to reflect the fact that disqualifications are now published via notifiable instrument under subsection 126A(7) of the SISA. | Corrected reference to subsection 126A(3). | Updated to reference the decision in Hart and Hart v. Commissioner of Taxation [2018] AATA 1267. | Updated to new LAPS style and template. | Paragraph 13 deleted as it referred to only SES officers being able to make a decision to disqualify an individual. Now EL2 level officers are authorised. | Minor clarification explaining SMSF membership can be either one of two or more individuals to a maximum of four. | Amended so it only refers to a director of a body corporate. | Deleted word intentionally. | Amended to remove references to appointing an acting trustee in making the decision to disqualify an individual. | Replaced by new paragraph 20. | Section 120A is now 126A and section 121 is now 126K. | Updated to clarify that assets are only frozen where it is part of an investigation. | Corrected to advise acting trustee is appointed only where all trustees are removed. | [1] In their own right or as responsible officer for a corporate trustee. | [2] Section 120 of the Superannuation Industry (Supervision) Act 1993 . | [4] Subsections 126A(1) and (2). | [6] VCA and Ors and Australian Prudential Regulation Authority [2008] AATA 580. | [7] Hart and Commissioner of Taxation [2018] AATA 1267. | [8] Goulopoulos and Commissioner of Taxation [2022] AATA 2540 ( Goulopoulos ) at [59-60]. | [12] See Law Administration Practice Statement PS LA 2006/18 Self–managed superannuation funds – enforceable undertakings . | [13] See Law Administration Practice Statement PS LA 2006/19 Self–managed superannuation funds – issuing a notice of non–compliance . | [15] Defined by subsection 10(1). | [18] Subsection 126A(1) and (2); Fitzmaurice and Commissioner of Taxation [2019] AATA 2217 at [105-113]. | [19] Omibiyi and Commissioner of Taxation [2025] ARTA 553 at [27]. | [20] Australian Prudential Regulation Authority v Derstepanian [2005] FCA 1121. | [21] Sherallene Alicer and Joshua Ramos and Commissioner of Taxation [2026] ARTA 342 ( Alicer and Ramos ) at [66] and [70]. | [22] ""QX971"" and Australian Prudential Regulation Authority [1999] AATA 6 at [60]. | [23] Alicer and Ramos at [66]. | [24] Preuss and Australian Prudential Regulation Authority [2005] AATA 748. | [25] Alicer and Ramos [2026] ARTA 342 at [73]. | [26] Alicer and Ramos at [68]. | [27] Alicer and Ramos at [71]. | [28] Section 66 and 71; Taxpayer Alert TA 2015/1 Dividend stripping arrangements involving the transfer of private company shares to a self–managed superannuation fund . | [29] Fitzmaurice and Commissioner of Taxation [2019] AATA 2217 at [112]. | [30] Alicer and Ramos at [72]. | [31] Alicer and Ramos at [72]. | [32] The Taxpayer and Commissioner of Taxation [2002] AATA 1233 at [12]. The investing public may only include members of the individual's own SMSF, per Merchant and Commissioner of Taxation [2024] AATA 1102 at [186]. | [33] Goulopoulos at [59]. | [34] Goulopoulos at [57-59]. | [36] Alicer and Ramos at [74]. | [37] Section 52; Superannuation Industry (Supervision) Bill 1993, Chapter 3, at 3.7. | [38] Hart and Commissioner of Taxation [2018] AATA 1267 at [174]. | [39] Australian Broadcasting Tribunal v Bond [1990] HCA 33; 170 CLR 321 at [36-37], per Toohey and Gauldron JJ. | [40] Coronica and Commissioner of Taxation [2024] AATA 2592 at [106], [112], [116-117]. | [41] Goulopoulos at [76]; Fitzmaurice and Commissioner of Taxation [2019] AATA 2217 at [110]. | [43] Goulopoulos at [76]. | [44] Sections 10 (definition of 'reviewable decision') and 344. | [45] A disqualification under section 126A does not automatically disqualify a person from operating as a company director under the Corporations Act 2001 . | [46] Subsection 344(10). See also subsection 32(2) of the Administrative Review Tribunal Act 2024 . | File 06/4081; 1-5ARMRUG; 1-12ODZ502 | Australian Broadcasting Tribunal v Bond [1990] HCA 33 170 CLR 321 (1990) 64 ALJR 462 (1990) 5 BR 137 (1990) 94 ALR 11 (1990) 21 ALD 1 | Australian Prudential Regulation Authority v Derstepanian [2005] FCA 1121 60 ATR 518 [2007] ALMD 2214 | Coronica and Commissioner of Taxation [2024] AATA 2592 121 ATR 92 | Fitzmaurice and Commissioner of Taxation [2019] AATA 2217 110 ATR 440 (2019) 165 ALD 400 [2021] ALMD 2120 [2021] ALMD 2119 | Goulopoulos and Commissioner of Taxation [2022] AATA 2540 114 ATR 958 | Hart and Commissioner of Taxation [2018] AATA 1267 107 ATR 966 | Merchant and Commissioner of Taxation [2024] AATA 1102 119 ATR 594 2024 ATC 10-708 | Omibiyi and Commissioner of Taxation [2025] ARTA 553 | Preuss and Australian Prudential Regulation Authority [2005] AATA 748 60 ATR 1137 87 ALD 629 41 AAR 332 | ""QX971"" and Australian Prudential Regulation Authority [1999] AATA 6 | Sherallene Alicer and Joshua Ramos and Commissioner of Taxation [2026] ARTA 342 | The Taxpayer and Commissioner of Taxation [2002] AATA 1233 51 ATR 1192 71 ALD 532 | VCA and Ors and Australian Prudential Regulation Authority [2008] AATA 580 (2008) 105 ALD 236"
PS LA 2006/18,Self-managed superannuation funds - enforceable undertakings,30 November 2006,30 November 2006,Law Administration Practice Statement,False,"1. What this practice statement is about: Where there has been a contravention of the Superannuation Industry (Supervision) Act 1993 (SISA) or Superannuation Industry (Supervision) Regulations 1994, one method for managing that contravention is to accept a written undertaking given by the trustee [1] of a regulated self-managed superannuation fund (SMSF) [2] under subsection 262A(1) of the SISA. All legislative references in this Practice Statement are to the SISA, unless otherwise indicated. This Practice Statement sets out the factors that may be considered when deciding whether to accept a written undertaking, the form that written undertaking should take and the options for enforcing the written undertaking should it be breached. | 2. Accepting a written undertaking – general considerations: Whether an undertaking is appropriate will depend on the individual circumstances of the case. You should look to achieve a fair and reasonable outcome and take into account the principles of: • Our Charter • the Compliance model , and • the Good decision-making model (link available internally only). • Our Charter • the Compliance model , and • the Good decision-making model (link available internally only). It is the trustee who proposes the undertaking. However, alternatives may be discussed with the trustee to remedy the contravention and what would need to be included in the undertaking. Where the trustee has either taken steps to fully rectify, or is genuinely making an effort to meet their obligations, you should work with them to rectify the contravention wherever possible. However, it is generally not reasonable to accept an undertaking for repeat offenders, even if they are willing to rectify. | 3. Accepting a written undertaking – relevant factors: Factors to consider, in no particular order, when deciding if it is appropriate to enter into an undertaking include, but are not limited to: • whether the trustee is genuinely making an effort to meet their obligations • the trustee's past behaviour • whether the contravention can be rectified, taking into consideration any intervening or interdependent actions required by the trustee • whether there is information available which indicates the trustee will not or cannot comply with the undertaking offered • whether there is evidence that the trustee has knowingly been involved in an arrangement where the anti-avoidance provisions may apply • the number, nature and seriousness of the contraventions and whether the contravention gives rise to criminal or other prosecution consequences. • whether the trustee is genuinely making an effort to meet their obligations • the trustee's past behaviour • whether the contravention can be rectified, taking into consideration any intervening or interdependent actions required by the trustee • whether there is information available which indicates the trustee will not or cannot comply with the undertaking offered • whether there is evidence that the trustee has knowingly been involved in an arrangement where the anti-avoidance provisions may apply • the number, nature and seriousness of the contraventions and whether the contravention gives rise to criminal or other prosecution consequences. | 4. The form the undertaking should take: The undertaking needs to include the following essential terms: • the actions required to rectify the contravention • the timeframe in which the contravention will be rectified [3] ; this should be within a reasonable period of time depending on the circumstances of the case [4] • how and when the trustee will report their progress in fulfilling the obligations of the undertaking • a commitment to cease the behaviour which resulted in the contravention • strategies which will be implemented by the trustee to prevent a contravention happening again. • the actions required to rectify the contravention • the timeframe in which the contravention will be rectified [3] ; this should be within a reasonable period of time depending on the circumstances of the case [4] • how and when the trustee will report their progress in fulfilling the obligations of the undertaking • a commitment to cease the behaviour which resulted in the contravention • strategies which will be implemented by the trustee to prevent a contravention happening again. The written undertaking must be signed by all trustees and, if accepted by us, will be enforceable on both parties. [5] Attachment A to this Practice Statement provides a format that may be used by trustees to provide this information. | 5. Withdrawal or variation of an undertaking by a trustee: We can consent to a trustee withdrawing or varying an undertaking. [6] Initially, a trustee should propose an undertaking using the best information available to them at the time. However, unforeseen events may occur making it necessary to vary the terms of the undertaking. In order to withdraw or vary an undertaking, the trustee must: • show evidence of reasonable grounds for the withdrawal or variation of the undertaking • propose an alternative and appropriate course of action that still results in a timely rectification of the contravention, and allows for the protection of member benefits. • show evidence of reasonable grounds for the withdrawal or variation of the undertaking • propose an alternative and appropriate course of action that still results in a timely rectification of the contravention, and allows for the protection of member benefits. When a trustee seeks to withdraw or vary an undertaking, all relevant circumstances of the proposal must be considered. A withdrawal or variation of the terms of an undertaking will not be allowed if it compromises the rectification of the contravention or results in an adverse impact on the retirement benefits of members that did not exist with the original undertaking. Further, if the trustee can no longer meet the terms of the original undertaking, a variation to extend the undertaking is not an appropriate outcome. | 6. The trustee breaches the undertaking: If we consider the trustee has breached a term of the undertaking, we can apply for a court order. [7] However, we will consider all compliance alternatives available listed in section 7 of this Practice Statement prior to making any decision. | 7. Options other than accepting a written undertaking that can be taken in relation to a contravention: Where an undertaking is not accepted or is not complied with, other options include: • informal arrangements [8] • issuing a direction to undertake education if the contravention occurred on or after 1 July 2014 [9] • seeking wind up of the fund and rollover of the fund assets into an APRA fund through an oral or written request by the trustee or individual • issuing a direction to rectify a contravention that occurred on or after 1 July 2014 [10] • disqualifying the trustee [11] • suspending or removing the trustee [12] • freezing the assets of the fund if there is a risk of the members' benefits being eroded [13] • seeking a court order or seeking civil and criminal penalties through the courts. [14] • informal arrangements [8] • issuing a direction to undertake education if the contravention occurred on or after 1 July 2014 [9] • seeking wind up of the fund and rollover of the fund assets into an APRA fund through an oral or written request by the trustee or individual • issuing a direction to rectify a contravention that occurred on or after 1 July 2014 [10] • disqualifying the trustee [11] • suspending or removing the trustee [12] • freezing the assets of the fund if there is a risk of the members' benefits being eroded [13] • seeking a court order or seeking civil and criminal penalties through the courts. [14] | 8. Informal arrangements: In limited circumstances, it might also be appropriate for us to enter into an informal arrangement with the trustee. This would be accepted in low-risk cases only where contraventions are minor and able to be rectified in a very short period of time – for example, where the trustee has already commenced the action required and has a reasonable compliance history. An informal arrangement does not have to be in writing but confirmation of its terms, including the proposed action and the timeframe in which that action will be finalised, should be confirmed with the trustee in writing. This enables any required future compliance action to consider what was determined and acted upon during the informal arrangement. | 9. Review rights: If you decide not to accept an undertaking, you should notify the trustee in writing, informing them of the decision and the reasons for that decision. The decision regarding the accepting of an undertaking is not a reviewable decision [15] under section 344. However, we will conduct an informal internal review if a request is received from a trustee who is dissatisfied with the decision. This request should be made in writing, within a reasonable period of time (generally 28 days) from the decision being made. A decision not to accept an undertaking is reviewable under the Administrative Decisions (Judicial Review) Act 1977. | 10. More information: For more information on: • issuing notices of non-compliance, see Law Administration Practice Statement PS LA 2006/19 Self-managed superannuation funds – issuing a notice of non-compliance • disqualifying a trustee, see PS LA 2006/17 . • issuing notices of non-compliance, see Law Administration Practice Statement PS LA 2006/19 Self-managed superannuation funds – issuing a notice of non-compliance • disqualifying a trustee, see PS LA 2006/17 . ENFORCEABLE UNDERTAKING AUSTRALIAN TAXATION OFFICE SUPERANNUATION INDUSTRY (SUPERVISION) ACT 1993 Section 262A The commitments in this undertaking are offered to the Commissioner of Taxation (the Commissioner) by: The Trustee <insert name> Superannuation Fund (ABN: < insert fund's ABN>) <insert address> 1.0 Background 1.1 < This needs to clearly describe how you as a trustee of the fund contravened. Only those aspects relevant to the fund and the contravention should be mentioned. Note: You can only propose an enforceable undertaking (EU) where the underlying contraventions can be wound back or you are implementing strategies that ensure the contravention or that of a similar kind, never happens again.> 2.0 Undertakings Pursuant to section 262A of the Superannuation Industry (Supervision) Act 1993 (SISA), the <trustee or trustees> of the <insert fund's name> <give or gives> the following undertakings to the Commissioner: Pursuant to section 262A of the Superannuation Industry (Supervision) Act 1993 (SISA), the <trustee or trustees> of the <insert fund's name> <give or gives> the following undertakings to the Commissioner: 2.1 <Insert the rectification or undertaking requirements here. These undertakings must describe the actions you as a trustee of the superannuation fund will do. 2.2 These undertakings need to include: • What actions will be taken by you as the trustee of the fund to rectify the contravention. (Note: This EU is between the trustee of the fund and the Commissioner. This means that it cannot compel other entities not party to the EU to take a course of action. The EU should not be conditional on the basis of events outside of the trustee's control.) • The time in which you as the trustee of the fund intend to complete each of these actions. (Note: You must include a due date in which you agree to fulfill all the obligations of the EU.) • How and when you as the trustee of the fund will report to us on your progress towards completion of the EU. • The records you as the trustee of the fund will maintain to prove that you have rectified the contravention. • Your commitment as the trustee of the fund to cease the behaviour which resulted in the contravention. • The strategies required to be implemented by you as the trustee of the fund to prevent the contravention from occurring again (if appropriate).> • What actions will be taken by you as the trustee of the fund to rectify the contravention. (Note: This EU is between the trustee of the fund and the Commissioner. This means that it cannot compel other entities not party to the EU to take a course of action. The EU should not be conditional on the basis of events outside of the trustee's control.) • The time in which you as the trustee of the fund intend to complete each of these actions. (Note: You must include a due date in which you agree to fulfill all the obligations of the EU.) • How and when you as the trustee of the fund will report to us on your progress towards completion of the EU. • The records you as the trustee of the fund will maintain to prove that you have rectified the contravention. • Your commitment as the trustee of the fund to cease the behaviour which resulted in the contravention. • The strategies required to be implemented by you as the trustee of the fund to prevent the contravention from occurring again (if appropriate).> 3.0 Acknowledgments <The undertaking will not be accepted if the acknowledgments are changed.> The <trustee or trustees> of the <insert fund's name> <acknowledge or acknowledges> that: The <trustee or trustees> of the <insert fund's name> <acknowledge or acknowledges> that: 3.1 The undertaking may be withdrawn or varied only with the consent of the Commissioner. 3.2 If any of the terms of the undertaking are contravened or not met the Commissioner will consider all the options listed below in determining the appropriate compliance treatment: • issuing a fund with a notice of non-compliance • seeking a court order under subsection 262A(4) of the SISA • disqualifying a particular individual and prohibiting them from acting as a trustee of a superannuation fund • suspending or removing a particular trustee • freezing the assets of a fund if there is a risk of the members' benefits being eroded, or • seeking civil and criminal penalties through the courts • issuing a fund with a notice of non-compliance • seeking a court order under subsection 262A(4) of the SISA • disqualifying a particular individual and prohibiting them from acting as a trustee of a superannuation fund • suspending or removing a particular trustee • freezing the assets of a fund if there is a risk of the members' benefits being eroded, or • seeking civil and criminal penalties through the courts 3.3 This undertaking does not inhibit or restrict the Commissioner or any other person impacted by the conduct of the trustee in fulfilling the undertaking from pursuing the rights and remedies available under the law. 3.4 The Commissioner's acceptance of this undertaking does not affect their powers to investigate a contravention arising from future conduct. 3.5 The undertaking has no effect until accepted by the Commissioner. EXECUTED BY The Trustee <insert name> Superannuation Fund (ABN: <insert ABN of fund>) <Note: EU must be signed by all Trustees.> ________________________ ___________________ _________ <Director/Trustee> Print name Date ________________________ ___________________ _________ <Director/Trustee> Print name Date ________________________ ___________________ _________ <Director/Trustee> Print name Date ________________________ ___________________ _________ <Director/Trustee> Print name Date",SISA 1993 10 | SISA 1993 17A | SISA 1993 19 | SISA 1993 126A | SISA 1993 133(1) | SISA 1993 159 | SISA 1993 160 | SISA 1993 Pt 21 | SISA 1993 262A | SISA 1993 262A(1) | SISA 1993 262A(2) | SISA 1993 262A(3) | SISA 1993 262A(4) | SISA 1993 264 | SISA 1993 344 | SISR 1994 | Administrative Decisions (Judicial Review) Act 1977,PS LA 2006/17 PS LA 2006/19,SISA 1993 10 | SISA 1993 17A | SISA 1993 19 | SISA 1993 126A | SISA 1993 133(1) | SISA 1993 159 | SISA 1993 160 | SISA 1993 Pt 21 | SISA 1993 262A | SISA 1993 262A(1) | SISA 1993 262A(2) | SISA 1993 262A(3) | SISA 1993 262A(4) | SISA 1993 264 | SISA 1993 344 | SISR 1994 | Administrative Decisions (Judicial Review) Act 1977,,Compliance model Good decision-making model (link available internally only) Our Charter,False,True,https://www.ato.gov.au/law/view/document?docid=PSR/PS200618/NAT/ATO/00001,"Updated in line with current ATO style and accessibility requirements. | Attachment A – subparagraphs 1.1, 2.1, 3.2 and 3.4 | Footnote 1 removed and inserted into the paragraph. | Updated to new LAPS format and style. Contact details updated. | Footnote 6 inserted to define those tax laws. | Paragraph 31 and Attachment A | Paragraphs 5, 16, 19, 21, 24, 27, 32, 33 and 36 | Legislative reference 120A of the Superannuation Industry (Supervision) Act 1993 updated to section 126A of that Act. | Title (purpose) and paragraph 32 | Replaced 'an enforceable' with 'a written'. | [1] The term 'trustee', as used in this Practice Statement, refers to either the individual trustees or the corporate trustee of the fund, as the case may be. | [2] A regulated SMSF is one that meets the definitions in sections 10, 17A and 19. | [3] In general, a rectification period would rarely exceed 12 months. | [4] For example, it would be reasonable to give a longer period of time to dispose of an asset such as residential property than shares in a publicly listed company. | [5] If the undertaking meets the requirements set out in section 262A. | [7] Subsections 262A(3) and (4). | [8] Informal arrangements are discussed further in section 8 of this Practice Statement. | [11] Section 126A. See also Law Administration Practice Statement PS LA 2006/17 Self - managed superannuation fund - disqualification of individuals to prohibit them from acting as a trustee of a self - managed superannuation fund . | [12] Subsection 133(1). This would only occur in exceptional circumstances. | [13] Section 264. This would only occur in exceptional circumstances. | [14] Part 21. This would occur only in exceptional circumstances. | File 06/17267; 1-13L8W8C2 | This practice statement was originally published on 30 November 2006. Versions published from 19 March 2009 are available electronically - refer to the online version of the practice statement. Versions published prior to this date are not available electronically. If needed, these can be requested by emailing TCNLawPublishingandPolicy@ato.gov.au ."
PS LA 2006/19,Self-managed superannuation funds - issuing a notice of non-compliance,30 November 2006,30 November 2006,Law Administration Practice Statement,False,"1. What this Practice Statement is about: As the regulator of self-managed superannuation funds (SMSF), the ATO is responsible for determining whether or not an SMSF is a complying superannuation fund. This Practice Statement sets out the factors you should consider when deciding whether to issue a notice of non-compliance to an SMSF. | 2. Compliance requirements for SMSFs: For an SMSF to qualify for concessional income tax treatment, it must first be a complying superannuation fund. [1] A complying superannuation fund is one that satisfies the conditions set out in section 42A of the SISA. All further legislative references in this Practice Statement are to the SISA, unless otherwise indicated. An SMSF is a complying superannuation fund for a year of income if: • the fund was a 'resident regulated superannuation fund' at all times during the year of income when it was in existence, and • the trustees of the fund have not contravened any regulatory provisions [2] during that year of income. • the fund was a 'resident regulated superannuation fund' at all times during the year of income when it was in existence, and • the trustees of the fund have not contravened any regulatory provisions [2] during that year of income. If the fund satisfies these conditions, we may give the trustee a notice of compliance in relation to a year of income. [3] Where the trustee has contravened a regulatory provision, we may consider that a notice of compliance should nevertheless be given after considering [4] : • the taxation consequences of treating the entity as non-complying • the seriousness of the contravention • all other relevant circumstances. • the taxation consequences of treating the entity as non-complying • the seriousness of the contravention • all other relevant circumstances. For income tax purposes, an SMSF will be a complying superannuation fund if: • we have issued a notice of compliance in the current or previous years of income • the fund has not subsequently been issued with a notice of non-compliance. • we have issued a notice of compliance in the current or previous years of income • the fund has not subsequently been issued with a notice of non-compliance. | 3. Issuing a notice of non-compliance - general considerations: Issuing a notice of non-compliance is one option available when a fund trustee contravenes any regulatory provisions [5] for a year of income. Whether it is appropriate to issue a notice of non-compliance will depend on the individual circumstances of the case. When making the decision you should look to achieve a fair and reasonable outcome, and take into account the principles of: • Our Charter • the Compliance model • the ATO technical decision making model – overview (link available internally only). • Our Charter • the Compliance model • the ATO technical decision making model – overview (link available internally only). However, you should also carefully consider whether issuing a notice of non-compliance is the most appropriate outcome, given there are other compliance options available. [6] | 4. When it is appropriate to issue a notice of non-compliance: The factors to consider when deciding if it is appropriate to issue a notice of non-compliance are: • taxation consequences of non-compliance • seriousness of the behaviour or contravention • other relevant circumstances. [7] • taxation consequences of non-compliance • seriousness of the behaviour or contravention • other relevant circumstances. [7] Note: All factors are equally relevant and are to be considered on a case-by-case basis, with no one factor being determinative. Taxation consequences of non-compliance If an SMSF is made non-complying, its taxable income is taxed at the top marginal tax rate rather than the concessional tax rate of 15% in each year it is non-complying. [8] An additional amount will also be included in the assessable income of the fund in the year it is made non-complying. This amount will be the market value of the fund's assets just before the start of the income year it is made non-complying, less any contributions not previously included in the fund's assessable income. [9] As such, the decision to make a fund non-complying will have a serious financial impact on the fund and is not a decision that should be taken lightly. We will consider whether it would be reasonable for the SMSF to be treated as a complying fund and still receive concessional tax treatment. This will depend on the particular circumstances of the case, the seriousness of the contravention and the trustee's attitude to complying with the regulatory provisions. Seriousness of the behaviour or contravention Any one of the following circumstances may prove decisive individually, but they must be considered collectively when determining the seriousness of a contravention: • Was the trustee reckless? • Did they intentionally disregard the relevant legislation? • Was an honest mistake involved? • To what extent were the fund's assets affected? • How many contraventions were there? • Over what period of time did these contraventions occur? • The seriousness of any specific contravention. • Was the trustee reckless? • Did they intentionally disregard the relevant legislation? • Was an honest mistake involved? • To what extent were the fund's assets affected? • How many contraventions were there? • Over what period of time did these contraventions occur? • The seriousness of any specific contravention. Other relevant circumstances Other relevant circumstances may include, but are not limited to: • the trustee's willingness to comply with the law, to rectify the contravention and take action to prevent it happening again • the trustee's skill and knowledge in managing the affairs of their fund • the fund's compliance history before and after the contravention – a fund with an acceptable history may be treated more favourably than a fund with a poor history • the events that led to the trustee's contravention – for example, serious illness, the death of a close relative (or a trustee), natural disasters • any decisions made by us that may have contributed to the trustee's action, for example, if the trustee relied on a ruling that was subsequently withdrawn or changed [10] • whether alternative sanctions (see section 6 of this Practice Statement) may be more appropriate in the particular circumstances • other legal consequences of the contravention, for example, an assessment of a member under Division 304 of the ITAA 1997 for early access to benefits. [11] • the trustee's willingness to comply with the law, to rectify the contravention and take action to prevent it happening again • the trustee's skill and knowledge in managing the affairs of their fund • the fund's compliance history before and after the contravention – a fund with an acceptable history may be treated more favourably than a fund with a poor history • the events that led to the trustee's contravention – for example, serious illness, the death of a close relative (or a trustee), natural disasters • any decisions made by us that may have contributed to the trustee's action, for example, if the trustee relied on a ruling that was subsequently withdrawn or changed [10] • whether alternative sanctions (see section 6 of this Practice Statement) may be more appropriate in the particular circumstances • other legal consequences of the contravention, for example, an assessment of a member under Division 304 of the ITAA 1997 for early access to benefits. [11] | 5. When it is not appropriate to issue a notice of non-compliance: Generally, you should not issue a notice of non-compliance where other compliance options may be more appropriate, such as when: • we have accepted an enforceable undertaking (formal or informal) by the trustee to rectify a contravention or wind-up the fund, and the trustee is genuinely attempting to satisfy the terms of that undertaking • there are no longer any remaining assets in the fund or where assets have been removed from the fund in breach of the payment standards and the trustee or individual is unable to restore the fund to its full and proper asset level within a reasonable period • the trustee is genuinely making an effort to meet a direction to rectify a contravention pursuant to section 159 • the trustee has wound-up the fund prior to any ATO compliance action [12] and all money in the fund has been rolled over to a fund regulated by the Australian Prudential Regulatory Authority (APRA) and is being (and will continue to be) independently managed. However, where our subsequent compliance action indicates serious contraventions by the trustee preceding the wind-up, we reserve the right to make the fund non-complying and amend the necessary returns. • we have accepted an enforceable undertaking (formal or informal) by the trustee to rectify a contravention or wind-up the fund, and the trustee is genuinely attempting to satisfy the terms of that undertaking • there are no longer any remaining assets in the fund or where assets have been removed from the fund in breach of the payment standards and the trustee or individual is unable to restore the fund to its full and proper asset level within a reasonable period • the trustee is genuinely making an effort to meet a direction to rectify a contravention pursuant to section 159 • the trustee has wound-up the fund prior to any ATO compliance action [12] and all money in the fund has been rolled over to a fund regulated by the Australian Prudential Regulatory Authority (APRA) and is being (and will continue to be) independently managed. However, where our subsequent compliance action indicates serious contraventions by the trustee preceding the wind-up, we reserve the right to make the fund non-complying and amend the necessary returns. | 6. Alternate compliance options: Depending on the circumstances of the case, one or a combination of other sanctions may be determined as more appropriate, including: • issuing a direction to undertake education if the contravention occurred after 1 July 2014 [13] • issuing a direction to rectify a contravention that occurred after 1 July 2014 [14] • accepting an undertaking from the trustee to rectify the contravention [15] • preventing the fund from appearing in Super Fund Lookup if the relevant fund or the individual trustee poses a continuing risk to compliance • imposing tax penalties, such as failure to lodge penalties • disqualifying the trustee [16] • suspending or removing the trustee [17] • seeking wind-up of the fund and rollover of its assets into an APRA-regulated fund through an oral or written request by the trustee or individual • freezing the assets of the fund if there is a risk of the members' benefits being eroded [18] • seeking a court order [19] or seeking civil or criminal penalties through the courts. [20] • issuing a direction to undertake education if the contravention occurred after 1 July 2014 [13] • issuing a direction to rectify a contravention that occurred after 1 July 2014 [14] • accepting an undertaking from the trustee to rectify the contravention [15] • preventing the fund from appearing in Super Fund Lookup if the relevant fund or the individual trustee poses a continuing risk to compliance • imposing tax penalties, such as failure to lodge penalties • disqualifying the trustee [16] • suspending or removing the trustee [17] • seeking wind-up of the fund and rollover of its assets into an APRA-regulated fund through an oral or written request by the trustee or individual • freezing the assets of the fund if there is a risk of the members' benefits being eroded [18] • seeking a court order [19] or seeking civil or criminal penalties through the courts. [20] | 7. How long will a notice of non-compliance be in effect: A notice of non-compliance will be effective from the start of the year of income for which it is issued and all following years of income, until such time as the fund is issued a notice of compliance. | 8. Examples: The following are examples to illustrate the application of the principles in this Practice Statement. Example 1 - SMSF breaches in-house asset rules and fails to comply with an enforceable undertaking A husband and wife were the trustees of their own SMSF. The husband was also the sole director and general manager of a related company. The fund made several loans to the husband's related company. The reason for the loans was to assist the company through a difficult financial period. The fund, during the period in question, had lent more than 40% of its assets to the husband's company. This resulted in the fund breaching the 5% in-house asset limit on loans to related parties. The company made one initial repayment; however, no further repayments were made over the next 2 and a half years. During this period of non-repayment, the husband suffered from a chronic illness which affected his ability to manage the company's operations. The company's premises also sustained significant flood damage in 2 consecutive years and these floods were followed by a general downturn in trading in their region. The loan was outstanding for over 2 and a half years and the trustees made no attempt to rectify the situation. We determined that the loan arrangement was a serious contravention because not only had the fund breached the in-house asset rules, the trustees had also failed to take appropriate steps to ensure that the loan was repaid. Given the circumstances, it was decided to impose administrative penalties on the trustees and allow an enforceable undertaking where the trustees committed to ensuring that the loan was repaid. After the initial repayment, the trustees ceased to genuinely engage with us and failed to comply with the terms and conditions of the enforceable undertaking. Given the seriousness of the contravention and the trustees failure to rectify it, we decided it was reasonable to issue the fund with a notice of non-compliance. We considered these factors outweighed the taxation consequences of making the fund non-complying. Example 2 - SMSF fails to lodge annual returns An SMSF was established on 1 July 2012. The trustee lodged self-managed superannuation fund annual returns for the 2012–13 and 2013–14 years of income but has not lodged returns for the 2014–15, 2015–16 and 2016–17 years of income. We requested the lodgment of the outstanding returns on several occasions. The trustee disregarded every request, without offering any reasons. Failure by the trustee of a fund to lodge a return for a year of income constitutes an offence. Each of the contraventions is serious because lodging returns is a fundamental requirement of the regulatory regime and the trustee is expected to know this requirement. The number of contraventions involved and the trustee's disregard of our requests add to the seriousness of the contraventions. We decided it would be reasonable to give the fund a notice of non-compliance, which we issued on 1 July 2018 effective from the start of the 2015–16 income year and for all following income years. This is because of the seriousness of the contraventions, the trustee's attitude to compliance as indicated by the trustee's disregard of our requests and the fact that there are no relevant circumstances to mitigate the trustee's failure to lodge the outstanding returns. Example 3 - SMSF enters into a dividend stripping arrangement and breaches a range of regulatory provisions An SMSF acquires shares from its members, at less than market value, in a related private company with significant previously taxed accumulated profits. The acquired shares represent 30% of the fund's total assets. The private company distributes these accumulated profits to the fund as franked dividends. Being in pension phase, the fund treats the franked dividends and franking credits as exempt current pension income and receives a large refund of franking credits while avoiding the 'top up' income tax that members would pay if they received the dividends. A number of serious contraventions of the regulatory provisions have occurred: • The fund has contravened the prohibition on acquiring private company shares from its members. [21] • The share acquisition represents more than 5% of the fund's total assets and is therefore in breach of the in-house asset rules. • The fund has contravened the requirements for maintaining accounts and statements by failing to value its assets at market value. [22] • The fund has not been maintained solely for the purposes permitted by the sole purpose test. [23] • The fund has contravened the prohibition on acquiring private company shares from its members. [21] • The share acquisition represents more than 5% of the fund's total assets and is therefore in breach of the in-house asset rules. • The fund has contravened the requirements for maintaining accounts and statements by failing to value its assets at market value. [22] • The fund has not been maintained solely for the purposes permitted by the sole purpose test. [23] We decided it would be reasonable to give the fund a notice of non-compliance because of the seriousness of the contraventions and because the contraventions arose out of a deliberate attempt to avoid tax. | 9. Relevant cases: Refer to the following Administrative Appeals Tribunal decisions for further guidance: • Montgomery Wools Pty Ltd (as trustee for Montgomery Wools Pty Ltd Super Fund) and Commissioner of Taxation [2012] AATA 61 • Shail Superannuation Fund and Commissioner of Taxation [2011] AATA 940 • Triway Superannuation Fund and Commissioner of Taxation [2011] AATA 302 • Trustee for the R Ali Superannuation Fund and Commissioner of Taxation [2012] AATA 44 • ZDDD and Commissioner of Taxation [2011] AATA 3. • Montgomery Wools Pty Ltd (as trustee for Montgomery Wools Pty Ltd Super Fund) and Commissioner of Taxation [2012] AATA 61 • Shail Superannuation Fund and Commissioner of Taxation [2011] AATA 940 • Triway Superannuation Fund and Commissioner of Taxation [2011] AATA 302 • Trustee for the R Ali Superannuation Fund and Commissioner of Taxation [2012] AATA 44 • ZDDD and Commissioner of Taxation [2011] AATA 3. | 10. Review rights: The decision to issue a notice of non-compliance under subsection 40(1) is a reviewable decision. [24] A request to reconsider must be made within 21 days and clearly state, in writing, the reasons for the request. [25] If dissatisfied with the outcome, the person may then apply to the Administrative Review Tribunal for a further review. | 11. More information: For more information, see: • PS LA 2006/17 • PS LA 2006/18 • How we deal with non-compliance • Check your fund is an Australian super fund . • PS LA 2006/17 • PS LA 2006/18 • How we deal with non-compliance • Check your fund is an Australian super fund .",PS LA 2006/17 | PS LA 2006/18 | PS LA 2011/27 | SISA 1993 10 | SISA 1993 19 | SISA 1993 35B | SISA 1993 38A | SISA 1993 39 | SISA 1993 40 | SISA 1993 40(1) | SISA 1993 42A | SISA 1993 42A(5) | SISA 1993 42A(5)(b) | SISA 1993 45 | SISA 1993 62 | SISA 1993 66 | SISA 1993 126A | SISA 1993 133(1) | SISA 1993 159 | SISA 1993 160 | SISA 1993 Pt 21 | SISA 1993 262A | SISA 1993 262A(4) | SISA 1993 264 | SISA 1993 344 | SISR 1994 8.02B | ITAA 1997 295-325 | ITAA 1997 Div 304 | ITRA 1986 26 | 2012 ATC 10-233 | 2011 ATC 10-228 | [2011] AATA 302 | 2012 ATC 10-231 | [2011] AATA 3,PS LA 2006/17 PS LA 2006/18 PS LA 2011/27,SISA 1993 10 | SISA 1993 19 | SISA 1993 35B | SISA 1993 38A | SISA 1993 39 | SISA 1993 40 | SISA 1993 40(1) | SISA 1993 42A | SISA 1993 42A(5) | SISA 1993 42A(5)(b) | SISA 1993 45 | SISA 1993 62 | SISA 1993 66 | SISA 1993 126A | SISA 1993 133(1) | SISA 1993 159 | SISA 1993 160 | SISA 1993 Pt 21 | SISA 1993 262A | SISA 1993 262A(4) | SISA 1993 264 | SISA 1993 344 | SISR 1994 8.02B | ITAA 1997 295-325 | ITAA 1997 Div 304 | ITRA 1986 26,,ATO technical decision-making model - overview (link available internally only) Check your fund is an Australian super fund Compliance model How we deal with non-compliance Our Charter Super Fund Lookup,False,True,https://www.ato.gov.au/law/view/document?docid=PSR/PS200619/NAT/ATO/00001,"The Administrative Review Tribunal replaced the Administrative Appeals Tribunal on 14 October 2024. Updated reference to Administrative Appeals Tribunal to Administrative Review Tribunal accordingly. | Updated in line with current ATO style and accessibility requirements. | Updated to correct an erroneous legislative reference and a minor typographical error. | Section 4 - Other relevant circumstances | Minor update to correct an error. | Updated to include a further reference to the taxation consequences of a fund being made non-compliant and to clarify the effective date of a notice of non-compliance. Examples 1 and 2 have also been updated. | Updated to new LAPS format and style. Contact details updated. | Updated to reference PS LA 2012/5 as PS LA 2006/2 has been withdrawn. | Paragraphs 13, 14, 17, 26, 34 and 35 | Paragraph number references updated after former paragraph 9 was deleted. | Deleted for currency purposes. | Updated to include reference to matters articulated in PS LA 2011/27. | Updated to reflect the Commissioner has considered the taxation consequences of the SMSF being treated as a non-complying superannuation fund. | Minor revisions to update 'Tax Office' to 'ATO' and improve the technical currency of the document. | Paragraphs 17 and 18 and Example 3 | Updated to reflect that the Commissioner may give a fund a notice of non-compliance even though the fund has been wound-up. | Minor updates to improve the technical currency of the document. | [1] See sections 42A and 45 of the Superannuation Industry (Supervision) Act 1993 (SISA). The entity must also meet the definition of a regulated superannuation fund in sections 10 and 19 of the SISA. | [2] The term 'regulatory provision' is defined in section 38A and includes any provision of the SISA or the Superannuation Industry (Supervision) Regulations 1994 (SISR 1994). | [4] Subsection 42A(5). See also Triway Superannuation Fund and Commissioner of Taxation [2011] AATA 302. | [5] See section 39 for contraventions that may cause a fund to be issued with a notice of non-compliance. | [6] See section 6 of this Practice Statement. | [7] Refer to paragraph 42A(5)(b). | [8] Refer to section 26 of the Income Tax Rates Act 1986 . | [9] Refer to section 295 325 of the Income Tax Assessment Act 1997 (ITAA 1997). | [10] Reference should be made to Law Administration Practice Statement PS LA 2011/27 Determining whether the ATO's views of the law should be applied prospectively only . | [11] You should consider whether an assessment under Division 304 of the ITAA 1997 would lead to a heavy tax burden. For example, where a non-complying SMSF is taxed at 45% for early release of benefits, the inclusion of those benefits in a member's assessable income under Division 304 at a 45% marginal rate could impose a heavy tax burden on the member. The member (who is also a trustee) is effectively taxed at 90% for the same amount. | [12] Unless it was decided that the actions of the trustee preceding the wind-up warranted that action. | [15] Section 262A. See also Law Administration Practice Statement PS LA 2006/18 Self>-managed superannuation funds - enforceable undertakings . | [16] Section 126A. See also Law Administration Practice Statement PS LA 2006/17 Self-managed superannuation funds - disqualification of individuals to prohibit them from acting as a trustee of a self-managed superannuation fund . | [17] Subsection 133(1). This would only occur in exceptional circumstances. | [18] Section 264. This would only occur in exceptional circumstances. | [22] Section 35B; regulation 8.02B of the SISR 1994. | Montgomery Wools Pty Ltd (as Trustee for Montgomery Wools Pty Ltd Super Fund) and Commissioner of Taxation [2012] AATA 61 2012 ATC 10-233 (2012) 87 ATR 282 | Shail Superannuation Fund and Commissioner of Taxation [2011] AATA 940 2011 ATC 10-228 (2011) 86 ATR 339 | Triway Superannuation Fund and Commissioner of Taxation [2011] AATA 302 (2011) 83 ATR 766 | Trustee for the R Ali Superannuation Fund and Commissioner of Taxation [2012] AATA 44 2012 ATC 10-231 (2012) 86 ATR 826 | ZDDD and Commissioner of Taxation [2011] AATA 3 (2011) 81 ATR 872"
PS LA 2005/2,Penalty for failure to keep or retain records,1 February 2005,1 February 2005,Law Administration Practice Statement,False,APPENDIX – Record-keeping provisions: 56. Table 1 of this Practice Statement outlines types of provisions and their respective Act and legislative reference: Table 1: Record-keeping provisions Type of provision Act and legislative reference General provision – records to be kept: • that record and explain all transactions • in English or readily accessible and easily convertible into English • that enable the entity's liability under the relevant Act or compliance with obligations to be readily ascertained • for 5 years (except if otherwise indicated). Income Tax Assessment Act 1936 – section 262A Fringe Benefits Tax Assessment Act 1986 – section 132 Superannuation Guarantee (Administration) Act 1992 – section 79 Petroleum Resource Rent Tax Assessment Act 1987 – section 112 (records must be retained for 7 years) Taxation Administration Act 1953 – sections 396-25 and 396-125 and Division 382 of Schedule 1 Accruals system of taxation of certain non-resident trust estates Income Tax Assessment Act 1936 – section 102AAZG Controlled foreign companies Income Tax Assessment Act 1936 – Division 11 of Part X Imputation Income Tax Assessment Act 1997 – Subdivision 214-E Forgiveness of commercial debts Income Tax Assessment Act 1997 – section 245-265 Capital gains tax Income Tax Assessment Act 1997 – Division 121 Mineral credits Income Tax Assessment Act 1997 – section 418-180 Thin capitalisation Income Tax Assessment Act 1997 – Subdivision 820-L Coronavirus economic response payments Coronavirus Economic Response Package (Payments and Benefits) Act 2020 – sections 15 and 16 Grants or benefits claims Product Grants and Benefits Administration Act 2000 – sections 26 and 27 Minimum tax law Records must generally be kept in respect of minimum tax law for 8 years. Taxation Administration Act 1953 – section 382-20 of Schedule 1 • that record and explain all transactions • in English or readily accessible and easily convertible into English • that enable the entity's liability under the relevant Act or compliance with obligations to be readily ascertained • for 5 years (except if otherwise indicated). Fringe Benefits Tax Assessment Act 1986 – section 132 Superannuation Guarantee (Administration) Act 1992 – section 79 Petroleum Resource Rent Tax Assessment Act 1987 – section 112 (records must be retained for 7 years) Taxation Administration Act 1953 – sections 396-25 and 396-125 and Division 382 of Schedule 1 Records must generally be kept in respect of minimum tax law for 8 years.,TR 96/7 | MT 2008/1 | PS LA 2008/14 | PS LA 2012/5 | TD 2011/19 | PS LA 2021/3 | Explanatory Memorandum | TAA 1953 8L | TAA 1953 8Q | TAA 1953 8T | TAA 1953 8ZE | TAA 1953 Sch 1 Div 284 | TAA 1953 Sch 1 288-25 | TAA 1953 Sch 1 288-25(2)(c) | TAA 1953 Sch 1 298-10 | TAA 1953 Sch 1 298-15 | TAA 1953 Sch 1 298-20 | TAA 1953 Sch 1 298-20(3) | TAA 1953 Sch 1 298-25 | TAA 1953 Sch 1 Div 382 | TAA 1953 Sch 1 382-5 | TAA 1953 Sch 1 382-20 | TAA 1953 Sch 1 384-12 | TAA 1953 Sch 1 384-12(1) | TAA 1953 Sch 1 384-15(2) | TAA 1953 Sch 1 384-35(7) | TAA 1953 Sch 1 384-40 | TAA 1953 Sch1 396-25 | TAA 1953 Sch1 396-125 | ITAA 1936 Pt X Div 11 | ITAA 1936 102AAZG | ITAA 1936 262A | ITAA 1936 Subdiv 214-E | ITAA 1997 245-265 | ITAA 1997 Div 121 | ITAA 1997 418-180 | ITAA 1997 Subdiv 820-L | ITAA 1997 Div 900 | FBTAA 1986 Pt X | FBTAA 1986 Pt 132 | SGAA 1992 79 | Coronavirus Economic Response Package (Payments and Benefits) Act 2020 15 | Coronavirus Economic Response Package (Payments and Benefits) Act 2020 16 | Crimes Act 1914 4AA | Distillation Act 1901 (repealed) | Excise Act 1901 | Fuel (Penalty Surcharges) Administration Act 1997 (repealed) | Petroleum Resource Rent Tax Assessment Act 1987 112 | Product Grants and Benefits Administration Act 2000 26 | Product Grants and Benefits Administration Act 2000 27 | Spirits Act 1906,PS LA 2008/14 PS LA 2012/5 PS LA 2021/3,TAA 1953 8L | TAA 1953 8Q | TAA 1953 8T | TAA 1953 8ZE | TAA 1953 Sch 1 Div 284 | TAA 1953 Sch 1 288-25 | TAA 1953 Sch 1 288-25(2)(c) | TAA 1953 Sch 1 298-10 | TAA 1953 Sch 1 298-15 | TAA 1953 Sch 1 298-20 | TAA 1953 Sch 1 298-20(3) | TAA 1953 Sch 1 298-25 | TAA 1953 Sch 1 Div 382 | TAA 1953 Sch 1 382-5 | TAA 1953 Sch 1 382-20 | TAA 1953 Sch 1 384-12 | TAA 1953 Sch 1 384-12(1) | TAA 1953 Sch 1 384-15(2) | TAA 1953 Sch 1 384-35(7) | TAA 1953 Sch 1 384-40 | TAA 1953 Sch1 396-25 | TAA 1953 Sch1 396-125 | ITAA 1936 Pt X Div 11 | ITAA 1936 102AAZG | ITAA 1936 262A | ITAA 1936 Subdiv 214-E | ITAA 1997 245-265 | ITAA 1997 Div 121 | ITAA 1997 418-180 | ITAA 1997 Subdiv 820-L | ITAA 1997 Div 900 | FBTAA 1986 Pt X | FBTAA 1986 Pt 132 | SGAA 1992 79 | Coronavirus Economic Response Package (Payments and Benefits) Act 2020 15 | Coronavirus Economic Response Package (Payments and Benefits) Act 2020 16 | Crimes Act 1914 4AA | Distillation Act 1901 (repealed) | Excise Act 1901 | Fuel (Penalty Surcharges) Administration Act 1997 (repealed) | Petroleum Resource Rent Tax Assessment Act 1987 112 | Product Grants and Benefits Administration Act 2000 26 | Product Grants and Benefits Administration Act 2000 27 | Spirits Act 1906,,Explanatory Memorandum to the Treasury Laws Amendment (2022 Measures No. 2) Bill 2022,False,True,https://www.ato.gov.au/law/view/document?docid=PSR/PS20052/NAT/ATO/00001,"What this Practice Statement is about | Administering the penalty | Step 1 – determine if the law imposes a penalty | When a penalty is imposed for failing to keep or retain records | Who is liable for the penalty | Step 2 – determine if a direction to educate should be issued | Complying with the direction | Step 3 – determine the amount of the penalty | Working out the penalty amount | Step 4 – determine if remission is appropriate | Considering whether to remit the penalty | Additional remission considerations – direction to educate | Step 5 – record the penalty and notify the entity | Notice of penalty and reasons for decision | What this Practice Statement is about: 1. This Practice Statement provides guidance on the administration of section 288-25 of Schedule 1 to the Taxation Administration Act 1953 (TAA). | 2. Section 288-25 of Schedule 1 to the TAA makes an entity liable to a penalty if the entity does not keep or retain records in a manner required by a taxation law. It applies to record-keeping obligations that arise on or after 1 July 2000. These are listed in the Appendix to this Practice Statement. Penalties on top of those imposed under section 288-25 may apply. | 3. Record keeping is necessary so we can verify that taxpayers are reporting correct tax-related liabilities. The purpose of the penalty in section 288-25 of Schedule 1 to the TAA is to influence positive compliance with record-keeping obligations, resulting in accurate reporting of tax-related liabilities. | 4. ATO staff will usually provide help and education to ensure taxpayers meet their record-keeping obligations. The penalty imposed under section 288-25 of Schedule 1 to the TAA is one of the final actions taken in an effort to influence a change in an entity's record-keeping behaviour and will generally be used only where help and education have failed to change behaviour. | 5. Where appropriate, ATO staff can issue a tax-records education direction (direction to educate) to a business instead of imposing the penalty. This Practice Statement provides guidance on when this is suitable. There is a similar direction available for failures to comply with record-keeping obligations under the Superannuation Guarantee (Administration) Act 1992, see Law Administration Practice Statement PS LA 2021/3 Remission of additional superannuation guarantee charge. | 6. This Practice Statement does not apply in relation to the record-keeping obligations imposed by the Excise Act 1901, the former Distillation Act 1901 (now repealed), the former Spirits Act 1906 (now repealed) and the former Fuel (Penalty Surcharges) Administration Act 1997 (now repealed). It also does not apply in relation to documents required to be kept under Part X of the Fringe Benefits Tax Assessment Act 1986 or Division 900 (substantiation rules) of the Income Tax Assessment Act 1997. | 7. All further legislative references in this Practice Statement are to Schedule 1 to the TAA, unless otherwise indicated. | Administering the penalty: • Step 1 – determine if the law imposes a penalty • Step 2 – determine if a direction to educate should be issued • Step 3 – determine the amount of the penalty • Step 4 – determine if remission is appropriate • Step 5 – record the penalty and notify the entity. | General principles: – record and explain all transactions and other acts engaged in by the person that are relevant for the purposes of the relevant Act, including the particulars of any election, choice, estimate, determination or calculations – are in English or are readily accessible and convertible into English, and – enable the entity's liability under the relevant Act to be readily ascertained. | When a penalty is imposed for failing to keep or retain records: • is required under a provision of a taxation law to keep or retain a record, and • does not keep or retain the record in the manner required by that law. | • section 8L – incorrectly keeping or making required records • section 8Q – recklessly incorrectly keeping or making records, and • section 8T – incorrectly keeping, making or tampering with records (or doing or omitting any other act affecting records), with the intention of deceiving, misleading, obstructing or defeating taxation laws. | 12. The most severe of these offences occur under section 8T of the TAA and allow for a fine of up to 50 penalty units or imprisonment for a period not exceeding 12 months, or both, for a first offence. For subsequent offences, the penalty is increased to a fine of up to 100 penalty units or imprisonment for a period not exceeding 2 years, or both. [4] | 13. The ATO will consider referring a case to the Commonwealth Director of Public Prosecutions only where the case involves serious non-compliance, such as falsifying records and fraud, or where the imposition of administrative penalties has failed to improve the entity's record-keeping behaviour. The Commonwealth policy on prosecutions is fully explained in the Prosecution Policy . | Who is liable for the penalty: 14. The entity required by the taxation law to retain the records is the entity liable to the penalty. | Direction to educate: 15. A direction to educate is given to entities which we consider have failed to comply with their record-keeping obligations. [5] An entity that has been given a direction needs to complete our approved online record-keeping course. Successful completion of the course by the due date means the entity is no longer liable to the penalty. [6] The purpose of the direction is to help educate businesses about their tax-related record-keeping obligations. | Eligibility: 16. A direction to educate can be issued where we believe an entity has made a reasonable and genuine attempt to comply with, or had mistakenly believed they were complying with, their tax record-keeping obligations. [7] The entity must not be disengaged from the tax system or deliberatively avoiding any of the obligations to keep records. | 17. To be eligible, the entity must be carrying on a business. The direction is best suited for small business entities. [8] | • the Superannuation Guarantee (Administration) Act 1992 [10] • Part X of the Fringe Benefits Tax Assessment Act 1986 • Division 900 of the Income Tax Assessment Act 1997. | Considerations: • the business has knowledge gaps and would benefit from completion of the record-keeping course • the failure to keep appropriate records has occurred due to unintentional mistakes or digital illiteracy • the business appears to have made genuine attempts to comply with their tax obligations • the business has not been issued a direction to educate previously • the entity is new to business (for example, trading for less than 2 years) • the business has cooperated with information requests. | • whether the business is engaged and responding to requests for information • the business' compliance history • the business' awareness of their tax obligations. | • suspected deliberate loss or destruction of documents by the entity • suspected fabrication of documents by the entity • possession and use of electronic sales suppression tools • suspected omission or removal of cash transactions from sales records. | Issuing the direction: 22. To issue the direction, we must provide written notice to the business. The notice must specify a reasonable period for the business to comply with the direction. [11] This date will be negotiated with the business during the engagement process. | Varying the direction: • temporary unavailability of the online course • natural disaster affecting the business • correcting an error in a previously issued education direction. | • be in writing • set out the reasons for the variation, and • be provided to us before the end of the period specified in the education direction. | 25. To help businesses to understand their record-keeping obligations, all reasonable extension requests received before the end of the period specified in the direction should be granted. | 26. However, if the business requests a variation after the notice's due date, they have failed to comply with the direction and we will impose the penalty. We will not issue a new direction but we will encourage the business to complete the course. | 27. We can revoke the education direction in writing at any time. However, this should only occur in limited situations based on the business' circumstances. For example, a direction to educate may be revoked if it was addressed to the wrong person or business or sent to the wrong address. We might also revoke a direction prior to course completion if we become aware of information that means the entity is no longer eligible – for example, we receive further evidence that the entity is deliberately avoiding their obligations. | Complying with the direction: • if the entity is a sole trader – the individual • if the entity is a business – an individual who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business. For example, if the entity is a company, a director or public officer of the company, or if the entity is a partnership, a partner in the partnership. | Working out the penalty amount: 29. The penalty is 20 penalty units. [13] | 30. The penalty applicable is calculated on the value of the penalty unit at the time of the contravention, being when the records were required to be kept or retained. | Considering whether to remit the penalty: 31. The Commissioner has the discretion to remit all or part of the penalty. [14] This discretion is 'unfettered', meaning that there is no legal restriction on when we can and cannot remit. Remission provides the administrative flexibility to ensure the penalty imposed is aligned with the observed behaviour and the purpose of the penalty. | 32. This Practice Statement sets out guidance that must be used in exercising this discretion. Remission is not limited to the reasons listed here and we should consider remission in any situation where the final penalty is not a just outcome. That is, if imposition of the penalty produces an unintended or unjust result, we may remit the penalty in whole or in part. | 33. We must make a remission decision whenever the penalty is imposed. We may decide that there are no grounds for remission or that there are grounds to remit in full or in part. The final penalty we apply must be defensible, proper and have regard to the overall circumstances of the entity and the purpose of imposition and remission of this penalty. | 34. We need to consider each case on its merits, having regard to all the relevant facts and circumstances. | 35. Entities in the same circumstances should be treated consistently for remission purposes. This is particularly relevant for entities involved in examinations relating to the same arrangement. However, this should not be used as justification for replicating an incorrect penalty decision made in relation to another entity. | • The purpose of the penalty provision is to encourage entities to comply with their record-keeping and tax-reporting obligations. Whether we are satisfied that an entity has reported the correct tax-related liability is therefore relevant. • The penalty regime also aims to promote consistent and equitable treatment by reference to specified rates of penalty. This objective would be compromised if the penalties imposed at the rates specified in the law were remitted without just cause, arbitrarily or as a matter of course. • The amount of the penalty the law imposes is not a valid reason for remission alone in the absence of specific reasons why it would be unjust in the entity's particular circumstances. | • behaviour or situations unrelated to the relevant record-keeping and tax-reporting obligation, such as the entity or registered agent becoming ill at a time after the failure to keep records occurred • whether there is a capacity to pay the penalty. [15] | Additional remission considerations – direction to educate: 38. The purpose of a direction to educate is to ensure the entity understands their record-keeping obligations. Where a business has been given a direction to educate but is liable to a penalty because they completed the course after the due date, consideration should be given to remitting the penalty in full. Where the course has not been completed, the penalty should not be remitted unless exceptional circumstances exist. | • An entity that makes no attempt to keep records or deliberately destroys its records will not usually receive any remission of the penalty. • Where the records kept by an entity are such that we cannot verify that the entity is reporting the correct tax-related liability, the record-keeping penalty will not usually be remitted in full, however, a partial remission may be considered. The circumstances of the case and the size and level of sophistication of the entity will be relevant. • We will usually remit the penalty in full where we are satisfied that an entity is reporting the correct tax-related liability, even though record-keeping obligations have not been fully complied with. This reflects the intention of the penalty to support correct reporting of tax-related liabilities. • We will usually remit the penalty in full where the entity has made a reasonable and genuine attempt to comply with its record-keeping obligations, but the records have been lost or destroyed in circumstances outside the entity's control and the entity has reconstructed the records to the best of its ability. This includes where the person was experiencing vulnerability, including but not limited to family violence, financial coercion, homelessness or serious mental health challenges. • Where an entity is liable to a record-keeping penalty and a shortfall penalty for the same tax obligation, we may remit part or all of the penalty if retaining both penalties would produce an unjust result, such as where the errors were unintentional, and the combined penalties significantly exceed the actual tax shortfall. | Recording your decision: 40. Record the reasons for your remission (or non-remission) decision on the relevant ATO system. | Record the penalty: 41. Record the penalty amount owing after any remission in the relevant ATO accounting system. | 42. There is no obligation to key into the account any amount of the penalty that we have remitted, only the amount of the penalty after any remission. If the penalty has been fully remitted, there is no penalty, so we do not need to key any penalty on the account. | Notifying the entity: • explaining why there is a liability to a penalty, and • issuing a notice of the penalty which includes the due date for the payment of the penalty. | Notice of penalty and reasons for decision: • their liability to pay the penalty, after any reductions or remissions • the reasons why they are liable to the penalty, and • the reasons why the penalty has not been remitted or has been remitted only in part. | 45. You must give (or serve) the entity with written notice of its liability to pay the penalty and why the entity is liable to pay the penalty. [18] | 46. The notice must specify the due date of the penalty. The due date must be at least 14 days after the notice is given to the entity. [19] | 47. Where the penalty is not paid by the due date, general interest charge will accrue on the outstanding balance until paid. [20] | 48. The reasons will set out the findings based on relevant facts and refer to the evidence or other material that those findings were based on. That is, we must explain what the decision and the penalty is, why we have made it, the law used and the facts and evidence we considered. We must also address all issues raised by the entity about the penalty. | 49. The law does not specify when the written notice must be given. However, the reasons for decision should be given prior to, or at the same time as, the entity is notified of the penalty. Where this is not possible, they should be provided as soon as possible after issuing a notice of penalty. | 50. The law does not require us to give reasons for the penalty decision where the penalty has been remitted to nil. However, we may wish to notify the entity of the decision in order to positively influence compliance behaviour so the entity can meet its record-keeping obligations in future. | 51. We must record complete reasons for the penalty decisions on the relevant ATO system. This could be through the same document in which the reasons for decision are provided to the entity. | Right of review: • to issue a direction to educate, or • to vary or refuse to vary a direction to educate. | 53. An entity that is dissatisfied with our decision not to remit some or all of the penalty may object to the decision where the penalty not remitted is more than 2 penalty units. [22] If the remaining penalty is 2 or fewer penalty units, the entity may seek judicial review of the decision in the Federal Court. | 54. Where there is no liability to a penalty because of an exception or remission, there is no objection or review right. | More information: • Taxation Ruling TR 96/7 Income tax: record keeping – section 262A – general principles • Miscellaneous Taxation Ruling MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard • Law Administration Practice Statement PS LA 2008/14 Record keeping when using commercial off the shelf software • Law Administration Practice Statement PS LA 2012/5 Administration of the false or misleading statement penalty – where there is a shortfall amount • Taxation Determination TD 2011/19 Tax administration: what is a general administrative practice for the purposes of protection from administrative penalties and interest charges? • Prosecution Policy • ATO Charter . | Included vulnerability as an example of circumstances beyond the entity's control when considering remission. | Updated to align with amended Practice Statement style and formatting requirements. | Updated to reflect that a penalty under section 288-25 of Schedule 1 to the TAA is not assessed by the Commissioner. | Updated record-keeping requirements for Superannuation Guarantee (Administration) Act 1992 and the Petroleum Resource Rent Tax Assessment Act 1987. | Inserted record-keeping requirements for minimum tax law. | Updated in line with current ATO style and accessibility requirements. | Sections 1 and 2, and Steps 2 and 4 of section 3 | New content added for issuing a tax-records education direction under the Treasury Laws Amendment (2022 Measures No. 2) Act 2022. Consequential amendments also made to existing content including the introductory section, renumbering paragraphs and remission considerations. | Updated to new LAPS format and style. | Paragraph 45 and footnote 2 | Updated due to change in penalty unit value. | Removed specific dollar values for a penalty unit; included a reference to the source of the penalty unit value and where to locate it. | Updated to reflect current penalty units. | Revised to reflect change in penalty unit value from 28 December 2012. | Updated to current ATO publication style. | Paragraph 7 and Related public rulings | Updated reference from MT 2008/D1 to MT 2008/1. | Remove the reference to e-Record which is no longer available. | Added Minerals Resource Rent Tax record keeping provisions. | Updated TR 94/4 to MT 2008/D1. | Added requirement of Commissioner to provide reasons to entity of why the entity is liable to pay a penalty under section 298-10 of Schedule 1 to the TAA (as amended by No. 75 of 2005). | New paragraph added to clarify ATO policy of provided reasons for decision where penalty remitted in full, although no requirement exists under legislation (section 298-20 of Schedule 1 to the TAA). | Related practice statements | Added PS LA 2006/2 and PS LA 2007/3. | Update reference to section 70 of the TAA to section 382-5 of Schedule 1 to the TAA. | [1] Section 262A of the Income Tax Assessment Act 1936 , sections 382-5 and 382-20 of Schedule 1 to the TAA. | [2] See Law Administration Practice Statement PS LA 2012/5 Administration of the false or misleading statement penalty – where there is a shortfall amount. | [3] Section 8ZE of the TAA. | [4] The value of a penalty unit is contained in section 4AA of the Crimes Act 1914 and is indexed regularly. The dollar amount of a penalty unit is available at Penalties . | [6] Paragraph 288-25(2)(c). | [7] Paragraph 1.23 of the Explanatory Memorandum to the Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 (EM). | [8] Paragraph 1.19 of the EM. | [9] Subsection 384-12(1). | [10] This is because the failure to comply with an obligation to keep records under that Act is separately covered by the superannuation guarantee education direction; see PS LA 2021/3 for the remission considerations relevant to these obligations. | [11] Subsection 384-15(2). | [12] Note to subsection 384-15(2); subsection 384-35(7). | [13] The value of a penalty unit is contained in section 4AA of the Crimes Act 1914 and is indexed regularly. The dollar amount of a penalty unit is available at Penalties . | [15] Capacity to pay and hardship may be dealt with through payment arrangements, compromise, release and under other taxation or insolvency provisions, not through remission of penalties. | [17] Sections 298-10 and 298-20. | [22] Subsection 298-20(3). | File 05/1463; 1-186FJG8Z; 1-1AZC1YEV | Related Rulings/Determinations: TR 96/7 MT 2008/1 TD 2011/19"
PS LA 2005/6,Releasing employee names under the Freedom of Information Act 1982,11 March 2005,11 March 2005,Law Administration Practice Statement,False,"1. What this Practice Statement is about: This Practice Statement provides guidance to decision-makers on the general policies and practices about releasing a tax officer's name under the Freedom of Information Act 1982 (FOI Act). All legislative references in this Practice Statement are to the FOI Act. | 2. Authorised decision-makers: Only an authorised freedom of information (FOI) decision-maker can make a decision about releasing or exempting material under the FOI Act. Authorised FOI decision-makers are members of the ATO Office of General Counsel in the ATO Corporate business line. | 3. Releasing documents containing the names of tax officers under FOI: Generally, names appearing in documents are released when the documents are requested under FOI, except where: • the names are irrelevant to the request (section 22), or • there is an exemption based on - a tax officer's physical safety being endangered (paragraph 37(1)(c)) - the operations of the ATO being adversely affected (paragraph 47E(d)) - a tax officer's right to personal privacy being breached (section 47F) - the possibility of any of these arising from a cumulative effect of public and released information (the 'mosaic effect'). • the names are irrelevant to the request (section 22), or • there is an exemption based on - a tax officer's physical safety being endangered (paragraph 37(1)(c)) - the operations of the ATO being adversely affected (paragraph 47E(d)) - a tax officer's right to personal privacy being breached (section 47F) - the possibility of any of these arising from a cumulative effect of public and released information (the 'mosaic effect'). - a tax officer's physical safety being endangered (paragraph 37(1)(c)) - the operations of the ATO being adversely affected (paragraph 47E(d)) - a tax officer's right to personal privacy being breached (section 47F) - the possibility of any of these arising from a cumulative effect of public and released information (the 'mosaic effect'). You should consider these points whenever making a decision about releasing documents under the FOI Act. See sections 4 and 5 of this Practice Statement for more detail. Applying the policies If you think that an exemption applies to a tax officer's name, you will need to consider whether you need to consult the named officer before claiming the exemption and deleting their name from the documents to be released. If the 'physical safety' or 'agency operations' exemptions are clearly appropriate, consultation may not be necessary. If the 'personal privacy' exemption is to be used, it may be appropriate to consult the named officer. See section 6 of this Practice Statement for more detail. | 4. Relevance of the name to the request: The main test for a section 22 exemption is whether the name can be reasonably regarded as irrelevant to the request. This would be rare. There is no exemption provision for redacting the name of a tax officer just because they were not: • actively involved in a matter • dealing directly with the subject matter of the request. • actively involved in a matter • dealing directly with the subject matter of the request. However, the terms of a request may be so specific that they do not cover the name of the officer mentioned in the relevant documents. The applicant may also have expressly excluded the names of officers from the scope of the request. Example 1 - approving tax officer's name A request is made for only 'the amount paid by the ATO for a particular consultant's report'. The document may contain the name of the tax officer who approved the payment. The officer's name is irrelevant to that request and may be deleted under section 22 on that basis. | 5. Exemptions: Because of our work in some sensitive and high-risk areas of tax compliance, it is prudent to take steps to protect the identity of some tax officers. This is done using the relevant exemptions under the FOI Act. A range of possible exemptions can be claimed, depending on the circumstances. These are discussed in this Practice Statement. Physical safety - paragraph 37(1)(c) You may claim an exemption if the disclosure of information would 'endanger the life or physical safety' of an tax officer. This includes circumstances where the applicant has made an actual threat or where an tax officer may reasonably perceive a threat to their safety. You do not need to wait for each individual to suffer actual threats of harm from the applicant. It is sufficient to exempt names if there: • has been a threat of harm to others working in a similar way • has been a threat of harm to others after a disclosure of similar information • is a real possibility that harm is a consequence of disclosure judging from the attributes of the person making the request (for example, if they have a history of violent or threatening behaviour). • has been a threat of harm to others working in a similar way • has been a threat of harm to others after a disclosure of similar information • is a real possibility that harm is a consequence of disclosure judging from the attributes of the person making the request (for example, if they have a history of violent or threatening behaviour). You must clearly document the basis for your decision to exempt material for this reason. There must be cogent evidence that there is real fear of danger. The threat of verbal abuse is not sufficient. The operations of the agency - section 47E You may exempt a name from a document where its disclosure would, or could reasonably be expected to, have a 'substantial adverse effect' on the agency's ability to: • manage or assess its personnel • properly and efficiently conduct its operations. • manage or assess its personnel • properly and efficiently conduct its operations. This may be applicable in requests from ATO staff for documents containing the names of other ATO staff members. Note: This is a conditional exemption and access must generally be given to a conditionally exempt document unless giving access to the document at that time would be contrary to the public interest. See Part 6 of the Freedom of information guidelines issued by the Office of the Australian Information Commissioner (OAIC) for more information on: • 'operations of agencies' • public interest considerations. • 'operations of agencies' • public interest considerations. Personal privacy - section 47F In some circumstances, you may exempt material about a tax officer to protect their privacy. Section 47F is not commonly used but it covers material which, if released, would result in 'an unreasonable disclosure of personal information' about an individual. Note: This is also a conditional exemption and access must generally be given to a conditionally exempt document unless giving access to the document at that time would be contrary to the public interest. The factors, as outlined in Part 6 of the Freedom of information guidelines, to consider when deciding an 'unreasonable disclosure' of personal information are: • the extent to which the information is well known • whether the person to whom the information relates is known to be (or to have been) associated with the matters dealt with in the document • the availability of the information from publicly accessible sources • any other matters that the agency considers relevant. • the extent to which the information is well known • whether the person to whom the information relates is known to be (or to have been) associated with the matters dealt with in the document • the availability of the information from publicly accessible sources • any other matters that the agency considers relevant. The disclosure of a tax officer's name is not usually considered to be an unreasonable disclosure of personal information. The Freedom of information guidelines under the heading 'Personal information about agency employees' states where: ... a public servants' personal information is included in a document because of their usual duties or responsibilities, it will not be unreasonable to disclose it unless special circumstances exist. This is because the information would reveal only that the public servant was performing their public duties. There are, of course, cases where it could be appropriate to redact tax officers' names. The names of those working in sensitive and high-risk areas, who generally use pseudonyms when dealing with taxpayers, may require extra protection of their privacy. These decisions should be made on a case-by-case basis. In addition, material may be exempt where: • it is reasonable to assume that it could be combined with other information in ways that would lead to personal information of officers being revealed and accessible (mosaic effect) • an FOI request seeks, or has the effect of seeking, a list of names of officers by reference to personal characteristics, such as gender, age or location • the context in which the name of the tax officer, or other personal information, appears does not relate to their official capacity (that is, the document mentions that an officer is on leave and goes on to detail a medical reason for the leave; the medical reason could reasonably be redacted as 'personal information') • a personal mobile phone number is included in an official document for the convenience of a colleague (work phone numbers, however, will not generally be exempt. • it is reasonable to assume that it could be combined with other information in ways that would lead to personal information of officers being revealed and accessible (mosaic effect) • an FOI request seeks, or has the effect of seeking, a list of names of officers by reference to personal characteristics, such as gender, age or location • the context in which the name of the tax officer, or other personal information, appears does not relate to their official capacity (that is, the document mentions that an officer is on leave and goes on to detail a medical reason for the leave; the medical reason could reasonably be redacted as 'personal information') • a personal mobile phone number is included in an official document for the convenience of a colleague (work phone numbers, however, will not generally be exempt. Example 2 - the mosaic effect The Commissioner of Taxation annual report makes it clear that one state has a large capital city office and another site where only 3 ATO staff work. An FOI request for details of all officers in the state not based in the capital city would effectively identify the 3 tax officers. Putting the information from the report with the FOI request would result in an unreasonable disclosure of the three officers' personal information. The information would therefore be exempt. | 6. Applying the policies: When to consult with the named officer It is neither practical nor mandatory that you consult with every tax officer named in material subject to an FOI request, but you may need to consult in some cases. In cases where it is obvious that there are particular sensitivities or we have been advised of particular sensitivities by the business line providing the documents, it may be appropriate to consult. Privacy and 'reverse FOI' under section 27A You may propose to provide information, including a name, to an FOI applicant, but have reason to believe that a tax officer might reasonably contend that this would be an unreasonable disclosure of their personal information under section 47F. Usually a phone call to the named tax officer will clear this up. If, in conversation, they advise that their name should not be released, follow the process in section 27A to give them an opportunity to make a submission. You must take any submission into account. Take particular care when the tax officer affected works in or is connected with sensitive, high-risk compliance work. Consultation process It is not ordinarily appropriate to disclose the identity of the FOI applicant to the tax officer you are consulting. However, in some circumstances it may be necessary to do so in order to gather enough information from them to make a decision about their safety or privacy. As a matter of courtesy, try to inform the tax officers named in relevant documents if the circumstances of the release may be particularly contentious. Where practicable, do this before the release. This might not be necessary or practical in some cases. Further examples Example 3 - signature blocks An email relevant to a request contains a signature block showing a tax officer's name, work location and work phone number. As a general rule, this information is not considered to be an unreasonable disclosure of personal information, so would not be exempt. Consider whether any special circumstances may apply. Example 4 - personal leave information An email contains information about when an ATO staff member is planning to take leave. Consider whether the information is relevant to the request. If it is relevant, consider whether the information is exempt under section 47F as being an unreasonable disclosure of personal information. Example 5 - personal performance data A request is made by a third party for a tax officer's performance data. Consult with the officer involved. This is likely to be considered to be an unreasonable disclosure of personal information. Releasing edited material A document is not exempt just because it contains exempt material. Section 22 requires documents to be released with irrelevant or exempted material deleted. Such documents are released in part. Orders to release The OAIC, Administrative Appeals Tribunal or a court may direct the ATO to produce documents showing tax officers' names, even where exemption under FOI has been claimed. This may happen if exemption under FOI is successfully contested in the Administrative Appeals Tribunal or a court. | 7. More information: For more information, see: • Freedom of information guidelines , issued by the OAIC (in particular paragraph 6.140) • Freedom of Information Act 1982 • Freedom of information disclosure log (ATO website) • Freedom of information (FOI) requests - individuals and businesses • Freedom of information guidelines , issued by the OAIC (in particular paragraph 6.140) • Freedom of Information Act 1982 • Freedom of information disclosure log (ATO website) • Freedom of information (FOI) requests - individuals and businesses",FOI Act 1982 22 | FOI Act 1982 27A | FOI Act 1982 37(1)(c) | FOI Act 1982 47E | FOI Act 1982 47E(d) | FOI Act 1982 47F,,FOI Act 1982 22 | FOI Act 1982 27A | FOI Act 1982 37(1)(c) | FOI Act 1982 47E | FOI Act 1982 47E(d) | FOI Act 1982 47F,,"Australian Taxation Office, (2018) Freedom of information disclosure log Australian Taxation Office (2024) Freedom of information (FOI) requests - individuals and businesses Office of the Australian Information Commissioner (2024) FOI guidelinesFreedom of information guidelines",False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20056/NAT/ATO/00001,"In this Practice Statement, a reference to a right to seek review of a reviewable objection decision or an extension of time refusal decision in the AAT should instead be read as a reference to a review in the ART. | Updated in line with current ATO style and accessibility requirements. Pinpoint references to Freedom of Information guidelines adjusted. | Updated to new LAPS format and style. | Insert a new 3rd paragraph | Updated to reflect wording of the FOI Act commencing 1 November 2010. | Updating 'Tax Office' to 'ATO' as per the ATO Style Guide. | Minor amendments to update naming conventions and provide further clarity."
PS LA 2005/7,Substantiating an individual's work-related expenses,20 April 2005,1 July 2004,Law Administration Practice Statement,False,"1. What this Practice Statement is about: This Practice Statement applies to expenses relating to income reported on an individual non-business payment summary or income statement, such as salary and wages income. It does not apply to non-individual, business or investment expenses. Some taxpayers may not be able to meet the specific substantiation requirements but they may have other evidence that demonstrates they are complying with the law. You should consider all cases on their own merit. Cases that exhibit special or exceptional circumstances should be dealt with on a case-by-case basis – for example, if there is evidence to suggest that the documentation may be fraudulent or where the taxpayer's evidence differs substantially from the approaches set out in this Practice Statement. | 2. Acceptable evidence: If a taxpayer's total work-related expense claims exceed $300, they must provide written evidence for the entire amount (not just the amount over $300). A summary of the requirements is provided in Attachment A to this Practice Statement. Documents (such as invoices and receipts) that the taxpayer acquires [1] from the supplier must set out the: • supplier's name or business name • amount of the expense or the cost of the asset, expressed in the currency in which it was incurred • nature of the goods, services or asset • day on which the expense was incurred or the asset was acquired • day on which the document was made out. • supplier's name or business name • amount of the expense or the cost of the asset, expressed in the currency in which it was incurred • nature of the goods, services or asset • day on which the expense was incurred or the asset was acquired • day on which the document was made out. If the document does not specify the nature of the goods or the day the expense was incurred, the taxpayer may write in the missing details before they lodge their tax return. They can also use alternative supporting evidence to show this information. Records made and stored electronically are recognised as documents. Where the documents supplied are insufficient, we may accept the following documents (or combinations of documents) as acceptable evidence of expenses: • bank statements • credit card statements • payment reference numbers (such as BPAY, Post Billpay, PayID, Poli, and so on), combined with bank statements or tax invoices. • bank statements • credit card statements • payment reference numbers (such as BPAY, Post Billpay, PayID, Poli, and so on), combined with bank statements or tax invoices. | 3. Examples – sufficient evidence: All the examples in this Practice Statement assume that the taxpayer has other work-related expenses that will take the total being claimed to more than $300. Example 1 – bank or credit card statement with alternative evidence Daniel is employed by a large firm of solicitors and receives a bill for his annual professional subscription fees, which he pays using his credit card. His credit card statement bears the date of the transaction, the name of the professional association and the amount paid. Before he lodges his tax return, Daniel makes a note on his credit card statement to the effect that the transaction relates to his professional subscription fees. Example 2 – bank or credit card statement with alternative evidence Kylie, having just started her first full-time job as a clerical worker, purchases a pen to use at work. She buys it from a jeweller's shop for $50. She also buys a pair of earrings for $100 and pays for both items on her credit card. Having never completed a tax return before, she is not aware that the pen will be a deductible expense. She does not request or receive a receipt. When it is time to prepare her tax return, Kylie realises that she can claim her pen as a work expense. She checks her credit card statement and finds that it shows an amount of $150 and the name of the jeweller's shop. Initially, she decides it would be safest not to claim for the pen because she has no specific receipt and she is not sure of the exact amount. However, she kept the box the pen came in and noted the $50 price sticker on the outside. Before lodging her tax return, Kylie makes a note on the credit card statement detailing the 2 items and their respective prices and keeps the packaging along with her bank statement. Kylie now has sufficient information to substantiate her claim. Had Kylie not kept the box but instead obtained a written breakdown of purchases from the jewellery store, she would also have been able to make a note on her credit card statement detailing the 2 items and their respective prices, which would have been sufficient evidence to substantiate her claim. Example 3 – evidence in electronic formats Minh, a computer programmer, buys a data storage device for work over the internet. When he orders it, he receives an automatic response via email that quotes an order reference number, the nature of the goods and the amount due to be paid. He pays by electronic funds transfer and prints out a copy of the payment receipt. He keeps the payment receipt, which includes the supplier's name and the amount paid. Minh stores the email in an electronic folder labelled 'Tax', which he also backs up. The combination of the automatic email response and payment receipt is sufficient evidence to substantiate Minh's expense. Example 4 – evidence in electronic format Amanda, also a computer programmer, retains her internet-generated receipts for work expenses (including supplier details and purchase amounts) on her computer. If necessary, the receipts can be printed and we may be able to verify the receipts as genuine by communicating with the issuer. The electronic receipt is sufficient evidence to substantiate Amanda's expenses. Example 5 – evidence in electronic format Jonathan often moves from job-to-job, frequently relocating to different cities in order to take up employment opportunities. He prefers not to keep paper receipts. Instead, he scans his receipts using an app downloaded to track his deductions. If the original receipts contain the required information, they are sufficient to substantiate his expenses. Electronic copies that are a true and clear reproduction of the originals are also acceptable because we can verify that the receipts are genuine by communicating with the issuer. Example 6 – various payment methods Louise is an apprentice plumber employed by a small plumbing business. She uses her mobile phone for business calls and she provides her own tools. Louise uses BPAY to pay her mobile phone bills. She cannot claim a deduction for the private use component of her phone, so she maintains a log of calls made for business purposes, including the date, time of call and phone number called. She uses her itemised phone bill to determine the cost of her business-related calls. She notes her BPAY receipt number on the bill. The combination of the BPAY receipt number, log of phone calls and itemised phone bill is sufficient evidence to substantiate the expense. Louise is a regular customer at her local hardware store so, when she purchases $250 worth of tools, they issue her with a tax invoice requesting payment within 30 days instead of asking her to pay at the time of purchase. She pays the amount at the end of the month by an electronic transfer from her bank account. The combination of the tax invoice and bank statement showing the electronic transfer is sufficient evidence to substantiate the claim for the purchases. She also buys a spanner from a different hardware store because she needs to replace one that was damaged while she was on a job. She pays for the spanner using electronic funds transfer point of sale (EFTPOS), and withdraws some cash, keeping her receipt. The receipt contains the relevant details required, showing $129 for the spanner and $100 for the cash withdrawal. The receipt is sufficient evidence to substantiate Louise's expense. Note: For most EFTPOS transactions, a bank statement alone would not be sufficient evidence to substantiate a claim. This is because bank statements do not generally show a cash withdrawal separately from the amounts associated with the items purchased in the transaction, nor do they usually show the nature of the items purchased. If the taxpayer does not obtain or retain the receipt for an EFTPOS transaction, they will generally need further evidence to show the amount of the item purchased. Had Louise not kept the receipt, we would accept other evidence that demonstrates the amount spent on the spanner – for example, the combination of the bank statement and the written price breakdown from the hardware store, or the combination of the bank statement and the tool packaging marked with the price. Example 7 – copies of receipts Marco, a real estate agent employed by a large real estate agency, uses his car for work purposes and pays for fuel, oil, repairs and maintenance at the local garage. He pays by credit card, EFTPOS or cash. The receipts are printed on thermal paper, which fades over time. Marco claims his car expenses via the logbook method and so does not need to keep the receipts for fuel and oil (he relies on his odometer records). However, he needs to claim separately for the repairs and maintenance. Marco photocopies the thermal paper receipts to protect the information contained on the receipts and ensure that he is able to continue to provide a copy of the receipts after the original receipts fade. If the receipts contain sufficient information to support the correctness of the claim, they are acceptable as sufficient evidence to substantiate Marco's expenses, whether they are in the form of original receipts or copies of the original receipts. This is provided that the copies are a true and clear reproduction of the originals. | 4. Examples – insufficient evidence: Example 8 – prices on the product Tom, an apprentice mechanic employed by a small auto-repair business, requires textbooks for the TAFE component of his apprenticeship. He purchases them for $270 in cash from an ex-student at the TAFE he attends. He does not ask for a receipt and, when preparing his tax return, cannot remember the name or contact details of the person from whom he purchased them. The textbooks have prices written in pencil on the inside cover. Tom has no receipt and no way of getting a receipt or other evidence to support his claim for the textbooks. The notation on the inside cover of the textbook alone is not sufficient evidence to substantiate Tom's expense. Example 9 – screenshot of private advertisement Jane, a radio engineer employed by a local radio station, purchases some tools for work for $200 from a private individual who advertised them for sale in the local paper. Jane pays cash for the tools and does not obtain a receipt but she keeps the advertisement. The advertisement includes a description of the tools, the price advertised and a contact phone number for the seller. At the end of the financial year, Jane decides to call the seller to obtain a receipt for the tools but she finds that the number has been disconnected. Jane has no receipt and no way of getting a receipt or other evidence to support her claim for the tools. The advertisement alone is not sufficient evidence to substantiate her expense. | 5. More information: For more information, see: • Claims of $300 or less • Deductions you can claim • Rules for written evidence to substantiate deductions • Written evidence • Claims of $300 or less • Deductions you can claim • Rules for written evidence to substantiate deductions • Written evidence Diagram 1: Rules for accepting documentary evidence where total work expenses exceed $300 Note: Taxpayers do not need receipts if: • the total of their work expenses (excluding car, meal allowance, award transport payments allowances and travel allowance expenses) does not exceed $300 • a taxation law or an associated publication allows a concession for reasonable expenses (for example, travel, home office expenses and laundry expenses not exceeding $150) • the expenses are less than $10 individually and the total does not exceed $200 (section 900-125 of the Income Tax Assessment Act 1997 ), or • the Commissioner of Taxation considers it unreasonable to expect them to have written evidence (section 900-130 of the Income Tax Assessment Act 1997 ). • the total of their work expenses (excluding car, meal allowance, award transport payments allowances and travel allowance expenses) does not exceed $300 • a taxation law or an associated publication allows a concession for reasonable expenses (for example, travel, home office expenses and laundry expenses not exceeding $150) • the expenses are less than $10 individually and the total does not exceed $200 (section 900-125 of the Income Tax Assessment Act 1997 ), or • the Commissioner of Taxation considers it unreasonable to expect them to have written evidence (section 900-130 of the Income Tax Assessment Act 1997 ).",ITAA 1997 900-125 | ITAA 1997 900-130,,ITAA 1997 900-125 | ITAA 1997 900-130,,Claims of $300 or less Deductions you can claim Rules for written evidence to substantiate deductions Written evidence,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20057/NAT/ATO/00001,"Updated in line with current ATO style and accessibility guides. | Updated to the new LAPS format and style. | [1] This may be electronically via email, internet, and so on. | Refer to end of document for amendment history. Prior versions can be requested by emailing TCNLawPublishingandPolicy@ato.gov.au if required."
PS LA 2005/15,The Commissioner's discretion to extend the time in which the agreement in writing must be made to apply the margin scheme under Division 75 of the A New Tax System (Goods and Services Tax) Act 1999,4 October 2005,30 September 2005,Law Administration Practice Statement,False,"1. What this Practice Statement is about: The Commissioner has the discretion to extend the time in which the agreement in writing must be made to apply the margin scheme. [1] This Practice Statement sets out the circumstances in which this should be done. | 2. Exercising the discretion: When exercising the discretion, you must consider the circumstances of each case to consider what would be fair and reasonable to all parties. You should consider the delay in entering into the agreement, the explanation for the delay and any other circumstances, bearing in mind that the discretion exists in order to avoid injustice. While each case should be considered on its merits, you may exercise the discretion if you are satisfied that: • all the requirements (other than the agreement being made) to apply the margin scheme are met • neither the recipient nor the supplier have reported their goods and services tax (GST) obligations based on the margin scheme not applying, and • there is no arrangement that has the effect of producing an outcome contrary to the policy of the legislation. [2] • all the requirements (other than the agreement being made) to apply the margin scheme are met • neither the recipient nor the supplier have reported their goods and services tax (GST) obligations based on the margin scheme not applying, and • there is no arrangement that has the effect of producing an outcome contrary to the policy of the legislation. [2] It would be inappropriate for you to exercise the discretion where there is an arrangement to avoid GST or otherwise obtain an outcome contrary to the policy of the legislation. | 3. Approving the exercise of the discretion: Any decision to exercise the discretion must be approved by an Executive Level 1 officer (or above). | 4. Limit to the discretion in relation to the margin scheme: The discretion only reaches as far as extending the time by which the agreement to apply the margin scheme must be made in writing. It cannot alter the circumstances under which the margin scheme can be applied. You must be satisfied that all the requirements to apply the margin scheme have been met before you exercise the discretion to extend the timeframe. | 5. When it may be appropriate to exercise the discretion: The following are examples of cases which may be more common and where it may be appropriate to exercise the discretion: • the supplier and recipient of the supply agreed to apply the margin scheme, but inadvertently failed to put the agreement in writing by the time the supply is made • the failure to agree to apply the margin scheme was due to a genuine mistake – for example, the supply was mistakenly believed to be a GST-free supply or the supplier mistakenly considered it was not required to be registered for GST • the supply was intended to be made to an entity that was entitled to an input tax credit on its acquisition, but instead the supply was made to an entity that was not entitled to an input tax credit – for example, the supply was made to an unregistered entity • the supply was made without the parties agreeing to apply the margin scheme but the recipient of the supply realises, prior to claiming an input tax credit for its creditable acquisition, that it wishes to apply the margin scheme to a future supply to a third party (which the recipient cannot do if GST on the supply to it is not calculated under the margin scheme). • the supplier and recipient of the supply agreed to apply the margin scheme, but inadvertently failed to put the agreement in writing by the time the supply is made • the failure to agree to apply the margin scheme was due to a genuine mistake – for example, the supply was mistakenly believed to be a GST-free supply or the supplier mistakenly considered it was not required to be registered for GST • the supply was intended to be made to an entity that was entitled to an input tax credit on its acquisition, but instead the supply was made to an entity that was not entitled to an input tax credit – for example, the supply was made to an unregistered entity • the supply was made without the parties agreeing to apply the margin scheme but the recipient of the supply realises, prior to claiming an input tax credit for its creditable acquisition, that it wishes to apply the margin scheme to a future supply to a third party (which the recipient cannot do if GST on the supply to it is not calculated under the margin scheme). | 6. Requirements of a request to exercise the discretion: The request for the exercise of the discretion needs to be in writing and made on behalf of the supplier, the recipient or both (jointly). The request should outline (in sufficient detail for you to make the decision) the delay, why it occurred and any other relevant circumstances. The request should also confirm, with supporting documentation, that other than the agreement being made in writing, all the requirements to apply the margin scheme are met. | 7. Notifying your decision: You should advise the applicant in writing of your decision regarding the discretion. | 8. Taxpayers' review rights: A decision to exercise or not to exercise the discretion to extend the time (including the length of time) in which the agreement to apply the margin scheme should be made is a reviewable GST decision. [3] Where either the supplier or recipient is dissatisfied with the decision, they can lodge an objection under the provisions of Part IVC of the Taxation Administration Act 1953. | 9. More information: For more information on: • the margin scheme, see GST and the margin scheme • allowing further time to make an approved valuation for the purposes of working out the margin for the supply, see Law Administration Practice Statement PS LA 2005/16 Further period to make an approved valuation for the purposes of working out the margin for the supply under Division 75 of the A New Tax System (Goods and Services Tax) Act 1999. • the margin scheme, see GST and the margin scheme • allowing further time to make an approved valuation for the purposes of working out the margin for the supply, see Law Administration Practice Statement PS LA 2005/16 Further period to make an approved valuation for the purposes of working out the margin for the supply under Division 75 of the A New Tax System (Goods and Services Tax) Act 1999.",PS LA 2005/16 | ANTS(GST)A 1999 75-5(1A) | TAA 1953 Part IVC | TAA 1953 110-50(2) | 2004 ATC 4303,PS LA 2005/16,ANTS(GST)A 1999 75-5(1A) | TAA 1953 Part IVC | TAA 1953 110-50(2),,GST and the margin scheme,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS200515/NAT/ATO/00001,Updated in line with current ATO style and accessibility requirements. | Updated to new LAPS format and style. | Delegation changed from EL2 to EL1 for sign off on margin scheme cases. | [1] Subsection 75-5(1A) of the A New Tax System (Goods and Services Tax) Act 1999 . | [2] Commissioner of Taxation v Asiamet (No. 1) Resources Pty Limited [2004] FCAFC 73. | [3] Under subsection 110-50(2) of Schedule 1 to the Taxation Administration Act 1953 . | Commissioner of Taxation v Asiamet (No 1) Resources Pty Limited [2004] FCAFC 73 137 FCR 146 2004 ATC 4303 55 ATR 239 [2004] ALMD 4224
PS LA 2005/16,Further period to make an approved valuation for the purposes of working out the margin for the supply under Division 75 of the A New Tax System (Goods and Services Tax) Act 1999,25 February 2010,1 March 2010,Law Administration Practice Statement,False,"1. What this Practice Statement is about: Legislative determinations have been made [1] which provide for the requirements for making a valuation for the purposes of working out the margin for the supply under Division 75 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Among other things, these determinations allow for further periods in which the valuations are to be made, if the Commissioner has allowed for that further period under paragraph 75-5(1A)(b) of the GST Act. However, even if the valuation is not undertaken within the further periods specified in the determinations, you may, if there is good reason, allow an additional period to obtain a valuation. This Practice Statement sets out the circumstances where you should consider doing this. All further legislative references in this Practice Statement are to the GST Act, unless otherwise indicated. | 2. Circumstances where a further period to obtain an approved valuation should be allowed: In considering whether to exercise the discretion to allow a further period to obtain an approved valuation, you should look at the circumstances of each case to consider what would be fair and reasonable to all the parties, bearing in mind that paragraph 75-5(1A)(b) is a provision aimed at avoiding injustice. [2] You should consider the length of the delay in obtaining an approved valuation, the explanation for the delay and any other relevant circumstances. While you need to consider each case on its individual merits, provided there are no other relevant matters, you would generally allow a further period to obtain an approved valuation in the following circumstances: • a supplier obtained a valuation that is not an approved valuation – for example, a valuation obtained from other than a professional valuer or a valuation obtained from a professional valuer that is contrary to professional standards recognised in Australia • the parties contracted on the basis that the supply is goods and services tax (GST)-free, input-taxed or otherwise non-taxable, but the supply is a taxable supply • there has been a genuine mistake – for example, the supplier mistakenly believed that a valuation was not required or had already been obtained • there has been an inadvertent oversight – for example, where the supplier and recipient agree to use the margin scheme, but the supplier – forgot to instruct the valuer, or – failed to notice that the valuer had not valued all the lots in a subdivision • a valuation was not undertaken for reasons outside the control of the parties – for example – settlement was close to the end of a tax period and the supplier has taken reasonable steps to obtain a valuation on time, but there was insufficient time to obtain one, or – any other reasons outside the control of the parties that a valuation is not undertaken. • a supplier obtained a valuation that is not an approved valuation – for example, a valuation obtained from other than a professional valuer or a valuation obtained from a professional valuer that is contrary to professional standards recognised in Australia • the parties contracted on the basis that the supply is goods and services tax (GST)-free, input-taxed or otherwise non-taxable, but the supply is a taxable supply • there has been a genuine mistake – for example, the supplier mistakenly believed that a valuation was not required or had already been obtained • there has been an inadvertent oversight – for example, where the supplier and recipient agree to use the margin scheme, but the supplier – forgot to instruct the valuer, or – failed to notice that the valuer had not valued all the lots in a subdivision • a valuation was not undertaken for reasons outside the control of the parties – for example – settlement was close to the end of a tax period and the supplier has taken reasonable steps to obtain a valuation on time, but there was insufficient time to obtain one, or – any other reasons outside the control of the parties that a valuation is not undertaken. – forgot to instruct the valuer, or – failed to notice that the valuer had not valued all the lots in a subdivision – settlement was close to the end of a tax period and the supplier has taken reasonable steps to obtain a valuation on time, but there was insufficient time to obtain one, or – any other reasons outside the control of the parties that a valuation is not undertaken. Importantly, you should not allow a further period to obtain an approved valuation if you consider that the granting of a further period is sought to allow the supplier or the recipient to obtain a benefit that is contrary to the scheme of the GST Act. [3] | 3. Who can approve the exercise of the discretion: Any decision to exercise the discretion must be approved by an Executive Level 1 officer (or above). | 4. How the supplier should request the ATO exercise the discretion: Requests for the discretion to be exercised should be made in writing by the supplier to the ATO. However, it is not necessary for them to request the exercise of the discretion (unless the issue is raised by us), where: • the supplier is merely substituting an approved valuation for an invalid valuation, and • the value determined under the approved valuation does not exceed the amount purportedly determined under the invalid valuation. • the supplier is merely substituting an approved valuation for an invalid valuation, and • the value determined under the approved valuation does not exceed the amount purportedly determined under the invalid valuation. | 5. Notifying your decision: You should advise the supplier in writing of your decision regarding the discretion. If the discretion is exercised, the notification will specify the further time period allowed. If the discretion is not exercised, you should include the reasons for not doing so in the notification. | 6. Review rights for the supplier: A decision not to exercise the discretion to extend the period for obtaining an approved valuation is not a reviewable GST decision. [4] However, if a taxpayer feels the Commissioner has made a mistake in not exercising the discretion, in the interests of sound administration, we would generally review the decision, as mentioned in the ATO Charter . A taxpayer may also object under the provisions of Part IVC of the Taxation Administration Act 1953 against an assessment for the tax period in which the GST on the supply of the property is attributable to, on the basis that the amount of GST assessed is incorrect as a result of the discretion not being exercised. | 7. More information: For more information on the valuation process, see: • Goods and Services Tax Ruling GSTR 2006/7 Goods and services tax: how the margin scheme applies to a supply of real property made on or after 1 December 2005 that was acquired or held before 1 July 2000. • Goods and Services Tax Ruling GSTR 2006/8 Goods and services tax: the margin scheme for supplies of real property acquired on or after 1 July 2000. • Goods and Services Tax Ruling GSTR 2006/7 Goods and services tax: how the margin scheme applies to a supply of real property made on or after 1 December 2005 that was acquired or held before 1 July 2000. • Goods and Services Tax Ruling GSTR 2006/8 Goods and services tax: the margin scheme for supplies of real property acquired on or after 1 July 2000.",GSTR 2006/7 | GSTR 2006/8 | ANTS(GST)A 1999 Div 75 | ANTS(GST)A 1999 75-5(1A)(b) | ANTS(GST)A 1999 75-35 | TAA 1953 Part IVC | TAA 1953 Sch1 110-50(2) | 99 ATC 4516 | 2004 ATC 4303 | 99 ATC 4852,,ANTS(GST)A 1999 Div 75 | ANTS(GST)A 1999 75-5(1A)(b) | ANTS(GST)A 1999 75-35 | TAA 1953 Part IVC | TAA 1953 Sch1 110-50(2),,ATO Charter,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS200516/NAT/ATO/00001,"Updated in line with current ATO style and accessibility requirements. | Updated to new LAPS format and style. | Delegation changed from EL2 to EL1 for sign off on margin scheme cases. | Added reference to determination MSV 2009/1. | Updated to include determination MSV 2009/1. | Updated to include footnote 2 and 3. | Updated legislative provision and reference to the Commissioner and Australian Tax Office. | [1] Under section 75-35 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). | [2] Brown v Commissioner of Taxation [1999] FCA 563 at [59]; appeal dismissed in Commissioner of Taxation v Brown [1999] FCA 1198. | [3] Commissioner of Taxation v Asiamet (No. 1) Resources Pty Limited [2004] FCAFC 73. | [4] Under subsection 110-50(2) of Schedule 1 to the Taxation Administration Act 1953 . | File 1-MN40UPS; 1-14E5UUA8; 1-12MYCCS9 | Brown v Commissioner of Taxation [1999] FCA 563 99 ATC 4516 42 ATR 118 | Commissioner of Taxation v Asiamet (No. 1) Resources Pty Limited [2004] FCAFC 73 55 ATR 239 137 FCR 146 2004 ATC 4303 [2004] ALMD 4224 | Commissioner of Taxation v Brown [1999] FCA 1198 99 ATC 4852 42 ATR 672 | This practice statement was originally published on 4 October 2005. Versions published from 20 February 2009 are available electronically - refer to the online version of the practice statement. Versions published prior to this date are not available electronically. If needed, these can be requested by emailing TCNLawPublishingandPolicy@ato.gov.au ."
PS LA 2005/17,SUBJECT: Pay as you go instalment income and foreign exchange realisation gains and losses PURPOSE: To provide guidance about when a net foreign exchange realisation gain (after offsetting foreign exchange realisation losses) can be included in pay as you go instalment income,29 September 2005,1 July 2003,Law Administration Practice Statement,False,"1. This Practice Statement clarifies when it is acceptable for pay as you go (PAYG) instalment payers to include a net foreign exchange (forex) realisation gain [1] in their PAYG instalment income, which generally includes gross rather than net income amounts. This Practice Statement takes effect from 1 July 2003. 2. For the purposes of determining its PAYG instalment income [2] for a particular period, an entity that uses the 'instalment rate x instalment income' method of calculating its PAYG instalment can include a net forex realisation gain as ordinary income derived during that period if: • the entity accounts for forex realisation gains and losses on a net basis in its books of account, and • this net basis of accounting is reflected in the manner in which the entity reported information about forex realisation gains and losses in the tax return (before reconciliation to taxable income) on which the instalment rate for that instalment period is based. • the entity accounts for forex realisation gains and losses on a net basis in its books of account, and • this net basis of accounting is reflected in the manner in which the entity reported information about forex realisation gains and losses in the tax return (before reconciliation to taxable income) on which the instalment rate for that instalment period is based. 3. The net forex realisation gain referred to in paragraph 2 of this Practice Statement cannot include a forex realisation loss that is known, at the time of determining instalment income, to be material. [3] 4. This Practice Statement does not apply to: • individuals who do not derive income from a business, or • entities that pay PAYG instalments on the basis of gross domestic product adjusted notional tax. • individuals who do not derive income from a business, or • entities that pay PAYG instalments on the basis of gross domestic product adjusted notional tax. 5. All legislative references in this Practice Statement are to Schedule 1 to the Taxation Administration Act 1953, unless otherwise indicated. 6. The PAYG instalment provisions in Division 45 require an entity that uses the 'instalment rate ? instalment income' method of calculating their PAYG instalment to apply their instalment rate to their PAYG instalment income for the period. [4] 7. Subsection 45-120(1) states that an entity's PAYG instalment income for a period includes the entity's ordinary income derived during that period, but only to the extent that it is assessable income of the income year that is or includes that period. This does not include statutory income except for particular types of entities. [5] As stated in subsection 6-5(1) of the Income Tax Assessment Act 1997, ordinary income is income according to ordinary concepts. This generally means gross income before taking expenses into account. 8. Tax professional association representatives have advised us that it is common for entities to account for forex realisation gains and losses on a net basis rather than on a gross basis. That is, some accounting systems net off forex realisation gains and losses in one account rather than having separate accounts for gains and losses. Australian accounting standards do not require forex gains and losses to be disclosed separately unless they are material, that is, the payment summary or income statement may disclose a net forex gain or loss. [6] We recognise that an entity whose accounting system operates on a net basis for forex realisation gains and losses may need to undertake considerable reworking of accounts to determine gross forex realisation gains for an instalment period. 9. This Practice Statement confirms that entities that account for forex realisation gains and losses on a net basis in their books of account can include a net forex realisation gain (that is, after offsetting forex realisation losses) as ordinary income derived during an instalment period for the purposes of calculating the amount of their PAYG instalment income. 10. However, to maintain the integrity of the PAYG instalments base, where the amount of a PAYG instalment is calculated using the 'instalment rate × instalment income' method, there must be consistency between the basis on which: • forex realisation gains and losses are disclosed at the business income labels in the relevant tax return, and • forex realisation gains are included in the calculation of PAYG instalment income for the instalment period. • forex realisation gains and losses are disclosed at the business income labels in the relevant tax return, and • forex realisation gains are included in the calculation of PAYG instalment income for the instalment period. 11. This is because the instalment rate that the entity uses to work out its PAYG instalment for a period (that is, the rate notified by us) is based on information provided in the entity's tax return. We work out an entity's instalment rate from information contained in the latest tax return from which an assessment has been made (or would have been made except that the entity had no taxable income). [7] | Entities that account for foreign exchange realisation gains and losses on a net basis: 12. An entity reflects a net basis of accounting for forex realisation gains and losses in reporting information in its tax return by: • disclosing the net forex realisation gain at an income label [8] (and nothing at an expenses label except if a material forex realisation loss is shown at an expenses label) if it has a net forex realisation gain for the income year, or • disclosing the net forex realisation loss at an expenses label [9] (and nothing at an income label except if a material forex realisation gain is shown at an income label) if it has a net forex realisation loss for the income year. • disclosing the net forex realisation gain at an income label [8] (and nothing at an expenses label except if a material forex realisation loss is shown at an expenses label) if it has a net forex realisation gain for the income year, or • disclosing the net forex realisation loss at an expenses label [9] (and nothing at an income label except if a material forex realisation gain is shown at an income label) if it has a net forex realisation loss for the income year. 13. An entity can include a net forex realisation gain in its PAYG instalment income for each instalment period for which the instalment rate is based on that tax return if the entity: • accounts for forex realisation gains and losses on a net basis in its books of account, and • reflects this net basis in the way that forex realisation gains and losses are shown in its tax return. • accounts for forex realisation gains and losses on a net basis in its books of account, and • reflects this net basis in the way that forex realisation gains and losses are shown in its tax return. 14. Where an entity has a forex realisation loss that is known at the time of working out instalment income for an instalment period to be material, this loss must be excluded for the purpose of working out the net forex realisation gain to be included in PAYG instalment income for that instalment period. It is recognised, however, that determining whether a forex realisation loss is material may not be known during the year when instalment income for an instalment period has to be worked out. 15. Where an entity has a net forex realisation loss for an instalment period, this loss cannot be offset against other income in the calculation of PAYG instalment income for the period. This is the case, regardless of the fact that the tax return on which the instalment rate was based reflected a net basis of accounting for forex realisation gains. | Entities that account for foreign exchange realisation gains and losses on a gross basis: 16. An entity reflects a gross basis of accounting for forex realisation gains and losses in reporting information in its tax return by: • disclosing gross forex realisation gains (that is, without offsetting forex realisation losses) at an income label, and • disclosing gross forex realisation losses at an expenses label. • disclosing gross forex realisation gains (that is, without offsetting forex realisation losses) at an income label, and • disclosing gross forex realisation losses at an expenses label. 17. An entity that has reported information about forex realisation gains and losses on a gross basis in its tax return cannot include a net forex realisation gain as ordinary income for the purpose of determining its PAYG instalment income for an instalment period for which the rate was based on that tax return. 18. Where an entity changes its accounting system from a gross to a net basis of accounting for forex realisation gains and losses, it will be necessary for the entity to take appropriate action to ensure the change to their systems still enables them to determine gross forex realisation gains for their instalment periods until such time as the entity's instalment rate is based on a tax return that reflects a net basis of accounting for forex realisation gains and losses. | Entities to which this Practice Statement applies: 19. This Practice Statement applies to entities that use the 'instalment rate ? instalment income' method of calculating their PAYG instalments, except for individuals who do not derive income from a business. 20. Individuals who do not derive income from a business must include their gross assessable forex realisation gains that are ordinary income [10] in PAYG instalment income when working out their PAYG instalment using the 'instalment rate x instalment income' method. This is because if these individuals have assessable forex realisation gains and deductible forex realisation losses, they do not have the option of disclosing a net forex realisation gain or a net forex realisation loss in their tax returns. They include any assessable forex realisation gains they derive at the appropriate income label and any deductible forex realisation losses at the appropriate deductions label. 21. This Practice Statement does not apply to entities that pay PAYG instalments on the basis of gross domestic product adjusted notional tax. | Penalties: 22. Where there is a shortfall in a PAYG instalment that results from a false or misleading statement about the amount of instalment income for the instalment period, an administrative penalty for the shortfall amount is payable under Division 284. Inclusion of a forex realisation gain determined on an inappropriate basis could constitute such a false or misleading statement. For example, it is inappropriate for an entity that accounts for its forex realisation gains and losses on a gross basis and reflects this basis in the information included in the relevant tax return, to include a net forex realisation gain rather than the gross forex realisation gains in instalment income. 23. We have a discretion to remit all or part of any penalties for shortfalls in PAYG instalment amounts. [11] Law Administration Practice Statement PS LA 2012/5 Administration of the false or misleading statement penalty – where there is a shortfall amount sets out guidelines for exercising this discretion. | Example – pay as you go instalment income – foreign exchange realisation gains and losses: 24. XYZ Co accounts for forex realisation gains and losses on a net basis in its books of account. It includes a net forex realisation gain of $30,000 in 'Total income' in its 'Calculation of total profit or loss' at item 6 of its tax return for the 2003–04 income year. 25. XYZ Co is working out its PAYG instalment for the September 2005 to December 2005 quarter. The instalment rate that it applies to its PAYG instalment income for that quarter to work out its PAYG instalment amount is based on the information in the 2003–04 tax return. XYZ Co must include the net amount of its assessable forex realisation gains as ordinary income in its PAYG instalment income for the quarter. 26. If, on the other hand, XYZ Co includes gross forex realisation gains of $100,000 in 'Total income' and forex realisation losses of $70,000 in 'Total expenses' in its 'Calculation of total profit or loss' in its 2003–04 tax return, it is not appropriate for XYZ Co to include net forex realisation gains in its PAYG instalment income for the September 2005 to December 2005 quarter. It must include in its PAYG instalment income its gross assessable forex realisation gains as ordinary income (that is, without offsetting forex realisation losses). Failure to do so could lead to the instalment amount payable being lower than it would have been, resulting in a liability to shortfall penalty under Division 284.",PS LA 1998/1 | PS LA 2012/5 | ITAA 1997 6-5(1) | ITAA 1997 995-1 | TAA 1953 Sch 1 Div 45 | TAA 1953 Sch 1 45-110 | TAA 1953 Sch 1 45-115 | TAA 1953 Sch 1 45-120(1) | TAA 1953 Sch 1 45-120(2) | TAA 1953 Sch 1 45-120(2A) | TAA 1953 Sch 1 45-320 | TAA 1953 Sch 1 Div 284 | TAA 1953 Sch 1 298-20(1),PS LA 2012/5,ITAA 1997 6-5(1) | ITAA 1997 995-1 | TAA 1953 Sch 1 Div 45 | TAA 1953 Sch 1 45-110 | TAA 1953 Sch 1 45-115 | TAA 1953 Sch 1 45-120(1) | TAA 1953 Sch 1 45-120(2) | TAA 1953 Sch 1 45-120(2A) | TAA 1953 Sch 1 45-320 | TAA 1953 Sch 1 Div 284 | TAA 1953 Sch 1 298-20(1),,Accounting Standard AASB 101 Presentation of Financial StatementsAccounting Standard AASB 1012 Foreign Currency TranslationAccounting Standard AASB 1018 Statement of Financial Performance,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS200517/NAT/ATO/00001,"This law administration practice statement is issued under the authority of the Commissioner and must be read in conjunction with Law Administration Practice Statement PS LA 1998/1 . ATO personnel, including non ongoing staff and relevant contractors, must comply with this law administration practice statement, unless doing so creates unintended consequences or is considered incorrect. Where this occurs, ATO personnel must follow their business line's escalation process. This document incorporates revisions made since original publication. View its history and amending notices, if applicable. | Updated in line with current ATO style and accessibility requirements. | Reference to PS LA 2004/5 updated to PS LA 2012/5. | [1] Section 995-1 of the Income Tax Assessment Act 1997 defines 'forex realisation gains'. | [2] This is the amount shown at Label T1 on the activity statement. | Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity. Materiality depends on the nature or magnitude of information, or both. An entity assesses whether information, either individually or in combination with other information, is material in the context of its financial statements taken as a whole. | [4] See sections 45-110 and 45-115. | [5] The instalment income of an eligible approved deposit fund, an eligible superannuation fund or a pooled superannuation trust includes the entity's statutory income (subsection 45-120(2)). The instalment income of a life insurance company includes the part of its statutory income that is included in the complying superannuation class of its taxable income (subsection 45-120(2A)). Prior to 1 July 2003, the part of a life insurance company's statutory income (other than net capital gains) that was included in the ordinary class of its taxable income was also included in instalment income. | [6] Refer to paragraph 35 of Accounting Standard AASB 101 Presentation of Financial Statements . Prior to 1 January 2005, refer to paragraph 5.1 of Accounting Standard AASB 1018 Statement of Financial Performance and paragraph 8.1 of Accounting Standard AASB 1012 Foreign Currency Translation . | [7] Section 45-320 sets out how we work out the instalment rate, using information provided in an entity's most recently assessed tax return to establish the entity's base assessment instalment income. | [8] For companies, at Item 6 – Calculation of total profit or loss; and for individuals, at Item P8 – Business income and expenses. | [9] For companies, at Item 6 – Calculation of total profit or loss; and for individuals, at Item P8 – Business income and expenses. | [10] This does not include statutory income except for an eligible approved deposit fund, an eligible superannuation fund or a pooled superannuation trust (subsection 45-120(2)). | [11] Subsection 298-20(1). | File 04/16899; 1-15UIVEJ4"
PS LA 2005/19,Approved forms,11 November 2005,14 November 2005,Law Administration Practice Statement,False,"What this Practice Statement is about: 1. This Practice Statement sets out: • when a form will need to meet the requirements of an approved form contained in section 388-50 of Schedule 1 to the Taxation Administration Act 1953 (TAA) • what you need to consider in creating and obtaining approval for an approved form, and • how approved forms should be managed. • when a form will need to meet the requirements of an approved form contained in section 388-50 of Schedule 1 to the Taxation Administration Act 1953 (TAA) • what you need to consider in creating and obtaining approval for an approved form, and • how approved forms should be managed. 2. All further legislative references in this Practice Statement are to Schedule 1 to the TAA, unless otherwise indicated. 3. Section 388-50 and this Practice Statement do not apply where: • the obligation to give an approved form is in an Act administered by the Commissioner which has its own definition of 'approved form' – in these cases, the requirements set out in that definition will apply • the relevant Act is silent in respect of any requirements for a form but where the Commissioner requires a form to be created in connection with the exercise of either an implied power or their power of general administration of a taxation law. • the obligation to give an approved form is in an Act administered by the Commissioner which has its own definition of 'approved form' – in these cases, the requirements set out in that definition will apply • the relevant Act is silent in respect of any requirements for a form but where the Commissioner requires a form to be created in connection with the exercise of either an implied power or their power of general administration of a taxation law. | Approved forms: 4. A person must lodge a document in the approved form where it is required by the relevant provision. 5. An approved form can be a return, notice, statement, application or other document in a form approved in writing by the Commissioner, including in paper form or in a 'virtual form'. 6. A virtual form is one that does not have a physical existence, being lodged electronically, digitally or given by phone. 7. Once a form has been approved, information that is required to be given under the relevant provision must be made using that approved form. | Other names for approved forms: 8. Sometimes, a provision of a taxation law may use expressions other than 'approved form', for example, 'in a form approved by the Commissioner' or 'in a form approved in writing by the Commissioner'. 9. Generally, these expressions will be considered to mean 'approved form' and so be subject to the requirements of section 388-50, except where the Act in which the term appears has its own definition of approved form. | When is a document in the approved form: 10. To be in the approved form, 4 requirements set out in subsection 388-50(1) must be satisfied: (a) it is in the form approved in writing by the Commissioner for that kind of … document; and (b) it contains a declaration signed by a person or persons as the form requires … ; and (c) it contains the information that the form requires, and any further information, statement or document as the Commissioner requires, whether in the form or otherwise; and (d) for a … [form] that is required to be given to the Commissioner – it is given in the manner that the Commissioner requires (which may include electronically). | Considerations when creating and approving an approved form: 11. When creating an approved form, you need to consider several specific factors as detailed in this Practice Statement. You also need to consider that: • all approved forms should be designed to minimise the cost of compliance • all forms that collect personal information (both paper and virtual forms) must comply with the Privacy Act 1988. [1] • all approved forms should be designed to minimise the cost of compliance • all forms that collect personal information (both paper and virtual forms) must comply with the Privacy Act 1988. [1] 12. You should also note that in rare circumstances, the approved form will not be an ATO form, so the requirements of the form will depend on the agency to which the form belongs. For example, some excise amendments are required to be made in the form approved by the Australian Border Force. The signature, declaration and manner in which the form is required to be lodged will be in accordance with Australian Border Force requirements. | Purpose of the approved form: 13. Consider the purpose of the form and whether it will serve multiple purposes. For example, the form may also notify a change of name or address. All relevant legislative references will need to be referred to in the approved form. | Information required to process the form: 14. When looking at the content the approved form should have, you need to consider what information is necessary to satisfy the requirements of the provision for which it is being created and the information that may be needed in order to process that form. | How the approved form is to be given to us: 15. When designing a form, preference should be given to developing a form that can be given to us electronically. 16. Lodgment channels should be clearly specified and it should be clear in the instructions what the requirements are for the lodgment channel. For example, for lodgments made via digital channels, you may need to specify the requirements for each channel. 17. Note that providing several methods of lodgment may be required or preferable. 18. If the document does not have to be given to us, the approval must state that. Digital 19. If the document is to be given to us via a digital channel, consider: • what channels are acceptable, for example, Standard Business Reporting enabled software, or ATO online services • whether there is a need to specify the way it is lodged digitally and whether there are existing processes which might be used in the future, even if not to be used at the time the form is approved • whether it is required to be sent to one or more electronic addresses or to be given to us using specified software. • what channels are acceptable, for example, Standard Business Reporting enabled software, or ATO online services • whether there is a need to specify the way it is lodged digitally and whether there are existing processes which might be used in the future, even if not to be used at the time the form is approved • whether it is required to be sent to one or more electronic addresses or to be given to us using specified software. Phone 20. If the document is to be given to us via phone, consider: • whether there is a requirement for phone lodgment • what phone number is to be used • whether there are any restrictions on accepting the form via phone, such as only accepting the current year forms or a certain number of forms at one time. • whether there is a requirement for phone lodgment • what phone number is to be used • whether there are any restrictions on accepting the form via phone, such as only accepting the current year forms or a certain number of forms at one time. Paper 21. If the document is to be given to us in paper format, consider: • whether there is a requirement for paper lodgment • whether a digital channel would be more appropriate • what address it should be sent to. • whether there is a requirement for paper lodgment • whether a digital channel would be more appropriate • what address it should be sent to. | What type of signed declaration is required: 22. The exact wording of the declaration must be set out in the approved form. Consider whether different wording is required depending on who is lodging the approved form and the lodgment channel. 23. Where an entity lodges an approved form requiring a signed declaration, the declaration must include the statement that the information in the approved form is true and correct. [2] 24. Similarly, where an agent lodges a form on behalf of an entity, the declaration must include statements that [3] : • the form has been prepared in accordance with the information supplied by the entity • the agent has received a declaration from the entity that the information provided to the agent is true and correct, and • the agent is authorised by the other entity to give the document to the Commissioner. • the form has been prepared in accordance with the information supplied by the entity • the agent has received a declaration from the entity that the information provided to the agent is true and correct, and • the agent is authorised by the other entity to give the document to the Commissioner. 25. A declaration can also include additional information applicable to the particular document, such as that: • all income has been declared • the taxpayer has receipts for deductions claimed, or • a tax return is not required to be lodged. • all income has been declared • the taxpayer has receipts for deductions claimed, or • a tax return is not required to be lodged. 26. In drafting declarations, consider the purpose of the form and who will sign. 27. Typically, a virtual form is signed by either the entity or its agent and may require only one declaration. This may be because the lodgment channel can only be used by certain types of entities or only by agents. 28. The declaration for a virtual form will require an electronic or phone signature, which must be separately approved by the Commissioner. [4] 29. A paper form may be signed by an entity, its agent or both, which could mean more than one signed declaration is required. 30. The approved form must set out the signature requirement for each lodgment channel. 31. In some instances, no declaration is technically required, for example, because the form is not to be given to the Commissioner. However, it would be prudent to include a declaration in any case. | What instructions are needed: 32. The instructions for the completion of an approved form should include: • details of the entity, or class of entity, that must prepare or provide the document or information in the approved form • methods of lodgment and addresses to be used, and • clear instructions where information is essential, such as ticking certain boxes, completing certain labels or attaching schedules. • details of the entity, or class of entity, that must prepare or provide the document or information in the approved form • methods of lodgment and addresses to be used, and • clear instructions where information is essential, such as ticking certain boxes, completing certain labels or attaching schedules. 33. Where the form is to be provided electronically, edits should be built into the system so that the form cannot be lodged in an incomplete manner. | Approval process for approved forms: 34. Approval of an approved form may only be given by the Commissioner, a Second Commissioner or a Senior Executive Service officer who is a delegate of the Commissioner. 35. In the approval, the approving officer must include the following information: • a statement that approval is being given under section 388-50 • a reference to the legislative provisions which require the document to be in the approved form • a reference to any other relevant legislation [5] • where instructions have been created as part of the approved form, a copy of the instructions as approved • the approving officer's name and position title • the approving officer's signature or electronic signature. • a statement that approval is being given under section 388-50 • a reference to the legislative provisions which require the document to be in the approved form • a reference to any other relevant legislation [5] • where instructions have been created as part of the approved form, a copy of the instructions as approved • the approving officer's name and position title • the approving officer's signature or electronic signature. 36. An example of the wording that can be used for approving an approved form is provided in the Appendix to this Practice Statement. 37. More than one form can be approved as part of a single approval process. [6] However, the approver must be careful to approve each form in writing in that approval process. 38. An approved form takes effect from the date the approval is signed or from a specified future date. It should not be backdated or applied retrospectively. 39. When an approved form is revised or the instructions substantially revised (other than to correct grammar or typographical errors), a new approval must be sought. The revised approved form replaces the previous approved form from the date the new approval is granted. | Managing approved forms: 40. Approved forms must be stored on a central internal register which contains both the form and its approval (see Approved Forms (link available internally only)). 41. Approved forms (without the approval documentation) are also stored on the consolidated listing of approved forms on the ATO's external website. | Forms not lodged in the approved form: 42. If a form is not lodged in the approved form, we may consider the form not lodged. This could result in the taxpayer incurring failure to lodge on time penalties. Additionally, the taxpayer may not have protection of safe-harbour provisions. 43. We may choose to accept and action the information provided based on a risk-management approach. Talk to your team leader about the form and whether it can be accepted. | More information: 44. For more information, refer to: • Approved Forms (link available internally only) • Australian Privacy Principles • Law Administration Practice Statement PS LA 2005/20 Signature requirements for approved virtual forms, lodged electronically or given by phone • Frontline Operations Practice Note FOPN 2015/001 Approved Forms: What should staff do when a form is received that does not meet the signature and declaration requirements? (link available internally only) • Frontline Operations Practice Note FOPN 2016/002 Approved Forms: When there is substantial compliance? (link available internally only). • Approved Forms (link available internally only) • Australian Privacy Principles • Law Administration Practice Statement PS LA 2005/20 Signature requirements for approved virtual forms, lodged electronically or given by phone • Frontline Operations Practice Note FOPN 2015/001 Approved Forms: What should staff do when a form is received that does not meet the signature and declaration requirements? (link available internally only) • Frontline Operations Practice Note FOPN 2016/002 Approved Forms: When there is substantial compliance? (link available internally only). Under section 388-50 of Schedule 1 to the Taxation Administration Act 1953 [or insert other relevant approval provision], I, [name of delegate], approve the form set out in Appendix [A] as the approved form required to be lodged with or given to the Commissioner of Taxation (Commissioner) [electronically or in paper] by [insert entity or class of entities required to use the form], under [insert relevant legislative provision], for the [insert relevant period or relevant approved period in lieu]. These forms require signed declarations and (for the forms lodged electronically) electronic lodgment declarations and electronic signatures. The approvals of the electronic signatures for the related forms as set out in Appendix [A] are in Appendix [B]. The approvals of the phone signatures for the related forms as set out in Appendix [A] are in Appendix [C]. Signed this [insert date] day of [insert month insert year] Name: [insert delegate name] Position: [insert position], [insert BSL] Signature: Delegate for the Commissioner of Taxation Appendix A Contents of the approved form Signed declaration Signature requirement Lodgment (approved channels) If the content is incomplete, incorrect or requires confirmation Appendix B Electronic signature Appendix C Phone signature",PS LA 2005/20 | TAA 1953 Sch 1 355-25(2)(g) | TAA 1953 Sch 1 388-50 | TAA 1953 Sch 1 388-50(1) | TAA 1953 Sch 1 388-50(2) | TAA 1953 Sch 1 388-60 | TAA 1953 Sch 1 388-70 | Taxation Administration Regulations 2017 17 | Privacy Act 1988,PS LA 2005/20,TAA 1953 Sch 1 355-25(2)(g) | TAA 1953 Sch 1 388-50 | TAA 1953 Sch 1 388-50(1) | TAA 1953 Sch 1 388-50(2) | TAA 1953 Sch 1 388-60 | TAA 1953 Sch 1 388-70 | Taxation Administration Regulations 2017 17 | Privacy Act 1988 | Privacy (Tax File Number) Rule 2015,,Approved Forms (link available internally only) Australian Privacy Principle 5 - notification of the collection of personal information Australian Privacy Principles FOPN 2015-001 FOPN 2016-002,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS200519/NAT/ATO/00001,"Appendix – Example wording for approval of a form | Updated to align with amended Practice Statement style and formatting requirements. | Updated link to Approved Forms and included links to Practice Notes. | Updated in line with current ATO style and accessibility requirements. | Rewritten into new format. | Update to new LAPS format and style. | Section 7 Manage the approved form | Updated to reflect a newer process. | Section 8 What if the form is not lodged in the approved form | Added to allow guidance for staff about when we might accept the form. | Section 9 More information | Replace words 'Information Privacy Principle 2' with Australian Privacy Principle 5. Italicise 'Tax File Number Guidelines' and add '2011' at end of sentence. Replace words 'ATO's Legal Services Branch' with 'General Counsel section'. | Remove words 'unless the contrary intention appears'. | Example of what may not be required as part of the approved form. | Clarifying requirement for a declaration to be included on an approved form given to the Commissioner. | Administrative support processes to be followed once a document has been approved. | Changed 'approval instrument' to 'instrument of approval' for consistency. | Requiring information in an 'approved form' created after the original due date for lodgment. | Guidance on when a new 'approved form' should be prepared. | Clarifying the requirement to have a declaration that the information in the form is 'true and correct'. | Guidance on what should be included in the declaration. | Example of an instrument of approval where there is a description of the information to be provided rather than a specific form itself. | Tax Office updated to ATO. | Additional references added. | Unnecessary legislative references removed and other references added. | [1] In particular, the requirements of Australian Privacy Principle 5 – notification of the collection of personal information and the Privacy (Tax File Number) Rule 2015 . Advice on these requirements is available from the Office of General Counsel, through your business line's Privacy Network member. | [4] Examples of signatures for virtual forms can be found in Law Administration Practice Statement PS LA 2005/20 Signature requirements for approved virtual forms, lodged electronically or given by phone . | [5] For example, where the form can be used to nominate a third-party representative, reference would be made to paragraph 355-25(2)(g) or, where the form can be used to change or withdraw a preferred address for service reference would be made to section 17 of the Taxation Administration Regulations 2017 . | [6] Subsection 388-50(2). | File 2003/5758; 1-1UUVGSV; 1-5AHX0J6; 1-15883J64, 1-1A9063H7 | This practice statement was originally published on 11 November 2005. Versions published from 12 February 2008 are available electronically - refer to the online version of the practice statement. Versions published prior to this date are not available electronically. If needed, these can be requested by emailing TCNLawPublishingandPolicy@ato.gov.au ."
PS LA 2005/20,"Signature requirements for approved virtual forms, lodged electronically or given by phone",11 November 2005,14 November 2005,Law Administration Practice Statement,False,"What this Practice Statement is about: 1. This Practice Statement sets out the: • signature requirements for making declarations in approved virtual forms which are lodged electronically or given by phone • process which we must follow when approving an 'electronic signature' or a 'telephone signature'. [1] • signature requirements for making declarations in approved virtual forms which are lodged electronically or given by phone • process which we must follow when approving an 'electronic signature' or a 'telephone signature'. [1] 2. All further legislative references in this Practice Statement are to Schedule 1 to the Taxation Administration Act 1953, unless otherwise indicated. | Approved forms: 3. Approved forms meet the requirements contained in section 388-50. [2] | Virtual forms: 4. Virtual forms are lodged electronically or given by phone. [3] | Lodging or giving approved virtual forms to the ATO: 5. An approved form that is lodged with or given to us is required to contain a signed declaration from the entity lodging or giving the form. [4] 6. Where the form is lodged electronically, any required signature must be an electronic signature [5] , defined as 'a unique identification of the entity in electronic form that is approved by the Commissioner'. [6] This gives us a broad discretion to determine the appropriate signature to be used on forms that are transmitted to us electronically. An entity may be required to have more than one electronic signature. 7. Similarly, where the form is given by phone, a telephone signature is required [7] , which is defined as 'a unique identification of the entity that can be given by telephone and that is approved by the Commissioner'. [8] | Approving officers for the signature requirements of approved virtual forms: 8. The following staff may approve the electronic or telephone signature requirements for an approved virtual form: • the Commissioner of Taxation • a Second Commissioner holding the appropriate delegation from the Commissioner, or • a Senior Executive Service (SES) officer holding the appropriate delegation from the Commissioner. [9] • the Commissioner of Taxation • a Second Commissioner holding the appropriate delegation from the Commissioner, or • a Senior Executive Service (SES) officer holding the appropriate delegation from the Commissioner. [9] | Requirements for approving a signature: 9. The approving officer must approve a signature that: • is adequate to authenticate the identity of the entity signing the declaration in a form • minimises the risk that the declarations made can be repudiated or denied by the entity signing the declaration in a form • is linked to and in the control of the signatory and to no other entity. • is adequate to authenticate the identity of the entity signing the declaration in a form • minimises the risk that the declarations made can be repudiated or denied by the entity signing the declaration in a form • is linked to and in the control of the signatory and to no other entity. | Considerations by approving officers: 10. The approving officer must ensure the electronic or telephone signature is approved so that it applies to any declaration in the form. 11. The approving officer for an electronic signature should ensure that the approved virtual form includes the declaration details for every signed declaration required by the form. 12. The form may not be approved unless the required electronic signature and telephone signature have been obtained and verified. 13. Approving officers must record in writing the electronic or telephone signature and their approval of the signature requirements. Standard forms of instruments of approval are at Appendixes 1 and 2 to this Practice Statement for electronic and telephone signatures respectively. | Instrument of approval for electronic and telephone signatures: 14. An instrument of approval (IOA) should be held as an appendix to the instruments of approval for the related approved virtual forms, where it contains either: • an electronic signature for a document that can be lodged electronically, or • a telephone signature for a document that can be lodged by phone. • an electronic signature for a document that can be lodged electronically, or • a telephone signature for a document that can be lodged by phone. 15. A register for instruments of approval for electronic or telephone signatures is not required because these form part of the ancillary material to the instruments of approval for the related approved virtual forms. These arrangements are not part of the approval process for electronic and telephone signatures. [10] | Examples of approved electronic signatures: 16. Some electronic signatures are complex digital identifiers, such as the digital certificates issued to businesses that lodge business activity statements over the internet using the electronic commerce interface system. Others can be as simple as a personal identification number. 17. For lodgment via the practitioner lodgment service, a tax agent certificate is required, comprising the tax agents' declaration together with their electronic signature. 18. The tables in Appendix 3 to this Practice Statement list some examples of the different electronic and telephone signatures which have previously been approved for use. | Electronic signature requirements not covered by the signature provisions: 19. A number of Acts administered by the Commissioner have electronic signature requirements that are not covered by the signature provisions [11] or the definition of electronic signature. [12] In approving electronic signatures for provisions in those Acts, approving officers must follow the process outlined in this Practice Statement. | More information: 20. For more information, refer to: • Approved Forms (link available internally only) – this contains an IOA guide and IOA template to assist you in writing an IOA and dealing with the relevant signature requirements • Australian Privacy Principles • Law Administration Practice Statement PS LA 2005/19 Approved forms • Frontline Operations Practice Note FOPN 2015/001 Approved Forms: What should staff do when a form is received that does not meet the signature and declaration requirements? (link available internally only) • Frontline Operations Practice Note FOPN 2016/002 Approved Forms: When there is substantial compliance? (link available internally only). • Approved Forms (link available internally only) – this contains an IOA guide and IOA template to assist you in writing an IOA and dealing with the relevant signature requirements • Australian Privacy Principles • Law Administration Practice Statement PS LA 2005/19 Approved forms • Frontline Operations Practice Note FOPN 2015/001 Approved Forms: What should staff do when a form is received that does not meet the signature and declaration requirements? (link available internally only) • Frontline Operations Practice Note FOPN 2016/002 Approved Forms: When there is substantial compliance? (link available internally only). 21. The signature requirements for forms that we receive by facsimile transmission are not dealt with by this Practice Statement because they are not considered to be transmitted in an electronic format approved by the Commissioner. Instead, giving documents by facsimile transmission is considered to be a way of giving the form in paper form for the purposes of subsections 388-75(1) and (2). 22. The following example wording is for an instrument of approval with an electronic signature: APPENDIX [Insert letter] – Electronic signature INSTRUMENT OF APPROVAL OF ELECTRONIC SIGNATURE In accordance with subsection 388-75(3) of Schedule 1 to the Taxation Administration Act 1953 and the definition of 'electronic signature' in subsection 995-1(1) of the Income Tax Assessment Act 1997, I, [insert name of the delegate of the Commissioner], hereby approve the following form of electronic signature for the following purpose: Form of Electronic Signature Purpose [Enter details] [Enter details] Signed this [DD][st/rd/th] day of [Month YYYY]. Name: [insert delegate name] Position: Assistant Commissioner, [insert business line]. Signature: 23. The following example wording is for an instrument of approval with a telephone signature: APPENDIX [Insert letter] – Telephone signature INSTRUMENT OF APPROVAL FOR A TELEPHONE SIGNATURE In accordance with subsection 388-75(4) of Schedule 1 to the Taxation Administration Act 1953 and the definition of 'telephone signature' in subsection 995-1(1) of the Income Tax Assessment Act 1997, I, [insert name of the delegate of the Commissioner], hereby approve the following as forms of telephone signature for the following purposes: Form of Telephone Signature Purpose [Enter details] [Enter details] Signed this [DD][st/rd/th] day of [Month YYYY]. Name: [insert SES name] Position: Assistant Commissioner, [insert business line]. Signature: Delegate for the Commissioner of Taxation 24. Table 1 and Table 2 of this Practice Statement outline a non-exhaustive list of electronic signature examples: Table 1: Examples of electronic signatures (non-exhaustive) Signature requirement Purpose Digital signature produced by the use of a machine credential, accessed via Relationship Authorisation Manager used to access government online services. To access a range of business to government services via and to electronically sign forms accepted under the Standard Business Reporting - enabled software, including the practitioner lodgment service. Digital signature produced by the use of the myID identity credential and the authorised relationship is verified through Relationship Authorisation Manager used to access government online services. To log in to a range of ATO online services and for signing an approved form lodged or given to the ATO via ATO online services, including Online services for business and Online services for agents. Digital signature produced by the use of the myID identity credential after the authorised relationship is verified through Relationship Authorisation Manager used to access government online services. To log in to a range of business to government websites and to electronically sign forms when lodged via certain ATO online services. Digital signature produced by the use of identity credentials provided by the myGov service. For signing an electronic approved form that is lodged or given to the ATO via ATO online services. Digital signature produced by the use of the myID identity credential provided by the myID app. For signing an approved form lodged or given to the ATO via ATO online services by an individual. Table 2: Examples of telephone signatures (non-exhaustive) Signature requirement Purpose Identification of the person in accordance with 'Principles for proof of identity and proof of record ownership' procedures for inbound calls prepared under Chief Executive Instruction Identity management. To allow the person to lodge the form via the phone. Identification of the person in accordance with 'Principles for proof of identity and proof of record ownership' procedures for outbound calls prepared under Chief Executive Instruction Identity management. To undertake contact with the person where the paper form or electronic form is incomplete, incorrect or requires confirmation.",PS LA 2005/19 | TAA 1953 Sch 1 388-50 | TAA 1953 Sch 1 388-60 | TAA 1953 Sch 1 388-65 | TAA 1953 Sch 1 388-70 | TAA 1953 Sch 1 388-75 | TAA 1953 Sch 1 388-75(1) | TAA 1953 Sch 1 388-75(2) | TAA 1953 Sch 1 388-75(3) | TAA 1953 Sch 1 388-75(4) | ITAA 1997 995-1(1),PS LA 2005/19,TAA 1953 Sch 1 388-50 | TAA 1953 Sch 1 388-60 | TAA 1953 Sch 1 388-65 | TAA 1953 Sch 1 388-70 | TAA 1953 Sch 1 388-75 | TAA 1953 Sch 1 388-75(1) | TAA 1953 Sch 1 388-75(2) | TAA 1953 Sch 1 388-75(3) | TAA 1953 Sch 1 388-75(4) | ITAA 1997 995-1(1),,All references available internally only Approved Forms Chief Executive Instruction Identity management Delegations and Authorisations FOPN 2015-001 FOPN 2016-002,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS200520/NAT/ATO/00001,"Appendix 1 – Example wording for an instrument of approval – electronic signature | Appendix 2 – Example wording for an instrument of approval – telephone signature | Appendix 3 – Examples of electronic signatures | Updated to align with amended Practice Statement style and formatting requirements. | Updated the More information section, inserting links to PS LA 2005/19, FOPN 2015/001 and FOPN 2016/002. | Content checked by OPAL for currency and technical accuracy. Current ATO style and accessibility requirements applied. | Rewrite into the new style and format. | Remove 'enables' from the last line of last box | Tax Office replaced by ATO. Advice that this Practice statement should be read in conjunction with PS LA 2005/19. | Addition of the word 'virtual' for consistency. Reference to Attachment A deleted. | Explanation that facsimile are copies of paper forms and those sent as attachments via e-mail are not subject to this Practice statement as they are not considered to be lodged electronically. | Changed the word 'document' for 'form' for consistency. | Clarifying requirements for a declaration to be included on an approved form given to the Commissioner. | Additional wording to clarify the requirement that an electronic signature must be able to linked to the signatory and no other. | Deleted, subsequent Attachments renumbered. | Additional forms of electronic signatures added. | Unnecessary legislative references removed and other references added | Reference to section 37 of the A New Tax System (Australian Business Number) Act 1999 removed (now repealed). | References to Electronic Lodgment System corrected to Electronic Lodgment Service | Update reference to Auspac to Internet Protocol Networks. Remove reference to BAS agent D. | [1] See subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997). | [2] See also Law Administration Practice Statement PS LA 2005/19 Approved forms . | [3] See also PS LA 2005/19. | [4] Sections 388-60, 388-65 and 388-70. | [5] Subsection 388-75(3). | [6] Subsection 995-1(1) of the ITAA 1997. | [7] Subsection 388-75(4). | [8] Subsection 995-1(1) of the ITAA 1997. | [9] See the 'Taxation Authorisation Guidelines' within Delegations and Authorisations (link available internally only). | [12] Subsection 995-1(1) of the ITAA 1997. | File 1-12VFVLCK, 1-1A90638S"
PS LA 2005/21,SUBJECT: Application of section 45B of the Income Tax Assessment Act 1936 to demergers PURPOSE: To provide instruction and practical guidance to tax officers on the application of section 45B of the Income Tax Assessment Act 1936 to a demerger of an entity within the meaning of Division 125 of the Income Tax Assessment Act 1997,25 November 2005,1 July 2002,Law Administration Practice Statement,False,"1. This Practice Statement should be followed by tax officers who are considering how section 45B of the Income Tax Assessment Act 1936 (ITAA 1936) applies to an arrangement or proposed arrangement that is, or includes, a demerger within the meaning of Division 125 of the Income Tax Assessment Act 1997 (ITAA 1997). 2. All legislative references in this Practice Statement are to the Income Tax Assessment Act 1936, unless otherwise indicated. 3. This Practice Statement is only relevant to arrangements that occur on or after 1 July 2002 and applies only to the demerger of a company or those trusts that are treated as a company under the ITAA 1936 (corporate unit trusts and public trading trusts). Although the demerger capital gains tax (CGT) measure (in Division 125 of the ITAA 1997) can apply to beneficiaries of other fixed trusts, section 45B is an integrity provision relating to dividends and therefore only has application to company shareholders and unit holders of corporate unit trusts and public trading trusts. 4. This Practice Statement follows the broad outline of section 45B, covering scheme, demerger benefit or capital benefit, obtaining a tax benefit, purpose, and determinations. It provides administrative and technical guidance on applying these elements of the section and, where appropriate, includes further explanation or interpretations drawn from cited case law, Explanatory Memorandums and other extrinsic material. 5. As a result of the Demergers measure, section 45B now has 2 objects: a demerger specific object and a dividend substitution object. As both of the objects covered by section 45B may be relevant to a demerger, tax officers should have regard to both when considering the application of section 45B to a demerger. 6. Under Law Administration Practice Statement PS LA 2012/1 Engaging Tax Counsel Network on technical issues, the Tax Counsel Network (TCN) must be engaged on certain section 45B issues. This includes when: • making a decision to apply section 45B (as TCN engagement is mandatory when determining whether to consult the General Anti-Avoidance Panel) [1] • the section 45B issue involves interpretative questions of significant risk or higher (TCN must be engaged on significant risk interpretative matters, regardless of section 45B), or • any other circumstance set out in PS LA 2012/1 as relevant to the issue. • making a decision to apply section 45B (as TCN engagement is mandatory when determining whether to consult the General Anti-Avoidance Panel) [1] • the section 45B issue involves interpretative questions of significant risk or higher (TCN must be engaged on significant risk interpretative matters, regardless of section 45B), or • any other circumstance set out in PS LA 2012/1 as relevant to the issue. 7. The Demergers measure was enacted in the New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002 and applies to arrangements that occur on or after 1 July 2002. This Act: • inserted Division 125 into the ITAA 1997, which contains the basic demerger tests and the CGT consequences • amended subsection 6(1) and sections 44 and 45B relating to defined terms and dividends, and • contained a number of other consequential and transitional provisions. • inserted Division 125 into the ITAA 1997, which contains the basic demerger tests and the CGT consequences • amended subsection 6(1) and sections 44 and 45B relating to defined terms and dividends, and • contained a number of other consequential and transitional provisions. 8. The introduction of the Demergers measure was recommended by the Ralph Committee (A Tax System Redesigned [2] – recommendation 19.4). This recommendation was given in-principle support by government in the Treasurer's media release. [3] In the second reading speech [4] introducing the measure into parliament, Mr Slipper, the Parliamentary Secretary to the Minister for Finance and Administration, explained tax relief for demergers in the following terms: The tax relief will apply to only genuine demergers and is achieved by requiring underlying ownership to be maintained pre and post a merger and requiring the head entity to demerge at least 80 per cent of its ownership in the demerging entity. Providing tax relief for demergers will increase business efficiency by allowing greater flexibility in restructuring a business and ensuring tax considerations are not an impediment to such restructures. This will provide an overall benefit to the economy and enhance the competitiveness of Australia's business sector through greater opportunities to increase shareholder value by creating more efficient business structures. 9. The object of the demerger tax concession is also explained at paragraph 15.5 of the Revised Explanatory Memorandum to the New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Bill 2002 (Revised EM), which provides: The CGT relief and dividend exemption will facilitate the demerging of entities by ensuring that tax considerations are not an impediment to restructuring a business. These amendments are based on Recommendation 19.4 of A Tax System Redesigned, and recognise that there should be no taxing event for a restructuring that leaves members in the same economic position as they were just before the restructuring. 10. In other words, tax relief is made available where a corporate group's business is restructured and results in the head entity's shareholders owning a corporation which was previously owned within the group. The effect of the tax relief is to disregard the tax consequences that would otherwise arise from the business restructure. 11. The underlying policy theme of business restructure is reproduced in section 125-5 of the ITAA 1997, which states that the object of Division 125, which is primarily concerned with providing CGT relief, 'is to facilitate the demerging of entities by ensuring that capital gains tax considerations are not an impediment to restructuring a business'. 12. 'Demerger' is defined in subsection 6(1) to have the meaning given by section 125-70 of the ITAA 1997. Under that section, a demerger is something that happens when there is a restructuring of a corporate group (called a demerger group) under which certain things occur and certain requirements are met in relation to the provision of ownership interests (that is, shares or the rights to acquire shares) in another member of the group to the owners of the head entity. Section 125-70 of the ITAA 1997 does not prescribe how a demerger may be implemented, but it identifies various methods of restructure whereby ownership interests in an entity owned by the group are provided to the owners of interests in the head entity of the group. Essentially, for the purposes of Division 125 of the ITAA 1997 and section 45B, a demerger is a group business restructure whereby the underlying owners (usually shareholders of the head entity) acquire direct ownership of a group entity in similar proportion to their original underlying economic interests. 13. Nevertheless, section 125-70 of the ITAA 1997 does prescribe certain conditions regarding the execution of a demerger which must be met in order for demerger tax relief to be available. The most notable requirements are that the owners of interests in the head entity: • acquire as new interests at least 80% of the group's ownership interests in the demerged entity • acquire nothing other than their new interests in the demerged entity, and • hold the same proportion of interests pre-demerger and post-demerger. • acquire as new interests at least 80% of the group's ownership interests in the demerged entity • acquire nothing other than their new interests in the demerged entity, and • hold the same proportion of interests pre-demerger and post-demerger. 14. Division 125 of the ITAA 1997 contains relief from the possible CGT consequences of a demerger. In particular, it provides for an optional CGT rollover for owners of the head entity, with respect to their original interests in a company or trust (section 125-55 of the ITAA 1997), and that certain capital gains or losses made by members of a demerger group under the demerger be disregarded (section 125-155 of the ITAA 1997). 15. The Demergers measure also provides for dividend relief. In corporate demergers, the provision of property from a head company to a shareholder would usually involve the derivation of dividend income by the shareholder to the extent that the value of the property distributed represents company profit, whether realised or unrealised. This is no less the case where the property distributed is shares in a demerger subsidiary. Thus, subsections 44(3) and (4) provide that a dividend arising as a result of a demerger happening (called a 'demerger dividend') is not assessable or exempt income to the owners of the head entity. For owners who are non-residents, subsection 128B(3D) provides a similar exemption from withholding tax. 16. A demerger dividend is that part of a demerger allocation that, but for the amendments to section 44 in subsections 44(3) and (4), would be assessable to the owners of the head entity under subsection 44(1). A 'demerger allocation' is the value of the ownership interests provided to the head entity's owners under a demerger. The relief from assessment of the profit element of a demerger allocation is subject to the qualification in subsection 44(5) which, in the words of the Revised EM [5] , 'ensures that the demerged entity is a viable, independent entity, capable of conducting business in its own right'. 17. By way of a further integrity measure, the dividend tax relief that applies in relation to the provision of ownership interests in the demerged entity from the corporate group to the head entity's shareholders is subject to section 45B, which relies on a purpose test to safeguard the assessment of distributions of corporate profit to shareholders. For present purposes, the test is designed to ensure that only profits distributed under a genuine demerger are subject to tax relief. 18. Subsection 45B(1) provides that the purpose of section 45B is to ensure that relevant amounts are treated as dividends for tax purposes if the capital and profit components of a demerger allocation do not reflect the circumstances of the demerger, or certain payments, allocations or distributions are made in substitution for dividends. 19. Thus, section 45B, which applies in terms of 'benefits', serves 2 objects. One is concerned only with the provision of 'demerger benefits' and the other is concerned with the provision of 'capital benefits' which may be included in a demerger benefit (the part of a demerger benefit that is not a demerger dividend will also be a capital benefit). The first object pertains only to a demerger that happens within the meaning of section 125-70 of the ITAA 1997. However, the second object of section 45B is not concerned with demergers exclusively and pertains to any other arrangements that result in a capital benefit being provided to a taxpayer. 20. When a demerger occurs, there is potential for both objects of section 45B to apply as generally the owners of the head entity will be provided with both a demerger benefit and a capital benefit under the demerger. However, officers should appreciate that each of the 2 objects of section 45B is concerned with a different mischief and each has a different scope of application with respect to a demerger. 21. Despite the differences in application between the 2 objects of section 45B, in the context of demergers, the overall purpose of the section is to act as an integrity measure in support of the demergers legislation. The section guards against the use or structuring of a demerger to accommodate a substantial purpose of delivering a tax benefit to a relevant taxpayer (generally the shareholders of the head entity). Broadly, the mischief that mobilises section 45B is the use of a demerger to deliver value from company to shareholder in a tax-preferred form (whether as a demerger dividend or as capital in substitution for a dividend) as an end in itself and not merely as the natural incident of a business restructure of the demerger group. | The first object: the demerger specific rule: 22. As discussed in paragraph 21 of this Practice Statement, section 45B was amended as part of delivering demerger tax relief. In this regard, the Revised EM provides: 15.69 An assessable dividend arising as a result of a demerger happening is exempt. Integrity rules will limit this exemption where there is a scheme that has a purpose of obtaining that non-assessable dividend. To the extent that a dividend is not a demerger dividend the normal rules relating to dividends apply. ... 15.74 The demerger dividend exemption is supported by an integrity rule that is aimed at limiting the exemption to genuine demergers, rather than demergers that are directed at obtaining the dividend exemption. The effect of the integrity rule applying to a demerger is to exclude part or all of the demerger dividend from the demerger dividend exemption. So much of that excluded amount would then be considered within section 44 of the ITAA 1936, as an assessable dividend. 23. Thus, the first object of section 45B is concerned with ensuring that the dividend exemption provided for in subsections 44(3) and (4) is available only in genuine demergers and that the components of a demerger allocation provided to head entity shareholders under a demerger – as between capital and profit – reflect the circumstances of the demerger. Section 45B tests whether the demerger is tax driven, and whether an appropriate mix of capital and profit has been adopted by identifying and weighing the relevant circumstances of the demerger proposal, in order to determine whether the object of delivering a tax-free dividend into the hands of the owners is a more than incidental purpose of the demerger. | Genuine demergers: 24. As discussed in paragraph 22 of this Practice Statement, paragraph 15.74 of the Revised EM refers to 'genuine demergers' in contradistinction to 'demergers directed at obtaining the dividend exemption' and Mr Slipper's second reading speech makes plain that genuine demergers are those directed at restructuring a business in the interests of business efficiency. In such cases, the concessionary tax treatment for the head entity's shareholders would normally be regarded as merely a natural incident of a business restructure. On the other hand, in the absence of substantive business reasons for a demerger the income tax benefits it provides for shareholders will assume greater significance. 25. In other words, to the extent that a demerger is not undertaken for substantive business reasons or to the extent that the capital and profit elements of the demerger allocation do not reflect the circumstances of the demerger, there is a strong likelihood that pursuant to section 45B, it would be viewed as a scheme whereby the provision of tax benefits to the head entity's shareholders is not a mere incident of the scheme but rather a significant purpose of it. | The second object: capital in substitution for dividends: 26. That part of the demerger allocation that is not a demerger dividend is also exposed to the application of the substituted dividend rule in section 45B, if the demerger involves shareholders being 'provided with a capital benefit' for a more than incidental purpose of enabling them to obtain a tax benefit. 27. The original section 45B was enacted in response to company law changes which freed up a company's ability to return capital, subject only to solvency requirements. As a result, the form of any distribution to shareholders became largely a matter of the company's choice. In essence, section 45B is concerned with ensuring that companies do not distribute what are effectively profits to shareholders as preferentially-taxed capital rather than dividends. The substituted dividend rule of section 45B requires that the Commissioner identify and weigh all of the relevant circumstances surrounding the provision of a capital benefit to the relevant taxpayer, in order to determine whether the object of delivering a tax preferred receipt to the shareholders constitutes a more than incidental purpose of the scheme. 28. In so far as it relates to the provision of a demerger benefit, subsection 45B(2) provides that the section applies where: • there is a scheme under which a person is provided with a demerger benefit • under the scheme, a taxpayer (the 'relevant taxpayer'), who may or may not be the person provided with the demerger benefit, obtains a tax benefit, and • having regard to the relevant circumstances of the scheme, it would be concluded that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for a purpose (whether or not the dominant purpose but not including an incidental purpose) of enabling a taxpayer (the relevant taxpayer) to obtain a tax benefit. • there is a scheme under which a person is provided with a demerger benefit • under the scheme, a taxpayer (the 'relevant taxpayer'), who may or may not be the person provided with the demerger benefit, obtains a tax benefit, and • having regard to the relevant circumstances of the scheme, it would be concluded that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for a purpose (whether or not the dominant purpose but not including an incidental purpose) of enabling a taxpayer (the relevant taxpayer) to obtain a tax benefit. | Scheme: 29. A 'scheme' for the purposes of section 45B is taken to have the same meaning as provided in subsection 177A(1) of Part IVA, pursuant to the reference to scheme in subsection 995-1 of the ITAA 1997 contained in section 45B(10). [6] That definition is widely drawn and includes any agreement, arrangement, understanding, promise, undertaking, scheme, plan, or proposal. In particular, a scheme is anything that satisfies any of the terms in the statutory definition. It does not have to be a 'wide scheme', nor does it have to reach to include matters covering its overall commercial result or its 'practical meaning' (Commissioner of Taxation v Hart [2004] HCA 26 (Hart)). [7] Although, it should be noted that however the scheme is defined, it must be related to the tax benefit obtained. [8] 30. It is expected that a demerger, or part of a demerger, would constitute either a scheme or part of a scheme for the purposes of section 45B. A demerger may be part of a wider scheme which includes a subsequent transaction such as a share buy-back, liquidation or proposed sale of either the demerged entity or the head entity to a third party. Similarly, the scheme may include a transaction precedent to the demerger, such as the transfer of assets or addition of a new company to the group. Alternatively, the demerger itself or part of the demerger may constitute the scheme. | Provided with a demerger benefit: 31. The provision of a 'demerger benefit' is defined in subsection 45B(4). It includes the provision of an ownership interest in a company or an increase in value of an ownership interest. The ownership interest must be provided, or the value increased, in relation to a demerger. 32. Under a demerger, it is expected that a person will always be provided with a demerger benefit. The definition of a demerger under section 125-70 of the ITAA 1997 requires there to be a disposal of ownership interests or an issue of ownership interests to the owners of the head entity. This means the owners of the head entity will invariably be provided with a demerger benefit. Nevertheless, at this point it is pertinent to acknowledge that while every demerger will involve the provision of a demerger benefit, it may not involve a demerger dividend. 33. The demerger may, for instance, result from the transfer of shares in the demerged entity to the head entity shareholders in circumstances where the distribution is wholly from contributed capital. 34. Conversely, if the state of the law is that the concept of a dividend is not wide enough to include an indirect distribution of profit, a demerger accomplished by the demerged entity issuing new shares to the head entity's shareholders may not involve those shareholders receiving a demerger dividend. In such a case, however, the demerger benefit would nonetheless constitute the provision of a capital benefit and hence is still examinable under section 45B to ensure that it is an allocation that is made in the context of a genuine demerger and that no part of it is made in substitution for a dividend. | The relevant taxpayer: 35. The relevant taxpayer is the taxpayer who obtains a tax benefit within the meaning of subsection 45B(9) under the scheme. Under a demerger, the relevant taxpayers will ordinarily be the owners [9] of the head entity, as it is they who are provided with the demerger benefit. However, there is no requirement that the relevant taxpayer be the person who is provided with the demerger benefit, although it is unlikely to be any other person in the case of a demerger. 36. This Practice Statement proceeds on the basis that the relevant taxpayers are the owners of the head entity in order to provide useful guidance on the application of section 45B. However, officers should recognise that there may be rare cases where the relevant taxpayer is someone other than an owner of the head entity. | Obtaining a tax benefit: 37. The meaning of 'obtaining a tax benefit' is contained in subsection 45B(9). Essentially, the relevant taxpayer obtains a tax benefit from a demerger benefit if the amount of tax payable by the relevant taxpayer would, apart from section 45B, be less than the amount that would have been payable or would be payable at a later time than it would have been payable, if the demerger benefit had been an assessable dividend. An assessable dividend is ordinarily a payment to a shareholder out of profits and included in their assessable income under subsection 44(1) or subject to withholding tax, in the case of non-resident shareholders. 38. In most cases, the relevant taxpayer will obtain a tax benefit within the meaning of subsection 45B(9) under a demerger. The dividend and withholding tax exemptions and CGT rollover relief provided for under the Demergers measure ensure that the owner of the head entity is not subject to tax on the demerger benefit at the time of the demerger and thus subject to less tax than if it had been an assessable dividend. 39. In circumstances where the head entity may have franking credits that would enable the demerger benefit to be fully franked if it was an assessable dividend, the taxpayer's marginal tax rate may be such that the demerger benefit would be subject to no greater tax than if it had been treated as an assessable dividend. However, even if the taxpayer's marginal tax rate is such that no tax would be payable if the demerger benefit had been a fully franked assessable dividend, those franking credits of the head entity are not preserved as an offset against shareholder's income in future years. Thus, the tax payable by the relevant taxpayer at a later time would be more than if the demerger benefit had been subject to the demerger dividend concession. A tax benefit is also obtained by the relevant taxpayer if the amount of refund payable would be less than if the demerger benefit was an assessable dividend. 40. Similarly, a taxpayer may obtain a tax benefit notwithstanding that they have losses to offset against the otherwise assessable dividend. If a taxpayer uses their losses against the otherwise assessable dividend, this will mean the losses are not available to offset against future assessable income. 41. However, a taxpayer who is an exempt entity would not obtain a tax benefit, because regardless of whether the demerger benefit was an assessable dividend or not, no tax would have been payable at the time of the demerger or at a later time. | A more than incidental purpose of enabling a taxpayer to obtain a tax benefit: 42. Section 45B only applies if, having regard to the relevant circumstances of the scheme, it would be concluded that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for a purpose (whether or not the dominant purpose but not including an incidental purpose) of enabling a taxpayer to obtain a tax benefit. In the majority of matters this will be the critical issue determining whether the provision applies or not. 43. Section 45B follows the structure of Part IVA, in that the conclusion about requisite purpose is drawn by having regard to a number of objective matters (listed in subsection 45B(8) and paragraphs 177D(2)(a) to (h)). Similar to Part IVA, section 45B does not require any enquiries into the subjective motives of the relevant taxpayer or persons who entered into or carried out the scheme or any part of it (Hart). Thus, section 45B is concerned with determining the objective purpose of the persons who entered into or carried out the scheme. In practical terms, the approach to determining objective purpose is that all the relevant circumstances of the scheme, including the commercial reasons advanced for entry into it, are to be properly considered and weighed against the tax benefits conferred. | Whose purpose?: 44. The purpose of any one of the persons who entered into or carried out the scheme is sufficient to attract the operation of section 45B. Relevant persons would include the members of the demerger group and the owners of the head entity. In complex commercial transactions such as demergers, these persons will widely consult and rely upon professional advisers, and the 'actual parties to a scheme subjectively may not have any purpose, independent of that of a professional advisor' (Commissioner of Taxation v Consolidated Press Holdings Ltd [2001] HCA 32 (Consolidated Press)). Where this is so, it will generally be appropriate to attribute the purpose of a professional adviser to one or more of the parties. Authority for this approach is found in the High Court case of Consolidated Press, where the application of Part IVA in a similar context was considered. | More than incidental purpose: 45. The concept of a more than incidental purpose is explained in paragraphs 1.31 and 1.32 of the Explanatory Memorandum to the Taxation Laws Amendment (Company Law Review) Bill 1998 (the CLR EM) [10] as follows: New section 45B requires a purpose (whether or not the dominant purpose but not including an incidental purpose) of enabling a taxpayer to obtain a tax benefit. The words in parentheses are inserted for more abundant caution; a reference to a purpose of a scheme is usually understood to include any main or substantial purpose of the scheme, and the words in parentheses clarify that this is the intended meaning here. Thus while new section 45B does not require the purpose of obtaining a tax benefit to be the ruling, most influential or prevailing purpose, neither does it include any purpose which is not a significant purpose of the scheme. A purpose is an incidental purpose when it occurs fortuitously or in subordinate conjunction with one of the main or substantial purposes of the scheme, or merely follows that purpose as its natural incident. 46. It is expected that most, if not all, schemes of demerger will have a purpose of enabling taxpayers (that is, the head entity's shareholders) to obtain a tax benefit. Whether it constitutes a more than incidental purpose of the scheme is a matter to be determined objectively from the relevant circumstances of the scheme. If the business or commercial purpose for the scheme is not sufficiently cogent, it is likely that the tax purpose will be more than incidental. But if the tax purpose merely follows the commercial purpose as its natural incident, the tax purpose will be incidental. 47. However, a person (or persons) could be found objectively to have 2 or more purposes, none of which is merely incidental and one of which is to obtain a tax benefit (either as a demerger benefit or a capital benefit), in which case section 45B would apply. The fact that they have other substantial purposes would not prevent the section from applying. To avoid the application of section 45B, the tax purpose must be objectively subordinate to the other substantial purposes. | The relevant circumstances: 48. Subsection 45B(8) lists the relevant circumstances of the scheme to which the Commissioner must have regard when determining whether or not the requisite purpose exists. The list of circumstances is not exhaustive and the Commissioner may have regard to other circumstances which they regard as relevant. 49. The relevant circumstances listed in subsection 45B(8) encompass a range of matters which taken individually or collectively will reveal whether the requisite purpose exists or not. Due to the diverse nature of these circumstances, some may be of no consequence in ascertaining whether or not that purpose exists. In all cases, however, officers should have regard to all the circumstances and determine whether they tend toward, against or are neutral as to the conclusion of a purpose of enabling the relevant taxpayer to obtain a tax benefit. 50. The factors which are used to determine purpose under Part IVA are included by virtue of paragraph 45B(8)(k). The Part IVA factors are to be given equal attention in determining purpose under section 45B(8). The CLR EM as originally enacted in 1998 indicated that in addition to the Part IVA matters, 'other matters more specifically relevant to schemes to obtain a tax benefit' were included to give 'further guidance' to the operation of the section. [11] | Appropriate capital and profit allocation: 51. The first relevant circumstance (paragraph 45B(8)(a)) concerns the extent to which the demerger benefit is attributable to capital and profits (realised and unrealised) of the company or of an associate (within the meaning in section 318) of the company. Unrealised profits would ordinarily be identified as the accretions to the value of corporate assets from the time of their acquisition. Accretions to value may or may not be recognised in the company's accounts but would normally be measured by reference to the market value of the assets. 52. Paragraph 45B(8)(a) directs attention to the composition, as between share capital and profits (realised and unrealised), of the demerger benefit provided to the head entity's owners. If the composition of the demerger benefit is inconsistent with the substance (that is, the capital and profit it is attributable to) this would tend to a conclusion that the requisite purpose exists. 53. For instance, if the dividend element of a demerger benefit is not attributable to an amount that could reasonably be regarded as the profit made on or applied to the assets being demerged, this would suggest a purpose of obtaining a non-assessable dividend under the demerger relief. Similarly, if the capital element is 'attributable' to profits, this would suggest a purpose of providing a capital benefit in substitution for a dividend, and recourse to the dividend substitution rule of section 45B may be warranted. This point is discussed more fully at paragraphs 103 to 115 of this Practice Statement. 54. As a demerger can be implemented in a number of ways, it may not always involve a distribution of property from the head entity to its owners. Whether this is the case or not is a question of fact and law. It does not depend upon whether the head entity has, or proposes to record, a distribution to shareholders in its accounts. For instance, the provision of shares in the entity to be demerged by the head entity to its owners is a distribution and the full value of this provision may not be recorded in the accounts. 55. There may be no distribution of property from the head entity to its owners in the case where the ownership interests are provided by a demerging entity that is not the head entity. For example, a subsidiary may transfer shares it owns in the entity to be demerged to the head entity's owners. Similarly, a demerger can be implemented by way of a cancellation of the shares held by the head entity or a member of the group in the entity to be demerged and a fresh issue of shares by the entity to be demerged to the head entity's owners. In these cases, it may be that no dividend and thus no demerger dividend is received by the owners of the head entity under the demerger. However, a capital benefit, in the form of the shares, is provided to the owners thus raising the application of the dividend substitution rule of section 45B. 56. The word 'attributable' is used to describe a discernible connection between the demerger benefit and the share capital and profit of the head entity or an associate. Regardless of whether the ownership interests are provided by the head entity or a subsidiary, the distribution will generally be considered attributable to the 'disposal' of the demerged entity to the head entity's owners, and thus it would be attributable to the amount of share capital that could reasonably be regarded as invested by the head entity's owners (indirectly) in the demerged entity and the profits (realised or unrealised) attributable to the demerged entity. 57. However, in determining what the provision of ownership interests is attributable to, regard should be had to other transactions undertaken in relation to the entity to be demerged before the demerger. For example, the transfer of assets, the capitalisation of entities by cash injections or swapping of intra-group indebtedness may be carried out to ultimately deliver profits to the head entity shareholders in a capitalised form. It should therefore be considered whether the demerger benefit provided is attributable to these transactions. 58. In the ordinary case where there are no special circumstances such as those described in paragraph 57 of this Practice Statement, a reasonable approach should be taken in determining the extent to which share capital was invested in the demerged entities. In some cases, the amount of capital contributed by the head entity shareholders that is represented in the investment in the demerged entity can be precisely identified; however, in many cases it cannot. In the cases where it cannot be identified, it is apparent from the CLR EM [12] that the exercise envisaged by paragraph 45B(8)(a) (formerly paragraph 45B(5)(a)) involves an economic notion of share capital (the nominal value of which is immutable) being apportioned across the assets of the business. Thus, the amount of share capital invested in the demerged entity should be determined in accordance with the relative market value of the demerged entity to the corporate group. Case Study 1 It is proposed that Small Company Limited (Smallco) be demerged from the Multinational Limited (Multinational) group of companies. Multinational has been in business for approximately 100 years and has evolved from a small credit provider to a large wholly owned group of companies operating mainly in the finance industry. It is now a multi-billion dollar global business. It has been consistently profitable and has had a dividend reinvestment plan in place for the last 22 years, which the shareholders have made good use of. Multinational has also had a number of rights issues over the years, raising various sums of capital. In 1992, Multinational used a combination of cash on hand and existing lines of credit to acquire 100% of Smallco, an online securities dealer, for $100 million. Since then, Smallco has grown substantially using internally generated profits and funds from Multinational (again, a mixture of share capital and debt) and has paid dividends to Multinational annually. At the time of the demerger proposal, the Smallco shares are recorded in the books of Multinational at $1 billion and have a current market value of $2 billion. The market value of the entire Multinational enterprise is $10 billion. At the time of the demerger, the accounts of Multinational were as follows: Assets Various Business Assets $6 billion Shares in Smallco $1 billion Total Assets $7 billion Liabilities Loans $2 billion Total Liabilities $2 billion Equity Contributed Capital $2 billion Accumulated Profits $2 billion Asset Revaluation Reserve $1 billion Total Equity $5 billion In the circumstances, it is not feasible to identify an amount of the capital contributed by Multinational shareholders that was directed to the investment in Smallco. Accordingly, there being no contra-indicators, the acceptable approach to identifying the capital element of the demerger allocation is to debit Multinational's capital account by the ratio of the Smallco market value to the total enterprise market value (that is, $2 billion ÷$10 billion = 20% × $2 billion = $400 million). The remaining $600 million required to write the Smallco investment out of the accounts of Multinational would be debited against booked profits (which may be accumulated profits or revaluation reserves). Note: Multinational shareholders would receive a demerger dividend of $1,600 million – the market value of the property distributed ($2 billion) less the amount debited to contributed capital ($400 million) (see Taxation Ruling TR 2003/8 Income tax: distributions of property by companies to shareholders – amount to be included as an assessable dividend). Case Study 2 It is proposed that Bread Shops Pty Ltd (Bread Shops) be demerged from Flour Mill Pty Ltd (Flour Mill). Flour Mill owns all the issued capital in its subsidiary, Bread Shops, which it has decided to demerge by transferring all its shares in Bread Shops to its shareholders. Flour Mill was incorporated in 1982 and its 2 founding shareholders, Serge and Sylvia, each contributed $50,000 of equity capital. That money was used to acquire and operate a business of milling flour. In January 1997, Serge, Sylvia and a group of investors contributed an additional $1 million of capital under a rights issue for additional Flour Mill shares. This money was used by Flour Mill at the time to subscribe for shares in the newly incorporated Bread Shops, who used the money to acquire a chain of 4 retail outlets. Bread Shops has since expanded considerably and has operated independently of Flour Mill financially. It has not received any further funds from Flour Mill and has retained all profits it has made. Flour Mill re-valued the shares in Bread Shops in 2001 to $5 million; they now have a market value of $10 million. At the time of the demerger, the accounts of Flour Mill were as follows: Assets Flour Milling Business Assets $10 million Shares in Bread Shops (at 2001 valuation) $5 million Total Assets $15 million Liabilities Loans >$1 million Total Liabilities $1 million Equity Contributed Capital $1.1 million Accumulated Profits $4 million Asset Revaluation Reserve $8.9 million Total Equity $14 million There being no other factors relevant to the contributed capital sum of Flour Mill, this demerger is in substance a return of the $1 million capital contributed in 1997. In the circumstances, returning $1 million of contributed capital (satisfied in part by the in specie distribution of the Bread Shops shares) to Flour Mill shareholders would therefore be acceptable. Similarly, it would be accepted that $4 million from the revaluation reserve is distributed (also satisfied in part by the in specie distribution of the Bread Shop shares) to Flour Mill shareholders. Note: Flour Mill shareholders receive a total dividend of $9 million – the market value of the property distributed ($10 million) less the amount debited to contributed capital ($1 million) (see TR 2003/8). | Pattern of distributions: 59. Paragraph 45B(8)(b) directs attention to the pattern of distributions of dividends, bonus shares and returns of capital or share premium by the company or an associate (within the meaning in section 318) of the company. The inference here is that an interruption to the normal pattern of profit distribution and its replacement with a distribution under a demerger would suggest dividend substitution. Regard is had to the general pattern of distributions of the company in order to determine, for example, whether its previously regular dividend distribution policy has been affected by the demerger, or the head entity has a pattern of making capital distributions (with that capital thus performing the function of dividends). 60. In the context of a demerger, the occasion for the distribution is an extraordinary event, being the demerger of part of the group and should be additional to normal distribution policy. Thus, it should be acknowledged that a demerger, an extraordinary corporate event, is unlikely to be used to replace standard profit distributions. Caution should be exercised when a company has a 'no dividend' policy, however. When a company accumulates all its profits, a subsequent distribution of profit, if it occurs, is more likely to occur as a single, extraordinary payment. It may in such cases be tempting to seek to secure a tax-effective mode of distribution. Cases of this type often have a history of expansion, during which profits are reinvested, succeeded by a period of maturity in which profits continue to accumulate, often as cash reserves, until the no dividend policy is changed. | Characteristics of shareholders: 61. Paragraphs 45B(8)(c) to (f) require that consideration be given to the tax characteristics of the owners of the head entity and thus to determining the tax effects of the scheme. If the tax characteristics of the owners of the head entity are such as to indicate there is a tax preference for one form of distribution (capital or profit) over another, this may be suggestive of a more than incidental purpose of delivering a tax benefit, particularly if the composition of the distribution does not follow the substance of what was provided. 62. In the case of public companies, the head entity and its subsidiaries would generally be aware of the broad tax characteristics of the owners of the head entity, but not their more detailed tax characteristics. It is also administratively difficult for the Commissioner to obtain this knowledge. Nevertheless, a company may enter into a scheme, without knowing the precise tax profile of each of its shareholders, upon the premise that large numbers of its shareholders will have tax characteristics that will enable them to secure a tax advantage by a particular form of distribution, and for that purpose. In the case of a closely held group, the detailed tax characteristics of the owners of the head entity are more likely to be known to the group and also discernible by the Commissioner. 63. To the extent that the shareholders' tax characteristics are known, they should be considered thoroughly to discern whether they incline for or against a conclusion as to the requisite purpose. 64. In this regard, however, it should also be borne in mind that the application of section 45B turns upon objective matters and does not require that the head entity, its associated entities or any other person who entered into or carried out the scheme be aware of the tax characteristics of the relevant taxpayers in order for it to apply. Capital losses 65. Paragraph 45B(8)(c) concerns whether owners of the head entity have capital losses that, apart from the scheme, would be carried forward to a later year of income. This is a circumstance which it is unlikely would be immediately taken advantage of by a demerger which, of itself, would not ordinarily produce a capital gain in the hands of the owners to offset the capital loss. However, the fact that an owner of the head entity is in a position to offset any capital gain from the subsequent disposal of the head entity interests or new ownership interest delivered by the demerger process with the capital loss may be relevant to the demerger scheme. Pre-CGT ownership interests 66. Paragraph 45B(8)(d) directs attention to whether some or all of the ownership interests held by the head entity's owners in the head entity or an associate (within the meaning of section 318) were acquired or are taken to have been acquired before 20 September 1985. This circumstance makes the distinction between pre and post-CGT assets, a characteristic of the ownership interests in the head entity which by the operation of Division 125 of the ITAA 1997 is normally transmitted to the new ownership interests in the demerged entity. In other words, the decision to deliver ownership interests under a demerger could be influenced by owners of the head entity receiving new pre-CGT interests. Residency of owners of the head entity 67. Paragraph 45B(8)(e) requires consideration of whether the owners of the head entity are non-residents. The non-residency of the head entity's owners could have a bearing on the preference for capital or profit in the composition of a demerger benefit. While non-residents are normally taxed on unfranked dividends at the rate of 15% under the withholding tax provisions in Division 11A of Part III [13] , they are not exposed to capital gains tax where a CGT event (such as disposal) happens to their shares in a resident public company, unless they and their associates (within the meaning of section 318) beneficially owned at least 10% by value of the shares of the demerged entity. There is no similar concession in regard to the disposal of private company shares however and any capital gain from their disposal by non-residents is exposed to the general non-resident rates of tax. Changes enacted in 2006 expanded the CGT exemption for non-residents to most shares in companies (except land-rich companies). [14] Cost base of the ownership interests 68. Paragraph 45B(8)(f) directs attention to whether the cost base (for the purposes of the ITAA 1997) of the relevant ownership interest provided to the head entity's owner is not substantially less than the value of the applicable capital component of demerger benefit or the capital benefit. 69. In the case of a demerger, the relevant ownership interest would be the ownership interest in the head entity. The point here is that the demerger could be influenced by the opportunity to obtain a distribution under a demerger that is subject to the CGT rollover which, but for the concession, would result in a capital gain. That opportunity to defer the CGT taxing point may incline to a conclusion that the purpose of the demerger is to access the tax concessions as a means to an end in itself, rather than to increase business performance. | Nature of interest after demerger: 70. Paragraph 45B(8)(h) requires, where the demerger involves a distribution of share capital or share premium, that regard be had to whether the interest held by the owners of the head entity after the distribution is the same as the interest would have been if an equivalent dividend had been paid instead of the distribution of share capital or share premium. 71. This relevant circumstance proceeds from the premise that when a dividend is paid the owner's interest remains unchanged, and that a distribution of capital made in similar circumstances may be performing the same function as a dividend and be made in substitution for it. Thus, if the proportionate voting and other interests held by the owner are less than their pre-reduction interest, this would be more suggestive of a 'genuine return of capital' than if they remained the same post-reduction. 72. In the context of demerger, this circumstance would be limited to demergers where the transfer of ownership interests involves 'distributions' (that is, returns) of share capital or share premium. Ordinarily however, a demerger should not disturb the head entity shareholder's existing ownership interest in the way described, owing to the requirements of the proportion test in subsection 125-70(2) of the ITAA 1997. As a consequence, it is unlikely that this circumstance will have significant relevance for demergers. | Scheme involving the later disposal of ownership interests: 73. Paragraph 45B(8)(i) directs attention to those cases where the scheme of demerger involves the provision of ownership interests and the later disposal of those interests, or an increase in the value of ownership interests and the later disposal of those interests, recognising that the proceeds on disposal of such ownership interests provide the equivalent of a cash dividend in a more tax-effective form. 74. It is a question of fact whether or not the scheme of demerger involves the later disposal of the ownership interests. In determining whether the scheme of provision and later disposal of ownership interests is suggestive of obtaining a tax benefit, regard is to be had to the length of time the ownership interests are held, including any arrangements to reduce the risk of holding them. The temporal nexus between the demerger and the arrangement for the disposal of the ownership interests must also be considered. 75. If a demerger is merely a preparatory step for disposal, the moving of the ownership interests to the owners of the head entity in a tax effective way is a key incident of the scheme and thus may be suggestive of a more than incidental purpose of enabling the head entity's owners to obtain a tax benefit. 76. As subsection 44(5) indicates, demerger tax relief is concerned with facilitating restructures that are essentially business driven. That is, their object is to increase business efficiency and thus shareholder value. It is not concerned with facilitating the delivery of assets or profits from the company to the head entity's owners for the purposes of allowing them to realise that value in a tax effective way. In other words, the premise is that a prearranged disposal of the demerged interest or the interest in the head entity by the head entity's owners, may suggest the demerger was undertaken to transfer corporate assets to the shareholder, rather than restructure the business. 77. It is recognised that there are exceptions to this general premise. A prearranged disposal of the head entity or demerged entity shares could have as its only substantial object increased business performance. There may be circumstances where the business performance of one or both of the head entity or demerged entity is enhanced by merging one of those entities with another like business structure. Such a merger could for example involve the disposal of the head entity or demerged entity under a scrip for scrip transaction. Alternatively, it may be that the efficiency of a business is enhanced by the introduction of a new group of owners, such as under a management buy-out. 78. However, caution should be exercised in considering the purposes for which the pre-arranged disposal of the head entity or the demerged entity is undertaken. As noted in paragraph 46 of this Practice Statement, a person may be found to have more than one substantial purpose. In other words, in light of all of the relevant circumstances, it might be concluded that a substantial business purpose is matched by a substantial tax purpose in regard to the disposal. 79. In a different context, some large public company demergers provide an optional facility for head entity owners to dispose of their demerged entity shares immediately after the demerger. In others, the proposal may include a compulsory sale facility for foreign shareholders, where it is impractical to comply with regulatory requirements in foreign jurisdictions. 80. Although paragraph 45B(8)(i) requires that the Commissioner have regard to these types of arrangements or facilities in determining whether the requisite purpose exists or not, their existence will not necessarily lead to an adverse conclusion in this regard. The reasons for the arrangements or facilities, their structure and terms and the number and nature of the shareholders who participate in the facility may lead to the conclusion that the existence of the arrangement or facility is neutral in terms of the requisite purpose. | Transactions between the entity and an associate: 81. Paragraph 45B(8)(j) is stated to apply only to demergers and requires that regard be had to whether the profits and assets of the demerging entity are attributable to or acquired under transactions with associated entities (within the meaning of section 318). The demerging entity is the entity that provides the ownership interests in the demerged entity to the head entity's owners. [15] 82. This relevant circumstance elaborates on paragraph 45B(8)(a) and looks for the concentration of assets or profits of the corporate group in the demerging entity beyond that which would be explicable by a business restructure; the premise being that the demerger is being used to deliver assets or profits tax free to the head entity's owners in the form of an ownership interest. The implication here is that the purpose for the demerger must be more than a mere transfer of property from the corporate group to the head entity's shareholders. 83. For example, this relevant circumstance exposes whether the demerger relief is being used as a device for distributing corporate earnings to owners of the head entity. If it is established that part of the profits or assets of the demerging entity are referable to those of an associate and are not explainable by the demerging entity's need to be a viable, stand-alone entity, this is suggestive of a purpose of enabling a taxpayer to obtain a tax benefit by way of non-assessable dividend. | The Part IVA matters: 84. Paragraph 45B(8)(k) requires that regard be had to any of the matters referred to in paragraphs 177D(2)(a) to (h). The matters referred to in these paragraphs are matters of reference for the 'dominant purpose' test in the general anti-avoidance provision, Part IVA. However, in the context of section 45B, they facilitate the 'more than incidental purpose test' and do not introduce a different purpose test. Furthermore, they are matters by reference to which one is able to examine a demerger from a broad, practical perspective in order to identify and compare its tax and non-tax objectives. 85. The paragraph 177D(2) matters operate together to direct attention to the means by which the tax benefit has been obtained, including the manner in which the scheme was entered into or carried out, the form and substance of the scheme, the timing of the scheme, the financial, tax and non-tax effects of the scheme and the nature of any connection between the taxpayer and other parties to the scheme. Many of the other relevant circumstances discussed in this Practice Statement amplify or elaborate on the paragraph 177D(2) matters and to this extent there may be some overlap. 86. One of the chief indicators against the application of section 45B will be the non-tax objects or effects of the demerger scheme. The 8 matters in paragraph 177D(2) constitute the essential facts and circumstances of a scheme, including the outcomes for the parties to the scheme, by reference to which the tax and non-tax objects of the scheme can be identified and contrasted from an objective point of view. If, on the one hand, reference to the matters in paragraph 177D(2) reveal that the essential object of a demerger is to produce changes and improvements to the business structures of the corporate group, the tax-free aspect of the transfer of ownership interests to the head entity's owners is more likely to be an incidental object of the demerger. If, on the other hand, reference to those matters reveals that the transfer of ownership interests from the corporate group to the head entity's shareholders is an essential object of the scheme, the tax-free aspect of the transfer would ordinarily be a substantial object of the demerger. Paragraph 177D(2)(a) 87. Paragraph 177D(2)(a) refers to the manner in which the scheme was entered into or carried out. This is a reference to consideration of the method or procedure by which the particular scheme in question was established. In other words, consideration of the decisions, steps and events that combine to make up the scheme. In effect, an enquiry into the manner of a scheme is an objective enquiry into the reasons a taxpayer had for entering into it. In the context of the policy intent behind the demergers measure, 'manner' is examinable from the perspective of the scheme being a business restructure. In considering section 45B, it will be more likely to apply to a demerger where the decision to execute such a restructure cannot be explained by reasons other than the tax-free distribution to shareholders. Paragraph 177D(2)(b) 88. Paragraph 177D(2)(b) refers to the form and substance of the scheme. A scheme which takes the form of a demerger scheme is one which accords with the description of a demerger in Division 125 of the ITAA 1997. However, the substance of a scheme is a reference to its essential nature which, in the case of a demerger, would normally be determined from the effects of the scheme on the commercial and economic circumstances of all of the parties involved in the demerger, including the head entity, the head entity's owners, the companies in which the ownership interests are transferred and other members of the corporate group. Paragraph 177D(2)(c) 89. Paragraph 177D(2)(c) directs attention to the time at which the scheme was entered into and the length of the period during which the scheme was carried out. This is not limited to a reference to time measurement; it also includes a reference to the timing of the scheme from the point of view of the scheme's coincidence with events or circumstances beyond the scheme itself. In particular, whether the scheme was designed to take advantage of events or changes of a tax or non-tax nature that were taking place at the time. Paragraph 177D(2)(d) 90. Paragraph 177D(2)(d) requires that consideration be given to the result in relation to the operation of this Act that, but for 'this Part', would be achieved by the scheme. 91. The reference to 'this Part' could present an interpretational difficulty when applied in the context of section 45B. In its original context it is a reference to Part IVA. In the context of section 45B, however, 'this Part' could be interpreted as a reference to Part III which includes both sections 44 and 45B; the former relieves a demerger dividend from tax and the latter withdraws the relief. 92. However, paragraph 177D(2)(d) should not be disregarded in relation to section 45B. The reference in paragraph 45B(8)(k) to 'any of the matters referred to in subsection 177D(2)' suggests that the legislature intended that paragraph 177D(2)(d) should apply in the context of section 45B; in which case, the most sensible construction of the words of paragraph 177D(2)(d) is to read 'this Part' to mean 'this section'. 93. The issue then becomes a matter of identifying the tax results of the scheme if section 45B were not to apply. In regard to this matter, it is critical to consider just what constitutes the scheme, as this will have a direct bearing on the breadth and scope of the tax results for the relevant taxpayers that are taken into consideration. Accordingly, officers must have regard to all of the relevant tax outcomes produced by the scheme. From the perspective of the head entity's shareholders, this would include both the capital gains tax and other income tax implications of the transfer of ownership interests from the group. In other words, in the context of the purpose test, regard must be had to the totality of the scheme's relevant tax consequences, to reliably determine the extent to which the scheme did or did not advantage the shareholders tax-wise. Paragraph 177D(2)(e) 94. Paragraph 177D(2)(e) directs attention to any change in the financial position of the head entity's owners that results, will result, or may reasonably be expected to result, from the scheme. Similar to the preceding paragraph, it is also critical to consider just what constitutes the scheme for the purposes of this paragraph. This will have a direct bearing on the breadth and scope of the financial implications for the head entity's owners that one takes into consideration. 95. Clearly, however, a demerger of itself provides the head entity's owners with an ownership interest which, prior to the demerger, was owned by the corporate group and in which they had only the economic interest of an 'underlying owner'. In financial terms, the demerger delivers to the head entity's shareholders an asset which they can liquidate, exchange or use as financial security. Furthermore, depending on the strength of the business outcomes of the demerger, the head entity's owners are likely to be in an improved position in regard to an investment return on their equity interests. Paragraph 177D(2)(f) 96. Paragraph 177D(2)(f) requires that consideration be given to any change in the financial position of any person who has, or has had, any connection with the head entity's owners, being a change that results, will result or may reasonably be expected to result from the demerger scheme. This paragraph provides the opportunity to identify any financial changes that are consistent with a business restructure. It is not likely, however, that parties connected with the head entity's owners that are not members of the group would be affected financially as a result of the restructure. But perhaps the group's creditors, if not considered too remote from the head entity's owners, might also be included in the class of persons covered by this paragraph. 97. A demerger undertaken to restructure business may involve movements of assets and liabilities within the group as part of the restructuring process or, put another way, a reallocation of capital reflecting a movement towards a more effective business allocation. Normally, this would involve financial change for the parties affected by the movement. Also, as a result of the demerger, the net asset position of the head entity would ordinarily be reduced by the value of the ownership interests demerged to the head entity's owners. Depending on the positioning of the demerging entity or entities within the group, the net asset position of other entities in the corporate group may be similarly affected. 98. The demerger may also result in the settlement or reconstitution of loans with group creditors and the severing of financial interdependence between the group and the demerged entity. Paragraph 177D(2)(g) 99. Paragraph 177D(2)(g) directs attention to any 'other' consequence of the demerger scheme for the head entity's owners or for any person connected with the head entity's owners. Ordinarily, the other consequences at issue here would be consequences of the demerger and not of something that has occurred post-demerger. In which case, the other consequences of the scheme would generally include the sorts of changes of a non-financial nature that might occur in, and be consistent with, a business restructure. 100. It is not feasible to devise an exhaustive list of such changes. But by way of example, the case studies which start at paragraph 101 of this Practice Statement include the sorts of matters that would qualify as 'other' consequences of schemes to demerge a business. Nonetheless, in the context of this paragraph, it is pertinent to point out that, depending on the nature of the demerger group and its existing business, a business restructure could involve any one or more of a wide variety of initiatives of a business nature, the implications of which could also vary significantly. For example, a demerger that divides a public company business into 2 discrete corporate enterprises would be expected to incur changes to infrastructure, personnel and operations of a kind unlikely to occur in a simple demerger of a private company business aimed at concentrating or rationalising its management and control. Paragraph 177D(2)(h) 101. Paragraph 177D(2)(h) requires consideration of the nature of any connection (whether of a business, family or other nature) between the head entity's owners and any person referred to in paragraph 177D(2)(g) – ordinarily that would be the members of the demerging group of companies. The connection between the head entity's owners and members of the group is essentially the relationship of shareholder and company, the significance of which for tax purposes is defined by the principle that a distribution of corporate profit is assessable income of the shareholder. Indeed, the requirement for demerger to preserve the economic substance of the relationship between the group and its underlying ownership forecloses its use as a means to make provision for shareholders individually. Case Study 3 TransNational Ltd (TransNational) is the head company of a demerger group that includes, as one of its demerger subsidiaries, Parts Co. Ltd (PartsCo). PartsCo operates a business that manufactures components for the motor vehicle industry. It currently operates in the Australian market only. TransNational has been advised by a business consultancy firm that the PartsCo business has the product range and technical expertise to expand internationally. It also advises that there are a number of opportunities to rationalise the motor vehicle components industry in Australia and overseas through mergers and acquisitions. The business consultants have advised that PartsCo would require significant additional capital resources to expand its own business and undertake strategic acquisitions. At the same time, TransNational's core business of property development has been expanding significantly following the takeover of an overseas competitor. This takeover continues to absorb much of management's time and available capital resources. The Board of Directors has endorsed the broad thrust of the business consultant's report; however, they are concerned that the current ownership structure of the group will impede the implementation of the expansion plans. In particular, they are concerned that they will not be able to devote the necessary management time to the PartsCo business (only one member of the Board has had any experience in the motor vehicle component industry). Given the capital requirements of the property development arm of the business, they are also concerned that the group will not be in a position to devote the capital necessary for the expansion. The Board has therefore decided that demerging PartsCo by transferring its shares to the TransNational shareholders is in the best interests of the business carried on by that entity. The Board expects that the advantages of demerging will be reflected in improved profitability for both the property development and motor vehicle component businesses. They believe that the demerger has the following business advantages: • A board of directors with specialist knowledge of the motor vehicle industry can be appointed. • Senior management with the same sort of expertise can be appointed. (This will also ensure that the senior management of TransNational is focused on the property development business.) • PartsCo is free to access additional capital to the extent it can service that capital, without competing with the capital requirements of the larger property development arm. • PartsCo will be a standalone specialised business and its performance will become much more transparent to the market. For the purposes of section 45B, it is evident that the purpose for undertaking the demerger is to improve the performance of the businesses of both PartsCo and its parent, TransNational. This is reflected in the structural, financial and personnel changes that have been made with a view to improvement in profitability of the discrete operations. In the circumstances, the Commissioner would not make a determination under subsection 45B(3) that sections 45BA or 45C applies to this proposed demerger. Case Study 4 Doris, Noreen and Bob are siblings, each with a one-third interest in Family Farm Pty Ltd (Family Farm), which in turn owns all of the issued capital in Secure IT Pty Ltd (Secure IT). There is a proposal in place for Family Farm to demerge Secure IT by transferring all the issued shares in Secure IT to Doris, Noreen and Bob, and for Doris and Noreen to subsequently dispose of their interests in Secure IT to Bob. The demerger will involve each of the siblings receiving a significant demerger dividend which, but for the demerger concession, would be assessed at the top marginal tax rate in their hands. Family Farm has a very small amount of contributed capital and the demerger will involve the return of a nominal capital amount of $1 per share. Family Farm was incorporated in 1966 by Graham and Marge (the parents of Doris, Noreen and Bob), who were the only shareholders. In that same year, Family Farm acquired a grazing property of 5,000 acres set in what proved to be rather poor country. In 1987, Graham and Marge decided to appoint a manager to run the farm and to move to the city where Graham started up a security business which was owned and run by Secure IT, incorporated as a subsidiary of Family Farm. While Doris and Noreen went to university and studied medicine, Bob helped his father in the security business. In 1995, Graham and Marge passed away, leaving Doris, Noreen and Bob a one-third interest each in Family Farm. Doris and Noreen have pursued their medical careers and now practice in partnership. Each is carrying forward a capital loss from their earlier solo ventures into medical practice and neither has ever taken an active interest in the security business. Bob assumed responsibility for running the security business in 1995 and has run it successfully ever since. Doris and Noreen left all the decision-making for both Secure IT and its business to Bob. All the siblings use Family Farm's grazing property for family holidays and, though a manager is still employed to run it, the property barely produces enough income to cover costs and it has not contributed to the distributable fund of profits for many years. Family Farm's distributable profits have traditionally come from an annual dividend paid to it by Secure IT. All 3 siblings wish to retain their underlying ownership interests in the grazing property. However, since Doris and Noreen have never taken an active interest in Secure IT and have in fact left all the decision-making to Bob, they agree with Bob's suggestion that he buy them out. They have agreed to dispose of their interests in Secure IT to Bob immediately after the demerger at their market value. The security business is now a mature business with established clientele and stable profit history. Bob is a careful and conservative manager and, after acquiring 100% of the equity in Secure IT, he proposes to continue to run the business exactly as he has and hopes to eventually dispose of it to a larger competitor for a healthy capital gain. Doris and Noreen will make a capital gain on the disposal of their Secure IT shares to Bob (the cost base of their Secure IT shares is a proportion of the cost base of their Family Farm shares, determined under section 125-80 of the ITAA 1997). However, they will return only a small net capital gain in the income year of disposal as they each have carry forward capital losses to offset part of the capital gain. The remaining capital gain from the disposal of their shares will be eligible for the 50% CGT discount. There is nothing in the manner or effect of the scheme to suggest that its purpose is to, in any way, improve or restructure either the farm or security businesses. Rather, it is apparent that the overall object of the scheme is for Doris and Noreen to realise their economic interests in Secure IT in the most tax effective way. The demerger concession is simply the means chosen to obtain tax-free access to the Secure IT shares. In this case, the distribution and disposal of the shares results in the permanent tax advantage inherent in the conversion of an income receipt (in the nature of a dividend) into a tax-preferred capital receipt (in the nature of a capital gain). It is illustrative of a scheme with a non-incidental purpose of obtaining a tax benefit, and one which section 45B is designed to counter. In a case such as this, the Commissioner would make a determination under subsection 45B(3) that section 45BA applies to deny the demerger dividend status to the demerger benefit provided under the scheme. Case Study 5 Brendan and Ann-Marie are business partners who established a clothing manufacturing business in 1982. In 1984, they transferred the business into a company called SnipnStitch Pty Ltd (SnipnStitch), which they own half of each. In 1998, Brendan and Ann-Marie acquired a retail health-food shop in a major shopping centre. They acquired this business through a newly incorporated subsidiary of SnipnStitch Pty Ltd, called Healthy Retail Pty Ltd (Healthy Retail). The clothing business has expanded considerably. It now employs 15 full-time staff, returns substantial profits and generates strong cash flow. The net assets of the business are also significant – the most valuable asset being the unencumbered building occupied by the business. The health food business has also expanded and is now a chain of 10 leased retail outlets in major shopping centres. Each year, Brendan travels to an international Natural Product Expo to look for new product lines to sell in the health food outlets. At the most recent Expo, he signed a distribution agreement with an overseas manufacturer for an exciting new weight-loss product, SkinnyTabs. The manufacturer claims the product produces outstanding results, although it has not been subject to independent clinical trials. Brendan believes the product has scope to expand the health food retail business enormously. Both Ann-Marie and Brendan are, however, concerned at the potential product liability and other risks associated with borrowing funds required to expand into distributing and retailing SkinnyTabs. Brendan and Ann-Marie have also come to the view that their interests and managerial strengths are respectively in the health food and clothing businesses. They believe that the combined business structure is impeding each of them in focusing on the respective businesses. They have therefore decided to undertake a demerger of Healthy Retail from SnipnStitch. This restructure has, as its essential object, the improved business operations of the 2 companies. The legal separation of those companies will allow Healthy Retail to engage in the risky SkinnyTabs venture. Both companies can independently focus on maximising their return on capital by addressing their individual business needs and pursuing different growth opportunities. Improved management of each company is also reasonably expected to result from the restructure. Albeit that without the demerger dividend concession the restructure would not be financially viable, there is nothing to indicate that the non-incidental purpose of any of the parties to the transaction is to secure this concession. It is unlikely therefore, that the Commissioner would make a determination under paragraph 45B(3)(a) that section 45BA applies to the demerger benefit provided. Case Study 6 Herb and Ruby began making lemon and sarsaparilla soda drinks from their home in the late 1960s, setting up the business in a wholly owned company called SodaPop Pty Ltd (SodaPop). Over time, they developed a strong following for the product and set up a free home delivery service for surrounding suburbs. In the mid-1990s, a group of venture capitalists approached Herb and Ruby with a proposal to undertake a scrip take-over of SodaPop. The object was to merge the SodaPop distribution network with an existing network the venture capitalists owned. Herb and Ruby accepted. The transaction was undertaken by reverse scrip takeover, with SodaPop acquiring all the issued capital in Statewide Drinks Distributor Pty Ltd (Statewide) in return for issuing new shares to the venture capitalists. Herb and Ruby held 30% of the shares in SodaPop following this transaction. The distribution business was moved out of SodaPop into Statewide. The Board of SodaPop has now received a proposal whereby that company will be taken over (by way of a scrip for scrip merger) by one of its competitors to form a national drinks distribution company. This is a medium-sized public company called Big Drink Distributions Co Ltd (Big Drink) and is listed on the Australian Securities Exchange. Most of the Board members believe the sale of SodaPop to their competitor is in the best interests of the distribution business (it is expected that the expanded group will carve out additional market share and that there will be a range of other synergistic improvements). Herb and Ruby have misgivings in regard to the SodaPop business. They think it will be damaged by being taken over by a business which is focused on distribution. In addition, they have always performed the core managerial role in SodaPop and believe their authority and effectiveness in that role will be diminished if SodaPop is answerable to the board of Big Drink Distributions. SodaPop advisers have proposed a restructure which will effect the merger while ensuring that the management of the SodaPop business remains autonomous. It is proposed that Statewide be demerged from SodaPop, with Statewide then being subject to the scrip takeover by Big Drink Distributions. On balance, it is considered that this proposed restructure would not attract the application of section 45B. Enhancing the business prospects of the distribution business is the essential and immediate objective of the restructure. The provision of ownership interests to the head entity's shareholders is an incident of the business restructure. It is acknowledged that immediately following the demerger the head entity shareholders cease to own shares in Statewide under the scrip for scrip transaction. However, this aspect of the arrangement is consistent with the business objects of the restructure and simply leaves the shareholders in the position of economic owners of a larger business. • A board of directors with specialist knowledge of the motor vehicle industry can be appointed. • Senior management with the same sort of expertise can be appointed. (This will also ensure that the senior management of TransNational is focused on the property development business.) • PartsCo is free to access additional capital to the extent it can service that capital, without competing with the capital requirements of the larger property development arm. • PartsCo will be a standalone specialised business and its performance will become much more transparent to the market. 102. In so far as it relates to the provision of a capital benefit, subsection 45B(2) provides that section 45B applies where: • there is a scheme under which a person is provided with a capital benefit by a company • under the scheme, a taxpayer (the relevant taxpayer), who may or may not be the person provided with the capital benefit, obtains a tax benefit, and • having regard to the relevant circumstances of the scheme, it would be concluded that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for a purpose (whether or not the dominant purpose but not including an incidental purpose) of enabling the relevant taxpayer to obtain a tax benefit. • there is a scheme under which a person is provided with a capital benefit by a company • under the scheme, a taxpayer (the relevant taxpayer), who may or may not be the person provided with the capital benefit, obtains a tax benefit, and • having regard to the relevant circumstances of the scheme, it would be concluded that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for a purpose (whether or not the dominant purpose but not including an incidental purpose) of enabling the relevant taxpayer to obtain a tax benefit. | Capital benefit: 103. The concept of being provided with a capital benefit is explained in subsection 45B(5), which states that a person is provided with a capital benefit if they are either provided with an ownership interest in a company, distributed share capital or share premium or something is done that increases the value of their ownership interest. 104. In a demerger, subsection 45B(5) includes in the provision of a capital benefit that part of a demerger benefit that is not a dividend. As the concepts of demerger benefit and capital benefit are both defined by reference to the provision of ownership interests, to some extent their meanings overlap. The overlap of the 2 concepts is confirmed and explained by subsection 45B(6), which stipulates that a person is not provided with a capital benefit to the extent that the provision of interests to them involves their receiving a demerger dividend. Thus, the effect of subsections 45B(5) and (6) is that to the extent that the provision of a demerger benefit is not a demerger dividend, it will also constitute the provision of a capital benefit. 105. Officers should also note that for the provision of ownership interests to be considered a capital benefit under a demerger it is not necessary that they be provided by the head entity. For example, if the entity to be demerged issues ownership interests to the head entity's owners this constitutes the provision of ownership interests in a company and, therefore, the provision of capital benefits. | Tax benefit: 106. Under subsection 45B(9), a taxpayer obtains a tax benefit if the amount of tax payable by the taxpayer would, apart from section 45B, be less than the amount that would have been payable, or would be payable at a later time than it would have been payable, if the capital benefit had been a dividend. As discussed in this Practice Statement, with respect to demerger benefits, the tax effect of paying the amount as a notional dividend (under subsection 45B(9)) must be taken into account in determining whether the taxpayer has obtained a tax benefit or not. Thus, the existence of capital losses, income tax losses and franking credits at the time at which the capital benefit was provided does not mean that the same or less tax would have been payable if the capital benefit had been a dividend. In most cases, taxpayers would pay less tax on the provision of a capital benefit than they would pay if it were received as an assessable dividend. | A more than incidental purpose of enabling a taxpayer to obtain a tax benefit: 107. A similar approach to that used for concluding whether the requisite purpose exists or not for the demerger object in section 45B should also be followed for the purposes of determining whether there is a more than incidental purpose of enabling a taxpayer to obtain a tax benefit in the form of tax preferred capital. The difference is merely one of emphasis and relevance, due to the different ways in which the tax benefit is provided. 108. Section 45B is concerned not only with capital benefits provided in substitution for a company's ordinary dividend policy, but also the substitution of capital for extraordinary dividends. In other words, section 45B is concerned with striking down the provision of tax preferred capital if, effectively, it distributes profits to owners. In the case of demergers, it is rare for the substitution of capital for ordinary dividends to occur. Rather, a restructure such as a demerger offers the opportunity for extraordinary or accumulated profits, which may not otherwise have been distributed, to be provided in the form of capital. 109. Officers should have regard to all the relevant circumstances in determining whether the requisite purpose of providing a capital benefit in substitution for a dividend for tax advantage is present or not. The starting point of an enquiry into the dividend substitution purpose under section 45B is whether the capital benefit is attributable to profits, as required under paragraph 45B(8)(a). That is whether, in the company's circumstances, a discernible connection can be made between the capital benefit and the profits of the company or its subsidiaries. An enquiry such as this will involve having regard to the essential nature of contributed capital and profit, and the availability for distribution of each. 110. Contributed capital is an immutable nominal sum contributed by the shareholders and by reference to which the growth of the corporate business is measured and identified as profit. Under the corporate paradigm, the contributed capital is meant to provide lasting support to the business and profit excess to the requirements of the business is meant to be distributed to the corporators. A distribution of profits is a relatively ordinary corporate event and a distribution of capital a relatively extraordinary one. A distribution of capital would be expected to coincide with its release from a disposal of part of the corporate business structure or, perhaps, its replacement with debt capital where it is shown to be more profitable for shareholders. However, where profits are available and contributed capital is not demonstrably available or surplus to needs, there is a strong likelihood that the return of capital is in substance attributable to profits. 111. If the provision of capital is attributable to profits, then a consideration of this in conjunction with an examination of the other relevant circumstances indicates whether the substituted dividend was made for the more than incidental purpose of enabling the taxpayer to obtain a tax advantage. As with the demerger specific rule, the chief indicator against a finding as to requisite purpose will be the non-tax effects of the demerger, particularly those consistent with improving the business operations of the group. 112. Where the demerger is a genuine business demerger, the issue for section 45B generally is whether the components of the demerger allocation as between profit and capital reflect the circumstances of the demerger. Paragraphs 52 to 59 of this Practice Statement illustrate the broad approach to be taken in identifying those components. 113. The exercise envisaged involves an economic notion of share capital being apportioned across the assets of the business. Thus, the amount of share capital invested in the demerged entity would commonly be determined in accordance with the relative market value of the demerged entity to the corporate group. An exception might occur where, for example, the demerger allocation is able to be traced historically to specific investments of the head entity's profit or contributed capital. 114. Logically, a bias towards contributed capital in demerger allocations would be rare. However, if the distribution does include an over-allocation of capital, its implications for enabling shareholders to obtain a tax advantage should be explored. For example, after considering all the relevant circumstances of the demerger scheme, it may be concluded objectively that the head entity is preserving profits for later distribution to shareholders on a tax-preferred basis. In this regard, the availability of surplus franking credits as a result of the demerger dividend not being frankable may also play a part. | Demergers implemented by a voluntary winding up: 115. A demerger may be implemented by way of a voluntary winding up. That is, the ownership interests in the demerging entity may be provided to the head entity's owners by way of an in specie distribution of shares from the liquidator. 116. When a company is placed in voluntary liquidation, the liquidator replaces the board of directors, becomes the governing body of the company and assumes all the powers of the board. The liquidator exercises these powers as an agent of the company (see Re: Crest Realty Pty. Ltd [No 2] [16] ). Thus, when a liquidator makes an in specie distribution of shares to the head entity's owners, the distribution is made by the liquidator in his or her capacity as agent of the company, and thus by the company. 117. Accordingly, an in specie distribution of shares from the liquidator is capable of constituting a demerger benefit or capital benefit within the meaning of subsections 45B(4) and (5) respectively and meets the requirement for the application of section 45B in paragraph 45B(2)(a) that a person is provided with a demerger benefit or a capital benefit by a company. Further, the liquidator's distribution of the shares in the demerged entity will be exposed to the same enquiries as to purpose and appropriate allocation of the benefit to profit (see discussion beginning at paragraph 50 of this Practice Statement and otherwise. 118. As a general observation, it may be noted that the liquidation of a head entity would ordinarily not be expected to result in any changes to the business of the demerged entity. Accordingly, there is a strong likelihood that enabling the shareholders to obtain a tax advantage from the demerger dividend is a substantial purpose of the demerger scheme. 119. If the conditions for application in subsection 45B(2) are met, the Commissioner is empowered under subsection 45B(3) to make a determination that: • section 45BA applies in relation to the whole, or a part, of the demerger benefit, or • section 45C applies in relation to the whole, or a part, of the capital benefit. • section 45BA applies in relation to the whole, or a part, of the demerger benefit, or • section 45C applies in relation to the whole, or a part, of the capital benefit. 120. A determination under section 45BA will be made where it is considered that there is a more than incidental purpose of obtaining a tax-free dividend under the demerger relieving provisions. A determination under section 45C will be made where it is considered that there is a more than incidental purpose of obtaining a capital benefit in substitution for dividend for tax advantage. If both the requisite purposes exist, it is open to the Commissioner to make a determination under both sections 45BA and 45C. Logically, the Commissioner would turn their mind to section 45BA first. | Determinations under paragraph 45B(3)(a) that section 45BA applies: 121. The effect of a section 45BA determination is that the demerger benefit, or part of the benefit, is taken not to be a demerger dividend for the purposes (subsection 45BA(1)). In other words, the whole or a part of the demerger benefit will not be eligible for the demerger dividend exemption provided for in subsections 44(3) and (4) and will be assessable as a dividend in the ordinary way. Similarly, for non-residents, the amount will not be a demerger dividend that is excluded from withholding tax under subsection 128B(3D). 122. Although the Commissioner is empowered to make a determination in respect of the whole demerger benefit, if that demerger benefit includes in part a capital component, any such determination in relation to section 45BA would be ineffective against that part. Thus, a determination in relation to section 45BA will only be made in respect of the demerger dividend part of the demerger benefit. | Determinations under paragraph 45B(3)(b) that section 45C applies: 123. The effect of a determination that section 45C applies is that the amount of the capital benefit, or part of the capital benefit, is taken to be an unfranked and non-rebatable dividend that is paid by the company out of profits of the company to the shareholder or relevant taxpayer at the time that the shareholder or relevant taxpayer is provided with the capital benefit (subsections 45C(1) and (2)). The result is that the whole or part of the capital benefit in respect of which the determination is made becomes a dividend which is fully assessable, or subject to withholding tax, in the hands of the recipient. 124. In addition, under subsection 45C(3), the Commissioner is empowered to make a further determination that the whole or part of the capital benefit was paid under a scheme for which a purpose, other than an incidental purpose, was to avoid franking debits arising in relation to the distribution from the company if the Commissioner has made a determination in respect of the capital benefit under paragraph 45B(3)(b). Such a further determination would result in an additional franking debit arising in the company's franking account. 125. The ability to make a further determination under subsection 45C(3) recognises that the preservation of franking credits in the company's accounts may be a more than incidental purpose of the parties to a scheme to provide capital benefits in substitution for dividends. The amount of the franking debit is equal to the franking debit that would have arisen if the amount in respect of which the determination is made had been a fully franked dividend and arises on the day on which notice of the determination is served on the company.","TR 2003/8 | PS LA 2005/24 | PS LA 2012/1 | Explanatory Memorandum | Review of Business Taxation - A Tax System Redesigned | Revised Explanatory Memorandum | Second Reading Speech | ITAA 1936 6(1) | ITAA 1936 44 | ITAA 1936 44(1) | ITAA 1936 44(3) | ITAA 1936 44(4) | ITAA 1936 44(5) | ITAA 1936 45B | ITAA 1936 45B(1) | ITAA 1936 45B(2) | ITAA 1936 45B(2)(a) | ITAA 1936 45B(3) | ITAA 1936 45B(3)(a) | ITAA 1936 45B(3)(b) | ITAA 1936 45B(4) | ITAA 1936 45B(5) | ITAA 1936 45B(6) | ITAA 1936 45B(8) | ITAA 1936 45B(8)(a) | ITAA 1936 45B(8)(b) | ITAA 1936 45B(8)(c) | ITAA 1936 45B(8)(d) | ITAA 1936 45B(8)(e) | ITAA 1936 45B(8)(f) | ITAA 1936 45B(8)(h) | ITAA 1936 45B(8)(i) | ITAA 1936 45B(8)(j) | ITAA 1936 45B(8)(k) | ITAA 1936 45B(9) | ITAA 1936 45B(10) | ITAA 1936 45BA | ITAA 1936 45BA(1) | ITAA 1936 45C | ITAA 1936 45C(1) | ITAA 1936 45C(2) | ITAA 1936 45C(3) | ITAA 1936 128B(3D) | ITAA 1936 Div 11A Pt III | ITAA 1936 177A(1) | ITAA 1936 177D(2)(a) | ITAA 1936 177D(2)(b) | ITAA 1936 177D(2)(c) | ITAA 1936 177D(2)(d) | ITAA 1936 177D(2)(e) | ITAA 1936 177D(2)(f) | ITAA 1936 177D(2)(g) | ITAA 1936 177D(2)(h) | ITAA 1936 318 | ITAA 1997 Div 125 | ITAA 1997 125-5 | ITAA 1997 125-55 | ITAA 1997 125-70 | ITAA 1997 125-70(2) | ITAA 1997 125-70(7) | ITAA 1997 125-80 | ITAA 1997 125-155 | ITAA 1997 Div 855 | ITAA 1997 995-1 | New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002 | Tax Laws Amendment (2010 Measures No. 1) Act 2010 Sch 6 126 | 98 ATC 4634 | 2001 ATC 4343 | 2004 ATC 4599 | [1977] 1 NSWLR 664",PS LA 2005/24 PS LA 2012/1,"ITAA 1936 6(1) | ITAA 1936 44 | ITAA 1936 44(1) | ITAA 1936 44(3) | ITAA 1936 44(4) | ITAA 1936 44(5) | ITAA 1936 45B | ITAA 1936 45B(1) | ITAA 1936 45B(2) | ITAA 1936 45B(2)(a) | ITAA 1936 45B(3) | ITAA 1936 45B(3)(a) | ITAA 1936 45B(3)(b) | ITAA 1936 45B(4) | ITAA 1936 45B(5) | ITAA 1936 45B(6) | ITAA 1936 45B(8) | ITAA 1936 45B(8)(a) | ITAA 1936 45B(8)(b) | ITAA 1936 45B(8)(c) | ITAA 1936 45B(8)(d) | ITAA 1936 45B(8)(e) | ITAA 1936 45B(8)(f) | ITAA 1936 45B(8)(h) | ITAA 1936 45B(8)(i) | ITAA 1936 45B(8)(j) | ITAA 1936 45B(8)(k) | ITAA 1936 45B(9) | ITAA 1936 45B(10) | ITAA 1936 45BA | ITAA 1936 45BA(1) | ITAA 1936 45C | ITAA 1936 45C(1) | ITAA 1936 45C(2) | ITAA 1936 45C(3) | ITAA 1936 128B(3D) | ITAA 1936 Div 11A Pt III | ITAA 1936 177A(1) | ITAA 1936 177D(2)(a) | ITAA 1936 177D(2)(b) | ITAA 1936 177D(2)(c) | ITAA 1936 177D(2)(d) | ITAA 1936 177D(2)(e) | ITAA 1936 177D(2)(f) | ITAA 1936 177D(2)(g) | ITAA 1936 177D(2)(h) | ITAA 1936 318 | ITAA 1997 Div 125 | ITAA 1997 125-5 | ITAA 1997 125-55 | ITAA 1997 125-70 | ITAA 1997 125-70(2) | ITAA 1997 125-70(7) | ITAA 1997 125-80 | ITAA 1997 125-155 | ITAA 1997 Div 855 | ITAA 1997 995-1 | New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002 | Tax Laws Amendment (2010 Measures No. 1) Act 2010 Sch 6 126",,"Explanatory Memorandum (House of Representatives) to Taxation Laws Amendment (Company Law Review) Bill 1998Ralph J (1999) Review of Business Taxation - A Tax System Redesigned , Department of Treasury, Canberra Revised Explanatory Memorandum (Senate) to the New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measurers) Bill 2002Costello, P (Treasurer) 2001, Business Tax Reform - Implementation Timetable, media release , Canberra, 22 March 2001Peter Slipper MP, Second Reading Speech , New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Bill 2002, Commonwealth of Australia, Senate, Official Hansard, 28 August 2002",False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS200521/NAT/ATO/00001,"THE APPLICATION OF THE DEMERGER SPECIFIC RULE | EFFECT OF THE APPLICATION OF SECTION 45B - DETERMINATIONS | Minor changes to align to current style and citation standards, including updating case citations. | Updated to current style guide and updated legislative references. | Paragraph 4A and footnote 1A | Renumbered to Paragraph 5 and footnote 1 and other paragraphs and footnote renumbered appropriately. | Old paragraphs 68, 69 and footnote 13A | Related practice statements | Inserted PS LA 2005/24 and PS LA 2012/1. | Amended following the issue of PS LA 2012/1 and inserted new footnote 1A. | Inserted new heading and paragraph. | Paragraphs 68, 69 & footnote 13A | [1] See Law Administration Practice Statement PS LA 2005/24 Application of General Anti-Avoidance Rules for details on the role and operation of this Panel. | [2] See Ralph J (1999) Review of Business Taxation - A Tax System Redesigned Department of Treasury, Canberra. | [3] Costello, P (Treasurer) 2001, Business Tax Reform - Implementation Timetable , media release, Canberra, 22 March. | [4] See Peter Slipper MP, Second Reading Speech, New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Bill 2002, Commonwealth of Australia, Senate, Official Hansard , 28 August 2002, page 6018. | [5] Paragraph 15.72 of the Revised EM. | [6] Subsection 45B(10) was amended by Item 126 of Schedule 6 of the Tax Laws Amendment (2010 Measures No. 1) Act 2010 , with effect from 3 June 2010. | [7] See Hart ,217 CLR 216 at [238-239], per Gummow and Hayne JJ. | [8] See Hart , 217 CLR 216 at [225], per Gleeson CJ and McHugh J. | [9] The term 'owner' is not defined in the Act: for discussion of the word in another context, see Bellinz Pty Ltd & Ors v The Commissioner of Taxation [1998] FCA 615. | [10] This Bill introduced the original section 45B. The amendments made to section 45B to accommodate the Demergers measure have made no change to the meaning of an incidental purpose. | [11] Paragraphs 1.34 and 1.35 of the CLR EM. | [12] Paragraph 1.35 of the CLR EM. | [13] Although a demerger dividend paid to non-resident shareholders is not subject to withholding tax pursuant to subsection 128B(3D) of the ITAA 1936, any subsequent dividend paid to relevant non resident shareholders ordinarily would be. | [14] Refer Division 855 of the ITAA 1997. | [15] Subsection 125-70(7) of the ITAA 1997. | Bellinz Pty Ltd & Ors v The Commissioner of Taxation [1998] FCA 615 155 ALR 220 98 ATC 4634 39 ATR 198 | Commissioner of Taxation v Consolidated Press Holdings Ltd [2001] HCA 32 207 CLR 235 75 ALJR 1150 179 ALR 625 2001 ATC 4343 47 ATR 229 | Commissioner of Taxation v Hart [2004] HCA 26 217 CLR 216 2004 ATC 4599 55 ATR 712 78 ALJR 875 206 ALR 207 | Re: Crest Realty Pty. Ltd. (in Liq.) and the Companies Act [1977] 1 NSWLR 664 2 ACLR 502 [1977] CLC 40-349 | This Practice Statement was originally published on 25 November 2005. Versions published from 1 July 2008 are available electronically - refer to the online version of the Practice Statement. Versions published prior to this date are not available electronically. If needed, these can be obtained from the TCNLawPublishingandPolicy@ato.gov.au team."
PS LA 2005/23,Disclosing information about a taxpayer's taxation affairs to Treasury,21 November 2005,21 November 2005,Law Administration Practice Statement,False,"1. What this Practice Statement is about: Division 355 of Schedule 1 to the Taxation Administration Act 1953 (TAA) contains provisions which provide for taxpayer confidentiality and sets out the rules that we, as taxation officers, need to abide by when dealing with protected information. This Practice Statement explains the exceptions to these rules when disclosing protected information to the Secretary of the Department of Treasury (Treasury). All legislative references in this Practice Statement are to Schedule 1 of the TAA, unless otherwise indicated. Note: Disclosing taxpayer information to Treasury should be distinguished from disclosing taxpayer information to a Minister. For information on disclosure of protected information to either the Treasurer or Assistant Treasurer or any other Minister, refer to Law Administration Practice Statement PS LA 2004/9 Disclosing information about the affairs of a taxpayer to Ministers. | 2. Protected information: Protected information is defined in subsection 355-30(1) as information that: • was disclosed or obtained under or for the purposes of a taxation law (other than the Tax Agent Services Act 2009 ) • relates to the affairs of an entity, and • identifies, or is reasonably capable of being used to identify, the entity. • was disclosed or obtained under or for the purposes of a taxation law (other than the Tax Agent Services Act 2009 ) • relates to the affairs of an entity, and • identifies, or is reasonably capable of being used to identify, the entity. When taxation information does not include the personal identifiers of an entity or information which could be used to ascertain an entity's identity, it is not protected information and Division 355 does not apply. That said, simply removing a taxpayer's name from information does not always mean that the identity of the taxpayer cannot be identified. You need to consider whether the information as a whole still allows the taxpayer's identity to be ascertained, even by a process of deduction. A tax file number (TFN) is not protected information. The exceptions included in this Practice Statement do not permit the disclosure of TFNs. Refer to section 8WB of the TAA for more information regarding the disclosure of a TFN. Note: Protected information under Division 355 is not the same as information that is classified as 'protected' under the Australian Government's Protective Security Policy Framework . [1] | 3. General exception – where the protected information was already available to the public: Information is available to the public if it is in open court records, books, newspapers or other sources that are generally available, even if a member of the public has to pay a fee to access it. Provided the protected information was not made available to the public through a breach of Division 355, you can disclose it. [2] However, you need to take care that you do not supplement or qualify that information with information from ATO records. | 4. Specific exceptions relating to disclosures to Treasury: Disclosing protected information in performing duties as a taxation officer Subsection 355-50(2) contains a non-exhaustive list of disclosures which can lawfully be made by a taxation officer in performing their duties. Table item 7 of subsection 355-50(2) permits a taxation officer to disclose protected information to Treasury for the purpose of the design or amendment of a taxation law. Whether or not the disclosure of any particular item of protected information will be for the purposes of the design or amendment of a taxation law is a question of fact. This should be considered and determined carefully in each particular case. You will need to remove the name, contact details or Australian business number (ABN) of any entity before disclosing information to Treasury under this exception. 'Contact details' refers to address, phone number, email or similar details. It does not include very broad information such as the state or territory where the entity is located. [3] Disclosing protected information for the purpose of the Foreign Acquisitions and Takeovers Act 1975 Table item 7 of table 3 in subsection 355-65(4) allows protected information to be disclosed to Treasury for the purpose of administering the Foreign Acquisitions and Takeovers Act 1975 (Takeovers Act). Whether or not the disclosure of any particular item of protected information will be for the purpose of administering the Takeovers Act is a question of fact. This should be considered and determined carefully in each particular case. You do not have to remove any data such as name or contact details from information disclosed under this exception. Disclosing certain protected information for the purpose of the Register of Foreign Ownership of Agricultural Land Act 2015 (repealed) Table item 7 of table 7 in subsection 355-65(8) allows information contained in the former Register of Foreign Ownership of Agricultural Land to be disclosed to Secretaries of various departments for the purpose of enabling those departments to assist their Minister in discharging their responsibilities in relation to specific topics. One of those topics is taxation policy, for which Treasury is the responsible department. Disclosing protected information for the purpose of estimating or analysing taxation revenue or estimating the cost of policy proposals Table item 8 of table 3 in subsection 355-65(4) allows protected information to be disclosed to Treasury for the purpose of Treasury [4] : • estimating or analysing taxation revenue, or • estimating the cost of a policy proposal (whether it is tax-related or not). • estimating or analysing taxation revenue, or • estimating the cost of a policy proposal (whether it is tax-related or not). You will need to remove the name, contact details or ABN of any entity before disclosing information to Treasury under this exception. As noted in this Practice Statement, contact details refers to address, phone number, email or similar details. They do not include very broad information such as the state or territory where the entity is located. Disclosing protected information to enable or assist Treasury to deal with a breach or suspected breach of an obligation of confidence Table item 14 of table 7 in subsection 355-65(8) allows protected information to be disclosed to Treasury about an actual or suspected breach of an obligation of confidence by an entity against the Commonwealth or a Commonwealth entity in certain circumstances. Disclosures to Treasury are permitted for the purpose of enabling or assisting in the consideration, development or implementation of any measure, or the taking of any action, directed at dealing with the breach or suspected breach. The obligation of confidence must have arisen in connection with the entity providing advice or other services to a Commonwealth entity either: • as an entity engaged by the Commonwealth entity for that purpose, or • as an entity representing a taxpayer. • as an entity engaged by the Commonwealth entity for that purpose, or • as an entity representing a taxpayer. An obligation of confidence may be contractual or implied in the circumstances. [5] In this context, advice does not include comments provided by public consultation. It could include but is not limited to information received via private consultations, working groups and roundtables, where participants signed an agreement requiring them to maintain the confidentiality of information they received during the process. Advice does not need to be provided for a fee. [6] A disclosure under this exception could be made to assist Treasury undertake a range of activities in relation to a breach or suspected breach of confidence. For example, Treasury may develop measures that are broader than directly addressing the breach or may take actions directed at dealing with the specific breach or suspected breach. [7] Whether the criteria contained in this exception have been met, including whether a breach or suspected breach of an obligation of confidence has occurred, is a question of fact. This should be considered and determined carefully in each particular case. The ABN, name, contact details and personal information (within the meaning of the Privacy Act 1988 ) of any entity other than the entity suspected of the breach will generally need to be removed before information is disclosed to Treasury under this exception. The only circumstances where information of this type can be disclosed is where we are satisfied this is necessary to enable or assist Treasury to deal with the breach or suspected breach. For ATO staff other than the Commissioner, second commissioners and Senior Executive Service (SES) employees (including acting SES employees), a disclosure under this exception must be authorised by: • the Commissioner of Taxation • a second commissioner, or • an SES (including acting SES) employee of the ATO, who is not a direct supervisor of the taxation officer. • the Commissioner of Taxation • a second commissioner, or • an SES (including acting SES) employee of the ATO, who is not a direct supervisor of the taxation officer. For information on the procedure for disclosing information to Treasury under this exception, see Chief Executive Instruction Providing policy and law design advice to Treasury and other government agencies (link available internally only). | 5. More information: For: • information on the correct procedures for providing information to Treasury, see Chief Executive Instruction Providing services to Treasury Portfolio Ministers and Parliament (link available internally only) • advice on providing information to Treasury, contact General Counsel Requests . • information on the correct procedures for providing information to Treasury, see Chief Executive Instruction Providing services to Treasury Portfolio Ministers and Parliament (link available internally only) • advice on providing information to Treasury, contact General Counsel Requests .",PS LA 2004/9 | Explanatory Memorandum | TAA 1953 8WB | TAA 1953 Sch 1 Div 355 | TAA 1953 Sch 1 355-30(1) | TAA 1953 Sch 1 355-45 | TAA 1953 Sch 1 355-50(2) | TAA 1953 Sch 1 355-65(4) | TAA 1953 Sch 1 355-65(8) | Acts Interpretation Act 1901 19A | Foreign Acquisitions and Takeovers Act 1975 | Privacy Act 1988 | Tax Agent Services Act 2009,PS LA 2004/9,TAA 1953 8WB | TAA 1953 Sch 1 Div 355 | TAA 1953 Sch 1 355-30(1) | TAA 1953 Sch 1 355-45 | TAA 1953 Sch 1 355-50(2) | TAA 1953 Sch 1 355-65(4) | TAA 1953 Sch 1 355-65(8) | Acts Interpretation Act 1901 19A | Foreign Acquisitions and Takeovers Act 1975 | Privacy Act 1988 | Tax Agent Services Act 2009,,Chief Executive Instruction Providing policy and law design advice to Treasury and other government agencies (link available internally only) Chief Executive Instruction Providing services to Treasury Portfolio Ministers and Parliament (link available internally only) Chief Executive Instruction Security (link available internally only)Department of Home Affairs Protective Security Policy Framework [website] Explanatory Memorandum to the Tax Law Amendment (Confidentiality of Taxpayer Information) Bill 2010 Explanatory Memorandum to the Treasury Laws Amendment (Tax Accountability and Fairness) Bill 2023,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS200523/NAT/ATO/00001,"Refer to end of document for amendment history. Prior versions can be requested by emailing TCNLawPublishingandPolicy@ato.gov.au if required. This document incorporates revisions made since original publication. View its history and amending notices, if applicable. | References added to legislative provisions that permit disclosure of tax file numbers. | Updates made to reflect the amendments to information sharing laws in Division 355 made by the Treasury Laws Amendment (Tax Accountability and Fairness) Act 2024 . | Updated in line with current ATO style and accessibility requirements. | Updated to new LAPS format and style. | Updated to reflect changes to the Privacy Act 1988 . | Updated as a result of Division 355 of Schedule 1 of the Taxation Administration Act 1953 . | [1] See Chief Executive Instruction Security (link available internally only) and related guidelines. | [3] Paragraph 5.66 of the Explanatory Memorandum to the Tax Laws Amendment (Confidentiality of Taxpayer Information) Bill 2010. | [4] The legislation uses the term 'the Department'. In the context of the TAA and the Takeovers Act, 'the Department' means the Treasury – see section 19A of the Acts Interpretation Act 1901 . | [5] Paragraph 4.14 of the Explanatory Memorandum to the Treasury Laws Amendment (Tax Accountability and Fairness) Bill 2023 (2023 EM). | [6] Paragraph 4.15 of the 2023 EM. | [7] Paragraph 4.16 of the 2023 EM. | File 2003/14658; 1-ZTJ8FX8"
PS LA 2005/24,"SUBJECT: Application of General Anti-Avoidance Rules PURPOSE: This practice statement provides instruction and practical guidance to Tax officers on the application of Part IVA and other General Anti-Avoidance Rules (GAARs). Officers proposing to make a determination under section 177F (including for deemed tax benefits under section 177E), subsection 177EA(5) or 177EB(5) of the Income Tax Assessment Act 1936 , to make a determination under subsection 67(1) of the Fringe Benefits Assessment Act 1986 , to make a declaration under section 165-40 of the A New Tax System (Goods and Services Tax) Act 1999 , or to rule on the application of Part IVA or other GAARs in a private ruling, Class Ruling or Product Ruling should follow this practice statement. This practice statement also outlines the role and operation of the GAAR Panel of the Tax Office. This practice statement will be subject to review from time to time in light of judicial or other consideration of the GAARs.",13 December 2005,13 December 2005,Law Administration Practice Statement,False,"Appendix 1 to Attachment 1: A determination cancelling a tax benefit under paragraph 177C(1)(a) - omitted assessable income (excluding a determination cancelling a tax benefit for the purpose of calculating the 'net income' or 'partnership loss' of a partnership under section 90, or cancelling a tax benefit for a partner under section 92 - refer to Appendices 3 and 5 to this Attachment) (excluding a determination cancelling a tax benefit for the purpose of calculating the 'net income' or 'partnership loss' of a partnership under section 90, or cancelling a tax benefit for a partner under section 92 - refer to Appendices 3 and 5 to this Attachment) Determination made pursuant to section 177F of Part IVA of the Income Tax Assessment Act 1936 I, Mary Brown, Deputy Commissioner of Taxation, Large Business and International, in the exercise of the powers and functions delegated to me by the Commissioner of Taxation determine under paragraph 177F(1)(a) of the Income Tax Assessment Act 1936 (the Act) that the amount of $3,567,900, being a tax benefit that is referable to an amount that has not been included in the assessable income of XYZ Pty Ltd, TFN 99 999 999, (the taxpayer) for the year of income ended 30 June 2003, shall be included in the assessable income of the taxpayer for that year of income. I further determine under subsection 177F(2) of the Act that the amount shall be deemed to be included in the assessable income of the taxpayer by virtue of section 6-5 of the Income Tax Assessment Act 1997. Dated the 9th day of June 2005. Mary Brown (handwritten or stamped) _______________________ p.p John Citizen Mary Brown Deputy Commissioner of Taxation, Large Business and International This is a sample Part IVA determination, made by an authorised officer (John Citizen) on behalf of a delegate (Mary Brown), to include income. Highlighted fields must be updated. In most cases the determination will be made on behalf of the Deputy Commissioner of the relevant business line. Note that the Commissioner determines under subsection 177F(2) of the Act the provision by virtue of which the amount is to be included in assessable income: see paragraph 155 of this practice statement. It may be necessary to check the latest delegations and authorisations. Refer to the Register of Instruments of Delegation and Authorisation (internal link only). | Appendix 2 to Attachment 1: A determination cancelling a tax benefit under paragraph 177C(1)(b) - allowable deduction (excluding a determination cancelling a tax benefit for the purpose of calculating the 'net income' or 'partnership loss' of a partnership under section 90, or cancelling a tax benefit for a partner under section 92 - refer to Appendices 4 and 6 to this Attachment) (excluding a determination cancelling a tax benefit for the purpose of calculating the 'net income' or 'partnership loss' of a partnership under section 90, or cancelling a tax benefit for a partner under section 92 - refer to Appendices 4 and 6 to this Attachment) Determination made pursuant to section 177F of Part IVA of the Income Tax Assessment Act 1936 I, Mary Brown, Deputy Commissioner of Taxation, Large Business and International, in the exercise of the powers and functions delegated to me by the Commissioner of Taxation determine under paragraph 177F(1)(b) of the Income Tax Assessment Act 1936 (the Act) that the amount of $55,894, being a tax benefit that is referable to a deduction being allowable to XYZ Pty Ltd, TFN 99 999 999, (the taxpayer) for the year of income ended 30 June 2003, shall not be allowable to the taxpayer in relation to that year of income. Dated the 9th day of June 2005. Mary Brown (handwritten or stamped) _______________________ p.p John Citizen Mary Brown Deputy Commissioner of Taxation, Large Business and International This is a sample Part IVA determination, made by an authorised officer (John Citizen) on behalf of a delegate (Mary Brown), to deny a deduction. Highlighted fields must be updated. In most cases the determination will be made on behalf of the Deputy Commissioner of the relevant business line. Note that a deduction or a part of a deduction can be determined to be not allowable (see paragraph 177F(1)(b)); the determination must state whether 'a deduction' or 'a part of a deduction' is determined to be not allowable. It may be necessary to check the latest delegations and authorisations. Refer to the Register of Instruments of Delegation and Authorisation (internal link only). | Appendix 3 to Attachment 1: A determination cancelling a tax benefit under paragraph 177C(1)(a) for the purpose of calculating the 'net income' or 'partnership loss' of a partnership under section 90: see paragraphs 132 and 133 of this practice statement - omitted assessable income Determination made pursuant to section 177F of Part IVA of the Income Tax Assessment Act 1936 I, Mary Brown, Deputy Commissioner of Taxation, Large Business and International, in the exercise of the powers and functions delegated to me by the Commissioner of Taxation determine under paragraph 177F(1)(a) of the Income Tax Assessment Act 1936 (the Act) that the amount of $7,135,800, being a tax benefit that is referable to an amount that has not been included in the assessable income of the XYZ Partnership, TFN 99 999 999, ('the Partnership') for the year of income ended 30 June 2003, shall be included in the assessable income of the Partnership for the purpose of calculating the 'net income' or 'partnership loss' of the Partnership. I further determine under subsection 177F(2) of the Act that the amount shall be deemed to be included in the assessable income for the purpose of calculating the 'net income' or 'partnership loss' of the Partnership by virtue of section 6-5 of the Income Tax Assessment Act 1997. Dated the 9th day of June 2005. Mary Brown (handwritten or stamped) _______________________ p.p John Citizen Mary Brown Deputy Commissioner of Taxation, Large Business and International This is a sample Part IVA determination, made by an authorised officer (John Citizen) on behalf of a delegate (Mary Brown), to include income for the purpose of calculating the 'net income' or 'partnership loss' of a partnership. Highlighted fields must be updated. In most cases the determination will be made on behalf of the Deputy Commissioner of the relevant business line. Note that the Commissioner determines under subsection 177F(2) of the Act the provision by virtue of which the amount is to be included in assessable income: see paragraph 155 of this practice statement. It may be necessary to check the latest delegations and authorisations. Refer to the Register of Instruments of Delegation and Authorisation (internal link only). | Appendix 4 to Attachment 1: A determination cancelling a tax benefit under paragraph 177C(1)(b) for the purpose of calculating the 'net income' or 'partnership loss' of a partnership under section 90: see paragraphs 132 and 133 of this practice statement - allowable deduction Determination made pursuant to section 177F of Part IVA of the Income Tax Assessment Act 1936 I, Mary Brown, Deputy Commissioner of Taxation, Large Business and International, in the exercise of the powers and functions delegated to me by the Commissioner of Taxation determine under paragraph 177F(1)(b) of the Income Tax Assessment Act 1936 (the Act) that the amount of $111,788, being a tax benefit that is referable to a deduction being allowable to the XYZ Partnership, TFN 99 999 999, ('the Partnership') for the year of income ended 30 June 2003, shall not be allowable to the partnership for the purpose of calculating the 'net income' or 'partnership loss' of the Partnership. Dated the 9th day of June 2005. Mary Brown (handwritten or stamped) _______________________ p.p John Citizen Mary Brown Deputy Commissioner of Taxation, Large Business and International This is a sample Part IVA determination, made by an authorised officer (John Citizen) on behalf of a delegate (Mary Brown), to deny a deduction for the purpose of calculating the 'net income' or 'partnership loss' of a partnership. Highlighted fields must be updated. In most cases the determination will be made on behalf of the Deputy Commissioner of the relevant business line. Note that a deduction or a part of a deduction can be determined to be not allowable (see paragraph 177F(1)(b)); the determination must state whether 'a deduction' or 'a part of a deduction' is determined to be not allowable. It may be necessary to check the latest delegations and authorisations. Refer to the Register of Instruments of Delegation and Authorisation (internal link only). | Appendix 5 to Attachment 1: A determination cancelling a tax benefit under paragraph 177C(1)(a) for a partner under section 92: see paragraphs 132 to 134 of this practice statement - omitted assessable income Determination made pursuant to section 177F of Part IVA of the Income Tax Assessment Act 1936 I, Mary Brown, Deputy Commissioner of Taxation, Large Business and International, in the exercise of the powers and functions delegated to me by the Commissioner of Taxation determine under paragraph 177F(1)(a) of the Income Tax Assessment Act 1936 (the Act) that the amount of $3,567,900, being a tax benefit that is referable to an amount that has not been included in the assessable income of Mr X, TFN 99 999 999, (the taxpayer) for the year of income ended 30 June 2003, shall be included in the assessable income of the taxpayer for that year of income. I further determine under subsection 177F(2) of the Act that the amount shall be deemed to be included in the assessable income of the taxpayer by virtue of section 92 of the Income Tax Assessment Act 1936. Dated the 9th day of June 2005. Mary Brown (handwritten or stamped) _______________________ p.p John Citizen Mary Brown Deputy Commissioner of Taxation, Large Business and International This is a sample Part IVA determination, made by an authorised officer (John Citizen) on behalf of a delegate (Mary Brown), to include income under section 92 for a partner. Highlighted fields must be updated. In most cases the determination will be made on behalf of the Deputy Commissioner of the relevant business line. Note that the Commissioner determines under subsection 177F(2) of the Act the provision by virtue of which the amount is to be included in assessable income: see paragraph 155 of this practice statement. It may be necessary to check the latest delegations and authorisations. Refer to the Register of Instruments of Delegation and Authorisation (internal link only). | Appendix 6 to Attachment 1: A determination cancelling a tax benefit under paragraph 177C(1)(b) for a partner under section 92: see paragraphs 132 to 134 of this practice statement - allowable deduction Determination made pursuant to section 177F of Part IVA of the Income Tax Assessment Act 1936 I, Mary Brown, Deputy Commissioner of Taxation, Large Business and International, in the exercise of the powers and functions delegated to me by the Commissioner of Taxation determine under paragraph 177F(1)(b) of the Income Tax Assessment Act 1936 (the Act) that the amount of $55,894, being a tax benefit that is referable to a deduction being allowable to Mr X, TFN 99 999 999, (the taxpayer) for the year of income ended 30 June 2003, shall not be allowable to the taxpayer in relation to that year of income. Dated the 9th day of June 2005. Mary Brown (handwritten or stamped) _______________________ p.p John Citizen Mary Brown Deputy Commissioner of Taxation, Large Business and International This is a sample Part IVA determination, made by an authorised officer (John Citizen) on behalf of a delegate (Mary Brown), to deny a deduction under section 92 for a partner. Highlighted fields must be updated. In most cases the determination will be made on behalf of the Deputy Commissioner of the relevant business line. Note that a deduction or a part of a deduction can be determined to be not allowable (see paragraph 177F(1)(b)); the determination must state whether 'a deduction' or 'a part of a deduction' is determined to be not allowable. It may be necessary to check the latest delegations and authorisations. Refer to the Register of Instruments of Delegation and Authorisation (internal link only). Attachment 2: ATO Paper released by the Commissioner of Taxation on 17 March 2005 The recent decision in Hart's case [18] in our view, means business as usual. The judgments of the High Court in Hart represent no change in our understanding of Part IVA. What they decided was, we think, already settled law, settled since the decision in Spotless [19] ; moreover, we think it was what Part IVA's designers intended. Yet we have heard and read concerns that the High Court went too far, or that we went too far, take your pick. There seem to be several strands to this concern: that it makes life too uncertain for taxpayers, that it gives the Tax Office too much power, and, above all, that Part IVA goes further than was intended-that it applies to more than the blatant artificial and contrived dealings that the then Treasurer said it would when he announced it in 1981. But when one reads these concerns one feels a certain déjà vu. From 1979 to 1981 pretty much all these issues were debated: in the Tax Office, in Parliament, and in the community at large. How far should a good anti-avoidance provision go? What principle should it apply? What counts as tax avoidance? What makes it hard to write a general anti-avoidance rule? The Development of Part IVA There is a certain conundrum involved in designing a general anti-avoidance rule. The function of a general anti-avoidance rule is to limit the opportunities that might otherwise be available to taxpayers to reduce tax. That is all it does. But a general anti-avoidance provision will necessarily appear in the context of a statute many of whose other provisions exist to offer opportunities to reduce tax. This contradiction has to be reconciled. It cannot be reconciled by saying that the anti-avoidance applies if your main purpose in doing something is to reduce tax because there are provisions in the Act framed on the assumption that taxpayers will act to reduce tax. [20] The possession by taxpayers of an actual purpose of reducing tax in the ordinary course of business is taken as given by tax policy makers. However, one cannot say that a general anti-avoidance rule will not apply merely because the Act otherwise provides an opportunity to reduce tax. The opportunity itself may be unintended, and even if it is intended it may still be abused in unintended ways. So we require some sort of touchstone, some criteria to distinguish the permissible exploitation of opportunities to reduce tax from abusive exploitation of those same opportunities. This conundrum bedevilled s. 260. Section 260 had the effect of making void as against the Commissioner any arrangement so far as it had the purpose or effect of avoiding tax, very broadly defined [21] . Consider the range of transactions that have the effect of changing the incidence of income tax. The formation of a company by, say, a grocer who had formerly traded on his own account, to carry on his grocery business, can have that effect. Any business re-organization or re-arrangement of one's affairs will most likely alter the incidence of income tax, as can, indeed, mere trading. As Knox CJ pointed at in DFC of T v. Purcell: 'The section, if construed literally, would extend to every transaction whether voluntary or for value which had the effect of reducing the income of any taxpayer.' [22] Lord Denning articulated an approach for determining whether an arrangement had a tax avoidance character to which section 260 and a rule like Part IVA should apply [23] . 'But, said Sir Garfield, if such a wide interpretation is given to the words, where is the section to stop? Does it enable the commissioner to avoid all transactions by which a man seeks to escape a liability to tax which is about to fall upon him? ... The answer to the problem seems to their Lordships to lie in the opening words of the section. They show that the section is not concerned with the motives of individuals. It is not concerned with their desire to avoid tax, but only with the means which they employ to do it. It affects every ... arrangement ... which has the purpose or effect of avoiding tax. In applying the section you must, by the very words of it, look at the arrangement itself and see which is its effect-what it does-irrespective of the motives of the persons who made it. Williams, J., put it well when he said 'The purpose of a contract agreement or arrangement must be what it is intended to effect and that intention must be ascertained from its terms.' ... In order to bring the arrangement within the section you must be able to predicate -by looking at the overt acts by which it was implemented-that it was implemented in that particular way [emphasis added] so as to avoid tax. If you cannot so predicate, but that have to acknowledge that the transactions are capable of explanation by reference to ordinary business and family dealing, without necessarily being labelled a means to avoid tax, then the arrangement does not come within the section' Newton's case was referred to in the Explanatory Memorandum accompanying the Bill introducing Part IVA. 'Some writers on the subject suggest that tax avoidance involves conduct entered into for the sole or dominant purpose of obtaining a particular tax advantage. That description could be expected to cover the types of tax avoidance that, again using the language of social or political debate, are blatant, artificial or contrived, and which are indeed intended to be covered by this Bill. But it is also apt to describe other arrangements, including some family arrangements, which are beyond the appropriate scope of general anti-avoidance measures and ought, if need be, to be dealt with by specific measures. ... The test for the application of the new provision is intended to have the effect that arrangements of a normal business or family kind, including those of a tax planning nature, will be beyond the scope of the Part IVA. In this respect, Part IVA may be seen as effectuating ... a position akin to that which appears to emerge from the decision in... Newton. The essence of the views expressed in that case was that a tax avoidance situation covered by section 260 exists only if it can be predicated from looking at an arrangement that it was implemented in that particular way so as to avoid tax. [emphasis added] If the tax avoidance purpose of a scheme has to be deduced from the overt acts by which it was implemented, it will only be possible to infer such purpose from schemes that differ in some relevant way from the character of usual business or family planning. Within the field of ordinary dealing a taxpayer would be free to take up the opportunities to reduce tax offered to them by the other provisions of the Act. So the scope for tax planning would be limited, but the limit would not prevent or foreclose any normal dealing or transaction. On the other hand, an arrangement that exhibited contrivance or artifice would show its tax avoidance purpose on its face, and could fall within the provision. A taxpayer would therefore not be free to take up opportunities to reduce tax that required artifice or contrivance to achieve. Such an approach makes good sense. When a provision is inserted into the income tax law, policy-makers may be taken to contemplate the obvious exploitation or use of the provision. The ordinary dealing or obvious case should not result in uncontemplated consequences. It is reasonable to assume that the tax opportunities of straight-forward dealing have been considered by those who design tax laws, and having been considered, if not then prevented, have in effect been implicitly sanctioned. Moreover, from a taxpayer's perspective a provision will be seen to offer, for straightforward dealings, tax opportunities that are untainted with any notion of abuse. Doing the obvious is use, not abuse. The same cannot be said of contrivance and artifice. This, to generalise, is precisely what is not contemplated by those who design tax laws, and when they do contemplate it, they generally put something in the law to try to prevent it. Some people say that we should be used to it by now-surely some of the dodges ought to be obvious. However, the product of human ingenuity when it is wasted on tax avoidance is not as easy to predict as you might think, but anyway, this is not the point. The point is that there is a very big difference between what flows naturally from the Act, and what can be extracted from its provisions by contrivance and artifice. In the first case it may be said that the opportunity to reduce tax was given by Parliament through the design of the tax laws; the second, it can only be said that it was taken. What one wants is a rule that allows tax reduction opportunities to be given by policy-makers, but prevents them from being taken unilaterally by taxpayers where that was not intended. [24] That, in a nutshell, is what section 260 meant to achieve, and indeed, it is what Part IVA is meant to achieve. The scope of Part IVA is determined by an objective conclusion, based on weighing up of the factors in s.177D that the scheme was entered into for the sole or dominant purpose of obtaining a tax benefit. As noted by Mr Justice Callinan in Hart's case. 'The next question, which is of purpose, is whether under s.177D the scheme is one to which Part IVA applies. This will, in my view, in most cases be the critical question. The answer to it, both as a matter of statutory interpretation and as the explanatory memorandum indicates, was intended to be the fulcrum upon which most Part IVA cases will turn, because the definition of a scheme, being as wide as it is, will relatively easily be satisfied, and the presence or absence of a tax advantage will also usually be readily apparent'. This question is posed on the basis of a comparison - 'the inquiry directed by Part IVA requires a comparison between the scheme in question and an alternative postulate. To draw a conclusion about purpose from the eight matters identified in s177D(b) will require consideration of what other possibilities existed.' [25] The objective conclusion reached has to be determined by reference to the eight factors in s.177D(b), and only to these eight factors. These factors are designed to make you focus on what it is that, in Parliament's view, makes unacceptable or acceptable the way in which a taxpayer obtains a tax benefit. This is what the Explanatory Memorandum said: 'In order to confine the scope of the proposed provisions to schemes of the 'blatant' or 'paper' variety, the measures in this Bill are expressed so as to render ineffective a scheme whereby a tax benefit is obtained and an objective examination, having regard to the scheme itself and to its surrounding circumstances and practical results, leads to the conclusion that the scheme was entered into for the sole or dominant purpose of obtaining a tax benefit.' In order to get the right answer for a particular case, one has to apply those eight factors properly using their actual words. They contain a built-in logic, as it were; they are not just a list. To highlight this point, take as the starting point the proposition that a taxpayer seeking certain commercial ends in a transaction often has a choice of means by which to achieve those ends; and it is possible, in the words of the court in Spotless, to 'shape' the transaction in several ways according to the means chosen. Prima facie, how taxpayers arrange their affairs, or shape their transactions, is of no concern to the Commissioner. However, when the manner in which they go about establishing or implementing the transaction, when there is a divergence between the form of the transaction and its substance, and/or when the transactions' timing and so on, indicate that they have carried out a scheme in that particular way (or shaped it in particular way) mainly or solely to obtain a tax benefit, Part IVA is applicable, even when the tax benefit is the means of obtaining some further commercial goal. Conversely, however, when the manner in which the scheme is established or implemented, when there is congruence between form and substance, and the timing and so on do not point to the transaction as having been carried out in that particular way so as to obtain the tax benefit, Part IVA is inapplicable, even though a reduction of tax is a substantial effect of the scheme, and even though the actual subjective purpose for doing in that way was to get a tax break. The eight factors in s.177D consist of three overlapping sets. The first set is about how the scheme was implemented: how its results were obtained. That is to say, manner, form and substance and timing. Then we have the effects of the scheme: the tax results, financial changes, and other consequences of the scheme. Finally, we are referred to the nature of any connection between the parties to the scheme. First Set of Factors: Enquiring into How the Scheme Was Implemented It is not coincidence that s.177D starts by looking at how the scheme achieves its effects before it looks at what the effects are. If one is asking, why this particular scheme, how is likely to be informative. (1) The Manner of Implementation The famous reference to 'contrivance' and 'artificiality' in the second reading speech upon the introduction of Part IVA was a short-hand description of the intended effect of this factor: 'contrived' dealings are those whose particular manner of formation and implementation is only explicable by the purpose of obtaining a tax benefit. Conversely if a scheme is entered into and carried out in the manner in which ordinary business or family dealings are conducted, the manner of scheme will not indicate the existence of any artificiality or contrivance. This factor thus expresses the policy intent that transactions capable of explanation by reference to ordinary business and family dealing are not to be caught by the section. If the manner of the scheme does not bespeak tax avoidance, a taxpayer is a long way towards showing their purpose is not to obtain a tax benefit. However, it is a mistake to read manner narrowly -Spotless tells us not to-and it is a mistake to think a step in a scheme cannot contribute to a conclusion on manner. There is no statutory concept of 'step'. So if a scheme includes a round-robin of cheques in creation or discharge of liabilities, that goes to the manner in which the scheme is carried out: see Sleight's case [26] . In a practical sense a step apparently taken for no purpose but a tax purpose will often set off an alarm under this heading. A step taken for two purposes can look bad under this heading but retrieved later, when considering the other factors. But when a scheme has elements with no non-tax justification, the taxpayer is likely to have a problem. That, of course, is offered as pragmatic guidance, not as a proposition of law, and relates only to elements of material significance. For example, Peabody [27] had a share devaluation with no non-fiscal rationale; Consolidated Press [28] had a company which lacked another reason for being; and Hart had an election to split the loan. (2) Questions of Form and Substance As Callinan, J., says in Hart, s.177D(b) requires that substance rather than form be the focus [29] . Thus, the second factor directs an enquiry into whether there is a discrepancy between the form of the scheme and its substance, meaning its commercial and economic substance (as well as, and not merely, as some say, the 'legal' substance of any rights created by the scheme.) To examine the form in which the substance of the scheme has been obtained is, in a sense, a species of examining the manner in which its effects are obtained. In an ordinary business or family dealing, the form of a transaction is congruent with its substance. It might be added, the manner of implementing a scheme whose form and substance correspond is likely to be straightforward, commercial, and uncontrived. However, a discrepancy between the business and practical effect of a scheme, on one hand, and its legal form on the other, may well indicate that the scheme has been implemented in a roundabout way and in a particular form, or with particular attributes, as the means of obtaining a tax benefit, given that the substance of the scheme is usually available by some more straightforward and commercial mode of dealing. That is to say, a transaction may be 'shaped' to be the means of obtaining a tax benefit. [30] This factor enables one to take into account what may actually be achieved by a scheme, whether that is 'found within the four corners of an agreement' or not. [31] (3) Timing Issues The time at which a scheme is entered into, and the length of the period during which it is carried out, also draws attention to a particular aspect of the manner in which a scheme is entered into and carried out. Specifically, a scheme that is entered into shortly before the end of a financial year, and carried out for a brief period, is one whose timing indicates the purpose of obtaining a tax benefit. There are dates other than the end of the year of income that may also be significant, such as the date of a change in the rate of tax. It may also be relevant to note that the time at which a scheme is entered into is not proximate to any commercial occasion; that is, the timing of the scheme does not seem to be associated with an opportunity or need that might point to a non-tax purpose. In other circumstances timing and duration is more likely to be neutral or point to a non-tax purpose. However, in Hart, as Mr Justice Callinan points out [32] , the timing of principal and interest repayments (formally in respect of the investment property) over a long period of time indicated something odd was going on, something to be explained by the purpose of obtaining a tax benefit. Second Set of Factors: Enquiring into the Effects of the Scheme The fourth to seventh factors, inclusive, are described shortly and aptly as the effects of the scheme. They cannot simply be compared and weighed to determine purpose, for to do so is to ignore the other factors. The bare fact that a taxpayer pays less tax, if one form of transaction rather than another is made does not by itself demonstrate that Part IVA applies. [33] Similarly one cannot simply assert that Part IVA applies because a tax saving is greater than any financial advantage. Here too the question has to be asked, how were the advantages obtained? In principle at least, one could conceive of a scheme where the tax saving was greater than any financial advantage that was obtained under it, and yet, it was entered into in a manner that spoke of nothing but business as usual, and whose form and substance corresponded, and so on. Of course if the tax saving exceeds any financial advantage and there is a problem with manner or form and substance, there is a distinct probability that Part IVA will apply. While the fourth and seventh factors are self-explanatory-they are simply directions to look at the tax effects and the commercial and family effects of the scheme-the specific direction to enquire into the change in financial and tax position of the taxpayer, any other party to the scheme, and any person who has any connection with taxpayer requires comment. The absence of any change in the financial position of a taxpayer under a scheme will usually indicate a tax purpose depending, of course, on its other consequences. But under most schemes there is a change of some sort. The question naturally arises, change in comparison with what? A change that would have resulted anyway if the scheme was not entered into and carried out does not tell you much about the purpose of the taxpayer in entering into the scheme. And a change in the position of the taxpayer may mean little if there is an inverse change in the position of another person, and the other person is an alter ego of the taxpayer. The result in relation to the operation of the Act that, but for Part IVA, would be achieved by the scheme, examined under these factors, is not confined to the result achieved for the taxpayer. For example, it may be relevant to observe that a deduction that might otherwise be allowable to the taxpayer is not matched by a corresponding amount of assessable income in the hands of another party, and it may be relevant to observe that it is. The extent to which it is relevant may depend on the nature of the connexion between the persons involved. Similarly, a transaction having the form of a loss-making transaction may not have that substance if an associate makes a corresponding (but non-taxable) gain. Conversely, in some cases, these factors may permit regard to offsetting tax liabilities incurred by associates to demonstrate absence of the relevant purpose. Third Set of Factors: Enquiring into the Nature of the Connection between Parties to the Scheme The eighth factor is the nature of any connexion between the taxpayer and other parties to the scheme. The existence of certain connexions between taxpayers will be directly relevant to the assessment one makes of manner, form and substance, tax result, financial change and other consequences. There is often a clearly discernible relationship between contrivance in manner and an association in relationship. This factor requires the circumstance that parties are not at arm's length to be taken into account. But again, the mere absence or presence of some association between taxpayers is relatively uninformative in itself without consideration of the manner of dealing between them. Taxpayers not at arm's length but who deal with each other as if they were, will deal with each other in a manner that may not exhibit a purpose of obtaining a tax benefit; whereas taxpayers who are otherwise independent of each but who act in concert for the purpose of obtaining a tax benefit, may exhibit that purpose by dealing in the manner of persons who are not at arm's length. [34] This factor also requires attention to be paid to the existence of family relationships in a way that assists taxpayers. Many dealings whose manner would be decidedly odd between strangers may be entirely explicable between family members. A businessman who gives assets to strangers for less than they are worth would be the subject of enquiry. A gift to one's family stands on a different footing. Purcell, an old s.260 case [35] , provides as an example. Purcell settled assets on trust for the benefit of his wife and children, retaining, however, wide, and at the time unusual, powers of management and control. Possibly his motivation was to reduce tax through income splitting. On the other hand, his subjective purpose might have been to benefit his wife and children because he was fond of them. Objectively one cannot infer the purpose of tax avoidance just from a gift of property to one's family. Of course it is a different matter if the family does not benefit in substance from the arrangement. That was a consideration in Hollyock, another s.260 case that well illustrates the sort of family dealing that would not pass Part IVA [36] . The Importance of Weighing the Eight Factors Taken together, the criteria in s177D form a coherent basis for the examination of transactions which test the way in which the results of the scheme were obtained to objectively determine the purpose of the taxpayer for entering into, or carrying out, that particular scheme. In summary, section 177D, correctly applied, does not derogate from taxpayers' choosing to organize their affairs in a way that results in the least tax; it simply circumscribes the choice by requiring that the way in which the taxpayer obtains a tax benefit must not be such as to show the purpose of obtaining the benefit on the face of the scheme. This, in effect, limits the choices open to taxpayers to ordinary, straightforward dealings that have a commercial rationale. Or, to put it another way, it leaves taxpayers free to enter into ordinary straightforward dealings. The Role of 'an Alternative Postulate' One of the important points that emerges from the High Court decision in Hart is that in working out whether Part IVA applies to a scheme, and in applying the s.177D factors, the scheme must be compared with the probable alternative. [37] But the fact that there are different ways of doing a transaction or organizing your business affairs does not mean that Part IVA applies if you choose the one that produces less tax. This is where the s.177D factors operate. The choice of the most tax efficient structure might, as matter of subjective intention, have been chosen solely for tax reasons. (Of course, it might not.) But it is a mistake to say well of course they chose this one for tax, so Part IVA applies. This point may be illustrated by the use of a partnership, recalling the statement of the then Treasurer when Part IVA was introduced that a taxpayer who carried on business in partnership with his spouse need have no fear of Part IVA applying to his affairs. Suppose the Smiths want to start a small grocery business. The Smiths could organize their affairs in several ways. Mr Smith might employ Mrs Smith and pay her a wage, or vice a versa. They would get an allowable deduction for it, to the extent it was reasonable in amount, and the employee would be assessable on it. Alternatively, they could incorporate, or Mr and Mrs Smith might carry on business in partnership. If they chose the latter and they had no specific agreement to the contrary, under the Partnership Act they would share in profit and loss in equal shares. They would then be assessable in equal shares on the profit, or have equal shares in any tax loss. From the point of view of income tax this division of profit might seem more attractive than the employment or, incorporation option. On the other hand, there are other, very real non-tax consequences that follow: for example, Mrs Smith becomes fully liable for the debts of the partnership. Now even though there might be a tax advantage, in this hypothetical example, the formation (which may have involved contributions to partnership capital) and conduct of a partnership in the ordinary way would not of itself show that the tax advantage was the dominant purpose of the arrangement. That purpose has to show up, as it did in Hart, in a way that is relevant to s.177D. Look at how the court approached it in Hart. In that case there was a very artificial division of the loan in question into two parts, with deductible interest being incurred but not paid on the deductible part, and then compounded, in a way that in made interest in substance on a home loan tax deductible. This artifice was essential to the outcome. Gummow and Hayne, JJ., drew attention to the finding by Hill, J., that 'the manner in which the scheme was formulated ... is certainly explicable only by taxation consequences.' [38] (Their emphasis.) Of course, they wrote, manner is not determinative; all eight factors must be considered. But the other factors-they went through them-all pointed to the same conclusion or were neutral. None pointed against the conclusion, they said. But if it were not for the obvious contrivance involved in the terms of that loan, as it showed up under the headings of manner, form and substance, change in financial position and so on, there would only have been one factor which pointed to a tax purpose, that being under the heading of 'result under the Act', which would not have sufficed. Defining a scheme Widely or Narrowly - Is it Important? It is claimed by some that the Commissioner can isolate some microscopic element that produces a tax benefit and not much else, but which in the overall scheme of things is just a normal part of an everyday commercial transaction, and say that Part IVA applies. This is not so. Their Honours' conclusion in Hart as to manner followed whether the scheme was identified widely or narrowly. 'The conclusions just described, as being indicated by the manner in which the scheme was entered into or carried out, are indicated by a consideration of how else the loan might have been arranged. They are not conclusions which depend on identifying the scheme in one of the ways put forward by the Commissioner rather than another.' [39] A scheme, cannot by a narrow definition, put out of consideration in characterizing it under s.177D matters going to a non-tax purpose in such a way as to produce an artificial outcome. Mr Justice Callinan rightly observed that: 'it is not for the appellant [that is, the Commissioner] to attempt to seize upon the and isolate one event, or a series of events, which standing alone may appear to have a complexion which it or they cannot truly bear when other, relevant, connected events are taken, as they should be, into account.' : [40] If there were any doubt in that respect, it was settled by the previous decision of the High Court in CPH. [41] That decision clearly held that context is to be taken into account in explaining a scheme. That is a very important point. The context of a scheme is to be taken into account when the factors under s.177D are applied to characterize the purposes of those who participate in it. Clearly, there has been an assumption behind the arguments about the permissible width of a scheme that once something is omitted from the scheme it no longer counts in characterizing the purpose of those who participate in it. But if what is omitted is still brought to bear as context in characterizing the purpose of the participants in the scheme, the width or narrowness no longer seems so important. One will appreciate that once it is understood that the context is to be taken into account, the width or narrowness of a scheme may not necessarily matter. That was the case in Spotless. Part IVA applied to both the wide and narrow schemes. It was also the case in Hart. As Spotless and Hart show the critical question is whether the factors in s.177D(b) point to a tax avoidance purpose. In Hart, Gleeson, C.J., and McHugh J said: 'A transaction may take such a form that there is a particular scheme in respect of which a conclusion of the kind described in s.177D is required, even though the particular scheme also advances a wider commercial objective.' [42] Then they quote the well-known passages from Spotless, emphasising that the application of Part IVA flowed from- 'the conclusion that, viewed objectively, it was the obtaining of the tax benefit which directed the taxpayer in taking steps which they would not otherwise have taken by entering into the scheme.' [43] The question for Gleeson C.J. and McHugh J was not why did the taxpayers borrow money, but why did they do it on the terms of a split loan? Why take these steps? Why this particular form of borrowing, in other words. This was their answer. 'Let it be assumed that, in the present case, even if the 'wealth optimiser structure' had not been available, the respondents would have borrowed money to buy their new home, and also borrowed money in order to retain their former home as an income-earning investment. The 'wealth optimiser structure' depended entirely for its efficacy upon tax benefits generated by arrangements between the respondents and the lender that had no explanation other than their fiscal consequences. What 'optimised' the respondents' 'wealth' was the tax benefit earlier described: not the deductibility of interest as such; but the deductibility of additional interest on loan account 2 contrived by the particular form of the borrowing transaction. [44] [emphasis added] So, the presence of material steps in a scheme consistent with no other explanation than the purpose of obtaining a tax benefit will clearly be critical in characterizing the purposes of the persons who entered into or carried out the scheme. It will be they which lend an air of artifice and contrivance to the manner in which the scheme is carried out, and usually it will be they which separate form from substance, and of course it will be they which change the outcome for tax purposes, while contributing little or nothing to the non-tax effects of the scheme. Where they are present in a scheme it will often not matter whether the scheme in which they are present is defined widely or narrowly, provided they are included, for when the s.177D factors are considered it will be they which establish the existence of the relevant purpose. Hart is an example. The scheme is the particular means adopted to advance the taxpayer's commercial ends. If the dominant purpose disclosed by examination of the s.177D factors for advancing those ends by that particular means is to obtain a tax benefit, Part IVA will apply to the scheme. The moral is that the outcome under Part IVA cannot be manipulated by tactics. The conclusion whether Part IVA applies has been made an objective one: it is a matter for ultimate decision by the courts. The Commissioner cannot manipulate it to produce an outcome favourable to the revenue by disregarding the context of a scheme, but neither can a taxpayer prevent the application of Part IVA to steps inserted into transactions solely to obtain a tax benefit by 'burying' them, or embedding them, in a wider transaction.",Commissioner of Taxation v Complete Success Solutions Pty Ltd ATF Complete Success Solutions Trust (Published 20 July 2023) | Commissioner of Taxation v Guardian AIT Pty Ltd ATF Australian Investment Trust (Published 24 April 2023) | Commissioner of Taxation v PepsiCo Inc | Anor (Published 19 March 2026) | PS LA 1998/1 | LCR 2015/2 | Explanatory Memorandum | Taxation Ruling IT 2456 | PS LA 2000/10 | PS LA 2001/8 | PS LA 2008/18 | PS LA 2012/1 | ANTS(GST) 1999 Div 33 | ANTS(GST) 1999 33-3 | ANTS(GST) 1999 Div 35 | ANTS(GST) 1999 35-5 | ANTS(GST) 1999 Div 165 | ANTS(GST) 1999 165-5(1)(a) | ANTS(GST) 1999 165-5(1)(b) | ANTS(GST) 1999 165-5(1)(c) | ANTS(GST) 1999 165-5(1)(c)(i) | ANTS(GST) 1999 165-5(1)(c)(ii) | ANTS(GST) 1999 165-5(1)(d) | ANTS(GST) 1999 165-5(2) | ANTS(GST) 1999 165-5(3) | ANTS(GST) 1999 165-10(1) | ANTS(GST) 1999 165-10(1)(c) | ANTS(GST) 1999 165-10(1)(d) | ANTS(GST) 1999 165-10(2) | ANTS(GST) 1999 165-10(3) | ANTS(GST) 1999 165-15 | ANTS(GST) 1999 165-15(1) | ANTS(GST) 1999 165-15(1)(a) | ANTS(GST) 1999 165-15(1)(b) | ANTS(GST) 1999 165-15(1)(c) | ANTS(GST) 1999 165-15(1)(d) | ANTS(GST) 1999 165-15(1)(e) | ANTS(GST) 1999 165-15(1)(f) | ANTS(GST) 1999 165-15(1)(g) | ANTS(GST) 1999 165-15(1)(h) | ANTS(GST) 1999 165-15(1)(i) | ANTS(GST) 1999 165-15(1)(j) | ANTS(GST) 1999 165-15(1)(k) | ANTS(GST) 1999 165-15(1)(l) | ANTS(GST) 1999 165-15(2) | ANTS(GST) 1999 165-40 | ANTS(GST) 1999 165-40(1) | ANTS(GST) 1999 165-40(2) | ANTS(GST) 1999 165-45 | ANTS(GST) 1999 165-45(3) | ANTS(GST) 1999 165-50 | ANTS(GST) 1999 165-60 | A New Tax System (Luxury Car Tax) Act 1999 | A New Tax System (Luxury Car Tax) Act 1999 13-5 | A New Tax System (Luxury Car Tax) Act 1999 13-30 | A New Tax System (Wine Equalisation Tax) Act 1999 | A New Tax System (Wine Equalisation Tax) Act 1999 21-5 | A New Tax System (Wine Equalisation Tax) Act 1999 23-10 | FBTAA 1986 67 | FBTAA 1986 67(1) | FBTAA 1986 67(1)(c) | FBTAA 1986 67(1)(d) | FBTAA 1986 67(2) | FBTAA 1986 67(4) | FBTAA 1986 136(1) | ITAA 1936 Pt III Div 5 | ITAA 1936 92 | ITAA 1936 Pt III Div 6 | ITAA 1936 95 | ITAA 1936 97 | ITAA 1936 99A | ITAA 1936 166 | ITAA 1936 169A | ITAA 1936 169A(3) | ITAA 1936 170 | ITAA 1936 170(1) | ITAA 1936 170(2)(a) | ITAA 1936 173 | ITAA 1936 177(1) | ITAA 1936 Pt IVA | ITAA 1936 177A | ITAA 1936 177A(1) | ITAA 1936 177A(1)(a) | ITAA 1936 177A(1)(b) | ITAA 1936 177A(3) | ITAA 1936 177A(5) | ITAA 1936 177B | ITAA 1936 177B(1) | ITAA 1936 177B(3) | ITAA 1936 177B(4) | ITAA 1936 177C | ITAA 1936 177C(1) | ITAA 1936 177C(1)(a) | ITAA 1936 177C(1)(b) | ITAA 1936 177C(2) | ITAA 1936 177C(2)(a)(i) | ITAA 1936 177C(2)(b)(i) | ITAA 1936 177C(2)(c)(i) | ITAA 1936 177C(2)(d)(i) | ITAA 1936 177C(2A) | ITAA 1936 177C(2A)(a)(i) | ITAA 1936 177C(2A)(b)(i) | ITAA 1936 177C(3) | ITAA 1936 177CB | ITAA 1936 177CB(2) | ITAA 1936 177CB(3) | ITAA 1936 177CB(4) | ITAA 1936 177D | ITAA 1936 177D(2) | ITAA 1936 177D(2)(a) | ITAA 1936 177D(2)(b) | ITAA 1936 177D(2)(c) | ITAA 1936 177D(2)(d) | ITAA 1936 177D(2)(e) | ITAA 1936 177D(2)(f) | ITAA 1936 177D(2)(g) | ITAA 1936 177D(2)(h) | ITAA 1936 177E | ITAA 1936 177EA | ITAA 1936 177EA(5) | ITAA 1936 177EB | ITAA 1936 177EB(5) | ITAA 1936 177F | ITAA 1936 177F(1) | ITAA 1936 177F(1)(a) | ITAA 1936 177F(2) | ITAA 1936 177F(2A) | ITAA 1936 177F(3) | ITAA 1936 177G | ITAA 1936 177G(1) | ITAA 1936 177H | ITAA 1936 260 | ITAA 1997 6-5 | ITAA 1997 Subdiv 126-B | ITAA 1997 Subdiv 170-B | ITAA 1997 701-1 | TAA 1953 Sch 1 155-5 | TAA 1953 Sch 1 284-15 | TAA 1953 Sch 1 284-145 | TAA 1953 Sch 1 284-145(1)(b) | TAA 1953 Sch 1 284-150 | TAA 1953 Sch 1 284-150(1) | TAA 1953 Sch 1 284-150(1)(b) | TAA 1953 Sch 1 284-155 | TAA 1953 Sch 1 284-155-5 | TAA 1953 Sch 1 284-160 | TAA 1953 Sch 1 298-20 | Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 5(1)(g) | Coronavirus Economic Response Package (Payments and Benefits) Act 2020 19 | Customs Act 1901 | International Tax Agreements Act 1953 | Petroleum (Timor Sea Treaty) Act 2003 | Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Act 2013 | 2003 ATC 5041 | 2010 ATC 20-222 | (1997) 97 ATC 4123 | (2015) 2015 ATC 20-503 | 2003 ATC 4272 | 2005 ATC 4392 | 98 ATC 4983 | 2007 ATC 4303 | 2000 ATC 4350 | 97 ATC 4040 | 95 ATC 4067 | 2007 ATC 4092 | 2002 ATC 5201 | 2011 ATC 20-255 | 2010 ATC 20-224 | 99 ATC 4945 | 2001 ATC 4343 | 2012 ATC 20-306 | 2004 ATC 4599 | 90 ATC 4990 | 94 ATC 4663 | (2011) 2011 ATC 20-275 | 2004 ATC 4477 | 96 ATC 5201 | 2009 ATC 20-129 | 97 ATC 4001 | 2009 ATC 20-141 | [2013] HCA 16 | (2010) 2010 ATC 20-206 | 2000 ATC 4812 | 2008 ATC 20-052 | 2011 ATC 20-241 | 2005 ATC 4001 | 2003 ATC 4782 | (1932) 48 CLR 192 | 2003 ATC 5099 | 2002 ATC 4742 | 2007 ATC 4973,PS LA 1998/1 PS LA 2000/10 PS LA 2001/8 PS LA 2008/18 PS LA 2012/1,ANTS(GST) 1999 Div 33 ANTS(GST) 1999 33-3 ANTS(GST) 1999 Div 35 ANTS(GST) 1999 35-5 ANTS(GST) 1999 Div 165 ANTS(GST) 1999 165-5(1)(a) ANTS(GST) 1999 165-5(1)(b) ANTS(GST) 1999 165-5(1)(c) ANTS(GST) 1999 165-5(1)(c)(i) ANTS(GST) 1999 165-5(1)(c)(ii) ANTS(GST) 1999 165-5(1)(d) ANTS(GST) 1999 165-5(2) ANTS(GST) 1999 165-5(3) ANTS(GST) 1999 165-10(1) ANTS(GST) 1999 165-10(1)(c) ANTS(GST) 1999 165-10(1)(d) ANTS(GST) 1999 165-10(2) ANTS(GST) 1999 165-10(3) ANTS(GST) 1999 165-15 ANTS(GST) 1999 165-15(1) ANTS(GST) 1999 165-15(1)(a) ANTS(GST) 1999 165-15(1)(b) ANTS(GST) 1999 165-15(1)(c) ANTS(GST) 1999 165-15(1)(d) ANTS(GST) 1999 165-15(1)(e) ANTS(GST) 1999 165-15(1)(f) ANTS(GST) 1999 165-15(1)(g) ANTS(GST) 1999 165-15(1)(h) ANTS(GST) 1999 165-15(1)(i) ANTS(GST) 1999 165-15(1)(j) ANTS(GST) 1999 165-15(1)(k) ANTS(GST) 1999 165-15(1)(l) ANTS(GST) 1999 165-15(2) ANTS(GST) 1999 165-40 ANTS(GST) 1999 165-40(1) ANTS(GST) 1999 165-40(2) ANTS(GST) 1999 165-45 ANTS(GST) 1999 165-45(3) ANTS(GST) 1999 165-50 ANTS(GST) 1999 165-60 A New Tax System (Luxury Car Tax) Act 1999 A New Tax System (Luxury Car Tax) Act 1999 13-5 A New Tax System (Luxury Car Tax) Act 1999 13-30 A New Tax System (Wine Equalisation Tax) Act 1999 A New Tax System (Wine Equalisation Tax) Act 1999 21-5 A New Tax System (Wine Equalisation Tax) Act 1999 23-10 FBTAA 1986 67 FBTAA 1986 67(1) FBTAA 1986 67(1)(c) FBTAA 1986 67(1)(d) FBTAA 1986 67(2) FBTAA 1986 67(4) FBTAA 1986 136(1) ITAA 1936 Pt III Div 5 ITAA 1936 92 ITAA 1936 Pt III Div 6 ITAA 1936 95 ITAA 1936 97 ITAA 1936 99A ITAA 1936 166 ITAA 1936 169A ITAA 1936 169A(3) ITAA 1936 170 ITAA 1936 170(1) ITAA 1936 170(2)(a) ITAA 1936 173 ITAA 1936 177(1) ITAA 1936 Pt IVA ITAA 1936 177A ITAA 1936 177A(1) ITAA 1936 177A(1)(a) ITAA 1936 177A(1)(b) ITAA 1936 177A(3) ITAA 1936 177A(5) ITAA 1936 177B ITAA 1936 177B(1) ITAA 1936 177B(3) ITAA 1936 177B(4) ITAA 1936 177C ITAA 1936 177C(1) ITAA 1936 177C(1)(a) ITAA 1936 177C(1)(b) ITAA 1936 177C(2) ITAA 1936 177C(2)(a)(i) ITAA 1936 177C(2)(b)(i) ITAA 1936 177C(2)(c)(i) ITAA 1936 177C(2)(d)(i) ITAA 1936 177C(2A) ITAA 1936 177C(2A)(a)(i) ITAA 1936 177C(2A)(b)(i) ITAA 1936 177C(3) ITAA 1936 177CB ITAA 1936 177CB(2) ITAA 1936 177CB(3) ITAA 1936 177CB(4) ITAA 1936 177D ITAA 1936 177D ITAA 1936 177D(2) ITAA 1936 177D(2)(a) ITAA 1936 177D(2)(b) ITAA 1936 177D(2)(c) ITAA 1936 177D(2)(d) ITAA 1936 177D(2)(e) ITAA 1936 177D(2)(f) ITAA 1936 177D(2)(g) ITAA 1936 177D(2)(h) ITAA 1936 177E ITAA 1936 177EA ITAA 1936 177EA(5) ITAA 1936 177EB ITAA 1936 177EB(5) ITAA 1936 177F ITAA 1936 177F(1) ITAA 1936 177F(1)(a) ITAA 1936 177F(2) ITAA 1936 177F(2A) ITAA 1936 177F(3) ITAA 1936 177G ITAA 1936 177G(1) ITAA 1936 177H ITAA 1936 260 ITAA 1997 6-5 ITAA 1997 Subdiv 126-B ITAA 1997 Subdiv 170-B ITAA 1997 701-1 TAA 1953 Sch 1 105-5 TAA 1953 Sch 1 105-50 TAA 1953 Sch 1 155-5 TAA 1953 Sch 1 284-15 TAA 1953 Sch 1 284-145 TAA 1953 Sch 1 284-145(1)(b) TAA 1953 Sch 1 284-150 TAA 1953 Sch 1 284-150(1) TAA 1953 Sch 1 284-150(1)(b) TAA 1953 Sch 1 284-155 TAA 1953 Sch 1 284-155-5 TAA 1953 Sch 1 284-160 TAA 1953 Sch 1 298-20 Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 5(1)(g) Coronavirus Economic Response Package (Payments and Benefits) Act 2020 19 Customs Act 1901 International Tax Agreements Act 1953 Petroleum (Timor Sea Treaty) Act 2003 Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Act 2013,,Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1999 Explanatory Memorandum to the Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Bill 2013,False,True,https://www.ato.gov.au/law/view/document?docid=PSR/PS200524/NAT/ATO/00001,"This Practice Statement is being reviewed as a result of a court/tribunal decision. Refer to Decision Impact Statements: Commissioner of Taxation v Complete Success Solutions Pty Ltd ATF Complete Success Solutions Trust (Published 20 July 2023) and Commissioner of Taxation v Guardian AIT Pty Ltd ATF Australian Investment Trust (Published 24 April 2023) . This practice statement is being reviewed as a result of a recent court decision. Refer to Decision Impact Statement Commissioner of Taxation v PepsiCo Inc & Anor (Published 19 March 2026) This document incorporates revisions made since original publication. View its history and amending notices, if applicable. | HOW TO USE THIS LAW ADMINISTRATION PRACTICE STATEMENT | Proper application of GAARs | Private ruling applications and Part IVA | Referral to the Tax Counsel Network | THE GENERAL ANTI-AVOIDANCE RULES PANEL | When matters are referred to the Panel | Attendance by taxpayers at Panel meetings | Written submission by taxpayer to Panel | Oral submissions by a taxpayer to Panel | Part IVA must be construed as a whole | Tax benefit - sections 177C and 177CB | Calculating the tax benefit | Exclusions from tax benefit - subsections 177C(2) and 177C(2A) | Meaning of 'attributable'to' | Meaning of 'the scheme consisted solely of the making of the agreement or election' | Alternative postulate under post-2013 amendment law | Is all of the case law on the concept of tax benefit still authoritative following the amendments? | Does section 177CB merely provide a further limit on the concept of tax benefit, while leaving the operation of section 177C, as previously understood, intact? | Does the amended tax benefit test require a two-step process by which one first finds a 'postulate' under section 177CB, then feeds that postulate into the expression set out in section 177C? | Are the 'would' limb and the 'might reasonably be expected limb' true alternatives? | Can there be more than one reasonable postulate that satisfies subsections 177CB(3) and (4) in a given case? | Do the amendments require taxpayers to pay the highest possible amount of tax they could have incurred, had a scheme not been entered into or carried out? | Alternative postulate under pre-2013 amendment law | What might reasonably be expected | Significance of implementation costs | Discharging the onus pre 2013 | Discharging the onus post 2013 | Identifying reasonable alternatives | The counterfactual must not be a scheme to which Part IVA applies | Section 177D - the core of Part IVA - objective purpose | Considering the eight factors are considered against the background of the conterfactual | The first three factors - how the scheme was implemented | The next four factors - the effect of the scheme | The eighth factor - the nature of the connection between the taxpayer and any other person | Determinations and Assessments - section 177F | Making one or more determinations in particular scenarios | Single scheme, multiple tax benefits (but not alternative counterfactuals) - same taxpayer and same income year | Single scheme, alternative conterfactuals - same taxpayer and same income year | Multiple schemes, multiple tax benefits - same taxpayer and same income year | Single scheme and tax benefit - different taxpayer | Single scheme, incorrect counterfactuals - different taxpayer | Give effect to a determination | Schemes involving partnerships | Other situations not specifically dealt with | Compensating adjustments - subsection 177F(3) | Time limits for amending assessments - section 177G | SECTION 67 OF THE FBTAA - FBT | DIVISION 165 OF THE GST ACT - GST | Scheme - subsection 165-10(2) | GST benefit - subsections 165-10(1) and 165-10(3) | Casual nexus - paragraph 165(1)(a) of the GST Act | GST benefits disregarded - paragraph 165-5(1)(b) of the GST Act | Tax avoidance conclusion - paragraph 165-5(1)(c) and section 165-15 of the GST Act | The 12 matters to be considered in determining purpose or effect | Matters apply to part of a scheme as if it were the entire scheme | Declaration to negate GST benefit - sections 165-40, 165-50 and 165-60 of the GST Act | Single scheme, multiple GST benefits (but not alternative counterfactuals) - same avoider, same tax period(s) | Single scheme, alternative counterfactuals - same avoider, same tax period(s) | Multiple schemes, multiple GST benefits - same avoider | Declaration formerly self-executing | Post 30 June 2012 tax periods | Declaration may cover several tax periods and importations | Compensatory adjustments - section 165-45 | Time limits - sections 105-5 and 105-50 of Schedule 1 to the TAA | Time limits - sections 155-5 of Schedule 1 to the TAA | HOW TO USE THIS LAW ADMINISTRATION PRACTICE STATEMENT: 1. This practice statement is designed to assist Tax officers who are contemplating the application of Part IVA or other GAARs to an arrangement, including in a private ruling, Public Ruling (including a Product Ruling or a Class Ruling) or other document setting out the ATO view. | 2. All references to legislation within this practice statement and attachments are to the Income Tax Assessment Act 1936 (ITAA 1936) unless otherwise specified. | 3. The first part of this practice statement discusses private ruling applications and Part IVA and also contains the rules about referring GAAR matters to the Tax Counsel Network (TCN) and the GAAR Panel. The role and procedures of the Panel are contained in paragraphs 18 to 41. | 4. The second part of this practice statement on the GAAR provisions (commencing at paragraph 42) discusses the operation of key aspects of Part IVA and other GAARs, covering scheme, tax benefit or GST benefit, purpose, determinations or declarations, assessments, compensating adjustments, time limits and penalties. | • Part IVA is contained in paragraphs 42 to 184. • section 67 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) is contained in paragraphs 185 to 191. • Division 165 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) is contained in paragraphs 192 to 241. • the general anti-avoidance rule for the Luxury Car Tax is contained in paragraph 242. • the general anti-avoidance rule for the Wine Equalisation Tax is contained in paragraph 243. • section 5(1)(g) of the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 and section 19 of the Coronavirus Economic Response Package (Payments and Benefits) Act 2020 is contained in paragraphs 244 and 245. | 6. Further resources for Tax officers on the application of Part IVA can be found in the links at the end of this document. | 7. This practice statement replaces PS LA 2000/10 which is withdrawn. | Proper application of GAARs: 8. The application of a GAAR is a serious matter. Its potential application should not be raised lightly. It should be made clear to a taxpayer or advisor that a careful analysis of the facts will be undertaken before a decision is taken to apply a GAAR. The process leading to a decision, including consideration by the GAAR Panel, should also be explained. As explained in this practice statement, the application of a GAAR is based on an objective analysis of an arrangement against a set of factors specified in the relevant provisions of the law. It is not a test of a taxpayer's motives and care should be taken to avoid any implication that a decision to apply a GAAR is a judgment on a taxpayer's ethics. | Private ruling applications and Part IVA: 9. If a taxpayer applies for a private ruling in respect of an arrangement but has not requested a ruling on whether Part IVA applies to the arrangement, Tax officers must consider whether Part IVA may apply to the arrangement based on the information provided in connection with the ruling application. This must be done whether or not the taxpayer has advised in their ruling application that Part IVA need not be considered by the Commissioner. | • the particular arrangement for which the private ruling is requested; or • an associated arrangement(s) or a wider arrangement of which the particular arrangement for which the ruling is requested is part, | then the Tax officer should consider whether the private ruling should include an appropriate message or warning about the potential application of Part IVA. | 11. If the Tax officer proposes to request additional information from the taxpayer to determine whether Part IVA may apply to the arrangement or an associated arrangement, then the Tax officer should disclose to the taxpayer that Part IVA may be in contemplation. Where Part IVA is in contemplation, the Tax officer should consider referring the matter to TCN, as per paragraphs 14 to 17. | 12. If there is no reason to think on the basis of the information provided in connection with the ruling application that Part IVA may apply, then any ruling that is given does not need to refer to Part IVA. | 13. Further guidance for Tax officers can be found in the link at the end of this document. | Referral to the Tax Counsel Network: 14. Where officers seek to apply a GAAR, including sections 177DA, 177E, 177EA and 177EB, they must, before making a determination or declaration cancelling a tax benefit or a GST benefit, refer the matter to the TCN. In the usual case, the matter will be referred to the TCN prior to the issue of a Tax Office position paper indicating that Part IVA may apply. Also, where officers propose to give a private ruling, Product Ruling or Class Ruling that a GAAR applies to an arrangement, they must refer the matter to the TCN using the same escalation processes, before issuing the ruling. | 15. Where a request for a Class Ruling includes the application of a GAAR the matter must be referred to the TCN, including where it is proposed that the GAAR would not apply. However, a decision that a GAAR would not apply in response to an application for a private ruling or a Product Ruling does not always require referral to the TCN. Similarly, a decision not to apply a GAAR in the context of an audit does not always require referral to the TCN. The business line will make a judgment about whether such matters need to be referred to the TCN depending on whether the application of the GAAR could be seriously contemplated. Further guidance for Tax officers on escalating matters to TCN can be found in the link at the end of this document. | 16. When a matter is referred to the TCN before a decision not to apply a GAAR is made and a member of the TCN confirms the Commissioner should not seek to apply the GAAR, the matter is returned to the decision-maker in the business line as a preliminary step to the making of the decision. If, however, the TCN officer is of the view that the GAAR may apply to the matter, the TCN officer will provide interim advice to the decision-maker and arrange for that advice and relevant papers to be provided to a Deputy Chief Tax Counsel (DCTC) for further consideration before the decision is made. | 17. A decision on review or objection or in the course of litigation to reverse a decision to apply a GAAR must not be made without first referring the question to a DCTC or the Chief Tax Counsel (CTC). | THE GENERAL ANTI-AVOIDANCE RULES PANEL: 18. In acknowledgment of the serious nature of the GAARs, as outlined in paragraph 8, the Commissioner has established the GAAR Panel (the Panel) to advise on the application of GAARs to particular arrangements. | 19. Unless indicated otherwise below, matters for which a decision-maker is proposing to apply a GAAR must be referred to the Panel before a final decision is made. In the usual case a matter will be referred to the Panel after the TCN officer, to whom it has been referred under the rules in paragraphs 14 to 17 above, has fully considered the matter. | 20. Applications for private rulings, Class Rulings and Product Rulings in respect of the application of a GAAR are not generally referred to the Panel for advice. Referral to the Panel would delay the issue of a ruling. However, a private ruling or Class Ruling application must be referred to the Panel for advice where the applicant requests the referral and by doing so agrees to a delay in the issue of the ruling. Any ruling that a GAAR applies to a particular transaction must be approved by a TCN officer. | 21. A taxpayer who receives a private ruling that a GAAR applies may request that the matter be referred to the Panel for advice as part of seeking a review of the ruling. This may be done before the lodgment of an objection against the private ruling or at the same time as, or after, the lodgment of the objection. | 22. Matters considered to raise substantially identical issues on facts essentially comparable with a matter previously referred to the Panel are not referred to the Panel again. However any decision to apply a GAAR without referring the matter to the Panel must receive clearance from the Chair of the Panel or a DCTC. It is not expected that there will be many matters in this category and, where there is any doubt, the matter will be referred to the Panel. | 23. Upon a matter being referred to the Panel, the Chair of the Panel has a discretion whether or not to put that matter to the Panel for its consideration. The Commissioner or the CTC may also direct that a matter shall be decided without reference to the Panel. However, a decision to apply a GAAR will not generally be made without first obtaining advice from the Panel. | Role of the Panel: 24. The primary purpose of the Panel is to assist the Tax Office in its administration of the GAARs in the sense that decisions made on the application of GAARs are objectively based and there is a consistency in approach to various issues that arise from time to time in the application of the GAARs. The Panel does this by providing independent advice to a GAAR decision-maker in those matters which are referred to it. This includes advice regarding the appropriate imposition of penalties. The Panel is made up of business and professional people chosen for their ability to provide expert and informed advice, with the other members of the Panel being senior Tax officers. The Chair of the Panel is a senior Tax officer. | 25. The Panel has no statutory basis; its role is purely consultative. The relevant decision under a GAAR is that of the decision-maker; the Panel does not make a decision but its advice is taken into account by the Tax Office decision maker. The Panel does not investigate or find facts, or arbitrate disputed contentions. Rather, the Panel provides its advice on the basis of the contentions of fact which have been put forward by the officers of the Tax Office and by the taxpayer. In providing advice the Panel is able to advise on any differences between the Tax Office and taxpayer on conclusions or inferences to be drawn from the facts. If there is a dispute as to the facts, the Panel may suggest that the Tax officers make additional enquiries or may indicate whether the difference would, in its opinion, change its advice. Where a matter referred to the Panel arises from an application for a private ruling, the Panel has regard to the arrangement in relation to which the Commissioner is asked to rule. | 26. Upon a matter being referred to the Panel, a decision-maker will not (other than in exceptional circumstances) make a decision before receiving advice from the Panel. Where exceptional circumstances are considered to exist, any decision is not to be made without first discussing the matter with the Chair of the Panel. A decision-maker is not obliged to follow the advice of the Panel one way or the other; the decision to apply or not to apply the GAAR is that of the decision-maker. However, a decision to apply a GAAR contrary to the advice of the Panel is not to be made without first escalating the matter to the Chair of the Panel or the CTC. | 27. A member of the TCN must provide interim advice in respect of a matter that is to be referred to the Panel. A TCN member will be present at the Panel meeting when the case is discussed. | When matters are referred to the Panel: 28. A matter is generally referred to the Panel following the issue of the Tax Office's position paper and a consideration by the decision-maker of all available information, including any responses by the taxpayer to the position paper. However, important, sensitive, novel or complex cases may be referred to the Panel at an earlier time for preliminary advice. While there is no requirement to do so, a Tax officer may inform a taxpayer that he or she is seeking preliminary advice from the Panel in relation to a matter. It is important for officers to ensure that sufficient time is allowed in the conduct of an audit for referral to, and consideration of advice from, the Panel before the date allowed for amendment of an assessment to give effect to a decision to apply a GAAR. | 29. Apart from private rulings and Class Rulings and cases where preliminary advice is sought, a case will not generally be referred to the Panel until after the issue of a Tax Office position paper and the receipt of the taxpayer's response (if any) to the paper. The position paper represents the Tax Office's preliminary view of the facts and the law applying to those facts. | 30. Matters initially referred to the Panel for preliminary advice should be referred again to the Panel following the consideration of a taxpayer's response to the Tax Office's position paper and any other information before a decision is made to apply a GAAR. | Attendance by taxpayers at Panel meetings: 31. To assist the deliberative process of the Panel in providing advice to the decision-maker, a taxpayer (and/or a representative of the taxpayer at the taxpayer's election) will usually be invited to attend a Panel meeting and address the Panel. (No such invitation will be extended to a taxpayer in relation to matters which are referred to the Panel at an early stage for preliminary advice.) | 32. The Panel generally meets on a monthly basis. The dates for Panel meetings are decided in advance in order to facilitate the orderly working of the Panel. Panel meetings are not rescheduled other than in exceptional circumstances. The unavailability of a taxpayer's preferred representative on a particular date will not usually constitute exceptional circumstances that would justify the rescheduling of a Panel meeting. | 33. An invitation given to a taxpayer to attend a Panel meeting and address the Panel is not extended on the basis that it will provide a platform for a hearing as part of a quasi-judicial process of review. This is not the function of the Panel, nor in any event does it have power to undertake a review process; it is there merely to provide advice to decision-makers so as to assist in the making of objective decisions by decision-makers and to ensure consistency in the approach to various issues that arise in the application of the GAARs. Of course, the decision-maker is always available to receive and address any submissions that a taxpayer may wish to put to the decision-maker at any time. | 34. Where an arrangement involves numerous taxpayers in essentially similar circumstances only one representative taxpayer will ordinarily be invited to address the Panel. On occasions, promoters or facilitators of the arrangement may also be invited in such cases to address the Panel. | 35. Generally, the decision-maker will (if possible) attend the Panel meeting to which the taxpayer is invited to attend. A taxpayer may accept or decline the invitation as the taxpayer sees fit. No adverse inference will be drawn against the taxpayer should the taxpayer decline to attend the Panel meeting. A taxpayer who accepts an invitation to attend must do so on the basis that the Chair has the control of the Panel meeting. If a taxpayer who has been invited to attend the Panel meeting fails to provide a written submission (referred to in paragraph 37), the invitation may be withdrawn. | 36. A taxpayer invited to attend the Panel meeting will, by a reasonable time prior to the meeting, be informed of the contentions of fact giving rise to the issue referred to the Panel, and of the substance of the Tax Office's proposed approach to the application of the GAAR. Generally, this advice will be by way of reference to a position paper already provided to the taxpayer or by an updated paper prepared following consideration of a response by the taxpayer to the position paper. | Written submission by taxpayer to Panel: 37. In extending an invitation to a taxpayer, the Chair will request the taxpayer to provide a written submission (unless the taxpayer chooses to rely upon a written submission already made to the Tax Office). If in relying upon an earlier submission the taxpayer wishes to add to or correct some part of an earlier submission, the taxpayer may do so. Written submissions should be concise. The appropriate timeframe for a written submission to the Panel will depend on the circumstances of each case. As a general guide, a taxpayer can expect to be given around 28 days notice of a Panel meeting and will be asked to make any written submission no later than 14 days before that meeting. | Oral submissions by a taxpayer to Panel: 38. Ordinarily, the Panel will have had an opportunity to review the papers before the meeting and may wish to question or hear an oral submission by Tax officers, or discuss the matter, before hearing from the taxpayer. This will occur in the absence of the taxpayer. The taxpayer will then be given an opportunity to address the Panel. The Chair will set the time for this address as appropriate in each case, but it is expected that in most cases it would be no more than one hour. This oral submission should seek to emphasise or elaborate upon the key points of the taxpayer's written submission. While the Panel is not open for questioning or debate about the application of the GAAR, Panel members may ask questions and discuss issues with the taxpayer to ensure the Panel has a clear understanding of the taxpayer's submission. Other Tax officers (that is, in addition to Panel members and the decision-maker) will usually be present during the meeting but they will not (nor will the decision-maker) be available for questioning. However, the taxpayer will be offered the option of making its submissions in the absence of such other Tax officers, if the taxpayer prefers. | 39. Taxpayers attending a Panel meeting should address or be prepared to respond to questions relating particularly to the tax benefit and the objective factors in subsection 177D(2) of Part IVA or equivalent provisions in other GAARs. | Recording GAAR decisions: 40. If a determination cancelling a tax benefit or declaration negating a GST benefit is made, the reasons for making the determination or declaration should be documented separately. Refer to Appendix 1 for further guidance on executing GAAR determinations. | 41. A taxation ruling or determination or an ATO Interpretative Decision (ATOID) could be prepared after a decision is made about the application of a GAAR in a matter. In accordance with PS LA 2001/8, the decision whether an ATOID should be prepared for an interpretative decision involving Part IVA or other GAAR must be made by a TCN officer. | PART IVA - INCOME TAX: 42. Part IVA contains a number of anti-avoidance provisions. The discussion in relation to Part IVA below focuses on the application of sections 177A, 177C, 177CB, 177D and 177G. A reference to Part IVA in the following paragraphs should therefore be read as a reference to these sections. However, while this practice statement does not contain specific guidance on the operation of sections 177DA (schemes that limit a taxable presence in Australia), 177E (stripping of company profits), 177EA (creation of franking debit or cancellation of franking credits), 177EB (cancellation of franking credits for head company of consolidated group) or 177H, the following guidance is useful as a background reference for officers exercising powers in respect of those provisions. | Background to Part IVA: 43. Part IVA of the ITAA 1936 is a general anti-avoidance provision. It replaced former section 260 of the ITAA 1936 and should be construed and applied according to its terms, not under the influence of 'muffled echoes of old arguments' concerning other legislation, such as section 260: Federal Commissioner of Taxation v. Spotless Services Ltd (1996) 186 CLR 404 at 414; 141 ALR 92 at 96; 96 ATC 5201 at 5205; 34 ATR 183 at 186; Federal Commissioner of Taxation v. Hart [2004] HCA 26; 217 CLR 216; 206 ALR 207; 2004 ATC 4599; 55 ATR 712 at [51]. | 44. Part IVA gives the Commissioner the power to cancel a 'tax benefit' that has been obtained, or would, but for section 177F, be obtained, by a taxpayer in connection with a scheme to which Part IVA applies. This power is found in subsection 177F(1). | (i) a 'tax benefit', as identified in section 177C, was or would, but for subsection 177F(1), have been obtained; (ii) the tax benefit was or would have been obtained in connection with a 'scheme' as defined in section 177A; and (iii) having regard to section 177D, the scheme is one to which Part IVA applies. | 46. Regard must be had to the individual circumstances of each case in making a determination under section 177F to cancel a tax benefit. | 47. The word 'may' in subsection 177F(1) refers to the exercise of a power which arises when it is found that there is a tax benefit obtained in connection with a scheme to which section 177D applies. There is no over-arching or final discretion independent of the exercise of this power: Cumins v. Federal Commissioner of Taxation (2007) 66 ATR 57; 2007 ATC 4303; [2007] FCAFC 21 at [41]. That case demonstrates that, if the objective criteria for the application of Part IVA are present, the Commissioner's decision to go ahead and cancel the tax benefit under section 177F is not open to challenge on the basis that the Commissioner ought not to have exercised that power because, for example, he has in doing so failed to take into account some further matter that is said to be relevant. See also the remarks of Hill J (Carr and Hely JJ agreeing) in Federal Commissioner of Taxation v. Sleight (2004) 136 FCR 211; 2004 ATC 4477; (2004) 55 ATR 555; [2004] FCAFC 94 at [103] to [110] and [114]. | 48. The same view is taken of the power to negate a GST benefit under Division 165 of the A New Tax System (Goods and Services Tax) Act 1999. | 49. Where the Commissioner exercises the discretion in subsection 177F(1) to make a determination, 'he shall take such action as he considers necessary to give effect to that determination': subsection 177F(1). | 50. Part IVA is a general anti-avoidance provision and there are specific provisions which may or may not apply in a particular case. Subsections 177B(3) and (4) reflect the last resort character of Part IVA. | 51. Part IVA is not limited by provisions in the ITAA 1936 or Income Tax Assessment Act 1997 (ITAA 1997) or by the International Tax Agreements Act 1953 or the Petroleum (Timor Sea Treaty) Act 2003 : subsection 177B(1). | 52. Part IVA was inserted into the ITAA 1936 in 1981 and it applies to schemes entered into after 27 May 1981. It applies whether a scheme is carried out in Australia or abroad: section 177D. | 53. Part IVA was significantly amended in 2013. [1] The amendments apply to schemes entered into, or commenced to be carried out, on or after 16 November 2012. For discussion on the 'alternative postulate' under these amendments, please refer to paragraphs 78 to 95. Unless specified otherwise, the concepts in this document apply equally to the legislation as it stood before and after these amendments. | Part IVA must be construed as a whole: 54. Focussing on the various elements of Part IVA should not obscure the way in which the Part as a whole is intended to operate. What constitutes a scheme is ultimately meaningful only in relation to the tax benefit that has been obtained since the tax benefit must be obtained in connection with the scheme. Likewise, the dominant purpose of a person in entering into or carrying out the scheme, and the existence of the tax benefit, must both be considered against a comparison with an alternative. | Federal Commissioner of Taxation v. Hart [2004] HCA 26; 217 CLR 216; 206 ALR 207; 2004 ATC 4599; 55 ATR 712 at [6] per Gleeson CJ and McHugh J, at [36], [37] and [54] per Gummow and Hayne JJ, and at [89] per Callinan J. | Scheme - section 177A: 55. For Part IVA to apply, the identified scheme must fall within the wide definition of 'scheme' in subsection 177A(1). | Th[e] definition is very broad. It encompasses not only a series of steps which together can be said to constitute a 'scheme' or a 'plan' but also (by its reference to 'action' in the singular) the taking of but one step. | The use of the singular, narrow words, proposal, action or course of action in s177A(1)(b) in juxtaposition with, for example, agreement or arrangement in s177A(1)(a) indicates that something done which is less than the whole of an arrangement or agreement may be capable of itself being a scheme. This view is I think not only consistent with, and a true reflection of the statutory language, but also with the legislative intention discernible from the Explanatory Memorandum. | 56. The definition of scheme includes a unilateral scheme, plan etcetera: subsection 177A(3). | An example of a unilateral action constituting a scheme could be an action taken solely by a trustee of a discretionary trust. | 57. The definition of scheme can include the failure to do something. | Part of the statutory definition of 'scheme' is 'any ... course of action or course of conduct'. This conveys the notion of a series of interrelated acts by a person or persons over a period of time. The non-doing of an act can form part of such a course, as for example where it is said that a student regularly fails to hand in essays. | 58. The Commissioner may advance alternative schemes including a narrower scheme within a wider scheme in support of a Part IVA determination. | But the Commissioner is entitled to put his case in alternative ways. If, within a wider scheme which has been identified, the Commissioner seeks also to rely upon a narrower scheme as meeting the requirement of Pt IVA, then in our view there is no reason why the Commissioner should not be permitted to do so, provided it causes no undue embarrassment or surprise to the other side. If it does, the situation may be cured by amendment, provided the interests of justice allow such a course. | 59. The need for the Commissioner to identify the scheme is simply an aspect of the requirement for a party to legal proceedings to particularise the case the other party or parties will have to meet. A reformulation of the scheme in connection with which the tax benefit is obtained after the close of evidence will be impermissible only if it affects the evidence that the other party might have led. | Federal Commissioner of Taxation v. Hart [2004] HCA 26; 217 CLR 216; 206 ALR 207; 2004 ATC 4599; 55 ATR 712 at [44] per Gummow and Hayne JJ. | 60. Section 177D, which identifies schemes to which Part IVA applies, allows the objectively determined purpose or dominant purpose to be tested against a person who entered into or carried out the scheme or any part of the scheme. Hence, Part IVA will apply to a scheme if a person enters into or carries out only a part of the scheme for the dominant purpose of enabling the taxpayer to obtain a tax benefit in connection with the scheme. This is important where the scheme is complex and involves a number of parties and connected transactions. This does not, however, affect the identification of a 'scheme' under subsection 177A(1). Whether a scheme is wider or narrower should not be relevant in determining if the test in section 177D is met with respect to the scheme, as long as the tax benefit in question is sufficiently connected with the scheme. | Objection was also taken to what was said to be the artificiality of the selection of part of the overall transaction as the scheme. This, it was said, was not warranted by Peabody or Spotless. The artificiality was said to result from the fact that the overall transaction was for the clearly commercial purpose of financing the Group's participation in the takeover bid for BAT. However, as was held in Spotless, a person may enter into or carry out a scheme, within the meaning of Pt IVA, for the dominant purpose of enabling the relevant taxpayer to obtain a tax benefit where that dominant purpose is consistent with the pursuit of commercial gain in the course of carrying on a business. The fact that the overall transaction was aimed at a profit making does not make it artificial and inappropriate to observe that part of the structure of the transaction is to be explained by reference to a s 177D purpose. | There is no reference to a scheme having some commercial or other coherence. Far from the Part requiring reference only to the purpose of those who carry out all of what is identified as the scheme, s 177D specifically refers to it being concluded 'that the person, or one of the persons, who entered into or carried out ... any part of the scheme' did so for the purpose of enabling the relevant taxpayer (alone or with others) to obtain a tax benefit in connection with the scheme (emphasis added). | See also Federal Commissioner of Taxation v. Hart [2004] HCA 26; 217 CLR 216; 206 ALR 207; 2004 ATC 4599; 55 ATR 712 at [55], [68] and [69] per Gummow and Hayne JJ, and at [89] per Callinan J and the discussion commencing at paragraph 62 below concerning deciding whether a tax benefit has been obtained in connection with a scheme. | 61. If the Commissioner erroneously identifies a scheme, this will not usually result in the wrongful exercise of the discretion conferred by subsection 177F(1). The discretion will only be wrongfully exercised if the identified tax benefit is not in fact a tax benefit within the meaning of Part IVA. | The erroneous identification by the Commissioner of a scheme as being one to which Pt IVA applies or a misconception on his part as to the connexion of a tax benefit with such a scheme will result in the wrongful exercise of the discretion conferred by s. 177F(1) only if in the event the tax benefit which the Commissioner purports to cancel is not a tax benefit within the meaning of Pt IVA. That is unlikely to be the case if the error goes to the mere detail of a scheme relied upon by the Commissioner. | Tax benefit - sections 177C and 177CB: 62. The breadth of what may constitute a scheme reflects the objective nature of the inquiry to be made under Part IVA. The scheme ultimately matters only in the context of whether there is a tax benefit obtained by the taxpayer in connection with the scheme for which the conclusion in subsection 177D(2) can be reached. | Federal Commissioner of Taxation v. Hart [2004] HCA 26; 217 CLR 216; 206 ALR 207; 2004 ATC 4599; 55 ATR 712 at [43] and [44] per Gummow and Hayne JJ, and at [87] and [88] per Callinan J. | (i) an amount not being included in the assessable income of the taxpayer of a year of income; (ii) a deduction being allowable to the taxpayer in relation to a year of income; (iii) a capital loss being incurred by the taxpayer during a year of income; (iv) a loss carry back offset being allowable to the taxpayer in relation to a year of income; (v) a foreign income tax offset being allowable to the taxpayer; (vi) an amount of withholding tax not being incurred by the taxpayer in a year of income. | 64. For schemes entered into on or after 16 November 2012, tax benefit must be determined with reference to section 177CB: refer paragraphs 83 to 88. | Calculating the tax benefit: 65. The reference in paragraph 177C(1)(a) to 'an amount not being included in the assessable income of the taxpayer' is a reference to an amount not being included that would be or might reasonably be expected to be included in the taxpayer's assessable income by reference to the relevant alternative postulate: refer to paragraphs 77, 89, 97 to 101, and 155. The fact that an amount was included in the assessable income of the taxpayer under the scheme by virtue of a different provision or circumstance does not affect the amount of a tax benefit, nor the provision by virtue of which it is to be included. Paragraph 177C(1)(a) focuses on what has been left out of assessable income by the scheme - not on what has been included: refer to Taxation Ruling IT 2456 . | 66. There is some uncertainty regarding the phrase 'a deduction being allowable to the taxpayer' in paragraph 177C(1)(b). In FCT v Lenzo [2008] FCAFC 50; (2008) 167 FCR 255, the Full Federal Court held that a taxpayer can demonstrate that it has not obtained a tax benefit if the alternative postulate would have resulted in a deduction of the same kind as that under the scheme. | 67. A differently constituted Full Federal Court did not follow Lenzo in Federal Commissioner of Taxation v. Trail Bros Steel & Plastics Pty Ltd (2009) 75 ATR 916; 2009 ATC 20-141. In this case, the court held that the relevant enquiry is simply as to the difference in amount between the effect of the scheme and the alternative postulate, regardless of whether any deduction that would have been allowable without the scheme would have been of the same kind as the deduction under the scheme. | 68. The enactment of subsection 177CB(2) means that this issue will now be academic in many deduction cases: refer paragraphs 83 to 95. See also, the discussion on compensating adjustments at paragraphs 174 to 176. | Exclusions from tax benefit - subsections 177C(2) and 177C(2A): (i) the tax benefit is attributable to the making of a declaration, agreement, election, selection or choice, the giving of a notice or the exercise of an option by any person expressly provided for under the ITAA 1936 or the ITAA 1997 (other than an agreement or election specifically dealt with by subsection 177C(2A): refer to paragraph 72); and (ii) the relevant scheme was not entered into or carried out by any person for the purpose of creating any circumstance or state of affairs the existence of which is necessary to enable the election or choice etcetera to be made. | 70. It follows that the relevant tax benefit will not be excluded under subsection 177C(2) if it was obtained in connection with a scheme that was entered into or carried out by any person for the sole or dominant purpose of enabling that person or any other person to make the election or choice etcetera. | Meaning of 'attributable to': 71. The first condition in subsection 177C(2), for the exclusion to apply, uses the phrase 'attributable to'. This phrase means that there must be a direct relationship between the obtaining of the tax benefit and the making of the relevant 'declaration ... election ... or choice'. Where the obtaining of the tax benefit is attributable to 'a sequence of integrated and inter-dependent steps making up the scheme', only one of which involves the making of the declaration, etcetera, in question, it cannot be said that the first condition is satisfied. | Walters v. Federal Commissioner of Taxation (2007) 162 FCR 421; 67 ATR 156; 2007 ATC 4973; [2007] FCA 1270, per Greenwood J at [83] to [85]. | (i) these tax benefits are attributable to making a CGT rollover election or agreement under Subdivision 126-B of the ITAA 1997 or making a net capital loss transfer agreement under Subdivision 170-B of the ITAA 1997; and (ii) the relevant scheme consisted solely of the making of the agreement or election. | Meaning of 'the scheme consisted solely of the making of the agreement or election': 73. The limitation to the subsection 177C(2A) exclusion in subparagraph (a)(ii) requires the relevant scheme to consist solely of the making of the agreement or election, and will not be satisfied where this scheme is found to consist of other steps. | British American Tobacco Australia Services Ltd v. Federal Commissioner of Taxation (2010) 189 FCR 151; 2010 ATC 20-222; [2010] FCAFC 130 per Dowsett, Jessup & Gordon JJ at [32] to [38]. | 74. Subsection 177C(3) provides that a particular tax benefit will be 'attributable' to an election or choice etcetera for the purpose of subparagraph (i) of paragraphs 177C(2)(a), (b), (c) and (d) and subparagraph (i) of paragraphs 177C(2A)(a) and (b) if, but for the election or choice etcetera, the tax benefit would not have been obtained. This will be the case if, for example, the non-inclusion of assessable income for a tax benefit under paragraph 177C(1)(a) necessarily results from the making of the election or choice etcetera. | 75. The identification of a tax benefit necessarily requires consideration of the income tax consequences, but for the operation of Part IVA, of an 'alternative hypothesis' or an 'alternative postulate'. This is what would have happened or might reasonably be expected to have happened if the particular scheme had not been entered into or carried out. This alternative hypothesis or postulate also forms the background against which the objective ascertainment of the dominant purpose of a person occurs in accordance with section 177D. The alternative hypothesis(es) or postulate(s) is referred to in this practice statement as the 'counterfactual(s)'. | 76. This is not to suggest that the enquiry concerning dominant purpose is necessarily always the same as that to do with whether a tax benefit under section 177C has been obtained. The former may involve a consideration of the 'particular way' the transaction in question was structured or of the 'particular features' of the transaction giving rise to the tax benefit, and a comparison of how the scheme achieves particular commercial objectives with alternative ways of achieving those same objectives. | Federal Commissioner of Taxation v. Hart [2004] HCA 26; (2004) 217 CLR 216; 206 ALR 207; 2004 ATC 4599; 55 ATR 712, per Gleeson CJ and McHugh J at [6], [12], and [16]-[18]; and per Gummow and Hayne JJ at [65]-[68]; Noza Holdings Pty Ltd v. Federal Commissioner of Taxation [2011] FCA 46; 2011 ATC 20-241 per Gordon J at [296]. | 77. The eight factors that must be considered in applying the purpose test in former paragraph 177D(b) (now subsection 177D(2)) are considered against the background of the counterfactual(s): refer to paragraph 130. | Alternative postulate under post-2013 amendment law: • to put it beyond doubt that the 'would have' and 'might reasonably be expected to have' limbs of each of the subsection 177C(1) paragraphs represent alternative bases upon which the existence of a tax benefit can be demonstrated; • to ensure that, when obtaining a tax benefit depends on the 'would have' limb of one of the paragraphs in subsection 177C(1), that conclusion must be based solely on a postulate that comprises all of the events or circumstances that actually happened or existed other than those forming part of the scheme; • to ensure that, when obtaining a tax benefit depends on the 'might reasonably be expected to have' limb of one of the paragraphs in subsection 177C(1), that conclusion must be based on a postulate that is a reasonable alternative to the scheme, having particular regard to the substance of the scheme and its effect for the taxpayer, but disregarding any potential tax costs; and • to require the application of Part IVA to start with a consideration of whether a person participated in the scheme for the sole or dominant purpose of securing for the taxpayer a particular tax benefit in connection with the scheme; and so emphasising the dominant purpose test in section 177D as the 'fulcrum' or 'pivot' around which Part IVA operates. | 79. It is not possible at present to make many authoritative statements about the correct interpretation of the Part as amended. The other statements about interpretation in this practice statement are mostly grounded in the case law on Part IVA as it was prior to amendment in 2013. There is no case law on the amendments at the time of publication of this revised Statement. The ATO has very little practical experience so far in applying the amendments in real cases. We have received very few enquiries from practitioners about actual transactions (whether carried out or merely proposed). | 80. In 2013 a 'workshop' was held between the ATO and some interested practitioners under the auspices of the National Tax Liaison Group. Practitioners provided some practical examples which raised questions under Part IVA, and the ATO sought to offer indicative views about the examples, having first had the benefit of discussing them with the group. Despite the intended purpose of the workshop, few if any of the examples supplied raised questions about the effect of the amendments. Their resolution depended chiefly on an analysis of dominant purpose under section 177D in much the same way as they would have under the previous version of Part IVA. The outcomes of the workshop have, nonetheless, been published. [3] | 81. In these circumstances, the only sure source of 'guidance' is the text of the provisions themselves and the extrinsic materials that accompanied the introduction of the amendments, in so far as the latter are a legitimate aid to the task of interpretation. It would not be helpful simply to repeat the text of those documents here. The following discussion assumes knowledge of what is said about the amendments in the Explanatory Memorandum for the Bill that became the amending Act. | 82. Some external commentary on the amendments has been published since their enactment. [4] This commentary has raised some questions that are perhaps not clearly answered by the legislation or the extrinsic materials. The following sets out some of the questions that emerge from that material together with an indication of how the ATO would likely apply the law and what submissions we would likely make if any of these issues ever arise in litigation. | Is all of the case law on the concept of tax benefit still authoritative following the amendments?: 83. No. New section 177CB so significantly alters the conceptual framework of the tax benefit test that cases such as Federal Commissioner of Taxation v. RCI Pty Ltd (2011) 2011 ATC 20-075; (2011) 84 ATR 785; [2011] FCAFC 105 and Federal Commissioner of Taxation v. Futuris Corporation Ltd (2012) 205 FCR 274; 2012 ATC 20-306; [2012] FCAFC 32, can no longer be wholly regarded as representing the law, so far as the tax benefit concept is concerned, and should be treated with extreme caution. [5] That this was Parliament's intention in enacting the amendments is clear from the legislative history and the extrinsic materials. [6] In particular, the explanatory memorandum highlights that section 177C is not intended to be a test of prediction, but rather to require the identification of reasonable alternatives to schemes that are 'informed by the commercial results to which the schemes were directed'. [7] That is, 'whether or not there were other ways (for example, more convenient, or commercial, or frugal ways) in which the taxpayer might reasonably have achieved the substance and effect (tax implications aside) that it achieved from, or in connection with, the scheme'. [8] | Does section 177CB merely provide a further limit on the concept of tax benefit, while leaving the operation of section 177C, as previously understood, intact?: 84. No. The amending Act left the text of section 177C largely intact but inserted a new section 177CB that substantially affects its operation. It could therefore be suggested that the previous law on section 177C still holds and the sole effect of new section 177CB is to provide a further restriction, or condition, on what can be a tax benefit. | 85. This reading of the provisions might just be literally open. But it is also open to read subsections 177CB(2) and (3) as replacing (rather than adding to) the 'prediction' approach which the previous case law established as the correct approach to the interpretation of section 177C. In so far as the text is ambiguous on this point, recourse to the extrinsic materials is permitted. These make it clear that the 'replacement' approach is correct. Having regard to the evident purpose and history of the amendments, it would be odd to suggest that Parliament only intended to restrict the previous operation of Part IVA by these amendments. | Does the amended tax benefit test require a two-step process by which one first finds a 'postulate' under section 177CB, then feeds that postulate into the expression set out in section 177C?: 86. No. The concepts in section 177CB elucidate, and to the extent of any inconsistency replace, the test that the ordinary meaning of the expression 'would or might reasonably be expected' in subsection 177C(1) would otherwise require. For the 'would' limb, this much is plain on the face of the legislation. The 'reasonably expected' limb should be interpreted correspondingly. Having identified a postulate that meets the requirements of subsections 177CB(3) and (4), a tax benefit can be immediately calculated. There is no requirement to conduct a further enquiry by attempting somehow to shoehorn this postulate back into a separate test of reasonable expectation, as that expression had been interpreted in the previous cases. The concept of reasonable expectation is now to be understood in light of subsections 177CB(3) and (4), rather than in addition to those provisions. | 87. This approach is consistent with paragraph 1.88 of the Explanatory Memorandum. | 88. It is not clear how the opposite approach could be made to work without defeating the evident purpose of section 177CB. | Are the 'would' limb and the 'might reasonably be expected limb' true alternatives?: 89. Yes. This stems from the ordinary meaning of the word 'or' in subsection 177C(1). In this respect, the law has not changed, although the content of the two limbs has of course been significantly affected by the insertion of section 177CB. It is open to the Commissioner to formulate his case under either or both approaches. | Can there be more than one reasonable postulate that satisfies subsections 177CB(3) and (4) in a given case?: 90. The text of the legislation appears to leave this possibility open: note the use of the indefinite article in subsection 177CB(3). Whether or not the answer to this question will matter in many practical situations is not known at this stage. | Do the amendments require taxpayers to pay the highest possible amount of tax they could have incurred, had a scheme not been entered into or carried out?: 91. No. Section 177CB says nothing to this effect. | 92. In theory, the following scenario might arise. A scheme results in a certain commercial objective being met without incurring any tax liability. Absent the scheme, the same non-tax objective might have been met in two different ways: one resulting in a $100 tax liability and the other in a $200 tax liability. Assume that neither alternative would itself have attracted Part IVA, had it been carried out. Under the pre-amendment law, the question would be, as a matter of reasonable prediction, which of those two alternatives (if either of them) is it most reasonable to predict would have happened absent the scheme? The taxpayer would be entitled to suggest that the lower tax liability for the first alternative is a reason to expect that course would have been taken rather than the second. Other things being equal, a court may well have agreed with this. | 93. Under the new law, the identification of a reasonable alternative to the scheme must be done disregarding these hypothetical tax effects. As between the two possible alternatives, it is not permissible to give weight to their relative tax costs. | 94. In this somewhat theoretical scenario, section 177CB does not require the higher or the lower of the two hypothetical tax liabilities necessarily to be chosen. If the two truly were equally 'reasonable' by the lights of section 177CB, the law does not say which to choose. On the other hand, it behoves the Commissioner to administer Part IVA (and indeed the whole of the tax law) with common sense and reasonableness. Besides, the Commissioner's case under section 177D might well be more attractive to a court in practice if the lower of the two is the correct reference point. For the enquiry as to purpose under section 177D requires consideration of what other possibilities existed, and the tax effects of the scheme are still relevant to that enquiry: paragraph 177D(2)(d). | 95. In any event, the Commissioner may choose to cancel only part of a tax benefit in appropriate cases. And, in the final analysis, the compensating adjustment mechanism in subsection 177F(3) remains available to ameliorate any unfair or unreasonable result: refer paragraphs 174 to 176. | Alternative postulate under pre-2013 amendment law: 96. Paragraphs 97 to 107 apply only to Part IVA in the form in which it stood before the amendments made in 2013. (See above at paragraph 53). It consists of the relevant passages from the original version of this Practice Statement, as now updated to reflect developments in the case law on the original version of Part IVA, that occurred between 2005 and the time of the amendments. | What might reasonably be expected: 97. A reasonable expectation requires more than a possibility. | A reasonable expectation requires more than a possibility. It involves a prediction as to events which would have taken place if the relevant scheme had not been entered into or carried out and the prediction must be sufficiently reliable for it to be regarded as reasonable. | The language [in Spotless] suggests less of a predictive and more of a reasonable hypothesis approach than the passage earlier quoted from Peabody. | 99. The following propositions concerning section 177C (in its pre-2013 form) have been stated by the Full Federal Court per Edmonds J (Bennett and Middleton JJ agreeing): | Objective prediction (1) The focus of s 177C is the identification of an activity - the prediction of events that would have or might reasonably be expected to have taken place in the absence of the scheme: Trail Bros [9] at [47]; AXA Asia Pacific Holdings [10] at [131]. (2) In the case of a deduction, s 177C(1)(b) provides that it is an objective inquiry as to what would have been allowed or might reasonably be expected to have been allowed as a deduction had the scheme not been entered into or carried out: Epov v Federal Commissioner of Taxation 2007 ATC 4092; (2007) 65 ATR 399 at [62]; Peabody at 385-386; Trail Bros at [24]. It is an objective fact whether a taxpayer obtained a tax benefit in relation to a scheme to which Pt IVA applies: Peabody at 382; Hart at [37]; Trail Bros at [23]; AXA Asia Pacific Holdings at [126]. (3) When predicting the events which would or might have taken place, that question is assessed on the assumption that the scheme had not been entered into or carried out: Federal Commissioner of Taxation v Lenzo 2008 ATC 20-014 167 FCR 255 at [121]. Section 177C requires the entirety of the scheme to be ignored: Trail Bros at [28]; see also Peabody, cf. Lenzo at [121] and [136]. (4) But that is not the entire question posed by s 177C. The rest of the question involves the objective enquiry of predicting the particular activity or the events that would or might reasonably be expected to have taken place in the absence of the scheme. The identification of the activity or events does not necessarily preclude any element of the scheme: AXA Asia Pacific Holdings at [131]-[133]. Of course, it cannot be the same complete set of events giving rise to the scheme: Trail Bros at [28]-[29]. (5) The integers relevant to the objective enquiry are not limited, and will be different in each case: Trail Bros at [30]. (6) A fact is not disqualified from consideration merely by reason of it having been an element of the scheme which was in place. To the contrary, what the taxpayer in fact did in the commercial circumstances which existed is likely to shed much light on what they would have done in the absence of the scheme, and in some cases to, as a matter of prediction, elements of that counterfactual: AXA Asia Pacific Holdings at [132]. Relevance of evidence from taxpayer (7) How the taxpayer establishes that there is no tax benefit is a matter for it: Trail Bros at [36]. (8) It is conceivable that a taxpayer may not lead positive evidence of an alternative postulate because, for example, the result of any objective enquiry of the alternative postulate is inevitable: AXA Asia Pacific Holdings at [139]. Futuris Corporation Limited v Federal Commissioner of Taxation 2010 ATC 20-206 provides an example of a case where the taxpayer did not lead any direct evidence but established the alternative postulate through expert evidence. (9) It is relevant to have regard to the evidence of the taxpayer as to the steps it says it would have undertaken or would have been likely to undertake in the absence of the scheme: Federal Commissioner of Taxation v Spotless Services Limited 96 ATC 5201; (1996) 186 CLR 404 at 423-424. (10) The taxpayer may lead evidence that it would have undertaken a particular activity, or adopted a particular course in lieu of the scheme. If a taxpayer has given evidence of what he or she would have done but for entering the scheme, the evidence will be relevant and useful to the extent to which it reveals facts or matters that bear upon the objective determination of the alternative postulate: Trail Bros at [36]; AXA Asia Pacific Holdings at [139]; Federal Commissioner of Taxation v Mochkin 2003 ATC 4272; (2003) 127 FCR 185 at 209-210. (11) The taxpayer can give evidence as to what it would have done in the absence of the scheme, provided foundation facts are given to support what would otherwise be a bald speculative statement: McCutcheon v Federal Commissioner of Taxation (2008) 168 FCR 149 at 163-164; AXA Asia Pacific Holdings at [140]. The actual rejection of some alternatives is relevant (12) The taxpayer's actual rejection of an alternative at the relevant time will be important evidence in determining what would have been expected to have occurred: Spotless Services at 422; 424; Federal Commissioner of Taxation v Spotless Services Limited 95 ATC 4775; (1995) 62 FCR 244 at 284-285. In Spotless Services, the [Full Federal] Court considered that the taxpayer's actual rejection of one alternative to the scheme to be relevant to its conclusion that only one alternative remained open to the taxpayer. Deduction does not need to be of the 'same kind' (13) In a deduction case, if it can be predicted that, if the relevant scheme had not been entered into or carried out, the taxpayer would have done something which would give rise to a deduction being allowable to it of an equivalent amount, and the prediction is sufficiently reliable as to be regarded as reasonable, there will be no tax benefit: CPH Property [11] at 32 and 40 (see Corrigenda to 139 FCR); (1998) 98 ATC 4983 at 4998 per Hill J. See also Essenbourne [12] at [45] per Kiefel J. (14) The allowable deduction identified in the alternative postulate does not need to be of the 'same kind' as that claimed as a deduction under the scheme: Trail Bros at [44], [52], [65], despite a suggestion to the contrary in earlier authorities (for example, Lenzo at first instance (per French J) and Full Court); Trail Bros at [52], [65]. The comparison does not assume, let alone require, that if the scheme had not been effected, the taxpayer would have ordered its affairs in a way that engaged the same provisions of the Act (or engaged the same provisions in the same way) as were said to be applicable to the events and transactions comprising the scheme: Trail Bros at [48], [65]. (15) That does not mean that the taxpayer is at large in pointing to some alternative allowable deduction, having no relevance to the impugned scheme: it is the alternative postulate that provides the limitation: Trail Bros at [65]. Quantitative analysis (16) If it is determined that the relevant activity would give rise to tax deductions, then the tax benefit is any differential between the amount claimed and the deductions arising from the counterfactual: Trail Bros at [54] and [67]. | 100. Propositions 14 and 16 require a comment. While the weight of authority provided by the judgments in Trail Bros, AXA and Ashwick is noted, it is not yet clear that the view in Lenzo is certainly to be rejected (see paragraphs 66 to 68). | 101. It is possible for different conclusions to be reached as to what might reasonably be expected to have happened if the particular scheme had not been entered into or carried out. In that event, the Commissioner may rely on both or all the reasonable expectations in the alternative, and therefore on more than one counterfactual, to support a determination made under subsection 177F(1). See paragraph 159 in relation to making determinations where there are alternative counterfactuals. | Significance of implementation costs: 102. The identification of what, as a hypothetical alternative, might reasonably be expected to have happened if the scheme did not occur can be affected by the cost of implementing that alternative. For example, the size of the 'tax cost' of carrying out a possible alternative scheme may show the relevant persons would not, or could not reasonably be expected to, have carried out that scheme. [13] This may be especially so where there is evidence pointing to a range of other alternatives that might have been adopted, in which this cost would not have arisen. | Federal Commissioner of Taxation v. RCI Pty Ltd (2011) 2011 ATC 20-075; (2011) 84 ATR 785; [2011] FCAFC 105 at [141] to [150] | Discharging the onus - pre 2013: 103. It is not correct that the taxpayer can only succeed by establishing that the Commissioner's counterfactual is unreasonable. It is for the court to determine objectively, on all of the relevant evidence, 'including inferences open on the evidence, as well as the apparent logic of events', what alternative would, or might reasonably be expected to, have occurred if the scheme had not been entered into or carried out. | 104. The taxpayer might discharge its onus by leading evidence that it would have carried out a particular activity, or adopted a particular course, or not carried out a particular activity, or adopted a particular course, as the case may be. Such evidence is to be tested against the objective facts surrounding the relevant transaction. | ... Generally, such evidence is unlikely to be sufficient to discharge the onus unless it is supported by objective indicia to be gleaned from the context and matrix of underlying or 'foundation facts', as they have been called: see McCutcheon v FCT (2008) 168 FCR 149 at 163-164 [37]-[39]; 69 ATR 607 at 621-622 [37]-[39]; 2008 ATC 20-009 at 8112-8113 [37]-[39] per Greenwood J, as well as the logic of the taxpayer's counterfactual having regard to the commercial or financial aspirations and limitations of the parties to the scheme; without such support, such evidence is likely to be regarded as no more than purely speculative. | 105. The fact that the taxpayer leads no direct evidence on what would, or might reasonably be expected, to have happened, if the scheme did not, will not automatically lead to the taxpayer failing to discharge the onus. | Federal Commissioner of Taxation v. RCI Pty Ltd (2011) 2011 ATC 20-075; (2011) 84 ATR 785; [2011] FCAFC 105 at [135]-[136]; Federal Commissioner of Taxation v. Futuris Corporation Ltd (2012) 205 FCR 274; 2012 ATC 20-306; [2012] FCAFC 32 | Discharging the onus - post 2013: 106. Although there is no authority on the point yet, we expect that how the taxpayer discharges the onus for a post-2013 scheme would be regarded as a matter for the taxpayer in a similar way as under the pre-amendment law. So, the taxpayer's argument may include inferences that are open on the evidence, as well as commercial logic. However, under the amended test in section 177CB it is no longer a matter of the taxpayer simply establishing the most likely prediction of what would have occurred absent the scheme, especially if that prediction poorly reflects the substance of the scheme and the relevant non-tax consequences for the taxpayer and other entities. Rather, the enquiry under the amended legislation is as to what reasonable alternatives to the scheme can be put forward, and subsection 177CB(4) directs one to have particular regard to certain matters, and to disregard others, in reaching this conclusion. | 107. Also, if the taxpayer can show that there is no reasonable alternative to the scheme that would result in a less favourable tax outcome, this would tend to be consistent with an absence of the tax purpose required by s177D in any event. | Identifying reasonable alternatives: 108. The following paragraphs are relevant to both the pre-2013 and post-2013 versions of Part IVA. | • the most straightforward and usual way of achieving the commercial and practical outcome of the scheme (disregarding the tax benefit); • commercial norms, for example, standard industry behaviour; • social norms, for example, family obligations; • behaviour of relevant parties before/after the scheme compared with the period of operation of the scheme; and • the actual cash flow. | 110. If the scheme had no effect or outcome other than the obtaining of the relevant tax benefit(s), it will be reasonable to assume that nothing would have happened if the scheme had not been entered into or carried out. | 111. Conversely, if a tax benefit is obtained in connection with a scheme that also achieves a wider commercial objective (disregarding the tax benefit), then it is reasonable to expect that in the absence of the scheme the wider commercial objective would still have been pursued by the means of a transaction or dealing with a different form or shape. | The [taxpayer's] submission is that the reference in this case is to the amount of interest actually received from EPBCL after the imposition of withholding tax. It is said that without the scheme there would have been no investment in EPBCL, that amount would not have existed, and par (a) of s 177C(1) would have had no subject-matter upon which to operate. | In our view, the amount to which [paragraph 177C(1)(a)] refers as not being included in the assessable income of the taxpayer is identified more generally than the taxpayers would have it. The paragraph speaks of the amount produced from a particular source or activity. In the present case, this is the investment of $40 million and its employment to generate a return to the taxpayers. It is sufficient that at least the amount in question might reasonably have been included in the assessable income had the scheme not been entered into or carried out. | 112. It may be difficult for a Tax officer to obtain evidence to support the counterfactual, that is, the reconstructed version of events. In applying the reasonable expectation test in situations where there is a lack of information, reasonable inferences may be drawn, and reasonable assumptions may be made. For example, care needs to be taken in applying the reasonable expectation test to a scheme involving a trust. Officers may need to consider whether it was reasonable to expect that a particular beneficiary of a trust would, but for the scheme, have received a trust distribution (see paragraphs 162 and 163 and also Federal Commissioner of Taxation v. Peabody (1994) 181 CLR 359; 123 ALR 451; 94 ATC 4663; 28 ATR 344). | 113. Where the relevant taxpayer is a non-resident, the question of source must also be considered in determining whether there is a tax benefit. | Consolidated Groups: 114. If a scheme involves a company joining a consolidated group, the fact that the scheme has resulted in the company becoming a subsidiary member of that group is no bar to finding that the company has obtained a tax benefit consisting of the non-inclusion of an amount in the company's assessable income, despite the single entity rule in section 701-1 of the ITAA 1997. The Commissioner may issue a section 177F determination to that company and may give effect to the determination by issuing an assessment (or an amended assessment) to that company, even though it is in fact a subsidiary member of a consolidated group. The Commissioner may not however assess the head company in these circumstances. | Channel Pastoral Holdings Pty Ltd v. Commissioner of Taxation [2015] FCAFC 57; (2015) 2015 ATC 20-503 | 115. On the other hand, if a scheme involves a company joining a consolidated group, and without the scheme the head company of the group would not have been entitled to a certain deduction from its assessable income, then it is the head company that has obtained the tax benefit. The Commissioner may issue a section 177F determination to the head company and assess it accordingly. (This situation has not yet been considered by a court but, by contrast with the omission of income situation, there seems to be no reason to doubt that the law would apply in this way.) | The counterfactual must not be a scheme to which Part IVA applies: 116. The counterfactual must not itself be a scheme entered into or carried out with the sole or dominant purpose of obtaining a tax benefit. Although the cases supporting this proposition were decided by reference to the pre-amendment version of Part IVA, there is no reason to think the proposition would not apply equally under the amended version. | Federal Commissioner of Taxation v. Trail Bros Steel & Plastics Pty Ltd (2009) 75 ATR 916; 2009 ATC 20-141; [2009] FCA 1210 at [52]; Futuris Corporation Limited v. Federal Commissioner of Taxation (2010) 2010 ATC 20-206; [2010] FCA 935 at [113] | Section 177D - the core of Part IVA - objective purpose: 117. Section 177D provides that Part IVA applies to a scheme in connection with which the taxpayer has obtained a tax benefit if, after having regard to eight specified factors, it would be concluded that a person who entered into or carried out the scheme, or any part of it, did so for the purpose of enabling the taxpayer to obtain the tax benefit. | 118. The objective test in subsection 177D(2) is the core of Part IVA and has been described by the High Court as the 'pivot' or 'fulcrum' on which Part IVA turns. It is frequently referred to as the 'statutory predication test'. | 119. Section 177D refers to 'the purpose' of the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme. The person need not be the taxpayer. Subsection 177A(5) clarifies that the 'purpose' includes the dominant purpose where there are two or more purposes. | 120. The dominant of two or more purposes is the ruling, prevailing or most influential purpose. | Much turns upon the identification, among various purposes, of that which is 'dominant'. In its ordinary meaning, dominant indicates that purpose which was the ruling, prevailing, or most influential purpose. | 121. It is possible for Part IVA to apply notwithstanding that the dominant purpose of obtaining the tax benefit was consistent with the pursuit of commercial gain. The key issue under Part IVA is whether the particular scheme, or any part of it, was entered into or carried out by any person for the relevant purpose having regard to the objective factors in subsection 177D(2). | A person may enter into or carry out a scheme, within the meaning of Pt IVA, for the dominant purpose of enabling the relevant taxpayer to obtain a tax benefit where that dominant purpose is consistent with the pursuit of commercial gain in the course of carrying on a business. | A particular course of action may be, to use a phrase found in the Full Court judgments, both 'tax driven' and bear the character of a rational commercial decision. The presence of the latter characteristic does not determine the answer to the question whether, within the meaning of Pt IVA, a person entered into or carried out a 'scheme' for the 'dominant purpose' of enabling the taxpayer to obtain a 'tax benefit'. | Objection was also taken to what was said to be the artificiality of the selection of part of the overall transaction as the scheme. This, it was said, was not warranted by Peabody or Spotless. The artificiality was said to result from the fact that the overall transaction was for the clearly commercial purpose of financing the Group's participation in the takeover bid for BAT. However, as was held in Spotless, a person may enter into or carry out a scheme, within the meaning of Pt IVA, for the dominant purpose of enabling the relevant taxpayer to obtain a tax benefit where that dominant purpose is consistent with the pursuit of a commercial gain in the course of carrying on a business. The fact that the overall transaction was aimed at a profit making does not make it artificial and inappropriate to observe that part of the structure of the transaction is to be explained by reference to a s 177D purpose | Even so, the transaction may take such a form that there is a particular scheme in respect of which a conclusion of the kind described in s 177D is required, even though the particular scheme also advances a wider commercial objective. | But so too, as was held in Spotless, there is a false dichotomy between a 'rational commercial decision' and 'the obtaining of a tax benefit as 'the dominant purpose of the taxpayers in making the investment''. Pointing to the 'commercial end' of the scheme reveals the adoption of the same, or at least a substantially similar, false dichotomy. The presence of a discernible commercial end does not determine the answer to the question posed by s177D. | See also Federal Commissioner of Taxation v. Hart [2004] HCA 26; 217 CLR 216; 206 ALR 207; 2004 ATC 4599; 55 ATR 712 at [6] and [12] per Gleeson CJ and McHugh J, and [68] per Gummow and Hayne JJ. | 122. The conclusion to be reached under section 177D is the conclusion of a reasonable person. | [T]he conclusion reached, having regard to the matters in par (b) as to the dominant purpose of a person or one of the persons who entered into or carried out the scheme or any part thereof, is the conclusion of a reasonable person. | 123. The consideration of purpose or dominant purpose under subsection 177D(2) requires an objective conclusion to be drawn. The conclusion required by section 177D is not about a person's actual, that is, subjective, dominant purpose or motive. Section 177D requires an objective conclusion as to purpose to be reached having regard to objective facts. The actual subjective purpose of any relevant person is not a matter to which regard may be had in drawing the conclusion under section 177D. In other words, a conclusion about a relevant person's purpose for section 177D is the conclusion of a reasonable person based on all the facts and evidence that are relevant to considering the eight factors for the scheme (see paragraphs 117 and 125 to 150). Tax officers must therefore focus on these facts and not on what a relevant person actually intended or what the taxpayer's motivations were for entering into the scheme. | The eight categories set out in par (b) of s 177D as matters to which regard is to be had 'are posited as objective facts', [citing FC of T v. Peabody (1994) 181 CLR 359 at 382]. | Federal Commissioner of Taxation v. Consolidated Press Holdings Ltd [2001] HCA 32; 207 CLR 235; 179 ALR 625; 2001 ATC 4343; 47 ATR 229 at [89] and [95] | Of course the loan was structured in the way it was in order to achieve the most desirable taxation result. But those are statements about why the respondents acted as they did or about why the lender (or its agent) structured the loan in the way it was. They are not statements which provide an answer to the question posed by s 177D(b). That provision requires the drawing of a conclusion about purpose from the eight identified objective matters; it does not require, or even permit, any inquiry into the subjective motives of the relevant taxpayers or others who entered into or carried out the scheme or any part of it. [italics not added] | 124. It may be relevant in determining what objectively was the purpose of any person entering into or carrying out the scheme, or any part of the scheme, to have regard to the purposes of the advisers or other agents of any of those persons. This, of course, will be appropriate only where a person acts on professional advice and what was done on professional advice is relevant to considering the eight matters required to be considered in applying the purpose test in subsection 177D(2) - refer to paragraphs 125 to 150. | [I]t is expected that those who participate in a complex, international, commercial transaction will be concerned about its tax implications, and will seek expert advice. Attributing the purpose of a professional advisor to one or more of the corporate parties in the present case is both possible and appropriate. In some cases, the actual parties to a scheme subjectively may not have any purpose, independent of that of a professional advisor, in relation to the scheme or part of the scheme, but that does not defeat the operation of s 177D. If, in the present case, there had been evidence which showed that no director or employee of the Group had ever heard of s 79D, that would not conclude the matter in favour of the taxpayer. One of the reasons for making s 177D turn upon the objective matters listed in the section, it may be inferred, was to avoid the consequence that the operation of Pt IVA depends upon the fiscal awareness of the taxpayer. | 125. The section requires the Commissioner to have regard to each of the eight matters in subsection 177D(2) in reaching an objective conclusion about purpose. However, not all of the matters will be equally relevant in every case. | In arriving at his conclusion, the Commissioner must have regard to each and every one of the matters referred to in s177D(b). This does not mean that each of those matters must point to the necessary purpose referred to in s177D. Some of the matters may point in one direction and others may point in another direction. It is the evaluation of these matters, alone or in combination, some for, some against, that s177D requires in order to reach the conclusion to which 177D refers. | Federal Commissioner of Taxation v. Hart [2004] HCA 26; 217 CLR 216; 206 ALR 207; 2004 ATC 4599; 55 ATR 712 at [70] per Gummow and Hayne JJ. | 126. The eight matters in subsection 177D(2) are to be each individually taken into account for the scheme having regard to all the relevant evidence, and then weighed together, in arriving at the conclusion as to dominant purpose. | The next question, which is of purpose, is whether under s 177D the scheme is one to which Pt IVA applies. This will, in my view, in most cases be the critical question. The answer to it, both as a matter of statutory interpretation and as the Explanatory Memorandum indicates, was intended to be the fulcrum upon which most Pt IVA cases will turn, because the definition of a scheme, being as wide as it is, will relatively easily be satisfied, and the presence or absence of the tax advantage will also usually be readily apparent. The Act requires the questions raised by s 177D be answered by reference to the indicia stated in the section. It is not necessary of course that every one of them be relevant to every scheme. Indeed, the presence or overwhelming weight of one factor alone may of itself in an appropriate case be of such significance as to expose a relevant dominant purpose. | 127. The eight matters listed in subsection 177D(2) enable consideration of the context in which the particular scheme occurs. | Nor is there any inconsistency involved, as was submitted, in looking to the wider transaction in order to understand and explain the scheme, and the eight matters listed in s 177D. | 128. Provided the eight matters identified in subsection 177D(2) are each taken into account, it is possible to arrive at the conclusion as to purpose by making a global assessment of purpose. | In the Full Court, the taxpayer argued that Hill J's reasoning did not refer to, or pay regard to, the eight matters listed in s 177D(b). This argument was rejected. It was pointed out, correctly, that it was not necessary for the judge to refer to the matters individually, and that an examination of the whole of his reasons for judgment showed that he took all the specified matters into account in forming 'a global assessment of purpose'. | 129. The eight factors in subsection 177D(2) consist of three overlapping sets. The first set is about how the scheme was implemented: how its results were obtained. It comprises the first three factors in paragraphs (a), (b) and (c) of subsection 177D(2) and deals with manner, form and substance, and timing. The second set comprises the next four factors in paragraphs (d), (e), (f) and (g) of subsection 177D(2) and deals with the effects of the scheme: the tax results, financial changes, and other consequences of the scheme. The third set is the eighth factor in paragraph (h) of subsection 177D(2) which deals with the nature of any connection between the taxpayer and other parties. | Considering the eight factors against the background of the counterfactual: 130. There is authority to suggest that consideration of the eight factors involves comparison of the scheme with the 'alternative hypothesis', that is, the counterfactual: refer to paragraphs 75 to 116. [15] | When that [that is s 177C(1)] is read with s 177D(b) it becomes apparent that the inquiry directed by Pt IVA requires comparison between the scheme in question and an alternative postulate. To draw a conclusion about purpose from the eight matters identified in s 177D(b) will require consideration of what other possibilities existed. | An aspect of the question to which s 177D(b)(ii) gives rise, is whether the substance of the transaction (tax implications apart) could more conveniently, or commercially, or frugally have been achieved by a different transaction or form of transaction. | See also Federal Commissioner of Taxation v. Hart [2004] HCA 26; 217 CLR 216; 206 ALR 207; 2004 ATC 4599; 55 ATR 712 at [69] per Gummow and Hayne JJ, | The conclusion contemplated by s 177D calls for an evaluative judgment. It is to that extent similar to the evaluative judgment contemplated by the predication test in Newton v Federal Commissioner of Taxation (1958) 98 CLR 1, 8-9. The evaluative judgment to be made under s 177D about dominant purpose is one to be made by application of the words of s 177D and, specifically, by having regard to the matters to which the section compels, and confines, attention. It is by a consideration of those matters that the conclusion is to be made about whether obtaining the tax benefit was the 'ruling, prevailing, or most influential purpose': Spotless Services at 416; see also at 423. The dominant purpose of obtaining a tax benefit may be revealed, as was decided in Spotless Services, by 'the particular means adopted by the taxpayers to obtain the maximum return on the money invested after payment of all applicable costs, including tax': Spotless Services at 423. It may also be revealed by consideration 'of what other possibilities existed' by reference to the eight matters in s 177D(b): Hart at 243 [66]; see also British American Tobacco Australia Services Ltd v Federal Commissioner of Taxation (2010) 189 FCR 151, 163, [53]. In Hart the dominant purpose of obtaining a tax benefit could be seen by comparing what was done to borrow funds with how else funds could be borrowed, and, therefore, as in Spotless Services, the dominant purpose was revealed by consideration of the eight factors in s 177D(b) in the particular means adopted by the taxpayer. It is not relevant to consider, therefore, whether Orica might have done something else, such as to borrow funds from an external source. In any event, if it be relevant, the evidence is that Orica rejected such an option and there is insufficient evidence to conclude that Orica's directors would have funded OUSSI from external sources. The inquiry called for by s 177D is, rather, what was the dominant purpose of entering into the transactions that Orica did choose. It is an inquiry that must be undertaken by having regard to the eight matters in s 177D(b) and, as a conclusion about purpose to be drawn from those matters, will require an evaluation of inference and degree. | The first three factors - how the scheme was implemented: 132. These first three factors are very important because they examine exactly how a scheme achieves its effects. The first factor which examines 'the manner in which the scheme was entered into or carried out' enables contrivance and artificiality to be identified by comparing the manner in which the scheme was entered into or carried out with the manner in which the counterfactual would have been implemented, for example, by the presence of a step or steps in a relevant transaction or arrangement that would not be expected to be present in a more straightforward or ordinary method of achieving the outcome of the transaction or arrangement. Conversely, if a scheme is entered into and carried out in the manner in which ordinary business or family dealings are conducted, the manner of the scheme will not indicate the purpose of obtaining the tax benefit. | 133. The identification of any step or aspect of the scheme that is apparently explicable for no purpose but a tax purpose will go to the manner in which the scheme was entered into or carried out. To illustrate from the decided cases, in Federal Commissioner of Taxation v. Peabody (1994) 181 CLR 359; 28 ATR 344; 94 ATC 4663; 123 ALR 451 there was a share devaluation with no non-tax rationale; in Federal Commissioner of Taxation v. Consolidated Press Holdings Ltd [2001] HCA 32; 207 CLR 235; 179 ALR 625; 2001 ATC 4343; 47 ATR 229 there was a company which lacked any non-tax reason for being in the corporate structure; in Federal Commissioner of Taxation v. Hart [2004] HCA 26; 217 CLR 216; 206 ALR 207; 2004 ATC 4599; 55 ATR 712 there was an election to split the loan to permit all repayments to be allocated to the private residence and the capitalisation and compounding of interest on the part of the loan allocated to the investment property; and, in the area of mass marketed schemes, in Federal Commissioner of Taxation v. Sleight [2004] FCAFC 94; 136 FCR 211; 206 ALR 511; 2004 ATC 4477; 55 ATR 555 there was a round-robin exchange of cheques. | 134. The second factor, which examines 'the form and substance of the scheme', requires that substance, rather than form, be the subject of inquiry. Put simply the factor directs attention to whether there is a discrepancy between the form of the scheme and its substance, meaning its commercial and economic substance. A discrepancy between the business and practical effect of a scheme on the one hand, and its legal form on the other, may well indicate the scheme has been implemented in a particular form as the means to obtain a tax benefit if the substance of the scheme may be achieved or available by some other more straightforward or commercial transaction or dealing. | 135. In practice these first two factors are likely to be related. For example, a divergence between form and substance could involve a roundabout way of implementing the scheme by steps that have no effect on the substance of what is achieved but lead directly to the obtaining of the tax benefit. | As Hill J rightly pointed out, the form and substance of the scheme (s 177D(b)(ii)) also point to the purpose of a relevant person obtaining a tax advantage. What was one advance, to be repaid by 300 instalments, was treated as if it were 2 separate loans. The only persons obtaining any advantage from the treatment were the ... [taxpayers]. And the only advantages which they obtained depended upon the taxation treatment resulting from the application of payments and accumulation of interest for which the scheme (however identified) provided. | There is a difference between the form and the substance of the present scheme. In form there is an option whether to farm alone or to employ the management company. There is a management agreement and financing and interest payments. The form, involving pre-payment of management fee and interest is, it may be concluded readily, designed to increase the taxation deductions available to an investor. The substance is, however, quite different. As senior counsel for the Commissioner put it, in substance the investor is a mere passive investor in what, once the tax features are removed, is a managed fund where no deduction would be available, or perhaps an alternative characterisation of the substance of the scheme is an investment in shares in the land company which at the expiration of 15 years is to own the tea tree plantation. | With respect to the learned primary judge it is not correct to say that form and substance are the same. Rather the particular shape the investment took was clearly fashioned in a way that would maximise the tax deductions. They were geared up by the loan agreement with up front interest payments. But for the tax deductions the form the investment might be expected to take would clearly relate more to the substance of what happened. | 138. The first two factors in relation to a scheme enable the particular 'shape' of the transaction or arrangement to be identified for the purpose of determining whether that particular shape is the means by which the tax benefit is obtained. The first two factors require consideration of any elements or aspects of how the particular scheme is implemented that make the scheme more complicated than a straightforward or ordinary commercial or family arrangement that achieves the same overall effect, disregarding the tax effects. | 139. The presence of material steps in a scheme consistent with no other explanation than the purpose of obtaining a tax benefit will be critical in characterizing the purposes of the persons who entered into or carried out the scheme. It will be they which lend an air of artifice and contrivance to the manner in which the scheme is carried out, and usually it will be they which separate form from substance. | 140. The third factor draws attention to particular 'timing' aspects of the manner in which a scheme is entered into or carried out. It will include consideration of the time the scheme, or any part of it, was entered into or carried out, and the length of the period during which it was carried out. This factor will enable consideration of the extent to which the timing and duration of the scheme go towards delivering the relevant tax benefit or are related to commercial opportunities or requirements. For example, this factor will identify whether the scheme is entered into shortly before the end of a financial year (or other tax sensitive date such as the date of a change in the rate of tax), or carried out for only a brief period. It is noted that a taxpayer is able to benefit from a scheme entered into well before the end of a year by having Pay-As-You-Go tax instalments varied. It follows that a scheme entered into well before the end of a year does not necessarily mean that timing would point to a neutral or non-tax purpose. It may also be relevant to note that the time at which a scheme is entered into is not proximate to any commercial occasion; that is, the timing of the scheme does not seem to be associated with an opportunity or need that might point to a non-tax purpose. In other circumstances timing and duration is more likely to be neutral or point to a non-tax purpose. | This factor clearly points to taxation as a predominating purpose. The scheme was entered into on the last day of the year of income. This was not accidental as it was necessary for a large portion of the deductions to be incurred in the 1995 year of income. If what may be called the tea tree or investment purpose predominated, then there would be no need for a 'flurry of activity' to occur, as it did, at the end of the year of income. The investment could be entered into at any time. | His Honour [Merkel J at first instance] correctly found that there was no commercial need or advantage for any contribution to be made in the 1996/1997 year of income, let alone on the last day of the financial year. The post-1997 scheme could have achieved its (non-tax related) commercial objectives without any contribution having been made to the Incentive Trust in the 1996/1997 year of income. When the timing of the contribution of $15,000,000 is taken into account, the contribution is inexplicable except as a means of Spotlight obtaining a tax deduction for the whole of that amount in the 1996/1997 year. It is true that had the Pt IVA scheme not been entered into, Spotlight would have made a small contribution to the trust fund in the next year of income and would have paid out, or set aside, about $15,000,000 in bonuses over a 5 year period. But an integral element of the Pt IVA scheme, in effect, constituted a means of deferring a very large amount of tax that otherwise would have been payable by Spotlight in the 1996/1997 year of income. [Original emphasis] | The next four factors - the effect of the scheme: 143. The second set of factors focuses on the tax, financial and any other consequences or effect of carrying out the scheme. These factors require consideration of the tax result, financial change and any other consequences of the scheme for the taxpayer and for related parties. | 144. The fourth factor expressly focuses on the tax benefit and any other tax consequence resulting from the scheme. | 145. The fifth, sixth and seventh factors focus on the non-tax effects of the scheme, not only for the relevant taxpayer, but also for all connected parties. These factors look to the practical financial, legal, economic and any other outcomes achieved by the scheme for the taxpayer and connected parties. For example, the change in the position of a taxpayer may mean little if there is an inverse change in the position of another person as a result of the scheme, and that other person is an associate or alter ego of the taxpayer such as a spouse or a wholly-owned company. It may also be relevant to observe that an allowable deduction is, or is not, matched by a corresponding amount of assessable income among the other parties who are affected by the scheme. These factors will often require consideration in conjunction with the second factor. | 146. The fifth, sixth and seventh factors involve identifying changes in financial position or any other consequences that may be reasonably expected to result from the scheme, not just changes that have resulted or will result. In Federal Commissioner of Taxation v. Hart & Anor [2004] HCA 26; 217 CLR 216; 206 ALR 207; 2004 ATC 4599; 55 ATR 712, the fact that there was a 'very real chance' over the life of the split loan entered into by the taxpayers that the amount owing on their investment property would exceed its value (due to the compounding of interest on the investment portion) and that their private residence would remain as security for the debt was considered by Callinan J at [94] in the context of the second set of factors. | These conclusions are reinforced by the 'round robin' arrangement (s 177D(b)(i), (ii) and (v)). As [counsel for the taxpayer] ... pointed out, the secured advance to Spotlight had a commercial benefit for the Incentive Trust, in that interest was payable on the loan. But the fact remains that Spotlight was able to obtain a very large and immediate tax benefit - amounting to several million dollars - without having to part with any more than $200,000 in the 1996/1997 year of income and relatively modest amounts in the succeeding years. (By 30 June 2003, only $9.7 million of the $15,000,000 contribution had actually been paid out as bonuses to or for the benefit of employees.) The obtaining of a large tax benefit without any substantial change in Spotlight's cash position suggests that its 'most influential and prevailing or ruling' purpose in entering into or carrying out the Pt IVA scheme, or part of that scheme, was to obtain a tax benefit. | 148. In considering the second set of factors it should be kept in mind that the application of Part IVA turns on an objective determination of the purpose of a person entering into a scheme, not the effect or purpose of the scheme. The fourth to seventh factors cannot simply be compared and weighed to determine purpose for to do so is to ignore the other factors. The bare fact that a taxpayer pays less tax if one form of the transaction rather than another is adopted, does not by itself demonstrate that Part IVA applies. Nevertheless, the effect of the scheme can contribute to a conclusion about the objective purpose of a person in entering into the scheme. | The eighth factor - the nature of the connection between the taxpayer and any other person: The shares in both CC NSW [that is, the taxpayer company] and QAPL were held by companies within the CC Group. All units in the QUT were held by CC PL, the parent of CC NSW. The effect of the principal-agent arrangement, if implemented, was to transfer assessable income from CC NSW to the QUT, where it was available to be offset against losses. | Conversely, in some cases this factor may permit consideration of offsetting tax liabilities incurred by associates as a result of the scheme to demonstrate absence of the relevant purpose. | 150. This factor requires attention to be paid to the existence of any family relationship between the taxpayer and the persons who are affected in any way by the scheme. This could assist a taxpayer in some cases. Many dealings which would be decidedly odd between strangers may be entirely explicable between family members. For example, a businessman who gives assets to strangers for less than they are worth may be subject to suspicion but a gift to his family could stand in a different light. Of course, it would be a different matter again if the family members do not benefit in substance from the arrangement. | Part IVA Warning Signs: • transactions which interpose an entity to access a tax benefit; • intra-group or related party dealings that merely produce a tax result; • arrangements involving a circularity of funds or no real money; | • a tax loss is claimed for what was a profitable commercial venture or transaction; | • use of non-recourse or limited recourse loans which limit the parties' risk or actual detriment in relation to debts/investments; • arrangements where the taxpayer's risk is significantly limited because of the existence, for example, of a 'put' option; | • financial arrangements made on unusual terms, such as interest rates above or below market rates, insufficient security, or deferment of repayment of the loan until the end of a lengthy repayment period; • transactions which do not occur at market rates/value; | • arrangements where a series of transactions taken together produce no economic gain or loss, such as where the whole scheme is self-cancelling. | Determinations and Assessments - section 177F: 152. Subsection 177F(1) gives the Commissioner a power to make a determination cancelling a tax benefit that has been obtained, or would but for section 177F be obtained, in connection with a scheme to which Part IVA applies. The power can only be exercised where a tax benefit has been obtained, or would but for the section be obtained, by a taxpayer in connection with a scheme to which Part IVA applies. | 153. Regard must be had to the individual circumstances of each case in applying Part IVA. However, where two or more taxpayers participate on the same terms in a single scheme, or in identical schemes, for example, in the case of mass marketed schemes, the individual circumstances of the case will have features in common, and there may be no further distinguishing circumstances. | 154. In all cases a determination should be evidenced in writing and provided to the taxpayer concerned. | 155. Where the Commissioner cancels a tax benefit that is omitted assessable income under paragraph 177F(1)(a), the relevant amount is deemed to be included in assessable income by virtue of such provision of the Act as the Commissioner determines: refer to subsection 177F(2). Therefore a provision should be specified in the determination. | 156. Where a determination is made, subsection 177F(1) directs the Commissioner to take such action as he considers necessary to give effect to that determination: refer to paragraphs 164 to 168. Tax officers should take particular care in determining the correct taxpayer against whom a determination and assessment should be made. | Making one or more determinations in particular scenarios: • a 'single scheme' is intended to include both wider and narrower 'alternative' schemes in connection with which the same tax benefit is obtained; and • 'multiple schemes' is to be read as a reference to different schemes in connection with which different tax benefits are obtained. | This use of the term 'single scheme' is appropriate because a conclusion as to dominant purpose under subsection 177D(2) is made in the broader context of the relevant scheme in any event. In those cases where the same tax benefit arises in connection with both wider and narrower alternative schemes, the application of Part IVA should be unaffected by whether a wider or narrower scheme is examined: see paragraphs 59 to 60 and 127. | Single scheme, multiple tax benefits (but not alternative counterfactuals) - same taxpayer and same income year: 158. If a taxpayer obtains two or more separate 'tax benefits' under Part IVA in the same counterfactual scenario, that is, if the 'tax benefits' do not all come within the same paragraph in subsection 177C(1) (for example, assessable income is omitted, and either excessive deductions are claimed or a capital loss is incurred), a separate determination should be made for each kind of tax benefit that is obtained in connection with the scheme. However, it is only necessary to issue a single amended assessment that takes into account the cumulative effect of all the individual tax benefits being cancelled. | Single scheme, alternative counterfactuals - same taxpayer and same income year: 159. If a taxpayer obtains a different amount of the same kind of tax benefit in different counterfactual scenarios in connection with a single scheme to which Part IVA would apply in a particular year, the correct approach is to make a single determination under subsection 177F(1) for the kind of 'tax benefit' that is obtained. The highest 'tax benefit' of the same kind for the counterfactual scenarios should be used in the determination, unless there are special circumstances (for example, the highest tax benefit would result in juridical double taxation). If a tax benefit obtained in connection with the scheme includes a tax benefit of the kind specified in paragraph 177C(1)(a), that is, an amount that was not included in assessable income, then for the purposes of subsection 177F(2), the determination cancelling the omitted income tax benefit should state the provisions of the Act, for all the alternative counterfactuals, under which the amount is deemed to be included in assessable income. | Multiple schemes, multiple tax benefits - same taxpayer and same income year: 160. If a taxpayer can be assessed to two or more 'tax benefits' under Part IVA from more than one scheme in a particular year, it will be necessary to issue determinations in respect of each scheme, and if relevant, for each different kind of tax benefit obtained in connection with each scheme. However, it may only be necessary to issue a single amended assessment that takes into account all of the tax benefits being cancelled for each of the schemes in appropriate cases. | Single scheme and tax benefit - different taxpayers: 161. The Commissioner has power to make subsection 177F(1) determinations, and to issue assessments to give effect to the determinations, to more than one taxpayer in respect of the same tax benefit. This can occur where the Commissioner forms the view that each determination and consequent assessment could be correct, based on what is known by the Commissioner at the time. This situation commonly arises in relation to a scheme involving a trust where the trustee or any one or more of its beneficiaries may be ultimately taxable on a tax benefit obtained in connection with the scheme. However, although it is possible for multiple concurrent assessments in respect of the same amounts to co-exist, the Act does not authorise double taxation of the same income, and tax must only be collected from the taxpayer ultimately held to be liable. | Deputy Commissioner of Taxation v. Richard Walter Pty Ltd (1995) 183 CLR 168 at 201-203; 127 ALR 21 at 42-44; 95 ATC 4067 at 4082-4084; 29 ATR 644 at 663-665. | Dan v. Federal Commissioner of Taxation (No. 2) [2000] FCA 752; 2000 ATC 4350; 44 ATR 338 at [48]-[51]. | '[I]t was critical in Richard Walter that at the time the Commissioner made each of the two assessments he was bona fide able to form the view that each could be correct. While it is true that both could not stand together, it was equally true that one or other of them could be completely correct. Which one, if either, was completely correct, of course, was not at that stage known by the Commissioner.' (Original emphasis.) | Single scheme, incorrect counterfactuals - different taxpayer: 162. In some cases courts have found that the taxpayer who obtained a tax benefit is not the taxpayer to which the relevant section 177F determination(s) apply. Officers should be alert to this possibility and consider the need to make determinations and raise corresponding assessments for not only the taxpayer considered most likely to have obtained a tax benefit, but for different taxpayers under different alternative postulates. Again, care should be exercised in such cases to see that double taxation does not occur. | Futuris Corporation Limited v. Federal Commissioner of Taxation 2010 ATC 20-206; [2010] FCA 935 at [112]; Federal Commissioner of Taxation v. AXA Asia Pacific Holdings Ltd 2010 ATC 20-224; [2010] FCAFC 134 [16] | 163. If the tax benefit was taken into account in calculating the 'net income of the trust estate' under section 95, the standard approach is to make Part IVA determinations cancelling the relevant tax benefits in respect of both the trustee and the beneficiaries since the objective facts will usually support a conclusion that both the trustee and the beneficiaries obtained a tax benefit in connection with the scheme. However, there is nothing to prevent the Commissioner in appropriate cases from simply cancelling the tax benefit obtained by the trustee and then relying upon Division 6 of Part III to assess the recalculated net income of the trust to the relevant beneficiaries under section 97, or to assess some or all of the recalculated amount to the trustee under section 99A. A similar approach is taken to making Part IVA determinations in relation to partnerships: refer to paragraphs 170 to 172. | Give effect to a determination: 164. To give effect to a determination under section 177F, an assessment should be issued under section 166 if no assessment has been issued previously in respect of the relevant year to the taxpayer. | 165. If an assessment has been issued prior to making the determination but the 'tax benefit' was not included, it is necessary to issue an amended assessment under section 170 to give effect to the determination. | 166. If prior to making the determination under section 177F, the 'tax benefit' was included in an assessment (including an amended assessment) under sections of the Act other than Part IVA (for example, section 6-5 of the ITAA 1997), it will not be necessary to issue an amended assessment if the determination was made in connection with the consideration of an objection. When an objection to an assessment is decided, a determination under subsection 177F(1) made in connection with the consideration of the objection will be deemed to have been made when the assessment was made: subsection 169A(3). Consequently, it will be unnecessary to amend an assessment to give effect to the Part IVA determination if no change to taxable income or tax payable results. However it will still be necessary to issue and serve on the taxpayer a copy of the determination in order for Part IVA to be applied in the event that there is a tax benefit. | In the case of Ryde Homes [Pty Ltd], while the two determinations under challenge did not give rise to the issue of any notice of further amended assessment, the consequence of s 169A of the ITAA 1936 when read together with s 173 was that the determinations, having been made in connection with the Commissioner's consideration of the objection lodged by that company on 31 May 1999 against the amended assessment notified on 30 March 1999, were to be treated as part of the making of the amended assessment notified on 30 March 1999 and likewise afforded the protection of s 177(1), but subject to the Hickman principle. | 167. Where the determination is not made in connection with the consideration of an objection, officers should give effect to a determination by an amended assessment. Officers should refer to the Full Federal Court decisions in Federal Commissioner of Taxation v. Jackson (1990) 27 FCR 1; 96 ALR 586; 90 ATC 4990; 21 ATR 1012, Federal Commissioner of Taxation v. Stokes (1996) 72 FCR 160; 141 ALR 653; 97 ATC 4001, 34 ATR 478; and Puzey v. Commissioner of Taxation [2003] FCAFC 197; 131 FCR 244; 201 ALR 302; 2003 ATC 4782; 53 ATR 614 at [87] to [93]. | • the relevant amount is included in the assessable income of the taxpayer/is not deductible to the taxpayer under the provisions of the Income Tax Assessment Acts other than Part IVA; and • Part IVA operates to include the amount in the assessable income of the taxpayer/cancels the deduction of the amount by the taxpayer under the Income Tax Assessment Acts. | Puzey v. Commissioner of Taxation [2003] FCAFC 197; 131 FCR 244; 201 ALR 302; 2003 ATC 4782; 53 ATR 614 at [94] | Spassked Pty Limited v. Commissioner of Taxation [2003] FCAFC 282; 136 FCR 441; 203 ALR 515; 2003 ATC 5099; 54 ATR 546 at [118] | Australia & New Zealand Banking Group Ltd v. Federal Commissioner of Taxation [2003] FCA 1410; 137 FCR 1; 203 ALR 644; 2003 ATC 5041; 54 ATR 449 at [70] | Schemes involving trusts: 169. Where the scheme involves the 'net income of a trust estate' under Division 6 of Part III of the ITAA 1936, care should be taken to ensure that an assessment or amended assessment that gives effect to the Part IVA determination(s) issues in respect of all the appropriate taxpayers (for example, trustee and beneficiary). In this respect, refer to paragraphs 162 and 163 of this practice statement which deal with making Part IVA determinations in respect of different taxpayers for the same tax benefit in connection with the same scheme. | Schemes involving partnerships: 170. Care should be taken when making a Part IVA determination involving a partnership. | 171. If a tax benefit obtained in connection with a scheme to which Part IVA applies had the effect of reducing the 'net income' of the partnership or increasing the 'partnership loss' that is calculated for the purposes of Division 5 of Part III of the ITAA 1936, then Part IVA determinations cancelling the relevant tax benefits should be made in respect of both the partnership and each individual partner. A determination cancelling each relevant kind of tax benefit obtained by the partnership should be provided to either the managing partner or another senior partner. A determination cancelling the omission of assessable income by each partner which corresponds with the reduction of their share of net income under section 92 obtained by them in connection with the scheme should be provided to each partner. | 172. If a tax benefit obtained in connection with a scheme to which Part IVA applies has resulted in a 'partnership loss' being calculated for the partnership for the purposes of Division 5 of Part III of the ITAA 1936, and a partner is entitled to claim a share of that partnership loss as a deduction under section 92 (disregarding Part IVA), then Tax officers may need to consider if more than one Part IVA determination needs to be made for each partner. Two determinations for each partner will generally be necessary where, under the counterfactual, a 'net income' amount would have been calculated for the partnership. In such a scenario, one determination would be required to cancel the deduction obtained by the partner under section 92 for their share of the partnership loss, while the other determination would include in the assessable income of the partner under section 92 the partner's share of the net income under the counterfactual. | Other situations not specifically dealt with: 173. Where a determination is proposed to be made in situations other than described in paragraphs 157 to 172, officers should follow the referral procedure referred to at paragraph 14 of this practice statement. | Compensating adjustments - subsection 177F(3): 174. Where the Commissioner has made a determination under subsection 177F(1) or (2A), he may, if in his opinion it is fair and reasonable, make another determination under subsection 177F(3) adjusting the taxation situation of any taxpayer. A subsection 177F(3) determination is known as a 'compensating adjustment'. There is no time limit for making a compensating adjustment. | 175. A compensating adjustment must generally be made where the application of Part IVA causes double taxation of the same income. | A scheme involves the diversion of personal services income to a family trust. The income has been distributed to the beneficiaries (family members) who were taxed accordingly. The Commissioner makes a determination under subsection 177F(1) with respect to the scheme. The determination includes the whole of the personal services income in the assessable income of the taxpayer (the personal services income earner). Compensating adjustments are made in favour of the taxpayer's family members (the beneficiaries), such that the individual beneficiaries' income from the trust is determined not to have been included in their assessable incomes. | 176. Any action to make or give effect to compensating adjustments (for example, amendment of assessments) should not as a general rule be undertaken while the application of Part IVA is subject to objection or review. Such an approach does not make the assessment giving effect to the relevant Part IVA determination(s) tentative or other than bona fide. The Commissioner will be in a position to determine whether it is 'fair and reasonable' that a compensating adjustment be made when the application of Part IVA is finally established. Any decision to make a compensating adjustment at a prior stage must be approved by a DCTC or the CTC. Where it is clear that a particular compensating adjustment is expected to be made when the application of Part IVA is established, the taxpayer should be informed of the expected compensating adjustment. | Australia & New Zealand Banking Group Ltd v. Federal Commissioner of Taxation [2003] FCA 1410; 137 FCR 1; 203 ALR 644; 2003 ATC 5041; 54 ATR 449 | Time limits for amending assessments - section 177G: 177. Section 177G was amended in relation to assessments for the 2004-05 year of income and later years. It now provides only that nothing in section 170 prevents the amendment of an assessment at any time if the purpose of the amendment is to give effect to a compensating adjustment under subsection 177F(3). Amendments to give effect to determinations made under subsection 177F(1) for these years are therefore covered by the general power of amendment in section 170. Item 4 in subsection 170(1) limits the time for this to within 4 years from the day on which the relevant notice of assessment is given. For income years before the 2004-05 income year, the 6 year limit in former subsection 177G(1) applies. However, in respect of these years the Federal Court decision in Vincent v. Commissioner of Taxation [2002] FCAFC 291; 2002 ATC 4742; 51 ATR 18 at [88] to [94] means that the six year period for amending assessments under Part IVA cannot be relied upon where the claimed tax benefit is unavailable under the general provisions of the income tax law. In such cases, Part IVA has no application because there was no tax benefit within the meaning of section 177C. | 178. Where there has been avoidance of tax, paragraph 170(2)(a) allows the Commissioner to amend an assessment at any time if he is of the opinion that the avoidance of tax is due to fraud or evasion. Such an amended assessment may give effect to a determination under subsection 177F(1). However, any such amended assessment must be approved by a DCTC or the CTC. | Penalties: 179. Where Part IVA applies to cancel a tax benefit, the taxpayer is liable to pay an administrative penalty of 50% of the scheme shortfall amount, or 25% of the scheme shortfall amount if it is reasonably arguable that Part IVA does not apply: sections 284-145, 284-155 and 284-160 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953). The scheme shortfall amount is the reduction in tax that the taxpayer would have got from the scheme if Part IVA did not apply: section 284-150 of Schedule 1 to the TAA 1953. | 180. It will be reasonably arguable within the meaning of section 284-15 of Schedule 1 to the TAA 1953 that Part IVA does not apply if it would be concluded in all of the circumstances, having regard to relevant authorities, that what is argued for by the taxpayer is about as likely to be correct as incorrect, or is more likely to be correct than incorrect. | Pridecraft Pty Ltd v. Commissioner of Taxation [2004] FCAFC 339; 213 ALR 450; 2005 ATC 4001; 58 ATR 210 at [107] to [110] per Sackville J (with whom Sundberg J and Ryan J agreed). | 181. The imposition of an administrative penalty under section 284-145 of Schedule 1 to the TAA 1953 may raise issues where a general anti-avoidance provision is relied on in the alternative (see for example., Federal Commissioner of Taxation v. Star City Pty Ltd (No.2) [2009] FCAFC 122; (2009) 74 ATR 447; 2009 ATC 20-129). See Practice Statement PS LA 2008/18 Interaction between Subdivisions 284-B and 284-C of Schedule 1 to the Taxation Administration Act 1953 for guidance in such cases (as well as to the Decision Impact Statement on Star City (No.2)). | 182. Paragraph 284-145(1)(b) of Schedule 1 to the TAA requires that it be 'reasonable to conclude' that an entity entering into or carrying out the scheme 'did so with the sole or dominant purpose of that entity or another entity getting a scheme benefit from the scheme', where 'scheme benefit' is defined in subsection 284-150(1). The nature of the 'purpose' spoken of in paragraph 284-150(1)(b) has been discussed in Lawrence v. Federal Commissioner of Taxation [2008] FCA 1497; (2008) 70 ATR 376; 2008 ATC 20-052 per Jessup J (not needing to decide the point), and Federal Commissioner of Taxation v. Star City Pty Ltd (No.2) [2009] FCAFC 122; (2009) 74 ATR 447; 2009 ATC 20-129 per Dowsett J at [74]. | 183. In the Decision Impact Statement for Lawrence the Commissioner says that the views of Dowsett J in Star City (No.2) are those which will be followed. In the latter case Dowsett J said at [74] that the language of paragraph 284-145(1)(b) of Schedule 1 to the TAA 'is not apposite to require an actual decision as to purpose. It rather addresses the availability of an inference'. In the same paragraph his Honour said that he was inclined to the view that paragraph 284-145(1)(b) posed the question 'whether a reasonable person could conclude that the relevant entity had the identified purpose'. | 184. The Commissioner has a discretion to remit all or part of the additional tax or administrative penalty - see section 298-20 of Schedule 1 to the TAA 1953. Officers should refer to other practice statements or Taxation Rulings for guidance on the circumstances in which the Commissioner may exercise his discretion to remit the whole or part of a penalty. Officers must also take into account the advice of the GAAR Panel in deciding the level of penalties to be imposed. | SECTION 67 OF THE FBTAA - FBT: 185. Section 67 is the general anti-avoidance provision in the FBTAA. The operation of section 67 is comparable to Part IVA, in that the section requires the identification of an arrangement and a tax benefit, includes a sole or dominant purpose test and is activated by the making of a determination by the Commissioner. The definition of 'arrangement' in subsection 136(1) of the FBTAA is virtually identical to the definition of 'scheme' in section 177A of Part IVA. | 186. Subsection 67(1) of the FBTAA is satisfied where a person or one of the persons who entered into or carried out an arrangement or part of an arrangement under which a benefit is or was provided to a person, did so for the sole or dominant purpose of enabling an eligible employer or the eligible employer and another employer(s) to obtain a tax benefit. | 187. An objective review of the transaction and the surrounding circumstances should be undertaken in determining a person's sole or dominant purpose in carrying out the arrangement or part of the arrangement. Section 67 of the FBTAA differs from subsection 177D(2) in Part IVA in that it does not explicitly list the factors that should be taken into account in determining a person's sole or dominant purpose. | (i) a benefit is provided to a person; (ii) an amount is not included in the aggregate fringe benefits amount of the employer; and (iii) that amount would have been included or could reasonably be expected to have been included in the aggregate fringe benefits amount, if the arrangement had not been entered into. | 189. In circumstances where the Commissioner is satisfied that section 67 of the FBTAA should apply, paragraph 67(1)(c) authorises the Commissioner to cancel the tax benefit by determining that the aggregate fringe benefits amount of the eligible employer shall be increased by the amount of the tax benefit. Paragraph 67(1)(d) of the FBTAA provides the Commissioner with the authority to determine appropriate adjustments to the aggregate fringe benefits amount of the eligible employer or another employer in respect of any year of tax. | 190. After the tax benefit has been cancelled, adjustments may be appropriate to restore the situation to what it would have been if the arrangement had not been carried out. Under subsection 67(4) of the FBTAA an employer may make a written request to the Commissioner to make a determination under paragraph 67(1)(d) of the FBTAA. The process in paragraph 67(1)(d) and in subsection 67(4) is similar to the compensating adjustment process in Part IVA (refer to paragraphs 174 to 176). | 191. The approach outlined in this practice statement (refer to paragraphs 75 to 150) to the counterfactual and the sole or dominant purpose test in Part IVA is relevant (except that amendments corresponding to the 2013 amendments of Part IVA have not been made to section 67) and should be taken into account by Tax officers who are considering the application of section 67 of the FBTAA. | DIVISION 165 OF THE GST ACT - GST: 192. Division 165 of the GST Act is a general anti-avoidance provision. It is modelled on Part IVA (except that amendments corresponding to the 2013 amendments of Part IVA have not been made to Division 165). | 193. It gives the Commissioner the discretion to negate a 'GST benefit' that an entity gets or got from a scheme to which Division 165 of the GST Act applies. This discretion is contained in section 165-40 of the GST Act. | (i) the existence of a 'scheme'; (ii) an entity ('the avoider') must have obtained a 'GST benefit' from the scheme; and (iii) it must be reasonable to conclude that the sole or dominant purpose of any entity entering into or carrying out the scheme, or part of the scheme, or that the principal effect of the scheme, or part of the scheme, was the obtaining of a GST benefit from the scheme. | 195. Regard must be had to the individual circumstances of each case in determining whether to make a declaration under section 165-40 of the GST Act to negate a GST benefit. | 196. Division 165 of the GST Act applies whether the scheme, or any part of the scheme, was entered into or carried out inside or outside Australia: subsection 165-5(2) of the GST Act. Additionally, it only applies to schemes entered into on or after 2 December 1998 or carried out or commenced on or after that date; however, it does not apply to schemes carried out or commenced on or after that day that were entered into before that day: paragraph 165-5(1)(d) of the GST Act. | 197. Division 165 of the GST Act and Part IVA are generally similar in their objects, structure and operation. However, there are key differences between Part IVA and Division 165 of the GST Act, and Division 165 has special features. These are highlighted in the following summary of the main provisions of Division 165 of the GST Act. | 198. An analysis of the Part IVA cases referred to above will not be repeated. However, until any case authority on Division 165 of the GST Act develops, these cases are a useful guide to the interpretation and application of Division 165 of the GST Act, particularly where the provisions of Division 165 of the GST Act are similar to provisions of Part IVA. | Scheme - subsection 165-10(2): 199. For Division 165 of the GST Act to operate, the identified scheme must fall within the definition of 'scheme' in subsection 165-10(2) of the GST Act. The definition in this subsection is virtually identical to the one in the comparable Part IVA provisions (subsections 177A(1) and 177A(3)). Accordingly, paragraphs 55 to 61, in relation to the definition of a scheme in Part IVA, apply equally to the definition of a scheme in Division 165 of the GST Act. | 200. Given the very wide definition of 'scheme' in subsection 165-10(2) of the GST Act, this element will in most cases be easily satisfied. | GST benefit - subsections 165-10(1) and 165-10(3): (a) an amount payable by an entity under the GST Act is, or could reasonably be expected to be, smaller than it would be apart from the scheme or a part of the scheme; (b) an amount payable to an entity under the GST Act is, or could reasonably be expected to be, larger than it would be apart from the scheme or a part of the scheme; (c) all or part of an amount payable by an entity under the GST Act is, or could reasonably be expected to be, payable later than it would have been apart from the scheme or a part of the scheme; or (d) all or part of an amount payable to an entity under the GST Act is, or could reasonably be expected to be, payable earlier than it would have been apart from the scheme or a part of the scheme. | Counterfactual: 202. Consideration of the GST consequences, but for the operation of Division 165 of the GST Act, of an alternative hypothesis or postulate - what would have happened or might reasonably be expected to have happened if the scheme (or part of the scheme) had not been carried out - is required. For guidance, refer to paragraph 75 and following paragraphs above regarding counterfactuals in the Part IVA context. | No economic alternative: 203. A special feature of Division 165 of the GST Act, absent from Part IVA, is that Division 165 expressly provides that a GST benefit can arise even if there is no economic alternative to the scheme which produced the benefit. Subsection 165-10(3) of the GST Act provides that a GST benefit can arise even if an entity could not have engaged economically in activities other than the scheme activities. In this way, an entity will not be able to argue against the existence of a GST benefit on the basis that it would not have entered into any type of transaction had the actual scheme not been entered into: Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1999 at paragraph 6.335. | Timing benefits: 204. Subsection 165-10(1) of the GST Act is not directed only at liabilities (permanent differences) but is additionally directed at timing benefits. The benefit in paragraph 165-10(1)(c) of the GST Act concerns the deferral of attribution of a liability to GST or an increasing adjustment, and the benefit in paragraph 165-10(1)(d) of the GST Act concerns the acceleration of attribution of entitlement to an input tax credit or decreasing adjustment: refer to paragraph 201. | Net amounts: 205. The GST benefits referred to in subsection 165-10(1) of the GST Act operate in relation to net amounts payable by and to a taxpayer for a particular tax period, such as a particular month or quarter: sections 33-3 and 35-5 of the GST Act. Accordingly, in addressing the existence of a GST benefit, officers must determine the effect of a scheme or part of a scheme on net amounts on a tax period by tax period basis. | 206. This may mean that a GST benefit could be obtained from a scheme even though a greater amount of GST would be payable under the GST Act over a period of time as a result of the scheme. | Causal nexus - paragraph 165-5(1)(a) of the GST Act: 207. For Division 165 of the GST Act to operate, it is also necessary that a sufficient causal nexus between the GST benefit and the identified scheme exists. Paragraph 165-5(1)(a) of the GST Act provides that the GST benefit must be obtained 'from' the scheme. Subsection 165-10(1) of the GST Act provides that the GST benefit may also be obtained from 'part of a scheme'. | GST benefits disregarded - paragraph 165-5(1)(b) of the GST Act: The identified GST benefit is not attributable to the making of a choice by the entity or some other entity if: (a) the GST Act or another relevant law does not operate to confer the identified GST benefit by reference to that choice: or (b) the choice made in fact as part of the scheme would have been made in any event without the scheme. | The insertion of s 165-5(3) in Div 165 cannot be regarded as an acknowledgement by the Parliament that, without it, Div 165 would not have encompassed a situation such as that of present concern. Section 165-5(3) ensures the application of Div 165 to the case where the scheme was entered into for the purpose of generating the statutory choice relied upon by the avoider. Section 165-5(1)(b) may apply without the need to invoke s 165-5(3) where the statutory choice arises as a step in a scheme. There may be cases where the avoider has not manipulated circumstances to confect the occasion for the making of the statutory choice, but nevertheless the GST benefit can be seen as not attributable to that choice. ... | Tax avoidance conclusion - paragraph 165-5(1)(c) and section 165-15 of the GST Act: (i) an entity entered into or carried out the identified scheme, or a part of the scheme, with the sole or dominant purpose of that entity or another entity getting a GST benefit from the scheme; or (ii) the principal effect of the identified scheme, or a part of the scheme, is that the avoider gets the GST benefit from the scheme directly or indirectly. | For ease of reference, a conclusion that either of these is the case will be referred to in this practice statement below as a 'tax avoidance' conclusion. | 211. Accordingly, Division 165 of the GST Act requires the drawing of a conclusion as to either purpose or effect. A determination as to whether either conclusion would be reasonable must be arrived at by taking into account the same twelve matters set out in subsection 165-15(1) of the GST Act. | Dominant purpose test: 212. The dominant purpose test in Part IVA, found in section 177D (see also subsection 177A(5)), is essentially mirrored in the test in subparagraph 165-5(1)(c)(i) of the GST Act. Accordingly, the propositions contained in paragraphs 117 to 150 are equally applicable to the dominant purpose test in Division 165 of the GST Act. | 213. However, the application of the dominant purpose test in Division 165 of the GST Act requires consideration of the twelve matters in subsection 165-15(1). Subsection 177D(2) only requires consideration of eight factors. This difference in the matters to be considered in determining purpose (and effect) is addressed separately below. | Principal effect test: 214. Division 165 of the GST Act contains an alternative basis for a tax avoidance conclusion, being the principal effect test in subparagraph 165-5(1)(c)(ii) of the GST Act. There is no Part IVA equivalent to this test. Part IVA applies to a scheme only on the basis of it being concluded that a relevant person has the requisite dominant purpose. | 215. This principal effect test focuses on the result of a scheme rather than on the purpose attributed to those entering into or carrying out the scheme. Both purpose and effect are ascertained objectively by a consideration of the matters listed in subsection 165-15(1) of the GST Act. However, the enquiry to be undertaken in relation to the principal effect test is directed to the outcome of the scheme, without regard to the imputed purpose of those entering into or carrying out the scheme. The test specifically applies to the avoider and the GST benefit obtained by the avoider: Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1999 at paragraph 6.344. | 216. The effect produced by the scheme must also be 'the principal' effect. This means that the most significant or main effect of the scheme must be the securing of a GST benefit by the avoider. It is not sufficient for the GST benefit to be one of several main effects. It must be the most significant or main effect: Senate Supplementary Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1999 at paragraph 1.121. | 217. The test may be satisfied even if a GST benefit, which is the principal effect of the scheme, is obtained in an indirect way. It is not confined to GST benefits directly obtained. That is, it will be satisfied even if the principal effect of the identified scheme is that the avoider got the GST benefit from the scheme 'indirectly'. | 218. While the principal effect test is an alternative test, the criteria for its consideration mirror the objective analysis required to distinguish ordinary commercial dealings from tax avoidance arrangements. | The 12 matters to be considered in determining purpose or effect: 219. The propositions contained in paragraphs 117 to 129 concern the correct approach to the consideration and weighing up of the eight factors in subsection 177D(2) in determining purpose. Where context permits, and with due allowance being made for the absence of the principal effect test in Part IVA, these propositions will generally be equally applicable to a consideration and weighing up of the twelve matters in subsection 165-15(1) of the GST Act in determining purpose or effect. | 220. As indicated above, subsection 177D(2) in Part IVA requires regard to be had to eight factors in considering whether it can be concluded that a relevant person has the requisite purpose, whereas subsection 165-15(1) in Division 165 of the GST Act requires regard to be had to twelve matters. | 221. The matters in paragraphs (a), (b), (f), (g), (h), (i) and (j) of subsection 165-15(1) of the GST Act correspond to the factors in paragraphs (a), (b), (d), (e), (f), (g) and (h) of subsection 177D(2). Paragraph 165-15(1)(b) of the GST Act also refers to the form and substance of a scheme but, in addition to paragraph 177D(2)(b), elaborates on the meaning of the 'form and substance' of a scheme by indicating that this includes 'the legal rights and obligations involved in the scheme' and 'the economic and commercial substance of the scheme'. | 222. The matters in paragraphs (d) and (e) of subsection 165-15(1) of the GST Act together correspond to the factor in paragraph (c) of subsection 177D(2). That is, the timing and period of a scheme are combined into one factor in Part IVA whereas the timing and period of a scheme are separate matters in Division 165 of the GST Act. | 223. Accordingly, paragraphs (c), (k) and (l) of subsection 165-15(1) of the GST Act are the only matters in subsection 165-15(1) for which there are no equivalents in subsection 177D(2) of Part IVA. | 224. The matter in paragraph 165-15(1)(c) of the GST Act is 'the purpose or object' of the relevant Acts. This matter requires that regard be had not only to the legislative purpose of the GST Act and the Customs Act 1901 but also to any relevant provision of these Acts. If a scheme frustrates the legislative purpose (that is, the legislative scheme), this matter will point in the direction of tax avoidance; if the outcome of the scheme is consistent with the object of the legislation, this will point against a tax avoidance conclusion. In considering legislative purpose officers should have regard to the legislative scheme provided by the legislation together with relevant extraneous material such as explanatory memoranda as appropriate. | 225. The matters in paragraphs (k) and (l) of subsection 165-15(1) of the GST Act are, respectively, 'the circumstances surrounding the scheme' and 'any other relevant circumstances'. This requires officers considering Division 165 of the GST Act to consider the surrounding circumstances or any factor that is relevant to the question of whether the arrangement has the purpose or effect of tax avoidance. For example, in determining purpose or effect, officers could have regard to prevailing economic conditions or industry practice attending the scheme. | 226. The propositions contained in paragraphs 130 to 150 explain the nature and meaning of the eight factors in subsection 177D(2). These propositions will be equally applicable to a consideration of the nature and meaning of the equivalent matters in subsection 165-15(1) of the GST Act. | Matters apply to part of a scheme as if it were the entire scheme: 227. Subsection 165-15(2) of the GST Act provides that the matters in subsection 165-15(1) of the GST Act apply to part of a scheme as if the part were the entire identified scheme from which the GST benefit was obtained: Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1999 at paragraph 6.347. | Declaration to negate GST benefit - sections 165-40, 165-50 and 165-60 of the GST Act: 228. If the foregoing elements are satisfied, the Commissioner may exercise the section 165-40 discretion to negate the GST benefit obtained. Section 165-40 of the GST Act provides that the Commissioner may negate a GST benefit by making a declaration stating the net amount payable for a particular tax period or the GST payable on an importation to be a higher amount. It also allows for reductions in net amounts for other tax periods which may be required if the GST benefit is a timing benefit. | 229. As is the case with the comparable Part IVA provision, subsection 177F(1), the discretion in section 165-40 of the GST Act must be exercised in good faith. | Single scheme, multiple GST benefits (but not alternative counterfactuals) - same avoider, same tax period(s): 230. If an avoider has obtained two or more separate GST benefits under Division 165 of the GST Act in the same counterfactual scenario (for example, a permanent benefit and a timing benefit), a single declaration identifying each GST benefit and stating the avoider's net amount for the tax period should be made. | Single scheme, alternative counterfactuals - same avoider and same tax period(s): 231. The correct approach in the case of alternative counterfactuals in respect of a single scheme is to make a single declaration identifying each GST benefit obtained by the avoider and stating the avoider's net amount for the tax period using the highest 'GST benefit'. | Multiple schemes, multiple GST benefits - same avoider and same tax period(s): 232. If an avoider has obtained more than one GST benefit from more than one scheme in a particular tax period, a single declaration should be made. This declaration must identify each GST benefit from each scheme and state the avoider's net amount for the tax period. | Declaration formerly self-executing: 233. The word 'determination' is used in section 177F in Part IVA for the decision to cancel a tax benefit. Apart from terminology, another difference between Part IVA and Division 165 of the GST Act was that under subsection 177F(1), to give effect to a determination, the Commissioner must issue an assessment or amended assessment in the usual case. For tax periods commencing before 1 July 2012, no such requirement existed in Division 165 of the GST Act as a declaration was self-executing: section 165-50 of the GST Act provides that a declaration under section 165-40 of the GST Act has effect according to its terms for the purposes of Division 33 and Division 35 of the GST Act, despite the provisions of the GST Act outside those Divisions and Division 165. | 234. Accordingly, the comments concerning the issue of assessments and amended assessments to give effect to Part IVA determinations, in paragraphs 164 to 168, are inapplicable in relation to tax periods commencing before 1 July 2012. Nevertheless, it is the Tax Office's practice, in the absence of extraordinary circumstances, to issue assessments. This is consistent with the Tax Office's usual practice of issuing assessments at the conclusion of GST audits where a shortfall is found to exist, even though for GST purposes the liability for GST exists independently of and without the need for an assessment. | Post 30 June 2012 tax periods: 235. For tax periods commencing on or after 1 July 2012 an assessment is deemed to be made when an activity statement or relevant document is lodged or received. These changes also included changes to Division 165. Subsection 165-40(1) of the GST Act now provides that the Commissioner may negate a GST benefit by making a declaration stating the net amount payable for a particular tax period, or the GST payable on an importation to be a higher amount. New subsection 165-40(2) provides that the Commissioner must take such action as is considered necessary to give effect to the declaration. This means in the usual case, that when a declaration is made in relation to a tax period commencing on or after 1 July 2012, that an amended assessment will be issued to give effect to it. | Declaration may cover several tax periods and importations: 236. A single declaration can relate to net amounts for several tax periods and several taxable importations: section 165-60 of the GST Act. | Compensatory adjustments - section 165-45: (a) the Commissioner has made a declaration under section 165-40 of the GST Act; (b) the Commissioner considers that another entity (the loser) gets a GST disadvantage; and (c) the Commissioner considers it fair and reasonable that the loser's GST disadvantage be negated or reduced. | 238. The comments in relation to the comparable provision in Part IVA, subsection 177F(3), in paragraphs 174 to 176, are equally applicable. There are now no substantive differences between section 165-45 of the GST Act and subsection 177F(3). [17] | Time limits - sections 105-5 and 105-50 of Schedule 1 to the TAA: 239. In the absence of fraud or evasion, the effective time limit for the Commissioner to make a declaration under section 165-40 of the GST Act for tax periods commencing before 1 July 2012, was within 4 years after the time GST became payable by an entity. A declaration may be able to be made outside that period if the Commissioner has required payment of the relevant net amount of GST by giving a notice to the avoider within the period, but generally officers should make declarations within the 4 year period: section 105-50 in Schedule 1 to the TAA. However, any declaration made after 4 years because there has been fraud or evasion must be approved by a DCTC or the CTC. | Time limits - section 155-5 of Schedule 1 to the TAA: 240. Where a declaration is made under subsection 165-45(3) of the GST Act, for a tax period commencing on or after 1 July 2012, to give a compensating adjustment, no time limit applies to give effect to that declaration. | Penalties: 241. The same penalty regime applies to both Division 165 of the GST Act and Part IVA. Accordingly, paragraphs 179 to 184 are equally applicable. | 242. Under the A New Tax System (Luxury Car Tax) Act 1999 (LCT Act), Division 165 of the GST Act applies to amounts payable under the LCT Act as if they were amounts payable under the GST Act: section 13-5 and section 13-30 of the LCT Act. Accordingly, the comments in this practice statement concerning GST apply with necessary changes to LCT. | 243. Under the A New Tax System (Wine Equalisation Tax) Act 1999 (WET Act), Division 165 of the GST Act applies to amounts payable under the WET Act as if they were amounts payable under the GST Act: section 21-5 and section 23-10 of the WET Act. Accordingly, the comments in this practice statement concerning GST apply with necessary changes to WET. | 244. Applications of paragraph 5(1)(g) of the Boosting Cash Flow for Employers (Coronavirus Economic Response Package) Act 2020 and determinations under section 19 of the Coronavirus Economic Response Package (Payments and Benefits) Act 2020 must not be made without the approval of the Chair of the Panel. These provisions are GAARs; however the processes in this practice statement will operate subject to the discretion of the Chair of the Panel for the time being in respect of them. | 245. TCN should be engaged in relation to GAARs in accordance with Law Administration Practice Statement PS LA 2012/1 Engagement of Tax Counsel Network on high risk technical issues . | MORE INFORMATION: • Considering Part IVA in Private Rulings (internal link only) • Considering the General Anti-Avoidance Rules (GAAR) and referral to the GAAR Panel (internal link only) • How to engage Tax Counsel Network (TCN) - technical engagement process (internal link only) • Law Companion Ruling LCR 2015/2 Section 177DA of the Income Tax Assessment Act 1936: schemes that limit a taxable presence in Australia | Attachment 1: Proper Execution of Part IVA Determinations: 1. The validity of a decision hinges on whether it is made by a person empowered to make it, and the way that the decision is signed is presumptive evidence of the capacity in which the decision was made. It is therefore essential that Part IVA determinations are properly executed. | 2. The Commissioner's power under section 177F can be exercised by both delegates and authorised officers. There is an important distinction between delegates and authorised officers, including in the way that they sign decisions. | Delegates: 3. A delegate exercises a power in his or her own right and signs in his or her own name. Generally a delegate cannot be directed as to how to exercise the power. For a person to be a delegate, a current instrument of delegation made under section 8 of the Taxation Administration Act 1953 must exist that delegates the relevant power to the person. | 4. It is the practice of the Commissioner to make delegations to all Senior Executive Service officers, and these delegations include his powers to make determinations under Part IVA. | I, John Brown, in the exercise of the powers and functions delegated to me by the Commissioner of Taxation .... Signed John Brown (signature) John Brown Deputy Chief Tax Counsel | Authorised officers: 6. An authorised officer exercises a power belonging to a delegated officer on behalf of the delegated officer. The delegate can tell the authorised officer how to exercise the powers which the officer is authorised to exercise. Officers exercising the delegate's power on behalf of the delegate must have an authorisation to do so. | 7. Authorised officers must sign in the name of the delegate; this means that the authorised officer writes the name of the delegate in his or her own handwriting, or applies the delegate's stamp. He or she may then, subject to business line additional requirements, add his or her own name. If the authorised officer adds his or her own name, he or she should use 'for', or 'per' or 'p.p' (meaning pro procurationem - by proxy). | I, Mary Brown, in the exercise of the powers and functions delegated to me by the Commissioner of Taxation ... Signed Mary Brown (handwritten or stamped) _______________ p.p John Citizen Mary Brown Deputy Commissioner of Taxation, Large Business and International | 9. Officers should be aware of any additional business line requirements for the proper execution of documents. | 10. Officers should also be aware of the ATO Outbound Interactions editing guide (internal link only) which contains general advice and directions to authorised officers in relation to signing and executing documents in exercise of statutory powers. | A document bearing the name (however produced) of a person who is, or was at any time, the Commissioner, a Second Commissioner, a Deputy Commissioner or a delegate of the Commissioner in the place of the person's signature is taken to have been duly signed by the person, unless it is proved that the document was issued without authority. | 12. The effect of this regulation is that the initial burden of proof is placed on the person challenging the validity of a document bearing the written, printed or stamped name of a delegate of the Commissioner to adduce evidence that the document was issued without authority. | 13. The making of Part IVA determinations by authorised officers was considered in Commissioner of Taxation v Mochkin [2002] FCA 675; 2002 ATC 4465; 50 ATR 134 at [73] to [79] per Ryan J at first instance; and [2003] FCAFC 15; 127 FCR 185; 2003 ATC 4272; 52 ATR 198 at [120] to [123] per Sackville J (with whom Merkel J and Kenny J agreed), and Federal Commissioner of Taxation v. Sleight (2004) FCAFC 94; 136 FCR 211; 206 ALR 511; 2004 ATC 4477; 55 ATR 555 at [102] per Hill J (with whom Carr J and Hely J agreed). | Update to paragraphs 10 and 11. | Insert new paragraphs to provide detail on the GAARs contained in the Coronavirus Economic Response Package. | Re-write following legislative amendment | Update reference to section 22 of the TAA to section 105 5 of Schedule 1 to the TAA Update reference to section 35 of the TAA to section 105 50 of Schedule 1 to the TAA | [1] Taxation Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Act 2013 , Sch 1. | [2] Explanatory Memorandum to the Taxation Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Bill 2013, at paragraph 1.71. | [3] NTLG consultative workshop on Part IVA amendments minutes | [4] See for example: Mark Brabazon, 'The Hatter's watch: Tax benefit in Part IVA' (2014) 43 AT Rev 150; Brendan Sullivan, 'The new Pt IVA - interpretation and litigation issues' (2014)18 The Tax Specialist 1; Tim Kyle, 'Practical application of the New Part IVA' (Paper presented at the Corporate Tax Masterclass, Sydney, 11 September 2014); Greg Travers, The Tax Adviser's Guide to Part IVA : A Practical Guide to the Application of the General Anti - avoidance Rule (2014); Stuart Dall, Part IVA amendments : Be just , and fear not (2013) KPMG Australia http://www.kpmg.com/au/en/issuesandinsights/articlespublications/tax-insights/pages/part-iva-amendments-be-just-and-fear-not-14-august-2013.aspx at 19 June 2015. | [5] The pre-amendment case law remains authoritative for schemes entered into before 16 November 2012. | [6] See for example Explanatory Memorandum to the Taxation Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Bill 2013, paragraphs 1.5-1.5, 1.31-1.32, 1.61-1.63, 1.69,and 1.72. | [7] Explanatory Memorandum to the Taxation Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Bill 2013, paragraph 1.97. | [8] Explanatory Memorandum to the Taxation Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Bill 2013, paragraph 1.51. | [9] Federal Commissioner of Taxation v. Trail Bros Steel & Plastics Pty Ltd (2010) 186 FCR 410 | [10] Federal Commissioner of Taxation v. AXA Asia Pacific Holdings Ltd (2010) 189 FCR 204 | [11] CPH Property Pty Ltd v. Federal Commissioner of Taxation (1998) 88 FCR 21; 98 ATC 4983; (1998) 40 ATR 151 | [12] Essenbourne Pty Ltd v. Federal Commissioner of Taxation 2002 ATC 5201; (2002) 51 ATR 629 | [13] For post amendment schemes, refer to paragraphs 91 to 95. | [14] This list includes examples only and is not intended to be exhaustive. | [15] See also Explanatory Memorandum to the Taxation Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Bill 2013, paragraphs 1.24-1.26. | [16] These cases were decided under Part IVA as it was in force before the amendments of 2013, and might have been decided differently under the amended Part IVA. However, the general point made here remains valid. | [17] For tax periods commencing before 1 July 2012, declarations under Division 165 were self executing. | [18] [2004] HCA 26; 2004 ATC 4599; 55 ATR 712. | [19] 96 ATC 5201; 34 ATR 183; (1996) 186 CLR 404. | [20] Apart from the obvious case of tax concessions intended to encourage certain behaviour, many transactions have the effect of reducing tax, for example expenditure incurred in carrying on a business is generally deductible. See also Dawson J in Gulland's case 85 ATC 4765 at p 4793; (1985-1986) 160 CLR 55 at p 105; 17 ATR 1 at p 33. | [21] Specifically, altering the incidence of any income tax; relieving any person from any liability to pay income tax or make any return; defeating, evading, or avoiding any duty or liability imposed on any person by the Act; or preventing the operation of the Act in any respect. | [22] (1921) 29 CLR 464 at 466. | [23] FC of T v Newton (1958) 98 CLR 1 at p 8. | [24] As Lockhart J. said in Pettigrew v FC of T 90 ATC 4124 at p 4126; 20 ATR 1833 at p 1836: 'If in all the circumstances the use of the specific or particular provision of the Act warrants the description of an 'abuse' of it ... sec. 260 will apply.' | [25] Gummow and Hayne JJ FC of T v Hart 2004 ATC 4599 at 4614; 55 ATR at 730. | [26] 2004 ATC 4477, at p 4510; 55 ATR 555 - particularly where the scheme has non-recourse features which may limit the funds available for any real investment. | [27] 94 ATC 4663; (1994) 181 CLR 359; 28 ATR 344. | [28] 2001 ATC 4343; (2001) 207 CLR 235; 47 ATR 229. | [29] 2004 ATC 4599 at p.4625; 55 ATR 712 at p 741-742. | [30] Refer to the well-known passage in Spotless , 96 ATC 5201 at p.5206; (1996) 186 CLR 404 at 416; 34 ATR 183 at p 188. | [31] Per Callinan, J., 2004 ATC 4599 at p. 4625; 55 ATR 712 at p 741. | [32] 2004 ATC 4626; 55 ATR 712. | [33] Per Gummow and Hayne JJ, 2004 ATC. 4599 at p. 4612; 55 ATR 712 at p 727. | [34] See Collis v FC of T 96 ATC 4831; 33 ATR 438. | [35] (1921) 29 CLR 464, esp. at p.473f. | Hollyock was a pharmacist who wished, or so it seemed, to share his income with his wife. Pharmacists earn most of their income by selling trading stock, and ordinarily he might have achieved his purpose by forming a partnership or company; but he was prevented from doing so in a straightforward way by regulation. So he entered into a complicated scheme that in itself spoke of tax avoidance. The income shown as drawn by his wife was not actually enjoyed by her. The substance of the scheme in such a case would show that the family connection could not explain the taxpayer's purpose as to benefit his wife; while its manner would point to obtaining a tax benefit. | [37] 2004 ATC at p.4614, paragraph 66; 55 ATR 712 at p 730, paragraph 66. | [38] 2004 ATC 4599 at p.4612; 55 ATR 712 at p 728. | [39] 2004 ATC 4599 at p.4614; 55 ATR at p 731. | [40] 2004 ATC 4599 at p.4625; 55 ATR 712 at p 742. | [41] (2001), 207 CLR 235 at pp.254, 264, paragraphs 52 and 96; 2001 ATC 4343 at pp.4354, 4360; 47 ATR 229 at pp 240, 247, paragraphs 52 and 96. | [42] 2004 ATC at p.4604; 55 ATR 712 at p 718. | [43] (1996) 186 CLR at pp. 416, 423; 96 ATC at pp. 5206, 5210; 34 ATR 183 at p 193. | [44] 2004 ATC 4599 at p. 4605; 55 ATR 712 at p 719. | British American Tobacco Australia Services Ltd v. Federal Commissioner of Taxation (2010) 189 FCR 151 [2010] FCAFC 130 2010 ATC 20-222 | CC (NSW) Pty Ltd (In Liq.) v. Federal Commissioner of Taxation (1997) 97 ATC 4123 34 ATR 604 | Commissioner of Taxation v. Mochkin [2003] FCAFC 15 127 FCR 185 2003 ATC 4272 52 ATR 198 | Corporate Initiatives Pty Ltd v. Commissioner of Taxation [2005] FCAFC 62 142 FCR 279 219 ALR 339 2005 ATC 4392 59 ATR 351 | CPH Property Pty Ltd v. Federal Commissioner of Taxation (1998) 88 FCR 21 98 ATC 4983 (1998) 40 ATR 151 | Cumins v. Federal Commissioner of Taxation [2007] FCAFC 21 2007 ATC 4303 (2007) 66 ATR 57 | Dan v. Federal Commissioner of Taxation (No. 2) [2000] FCA 752 2000 ATC 4350 44 ATR 338 | Darrell Lea Chocolate Shops Pty Ltd v. Federal Commissioner of Taxation (1996) 72 FCR 175 141 ALR 713 97 ATC 4040 34 ATR 491 | Deputy Commissioner of Taxation v. Richard Walter Pty Ltd (1995) 183 CLR 168 127 ALR 21 95 ATC 4067 29 ATR 644 | Epov v. Federal Commissioner of Taxation 2007 ATC 4092 (2007) 65 ATR 399 | Essenbourne Pty Ltd v. Federal Commissioner of Taxation 2002 ATC 5201 (2002) 51 ATR 629 | Federal Commissioner of Taxation v. Ashwick (Qld) No. 127 Pty Ltd & ors [2011] FCAFC 49 2011 ATC 20-255 | Federal Commissioner of Taxation v. AXA Asia Pacific Holdings Ltd [2010] FCAFC 134 2010 ATC 20-224 | Federal Commissioner of Taxation v. Consolidated Press Holdings (No. 1) (1999) 91 FCR 524 99 ATC 4945 42 ATR 575 | Federal Commissioner of Taxation v. Consolidated Press Holdings Ltd [2001] HCA 32 207 CLR 235 179 ALR 625 2001 ATC 4343 47 ATR 229 | Federal Commissioner of Taxation v. Futuris Corporation Ltd (2012) 205 FCR 274 [2012] FCAFC 32 2012 ATC 20-306 | Federal Commissioner of Taxation v. Hart [2004] HCA 26 217 CLR 216 206 ALR 207 2004 ATC 4599 55 ATR 712 | Federal Commissioner of Taxation v. Jackson (1990) 27 FCR 1 96 ALR 586 90 ATC 4990 21 ATR 1012 | Federal Commissioner of Taxation v. Lenzo (2008) 167 FCR 255 [2008] FCAFC 50 | Federal Commissioner of Taxation v. Peabody (1994) 181 CLR 359 123 ALR 451 94 ATC 4663 28 ATR 344 | Federal Commissioner of Taxation v. RCI Pty Ltd [2011] FCAFC 105 (2011) 2011 ATC 20-275 (2011) 84 ATR 785 | Federal Commissioner of Taxation v. Sleight [2004] FCAFC 94 136 FCR 211 206 ALR 511 2004 ATC 4477 55 ATR 555 | Federal Commissioner of Taxation v. Spotless Services Ltd (1996) 186 CLR 404 141 ALR 92 96 ATC 5201 34 ATR 183 | Federal Commissioner of Taxation v. Star City Pty Ltd (No.2) [2009] FCAFC 122 2009 ATC 20-129 (2009) 74 ATR 447 | Federal Commissioner of Taxation v. Stokes (1996) 72 FCR 160 141 ALR 653 97 ATC 4001 34 ATR 478 | Federal Commissioner of Taxation v. Trail Bros Steel & Plastics Pty Ltd (2010) 186 FCR 410 2009 ATC 20-141 (2009) 75 ATR 916 | Federal Commissioner of Taxation v. Unit Trend Services Pty Ltd [2013] HCA 16 | Futuris Corporation Limited v. Federal Commissioner of Taxation [2010] FCA 935 (2010) 2010 ATC 20-206 | Kordan Pty Limited v. Federal Commissioner of Taxation [2000] FCA 1807 2000 ATC 4812 46 ATR 191 | Lawrence v. Federal Commissioner of Taxation [2008] FCA 1497 2008 ATC 20-052 (2008) 70 ATR 376 | McCutcheon v. Federal Commissioner of Taxation (2008) 168 FCR 149 at 163-164 | Noza Holdings Pty Ltd v. Federal Commissioner of Taxation [2011] FCA 46 2011 ATC 20-241 | Orica Limited v Commissioner of Taxation [2015] FCA 1399 2015 ATC 20-547 | Pridecraft Pty Ltd v. Commissioner of Taxation [2004] FCAFC 339 213 ALR 450 2005 ATC 4001 58 ATR 210 | Puzey v. Commissioner of Taxation [2003] FCAFC 197 131 FCR 244 201 ALR 302 2003 ATC 4782 53 ATR 614 | Richardson v. Federal Commissioner of Taxation (1932) 48 CLR 192 2 ATD 19 | Spassked Pty Limited v. Commissioner of Taxation [2003] FCAFC 282 136 FCR 441 203 ALR 515 2003 ATC 5099 54 ATR 546 | Vincent v. Commissioner of Taxation [2002] FCAFC 291 2002 ATC 4742 51 ATR 18 | Walters v. Federal Commissioner of Taxation [2007] FCA 1270 (2007) 162 FCR 421 2007 ATC 4973 67 ATR 156"
PS LA 2004/6,Giving advice on proposed changes to the tax law before royal assent or registration on the Federal Register of Legislation,1 May 2004,7 May 2004,Law Administration Practice Statement,False,"1. What is this Practice Statement about?: Proposed changes to the tax law may generate requests for information or advice from taxpayers. This Practice Statement sets out what advice or guidance you can provide to taxpayers where: • proposed changes to the tax law have been publicly announced • announced changes will or may apply before the proposed law or regulation has received royal assent or is registered on the Federal Register of Legislation (FRL) • there are proposed changes to the tax law that have not been publicly announced. • proposed changes to the tax law have been publicly announced • announced changes will or may apply before the proposed law or regulation has received royal assent or is registered on the Federal Register of Legislation (FRL) • there are proposed changes to the tax law that have not been publicly announced. | 2. General principles for dealing with enquiries on proposed law changes: Proposed laws and regulations may change before royal assent or registration on the FRL. After the Australian Government announces its intention to change the law, the outcome anticipated may change as a result of community consultation. Additionally, draft legislation can be amended by Australian Parliament. Our approach is to avoid giving advice or guidance that may mislead a taxpayer. The general principles to follow are: • Do not give indicative interpretative advice on legislation before its royal assent or on regulations before their registration on the FRL (see section 4 of this Practice Statement). • Give advice on existing law as it stands, even if it will be affected by the announced measures. You should qualify your advice to note that there is the prospect of a law change which, if enacted, may affect the advice. Refer only to the source document that announced the proposed law change and adhere to its wording (see section 4 of this Practice Statement). • Never mention or discuss proposed changes to the law that have not been publicly announced. • Assist taxpayers with their enquiries by quoting or providing publicly released materials and information, such as - media releases - draft legislation - draft explanatory memoranda. • Use scripts or other approved materials prepared for the measure. • If you are uncertain about what the approved materials are, you can contact Policy, Analysis and Legislation (PAL) (see section 7 of this Practice Statement). • Do not give indicative interpretative advice on legislation before its royal assent or on regulations before their registration on the FRL (see section 4 of this Practice Statement). • Give advice on existing law as it stands, even if it will be affected by the announced measures. You should qualify your advice to note that there is the prospect of a law change which, if enacted, may affect the advice. Refer only to the source document that announced the proposed law change and adhere to its wording (see section 4 of this Practice Statement). • Never mention or discuss proposed changes to the law that have not been publicly announced. • Assist taxpayers with their enquiries by quoting or providing publicly released materials and information, such as - media releases - draft legislation - draft explanatory memoranda. • Use scripts or other approved materials prepared for the measure. • If you are uncertain about what the approved materials are, you can contact Policy, Analysis and Legislation (PAL) (see section 7 of this Practice Statement). - media releases - draft legislation - draft explanatory memoranda. The following paragraphs set out more detailed instructions for specific circumstances. Also see the table in Attachment A to this Practice Statement for a summary of how to respond to enquiries at each stage of law design. | 3. The taxpayer raises issues or concerns with an announced proposal for law change: A taxpayer may raise significant concerns or issues on such matters as: • the policy intention of the proposed law • interpretative issues • unintended consequences • risks to the revenue • the timing of implementation • effect on compliance costs • areas of uncertainty in the law. Try to get a clear understanding of the taxpayer's concerns and pass the information on to the project manager responsible in the first instance. PAL may also provide assistance (see section 7 of this Practice Statement). If the issues raised by the taxpayer have significant policy or administrative implications, the matter may need to be referred to Treasury. In these cases, discuss this with the enquirer and arrange to follow up their concern. If the taxpayer's purpose was to raise policy issues, our undertaking to refer the issues to Treasury may satisfy them. Treasury also invites members of the public to make comments on draft legislation as part of the public consultation process. • the policy intention of the proposed law • interpretative issues • unintended consequences • risks to the revenue • the timing of implementation • effect on compliance costs • areas of uncertainty in the law. Try to get a clear understanding of the taxpayer's concerns and pass the information on to the project manager responsible in the first instance. PAL may also provide assistance (see section 7 of this Practice Statement). If the issues raised by the taxpayer have significant policy or administrative implications, the matter may need to be referred to Treasury. In these cases, discuss this with the enquirer and arrange to follow up their concern. If the taxpayer's purpose was to raise policy issues, our undertaking to refer the issues to Treasury may satisfy them. Treasury also invites members of the public to make comments on draft legislation as part of the public consultation process. | 4. Delaying advice for new measures: It may be sensible to delay issuing advice if royal assent or registration on the FRL is imminent and certain (for example, when a Bill has passed and is waiting to receive royal assent). This will allow the advice to reflect the proposed changes to the law, and therefore manage the matter on hand accordingly. Discuss the case with your manager and the project team responsible for the measure. Discuss the proposal to delay advice with the taxpayer and explain that this will allow the advice to cover the changes in the law. Discuss the case with your manager and the project team responsible for the measure. Discuss the proposal to delay advice with the taxpayer and explain that this will allow the advice to cover the changes in the law. | 5. When the proposed law will apply before the date of royal assent or registration on the Federal Register of Legislation: Administrative problems may arise when a proposed law or regulation change has an application date before its royal assent or registration on the FRL. This is commonly known as a retrospective law change. Where practicable, the way we intend to administer retrospective legislation will be communicated to affected taxpayers. More broadly, it may be published on our website. In these circumstances, the Policy Implementation Committee (PIC) in PAL will endorse the proposed administrative strategy prior to it being communicated to taxpayers. If you require further assistance, you can contact PAL (see section 7 of this Practice Statement). Where practicable, the way we intend to administer retrospective legislation will be communicated to affected taxpayers. More broadly, it may be published on our website. In these circumstances, the Policy Implementation Committee (PIC) in PAL will endorse the proposed administrative strategy prior to it being communicated to taxpayers. If you require further assistance, you can contact PAL (see section 7 of this Practice Statement). | 6. Law design processes: We are involved with Treasury at all stages of the process of developing law, as set out in the ATO – Treasury Protocol (see section 7 of this Practice Statement). The protocol sets out the process between the 2 agencies for tax design. When new measures are proposed, the PIC considers: • the most appropriate course of action for both the ATO and taxpayers affected by the process • any administrative problems likely to arise when application dates and royal assent or registration on the FRL do not coincide • the form of any general advice that can be provided to taxpayers about the changes to the law. PAL helps business lines and the responsible project team to prepare appropriate information for taxpayers about the changes. These are submitted to the PIC for consideration and approval. If you receive enquiries about new measures and do not know what the communication strategy is, or whether one is needed, you can contact PAL (see section 7 of this Practice Statement). The protocol sets out the process between the 2 agencies for tax design. When new measures are proposed, the PIC considers: • the most appropriate course of action for both the ATO and taxpayers affected by the process • any administrative problems likely to arise when application dates and royal assent or registration on the FRL do not coincide • the form of any general advice that can be provided to taxpayers about the changes to the law. • the most appropriate course of action for both the ATO and taxpayers affected by the process • any administrative problems likely to arise when application dates and royal assent or registration on the FRL do not coincide • the form of any general advice that can be provided to taxpayers about the changes to the law. PAL helps business lines and the responsible project team to prepare appropriate information for taxpayers about the changes. These are submitted to the PIC for consideration and approval. If you receive enquiries about new measures and do not know what the communication strategy is, or whether one is needed, you can contact PAL (see section 7 of this Practice Statement). | 7. More information: For more information: • see ATO – Treasury Protocol • contact PAL at LegislativeGovernance@ato.gov.au • see Business line PAG unit contact details (internal link only) • see ATO – Treasury Protocol • contact PAL at LegislativeGovernance@ato.gov.au • see Business line PAG unit contact details (internal link only) Attachment A Appropriate responses at each stage of the law design process Table 1: Appropriate responses where changes to the tax law have been announced Stage of law design process How to respond Media release or other form of announcement, but no legislative details • Respond to taxpayer with any approved scripting and, if necessary, help them access the publicly available material on the proposed changes to tax laws. • If the announced changes affect existing tax law, base advice on existing law, with the qualification that a law change has been announced and, if enacted, may affect the advice. • Where appropriate (including oral or email requests), engage the taxpayer and gather information on the issues they raise. • Share useful and relevant issues and information with Treasury or the relevant project manager. • If appropriate, explain the roles of Treasury and the ATO in the tax policy and legislation design process to the taxpayer. Law publicly exposed, for example, Exposure Draft, Bill introduced into parliament • If appropriate, explain the roles of Treasury and the ATO in the tax policy and legislation design process to the taxpayer. • Do not provide indicative interpretative advice on the new measures. If proposed law will apply before royal assent of Bill (or registration on the FRL) • Consult PAL. • Prepare draft advice for endorsement by the PIC. If the Bill is awaiting royal assent (or regulation awaiting registration on the FRL) • Tell the taxpayer that the Bill is awaiting royal assent or the regulation is awaiting registration on the FRL. • Explain that information about existing law will be obsolete as soon as this process is complete. • Recommend delaying advice pending the enactment of the new laws. • With consent, delay issuing advice until after royal assent or registration on the FRL. • If the announced changes affect existing tax law, base advice on existing law, with the qualification that a law change has been announced and, if enacted, may affect the advice. • Where appropriate (including oral or email requests), engage the taxpayer and gather information on the issues they raise. • Share useful and relevant issues and information with Treasury or the relevant project manager. • If appropriate, explain the roles of Treasury and the ATO in the tax policy and legislation design process to the taxpayer. • Do not provide indicative interpretative advice on the new measures. • Prepare draft advice for endorsement by the PIC. • Explain that information about existing law will be obsolete as soon as this process is complete. • Recommend delaying advice pending the enactment of the new laws. • With consent, delay issuing advice until after royal assent or registration on the FRL. Where proposed changes to the tax law have not been announced: • Do not refer to unannounced changes. • All advice must reflect the existing law. • Do not refer to unannounced changes. • All advice must reflect the existing law.",,,,,ATO-Treasury Protocol (link only available internally) Connect with your Relationship Manager (link only available internally) Public Advice and Guidance – BSL PAG Unit contacts (link only available internally),False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20046/NAT/ATO/00001,Changes made throughout to align with current format and style preferences | Updated to new PS LA format and style | Updated to reflect the changed responsibilities as a result of the implementation of the TTTDM model | Related Practice Statements | Reference to PS LA 2008/3 updated | References to Policy Management Division updated to Governance and Government Relations | File 04/5549; 04/5557; 04/5559
PS LA 2004/9,Disclosing information about the affairs of a taxpayer to Ministers,30 July 2004,30 July 2004,Law Administration Practice Statement,False,"1. What is this Practice Statement about: Division 355 of Schedule 1 to the Taxation Administration Act 1953 (TAA) contains the provisions which provide for taxpayer confidentiality and sets out the rules that we, as taxation officers, need to abide by when dealing with protected information. This Practice Statement explains the exceptions to these rules when disclosing protected information to Ministers. Note: Disclosing taxpayer information to Ministers should be distinguished from disclosing taxpayer information to Treasury. For information on disclosure of protected information to Treasury, refer to Law Administration Practice Statement PS LA 2005/23 Disclosing information about the affairs of a taxpayer to Treasury. The exceptions are: • general exceptions (that is, they do not just apply to disclosures to Ministers), and • specific exceptions (relating only to disclosures to Ministers). • general exceptions (that is, they do not just apply to disclosures to Ministers), and • specific exceptions (relating only to disclosures to Ministers). All legislative references in this Practice Statement are to Schedule 1 to the TAA, unless otherwise indicated. Note: This Practice Statement does not apply to disclosure of protected information to Parliamentary Committees, even if members of that Committee happen to be Ministers. Protected information can be provided to Parliamentary Committees. [1] | 2. What is protected information: Protected information is defined in subsection 355-30(1) as information that: (a) was disclosed or obtained under or for the purposes of a law that was a taxation law (other than the Tax Agent Services Act 2009) when the information was disclosed or obtained (b) relates to the affairs of an entity, and (c) identifies, or is reasonably capable of being used to identify, the entity. (a) was disclosed or obtained under or for the purposes of a law that was a taxation law (other than the Tax Agent Services Act 2009) when the information was disclosed or obtained (b) relates to the affairs of an entity, and (c) identifies, or is reasonably capable of being used to identify, the entity. When information does not identify an entity and it is not possible to identify an entity from the information [2] , it is not protected information and Division 355 does not apply. Tax file numbers are not protected information and cannot be disclosed under any of the exceptions in this Practice Statement. Note: The protected information to which Division 355 applies does not equate to information that is classified under our internal security classification of 'protected'. [3] | 3. General exceptions which allow disclosure of protected information to a Minister: The following are general exceptions to the rules for disclosing protected information, and these apply equally to disclosing such information to a Minister. Where the protected information is already available to the public Provided the protected information was not made available through a breach of Division 355, it can be disclosed. [4] However, you need to take care that you do not supplement or qualify that information with information from ATO records. Information is available to the public if it is in open court records, books, newspapers or other sources that are generally available, even if a member of the public has to pay a fee to access it. Where the protected information relates to the Minister's own affairs Just as for any other taxpayer, protected information about a Minister's own affairs may be disclosed to that Minister. [5] Where the Minister is representing a taxpayer Protected information can be disclosed to 'covered entities' [6] which, among others, include a representative the taxpayer has nominated in the approved form to act on their behalf. A taxpayer may, if they wish, nominate a Minister to act on their behalf. | 4. Specific exceptions which allow disclosure of protected information to a Minister: Section 355-55 sets out the specific exceptions relating to disclosure to Ministers. To enable a Minister to exercise taxation law powers or functions Protected information can be disclosed to the Minister if it is for the purpose of enabling the Minister to exercise a power or perform a function under a taxation law. [7] A Minister for this purpose will usually be the Treasurer. However, there may be other Ministers either within or outside the Treasury portfolio with a function under a taxation law. The Explanatory Memorandum to the Tax Laws Amendment (Confidentiality of Taxpayer Information) Bill 2010 (the EM) includes examples of when this exception would apply: Example 5.13 Subdivision CB, Part III of Division 3 of the ITAA 1936 provides that the Treasurer may determine that a company is a regional headquarters company and is eligible to claim a tax deduction for certain expenditures incurred. It is not an offence for a taxation officer to provide information about a company to the Treasurer to enable him to determine whether or not that company is a regional headquarters company. Example 5.14 Under subsection 14(2) of the ITAA 1936, the Minister has the function of tabling a copy of the Commissioner's annual report outlining the operation of that Act. This report may include taxpayer information relating to any breaches of the Act over the course of the year (see subsection 14(1)). It is not an offence for the Commissioner to disclose taxpayer information in the annual report to the Minister as the Minister has the function under a taxation law of tabling that report in each House of the Parliament. To enable the Minister to reply to representations Protected information can be disclosed to the Minister if: • the information is about an entity, and • the disclosure is for the purpose of enabling the Minister to respond directly to the entity in relation to a representation made by the entity to the Minister or to another member of Parliament. [8] • the information is about an entity, and • the disclosure is for the purpose of enabling the Minister to respond directly to the entity in relation to a representation made by the entity to the Minister or to another member of Parliament. [8] 'The Minister' means any of the Ministers appointed to administer the Department of Treasury; that is, the Treasurer and any Assistant Minister or parliamentary secretary for the Treasury portfolio. Care must be taken to ensure that only information about the entity making the representation is disclosed to the Minister. Protected information about any other entity must not be disclosed to the Minster. The EM includes an example of when this exception would apply: Example 5.15 Fred writes to his local member (who is also the Minister for Defence) saying that the ATO has charged him a penalty for late payment, when his payment was only slightly overdue and for a very good reason. His local member forwards the letter to the Treasurer. It is not an offence for a taxation officer to provide information about Fred's tax affairs to the Treasurer to enable the Treasurer to respond to Fred's concerns. Note that Fred's taxpayer information cannot be provided to his local member. A letter may be provided to Fred's local member noting that the Treasurer has responded directly to Fred, provided that letter does not disclose any taxpayer information about Fred. To inform decisions made under the CDDA Scheme Protected information may be disclosed to a Treasury portfolio minister if it is for the purpose of informing decisions made under the Scheme for Compensation for Detriment caused by Defective Administration (CDDA Scheme). [9] To inform decisions about tax debt waivers and act of grace payments Protected information can be disclosed to the Finance Minister for the purpose of: • the making or possible making of a payment referred to in section 65 of the Public Governance, Performance and Accountability Act 2013 (about act of grace payments) in connection with administering a taxation law, or • the waiver or possible waiver of a tax debt, under section 63 of the Public Governance, Performance and Accountability Act 2013. [10] • the making or possible making of a payment referred to in section 65 of the Public Governance, Performance and Accountability Act 2013 (about act of grace payments) in connection with administering a taxation law, or • the waiver or possible waiver of a tax debt, under section 63 of the Public Governance, Performance and Accountability Act 2013. [10] However, protected information cannot be disclosed to assist the Finance Minister to make decisions about waivers of non-tax debts or act of grace payments that are unrelated to the administration of a taxation law. To inform decisions about ex-gratia decisions Protected information may be disclosed to any Minister for the purpose of determining whether to make an ex-gratia payment or administering (for example, delivering) such a payment [11] , regardless of whether the ex-gratia payment is related or unrelated to taxation laws. The EM includes an example of when this exception would apply: Example 5.17 The Prime Minister and Cabinet determine that an ex-gratia payment should be granted to certain family members of former Australian servicemen. The Department of Defence does not have up to date contact information for these individuals and is unable to get in touch with them. The ATO, which does have current contact details for the relevant individuals, is able to provide this information to the Defence Minister to allow these payments to be made. To provide Ministers with information in relation to foreign investment in agricultural land Protected information contained in the Register of Foreign Ownership of Agricultural Land may be provided to specified Ministers [12] for the purpose of enabling them to discharge specified responsibilities. [13] | 5. Approvals required for specific exceptions: Paragraph 355-55(1)(c) provides that a disclosure of protected information under the specific exceptions relating to Ministers must be approved by either: • the Commissioner • a Second Commissioner, or • a Senior Executive Service (SES) employee or acting SES employee of the ATO who is not a direct supervisor of the disclosing officer. • the Commissioner • a Second Commissioner, or • a Senior Executive Service (SES) employee or acting SES employee of the ATO who is not a direct supervisor of the disclosing officer. A direct supervisor is the officer with immediate managerial responsibilities for the disclosing officer (their manager in the ATO's payroll system). If you are proposing to disclose information to a Minister, you should consult Parliamentary Services (in the ATO Corporate business line) and refer also to Chief Executive Instruction Providing services to Treasury Portfolio Ministers and Parliament (link available internally only). Further, if the information to be disclosed has been obtained via an exchange of information (EOI) process with another country's tax administration, you should engage the EOI Unit in the Public Groups business line prior to any disclosure being made. | 6. When protected information cannot be disclosed to a Minister: The general exception to disclosing protected information, which is in the course of performing duties as a taxation officer, cannot be used to allow disclosure to a Minister. Additionally, parliamentary privilege [14] cannot be relied upon to support disclosure. Protected information (apart from publicly available information to which section 355-45 applies) cannot be disclosed to Ministers on the basis that parliamentary privilege would apply to the disclosure, in documents such as responses to questions on notice and question time briefs. | 7. More information: For more information, see: • Chief Executive Instruction Providing services to Treasury Portfolio Ministers and Parliament (link available internally only) • Chief Executive Instruction Security (link available internally only). • Chief Executive Instruction Providing services to Treasury Portfolio Ministers and Parliament (link available internally only) • Chief Executive Instruction Security (link available internally only).",PS LA 2005/23 | Explanatory Memorandum | TAA 1953 Sch 1 Div 355 | TAA 1953 Sch 1 355-25(1)(a)(ii) | TAA 1953 Sch 1 355-25(2) | TAA 1953 Sch 1 355-30(1) | TAA 1953 Sch 1 355-45 | TAA 1953 Sch 1 355-55(1) | TAA 1953 Sch 1 355-55(1)(c) | TAA 1953 Sch 1 355-60(2) | ITAA 1936 14(1) | ITAA 1936 14(2) | PGPA Act 2013 63 | PGPA Act 2013 65 | Tax Agent Services Act 2009,PS LA 2005/23,TAA 1953 Sch 1 Div 355 | TAA 1953 Sch 1 355-25(1)(a)(ii) | TAA 1953 Sch 1 355-25(2) | TAA 1953 Sch 1 355-30(1) | TAA 1953 Sch 1 355-45 | TAA 1953 Sch 1 355-55(1) | TAA 1953 Sch 1 355-55(1)(c) | TAA 1953 Sch 1 355-60(2) | ITAA 1936 Pt III Div 3 Subdiv CB | ITAA 1936 14(1) | ITAA 1936 14(2) | PGPA Act 2013 63 | PGPA Act 2013 65 | Parliamentary Privileges Act 1987 16 | Tax Agent Services Act 2009,,Explanatory Memorandum to the Tax Laws Amendment (Confidentiality of Taxpayer Information) Bill 2010 Providing Services to Treasury Portfolio Ministers and Parliament CEI (internal link only) Security CEI (internal link only) Scheme for Compensation for Detriment caused by Defective Administration,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20049/NAT/ATO/00001,"Updated to ensure compliance with current ATO style and accessibility guidelines. | Section 1 and Related practice statements | Included reference to PS LA 2005/23. | Updated to new LAPS format and style. | Inserted general exception in relation to foreign investment in agricultural land. | 'Section 33 of the Financial Management and Accountability Act 1997' changed to 'section 63 of the Public Governance, Performance and Accountability Act 2013' to reflect changes to legislation. | Removed FMA Act and replaced with PGPA Act | Updated to reflect changes to the Privacy Act 1988 | Unnecessary punctuation removed; 'Protected' capitalised; 'S' capitalised in 'sensitive'; ATO Guidelines to Information Security changed to Information classification and handling CMPI 2006/07/10; 'legislative' changed to 'subsequent'. | 'It is' changed to 'This'. | PS CM 2003/13 Provision of Services to Treasurer and Minister for Revenue and Assistant Treasurer changed to PS CM 2003/13 Provision of Services to Treasury Portfolio Ministers and Parliament. | Subsection 355-55(2) changed to subsection 355-25(2). | Related practice statements | Updated as a result of Division 355 of Schedule 1 of the Taxation Administration Act 1953 | Move reference to the Superannuation (Government Co-Contribution For Low Income Earners) Act 2003 from Table 3 in Attachment A into Table 1 of Attachment A | Update reference to section 68 of the TAA to section 355-5 of Schedule 1 to the TAA | As a result of advice received from the Solicitor-General on 5 May 2005 | [1] Because of the combined effect of section 16 of the Parliamentary Privileges Act 1987 and subsection 355-60(2). | [2] Simply removing a taxpayer's name from information does not always mean that the identity of the taxpayer cannot still be identified. You need to consider whether the information as a whole still allows the taxpayer's identity to be ascertained, even by a process of deduction. | [3] See Chief Executive Instruction Security (link available internally only) and related guidelines. | [5] Subparagraph 355-25(1)(a)(ii). | [6] Subsection 355-25(2). | [7] Table item 1 of subsection 355-55(1). | [8] Table item 2 of subsection 355-55(1). | [9] Table item 3 of subsection 355-55(1). | [10] Table item 4 of subsection 355-55(1). | [11] Table item 5 of subsection 355-55(1). | [12] Relevant Ministers and responsibilities are listed in table item 6 of subsection 355-55(1). | [13] Table item 6 of subsection 355-55(1). | [14] Parliamentary privilege is the special legal rights and immunities applying to the Houses of parliament and their members to enable them to carry out their functions effectively without external interference."
PS LA 2004/10,Tax laws claimed to be invalid,6 September 2004,6 September 2004,Law Administration Practice Statement,False,"1. What this Practice Statement is about: Australia's taxation and superannuation systems are a community asset and we all have a role to play in maintaining them. By complying with your tax obligations, you join millions of Australians who do their part to support the Australian community. We occasionally receive correspondence from taxpayers arguing they are exempt from fulfilling their taxation obligations because: • the entire taxation system is invalid, or • the tax system does not apply to them for a particular reason. • the entire taxation system is invalid, or • the tax system does not apply to them for a particular reason. The correspondence may take a variety of forms, including requests for proof that laws are valid, requests for information, personal enquiries and objection letters. This type of correspondence will often include: • complex constitutional arguments based on the notion that Australia's entire legal and political systems are invalid, thus all laws are invalid • arguments that the particular individual's legal status is such that they are not subject to Australian laws, or • replicated letters and documents, often erroneously purporting to be legal notices, which may demand that ATO staff produce documents, recognise a particular fact, make payments or perform other tasks. • complex constitutional arguments based on the notion that Australia's entire legal and political systems are invalid, thus all laws are invalid • arguments that the particular individual's legal status is such that they are not subject to Australian laws, or • replicated letters and documents, often erroneously purporting to be legal notices, which may demand that ATO staff produce documents, recognise a particular fact, make payments or perform other tasks. These letters may threaten legal action against the ATO or specified officers. This Practice Statement provides guidance on how we will treat such correspondence. | 2. Taxation law and the ATO: The operation of the Australian taxation system is established by statute, as follows: • the Australian Constitution establishes the Commonwealth of Australia [1] and empowers its Parliament to enact laws in respect of taxation [2] • the ATO is a statutory agency of the Commonwealth of Australia, established to assist the Commissioner of Taxation, who is the head of that statutory agency [3] • the Commissioner administers the Taxation Administration Act 1953 (TAA) [4] and is legally entitled to institute, and appear in, legal proceedings in their official name [5] • the TAA and other taxation laws are valid [6] and apply to the entirety of the land mass of Australia, as well as its coastal seas and external territories [7] ; a person within these geographic boundaries cannot exempt themselves from taxation laws [8] • the Commissioner is required by law to make assessments of the taxable income and tax payable by taxpayers [9] , and • taxation liabilities must be paid in Australian currency. [10] • the Australian Constitution establishes the Commonwealth of Australia [1] and empowers its Parliament to enact laws in respect of taxation [2] • the ATO is a statutory agency of the Commonwealth of Australia, established to assist the Commissioner of Taxation, who is the head of that statutory agency [3] • the Commissioner administers the Taxation Administration Act 1953 (TAA) [4] and is legally entitled to institute, and appear in, legal proceedings in their official name [5] • the TAA and other taxation laws are valid [6] and apply to the entirety of the land mass of Australia, as well as its coastal seas and external territories [7] ; a person within these geographic boundaries cannot exempt themselves from taxation laws [8] • the Commissioner is required by law to make assessments of the taxable income and tax payable by taxpayers [9] , and • taxation liabilities must be paid in Australian currency. [10] | 3. Our response to correspondence claiming tax laws are invalid or do not apply: We will not respond to correspondence where taxpayers claim tax laws are invalid or do not apply. Given that many claims of this type have been rejected by the Courts, we do not consider it an appropriate use of ATO resources to do so. Any correspondence of this type which is not part of an ongoing matter should be filed in accordance with the published Constitutional correspondence procedures (link available internally only). In accordance with the Attorney-General Department's Legal Services Directions 2017, the ATO may provide legal assistance to defend ATO staff who have acted reasonably and responsibly in carrying out their duties from a claim brought by a person and based on one of these unsupportable arguments. It is important for ATO staff to note the following: • It is not the function of ATO staff to enter into debate or give advice about Constitutional or other issues not related to the administration of the taxation system. • Submissions raising arguments of this type have already been dismissed as being unarguable by various courts, including the High Court of Australia. [11] • The correspondences, and any responses, do not alter any obligations the authors may have under the laws administered by the Commissioner, and refusal to comply with these obligations may result in prosecution and the imposition of penalties and interest. • It is not the function of ATO staff to enter into debate or give advice about Constitutional or other issues not related to the administration of the taxation system. • Submissions raising arguments of this type have already been dismissed as being unarguable by various courts, including the High Court of Australia. [11] • The correspondences, and any responses, do not alter any obligations the authors may have under the laws administered by the Commissioner, and refusal to comply with these obligations may result in prosecution and the imposition of penalties and interest. Taxpayers may wish to seek the advice of an appropriately registered taxation professional or a legal practitioner prior to taking legal action. The Courts have often found raising these types of arguments to be an abuse of process and have imposed punitive costs orders on litigants who raise them. | 4. More information: For more information, see: • ATO Charter • the Constitution • TAA • ATO Charter • the Constitution • TAA",TAA 1953 2(1) | TAA 1953 3A | TAA 1953 4A | TAA 1953 8 | TAA 1953 15 | TAA 1953 Sch 1 255-5 | ITAA 1936 166 | ITAA 1936 960-505 | Taxation Administration Regulations 2017 21 | Commonwealth of Australia Constitution Act 1901 covering clause 3 | Commonwealth of Australia Constitution Act 1901 covering clause 5 | Commonwealth of Australia Constitution Act 1901 covering clause 6 | Commonwealth of Australia Constitution Act 1901 51(ii) | 43 ATR 621 | 45 ATR 113 | 159 ALR 260 | 73 ALJR 232 | [2019] NSWCA 221 | 82 ATC 4671,,TAA 1953 2(1) | TAA 1953 3A | TAA 1953 4A | TAA 1953 8 | TAA 1953 15 | TAA 1953 Sch 1 255-5 | ITAA 1936 166 | ITAA 1936 960-505 | Taxation Administration Regulations 2017 21 | Commonwealth of Australia Constitution Act 1901 covering clause 3 | Commonwealth of Australia Constitution Act 1901 covering clause 5 | Commonwealth of Australia Constitution Act 1901 covering clause 6 | Commonwealth of Australia Constitution Act 1901 51(ii) | Public Service Act 1999 7,,ATO Charter Legal Services Directions 2017,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS200410/NAT/ATO/00001,"Updated to inform change in business processes (ATO staff will not be responding to correspondence where taxpayers claim tax laws are invalid or do not apply). | Updated in line with current ATO style and accessibility requirements. | New paragraph 2 added, along with form amendments to the remaining paragraphs and addition of further references. | Updated to current LAPS format and style. | Corrected 'changes' to 'correspondence'. | Deleted as it is no longer current | Minor grammatical corrections | Contact details & general style update | Updated contact officer & changed reference to Tax Office to ATO. | Updated to reflect current wording | Replace referral point with linked escalation procedures | Deleted as it is no longer required | Alternate contact updated | [1] Covering clause 3 of the Commonwealth of Australia Constitution Act 1901 (the Constitution). Covering clause 5 provides that the Constitution and all laws made by Parliament are binding on the people of every State and part of the Commonwealth of Australia. | [2] Subsection 51(ii) of the Constitution in Part V of the Constitution. | [3] Section 4A of the Taxation Administration Act 1953 (TAA) and section 7 of the Public Service Act 1999 . Note that the ATO does not have (or need) legal personality to sue under that name - this is given to the Commissioner and Deputy Commissioners instead; see also Moeliker v Chapman [2000] HCATrans 242 and Dooney v Henry [2000] HCA 44 at [7]. | [4] Section 3A of the TAA; the Commissioner may also delegate their duties to Deputy Commissioners and other ATO officers per section 8 of the TAA; O'Reilly v Commissioners of State Bank of Victoria [1983] HCA 47. | [5] Section 15 of the TAA and section 255-5 of Schedule 1 to the TAA. | [6] Joosse v Australian Securities and Investment Commissioner [1998] HCA 77 at [20]. | [7] Section 960-505 of the Income Tax Assessment Act 1997 , subsection 2(1) of the TAA and covering clause 6 of the Constitution. | [8] Lamont v Deputy Commissioner of Taxation [2019] NSWCA 221 ( Lamont ) at [9]. | [9] Section 166 of the Income Tax Assessment Act 1936 . | [10] Section 21 of the Taxation Administration Regulations 2017 and Lamont at [10]. | [11] For example, see Deputy Commissioner of Taxation v Levick [1999] FCA 1580, Moeliker v Chapman [2000] HCATrans 242, Dooney v Henry [2000] HCA 44 at [7] and Lamont at [10]. | File NO 99/6282-4; NO 98/11481-6 | Deputy Commissioner of Taxation v Levick [1999] FCA 1580 43 ATR 621 168 ALR 383 | Dooney v Henry [2000] HCA 44 45 ATR 113 174 ALR 41 74 ALJR 1289 | Joosse v Australian Securities and Investment Commissioner [1998] HCA 77 159 ALR 260 73 ALJR 232 | Lamont v Deputy Commissioner of Taxation [2019] NSWCA 221 | Moeliker v Chapman [2000] HCATrans 242 | O'Reilly v Commissioner of State Bank of Victoria [1983] HCA 47 153 CLR 1 82 ATC 4671 13 ATR 706 44 ALR 27 | This Practice Statement was originally published on 6 September 2004. Versions published from 8 January 2009 are available electronically - refer to the online version of the practice statement. Versions published prior to this date are not available electronically. If needed, these can be requested by emailing TCNLawPublishingandPolicy@ato.gov.au ."
PS LA 2004/11,Treating a document as a tax invoice or adjustment note,7 November 2004,1 July 2000,Law Administration Practice Statement,False,"1. What this Practice Statement is about: Tax invoices and adjustment notes are key integrity measures of the goods and services tax (GST) system. Subject to some exceptions, a recipient must hold these documents before they can claim an input tax credit (ITC) or attribute a decreasing adjustment from an adjustment event when completing their activity statement. [1] All legislative references in this Practice Statement are to the GST Act, unless otherwise indicated. Where a document does not meet the specific requirements for a valid tax invoice or adjustment note, ATO officers may be required to exercise the Commissioner's discretions in the GST Act [2] to treat the document as a valid tax invoice or an adjustment note. Such requests commonly come from a recipient or as part of a compliance activity. They may also arise as part of an objection, a review in the Administrative Appeals Tribunal (AAT) or following a decision of the Federal Court of Australia (the Court). This Practice Statement provides guidance on how you should exercise the Commissioner's discretions, including as part of an objection, review or appeal. Attachment A to this Practice Statement sets out the decision-making process as a flow chart. This Practice Statement should be read in conjunction with Goods and Services Tax Rulings GSTR 2013/1 Goods and services tax: tax invoices and GSTR 2013/2 Goods and services tax: adjustment notes , which set out the information requirements for tax invoices and adjustment notes. This Practice Statement does not apply to third-party adjustment notes. [3] | 2. When exercise of the Commissioner's discretion is not required: Exercise of the Commissioner's discretion is not required if the law allows an ITC to be claimed without a valid tax invoice or a decreasing adjustment to be attributed without an adjustment note. [4] Some examples include where: • the value of the taxable supply or the amount of the decreasing adjustment is $75 or less [5] • the Commissioner has waived the requirement to hold a tax invoice or adjustment note [6] • the GST is reverse charged – for example, for certain supplies by non-residents outside the indirect tax zone [7] , or • a recipient can treat a document as a tax invoice [8] because the missing details can be ascertained from other documents from the supplier. (You should still consider exercising the Commissioner's discretion if asked to do so by the recipient.) • the value of the taxable supply or the amount of the decreasing adjustment is $75 or less [5] • the Commissioner has waived the requirement to hold a tax invoice or adjustment note [6] • the GST is reverse charged – for example, for certain supplies by non-residents outside the indirect tax zone [7] , or • a recipient can treat a document as a tax invoice [8] because the missing details can be ascertained from other documents from the supplier. (You should still consider exercising the Commissioner's discretion if asked to do so by the recipient.) | 3. Threshold considerations to exercising the Commissioner's discretion: You would only consider exercising the Commissioner's discretion where: • there is a creditable acquisition [9] or decreasing adjustment [10] • a tax invoice or adjustment note is required to claim the ITCs or attribute the decreasing adjustment • the time limits to claim the ITC or attribute the decreasing adjustment have not expired. [11] • there is a creditable acquisition [9] or decreasing adjustment [10] • a tax invoice or adjustment note is required to claim the ITCs or attribute the decreasing adjustment • the time limits to claim the ITC or attribute the decreasing adjustment have not expired. [11] If these conditions are met, you then need to consider the individual facts and circumstances of the taxpayer. In particular, you need to consider if these indications are reasonable to exercise the Commissioner's discretion. Some factors you should consider in reaching that decision are set out in this Practice Statement. Other factors may also be relevant, such as where the recipient or supplier have lost records following a natural disaster or some other event particular to their business. | 4. Additional considerations in determining whether it is reasonable to exercise the Commissioner's discretion: Your decision on whether it is reasonable to exercise the Commissioner's discretion must be made in good faith and without bias. Consider the following issues when making this decision. Evidence of entitlement to the ITC or adjustment • Does the recipient have evidence demonstrating they are entitled to claim an ITC or attribute a decreasing adjustment? • Can the recipient show they acquired, paid or are liable to pay for a taxable supply, or that an adjustment event has occurred? • Does the recipient have evidence demonstrating they are entitled to claim an ITC or attribute a decreasing adjustment? • Can the recipient show they acquired, paid or are liable to pay for a taxable supply, or that an adjustment event has occurred? Recipient's behaviour • Has the recipient made a reasonable and genuine attempt to obtain a tax invoice or adjustment note from the supplier before requesting that we exercise the Commissioner's discretion? The recipient is not expected to go to extraordinary lengths or great expense. • If the recipient has already claimed the ITC or attributed the adjustment: - Did the recipient make an error? For example, did they mistakenly believe the document they held was a valid tax invoice or adjustment note? - Was the recipient aware that they did not hold a valid tax invoice or adjustment note, but they made a claim or attribution anyway? • Has the recipient made a reasonable and genuine attempt to obtain a tax invoice or adjustment note from the supplier before requesting that we exercise the Commissioner's discretion? The recipient is not expected to go to extraordinary lengths or great expense. • If the recipient has already claimed the ITC or attributed the adjustment: - Did the recipient make an error? For example, did they mistakenly believe the document they held was a valid tax invoice or adjustment note? - Was the recipient aware that they did not hold a valid tax invoice or adjustment note, but they made a claim or attribution anyway? - Did the recipient make an error? For example, did they mistakenly believe the document they held was a valid tax invoice or adjustment note? - Was the recipient aware that they did not hold a valid tax invoice or adjustment note, but they made a claim or attribution anyway? Recipient's compliance history and experience • Does the recipient have a good compliance history and maintain adequate record-keeping systems? • Is the absence of a tax invoice or adjustment note a one-off or a common occurrence? • What are the recipient's knowledge, skills, experience and circumstances? For example, it may be understandable for a new small business entrant to have a lower level of knowledge and experience than an established or large enterprise. • Does the recipient have a good compliance history and maintain adequate record-keeping systems? • Is the absence of a tax invoice or adjustment note a one-off or a common occurrence? • What are the recipient's knowledge, skills, experience and circumstances? For example, it may be understandable for a new small business entrant to have a lower level of knowledge and experience than an established or large enterprise. Additional considerations for objections and litigation There are some additional considerations that apply in relation to exercising the Commissioner's discretion as part of an objection or litigation matter. For example: - Did we do or advise something that contributed to the recipient not asking the supplier for a tax invoice or adjustment note, or result in the supplier's refusal to provide those documents? - If considerable time has passed since the tax period in dispute, would it still be reasonable for the recipient to ask the supplier for a valid tax invoice or adjustment note? - Did we do or advise something that contributed to the recipient not asking the supplier for a tax invoice or adjustment note, or result in the supplier's refusal to provide those documents? - If considerable time has passed since the tax period in dispute, would it still be reasonable for the recipient to ask the supplier for a valid tax invoice or adjustment note? | 5. When it is not appropriate to exercise the Commissioner's discretion: It would not be appropriate to exercise the Commissioner's discretion if: • there is evidence of fraud or evasion • it is less than 28 days since the recipient asked the supplier to provide a valid tax invoice or adjustment note • the recipient is no longer entitled to claim the ITCs or attribute the decreasing adjustment because the time limits have expired (and there are no special circumstances to extend the time) • the recipient is simply unwilling to keep records • the Court has found the recipient is entitled to an ITC or decreasing adjustment but the appeal period for the decision has yet to expire • other compliance activity is under way, and it is more appropriate to consider exercise of the Commissioner's discretion as part of that work. • there is evidence of fraud or evasion • it is less than 28 days since the recipient asked the supplier to provide a valid tax invoice or adjustment note • the recipient is no longer entitled to claim the ITCs or attribute the decreasing adjustment because the time limits have expired (and there are no special circumstances to extend the time) • the recipient is simply unwilling to keep records • the Court has found the recipient is entitled to an ITC or decreasing adjustment but the appeal period for the decision has yet to expire • other compliance activity is under way, and it is more appropriate to consider exercise of the Commissioner's discretion as part of that work. | 6. Effect of exercising the Commissioner's discretion: When the Commissioner's discretion is exercised in respect of a 'particular document', effectively that document was always a tax invoice or adjustment note. This means that the normal rules apply to claim the ITC or attribute a decreasing adjustment to the tax period when that document was first held . Therefore, upon exercise of the Commissioner's discretion, the recipient will not need to make an adjustment to an earlier tax period if it claimed an ITC or attributed a decreasing adjustment without a valid tax invoice or adjustment note. | 7. Who can exercise the Commissioner's discretion and when to escalate: Before exercising the Commissioner's discretion, you must refer to the Taxation Authorisation Guidelines (link available internally only) to ensure you are properly authorised. You can only exercise the Commissioner's discretion up to the monetary limit applicable to your Australian Public Service (APS) level. For example, an APS 6 can determine a document to be a tax invoice or adjustment note for ITCs or decreasing adjustments of up to $50,000, whereas the limit for an APS 4 is $5,000. These amounts and levels may vary from time to time. If you are not authorised, you will need to escalate the making of the decision to someone who is. In addition, requests to exercise the Commissioner's discretion must be escalated to an Executive Level 2 (EL 2) officer where: • the supplier made the request to treat the document as a tax invoice or adjustment note [12] • a recipient makes the request in relation to a recipient-created tax invoice • the supplier or recipient has requested a determination to waive the requirements for a tax invoice or adjustment note [13] , or this would be more appropriate • the amount of the ITC or decreasing adjustment is more than $100,000 (and you are not at the EL 2 or Senior Executive Service level) • applying the principles in this Practice Statement would produce a result that is not sensible or practical. • the supplier made the request to treat the document as a tax invoice or adjustment note [12] • a recipient makes the request in relation to a recipient-created tax invoice • the supplier or recipient has requested a determination to waive the requirements for a tax invoice or adjustment note [13] , or this would be more appropriate • the amount of the ITC or decreasing adjustment is more than $100,000 (and you are not at the EL 2 or Senior Executive Service level) • applying the principles in this Practice Statement would produce a result that is not sensible or practical. You must provide the EL 2 officer with the relevant facts, issues and supporting evidence to assist them in making their decision. | 8. Third-party enquiries: You may need to ask the supplier or other parties why they did not issue a tax invoice or adjustment note when requested. In such cases, you should follow your work area's procedures to acquire information from third parties. [14] If the parties are in dispute over some aspect of the transaction, do not become involved in their dispute. If they have begun legal action, discuss the issue with your manager to determine a course of action. If the recipient has been charged GST by an unregistered supplier, you may need to refer the supplier's details to ATO intelligence Discover (link available internally only) for follow-up action. | 9. Penalties and general interest charge: If the Commissioner's discretion is not exercised, shortfall penalties and general interest charge may apply to amounts incorrectly claimed. The recipient may also be liable to a penalty for failing to keep proper records. You should refer to the relevant policies when making any decisions about applying or remitting penalties and or interest – see section 12 of this Practice Statement. | 10. Objections, reviews and appeals: Taxpayers cannot object against a decision to exercise the Commissioner's discretion as it is not a reviewable GST decision under the GST Act. [15] However, they may object to an assessment [16] that excludes an ITC or decreasing adjustment as a result of that decision. Where the Commissioner disallows that objection or allows it in part, the taxpayer can apply to the AAT for a review of the objection decision or they can appeal to the Court against the objection decision. [17] In reviewing the assessment, the AAT (standing in the shoes of the Commissioner) can make a decision on whether to exercise the Commissioner's discretion. However, if the matter is referred to the Court and it finds the taxpayer is entitled to an ITC or decreasing adjustment, it can only remit the matter back to the Commissioner to exercise the discretion. [18] If the matter is remitted, we must make our decision on the Commissioner's discretion and communicate it in writing to the taxpayer as soon as possible. To prevent delays finalising a dispute, we should deal concurrently with issues relating to: • ITC or decreasing adjustment entitlements • failure to hold a tax invoice or adjustment note • exercise of the Commissioner's discretion. • ITC or decreasing adjustment entitlements • failure to hold a tax invoice or adjustment note • exercise of the Commissioner's discretion. We should communicate our decision on exercising the Commissioner's discretion or arguing a certain position to the taxpayer as early as possible. This will enable the taxpayer to make an informed decision on whether to continue with the litigation. When the AAT is to review an assessment involving the use of the Commissioner's discretion, our submissions should outline the relevant facts and the reasons for or against exercising the discretion. This will assist the AAT to make a decision on whether to exercise the discretion. | 11. What other review rights are there against an exercise of the Commissioner's discretion: While there are no rights to object against a decision to exercise the Commissioner's discretion, taxpayers may ask for an independent internal review by someone not involved in making the original decision. Alternatively, taxpayers may seek judicial review by the Court [19] , who will review the decision-making process and whether it was flawed or involved an error of law. The Court cannot remake the decision but may remit the decision back to us to remake according to law. [20] | 12. More information: For more information, see: • GSTR 2013/1 Goods and services tax: tax invoices • GSTR 2013/2 Goods and services tax: adjustment notes • PS LA 2005/2 Penalty for failure to keep or retain records • PS LA 2008/6 Fraud or evasion • PS LA 2009/9 Conduct of ATO litigation and engagement of ATO Dispute Resolution • PS LA 2011/12 Remission of General Interest Charge • PS LA 2012/5 Administration of the false or misleading statement penalty – where there is a shortfall amount • ATO intelligence Discover (link available internally only) • Our approach to information gathering • Taxation Authorisation Guidelines (available internally only) • GSTR 2013/1 Goods and services tax: tax invoices • GSTR 2013/2 Goods and services tax: adjustment notes • PS LA 2005/2 Penalty for failure to keep or retain records • PS LA 2008/6 Fraud or evasion • PS LA 2009/9 Conduct of ATO litigation and engagement of ATO Dispute Resolution • PS LA 2011/12 Remission of General Interest Charge • PS LA 2012/5 Administration of the false or misleading statement penalty – where there is a shortfall amount • ATO intelligence Discover (link available internally only) • Our approach to information gathering • Taxation Authorisation Guidelines (available internally only) Attachment A Diagram 1: The decision-making process involved in exercising the Commissioner's discretion",GSTR 2013/1 | GSTR 2013/2 | PS LA 2005/2 | PS LA 2008/6 | PS LA 2009/9 | PS LA 2011/12 | PS LA 2012/5 | Explanatory Statement to the | A New Tax System (Goods and Services Tax) Third Party Adjustment Note Information Requirements Determination 2020 | ANTS(GST)A 1999 11-5 | ANTS(GST)A 1999 Div 19 | ANTS(GST)A 1999 29-10(3) | ANTS(GST)A 1999 29-20(3) | ANTS(GST)A 1999 29-70(1A) | ANTS(GST)A 1999 29-70(1B) | ANTS(GST)A 1999 29-75(1) | ANTS(GST)A 1999 29-80 | ANTS(GST)A 1999 83-35(3) | ANTS(GST)A 1999 Div 93 | ANTS(GST)A 1999 134-20 | ANTS(GST)A 1999 142-25 | ANTS(GST)A 1999 146-10 | ANTS(GST)R 1999 29-80.01 | ANTS(GST)R 1999 29-80.02 | Administrative Decisions (Judicial Review) Act 1977 | TAA 1953 110-50 | TAA 1953 Sch 1 Div 155 | TAA 1953 Pt IVC,PS LA 2005/2 PS LA 2008/6 PS LA 2009/9 PS LA 2011/12 PS LA 2012/5,ANTS(GST)A 1999 11-5 | ANTS(GST)A 1999 Div 19 | ANTS(GST)A 1999 29-10(3) | ANTS(GST)A 1999 29-20(3) | ANTS(GST)A 1999 29-70(1A) | ANTS(GST)A 1999 29-70(1B) | ANTS(GST)A 1999 29-75(1) | ANTS(GST)A 1999 29-80 | ANTS(GST)A 1999 83-35(3) | ANTS(GST)A 1999 Div 93 | ANTS(GST)A 1999 134-20 | ANTS(GST)A 1999 142-25 | ANTS(GST)A 1999 146-10 | ANTS(GST)R 1999 29-80.01 | ANTS(GST)R 1999 29-80.02 | Judiciary Act 1903 39B | Administrative Decisions (Judicial Review) Act 1977 | TAA 1953 110-50 | TAA 1953 Sch 1 Div 155 | TAA 1953 Pt IVC,,ATO intelligence Discover (link available internally only) Our approach to information gathering Taxation Authorisation Guidelines (link available internally only) Explanatory Statement to the A New Tax System (Goods and Services Tax) Third Party Adjustment Note Information Requirements Determination 2020,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS200411/NAT/ATO/00001,"In this Practice Statement, a reference to a right to seek review of a reviewable objection decision or an extension of time refusal decision in the AAT should instead be read as a reference to a review in the ART. | Expanded relevant titles and updated links to current information. | Added title of Diagram 1 to flowchart and alt text. | Added additional information about administrative review rights and disputes (with reference to PS LA 2009/9, which deals with disputes and litigation). Streamlined the content. | Updated to new LAPS format and style. | Added reference to asymmetry issues and escalation to compliance. | Update to PSLA to align position in the PSLA to the new tax invoice ruling GSTR 2013/1 (that was updated as a result of legislative amendment resulting from BoT Recommendation 9). Also minor updates for other Board of Tax Measures. | Change value of taxable supply to $75. | Add reference to regulation 29-80.01. | Update references to subsection 62(2) of the TAA to subsection 110 50(2) of Schedule 1 of the TAA. | Update reference to section 37 of the TAA to section 105-60 of Schedule 1 of the TAA. | Amendments to the A New Tax System (Goods and Services Tax Transition) Act 1999 in February 2005 to do with long-term non-reviewable contracts, created a further class of transactions that do not require tax invoices or adjustment notes. | [1] A tax invoice may also provide evidence that GST has been passed on to another entity. See section 142-25 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). | [2] Subsections 29-70(1B) and 29-75(1). | [3] Section 134-20 sets out the requirements for third-party adjustment notes. See the Explanatory Statement to the A New Tax System (Goods and Services Tax) Third Party Adjustment Note Information TPANI 2020/D1 Draft Explanatory Statement Goods and Services Tax: Third Party Adjustment Note Information Requirements Determination 2020 . | [4] See GSTR 2013/1 and GSTR 2013/2 for all circumstances where a tax invoice or adjustment note is not required to be held to claim an ITC or attribute a decreasing adjustment. | [5] See section 29-80, and sections 29-80.01 and 29-80.02 of the A New Tax System (Goods and Services Tax) Regulations 2019 . | [6] See subsections 29-10(3) and 29-20(3). The Commissioner must have determined this in writing. | [7] See subsection 83-35(3). | [8] See subsection 29-70(1A). Note that there is no corresponding provision for adjustment notes. | [9] Defined in section 11-5. Limited registration entities cannot make creditable acquisitions. See section 146-10. | [10] See Division 19 on decreasing adjustments arising from adjustment events. | [11] See Division 93, and Division 155 of Schedule 1 to the Taxation Administration Act 1953 (TAA). | [12] For example, the supplier realises the invoice they issued was defective but system or other issues prevent them from reissuing it. A similar issue may arise for recipient-created invoices. | [13] Subsections 29-10(3) or 29-20(3). | [14] See also Our approach to information gathering . | [15] Section 110-50 of Schedule 1 to the TAA. | [16] See Part IVC of the TAA. | [17] See Part IVC of the TAA. | [18] See paragraphs 103 to 110 of Law Administrative Practice Statement PS LA 2009/9 Conduct of ATO litigation and engagement of ATO Dispute Resolution . | [19] Under the Administrative Decisions (Judicial Review) Act 1977 or section 39B of the Judiciary Act 1903 . See paragraphs 93 to 97 of PS LA 2009/9. | [20] See paragraph 94 of PS LA 2009/9."
PS LA 2004/12,SUBJECT: Consolidation - general shortcuts for resetting the tax cost under Division 705 of the Income Tax Assessment Act 1997 for depreciating assets for which the decline in value is worked out under Division 40 of that Act PURPOSE: To set out approaches to general shortcuts that are acceptable to the ATO,15 November 2004,15 November 2004,Law Administration Practice Statement,False,"1. This Practice Statement applies to those depreciating assets whose decline in value is worked out under Division 40 of the Income Tax Assessment Act 1997 (ITAA 1997) and to which subsection 701-55(2) of the ITAA 1997 applies. These assets will be referred to as 'depreciating assets' in this Practice Statement. The references to tax written down values should be read as references to 'adjustable value' or 'terminating value', as appropriate. All legislative references in this Practice Statement are to the ITAA 1997, unless otherwise indicated. 2. Some corporate groups and their advisers are reporting practical difficulties in seeking to comply with the strict letter of the requirements of Division 705 when allocating their allocable cost amounts (ACA) across depreciating assets on an asset-by-asset basis. 3. Some corporate groups hold many thousands of such assets. Moreover, many corporate groups operate different fixed asset systems across different divisions, usually due to acquisitions, different site locations and other historical reasons. 4. Taxpayers forming consolidated groups have been weighing up the transitional costs and benefits of not sticking with existing tax values for depreciating assets on formation against the costs of undertaking this work and have, in some cases, opted to stick with existing tax values. It was always envisaged that this 'stick' approach during transition would provide a cost-effective way of transferring assets into consolidated groups. However, the ATO appreciates that many groups will want to avail themselves of the tax concessions that can arise under the law when they reset the tax values of their assets during the transitional period. 5. Capital allowance deductions are a significant tax deduction item across corporate groups and the integrity of the underlying processes to calculate these deductions is important for the integrity of the tax base. This is particularly important for consolidating groups that seek to obtain the benefit of an uplift in asset tax values. Their systems, processes and records need to be adequate to demonstrate entitlement and assure all parties that the benefit is not being abused. 6. The ATO also needs to ensure that the systems and approaches used by taxpayers do not undermine other aspects of previous tax reforms in relation to the removal of accelerated depreciation and broadbanding and the review of effective lives. The ATO could not accept a shortcut approach that had the effect of undoing these other law changes or that was likely to have the effect of conferring a benefit over and above the benefit that would be obtained from a precise application of the law. 7. In its compliance casework, the ATO will continue to undertake risk reviews of uplifts in asset tax values in the context of consolidation. Reviews will cover: • the calculations • the assumptions used • any significant increases in capital allowance deductions • the processes used to calculate these amounts • the allocation of the uplift between classes of assets, and • the oversight processes used by groups. • the calculations • the assumptions used • any significant increases in capital allowance deductions • the processes used to calculate these amounts • the allocation of the uplift between classes of assets, and • the oversight processes used by groups. 8. The ATO objective in these reviews is to gain assurance that the outcomes of the approach adopted by consolidating groups in resetting asset tax values are in line with the intent of Divisions 705 and 40. The ATO will take corrective action in any case where the approach adopted is not able to be audited or the audit activity reveals material discrepancies. 9. Where the necessary systems are in place and the information is accessible without major practical difficulties, the ATO expects that those systems will be used and that there will be a very high degree of precision in the allocation of reset asset tax values to depreciating assets. It is not acceptable for taxpayers with good systems to do precise calculations and shortcut calculations and 'cherry pick' the best tax outcomes. 10. In cases where there are practical difficulties, the ATO expects taxpayers to use best endeavours to deal with the difficulties and arrive at an allocation that is as close as practicable to what is required by the law. The ATO expects that particular attention will be given to the group's major or significant assets. The ATO also expects that those best endeavours and reasonable approaches will include recourse, as necessary, to sound market valuation principles, techniques and allocation processes to identify reliable substitutes for the process envisaged by the law. The substitute processes must be able to produce outcomes that give a high level of confidence that there are no material discrepancies. What the law requires in resetting tax values and effective lives for depreciating assets when consolidating – the 4 main steps 11. The legislation sets out 4 main steps that operate in sequence for consolidating entities that wish to reset the tax values of depreciating assets: (a) Step 1 – Resetting the tax values This involves working out how much of the ACA for an entity should be allocated to the depreciating assets having regard to their market value. (b) Step 2 – Allocation of the appropriate proportion of the ACA for the entity to the various depreciating assets on an asset-by-asset basis (c) Step 3 – Applying the tax cost setting amount (TCSA) limiters and redistributing or foregoing the remaining unallocated part of the ACA applicable to the depreciating assets as a result of Steps 1 and 2 The cost setting limiters are included in • section 705-40 (which limits the uplift for depreciating assets, trading stock and revenue assets to the greater of the market value and the joining entity's terminating value for the asset) • sections 701-80 and 705-45 (which allow a consolidating entity to choose between preserving accelerated depreciation at the loss of any uplift in value or taking advantage of the uplift) • section 705-50 (which reduces the uplift in cases where depreciation benefits have given rise to unfranked or partly franked dividends that were not distributed to and fully taxed in the hands of an individual taxpayer), and • section 705-57 (which reduces the uplift in certain cases where assets are un-grandfathered for capital gains tax purposes). (d) Step 4 – Continuing or resetting the write-off rate for the value of each depreciating asset in accordance with subsection 701-55(2) Where the taxpayer was using the prime cost method and there is no uplift in the value of an asset under steps 1, 2 and 3, the consolidated group can continue to write-off the asset over the part of the effective life of that asset that remained at the time of consolidation. If there is an uplift, a new effective life has to be chosen using the effective life options available under the law. Where the diminishing value method was being used in respect of an asset, the law requires the consolidated group to use the effective life previously being used for that asset and calculate the annual write-off on that basis. (a) Step 1 – Resetting the tax values This involves working out how much of the ACA for an entity should be allocated to the depreciating assets having regard to their market value. (b) Step 2 – Allocation of the appropriate proportion of the ACA for the entity to the various depreciating assets on an asset-by-asset basis (c) Step 3 – Applying the tax cost setting amount (TCSA) limiters and redistributing or foregoing the remaining unallocated part of the ACA applicable to the depreciating assets as a result of Steps 1 and 2 The cost setting limiters are included in • section 705-40 (which limits the uplift for depreciating assets, trading stock and revenue assets to the greater of the market value and the joining entity's terminating value for the asset) • sections 701-80 and 705-45 (which allow a consolidating entity to choose between preserving accelerated depreciation at the loss of any uplift in value or taking advantage of the uplift) • section 705-50 (which reduces the uplift in cases where depreciation benefits have given rise to unfranked or partly franked dividends that were not distributed to and fully taxed in the hands of an individual taxpayer), and • section 705-57 (which reduces the uplift in certain cases where assets are un-grandfathered for capital gains tax purposes). (d) Step 4 – Continuing or resetting the write-off rate for the value of each depreciating asset in accordance with subsection 701-55(2) Where the taxpayer was using the prime cost method and there is no uplift in the value of an asset under steps 1, 2 and 3, the consolidated group can continue to write-off the asset over the part of the effective life of that asset that remained at the time of consolidation. If there is an uplift, a new effective life has to be chosen using the effective life options available under the law. Where the diminishing value method was being used in respect of an asset, the law requires the consolidated group to use the effective life previously being used for that asset and calculate the annual write-off on that basis. • section 705-40 (which limits the uplift for depreciating assets, trading stock and revenue assets to the greater of the market value and the joining entity's terminating value for the asset) • sections 701-80 and 705-45 (which allow a consolidating entity to choose between preserving accelerated depreciation at the loss of any uplift in value or taking advantage of the uplift) • section 705-50 (which reduces the uplift in cases where depreciation benefits have given rise to unfranked or partly franked dividends that were not distributed to and fully taxed in the hands of an individual taxpayer), and • section 705-57 (which reduces the uplift in certain cases where assets are un-grandfathered for capital gains tax purposes). 12. Some taxpayers have raised with the ATO concerns they have about their ability to apply the legislation on an asset-by-asset basis (at least the ability to apply the law to all their assets) and have asked the ATO to specify acceptable alternatives. Other taxpayers have asked whether the ATO would accept a single-line adjustment for depreciation to reflect the overall asset value uplift for depreciating assets that can arise in the context of forming a consolidated group for tax purposes. 13. This Practice Statement sets out the streamlined approaches that the ATO will accept in relation to the 4 main steps set out in paragraph 11 of this Practice Statement, together with any relevant qualifications. | When can taxpayers use the general shortcuts: 14. General shortcuts are not available where taxpayers have the systems and processes in place to directly apply the requirements of the law and arrive at precise calculations. Where the taxpayer has precise information in relation to some assets, it is expected that precise calculations will be made and the application of the shortcuts limited to the other depreciating assets. 15. Shortcuts are not to be applied to the major or significant assets within the group. While the description does not lend itself to exhaustive definition, a major or significant asset is one that, based on an objective business assessment in the context of the particular business, is central, integral or a key part of the business or it represents a significant component of the net identifiable assets. It is expected that major or significant assets will represent the bulk of the value in relation to the fixed asset register. 16. The ATO expects comprehensive documentation of the approaches used in applying any shortcuts. 17. The general shortcuts will be available in appropriate cases for the transition into a consolidated group, including in the case of late adopters. The ATO expects that the systems and processes used to allocate the uplift or reduction for the purposes of the ACA calculation are able to be audited, both by the corporate group and the ATO, to ensure they properly support the collection and recording of relevant information, enable tax deductions to be properly calculated and do not produce material errors. 18. The general shortcuts set out in this Practice Statement are not a substitute for proper systems and processes that are free of material errors. Where taxpayers have weaknesses in their systems and processes, the ATO expects taxpayers to make appropriate adjustments when preparing their tax returns and that improvements to their systems and processes will be progressively made. 19. Some suggested general shortcuts have been rejected on the basis that they: • do not provide sufficient confidence in relation to the setting of effective life or the continuity of prime cost or diminishing value accounting • present long-term compliance assurance issues, or • raise the possibility of a material cost to the revenue that was not intended by the legislation. • do not provide sufficient confidence in relation to the setting of effective life or the continuity of prime cost or diminishing value accounting • present long-term compliance assurance issues, or • raise the possibility of a material cost to the revenue that was not intended by the legislation. 20. The method involved in implementing any shortcut has to be appropriate to the asset mix, the nature of the categories of asset within that mix and the materiality of the amounts involved. It must have regard to the spread of values across the asset register and the categories of assets within it. It also needs to have regard to the range of effective lives of assets within the register and how that pattern relates to the spread of values. The method may require separate approaches to different categories of assets with the outcomes being combined to produce the proper allocation of uplift or reduction across the full range of depreciating assets. The higher the asset values and the wider the spread of effective lives, the more care is needed and the more exacting the approach that is required. | Step 1: Resetting the tax value: 21. The starting point for the application of acceptable shortcuts is that the taxpayer has properly determined the proportion of the ACA that is properly attributable to depreciating assets, due allowance having been made for other classes of asset, including goodwill, revenue assets and trading stock. 22. The ATO has provided guidance on the resetting of tax cost in the Consolidation reference manual (the Manual) at section C2 23. In some cases, valuations have been undertaken on a basis that is inconsistent with the existing fixed assets register. For example, a warehouse may be valued as a single item, whereas the register may show the gantry crane and other items of plant separately. Taxpayers will need to reconcile the 2 on a reasonable basis using soundly based methodologies and ensure that the process is documented and auditable. | Step 2: Allocation of allocable cost amounts to depreciating assets on an asset-by-asset basis: 24. Depending on market values, some depreciating assets (or groups of assets) within particular joining entities may in reality experience an increase in their reset tax values, while others may experience a decrease. 25. To the extent that precise information is available. it should be used to allocate ACA to individual assets in order to reduce the risk of error. The approved shortcuts can then be applied to the remaining depreciating assets. 26. In some cases, taxpayers may be able to demonstrate that certain categories of assets have either increased or decreased in value but may not be able to say what the increase or decrease is in relation to each particular asset within the category. Set out in this Practice Statement is a set of shortcuts the ATO will accept for dealing with such categories. 27. For the ATO to be able to accept a shortcut based on a category of assets, it has to be satisfied that an asset-by-asset approach is not practicable and that the category contains assets that have sufficient similarity in their characteristics and use such that an approach based on the category is unlikely to produce anomalies or material errors. (i) Identify assets that were subject to accelerated depreciation and reduce uplift where accelerated depreciation is preserved 28. A key plank of the consolidation measure is that where there is an uplift in the tax cost of a depreciating asset, and an entity elects to retain the uplift, the taxpayer is then not able to use the accelerated write-off that was available prior to 11:45 am (AEST) on 21 September 1999. Alternatively, a group may choose to preserve accelerated depreciation, within the limits of the grandfathering provisions, and forego the uplift in value that would otherwise be available for those assets under consolidation, without being able to reassign that uplift to other assets. (Refer to sections 701-80 and 705-45.) 29. A head company will therefore need to identify all the group assets that were the subject of accelerated depreciation. Since not all assets acquired prior to 11:45 am on 21 September 1999 qualify for accelerated depreciation (assets that are not plant are excluded), it is accepted that regard would have to be had to the depreciation rate previously applicable and the acquisition dates to assist this process. The head company will need to record any choice it makes to preserve accelerated depreciation. The amount of the uplift that would otherwise apply to those assets is lost and cannot be spread among other assets. 30. Where a taxpayer is unable to identify an asset subject to accelerated depreciation, the ATO cannot accept an approach that seeks to preserve that benefit because the consequential reduction in ACA required by the law cannot be audited. The only option for the taxpayer is to treat its assets as falling outside the accelerated depreciation regime. In this way, the taxpayer receives the benefit of the uplift but must choose a new effective life or continue to use the previous effective life of those assets as set out in this Practice Statement. (ii) Allocate the allocable cost amount balance to assets not subject to accelerated depreciation (a) Exclude major or significant assets from shortcuts and apply legislative requirements to them 31. Major or significant assets not subject to accelerated depreciation should then be identified and specific calculations done to determine the uplifts or reductions applicable to them. Effective life should be established by reference to each major or significant asset, ensuring that there is consistency of method between the joining entity and the head company for working out the decline in value and taking account of Taxation Rulings IT 2685 Income tax: depreciation and TR 2022/1 Income tax: effective life of depreciating assets, and the statutory rates as appropriate depending on the date the asset was acquired by the joining entity. So, for example, if diminishing value was used by the joining entity prior to consolidation, that method should be used by the head company post-consolidation. (b) Separate non-major or significant assets into diminishing value and prime cost categories and allocate the allocable cost amount on basis of respective book values for these categories 32. The remainder of the assets in the fixed asset register can then be separated into those to which the diminishing value method was being applied and those to which the prime cost method was being applied. The balance of the ACA uplift or reduction amount is then allocated to each of the categories on a pro rata basis. 33. The ATO expects, generally speaking, that in the context of a shortcut method, the allocation to each of the categories of asset would be based on the respective book values since the relationship of these values to the corresponding market values is likely to be closer than is likely to be the case with the respective tax written down values. 34. This approach is acceptable on the proviso that the book values have been properly established in accordance with the accounting standards and acceptable, reliable approaches to valuation that do not inappropriately skew the allocation of ACA. 35. In cases where the asset has been completely written off for accounting purposes, taxpayers may need to prepare their allocation on an adjusted book value basis, having regard to the realisable value of any asset that has been completely written off. Taxpayers will need to fully document any adjustments to book values and the precise allocation approach used to attribute the uplift or reduction. In such cases, the ATO would need to understand why a positive carry value for accounting purposes is being allocated to an asset that has been completely written off and whether such an approach is consistent with the adoption of a shortcut (since it implies that detailed information is available at the level of the individual asset). It would also be expected that where a head company seeks to use an adjusted book value, the new value would be adopted for the purposes of the accounting records and financial reporting in relation to the relevant entity. 36. Where adjusted book values are used in the allocation of ACA, the ATO expects that the adjusted book value will be adopted for the purposes of the group's accounting records. 37. Any ACA amount (including the relevant uplift) calculated in accordance with Step 2 (paragraphs 24 to 37 of this Practice Statement) may need to be reduced in accordance with any appropriate TCSA limiters in Step 3 (paragraphs 38 to 46 of this Practice Statement). | Step 3: Applying the tax cost setting amount limiters: 38. The consolidation law includes a number of tax cost setting amount (TCSA) limiters to be applied, which have the effect of reducing the amount of the reset tax cost that would otherwise be obtained by allocating ACA to depreciating assets. The relevant provisions include: • section 705-40 (trading stock, depreciating assets and revenue assets) • section 705-45 (accelerated depreciation assets) • section 705-50 (over-depreciated assets), and • section 705-57 (loss of pre-CGT status). • section 705-40 (trading stock, depreciating assets and revenue assets) • section 705-45 (accelerated depreciation assets) • section 705-50 (over-depreciated assets), and • section 705-57 (loss of pre-CGT status). (i) Trading stock, depreciating assets and revenue assets 39. Section 705-40 limits the TCSA for depreciating assets to the greater of the asset's market value or the joining entity's terminating value for the asset (that is, the tax written down value for the asset at the joining time). (The treatment of trading stock and revenue assets is not relevant here.) The ATO expects that taxpayers will apply this tax cost limiter on an asset-by-asset basis where the data is available. 40. The requirements of section 705-40 will be regarded as having been met if the taxpayer can demonstrate that either the market value or the terminating value has been adopted. 41. To the extent that asset-by-asset-level data is not available, the ATO will accept that the conditions of section 705-40 have been met if the taxpayer has followed Steps 1 and 2 of this Practice Statement and consistently applies either the market value approach or the terminating value approach to all the assets in the categories for which the detailed asset information is not available. This will allow the taxpayer and the ATO to audit the approach and be confident that the TCSA in aggregate for the category of assets meets one or other of the benchmark tests in section 705-40. (ii) Accelerated depreciation assets 42. As an adjustment for accelerated depreciation assets has already been made in Step 2 of this Practice Statement, there is nothing further that is required in relation to this TCSA limiter. (iii) Over-depreciated assets 43. The ATO-approved shortcut methods for over-depreciated assets are set out in section C2-4-640 of the Manual. The over-depreciation amount calculated on this basis can then be allocated on an asset basis to the extent the information is available. To the extent that there is insufficient information, the remaining amount of over-depreciation can be allocated among the relevant categories of depreciating assets on the basis of their respective book values. (iv) Loss of pre-CGT status 44. Section 705-57 applies where there is a change in underlying ownership which removes the grandfathering for CGT purposes. Insofar as relevant, it requires a reduction in the ACA allocated to the depreciating assets where the cost base of an asset would be increased as a result of an underlying change in ownership and the TCSA for the asset on consolidation exceeds its tax written down value (referred to as its terminating value). The amount of the reduction is equal to the increase in the cost base for membership interests that would have occurred as a result of the resetting of the cost base to market value when the underlying ownership change occurred, but the reduction cannot reduce the TCSA below the tax written down value for the asset immediately before consolidation. This limit was inserted to contain the revenue cost and to reflect the treatment of such assets outside of consolidation. Where section 705-57 applies, the reduction in ACA cannot be applied to other assets but a capital loss equal to the amount of the reduction arises under subsection 104-500(3) which can be claimed over a 5-year period or carried forward. 45. Taxpayers will have identified the ACA applicable to their depreciating assets by following Steps 1 and 2 of this Practice Statement. The reduction in ACA allocation should be applied on an asset-by-asset basis to the extent that the information is available. Where there is insufficient information, so much of the reduction as has not been applied can be applied across the relevant categories of assets on the basis of their respective book values, where the amount of ACA being allocated to the category exceeds the total of their tax written down values (terminating values). The reduction is limited to the difference between the ACA being allocated to the category and the total of their tax written down values. Where the amount of ACA being allocated to a category does not exceed the total of the tax written down values for the category, no adjustment is required. 46. The ATO will be satisfied with this approach where the head company carefully follows the recommended steps and fully documents its analysis and the factual information on which it is based. | Step 4: Continuing or resetting the write-off rates under subsection 701-55(2): 47. Once the TCSA limiters have been applied, the adjusted amount of ACA (referred to as 'the adjusted ACA' in this Practice Statement) is then written off under section 701-55 and Division 40 in accordance with principles set out in this Practice Statement. The allocable cost amount and assets in the category 48. In Steps 1 to 3 of this Practice Statement, major or significant assets were excluded and precise calculations were required. To the extent that information is available, the expectation is that it will be used in applying subsection 701-55(2). In applying Steps 1 to 3 of this Practice Statement, the head company would have separated the depreciating assets for which prime cost was being used by the joining entity from the depreciating assets for which the joining entity was using the diminishing value method. 49. There remain 2 matters to be addressed in Step 4 of this Practice Statement and these are required by subsection 701-55(2). First, there needs to be an effective life worked out for the depreciating assets in each category that has an adjusted ACA amount as a result of applying the limiters in Step 3 of this Practice Statement. Second, the decline in value needs to be worked out for the adjusted ACA for each category of depreciating assets so they can be gradually written off under Division 40 after the date of consolidation. 50. The following shortcuts assume that taxpayers have followed the requirements of Division 40 and the relevant previous legislation. They assume appropriate adjustments to tax written down values have been made for the repeal of both accelerated depreciation (subject to grandfathering and the election allowed under consolidation) and broadbanding, effective from 11:45 am (AEST) on 21 September 1999. They also assume that, where required, taxpayers have adjusted the effective life of assets acquired after 1 July 2001 and that they have made retrospective adjustments where required by Division 40 to correct a previously adopted effective life that on reflection did not meet the statutory requirements. (i) Working out the effective lives for categories of assets (a) Threshold test where the joining entity was using the prime cost method for some or all assets 51. Paragraph 701-55(2)(c) provides that where the joining entity was using the prime cost method to work out the decline in value of an asset and the TCSA for the asset does not exceed the terminating value (the closing tax written down value) for the asset, the effective life to be used by the head company is the remainder of the effective life at the joining time. 52. Where the TCSA exceeds the terminating value, paragraph 701-55(2)(d) requires the head company to choose a new effective life using the statutory options in force at the joining time. 53. Both situations first require a comparison between the closing tax written down value and the amount of ACA being pushed down to the asset. Where Steps 1 to 3 of this Practice Statement have been followed, this comparison will be able to be made in relation to those depreciating assets whose decline in value was being worked out using the prime cost method. 54. It is essential that the head company categorise its depreciating assets for which the prime cost method is being used into those that have a value greater than their terminating value (tax written down value) and those that do not. This process needs to be documented and based on sound valuation approaches and judgments that could be supported on a review of tax risks by the head company, its auditors or the ATO. The selected process can rely on the shortcuts set out in this Practice Statement, where appropriate. 55. Where the adjusted ACA amount is equal to or less than the aggregate for the closing tax written down values of a category of depreciating assets, they can continue to be written off on the same declining basis that the joining entity was using and be completely written off for tax purposes over the remaining timeframe the joining entity would have done so, had consolidation not happened. 56. If, in relation to assets for which prime cost is being used, it is not possible to identify which assets have a TCSA in excess of their terminating value (closing tax written down value just prior to consolidation) and which assets have a TCSA lower than their terminating value, but it is known that the adjusted ACA amount for the whole category of assets is higher than their aggregate terminating values, the ATO will accept an approach that treats all assets in the category as having a TCSA higher than their terminating value. (b) Threshold test where the joining entity was using the diminishing value method for some or all of its assets 57. The assets subject to the diminishing value method should have their values reset based on the pattern of values of assets across that category. The weighting is to be determined on the basis of book values. 58. In circumstances where the joining entity was using the diminishing value method, paragraph 701-55(2)(e) applies and the effective life to be used by the head company is the same effective life as that of the joining entity at the joining time (not the remaining effective life but the total effective life). (c) Working out the effective life for subsection 701-55(2) in applying the prime cost or diminishing value method post consolidation 59. If, as outlined in this Practice Statement, an adjusted book value approach is required for the purposes of the weighting and the establishing of effective life, taxpayers will need to prepare robust documentation of the adjustments to book value, the precise allocation approach used and the determination of effective life. 60. It is expected that all head companies will have available to them the terminating values for the assets in the joining entity and the rates being used to calculate the decline in values for the depreciating assets. 61. It is also expected that the joining companies will have input the cost figures for their depreciating assets in order to commence the calculation of the decline in value. It is reasonable to expect that the cost figures would be recorded in a date order as the assets are acquired so that part-year claims can be accurately calculated and relevant due diligence and compliance assurance undertaken as required. 62. The rates being used to calculate the decline in values are a useful starting point to establish the effective lives of the relevant depreciating assets. The rates may, however, have been affected by the loading available under the accelerated depreciation regime that applied to assets acquired prior to 1 July 1991 or through the broadbanding approach that replaced accelerated depreciation and applied to assets acquired after 30 June 1991 up to 11:45 am (AEST) on 21 September 1999. 63. The rates applicable to assets acquired after 11:45 am on 21 September 1999 are a direct indication of the effective lives being used by taxpayers to calculate tax deductions under Division 40 for those assets. 64. As a first step, it is therefore necessary to separate the depreciating assets into 3 categories: • those acquired before 1 July 1991 • those acquired after 1 July 1991 and before 11:45 am (AEST) on 21 September 1999, and • those acquired after 11:45 am (AEST) on 21 September 1999. • those acquired before 1 July 1991 • those acquired after 1 July 1991 and before 11:45 am (AEST) on 21 September 1999, and • those acquired after 11:45 am (AEST) on 21 September 1999. Assets acquired before 1 July 1991 65. The following formulas can be used to work out the effective lives for assets acquired before 1 July 1991: Prime cost asset = (100 ÷ depreciation rate) × 1.2 or Diminishing value asset = (150 ÷ depreciation rate) × 1.2 Prime cost asset = (100 ÷ depreciation rate) × 1.2 or Diminishing value asset = (150 ÷ depreciation rate) × 1.2 66. The formulas reflect the fact that 20% loadings were generally built into pre-1 July 1991 depreciation rates (as an incentive for taxpayers to invest in plant and equipment). Assets acquired from 1 July 1991 to 11:45 am (AEST) on 21 September 1999 67. In the case of assets to which broadbanding applied, the reference to the depreciation rate takes one back to a range of effective lives rather than a single effective life. For a short period between 1 July 1991 and 26 February 1992, a different broadbanding regime applied, but for simplicity the ATO will accept shortcuts based on the regime that applied through most of the period and which is set out in former section 42-125. 68. Applying the table in former section 42-125, the following assumptions may be applied: • for assets with an effective life of 25 years or longer, they need to be considered on an asset-by-asset basis • for assets in the 13 to fewer than 25 years range of effective lives, a 20-year effective life may be used • for assets in the 10 to fewer than 13 years band, a 12-year life may be used • for assets in the 6 ⅔ to fewer than 10 years band, a 9-year effective life may be used • for assets in the 5 to fewer than 6 ⅔ years band, a 6-year effective life may be used, and • for assets in the 3 to fewer than 5 years band, a 4-year effective life may be used. • for assets with an effective life of 25 years or longer, they need to be considered on an asset-by-asset basis • for assets in the 13 to fewer than 25 years range of effective lives, a 20-year effective life may be used • for assets in the 10 to fewer than 13 years band, a 12-year life may be used • for assets in the 6 ⅔ to fewer than 10 years band, a 9-year effective life may be used • for assets in the 5 to fewer than 6 ⅔ years band, a 6-year effective life may be used, and • for assets in the 3 to fewer than 5 years band, a 4-year effective life may be used. Assets acquired post-11:45 am (AEST) 21 September 1999 69. For assets acquired after 11:45 am (AEST) on 21 September 1999, the law requires the taxpayer to set the effective life of a depreciating asset on the basis of the period (in years, including fractions of years) it can be used. However, Division 40 allows a taxpayer to adopt the Commissioner of Taxation's determination of an effective life and contains a number of statutory capped effective lives in section 40-102, which apply if the effective life determined by the Commissioner and adopted by the taxpayer is a longer period. 70. Assuming that taxpayers have correctly followed the statutory requirements in relation to the settling of the effective lives, the rate of decline used in their tax deduction calculations will reflect the effective lives and can be worked out in the following way: Prime cost assets = (100 ÷ depreciation rate) Prime cost assets = (100 ÷ depreciation rate) This will mean that the reset (uplifted) value for depreciating assets within a particular category will need to be written off on the basis of a reset effective life based on the Commissioner's determinations or the statutory rates. This has the effect of lengthening the period over which the asset or category of assets can be written off. It is not appropriate to write-off the asset or the category of assets over the remainder of the effective life that was set and was being used prior to consolidation. It is open to a taxpayer to self-assess the effective life of a depreciating asset but, since this needs to be done on an asset-by-asset basis, it is not an approach that is open in the context of shortcuts that are designed to be applied to categories of assets. 71. In relation to depreciating assets for which the diminishing value method was being used, assuming the effective life has been properly set prior to consolidation, the head company can simply continue to use the rate of decline that the joining entity was using prior to consolidation to write-off the adjusted ACA amount for those assets. 72. Head companies need to be conscious of the fact that while this shortcut allows a quick calculation, they need to be able to demonstrate when required that the effective lives have been correctly set or be able to show that they have adopted the Commissioner's determination or the statutory rate where relevant. | Subsequent disposals: 73. Where the shortcuts outlined in this Practice Statement are carefully followed, the ATO will accept the closing written down values produced by their application as the basis for working out any balancing adjustment on the subsequent disposal of an asset. | Alternative shortcuts: 74. ATO auditors should be aware that there may be alternative approaches that produce an appropriate outcome consistent with the principles in this Practice Statement. They need to exercise judgment when reviewing the allocation of ACA to depreciating assets, especially where taxpayers have had to take a position on their ACA allocation prior to the issue of the Practice Statement.",PS LA 1998/1 | IT 2685 | TR 2000/8 | ITAA 1997 Div 40 | ITAA 1997 40-102 | ITAA 1997 104-500(3) | ITAA 1997 701-55 | ITAA 1997 701-55(2) | ITAA 1997 701-55(2)(c) | ITAA 1997 701-55(2)(d) | ITAA 1997 701-55(2)(e) | ITAA 1997 701-80 | ITAA 1997 Div 705 | ITAA 1997 705-40 | ITAA 1997 705-45 | ITAA 1997 705-57,,ITAA 1997 Div 40 | ITAA 1997 40-102 | ITAA 1997 42-125 | ITAA 1997 104-500(3) | ITAA 1997 701-55 | ITAA 1997 701-55(2) | ITAA 1997 701-55(2)(c) | ITAA 1997 701-55(2)(d) | ITAA 1997 701-55(2)(e) | ITAA 1997 701-80 | ITAA 1997 Div 705 | ITAA 1997 705-40 | ITAA 1997 705-45 | ITAA 1997 705-50 | ITAA 1997 705-57,,Consolidation reference manual,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS200412/NAT/ATO/00001,What are the general shortcuts | Minor updates made as per current ATO style and accessibility guides. | Updated to current corporate publication style.
PS LA 2004/14,ATO access to advice for a corporate board on tax compliance risk,23 December 2004,23 December 2004,Law Administration Practice Statement,False,"1. Principles: 1A. We recognise the integral role of good corporate governance systems in ensuring companies can properly identify and manage tax compliance risks, and understand that corporate boards need informed independent advice to fully understand the implications of escalated risks. 1B. We accept that obtaining such advice benefits the revenue system by ensuring tax risk is recognised and managed effectively. 1C. While the Commissioner has the legislative power to access relevant information, we accept that advice prepared for a corporate board on tax compliance risk should, in all but exceptional circumstances, remain confidential to the board (including properly constituted sub committees) and their advisers. 1D. We aim to strike a balance between facilitating rigorous corporate governance of tax compliance risk and ensuring we can obtain the information we need for our active compliance activities. 1E. Accordingly, in gathering information for active compliance activities, we provide an administrative concession to the effect that, in certain circumstances, we will not seek access to advice provided to a corporate board on tax compliance risk. 1F. While taxpayers may decide to make documents containing such advice available to us, no adverse inference is to be drawn where taxpayers seek to withhold such documents on the basis that the advice should remain confidential in accordance with the concession. | 2. ATO's approach to information gathering: 2A. Access to documents and other information is fundamental to our ability to undertake compliance activities and to perform its role as required by law. This is reflected in extensive provisions in the tax law that empower the Commissioner to gather information. 2B. In our compliance work, we will (in the first instance) ordinarily seek information from documents prepared in connection with the conception, implementation, authorisation and formal recording of a transaction or arrangement and which explain the setting, context and purpose of the transaction or arrangement. 2C. We do not, in the first instance, aim to review documents that contain advice to a corporate board on tax compliance risk. | 3. Conditions under which the concession will apply: 3A. The concession applies only to companies that can demonstrate that they have risk management and governance frameworks in place that cover tax. We will rely on evidence of good governance, as described in the Tax risk management and governance review guide , when considering if we can accept a claim for the concession. If a taxpayer has been through a justified trust review, we will have regard to that review. 3B. In this context, compliance activities may include close scrutiny of the tax risk management processes that a board of directors has oversight of to determine if they are operating effectively. This information can help form our view of how well a taxpayer manages tax risk. Who can provide advice 3C. The concession extends to advice on tax compliance risk provided to a board by in-house or external advisers (including contractors) who are suitably qualified, that is: • whose tax advice is bound by the standards of a third-party professional association – for example, a lawyer, accountant or tax agent, or • who have academic qualifications in a relevant area that would qualify them to provide expert advice – for example, law and accounting. • whose tax advice is bound by the standards of a third-party professional association – for example, a lawyer, accountant or tax agent, or • who have academic qualifications in a relevant area that would qualify them to provide expert advice – for example, law and accounting. What qualifies as advice to a corporate board on tax compliance risk 3D. Advice to a corporate board on tax compliance risk is confined to the information in a document that has been created by advisers for the sole purpose of providing advice or opinion to a corporate board (including properly constituted sub-committees) relating to a major transaction, arrangement, corporate system or process: • on the likelihood and impact of the tax compliance risk • as to whether we or an administrative or judicial decision-making authority may take a contrary view or position to that of the taxpayer on the tax compliance issue, or • on courses of action to effectively manage the tax compliance risk. • on the likelihood and impact of the tax compliance risk • as to whether we or an administrative or judicial decision-making authority may take a contrary view or position to that of the taxpayer on the tax compliance issue, or • on courses of action to effectively manage the tax compliance risk. 3E. Advice that does not have a sole purpose of advising a corporate board on tax compliance risk does not qualify for the concession. For example, tax compliance risk advice for a corporate board that is later used to advise on how to implement an arrangement would have a dual purpose, thereby losing the sole purpose characterisation necessary to claim the concession. Commissioner's discretion Corporate board discussions 3F. Minutes directly relating to corporate board discussions on tax compliance risk advice and requests for advice relating to such risks by a corporate board do not qualify as advice for the purposes of this concession. 3G. However, in recognition of the need for candid discussions and communications concerning tax compliance risks, the Commissioner has determined that the concession can also apply to such information unless exceptional circumstances exist or a taxpayer is willing to forego a claim for the concession to assist in resolving an issue. Tax risk registers 3H. Taxpayers may have formal processes in place to identify transactions, arrangements or systems that may have an element of associated tax risk for inclusion on a risk register that is overseen by the board. 3I. While reporting on recognised tax compliance risks to a corporate board does not qualify as advice for the purposes of the concession, we will allow the concession to apply to those sections of a risk register that directly concern tax risks unless exceptional circumstances exist or a taxpayer is willing to forego a claim for the concession. This does not preclude us from accessing information on a company's risk register about non-tax risks such as commercial or market risks. 3J. However, some ATO compliance products require taxpayers to disclose specific material tax risks for a defined period under review. A taxpayer cannot use the concession for tax risk registers as a reason for not disclosing tax risks in such circumstances. 3K. Furthermore, the concession for tax risk registers cannot be used as a reason for not meeting a legislative or regulatory requirement to report tax risks, such as the requirement to notify us of a tax risk when completing a Reportable tax position schedule. Exceptional circumstance 3L. Circumstances that may be taken to be exceptional and require us to seek access to advice or information subject to a claim for the concession include: • The taxpayer has not been or is not cooperating with us to provide full and complete information in a timely manner, and the advice or information subject to a claim for the concession is considered relevant to the compliance activity (relevance is a matter for us to determine). • Information important to the compliance activity, including evidence as to the purpose of entering into or carrying out a transaction or arrangement, cannot be sufficiently established from the taxpayer's documents and other enquiries. • The taxpayer has a history of serious non-compliance involving, for example, fraud or evasion or persistent avoidance of their tax obligations or is under investigation in that regard. • We have reasonable grounds to believe that an anti-avoidance provision may apply. • The taxpayer has a demonstrated history of aggressive tax positions that we have significant concerns with. • The taxpayer has not been or is not cooperating with us to provide full and complete information in a timely manner, and the advice or information subject to a claim for the concession is considered relevant to the compliance activity (relevance is a matter for us to determine). • Information important to the compliance activity, including evidence as to the purpose of entering into or carrying out a transaction or arrangement, cannot be sufficiently established from the taxpayer's documents and other enquiries. • The taxpayer has a history of serious non-compliance involving, for example, fraud or evasion or persistent avoidance of their tax obligations or is under investigation in that regard. • We have reasonable grounds to believe that an anti-avoidance provision may apply. • The taxpayer has a demonstrated history of aggressive tax positions that we have significant concerns with. 3M. Where exceptional circumstances exist and the related claim for the concession would otherwise be valid, you should make a submission to a designated senior officer [1] to lift the concession. 3N. The taxpayer will normally be given an opportunity to make their own submission to the designated senior officer as to why the concession should not be lifted. 3O. If the designated senior officer determines that exceptional circumstances exist and that the concession should be lifted, we will inform the taxpayer of the reasons for this decision and the details of the exceptional circumstances. 3P. In limited circumstances, we may seek access to information without giving the taxpayer notice and the opportunity to claim the concession. In this situation, we may copy documents that potentially contain advice or information that falls under the concession. If this occurs and the taxpayer claims the concession, the documents will be quarantined and dealt with in accordance with the procedures outlined in this Practice Statement. Concession subject to existing laws and policies 3Q. This Practice Statement is subject to existing laws and policies applying to: • ATO procedures for seeking access (including access procedures set out in Our approach to information gathering ) • claims for legal professional privilege, and • claims that a document is a restricted source or non-source document to which access is governed by the guidelines for accessing professional accounting advisers' papers (accountants' concession). • ATO procedures for seeking access (including access procedures set out in Our approach to information gathering ) • claims for legal professional privilege, and • claims that a document is a restricted source or non-source document to which access is governed by the guidelines for accessing professional accounting advisers' papers (accountants' concession). | 4. How the taxpayer makes a claim under the concession: 4A. If we are seeking access to documents and the taxpayer considers that such access should be limited on the basis that they wholly or partly contain advice or information subject to the concession, the taxpayer should take the following steps: (1) Advise us as soon as possible that they intend to make a claim under the concession. (2) By the due date to respond to a formal or informal request for information, provide the following details for each document they consider contains advice or information subject to the concession • the date of the advice or information (or the date the document was created) • the title of the advice or information and a general description of its nature • the names and roles of the authors • the names and roles of all addressees to whom the advice or information has been circulated • the reasons for the distribution to each addressee • the reasons why the document is categorised as containing advice or information subject to the concession • the dates on which the advice or information was provided to a director of the company, the board or a properly constituted sub-committee of the board. (1) Advise us as soon as possible that they intend to make a claim under the concession. (2) By the due date to respond to a formal or informal request for information, provide the following details for each document they consider contains advice or information subject to the concession • the date of the advice or information (or the date the document was created) • the title of the advice or information and a general description of its nature • the names and roles of the authors • the names and roles of all addressees to whom the advice or information has been circulated • the reasons for the distribution to each addressee • the reasons why the document is categorised as containing advice or information subject to the concession • the dates on which the advice or information was provided to a director of the company, the board or a properly constituted sub-committee of the board. • the date of the advice or information (or the date the document was created) • the title of the advice or information and a general description of its nature • the names and roles of the authors • the names and roles of all addressees to whom the advice or information has been circulated • the reasons for the distribution to each addressee • the reasons why the document is categorised as containing advice or information subject to the concession • the dates on which the advice or information was provided to a director of the company, the board or a properly constituted sub-committee of the board. 4B. Note that where a document is to be redacted before being provided to us, the details listed in paragraph 4A(2) of this Practice Statement do not need to be provided to the extent they are evident in the redacted document. 4C. Once a claim for the concession has been received by us, it will be examined by the compliance team and manager they report to. 4D. The taxpayer will be notified in writing within 28 days of the decision whether to accept, reject or set aside a claim. In limited circumstances, such as where there are a large number of claims, this period may be extended. 4E. If the taxpayer wants to dispute any aspect of our decision (referred to in paragraph 4D of this Practice Statement), it will be reviewed and either accepted, rejected or set aside by a designated senior officer. This review may involve a cursory inspection by a representative for both us and the taxpayer who have had no prior involvement in the claim for the concession and are not a party to the audit or review being undertaken. | 5. More information: 5A. For more information, see: • Tax risk management and governance review guide • Claim for concession on ATO access to advice for a corporate board on tax compliance risk • Our approach to information gathering • Gathering information . • Tax risk management and governance review guide • Claim for concession on ATO access to advice for a corporate board on tax compliance risk • Our approach to information gathering • Gathering information .",,,,,Claim for concession on ATO access to advice for a corporate board on tax compliance risk Gathering information Our approach to information gathering Tax risk management and governance review guide,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS200414/NAT/ATO/00001,"2. Our approach to information gathering | Updated to indicate that if a justified trust review has occurred, we will have regard to that review when considering whether there is evidence of good governance frameworks in place. | Updated to apply current ATO style and accessibility guides. | Footnote reference link moved from 'ATO officer' to 'designated senior officer'. | Updated to new LAPS format and style. | Remove documents and replace with advice. | To emphasise the importance of good tax corporate governance. | Restrict opportunities to make non bona fide claims. | Extended definition of advice included. Sole purpose test to apply to advice and not a document. | Concession includes discussion of advice, requests for advice and tax risk registers. | New subparagraphs 20(c) and (d) | Modified process for dealing with concession claims. | New subparagraphs 22(d) and (e) | Exceptional circumstances extended. | Updated to current ATO corporate publishing style. | Updated references from sections 65 and 66 of the TAA to sections 353-10 and 353-15 of Schedule 1 to the TAA. | [1] A Senior Executive Service officer who does not have leadership responsibility for the compliance team and has not been involved in any matter in relation to the compliance activity that is subject to a claim for the concession. | File 04/8281, 1-5UHK85C; 1-176WN8Y6"
PS LA 2003/1,Petroleum excise duty - reporting for adjustments outside the current reporting period,2 April 2003,1 July 2003,Law Administration Practice Statement,False,"1. What this Practice Statement is about: This Practice Statement outlines the administrative arrangements in place to allow certain petroleum excise payers to make adjustments on an excise return for overpayments or underpayments that have occurred outside the current reporting period. These arrangements remove the requirement to seek specific approval for each occasion. | 2. When the administrative arrangements apply: Before we apply the administrative arrangements, the client must be assessed as low risk and will need to formally agree to only make adjustments where: • there is minimal impact on the settlement payment for the period • the client has an accounting system which is compliant with our requirements. • there is minimal impact on the settlement payment for the period • the client has an accounting system which is compliant with our requirements. The client will also need to confirm: • that supporting documentation will be maintained and made available to us on request • that any adjustments that are found to have been incorrectly claimed will be corrected by an adjustment to the next excise return and reported on the next out-of-period adjustment report (Report). This may involve a set-on (debit adjustment) or set-off (credit adjustment) for an incorrect refund, drawback claim, underpayment or overpayment of excise liability • which method they will use when utilising the arrangement (see section 5 of this Practice Statement). • that supporting documentation will be maintained and made available to us on request • that any adjustments that are found to have been incorrectly claimed will be corrected by an adjustment to the next excise return and reported on the next out-of-period adjustment report (Report). This may involve a set-on (debit adjustment) or set-off (credit adjustment) for an incorrect refund, drawback claim, underpayment or overpayment of excise liability • which method they will use when utilising the arrangement (see section 5 of this Practice Statement). | 3. Accepting an agreement: When an agreement is accepted, the client should be advised in writing, along with advice of when the Report is required to be provided (see section 4 of this Practice Statement). The advice should inform the client that acceptance of the agreement does not diminish or remove our ability to prosecute or take any other action. | 4. Out-of-period adjustment report: If adjustments apply, the client must supply a Report at the time of lodging their excise return (or at the alternative interval agreed to), which should detail the: • Australian business number • client name • adjustment claim code [1] , including: - Retr – returns of physical product - Stor – errors of fact in relation to bunkers - Erro – errors of fact of misconception of law - Roth – does not fit into the above - Draw – drawbacks for duty-paid product being exported • date of effect of duty • tariff classification • quantity [2] • excise duty rate • dollar amount • comments (that is, vessel name for drawbacks) • net adjustment result, and • signature. [3] • Australian business number • client name • adjustment claim code [1] , including: - Retr – returns of physical product - Stor – errors of fact in relation to bunkers - Erro – errors of fact of misconception of law - Roth – does not fit into the above - Draw – drawbacks for duty-paid product being exported • date of effect of duty • tariff classification • quantity [2] • excise duty rate • dollar amount • comments (that is, vessel name for drawbacks) • net adjustment result, and • signature. [3] - Retr – returns of physical product - Stor – errors of fact in relation to bunkers - Erro – errors of fact of misconception of law - Roth – does not fit into the above - Draw – drawbacks for duty-paid product being exported | 5. Utilising the arrangements: There are 2 ways in which clients can utilise the arrangements. Under either arrangement, a Report will detail all debit and credit adjustments identified during that period and will be netted off on the final excise payment. Adjustments are not made to the quantity for the same product reported in the excise return Where adjustments are not made to the quantity for the same product reported in the excise return, the net total of the Report will appear in the Out of period adjustment return (OOPAR) field and will be added or deducted from the total excise payable for that period. A positive amount will denote a debit and a negative amount will denote a credit. Adjustments are made at the line level to the quantity for the same product reported in the excise return Where adjustments are made at the line level to the quantity for the same product reported in the excise return, the Out of period adjustment return (OOPAR) field will only contain adjustment amounts relating to product for which there was insufficient quantities of that product delivered during the current period. This amount will be either added or deducted from the total excise payable for the period.",,,,,,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20031/NAT/ATO/00001,"Updated in line with current ATO style and accessibility requirements. | Amended to meet changes to online reporting and to meet accessibility requirements | Authorisation and contact officer details updated to reflect changes to structure and accountabilities. | Updated to new LAPS format and style. | Citations changed due to Excise Regulation 2015 replacing Excise Regulations 1925. | Amended to provide flexibility regarding the supply of data. | Tax Office updated to ATO as per Style Guide recommendations. | References to industry groups removed. Addition of 'electronically' to (c) to clarify the accepted method for receiving the adjustment report. Reference to statistical codes and original instruments removed. Phrases added to provide general clarification of the adjustment report process. | References to industry groups removed. | References to 'weekly' settlement permission changed to 'periodic' settlement permission. | [1] The adjustment claim code will only be required for each individual circumstance over 12 months old and for specific circumstances on request. | [2] The amount shown is taken as a credit, unless specified with a minus sign to signify a debit. | [3] Of the person authorised to sign the excise return. | File 2003/003426; 1-7JMQAVO"
PS LA 2003/3,Precedential ATO view,8 June 2007,19 February 2015,Law Administration Practice Statement,False,"1. What is a precedential ATO view?: A precedential ATO view is the ATO's documented view about the application of any of the laws administered by the Commissioner [1] in relation to a particular interpretative issue. | 2. Why do we have precedential ATO views?: We have precedential ATO views to ensure that our decisions on interpretative issues are accurate and consistent. | 3. What documents set out precedential ATO views?: Precedential ATO views are set out in the following documents: • public rulings (including draft public rulings) • ATO interpretative decisions (ATO IDs) • decision impact statements • documents listed in the Schedule of documents containing precedential ATO views. • public rulings (including draft public rulings) • ATO interpretative decisions (ATO IDs) • decision impact statements • documents listed in the Schedule of documents containing precedential ATO views. | 4. What do I need to do when making a decision on an interpretative issue?: If you are making a decision about an interpretative issue [2] , you need to: • search for and identify relevant precedential ATO views • apply the precedential ATO view if you believe the facts of the interpretative issue, and the circumstances outlined in the precedential ATO view document are similar enough that the law will be applied correctly. • search for and identify relevant precedential ATO views • apply the precedential ATO view if you believe the facts of the interpretative issue, and the circumstances outlined in the precedential ATO view document are similar enough that the law will be applied correctly. ATOlaw and the Legal Database allow you to search across the entire range of precedential ATO view documents. Before you apply the precedential ATO view, you should consider whether there are circumstances which would make it appropriate to apply that view only on a prospective basis. [3] If you do not find a precedential ATO view, or you think the application of the precedential ATO view would result in an incorrect decision or unintended outcome, you should seek engagement of appropriate technical officers, using your business line's procedures. In these instances, a new precedential ATO view should be created. | 5. What sorts of decisions do not require the application of a precedential ATO view?: You do not have to identify and apply a precedential ATO view where the decision you are making is: • covered by an exercise of the general powers of administration, such as those that are documented in practical compliance guidelines and law administration practice statements In some circumstances, we provide taxpayers with practical solutions to complying with the law where there might otherwise be unreasonable administrative problems in doing so. And provided they follow our agreed approaches in good faith, you should accept this as compliance with the law. But you should also be aware that taxpayers are not obliged to follow these approaches, and may instead adhere to the 'black letter of the law'. • a straightforward application of the law A straightforward application of the law would occur where the law provides clear authority for your decision, and no interpretation of certain clauses of the legislation is required. • the exercise of a discretion Exercising a discretion, such as an extension of time, requires you to choose between alternative courses of action. It is a decision you make after taking into account the individual circumstances at hand, weighing up the evidence and having reference to any relevant guidelines. There is no one consideration and no combination of considerations that determines the decision. • an ultimate conclusion of fact Some decisions require you to make an ultimate conclusion of fact for the purposes of applying the law, for example whether a taxpayer is carrying on a business. This also is a decision you make after taking all evidence into consideration and having reference to any relevant guidelines. • determining the value of something This is similar to making an ultimate conclusion of fact. You should follow any procedures that deal with valuation matters. • covered by an exercise of the general powers of administration, such as those that are documented in practical compliance guidelines and law administration practice statements In some circumstances, we provide taxpayers with practical solutions to complying with the law where there might otherwise be unreasonable administrative problems in doing so. And provided they follow our agreed approaches in good faith, you should accept this as compliance with the law. But you should also be aware that taxpayers are not obliged to follow these approaches, and may instead adhere to the 'black letter of the law'. • a straightforward application of the law A straightforward application of the law would occur where the law provides clear authority for your decision, and no interpretation of certain clauses of the legislation is required. • the exercise of a discretion Exercising a discretion, such as an extension of time, requires you to choose between alternative courses of action. It is a decision you make after taking into account the individual circumstances at hand, weighing up the evidence and having reference to any relevant guidelines. There is no one consideration and no combination of considerations that determines the decision. • an ultimate conclusion of fact Some decisions require you to make an ultimate conclusion of fact for the purposes of applying the law, for example whether a taxpayer is carrying on a business. This also is a decision you make after taking all evidence into consideration and having reference to any relevant guidelines. • determining the value of something This is similar to making an ultimate conclusion of fact. You should follow any procedures that deal with valuation matters. | 6. Who is responsible for ensuring that precedential ATO view documents remain current?: Everyone involved in interpretative work has a responsibility toward the maintenance of precedential ATO view documents because they must check the precedential ATO view in the process of applying that view. Business lines must also have processes in place to ensure that precedential ATO view documents are reviewed and updated in a timely manner, and should ensure that they consult other business lines if required as part of this process. Authors of new precedential ATO view documents must consider any effect the new precedential ATO view will have on existing precedential ATO view documents and ensure they are either withdrawn (with reference to the new precedential ATO view document) or updated. The Tax Counsel Network business line has responsibility for oversight of the precedential ATO view system, as established by this practice statement, and ensuring that it operates effectively. | 7. How can I access previous versions of precedential ATO view documents to see what the view was at a certain time?: Precedential ATO view documents are presented on ATOlaw and the Legal Database using point-in-time functionality. This means that there will be a link to past versions which were in effect at certain periods of time. An explanation of all changes made to precedential ATO view documents will also be made, in the following ways: • for a public ruling - via the formal addendum or erratum notice • for ATO IDs - via a history table at the end of the document • for decision impact statements - via a history table at the end of the document • for documents on the Schedule of documents containing precedential ATO views - via a 'What's changed' section or similar, depending on the type of document and the type of change. • for a public ruling - via the formal addendum or erratum notice • for ATO IDs - via a history table at the end of the document • for decision impact statements - via a history table at the end of the document • for documents on the Schedule of documents containing precedential ATO views - via a 'What's changed' section or similar, depending on the type of document and the type of change. | 8. More information: For more information: • See Schedule of documents containing precedential ATO views (internal link only) • See Other precedential ATO views (under Other ATO documents) for a list of documents containing precedential ATO views • Email the Law Publishing and Policy team in Tax Counsel Network. • See Schedule of documents containing precedential ATO views (internal link only) • See Other precedential ATO views (under Other ATO documents) for a list of documents containing precedential ATO views • Email the Law Publishing and Policy team in Tax Counsel Network.",Other precedential ATO views | PS LA 2011/27,PS LA 2011/27,,ATO Interpretative decisions Commissioner' discretion precedential ATO views private rulings public rulings Schedule of documents containing precedential ATO views,,False,True,https://www.ato.gov.au/law/view/document?docid=PSR/PS20033/NAT/ATO/00001,"If taxpayers rely on this practice statement, they will be protected from interest and penalties in the following way. If a statement turns out to be incorrect and taxpayers underpay their tax as a result, they will not have to pay a penalty. Nor will they have to pay interest on the underpayment provided they reasonably relied on this practice statement in good faith. However, even if they don't have to pay a penalty or interest, taxpayers will have to pay the correct amount of tax provided the time limits under the law allow it. | Internal link to Schedule of documents updated. | Minor formatting and style corrections. | Updated to allow for policy in relation to exercises of the Commissioner's general powers of administration | Rewritten practice statement published. | Update title to PS LA 2012/1 | Insert dot point to reference decision impact statements | Update references to Law and Practice to Tax Counsel Network | Inclusion of requirement to maintain historical record of changes to all precedential ATO view documents | Removal of footnote reference to PS LA 2002/16 | Removed reference to GSTR 2000/17. | - reflect the replacement of the requirement to escalate precedential issues to Centres of Expertise with the new rules for engagement of tax technical officers in Law and Practice set out in PS LA 2012/1 - update the responsibilities for maintenance of the ATO view - clarify the requirement for accreditation to create a precedential ATO view - delete material which was merely a replication of policy stated elsewhere, ie the protection afforded by precedential ATO view documents, which is set out now in PS LA 2008/3 - more logically reorder material and remove duplication. | Inserted to reflect additional requirement to consider whether previous ATO publications or conduct could have reasonably conveyed a different view on a particular issue - see PS LA 2011/27. | Inserted reference to PS LA 2011/27 | Paragraph 3 and footnotes 2, 3 (deleted), 4, 10, 11 (deleted), 12, 24 and 27 | Amended to reflect measures in the Tax Laws Amendment (2010 GST Administration Measures No. 2) Act 2010 to include indirect tax rulings in the general rulings regime. | Remove reference to PS LA 2001/4 and insert PS LA 2008/3. | [1] Includes law governing income tax, indirect taxes, fringe benefits tax, resource rent taxes withholding taxes, superannuation and excise. | [2] That does not fall within the exceptions set out in section 5 of this practice statement. | [3] See PS LA 2011/27 Matters the Commissioner considers when determining whether the ATO view of the law should only be applied prospectively. | This practice statement was originally published on 12 May 2003. Versions published from 23 July 2009 are available electronically - refer to the online version of the practice statement. Versions published prior to this date are not available electronically. If needed, these can be obtained from Corporate Policy and Process in Tax Counsel Network by emailing TCNLawPublishingandPolicy@ato.gov.au ."
PS LA 2003/6,Alienated personal services payments - calculating withholding amounts,1 July 2003,1 July 2003,Law Administration Practice Statement,False,"1. What this Practice Statement is about: From 1 July 2003, taxpayers can use an administrative method to calculate the withholding amounts on their alienated personal services payments to comply with Division 13 of Schedule 1 to the Taxation Administration Act 1953. When a personal services entity (PSE) follows this arrangement, we will remit any failure to withhold penalty that might otherwise arise under the law. This Practice Statement discusses the arrangement in detail. It sets out the calculations, the circumstances in which they can be used and provides worked examples. All further legislative references in this Practice Statement are to Schedule 1 to the Taxation Administration Act 1953, unless otherwise indicated. | 2. Why there are administrative arrangements: Administrative arrangements relieve an unintended difficulty for taxpayers arising from the law. Division 13 deals with collecting income tax and other liabilities included in an individual's assessable income under the Alienation of personal services income measures in Part 2-42 of the Income Tax Assessment Act 1997 (ITAA 1997). PSEs use the method statement in subsection 13-5(2) to work out their liability. At Step 2(a) of the method statement, the PSE must identify amounts that are included in the individual's assessable income under section 86-15 of the ITAA 1997 that relate to alienated personal services payments the entity received during the pay as you go (PAYG) payment period. However, the method statement creates a timing mismatch if the entity is eligible for deductions under section 86-20 of the ITAA 1997. These deductions must be worked out at the end of the income year, yet the method statement requires an amount to be included at Step 2(a) during the year. If the PSE cannot quantify the amount to be paid under Division 13 and this results in a shortfall, a failure to withhold penalty will apply under section 16-30. The administrative arrangements address this problem. | 3. What the administrative arrangements are: The administrative arrangement corrects the difficulty for PSEs by allowing them to fulfil their obligations by applying the correct withholding rate to a minimum personal services income (PSI) payout measure and: • pay amounts as salary or wages to the service provider and withhold under Division 12, or • choose not to pay the amounts as salary or wages to the service provider but pay them to us under Division 13. • pay amounts as salary or wages to the service provider and withhold under Division 12, or • choose not to pay the amounts as salary or wages to the service provider but pay them to us under Division 13. If a PSE does this using the calculations set out in this Practice Statement, we will remit to nil the failure to withhold penalty on any shortfall that arises from the entity's being unable to follow the method statement in subsection 13-5(2). The withholding rate is the rate listed in the relevant PAYG withholding tax tables (or a relevant variation granted to the individual service provider). The minimum PSI payout measure will be an amount that is either equal to or greater than: • 70% of the gross PSI (goods and services tax-exclusive (GST-exclusive)) received by the PSE during the current PAYG payment period, or • a net PSI percentage applied to the gross PSI (GST-exclusive) received by the PSE during the current PAYG payment period. • 70% of the gross PSI (goods and services tax-exclusive (GST-exclusive)) received by the PSE during the current PAYG payment period, or • a net PSI percentage applied to the gross PSI (GST-exclusive) received by the PSE during the current PAYG payment period. To work out the net PSI percentage: • subtract the amount worked out under the method statement in section 86-20 of the ITAA 1997 for the individual's previous income year from the individual's gross PSI (GST-exclusive) for the previous income year • divide the result by the PSE's gross PSI (GST-exclusive) for the previous income year, and • multiply by 100 to give a percentage. • subtract the amount worked out under the method statement in section 86-20 of the ITAA 1997 for the individual's previous income year from the individual's gross PSI (GST-exclusive) for the previous income year • divide the result by the PSE's gross PSI (GST-exclusive) for the previous income year, and • multiply by 100 to give a percentage. Apply this percentage to the gross PSI (GST-exclusive) for each PAYG payment period in the current year. The formula is: Failure to comply If the PSE does not follow the administrative arrangement or meet its conditions, the usual guidelines on remission of failure to withhold penalty apply. | 4. Worked examples: In the 3 worked examples in this Practice Statement, assume that the PSEs: • are subject to the Alienation of personal services income measures under Part 2-42 of the ITAA 1997, and • have withholding obligations under Division 13. • are subject to the Alienation of personal services income measures under Part 2-42 of the ITAA 1997, and • have withholding obligations under Division 13. Note: the withholding amounts calculated in the following examples are based on the PAYG Withholding Tax Tables (Quarterly) that were current at 1 July 2003. Always refer to the current Tax tables when working out withholding amounts. Example 1 - company In this example, a company uses the net PSI percentage option to calculate salary to pay to an individual service provider. [1] The example concludes with an analysis of the application of this Practice Statement to the shortfall in amounts that should have been paid under Division 13. InfotechBiz Co. (InfotechBiz) provides Peter's services as an IT consultant. InfotechBiz has only one worker (Peter) and is registered as a small withholder. InfotechBiz chooses to pay amounts out as salary to Peter within 14 days of the end of the quarter, calculated using the net PSI percentage. During the current income year The net PSI percentage is the same for each quarter in the income year, as it is worked out using amounts from the previous income year. For the previous income year, InfotechBiz: • received total payments of $100,000 (GST-exclusive) for Peter's services • received other income of $2,000 • incurred expenses (other than promptly paid salary or wages and entity maintenance expenses) of $30,000 to generate the income for Peter's services, and • incurred entity maintenance expenses of $5,000. • received total payments of $100,000 (GST-exclusive) for Peter's services • received other income of $2,000 • incurred expenses (other than promptly paid salary or wages and entity maintenance expenses) of $30,000 to generate the income for Peter's services, and • incurred entity maintenance expenses of $5,000. This worked example utilises the net PSI percentage formula from Section 3 of this Practice Statement to provide how to calculate the salary to pay to the service provider. Peter's gross PSI (GST-exclusive) for the previous income year was $100,000. As InfotechBiz had no other service providers, its gross PSI (GST-exclusive) for the previous income year was also $100,000. The amount worked out under the method statement in section 86-20 of the ITAA 1997 is $33,000. The steps in subsection 86-20(2) (and resulting calculations for InfotechBiz) are set out below: Step 1 : Work out, for the income year, the amount of any deductions (other than entity maintenance deductions or deductions for amounts of salary or wages paid to you) to which the PSE is entitled that are deductions relating to your PSI. The outcome of Step 1 for InfotechBiz is $30,000. Step 2 : Work out, for the income year, the amount of any entity maintenance deductions to which the PSE is entitled. The outcome of Step 2, for Peter as PSE, is $5,000. Step 3 : Work out the PSE's assessable income for that income year, disregarding any income it receives that is your PSI or the PSI of anyone else. The outcome of Step 3, for Peter as PSE, is $2,000. Step 4 : Subtract the amount under Step 3 from the amount under Step 2, noting that: (a) Step 4 ensures that, before entity maintenance deductions can contribute to the reduction, they are first exhausted against any income of the entity that is not PSI (b) if the PSE received another individual's PSI, see section 86-25 of the ITAA 1997. (a) Step 4 ensures that, before entity maintenance deductions can contribute to the reduction, they are first exhausted against any income of the entity that is not PSI (b) if the PSE received another individual's PSI, see section 86-25 of the ITAA 1997. The calculation for Step 4 is $5,000 - $2,000 = $3,000. Step 5 : If the amount under Step 4 is greater than zero, the amount of the reduction under subsection 86-20(1) of the ITAA 1997 is the sum of the amounts under Steps 1 and 4. The calculation for Step 5 is therefore $30,000 + $3,000 = $33,000. Step 6 : If the amount under Step 4 is not greater than zero, the amount of the reduction under subsection 86-20(1) of the ITAA 1997 is the amount under Step 1. Step 6 is not applicable. The net PSI percentage is worked out as follows: The net PSI percentage equals 67%. To work out the amount of salary to pay to Peter, Infotechbiz multiplies the net PSI percentage by the gross PSI (GST-exclusive) of InfotechBiz for the current PAYG payment period. During quarter 1, InfotechBiz received gross PSI (GST-exclusive) of $28,000: 67% × $28,000 = $18,760 InfotechBiz pays out $18,760 as salary to Peter within 14 days of the end of quarter 1. InfotechBiz works out the amount to withhold from the payment by referring to the PAYG Withholding Tax Tables (Quarterly) and withholds $5,811 from the payment of $18,760. InfotechBiz has not made any other withholding payments during that quarter, so the amount of $18,760 is reported at W1 and the amount of $5,811 is reported on InfotechBiz's quarterly business activity statement (BAS) at W2, as Peter is an Australian resident for tax purposes. InfotechBiz then lodges the BAS together with $5,811 (assume InfotechBiz has no other activity statement obligations). Assume the gross PSI (GST-exclusive) received by InfotechBiz is the same for each quarter (that is, $28,000). By the end of the income year, InfotechBiz has withheld the amounts shown in Table 1 of this Practice Statement during the year from payments of salary to Peter. Table 1: Example 1 - applying net PSI percentage to current income year Quarter Promptly paid salary Amount withheld under Division 12 1 $28,000 × 67% = $18,760 $5,811 2 $28,000 × 67% = $18,760 $5,811 3 $28,000 × 67% = $18,760 $5,811 4 $28,000 × 67% = $18,760 $5,811 Note: the total promptly paid salary is $75,040 and the total amount withheld under Division 12 is $23,244. InfotechBiz fills out the BAS correctly and pays the withheld amounts to us. After the end of the income year By 14 July, InfotechBiz prepares a payment summary for Peter. InfotechBiz also prepares an annual report and submits it to us. To complete their tax returns, Peter and InfotechBiz need to work out the amount of PSI that is attributed to Peter under Part 2-42 of the ITAA 1997. Assume that during the income year, InfotechBiz: • receives $112,000 (GST-exclusive) as a payment for Peter's services • receives investment income of $4,000 • incurs other expenses of $32,000 to generate the income for Peter's services, and • incurs entity maintenance expenses of $6,000. • receives $112,000 (GST-exclusive) as a payment for Peter's services • receives investment income of $4,000 • incurs other expenses of $32,000 to generate the income for Peter's services, and • incurs entity maintenance expenses of $6,000. The amount attributed to Peter at the end of the income year is Peter's PSI less deductions worked out under sections 86-15 and 86-20 of the ITAA 1997. The amount of Peter's PSI is $112,000. This amount is reduced by amounts promptly paid to Peter as salary (that is, $75,040). Peter's PSI under section 86-15 of the ITAA 1997 (before the application of section 86-20 of that Act) is therefore $36,960. This amount is then reduced by $34,000, the amount worked out using the method statement in subsection 86-20(2) of the ITAA 1997. The steps (and resulting calculations) in section 86-20 of that Act are set out below: Step 1 : Work out, for the income year, the amount of any deductions (other than entity maintenance deductions or deductions for amounts of salary or wages paid to you) to which the PSE is entitled that are deductions relating to your PSI. The outcome of Step 1, for Peter, is $32,000. Step 2 : Work out, for the income year, the amount of any entity maintenance deductions to which the PSE is entitled. The outcome of Step 2, for Peter as PSE, is $6,000. Step 3 : Work out the PSE's assessable income for that income year, disregarding any income it receives that is your PSI or the PSI of anyone else. The outcome of Step 3, for Peter, is $4,000. Step 4 : Subtract the amount under Step 3 from the amount under Step 2, noting that: (a) Step 4 ensures that, before entity maintenance deductions can contribute to the reduction, they are first exhausted against any income of the entity that is not PSI (b) if the PSE received another individual's PSI, see section 86-25 of the ITAA 1997. (a) Step 4 ensures that, before entity maintenance deductions can contribute to the reduction, they are first exhausted against any income of the entity that is not PSI (b) if the PSE received another individual's PSI, see section 86-25 of the ITAA 1997. The outcome of Step 4 is $2,000. Step 5 : If the amount under Step 4 is greater than zero, the amount of the reduction under subsection 86-20(1) of the ITAA 1997 is the sum of the amounts under Steps 1 and 4. The outcome of Step 5 is $34,000. Step 6 : If the amount under Step 4 is not greater than zero, the amount of the reduction under subsection 86-20(1) of the ITAA 1997 is the amount under Step 1. The amount therefore attributable to Peter under section 86-15 of the ITAA 1997 is $2,960 (that is, $36,960 less $34,000). Peter includes the amounts of $2,960 (attributed PSI) and $75,040 (salary) in his assessable income. Analysis After the end of the income year, we are in a position to accurately review the amounts that should have been paid under Division 13, had InfotechBiz been in a position to know the amount to include at Step 2(a) in the method statement in subsection 13-5(2). This potentially exposes InfotechBiz to a penalty for failure to withhold if there is a shortfall in the amounts that should have been paid under Division 13. The amounts which should have been paid under Division 13 in quarter 1 are set out in the steps from subsection 13-5(2) below: Step 1 : Identify the payments that the PSE makes to the individual during the period mentioned in paragraph 13(1)(b) that are withholding payments covered by section 12-35. The outcome of Step 1 is $18,760. Step 2 : Identify the amounts that: (a) are included in the individual's assessable income under section 86-15 of the ITAA 1997, and (b) relate to alienated personal services payments the entity receives during that period. (a) are included in the individual's assessable income under section 86-15 of the ITAA 1997, and (b) relate to alienated personal services payments the entity receives during that period. The outcome of Step 2 is $740, using the formula $2,960 × ($28,000 ÷ $112,000). Step 3 : Work out the sum of all the amounts that Division 12 would require the entity to withhold in respect of that period if both of these were taken into account, noting that: (a) the payments identified in Step 1, and (b) the amounts identified in Step 2, as if they were payments of salary covered by section 12-35. (a) the payments identified in Step 1, and (b) the amounts identified in Step 2, as if they were payments of salary covered by section 12-35. The outcome of Step 3 is $6,169, which is the amount to withhold on a quarterly basis from $19,500. Step 4 : Work out the sum of all the amounts withheld under section 12-35 from the payments identified in Step 1. The outcome of Step 4 is $5,811. Step 5 : Subtract the sum under Step 4 from the sum under Step 3. The outcome of Step 5 is $6,169 - $5,811 = $358. In addition to the amounts withheld under Division 12 throughout the year, InfotechBiz should have paid $358 per quarter under Division 13. There is, therefore, a shortfall in the amounts that InfotechBiz was required to pay under Division 13 and a failure to withhold penalty of $358 applies to InfotechBiz for quarter 1. Similarly, a failure to withhold penalty of $358 will apply for quarters 2, 3 and 4. However, the penalties are remitted to nil, because InfotechBiz complied with the administrative arrangements by: • paying salary within 14 days after the end of the PAYG payment period that was equal to the net PSI percentage applied to the gross PSI received by InfotechBiz during the quarter, and • withholding from that salary at the applicable withholding rate. • paying salary within 14 days after the end of the PAYG payment period that was equal to the net PSI percentage applied to the gross PSI received by InfotechBiz during the quarter, and • withholding from that salary at the applicable withholding rate. Example 2 - partnership Example 2 illustrates the application of the administrative options for partnerships. As partnerships cannot pay amounts to partners as salary or wages, they can only pay amounts under Division 13 rather than Division 12. In this example, the partnership has chosen to work out Division 13 amounts based on the flat rate of 70% of the gross PSI of the partnership during the PAYG payment period. Carrie and Jamie are partners in a partnership trading as 'Chic Deco', which provides Carrie's services as an interior designer. Chic Deco does not have any employees but registers as a small withholder. Jamie provides assistance in the administration of the partnership. Chic Deco chooses to work out its Division 13 obligations using 70% of the partnership's gross PSI (GST-exclusive) per quarter. During quarter 1, Chic Deco receives gross PSI (GST-exclusive) of $28,000. Chic Deco attributes $19,600 (70% of $28,000) to Carrie. Chic Deco then works out the amount to pay to us under Division 13 by referring to the PAYG Withholding Tax Tables (Quarterly). The amount Chic Deco is required to pay is $6,218. They have not made any other withholding payments during that quarter, so the amount of $19,600 is reported on their quarterly BAS at W1 and the amount of $6,218 is reported at W2, as Carrie is an Australian resident for tax purposes. Chic Deco then lodges the BAS and pays the $6,218 (assume Chic Deco has no other activity statement obligations). Assume for each quarter that the gross PSI (GST-exclusive) received by Chic Deco is the same as for quarter 1 (that is, $28,000). By the end of the income year, Chic Deco has paid the amounts shown in Table 2 of this Practice Statement to us under Division 13. Table 2: Example 2 - flat rate applied to current income year Quarter Attributed income Amount paid under Division 13 1 $28,000 × 70% = $19,600 $6,218 2 $28,000 × 70% = $19,600 $6,218 3 $28,000 × 70% = $19,600 $6,218 4 $28,000 × 70% = $19,600 $6,218 Note: the total attributed income is $78,400 and the total amount paid under Division 13 is $24,872. All amounts are correctly reported on the BAS and Division 13 amounts have been paid to us. After the end of the income year By 14 July, Chic Deco prepares a payment summary for Carrie. They also prepare an annual report and submit it to us. To complete their tax returns, Carrie and Chic Deco need to work out the amount of PSI attributed to Carrie under Part 2-42 of the ITAA 1997. Assume that during the year, Chic Deco: • receives $112,000 (GST-exclusive) as payment for Carrie's services • receives investment income of $4,000 • incurs other expenses of $32,000 to generate the income from Carrie's services, and • incurs entity maintenance expenses of $6,000. • receives $112,000 (GST-exclusive) as payment for Carrie's services • receives investment income of $4,000 • incurs other expenses of $32,000 to generate the income from Carrie's services, and • incurs entity maintenance expenses of $6,000. The amount attributed to Carrie at the end of the income year is Carrie's PSI less deductions worked out under sections 86-15 and 86-20 of the ITAA 1997. The amount of Carrie's PSI under section 86-15 of the ITAA 1997 (before the application of section 86-20 of that Act) is $112,000. This amount is then reduced by the amount worked out in accordance with the method statement in subsection 86-20(2) of the ITAA 1997 of $34,000 (calculations are the same as in Example 1 of this Practice Statement). The amount therefore attributable to Carrie under section 86-15 of the ITAA 1997 is $78,000 (that is, $112,000 less $34,000). Carrie includes the amount of $78,000 (attributed PSI) in her assessable income. Analysis After the end of the income year, we are in a position to accurately review the amounts that should have been paid under Division 13 had Chic Deco been in a position to know the amount to include at Step 2(a) in the method statement in subsection 13-5(2). This potentially exposes Chic Deco to a penalty for failure to withhold if there is a shortfall in the amounts that should have been paid under Division 13. The amounts which should have been paid under Division 13 in quarter 1 are set out in the steps from subsection 13-5(2) below: Step 1 : Identify the payments that the PSE makes to the individual during the period mentioned in paragraph (1)(b) that are withholding payments covered by section 12-35. The outcome of Step 1 is nil. Step 2 : Identify the amounts that: (a) are included in the individual's assessable income under section 86-15 of the ITAA 1997, and (b) relate to alienated personal services payments the entity receives during that period. (a) are included in the individual's assessable income under section 86-15 of the ITAA 1997, and (b) relate to alienated personal services payments the entity receives during that period. The outcome of Step 2 is $19,500, using the formula $78,000 × ($28,000 ÷ $112,000). Step 3 : Work out the sum of all the amounts that Division 12 would require the entity to withhold in respect of that period if both of these were taken into account: (a) the payments identified in Step 1, and (b) the amounts identified in Step 2, as if they were payments of salary covered by section 12-35. (a) the payments identified in Step 1, and (b) the amounts identified in Step 2, as if they were payments of salary covered by section 12-35. The outcome of Step 3 is $6,169, which is the amount to withhold on quarterly basis from $19,500. Step 4 : Work out the sum of all the amounts withheld under section 12-35 from the payments identified in Step 1. The outcome of Step 4 is nil. Step 5 : Subtract the sum under Step 4 from the sum under Step 3. The outcome of Step 5 is $6,169 - $0 = $6,169. Had Chic Deco been in a position to accurately calculate Step 2(a) of the method statement in subsection 13-5(2), they would have known that their Division 13 liability was $6,169. Instead, they paid $6,218 under Division 13 for quarter 1. There is, therefore, a small 'over-withholding' of $49 per quarter. There was no shortfall under Division 13 for quarter 1, so no penalty applies. Example 3 - applying the ordinary rules to a company that pays a flat rate In this example, we consider remission of the failure to withhold penalty under the general remission policy, rather than the specific guidelines. In this case, the company is not applying the administrative arrangement. Instead, they pay a set amount of salary not calculated from the gross PSI the company receives. Peppe Co. (Peppe) provides Jack's services as an engineer. Peppe is aware that it had Division 13 obligations for the personal services provided by Jack. Peppe is registered as a small withholder. In quarter 1, Peppe receives $60,000 in gross PSI (GST-exclusive). Peppe pays $20,000 as salary to Jack. Peppe works out the amount to withhold by referring to the PAYG Withholding Tax Tables (Quarterly) and withholds $6,412 from the payment of $20,000. Peppe has not made any other withholding payments during that quarter so, on Peppe's BAS, the amount of $20,000 is reported at W1 and the amount of $6,412 is reported at W2, as Jack is an Australian resident for tax purposes. Peppe lodges the BAS and pays $6,412 to us (assume Peppe has no other activity statement obligations). Assume the gross PSI (GST-exclusive) received by Peppe is the same for each quarter (that is, $60,000). By the end of the income year, Peppe has withheld the amounts shown in Table 3 of this Practice Statement from salary paid to Jack. Table 3: Example 3 - amounts withheld without administrative arrangements Quarter Promptly paid salary Amount withheld under Division 12 1 $20,000 $6,412 2 $20,000 $6,412 3 $20,000 $6,412 4 $20,000 $6,412 Note: the promptly paid salary total is $80,000 and the amount withheld under Division 12 total is $25,648. These amounts are correctly reported on the BAS and the withheld amounts paid to us. After the end of the income year By 14 July, Peppe prepares the payment summary for Jack. Peppe also prepares an annual report and submits it to us. To complete their tax returns, Jack and Peppe need to work out the amount of PSI that is attributed to Peppe under Part 2-42 of the ITAA 1997. Assume that during the income year, Peppe: • receives $240,000 (GST-exclusive) as a payment for Jack's services • receives investment income of $5,000 • incurs other expenses of $65,000 to generate the income for Jack's services, and • incurs entity maintenance expenses of $5,000. • receives $240,000 (GST-exclusive) as a payment for Jack's services • receives investment income of $5,000 • incurs other expenses of $65,000 to generate the income for Jack's services, and • incurs entity maintenance expenses of $5,000. The amount attributed to Jack at the end of the income year is Jack's PSI less deductions worked out under sections 86-15 and 86-20 of the ITAA 1997. The amount of Jack's PSI is $240,000. This amount is reduced by amounts promptly paid to Jack as salary or wages (that is, $80,000). Jack's PSI under section 86-15 of the ITAA 1997 is therefore $160,000. This amount is reduced by $65,000, the amount worked out using the method statement in subsection 86-20(2) of the ITAA 1997. The steps (and resulting calculations) in subsection 86-20(2) of that Act are set out below: Step 1 : Work out, for the income year, the amount of any deductions (other than entity maintenance deductions or deductions for amounts of salary or wages paid to you) to which the PSE is entitled that are deductions relating to your PSI. The outcome of Step 1, for Peppe, is $65,000. Step 2 : Work out, for the income year, the amount of any entity maintenance deductions to which the PSE is entitled. The outcome of Step 2, for Jack, is $5,000. Step 3 : Work out the PSE's assessable income for that income year, disregarding any income it receives that is your PSI or the PSI of anyone else. The outcome of Step 3, for Jack, is $5,000. Step 4 : Subtract the amount under Step 3 from the amount under Step 2, noting that: (a) Step 4 ensures that, before entity maintenance deductions can contribute to the reduction, they are first exhausted against any income of the entity that is not PSI (b) if the PSE received another individual's PSI, see section 86-25 of the ITAA 1997. (a) Step 4 ensures that, before entity maintenance deductions can contribute to the reduction, they are first exhausted against any income of the entity that is not PSI (b) if the PSE received another individual's PSI, see section 86-25 of the ITAA 1997. The outcome of Step 4 is nil ($5,000 - $5,000). Step 5 : If the amount under Step 4 is greater than zero, the amount of the reduction under subsection 86-20(1) of the ITAA 1997 is the sum of the amounts under Steps 1 and 4. Step 5 is not applicable. Step 6 : If the amount under Step 4 is not greater than zero, the amount of the reduction under subsection 86-20(1) of the ITAA 1997 is the amount under Step 1. The outcome of Step 6 is $65,000, the amount under Step 1. The amount therefore attributable to Jack under section 86-15 of the ITAA 1997 is $95,000 (that is, $160,000 - $65,000). Jack includes the amounts of $95,000 (attributed PSI) and $80,000 (salary or wages) in his assessable income. Analysis After the end of the income year, we are in a position to accurately review the amounts that should have been paid under Division 13 had Peppe been in a position to know the amount to include at Step 2(a) in the method statement in subsection 13-5(2). This potentially exposes Peppe to a penalty for failure to withhold if there is a shortfall in the amounts that should have been paid under Division 13. The amounts which should have been paid under Division 13 in quarter 1 are set out in the steps from subsection 13-5(2) below: Step 1 : Identify the payments that the PSE makes to the individual during the period mentioned in paragraph (1)(b) that are withholding payments covered by section 12-35. The outcome of Step 1 is $20,000. Step 2 : Identify the amounts that: (a) are included in the individual's assessable income under section 86-15 of the ITAA 1997, and (b) relate to alienated personal services payments the entity receives during that period. (a) are included in the individual's assessable income under section 86-15 of the ITAA 1997, and (b) relate to alienated personal services payments the entity receives during that period. The outcome of Step 2 is $23,750, using the formula $95,000 × (60,000 ÷ 240,000). Step 3 : Work out the sum of all the amounts that Division 12 would require the entity to withhold in respect of that period if both of these were taken into account: (a) the payments identified in Step 1, and (b) the amounts identified in Step 2, as if they were payments of salary covered by section 12-35. (a) the payments identified in Step 1, and (b) the amounts identified in Step 2, as if they were payments of salary covered by section 12-35. The outcome of Step 3 is $17,931, which is the amount to withhold on quarterly basis from $43,750. Step 4 : Work out the sum of all the amount withheld under section 12-35 from the payments identified in Step 1. The outcome of Step 4 is $6,412. Step 5 : Subtract the sum under Step 4 from the sum under Step 3. The outcome of Step 5 is $17,931 - $6,412 = $11,519. In addition to the amounts withheld under Division 12 for quarter 1, Peppe should have also paid $11,519 under Division 13. There is, therefore, a shortfall, and a failure to withhold penalty of $11,519 applies to Peppe for quarter 1. Similarly, a penalty of $11,519 will apply to Peppe for quarters 2, 3 and 4. Even though Peppe did not make a conscious choice to adopt the administrative options, we will remit the failure to withhold penalty to nil if the amounts that Peppe withheld during each quarter of the year are equal to or greater than the amounts that would have been withheld if the relevant withholding rate had been applied to: • 70% of the gross PSI (GST-exclusive) received by Peppe during the quarter, or • the net PSI percentage applied to the gross PSI (GST-exclusive) received by Peppe during the quarter. • 70% of the gross PSI (GST-exclusive) received by Peppe during the quarter, or • the net PSI percentage applied to the gross PSI (GST-exclusive) received by Peppe during the quarter. Otherwise, if the amounts that Peppe withheld during each quarter of the year are not equal to or greater than the amounts that would have been withheld if the relevant withholding rate had been applied we will apply the general guidelines on remission of failure to withhold penalty for Division 13. The amount actually withheld during quarter 1 was $6,412. Under the 70% of the gross PSI option, 70% of $60,000 (Peppe's gross PSI for quarter 1) is $42,000. The amount to withhold from $42,000, according to the PAYG Withholding Tax Tables (Quarterly) is $17,082. Under the net PSI percentage option, the calculation relies on the previous year's figures. Assume for the previous income year, Peppe: • received total payments of $200,000 (GST-exclusive) for Jack's services • received other income of $4,000 • incurred expenses (other than promptly paid salary or wages and entity maintenance expenses) of $60,000 to generate the income for the Jack's services, and • incurred entity maintenance expenses of $5,000. • received total payments of $200,000 (GST-exclusive) for Jack's services • received other income of $4,000 • incurred expenses (other than promptly paid salary or wages and entity maintenance expenses) of $60,000 to generate the income for the Jack's services, and • incurred entity maintenance expenses of $5,000. This worked example utilises the net PSI percentage formula from Section 3 of this Practice Statement to provide how to calculate the salary to pay to an individual service provider. Jack's gross PSI (GST-exclusive) for the previous income year was $200,000. As Peppe has no other service providers, his gross PSI (GST-exclusive) for the previous income year is also $200,000. The amount worked out under the method statement in section 86-20 of the ITAA 1997 is $61,000. The steps in subsection 86-20(2) of that Act (and resulting calculations) are set out below: Step 1 : Work out, for the income year, the amount of any deductions (other than entity maintenance deductions or deductions for amounts of salary or wages paid to you) to which the PSE is entitled that are deductions relating to your PSI. The outcome of the Step 1, for Peppe, is $60,000. Step 2 : Work out, for the income year, the amount of any entity maintenance deductions to which the PSE is entitled. The outcome of Step 2, for Jack as PSE, is $5,000. Step 3 : Work out the PSE's assessable income for that income year, disregarding any income it receives that is your PSI or the PSI of anyone else. The outcome of Step 3, for Jack, is $4,000. Step 4 : Subtract the amount under Step 3 from the amount under Step 2, noting that: (a) Step 4 ensures that, before entity maintenance deductions can contribute to the reduction, they are first exhausted against any income of the entity that is not PSI (b) if the PSE received another individual's PSI, see section 86-25 of the ITAA 1997. (a) Step 4 ensures that, before entity maintenance deductions can contribute to the reduction, they are first exhausted against any income of the entity that is not PSI (b) if the PSE received another individual's PSI, see section 86-25 of the ITAA 1997. The outcome of Step 4 is $5,000 - $4,000 = $1,000) Step 5 : If the amount under Step 4 is greater than zero, the amount of the reduction under subsection 86-20(1) of the ITAA 1997 is the sum of the amounts under Steps 1 and 4. The outcome of Step 5 is $60,000 + $1,000 = $61,000. Step 6 : If the amount under Step 4 is not greater than zero, the amount of the reduction under subsection 86-20(1) of the ITAA 1997 is the amount under Step 1. Step 6 is not applicable. The net PSI percentage is worked out as follows: The net PSI percentage equals 69.5%. 69.5% of $60,000 (Peppe's gross PSI for quarter 1) is $41,700. The amount to withhold from $41,700 according to the PAYG Withholding Tax Tables (Quarterly) is $16,936. The amount that Peppe actually withheld in quarter 1 (that is, $6,412) is neither equal to nor greater than the amount that would have been withheld using one of the administrative options (that is, $17,082 or $16,936). We, therefore, will not remit the failure to withhold penalty of $11,519 for quarter 1 (or the other 3 quarters) to nil under the guidelines in this Practice Statement. We would consider remission of the failure to withhold penalties under the general failure to withhold remission guidelines for Division 13. | 5. More information: For more information, refer to the Tax tables .",TR 2022/3 | ITAA 1997 Pt 2-42 | ITAA 1997 86-15 | ITAA 1997 86-20 | ITAA 1997 86-20(1) | ITAA 1997 86-20(2) | ITAA 1997 86-25 | TAA 1953 Sch 1 Div 12 | TAA 1953 Sch 1 12-35 | TAA 1953 Sch 1 Div 13 | TAA 1953 Sch 1 13-5(2) | TAA 1953 Sch 1 16-30,,ITAA 1997 Pt 2-42 | ITAA 1997 86-15 | ITAA 1997 86-20 | ITAA 1997 86-20(1) | ITAA 1997 86-20(2) | ITAA 1997 86-25 | TAA 1953 Sch 1 Div 12 | TAA 1953 Sch 1 12-35 | TAA 1953 Sch 1 Div 13 | TAA 1953 Sch 1 13-5(2) | TAA 1953 Sch 1 16-30,,Tax tables,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20036/NAT/ATO/00001,Updated in line with current ATO style and accessibility requirements. | Attachment A (Transitional arrangements for 2001-02 and 2002-03) removed due to passage of time. | Updated to new LAPS format and style. | [1] This example would apply in the same way if the PSE were a trust. | File 2003/007197; 1-17K3HMW0
PS LA 2003/7,How to treat a request to lodge a late objection,30 July 2003,30 July 2003,Law Administration Practice Statement,False,"What this Practice Statement is about: 1. We have the discretion to treat a late objection as if it had been lodged within the required period. [1] 2. This discretion is an exception to the general rule. The purpose of the discretion is to avoid injustice being caused in a particular case because of the rigid application of a time limit. 3. This Practice Statement provides guidance on when an extension of time can be granted to late objections. It must be worked out by considering the factors set out in paragraph 10 of this Practice Statement. That process should be approached recognising that the Australian Parliament has entrusted to the Commissioner of Taxation a discretionary power to extend the time limit in appropriate circumstances. [2] 4. All further legislative references in this Practice Statement are to the Taxation Administration Act 1953 (TAA), unless otherwise indicated. | What a taxpayer must do to have the late objection considered as if it was lodged within time: 5. If a taxpayer wants to object to a decision but the time limit has passed, they can lodge the objection together with a written request asking that the objection be treated as if it had been lodged within time (late objection). [3] 6. The written request should include an explanation of why the objection was lodged late. [4] If the explanation seems inadequate, give the taxpayer the opportunity to provide further information or a better explanation. It is not essential that they do and, even if they do not, the absence of a detailed explanation should not be the sole reason for refusing to agree to extend the time. You must consider the explanation together with other factors in arriving at a decision (see paragraph 10 of this Practice Statement). 7. If a request has been received without the objection, you will need to ask the taxpayer to lodge the objection. You cannot consider the request until the objection has been received. | Late objection lodged within the amendment period: 8. Where a late objection has been lodged without a written request (but within the time limit allowed to amend an assessment) and the claim is reasonable and likely to be allowed in full, it is not necessary to ask the taxpayer to lodge a written request. The late objection is to be treated as an amendment request. [5] 9. However, if there is some doubt the claim is allowable, the taxpayer needs to lodge a written request asking that the late objection be considered as if it had been lodged within time. | Factors you should take into account: 10. You need to weigh up all relevant factors, including: • the legislative purpose for having a limited objection period [6] • whether the objection and the application for an extension of time was lodged by the taxpayer as soon as circumstances permitted • the taxpayer's explanation for failing to lodge the objection within the time limit (in certain cases the explanation itself may be so compelling that you may not need to consider other factors) • the circumstances of the delay, including – the duration of the delay (a delay of several years would require better explanation than a delay of a few days) – the extent to which the taxpayer kept us informed that they did not agree with the decision and has taken steps to contest the decision – whether a negligent failure to follow instructions on the part of an adviser contributed to the delay – whether the taxpayer was informed that they could object but did not do so • whether the taxpayer has an arguable case that the objection should be allowed in full or in part (do not undertake a full-scale investigation of the merits of the issue) • whether the Commissioner's consideration of the objection is prejudiced by reason of the delay, including – where material documents have been lost, destroyed or are no longer available – where witnesses have disappeared or their recollections have faded, and – where avenues of useful enquiry have dried up or have become difficult to pursue • whether the delay is explained, in whole or in part, by an intent to allow a period of review of the correct taxpayer and the correct tax period, as contended in the objection, to expire • any other matter that the circumstances of the case make relevant. • the legislative purpose for having a limited objection period [6] • whether the objection and the application for an extension of time was lodged by the taxpayer as soon as circumstances permitted • the taxpayer's explanation for failing to lodge the objection within the time limit (in certain cases the explanation itself may be so compelling that you may not need to consider other factors) • the circumstances of the delay, including – the duration of the delay (a delay of several years would require better explanation than a delay of a few days) – the extent to which the taxpayer kept us informed that they did not agree with the decision and has taken steps to contest the decision – whether a negligent failure to follow instructions on the part of an adviser contributed to the delay – whether the taxpayer was informed that they could object but did not do so • whether the taxpayer has an arguable case that the objection should be allowed in full or in part (do not undertake a full-scale investigation of the merits of the issue) • whether the Commissioner's consideration of the objection is prejudiced by reason of the delay, including – where material documents have been lost, destroyed or are no longer available – where witnesses have disappeared or their recollections have faded, and – where avenues of useful enquiry have dried up or have become difficult to pursue • whether the delay is explained, in whole or in part, by an intent to allow a period of review of the correct taxpayer and the correct tax period, as contended in the objection, to expire • any other matter that the circumstances of the case make relevant. – the duration of the delay (a delay of several years would require better explanation than a delay of a few days) – the extent to which the taxpayer kept us informed that they did not agree with the decision and has taken steps to contest the decision – whether a negligent failure to follow instructions on the part of an adviser contributed to the delay – whether the taxpayer was informed that they could object but did not do so – where material documents have been lost, destroyed or are no longer available – where witnesses have disappeared or their recollections have faded, and – where avenues of useful enquiry have dried up or have become difficult to pursue | Circumstances in which extensions of time will be appropriate: 11. You must decide each case on its own merits. In considering the explanation of delay, and provided there are no other relevant matters, you would generally allow an extension of time if: • the taxpayer was too ill to lodge an objection • the taxpayer was overseas, did not return until the time limit had expired and it is shown that, in all the circumstances, those matters prevented the taxpayer from lodging an objection within time • the taxpayer did not know about and did not receive the taxation decision because – it was sent to the wrong address, or – there were problems with the mail service • the taxpayer thought that lodging an objection was futile until a court decision (or a change in legislation or a public ruling) delivered shortly after the time limit expired made the objection reasonable • the taxpayer thought that lodging an objection was futile but then discovered they may have believed this because we gave them incorrect information • the issue involves an important question of law or practice • the taxpayer has a strong case and has previously advised us before the time limit expired that they did not accept the decision and would be lodging an objection • the taxpayer has a strong case for allowing the objection, and had requested an extension within a period for which there is a reasonable explanation for the delay • the delay in lodging an objection in time was caused by our conduct • the taxpayer's adviser, despite receiving prompt instructions, was negligent and failed to execute those instructions • the taxpayer has experienced circumstances of vulnerability that impacted their ability to lodge an objection within time (including, but not limited to, family violence, financial coercion, homelessness and severe mental health struggles) • an individual or small business with a 2-year time limit has lodged, within 4 years, an objection that discloses an arguable case for the objection to be allowed in full or in part. • the taxpayer was too ill to lodge an objection • the taxpayer was overseas, did not return until the time limit had expired and it is shown that, in all the circumstances, those matters prevented the taxpayer from lodging an objection within time • the taxpayer did not know about and did not receive the taxation decision because – it was sent to the wrong address, or – there were problems with the mail service • the taxpayer thought that lodging an objection was futile until a court decision (or a change in legislation or a public ruling) delivered shortly after the time limit expired made the objection reasonable • the taxpayer thought that lodging an objection was futile but then discovered they may have believed this because we gave them incorrect information • the issue involves an important question of law or practice • the taxpayer has a strong case and has previously advised us before the time limit expired that they did not accept the decision and would be lodging an objection • the taxpayer has a strong case for allowing the objection, and had requested an extension within a period for which there is a reasonable explanation for the delay • the delay in lodging an objection in time was caused by our conduct • the taxpayer's adviser, despite receiving prompt instructions, was negligent and failed to execute those instructions • the taxpayer has experienced circumstances of vulnerability that impacted their ability to lodge an objection within time (including, but not limited to, family violence, financial coercion, homelessness and severe mental health struggles) • an individual or small business with a 2-year time limit has lodged, within 4 years, an objection that discloses an arguable case for the objection to be allowed in full or in part. – it was sent to the wrong address, or – there were problems with the mail service | Circumstances in which extensions of time may not be appropriate: 12. You must decide each case on its own merits, but you would normally not allow an extension of time if: • despite receiving prompts from us, the taxpayer has not explained why they did not object within time • the only explanation for delay is that the taxpayer has changed adviser • it has been an excessively long time since the taxation decision was made and the taxpayer has not offered a satisfactory explanation for the delay • an administrative decision is being challenged and documents have been destroyed or the decision-maker has left the ATO, and we therefore cannot recall all of the circumstances for making that decision • granting an extension would prevent us from conducting our operations fairly and efficiently • granting an extension would be contrary to the public interest – for example, where the extension would re-open a matter that has already been settled • despite having advisers, it was the taxpayer's own decision that led to the failure to lodge a timely objection • an individual or a small business with a 2-year time limit has lodged an objection within 4 years that does not disclose an arguable case for the objection to be allowed in full or in part. • despite receiving prompts from us, the taxpayer has not explained why they did not object within time • the only explanation for delay is that the taxpayer has changed adviser • it has been an excessively long time since the taxation decision was made and the taxpayer has not offered a satisfactory explanation for the delay • an administrative decision is being challenged and documents have been destroyed or the decision-maker has left the ATO, and we therefore cannot recall all of the circumstances for making that decision • granting an extension would prevent us from conducting our operations fairly and efficiently • granting an extension would be contrary to the public interest – for example, where the extension would re-open a matter that has already been settled • despite having advisers, it was the taxpayer's own decision that led to the failure to lodge a timely objection • an individual or a small business with a 2-year time limit has lodged an objection within 4 years that does not disclose an arguable case for the objection to be allowed in full or in part. | Notify the taxpayer: 13. If you refuse a request for an extension of time, you must give the taxpayer written notice of that decision. 14. You must note all the factors you considered and how you weighted their relevance to your final decision. For example, you might say that 'the objection does not disclose an arguable case' or 'the prejudice against the taxpayer is outweighed by the prejudice against the Commissioner'. | Contesting our decision: 15. If we refuse to agree to an extension request, the taxpayer may apply to the Administrative Review Tribunal to have the decision reviewed. [7] | More information: 16. The leading case concerning this discretion may provide more guidance for you. See Brown v Commissioner of Taxation [1999] FCA 563 , per Hill J. 17. For more information, see: • Complete and lodge your objection – on how taxpayers should object to a decision • Eligibility to lodge an objection – on the ATO decisions against which taxpayers can object • Application for extension of time to lodge an objection – supporting information – on the information we provide to taxpayers about requesting an extension of time to object. • Complete and lodge your objection – on how taxpayers should object to a decision • Eligibility to lodge an objection – on the ATO decisions against which taxpayers can object • Application for extension of time to lodge an objection – supporting information – on the information we provide to taxpayers about requesting an extension of time to object.",[1999] FCA 563 | TAA 1953 14ZQ | TAA 1953 14ZW | TAA 1953 14ZW(2) | TAA 1953 14ZW(3) | TAA 1953 14ZX | TAA 1953 14ZX(4) | 99 ATC 4516,,TAA 1953 14ZQ | TAA 1953 14ZW | TAA 1953 14ZW(2) | TAA 1953 14ZW(3) | TAA 1953 14ZX | TAA 1953 14ZX(4),,,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20037/NAT/ATO/00001,"Added dot point where delay is due to vulnerability. | Updated from Administrative Appeals Tribunal to Administrative Review Tribunal. | Minor content changes made for clarity. | Amended to provide clarification. | Updated references to TAA 1953. | Update to new LAPS format and style. | Minor grammatical changes. | STS taxpayer updated to 'small business entity' due to the introduction of the small business framework in Tax Laws Amendment (Small Business) Act 2007. | 'Tax Office' updated to 'ATO' as per Style Guide recommendations. | Name changes and minor grammatical corrections. | Paragraph 22 (inserted) and paragraphs 24 and 26 (amended) | Revised to include new individual and simplified tax system taxpayer timeframes as per the Report on Aspects of Income Tax Self Assessment published in August 2004. | [1] Section 14ZW of the Taxation Administration Act 1953 (TAA) imposes time limits for lodging objections against taxation decisions. Section 14ZX of the TAA allows the Commissioner to treat a late objection as though it had been lodged within the required period. 'Taxation decision' means the assessment, determination, notice or decision against which a taxation objection may be, or has been, made: section 14ZQ of the TAA. | [2] Brown v Commissioner of Taxation [1999] FCA 563 at [59]. | [5] See Law Administration Practice Statement PS LA 2008/19 Requests to amend income tax assessments . | [6] The time limits set out in the TAA represent the Australian Parliament's judgment that the tax system is best served by objections being lodged within that time. | File 2003/007197; 1-1AWHLG8M | Brown v Commissioner of Taxation [1999] FCA 563 99 ATC 4516 (1999) 42 ATR 118 | This practice statement was originally published on 30 July 2003. Versions published from 2 September 2009 are available electronically - refer to the online version of the practice statement. Versions published prior to this date are not available electronically. If needed, these can be requested by emailing TCNLawPublishingandPolicy@ato.gov.au ."
PS LA 2003/8,Practical approaches to low-cost business expenses,16 September 2003,1 July 2000,Law Administration Practice Statement,False,"1. General qualifications: This Practice Statement does not apply to taxpayers using the simplified depreciation rules for small business, as they can claim an immediate deduction for most depreciating assets costing less than the instant asset write-off threshold amount. This Practice Statement does not apply to expenditure incurred on: • establishing a business or business venture or building up a significant store or stockpile of assets • assets held under lease, hire purchase or similar arrangement • assets leased or hired to another entity • assets included in an asset register • any asset that forms part of a collection of assets, or • trading stock or spare parts. • establishing a business or business venture or building up a significant store or stockpile of assets • assets held under lease, hire purchase or similar arrangement • assets leased or hired to another entity • assets included in an asset register • any asset that forms part of a collection of assets, or • trading stock or spare parts. This Practice Statement also does not apply to component parts of composite assets (those items that would not normally be separate assets, such as scaffolding clamps). | 2. Threshold rule: Expenditure of up to $100 to acquire an asset for business use can be treated as revenue expenditure. The threshold of $100 is inclusive of any goods and services tax included in the price of the item. Some examples of low-cost items covered under the threshold rule include: • office equipment – such as hand-held staplers, hole punches, manila folders, ring binders, geometry sets, stencils, calculators, tape dispensers, scissors, labelling machines and barcoding machines • catering items – such as cutlery, crockery and table linen • small tools – such as pliers, screwdrivers, hammers, secateurs, goggles and torches. • office equipment – such as hand-held staplers, hole punches, manila folders, ring binders, geometry sets, stencils, calculators, tape dispensers, scissors, labelling machines and barcoding machines • catering items – such as cutlery, crockery and table linen • small tools – such as pliers, screwdrivers, hammers, secateurs, goggles and torches. | 3. Sampling rule: Taxpayers with a low-value pool [1] may use the sampling rule to determine the proportion of the total purchases on low-cost assets that are revenue expenditure. The sample remains valid for 3 years (including the income year in which the sampling takes place), provided the nature of the purchases does not change to the extent that the sampling becomes inaccurate. If the purchases change significantly or if the business has merged or demerged and the previous sample would no longer deliver reliable or consistent results, the taxpayer will need to take a new sample. Statistical sampling will not be regarded as an alternative where the business' current systems result in reliable individual identification and accounting of low-cost items. Eligibility Purchases that cost less than $1,000 and are not excluded by the general qualifications are eligible for sampling. There are 2 options to calculate the sample but, whichever is used, the sample must be representative of the total population from which it has been drawn. The sampling results must be statistically valid and result in objective, reliable and conservative estimates. The sampling results can only be applied against eligible purchases. The revenue component is assessed for immediate deductibility under the general deduction provisions. The capital component that relates to depreciating assets is dealt with under the low-value pool provisions. The threshold rule can be used to assist with the revenue or capital expenditure decision for the sample. Option 1 – using a percentage The first option is to extract a representative percentage sample from eligible purchases of an income year. From the sample, determine the percentage that is deemed to be revenue. As a general rule, we consider a representative sample of 10% of eligible purchases as being sufficient. It may be appropriate to use a lower or higher percentage, depending on the total number of eligible purchases. Example 1 – using a percentage A business records $100,000 worth of revenue and capital purchases in an income year. Individual items costing $1,000 or more (totalling $15,000) are excluded from the sampling. A further $50,000 worth of trading stock is also excluded, leaving $35,000 worth of eligible purchases. Analysing 10% of the eligible purchases shows that revenue expenditure is 40%. By applying this to the $35,000 worth of eligible purchases, the business can claim an immediate deduction of $14,000 (40% of $35,000). Option 2 – using a time period The second option allows the taxpayer to choose a sample comprising all eligible purchases for a given period (for example, 2 months) in an income year that is representative of the capital and revenue purchases for the business. From the sample, determine the percentage that is deemed to be revenue. Example 2 – using a time period A business has purchases for an income year totalling $2.5 million. Of this amount, $300,000 relates to items that each cost $1,000 or more; and a further $1 million is trading stock. Neither of these are eligible purchases for the sampling rule, so the purchases that are eligible total $1.2 million. The business identifies all eligible purchases for a representative 2-month period in that year. In that period, 35% of the eligible purchases are shown to be revenue items. Applying the 35% for the 2-month sample period, the business can claim an immediate deduction of $420,000 (35% of $1.2 million). | 4. More information: For more information, see: • Uniform capital allowance system for low-value pools • Simpler depreciation rules for small business . • Uniform capital allowance system for low-value pools • Simpler depreciation rules for small business .",ITAA 1997 Subdiv 40-E,,ITAA 1997 Subdiv 40-E,,Simpler depreciation rules for small business Uniform capital allowance system for low-value pools,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20038/NAT/ATO/00001,"Updated in line with current ATO style and accessibility requirements. | Updated to new LAPS format and style. | Remove paragraph 21 to 23 and replace with paragraph 22 and 23. | Remove reference to Audit statistical sampling guidelines. | Diagrams at paragraphs 26 and 27 | Omitted '$1,000' and substitute 'the instant asset write-off threshold amount'. | Update to current corporate publication style. | Paragraphs 26 and 27 and Other references | Update 'ATO's Statistical Sampling Guidelines' to 'Audit statistical sampling guidelines'. | Updated Tax Office to ATO within diagram. | Add a reference to using the simplified depreciation rules. | Include reference to small business entity (applicable from 1 July 2007). | Include reference to subsection 73B(14) of the ITAA 1936. | [1] Under Subdivision 40-E of the Income Tax Assessment Act 1997 . | File 2003/3044; 2003/4024; 2003/4027; 2003/5180; 2003/10178; 2003/11436; 2003/34733; 1-16YJO8MS | This practice statement was originally published on 16 September 2003. Versions published from 3 September 2007 are available electronically - refer to the online version of the practice statement. Versions published prior to this date are not available electronically. If needed, these can be requested by emailing TCNLawPublishingandPolicy@ato.gov.au ."
PS LA 2003/9,Online Resource Centre for Law Administration,22 September 2003,22 September 2003,Law Administration Practice Statement,False,"1. The Online Resource Centre for Law Administration: The Online Resource Centre for Law Administration (ORCLA) is an electronic manual setting out the policies governing technical decision-making in the ATO. ORCLA is contained in the Enterprise Knowledge Management (EKM) system in myATO. | 2. Technical decisions: We use the term 'technical decisions' to describe decisions in the following contexts: • provision of binding advice, such as private, public and oral rulings and administratively binding advice • written guidance • compliance activities (such as audits), and • objections. • provision of binding advice, such as private, public and oral rulings and administratively binding advice • written guidance • compliance activities (such as audits), and • objections. | 3. Requirement to use ORCLA: You must: • use ORCLA if you are involved in technical decision-making • follow any business line specific policies that link from ORCLA. • use ORCLA if you are involved in technical decision-making • follow any business line specific policies that link from ORCLA. | 4. Currency of ORCLA: The only authoritative version of the policies contained in ORCLA is the electronic version. You must not rely on paper copies of ORCLA pages as these may be outdated. If you have concerns about the accuracy, currency or applicability of the material in ORCLA, you should provide feedback via the feedback option in EKM. All material changes to ORCLA pages are recorded in Updates to ORCLA content (link available internally only). | 5. Maintenance of ORCLA: The Office of the Chief Tax Counsel maintains ORCLA. However, business lines are responsible for the maintenance of any business line-specific policies linked from ORCLA. | 6. More information: For more information, see: • About ORCLA (link available internally only) • ORCLA contents and sitemap (link available internally only). • About ORCLA (link available internally only) • ORCLA contents and sitemap (link available internally only).",,,,,About ORCLA (link available internally only) ORCLA contents and sitemap (link available internally only) Updates to ORCLA content (link available internally only),False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20039/NAT/ATO/00001,Content checked for currency and accuracy. | Updated in line with current ATO style and accessibility requirements. | Updated to new LAPS format and style. | Formatting updated to current LAPS style. | Removed references to procedures and instructions. | Revised and tightened language to improve clarity of the policy. | Updated to current style guide and updated legislative references. | Update references from Part IVAA to Division 358 and from Part IVAAA to Division 359 of Schedule 1 to the TAA. | Related practice statements | Update references to PS LA 2008/3. | Update reference from section 37 to section 105-60. | File 03/12555; 1-4X8X1S0; 1-14EWDIO6
PS LA 2003/12,Capital gains tax treatment of the trustee of a testamentary trust,12 November 2003,,Law Administration Practice Statement,False,"1. What is this Practice Statement about?: This Practice Statement confirms the Commissioner's long-standing administrative practice of treating the trustee of a testamentary trust in the same way as a legal personal representative for the purposes of Division 128 of the Income Tax Assessment Act 1997 (ITAA 1997), in particular subsection 128-15(3). | 2. What is the effect of the practice for the trustee of a testamentary trust?: Broadly stated, the ATO's practice is to not recognise any taxing point in relation to assets owned by a deceased person until they cease to be owned by the beneficiaries named in the will (unless there is an earlier disposal by the legal personal representative or testamentary trustee to a third party or CGT event K3 applies). | 3. What is the effect of the practice for a beneficiary?: The cost base and reduced cost base of the asset in the hands of the beneficiary is calculated in the same way as it would have been if the asset had passed to them from the deceased's legal personal representative. If the deceased acquired the asset before 20 September 1985 (that is, pre-CGT), the acquisition cost will be equal to the market value at the date of the deceased's death. If the deceased acquired the asset on or after 20 September 1985, the beneficiary's acquisition cost will be determined in accordance with table items 1, 2, 3 or 3A of subsection 128-15(4) of the ITAA 1997. If the deceased acquired the asset before 20 September 1985 (that is, pre-CGT), the acquisition cost will be equal to the market value at the date of the deceased's death. If the deceased acquired the asset on or after 20 September 1985, the beneficiary's acquisition cost will be determined in accordance with table items 1, 2, 3 or 3A of subsection 128-15(4) of the ITAA 1997. Example 1 Mr Smith died in 2001. At that time, he owned some land which he had acquired in 1995. His will provided that the land was to be held on trust for his 2 sons until they had both turned 18. At the time of his death, the children were 10 and 8 years old. In 2012, the trustee of the trust created by Mr Smith's will transferred the land to his sons. The Commissioner accepts that the transfer did not result in a CGT event happening to the trustee if the children agree that their acquisition cost for the asset is equal to the trustee's cost base. Example 2 Mr Smith died in 2001. At that time, he owned a variety of assets acquired after 19 September 1985. His will provides that the assets are to be held by the trustee of a trust created under his will. The trustee can distribute those assets at his absolute discretion among a wide range of objects including trustees of various trusts. In 2012, the trustee of the testamentary trust validly transferred some of the assets to Mr Smith's children and some to the trustee of another trust. The Commissioner accepts that the transfers did not result in a CGT event happening to the trustee of the testamentary trust if the beneficiaries agree that their acquisition cost for the assets is equal to the trustee's cost base. In 2014, the trustee of the beneficiary trust (itself a discretionary trust) transfers one of the assets to one of its beneficiaries. CGT event A1 happens at the time of the transfer.",ITAA 1997 Div 128 | ITAA 1997 128-15(3) | ITAA 1997 128-15(4),,ITAA 1997 Div 128 | ITAA 1997 128-15(3) | ITAA 1997 128-15(4),,,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS200312/NAT/ATO/00001,"Minor changes made to style and formatting. | Updated to new LAPS format and style. | Preamble updated as announced on 13 December 2013 that the measure will not proceed. | Inserted provide further clarity on the administrative practice. | Insert 2 paragraphs related to the 2011-12 Budget announced amendments to capital gains tax (CGT) provisions | Insert 'which is now repealed, but …' in reference to section 160X of the Income Tax Assessment Act 1936 . | This practice statement was originally published on 12 November 2003. Versions published from 14 December 2011 are available electronically - refer to the online version of the practice statement. Versions published prior to this date are not available electronically. If needed, these can be requested by emailing TCNLawPublishingandPolicy@ato.gov.au ."
PS LA 2003/13,Valuing trading stock for retailers and wholesalers,30 June 2004,30 June 2004,Law Administration Practice Statement,False,"1. What this practice statement is about: This Practice Statement only applies in relation to those retailers or wholesalers (including consolidated groups) whose consolidated gross operating turnover for the financial year is greater than $10 million. It provides guidance on: • what costs to include in valuing trading stock on hand • the valuation approach you can take when valuing a taxpayer's trading stock on hand for the 2003–04 tax return • the valuation approach you should take when valuing a taxpayer's trading stock on hand in subsequent (2004–05 and later) tax returns, where the taxpayer has not used cost basis valuation previously. • what costs to include in valuing trading stock on hand • the valuation approach you can take when valuing a taxpayer's trading stock on hand for the 2003–04 tax return • the valuation approach you should take when valuing a taxpayer's trading stock on hand in subsequent (2004–05 and later) tax returns, where the taxpayer has not used cost basis valuation previously. Note: If a taxpayer has a consolidated gross operating turnover for the financial year of less than $10 million, you should accept their calculations where they are made in accordance with this Practice Statement. However, such a taxpayer may use any other method that is fair, reasonable and in full accordance with the law. | 2. Full absorption costing to be used: Valuations of trading stock on hand for these taxpayers must be done using the full absorption costing method. You can accept the taxpayer's calculations where the cost of their trading stock on hand is determined in accordance with Accounting Standard AASB 102 Inventories, where all costs incurred in bringing the trading stock to its present location and condition are appropriately captured. | 3. Examples of costs that should be absorbed: Examples of costs which are to be included in full absorption costing are: • the purchasing function • operating distribution centres • operating on-site or off-site warehouses, or storage areas • freight from the supplier's premises to the retailer's warehouse or distribution centre • freight from the retailer's warehouse or distribution centre to the retail outlet. • the purchasing function • operating distribution centres • operating on-site or off-site warehouses, or storage areas • freight from the supplier's premises to the retailer's warehouse or distribution centre • freight from the retailer's warehouse or distribution centre to the retail outlet. The costs of operating a warehouse or distribution centre typically include: • salary and wages • light and power • cleaning • security • repairs and maintenance • freight • insurance • rent • rates and taxes • lease costs • depreciation • damaged stock • phone • WorkCover premiums • superannuation • other administration costs. • salary and wages • light and power • cleaning • security • repairs and maintenance • freight • insurance • rent • rates and taxes • lease costs • depreciation • damaged stock • phone • WorkCover premiums • superannuation • other administration costs. | 4. Costs that should not be absorbed: When applying the absorption method, the following costs need not be absorbed: • general administrative costs unrelated to the operation of the warehouse or distribution centre • costs connected with the selling function • costs incurred outside the normal operations of the warehouse or distribution centre • costs of carrying obsolete stock • cost of displaying goods in the retail outlet • cost of transporting goods from the selling location to the customer's premises • interest • advertising. • general administrative costs unrelated to the operation of the warehouse or distribution centre • costs connected with the selling function • costs incurred outside the normal operations of the warehouse or distribution centre • costs of carrying obsolete stock • cost of displaying goods in the retail outlet • cost of transporting goods from the selling location to the customer's premises • interest • advertising. You should also accept that incidental costs of a minor nature which may be time-consuming to record and would not result in a material difference to value need not be absorbed – for example, the cost of moving stock from the on-site storage location to the display setting. | 5. Accounting costs versus absorption costs: The costs that are being included under absorption costing may include costs which the taxpayer does not include for inventory costing purposes under the relevant accounting standards. If a taxpayer has not used the full absorption cost method for calculating the cost valuation of their trading stock on hand in a given income year, you may accept a taxpayer's use of calculation methods permitted under the relevant accounting standards for valuing the cost of their trading stock on hand, provided the methods used are consistent with their financial statement accounting calculations and financial statement disclosures over the same period. Note: Where a taxpayer includes a particular cost amount in their trading stock calculations for calculating the cost of their trading stock on hand for income tax purposes, you may not accept the inclusion of that particular cost amount again at any other assessable income or allowable deduction item, irrespective of which method is used. | 6. 2003–04 financial year: Where taxpayers have not previously used full absorption costing, we will allow those taxpayers to include the appropriate figure in their return for the year ended 30 June 2004. Those taxpayers are not required to adjust their closing stock on hand in earlier year returns. However, the rules outlined in this Practice Statement will apply for the 2004–05 and subsequent years. | 7. More information: For more information, refer to: • legislative principles - section 70-45 of the Income Tax Assessment Act 1997 • on judicial interpretation of valuation principles - Phillip Morris Ltd v Commissioner of Taxation [1979] VicSC 321 - Commissioner of Taxation v Kurts Development Ltd; Kurts Development Ltd v Commissioner of Taxation [1998] FCA 1037 • Accounting Standard AASB 102 Inventories • "" public rulings - Taxation Ruling TR 2006/8 Income tax: the cost basis of valuing trading stock for taxpayers in the retail and wholesale industries - Taxation Ruling IT 2289 Income tax: valuation of trading stock – average cost or actual cost - Taxation Ruling TR 2009/5 Income tax: trading stock – treatment of discounts, rebates and other trade incentives offered by sellers to buyers. • legislative principles - section 70-45 of the Income Tax Assessment Act 1997 • on judicial interpretation of valuation principles - Phillip Morris Ltd v Commissioner of Taxation [1979] VicSC 321 - Commissioner of Taxation v Kurts Development Ltd; Kurts Development Ltd v Commissioner of Taxation [1998] FCA 1037 • Accounting Standard AASB 102 Inventories • "" public rulings - Taxation Ruling TR 2006/8 Income tax: the cost basis of valuing trading stock for taxpayers in the retail and wholesale industries - Taxation Ruling IT 2289 Income tax: valuation of trading stock – average cost or actual cost - Taxation Ruling TR 2009/5 Income tax: trading stock – treatment of discounts, rebates and other trade incentives offered by sellers to buyers. - section 70-45 of the Income Tax Assessment Act 1997 - Phillip Morris Ltd v Commissioner of Taxation [1979] VicSC 321 - Commissioner of Taxation v Kurts Development Ltd; Kurts Development Ltd v Commissioner of Taxation [1998] FCA 1037 - Taxation Ruling TR 2006/8 Income tax: the cost basis of valuing trading stock for taxpayers in the retail and wholesale industries - Taxation Ruling IT 2289 Income tax: valuation of trading stock – average cost or actual cost - Taxation Ruling TR 2009/5 Income tax: trading stock – treatment of discounts, rebates and other trade incentives offered by sellers to buyers.",TR 2006/8 | IT 2289 | TR 2009/5 | ITAA 1997 Section 70-45 | 98 ATC 4877 | 79 ATC 4352,,ITAA 1997 Section 70-45,,Accounting Standard AASB 102 Inventories,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS200313/NAT/ATO/00001,Updated in line with current ATO style and accessibility requirements. | Updated to new LAPS style and format. Amended and deleted outdated information and law. Included further useful references for ATO Officers. | Amendments made to reflect repeal of STS. | Related Rulings/Determinations: IT 2289 TR 2006/8 TR 2009/5 | Commissioner of Taxation v Kurts Development Ltd; Kurts Development Ltd v Commissioner of Taxation [1998] FCA 1037 86 FCR 337 98 ATC 4877 39 ATR 493 | Phillip Morris v Federal Commissioner of Taxation [1979] VicSC 321 (1979) 38 FLR 383 79 ATC 4352 (1979) 10 ATR 44
PS LA 2002/4,Service of documents,4 February 2002,4 February 2002,Law Administration Practice Statement,False,"1. What is this Practice Statement about?: This Practice Statement advises: • who may accept service of documents • what needs to be done when accepting service, and • what needs to be done after accepting service. • who may accept service of documents • what needs to be done when accepting service, and • what needs to be done after accepting service. | 2. Who can accept service of documents?: This Practice Statement outlines who can accept service in different situations. You should note that if an address for service is not included in the documents, you should refuse to accept service in every instance. Taxation or AOD appeals You cannot accept service of these matters, as the Federal Court Rules 2011 state that only the Australian Government Solicitor (AGS) can accept service. The originating documents must be served at the offices of the AGS in the State or Territory in which the application was filed. Documents being served on Commissioners and Deputy Commissioners The following is the order of preference in regard to who should accept service of documents served on Commissioners and Deputy Commissioners: 1. An officer from either the Office of General Counsel (OGC) or the Litigation and Legal Services (LLS) business line. 2. In sites with no OGC or LLS presence, a nominated team leader in the relevant business line. 3. If the relevant business line cannot be identified, any EL2 officer in that site. 4. Any ATO staff member. 1. An officer from either the Office of General Counsel (OGC) or the Litigation and Legal Services (LLS) business line. 2. In sites with no OGC or LLS presence, a nominated team leader in the relevant business line. 3. If the relevant business line cannot be identified, any EL2 officer in that site. 4. Any ATO staff member. Documents being served on named ATO staff members Before you accept service of documents on behalf of an individual staff member: • you need the consent of that staff member, and • the documents being served must relate to the named staff member's ATO duties • you need the consent of that staff member, and • the documents being served must relate to the named staff member's ATO duties If the documents relate to a private matter, you must refuse service. | 3. What do I need to do when accepting service?: When accepting service of any documents, you must do the following: • Record the time and date of service on the front of the document. • Prepare a file note ensuring that reference is made to the time of service, whether or not conduct money (see below) was offered and, if so, whether it was accepted or refused. • If asked by the person serving the document, sign an acknowledgment of receipt of the document and provide your name. • Record the time and date of service on the front of the document. • Prepare a file note ensuring that reference is made to the time of service, whether or not conduct money (see below) was offered and, if so, whether it was accepted or refused. • If asked by the person serving the document, sign an acknowledgment of receipt of the document and provide your name. It is preferable that conduct money is not accepted. However, if you do accept conduct money, you should follow the instructions in Financial Management Procedure and Instruction FMPI 2014/07/01 Collecting and receiving money. | 4. What do I need to do after accepting service?: Documents served on Commissioners and Deputy Commissioners The documents should immediately be forwarded to the nearest OGC team. If not in the same site, immediately scan and email the documents to GeneralCounselRequests@ato.gov.au . The originals should then be sent by internal mail to the nearest OGC team. Refer to Attachment 1 to this Practice Statement. Documents served on named ATO staff members You must ensure that the documents are given to the person named within a short time frame; for example, 24 hours. Failure to do so may have serious legal consequences. | 5. More information: For more information, see: • Contact Office of General Counsel (Internal link only) • Federal Court Rules 2011 • Chief Executive Instruction Managing Money - collecting and receiving (Internal link only) • Contact Office of General Counsel (Internal link only) • Federal Court Rules 2011 • Chief Executive Instruction Managing Money - collecting and receiving (Internal link only) Addresses for the Office of General Counsel (as at 23 February 2023) City Postal service Please address 'Attention Office of General Counsel' Service in person Phone New South Wales GPO Box 4889 SYDNEY NSW 2000 255 George Street SYDNEY NSW 2000 1800 005 172 Victoria GPO Box 1797 MELBOURNE VIC 3001 747 Collins Street MELBOURNE VIC 3000 1800 005 172 South Australia and Northern Territory GPO Box 2934 ADELAIDE SA 5001 26 Franklin Street ADELAIDE SA 5000 1800 005 172 Western Australia GPO Box C109 PERTH WA 6839 45 Francis Street PERTH WA 6000 1800 005 172 Queensland GPO Box 869 BRISBANE QLD 4001 152 Wharf Street BRISBANE QLD 4000 1800 005 172 Australian Capital Territory PO Box 900 Civic Square ACT 2608 26 Narellan Street Civic ACT 2600 1800 005 172",,,Federal Court Rules 2011,,Chief Executive Instruction Managing Money - collecting and receiving (Internal link only),False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20024/NAT/ATO/00001,Addresses for the General Counsel | Update business line names and contact information. | Minor change Updated address for General Counsel | Updated the Addresses for the General Counsel Unit | Updated to new LAPS format and style. | Updated due to ATO restructuring. | Included references to 'AOD appeals'. | Paragraph 15 and other references | Refinement of conduct money process | Update legislative references for Federal Court Rules | Update references of 'ATO Legal Practice' to 'Legal Services Branch'. Update references of 'ATO Officer' to 'Tax Officer'. Update to match Tax Office Style Guide. | Insertion of a Table of Contents. | Reworded to ensure that original documents are lodged at offices of AGS in State or Territory in which application is filed. | Update references of 'ATO Legal Practice' to 'Legal Services Provider'.
PS LA 2002/6,The Australian zone list,4 February 2002,4 February 2002,Law Administration Practice Statement,False,"1. Using the Australian zone list: If you are considering a taxpayer's entitlement to the zone tax offset, you must use and follow the Australian zone list (the List), which ensures that we make consistent decisions about entitlements to the zone tax offset. However, the List is not exhaustive and there is a continuous need to review and revise it. If you identify any potential deficiencies or errors in the List, you must escalate a proposal around the deficiency or error. | 2. The escalation process: Follow this process when escalating a proposal to change the List: • prepare a recommendation, which should include - an analysis of the relevant issues; in particular, the application of subsection 79A(3D) of the Income Tax Assessment Act 1936 , guided by Taxation Ruling TR 94/27 Income tax: zone rebate for residents of isolated areas , and - supporting evidence, including copies of relevant maps marked with practicable routes and an explanation as to why any shorter route is not a practicable route, and • forward the recommendation to the Individuals and Intermediaries business line Public Advice and Guidance Unit for approval by an Excutive Level 2 officer. • prepare a recommendation, which should include - an analysis of the relevant issues; in particular, the application of subsection 79A(3D) of the Income Tax Assessment Act 1936 , guided by Taxation Ruling TR 94/27 Income tax: zone rebate for residents of isolated areas , and - supporting evidence, including copies of relevant maps marked with practicable routes and an explanation as to why any shorter route is not a practicable route, and • forward the recommendation to the Individuals and Intermediaries business line Public Advice and Guidance Unit for approval by an Excutive Level 2 officer. - an analysis of the relevant issues; in particular, the application of subsection 79A(3D) of the Income Tax Assessment Act 1936 , guided by Taxation Ruling TR 94/27 Income tax: zone rebate for residents of isolated areas , and - supporting evidence, including copies of relevant maps marked with practicable routes and an explanation as to why any shorter route is not a practicable route, and | 3. Implications of a change to the List: Provided a taxpayer claims a zone tax offset in accordance with the List (as it was at the time of the claim), you should not reduce their claim if the List is subsequently changed. However, you are able to amend the taxpayer's assessment to increase the zone tax offset if a change to the List provides the grounds to do so. | 4. More information: The List is published on our website. See Australian zone list .",TR 94/27 | ITAA 1936 79A(3D),,ITAA 1936 79A(3D),,Australian zone list,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20026/NAT/ATO/00001,"Updated in line with current ATO style and accessibility requirements. | Remove the word 'proposed'. | Fix the broken link to PS LA 2008/14. | Updated to new LAPS format and style. | Minor amendment to wording and link | Minor amendments to update team names and wording | File 2001/016720; 2002/000774 | This practice statement was originally published on 4 February 2002. Versions published from 16 September 2008 are available electronically - refer to the online version of the practice statement. Versions published prior to this date are not available electronically. If needed, these can be requested by emailing TCNLawPublishingandPolicy@ato.gov.au ."
PS LA 2002/11,Escalation of issues concerning fixed entitlements to a share of the income or capital of a trust,9 May 2002,19 September 2001,Law Administration Practice Statement,False,"1. What this Practice Statement is about: Among other things, the rules contained in Schedule 2F of the Income Tax Assessment Act 1936 (ITAA 1936): • establish when a beneficiary has a fixed entitlement to a share of the income or capital of a trust (and thus when the trust is a fixed trust), and • provide that the Commissioner of Taxation may exercise a discretion to deem that a person has a fixed entitlement. • establish when a beneficiary has a fixed entitlement to a share of the income or capital of a trust (and thus when the trust is a fixed trust), and • provide that the Commissioner of Taxation may exercise a discretion to deem that a person has a fixed entitlement. The concepts of 'fixed entitlement' and 'fixed trust' are also incorporated in other areas of the tax legislation. These concepts must be interpreted and applied consistently. This Practice Statement therefore outlines when requests for advice should be escalated to the Trust Technical Network for consideration. | 2. Requests for advice that must be escalated to the Trust Technical Network: You must escalate any requests for advice that concern: • persons having fixed entitlements to income or capital of a trust under subsection 272-5(1) of Schedule 2F to the ITAA 1936, or • the exercise of the discretion to deem a fixed entitlement under subsection 272-5(3) of Schedule 2F to the ITAA 1936. • persons having fixed entitlements to income or capital of a trust under subsection 272-5(1) of Schedule 2F to the ITAA 1936, or • the exercise of the discretion to deem a fixed entitlement under subsection 272-5(3) of Schedule 2F to the ITAA 1936. You must also escalate any requests for advice in relation to the legislative sections outlined in the Attachment to this Practice Statement, where that request requires consideration of the terms 'fixed entitlement' and 'fixed trust'. | 3. More information: To find out more, contact the Trust Technical Network . Table 1: Income Tax Assessment Act 1936 Provision Contends with Schedule 2F Trust loss provisions Section 102UC Trustee beneficiary reporting Sections 160APA and 160APHD Franking of dividends Table 2: Income Tax Assessment Act 1997 Provision Contends with Section 104-72 Capital gains tax event E4 and trusts Section 115-50 Discount capital gains Section 115-110 Foreign or temporary residents - individuals with trust gains Section 116-35 Capital proceeds - market value substitution rule Section 118-510 Capital gains tax and venture capital Section 124-781 Capital gains tax and scrip-for-scrip rollover Subdivision 165-F Company tax losses - ownership of a company by non-fixed trusts Section 170-265 Company as a member of a linked group Section 207-128 Franked distributions - reinvestment choice Section 415-20 Designated infrastructure entity Section 703-40 Consolidation: treating entities held through non-fixed trusts as wholly owned subsidiaries Section 707-325 Consolidation: modified market value of an entity becoming a member of a consolidated group Section 713-50 Consolidation: determining destination of distribution by non-fixed trust Section 719-35 Consolidation: treating entities held through non-fixed trusts as wholly owned subsidiaries Section 725-65 Direct value shifting: cause of the value shift Section 727-110 Indirect value shifting: common ownership nexus test Sections 727-360, 727-365, 727-400 and 727-410 Indirect value shifting: control, common ownership and ultimate stake tests Section 855-40 Capital gains or losses of foreign residents Table 3: A New Tax System (Goods and Services Tax) Regulations 2019 Provision Contends with Sections 48-10.03A and 196-1.01 Approval of GST groups Table 4: Schedule 1 to the Taxation Administration Act 1953 Provision Contends with Section 45-287 Trust income included in instalment income of a beneficiary",ITAA 1936 Sch 2F | ITAA 1936 Sch 2F 272-5(1) | ITAA 1936 Sch 2F 272-5(3) | ITAA 1936 102UC | ITAA 1997 104-72 | ITAA 1997 115-50 | ITAA 1997 115-110 | ITAA 1997 116-35 | ITAA 1997 118-510 | ITAA 1997 124-781 | ITAA 1997 Subdiv 165-F | ITAA 1997 170-265 | ITAA 1997 207-128 | ITAA 1997 415-20 | ITAA 1997 703-40 | ITAA 1997 707-325 | ITAA 1997 713-50 | ITAA 1997 719-35 | ITAA 1997 725-65 | ITAA 1997 727-110 | ITAA 1997 727-360 | ITAA 1997 727-365 | ITAA 1997 727-400 | ITAA 1997 727-410 | ITAA 1997 855-40 | ANTS(GST)R 2019 48-10.03A | ANTS(GST)R 2019 196-1.01 | TAA 1953 Sch 1 45-287,,ITAA 1936 Sch 2F | ITAA 1936 Sch 2F 272-5(1) | ITAA 1936 Sch 2F 272-5(3) | ITAA 1936 102UC | ITAA 1936 160APA | ITAA 1936 160APHD | ITAA 1997 104-72 | ITAA 1997 115-50 | ITAA 1997 115-110 | ITAA 1997 116-35 | ITAA 1997 118-510 | ITAA 1997 124-781 | ITAA 1997 Subdiv 165-F | ITAA 1997 170-265 | ITAA 1997 207-128 | ITAA 1997 415-20 | ITAA 1997 703-40 | ITAA 1997 707-325 | ITAA 1997 713-50 | ITAA 1997 719-35 | ITAA 1997 725-65 | ITAA 1997 727-110 | ITAA 1997 727-360 | ITAA 1997 727-365 | ITAA 1997 727-400 | ITAA 1997 727-410 | ITAA 1997 855-40 | ANTS(GST)R 2019 48-10.03A | ANTS(GST)R 2019 196-1.01 | TAA 1953 Sch 1 45-287,,,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS200211/NAT/ATO/00001,Updated in line with current ATO style and accessibility requirements. | Update to new LAPS format and style. | Omitted all occurrences of 'Trust Community of Practice'; substituted 'Trust Technical Network'. | Updated to reflect the changed responsibilities for the administration of Trust loss measures. | File 2002/006208; 1-1440QBJC
PS LA 2001/6,Verification approaches for electronic device usage expenses,14 February 2001,1 July 2004,Law Administration Practice Statement,False,"2. Basic principles: Prerequisites for deductions include the conditions that: • the taxpayer has actually incurred the expenses and has not been reimbursed (see section 3 of this Practice Statement), and • there must be a real connection between the use of the device and the taxpayer's income producing work. • the taxpayer has actually incurred the expenses and has not been reimbursed (see section 3 of this Practice Statement), and • there must be a real connection between the use of the device and the taxpayer's income producing work. If the taxpayer uses their device for work purposes and private purposes, only the expense related to the work usage can be claimed as a deduction (see section 4 of this Practice Statement). | 3. Evidencing expenditure (incurred): Invoices in the name of the service recipient represent evidence that an expense has been incurred. An expense in the name of one person can be apportioned to others where the circumstances are relevant. For example, this can include family circumstances such as a husband and wife, or where 2 unrelated parties share accommodation, and both contribute to the cost of expenses jointly. Where invoices are not available, corroborating evidence may be accepted to demonstrate the expense has been incurred. The level of evidence required to establish that an expense has been incurred is less than that required to substantiate the expense. This means bank and credit card statements may be acceptable to establish that a taxpayer has incurred an expense. For example, a bank statement in the taxpayer's name clearly showing a payment to an internet provider will be acceptable evidence to establish that an internet expense has been incurred. | 4. Extent of deductibility: Evidence is required to demonstrate how the taxpayer has calculated their deduction based on a proportion of the total expense incurred. In apportioning the expense, taxpayers need to factor in the extent to which: • the device usage expense was incurred by the taxpayer for income-producing purposes or if the taxpayer also incurred the device usage expense for private purposes, and • any other members of the household used the service or device for any purpose (including automated functions such as application updates on devices and streaming of TV and movies). • the device usage expense was incurred by the taxpayer for income-producing purposes or if the taxpayer also incurred the device usage expense for private purposes, and • any other members of the household used the service or device for any purpose (including automated functions such as application updates on devices and streaming of TV and movies). Taxpayers can prove their deductible (work) use proportion by: • providing evidence of the proportion of deductible use for the whole year, such as 'itemised' supplier records which have the taxpayer's work-use proportion for the applicable period marked on each record as evidence of their annual claim for deduction • providing records showing their detailed usage pattern over a representative period (if they have one). For example, a 'diary' record of use over a representative 4-week period can be accepted. A 'diary' in this context is a record prepared by the taxpayer during the period of use and acknowledged as such by the taxpayer, or • in limited cases when calculating the work use proportion of expenses, by providing a reasonable estimate. This will only be accepted where the claim is small and the taxpayer can demonstrate to your satisfaction that their estimate was reasonably likely under their given circumstances. • providing evidence of the proportion of deductible use for the whole year, such as 'itemised' supplier records which have the taxpayer's work-use proportion for the applicable period marked on each record as evidence of their annual claim for deduction • providing records showing their detailed usage pattern over a representative period (if they have one). For example, a 'diary' record of use over a representative 4-week period can be accepted. A 'diary' in this context is a record prepared by the taxpayer during the period of use and acknowledged as such by the taxpayer, or • in limited cases when calculating the work use proportion of expenses, by providing a reasonable estimate. This will only be accepted where the claim is small and the taxpayer can demonstrate to your satisfaction that their estimate was reasonably likely under their given circumstances. A taxpayer can only use a representative period if they have one. This means that their work-use proportion is constant throughout the year. When using a representative 4-week period, a taxpayer multiplies the result over the amount of their working year. For example, if a taxpayer worked all year and there are 13 4 week periods in the year, they would keep records for one 4-week period and multiply the result by 13 to get the annual amount. But if the taxpayer took a holiday during the year and there are only 10 4 week periods for which they worked, they would only multiply the result by 10 to get the annual amount. | 6. Special rules for device usage expenses: Taxpayers can calculate their device usage expenses by: • keeping records and written evidence to determine their work-related proportion of actual expenses, or • claiming up to $50 in total for all device usage charges (being phone calls, text messages and internet use for all devices) with limited documentation. This approach is appropriate where their device usage is incidental. • keeping records and written evidence to determine their work-related proportion of actual expenses, or • claiming up to $50 in total for all device usage charges (being phone calls, text messages and internet use for all devices) with limited documentation. This approach is appropriate where their device usage is incidental. Taxpayers who use the actual expenses method to claim a deduction for their device usage expenses (either for the year or a representative 4-week period as set out in sections 3 or 4 of this Practice Statement) can apply the following to assist with their calculation: • For deductions for home telephone expenses, the following formula is an acceptable way to calculate the work-related proportion work-related calls (incoming and outgoing) ÷ total calls (incoming and outgoing) • For mobile phone expenses, in determining a work-related proportion, the following factors are elements that can be considered - number of work calls compared to private calls - time used for work calls compared to private calls - time used in different functions for work related purposes compared to private purposes - for example, some taxpayers may use the camera and gaming applications exclusively for private use whereas other taxpayers may require the camera and many applications for work purposes - the time spent using the mobile telephone for work-related and private purposes each day - any employer requirements or restrictions for work use of the mobile phone for work purposes, and - work-related and private-use proportions of data usage (see below). The relevance of type of use on a mobile phone can be significant. Thus, if a taxpayer predominantly uses a mobile phone for phone calls, then analysis of phone call use will provide the most relevant measure of use. In such cases the guidelines provided for home telephone use are relevant. • For device data-usage expenses, either: - the time spent by the taxpayer using the internet for work purposes compared to time spent by the taxpayer and all others using the internet (time basis), or - data used for work purposes compared to data used for all purposes for the taxpayer and all other users (data basis). • For deductions for home telephone expenses, the following formula is an acceptable way to calculate the work-related proportion work-related calls (incoming and outgoing) ÷ total calls (incoming and outgoing) • For mobile phone expenses, in determining a work-related proportion, the following factors are elements that can be considered - number of work calls compared to private calls - time used for work calls compared to private calls - time used in different functions for work related purposes compared to private purposes - for example, some taxpayers may use the camera and gaming applications exclusively for private use whereas other taxpayers may require the camera and many applications for work purposes - the time spent using the mobile telephone for work-related and private purposes each day - any employer requirements or restrictions for work use of the mobile phone for work purposes, and - work-related and private-use proportions of data usage (see below). The relevance of type of use on a mobile phone can be significant. Thus, if a taxpayer predominantly uses a mobile phone for phone calls, then analysis of phone call use will provide the most relevant measure of use. In such cases the guidelines provided for home telephone use are relevant. • For device data-usage expenses, either: - the time spent by the taxpayer using the internet for work purposes compared to time spent by the taxpayer and all others using the internet (time basis), or - data used for work purposes compared to data used for all purposes for the taxpayer and all other users (data basis). - number of work calls compared to private calls - time used for work calls compared to private calls - time used in different functions for work related purposes compared to private purposes - for example, some taxpayers may use the camera and gaming applications exclusively for private use whereas other taxpayers may require the camera and many applications for work purposes - the time spent using the mobile telephone for work-related and private purposes each day - any employer requirements or restrictions for work use of the mobile phone for work purposes, and - work-related and private-use proportions of data usage (see below). - the time spent by the taxpayer using the internet for work purposes compared to time spent by the taxpayer and all others using the internet (time basis), or - data used for work purposes compared to data used for all purposes for the taxpayer and all other users (data basis). Taxpayers using the $50 method can keep basic records to show how they arrived at their claim without keeping detailed written evidence. They can base their records on the following: • for a home phone, based on a rate of 25c per work call • for mobile phones, based on a rate of 75c per work-related call and 10c per work related text message, and • for device data usage, based on time spent or data used for work purposes (compared to all other usage by the taxpayer and other users). • for a home phone, based on a rate of 25c per work call • for mobile phones, based on a rate of 75c per work-related call and 10c per work related text message, and • for device data usage, based on time spent or data used for work purposes (compared to all other usage by the taxpayer and other users). Example 1 - internet expenses - sole user - time basis Ben is an employee IT technician who generally works from home 3 days per week (8 hours per day). In order for Ben to log on to his employer's network, he is required to use his personal home internet connection. This expense is not reimbursed by Ben's employer. Considering Ben's usage is more than incidental, he decides to calculate his actual expenses incurred using the time-basis method. Ben has determined his time using the internet for work over a representative 4-week period as 96 hours (24 hours per week). However, to determine his time using the internet for non-work purposes, Ben considers all of the private devices that use the internet connection. This includes his: • gaming console for online gaming • smart TV for streaming television and movies, and • mobile phone to browse the internet. • gaming console for online gaming • smart TV for streaming television and movies, and • mobile phone to browse the internet. Ben estimates that he is directly or indirectly (for example, automatic updating) using the internet connection in relation to these devices for 4 hours per weekday and 16 hours on the weekend. This equates to 144 hours over a representative 4-week period. Based on this analysis, Ben is using the internet for a total of 240 hours in a 4-week period, of which 96 hours, or 40%, is work-related. Table 1: Ben's deduction calculation for Example 1 Item Calculation Deduction amount Internet expenses 40% of monthly expenses ($60) for 11 months (taking into account Ben's 4 weeks' annual leave). $264.00 Example 2 - internet expenses - apportion for other users Following on from Example 1 of this Practice Statement, assume Ben's wife also uses the internet connection for a similar period of time - that is, 144 hours over a representative 4 week period. In this situation, the internet connection is used for a total of 384 hours in a 4 week period, of which 96 hours, or 25%, is Ben's work-related portion. Table 2: Ben's deduction calculation for Example 2 Item Calculation Deduction amount Internet expenses 25% of monthly expenses ($60) for 11 months (taking into account Ben's 4 weeks' annual leave). $165.00 | 7. Apportioning bundled expenses: Telephony, internet and related services products are often combined into one product, being 'bundled' in various ways. Taxpayers may use such components in different ways; for example, private use for one component but work-related use for another. Accordingly, the cost of bundled services may need to be apportioned discretely. Cost components can include elements such as internet or voice service, device purchase cost or other periodic or specific services or purchases. In order to appropriately match work-related use to particular costs, an apportionment of the cost of any bundled components can be separated as follows: • an apportionment based on a supplier's breakdown of the relative costs of the bundled components • an apportionment based on the relative costs of the bundled components as if they were purchased separately from the same supplier, or • if no information on the supplier's breakdown of costs or unbundled costs is available, then an apportionment based on information obtained from a comparable supplier. • an apportionment based on a supplier's breakdown of the relative costs of the bundled components • an apportionment based on the relative costs of the bundled components as if they were purchased separately from the same supplier, or • if no information on the supplier's breakdown of costs or unbundled costs is available, then an apportionment based on information obtained from a comparable supplier. Example 3 - bundled expenses An internet service provider offers an internet and home phone service for $100 per month. If these services were provided separately (unbundled) by the same service provider, they would cost $80 and $40 respectively, being a total cost of $120 per month. The discount applying to the bundle is therefore 16% ($20 ÷ $120). It is reasonable to apply the bundle discount to each unbundled component cost. Therefore, if the unbundled phone service would cost $40 per month, the bundled phone service can be assumed to cost $40 - (40 × 16%) = $33.60. If the taxpayer uses the internet privately and uses the phone service 50% for work-related purposes, then $16.80 ($0 internet and 50% of $33.60) is deductible. | 8. More information: For more information on the deductions allowed for home office expenses, including when an area of the home is considered to be a private study or place of business, see: • TR 93/30 Income tax: deductions for home office expenses • Claiming mobile phone, internet and home phone expenses • PCG 2023/1 Claiming a deduction for additional running expenses incurred while working from home - ATO compliance approach • TR 93/30 Income tax: deductions for home office expenses • Claiming mobile phone, internet and home phone expenses • PCG 2023/1 Claiming a deduction for additional running expenses incurred while working from home - ATO compliance approach",PCG 2023/1 | Guide to depreciating assets | TR 93/30 | TR 1993/30 | ITAA 1997 Div 40,,ITAA 1997 Div 40,,,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20016/NAT/ATO/00001,"This Practice Statement was amended on 16 February 2023 to remove references to home office running expenses, and the fixed-rate method that applied up until 30 June 2022. Please refer to the history of this document for prior versions of this document. For the 2022-23 and later income years, the fixed rate for home office running expenses is available in Practical Compliance Guideline PCG 2023/1 Claiming a deduction for additional running expenses incurred while working from home - ATO compliance approach . This document incorporates revisions made since original publication. View its history and amending notices, if applicable. | 1. What is this practice statement about? | 1. What is this Practice Statement about?: When you are reviewing claims for electronic device expenses, there is a need to establish that expenditure has been incurred and the extent of deductibility. This Practice Statement concerns acceptable verification approaches for electronic device usage expenses - phone calls and internet (data) expenses but not deductions for the decline in value of electronic devices. These should be calculated and claimed in accordance with Division 40 of the Income Tax Assessment Act 1997 and the annual guide titled Guide to depreciating assets . | Removed home office running expenses. Updated to provide clarity relation to claims for deductions for electronic device usage, namely phone calls and data. | Section 5 Special rules for home office running expenses | Omitted, with effect from 1 July 2022. Future rates now included in Practical Compliance Guideline PCG 2023/1 Claiming a deduction for additional running expenses incurred while working from home - ATO compliance approach. | References to home office running expenses removed. | Updated to provide clarity. Updated the home office running expenses hourly rate. | Updated to include contemporary electronic device issues. | Updated to new LAPS format and style | Hourly rate for home office expenses updated from 34c to 45c per hour, effective 1 July 2014 | Paragraphs updated for clarification regarding apportionment. | Updated to a single example presenting the simpler calculation method. | Deleted reference to TaxPack. | Paragraphs 2, 11 and 14; Examples 1 and 2 and Option 2 | Hourly rate for home office expenses updated from 26c to 34c per hour, effective 1 July 2010. | Hourly rate for home office expenses updated from 20c to 26c per hour, effective 1 July 2004. | Change 'depreciation' to 'decline in value'. Update legislative references."
PS LA 2001/8,ATO interpretative decisions,8 June 2007,8 June 2007,Law Administration Practice Statement,False,"1. ATO interpretative decisions: An ATO interpretative decision (ATO ID) is a summarised version of a decision we have made on the application of the law [1] to a particular situation. We issued ATO IDs between 2001 and 2016. | 2. Why we have ATO IDs: ATO IDs set out a precedential ATO view, as explained in Law Administration Practice Statement PS LA 2003/3 Precedential ATO view . We produce precedential ATO views to ensure we provide consistent interpretative decision-making. You must search for existing precedential ATO views and those being prepared when resolving interpretative issues. You must follow an ATO ID where: • in your judgment, there is no material difference between the facts of the issue you are making a decision on and the facts of an existing ATO ID, and • you are satisfied that the application of the precedential ATO view set out in the ATO ID will result in a correct decision. [2] • in your judgment, there is no material difference between the facts of the issue you are making a decision on and the facts of an existing ATO ID, and • you are satisfied that the application of the precedential ATO view set out in the ATO ID will result in a correct decision. [2] An interpretative issue is one where the application of the law is not straightforward. An exercise of a discretion, a conclusion of fact or the determination of a value, for example, would not be an interpretative issue. | 3. Taxpayer reliance on ATO IDs: ATO IDs are publications approved in writing by the Commissioner and therefore offer penalty and interest protection to any taxpayer who might rely on them. [3] | 4. Maintaining the currency of ATO IDs: In line with the requirements of PS LA 2003/3, business lines must have processes in place to ensure ATO IDs, as precedential ATO view documents, are reviewed and (if necessary and in a timely manner) updated, withdrawn and replaced (with an appropriate replacement product), or withdrawn. We no longer prepare new ATO IDs or significantly update existing ATO IDs. Amending ATO IDs - minor updates ATO IDs that require only a minor update, which does not affect the decision or reasons for decision, can be amended. Withdrawing and replacing ATO IDs - substantial updates If an ATO ID requires a substantial update, it should be withdrawn and an appropriate replacement product produced. You should: • consult with your business line's Public Advice and Guidance (PAG) Unit, as listed in PAG - Key contacts (link available internally only), to determine the most appropriate product, and • (if necessary) follow the procedures for developing PAG products in PAG development procedures - end to end (link available internally only). • consult with your business line's Public Advice and Guidance (PAG) Unit, as listed in PAG - Key contacts (link available internally only), to determine the most appropriate product, and • (if necessary) follow the procedures for developing PAG products in PAG development procedures - end to end (link available internally only). As a general rule, an ATO ID should not be withdrawn before the replacement product is published. Withdrawing ATO IDs without replacement In limited circumstances (for example, where the provision which the ATO ID discusses has been repealed but not replaced or the issue covered no longer has sufficient value to warrant the investment in producing the replacement product), the ATO ID may not need to be replaced. Note that normally you should not withdraw an ATO ID where it is still correct. There is no value in doing this. | 5. More information: For more information: • view ATO IDs on ATOlaw (link available internally only) or the Legal database • contact PAG Governance in the Office of the Chief Tax Counsel. • view ATO IDs on ATOlaw (link available internally only) or the Legal database • contact PAG Governance in the Office of the Chief Tax Counsel.",PS LA 2003/3 | TAA 1953 Sch 1 298-20 | TAA 1953 Sch 1 361-5,PS LA 2003/3,TAA 1953 Sch 1 298-20 | TAA 1953 Sch 1 361-5,,PAG - Key contacts (link available internally only) PAG development procedures – end to end (link available internally only),False,True,https://www.ato.gov.au/law/view/document?docid=PSR/PS20018/NAT/ATO/00001,"Updated to explain that we no longer prepare ATO IDs. | Updated maintenance expectations for ATO IDs and when they should be replaced with alternative products. | Included references to Enterprise Knowledge Management procedures for preparing PAG products. | Updated in line with current ATO style and accessibility requirements. | Updated to the new LAPS format and style. | Clarify when an ATO might be prepared in accordance with new PAG guidelines. | Replace reference to ATO ID guidelines with PAG processes. | Format amended for clarity. | Deleted. Requirement for professional accreditation for authorised officers removed. | Revised to clarify that a public ruling should be considered when issue represents a significant risk. | Remove reference to general written advice, following integration of GST rulings system into general rulings provisions. | Update to provide link to ATO ID template in Other References. | Corrected dot point reference to paragraph 27 to paragraph 28. | Updated link to ATO ID Guidelines. | – the protection afforded by ATO IDs, which is set out now in PS LA 2008/3 – responsibilities for reviewing and maintaining ATO IDs, which is set out in PS LA 2003/3 | Content updated as a result of the publication of TD 2011/19 which explains general administrative practice. | References to PMU changed to PTI & PRU. References to Tax Office changed to ATO. Correction of citation of references to related law administration practice statements. | Paragraphs 14, 28, 31 and 29 | References to the Technical Decision Making System (TDMS) updated to refer to Siebel. | Updated reference to CGT. | Instance of when an ATO ID does not need to be prepared deleted. | Updated reference to TCN. | Updated a reference to a related practice statement from PS LA 2001/7 to PS LA 2008/4. Further clarification on publication and preparation of an ATO ID added BSL references updated from OCTC to L&P. | Updated a reference to a related practice statement from PS LA 2001/4 to PS LA 2008/3. | Contact officer details updated. | Updated a related practice statement from PS LA 2001/4 to PS LA 2008/3. | Corrected paragraph reference of PS LA 2003/3 (from paragraph 33 to 35 of that practice statement). | To clarify the issue of what 'no material difference' means and to detail new exceptions to the requirement that ATO IDs are to be published. | [1] Law administered by the Commissioner includes law governing income tax, indirect taxes, fringe benefits tax, withholding taxes, resource rent taxes, superannuation and excise. | [2] If following the ATO ID would result in an incorrect decision, you should escalate the issue as per the process in PS LA 2003/3. | [3] See sections 361-5 and 298-20 of Schedule 1 to the Taxation Administration Act 1953 . | File 2001/7447; 1-5TNXJL2; 1-154YURSS | This practice statement was originally published on 31 March 2001. Versions published from 2 September 2009 are available electronically - refer to the online version of the practice statement. Versions published prior to this date are not available electronically. If needed, these can be requested by emailing TCNLawPublishingandPolicy@ato.gov.au ."
PS LA 2000/2,SUBJECT: An exemption for the trustees of some trust estates from the requirement to furnish a tax return on behalf of the trust estate PURPOSE: To identify trustees who are not required to furnish a tax return,6 April 2000,,Law Administration Practice Statement,False,"1. An exemption from the requirement to furnish a return for trustees of certain defined trusts has been granted by the delegate of the Commissioner. 2. A trustee is granted an exemption from lodging a tax return on behalf of any trust estate of either of the following 2 classes: • 'transparent trusts' • 'secured purchase trusts'. • 'transparent trusts' • 'secured purchase trusts'. 3. In this Practice Statement, a 'transparent trust' is a trust in which the beneficiary of the trust estate has an absolute, indefeasible entitlement to the capital and the income of the trust. 4. In this Practice Statement, a 'secured purchase trust' is a trust created solely to facilitate the financing or holding of publicly listed company shares (Shares) or publicly listed units in a unit trust (Units). A secured purchase trust has the following characteristics: • The trust capital must consist wholly or predominantly of Shares or Units and the terms of the trust must be structured such that the property of the trust (the Share or Unit) is used as security for a debt or other liability of the beneficiary that is related to the Share or Unit. • The income of the trust must be vested indefeasibly in the beneficiary of the trust. • The trust capital must consist wholly or predominantly of Shares or Units and the terms of the trust must be structured such that the property of the trust (the Share or Unit) is used as security for a debt or other liability of the beneficiary that is related to the Share or Unit. • The income of the trust must be vested indefeasibly in the beneficiary of the trust. 5. However, this Practice Statement does not exempt a trustee from the requirement to furnish an income tax return for any income year in which the trustee is liable to pay tax under sections 98, 99 or 99A of the Income Tax Assessment Act 1936 . 5A. All legislative references in this Practice Statement are to the Income Tax Assessment Act 1936 , unless otherwise indicated. 6. This Practice Statement applies to years of income both before and after its date of issue, with the exception of paragraph 5 of this Practice Statement, which applies from 14 March 2012. 7. Nothing in this Practice Statement prevents an authorised officer of the Australian Taxation Office (ATO) from issuing a notice pursuant to sections 162 or 163 requiring a trustee to furnish a return in respect of any trust estate, or further return in respect of any trust estate, for any year of income or substituted accounting period. 8. Every person must, if required by the Commissioner by legislative instrument (the Instrument), provide a return for a year of income within the period specified in the notice (subsection 161(1)). 9. Each year, by way of the Instrument, the Commissioner will typically require Australian resident trustees of trust estates that have derived income to provide a return of income for the relevant year of income. However, the notice will typically reserve the power of the Commissioner, or an authorised officer of the ATO, to grant an exemption from lodgment of a return for a year of income. 10. The beneficiary of a transparent trust has an absolute entitlement to the trust property. Because of this, the capital gains tax (CGT) provisions of the Income Tax Assessment Act 1997 (ITAA 1997) do not recognise a disposal of the legal title by the trustee. (See, for example, subsection 104-10(2) of the ITAA 1997). 11. Because the beneficiary has an absolute entitlement to the income of the trust, the beneficiary (and not the trustee) will be taxed in respect of that income. 12. A secured purchase trust is a trust created to facilitate and secure the purchase or holding of Shares or Units. Despite the trust property (the Share or Unit) being subject to a security interest until it is paid for, the beneficiary has an absolute entitlement to the trust property (sections 106-50 and 106-60 of the ITAA 1997). As such, a disposal of the trust property (the Share or Unit) by the trustee to the beneficiary would not be considered a disposal of a CGT asset. [1] 13. In addition, as is the case with the transparent trust, income of the trust estate of a secured purchase trust must be vested indefeasibly in the beneficiary to meet the criterion for exclusion. Income of a transparent trust or a secured purchase trust will be considered to be vested indefeasibly in the beneficiary, even though it is subject to a lien or other security interest in favour of someone other than the beneficiary, so long as the beneficiary is entitled to that income as it is accrued in the trust. 14. While this Practice Statement exempts some trustees from the requirement to lodge a tax return, it does not relieve trustees or beneficiaries from their other taxation obligations, including under Division 6 of Part III or under Subdivisions 115-C or 207-B of the ITAA 1997 (though not all trustees have obligations under these provisions [2] ). Where an application of these provisions results in a trustee having a liability under sections 98, 99 or 99A, it is appropriate that the trustee lodge a return reflecting this. In these cases, the exemption provided by this Practice Statement does not apply and the trustee is required to furnish a tax return on behalf of the trust estate.",Decision Impact Statement NSD 2009/1190 | ITAA 1936 98 | ITAA 1936 99 | ITAA 1936 99A | ITAA 1936 161(1) | ITAA 1936 162 | ITAA 1936 163 | ITAA 1936 Pt III Div 6 | ITAA 1997 104-10(2) | ITAA 1997 106-50 | ITAA 1997 106-60 | ITAA 1997 Subdiv 115-C | ITAA 1997 Subdiv 207-B | 2011 ATC 20-235,,ITAA 1936 98 | ITAA 1936 99 | ITAA 1936 99A | ITAA 1936 161(1) | ITAA 1936 162 | ITAA 1936 163 | ITAA 1936 Pt III Div 6 | ITAA 1997 104-10(2) | ITAA 1997 104-10(7)(a)(repealed) | ITAA 1997 106-50 | ITAA 1997 106-60 | ITAA 1997 Subdiv 115-C | ITAA 1997 Subdiv 207-B,,Decision Impact Statement NSD 2009/1190,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS20002/NAT/ATO/00001,"Correct publication errors. | Updated in line with current ATO style and accessibility guidance. | Updated language in relation to requirement to lodge income tax returns. | Paragraphs 12 and 13 (now paragraph 12) | Updated as a result of the repeal of paragraph 104-10(7)(a) of the ITAA 1997 and amendment of sections 106-50 and 106-60 of the ITAA 1997. | Renumbered to paragraphs 13 and 14, respectively. | Renumbered from footnote 1. | Updated practice statement to align with current publication standards. | Updated as a result of legislative changes to Division 6D of Part III of the ITAA 1936. | Paragraphs 5, 6, 9, 11, 14 and 15 | Amended as a result of the Decision Impact Statement NSD 2009/1190 that the Commissioner published in respect of Colonial First State Investments Limited v Commissioner of Taxation . | References, authorised by and contact details. | [1] Sections 106-50 and 106-60 of the ITAA 1997 were amended by the Tax Laws Amendment (2013 Measures No. 1) Act 2013 in relation to income years commencing on or after 30 June 2013. For prior income years, the beneficiary of a secured purchase trust may not have an absolute entitlement to the trust property. To meet the criterion for exclusion in a prior income year, a secured purchase trust must be structured in such a way that a disposal of the trust property (the Share or Unit) by the trustee to the beneficiary would not be considered a disposal of a CGT asset by virtue of former paragraph 104-10(7)(a) of the ITAA 1997. | [2] See the Decision impact statement on Colonial First State Investments Limited v Commissioner of Taxation [2011] FCA 16. | Colonial First State Investments Limited v Commissioner of Taxation [2011] FCA 16 81 ATR 772 2011 ATC 20-235"
PS LA 1999/2,Calculating joint car expense deductions,29 April 1999,,Law Administration Practice Statement,False,"1. How taxpayers should calculate a joint car expense deduction: For income years before 1 July 2015, taxpayers can use any one of the 4 calculation methods to calculate a joint car expense deduction: • cents per kilometre • 12% of the original value • one-third of actual expenses • logbook. • cents per kilometre • 12% of the original value • one-third of actual expenses • logbook. Only the first and last method apply from 1 July 2015. A taxpayer should use only one method in any one income year in relation to a specific vehicle. However, each of the joint owners can use a different method to calculate their deductions if they wish. | 2. Method 1 – cents per kilometre: Each joint owner or joint lessee can claim a maximum deduction of 5,000 kilometres for each income year. That limit applies to a particular taxpayer in relation to a particular car, not to the car itself. So, if each of the joint owners uses the car for separate income-producing purposes, they can each claim up to 5,000 kilometres. | 3. Method 2 – 12% of the original value: If the taxpayer travels more than 5,000 work-related kilometres in the car during in an income-producing period, they can use Method 2 to calculate their deduction. Method 2 allows each of the joint owners to claim a proportion of the original cost of the car, to a total of 12%. That is, if there are 2 joint owners, then they can each claim a deduction of 6% of the original cost of the car. | 4. Method 3 – one-third of actual expenses: Like Method 2, Method 3 is only available to taxpayers who have travelled more than 5,000 work-related kilometres in the car in an income year. Taxpayers using this method can deduct one-third of the car's expenses (whether wholly their own or incurred jointly with other owners or lessees; and not including capital expenses) plus one third of their share of the decline in value of the car. | 5. Method 4 – logbook: If the taxpayer uses a vehicle logbook, it must state: • when the logbook period begins and ends • the car's odometer readings at the start and end of the logbook period • the total number of kilometres that the car travelled • the number of kilometres travelled for work • the business use percentage. • when the logbook period begins and ends • the car's odometer readings at the start and end of the logbook period • the total number of kilometres that the car travelled • the number of kilometres travelled for work • the business use percentage. For each logbook period, the taxpayer would calculate their deductions as: (total kilometres the taxpayer travelled to produce their assessable income ÷ total number of kilometres the car travelled) × (total car expenses incurred + the decline in value for the period) (total kilometres the taxpayer travelled to produce their assessable income ÷ total number of kilometres the car travelled) × (total car expenses incurred + the decline in value for the period) | 6. More information: For more information, see: • Motor vehicle and car expenses • Work-related car expenses calculator • Motor vehicle and car expenses • Work-related car expenses calculator",,,,,,False,True,https://www.ato.gov.au/law/view/document?docid=PSR/PS19992/NAT/ATO/00001,"Refer to end of document for amendment history. Prior versions can be requested by emailing TCNLawPublishingandPolicy@ato.gov.au if required. This document incorporates revisions made since original publication. View its history and amending notices, if applicable. | 2. Method 1 – cents per kilmetre | The term depreciation updated to 'decline in value'. | Updated in line with current ATO style and accessibility requirements. | Included dates when different calculations can be used. | Updated to new LAPS format and style. | References to IT 2398 and TD 93/177 (withdrawn) removed. | 'Tax Office' updated to 'ATO' as per Style Guide recommendations. | Legislative references updated. | File 99/4924-1; 96/9842-6; 96/4745-7; 1-7P6KYPU; 1-14ISSDHD"
PS LA 1998/1,Law administration practice statements,17 December 1998,17 December 1998,Law Administration Practice Statement,False,"Why we have law administration practice statements: 1. Law administration practice statements (practice statements) are a policy product governed by the Policy Management Framework (link available internally only). 2. Policy products governed by the Policy Management Framework are a key component of our internal control system and support the Commissioner of Taxation in executing the duties, powers and functions conferred as: • administrator of the tax and superannuation systems • Agency Head under the Public Service Act 1999, including those relating to Australian Public Service employees and employer responsibilities • accountable authority under the Public Governance, Performance and Accountability Act 2013, relating to the governance, reporting, and the use and management of public resources, and • Registrar of the Australian Business Registry Services (Registrar) under the Commonwealth Registers Act 2020. • administrator of the tax and superannuation systems • Agency Head under the Public Service Act 1999, including those relating to Australian Public Service employees and employer responsibilities • accountable authority under the Public Governance, Performance and Accountability Act 2013, relating to the governance, reporting, and the use and management of public resources, and • Registrar of the Australian Business Registry Services (Registrar) under the Commonwealth Registers Act 2020. | What practice statements are: 3. Practice statements are policy documents that provide lawful and reasonable directions to ATO staff when administering the tax and superannuation systems administered by the Commissioner and business registry laws administered by the Registrar. 4. There are 2 series of practice statements – the standard series (such as this one) and the general administration series. General administration practice statements are identified by the suffix of (GA) after their number. [1] We no longer prepare general administration practice statements. [2] 5. Practice statements provide you with mandatory instructions and guidance on how you should undertake technical work [3] and assist you to perform your duties and make decisions about the laws we administer. 6. While they may discuss technical issues [4] , practice statements do so in a way to give sense to the instructions they are providing. They are not intended to provide interpretative advice and do not express precedential ATO views. [5] 7. Even though ATO staff are the primary audience for a practice statement, they are published externally in the interest of open tax administration. 8. If a taxpayer relies on a particular practice statement that is incorrect or misleading and makes a mistake as a result, they will remain liable for any resulting tax shortfall, but will be protected against: • any shortfall penalty that would otherwise arise [6] , and • interest charges on the shortfall if the particular practice statement was reasonably relied on in good faith. [7] • any shortfall penalty that would otherwise arise [6] , and • interest charges on the shortfall if the particular practice statement was reasonably relied on in good faith. [7] | Responsibilities as an author: 9. Practice statement content should align to the intent of the Policy Management Framework and not introduce new or inconsistent information that conflicts with other practice statement obligations. 10. Policy instructions and guidance that direct and assist ATO staff in applying the laws administered by the Commissioner should be issued in the form of a practice statement. Other communications (for example, office minutes or practice notes) should not be used for this purpose, except as an interim measure while a practice statement is being developed. 11. Additional practice notes, guidelines, work instructions or other tools can be issued to support the implementation of the policy outlined in a practice statement and may provide further detailed guidance and procedures to assist ATO staff. When developing such subordinate products, you should ensure that the underlying intent of the practice statement is maintained and include a link and a reference to the practice statement. 12. Authoring teams should work collaboratively with communication areas to determine an appropriate communication approach to notify ATO staff about practice statements. 13. Communication may be required: • for new practice statements • for material updates to existing practice statements • when withdrawing a practice statement • when broad staff consultation is required. • for new practice statements • for material updates to existing practice statements • when withdrawing a practice statement • when broad staff consultation is required. 14. Business line authoring teams are responsible for keeping records in relation to the development and maintenance of practice statements. | Responsibilities as a user: 15. When performing your duties, it is your responsibility to check whether there are any relevant practice statements to consider and follow. 16. If you think that the application of a particular practice statement has an unintended consequence or that it is incorrect, you must escalate the matter using your business line escalation process. | When practice statements should be developed: 17. Factors that may assist in determining whether a practice statement is the appropriate product to develop are discussed in paragraphs 18 to 21 of this Practice Statement. | The primary audience is ATO staff: 18. A practice statement should be developed where the primary purpose is to provide direction and assistance to ATO staff. It is the appropriate product where the intended audience is ATO staff, even if the content may also be of interest to taxpayers or tax practitioners. | The proposed content is predominantly policy: 19. If the content provides directions and guidance to assist ATO staff to perform duties and make decisions about the practical application of the laws we administer, it is policy and a practice statement is appropriate. 20. The policy outlined in practice statements may provide the framework for establishing other detailed guidance and procedures to assist ATO staff to undertake specific tasks (for example, in the form of practice notes and other internal procedures). 21. Where the proposed content intends to establish a precedential ATO view or provide new or detailed interpretative guidance on an issue, a practice statement would not be appropriate. You should consult with your business line Public advice and guidance (PAG) Unit or the PAG Governance team (links available internally only) in the Office of the Chief Tax Counsel to determine the most appropriate product. [8] | Policy needs to be formalised, made consistent or centralised: 22. Practice statements are authoritative sources of policy content to assist interpretive decision-making. Consider to what extent information is already available on the proposed content, how the potential practice statement will fit into any existing hierarchy of advice and guidance and if the current content is in an appropriate form or (more correctly) belongs in a practice statement format. Ensure consistency between multiple documents is maintained. Development of a practice statement has been agreed between the business line PAG Unit and other ATO stakeholders 23. A practice statement should also be progressed where there has been internal consultation within the ATO and there is agreement that a practice statement is the appropriate product for the guidance. New practice statements will need to be notified to and considered by the PAG Advisory Committee (link available internally only), in accordance with the procedures referred to in paragraphs 24 to 28 of this Practice Statement. | Process for development of practice statements: 24. You must follow the procedures in PAG development procedures – end to end (link available internally only) when developing a new practice statement. 25. This ensures: • the corporate processes applying to the development of PAG are undertaken consistently • any practice statements developed are subject to the appropriate approvals and governance processes and involve the relevant ATO stakeholders, including – business line risk owners, authors and relevant PAG Units – the Office of the Chief Tax Counsel (including PAG Governance, Law Publishing and the Tax Counsel Network), and – the PAG Advisory Committee. • the corporate processes applying to the development of PAG are undertaken consistently • any practice statements developed are subject to the appropriate approvals and governance processes and involve the relevant ATO stakeholders, including – business line risk owners, authors and relevant PAG Units – the Office of the Chief Tax Counsel (including PAG Governance, Law Publishing and the Tax Counsel Network), and – the PAG Advisory Committee. – business line risk owners, authors and relevant PAG Units – the Office of the Chief Tax Counsel (including PAG Governance, Law Publishing and the Tax Counsel Network), and – the PAG Advisory Committee. 26. In certain circumstances, it may be appropriate for staff consultation to occur for new and material changes required to a practice statement. 27. Where the nature of the change relates to work practices or workplace matters which would significantly impact staff in their capacity as employees, the relevant principles governing consultation are contained in clause 10 of the ATO Enterprise Agreement 2024. These instances would be rare, given the purpose and nature of practice statements. 28. Where the nature of the change relates to instructions or guidance about how technical work should be undertaken or laws administered, both internal and public consultation should be considered as part of standard PAG product development processes and the principles governing consultation. | Maintenance of practice statements: 29. Practice statements are 'owned' by a business line (practice statement owner) that must maintain the currency of that practice statement. Maintenance of law administration practice statements (link available internally only) sets out requirements for practice statement owners. 30. Practice statement owners must advise a date for scheduled maintenance (maintenance review date) when a new practice statement is published or an existing practice statement is updated. The maintenance review date should: • reflect the particular circumstances and subject matter of the practice statement, and • generally, be set for not more than 3 years into the future. • reflect the particular circumstances and subject matter of the practice statement, and • generally, be set for not more than 3 years into the future. 31. Law Publishing will record this date in the practice statement's metadata. PAG Governance will periodically conduct a process to request practice statement owners review their practice statements (based on the maintenance review date) to satisfy the minimum maintenance obligations for practice statements. 32. However, sometimes an event triggers the need for a practice statement to be revised, regardless of the maintenance review date – for example, when: • new primary legislation is passed or existing legislation is amended • a decision is handed down by a court or tribunal • new PAG is published that affects the content of the practice statement • existing policy or procedures are updated as a result of a project, internal names change or there are other changes. • new primary legislation is passed or existing legislation is amended • a decision is handed down by a court or tribunal • new PAG is published that affects the content of the practice statement • existing policy or procedures are updated as a result of a project, internal names change or there are other changes. 33. If a practice statement is reviewed prior to its maintenance review date (for example, in response to a court decision), the whole document should be reviewed and a new maintenance review date set. 34. In undertaking a review, the practice statement owner will decide whether it requires significant changes, care and maintenance updates, withdrawal or no change. 35. Where a significant change to, or withdrawal of, an existing practice statement is considered prioritised (link available internally only), it must be notified to and considered by the PAG Advisory Committee, in accordance with paragraphs 24 to 28 of this Practice Statement. 36. The practice statement owner must also ensure consistency with any related: • policies and procedures, including practice notes, office minutes, work instructions or other tools • guidance, including content on ato.gov.au, public rulings or practical compliance guidelines, where applicable. • policies and procedures, including practice notes, office minutes, work instructions or other tools • guidance, including content on ato.gov.au, public rulings or practical compliance guidelines, where applicable. 37. Practice statement owners should also consider conformance with the policies outlined in their practice statement – that is, whether staff are consistently and effectively following and applying the policies as intended. At a minimum, this should be undertaken on the maintenance review date but may be conducted more frequently. | Authorised versions of practice statements: 38. All practice statements are published internally on ATOlaw and externally on the ATO Legal database in the interest of open tax administration. 39. The electronic version is the only authorised version of a practice statement. Any other copies (including hard copies) are not to be relied upon. | More information: 40. For more information: • view Law administration practice statements (link available internally only) • view practice statements on ATOlaw (link available internally only) or the ATO Legal database • view the ATO Enterprise Agreement (link available internally only) • view Consulting on public advice and guidance (link available internally only) • contact PAG Governance in the Office of the Chief Tax Counsel. • view Law administration practice statements (link available internally only) • view practice statements on ATOlaw (link available internally only) or the ATO Legal database • view the ATO Enterprise Agreement (link available internally only) • view Consulting on public advice and guidance (link available internally only) • contact PAG Governance in the Office of the Chief Tax Counsel.","PS LA 2003/3 | PS LA 2005/24 | Schedule of Documents containing Precedential ATO Views | TAA 1953 Sch 1 284-224 | TAA 1953 Sch 1 361-5 | Public Governance, Performance and Accountability Act 2013 | Commonwealth Registers Act 2020",PS LA 2003/3 PS LA 2005/24,"TAA 1953 Sch 1 284-224 | TAA 1953 Sch 1 361-5 | Public Service Act 1999 | Public Governance, Performance and Accountability Act 2013 | Commonwealth Registers Act 2020",,Policy Management Framework (link available internally only) Law administration practice statements (link available internally only) Law Publishing (link available internally only) Maintenance of law administration practice statements (link available internally only) Public advice and guidance (PAG) Unit (link available internally only) PAG development procedures - end to end (link available internally only) PAG Governance (link available internally only) Schedule of Documents containing Precedential ATO Views ATO Enterprise Agreement 2024 (link available internally only) Consulting on public advice and guidance page (link available internally only),False,False,https://www.ato.gov.au/law/view/document?docid=PSR/PS19981/NAT/ATO/00001,"Your responsibilities in relation to practice statements | Updated to refer to the amended Policy management framework. | Updated to ensure alignment of content in practice statements to the intent of the Policy management framework. | Updated to include a reference to communication of practice statements. | Updated to include a reference to keeping records. | Updated to include consultation on practice statements. | Updated to clarify maintenance obligations. | New section added concerning authorised versions. | Updated to include links to the ATO Enterprise Agreement and Consulting on public advice and guidance pages and remove reference to Conformance with obligations CEI. | Updated to align with amended Practice Statement style and formatting requirements. | Updated in line with current ATO style and accessibility requirements, including correcting several broken internal hyperlinks. | Updated to include reference to procedure for maintaining practice statements and requirement for conformance monitoring. | Updated to explain how practice statements support the overall ATO policy framework. | Updated 'What are practice statements' to remove duplication and incorporate information about the types of practice statements. | Updated to explain the responsibilities of ATO staff as both authors and users of practice statements. | New section added to provide clearer guidance and instructions to staff about the factors to consider when deciding to prepare a practice statement. | Updated to provide the reference to new internal PAG development procedures and reasons why we follow these procedures. | Added further detail to assist staff determine who should maintain a practice statement and when it should be reviewed. | Updated in line with current ATO style and accessibility requirements. | Revised for currency and advising the discontinuance of GA LAPS. | Rewritten Practice Statement published. | Removed Law (from Practice Management) and replaced with TCN. | Minor changes to formatting. | Removed 'staff' and replaced with 'ATO personnel'. | Updated Sub-plan Executive with Group Executive. | Replaced Taxpayers' Charter team with Charter Review team. | Replaced Second Commissioner (Law) with Second Commissioner (Law Design and Practice). | Insert requirement to ensure underlying intent of the LAPS is maintained when ATO personnel are developing guidelines or similar products to support the LAPS. | Insert instruction to consider packaging GA LAPS documents for Commissioner's approval where the GA LAPS will need to issue in a short timeframe and will be issued for external consultation. | Minor changes to wording to reflect updates to Branch name, other references. | Removed requirement to undergo official extension of time process if due dates pass. | Updated names of relevant areas of responsibility. | Updated citations and style in accordance with corporate requirements. | Allowed for interim policy to be distributed via office minute, subject to conditions. | Removed the active role of the Assistant Commissioner, Law Practice Management Unit in the registration and approval processes of process LAPS. | Unified format of headings. | Formatting of LAPS citations updated as per ATO Standards for Citations and References. | Maintenance & Support team's role in LAPS currency review. | Removed reference to former Commissioner Carmody's speech as this link is no longer available. | DCTC approval of topics being added to the LAPS Program. | Assistant Commissioner's details updated to Law Practice Management Unit. | PTI & Public Rulings Branch updated to PTI & Public Rulings Unit (PTI & PRU). | Tax Office updated to ATO as per the ATO Style Guide. | Sentences included to allow for the introduction of point in time functionality. | Inserted to mandate the use of Siebel in the development of LAPS. All consequent paragraphs renumbered. | Amended to allow for minor changes to the process due to the introduction of Siebel. | Related practice statements | Hyperlink to PS LA 2009/4 added. | Amended to incorporate the process outlined in PS LA 2009/4 in relation to obtaining approval for the exercise of the Commissioner's power of general administration. | • update paragraph relating to citation of LAPS • change classification types of LAPS to process, technical and GA • change procedures for the development of LAPS • make adherence to Information Kit for Authors and Sponsors mandatory. | • allow for changes in procedures regarding the drafting and approval of all LAPS • formalise TechNet role in regard to consultation • include requirement to register significant technical LAPS as a priority technical issue • include clarification of the CMPS/LAPS boundary • improve wording for clarification • update procedure for approval of LAPS (GA) • include new paragraphs 4 and 22 concerning precedential ATO view and level of protection. | Also previously amended on 20 December 2002, 4 May 2003 and 9 June 2005 | [1] These practice statements are an aspect of the Commissioner's general administration of the taxation and superannuation laws (which are set out in the various Acts administered by the Commissioner) and provide guidance on compliance issues arising from such laws. | [2] For new public advice or guidance on compliance issues, consider an alternative product (such as a practical compliance guideline). | [3] 'Technical work' in this context means the performance of duties involving the application of the taxation and superannuation laws administered by the Commissioner (such as interpretative decision-making) and business registry laws administered by the Registrar. | [4] For example, Law Administration Practice Statement PS LA 2005/24 Application of General Anti–Avoidance Rules contains extensive discussion of technical issues in the context of providing instruction and practical guidance to staff. | [5] Precedential ATO views are set out in public rulings (including draft public rulings), ATO interpretative decisions, decision impact statements and documents listed in Schedule of Documents containing Precedential ATO views, available on ATOlaw (link available internally only) or the ATO Legal database. See Law Administration Practice Statement PS LA 2003/3 Precedential ATO view . | [6] See section 284-224 of Schedule 1 to the Taxation Administration Act 1953 . | [7] See section 361-5 of Schedule 1 to the Taxation Administration Act 1953 . | File 98/117644; 1-126KOUU8; 1-15FVB21B | This practice statement was originally published on 17 December 1998. Versions published from 21 May 2009 are available electronically - refer to the online version of the practice statement. Versions published prior to this date are not available electronically. If needed, these can be requested by emailing TCNLawPublishingandPolicy@ato.gov.au ."
PS LA 2013/3 (GA),SUBJECT: Treatment of input tax credits claimed by a recipient of a non-taxable supply where the Commissioner has the discretion to give a refund of the overpaid goods and services tax to the supplier due to the operation of former section 105-65 of Schedule 1 to the Taxation Administration Act 1953 PURPOSE: To explain the circumstances in which the Commissioner will use their powers of general administration to allow a recipient to retain an input tax credit that it has claimed where a transaction was incorrectly treated by a supplier as giving rise to a taxable supply.,1 August 2013,,Law Administration Practice Statement (GA),False,"1. Former section 105-65 of Schedule 1 to the Taxation Administration Act 1953 (TAA) applies to an amount that relates to a tax period starting before 31 May 2014. Former subsection 105-65(1) of that Act provides that the Commissioner need not give a refund, or apply that amount [1] , if an entity overpaid its net amount or an amount of goods and services tax (GST) because: • a supply was treated as a taxable supply, or an arrangement was treated as giving rise to a taxable supply, to any extent [2] , and • the supply is not a taxable supply, or the arrangement does not give rise to a taxable supply, to that extent [3] , and • either: - we are not satisfied that the entity has reimbursed a corresponding amount to the recipient of the supply (or in the case of an arrangement treated as giving rise to a taxable supply, to the purported recipient) [4] , or - the recipient (or in the case of an arrangement treated as giving rise to a taxable supply, the purported recipient) [5] is registered or required to be registered for GST. [6] • a supply was treated as a taxable supply, or an arrangement was treated as giving rise to a taxable supply, to any extent [2] , and • the supply is not a taxable supply, or the arrangement does not give rise to a taxable supply, to that extent [3] , and • either: - we are not satisfied that the entity has reimbursed a corresponding amount to the recipient of the supply (or in the case of an arrangement treated as giving rise to a taxable supply, to the purported recipient) [4] , or - the recipient (or in the case of an arrangement treated as giving rise to a taxable supply, the purported recipient) [5] is registered or required to be registered for GST. [6] - we are not satisfied that the entity has reimbursed a corresponding amount to the recipient of the supply (or in the case of an arrangement treated as giving rise to a taxable supply, to the purported recipient) [4] , or - the recipient (or in the case of an arrangement treated as giving rise to a taxable supply, the purported recipient) [5] is registered or required to be registered for GST. [6] 2. All legislative references in this Practice Statement are to Schedule 1 to the TAA, unless otherwise indicated. 3. Where former paragraphs 105-65(1)(a) and (b) apply: • but neither of the conditions in former paragraph 105-65(1)(c) are met – former section 105-65 does not apply and the Commissioner must refund the overpaid GST to the supplier • and either or both of the conditions in former paragraph 105-65(1)(c) are met – the Commissioner need not refund the overpaid GST to the supplier but has a discretion to do so. • but neither of the conditions in former paragraph 105-65(1)(c) are met – former section 105-65 does not apply and the Commissioner must refund the overpaid GST to the supplier • and either or both of the conditions in former paragraph 105-65(1)(c) are met – the Commissioner need not refund the overpaid GST to the supplier but has a discretion to do so. 4. Miscellaneous Taxation Ruling MT 2010/1 Miscellaneous tax: restrictions on GST refunds under section 105-65 of Schedule 1 to the Taxation Administration Act 1953 outlines our views on former section 105-65. In particular, paragraph 128 of MT 2010/1 sets out guiding principles in relation to when the Commissioner may exercise the discretion to give a supplier a refund. 5. This Practice Statement applies to circumstances where: • a supply has incorrectly been treated as taxable to any extent in relation to a tax period starting before 31 May 2014 [7] • the supplier is registered for GST and has overpaid GST • the supplier has issued a tax invoice to the recipient [8] • the recipient has over-claimed an input tax credit (ITC) and would have been entitled to claim that ITC if the supply had been a taxable supply • the recipient has treated the acquisition as a creditable acquisition when applying other taxation laws, such as the income tax law and the fringe benefits tax law • should the supplier request a refund, former section 105-65 would apply such that we need not refund the supplier the overpaid GST, and • we have not given a refund of the overpaid GST to the supplier. • a supply has incorrectly been treated as taxable to any extent in relation to a tax period starting before 31 May 2014 [7] • the supplier is registered for GST and has overpaid GST • the supplier has issued a tax invoice to the recipient [8] • the recipient has over-claimed an input tax credit (ITC) and would have been entitled to claim that ITC if the supply had been a taxable supply • the recipient has treated the acquisition as a creditable acquisition when applying other taxation laws, such as the income tax law and the fringe benefits tax law • should the supplier request a refund, former section 105-65 would apply such that we need not refund the supplier the overpaid GST, and • we have not given a refund of the overpaid GST to the supplier. 6. This Practice Statement is concerned with the recipient's ability to retain ITCs. Our view on the circumstances in which it is appropriate to exercise the Commissioner's discretion to refund the overpaid GST to the supplier is set out in MT 2010/1. 7. In the circumstances described in paragraph 5 of this Practice Statement, we generally do not require the recipient to repay the overclaimed ITC or pay any general interest charge related to the overclaimed ITC. [9] This is referred to as the 'preserving the status quo' approach. 8. The factors listed in paragraph 5 of this Practice Statement are intended to provide a list of pre-conditions that must be satisfied before adopting an approach that preserves the status quo. However, we acknowledge that there will be other circumstances where it may also be appropriate to adopt such an approach. [10] 9. Preserving the status quo will not apply in those limited circumstances where the Commissioner exercises the discretion under former section 105-65 to pay a refund of the overpaid GST to the supplier. Subject to an assessment of the facts in such cases, we will seek to recover the overclaimed ITCs from the recipient of the supply. The overclaimed ITCs will be recovered by us where failure to do so would produce an outcome inconsistent with the principles upon which the GST system is based. [11] 10. Preserving the status quo will also not apply where the supplier reimburses the recipient for the amount of GST incorrectly included in the price of the supply. In such cases, we will generally seek to recover the overclaimed ITCs from the recipient of the supply to obviate a potential windfall gain as the recipient has ultimately not borne the cost of the GST. 11. Preserving the status quo is only applicable to historical transactions where the supply has been incorrectly treated as taxable. [12] We expect the incorrect treatment of supplies as taxable to be rectified for future transactions. 12. Where a recipient considers that an acquisition is not a creditable acquisition because they believe the supply is not a taxable supply, the preserving the status quo approach is not to be used as a basis for supporting ongoing incorrect GST treatment of future transactions. Where uncertainty exists as to the correct GST treatment of the transaction, we will consider, subject to our risk criteria (likelihood and consequence of error), whether it needs to take action to confirm the treatment with both parties. 13. Preserving the status quo relates only to not disturbing the ITC claimed by the recipient. It is an administrative approach with the purpose of avoiding unnecessary compliance costs, it does not change the underlying nature of the supply and acquisition or the consequences of these transactions. [13] 14. Where the incorrect treatment of a supply as a taxable supply gives rise to the incorrect treatment of other transactions to which the supplier or recipient is a party, and which may give rise to an unintended benefit, it may not be appropriate to preserve the status quo. 15. The recipient's entitlement to an ITC can impact upon the application of other taxation laws, such as the income tax law and the fringe benefits tax law. For the preserving the status quo approach to apply, the recipient should also have treated the acquisition as a creditable acquisition when working out their obligations or entitlements under these other laws. [14] 16. The approach does not extend to circumstances outside those covered by former section 105-65. For example, the approach cannot be applied where a taxable supply has been incorrectly treated as non-taxable. Such errors must be corrected by the supplier and recipient and reported by either activity statement revision or by applying the principles in A New Tax System (Goods and Services Tax) (Correcting GST Errors) Determination 2023. [15] 17. The scheme of the GST law is premised on the following principles: • It is the supplier that determines if the supply it makes is taxable in the first instance – by determining that its supply is a taxable supply, GST is included in the price. • Double taxation is avoided by a registered recipient being entitled to claim an ITC for that taxable supply where it is acquired for a creditable purpose. • Once GST is embedded in the supply chain, it is the unregistered end consumer that bears the economic burden of the GST. • It is the supplier that determines if the supply it makes is taxable in the first instance – by determining that its supply is a taxable supply, GST is included in the price. • Double taxation is avoided by a registered recipient being entitled to claim an ITC for that taxable supply where it is acquired for a creditable purpose. • Once GST is embedded in the supply chain, it is the unregistered end consumer that bears the economic burden of the GST. 18. Two important policy considerations behind the operation of former section 105-65, based on the principles in paragraph 17 of this Practice Statement, are: • The economic burden of GST charged on a taxable supply is ordinarily borne by the unregistered end consumer. • There should not be a refund of overpaid GST to a supplier where it would result in a windfall gain to the supplier. [16] • The economic burden of GST charged on a taxable supply is ordinarily borne by the unregistered end consumer. • There should not be a refund of overpaid GST to a supplier where it would result in a windfall gain to the supplier. [16] 19. From the supplier's perspective, former subparagraph 105-65(1)(c)(ii) reflects those policy reasons by providing that the Commissioner need not give the supplier a refund of overpaid GST where the recipient is registered for GST. This principle is explained in paragraph 2.3 of the Explanatory Memorandum to the Tax Laws Amendment (2008 Measures No. 3) Bill 2008, which states that: In the case of business-to-business transactions, the Commissioner is not required to refund overpaid GST because the purchasing business is potentially entitled to input tax credits to offset the GST included in the price of its acquisition. 20. Similarly, from the recipient's perspective, the preserving the status quo approach is consistent with the policy reasons behind the operation of former section 105-65 by ensuring symmetry between the GST paid and the ITC claimed in respect of a business-to-business transaction. 21. Even where there is not complete symmetry between the amount paid as GST by the supplier and the ITC claimed by the recipient (for example, where the recipient claims a partial ITC), we will generally adopt an approach that preserves the status quo. In these situations, it is envisaged that the registered recipient of the supply will pass on the cost of the unclaimed GST to their customers as a foreseeable cost of business. [17] 22. MT 2010/1 sets out the factors that the Commissioner will have regard to in exercising the discretion in former section 105-65. [18] A number of these principles are also relevant in determining whether it is appropriate to not apply the preserving the status quo approach, including where: • it results in a windfall gain to the recipient or disturbs the inherent symmetry in the GST system, or • it produces an unreasonable outcome, for example, an asymmetrical revenue outcome. • it results in a windfall gain to the recipient or disturbs the inherent symmetry in the GST system, or • it produces an unreasonable outcome, for example, an asymmetrical revenue outcome. 23. Applying the Commissioner's powers of general administration, it is appropriate for us not to take any compliance action to reverse a transaction in the circumstances outlined in paragraph 5 of this Practice Statement. The approach aims to overcome unnecessary administrative and compliance costs for the parties involved in the transaction that would otherwise arise if reversal of the transaction were to be required. 24. As noted in paragraph 8 of this Practice Statement, there will be other circumstances in which it will also be appropriate to preserve the status quo. Such an approach may be adopted providing it does not produce an outcome that departs from the policy intent underpinning the GST law. 25. For example, an Australian-based agent of a non-resident recipient may engage an Australian supplier to make supplies to the non-resident recipient. The supplier may incorrectly treat these supplies made to the non-resident recipient as taxable where the supplies are GST-free [19] and the Australian-based agent of the non-resident recipient may claim an ITC corresponding to the overpaid GST. [20] This may occur where the Australian supplier mistakenly deals with the Australian-based agent as if it were the principal rather than an agent of the non-resident recipient. In these circumstances, the recipient (the non-resident) would not have been entitled to a full or partial ITC if the supply had been a taxable supply. [21] However, it is a scenario where preserving the status quo provides an appropriate outcome. | Historical transactions: 26. The approach is only applicable to historical transactions where the GST was overpaid and an ITC was overclaimed in an earlier tax period. If a supply is incorrectly treated as taxable in the current tax period, the supplier and recipient should correct the transaction before lodging their activity statements. 27. We expect the incorrect treatment of supplies as taxable to be rectified for future transactions. | Related transactions: 28. The approach relates only to not disturbing the ITC claimed by the recipient. It does not change the underlying nature of the supply or the consequences of that supply (see Example 1 of this Practice Statement). 29. Where the incorrect treatment of a supply as taxable has GST implications for other transactions to which the recipient is a party, and the application of the approach gives rise to an unintended benefit, it may be appropriate to reverse the transaction rather than to preserve the status quo. Example 1 – related transactions 30. Entity BB sells an interest in a building project to registered Entity CC. Entity BB treats the sale as a taxable supply and remits an amount as GST to us, and Entity CC claims a corresponding ITC. 31. It is subsequently determined that the disposal of the interest was an input-taxed financial supply. The Commissioner may determine that it is appropriate to preserve the status quo in relation to this transaction by not requiring the ITC wrongly claimed by Entity CC to be returned. 32. However, Entity BB also claims $5,000 of ITCs for acquisitions made from Entity DD in relation to the supply it made to Entity CC. 33. Entity BB is not entitled to claim ITCs for the acquisition from Entity DD. Therefore, the Commissioner would ordinarily recover the ITCs claimed by Entity BB on the acquisitions from Entity DD. | Transactions to which the preserving the status quo approach does not apply: The Commissioner exercises the discretion under former section 105-65 to pay a refund to the supplier 34. The approach will not apply in circumstances where the supplier seeks a refund of the overpaid GST from us, and we exercise the discretion under former section 105-65 to pay a refund to the supplier. 35. Subject to an assessment of the facts of the case, we will seek to recover the overclaimed ITCs from the recipient of the supply. To not recover in such instances would produce an unreasonable result, being one that provides an asymmetrical revenue outcome. Example 2 – Commissioner's discretion exercised – recovery of overclaimed input tax credits from recipient 36. Supplier (S) treats a supply to registered recipient (R) as GST-free and determines the price of the supply accordingly. Subsequently, we audit S and determine that S should have remitted GST on the supply. An assessment is raised and S remits the amount assessed as GST to us and issues a tax invoice to R, who claims a corresponding ITC. Contractually, S cannot seek to recover the GST from R that was not included in the price charged for the supply. 37. S objects to the assessment on the basis that the supply was not taxable. We reverse the audit decision and give a favourable objection decision. S seeks a refund of the overpaid GST from us. 38. In these circumstances, S overpaid the amount as GST because we incorrectly treated the supply as taxable, therefore it is appropriate to exercise the discretion in former section 105-65 to refund the overpaid GST to S. [22] 39. In this situation, it is not appropriate for us to allow R to retain the ITC. If R was able to retain the ITC, R would obtain a windfall gain because GST was not included in the original price paid by R and S bore the cost of the GST we assessed as it was unable to recover the GST under the contract between S and R. | The supplier reimburses the GST component of the price to the recipient: 40. The supplier may reimburse the GST component of the GST-inclusive price charged for the supply to the recipient. Examples of where this may occur include: • where the reimbursement occurs as a pre-condition to the Commissioner exercising the discretion in former section 105-65 to refund the overpaid GST to the supplier, and • where the recipient agrees to reimburse in the course of settling a contractual dispute between the supplier and the recipient relating to the GST-inclusive price of the supply. • where the reimbursement occurs as a pre-condition to the Commissioner exercising the discretion in former section 105-65 to refund the overpaid GST to the supplier, and • where the recipient agrees to reimburse in the course of settling a contractual dispute between the supplier and the recipient relating to the GST-inclusive price of the supply. 41. In these cases, we will generally seek to recover the overclaimed ITCs from the recipient of the supply. To preserve the status quo in these circumstances would result in the recipient receiving a windfall gain, being the retention of an ITC where GST was ultimately not included in the price of the acquisition. | Other taxation laws: 42. The recipient's entitlement to an ITC can impact upon the application of other taxation laws, such as the income tax law and the fringe benefits tax law. 43. For example, Division 27 of the Income Tax Assessment Act 1997 outlines the effect of the GST in determining the amount of a deduction. Provisions such as sections 27-5 (losses or outgoings) and 27-80 (capital allowances) of the Income Tax Assessment Act 1997 provide that the quantum of certain income tax deductions will vary depending upon whether the acquirer is entitled to an ITC for the acquisition. 44. To ensure appropriate and consistent outcomes, a condition of adopting the preserving the status quo approach is that the recipient has treated the acquisition as a creditable acquisition (that is, it has treated the overclaimed ITC as if it were an ITC to which it is entitled) when working out its obligations and entitlements under the income tax law. The recipient would not request any amendment to the relevant income tax assessment to alter that position, in maintaining the status quo approach. 45. A similar issue arises in applying section 149A of the Fringe Benefits Tax Assessment Act 1986. A benefit provided in respect of the employment of an employee is a 'GST-creditable benefit' (and is therefore subject to a higher gross-up factor) if the person who provided the benefit [23] is or was entitled to an ITC because of the provision of the benefit. Again, a condition of adopting the preserving the status quo approach is that the person has treated the overclaimed ITC as if it were an ITC to which the person is entitled when calculating their fringe benefits tax liability. Again, the person would not request any amendment to the relevant fringe benefits tax assessment to alter that position. Example 3 – other taxation laws 46. Brendan makes a GST-free supply to John, but mistakenly believes the supply to be taxable and charges a GST-inclusive price of $550. Brendan pays the GST to us and John, who is registered for GST, claims an ITC of $50. Brendan later discovers his mistake and advises John. In order to preserve the status quo, John can only claim a tax deduction of $500. He should treat the $50 overclaimed ITC as being not tax-deductible. Brendan will only declare $500 as income. | General interest charge: 47. Since the preserving the status quo approach does not require the recipient to repay the overclaimed ITC, it follows that the recipient is not required to pay any general interest charge in respect of the overclaimed ITC.",MT 2010/1 | PS LA 1998/1 | PS LA 2009/4 | Explanatory Memorandum | A New Tax System (Goods and Services Tax) (Correcting GST Errors) Determination 2023 | TAA 1953 Part IIB Div 3 | TAA 1953 Part IIB Div 3A | TAA 1953 Sch 1 former 105-65 | TAA 1953 Sch 1 former 105-65(1) | TAA 1953 Sch 1 former 105-65(1)(a) | TAA 1953 Sch 1 former 105-65(1)(b) | TAA 1953 Sch 1 former 105-65(1)(c) | TAA 1953 Sch 1 former 105-65(1)(c)(i) | TAA 1953 Sch 1 former 105-65(1)(c)(ii) | ANTS(GST) 1999 section 38-190 | ANTS(GST) 1999 Div 57 | ANTS(GST) 1999 Div 142 | ITAA 1997 Div 27 | ITAA 1997 27-5 | ITAA 1997 27-80 | FBTAA 1986 149A,PS LA 1998/1 PS LA 2009/4,TAA 1953 Part IIB Div 3 | TAA 1953 Part IIB Div 3A | TAA 1953 Sch 1 former 105-65 | TAA 1953 Sch 1 former 105-65(1) | TAA 1953 Sch 1 former 105-65(1)(a) | TAA 1953 Sch 1 former 105-65(1)(b) | TAA 1953 Sch 1 former 105-65(1)(c) | TAA 1953 Sch 1 former 105-65(1)(c)(i) | TAA 1953 Sch 1 former 105-65(1)(c)(ii) | ANTS(GST) 1999 section 38-190 | ANTS(GST) 1999 Div 57 | ANTS(GST) 1999 Div 142 | ITAA 1997 Div 27 | ITAA 1997 27-5 | ITAA 1997 27-80 | FBTAA 1986 149A,,Correcting GST errors Explanatory Memorandum for the Tax Laws Amendment (2008 Measures No. 3) Bill 2008 A New Tax System (Goods and Services Tax) (Correcting GST Errors) Determination 2023,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/GA20133/NAT/ATO/00001,"Transactions to which the preserving the status quo approach applies | Transactions to which preserving the status quo does not apply | Updated in line with current ATO style and accessibility requirements. | Updated as a result of law change. | Footnote inserted as a result of law change. | Updated to add a new legislative reference and contact details. | Date of Effect: This Practice Statement applies before and after its date of issue | [1] In accordance with the running balance account rules (see Division 3 and Division 3A of Part IIB). | [2] Former paragraph 105-65(1)(a). | [3] Former paragraph 105-65(1)(b). | [4] Former subparagraph 105-65(1)(c)(i). | [5] In this Practice Statement, references to 'supply' include an arrangement that was treated as giving rise to a taxable supply, and references to 'recipient' include a purported recipient. | [6] Former subparagraph 105-65(1)(c)(ii). | [7] Division 142 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) applies to excess GST in tax periods starting on or after 31 May 2014. This Practice Statement does not apply to excess GST under Division 142. | [8] Alternatively, the recipient of the supply has issued a recipient created tax invoice. | [9] In accordance with Law Administration Practice Statements PS LA 1998/1 Law administration practice statements and PS LA 2009/4 Decisions made by the Commissioner in the general administration of the taxation laws , recipients can choose whether to adopt this approach or not. | [10] See paragraphs 24 and 25 of this Practice Statement. | [11] See paragraphs 17 and 18 of this Practice Statement. | [12] Paragraphs 26 and 27 of this Practice Statement provide commentary on what a 'historical transaction' is. | [13] See Example 1 of this Practice Statement for further details on this point. | [14] See paragraphs 42 to 46 of this Practice Statement for further details. | [15] Further information may also be found in Correcting GST errors . | [16] See paragraph 37 of MT 2010/1. | [17] See paragraphs 124 and 128 of MT 2010/1. | [18] See paragraph 128 of MT 2010/1. | [19] Section 38-190 of the GST Act. | [20] Division 57 of the GST Act. | [21] The non-resident recipient is not registered or required to be registered for GST. | [22] This example is based on Example 15 in Appendix 3 to MT 2010/1. | [23] Or a person who is or was a member of the same GST group as the person who provided the benefit. | File 1-0WJQ6I; 1-15JZ1KL5 | Other Business Lines consulted"
PS LA 2012/1 (GA),SUBJECT: How to calculate input tax credits and bad debt adjustments when a dividend is paid to creditors PURPOSE: To assist representatives of incapacitated entities in calculating input tax credits and bad debt adjustments when a dividend is paid to creditors,28 March 2012,,Law Administration Practice Statement (GA),False,"About this Practice Statement: 1. This Practice Statement applies to representatives of an incapacitated entity who pay a dividend of less than 100c in the dollar to creditors towards satisfaction of debts owed by the incapacitated entity. The payment of such a dividend may create either an increasing adjustment (as a consequence of the creditor writing off the remainder of the debt) or an input tax credit (ITC) entitlement, depending on the incapacitated entity's accounting basis for goods and services tax (GST) purposes. This Practice Statement discusses how representatives may calculate the increasing adjustment (which we refer to as a 'bad debt increasing adjustment') [1] or the ITC and its impact upon the dividend, if any, payable by the representative to us. 2. This Practice Statement does not consider the GST consequences for creditors who receive a dividend from the representative of an incapacitated entity. 3. All legislative references in this Practice Statement are to the A New Tax System (Goods and Services Tax) Act 1999 , unless otherwise indicated. | Date of effect: 4. This Practice Statement applies to tax periods commencing both before and after its date of issue. 5. The formulas contained in this Practice Statement were previously contained in GST Bulletin GSTB 2003/1 How to calculate input tax credits and bad debt adjustments when a dividend is paid to creditors, which has been withdrawn. GSTB 2003/1 referred to Division 147, which was repealed and replaced by Division 58 on 4 December 2009. Although the accepted formulas previously contained in GSTB 2003/1 remain unchanged, the discussion on the operation of these formulas has been revised to reflect the legislative provisions of Division 58. 6. We will accept the use of the formulas set out in the Explanation section of this Practice Statement to calculate the amount of: • a bad debt increasing adjustment arising from a final dividend payment [2] • a bad debt decreasing adjustment arising from an additional dividend payment [3] , or • an ITC entitlement arising from the payment of a first and final dividend. [4] • a bad debt increasing adjustment arising from a final dividend payment [2] • a bad debt decreasing adjustment arising from an additional dividend payment [3] , or • an ITC entitlement arising from the payment of a first and final dividend. [4] 7. A representative of an incapacitated entity is required to be registered for GST if the incapacitated entity was registered or required to be registered for GST. A representative is [5] : • a trustee in bankruptcy • a liquidator • a receiver • a controller (within the meaning of section 9 of the Corporations Act 2001) • an administrator appointed under Division 2 of Part 5.3A of the Corporations Act 2001 • a person appointed or authorised under an Australian law [6] to manage the affairs of an entity because it is unable to pay all of its debts as and when they become due and payable, or • an administrator of a deed of company arrangement executed by the entity. • a trustee in bankruptcy • a liquidator • a receiver • a controller (within the meaning of section 9 of the Corporations Act 2001) • an administrator appointed under Division 2 of Part 5.3A of the Corporations Act 2001 • a person appointed or authorised under an Australian law [6] to manage the affairs of an entity because it is unable to pay all of its debts as and when they become due and payable, or • an administrator of a deed of company arrangement executed by the entity. 8. An incapacitated entity is [7] : • an individual who is bankrupt • an entity that is in liquidation or receivership, or • an entity that has a representative. • an individual who is bankrupt • an entity that is in liquidation or receivership, or • an entity that has a representative. 9. A representative, in the course of their duties, may pay a dividend to unsecured creditors [8] of the incapacitated entity. At the time that an entity becomes incapacitated, it may have a number of creditors, including the Commissioner of Taxation. 10. The dividend is calculated by dividing the pool of funds available for distribution to unsecured creditors by the total amount of the admitted proofs of debt. This Practice Statement assumes the dividend is less than the amount owed to creditors, that is, less than 100c in the dollar. A dividend that pays 100c in the dollar does not give rise to an increasing adjustment. | Bad debt increasing adjustments: 11. A dividend payment of less than 100c in the dollar may result in the creditors writing off as bad the parts of their debts which remain unpaid (that is, the debt minus the dividend payment). 12. For an entity that accounts for GST on a non-cash basis, an ITC for a creditable acquisition can be attributed to the tax period in which an invoice is issued or any of the consideration is paid (whichever occurs earlier), provided that (where required) a tax invoice is held when the entity's business activity statement for the period is lodged. [9] The entity has a bad debt increasing adjustment [10] in respect of the acquisition when the supplier (creditor) writes all or part of the debt off as bad. [11] 13. It is reasonable to assume that creditors will have written off the remainder of the debts as bad by the time the final dividend is paid. However, the incapacitated entity and the representative will not usually be aware if individual creditors have previously written off all or part of the debt as bad. In those circumstances, if the dividend payment to a creditor is for a creditable acquisition that the incapacitated entity had made before the appointment, but not fully paid for, the bad debt increasing adjustment may be attributed wholly to the tax period in which the representative pays the final dividend. 14. The amount of the increasing adjustment in respect of an acquisition which was fully creditable is equal to one-eleventh of the amount written off. [12] However, if the acquisition by the incapacitated entity was only partly creditable, the increasing adjustment is calculated in proportion to the extent of the creditable purpose and extent of the consideration. [13] 15. We will accept the use of the following formula for calculating the bad debt increasing adjustment arising from a final dividend payment. It is referred to as the 'bad debt increasing adjustment formula'. Bad debt increasing adjustment formula B = A [1 − (Y ÷ X)] Dividend rate = Y ÷ (X + B) Where: • B is the total bad debt increasing adjustment to be notified to us. • A is the amount of ITCs the incapacitated entity was entitled to in relation to the unsecured creditors' admitted debts. This figure takes into account fully and partly creditable acquisitions made by the incapacitated entity. • Y is the total funds that are available to be paid as distributions to the unsecured creditors. • X is the total admitted unsecured debts, before any bad debt increasing adjustments that arise as a consequence of creditors writing off part of the debts as bad. B = A [1 − (Y ÷ X)] Dividend rate = Y ÷ (X + B) • B is the total bad debt increasing adjustment to be notified to us. • A is the amount of ITCs the incapacitated entity was entitled to in relation to the unsecured creditors' admitted debts. This figure takes into account fully and partly creditable acquisitions made by the incapacitated entity. • Y is the total funds that are available to be paid as distributions to the unsecured creditors. • X is the total admitted unsecured debts, before any bad debt increasing adjustments that arise as a consequence of creditors writing off part of the debts as bad. | Example 1 – applying the bad debt increasing adjustment formula: 16. Mark, the representative of Fabulous Fabrics Pty Ltd (the incapacitated entity), admits unsecured creditors' claims of $5,152,991. ITCs of $294,368, for acquisitions from these creditors included in the admitted claims, were claimed by Fabulous Fabrics Pty Ltd prior to Mark's appointment. The admitted unsecured creditors' claims include a debt to us of $493,587. Mark has funds of $1,405,646 available to pay unsecured creditors. 17. Accordingly, applying the bad debt increasing adjustment formula [14] : A = $294,368 Y = $1,405,646 X = $5,152,991 B = 294,368 [1 − (1,405,646 ÷ 5,152,991)] = $214,069.55. 18. The total bad debt increasing adjustment (that is, the amount by which we would increase our proof of debt) is $214,069.55. As the bad debt increasing adjustment increases our claim, the total admitted unsecured debts (X) will also increase by this amount. The dividend must be calculated on this new amount. The ATO dividend is based on the increased proof of debt of $707,656.55: Dividend rate = 1,405,646 ÷ (5,152,991 + 214,069.55) = 0.26190 = 26.190c in the dollar. Dividend rate = 1,405,646 ÷ (5,152,991 + 214,069.55) = 0.26190 = 26.190c in the dollar. 19. The dividend payable to us is calculated as: ATO dividend = 0.26190 × $707,656.55 = $185,335.25. ATO dividend = 0.26190 × $707,656.55 = $185,335.25. 20. The bad debt increasing adjustment formula assumes that bad debt increasing adjustments relating to acquisitions referable to the unsecured creditors' admitted claims have not previously been made. This formula is not to be used to the extent that bad debt increasing adjustments (that have arisen in respect to debts that have been outstanding for 12 months or more or previously written off) have already been made in a business activity statement of: • the entity prior to the appointment of the representative, or • the incapacitated entity, or • the representative. • the entity prior to the appointment of the representative, or • the incapacitated entity, or • the representative. | Is it the incapacitated entity or the representative that has the adjustment?: 21. The representative is personally liable for a bad debt increasing adjustment if: • the making of the acquisition to which the bad debt increasing adjustment relates is within the scope of the representative's responsibility or authority for managing the incapacitated entity's affairs [15] , and • the adjustment is attributable to a tax period applying to the representative in their capacity as representative of the incapacitated entity. [16] • the making of the acquisition to which the bad debt increasing adjustment relates is within the scope of the representative's responsibility or authority for managing the incapacitated entity's affairs [15] , and • the adjustment is attributable to a tax period applying to the representative in their capacity as representative of the incapacitated entity. [16] 22. The incapacitated entity has bad debt increasing adjustments for pre-appointment acquisitions. The incapacitated entity also has a bad debt increasing adjustment for post-appointment acquisitions where the bad debt increasing adjustment is attributable to a tax period after the cessation of the representative's appointment. The latter will arise where a debt remains outstanding when the representative of the incapacitated entity ceases their appointment and the entity resumes normal trading. If the creditor writes off the debt after the representative's appointment has ceased, then the entity is liable for the bad debt increasing adjustment. | Notification prior to declaring a dividend: 23. A representative of an incapacitated entity must notify us, in the prescribed form, of an amount of GST for which the incapacitated entity is liable or an increasing adjustment that the incapacitated entity has if: • the representative becomes aware, or could reasonably be expected to have become aware, of the amount of GST or the adjustment, and • the amount of GST or adjustment has not been taken into account in a previously lodged GST return, and • we have not previously been notified of the amount of GST or the adjustment. [17] • the representative becomes aware, or could reasonably be expected to have become aware, of the amount of GST or the adjustment, and • the amount of GST or adjustment has not been taken into account in a previously lodged GST return, and • we have not previously been notified of the amount of GST or the adjustment. [17] 24. The representative is required to notify us of such an amount before the day on which a dividend is declared to unsecured creditors of the incapacitated entity. [18] In cases where there is more than one dividend to be paid to creditors, notification will be required prior to the declaration of each dividend. Each successive notification will only need to notify relevant liabilities that have not been included in prior notifications. | Interim dividends: 25. A bad debt increasing adjustment does not necessarily arise as a result of an interim dividend payment. This is because creditors may not write-off the whole or part of a debt owed by the incapacitated entity as bad until it is certain that no further payments will be received. In any case, representatives will not usually know whether creditors have written off any part of the debt as bad at that point. We therefore accept that payment of an interim dividend does not in itself trigger an increasing adjustment. 26. When a representative makes a final dividend payment, creditors will generally make a bona fide commercial decision that the unpaid portion of the debt is unlikely to be recovered and therefore write-off the remainder of the debt. [19] Thus, a bad debt increasing adjustment potentially arises when a final dividend is paid and it is at this point the bad debt increasing adjustment formula may be used to calculate it. [20] 27. Where a representative pays interim dividends to unsecured creditors, those payments are based on the admitted claims of the creditors. In the case of dividend payments that are made to us, the interim dividends may be based on the admitted claim (including amounts owed us), prior to any bad debt increasing adjustments which may arise as a consequence of the remainder of the debts being written off after these dividend payments have been paid. 28. The interim dividends paid to us may not have taken bad debt increasing adjustments into account because the interim dividends will usually be based on our original proof of debt, which will not have taken into account increasing adjustments that do not arise until creditors write-off the remainder of the debts owed by the incapacitated entity. Consequently, in addition to the bad debt increasing adjustment, an equalisation payment to us is required. [21] The equalisation payment may be made at the time the final dividend is paid. The representative will need to ensure that sufficient funds are set aside for this equalisation payment and may wish to make an estimate of the amount of the equalisation payment, at the time of paying the interim dividends. 29. If there is more than one interim dividend, the bad debt increasing adjustment formula is applied only at the time of the expected final dividend. The equalisation payment, that takes into account the interim dividends, is also required at the time of the final dividend. If the bad debt increasing adjustment formula is applied at the time of the expected final dividend, but there is a later dividend, the bad debt decreasing adjustment formula must also be applied in respect of the later dividend. | Example 2 – equalisation payments: 30. Paul, the representative of Stunning Services Pty Ltd (the incapacitated entity), admits unsecured creditors' claims of $5,250,000. ITCs of $300,000, for acquisitions from these creditors, were claimed by Stunning Services Pty Ltd prior to Paul's appointment. The admitted unsecured creditors' claims include our claim of $400,000. Paul pays an interim dividend to unsecured creditors of 20c in the dollar ($1,050,000). 31. There is no bad debt increasing adjustment at this time. We receive an interim dividend based on a debt of $400,000 (that is, $80,000). Paul may wish to make an estimate of the equalisation payment that will be due to us and set these funds aside. 32. Paul then declares a final dividend and has $787,500 (including the amount set aside as the equalisation payment) available for this payment. 33. Accordingly, applying the bad debt increasing adjustment formula: A = $300,000 Y = $1,837,500 (that is, $1,050,000 + $787,500) X = $5,250,000 B = 300,000 [1 − (1,837,500 ÷ 5,250,000)] = $195,000. 34. Y is the total funds that are paid as a dividend (that is, interim dividend plus final dividend). The total amount of the bad debt increasing adjustment (that is, the amount by which we will increase the proof of debt) is $195,000. As the adjustment increases our claim, the total admitted unsecured debts (X) also increases by this amount. The dividend rate must be calculated on this new amount: Dividend rate = 1,837,500 ÷ (5,250,000 + 195,000) = 0.33747 = 33.747c in the dollar. Dividend rate = 1,837,500 ÷ (5,250,000 + 195,000) = 0.33747 = 33.747c in the dollar. 35. Our claim is now $595,000 (that is, $400,000 + $195,000) and the final dividend rate is calculated to be 13.747c in the dollar (that is, 0.33747 − 0.20). Based on this figure, the final dividend payment to us would be $81,794.65. However, the first dividend payment to us was based on the lesser debt and therefore we are entitled to an equalisation payment. The equalisation payment is calculated as: Equalisation payment = (595,000 × 0.20) − 80,000 = $39,000. Equalisation payment = (595,000 × 0.20) − 80,000 = $39,000. 36. The final payment to us consists of $81,794.65 for the final dividend and $39,000 for the equalisation payment. The total payments made to us by the representative are $200,794.65 (that is, $80,000 + $39,000 + $81,794.65). | Bad debt increasing adjustments – debts overdue for 12 months or more: 37. A bad debt increasing adjustment also arises when a debt has been overdue for 12 months or more, if it has not already been written off. [22] 38. This may occur prior to the appointment of the representative or during the period of representation, prior to the payment of the final dividend. Adjustments are attributable to the tax period in which you become aware of them. [23] This could require a series of bad debt increasing adjustments to be attributed as the representative becomes aware of each adjustment. | Bad debt decreasing adjustments: 39. In situations where a dividend was expected to be the final dividend, but a subsequent dividend is paid, a bad debt decreasing adjustment may arise. [24] 40. A bad debt decreasing adjustment will arise if an increasing adjustment [25] arose when the earlier dividend, which was expected to be the final, was paid. Where a subsequent dividend is paid which results in a decreasing adjustment, our admitted debt will decrease. This is because the previous dividend payment was based on the admitted debt, which included the bad debt increasing adjustment, but did not take into account the subsequent decreasing adjustment. 41. The amount effectively overpaid may be deducted from the final dividend payment to us, or we may be required to repay the overpaid amount. 42. The following bad debt decreasing adjustment formula can be used to calculate the decreasing adjustment: Bad debt increasing adjustment formula Decreasing adjustment (D) = A (Y ÷ X) Dividend rate = Y ÷ (X − D) Where: • D is the decreasing adjustment of the incapacitated entity. • A is the amount of ITCs the incapacitated entity was entitled to in relation to the unsecured creditors' admitted debts. This figure takes into account fully and partly creditable acquisitions made by the incapacitated entity and is the same as that used in originally applying the bad debt increasing adjustment formula. • Y is the extra funds that are available for distribution to the unsecured creditors. • X is the total admitted unsecured debts. This figure includes the bad debt increasing adjustment calculated previously. Decreasing adjustment (D) = A (Y ÷ X) Dividend rate = Y ÷ (X − D) • D is the decreasing adjustment of the incapacitated entity. • A is the amount of ITCs the incapacitated entity was entitled to in relation to the unsecured creditors' admitted debts. This figure takes into account fully and partly creditable acquisitions made by the incapacitated entity and is the same as that used in originally applying the bad debt increasing adjustment formula. • Y is the extra funds that are available for distribution to the unsecured creditors. • X is the total admitted unsecured debts. This figure includes the bad debt increasing adjustment calculated previously. | Example 3 – applying the bad debt increasing adjustment – decreasing adjustment: 43. Mark, the representative of Fabulous Fabrics Pty Ltd (the incapacitated entity), has previously paid what was expected to be the final dividend. Fabulous Fabrics Pty Ltd had an increasing adjustment for the bad debt amount written off using the final bad debt increasing adjustment formula as provided in Example 1 of this Practice Statement. 44. Mark now becomes aware of an asset that was not previously included in the records of Fabulous Fabrics Pty Ltd. Mark sells the asset, and now has available additional funds of $400,222 (net of costs and GST on the sale) to pay a further dividend to the unsecured creditors. The amount of ITCs previously claimed by the incapacitated entity that relate to acquisitions for which there was a bad debt increasing adjustment remains unchanged at $294,368. The total of the admitted unsecured debts is now $5,367,060.55 (which includes the increasing adjustment of $214,069.55). 45. Accordingly, applying the bad debt increasing adjustment formula: Y = $400,222 X = $5,367,060.55 A = $294,368 ATO debt = $707,656.55. 46. As Fabulous Fabrics Pty Ltd has a decreasing adjustment in relation to amounts previously written off by creditors when Mark pays the dividend, the dividend rate will increase. 47. The decreasing adjustment of Fabulous Fabrics Pty Ltd is calculated as: D = A (Y ÷ X) = 294,368 × (400,222 ÷ 5,367,060.55) = $21,951.04. D = A (Y ÷ X) = 294,368 × (400,222 ÷ 5,367,060.55) = $21,951.04. 48. The decreasing adjustment is $21,951.04. This decreasing adjustment is offset against our outstanding claim. The total of the unsecured creditors' debts is reduced by the amount of the decreasing adjustment and the dividend rate is calculated as: Dividend rate = Y ÷ (X − D) = 400,222 ÷ (5,367,060.55 − 21,951.04) = 0.07488 = 7.488c in the dollar. Dividend rate = Y ÷ (X − D) = 400,222 ÷ (5,367,060.55 − 21,951.04) = 0.07488 = 7.488c in the dollar. 49. As our claim is reduced by the amount of the decreasing adjustment, the total unsecured creditors' amount (X) is reduced by this amount. We are still entitled to a dividend payment, although this will be calculated on the reduced debt of $685,705.51. [26] 50. Also, as the previous dividend payment to us was based on the admitted debt of $707,656.55 (including the bad debt increasing adjustment) and our final claim is $685,705.51 (taking into account the decreasing adjustment), we effectively have been overpaid by the initial dividend payment. Therefore, a calculation of the overpayment must be made. 51. The total dividend rate paid to unsecured creditors is 33.678c in the dollar (that is, 26.190 + 7.488). The total dividend payment to us is calculated on the final debt: $685,705.51 × 0.33678 = $230,931.90. $685,705.51 × 0.33678 = $230,931.90. 52. Therefore, the final dividend paid to us is: $230,931.90 − $185,335.25 [27] = $45,596.65. $230,931.90 − $185,335.25 [27] = $45,596.65. | Input tax credits as a result of a first and final dividend to creditors: 53. Entities that account for GST on a cash basis are entitled to claim ITCs to the tax period in which they provide the consideration for the acquisition. [28] 54. For example, if the consideration for a creditable acquisition is $220 and the entity pays $110 of that amount in a given tax period, it is entitled to claim an ITC of $10 to that tax period. [29] This means that, to the extent that the purchases of an incapacitated entity (which accounts for GST on a cash basis) referable to the unsecured creditors' admitted claims were creditable acquisitions, ITCs in proportion to the rate of the dividend paid by the representative are attributed when the dividend is paid. [30] 55. When the representative pays a dividend to unsecured creditors for acquisitions made by the incapacitated entity prior to the appointment of the representative, the entitlement to ITCs remains with the incapacitated entity. | How is the amount of the input tax credit calculated?: 56. We will accept the following method for calculating the ITC entitlement which arises where there is a payment of a first and final dividend. [31] This is referred to as the 'ITC formula'. A representative may use the ITC formula upon payment of a first and final dividend to calculate the ITC entitlement. 57. Note that Division 3 in Part IIB of the Taxation Administration Act 1953 provides that these ITCs will be offset against the outstanding tax debt of the incapacitated entity before any refund is issued. 58. Where the ITC amount is larger than the debt owed by the incapacitated entity to us, the incapacitated entity is entitled to a refund of the excess amount. This refund will be included in the funds available for distribution by the representative. If, however, the ITC amount is less than the debt owed to us, there is no refund to the incapacitated entity. The debt owed to us is merely reduced by this amount. ITC formula Step 1 ITC = A (Y ÷ X) If the ITC is greater than the debt to us, go to Step 2. If the ITC is less than or equal to the debt to us, go to Step 3. Step 2 Dividend rate = (Y + ITC − ATO debt) ÷ (X − ATO debt) Do not go to Step 3. This is the end of the calculation. Step 3 Dividend rate = Y ÷ (X − ITC) Where: • ITC is the ITC entitlement of the incapacitated entity referable to the unsecured creditors' admitted claims. • A is the GST component included in the admitted unsecured debts of the incapacitated entity to the extent that the incapacitated entity is entitled to an ITC. This figure takes into account fully creditable and partly creditable acquisitions made by the incapacitated entity. • Y is the total funds that are available to be paid as distributions to the unsecured creditors. • X is the total admitted unsecured debts. • ATO debt is the total debt owed to us by the incapacitated entity. ITC = A (Y ÷ X) Dividend rate = (Y + ITC − ATO debt) ÷ (X − ATO debt) Dividend rate = Y ÷ (X − ITC) • ITC is the ITC entitlement of the incapacitated entity referable to the unsecured creditors' admitted claims. • A is the GST component included in the admitted unsecured debts of the incapacitated entity to the extent that the incapacitated entity is entitled to an ITC. This figure takes into account fully creditable and partly creditable acquisitions made by the incapacitated entity. • Y is the total funds that are available to be paid as distributions to the unsecured creditors. • X is the total admitted unsecured debts. • ATO debt is the total debt owed to us by the incapacitated entity. | Example 4 – applying the ITC formula: 59. Tan, the representative of Kerry Club Pty Ltd (the incapacitated entity), admits unsecured creditors claims of $525,000 and has funds available of $164,249 to pay these debts. The GST component of the total admitted unsecured creditors' claims is $38,674 and the debt that Kerry Club Pty Ltd owes to us is $74,007. 60. Accordingly, applying the ITC formula: Y = $164,249 X = $525,000 A = $38,674 ATO debt = $74,007. 61. As Kerry Club Pty Ltd is entitled to ITCs when Tan makes the dividend payment, the dividend rate will increase. The ITC of Kerry Club Pty Ltd is calculated as: Step 1 Calculate the amount of ITCs. ITC = A (Y ÷ X) = 38,674 × (164,249 ÷ 525,000) = $12,099.36. ITC = A (Y ÷ X) = 38,674 × (164,249 ÷ 525,000) = $12,099.36. 62. As the amount of the ITC is less than the tax debt to us, Step 3 is applied. 63. The amount of the ITCs to which Kerry Club Pty Ltd is entitled is $12,099.36. These ITCs are offset against our outstanding claim, with the result that the total of the unsecured creditors' debts is also reduced by the amount of the ITCs and the dividend rate is calculated as: Step 3 Dividend rate = Y ÷ (X − ITC) = 164,249 ÷ (525,000 − 12,099.36) = 0.32024 = 32.024c in the dollar. Dividend rate = Y ÷ (X − ITC) = 164,249 ÷ (525,000 − 12,099.36) = 0.32024 = 32.024c in the dollar. 64. We are still entitled to a dividend payment, although this will be calculated on the reduced debt. As our claim is not cleared by the ITCs, there is no refund. The amount of money that is available for distribution (Y) remains unchanged. | Interim dividends: 65. A representative may pay interim dividends to creditors which result in ITCs being attributed to the tax period in which each dividend is paid. However, the ITC formula cannot be applied at the time of the interim dividend as this will result in an inaccurate calculation of the ITC amount. 66. A representative may apply the ITC formula at the time of the final dividend to calculate the total amount of the ITCs. However, at the time of the final dividend, we effectively will have been overpaid on the previous dividends if the interim dividends were based on the admitted debt before taking into account the ITCs attributable as a result of the part payment of the creditors. 67. The amount may be deducted from the final dividend payment to us or we may be required to repay the overpaid amount. [32] | Example 5 – applying the ITC formula at the final dividend: 68. Marius, the representative of Norved Pty Ltd (the incapacitated entity), admits unsecured creditors' claims of $780,000 and declares an interim dividend of 20c in the dollar to the unsecured creditors (that is, Marius is distributing $156,000). The GST component of the total admitted unsecured creditors' claims is $54,003 and the debt owed us by Norved Pty Ltd (the incapacitated entity) is $103,000. Marius pays the interim dividend to us based on the admitted proof of debt (without any adjustments to the ATO claim for ITCs that result from the interim dividend payment). The interim dividend payment to the ATO is $103,000 × 0.20 = $20,600. 69. Marius has funds available of $186,050 for the final dividend, making the total funds distributed to the unsecured creditors $342,050. This example illustrates how the ITC entitlement of Norved Pty Ltd is attributed at the time of the final dividend is calculated using the formula. 70. Accordingly, applying the ITC formula: Y = $342,050 X = $780,000 A = $54,003 ATO debt = $103,000 Step 1 Calculate the amount of ITCs. ITC = A (Y ÷ X) = 54,003 × (342,050 ÷ 780,000) = $23,681.70. ITC = A (Y ÷ X) = 54,003 × (342,050 ÷ 780,000) = $23,681.70. 71. As the amount of the ITC is less than the tax debt us, Marius applies Step 3. 72. The amount of the ITCs to which Norved Pty Ltd is entitled is $23,681.70. These ITCs are offset against the outstanding ATO claim, with the result that the total of the unsecured creditors' debts is also reduced by the amount of the ITCs. Step 3 Dividend rate = Y ÷ (X − ITC) = 342,050 ÷ (780,000 − 23,681.70) = 0.45226 = 45.226c in the dollar. Dividend rate = Y ÷ (X − ITC) = 342,050 ÷ (780,000 − 23,681.70) = 0.45226 = 45.226c in the dollar. 73. We are still entitled to a dividend payment, although this will be calculated on the reduced debt of $79,318.30. As the debt us is greater than the ITCs, there is no entitlement to a refund. The amount of money that is available for distribution (Y) remains unchanged. We receive the interim dividend payment based on the admitted debt of $103,000. However, the final debt to us after taking into account the ITCs available to Norved Pty Ltd is reduced to $79,318.30. Therefore, we effectively have been overpaid by the interim dividend and when Marius pays the final dividend to us, this overpayment is taken into account so that we receive a total dividend based on the reduced debt (that is, $79,318.30 × 0.45226 = $35,872.49). Marius pays us a final dividend of $15,272.49 (that is, $35,872.49 − $20,600).",Treasury Laws Amendment (Strengthening Financial Systems and Other Measures) Act 2025 | GSTB 2003/1 (withdrawn) | GSTR 2000/2 | TR 92/18 | ANTS(GST)A 1999 21-15 | ANTS(GST)A 1999 21-15(1)(c) | ANTS(GST)A 1999 21-20 | ANTS(GST)A 1999 29-10(1) | ANTS(GST)A 1999 29-10(2) | ANTS(GST)A 1999 29-10(3) | ANTS(GST)A 1999 29-10(4) | ANTS(GST)A 1999 29-20(1) | ANTS(GST)A 1999 Div 58 | ANTS(GST)A 1999 58-10(1) | ANTS(GST)A 1999 58-10(4) | ANTS(GST)A 1999 58-60(1) | ANTS)GST)A 1999 58-60(2) | ANTS(GST)A 1999 136-10 | ANTS(GST)A 1999 195-1 | ITAA 1997 995-1 | TAA 1953 Div 3 Pt IIB | Bankruptcy Act 1966 144 | Corporations Act 2001 9 | Corporations Act 2001 Pt 5.3A Div 2 | Corporations Regulations 2001 5.6.55 | Corporations Regulations 2001 5.6.68,,ANTS(GST)A 1999 21-15 | ANTS(GST)A 1999 21-15(1)(c) | ANTS(GST)A 1999 21-20 | ANTS(GST)A 1999 29-10(1) | ANTS(GST)A 1999 29-10(2) | ANTS(GST)A 1999 29-10(3) | ANTS(GST)A 1999 29-10(4) | ANTS(GST)A 1999 29-20(1) | ANTS(GST)A 1999 Div 58 | ANTS(GST)A 1999 58-10(1) | ANTS(GST)A 1999 58-10(4) | ANTS(GST)A 1999 58-60(1) | ANTS)GST)A 1999 58-60(2) | ANTS(GST)A 1999 Div 147 (repealed) | ANTS(GST)A 1999 136-10 | ANTS(GST)A 1999 195-1 | ITAA 1997 995-1 | TAA 1953 Div 3 Pt IIB | Bankruptcy Act 1966 144 | Corporations Act 2001 9 | Corporations Act 2001 Pt 5.3A Div 2 | Corporations Regulations 2001 5.6.55 | Corporations Regulations 2001 5.6.68,,,False,True,https://www.ato.gov.au/law/view/document?docid=PSR/GA20121/NAT/ATO/00001,"This Practice Statement is being reviewed to reflect amendments to the GST law in relation to the attribution of input tax credits following the enactment of the Treasury Laws Amendment (Strengthening Financial Systems and Other Measures) Act 2025 . This document incorporates revisions made since original publication. View its history and amending notices, if applicable. | Incapacitated entities accounting on a non-cash basis | Example 3 – applying the bad debt increasing adjustment formula – decreasing adjustment | Incapacitated entities accounting on a cash basis | Updated in line with current ATO style and accessibility requirements. | [1] This expression refers to increasing adjustments under section 21-15 of the A New Tax System (Goods and Services Tax) Act 1999 , in relation to creditable acquisitions, as a consequence of debts being written off by the supplier or overdue for 12 months or more. | [2] Paragraphs 11 to 20 of this Practice Statement. | [3] Paragraphs 39 to 52 of this Practice Statement. | [4] Paragraphs 53 to 64 of this Practice Statement. | [5] Representative is defined in section 195-1. | [6] An Australian law is defined in section 995-1 of the Income Tax Assessment Act 1997 as a law of the Commonwealth, a State or a Territory. | [7] Incapacitated entity is defined in section 195-1. | [8] 'Unsecured creditors' in this context refers to ordinary unsecured creditors and not to other special classes of unsecured creditors, such as employees. | [9] If a taxpayer does not take into account an ITC in a GST return for the tax period to which it is attributable to under subsections 29-10(1), (2) or (3), under subsection 29-10(4) the ITC is attributable to the first tax period in which it is included in a GST return by the taxpayer. | [11] For further discussion on when a debt is 'bad', refer to Goods and Services Tax Ruling GSTR 2000/2 Goods and Services Tax: adjustments for bad debts and Taxation Ruling TR 92/18 Income tax: bad debts . | [14] Note for calculation accuracy, figures should only be rounded at the final stage of the calculation, to the nearest cent. | [15] Subsection 58-10(1). | [16] Subsection 58-10(4). | [17] Subsection 58-60(1). | [18] Subsection 58-60(2). | [19] See paragraph 37 of GSTR 2000/2 and paragraphs 3 and 4 of TR 92/18. | [20] Section 21-15. See paragraphs 37 and 38 of this Practice Statement for a discussion of debts overdue for 12 months or more. | [21] This assumes that the Commissioner has amended the proof of debt to claim the increase in its debt due to the bad debt increasing adjustments. A creditor's entitlement to equalisation payments arises under regulation 5.6.55 & 5.6.68 of the Corporations Regulations 2001 and section 144 of the Bankruptcy Act 1966 . | [22] Paragraph 21-15(1)(c). | [23] Subsection 29-20(1). | [26] Refer to Example 1 of this Practice Statement for the Commissioner's proof of debt. | [27] This is the amount of the interim dividend paid to the Commissioner – refer to Example 1 of this Practice Statement. | [28] Subsection 29-10(2); provided that, where required, they hold a tax invoice at the time of lodging their business activity statement: subsection 29-10(3). | [29] Subsection 29-10(2); provided that, where required, they hold a tax invoice at the time of lodging their business activity statement: subsection 29-10(3). | [30] Subsection 29-10(2); provided that, where required, they hold a tax invoice at the time of lodging their business activity statement: subsection 29-10(3). | [31] That is, where only one dividend is anticipated. | [32] Under regulation 5.6.55 of the Corporations Regulations 2001 and section 144 of the Bankruptcy Act 1966 . | File 1-2WIL1TI; 1-14164MBI"
PS LA 2012/2 (GA),"SUBJECT: GST classification of food and beverage items PURPOSE: This practice statement sets out: • the arrangement the Australian Taxation Office (ATO) has with GS1 Australia to ensure food and beverage items shown on GS1net are correctly classified for GST purposes • the administrative approach the ATO will take for past years or periods where manufacturers and other suppliers have applied the ATO confirmed GST classification on GS1net, and • the procedures for tax officers to follow and matters to take into account when considering a change in the GST treatment of a food or beverage item listed on GS1net.",19 July 2012,1 July 2010,Law Administration Practice Statement (GA),True,"1. This practice statement applies to manufacturers and other suppliers that rely on GS1net, the GS1 Australia database, to determine the ATO confirmed GST classification of the food and beverage items that they supply. 2. It outlines the procedures for tax officers to follow and matters to take into account when considering a change in the GST classification of a food or beverage [1] item listed on GS1net. 3. The ATO entered into an arrangement with GS1 Australia documented in the fact sheet Simpler GST accounting for the food and grocery industry [2] (the fact sheet). 4. The arrangement, applying from 1 July 2002, seeks to ensure food and beverage items shown on GS1net are correctly classified for GST purposes. 5. The fact sheet previously outlined specific undertakings between the ATO and manufacturers or other suppliers to deal with circumstances where the ATO changed the GST classification of an item listed on GS1net that it had previously confirmed. 6. This practice statement outlines the administrative approach [3] that the Commissioner will take from 1 July 2010 in respect of the undertaking outlined in the fact sheet. | Who is GS1 Australia and what is GS1net?: 7. GS1 Australia is a non-profit trade organisation that administers the global GS1 system of numbering, barcoding and electronic messaging in Australia. 8. GS1 Australia numbers and barcodes can be found on most food and beverage items sold in retail stores. The barcode represents the GS1 number in a form that can be read by a scanner and entered instantly into a computer. The GS1 numbers provide a common language in which manufacturers, wholesalers and retailers can communicate about the goods and services they trade. 9. Manufacturers and other suppliers register with GS1 Australia and pay a membership fee. This provides them with numbers and barcodes for their products, system support (for example, scanning technology) and access to GS1net. 10. GS1net, which includes the GS1net Registry, is an internet based service where manufacturers and other suppliers can find details, including the ATO confirmed GST rate, on a large number of food and beverage items. 11. The ATO will only prospectively apply changes it makes to the GST classification of a food or beverage item listed on GS1net where: • the ATO has previously confirmed the GST classification of that item • the manufacturer or other supplier has acted in good faith by applying the ATO confirmed GST classification to that item, and • the ATO subsequently determines the GST classification of that item should be changed from GST-free to taxable or to partly taxable and partly GST-free. • the ATO has previously confirmed the GST classification of that item • the manufacturer or other supplier has acted in good faith by applying the ATO confirmed GST classification to that item, and • the ATO subsequently determines the GST classification of that item should be changed from GST-free to taxable or to partly taxable and partly GST-free. 12. This means that where all the criteria in paragraph 11 of this practice statement apply: • the ATO will not require retrospective adjustments to the manufacturer's or other supplier's activity statements • the ATO will not apply penalties regarding that item during the period before the GST classification is changed, and • the general interest charge (GIC) will not accrue regarding that item during the period before the GST classification is changed. • the ATO will not require retrospective adjustments to the manufacturer's or other supplier's activity statements • the ATO will not apply penalties regarding that item during the period before the GST classification is changed, and • the general interest charge (GIC) will not accrue regarding that item during the period before the GST classification is changed. 13. Where the ATO does not confirm the GST classification of a food or beverage item submitted by GS1net, and there is a later change to the ATO view of the GST classification of that item, the undertaking outlined at paragraphs 11 and 12 of this practice statement will not apply. 14. This practice statement must be followed where a tax officer determines that the GST classification of the food or beverage item listed on GS1net should be changed. The tax officer must escalate the issue in accordance with paragraphs 24 to 30 of this practice statement. 15. The GST classification of all food and beverage items is determined under the GST law. For manufacturers and other suppliers that use GS1net to determine the GST classification of the food and beverage items that they acquire or supply, this practice statement aims to provide certainty and minimise compliance costs. 16. The certainty for manufacturers and other suppliers is provided by the undertaking that, where they have acted in good faith by applying an ATO confirmed GST classification on GS1net for a food or beverage item, changes to the GST classification by the ATO will only be applied prospectively. [4] 17. The ATO will accept that a manufacturer or other supplier has acted in good faith where they have access to GS1net and they have applied the ATO confirmed GS1net published GST classification to the food or beverage item. 18. To minimise compliance costs, consideration is also given to the circumstances of the manufacturer and other suppliers of the food or beverage item. Factors to consider in determining the prospective date under this practice statement are provided at paragraphs 32 to 34. | The arrangement for confirming the GST classification on GS1net: 19. The arrangement between the ATO and GS1 Australia for confirming the GST classification of food and beverage items on GS1net includes the following: Notification of GST classification (a) When manufacturers or other suppliers list their food and beverage items on GS1net they must identify the Global Product Code (GPC) and indicate whether the item is taxable, GST-free, or partly taxable and partly GST-free by specifying a GST rate of between 0% and 10% as the GST value. Where the item is listed as GST-free (that is, 0%) the manufacturer or other supplier will also declare whether it is 'Free to End Consumer' (FEC) by specifying the Tax Exempt Party as 'Consumer'. (b) If the item is classified using a GPC that the ATO has advised to include in the confirmation process, GS1 Australia will extract the GST classification details for all new or updated (where required) food and beverage items from GS1net and provide it in a daily file to the ATO. For the purposes of the ATO confirmation process, GS1 Australia provides updates to a food or beverage item in the daily file to the ATO where there is a change in the: • GPC to an item that is on the include list • GST rate • FEC declaration, or • the item description. (c) When a food or beverage item is included in the daily file for confirmation by the ATO, the GST Approval Status on GS1net will be labelled 'Pending'. For items allocated by the manufacturer or other supplier to a GPC not included in the confirmation process, the item's GST Approval Status is set to 'Not Required' on GS1net. ATO review of the daily file (d) The ATO will consider the details in the daily file, including the GST rate and FEC declaration, and confirm or reject the GST classifications for the items that have been input into GS1net. The ATO will return the completed daily file to GS1 Australia within the agreed timeframes. Where the ATO does not confirm the GST classification (e) The ATO may not be able to confirm the GST classification of the item: • if the GST classification of that item is not covered by an existing precedential ATO view • if the GST classification of that item cannot be determined by a straightforward application of the law, or • where further information is required to clarify the GST classification of that item (for example, where a marketing test applies or where an item is partly taxable and partly GST-free). In these circumstances, GS1 Australia will leave the GST Approval Status as 'Pending' for either or both of the GST Rate and GST Free Only to End Consumer as appropriate, and will contact the manufacturer or other supplier via email and phone advising them to contact the ATO to discuss the GST classification of the item. Publication of ATO confirmed GST rates on GS1net (f) Where the ATO has confirmed the GST classification of the item, GS1 Australia will upload that confirmation and publish it on GS1net. The publishing includes the GST Approval Status for these food and beverage items being labelled as 'Approved'. Notification of GST classification (a) When manufacturers or other suppliers list their food and beverage items on GS1net they must identify the Global Product Code (GPC) and indicate whether the item is taxable, GST-free, or partly taxable and partly GST-free by specifying a GST rate of between 0% and 10% as the GST value. Where the item is listed as GST-free (that is, 0%) the manufacturer or other supplier will also declare whether it is 'Free to End Consumer' (FEC) by specifying the Tax Exempt Party as 'Consumer'. (b) If the item is classified using a GPC that the ATO has advised to include in the confirmation process, GS1 Australia will extract the GST classification details for all new or updated (where required) food and beverage items from GS1net and provide it in a daily file to the ATO. For the purposes of the ATO confirmation process, GS1 Australia provides updates to a food or beverage item in the daily file to the ATO where there is a change in the: • GPC to an item that is on the include list • GST rate • FEC declaration, or • the item description. (c) When a food or beverage item is included in the daily file for confirmation by the ATO, the GST Approval Status on GS1net will be labelled 'Pending'. For items allocated by the manufacturer or other supplier to a GPC not included in the confirmation process, the item's GST Approval Status is set to 'Not Required' on GS1net. ATO review of the daily file (d) The ATO will consider the details in the daily file, including the GST rate and FEC declaration, and confirm or reject the GST classifications for the items that have been input into GS1net. The ATO will return the completed daily file to GS1 Australia within the agreed timeframes. Where the ATO does not confirm the GST classification (e) The ATO may not be able to confirm the GST classification of the item: • if the GST classification of that item is not covered by an existing precedential ATO view • if the GST classification of that item cannot be determined by a straightforward application of the law, or • where further information is required to clarify the GST classification of that item (for example, where a marketing test applies or where an item is partly taxable and partly GST-free). In these circumstances, GS1 Australia will leave the GST Approval Status as 'Pending' for either or both of the GST Rate and GST Free Only to End Consumer as appropriate, and will contact the manufacturer or other supplier via email and phone advising them to contact the ATO to discuss the GST classification of the item. Publication of ATO confirmed GST rates on GS1net (f) Where the ATO has confirmed the GST classification of the item, GS1 Australia will upload that confirmation and publish it on GS1net. The publishing includes the GST Approval Status for these food and beverage items being labelled as 'Approved'. • GPC to an item that is on the include list • GST rate • FEC declaration, or • the item description. • if the GST classification of that item is not covered by an existing precedential ATO view • if the GST classification of that item cannot be determined by a straightforward application of the law, or • where further information is required to clarify the GST classification of that item (for example, where a marketing test applies or where an item is partly taxable and partly GST-free). | ATO's confirmation of GST classification on the daily file is not a ruling: 20. The ATO's confirmation of the GST classification of the food and beverage items on the daily file does not have the legal status of a private or public ruling. Therefore, it does not provide the same level of protection to taxpayers who rely on it. 21. However, if ATO confirmation is provided it will be because the view is consistent with the precedential ATO view or because the same conclusion can be reached by the ATO through a straightforward application of the law. | Where the manufacturer or other supplier disagrees with the ATO: 22. There may be circumstances where the manufacturer or other supplier disagrees with the ATO on the GST classification of the food or beverage item through the daily file process. 23. In these circumstances the manufacturer or other supplier can seek a private ruling [5] on the GST classification of the food or beverage item. The private ruling process provides them with review rights. [6] | The ATO process for changing a GST classification which has been confirmed on GS1net: 24. Before changing the GST classification of a food or beverage item, tax officers must: (a) determine whether there is a precedential ATO view of the GST law for the GST classification of the food or beverage item (b) determine if the GST classification can be decided by a straightforward application of the GST law (c) ascertain whether the food or beverage item is classified on GS1net as taxable, GST-free or partly taxable and partly GST-free as confirmed by the ATO, and (d) determine whether the GST classification on GS1net represents a correct application of the GST law. (a) determine whether there is a precedential ATO view of the GST law for the GST classification of the food or beverage item (b) determine if the GST classification can be decided by a straightforward application of the GST law (c) ascertain whether the food or beverage item is classified on GS1net as taxable, GST-free or partly taxable and partly GST-free as confirmed by the ATO, and (d) determine whether the GST classification on GS1net represents a correct application of the GST law. 25. Where the tax officer determines that the GST classification of the food or beverage item listed on GS1net must be changed they must firstly engage the team that confirms the daily files. This can be done by sending an email to 'GSTClassification@ato.gov.au'. 26. If the GST classification on GS1net is inconsistent with the existing ATO view, the Senior Executive Service (SES) officer responsible for the team that confirms the daily files will be the decision maker. 27. The impacted manufacturer or other supplier should be engaged as early as possible. 28. Where it is considered that a review of the ATO view or creation of an ATO view is required, the GST classification of the food or beverage item must then be escalated in accordance with Law Administration Practice Statement PS LA 2003/3 Precedential ATO view . 29. The team that confirms the daily files will be responsible for liaising with the manufacturer or other supplier to determine the relevant factors for setting the prospective date. The SES officer that this team reports to will be responsible for approving the prospective date for the change to the GST classification for a food or beverage item on GS1net in all circumstances. 30. Appendix A on page 11 of this practice statement illustrates this process diagrammatically. | How do tax officers access GS1net information?: 31. Access to GS1net is controlled by the Indirect Tax - Interpretative Assistance team that confirms the GST classification of food and beverage items on GS1net. Tax officers are able to verify the GST classification of food and beverage items on GS1net by sending an email to 'GSTClassification@ato.gov.au'. | Working out the prospective date: 32. In determining the prospective date of the change it is accepted that industry practices will generally require a minimum of 30 days from notification of the change to implementation through the supply chain. The same prospective date will apply to the manufacturer or other suppliers of the food or beverage item. 33. In determining the appropriate prospective date, other factors to consider include: (a) the contractual terms between the parties involved in the supply chain for an item including: • a set price point for the item and consequences of a change in that price, and • the term of the contract (b) suppliers' shelf-stock and how an increase in price would affect demand by the public and potential viability of the product in the market for the supplier (c) commitments that the manufacturers or other suppliers have made to shareholders, employees, consumers and business partners in relation to the supply of the item (d) any commercial commitment relating to the manufacture of the item such as an advertising campaign or production costs already incurred, and (e) the time it would take to update inventory or record management systems for all parties involved in the supply chain for the item. (a) the contractual terms between the parties involved in the supply chain for an item including: • a set price point for the item and consequences of a change in that price, and • the term of the contract (b) suppliers' shelf-stock and how an increase in price would affect demand by the public and potential viability of the product in the market for the supplier (c) commitments that the manufacturers or other suppliers have made to shareholders, employees, consumers and business partners in relation to the supply of the item (d) any commercial commitment relating to the manufacture of the item such as an advertising campaign or production costs already incurred, and (e) the time it would take to update inventory or record management systems for all parties involved in the supply chain for the item. • a set price point for the item and consequences of a change in that price, and • the term of the contract 34. This is not an exhaustive list. There may be other relevant factors that need to be taken into account in determining an appropriate prospective date. 35. The following examples outline the approach the ATO will take in determining the prospective date for a change to the GST classification for a food or beverage item on GS1net. 36. Each decision must be made based on all the relevant circumstances relating to the particular item. The examples are not intended to be exhaustive or prescriptive. 37. In all of the examples, it is assumed that the manufacturer and supplier have acted in good faith. | Example 1 - GST classification on GS1net not confirmed: 38. A manufacturer has developed a new beverage item ready for the market. They apply for a barcode through GS1 Australia and input the product data into GS1net including the GST status as GST-free. At this point the GS1net GST approval status shows as 'Pending'. 39. The beverage item is included in the daily file for review by the ATO. However, based on the information provided the ATO concludes that the beverage item should be taxable. The daily file is returned to GS1 Australia and they advise the manufacturer of the ATO advice and record the GST classification on GS1net as 'Not Approved'. 40. The manufacturer is also sent an email by GS1 Australia advising them to contact the ATO with additional information to clarify the GST classification and, if considered necessary, to apply for a private ruling. 41. The manufacturer decides that they do not need the GST classification confirmed by the ATO and continues to the market place with the beverage item. 42. The ATO has cause to undertake compliance activity. During the compliance activity, it is determined that the beverage item has been treated as GST-free by the manufacturer and their retailers. 43. The tax officer reviews the GST classification and determines that the beverage item is taxable as per an ATO view in the Detailed Food List. 44. The manufacturer refers to the arrangement between the ATO and GS1 Australia and suggests that the change in GST classification of the beverage item should be on a prospective basis. 45. The tax officer refers the issue to the team that confirms the GST classifications of food and beverage items on GS1net. It is determined that the beverage item had been included in the daily files for review, but that the ATO advised that the item was taxable. 46. The manufacturer is advised that, as they have not applied the GST classification of the beverage item as advised by the ATO under the arrangement with GS1 Australia, they are not covered by the undertakings of the ATO in the arrangement with GS1 Australia as set out in paragraphs 11 and 12 of this practice statement. | Example 2 - No existing ATO view: 47. A manufacturer is developing a new food item and in July 2008 the manufacturer lists the food item on GS1net after obtaining a barcode number from GS1 Australia. As part of the arrangement with the ATO, GS1 Australia includes the food item in the daily file to the ATO including the manufacturer's self determined GST classification as GST-free. At this point the GS1net GST approval status shows as 'Pending'. 48. The ATO reviews the food item as part of the daily file process and confirms the GST classification as GST-free based on a straightforward application of the GST law. GS1 Australia publishes the ATO confirmation on GS1net, setting the GS1net GST approval status to 'Approved'. 49. During compliance activity in June 2011, a tax officer has cause to review the GST classification of that food item and considers that the correct GST classification is taxable. 50. The tax officer sends an email to 'GSTClassification@ato.gov.au' to check the GST classification of that food item on GS1net. The GST classification has been published on GS1net as GST-free, however, on review it is considered by the team that an ATO view is required. 51. The technical issue is escalated in accordance with PS LA 2003/3 Precedential ATO view and it is agreed that an ATO view is required. 52. The manufacturer is asked to clarify the circumstances, including details of existing contracts or arrangements with their wholesale or retail customers. The manufacturer advises that after discussions with their suppliers they will be able to implement the change within 5 weeks. 53. The team that considers the GST classifications of food and beverage items on GS1net then liaises with the area within the Indirect Tax business line [7] that is creating the ATO view to ensure the application date of the ATO view is consistent with the proposed prospective date. The proposed prospective date is then escalated to the SES officer responsible for the team that confirms the GST classification of food and beverage items on GS1net. 54. The SES officer approves that the change in GST classification from GST-free to taxable for the food item is to occur from a date in 5 weeks time. The manufacturer is advised of the date by the ATO and the expectation that they will advise all their suppliers of the change. The ATO will liaise with GS1 Australia to have GS1net updated and the change in GST classification will be communicated to GS1 members through the regular reporting process. | Example 3 - Change in ATO view: 55. The circumstances are the same as Example 2 except that the GST classification of the food item on GS1net aligns with the current precedential ATO view. However, the tax officer forms the opinion that the existing precedential ATO view is contrary to the GST law. 56. The tax officer engages the team that confirms the GST classifications of food and beverage items on GS1net. They agree with the opinion that the GST classification of the food item is contrary to the GST law and recommend that they seek assistance from technical expertise within the Indirect Tax business line. This recommendation is endorsed by their SES officer. 57. The technical issue is then escalated to the area [8] within the Indirect Tax business line with the technical expertise to create an ATO view. The issue is reviewed and it is determined that a new ATO view, which will overturn the existing ATO view, will need to be created. The proposed change in ATO view is technically cleared by the Deputy Chief Tax Counsel - Indirect Taxes. [9] 58. After receiving technical clearance that the food item is taxable, the SES officer responsible for the team that confirms the GST classification of food and beverage items on GS1net takes responsibility for administering the change on a prospective basis. 59. The manufacturer is contacted and asked to provide additional information to clarify the circumstance surrounding the supplies of the food item. The manufacturer advises that their current contracts have 10 weeks to run and that they are just entering discussions for the next period. 60. Relevant to the prospective date is that the ATO view for this food item is contained in the Detailed Food List, with the next periodic update in 12 weeks. The update process includes industry consultation on proposed changes. 61. Consideration is given to these factors and as the ATO view is to apply consistently across all similar food items, the prospective date [10] will be the date of change of the ATO view in the Detailed Food List. 62. Accordingly, the manufacturer is advised that the prospective date is planned for 12 weeks to align to the date for the publishing of the addendum to the Detailed Food List. | Example 4 - GST classification on GS1net different to ATO view: 63. A tax officer undertaking a compliance activity reviews the GST classification of a food item and forms an opinion, based on a precedential ATO view (for example, the Detailed Food List), that the GST classification of the food item should be taxable. 64. The tax officer contacts the team that confirms the GST classification of food and beverage items on GS1net and they advise the food item is recorded as GST-free and has been confirmed by the ATO. 65. The tax officer then requests that the team reconsider the GST classification of this food item. The team agrees that the food item should be taxable and escalates the issue to their SES officer for approval. 66. The SES officer approves the GST classification be changed to taxable and instructs them to work with the manufacturer to determine the prospective date. 67. The manufacturer is contacted and advised that the ATO view for this type of food item is that it is taxable. However, as per the ATO undertaking, the GST classification change from GST-free to taxable will be on a prospective basis. 68. The manufacturer is asked to clarify the situation including details of existing contracts or arrangements with their wholesale or retail customers. The manufacturer advises that the main retailer of the food item has approximately 6 weeks of shelf stock that has been purchased at the GST-free contract rate. Further, that the contract provides that where there is an increase in costs to the retailer, such as additional GST, the manufacturer will be liable to pay that amount to the retailer. 69. The manufacturer advises that this retailer has also indicated that the increase in price will impact demand for the product and that the retailer wishes to review their contract arrangements. 70. This information is considered by the team that confirms the GST classification of food and beverage items on GS1net and it is proposed that the minimum of 30 days for implementing the change be extended to 6 weeks. This approach is recommended as there is a reasonable argument that if they had known the tax implications were different: • the manufacturer and the main retailer would not have made the arrangements, and • the retailer would not have had this amount of shelf stock. • the manufacturer and the main retailer would not have made the arrangements, and • the retailer would not have had this amount of shelf stock. 71. The SES officer approves the change in GST classification from GST-free to taxable for the food item to apply from a date in 6 weeks time. The manufacturer is advised of this date by the ATO and the expectation that they will advise all their suppliers of the change. The ATO will liaise with GS1 Australia to have GS1net updated without delay and the change in GST classification will be communicated to GS1 members through the regular reporting process.",Detailed Food List | PS LA 2003/3 | PS LA 2011/27 | PS LA 2012/1 | TAA 1953 Sch 1 359-10 | TAA 1953 Sch 1 359-60,PS LA 2003/3 PS LA 2011/27 PS LA 2012/1,TAA 1953 Sch 1 359-10 | TAA 1953 Sch 1 359-60,Goods and services tax GST beverages GST food GST Food Stream GST free GST free of charge GST private rulings GST private rulings specific advice,Simpler GST accounting methods for food retailers,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/GA20122/NAT/ATO/00001,"A compendium of comments is available for download here . | This practice statement is issued under the authority of the Commissioner of Taxation and must be read in conjunction with Law Administration Practice Statement PS LA 1998/1. It must be followed by tax officers unless doing so creates unintended consequences or is considered incorrect. Where this occurs tax officers must follow their business line's escalation process. | [1] The reference to beverages listed on GS1net is a reference to non-alcoholic beverages. | [3] Refer paragraphs 11 and 12 of this practice statement. | [4] The administrative approach outlined in this practice statement is consistent with Law Administration Practice Statement PS LA 2011/27 Matters the Commissioner considers when determining whether the Australian Taxation Office (ATO) view of the law should be applied prospectively . | [5] See section 359-10 of Schedule 1 to the Taxation Administration Act 1953 (TAA). | [6] See section 359-60 of Schedule 1 to the TAA. | [7] Law & Practice can also be engaged if the requirements of Law Administration Practice Statement PS LA 2012/1 Management of high risk technical issues and engagement of tax technical officers in Law and Practice are met. | [8] Law and Practice can also be engaged if the requirements of PS LA 2012/1 are met. | [9] PS LA 2003/3 requires the matter must be brought to the attention of the relevant Deputy Chief Tax Counsel. | [10] As there is a change in the ATO view the SES officer responsible for the team that confirms the GST classifications of food and beverage items, will liaise with the Deputy Chief Tax Counsel - Indirect Taxes, to agree on the prospective date."
PS LA 2008/1 (GA),SUBJECT: Goods and services tax and input tax credits for acquisitions related to making supplies under a disclosed hire purchase agreement entered into before 1 July 2012 PURPOSE: To outline the Commissioner's approach to calculating the input tax credit entitlement for acquisitions that relate to the making of supplies under disclosed hire purchase agreements,30 January 2008,1 April 2008,Law Administration Practice Statement (GA),False,"1. This Practice Statement explains a method for the calculation of input tax credits (ITCs) for acquisitions related to supplies made under a disclosed hire purchase agreement that will be accepted by the Commissioner as complying with the relevant provisions of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). 2. All legislative references in this Practice Statement are to the GST Act, unless otherwise indicated. 3. A hire purchase agreement is a 'disclosed' hire purchase agreement if the credit for the goods supplied under the arrangement is provided as a separate charge that is disclosed to the recipient of the goods. 4. This Practice Statement applies only to those acquisitions that relate both to the supply of the goods and to the supply of the credit made under hire purchase agreements entered into before 1 July 2012. These acquisitions are partly creditable acquisitions necessitating a fair and reasonable apportionment of acquisitions between creditable and non-creditable parts. 5. This Practice Statement does not apply to the acquisition of goods (for example, motor vehicles) for supply under a disclosed hire purchase agreement. 6. Applying the law to determine the extent of creditable purpose in relation to disclosed hire purchase agreements is inherently uncertain and can give rise to practical difficulties and disproportionately high compliance costs for taxpayers. It is also unlikely to be cost-effective in most cases for the ATO to undertake compliance action in this area in an attempt to find a precise extent of creditable purpose. 7. Given that level of uncertainty, it is appropriate for the Commissioner to accept as complying with the law an approach to determining the extent of creditable purpose for a partly creditable acquisition that is in line with those set out in this Practice Statement. 8. This Practice Statement outlines a range of scenarios in which the extent of creditable purpose for a partly creditable acquisition is required to be determined. These scenarios include circumstances where: • there is no entitlement to reduced input tax credits (RITCs) • there is entitlement to RITCs • there is no entitlement to RITCs and the acquisition is allocated to a dedicated asset finance cost centre – no floor plan finance [1] activities, and • there is no entitlement to RITCs and the acquisition is allocated to a dedicated asset finance cost centre – floor plan finance activities. • there is no entitlement to reduced input tax credits (RITCs) • there is entitlement to RITCs • there is no entitlement to RITCs and the acquisition is allocated to a dedicated asset finance cost centre – no floor plan finance [1] activities, and • there is no entitlement to RITCs and the acquisition is allocated to a dedicated asset finance cost centre – floor plan finance activities. | Our approach to arrangements pre-1 April 2008: 9. For a tax period up to and including a tax period ending 31 March 2008 [2] , the Commissioner will accept an approach that applies a revenue-based formula (incorporating consistent values for both financial supplies and non-financial supplies) to determine the extent of creditable purpose for partly creditable acquisitions. 10. However, the Commissioner may commence an audit on a business activity statement (BAS) period up to and including 31 March 2008 [3] where the taxpayer has applied a revenue-based formula that includes: • the value of 'floor plan payouts' as non-financial supply revenue in both the numerator and denominator of the formula, or • gross revenues for non-financial supplies in both the numerator and the denominator, and net revenues for financial supplies in the denominator of the formula. • the value of 'floor plan payouts' as non-financial supply revenue in both the numerator and denominator of the formula, or • gross revenues for non-financial supplies in both the numerator and the denominator, and net revenues for financial supplies in the denominator of the formula. | Our approach to arrangements from 1 April 2008: 11. For a tax period ending on or after 1 April 2008, the Commissioner will accept as being fair and reasonable an apportionment method (including a set-rate method) that achieves an extent of creditable purpose for partly creditable acquisitions of less than or equal to 15%. 12. The Commissioner considers that an extent of creditable purpose of 15% is likely to be at the top end of the range of the proportions that could be expected in disclosed hire purchase agreements and therefore, in most cases, is likely to be a fair reflection of the apportionment required by the law. 13. However, there is no requirement for a taxpayer to adopt an extent of creditable purpose of 15% where a proportion in excess of 15% is fair and reasonable on a proper application of the law to the taxpayer's particular circumstances. Taxpayers may wish, and are encouraged, to seek a goods and services tax (GST) private ruling before applying a higher percentage. | Our approach to arrangements from 1 July 2012: 14. Amendments to the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations 1999) [4] to change the GST treatment of supplies made under hire purchase agreements are effective for agreements entered into on or after 1 July 2012. [5] 15. Under a hire purchase agreement entered into before 1 July 2012, credit provided for a separate charge and disclosed to the recipient of the goods, is an input-taxed financial supply. [6] However, no supplies made under a hire purchase agreement entered into on or after 1 July 2012 are financial supplies, regardless of whether the credit provided under the agreement is charged separately and disclosed to the recipient of the goods. [7] 16. A credit charge that is separately identified and disclosed under a hire purchase agreement entered into on or after 1 July 2012 is consideration for a supply separate from the underlying supply of goods and is a taxable supply if the underlying supply is taxable. If the credit charge is not separately disclosed, the total consideration under the agreement relates to the supply of the goods. This is more fully explained in paragraphs 190 to 217 of Goods and Services Tax Ruling GSTR 2000/29 Goods and services tax: attributing GST payable, input tax credits and adjustments and particular attribution rules made under section 29-25. 17. It follows that acquisitions that relate both to the supply of goods and the supply of credit made under hire purchase agreements entered into on or after 1 July 2012 will no longer be made partly for a creditable purpose. 18. For the purposes of the GST Act, 2 separate and distinct supplies are made under a disclosed hire purchase agreement entered into before 1 July 2012. These are the taxable (or GST-free) supply of the goods and the input-taxed (financial) supply of an interest in or under a credit arrangement. 19. A taxpayer is entitled to an ITC for any creditable acquisitions that it makes. Under section 11-15, a thing is acquired for a creditable purpose to the extent that it is acquired in carrying on the taxpayer's enterprise. However, a thing is not acquired for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed. 20. Under subsection 11-30(1), an acquisition is partly creditable where, among other things, the acquisition is made partly for a creditable purpose. 21. Therefore, an acquisition which relates to both the taxable (or GST-free) activity and the input taxed activity of the entity under a disclosed hire purchase agreement is a partly creditable acquisition. 22. An example of a type of acquisition which relates to both activities under the arrangement is an introductory or arrangement service. This service may be acquired from an entity that facilitates the supply of a disclosed hire purchase agreement for the taxpayer. A retail motor vehicle dealership may be such an entity. 23. Overheads are another example of the type of acquisitions which are partly creditable because they relate to both activities under the arrangement. These acquisitions such as leased premises, utilities and stationery may also relate to other activities of the entity. 24. Where a taxpayer makes a partly creditable acquisition, the ITC amount is determined by applying the following formula set out in subsection 11-30(3): where: ... extent of creditable purpose is the extent to which the creditable acquisition is for a creditable purpose, expressed as a percentage of the total purpose of the acquisition. 25. Some partly creditable acquisitions may also be subject to the application of Division 70, which provides for a RITC for certain acquisitions, where credit has been denied (either wholly or partly) because the acquisition relates to some extent to making financial supplies. Reduced credit acquisitions are listed in subsection 70-5.02(1) of the GST Regulations. 26. For example, the acquisition of introductory and arrangement services discussed in paragraph 22 of this Practice Statement qualifies as a reduced credit acquisition under table item 18 of subsection 70-5.02(1) of the GST Regulations. 27. Division 70 makes a reduced credit acquisition creditable to the extent it relates to making financial supplies. Section 70-5.03 of the GST Regulations specifies the percentage of ITC for each kind of reduced credit acquisition as 75%. 28. Where a reduced credit acquisition is partly for a creditable purpose because of Division 11 and partly for a creditable purpose because of Division 70, the extent to which the acquisition is acquired for a creditable purpose is worked out using the formula in subsection 70-20(2). | Previous position: 29. On 28 October 2002, the Commissioner set out the ATO view on disclosed hire purchase arrangements and the treatment of related acquisitions in the GST issues registers – Financial services – questions and answers . This advice has since been amended to clarify its application. 30. The Commissioner expressed the view that: • the use of a general formula approach incorporating gross revenues for non-financial supplies (for example, bailment and the supply of vehicles) and net revenues for financial supplies under hire purchase agreements is not a fair and reasonable method of determining the extent of creditable purpose for overheads. This inconsistent treatment of financial supplies and taxable supplies in the general formula gives a weighting to taxable supplies which is out of proportion to the input taxed activities carried out, and • a method that reflects the extent of input taxed activities is preferred. While no particular approach was advocated, the Commissioner suggested that a method based on current contracts modified to reflect the extent of taxable activities associated with a hire purchase contract may be a more appropriate method of determining the extent of creditable purpose of overheads. • the use of a general formula approach incorporating gross revenues for non-financial supplies (for example, bailment and the supply of vehicles) and net revenues for financial supplies under hire purchase agreements is not a fair and reasonable method of determining the extent of creditable purpose for overheads. This inconsistent treatment of financial supplies and taxable supplies in the general formula gives a weighting to taxable supplies which is out of proportion to the input taxed activities carried out, and • a method that reflects the extent of input taxed activities is preferred. While no particular approach was advocated, the Commissioner suggested that a method based on current contracts modified to reflect the extent of taxable activities associated with a hire purchase contract may be a more appropriate method of determining the extent of creditable purpose of overheads. | Current position: 31. Goods and Services Tax Ruling GSTR 2006/3 Goods and services tax: determining the extent of creditable purpose for providers of financial supplies calls for a fair and reasonable approach to determining extent of creditable purpose and apportioning ITCs. In practical terms, the 'fair and reasonable' concept is merely a way of saying that the method chosen to determine 'use' of an acquisition must be justifiable. 32. A justifiable apportionment methodology in this context is one that takes into account the level of enterprise activities or business effort devoted to the taxable and input taxed elements of a disclosed hire purchase agreement. In this regard, the Commissioner considers that the main activity of such an enterprise predominantly involves the provision of credit and consequently the majority of expenditure would be related to the making of input taxed supplies. 33. While the making of a taxable supply by the taxpayer to the customer is an integral part of the arrangement, the nature of the surrounding commercial circumstances to the arrangement establishes that the taxpayer typically employs little in the way of business effort in making such a supply. Consequently, a justifiable apportionment methodology in this context should reflect that acquisitions are predominantly used by the taxpayer in the carrying out of its financial intermediary role and to a much lesser extent in the making of taxable supplies. 34. On this basis, the Commissioner maintains the view that the use of a revenue-based formula approach is not a fair and reasonable method of determining the creditable purpose of partly creditable acquisitions because it allocates a disproportionate amount of expenditure to the taxable activity which is contrary to the fundamental nature of the typical enterprise offering this type of credit arrangement. 35. The Commissioner's view that the appropriate proportion of expenditure to be allocated to the taxable activity ought to be a small percentage has led to consideration of practices in other jurisdictions in order to arrive at an acceptable practical approach to the problem. Both the United Kingdom (UK) and New Zealand (NZ) use a set rate for apportioning credit on overheads under hire purchase agreements. 36. In September 1984, in HM Revenue & Customs' Agreement with the Finance Houses Association Ltd, the UK accepted a rate of 15% based upon research and negotiation. The Agreement was cancelled with effect from 31 January 2000 and advice received is that any new rate agreed will not be greater than 15%. [8] 37. NZ accepted a rate of 10% which was a compromise between the (then) UK rate of 15% and the 5% rate arrived at through empirical testing undertaken in the field. 38. As international precedent suggests that a set-rate method is acceptable to most industry participants and also suggests that a maximum rate of 15% is appropriate, the Commissioner therefore considers that 15% is a reasonable percentage to apply in determining the extent of creditable purpose for Division 11 under a disclosed hire purchase agreement. 39. Notwithstanding this view, for a tax period up to and including a tax period ending on 31 March 2008, the Commissioner will accept the application of a revenue-based method of apportionment (incorporating consistent values to values for both financial supplies and non-financial supplies) to determine the extent of creditable purpose for partly creditable acquisitions. The Commissioner takes this approach in view of the particular circumstances which have surrounded the implementation of GST to disclosed hire purchase agreement transactions. 40. However, for the BAS periods mentioned in paragraph 39 of this Practice Statement, a taxpayer will be at a risk of audit in circumstances where they have applied a revenue-based formula incorporating bailment payouts or gross revenues for non-financial supplies and net revenues for financial supplies. This is due to the ATO view on such practices being clearly outlined in GST public rulings. [9] 41. For a tax period ending on or after 1 April 2008, the Commissioner will accept an apportionment method (including a set-rate method) that achieves an extent of creditable purpose for partly creditable acquisitions of less than or equal to 15%. 42. Taxpayers who consider a proper application of the law to their circumstances warrants a higher percentage may, if they wish, seek a private ruling and are encouraged to do so prior to applying a higher rate. | The use of the revenue method for products other than disclosed hire purchase agreements: 43. Notwithstanding that the Commissioner considers that the revenue-based method is inappropriate in typical cases, it is open for a taxpayer to apply a revenue-based method of apportionment to their circumstances where the use of such an approach achieves an accurate reflection of the ITCs available for acquisitions acquired in carrying on the taxpayer's enterprise. Accordingly, while it is open for a taxpayer to adopt a revenue-based approach to apportionment, the decision to do so must be based on fair and reasonable principles [10] rather than a belief that resorting to such a method is available on a default basis (where no other method is available or practical). | Tax periods up to and including the tax period ending 31 March 2008: 44. Under subsection 11-30(3), the amount of the ITC for a partly creditable acquisition that does not give rise to RITCs is calculated by applying the formula: full ITC × revenue formula% [11] × extent of consideration [12] where: • revenue formula includes: full ITC × revenue formula% [11] × extent of consideration [12] • revenue formula includes: | Example 1 – acquisition of overheads on or before 31 March 2008: 45. EasyCredit Financial Services (EasyCredit) carries on an enterprise of providing motor vehicle finance to customers on disclosed hire purchase terms. In the September 2006 tax period, EasyCredit is invoiced for 'overheads' worth $55,000 (inclusive of $5,000 GST). To determine its entitlement to ITCs, EasyCredit applies a revenue-based formula. This formula uses the previous month's gross receipts from the hire purchase activities as follows: the GST-exclusive value of principal repayments ($830,000) is divided by the total GST-exclusive value of both principal and interest repayments ($1,000,000) and multiplied by 100. 46. Using this formula, EasyCredit determines an extent of creditable purpose of 83% for its overhead acquisitions. The ITC amount is $4,150 ($5,000 × 83%). 47. In this circumstance, based on the application of this methodology, the Commissioner will accept the ITC claim determined by EasyCredit. | Tax periods from 1 April 2008: 48. Under subsection 11-30(3), the amount of the ITC for a partly creditable acquisition that does not give rise to RITCs is calculated by applying the formula: full ITC × 15% [13] × extent of consideration [14] full ITC × 15% [13] × extent of consideration [14] | Example 2 – acquisition of overheads on or after 1 April 2008: 49. In the November 2008 tax period, EasyCredit is invoiced for overheads to the value of $66,000 (inclusive of $6,000 GST). To determine its entitlement to ITCs, EasyCredit applies the 15% set rate. The amount of ITC for its overhead acquisitions is $900 ($6,000 × 15%). 50. In this circumstance, based on the application of the 15% set-rate method, the Commissioner will accept the ITC claim determined by EasyCredit. | Tax periods up to and including the tax period ending 31 March 2008: 51. Subsection 11-30(3) is modified by applying the formula set out in subsection 70-20(2) in relation to the 'extent of creditable purpose' component. The amount of ITC for a partly creditable acquisition that includes an entitlement to RITCs is calculated by applying the formula: extent of creditable purpose + [extent of Division 70 creditable purpose × percentage credit reduction] Where: • extent of creditable purpose is calculated as follows: full ITC × revenue formula% [15] × extent of consideration [16] - where the revenue formula includes: • extent of Division 70 creditable purpose is the extent expressed as a percentage, to which the purpose for which the entity makes the acquisition was a creditable purpose, because of Division 70 • percentage credit reduction is 75%. [17] extent of creditable purpose + [extent of Division 70 creditable purpose × percentage credit reduction] • extent of creditable purpose is calculated as follows: full ITC × revenue formula% [15] × extent of consideration [16] - where the revenue formula includes: • extent of Division 70 creditable purpose is the extent expressed as a percentage, to which the purpose for which the entity makes the acquisition was a creditable purpose, because of Division 70 • percentage credit reduction is 75%. [17] full ITC × revenue formula% [15] × extent of consideration [16] - where the revenue formula includes: | Example 3 – acquisition of introductory services on or before 31 March 2008: 52. In the June 2006 tax period, Hybrid Motor Vehicle Dealerships (Hybrid) invoices EasyCredit for introductory services to the value of $82,500 (inclusive of $7,500 GST). These services are reduced credit acquisitions under table item 18 of subsection 70-5.02(1) of the GST Regulations. EasyCredit calculates its extent of creditable purpose using the revenue-based formula described in Example 1 of this Practice Statement (83%). It then applies this in the subsection 70-20(2) formula as follows: extent of creditable purpose (83%) plus (the extent of Division 70 creditable purpose (17%) times the percentage credit reduction (75%)). That is, 83% plus 12.75%, giving an extent of creditable purpose of 95.75%. The amount of ITC for the acquisition of introductory services is $7,181 ($7,500 × 95.75%). 53. In this situation, based on the application of this methodology, the Commissioner will accept the ITC claim determined by EasyCredit. | Tax periods from 1 April 2008: 54. Subsection 11-30(3) is modified by applying the formula set out in subsection 70-20(2) in relation to the extent of creditable purpose component. The amount of ITC for a partly creditable acquisition that includes an entitlement to RITCs is calculated by applying the formula: extent of creditable purpose + [extent of Division 70 creditable purpose × percentage credit reduction] Where: • extent of creditable purpose is 15% • extent of Division 70 creditable purpose is 85% • percentage credit reduction is 75% extent of creditable purpose + [extent of Division 70 creditable purpose × percentage credit reduction] • extent of creditable purpose is 15% • extent of Division 70 creditable purpose is 85% • percentage credit reduction is 75% | Example 4 – acquisition of introductory services on or after 1 April 2008: 55. In the April 2008 tax period, Hybrid invoices EasyCredit for introductory services to the value of $124,875 (inclusive of $11,352 GST). These services are reduced credit acquisitions under table item 18 of subsection 70-5.02(1) of the GST Regulations. Using the 15% set rate in the subsection 70-20(2) formula, EasyCredit determines the extent of creditable purpose for the acquisition of introductory services from Hybrid as follows: 15% + (85% × 75%) giving an extent of creditable purpose of 78.75%. The amount of ITC for the acquisition of introductory services is $8,939 ($11,352 × 78.75%). 56. In this situation, based on the application of the 15% set-rate method, the Commissioner will accept the ITC claim determined by EasyCredit. Partly creditable acquisition – no entitlement to RITCs (acquisition allocated to a dedicated asset finance cost centre – no floor plan finance activities) | Tax periods up to and including the tax period ending 31 March 2008: 57. A taxpayer that has a dedicated asset finance cost centre or apportions expenses at an overall enterprise level, and provides only retail finance products (that is, no floor plan wholesale finance products) can calculate the extent of creditable purpose under subsection 11-30(3) for partly creditable overheads using the formula: full ITC × revenue formula% [18] × extent of consideration [19] Where: • the revenue formula includes gross (GST-exclusive) revenues for non-financial supplies in both the numerator and the denominator, and gross revenues for financial supplies in the denominator of the formula. full ITC × revenue formula% [18] × extent of consideration [19] • the revenue formula includes gross (GST-exclusive) revenues for non-financial supplies in both the numerator and the denominator, and gross revenues for financial supplies in the denominator of the formula. | Example 5 – acquisition of overheads on or before 31 March 2008: 58. CarFinance Financial Services (CarFinance) supplies a range of asset finance products to customers, including finance and operating leases, chattel mortgages and disclosed hire purchase agreements. In carrying on its enterprise, CarFinance allocates its overhead acquisitions to a central cost centre which services all of its asset finance activities and applies a revenue-based formula to determine the extent of creditable purpose for these acquisitions. The revenue-based formula applied by CarFinance uses: • gross (GST-exclusive) finance and operating lease revenue – this product represents 25% of active contracts and historically generates gross annual revenue of $77 million • gross chattel mortgage revenue (including principal and interest repayments) – this product represents 25% of active contracts and historically generates gross annual revenue of $77 million ($66 million principal repayments and $11 million interest repayments and credit charges), and • gross (GST-exclusive) disclosed hire purchase revenue (including both principal and interest repayments) – this product represents 50% of the active contracts and historically generates gross annual revenue of $193 million ($165 million principal repayments and $28 million interest repayments and credit charges). • gross (GST-exclusive) finance and operating lease revenue – this product represents 25% of active contracts and historically generates gross annual revenue of $77 million • gross chattel mortgage revenue (including principal and interest repayments) – this product represents 25% of active contracts and historically generates gross annual revenue of $77 million ($66 million principal repayments and $11 million interest repayments and credit charges), and • gross (GST-exclusive) disclosed hire purchase revenue (including both principal and interest repayments) – this product represents 50% of the active contracts and historically generates gross annual revenue of $193 million ($165 million principal repayments and $28 million interest repayments and credit charges). 59. Using the gross annual revenues, CarFinance determines that its overhead acquisitions are made 69% for a creditable purpose as follows: $242 million (which is made up of $165 million disclosed hire purchase principal repayments and $77 million leasing payments) divided by $347 million (calculated by adding $193 million disclosed hire purchase repayments, $77 million leasing payments and $77 million chattel mortgage principal and interest repayments) and multiplied by 100. 60. In the September 2007 tax period, CarFinance is invoiced for overheads worth $1.1 million (inclusive of $100,000 GST). By application of the 69% extent of creditable purpose, CarFinance calculates that the amount of ITC entitlement for these acquisitions is $69,000 ($100,000 × 69%). 61. In this Example, based on the application of this methodology, the Commissioner will accept the ITC claim determined by CarFinance for its overhead acquisitions. | Example 6 – acquisition of overheads on or before 31 March 2008: 62. Mobile Financial Solutions (Mobile) supplies a range of asset finance products to customers, including finance and operating leases, chattel mortgages and disclosed hire purchase agreements. Mobile allocates its overhead acquisitions to a central cost centre which services all of its asset finance activities. Mobile also uses a revenue-based formula to determine the extent of creditable purpose for its overhead acquisitions. However, the revenue-based formula applied by Mobile uses: • gross (GST-exclusive) finance and operating lease revenue – this product represents 20% of active contracts and historically generates gross annual revenue of $50 million • net chattel mortgage interest revenue – this product represents 30% of active contracts and historically generates net annual revenue of $3 million; this net figure is calculated as $18 million gross interest repayments and credit charges minus $15 million, being the annual cost of funding the chattel mortgages – gross annual principal repayments are not included in the calculation but generate $89 million, and • gross (GST-exclusive) disclosed hire purchase principal repayments and net disclosed hire purchase interest revenue – this product represents 50% of active contracts and historically generates $165 million in gross annual principal repayments and $6 million net annual interest revenue This is calculated as $28 million gross interest repayments and credit charges minus $22 million, being the annual cost of funding the disclosed hire purchase products. • gross (GST-exclusive) finance and operating lease revenue – this product represents 20% of active contracts and historically generates gross annual revenue of $50 million • net chattel mortgage interest revenue – this product represents 30% of active contracts and historically generates net annual revenue of $3 million; this net figure is calculated as $18 million gross interest repayments and credit charges minus $15 million, being the annual cost of funding the chattel mortgages – gross annual principal repayments are not included in the calculation but generate $89 million, and • gross (GST-exclusive) disclosed hire purchase principal repayments and net disclosed hire purchase interest revenue – this product represents 50% of active contracts and historically generates $165 million in gross annual principal repayments and $6 million net annual interest revenue This is calculated as $28 million gross interest repayments and credit charges minus $22 million, being the annual cost of funding the disclosed hire purchase products. 63. Using the gross revenues, Mobile determines that its overhead acquisitions are made 95.99% for a creditable purpose as follows: $215 million (which is made up of $165 million disclosed hire purchase principal repayments and $50 million leasing revenue) divided by $224 million (calculated by adding $165 million disclosed hire purchase principal repayments, $6 million net disclosed hire purchase interest revenue, $50 million leasing revenue and $3 million net chattel mortgage interest revenue) and multiplied by 100. 64. In the November 2006 tax period, Mobile is invoiced for overheads worth $1.1 million (inclusive of $100,000 GST). Using 95.99% extent of creditable purpose, Mobile calculates that the amount of ITC entitlement for these acquisitions is $95,990 ($100,000 × 95.99%). 65. Mobile has applied a revenue-based formula to work out the extent of creditable purposes for overhead acquisitions that are attributable to a tax period which ends on or before 31 March 2008. 66. However, in this circumstance, the Commissioner is likely to challenge the ITCs determined by Mobile for its overhead acquisitions, because the revenue-based formula applied incorporates inconsistent values for input-taxed and non-input taxed activities. 67. Had Mobile included gross (GST-exclusive) revenues for non-financial supplies in both the numerator and the denominator, and gross revenues for financial supplies in the denominator of the formula, the Commissioner would have accepted the amount of ITCs determined on that basis. [20] | Example 7 – acceptable use of a revenue-based formula: 68. Using Mobile's gross revenues, the extent of creditable purpose is 61% as follows: $215 million (made up of $50 million gross leasing revenue and $165 million gross disclosed hire purchase principal revenue) divided by $350 million (calculated by adding $50 million gross leasing revenue, $165 million gross disclosed hire purchase principal revenue, $28 million gross disclosed hire purchase interest revenue, $89 million gross chattel mortgage principal revenue and $18 million gross chattel mortgage interest and credit charges revenue) and multiplied by 100. 69. Had Mobile used the 61% extent of creditable purpose figure, its ITC entitlement for its acquisition of overheads would be $61,000 ($100,000 × 61%). This calculation of the entitlement to ITCs would have been accepted by the Commissioner. | Tax periods from 1 April 2008: 70. A taxpayer that has a dedicated asset finance cost centre or apportions expenses at an overall enterprise level and provides only retail finance products (that is, no floor plan wholesale finance products) can calculate the extent of creditable purpose under subsection 11-30(3) for partly creditable overheads in the following manner: Step 1 By a fair and reasonable method, determine the ratio of each retail finance product (for example, disclosed hire purchase agreements, chattel mortgages, finance lease and operating leases) to all retail finance products. Step 2 Allocate overheads to each retail finance product according to the ratio of that product to all retail finance products. Step 3 Overheads allocated to finance and operating lease products are acquired solely for a creditable purpose Overheads allocated to chattel mortgage products are acquired not at all for a creditable purpose. For overheads allocated to disclosed hire purchase products, go to Step 4. Step 4 Apply the formula full ITC × 15% [21] × extent of consideration [22] Step 1 By a fair and reasonable method, determine the ratio of each retail finance product (for example, disclosed hire purchase agreements, chattel mortgages, finance lease and operating leases) to all retail finance products. Step 2 Allocate overheads to each retail finance product according to the ratio of that product to all retail finance products. Step 3 Overheads allocated to finance and operating lease products are acquired solely for a creditable purpose Overheads allocated to chattel mortgage products are acquired not at all for a creditable purpose. For overheads allocated to disclosed hire purchase products, go to Step 4. Step 4 Apply the formula full ITC × 15% [21] × extent of consideration [22] full ITC × 15% [21] × extent of consideration [22] | Example 8 – acquisition of overheads on or after 1 April 2008: 71. In the June 2008 tax period, CarFinance acquires overheads for $2.2 million (inclusive of $200,000 GST). In determining its entitlement to ITCs, CarFinance uses: • gross (GST-exclusive) finance and operating lease revenue – this product represents 25% of active contracts and historically generates gross annual revenue of $77 million • gross chattel mortgage revenue (including principal and interest repayments) – this product represents 25% of active contracts and, historically generates gross annual revenue of $77 million ($66 million principal repayments and $11 million interest repayments and credit charges), and • gross (GST-exclusive) disclosed hire purchase revenue (including both principal and interest repayments) – this product represents 50% of the active contracts and historically generates gross annual revenue of $193 million ($165 million principal repayments and $28 million interest repayments and credit charges). • gross (GST-exclusive) finance and operating lease revenue – this product represents 25% of active contracts and historically generates gross annual revenue of $77 million • gross chattel mortgage revenue (including principal and interest repayments) – this product represents 25% of active contracts and, historically generates gross annual revenue of $77 million ($66 million principal repayments and $11 million interest repayments and credit charges), and • gross (GST-exclusive) disclosed hire purchase revenue (including both principal and interest repayments) – this product represents 50% of the active contracts and historically generates gross annual revenue of $193 million ($165 million principal repayments and $28 million interest repayments and credit charges). 72. CarFinance adopts the following approach: Step 1 CarFinance uses 'active contracts' [23] to determine the ratio of each retail finance product to all finance products. Using historical benchmarks, the ratios are: Leasing (finance and operating) – 25% Chattel Mortgages – 25% Disclosed hire-purchase – 50% Step 2 CarFinance allocates the GST component of the $2.2 million overheads ($200,000) to each retail finance product according to the ratio worked out in Step 1; that is: Leasing $50,000 ($200,000 × 25%) Chattel Mortgages $50,000 ($200,000 × 25%) Disclosed hire-purchase $100,000 ($200,000 × 50%) Step 3 For overheads allocated to each retail finance product, CarFinance determines that: • overheads allocated to leasing products are wholly for a creditable purpose, giving an ITC entitlement of $50,000 • overheads allocated to chattel mortgage products are not at all for a creditable purpose and do not give rise to any ITCs, and • overheads allocated to disclosed hire purchase products are partly for a creditable purpose, with the amount of ITC determined by applying the formula set out in Step 4. Step 4 CarFinance determines the amount of ITC for overheads allocated to disclosed hire purchase products by applying the formula: $100,000 × 15% = $15,000. Step 1 CarFinance uses 'active contracts' [23] to determine the ratio of each retail finance product to all finance products. Using historical benchmarks, the ratios are: Leasing (finance and operating) – 25% Chattel Mortgages – 25% Disclosed hire-purchase – 50% Step 2 CarFinance allocates the GST component of the $2.2 million overheads ($200,000) to each retail finance product according to the ratio worked out in Step 1; that is: Leasing $50,000 ($200,000 × 25%) Chattel Mortgages $50,000 ($200,000 × 25%) Disclosed hire-purchase $100,000 ($200,000 × 50%) Step 3 For overheads allocated to each retail finance product, CarFinance determines that: • overheads allocated to leasing products are wholly for a creditable purpose, giving an ITC entitlement of $50,000 • overheads allocated to chattel mortgage products are not at all for a creditable purpose and do not give rise to any ITCs, and • overheads allocated to disclosed hire purchase products are partly for a creditable purpose, with the amount of ITC determined by applying the formula set out in Step 4. Step 4 CarFinance determines the amount of ITC for overheads allocated to disclosed hire purchase products by applying the formula: $100,000 × 15% = $15,000. • overheads allocated to leasing products are wholly for a creditable purpose, giving an ITC entitlement of $50,000 • overheads allocated to chattel mortgage products are not at all for a creditable purpose and do not give rise to any ITCs, and • overheads allocated to disclosed hire purchase products are partly for a creditable purpose, with the amount of ITC determined by applying the formula set out in Step 4. $100,000 × 15% = $15,000. 73. By adding the results from Steps 3 and 4, CarFinance determines that it is entitled to an ITC of $65,000 (that is, $50,000 relating to leasing activities plus $15,000 determined to relate to the taxable supplies made under disclosed hire purchase agreements). 74. In this circumstance, based on the application of this approach, the Commissioner would accept the ITC claim determined by CarFinance. Partly creditable acquisition – no entitlement to RITCs (acquisition allocated to a dedicated asset finance cost centre – floor plan finance activities) | Tax periods up to and including the tax period ending 31 March 2008: 75. A taxpayer that has a dedicated asset finance cost centre or apportions expenses at an overall enterprise level and provides both floor plan wholesale finance products and retail finance products can calculate the extent of creditable purpose under subsection 11-30(3) for partly creditable overheads in the following manner: full ITC × revenue formula% [24] × extent of consideration [25] Where: • revenue formula - excludes the value of floor plan payouts [26] as non-financial supply revenue in both the numerator and denominator of the formula, or - includes gross (GST-exclusive) revenues for non-financial supplies in both the numerator and the denominator and gross revenues for financial supplies in the denominator of the formula. full ITC × revenue formula% [24] × extent of consideration [25] • revenue formula - excludes the value of floor plan payouts [26] as non-financial supply revenue in both the numerator and denominator of the formula, or - includes gross (GST-exclusive) revenues for non-financial supplies in both the numerator and the denominator and gross revenues for financial supplies in the denominator of the formula. - excludes the value of floor plan payouts [26] as non-financial supply revenue in both the numerator and denominator of the formula, or - includes gross (GST-exclusive) revenues for non-financial supplies in both the numerator and the denominator and gross revenues for financial supplies in the denominator of the formula. | Example 9 – acquisition of overheads on or before 31 March 2008: 76. Mendarosa Financial Services (Mendarosa) is the wholly owned (non-GST grouped) finance arm of Mendarosa Motors. Mendarosa provides both wholesale (floor plan finance) and retail finance products (finance and operating leases, chattel mortgages and disclosed hire purchase agreements) to customers. Mendarosa allocates its overhead acquisitions to a central cost centre which services all of its wholesale and retail asset finance activities. Mendarosa uses a revenue-based formula to determine the extent of creditable purpose for its overhead acquisitions. The revenue-based formula applied by Mendarosa includes: • the (GST-exclusive) value of floor plan payouts – historically, the annual amount of floor plan payouts is $750 million • the (GST-exclusive) value of floor plan fees – historically, floor plan fees generate $15 million in annual gross revenue • gross (GST-exclusive) finance and operating lease revenue – these products represent 30% of active contracts and historically generates annual gross revenue of $118 million • net chattel mortgage interest revenue – this product represents 30% of active contracts and historically generates annual net revenue of $3 million ($18 million gross interest repayments and credit charges minus $15 million annual cost of funding the chattel mortgages); gross principal repayments are not included but generate $100 million annually, and • gross (GST-exclusive) disclosed hire purchase principal repayments and net disclosed hire purchase interest revenue – this product represents 40% of active contracts and historically generates $135 million in annual gross principal repayments and $7 million annual net interest revenue ($22 million gross interest repayments and credit charges minus $15 million annual cost of funding the disclosed hire purchase products). • the (GST-exclusive) value of floor plan payouts – historically, the annual amount of floor plan payouts is $750 million • the (GST-exclusive) value of floor plan fees – historically, floor plan fees generate $15 million in annual gross revenue • gross (GST-exclusive) finance and operating lease revenue – these products represent 30% of active contracts and historically generates annual gross revenue of $118 million • net chattel mortgage interest revenue – this product represents 30% of active contracts and historically generates annual net revenue of $3 million ($18 million gross interest repayments and credit charges minus $15 million annual cost of funding the chattel mortgages); gross principal repayments are not included but generate $100 million annually, and • gross (GST-exclusive) disclosed hire purchase principal repayments and net disclosed hire purchase interest revenue – this product represents 40% of active contracts and historically generates $135 million in annual gross principal repayments and $7 million annual net interest revenue ($22 million gross interest repayments and credit charges minus $15 million annual cost of funding the disclosed hire purchase products). 77. Using these historical revenues, Mendarosa determines that its overhead acquisitions are made 99.02% for a creditable purpose as follows: $1,018 million (made up of $750 million floor plan payouts plus $15 million floor plan fees plus $135 million disclosed hire purchase principal repayments plus $118 million leasing revenue) divided by $1,028 million (calculated by adding $750 million floor plan payouts, $15 million floor plan fees, $135 million disclosed hire purchase principal repayments, $118 million leasing revenue, $7 million net disclosed hire purchase interest revenue and $3 million net chattel mortgage interest revenue) and multiplied by 100. 78. In the November 2006 tax period, Mendarosa acquires overheads for $3.3 million (including GST). Applying 99.02% extent of creditable purpose, Mendarosa calculates that the amount of ITC entitlement for these acquisitions is $297,060 ($300,000 × 99.02%). 79. Mendarosa has applied a revenue-based formula to work out the extent of creditable purpose for overhead acquisitions that are attributable to a tax period which ends on or before 31 March 2008. 80. However, in this circumstance, the Commissioner is likely to challenge the ITCs determined by Mendarosa for its overhead acquisitions, because the revenue-based formula applied incorporates floor plan payout amounts and inconsistent values for input-taxed and non-input taxed activities. 81. Had Mendarosa excluded the value of floor plan payouts and included gross revenues for non-financial supplies in both the numerator and the denominator, and gross revenues for financial supplies in the denominator of the formula, the Commissioner would have accepted the amount of ITCs determined on that basis. | Example 10 – acceptable use of a revenue-based formula: 82. Using Mendarosa's gross revenues, the extent of creditable purpose is 65.68% as follows: $268 million (made up of $15 million floor plan finance fees plus $135 million gross disclosed hire purchase principal revenue plus $118 million gross leasing revenue) divided by $408 million (calculated by adding $15 million floor plan finance fees, $135 million gross disclosed hire purchase principal revenue, $118 million gross leasing revenue, $22 million gross disclosed hire purchase interest revenue, $100 million gross chattel mortgage principal revenue and $18 million gross chattel mortgage interest and credit charges revenue) and multiplied by 100. 83. Had Mendarosa used the 65.68% extent of creditable purpose figure, its ITC entitlement for its overheads would be $197,040 ($300,000 × 65.68%). This calculation of the entitlement to ITCs for the overhead acquisitions would have been accepted by the Commissioner. | Tax periods from 1 April 2008: 84. A taxpayer that has a dedicated asset finance cost centre or apportions expenses at an overall enterprise level and provides both floor plan wholesale finance products and retail finance products can calculate the extent of creditable purpose under subsection 11-30(3) for partly creditable overheads in the following manner: Step 1 By a fair and reasonable method, apportion overhead acquisitions between wholesale and 'retail' finance products. Overheads allocated to wholesale finance products are acquired wholly for a creditable purpose. For overheads allocated to retail finance products, go to Step 2. Step 2 By a fair and reasonable method, determine the ratio of each retail finance product (for example, disclosed hire purchase agreements, chattel mortgages, finance and operating leases) to all retail finance products. Step 3 Allocate overheads to each retail finance product according to the ratio of that product to all retail finance products. Step 4 Overheads allocated to finance and operating lease products are acquired solely for a creditable purpose. Overheads allocated to chattel mortgage products are acquired not at all for a creditable purpose. For overheads allocated to disclosed hire purchase products, go to Step 5. Step 5 Apply the formula: full ITC × 15% × extent of consideration Step 1 By a fair and reasonable method, apportion overhead acquisitions between wholesale and 'retail' finance products. Overheads allocated to wholesale finance products are acquired wholly for a creditable purpose. For overheads allocated to retail finance products, go to Step 2. Step 2 By a fair and reasonable method, determine the ratio of each retail finance product (for example, disclosed hire purchase agreements, chattel mortgages, finance and operating leases) to all retail finance products. Step 3 Allocate overheads to each retail finance product according to the ratio of that product to all retail finance products. Step 4 Overheads allocated to finance and operating lease products are acquired solely for a creditable purpose. Overheads allocated to chattel mortgage products are acquired not at all for a creditable purpose. For overheads allocated to disclosed hire purchase products, go to Step 5. Step 5 Apply the formula: full ITC × 15% × extent of consideration full ITC × 15% × extent of consideration | Example 11 – acquisition of overheads on or after 1 April 2008: 85. In the April 2008 tax period, Mendarosa acquires overheads for $2.2 million (inclusive of $200,000 GST). In determining its entitlement to ITCs, Mendarosa uses: • the (GST-exclusive) value of floor plan payouts – historically, the annual amount of floor plan payouts is $750 million • the (GST-exclusive) value of floor plan fees – historically, floor plan fees generate $15 million in annual gross revenue • gross (GST-exclusive) finance and operating lease revenue – these products represent 30% of active contracts and historically generates annual gross revenue of $118 million • net chattel mortgage interest revenue – this product represents 30% of active contracts and, historically, annual net revenue of $3 million ($18 million gross interest repayments and credit charges minus $15 million annual cost of funding the chattel mortgages); gross principal repayments are not included but generate $100 million annually, and • gross (GST-exclusive) disclosed hire purchase principal repayments and net disclosed hire purchase interest revenue – this product represents 40% of active contracts and historically generates $135 million in annual gross principal repayments and $7 million annual net interest revenue ($22 million gross interest repayments and credit charges minus $15 million annual cost of funding the disclosed hire purchase products). • the (GST-exclusive) value of floor plan payouts – historically, the annual amount of floor plan payouts is $750 million • the (GST-exclusive) value of floor plan fees – historically, floor plan fees generate $15 million in annual gross revenue • gross (GST-exclusive) finance and operating lease revenue – these products represent 30% of active contracts and historically generates annual gross revenue of $118 million • net chattel mortgage interest revenue – this product represents 30% of active contracts and, historically, annual net revenue of $3 million ($18 million gross interest repayments and credit charges minus $15 million annual cost of funding the chattel mortgages); gross principal repayments are not included but generate $100 million annually, and • gross (GST-exclusive) disclosed hire purchase principal repayments and net disclosed hire purchase interest revenue – this product represents 40% of active contracts and historically generates $135 million in annual gross principal repayments and $7 million annual net interest revenue ($22 million gross interest repayments and credit charges minus $15 million annual cost of funding the disclosed hire purchase products). 86. Mendarosa adopts the following approach: Step 1 Mendarosa allocates the GST component of the $2.2 million overheads ($200,000) between its wholesale and retail finance products. It does this by applying the ratio of gross wholesale product revenue (excluding floor plan payouts) to total asset finance product revenue (including gross wholesale and retail product revenue but excluding floor plan payouts) to the $200,000 amount. Using historical benchmarks, Mendarosa determines that 3.67% (calculated as $15 million annual gross floor plan fees divided by $408 million total annual gross asset finance revenues multiplied by 100) of the $200,000 should be allocated to its taxable wholesale finance products. The acquisition of the overheads allocated to Mendarosa's wholesale finance products is solely for a creditable purpose, giving an ITC entitlement of $7,340 ($200,000 × 3.67%). Step 2 Mendarosa uses active contracts to determine the ratio of each retail finance product to all finance products. Using historical benchmarks, the ratios are: Leasing (finance and operating) – 30% Chattel Mortgages – 30% Disclosed hire-purchase – 40% Step 3 Mendarosa allocates the remaining overheads ($192,660) to each retail finance product according to the ratio worked out in Step 2; that is: Leasing $57,798 ($192,660 × 30%) Chattel Mortgages $57,798 ($192,660 × 30%) Disclosed hire-purchase $77,064 ($192,660 × 40%) Step 4 For overheads allocated to each retail finance product, Mendarosa determines that: overheads allocated to leasing products are solely for a creditable purpose and give rise to an ITC entitlement of $57,798 overheads allocated to chattel mortgage products are not at all for a creditable purpose and do not give rise to any ITCs overheads allocated to disclosed hire purchase products are partly for a creditable purpose. The amount of ITC is determined by applying the formula set out in Step 5. Step 5 Mendarosa determines the amount of ITCs for overheads allocated to disclosed hire purchase products by application of the formula: $77,064 × 15% = $11,559 Step 1 Mendarosa allocates the GST component of the $2.2 million overheads ($200,000) between its wholesale and retail finance products. It does this by applying the ratio of gross wholesale product revenue (excluding floor plan payouts) to total asset finance product revenue (including gross wholesale and retail product revenue but excluding floor plan payouts) to the $200,000 amount. Using historical benchmarks, Mendarosa determines that 3.67% (calculated as $15 million annual gross floor plan fees divided by $408 million total annual gross asset finance revenues multiplied by 100) of the $200,000 should be allocated to its taxable wholesale finance products. The acquisition of the overheads allocated to Mendarosa's wholesale finance products is solely for a creditable purpose, giving an ITC entitlement of $7,340 ($200,000 × 3.67%). Step 2 Mendarosa uses active contracts to determine the ratio of each retail finance product to all finance products. Using historical benchmarks, the ratios are: Leasing (finance and operating) – 30% Chattel Mortgages – 30% Disclosed hire-purchase – 40% Step 3 Mendarosa allocates the remaining overheads ($192,660) to each retail finance product according to the ratio worked out in Step 2; that is: Leasing $57,798 ($192,660 × 30%) Chattel Mortgages $57,798 ($192,660 × 30%) Disclosed hire-purchase $77,064 ($192,660 × 40%) Step 4 For overheads allocated to each retail finance product, Mendarosa determines that: overheads allocated to leasing products are solely for a creditable purpose and give rise to an ITC entitlement of $57,798 overheads allocated to chattel mortgage products are not at all for a creditable purpose and do not give rise to any ITCs overheads allocated to disclosed hire purchase products are partly for a creditable purpose. The amount of ITC is determined by applying the formula set out in Step 5. Step 5 Mendarosa determines the amount of ITCs for overheads allocated to disclosed hire purchase products by application of the formula: $77,064 × 15% = $11,559 $77,064 × 15% = $11,559 87. By adding the results from Steps 1, 4 and 5, Mendarosa determines that it is entitled to an ITC of $76,697 (that is, $7,340 relating to wholesale finance activities plus $57,798 relating to leasing activities plus $11,559 determined to relate to the taxable supplies made under disclosed hire purchase agreements). 88. In this circumstance, based on the application of this approach, the Commissioner would accept the ITC claim determined by Mendarosa.",GST issues registers – Financial services – questions and answers | GST issues registers - Financial services - questions and answers | GSTR 2000/29 | GSTR 2002/2 | GSTR 2006/3 | ANTS(GST)A 1999 Div 11 | ANTS(GST)A 1999 11-15 | ANTS(GST)A 1999 11-30(1) | ANTS(GST)A 1999 11-30(3) | ANTS(GST)A 1999 29-25 | ANTS(GST)A 1999 Div 70 | ANTS(GST)A 1999 70-20(2) | ANTS(GST)R 1999 | ANTS(GST)R 1999 40-5.12 | ANTS(GST)R 1999 40-5.09(1) | ANTS(GST)R 1999 40-5.02(1) | ANTS(GST)R 1999 70-5.03 | A New Tax System (Goods and Services Tax) Amendment Regulation 2012 (No. 1),,ANTS(GST)A 1999 Div 11 | ANTS(GST)A 1999 11-15 | ANTS(GST)A 1999 11-30(1) | ANTS(GST)A 1999 11-30(3) | ANTS(GST)A 1999 29-25 | ANTS(GST)A 1999 Div 70 | ANTS(GST)A 1999 70-20(2) | ANTS(GST)R 1999 | ANTS(GST)R 1999 40-5.12 | ANTS(GST)R 1999 40-5.09(1) | ANTS(GST)R 1999 40-5.02(1) | ANTS(GST)R 1999 70-5.03 | A New Tax System (Goods and Services Tax) Amendment Regulation 2012 (No. 1) | TAA 1953 Sch 1 105-50,,GST issues registers - Financial services - questions and answers,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/GA20081/NAT/ATO/00001,"Partly creditable acquisition – entitlement to RITCs | Updated in line with current ATO style and accessibility requirements. | Amended paragraph numbering from 1A to 2, for consistency with the rest of the Practice Statement. Updated subsequent paragraph references to new paragraph numbers. | Updated to correct paragraph references in relation to GSTR 2000/29. | Change in title – added date to reflect the scope of arrangements the Practice Statement applies to. | Updated to include new paragraphs 13 to 16. | Updated to reflect scope of Practice Statement. | Inserted paragraphs – our approach to arrangements from 1 July 2012 as a result of law change. | Inserted new footnotes to support new paragraphs. | Updated to add or remove legislative references, related public rulings, case references and contact details. | [1] Schedule 1 to Goods and Services Tax Ruling GSTR 2002/2 Goods and services tax : GST treatment of financial supplies and related supplies and acquisitions defines 'floor plan finance' as an agreement under which a financier purchases capital goods from a manufacturer or distributor for the purposes of display and sale by a wholesaler or retailer. The financier retains legal title to the goods, while possession and limited rights over the goods (and the obligation to return goods if unsold) are granted to the dealer. Floor plan finance is a form of bailment. | [2] Subject to the application of section 105-50 of Schedule 1 to the Taxation Administration Act 1953 . | [3] Subject to the application of section 105-50 of Schedule 1 to the Taxation Administration Act 1953 . | [4] In 2019, the GST Regulations 1999 were replaced by the A New Tax System ( Goods and Services Tax ) Regulations 2019 (GST Regulations). The remade GST Regulations did not alter the GST treatment of hire purchase agreements. | [5] Amendments made to the GST Regulations 1999 by the A New Tax System ( Goods and Services Tax ) Amendment Regulation 2012 ( No . 1 ). | [6] Where the requirements of subsection 40-5.09(1) of the GST Regulations are satisfied. | [7] Table items 19 and 20 of section 40-5.12 of the GST Regulations. | [8] The Commissioner notes the decision in the UK Value Added Tax (VAT) Tribunal case The Royal Bank of Scotland Group PLC v Revenue and Customs [2007] UKVAT V19983 (where HM Revenue & Customs argued for a 0% rate). The unique features of this case make it unreliable as a precedent for Australian GST purposes. For example, conflicting evidence in the way in which the case was presented ultimately led to the VAT Tribunal adopting the application of a 'transaction count' apportionment method, which we consider provides a doubtful proxy for the measurement of use to which expenditure is applied in these arrangements. Additionally, the VAT Tribunal provided little in the way of clarification as to why this method was considered fair and reasonable. | [9] See GST issues registers - Financial services - questions and answers and paragraph 109 of GSTR 2006/3. | [10] As stated in paragraph 73 of GSTR 2006/3. | [11] As required by subsection 11-30(3), in this circumstance the extent of creditable purpose percentage is determined by application of the revenue-based formula approach outlined in paragraph 9 of this Practice Statement. | [12] In each of the associated examples, the assumption has been made that the extent of consideration is 100% (and has therefore not been depicted). | [13] As required by subsection 11-30(3), in this circumstance the extent of creditable purpose percentage is determined by application of the 15% set-rate approach (or such other percentage agreed to with the Commissioner) outlined in paragraph 11 of this Practice Statement. | [14] In each of the associated examples, the assumption has been made that the extent of consideration is 100% (and has therefore not been depicted). | [15] As required by subsection 11-30(3), in this circumstance the extent of creditable purpose percentage is determined by application of the revenue-based formula approach outlined in paragraph 9 of this Practice Statement. | [16] In each of the associated examples, the assumption has been made that the extent of consideration is 100% (and has therefore not been depicted). | [17] See paragraph 23 of this Practice Statement. | [18] As required by subsection 11-30(3), in this circumstance the extent of creditable purpose percentage is determined by application of the revenue-based formula approach outlined in paragraph 9 of this Practice Statement. | [19] In each of the associated examples, the assumption has been made that the extent of consideration is 100% (and has therefore not been depicted). | [20] Equally, the Commissioner would have accepted the amount of ITCs calculated by use of a revenue-based formula inclusive wholly of net values for both financial supplies and non-financial supplies. | [21] As required by subsection 11-30(3), in this circumstance the extent of creditable purpose percentage is determined by application of the 15% set-rate approach (or such other percentage agreed to with the Commissioner) outlined in paragraph 11 of this Practice Statement. | [22] In each of the associated examples, the assumption has been made that the extent of consideration is 100% (and has therefore not been depicted). | [23] The use of 'active contracts' for 'portfolio' apportionment purposes is intended to be illustrative and is not prescriptive of the way in which 'portfolio' apportionment is to be carried out in all circumstances. The Commissioner will accept the use of other methods of portfolio apportionment, providing that the method selected delivers a fair and reasonable outcome. | [24] As required by subsection 11-30(3), in this circumstance the extent of creditable purpose percentage is determined by application of the revenue-based formula approach outlined in paragraph 9 of this Practice Statement. | [25] In each of the associated examples, the assumption has been made that the extent of consideration is 100% (and has therefore not been depicted). | [26] 'Floor plan payout' is the consideration received by the 'floor plan financier' for the supply of goods to the wholesaler or retailer, when the wholesaler or retailer sells the goods. | Royal Bank of Scotland Group PLC v Revenue & Customs [2007] UKVAT v 19983"
PS LA 2008/2 (GA),SUBJECT: Non-treaty airlines PURPOSE: To advise the Commissioner's approaches to calculating the Australian taxable income of a non-treaty airline,17 April 2008,,Law Administration Practice Statement (GA),False,"1. This Practice Statement applies to non-treaty airlines. In this Practice Statement, a non-treaty airline means an airline that is a resident of a country that does not have a tax treaty with Australia. [1] 2. There is no statutory source rule under Australian income tax law that deems a source for income derived from air transport. There are also issues around apportioning and allocating allowable deductions to Australian-source income from air transport. 3. We recognise that owing to the circumstances outlined in paragraph 2 of this Practice Statement and to the nature of international air transport, there are practical difficulties in working out the Australian taxable income of a non-treaty airline. Despite these difficulties, we need to ensure that non-treaty airlines calculate their taxable income in accordance with Australian income tax law. 4. The purpose of this Practice Statement is to provide direction and assistance to ATO staff on approaches to take when applying tax laws to the calculation of the Australian taxable income of a non-treaty airline. In providing these directions, a degree of flexibility is required, particularly in terms of striking a balance between the cost of compliance and the strict application of the law. 5. This Practice Statement sets out approaches we will accept in practice for ascertaining the Australian taxable income of a non-treaty airline. 6. As a matter of practical compliance and sensible administration, we have decided that a non-treaty airline that calculates its Australian taxable income based on either the Maritime Formula or the Calcutta Formula (as described in paragraphs 11 to 17 of this Practice Statement) will have complied with Australian income tax law. A non-treaty airline can only use one formula to calculate its Australian taxable income in any given income year. Therefore, an airline cannot use both the Maritime Formula and the Calcutta Formula in the same year. 7. In the future, we may consider other methodologies to calculate a non-treaty airline's Australian taxable income. 8. A key element of both the Maritime Formula and the Calcutta Formula is the determination of 'gross Australian revenue'. We consider that, in most cases, the 'point of uplift' method is the more appropriate method to determine an airline's gross Australian revenue. However, we accept a non-treaty airline may use the 'point of sale' method to determine gross Australian revenue if the airline can demonstrate, if requested to do so, the method's appropriateness to its individual facts and circumstances. In any given income year, an airline's gross Australian revenue must be determined using either the point of uplift method or the point of sale method. Hence, both methods cannot be used in the same year. The point of uplift and point of sale methodologies are described in paragraphs 22 to 27 of this Practice Statement. 9. The approach a non-treaty airline adopts to calculate its Australian taxable income, in respect of the choice of the Maritime Formula or the Calcutta Formula and in the choice of the point of uplift method or the point of sale method, must be used consistently from year to year, unless there are special circumstances warranting a change in approach. Special circumstances could include: • an airline wanting to align the approach it uses to calculate Australian taxable income with the approach used to determine taxable position in all other jurisdictions • a significant change to an airline's accounting system that enables it to more accurately calculate income and expenses attributable to a particular sector. • an airline wanting to align the approach it uses to calculate Australian taxable income with the approach used to determine taxable position in all other jurisdictions • a significant change to an airline's accounting system that enables it to more accurately calculate income and expenses attributable to a particular sector. 9A. An airline should inform us in writing if it has changed its approach to calculating taxable income, thoroughly explaining the facts and circumstances that make the change appropriate. 10. Our approach to calculating the Australian taxable income of a non-treaty airline is by reference to either the Maritime Formula or the Calcutta Formula. The International Air Transport Association's Guidelines for Taxation of International Air Transport Profits [2] describes these formulas as some of the 'generally accepted net income apportionment formulas' to apportion the global net operating result. | Calculating Australian taxable income using the Maritime Formula: 11. The Maritime Formula calculates Australian taxable income by apportioning an airline's global result on the basis of Australian revenue to world revenue. The formula is expressed as: 12. In the Maritime Formula: • Gross Australian Revenue means the total revenue from air transport activities having a source in Australia. It does not include 'Non Air Transport Income'. • Gross World Revenue means all revenue from air transport activities, irrespective of the country of source. It does not include Non Air Transport Income. • World Net Income means the amount of profit from air transport activities, before income tax, appearing in an airline's annual profit and loss statement, adjusted to take into account the general principles under which taxable income is ascertained under Australian income tax law. All material adjustments must be made to the profit and loss amount. At a minimum, adjustments must be made for - reserves - provisions, and - depreciation to reflect the decline in value rates under the uniform capital allowances regime. World Net Income does not include Non Air Transport Income. • Net Australian Non Air Transport Income [3] means Non Air Transport Income to the extent that it has an Australian source under the ordinary provisions of income tax law, with applicable allowable tax deductions subtracted. • Non Air Transport Income means income of the non-treaty airline that is not related to air transport activities, such as income from interest, rent, duty free shops, restaurants and hotels. • Gross Australian Revenue means the total revenue from air transport activities having a source in Australia. It does not include 'Non Air Transport Income'. • Gross World Revenue means all revenue from air transport activities, irrespective of the country of source. It does not include Non Air Transport Income. • World Net Income means the amount of profit from air transport activities, before income tax, appearing in an airline's annual profit and loss statement, adjusted to take into account the general principles under which taxable income is ascertained under Australian income tax law. All material adjustments must be made to the profit and loss amount. At a minimum, adjustments must be made for - reserves - provisions, and - depreciation to reflect the decline in value rates under the uniform capital allowances regime. World Net Income does not include Non Air Transport Income. • Net Australian Non Air Transport Income [3] means Non Air Transport Income to the extent that it has an Australian source under the ordinary provisions of income tax law, with applicable allowable tax deductions subtracted. • Non Air Transport Income means income of the non-treaty airline that is not related to air transport activities, such as income from interest, rent, duty free shops, restaurants and hotels. - reserves - provisions, and - depreciation to reflect the decline in value rates under the uniform capital allowances regime. 13. Determining whether gross revenue has a source in Australia is crucial to calculating gross Australian revenue. This aspect is discussed further at paragraphs 18 to 33 of this Practice Statement. | Calculating Australian taxable income using the Calcutta Formula: 14. Under the Calcutta Formula, Australian taxable income is calculated by deducting from gross Australian revenue all expenditure incurred in gaining that revenue. It is expressed as: 15. In the Calcutta Formula: • Gross Australian Revenue and Net Australian Non Air Transport Income have the same meanings as under the Maritime Formula (see paragraph 12 of this Practice Statement). • Direct Expenditure in Australia means the costs incurred in Australia as part of the Australian air transport activities of the non-treaty airline. It typically includes Australian station and ground costs (such as the salary, wages and costs of employees working in Australia, commissions relating to sales made by agents in Australia, office, rent and other utility costs and depreciation on assets located in Australia to the extent that tax depreciation for those assets is available in Australia) and other local selling and administrative costs. It does not include the direct costs of flight operations – these are included in 'Apportioned Other Expenditure'. • Apportioned Other Expenditure means 'Other Expenditure' apportioned according to the extent that it reasonably relates to the production of gross Australian revenue. Other Expenditure refers to all costs incurred in deriving air transport income, with the exception of direct expenditure in Australia or equivalently direct expenditure in a foreign country. Other Expenditure typically includes costs directly attributable to flights that are referrable to gross Australian revenue (for example, fuel, in-flight catering and crew salary, wages and allowances), as well as expenditure related to air transport income that is not directly related to a particular airline route (for example, head office expenses, aircraft depreciation, aircraft lease payments and aircraft maintenance). • Gross Australian Revenue and Net Australian Non Air Transport Income have the same meanings as under the Maritime Formula (see paragraph 12 of this Practice Statement). • Direct Expenditure in Australia means the costs incurred in Australia as part of the Australian air transport activities of the non-treaty airline. It typically includes Australian station and ground costs (such as the salary, wages and costs of employees working in Australia, commissions relating to sales made by agents in Australia, office, rent and other utility costs and depreciation on assets located in Australia to the extent that tax depreciation for those assets is available in Australia) and other local selling and administrative costs. It does not include the direct costs of flight operations – these are included in 'Apportioned Other Expenditure'. • Apportioned Other Expenditure means 'Other Expenditure' apportioned according to the extent that it reasonably relates to the production of gross Australian revenue. Other Expenditure refers to all costs incurred in deriving air transport income, with the exception of direct expenditure in Australia or equivalently direct expenditure in a foreign country. Other Expenditure typically includes costs directly attributable to flights that are referrable to gross Australian revenue (for example, fuel, in-flight catering and crew salary, wages and allowances), as well as expenditure related to air transport income that is not directly related to a particular airline route (for example, head office expenses, aircraft depreciation, aircraft lease payments and aircraft maintenance). 16. A reasonable basis for the apportionment of Other Expenditure is the ratio of gross Australian revenue to gross world revenue. We will also accept another basis of apportionment provided it: • gives a reasonable reflection of the proportion of expenditure relating to the non-treaty airline's gross Australian revenue • is not arbitrary • is suitable for the type of expenditure, and • gives a correct reflection of the expenditure incurred. • gives a reasonable reflection of the proportion of expenditure relating to the non-treaty airline's gross Australian revenue • is not arbitrary • is suitable for the type of expenditure, and • gives a correct reflection of the expenditure incurred. 17. Expenditure, in the definitions in paragraph 15 of this Practice Statement, excludes costs that are not deductible under Australian law. | Calculating gross Australian revenue: 18. The assessable income of a non-treaty airline is determined based on the same principles as for any other foreign resident. Specifically, subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a foreign resident's assessable income includes ordinary income derived directly or indirectly from all Australian sources during an income year. Similarly, subsection 6-10(5) of the ITAA 1997 provides that a foreign resident's assessable income includes statutory income from all Australian sources. 19. There is no statutory rule that deems a source for income derived from air transport. Accordingly, the precise determination of a non-treaty airline's assessable income is based on the common law principles for determining the source of income. 20. Income in a transport business, such as an international airline operation, is produced from the provision of transport services. Determination of the source of income is, in all cases, 'a practical, hard matter of fact'. [4] However, it is clear from case law that a number of factors are important in determining source of income from performing services, including the place where the contract for services is entered into, the place where the services are performed and the place where payment for the services is made. [5] 21. It is neither possible nor appropriate for us to be prescriptive about which factors should be dominant in the case of air transport income derived by non-treaty airlines or how the interplay of those factors will apply to all non-treaty airlines in all circumstances. 22. Historically, there are 2 methods that we have accepted to determine the source of air transport income derived by airlines: • the point of uplift method, which broadly approximates to the common law principle which allocates the source of income based on the place where services are performed, and • the point of sale method, which broadly approximates to the place where a contract for services is entered into. • the point of uplift method, which broadly approximates to the common law principle which allocates the source of income based on the place where services are performed, and • the point of sale method, which broadly approximates to the place where a contract for services is entered into. 23. We consider that in most cases the place of performance, being where the actual provision of transportation services takes place, will be the vital factor leading to the derivation of income. However, given the cross-border nature of air transportation, practical and legal issues may arise with respect to working out the source of income generated by the performance of such activity. For instance, do you attribute the source of income proportionately to the respective parts of national and international airspace that comprise an airline's journey? To overcome these difficulties, we consider that the place where carriage commences – otherwise known as the point of uplift – is a reasonable approximation of the place of performance source rule. 24. The point of uplift method allocates an Australian source to sales income for flights where the carriage commences in Australia. The income attributable to carriage from point-to-point is allocated to Australia, where the first point is Australia and the second point is the final destination of the passenger. Where a ticket itinerary for a flight commencing in Australia includes a transit stop – such as a stop to refuel or to allow passengers to change carriage to another aircraft of the airline – between Australia and the final destination, we regard gross revenue derived from the entire journey as having an Australian source under the uplift method. On the other hand, where a flight commencing in Australia includes a stopover – that is, a significant break in the journey, such as an overnight stay in a hotel – the stopover destination is treated, under the point of uplift method, as the final destination. 25. The point of sale method allocates an Australian source to all gross income derived by an airline from tickets sold in Australia, provided the carriage is undertaken by that airline. It is irrelevant whether or not the carriage is to and from Australia. We may accept the point of sale method as the determinant of gross Australian revenue where the circumstances of a non-treaty airline demonstrate that this is a more appropriate source rule. 26. Examples of the types of circumstances which would make the point of sale method more appropriate than the point of uplift method might include where a non-treaty airline: • carries on significant operations in Australia, as evidenced by the existence of operational and sales offices, or • engages in specific and strategic marketing and advertising in Australia. • carries on significant operations in Australia, as evidenced by the existence of operational and sales offices, or • engages in specific and strategic marketing and advertising in Australia. 26A. It may also be appropriate to examine the way in which the gross revenue of the non-treaty airline is determined in other tax jurisdictions, although this will not necessarily decide the most appropriate method of determining gross Australian revenue. 27. Generally, the point of sale will align with the place where the contract is entered into. However, in the case of internet and other forms of electronic sales, the point of sale may not always accord with the place where the contract is entered into based on contract law principles. [6] Nonetheless, we accept that the point of sale method is a reasonable approximation of the 'place of contract' source rule taken as a whole under prevailing selling processes. | Calculating gross Australian revenue for code-share and similar arrangements: 28. We consider that income derived under code-share, or arrangements similar to code-share, is income from air transport activities. Ascertaining whether such income has a source in Australia will involve applying the point of sale method or point of uplift method. 29. Code-share type arrangements vary between airlines. Generally, under code-share and similar arrangements, travellers purchasing one airline's tickets may find themselves travelling on another airline's plane. 30. A code-share type arrangement may involve an 'operating carrier', which operates the aircraft used for a flight, along with a 'marketing carrier', which purchases seats from the operating carrier for on-sale to the public. If a non-treaty airline is the marketing carrier, the amount included in gross Australian revenue under the point of sale method is the 'net' amount derived from tickets sold in Australia by the non-treaty airline; that is, the full fare the marketing carrier charges the passenger less the amount it pays to the operating carrier to acquire seats. Furthermore, the amount included in gross Australian revenue under the point of uplift method is the 'net' amount derived from tickets sold anywhere in the world by the non-treaty airline, but only in relation to flights departing Australia (see paragraph (a) of Example 2 of this Practice Statement). [7] 31. If a non-treaty airline is the operating carrier, the amount included in gross Australian revenue under the point of sale method is the fee received from the marketing carrier from tickets sold in Australia. Additionally, under the point of uplift method, only the portion of the fee received relating to flights leaving Australia is included in gross Australian revenue (see paragraph (b) of Example 2 of this Practice Statement). 32. A code-share type arrangement may involve a 'seat swap' arrangement, such that neither airline pays the other a fee, but instead agrees that the exchange of seats represents full consideration. In such an arrangement, each airline keeps the entire revenue generated from its sale of tickets, irrespective of which airline performs the flight. Under the point of sale method, the non-treaty airline needs to include in gross Australian revenue the total revenue from tickets it sold in Australia, whether or not the tickets are for flights operated by the non-treaty airline or another airline. Under the point of uplift method, the amount derived from tickets sold by the non-treaty airline anywhere in the world needs to be included in gross Australian revenue, irrespective of whether it performed the flight, but only the portion relevant to flights leaving Australia. 33. Airlines may sell tickets in the capacity of an agent. Such situations must be distinguished from code-share type arrangements. Where an airline makes a sale in an agency capacity, it does not have responsibility for the carriage of the actual passenger aboard the airline performing the flight. The commission received by the airline making the sale is not income from air transport activities. Consequently, when calculating taxable income under the Maritime Formula or Calcutta Formula, the income must be treated as Non Air Transport Income. 34. Examples 2 and 3 of this Practice Statement apply the principles to arrangements which involve a code-share. | Converting amounts of foreign currency: 35. We will accept an approach for converting foreign currency amounts into Australian currency where it is consistent with the rules contained in Subdivisions 960-C or 960-D of the ITAA 1997, as modified by the Income Tax Assessment (1997 Act) Regulations 2021. | Foreign income tax offsets: 36. Under Division 770 of the ITAA 1997, a taxpayer may be entitled to a non-refundable tax offset for foreign income tax paid on an amount included in assessable income. [8] This offset effectively reduces the potential Australian tax that would be payable on double-taxed amounts. [9] Division 770 will apply from income years, statutory accounting periods and notional accounting periods starting on or after 1 July 2008. | Non-arm's length dealings between different parts of the same entity: 37. Where a non-treaty airline operates in Australia through a branch (permanent establishment), consideration should be given to the application of former Division 13 of Part III of the Income Tax Assessment Act 1936, which allows for the arm's length allocation of the appropriate part of the income, profits and expenses between the Australian and foreign operations. | Example 1 – basic example: 38. One hundred people purchase Sydney to London return airline tickets, stopping in country A. The stop does not significantly break the passengers' journey (refer to paragraph 24 of this Practice Statement). The return fare is $2,700. The flight is performed entirely by the non-treaty airline. (a) Assuming all 100 return tickets are sold through the non-treaty airline's office in Sydney: (i) Using the point of uplift method – the Sydney to London portion of the fares, namely half of the total, or $135,000 ($2,700 × 100 tickets ÷ 2), is included as gross Australian revenue. Australian revenue is calculated in this manner because the point of uplift for the Sydney to London leg of the journey occurs in Australia. (ii) Using the point of sale method – the total of the fares of $270,000 ($2,700 × 100 tickets) is included as gross Australian revenue. As the tickets were sold in Australia, the whole amount of the fares is Australian revenue, irrespective of the point of uplift. (b) Assuming all 100 return tickets are sold overseas: (i) Using the point of uplift method – the Sydney to London portion of the fares, namely half of the total, or $135,000 ($2,700 × 100 tickets ÷ 2), is included as gross Australian revenue given that uplift for that leg of the journey occurs in Australia. (ii) Using the point of sale method – no amount is included as Australian revenue, given that the tickets were not sold in Australia. (a) Assuming all 100 return tickets are sold through the non-treaty airline's office in Sydney: (i) Using the point of uplift method – the Sydney to London portion of the fares, namely half of the total, or $135,000 ($2,700 × 100 tickets ÷ 2), is included as gross Australian revenue. Australian revenue is calculated in this manner because the point of uplift for the Sydney to London leg of the journey occurs in Australia. (ii) Using the point of sale method – the total of the fares of $270,000 ($2,700 × 100 tickets) is included as gross Australian revenue. As the tickets were sold in Australia, the whole amount of the fares is Australian revenue, irrespective of the point of uplift. (b) Assuming all 100 return tickets are sold overseas: (i) Using the point of uplift method – the Sydney to London portion of the fares, namely half of the total, or $135,000 ($2,700 × 100 tickets ÷ 2), is included as gross Australian revenue given that uplift for that leg of the journey occurs in Australia. (ii) Using the point of sale method – no amount is included as Australian revenue, given that the tickets were not sold in Australia. (i) Using the point of uplift method – the Sydney to London portion of the fares, namely half of the total, or $135,000 ($2,700 × 100 tickets ÷ 2), is included as gross Australian revenue. Australian revenue is calculated in this manner because the point of uplift for the Sydney to London leg of the journey occurs in Australia. (ii) Using the point of sale method – the total of the fares of $270,000 ($2,700 × 100 tickets) is included as gross Australian revenue. As the tickets were sold in Australia, the whole amount of the fares is Australian revenue, irrespective of the point of uplift. (i) Using the point of uplift method – the Sydney to London portion of the fares, namely half of the total, or $135,000 ($2,700 × 100 tickets ÷ 2), is included as gross Australian revenue given that uplift for that leg of the journey occurs in Australia. (ii) Using the point of sale method – no amount is included as Australian revenue, given that the tickets were not sold in Australia. | Example 2 – code-share – aircraft of only one airline used for flights: 39. One hundred people purchase Sydney to London return airline tickets, stopping in Country A. The stop does not significantly break the passengers' journey. The flights operate under a code-share arrangement by 2 airlines, 'Operating Carrier' and 'Marketing Carrier'. Operating Carrier operates the aircraft used for the flights, while Marketing Carrier markets and sells tickets on the flights. The return fare is $2,700. Under the code-share arrangement between the 2 airlines, Marketing Carrier pays Operating Carrier 90% of the ticket sale price, retaining a 10% margin. All 100 return tickets are sold by Marketing Carrier through its Sydney sales office. (a) Assuming that Marketing Carrier is a non-treaty airline: (i) Using the point of uplift method – Marketing Carrier receives total ticket revenue of $135,000 ($1,350 × 100 tickets) for the Sydney to London portion of the fares. Marketing Carrier pays Operating Carrier $121,500 in respect of the tickets sold (90% × $1,350 × 100 tickets). Marketing Carrier's net revenue of $13,500 has an Australian source and is included as gross Australian revenue. (ii) Using the point of sale method – Marketing Carrier receives total ticket revenue of $270,000 ($2,700 × 100 tickets) for the tickets sold in its Sydney sales office. Marketing Carrier pays Operating Carrier $243,000 in respect of the tickets sold (90% × $2,700 × 100 tickets). Marketing Carrier's net revenue of $27,000 has an Australian source and is included as gross Australian revenue. (b) Assuming that Operating Carrier is a non-treaty airline: (i) Using the point of uplift method – the Sydney to London portion of the fare income derived by Operating Carrier, attributable to the sales by Marketing Carrier, is included as gross Australian revenue. Accordingly, Operating Carrier's gross Australian revenue is $121,500 (90% × $2,700 × 100 tickets ÷ 2). (ii) Using the point of sale method – the total fare income derived by Operating Carrier, attributable to the sales by Marketing Carrier in its Sydney office, is included as gross Australian revenue. Operating Carrier's gross Australian revenue is therefore $243,000 (90% × $2,700 × 100 tickets). Note that if Operating Carrier had also sold tickets to customers itself, it would have further gross Australian revenue under the point of uplift method. Additionally, Operating Carrier would have further gross Australian revenue using the point of sale method, to the extent that the sales occurred in Australia. (a) Assuming that Marketing Carrier is a non-treaty airline: (i) Using the point of uplift method – Marketing Carrier receives total ticket revenue of $135,000 ($1,350 × 100 tickets) for the Sydney to London portion of the fares. Marketing Carrier pays Operating Carrier $121,500 in respect of the tickets sold (90% × $1,350 × 100 tickets). Marketing Carrier's net revenue of $13,500 has an Australian source and is included as gross Australian revenue. (ii) Using the point of sale method – Marketing Carrier receives total ticket revenue of $270,000 ($2,700 × 100 tickets) for the tickets sold in its Sydney sales office. Marketing Carrier pays Operating Carrier $243,000 in respect of the tickets sold (90% × $2,700 × 100 tickets). Marketing Carrier's net revenue of $27,000 has an Australian source and is included as gross Australian revenue. (b) Assuming that Operating Carrier is a non-treaty airline: (i) Using the point of uplift method – the Sydney to London portion of the fare income derived by Operating Carrier, attributable to the sales by Marketing Carrier, is included as gross Australian revenue. Accordingly, Operating Carrier's gross Australian revenue is $121,500 (90% × $2,700 × 100 tickets ÷ 2). (ii) Using the point of sale method – the total fare income derived by Operating Carrier, attributable to the sales by Marketing Carrier in its Sydney office, is included as gross Australian revenue. Operating Carrier's gross Australian revenue is therefore $243,000 (90% × $2,700 × 100 tickets). Note that if Operating Carrier had also sold tickets to customers itself, it would have further gross Australian revenue under the point of uplift method. Additionally, Operating Carrier would have further gross Australian revenue using the point of sale method, to the extent that the sales occurred in Australia. (i) Using the point of uplift method – Marketing Carrier receives total ticket revenue of $135,000 ($1,350 × 100 tickets) for the Sydney to London portion of the fares. Marketing Carrier pays Operating Carrier $121,500 in respect of the tickets sold (90% × $1,350 × 100 tickets). Marketing Carrier's net revenue of $13,500 has an Australian source and is included as gross Australian revenue. (ii) Using the point of sale method – Marketing Carrier receives total ticket revenue of $270,000 ($2,700 × 100 tickets) for the tickets sold in its Sydney sales office. Marketing Carrier pays Operating Carrier $243,000 in respect of the tickets sold (90% × $2,700 × 100 tickets). Marketing Carrier's net revenue of $27,000 has an Australian source and is included as gross Australian revenue. (i) Using the point of uplift method – the Sydney to London portion of the fare income derived by Operating Carrier, attributable to the sales by Marketing Carrier, is included as gross Australian revenue. Accordingly, Operating Carrier's gross Australian revenue is $121,500 (90% × $2,700 × 100 tickets ÷ 2). (ii) Using the point of sale method – the total fare income derived by Operating Carrier, attributable to the sales by Marketing Carrier in its Sydney office, is included as gross Australian revenue. Operating Carrier's gross Australian revenue is therefore $243,000 (90% × $2,700 × 100 tickets). | Example 3 – code-share – aircraft of more than one airline used for flights: 40. One hundred people purchase Sydney to London return airline tickets, stopping in Country A. The flights operate under a code-share arrangement by 2 airlines, Airline 1 and Airline 2. Both airlines market and sell the flights. The return fare is $2,700. Under the code-share arrangement between the airlines, the airline that actually performs the flight derives 90% of the fare sold by the other airline. All 100 return tickets are sold in Australia. Specifically, Airline 1 sells 40 tickets, while Airline 2 sells 60 tickets. 41. Table 1 of this Practice Statement provides details of the route flown by each airline, the number of passengers transported and the value of performing each leg of the flight. Table 1: Flight details for Example 3 Airline Route Passengers Fare Airline 1 Sydney to Country A 100 $350 Airline 2 Country A to London 100 $1,000 Airline 2 London to Country A 100 $1,000 Airline 1 Country A to Sydney 100 $350 This gives a total fare of $2,700. 42. Tables 2 and 3 of this Practice Statement demonstrate the point of uplift method and point of sale method for Example 3, assuming that Airline 1 is a non-treaty airline. Table 2: Using the point of uplift method Steps Amount Fares sold by Airline 1 on the journey departing from Australia ($1,350 × 40 tickets) $54,000 less fee paid to Airline 2 for seats on the Country A to London leg (90% × $1,000 × 40 tickets) − $36,000 plus 90% of fares sold by Airline 2 on Sydney to Country A leg (90% × $350 × 60 tickets) + $18,900 Gross Australian revenue of Airline 1 $36,900 Table 3: Using the point of sale method Steps Amount Fares sold by Airline 1 in its Sydney sales office ($2,700 × 40 tickets) $108,000 less fee paid to Airline 2 for seats on Airline 2 operated flights (90% × $2,000 × 40 tickets) − $72,000 plus 90% of fares sold by Airline 2 in its Sydney sales office (90% × $700 × 60 tickets) + $37,800 Gross Australian revenue of Airline 1 $73,800 43. Tables 4 and 5 of this Practice Statement demonstrate the point of uplift method and point of sale method for Example 3, assuming that Airline 2 is a non-treaty airline. Table 4: Using the point of uplift method Steps Amount Fares sold by Airline 2 on the journey departing from Australia ($1,350 × 60 tickets) $81,000 less fee paid to Airline 1 for seats on the Sydney to Country A leg (90% × $350 × 60 tickets) − $18,900 plus 90% of fares sold by Airline 1 on Country A to London leg (90% × $1,000 × 40 tickets) + $36,000 Gross Australian revenue of Airline 2 $98,100 Table 5: Using the point of sale method Steps Amount Fares sold by Airline 2 in its Sydney sales office ($2,700 × 60 tickets) $162,000 less fee paid to Airline 1 for seats on Airline 1 operated flights (90% × $700 × 60 tickets) − $37,800 plus 90% of fares sold by Airline 1 in its Sydney sales office (90% × $2,000 × 40 tickets) + $72,000 Gross Australian revenue of Airline 2 $196,200",Explanatory Memorandum | ITAA 1997 6-5(3) | ITAA 1997 6-10(5) | ITAA 1997 770-1 | ITAA 1997 Div 770 | ITAA 1997 Subdiv 960-C | ITAA 1997 Subdiv 960-D | Income Tax Assessment (1997 Act) Regulations 2021 | 25 CLR 183,,ITAA 1936 former Part III Div 13 | ITAA 1997 6-5(3) | ITAA 1997 6-10(5) | ITAA 1997 770-1 | ITAA 1997 Div 770 | ITAA 1997 Subdiv 960-C | ITAA 1997 Subdiv 960-D | Electronic Transactions Act 1999 | Income Tax Assessment (1997 Act) Regulations 2021,,"Agreement between the Government of Australia and the Government of the Republic of the Philippines for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income [1980] ATS 16 Explanatory Memorandum to the Tax Laws Amendment (2007 Measures No.4) Bill 2007International Air Transport Association (2015) Guidelines for Taxation of International Air Transport Profits, https://www.iata.org/en/programs/airline-distribution/taxation/direct-taxation/",False,False,https://www.ato.gov.au/law/view/document?docid=PSR/GA20082/NAT/ATO/00001,"Examples on calculating gross Australian revenue | Updated in line with current ATO style and accessibility requirements. | Date of Effect: This Practice Statement applies to income years commencing after its date of issue | [1] Australian tax treaties generally follow the Organisation for Economic Co-operation and Development Model Tax Treaty, which includes an article dealing with the allocation of taxing rights in relation to profits derived from shipping and air transport. The Agreement between the Government of Australia and the Government of the Republic of the Philippines for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income [1980] ATS 16 (Australia-Philippines tax treaty) is an exception; it contains a modified article dealing only with shipping profits and specifically excludes income from the operation of aircraft in international traffic in the business profits article. Philippines-resident airlines are therefore also encompassed by this Practice Statement. Airlines resident in countries with which Australia has a specific airline profits agreement are not classified as non-treaty airlines. | [2] International Air Transport Association (2015) Guidelines for Taxation of International Air Transport Profits , https://www.iata.org/en/programs/airline-distribution/taxation/direct-taxation/ . | [3] In the case of Philippines resident airlines, non-air transport income is subject to rules contained in the Australia-Philippines tax treaty. | [4] Nathan v Federal Commissioner of Taxation [1918] HCA 45; 25 CLR 183 at [190]. | [5] See, for example, Commissioner of Taxation v Cam & Sons, Ltd (1936) 36 SR (NSW) 544 at [548], per Jordan CJ. | [6] It is relevant to note that the place where a contract is treated as having been entered into can be affected by the Electronic Transactions Act 1999 and equivalent state and territory legislation. However, this Act does not affect any determination of the place where a ticket is sold, for the purposes of applying the point of sale method to calculate gross Australian revenue. | [7] The net amount derived from ticket sales has been included in gross Australian revenue. Gross worldwide revenue in the Maritime Formula should also be calculated on the same basis. | [8] Section 770-1 of the ITAA 1997. | [9] Paragraph 1.18 of the Explanatory Memorandum to the Tax Laws Amendment (2007 Measures No. 4) Bill 2007. | File 07/17966; 1-14G4T2AQ | Commissioner of Taxation v Cam & Sons, Ltd (1936) 36 SR (NSW) 544 4 ATD 32 53 WN (NSW) 172 | Nathan v Federal Commissioner of Taxation [1918] HCA 45 25 CLR 183 24 ALR 286"
PS LA 2008/3 (GA),SUBJECT: Attribution rules and late registration for fuel tax credits PURPOSE: To guide staff on the attribution of fuel tax credits to a later tax period where a business taxpayer registers late for fuel tax credits and did not receive a fuel tax return,26 June 2008,26 June 2008,Law Administration Practice Statement (GA),False,"1. Under subsection 41-5(2) of the Fuel Tax Act 2006 (FTA), an entity is only entitled to a fuel tax credit for taxable fuel for use in carrying on their enterprise where at the time the entity acquires [1] , manufactures or imports the fuel, the entity is registered or required to be registered for goods and services tax (GST). [2] 2. All legislative references in this Practice Statement are to the FTA, unless otherwise indicated. 3. The general attribution rules for fuel tax credits are explained in section 65-5. Effectively, fuel tax credits are attributable to tax periods (or fuel tax return periods) and are included on a fuel tax return [3] for the relevant period. Broadly, if an entity is a business taxpayer [4] that acquires or imports taxable fuel, its fuel tax credit for the fuel is attributable to the same tax period as its GST credit for the fuel. [5] If the entity manufactures taxable fuel, the fuel tax credit is attributable to the tax period or fuel tax return period in which the fuel was entered for home consumption (within the meaning of the Excise Act 1901 ). [6] If the entity is a non-business taxpayer [7] that acquires or imports taxable fuel, its fuel tax credit for the fuel is attributable to the fuel tax return period in which it acquires or imports the fuel. [8] 4. However, subsection 65-5(4) allows an entity to attribute its fuel tax credits to a later period in certain circumstances. If an entity's return for a tax period or fuel tax return period states a net fuel amount that does not take into account a fuel tax credit that is attributable to the period mentioned in subsections 65-5(1), (2) or (3), then the credit: • ceases to be attributable to that period, and • becomes attributable to the first period for which the entity gives us a return that does take it into account. [9] • ceases to be attributable to that period, and • becomes attributable to the first period for which the entity gives us a return that does take it into account. [9] 5. The Commissioner of Taxation is empowered with the general administration of the FTA pursuant to section 356-5 of Schedule 1 to the Taxation Administration Act 1953 (TAA). Broadly, the purpose of the general administration power is to place the day-to-day administration of the various tax laws in the hands of the Commissioner. 6. We will allow business taxpayers who register late for fuel tax credits, to attribute fuel tax credits to a later tax period where those credits are attributable to an earlier tax period in which a fuel tax return [10] has not been given. 7. However, later attribution is conditional on the entity being allowed the choice of either claiming the fuel tax credits on a current or later business activity statement (BAS) [11] or revising the relevant earlier BAS. [12] | Application of subsection 65-5(4) – general principles: 8. As explained in paragraph 2 of this Practice Statement, an entity can attribute a fuel tax credit on a fuel tax return for a tax period or fuel tax return period based on the relevant attribution rules at subsections 65-5(1), (2) or (3). [13] 9. However, subsection 65-5(4) allows an entity to attribute its fuel tax credit to a later period where its fuel tax return for a tax period or fuel tax return period states a net fuel amount that does not take into account a fuel tax credit. [14] 10. 'Net fuel amount' is defined in section 110-5 as having the meaning given by section 60-5, which provides that you calculate an entity's net fuel amount for a tax period or a fuel tax return period as follows: Total fuel tax - Total fuel tax credits + Total increasing fuel tax adjustments - Total decreasing fuel tax adjustments Total fuel tax - Total fuel tax credits + Total increasing fuel tax adjustments - Total decreasing fuel tax adjustments 11. The intent of subsection 65-5(4) is to allow the later attribution of a fuel tax credit where the credit was not taken into account through the application of the general attribution rules in subsections 65-5(1), (2) or (3). 12. In the circumstances described herein, the exercise of the general administration powers must be considered in the context of the general attribution rules in subsections 65-5(1), (2) or (3). | Entities registering late for fuel tax credits: 13. We will allow a business taxpayer that registers late for fuel tax credits and did not receive BASs with fuel tax credit labels 7C and 7D the choice to either revise their earlier BAS or include the fuel tax credits on their current or later BAS. [15] 14. Given the additional time and costs involved in revising BASs, it is unlikely that entities would make this choice. However, there may be advantages to an entity in limited circumstances where a debt had been incurred on an earlier tax period to which fuel tax credits would otherwise have been attributed. [16] 15. The approach to allow a business taxpayer to choose to postpone the attribution of a fuel tax credit to a later period even where they have not lodged a return pertaining to the earliest attributable period in which the fuel tax credit could have been claimed would be consistent with the intent of the provision. | Example – not previously registered for fuel tax credits: 16. Company A is a GST-registered toy wholesaler which lodges quarterly BASs. 17. Company A purchases diesel fuel for its delivery truck with a gross vehicle mass greater than 4.5 tonnes in the March tax period. 18. Company A claims a GST credit in relation to the purchase of the diesel fuel. The GST credit is attributed to Company A's March BAS. 19. At the time the fuel was acquired, Company A has not 'registered' [17] to claim fuel tax credits. Therefore, Company A's BAS does not contain the fuel tax credit labels 7C and 7D. 20. In May, Company A becomes aware that they are entitled to claim fuel tax credits in respect of the acquisition of diesel fuel which was used in the conduct of their enterprise. 21. Company A did not claim the fuel tax credit in the March BAS. 22. Company A registers for fuel tax credit and will receive the fuel tax credit labels on the June BAS. 23. Company A can either: • revise its March BAS, or • claim the fuel tax credit in the June BAS or a subsequent BAS (which will have the fuel tax credit labels). • revise its March BAS, or • claim the fuel tax credit in the June BAS or a subsequent BAS (which will have the fuel tax credit labels). 24. Company A chooses to claim the fuel tax credit in its June BAS.",FTR 2007/1 | Fuel Tax Act 2006 41-5(2) | Fuel Tax Act 2006 41-5(3) | Fuel Tax Act 2006 Div 47 | Fuel Tax Act 2006 60-5 | Fuel Tax Act 2006 61-5(1) | Fuel Tax Act 2006 65-5 | Fuel Tax Act 2006 65-5(1) | Fuel Tax Act 2006 65-5(2) | Fuel Tax Act 2006 65-5(3) | Fuel Tax Act 2006 65-5(4) | Fuel Tax Act 2006 110-5 | TAA 1953 Div 3 Pt IIB | TAA 1953 Sch 1 356-5 | Excise Act 1901,,Fuel Tax Act 2006 41-5(2) | Fuel Tax Act 2006 41-5(3) | Fuel Tax Act 2006 Div 47 | Fuel Tax Act 2006 60-5 | Fuel Tax Act 2006 61-5(1) | Fuel Tax Act 2006 65-5 | Fuel Tax Act 2006 65-5(1) | Fuel Tax Act 2006 65-5(2) | Fuel Tax Act 2006 65-5(3) | Fuel Tax Act 2006 65-5(4) | Fuel Tax Act 2006 110-5 | TAA 1953 Div 3 Pt IIB | TAA 1953 Sch 1 105-55 | TAA 1953 Sch 1 356-5 | Excise Act 1901,,,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/GA20083/NAT/ATO/00001,"Example – not reviously registered for fuel tax credits | Updated in line with current ATO style and accessibility requirements. | Rephrased for technical accuracy and consistency with subsection 41-5(3) of the FTA. | Clarification of the terms 'business taxpayer' and 'non-business taxpayer' in relation to the attribution rules outlined in section 65-5 of the FTA. | Updated to clarify that the concession applies to business taxpayers. Footnote added to verify the meaning of the phrase 'fuel tax return' used throughout this practice statement. | References added to section 105-55 of the Taxation Administration Act 1953 and Division 47 of the FTA relating to time limits. | Subheading updated to better capture discussion in the following paragraphs. | The paragraphs contained technical content regarding the circumstances in which the attribution rule at subsection 65-5(4) of the FTA can apply. Omitted as the practice statement should not contain what could be considered interpretative advice. | Renumbered as paragraph 10 and rephrased to provide emphasis to subsection 65-5(4), which is the key provision under consideration in this practice statement. | Omitted as they as they are out of scope and deal with a different scenario to that of this practice statement. | Renumbered as paragraph 12 and revised for clarity. | Minor revision to aid clarity. | [1] Meaning of 'acquire' is discussed in Fuel Taxation Ruling FTR 2007/1 Fuel tax: the meaning of 'acquire', 'manufacture' and 'import' in the expression 'taxable fuel that you acquire or manufacture in, or import into, Australia to the extent that you do so for use in carrying on your enterprise' in the Fuel Tax Act 2006 . | [2] There is no requirement for GST registration where the entity is a non-profit body at the time taxable fuel is acquired, manufactured or imported and the fuel is for use in a vehicle or vessel that provides emergency services and is clearly identifiable as such. | [3] 'Fuel tax return' in this context refers to either a business activity statement (BAS) with fuel tax credit labels 7C and 7D used by business taxpayers to claim fuel tax credit entitlements or a fuel tax credit claim form used by non-business taxpayers. | [4] A reference to a business taxpayer includes any entity carrying on an enterprise where the entity is registered for GST. | [7] A reference to a non-business taxpayer in this context is a reference to an entity that is claiming fuel tax credits solely for domestic electricity generation or a non-profit body that meets the requirements of subsection 41-5(3). | [9] Subject to Division 47. | [10] 'Fuel tax return' in this context refers to a BAS with fuel tax credit labels 7C and 7D used by business taxpayers to claim fuel tax credit entitlements. | [11] Subject to Division 47. | [12] Subject to section 105-55 of Schedule 1 to the TAA. | [13] Subject to section 105-55 of Schedule 1 to the TAA. | [14] Subject to Division 47. | [15] Subject to Division 47. | [16] Note 1 to subsection 61-5(1) provides that Division 3 of Part IIB of the TAA allows the Commissioner to apply the amount owing under subsection 61-5(1) as a credit against tax debts that an entity owes to the Commonwealth. | [17] Business taxpayers that are correctly GST-registered and have notified us of their intention to claim fuel tax credit are referred to as having registered for fuel tax credit. These taxpayers have notified us by completing a 'registration process' which, automatically upon successful 'registration', updates their next BAS to include fuel tax credit labels. | File 2007/11652; 1-24GQU05; 1-13V5XOKA"
PS LA 2008/4 (GA),Trading stock: valuing bees in honey businesses,19 November 2008,1 July 2008,Law Administration Practice Statement,False,"1. What is this practice statement about?: This statement outlines the principles beekeepers carrying on a business of beekeeping for the purposes of honey production may apply to calculate the value of bees held as trading stock. The reference to a hive is a reference to the bees that make up the hive and not the hive structure box and frame. The hive structure box and frames are depreciating assets. | 2. Key considerations: As most beekeepers are a small business entity and have a total population of queen bees worth less than the amount quoted in paragraph 328-285(b) of the Income Tax Assessment Act 1997 [1] they can value their hives at $0 because the difference between the opening and closing value is less than that amount. | 3. Background: A live hive comprises a queen bee and between 20,000 and 60,000 worker and drone bees, depending on the season. However, the number of bees on hand at the end of each income year is relatively constant. Worker and drone bees have a short lifespan. They are mostly acquired by natural increase, with minimal associated costs, and so are considered to have nil value. The queen bee lives for about four years, but is usually replaced, by purchase as a queen bee cell, a nucleus, [2] or entire live hive every 12-18 months. A queen bee might also be bred by the beekeeper. | 4. Valuing bees as trading stock: Bees are difficult to account for as trading stock, therefore, the ATO accepts the following principles: • Unit of measurement: One live hive of bees equals one unit of measurement for valuing bees. • Nil opening value: If a unit was not brought to account in the prior income year, its opening value is nil in the year that it is first taken into account, regardless of the method chosen to value the stock. • Valuation methods: Beekeepers may value a particular hive at cost, market value or replacement value, and may vary that choice from year to year at their discretion. • Unit of measurement: One live hive of bees equals one unit of measurement for valuing bees. • Nil opening value: If a unit was not brought to account in the prior income year, its opening value is nil in the year that it is first taken into account, regardless of the method chosen to value the stock. • Valuation methods: Beekeepers may value a particular hive at cost, market value or replacement value, and may vary that choice from year to year at their discretion. | 5. Choosing a valuation method: The tax laws provide that a taxpayer must elect to value each item of trading stock on hand at the end of an income year at: • Cost • Market selling value, or • Replacement value. • Cost • Market selling value, or • Replacement value. | 6. Valuing bees at cost: Hives valued at cost must use the absorption costing method. For this purpose, the cost of a queen bee can be regarded as representing the cost of a live hive on hand at the end of the income year. The cost of a live hive in different situations is explained below: • Where a live hive is purchased, the cost includes the purchase price plus incidental costs such as transportation, shipping or postage. • Where a live hive is acquired by splitting an existing hive and replenishing the queen bee or nucleus, the cost includes all costs associated with bringing the new hive into existence. • Where the queen bee is replaced by another queen bee or a nucleus, the cost includes all costs associated with acquiring that queen bee or nucleus, plus any incidental costs in getting them on hand. • Where a queen bee is bred, the cost will include all costs associated with breeding the queen plus incidentals in getting her to the hive. These may include an appropriate amount for: - queen grafting tools - cell cups - nucleus boxes - entomologist fees - queen-rearing kit - queen catcher - queen-marking/number kit - queen candy. • Where a live hive is purchased, the cost includes the purchase price plus incidental costs such as transportation, shipping or postage. • Where a live hive is acquired by splitting an existing hive and replenishing the queen bee or nucleus, the cost includes all costs associated with bringing the new hive into existence. • Where the queen bee is replaced by another queen bee or a nucleus, the cost includes all costs associated with acquiring that queen bee or nucleus, plus any incidental costs in getting them on hand. • Where a queen bee is bred, the cost will include all costs associated with breeding the queen plus incidentals in getting her to the hive. These may include an appropriate amount for: - queen grafting tools - cell cups - nucleus boxes - entomologist fees - queen-rearing kit - queen catcher - queen-marking/number kit - queen candy. - queen grafting tools - cell cups - nucleus boxes - entomologist fees - queen-rearing kit - queen catcher - queen-marking/number kit - queen candy. Rearing and maintenance costs do not form part of the cost of a live hive. | 7. Average cost method: Sometimes it is impossible to trace and identify each hive so it may be appropriate to adopt the average cost method. In the interest of reducing compliance costs, we will accept the use of the average industry cost of a queen bee as an estimate of the cost for a queen bee, regardless of whether the beekeeper purchases or breeds queen bees except where a queen bee has been acquired at a significantly higher cost. The industry has advised the average cost of a queen bee purchased from queen bee breeders is $20 [3] including shipping or postage charges. However, we will accept any method that is suited to the situation, provided that it produces a reasonable approximation of the total value. We consider an estimate will be reasonable if it: • takes into account all relevant factors affecting the stock • has been undertaken in good faith • results from a rational and reasoned process • is capable of explanation to, and verification by, a third party. • takes into account all relevant factors affecting the stock • has been undertaken in good faith • results from a rational and reasoned process • is capable of explanation to, and verification by, a third party. | 8. Market selling value: Market selling value is the current value of the hive sold in the normal course of business. | 9. Replacement value: Replacement value is the amount required to be paid for the live hive in its normal buying market on the last day of the income year. | 10. Obsolescence and special circumstances: In these instances, items may be valued at a reasonable value below cost, market selling value or replacement value. This does not apply simply because the livestock is of an unusual type. We do not accept that a hive will have a nil value. | 11. Examples: The following examples have ignored GST impacts and other types of trading stock on hand for illustrative purposes. Example 1 (part 1): Calculating the value of trading stock on hand at year-end - small business entity - first-year trading stock taken into account John, a small business entity, does not breed his own queen bees and has not previously accounted for his bees as trading stock. For the 2014-15 income year, John accounts for bees for the first time, so the value of the stock as at 1 July 2014, is nil. As a small business entity, he can choose not to account for changes in the value of the stock for the year, providing his reasonable estimate for the stock at year-end is $5,000 or less. If John decides the reasonable estimate of the cost of queen bees during the year is the average industry cost, then he can use this as the basis of the valuation. John reasonably estimates he has 80 hives on hand at year-end. Therefore, the cost of John's trading stock is calculated as follows: Cost/item using average industry cost Number Value Stock on hand at 1 July 2014 Nil Nil Reasonable estimate of stock on hand at 30 June 2015 $20 80 $1,600 Value of trading stock on hand at 30 June 2015 Nil Number Value As the difference between the opening value and closing value of $1,600 is less than $5,000, John chooses not to account for the change, and the value of the stock at year end is deemed to be the same as the opening value, and is therefore nil. Example 1 (part 2): Calculating the value of trading stock on hand at year-end - small business eEntity - subsequent year During the 2015-16 income year, John purchased 30 queen bees. He used 10 to create new hives and the rest to replace existing queen bees. So, assuming no other events, John has 90 live hives at year-end. As the value of John's opening stock for the year is nil, and as he is a small business entity, he does not have to account for the stock unless its value exceeds $5,000. Cost/item Number Value Stock on hand at 1 July 2015 Nil Nil Reasonable estimate of stock on hand at 30 June 2016 $20 90 $1,800 Value of trading stock on hand at 30 June 2016 Nil As the difference between the value of the opening stock (nil) and the closing stock ($1,800) does not exceed $5,000, he does not bring the stock to account in his assessable income. The value of John's trading stock at year end is deemed to be the same value as his opening stock and is therefore nil. Example 2 (part 1): Calculating the value of trading stock on hand at year end - absorption costing - average cost method - first-year trading stock taken into account Robert is a small business entity for the 2014-15 income year and has more than 1,000 hives. He hasn't previously accounted for his bees as trading stock and has insufficient records of the number and value of bees at the beginning of the income year. Therefore, the value of trading stock as at 1 July 2014, is nil. He reasonably estimates the value of his stock at 30 June 2015 is more than $5,000. Robert conducts a stocktake at year-end and logs 1,050 hives. He chooses to use the average industry cost of a queen bee to calculate the cost of his stock as shown in the table: Cost of closing stock Number Value Stock on hand at 1 July 2014 Nil Nil Stock on hand at 30 June 2015 - (industry average cost multiplied by number of hives) 1,050 $21,000 (20x1,050) Amount to include in assessable income $21,000 Robert will have a one-off increase in assessable income of $21,000 for the 2014-15 income year. Example 2 (part 2): Calculating the value of trading stock on hand at year end - absorption costing - average cost method - subsequent year Robert loses over half of his hives due to disease. During the 2015-16 income year, Robert bought: • 20 live hives at $90 per hive • 150 queen bees for $23 each • 20 live hives at $90 per hive • 150 queen bees for $23 each He also paid $20 to ship the hives, and $50 for shipping the queen bees. No other incidentals are recorded. Robert is a small business entity for the year. He reasonably estimates that the difference between the value of his trading stock at the start of the year ($21,000) and the end of the year as more than $5,000 due the hive losses. A stocktake shows he has 450 hives remaining at year-end. He chooses to use actual cost rather than average industry cost of a queen bee to calculate the cost of his trading stock, as follows: Cost of purchases - absorption costing Cost/item Number Amount Purchases of live hives 20 $1,800 ($90x20) Shipping cost of live hives $20 Purchases of queen bees 150 $3,450 ($23x150) Shipping cost of queen bees $50 Total costs 170 $5,320 Cost of closing stock - average method Number Value Stock on hand at 1 July 2015 1,050 $21,000 Cost of purchases 170 $5,320 Total 1,220 $26,320 Average cost per hive (Total of value/total of number) $21.57 ($26,320/1,220) Stock on hand at 30 June 2016 - average cost method (Average cost per hive multiplied by number of hives) 450 $9,707 ($21.57?450) Amount allowed as a deduction ($11,293) ($21,000 - $9,707) ($26,320/1,220) (Average cost per hive multiplied by number of hives) ($21.57?450) ($21,000 - $9,707) As the value of opening stock at 1 July 2015 is $21,000, Robert is allowed a deduction of $11,293 ($21,000-$9,707) for the 2015-16 income year.",TD 2008/26 | TR 98/2 | TR 2006/8 | IT 2350 | PS LA 1998/1 | PS LA 2003/8 | ITAA 1997 Div 70 | ITAA 1997 70-10 | ITAA 1997 70-45 | ITAA 1997 70-50 | ITAA 1997 Subdiv 328-E,PS LA 1998/1 PS LA 2003/8,ITAA 1997 Div 70 | ITAA 1997 70-10 | ITAA 1997 70-45 | ITAA 1997 70-50 | ITAA 1997 Subdiv 328-E,Absorption costing Cost price method Livestock valuation Market selling value method Replacement value method Trading stock Trading stock valuation Trading stock valuation methods,,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/GA20084/NAT/ATO/00001,"If taxpayers rely on this practice statement, they will be protected from interest and penalties in the following way. If a statement turns out to be incorrect and taxpayers underpay their tax as a result, they will not have to pay a penalty. Nor will they have to pay interest on the underpayment provided they reasonably relied on this practice statement in good faith. However, even if they don't have to pay a penalty or interest, taxpayers will have to pay the correct amount of tax provided the time limits under the law allow it. | Updated to new LAPS style and format. | Average cost of queen bee updated. | Dates and figures updated. | 'Tax Office' updated to ATO as per Style Guide recommendations. | Replaced publication with new publication | Dates updated to current income year | [1] $5,000 since the law commenced on 1 July 2001. | [2] A nucleus contains a queen bee and enough worker and drone bees to create a live hive. | [3] An average cost of $9 was determined around 2003 and can be used up to 30 June 2015. An average cost of $20 can be used from 1 July 2015."
PS LA 2007/1 (GA),SUBJECT: Assessing superannuation guarantee charge where the employers have done what they could reasonably be expected to do to comply with the law by the due date PURPOSE: To outline some situations in which it may not be necessary to assess an employer for the superannuation guarantee charge if there is evidence that an employer has done what they could reasonably be expected to have done to comply with the law by the due date.,7 February 2007,7 February 2007,Law Administration Practice Statement (GA),False,"Considerations when applying the principles in this Practice Statement: 1. This Practice Statement outlines circumstances where you may decide, for administrative reasons, to not raise an assessment of superannuation guarantee charge (SGC) against an employer or to allow an employer's objection to an SGC assessment. This may be so where (although an approved clearing house [1] ) the trustee of a complying super fund or retirement savings account (RSA) has not received a contribution by the due date, it is clear the employer took all reasonable steps to comply with their obligations by the due date. 2. This Practice Statement does not apply to situations where: • an employer is liable for the SGC because the employer's contributions are made late due to an act or omission of the employer's agent, or • the most recent stapled super fund as notified to the employer by the Commissioner of Taxation did not accept the employer's contributions. [1A] • an employer is liable for the SGC because the employer's contributions are made late due to an act or omission of the employer's agent, or • the most recent stapled super fund as notified to the employer by the Commissioner of Taxation did not accept the employer's contributions. [1A] 3. The agency created for legislative purposes by subsection 79A(2) of the Superannuation Guarantee (Administration) Act 1992 (SGAA) is not considered an agency for the purposes of this Practice Statement. 3A. All legislative references in this Practice Statement are to the SGAA, unless otherwise indicated. 4. An employer who pays an amount to an approved clearing house [2] for the benefit of an employee, and the payment is accepted by the approved clearing house, is taken to have contributed the same amount to a complying super fund or an RSA for the purposes of sections 23 and 23A [3] if the contribution was sent by the employer before the due date. 5. Situations where employers have done what they could reasonably be expected to do to comply with the law by the due date include where the employer: • sent a payment to a complying super fund, RSA or an approved clearing house within 28 days after the end of the quarter to meet the employer's superannuation guarantee obligations • has, within 28 days of the end of the quarter, sent a payment directly or through an approved clearing house to a super fund or RSA that the employer reasonably believed held an active account in the name of the employee, or • provided a clearing house that is not an agent of the employer with funds to meet the employer's superannuation guarantee obligations before 28 days after the end of the quarter but the clearing house failed to make contributions to the employees' respective super funds and RSAs by that date. • sent a payment to a complying super fund, RSA or an approved clearing house within 28 days after the end of the quarter to meet the employer's superannuation guarantee obligations • has, within 28 days of the end of the quarter, sent a payment directly or through an approved clearing house to a super fund or RSA that the employer reasonably believed held an active account in the name of the employee, or • provided a clearing house that is not an agent of the employer with funds to meet the employer's superannuation guarantee obligations before 28 days after the end of the quarter but the clearing house failed to make contributions to the employees' respective super funds and RSAs by that date. 6. You may, having regard to the principles and examples set out in this Practice Statement, decide to not raise an SGC assessment against a particular employer. However, you must be satisfied the facts establish that the employer has taken reasonable steps to fulfil their obligations under the law. | Contribution sent within 28 days of the end of the quarter: 7. It may be evident to you that a contribution (in the form of a cheque or electronic transfer) received [4] by a super fund, RSA or an approved clearing house after the due date for contributions was sent by the employer before the due date. 8. An SGC assessment need not be made provided that you are satisfied that: • it is clear from the employer's business practices that the contribution was sent before the due date [5] • the employer's business practices allow enough time for the contribution to be received by the due date • any cheque was not post-dated or backdated, and • the cheque was honoured on presentation. • it is clear from the employer's business practices that the contribution was sent before the due date [5] • the employer's business practices allow enough time for the contribution to be received by the due date • any cheque was not post-dated or backdated, and • the cheque was honoured on presentation. Payment sent through an approved clearing house or directly to a super fund or RSA reasonably understood to hold an active account in the name of the employee 9. An employer may attempt to contribute to a super fund where the employee is no longer a member or to an RSA no longer held by an employee. In these circumstances, the super fund, the RSA provider or the approved clearing house will return the payment to the employer. However, the payment may not be returned until after the due date for contributions has passed. 10. An SGC assessment need not be raised provided that you are satisfied that the employer: • sent the payment within sufficient time for the approved clearing house, trustee of the super fund or RSA to receive the payment within 28 days of the end of the quarter • tried to contribute to the last known super fund or RSA belonging to the employee • could not reasonably have been expected to know that the employee's benefits were no longer held in that super fund or RSA, and • takes reasonable steps to identify a current super fund or RSA for the employee and makes an appropriate contribution to it as soon as practicable. (Note: Before 1 July 2006, the employer may have contributed the amount to the Superannuation Holding Account (SHA) special account.) • sent the payment within sufficient time for the approved clearing house, trustee of the super fund or RSA to receive the payment within 28 days of the end of the quarter • tried to contribute to the last known super fund or RSA belonging to the employee • could not reasonably have been expected to know that the employee's benefits were no longer held in that super fund or RSA, and • takes reasonable steps to identify a current super fund or RSA for the employee and makes an appropriate contribution to it as soon as practicable. (Note: Before 1 July 2006, the employer may have contributed the amount to the Superannuation Holding Account (SHA) special account.) The employer allowed a clearing house (other than an approved clearing house) reasonable time to make contributions 11. An employer may engage a clearing house to make contributions to super funds on their behalf. This type of clearing house is a service provided by an organisation (which may be a super fund) that accepts payments from an employer. The clearing house, on behalf of the employer, then distributes contributions to the particular super funds chosen by the employees. The employer generally pays the clearing house a fee to use the service. [6] 12. Typically, the contract between an employer and a clearing house will set out the terms and conditions of the agreement between the clearing house and the employer and may include the maximum time it takes for a clearing house to process payments. Circumstances may arise in which a clearing house fails to make a contribution by the due date on behalf of an employer to an employee's super fund. 13. An SGC assessment need not be raised provided that you are satisfied that: • the clearing house is not an agent of the employer • having regard to the terms and conditions (including service standards) of any agreement with the clearing house, the employer has allowed sufficient time for a clearing house to process their payments to meet the superannuation guarantee due date, and • the failure to make the contribution on time was in no way attributable to any act or omission on the employer's part (for example, the clearing house was provided with or was able to access sufficient funds to make the contribution). • the clearing house is not an agent of the employer • having regard to the terms and conditions (including service standards) of any agreement with the clearing house, the employer has allowed sufficient time for a clearing house to process their payments to meet the superannuation guarantee due date, and • the failure to make the contribution on time was in no way attributable to any act or omission on the employer's part (for example, the clearing house was provided with or was able to access sufficient funds to make the contribution). | Act or omission of an agent (other than an approved clearing house): 14. An SGC assessment must be made where the contribution is late because of the acts or omissions of an employer's agent. | Amendments and objections: 15. You may apply the principles outlined in this Practice Statement in deciding to allow an employer's objection to an SGC assessment. This might apply to any case where: • the SGC assessment was raised prior to the release of this Practice Statement, or • the employer presents evidence, that was not available at the time of audit, to support an objection to an assessment resulting from that audit. • the SGC assessment was raised prior to the release of this Practice Statement, or • the employer presents evidence, that was not available at the time of audit, to support an objection to an assessment resulting from that audit. | The law and legal principles: 16. The SGAA provides that an employer is required to make contributions to a complying super fund or RSA for their employees, in accordance with minimum prescribed levels, to avoid paying the SGC. 17. The SGAA has been amended by the Tax Laws Amendment (2010 Measures No. 1) Act 2010 to include the introduction of an approved clearing house. Effective 1 July 2010, an employer who pays an amount to an approved clearing house for the benefit of an employee, and the approved clearing house accepts the payment, is taken to have contributed the amount to a complying super fund or an RSA for the purposes of sections 23 and 23A. [7] 18. Section 16 imposes SGC on an employer who has a superannuation guarantee shortfall for a quarter. Sections 22 and 23 state that where an employer makes contributions to a complying super fund or RSA for the relevant quarter, the superannuation guarantee shortfall is reduced. A contribution will only reduce an employer's superannuation guarantee shortfall if made during the quarter or within 28 days of the end of the quarter. 19. A superannuation guarantee shortfall will exist where a contribution is made late, even if the employer makes every reasonable effort to comply with the law. 20. However, no SGC is payable until: • the employer self-assesses their liability for the charge by lodging a superannuation guarantee statement for a quarter according to section 33, or • we assess an employer's liability for the charge under section 36. [7A] • the employer self-assesses their liability for the charge by lodging a superannuation guarantee statement for a quarter according to section 33, or • we assess an employer's liability for the charge under section 36. [7A] 21. Therefore, where an employer has not self-assessed their liability, we must take some action to make the employer liable for the charge. 22. Under section 43, the Commissioner has the general administration of the Act. As noted in Grofam Pty Ltd & Ors v The Commissioner of Taxation of the Commonwealth of Australia [1997] FCA 660, provisions such as section 43 provide the Commissioner with a wide power that includes the power to settle or compromise matters in dispute. Spender J said in Precision Pools P/L v Commissioner of Taxation & Anor; QLD Pool & Spa Const. P/L v Commissioner of Taxation & Anor [1992] FCA 746 at [23]: ... [The Commissioner's] administration has to be bona fide and for the purposes of the Act, but it is a grant of wide power and would encompass, for instance, the power to compromise proceedings in which he was a party or to make agreements or arrangements concerning the efficient management of a dispute in which he was involved. 23. Lord Wilberforce made the following comments in the House of Lords decision of Vestey v. Inland Revenue Commissioners [1980] AC 1148 at [1173]: ... When Parliament imposes a tax, it is the duty of the commissioners to assess and levy it on and from those who are liable by law. Of course [the Commissioner] may, indeed should, act with administrative common sense. To expend a large amount of taxpayers' money in collecting, or attempting to collect, small sums would be an exercise in futility: and no one is going to complain if they bring humanity to bear in hard cases. 24. Similar comments were made in the English case IRCs v National Federation of Self Employed & Small Business Ltd [1982] 1 AC 617. At [651], Lord Scarman of the House of Lords considered the equivalent administration power of the Inland Revenue Commissioners. He said that: ... in the daily discharge of their duties inspectors are constantly required to balance the duty to collect ""every part"" of due tax against the duty of good management. This conflict of duties can be resolved only by good managerial decisions, some of which will inevitably mean that not all the tax known to be due will be collected. 25. The comments made in these 2 English cases have been endorsed by the courts in Australia. In Pickering, Lawrence D & Ors v Deputy Commissioner of Taxation [1997] FCA 890, Cooper J noted that the 2 English cases had been cited with approval in David Jones Finance & Investments Pty Ltd & Anor v Commissioner of Taxation [1990] FCA 448 and on appeal in David Jones Finance & Investments Pty Ltd & Anor v Commissioner of Taxation of the Commonwealth [1991] FCA 139, Ando Minerals N.L. v. Deputy Commissioner of Taxation of the Commonwealth of Australia [1994] FCA 115 and Federal Commissioner of Taxation v Biga Nominees Pty Ltd [1988] VR 1006. 26. Having regard to these principles, the Commissioner considers that ATO resources should be directed to those cases where an employer has either failed to provide any superannuation support for their employees or has not made a genuine attempt to comply with their SGAA obligations in a timely way. Where it is clear that an employer has taken reasonable steps to comply with their obligations by the due date but, for reasons beyond the employer's control the contribution is made late, you may decide not to assess the SGC. | Act or omission of an agent (other than an approved clearing house): 27. However, where the contribution is late because of acts or omissions of an employer's agent, the SGC should be assessed. Where an employer (the principal) has authorised an agent to act on the employer's behalf and the agent is acting within the authority conferred on it by the employer, any act done on behalf of the employer by the agent is an act of the employer. Therefore, an employer must be liable for the SGC if a failure to comply with the law in a timely way is attributable to an act or omission of the employer's agent. 28. When applying this practice statement, you must also consider Superannuation Guarantee Determination SGD 2005/2 Superannuation guarantee: is a contribution to a complying superannuation fund or a retirement savings account for the benefit of an employee made when the employer makes the contribution to a clearing house (other than an approved clearing house)? . An employer who makes contributions through a clearing house will have a superannuation guarantee shortfall if the contributions are not made by the due date. [8] However, as outlined in paragraphs 11 to 12 of this Practice Statement, you may decide not to raise an SGC assessment where the clearing house is not an agent of the employer and the circumstances outlined in paragraph 13 of this Practice Statement apply to the employer. 29. The following examples illustrate how this Practice Statement is to be applied. | Example 1 #150; contribution sent within 28 days of the end of the quarter by post: 30. An employer whose business is based in Cairns is liable to make superannuation contributions for employees for the quarter ending 30 June. On 25 July, a Thursday, the employer posts a cheque to a fund's office in Sydney. The fund receives, and banks, the employer's cheque on Tuesday 30 July. The last day for contributions to be made for the June quarter is Monday 29 July (because the normal due date for contributions falls on a Sunday). The cheque is honoured on presentation by the fund's bank. The amount contributed satisfies the employer's obligation to provide superannuation support to an appropriate fund for the employees. 31. An assessment of superannuation guarantee charge need not be made in this case. It is clear that the employees have benefited from appropriate superannuation support. Further, it is reasonable for the employer to allow 3 business days for the cheque to be received by the super fund. Example 2 #150; contribution sent within 28 days of the end of the quarter by electronic fund transfer 32. An employer is liable to make superannuation contributions for employees for the quarter ending 31 March. On 26 April, a Tuesday, the employer makes an electronic fund transfer to a superannuation fund (RSA or approved clearing house). The super fund receives the amount transferred on 29 April. The last day for contributions to be made for the March quarter is 28 April. The employer is able to show that the amount was transferred from their account on 26 April and that the contributions satisfies the employer's obligation to provide superannuation support to an appropriate fund for the employees. 33. An SGC assessment need not be made in this case. It is clear that the employees have benefited from appropriate superannuation support. Further, it is reasonable for the employer to allow 2 business days for the funds transferred electronically to be received by the super fund (RSA or the approved clearing house). | Example 3 #150; an employee does not update fund details with employer: 34. An employee resigns on 2 May. The employer sends a payment either directly to the fund nominated by the employee or to an approved clearing house on 15 July (in the following quarter). On 10 August, the fund or the approved clearing house returns the amount to the employer, advising that the employee is no longer a member of the fund. On 15 August, the employer writes to the employee's address to obtain details of an active fund to which a contribution can be made. The employee responds and the employer makes the new contribution within a week of the response. 35. An SGC assessment need not be made in this case. It is clear that the employee has received superannuation support from the employer as the employer sought to make a contribution on behalf of the employee within the appropriate timeframe. The employer is unaware of the employee's change of fund and the employer acts reasonably and promptly in seeking to make a new contribution on behalf of the employee. | Example 4 #150; employee fund account no longer exists: 36. An employee has chosen a fund to which the employer must contribute under the choice of fund provisions in Part 3A. The employer's practice is to pay contributions by electronic funds transfer to the relevant fund on the 25th day after the end of each quarter. The transfer of 25 July 2006 for the June 2006 quarter is rejected, as the relevant fund account no longer exists, but the employer's bank fails to advise the employer until 1 August 2006. The employer promptly contacts the employee, who advises that the nominated fund has closed or merged with another fund and provides the employer with the correct fund name and account details for their (new or continuing) chosen fund. The employer promptly makes a contribution to the new account. 37. An SGC assessment need not be made in this case. It is clear that the employee has received superannuation support from the employer. The employer can provide evidence that they sought to make a contribution on behalf of the employee within the appropriate timeframe and, as the employer was unaware of the change of fund, they could not reasonably be expected to know of the change. The employer acts reasonably and promptly in seeking to make a new contribution on behalf of the employee. | Example 5 #150; employee superannuation holding account special account closed: 38. An employer attempts to pay their June 2006 quarter superannuation guarantee contributions to the SHA special account on 10 July 2006, which closed for employer contributions on 30 June 2006. The employer tries to make this payment unaware of the closure of the SHA special account. We return the cheque to the employer, who immediately takes action to identify a superannuation fund or RSA for the employee involved and promptly makes the contribution to the account, albeit a short time after 28 July 2006. 39. An SGC assessment need not be made in this case. It is clear that the employee has received superannuation support from the employer. The employer can provide evidence that they sought to make a contribution on behalf of the employee within the appropriate timeframe and that the employer was unaware of the closure of the SHA special account and payment arrangements for the June 2006 quarter. The employer acts reasonably and promptly in seeking to make a new contribution on behalf of the employee. | Example 6 #150; employee provides incorrect fund details: 40. An employee has chosen a fund to which the employer must contribute under the choice of fund provisions in Part 3A. However, the employee provides incorrect fund details on the standard choice form. The employer attempts to pay their June quarter superannuation guarantee contributions to the nominated fund on 10 July (in the month following). On 10 August, the fund returns the amount to the employer advising that it cannot accept the contribution as the employee is not a member of the fund. On 15 August, the employer makes a contribution to the correct fund after obtaining the correct fund details from the employee. 41. An SGC assessment need not be made in this case. It is clear that the employee has received superannuation support from the employer and the employer sought to make a contribution on behalf of the employee within the appropriate timeframe. The employer is unaware that the employee had given incorrect fund details. The employer acts reasonably and promptly in seeking to make a new contribution on behalf of the employee. Example 7 #150; the employer allowed a clearing house (other than an approved clearing house) reasonable time to make the contributions 42. An employer engages a clearing house to provide superannuation support for employees. The contract between the employer and the clearing house does not create a principal-agent relationship between the employer and the clearing house. The clearing house is authorised, by a direct debit authority, to transfer the appropriate amounts from the employer's bank account each quarter. 43. The service standards agreed by the employer and clearing house state that the clearing house will make the superannuation contributions within 28 days of the end of the quarter if the necessary funds are available for transfer to the clearing house at the end of the 14th day after the end of the quarter. Due to processing errors at the clearing house, the employer's September quarter contributions are not made until 3 November. The employer's bank account has sufficient funds to meet the contributions liability on 14 October. 44. An SGC assessment need not be made in this case. It is clear that the employees have received superannuation support from the employer and that the employer has taken reasonable steps to comply with the law by engaging a professional service provider and ensuring sufficient funds were available to that service provider at the time specified in the service standards. Example 8 #150; a clearing house (other than an approved clearing house) makes a late contribution on behalf of the employer 45. An employer engages a clearing house to provide superannuation support for employees. The contract between the employer and the clearing house creates a principal-agent relationship between the employer and the clearing house. In other respects, the circumstances are the same as in Example 7 of this Practice Statement. 46. An SGC assessment must be made in this case. As the clearing house is the employer's agent, the acts or omissions of the clearing house are taken to be the employer's actions. | Example 9 #150; a tax agent makes a late contribution on behalf of the employer: 47. An employer asks its tax agent to make superannuation contributions for a particular quarter as the directors of the employer company will be overseas when the contributions are due. However, the tax agent misplaces the cheque. A contribution is eventually made to the relevant fund 2.5 months after the due date. 48. An SGC assessment must be made in this case. As the tax agent is the employer's agent, the acts or omissions of the tax agent are taken to be the employer's actions.",SGD 2005/2 | TR 2010/1 | PS LA 2006/6 | Superannuation Guarantee (Administration) #150; Stapled Fund #150; Guidelines for the Reduction of an Employer's Individual Superannuation Guarantee Shortfall for Late Contributions Due to Non-Acceptance by Notified Stapled Fund Determination 2021 | 94 ATC 4163 | 90 ATC 4730 | 91 ATC 4315 | 88 ATC 4270 | 97 ATC 4656 | [1982] 1 AC 617 | 97 ATC 4893 | 92 ATC 4549 | [1980] AC 1148 | [1979] 3 All ER 976,PS LA 2006/6,,,Superannuation Guarantee (Administration) #150; Stapled Fund #150; Guidelines for the Reduction of an Employer's Individual Superannuation Guarantee Shortfall for Late Contributions Due to Non-Acceptance by Notified Stapled Fund Determination 2021 (link available internally only),False,True,https://www.ato.gov.au/law/view/document?docid=PSR/GA20071/NAT/ATO/00001,"This Practice Statement is issued under the authority of the Commissioner of Taxation and must be read in conjunction with Law Administration Practice Statement PS LA 1998/1. It must be followed by Tax Office staff unless doing so creates unintended consequences. Where this occurs Tax Office staff must follow their business line's escalation process. | Updated in line with current ATO style and accessibility requirements. | Updated to explain that the practice statement does not apply to a particular situation arising under the stapled super fund measure. | Inserted to provide reference to a legislative instrument that provides guidance on particular situation arising under the stapled super fund measure. | Updated Australian court citations to medium neutral citations. | Various updates made throughout practice statement to correct aesthetic issues with document #150; for example, changing some font from normal to italic, insertion of non breaking spaces and hyphens, and correction to footnote indentations. | Deleted as subject matter not relevant to the object of the document. | SGD 2005/2 was not cited correctly. Punctuation. | Inserted house between the words 'clearing' and 'or'. | Updated to include the introduction of the approved clearing house measure. | Minor revisions to update 'Tax Office' to 'ATO' and improve the technical currency of the document. | Deletion of reference to withdrawn PS LA 2006/5. | Minor currency revisions to remove references to withdrawn PS LA 2006/5. | [1] Approved clearing house has the meaning given by subsection 79A(3) of the Superannuation Guarantee (Administration) Act 1992 (SGAA). | [1A] Legislative Instrument SPR 2021/2 Superannuation Guarantee Administration #150; Stapled Fund #150; Guidelines for the Reduction of an Employer's Individual Superannuation Guarantee Shortfall for Late Contributions Due to Non-Acceptance by Notified Stapled Fund Determination 2021 provides guidance as to when you may reduce the SGC in this circumstance. | [2] The ATO is an approved clearing house under section 24 of the Superannuation Guarantee (Administration) Regulations 2018 for the purposes of subsection 79A(3). | [5] Australia Post delivery times can be obtained at auspost.com.au . | [6] See paragraph 32D(ca). | [7A] In this regard, see the due dates for payment of SGC set out in section 46 and subsection 36(3). | [8] This includes interest and administration penalties pursuant to the SGAA. | File 06/14037 1-278SSNQ; 1-13MSSD6Q | Ando Minerals N.L. v Deputy Commissioner of Taxation of the Commonwealth of Australia [1994] FCA 115 94 ATC 4163 27 ATR 593 | David Jones Finance & Investments Pty Ltd & Anor v Commissioner of Taxation [1990] FCA 448 90 ATC 4730 | David Jones Finance & Investments Pty Ltd & Anor v Commissioner of Taxation of the Commonwealth [1991] FCA 139 28 FCR 484 91 ATC 4315 21 ATR 1506 99 ALR 447 | VicRp 91 88 ATC 4270 (1988) 19 ATR 1037 | Grofam Pty Ltd & Ors v The Commissioner of Taxation of the Commonwealth of Australia [1997] FCA 660 97 ATC 4656 36 ATR 493 | Pickering, Lawrence D & Ors v Deputy Commissioner of Taxation [1997] FCA 890 97 ATC 4893 37 ATR 41 | Precision Pools P/L v Commissioner of Taxation & Anor; QLD Pool & Spa Const. P/L v Commissioner of Taxation & Anor [1992] FCA 746 37 FCR 554 92 ATC 4549 24 ATR 43 109 ALR 679 | Vestey v Inland Revenue Commissioners [1980] AC 1148 [1979] 3 All ER 976 [1979] 3 WLR 915 | Other business lines consulted | This practice statement was originally published on 7 February 2007. Versions published from 10 August 2009 are available electronically #150; refer to the online version of the practice statement. Versions published prior to this date are not available electronically. If needed, these can be requested by emailing TCNLawPublishingandPolicy@ato.gov.au ."
PS LA 2007/2 (GA),SUBJECT: GST joint venture operators in the mining and petroleum industries accounting for the GST on taxable supplies that generate non-product sales income PURPOSE: To outline the circumstances in which the joint venture operator of a GST joint venture in the mining or petroleum industry can account for the GST on taxable supplies it makes on behalf of the participants in the joint venture that generate non-product sales income,22 August 2007,22 August 2007,Law Administration Practice Statement (GA),False,"Background: 1. This Practice Statement addresses a particular issue that we are aware of in the mining and petroleum industries. The issue relates to the goods and services tax (GST) treatment of taxable supplies made by the joint venture operator on behalf of participants in the joint venture other than sales of the product or output [1] of the joint venture. These supplies are commonly referred to as 'non-product sales'. 2. There are various types of taxable supplies that may be made by the joint venture operator that can result in non-product sales income being earned. These supplies may vary in value and frequency. For example, the operator may: • sell fuel to subcontractors in a remote location [2] • charge another entity for use of port facilities or a rail network to transport product to ships for export (commonly referred to as 'tolling'), or • receive income from allowing a grazier to agist cattle in an area of a mining tenement that is not currently being explored or exploited. • sell fuel to subcontractors in a remote location [2] • charge another entity for use of port facilities or a rail network to transport product to ships for export (commonly referred to as 'tolling'), or • receive income from allowing a grazier to agist cattle in an area of a mining tenement that is not currently being explored or exploited. 3. If a joint venture is formed as a GST joint venture under Division 51 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), the nominated joint venture operator accounts for the GST liabilities and entitlements arising from its dealings on behalf of the participants in the course of the activities for which the joint venture was entered into. However, there can be uncertainty among affected entities as to whether supplies that generate non-product sales income can also be dealt with by the joint venture operator. 4. In practical terms, the industry concern is that there may be increased compliance costs if the joint venture operator is not allowed to account for the GST on these non-product supplies. A different accounting and GST treatment would be required to that adopted by industry members for other aspects of the operations of the joint venture. 5. This Practice Statement outlines the circumstances in which the operator of a GST joint venture can account for the GST on taxable supplies that generate non-product sales income. It only applies to supplies made by the joint venture operator of a GST joint venture for the exploration or exploitation of mineral deposits (which includes petroleum, sand and gravel) [3] on behalf of the participants in the joint venture. 6. All legislative references in this Practice Statement are to the GST Act, unless otherwise indicated. References to 'joint ventures' do not include incorporated joint ventures or partnerships. | GST joint ventures and payment of GST: 7. The GST law provides for the formation of [4] 2 or more entities as the participants in a GST joint venture [5] for the exploration or exploitation of mineral deposits if certain requirements are satisfied. These include the requirement that the entities agree in writing to the formation of the joint venture as a GST joint venture [6] and that the agreement nominates one of those entities, or another entity, to be the joint venture operator of the joint venture. [7] The nominated joint venture operator is required to notify us, in the approved form, of the formation of the joint venture as a GST joint venture. [8] 8. A consequence of the formation of a GST joint venture is that the GST payable on a taxable supply or taxable importation that the joint venture operator makes on behalf of another entity that is a participant in the joint venture in the course of the activities for which the joint venture was entered into is: • payable by the joint venture operator, and • not payable by the participant. [9] • payable by the joint venture operator, and • not payable by the participant. [9] 9. In this way, the responsibility for payment of GST on a supply made as the joint venture operator, which would ordinarily fall upon the participants, is imposed on the joint venture operator rather than the participants. [10] However, the participants remain jointly and severally liable for the GST that is payable by the joint venture operator [11] unless they have entered into an indirect tax sharing agreement with the joint venture operator. [12] | Joint venture operators and non-product sales: 10. We accept that the costs of compliance for the mining and petroleum industry can be reduced if the joint venture operator can account for the GST on non-product sales that are typically of the kind described in paragraph 2 of this Practice Statement. 11. Consequently, we will accept the joint venture operator accounting for any GST on non-product sales made in a particular tax period in the following circumstances: • The joint venture operator is the operator of a GST joint venture for the exploration or exploitation of mineral deposits (which includes petroleum, sand and gravel). [13] • The non-product sales are made by the joint venture operator on behalf of the participants. • The joint venture operator accounts for the non-product sales in the activity statement for the tax period applying to the joint venture operator for the joint venture. • The participants remain jointly and severally liable for the GST payable on the non-product sales or have entered into an indirect tax sharing agreement with the joint venture operator under which the contribution amount takes into account the non-product sales. • The joint venture operator is the operator of a GST joint venture for the exploration or exploitation of mineral deposits (which includes petroleum, sand and gravel). [13] • The non-product sales are made by the joint venture operator on behalf of the participants. • The joint venture operator accounts for the non-product sales in the activity statement for the tax period applying to the joint venture operator for the joint venture. • The participants remain jointly and severally liable for the GST payable on the non-product sales or have entered into an indirect tax sharing agreement with the joint venture operator under which the contribution amount takes into account the non-product sales. | Example – joint venture operator accounting for non-product sales: 12. MiningCo is the joint venture operator of a coal mining joint venture, which has been formed as a GST joint venture. MiningCo is also one of the participants in the joint venture. The mining lease area owned by the participants that will be exploited is very large. The coal body is being exploited in stages and only part of the lease area is being excavated. The remainder of the lease area is well grassed. MiningCo, as joint venture operator, has agreed to allow a grazier to agist cattle in this area for 6 months for an agreed fee. 13. MiningCo can include the agistment supply in MiningCo's GST joint venture activity statement. | Other industries: 14. If the issue addressed in this Practice Statement arises in other industries in which joint ventures operate, industry associations (whose members are affected) should be invited to request that we consider approving a similar practice in respect of their circumstances. The request should be considered on the basis of the circumstances of the GST joint ventures in the particular industry, including the nature and circumstances of the non-product taxable supplies made. 15. Industry bodies wishing to make such requests should be asked to address the request to: Technical Leadership and Advice – GST PO Box 3524 Albury NSW 2640 or facsimile: 1300 139 031 28 November 2024 Part Comment Throughout Content checked for technical accuracy and currency. Updated in line with current ATO style and accessibility requirements. Updated in line with current ATO style and accessibility requirements. 30 July 2014 Part Comment Contact details Updated. 30 October 2012 Part Comment Contact details Updated. 21 October 2011 Part Comment Paragraphs 3, 7, 8, 9 and 12 Adjustments to clarify the Commissioners position on notifying in writing of a joint venture. Changes from 'approved' to 'formed'. Footnotes 5, 6, 7, 10 and 11 Changes to legislation. 28 July 2011 Part Comment Paragraph 11 Amended due to legislative changes to the GST Act. 15 September 2009 Part Comment Contact details Updated. © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Date of Issue: 22 August 2007 Date of Effect: 22 August 2007 [1] Paragraphs 31 to 34 of Goods and Services Tax Ruling GSTR 2004/2 Goods and services tax: What is a joint venture for GST purposes ? discuss what is meant by product or output of the joint venture. [2] This should not be taken to imply that fuel provided to contractors without charge is regarded as sold to the contractors: for our views regarding GST and non-monetary consideration, see Goods and Services Tax Ruling GSTR 2001/6 Goods and services tax: non-monetary consideration . [3] The term 'mineral deposit' is defined in section 195-1 of the GST Act as a deposit of minerals and includes a deposit of sand or gravel. The term 'minerals' is also defined in that section and refers to the meaning given by the Income Tax Assessment Act 1997 , which includes petroleum. [4] Subsection 51-5(1). [5] GSTR 2004/2 provides our view of the meaning of 'joint venture'. [6] Paragraph 51-5(1)(e). [7] Paragraph 51-5(1)(ea). [8] Paragraph 51-5(1)(eb). [9] Subsection 51-30(1). [10] Section 51-35 similarly gives the joint venture operator the entitlement to input tax credits that would otherwise be an entitlement of the participant in respect of creditable acquisitions and creditable importations made by the joint venture operator on behalf of a participant in the course of activities for which the joint venture was entered into. [11] Subsection 444-80(1) of Schedule1 to the Taxation Administration Act 1953 . [12] Subsection 444-80(1A) of Schedule 1 to the Taxation Administration Act 1953 . [13] This Practice Statement therefore does not apply to any GST joint venture formed for any of the purposes specified in section 51-5.01 of the A New Tax System (Goods and Services Tax) Regulations 2019 . File 1-13VRDP70 Related Rulings/Determinations: GSTR 2001/6 GSTR 2004/2",GSTR 2001/6 | GSTR 2004/2 | ANTS(GST)A 1999 Div 51 | ANTS(GST)A 1999 51-5(1) | ANTS(GST)A 1999 51-5(1)(e) | ANTS(GST)A 1999 51-5(1)(ea) | ANTS(GST)A 1999 51-5(1)(eb) | ANTS(GST)A 1999 51-30(1) | ANTS(GST)A 1999 51-35 | ANTS(GST)A 1999 195-1 | ANTS(GST)R 2019 51-5.01 | TAA 1953 Sch 1 444-80(1) | TAA 1953 Sch 1 444-80(1A),,ANTS(GST)A 1999 Div 51 | ANTS(GST)A 1999 51-5(1) | ANTS(GST)A 1999 51-5(1)(e) | ANTS(GST)A 1999 51-5(1)(ea) | ANTS(GST)A 1999 51-5(1)(eb) | ANTS(GST)A 1999 51-30(1) | ANTS(GST)A 1999 51-35 | ANTS(GST)A 1999 195-1 | ANTS(GST)R 2019 51-5.01 | TAA 1953 Sch 1 444-80(1) | TAA 1953 Sch 1 444-80(1A),,,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/GA20072/NAT/ATO/00001,
PS LA 2006/1 (GA),Calculating the cost base of a CGT asset where there is insufficient information to determine any capital works deduction under Division 43 of the ITAA 1997,15 February 2006,15 February 2006,Law Administration Practice Statement (GA),False,"1. What this Practice Statement is about: Division 43 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a taxpayer to deduct construction expenditure (incurred by the taxpayer or a previous owner) in respect of certain income-producing buildings and structural improvements (capital works). All legislative references in this Practice Statement are to the ITAA 1997, unless otherwise indicated. The construction expenditure is written off over 25 or 40 years, depending on when it was incurred and the use of the capital works. Where a taxpayer has deducted or can deduct expenditure in an income year under Division 43, it does not form part of the cost base or reduced cost base of a capital gains tax (CGT) asset (subsections 110-45(2) and 110-50(2)). This Practice Statement outlines the circumstances where we will accept that a taxpayer cannot deduct an amount under Division 43 for a CGT asset and is therefore not required to reduce the asset's cost base or reduced cost base. | 2. When will the ATO accept that a deduction cannot be made: We will accept that a taxpayer cannot deduct an amount under Division 43, and so is not required to reduce their cost base and reduced cost base, where the taxpayer: • does not (as a question of fact) have sufficient information to determine the amount and nature of the construction expenditure for an asset, and • does not seek to deduct any amount in relation to the construction expenditure under Division 43 (or any other provision). • does not (as a question of fact) have sufficient information to determine the amount and nature of the construction expenditure for an asset, and • does not seek to deduct any amount in relation to the construction expenditure under Division 43 (or any other provision). Note: This only has relevance to CGT assets acquired after 7:30 pm (AEST) on 13 May 1997, although it may apply to expenditure on land or a building acquired before that time, provided the expenditure is incurred after 30 June 1999 and forms part of the fourth element of the cost base of the asset (subsections 110-45(1A) and 110-50(1A)). | 3. When would a taxpayer not have sufficient information: There are some circumstances where a taxpayer may not have sufficient information to deduct amounts under Division 43. Where the previous owner does not supply details of the construction expenditure Subsection 262A(4AJA) of the Income Tax Assessment Act 1936 (ITAA 1936) requires the previous owner of capital works to provide the new owner with a notice containing the information necessary for the new owner to work out how Division 43 applies to them. However, this information may not be available in some circumstances and the taxpayer therefore may not have sufficient information to deduct amounts under Division 43. Where the previous owner was not entitled to a deduction under Division 43 but the new owner will be The notice requirement in subsection 262A(4AJA) of the ITAA 1936 only applies if the previous owner has deducted an amount under Division 43. However, there are some circumstances when the new owner will be entitled to a deduction under Division 43 even though the previous owner was not – for example, if the capital works were acquired from a speculative builder or a previous owner who used the capital works as a private residence. The new owner therefore may not have the information necessary to work out how Division 43 applies to them. Where a taxpayer has difficulty in calculating what they have spent Even where the construction expenditure was incurred by the taxpayer themselves, they still may have difficulty in ascertaining the exact amount that qualifies for deduction under Division 43. Taxation Ruling TR 97/25 Income tax: property development: deduction for capital expenditure on construction of income producing capital works, including buildings and structural improvements recognises that where there is difficulty in determining construction expenditure, a building cost estimate provided by an appropriately qualified person can be used. However, the cost of obtaining such an estimate can impose a significant burden on taxpayers, which is why we allow the exception outlined in section 2 of this Practice Statement. It is consistent with the broad policy underpinning the CGT cost base reduction rules, being that an amount should either be allowed as a deduction or included in the asset's cost base or reduced cost base, but not both. | 4. Examples: Example 1 Angie purchased a rental property on 1 August 2001. Marty, the previous owner, incurred construction expenditure on the property in the 1997–98 income year. Marty deducted amounts under Division 43 in relation to this expenditure. When Angie purchased the property, she became entitled to claim deductions under Division 43 for the capital works undertaken by Marty. At the time Angie purchased the property, Marty did not provide her with the information she would need to calculate her deductions under Division 43. Marty said he could not find the information Angie needed and moved overseas a few months after selling the property to Angie. Angie tried without success to contact Marty. As Angie did not have the information she needed to deduct an amount under Division 43, she did not claim deductions. On 1 May 2004, Angie sold the property to Daniel and made a capital gain. ATO's position: We will accept that Angie cannot deduct an amount under Division 43. She will not have to adjust the cost base of her rental property. Example 2 Courtney purchased a property from Anthony in August 2002 and occupied it as his main residence. Anthony had previously undertaken capital works on the property and deducted amounts for the construction expenditure under Division 43. However, he did not provide Courtney with information that would enable him to work out how Division 43 might apply to him. In February 2005, Courtney moved interstate and decided to rent out the dwelling. When he came to prepare his tax return for the 2004–05 income year, Courtney's tax agent told him that he was entitled to deduct amounts under Division 43 for the construction expenditure Anthony incurred. Courtney did not contact Anthony to get information on the construction expenditure and did not engage a quantity surveyor to provide him with an estimate of the building costs. He did not deduct the amounts under Division 43 to which he was entitled. ATO's position: We will accept that Courtney cannot deduct an amount under Division 43 and so will not require him to adjust the cost base of the property.",TR 97/25 | ITAA 1936 262A(4AJA) | ITAA 1997 Div 43 | ITAA 1997 110-45(1A) | ITAA 1997 110-45(2) | ITAA 1997 110-50(1A) | ITAA 1997 110-50(2),,ITAA 1936 262A(4AJA) | ITAA 1997 Div 43 | ITAA 1997 110-45(1A) | ITAA 1997 110-45(2) | ITAA 1997 110-50(1A) | ITAA 1997 110-50(2),,,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/GA20061/NAT/ATO/00001,"1. What is this Practice Statement about | Updated to apply current ATO style and accessibility guides. | Updated to improve grammar and layout. | Minor changes in wording. | Updated to new LAPS format and style. | Updated to current publication style. | Added title for TR 97/25. | Business line to Law & Practice. | This practice statement was originally published on 15 February 2006. Versions published from 6 August 2008 are available electronically - refer to the online version of the practice statement. Versions published prior to this date are not available electronically. If needed, these can be requested by emailing TCNLawPublishingandPolicy@ato.gov.au ."
PS LA 2006/2 (GA),SUBJECT: Operation of Division 7A of the Income Tax Assessment Act 1936 on loans that have become statute barred PURPOSE: To advise that statute-barred private company and trustee loans made prior to the enactment of Division 7A will not be treated as giving rise to a deemed dividend under Division 7A,15 February 2006,4 December 1997,Law Administration Practice Statement (GA),False,"1. This Practice Statement advises that we have decided to take no active compliance action that would treat statute-barred private company and trustee loans made prior to the enactment of Division 7A of the Income Tax Assessment Act 1936 (ITAA 1936) as giving rise to a deemed dividend under that Division. 2. This Practice Statement applies to private companies, trusts with private companies as beneficiaries and the shareholders and shareholder's associates of those private companies. 3. All legislative references in this Practice Statement are to the ITAA 1936, unless otherwise indicated. 4. Our view is that a loan by a private company to a shareholder or a shareholder's associate will be deemed to be a forgiven debt merely by the fact that the statutory period under the relevant Limitation Act [1] ends. This also applies to relevant loans made by trustees which become statute-barred. Subsequent refreshment of a loan after the statutory period under the relevant Limitation Act ends does not create a new loan to which Division 7A applies. 5. However, this decision not to treat statute-barred loans as giving rise to a deemed dividend recognises a number of factors. These include: • The complexity of Division 7A and the fact that this particular issue arises from the interaction of 2 quite separate codes of law. The state and territory-based limitation of action provisions impact on parts of the income tax law (that is, the commercial debt forgiveness provisions), which in turn affect Division 7A, giving rise to an adverse tax outcome. This means that taxpayers may have been unaware of the effect of this issue on their tax affairs. • The complexity provided by variation in state and territory limitation of action provisions, leading potentially to differing results across Australia. It is also arguably unclear how provisions in some state and territory laws that 'revive' statute-barred debts will apply. • The general scheme of Division 7A to 'grandfather loans' made before its introduction and the doubt this brings to an interpretation leading to the outcome that mere inaction would cause a significantly unfavourable tax outcome. • This issue provides no ongoing risk to the tax system. Current provisions in Division 7A mean that a loan would be brought to account as a deemed dividend at a point in time before it could be deemed forgiven merely by expiration of the statutory period under a relevant Limitation Act. • Issues of inequity among taxpayers arise because of the significantly differential treatment that limitations in the operation of the amendment provisions at section 170 cause. Action to amend assessments would necessarily be limited to only a small proportion of loans taken out shortly before enactment of the provisions in Division 7A. • The fact that taxpayers first confronted this issue at a time when they and their tax advisers were dealing with a range of new laws of high volume and complexity. Analysis of old arrangements at this time would be difficult and involve high compliance costs for taxpayers. • The complexity of Division 7A and the fact that this particular issue arises from the interaction of 2 quite separate codes of law. The state and territory-based limitation of action provisions impact on parts of the income tax law (that is, the commercial debt forgiveness provisions), which in turn affect Division 7A, giving rise to an adverse tax outcome. This means that taxpayers may have been unaware of the effect of this issue on their tax affairs. • The complexity provided by variation in state and territory limitation of action provisions, leading potentially to differing results across Australia. It is also arguably unclear how provisions in some state and territory laws that 'revive' statute-barred debts will apply. • The general scheme of Division 7A to 'grandfather loans' made before its introduction and the doubt this brings to an interpretation leading to the outcome that mere inaction would cause a significantly unfavourable tax outcome. • This issue provides no ongoing risk to the tax system. Current provisions in Division 7A mean that a loan would be brought to account as a deemed dividend at a point in time before it could be deemed forgiven merely by expiration of the statutory period under a relevant Limitation Act. • Issues of inequity among taxpayers arise because of the significantly differential treatment that limitations in the operation of the amendment provisions at section 170 cause. Action to amend assessments would necessarily be limited to only a small proportion of loans taken out shortly before enactment of the provisions in Division 7A. • The fact that taxpayers first confronted this issue at a time when they and their tax advisers were dealing with a range of new laws of high volume and complexity. Analysis of old arrangements at this time would be difficult and involve high compliance costs for taxpayers. 6. Therefore, as a matter of practical compliance and sensible administration, we have decided to take no active compliance action on private company and trustee loans made prior to the enactment of Division 7A deemed to be forgiven in consequence of the operation of subsection 109F(3), merely because the period within which the creditor is entitled to sue for recovery of the debt ends by the operation of a statute of limitations. 7. Loans from private companies that have become statute-barred after 4 December 1997 would not, on this basis alone, meet the criteria for application of the general anti-avoidance rule at Part IVA, or constitute fraud or evasion, or be subject to amendment under section 108. 8. Division 7A was inserted by the Taxation Laws Amendment Act (No. 3) 1998 and applies on and after 4 December 1997. Broadly, under this Division, amounts paid, lent or forgiven by a private company to shareholders or shareholder's associates are treated as dividends, unless they are specifically excluded. 9. Division 7A was amended by Tax Laws Amendment (2004 Measures No. 1) Act 2004 (which received Royal Assent on 29 June 2004) to insert Subdivision EA and treat, among other things, the forgiveness of certain loans made by trustees as dividends (achieved by the interaction of sections 109XA and XB). These amendments have retrospective effect and apply where the forgiveness occurs on or after 12 December 2002. However, the amendments as they apply to forgiveness of trustee loans will usually only apply to loans made prior to 4:00 pm AEDT on 27 March 1998 where forgiveness occurs on or after 12 December 2002. This is because loans made after 4:00 pm AEDT on 27 March 1998 are likely to have already been brought within Division 7A by former section 109UB or the equivalent provisions which apply to loans in Subdivision EA. 10. Our view is that a loan by a private company to a shareholder or a shareholder's associate will be deemed to be a forgiven debt merely by the fact that the statutory period under the relevant Limitation Act ends. However, for the reasons outlined in this Practice Statement, it is also recognised that the matter is not entirely free from doubt. 11. The fact that a loan has become statute-barred may be evidenced by the writing down of the loan in the financial statements or accounts of an entity. Our view is that generally no capital or revenue loss arises in these circumstances, as the debt will generally not have arisen in the course of gaining or producing assessable income or carrying on a business. For capital gains tax purposes, such a debt is a personal use asset and any loss is disregarded in working out a net capital gain or capital loss. 12. Any taxpayer who has been assessed on a deemed dividend in consequence of a statute-barred private company or trustee loan made prior to the enactment of Division 7A may lodge an objection with us. Where necessary, the objection should be accompanied by a request that it be treated as having been lodged within time. [2] In appropriate cases, we may enter into an agreement or settlement [3] with the taxpayer that they do not have to pay tax on the deemed dividend.",PS LA 2003/7 | PS LA 2015/1 | ITAA 1936 108 | ITAA 1936 Div 7A | ITAA 1936 109F(3) | ITAA 1936 Subdiv EA | ITAA 1936 109XA | ITAA 1936 109XB | ITAA 1936 170 | ITAA 1936 Pt IVA | TAA 1953 14ZW(2) | TAA 1953 14ZW(3) | TAA 1953 14ZX | Limitation Act 1969 (NSW) | Limitation Act 1981 (NT) | Limitation Act 1985 (ACT) | Limitation Act 1974 (Tas) | Limitation Act 1935 (WA) | Limitation of Actions Act 1936 (SA) | Limitation of Action Act 1958 (Vic) | Limitation of Actions Act 1974 (Qld) | Taxation Laws Amendment Act (No. 3) 1998 | Tax Laws Amendment (2004 Measures No. 1) Act 2004,,ITAA 1936 108 | ITAA 1936 Div 7A | ITAA 1936 109F(3) | ITAA 1936 109UB | ITAA 1936 Subdiv EA | ITAA 1936 109XA | ITAA 1936 109XB | ITAA 1936 170 | ITAA 1936 Pt IVA | TAA 1953 14ZW(2) | TAA 1953 14ZW(3) | TAA 1953 14ZX | Limitation Act 1969 (NSW) | Limitation Act 1981 (NT) | Limitation Act 1985 (ACT) | Limitation Act 1974 (Tas) | Limitation Act 1935 (WA) | Limitation of Actions Act 1936 (SA) | Limitation of Action Act 1958 (Vic) | Limitation of Actions Act 1974 (Qld) | Taxation Laws Amendment Act (No. 3) 1998 | Tax Laws Amendment (2004 Measures No. 1) Act 2004,,,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/GA20062/NAT/ATO/00001,"Updated in line with current ATO style and accessibility requirements. | [1] The Limitation of Actions Act 1958 (Vic), the Limitation Act 1981 (NT), the Limitation Act 1985 (ACT), the Limitation Act 1969 (NSW), the Limitation of Actions Act 1936 (SA), the Limitation of Actions Act 1974 (Qld), the Limitation Act 2005 (WA) and the Limitation Act 1974 (Tas). | [2] Subsection 14ZW(2) of the Taxation Administration Act 1953 (TAA), with subsection 14ZW(3) of the TAA requiring the request to include an explanation of why the objection was lodged late. We must decide such requests under section 14ZX of the TAA, as guided by Law Administration Practice Statement PS LA 2003/7 How to treat a request to lodge a late objection . | [3] Law Administration Practice Statement PS LA 2015/1 Code of settlement ."
PS LA 2006/3 (GA),Trading stock: oyster farmers using the stick farming method,26 April 2006,30 June 2002,Law Administration Practice Statement (GA),False,"1. What is this practice statement about?: This practice statement explains that you can accept that certain oyster farmers who use the 'per stick' method [1] are complying with the law. | 2. Who does this practice statement apply to?: This practice statement applies to oyster farmers who: • conduct a business of oyster farming • farm oysters solely for use as food for human consumption • acquire those oysters as spat (oyster larvae) by using the traditional stick farming method. • conduct a business of oyster farming • farm oysters solely for use as food for human consumption • acquire those oysters as spat (oyster larvae) by using the traditional stick farming method. This statement does not apply to oyster hatcheries. | 3. What is stick farming?: The stick farming method involves the placement of sticks or plastic slats into estuaries to which naturally occurring oyster larvae attach and which either: • grow to maturity on the stick, or • are knocked off the stick and allowed to grow to maturity in trays or other containers. • grow to maturity on the stick, or • are knocked off the stick and allowed to grow to maturity in trays or other containers. | 4. What is the 'per stick' method?: Farmers must account for all oysters on hand as trading stock, including those on sticks or slats, those in containers and those ready for sale. Only those oysters that are attached to sticks or slats can be valued using the 'per stick' method. It does not apply to those in containers or those harvested and ready for sale. Under this method, farmers must calculate their stock on hand by reference to the number of sticks on which they caught that stock as spat. Method Statement Farmers valuing their closing stock on a per stick basis must calculate the number of sticks on which they caught that stock as spat, as set out below: Step 1: Count • The number of sticks that are in use at the end of the income year to capture spat. The number of sticks that are no longer in use, but that were used to capture oysters that are still on hand at the end of the income year. If any sticks were used more than once to capture stock on hand, count each re-use as another stick for the purposes of this count. • The number of one-metre-long plastic slats that are in use at the end of the income year to capture spat. The number of one-metre long plastic slats that are no longer in use but were used to capture oysters that are still on hand at the end of the income year. If any one-metre-long plastic slats were used more than once to capture stock on hand, count each re use as another slat for the purposes of this count. • The number of two-metre-long plastic slats that are in use at the end of the income year to capture spat. The number of two-metre-long plastic slats that are no longer in use but were used to capture oysters that are still on hand at the end of the income year. If any two-metre-long plastic slats were used more than once to capture stock on hand, count each re use as another slat for the purposes of this count. Step 2 Multiply the number of sticks and two-metre-long plastic slats counted by the above method by $1.00 [2] to capture the trading stock on hand at the end of the income year. Step 3 Multiply the number of one-metre-long plastic slats counted by the above method by $0.50 to capture the trading stock on hand at the end of the income year. Step 4 Add the amounts calculated by Step 2 and Step 3. This will provide the value of oysters to be included as trading stock on hand at financial-year-end. • The number of sticks that are in use at the end of the income year to capture spat. The number of sticks that are no longer in use, but that were used to capture oysters that are still on hand at the end of the income year. If any sticks were used more than once to capture stock on hand, count each re-use as another stick for the purposes of this count. • The number of one-metre-long plastic slats that are in use at the end of the income year to capture spat. The number of one-metre long plastic slats that are no longer in use but were used to capture oysters that are still on hand at the end of the income year. If any one-metre-long plastic slats were used more than once to capture stock on hand, count each re use as another slat for the purposes of this count. • The number of two-metre-long plastic slats that are in use at the end of the income year to capture spat. The number of two-metre-long plastic slats that are no longer in use but were used to capture oysters that are still on hand at the end of the income year. If any two-metre-long plastic slats were used more than once to capture stock on hand, count each re use as another slat for the purposes of this count. If you are a small business entity and the difference between the opening and closing stock values for the year is not more than $5,000, there is no need to bring any change in value in trading stock to account. Example: calculating the value of closing stock At 30 June Peter has: • wooden sticks and one-metre long plastic slats in the water to capture oyster spat • oysters in trays in the water at various stages of maturity, including some purchased from another farmer that year for $1,200 to replace stock lost to disease, and • oysters that he recently harvested and holds ready for sale. • wooden sticks and one-metre long plastic slats in the water to capture oyster spat • oysters in trays in the water at various stages of maturity, including some purchased from another farmer that year for $1,200 to replace stock lost to disease, and • oysters that he recently harvested and holds ready for sale. Before applying the 'per stick' method, Peter must exclude the harvested oysters and the purchased oysters, along with any other stock not acquired with the stick-farming method. Peter must account separately for these oysters at cost, market selling value or replacement value. Peter elects to account for the stock that he purchased at its cost of $1,200, and to account for the harvested oysters at their market value of $500. Peter then applies the 'per stick' method to value the remaining stock on hand. Step 1 • On 30 June Peter has 2,000 sticks in the water to capture oyster spat. He has used those same 2,000 sticks on two previous occasions to capture oysters still held in trays. Therefore, Peter counts a total of 6,000 sticks. • Peter is using 4,000 one-metre-long plastic slats in the water to capture oyster spat. He has previously used 3,000 one-metre-long plastic slats to capture oysters now growing in trays. This gives Peter a total of 7,000 one-metre-long plastic slats. • Peter has not used any two-metre-long plastic slats. • On 30 June Peter has 2,000 sticks in the water to capture oyster spat. He has used those same 2,000 sticks on two previous occasions to capture oysters still held in trays. Therefore, Peter counts a total of 6,000 sticks. • Peter is using 4,000 one-metre-long plastic slats in the water to capture oyster spat. He has previously used 3,000 one-metre-long plastic slats to capture oysters now growing in trays. This gives Peter a total of 7,000 one-metre-long plastic slats. • Peter has not used any two-metre-long plastic slats. Step 2 Peter multiplies the number of sticks and two-metre-long plastic slats that he counted at Step 1 by $1.00, to give a value of $6,000. Step 3 Peter multiplies the number of one-metre long plastic slats that he counted at Step 1 by $0.50, to give a value of $3,500. Step 4 Peter adds together the amounts calculated at Step 2 and Step 3, to get a value of $9,500. To calculate the total value of his trading stock on hand on 30 June, he must add the $9,500 to the value of his other trading stock (being $1,200 plus $500). The total value of Peter's trading stock on hand at the end of the income year is $11,200.",ITAA 1997 Div 70 | ITAA 1997 70-45 | ITAA 1997 Subdiv 328-E | ITAA 1997 328-285 | ITAA 1997 328-285(1) | ITAA 1997 328-285(2) | ITAA 1997 328-295(2),,ITAA 1997 Div 70 ITAA 1997 70-45 ITAA 1997 Subdiv 328-E ITAA 1997 328-285 ITAA 1997 328-285(1) ITAA 1997 328-285(2) ITAA 1997 328-295(2) IT(TP)A 1997 70-41,oysters stick farming method trading stock,,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/GA20063/NAT/ATO/00001,"Refer to end of document for amendment history. Prior versions can be requested by emailing TCNLawPublishingandPolicy@ato.gov.au if required. This document incorporates revisions made since original publication. View its history and amending notices, if applicable. | If taxpayers rely on this practice statement, they will be protected from interest and penalties in the following way. If a statement turns out to be incorrect and taxpayers underpay their tax as a result, they will not have to pay a penalty. Nor will they have to pay interest on the underpayment provided they reasonably relied on this practice statement in good faith. However, even if they don't have to pay a penalty or interest, taxpayers will have to pay the correct amount of tax provided the time limits under the law allow it. | Updated to new LAPS format and style. | Amendments made to reflect repeal of STS | [1] The 'per stick' method is adopted from former section 70-41 of the Income Tax (Transitional Provisions) Act 1997. | [2] The 'per stick' values will be reviewed and adjusted periodically, in consultation with the oyster industry"
PS LA 2005/2 (GA),"SUBJECT: Goods and services tax and time of choice to apply the margin scheme PURPOSE: To explain when we may accept that an entity, which did not choose to apply the margin scheme to work out the goods and services tax (GST) on a taxable supply of real property until after it made the supply, may account for GST as if the margin scheme applies.",4 October 2005,1 July 2000,Law Administration Practice Statement (GA),False,"1. This Practice Statement applies to supplies that are not covered under the provisions contained in the Tax Laws Amendment (2005 Measures No. 2) Act 2005 that require the supplier and recipient to agree in writing that the margin scheme is to apply. The provisions relate to supplies made under contracts entered into on or after 29 June 2005, other than those supplies made pursuant to rights or options granted before 29 June 2005. [1] 2. Therefore, this Practice Statement applies to supplies made before 29 June 2005 and also to supplies where the supplier entered into a contract or granted rights or options over the real property before 29 June 2005, but made the supply after that date. 3. This Practice Statement sets out the limited circumstances when we will ordinarily accept that an entity (the supplier), which did not choose to apply the margin scheme to work out the GST on a taxable supply of real property until after it made the supply, may account for GST on the supply as if the margin scheme applies. 4. Those limited circumstances are where we are satisfied that: • The supplier did not choose to apply the margin scheme until after it made the supply due to a genuine mistake. • All other requirements for the supplier to be entitled to apply the margin scheme in working out the amount of GST on the supply are satisfied. • The recipient of the supply does not, and is not likely to have, an entitlement to an input tax credit (ITC) or a decreasing adjustment in relation to its acquisition of the real property. • The price for the supply was not agreed by the parties on the basis that GST would be one-eleventh of the consideration for the supply. • There is no arrangement that has the effect of producing an outcome contrary to the policy of the legislation. [2] • The supplier did not choose to apply the margin scheme until after it made the supply due to a genuine mistake. • All other requirements for the supplier to be entitled to apply the margin scheme in working out the amount of GST on the supply are satisfied. • The recipient of the supply does not, and is not likely to have, an entitlement to an input tax credit (ITC) or a decreasing adjustment in relation to its acquisition of the real property. • The price for the supply was not agreed by the parties on the basis that GST would be one-eleventh of the consideration for the supply. • There is no arrangement that has the effect of producing an outcome contrary to the policy of the legislation. [2] 5. A supplier may have paid GST on a taxable supply which was not calculated under the margin scheme but where the circumstances described in paragraph 4 of this Practice Statement apply. In those circumstances, the credit or refund will ordinarily be allowed if the other requirements for refunds or credits of GST are satisfied [3] and there is no unjust enrichment as a result of the credit or refund. | Legislative context: 6. All legislative references in this Practice Statement are to the A New Tax System (Goods and Services Tax) Act 1999, unless otherwise indicated. 7. Normally, GST is calculated as one-eleventh of the consideration for a taxable supply, in accordance with Subdivision 9-C. However, if GST is calculated under the margin scheme for a taxable supply of real property, the GST payable is one-eleventh of the margin for the supply. 8. If subsection 75-10(2) applies, the margin is the amount by which the consideration for the supply exceeds the consideration for the supplier's acquisition of the real property. If subsection 75-10(3) applies, the margin is the amount by which the consideration for the supply exceeds a valuation of the real property made in accordance with that provision. 9. The intention of the margin scheme is to ensure that if the margin scheme is applied to work out the GST on a supply of real property, GST is only payable on the value added by the supplier after the commencement of the GST system. [4] It follows that GST calculated under the margin scheme may be significantly less than the amount calculated under the basic rules. 10. For supplies other than those requiring a written agreement to apply the margin scheme, subsection 75-5(1) provides that the supplier may choose to apply the margin scheme in working out the amount of GST if the supplier makes a taxable supply of real property by selling a freehold interest in land or stratum unit or granting or selling a long-term lease. 11. However, the supplier cannot choose to apply the margin scheme if the supplier acquired the interest, unit or long-term lease through a taxable supply on which the GST was worked out without applying the margin scheme. 12. An entity that is registered or required to be registered for GST is entitled to ITCs for creditable acquisitions that it makes. [5] However, an acquisition is not a creditable acquisition if the supply of the interest, unit or long-term lease was a taxable supply under the margin scheme. [6] | Time of choice to apply the margin scheme – our view: 13. It is our view that, in relation to supplies not requiring a written agreement to apply the margin scheme, the supplier must choose to apply the margin scheme at or before the time it makes the supply. [7] | Genuine mistakes: 14. The supplier may choose not to apply the margin scheme before it makes the supply, as a result of a genuine mistake. Such a mistake could result in a sizeable unforeseen liability, especially where GST calculated on the margin would have been a small amount relative to the GST calculated as one-eleventh of the selling price. 15. Examples of circumstances where the supplier may have chosen not to apply the margin scheme until after it made the supply, due to a genuine mistake, may include: • the supply of real property was a taxable supply (see Examples 1 and 2 of this Practice Statement), or • the supplier was required to be registered for GST when the supply was made (see Example 3 of this Practice Statement). • the supply of real property was a taxable supply (see Examples 1 and 2 of this Practice Statement), or • the supplier was required to be registered for GST when the supply was made (see Example 3 of this Practice Statement). 16. Taxing the full consideration in these circumstances may be regarded as contrary to the policy intent of the margin scheme and result in GST being paid on value added before the commencement of the GST system where the supplier owned the real property before 1 July 2000. 17. The amounts of GST payable under the core provisions may be substantial relative to the amounts payable under the margin scheme. Where that is the case, our resources are likely to be disproportionately employed in resolving disputes in this area if genuine mistakes have occurred and there has been no intention to avoid or minimise GST. 18. For these reasons, we consider that there are circumstances in which, consistent with good administration of the GST legislation, it may be accepted that GST is accounted for as if the margin scheme applied even though the supplier chose to use the margin scheme after it made the supply. 19. In doing so, we cannot allow GST to be accounted for in this way in every case where the supplier chooses to apply the margin scheme after it made the supply. That would, in our view, be contrary to the requirements of the legislation and is therefore not an option available to us consistent with the duty to administer the legislation. 20. We are also mindful that any decision of this kind should not affect the position of the recipient. Therefore, we would not regard the margin scheme as applying if the supplier wants to choose to apply the margin scheme after it makes the taxable supply. That would be contrary to our view of the proper construction of the provisions and could disadvantage a recipient who might otherwise be entitled to an ITC. 21. Therefore, while each matter will need to be considered by reference to the facts and circumstances of the case, we will, in the limited circumstances set out at paragraph 4 of this Practice Statement, ordinarily accept that the supplier may account for GST as if the margin scheme applies even though, on our view of the legislation, the choice to apply the margin scheme had not been made by the required time. This Practice Statement does not affect the position of a purchaser who would not be entitled to apply the margin scheme on a subsequent taxable supply of the real property. 22. Furthermore, we could not responsibly allow GST to be accounted for as if the margin scheme applies if the recipient of the supply would nevertheless be entitled to an ITC for its acquisition of the real property. This would result in a claim for an ITC greater than the GST paid on the relevant supply. Even if the recipient is not registered or required to be registered for GST, and therefore not entitled to an ITC, there would be a remaining risk that the recipient may subsequently apply for registration with the registration backdated to the date of acquisition of the real property. By doing so, the recipient might become entitled to an ITC for acquisition of the real property. 23. Accordingly, under this Practice Statement, a supplier cannot account for GST as if the margin scheme applied unless we are satisfied that the recipient is not entitled, and not likely to become entitled, to an ITC for its acquisition of the real property. 24. We considered merely limiting this to cases where the recipient is not likely to become entitled to an ITC for its acquisition of the real property. However, there would be a remaining risk to revenue in that case if a decreasing adjustment is made under Division 129. For that reason, this Practice Statement also does not provide for a supplier to account for GST as if the margin scheme applied unless we are satisfied that the recipient is not likely to become entitled to a decreasing adjustment in relation to its acquisition of the real property. 25. We therefore expect that this Practice Statement is more likely to enable a supplier to account for GST as if the margin scheme applied where the recipient would not ordinarily be entitled to an ITC, such as where the real property is acquired for private residential use. In cases where the real property is used for commercial purposes, it is likely to be more difficult to satisfy us that the recipient is not likely to become entitled to an ITC or decreasing adjustment for its acquisition of the property. 26. Further, this Practice Statement is intended to assist suppliers who have made genuine mistakes in the application of the GST law. It is not intended to allow a supplier, who has negotiated a price with a purchaser on the basis that GST of one-eleventh of the consideration is payable, to obtain a windfall by accounting for GST as if the margin scheme applies. Therefore, this Practice Statement does not apply if the parties agreed on the price for the supply on the basis that GST would be one-eleventh of the consideration. 27. As the purpose of this Practice Statement is to assist suppliers who have made genuine mistakes, it does not apply if the desire to account for GST as if the margin scheme applies is part of an arrangement to avoid GST or otherwise obtain an outcome contrary to the policy of the legislation. 28. Requests to account for GST as if the margin scheme applies should be made in writing to us by or on behalf of the supplier. The written request should contain sufficient detail for us to determine whether the requirements in paragraph 4 of this Practice Statement are satisfied. Any decision on whether a supplier may account for GST as if the margin scheme applies must be approved by an Executive Level 2 officer (or above). 29. A decision not to allow the supplier to account for GST as if the margin scheme applied is not a reviewable GST decision under subsection 110-50(2) of Schedule 1 to the Taxation Administration Act 1953. However, if a supplier feels we have made a mistake, in the interests of sound administration we would generally review the decision, as mentioned in Our Charter . | Examples: 30. Paragraphs 31 to 52 of this Practice Statement set out examples of where, because of a genuine mistake, the supplier inadvertently did not choose to apply the margin scheme until after the time that it made the supply. | Example 1: genuine mistake that the supply is GST-free: 31. In January 2002, Farmer Joe acquires farm land for $440,000 from a supplier that is not registered or required to be registered for GST. He registers for GST and begins running the farm. 32. In June 2004, Farmer Joe sells his farm land for $528,000 to a retired couple for use as their home. The retired couple are not registered for GST and have no intention of farming the land. 33. Farmer Joe mistakenly believes he is entitled to treat the sale of his farm land as GST-free under the farm land exemptions in the A New Tax System (Goods and Services Tax) Act 1999. As a result, he does not choose to apply the margin scheme to the sale of the farm land at or before the time he makes the supply to the retired couple. 34. It is subsequently discovered that the sale of Joe's farm land was not GST free under the farm land exemptions. It was a taxable supply. Farmer Joe is therefore liable for GST of one-eleventh of the sale price for the farm land, being $48,000 ((1 ÷ 11) × $528,000). 35. If Farmer Joe had applied the margin scheme, he would have been liable for GST of one-eleventh of the margin for the supply, being $8,000 ((1 ÷ 11) × ($528,000 - $440,000)). 36. The retired couple who purchased the property are not registered for GST and do not carry on any enterprise. We are satisfied that the retired couple is unlikely to become entitled to an ITC or decreasing adjustment for their acquisition of the property. There is no reference to GST being calculated as one-eleventh of the selling price in the contract for the sale of the property. 37. As the other conditions in paragraph 4 of this Practice Statement are satisfied, we accept that GST may be accounted for as if the margin scheme applies. That is, we accept that Farmer Joe's GST liability is satisfied by a payment of $8,000. | Example 2: genuine mistake that the supply is not taxable – pre-1 July 2000 contract: 38. Building Co purchases vacant land in September 1999. 39. The site is developed into townhouses, which are completed in June 2000. A contract for sale of one of the townhouses for $275,000 is entered into on 25 June 2000. The buyer, who is not registered for GST, purchases the townhouse as an investment and intends to rent it to tenants for use as a home. The contract of sale settles in August 2000 for that amount. Building Co is registered for GST. 40. Building Co makes a taxable supply and is entitled to choose to apply the margin scheme to calculate the GST on the supply. However, because the contract is executed in June 2000 before the commencement of GST, Building Co mistakenly believe that the supply is not subject to GST. Consequently, it does not consider the calculation of GST and therefore does not choose to apply the margin scheme. GST is therefore payable on the full consideration for the supply, rather than the margin. As the contract is executed a few days before 1 July 2000, the margin is nil. [8] 41. Therefore, Building Co is liable for GST of one-eleventh of the full sale price for the supply under the normal rules, being $25,000 ((1 ÷ 11) × $275,000). 42. If Building Co applies the margin scheme, it is liable for GST of one-eleventh of the margin for the supply, being nil ((1 ÷ 11) × ($275,000 - 275,000)). 43. As the purchaser is not registered for GST and purchases the townhouse as an investment property for renting to tenants for use as a residential premises, we are satisfied that the purchaser is not likely to become entitled to an ITC or decreasing adjustment for its acquisition of the townhouse. There is no evidence to suggest that Building Co is involved in any arrangement intended to produce an outcome contrary to the policy of the legislation in relation to the supply of the townhouse. 44. As the other conditions in paragraph 4 of this Practice Statement are satisfied, we accept that GST may be accounted for as if the margin scheme will apply. That is, we accept that Building Co's GST liability is nil. Example 3: genuine mistake that the supplier is not required to be registered for GST when the supply is made 45. In September 2000, a not-for-profit entity (whose aim is to provide low-rent housing to the community) purchases a block of land for $99,000 from a developer who applies the margin scheme to calculate the GST on the supply to the not-for-profit entity. The not-for-profit entity constructs a home on the land and rents it out to tenants for use as residential premises. As the not-for-profit entity's turnover is below the registration turnover threshold ($100,000 before 1 July 2007 and $150,000 from 1 July 2007) [9] , it chooses not to register for GST. 46. The not-for-profit entity sets up an unrelated enterprise in February 2004. This leads to an increase in the turnover of the not-for-profit entity. 47. In March 2004, the not-for-profit entity sells the house and land to a first-home buyer (who is not registered for GST) for its market value of $330,000. As the not-for-profit entity has previously chosen not to register for GST, it believes it is not liable to pay GST on the sale of the property. As a result, it does not consider whether to apply the margin scheme to the sale at or before the time it makes the supply. 48. Due to its increasing turnover, the not-for-profit entity registers for GST from May 2004. 49. It subsequently discovers that the not-for-profit entity exceeds the registration turnover threshold in February 2004, rather than in May 2004. As such, the not-for-profit entity is required to be registered for GST from February 2004. 50. Therefore, the sale of the house and land in March 2004 is a taxable supply. The not-for-profit entity is liable for GST of one-eleventh of the full sale price for the property, being $30,000 ((1 ÷ 11) × $330,000), if the margin scheme is not applied. If the margin scheme is applied, the not-for-profit entity is liable for GST of one-eleventh of the margin for the supply, being $21,000 ((1 ÷ 11) × ($330,000 - $99,000)). 51. We are satisfied that the first-home buyer is not likely to become entitled to an ITC or decreasing adjustment for its acquisition of the property. 52. As the other conditions in paragraph 4 of this Practice Statement are satisfied, we accept that GST may be accounted for as if the margin scheme would apply. That is, we accept that the not-for-profit entity's GST liability is satisfied by a payment of $21,000.",GSTR 2000/21 | GSTR 2006/7 | GSTR 2006/8 | PS LA 2005/15 | Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 | ANTS(GST)A 1999 Subdiv 9-C | ANTS(GST)A 1999 23-15 | ANTS(GST)A 1999 Div 75 | ANTS(GST)A 1999 75-5(1) | ANTS(GST)A 1999 75-10(2) | ANTS(GST)A 1999 75-10(3) | ANTS(GST)A 1999 75-20 | ANTS(GST)A 1999 Div 129 | ANTS(GST)A 1999 11-20 | ANTS(GST)R 2019 23-15.02 | TAA 1953 36 | TAA 1953 39 | TAA 1953 Sch 1 110-50(2) | Tax Laws Amendment (2005 Measures No. 2) Act 2005 | 2004 ATC 4303,PS LA 2005/15,ANTS(GST)A 1999 Subdiv 9-C | ANTS(GST)A 1999 23-15 | ANTS(GST)A 1999 Div 75 | ANTS(GST)A 1999 75-5(1) | ANTS(GST)A 1999 75-10(2) | ANTS(GST)A 1999 75-10(3) | ANTS(GST)A 1999 75-20 | ANTS(GST)A 1999 Div 129 | ANTS(GST)A 1999 11-20 | ANTS(GST)R 2019 23-15.02 | TAA 1953 36 | TAA 1953 39 | TAA 1953 Sch 1 110-50(2) | Tax Laws Amendment (2005 Measures No. 2) Act 2005,,GST and the margin scheme Our Charter Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/GA20052/NAT/ATO/00001,"Updated to apply current ATO style and accessibility guidelines. | Footnote 7 and references | Removed fact sheets (8680, 8682, 13320), replaced with GSTR 2006/7 and Margin scheme – made easy (NAT 73740). | Replace with 'GST margin scheme'. | Updated to current corporate publication style. | Reference to 'subsection 62(2)' updated to 'subsection 110-50(2) of Schedule 1'. | Change the GST registration turnover threshold for not-for-profit entity from $100,000 to $150,000 as specified by regulation 23-15.02. | [1] Law Administration Practice Statement PS LA 2005/15 The Commissioner's discretion to extend the time in which the agreement in writing must be made to apply the margin scheme under Division 75 of the A New Tax System (Goods and Services Tax) Act 1999 sets out the circumstances in which the ATO may exercise the Commissioner's discretion to extend the time in which an agreement in writing must be made to apply the margin scheme. | [2] Commissioner of Taxation v Asiamet (No. 1) Resources Pty Limited [2004] FCAFC 73. | [3] See, for example, sections 36 and 39 of the Taxation Administration Act 1953 . | [4] Paragraph 6.100 of the Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998. | [7] Goods and Services Tax Rulings GSTR 2000/21 Goods and services tax: the margin scheme for supplies of real property held prior to 1 July 2000 , GSTR 2006/7 Goods and services tax: how the margin scheme applies to a supply of real property made on or after 1 December 2005 that was acquired or held before 1 July 2000 and GSTR 2006/8 Goods and services tax: the margin scheme for supplies of real property acquired on or after 1 July 2000 , as well as GST and the margin scheme , outline our views regarding how the circumstances in a margin scheme may be used, how valuations are to be made, when you must choose to apply the margin scheme and what documentation is required. | [8] This example assumes a valuation has been made that complies with subsection 75-10(3). | [9] Subsection 23-15(2), and section 23-15.02 of the A New Tax System (Goods and Services Tax) Regulations 2019 . | File 04/18100; 05/277; 05/12051; 1-13JX0WN6 | Commissioner of Taxation v Asiamet (No. 1) Resources Pty Ltd [2004] FCAFC 73 137 FCR 146 [2004] FCAFC 73 2004 ATC 4303 55 ATR 239 [2004] ALMD 4224 | This Practice Statement was originally published on 4 October 2005. Versions published from 15 September 2009 are available electronically - refer to the online version of this Practice Statement. Versions published prior to this date are not available electronically. If needed, these can be obtained from Law Publishing in the Office of the Chief Tax Counsel."
PS LA 2004/3 (GA),Valuation of goods taken from trading stock for private use by sole traders or partners in a partnership,18 June 2004,1 July 1997,Law Administration Practice Statement (GA),False,"What this Practice Statement is about: 1. Subdivision 70-D of the Income Tax Assessment Act 1997 contains the rules about including the value of an item of trading stock in assessable income if the trading stock is disposed of outside the ordinary course of business or if the item ceases to be trading stock in certain other circumstances. 2. This Practice Statement explains the approach we will accept to value goods taken from trading stock for private use by sole traders or partners in a partnership. 3. It also specifies record-keeping requirements. | How items of trading stock taken for private use will be valued: 4. How an item of trading stock taken for private use is valued depends on whether the item continues to be held by the same individual or individuals. If it is, it is accounted for at cost. If it is not, it is accounted for at market value. [1] 5. Where an item is taken for private use by: • a sole trader – it is included in assessable income at cost • all the partners in a partnership for their joint use – it is included in assessable income at cost, or • one or more, but not all, of the partners in a partnership – it is included in assessable income at market value. • a sole trader – it is included in assessable income at cost • all the partners in a partnership for their joint use – it is included in assessable income at cost, or • one or more, but not all, of the partners in a partnership – it is included in assessable income at market value. 6. However, in regard to this last point, we accept that where the items are of small value, such that it is difficult or unreasonable for records to be kept (see paragraph 7 of this Practice Statement), the items are taken for joint private use of all of the partners in the partnership and can be accounted for at cost. | Record keeping: 7. The following records should be kept in relation to goods taken for private use: • the date the item is taken from stock • the reason the item is taken • a description of the item, and • the cost or market value of the item (see also paragraphs 8 and 9 of this Practice Statement). • the date the item is taken from stock • the reason the item is taken • a description of the item, and • the cost or market value of the item (see also paragraphs 8 and 9 of this Practice Statement). | Establishing cost or market value in difficult situations: 8. It can be difficult to determine the value of items of trading stock taken for private use in industries where the items of trading stock are: • used in a manufacturing process • a range of small items or ingredients, usually of low value • not suited to inventory systems • subject to high turnover. • used in a manufacturing process • a range of small items or ingredients, usually of low value • not suited to inventory systems • subject to high turnover. 9. For taxpayers in these industries, we publish a schedule which provides amounts that we will accept as estimates of the value of goods taken from trading stock for private use. See Using trading stock for private purposes . | Example 1 – sole trader: 10. Peter Purple operates a sole trader business as a butcher. He takes a leg of lamb home for his private use. The cost of the leg of lamb is required to be included in the assessable income of the business. | Example 2 – sole trader: 11. Over the income year, Peter Purple regularly takes home various cuts of meat for his private use. He lives with his wife and a 10-year-old child. 12. Peter may account for the items by recording the cost of the items as he takes them and include the total amount as assessable income of the business for that income year. 13. Alternatively, Peter can use the schedule published by us each year to calculate the total value of items taken and include that total in the assessable income of the business for the income year. If he did this, the amount that he would include should be calculated at the butcher's rate for 2 adults and one child (16 years or under). | Example 3 – partnership: 14. Max and Perdita operate a partnership business together as butchers. They have a joint birthday party and decide to have a spit roast. They take a whole pig from the partnership's trading stock for this purpose. The cost of the whole pig is required to be included in the assessable income of the partnership business. 15. At other times during the income year, Max and Perdita separately take items of trading stock for their private use. Max lives with his wife and a 16-year-old child and Perdita lives with her husband and a 17-year-old child. 16. The partnership business may account for the items of trading stock taken at cost and include the total amount as assessable income of the business for that income year. 17. Alternatively, the partnership business can use the schedule published by us each year to calculate the total value of items taken and include that total in the assessable income of the business for the income year. If they did this, the amount that they would include should be calculated at the butcher's rate for 5 adults (including children over 16 years) and 1 child (16 years or under). | More information: 18. For more information on accounting for any business trading stock that you've taken for private purposes, see Using trading stock for private purposes .",TD 2020/1 | TD 2021/8 | TD 2022/15 | TD 2023/7 | TD 2024/8 | ITAA 1997 Subdiv 70-D | ITAA 1997 70-90 | ITAA 1997 70-100 | ITAA 1997 70-110,,ITAA 1997 Subdiv 70-D | ITAA 1997 70-90 | ITAA 1997 70-100 | ITAA 1997 70-110,,,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/GA20043/NAT/ATO/00001,Removed reference to 'TD 2024/8' and replaced with a link to our website content and other minor editorial changes. | Updated to align with amended Practice Statement style and formatting requirements. | Updated in line with current ATO style and accessibility requirements. | More information and Contact information | Updated to remove references to specific years. Updated examples to remove amounts and instead explain the method. | Related Rulings/Determinations | Updated to new LAPS style and format. | Updated – modified and elaborated. | Updated income year from '2013/14' to '2014/15' and 'TD 2014/2' to 'TD 2015/9'. | Updated 'TD 2014/2' to 'TD 2015/9'. | Updated income year from '2012/13' to '2013/14' and 'TD 2013/3' to 'TD 2014/2'. | Updated 'TD 2012/20' to 'TD 2014/2'. | Updated income year from '2011/12' to '2012/13' and reference from 'TD 2012/20' to 'TD 2013/3'. | Updated to current corporate publication style. | Updated income year from '2010/11' to '2011/12' and reference from 'TD 2011/11' to 'TD 2012/20'. | 'Tax Office' updated to ATO as per Style Guide recommendations. | Dates updated to current year. | [1] See sections 70-90 to 70-110 of the Income Tax Assessment Act 1997 . | File 2001/001048; 1-14PA5SZY; 1-1B7MMD56
PS LA 2004/4 (GA),Taxing consumer loyalty program rewards,14 July 2004,14 July 2004,Law Administration Practice Statement,False,"1. What this Practice Statement is about: Taxation Ruling TR 1999/6 Income tax and fringe benefits tax: flight rewards received under frequent flyer and other similar consumer loyalty programs and Taxation Determination TD 1999/34 Income tax: is a reward received under a 'consumer loyalty program' that results from private expenditure assessable? set out the precedential ATO view on whether a reward received under a consumer loyalty program or a flight reward are fringe benefits or assessable income. Those rulings include the principles that came out of Payne, Janet Lynn v Commr of Taxation [1996] FCA 347. However, there may be some cases where a reward from a consumer loyalty program or flight reward will fall outside the guidelines in those rulings. This Practice Statement sets out factors which, if present, will require the case to be forwarded to a senior technical leader for review. It also provides that unless the case has these factors, administrative action will not be considered warranted. | 2. Consumer loyalty program rewards – the general principles: Receiving rewards under a consumer loyalty program may be subject to tax but receiving points is not, even if the points are transferred from one loyalty program to another. Income tax Rewards received under consumer loyalty programs will be taxable only where the facts demonstrate that the reward is received as: • part of an income-earning activity, and - there is a business relationship between the recipient of the reward and the reward provider, and - the benefit is convertible directly or indirectly to money's worth, or • part of an income-earning activity, and - the taxpayer is carrying on a business [1] , and - section 21A of the Income Tax Assessment Act 1936 operates to include the reasonable value of the non-cash business benefit in the taxpayer's assessable income. • part of an income-earning activity, and - there is a business relationship between the recipient of the reward and the reward provider, and - the benefit is convertible directly or indirectly to money's worth, or • part of an income-earning activity, and - the taxpayer is carrying on a business [1] , and - section 21A of the Income Tax Assessment Act 1936 operates to include the reasonable value of the non-cash business benefit in the taxpayer's assessable income. - there is a business relationship between the recipient of the reward and the reward provider, and - the benefit is convertible directly or indirectly to money's worth, or - the taxpayer is carrying on a business [1] , and - section 21A of the Income Tax Assessment Act 1936 operates to include the reasonable value of the non-cash business benefit in the taxpayer's assessable income. Fringe benefits tax A reward received by an employee under a consumer loyalty program may be a fringe benefit for the purposes of the Fringe Benefits Tax Assessment Act 1986 where the facts demonstrate that there is an arrangement between the employee and employer so that the provision of the reward has a sufficient and material connection to employment. [2] | 3. Flight rewards: TR 1999/6 provides that flight rewards received under consumer loyalty programs are generally not taxable. However, it also notes that fringe benefits tax may apply where: • the employer and the employee have a family relationship and the flight reward is received in connection with the employment, or • a flight reward is provided to an employee, or the employee's associate, under an 'arrangement' for the purposes of the Fringe Benefits Tax Assessment Act 1986 , that results from business expenditure. [3] • the employer and the employee have a family relationship and the flight reward is received in connection with the employment, or • a flight reward is provided to an employee, or the employee's associate, under an 'arrangement' for the purposes of the Fringe Benefits Tax Assessment Act 1986 , that results from business expenditure. [3] The flight reward might also be subject to income tax if they are received by an individual: • who renders a service on the basis that an entitlement to a flight reward will arise • who receives the flight reward as a result of business expenditure, or • where the activities associated with the obtaining of the reward amount in themselves to a business activity. [4] • who renders a service on the basis that an entitlement to a flight reward will arise • who receives the flight reward as a result of business expenditure, or • where the activities associated with the obtaining of the reward amount in themselves to a business activity. [4] | 4. Consumer loyalty programs: TD 1999/34 provides that rewards received under consumer loyalty programs arising from private expenditure are not subject to tax. | 5. When to escalate a case and take administrative action: Generally, the way we treat rewards derived from consumer loyalty programs will fall within the guidelines in TR 1999/6 and TD 1999/34. [5] You must apply those principles accordingly. However, you must refer the case to a senior technical leader for review if the reward is considered to be assessable income or a fringe benefit because: • the arrangement is so contrived and artificial that it has no commercial purpose other than to allow the recipient to receive the rewards • the nature of the arrangements suggests that the rewards are a substitute for income which would otherwise be earned • the points accumulated exceed 250,000 points per annum. • the arrangement is so contrived and artificial that it has no commercial purpose other than to allow the recipient to receive the rewards • the nature of the arrangements suggests that the rewards are a substitute for income which would otherwise be earned • the points accumulated exceed 250,000 points per annum. Administrative action is only considered warranted if at least one of these criteria exists. | 6. Examples: Example 1 – Business relationship exists – reward assessable and referral not required Pamela is a sole trader operating a painting and wallpapering business. She buys her paint from a paint wholesaler. The wholesaler has a loyalty program that entitles her to points that can be redeemed for shopping vouchers. There is a clear business relationship between Pamela and the paint wholesaler and it is this relationship that makes Pamela eligible to receive possible benefits. Pamela redeems her points for vouchers worth $2,500. She uses the vouchers to acquire clothing for herself and her children. Redeeming the points in return for the vouchers was the result of her business purchases. The $2,500 value of vouchers is assessable because the benefit flows from the business relationship Pamela has with the paint supplier. The vouchers are assessable income at the time of receipt. Pamela is required to declare $2,500 in her assessable income. Pamela is also a member of a credit card loyalty program and uses her credit card for all her business and personal expenses. The rewards flowing from the loyalty program points arise from her relationship with the program provider and may be assessable because the relationship has both a personal and business aspect. It is possible that the rewards Pamela receives for her business expenses are assessable. She pays fees for the credit card service and, where she incurs business expenditure, the credit card provider is extending credit to her business. She therefore has a business relationship with the provider. However, as the conditions listed in section 5 of this Practice Statement do not apply, it would not be necessary to refer this case to a senior technical leader. Further administrative action is not warranted. Example 2 – Reward arises from business expenditure but employer not involved in arrangement – reward not assessable Paula frequently travels interstate on business. Her employer has provided her with a corporate credit card so that she can pay for her business-related travel expenses – such as meals, taxis and hire cars. There is a fee for operating the corporate card but the savings in administration costs far outweigh the fee charged. The credit card company has a loyalty program and Paula joins. The credit card arrangement exists primarily because it delivers administrative benefits to Paula's employer, not to her. Accordingly, it is unlikely that a sufficiently material connection exists with her personally for any loyalty rewards to be in respect to her employment. As the conditions listed in section 5 of this Practice Statement do not apply, it is not necessary to refer this case to a senior technical leader, nor is further administrative action warranted. Example 3 – Arrangement in place with employer to earn rewards – reward is likely to be assessable and referral required John is an employee of XYZ Company. He uses his personal credit card for private expenditure. Under an arrangement (which can be explicit or tacit) between John and his employer, John is able to place all the company's business expenditure on his personal credit card. The company reimburses him for the expenditure he has paid on its behalf. Under this arrangement, John acquires points from the business expenditure exceeding 250,000 points per annum. Fringe benefits tax may apply in this case. Any reward that arises from redeeming these points will relate directly to the significant business expenditure. The reward may have been provided under an arrangement and may be in respect of employment. This arrangement falls within the conditions listed in section 5 of this Practice Statement. Such a case should be referred to a senior technical leader for review. Example 4 – Arrangement in place with employer to earn rewards – reward is likely to be assessable and referral required Sam is employed by James' Wholesale Stationery Company. Rather than paying Sam a Christmas bonus, the employer and Sam agree to an arrangement by which Sam will accrue points in a consumer loyalty program that he can redeem for significant rewards. Sam will pay a significant portion of the company's business expenses on his credit card each October and the company will reimburse Sam when the payment on his card falls due. This arrangement has no apparent purpose other than to enable Sam to receive significant rewards by redeeming the points accumulated from business expenditure as a substitute for income he would otherwise have been expected to receive. This arrangement falls within the conditions listed in section 5 of this Practice Statement. Such a case should be referred to a senior technical leader for review. | 7. More information: For more information, see: • Taxation Ruling TR 1999/6 Income tax and fringe benefits tax: flight rewards received under frequent flyer and other similar consumer loyalty programs • Taxation Determination TD 1999/34 Income tax: is a reward received under a 'consumer loyalty program' that results from private expenditure assessable? • Taxation Ruling TR 1999/6 Income tax and fringe benefits tax: flight rewards received under frequent flyer and other similar consumer loyalty programs • Taxation Determination TD 1999/34 Income tax: is a reward received under a 'consumer loyalty program' that results from private expenditure assessable?",TR 1999/6 | TD 1999/34 | ITAA 1936 21A | FBTAA 1986 | 2000 ATC 4151 | 96 ATC 4407 | 87 ATC 4883,,ITAA 1936 21A | FBTAA 1986,,,False,False,https://www.ato.gov.au/law/view/document?docid=PSR/GA20044/NAT/ATO/00001,"Updated in line with current ATO style and accessibility requirements. | Updated to new LAPS format and style. | Paragraphs have been renumbered to 25 to 39. | Omitted references to subsection 25(1) of the ITAA 1936. | [1] This also includes the instances where the activities associated with obtaining the reward themselves amount to a business or commercial activity. | [2] Smith v Commissioner of Taxation [1987] HCA 48 and J & G Knowles v Commissioner of Taxation [2000] FCA 196. | [3] See paragraph 7 of TR 1999/6. | [4] See paragraph 9 of TR 1999/6. | [5] For further reference, see also Payne, Janet Lynn v Commr of Taxation [1996] FCA 347. | J & G Knowles v Commissioner of Taxation [2000] FCA 196 96 FCR 402 2000 ATC 4151 44 ATR 22 | Payne, Janet Lynn v Commr of Taxation [1996] FCA 347 66 FCR 299 96 ATC 4407 32 ATR 516 | Smith v Commissioner of Taxation [1987] HCA 48 164 CLR 513 87 ATC 4883 19 ATR 274"