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• generic collection and recovery rules for tax-related liabilities and charges;
• endorsement of deductible gift recipients and income tax exempt charities;
• administration of Business Activity Statement obligations; and
• the payment, ABN and identification verification system.
Currently there are rules for the collection and recovery of unpaid amounts
in ten different Acts administered by the Commissioner of Taxation, in all some
23 sets of recovery provisions. While there are some rules which are unique to
particular tax-related liabilities, there is much duplication of rules within
and across the various Acts. This duplication has arisen because the
legislation for each new tax (and for some new collection systems for existing
taxes) has included a new set of collection and recovery rules for that
particular tax-related debt, which are substantially the same as those for
existing tax-related liabilities.
While the collection and recovery rules for
different types of tax-related liabilities cover similar subject matter, they
vary in content and structure. These problems increase compliance costs for
those entities with tax debts, particularly those with several different types
of debts (eg. income tax, withholding instalments and fringe benefits tax).
Entities or their tax advisers need to consider a different set of rules for
each type of outstanding debt.
These differences also make the collection and recovery of unpaid taxes and charges more complex and expensive for the Australian Taxation Office (ATO) because ATO staff need to be familiar with, and administer, a number of recovery provisions.
The policy objective of the measure is to simplify and streamline the provisions for the collection and recovery of tax-related debts and charges arising under Acts administered by the Commissioner of Taxation. This will be achieved by introducing a single set of collection and recovery provisions. It is part of the broad commitment given in the Government’s tax reform document Tax Reform: Not a new tax, a new tax system (ANTS) to look at ways of streamlining administrative processes.
A single set of collection and recovery provisions can reduce compliance costs through a standardised legislative structure across all liabilities. The proposed generic collection and recovery framework should also reduce the ATO’s administrative costs and provide a robust administrative and legislative platform to recover outstanding taxes and charges now and in the future.
ISBN: 0642 408629
The policy is an essential adjunct to the new running
balance account system, the alignment of business tax obligations involving one
quarterly return and payment, and the proposed new single withholding system. It
is consistent with the aim of developing an integrated tax code that supports a
more cohesive approach to compliance and administration of the tax laws.
The new provisions represent a significant improvement and simplification of the law. They reduce complexity, uncertainty and compliance costs for taxpayers with outstanding tax debts because a single set of provisions will apply for the collection and recovery of all amounts payable. Under the existing regime different sets of provisions apply depending on the particular outstanding liability. For example, a small business taxpayer with an outstanding income tax liability, withholding instalments or superannuation guarantee amounts would be subject to three different sets of recovery provisions. Under the proposed new law one set of provisions would apply to all outstanding liabilities.
In implementing the policy proposal, consideration was given to the date on which the new arrangements commence, the range of existing recovery rules to be brought into the standardised system and the range of liabilities the recovery rules will relate to.
The existing collection and recovery rules will be amended to cease operation from 1 July 2000. The new rules will generally apply to recovery actions commencing from that date for the recovery of outstanding tax-related liabilities under Acts administered by the Commissioner.
Not every recovery rule is proposed to be standardised at this stage. The proposal focuses on those rules where there is already a considerable degree of similarity, specifically where there are similar or identical provisions for the collection and recovery of a variety of recoverable amounts. The rules which are being standardised are those that address the following matters:
• the Commissioner’s power to bring forward or defer the time for payment and allow payment by instalments;
• service of notices if a person is absent from Australia or cannot be found;
• evidentiary certificates;
• statements and averments;
• evidence by affidavit;
• recovery from entities owing money to a person with a tax-related liability;
• obligations of receivers and liquidators;
• obligations of agents winding up a business for a non-resident principal;
• recovery of amounts payable from deceased estates;
• right of a person to seek recovery or contribution from another person in relation to a tax-related liability;
• describing the amounts payable and the nature of the liability to ensure that all tax-related liabilities are covered by the standardised provisions; and
• application of the standardised rules to partnerships, unincorporated
companies and superannuation funds.
The numerous rules in the existing law will be replaced with a single standard set of rules to be included in new Part 4-15 of Schedule 1 to the Taxation Administration Act 1953. The rules will be expressed in the improved legislative form adopted in the Income Tax Assessment Act 1997. The extent to which the standardisation of the legislative provisions for the recovery of outstanding amounts extends the scope of the recovery rules is discussed below.
Variation of payment time
The generic collection and recovery rules standardise the Commissioner’s current power to defer the time for payment and allow payment by instalments. The new rules also standardise and extend the Commissioner’s power to bring forward the time for payment if a taxpayer is leaving Australia to all tax-related liabilities.
As is the case for the rules for extending time for payment, the new rules standardise and extend the Commissioner’s power, where a person is absent from Australia or can’t be found, to send notices or documents relating to recovery proceedings to the person’s last known Australian address (including the person’s last place of residence or place of business). These rules also currently apply to primary income tax and some other taxes and charges only. The rules are extended to all tax-related liabilities, including amounts of income tax collected by withholding.
Evidentiary certificates
Currently there are rules for evidentiary certificates for the recovery of primary income tax, amounts payable under the PAYE, PPS and RPS systems, and some amounts payable under other Acts, but not to a number of other amounts payable under withholding systems. The new rules will extend to the recovery of all tax liabilities, including amounts payable under the new PAYG system.
Averments
The existing recovery provisions allow the use of averments in some cases (eg the recovery of amounts payable under the PPS, RPS and PAYE systems) but not others. The new rules will allow the use of both evidentiary certificates and averments in proceedings for the recovery of all tax-related liabilities. This will provide an administratively convenient method of presenting evidence to a court.
Administration
The standardised recovery rules complement the ATO’s new running balance account system which introduces a single account for recording the tax position of each taxpayer. There will be a single set of rules for the recovery of outstanding balances. Together these new rules will mean that agents, trustees of deceased estates, liquidators and receivers will only need to contact the ATO once to obtain advice regarding tax liabilities, rather than having to contact discrete areas responsible for administering particular tax liabilities such as FBT and income tax.
Standardisation of the recovery rules will enable the standardisation of forms and notices across all ATO revenue lines. This will simplify tax administration for taxpayers and the ATO, and will reduce the ATO’s administrative costs.
Garnishee rules
The proposal also standardises the garnishee provisions for recovering tax debts from third parties who owe amounts to taxpayers. This standardisation introduces further administrative efficiencies as only a single garnishee notice will need to be served to a particular debtor of the taxpayer, rather than a separate notice for each tax-related liability.
Application of new rules
The new rules will generally apply from 1 July 2000 to all tax-related liabilities which exist on 1 July 2000, whether or not those liabilities have arisen before, on or after that day.
The new evidentiary and procedural rules for recovery will apply to recovery proceedings commenced on or after 1 July 2000, and to any continuing proceedings commenced before that date.
The new recovery regime will generally apply only to those taxpayers who do not pay on time. Taxpayers who comply with their obligations will not be adversely affected by the introduction of standardised collection and recovery rules.
• work out how the law applies to any unpaid tax liabilities of their clients;
• train their staff in legislation and procedures; and
• access ATO records of their clients’ tax-related liabilities.
The generic collection and recovery rules will streamline the administration of the law, allowing the ATO to collect outstanding debts more efficiently. This streamlining will result from the standardisation of forms and procedures for the collection and recovery of tax-related liabilities.
More generally, the Government will benefit over time from the reduction in outstanding debt and public debt interest payments that flow from improvements in efficiency and timeliness in the collection of outstanding debts by the ATO.
The proposal will involve some one-off compliance costs attributable to businesses and their advisers familiarising themselves with the generic recovery rules. These costs are estimated to be in the order of $1m.
By enabling a standardisation of procedures for recovery action across all tax-related liabilities, the generic collection and recovery provisions are expected to lead to a reduction in administrative costs for the ATO. Standardisation of collection and recovery rules should also lead to a reduction in ATO staff training costs as recovery staff will only need to be trained in one standard set of provisions.
The standardised recovery procedures are expected to result in a small (unquantifiable) impact on revenue. Under the standardised recovery rules it is expected that taxpayers will bring forward payment of debt, with an associated positive impact on revenue. There is also expected to be a reduction in the amount of late payment penalties and interest paid to the Government. However, this reduction is expected to be offset by the reduction in public debt interest paid by the government where taxpayers have paid their outstanding liabilities earlier. The overall budgetary impact is therefore expected to be positive.
The current proposal is considered to be the only means of achieving the Government’s policy objective. The proposal involves introducing a single set of generic rules into the Taxation Administration Act 1953 (TAA53) for the collection and recovery of all outstanding tax-related liabilities owed to the Commonwealth and payable to the Commissioner of Taxation under Acts administered by the Commissioner.
The proposal streamlines the law without making any major change to the underlying policy of the current regimes for recovering tax-related liabilities. Accordingly, no external consultation is considered necessary.
ADMINISTRATION OF BUSINESS ACTIVITY STATEMENT
OBLIGATIONS
To facilitate efficient administration of Business
Activity Statements (BAS), entities will be required to notify all business tax
obligations for a period in the same manner, ie using a uniform format for
notification of each tax debt or credit entitlement. Where there is a credit
balance on a Running Balance Account (RBA) following the lodgment of a BAS and
the Commissioner takes longer than 14 days to refund that amount, an entity will
be entitled to be paid interest.
Any entity that either exceeds the GST
‘electronic lodgement threshold’ or is defined as a ‘large
withholder’ under the PAYG withholding system will be required to pay all
its BAS debts and other tax debts by electronic payment.
A registration
system will be established for entities with PAYG withholding obligations. This
will include a system of registration for branches within an entity. It will
assist entities whose normal management practice is to account for distinct
parts of its business on a divisional or branch basis.
The registration of charities was announced by the Government on 13 August 1998 in Tax Reform: not a new tax, a new tax system: The Howard Government’s Plan for a New Tax System.
The policy objective of the measure is to improve the integrity of the taxation system in respect of those entities or funds entitled to receive gifts that are tax deductible to the donor and in respect of income tax exempt charities. The relevant provisions of the Income Tax Assessment Act 1997 (ITAA97) are Divisions 30 and 50 respectively. Endorsement will assist the Australian Taxation Office to ensure that only those charities that are intended to be income tax exempt or those entities or funds that are intended to receive tax deductible gifts are able to benefit from those taxation concessions.
The Government will, from 1 July 2000, require charities and deductible gift recipients to obtain an Australian Business Number (ABN) and be endorsed by the Commissioner of Taxation in order to obtain either income tax exemption or deductible gift recipient status. Entities who fail to do so, except those listed by name in the tax law, will be denied access to those tax concessions (and donors of gifts to unendorsed entities will not be entitled to income tax deductions in respect of the gifts).
Around 30,000 charities have been confirmed in the past by the ATO as being entitled to receive tax deductible gifts. The number of other entities or funds entitled to receive such gifts is unknown as there is currently no requirement in tax law for them to obtain ATO confirmation of deductible gift recipient status. The additional number is not expected to be significant.
The number of charities that are income tax exempt is also unknown but is estimated to exceed 200,000.
The Government, in particular the ATO, will also be affected by this measure. The ATO will have to maintain the integrity of the new requirements by ensuring that those endorsed are correctly entitled to income tax exemption or deductible gift recipient status.
Charities should incur minimal compliance costs in relation to these measures. Most charities will apply for an ABN for other purposes and will need to provide only limited additional information to satisfy the requirements of endorsement. Charities seeking deductible gift recipient status currently provide information to the ATO, therefore the application method will change for them but not the endorsement requirements.
The estimates of the administrative costs to the ATO of the measure are shown in the following table.
|
1999-2000
|
2000-01
|
2001-02
|
2002-03
|
|
$2.4m
|
$2.3m
|
$2.3m
|
$2.3m
|
The measure may result in a small revenue saving through reductions in non-compliance, or abuse, of these income tax concessions. The identification of all eligible entities or funds is likely to reduce opportunities for abuse of the tax concessions. In addition, the consequent opportunity to regularly scrutinise endorsed entities means that only those that genuinely qualify will be able to retain the benefit of the concessions. The gain to the revenue associated with these factors is unquantifiable but is not expected to be significant.
A charity or a deductible gift recipient must be endorsed by the Commissioner of Taxation in order to qualify for income tax exemption and/or gift deductibility. The only exception to this rule is for those specifically listed in the tax law as deductible gift recipients.
In order for a charity to be endorsed as income tax exempt it must have, or obtain, an Australian Business Number (ABN). Endorsement involves the Commissioner of Taxation accepting the applicant as satisfying the requirements of section 50-5 of the ITAA 97 (including any existing special conditions).
In order for an entity to be endorsed as being entitled to receive tax deductible gifts in respect of itself it must have, or obtain, an ABN. Endorsement involves the Commissioner of Taxation accepting the applicant as satisfying the requirements of Division 30 of the ITAA 97 (including any existing special conditions).
Those endorsed as deductible gift recipients will be recorded in the Australian Business Register (ABR) with an indicator showing their status. The indicator will be used by the public to check which entities or parts of them have been endorsed - that is, it will enable the public to check whether gifts they make are tax deductible. Income tax exemption of charities will not be shown on the ABR. This approach, using the ABN, was chosen to prevent duplication since most charities will already require an ABN for other reasons.
Currently the income tax law requires that certain entities entitled to receive tax deductible gifts be listed on a register administered by the relevant agency. For example, environmental organisations must be registered with the Department of Environment and Heritage, and cultural organisations must be registered with the Department of Communications, Information Technology and the Arts. These entities will be required to apply for an ABN so they can be shown on the publicly available ABR.
Entities or funds specifically listed by name in the tax law retain their taxation concession without the need to be endorsed. However, the Commissioner will place specifically listed deductible gift recipients on the ABN register, where they have an ABN, so that a complete list is available to the public.
The measure will apply from 1 July 2000. Charities and deductible gift recipients, other than listed entities or funds, that are not endorsed from 1 July 2000 will not be eligible for income tax exemption or gift deductibility.
An alternative method of implementing this measure could be to establish new, separate registers for charities and deductible gift recipients. However, this would not be consistent with the policy objective of the ABN to give businesses a single identifier for all Commonwealth purposes. It would also result in a duplication of information collection and the maintenance of separate registers which would result in higher compliance costs for businesses in meeting their regulatory obligations.
Targeted consultation on the administrative framework for the scheme will be
undertaken during the initial implementation phase.
The key objective of the Payment, ABN and identification verification system is to improve compliance with the income tax and GST laws. It will require additional reporting and identity verification checks in relation to high risk business to business transactions and will be activated only in areas where there is entrenched non compliance and the Government is convinced it is necessary.
These measures will provide the capability to respond quickly and in a systematic way to tax evasion, thereby strengthening the integrity of the tax system.
Evidence suggests that in order to ensure the overall integrity of the Government's tax reform agenda as outlined in A New Tax System, it is necessary to incorporate within the new tax arrangements, provision for a rapid, flexible and targeted response to systematic or entrenched non-compliance.
Businesses which meet their tax obligations will benefit from the introduction of the system through the removal of a competitive advantage which may have been derived by non-compliant taxpayers. This, in turn, builds public confidence in the ability of the Government to deal quickly and effectively with tax evasion, an important element to the maintenance of long term voluntary compliance with the tax laws.
The abolition of the PPS and RPS systems from 1 July 2000 will mean that there will be no on-going reporting of business income. This is part of the Government's tax simplification strategy which will produce tangible compliance cost savings across the board and to small business in particular.
Rather than putting in place permanent arrangements requiring a major investment in infrastructure, the Government will activate reporting and/or ABN/identity verification to address specific compliance problems at a particular time. The response will be targeted, timely and will be proportionate to the compliance risk posed, thus ensuring compliance costs are contained.
The new tax system will require businesses to notify their tax obligations in their Business Activity Statement (BAS) and in tax returns. Experience, both within Australia and in other tax jurisdictions, suggests that not all businesses will correctly meet these obligations. The Payment, ABN and identification verification system has been designed to provide a capability to specifically target areas where this type of non compliance is threatening the integrity of the tax system without affecting the majority of compliant businesses.
The proposed measures create a set of escalating reporting and verification obligations which will be activated depending on the nature and seriousness of non-compliance. Either the purchaser or the supplier could be required to report details of the transaction to the ATO. In some instances both parties may be required to report. Purchasers may also be required to verify the ABN and/or the identity of the suppliers they deal with.
There are three elements to the new industry reporting arrangements.
• Reporting obligations: A purchaser and/or supplier involved in a prescribed high risk transaction will be required to provide details of all such transactions to the Commissioner each quarter. This would include the identity of the other party (their name, address and ABN), the total value of the transactions, and may include other information which is material and relevant to the transaction.
- The reporting obligations will ensure that income is being properly accounted for in BASs and tax returns lodged by business taxpayers, and that the correct amount of GST is paid. The ultimate objective, however, is that the system will provide the necessary incentive for non-compliant taxpayers to change their behaviour.
• ABN verification obligation: Purchasers may be required to undertake some form of checking action in respect of the ABN provided by the supplier. The Commissioner will specify the manner or procedure for carrying out the check.
• Identity verification obligation: Purchasers may, in some instances, be required to verify the identity of the supplier. This may be undertaken as an additional step to verifying the ABN provided by the supplier.
The objective of both verification elements is to prevent taxpayers from falsely representing their identities.
This verification action would be required to be performed prior to making payment. Where an ABN or identity is not confirmed, an amount is required to be withheld from the payment under the PAYG withholding system.
The three obligations may be invoked either individually or in any combination.
It is important to note that the provisions will only be applied to groups of taxpayers, specified by regulations and for limited periods. As part of its continuing operations, the ATO monitors compliance across a wide range of business taxpayers. Where such monitoring identifies areas of systematic non-compliance and the application of the new system would provide a cost effective remedy, the Government will consider tabling the necessary regulations.
The flexibility that has been built into the arrangements is the result of a deliberate policy consideration to limit the scope of the arrangements only to those taxpayers dealing with high risk transactions. Costs and inconvenience to the wider business community can therefore be minimised without jeopardising the objectives of the policy.
By targeting those areas where high risk transactions are occurring, the ATO is seeking to influence and change the behaviour of those not complying with the tax laws.
Reporting obligations
Purchasers and suppliers will be required, in relation to specified transactions, to prepare and submit a quarterly report furnishing details of all such transactions.
It is expected that most, if not all, of the information required to be reported will be on invoices received or issued by purchasers and suppliers respectively. The major additional cost will arise from the need to consolidate details for each supplier or purchaser dealt with within a reporting period. This will present some difficulties for those taxpayers used to dealing in cash and who, for whatever reason, are not in the habit of making a record of such transactions.
The BAS is a summary of all transactions entered into within a three month period. In effect, it represents an aggregation of all the information required to be included (on the BAS) and, therefore, the work associated with preparing an industry report itemising the total value of transactions by supplier or purchaser, should not represent a major additional cost.
Businesses maintaining proper accounting records and who currently have PPS or RPS obligations, will face a reduced burden. For those with computerised accounting systems and who, in the main, transact via computerised invoices, the burden is expected to be less.
Businesses are not being asked to change their business processes other than in the way they categorise and store information on affected transactions within their accounts. Records would need to be established and maintained for each supplier they deal with, something akin to the Accounts Payable or Accounts Receivable journal/subsidiary ledger.
ABN verification obligation
Under the new PAYG and GST taxation laws, businesses will be required to familiarise themselves with the procedure of issuing and receiving invoices with an ABN. This requirement represents a significant change in the way businesses deal with each other.
The proposed ABN verification obligation represents an extension of the above process. The purchaser will be required to check that the ABN provided by the supplier corresponds to the number that has been entered in the Register of ABNs.
The procedures to be followed to verify the ABN will be specified by the Commissioner. This allows consideration to be given in the design of procedures to minimising compliance costs, recognising that business practices and the use of technology vary between taxpayers and industries. Verification would only be required to be performed once in respect of each supplier, with verification being effective in respect of all future dealings not longer than two years apart.
In the case of suppliers, a supplier will only be required to report the ABN of the purchaser in their industry prescribed transactions report if the ABN is known to them. Where the ABN is unknown, the supplier will be required to report the name of the entity only.
Identity verification obligation
Identity verification would only be employed to deal with the more intractable cases of non compliance involving the use of false identities. It requires the purchaser to check the identity of the supplier, ie. the person/entity is who they say they are. In such cases it is not sufficient to rely solely on the ABN provided.
In considering the need for such an obligation, it is important to note that the use of false identities is often associated with tax evasion practices. The guiding design principle for the new arrangements has been to formulate measures which address the root cause of tax evasion within a clearly defined population, while avoiding, where possible, compliance costs to the wider business community.
The procedure for carrying out such a check is to be specified by the Commissioner. As with the ABN verification procedures this level of flexibility has been provided to take into account varying business practices and use of technology between taxpayers and industries.
The scope of the provisions is limited to business to business transactions. The provisions will not apply to purchasers or suppliers who are not in business.
The introduction of the Payment, ABN identification and verification system provides the capability to introduce compliance controls to deal with identified, systematic non-compliance by businesses. The system can only be activated, subject to Parliamentary scrutiny, through regulations. Consequently, business costs cannot be quantified at this stage.
Consultation will be conducted prior to activating the provisions with the aim of minimising costs to business and, where feasible, allowing for consideration of alternative industry proposals for raising compliance to an acceptable level.
Whilst it is not possible to quantify the costs to business, some indication of the requirements the measures may place on affected businesses can be given. It must be recognised, however, that the start-up costs associated with the Payment, ABN and identification verification system, will vary for different businesses depending on the size of the business, their current record keeping practices and the nature of the accounting processes used.
Typically, changes will need to be made to enable affected parties to be readily identified and related information to be aggregated and reported.
For most large and medium businesses, and many small businesses, operating computerised accounting systems, the reporting obligations under the proposed measures will be able to be met through modifications to accounting systems to aggregate information for those parties the business deals with. Many accounting software packages can provide this information at present. Similarly, modifications to allow systems to generate the necessary reports will have to be made. Reports will be able to be provided to the ATO electronically.
Small businesses, operating in high risk industries, which keep manual records, will need to provide the necessary reports to the ATO. The ATO will provide the appropriate stationery to businesses with reporting obligations or can approve reporting in other forms.
There will be costs associated with businesses verifying the ABNs provided by their suppliers, and the new measures provide for flexibility in that the Commissioner of Taxation will be able to approve the manner in which such verification is sought. It is envisaged that the Commissioner will approve a number of methods consistent with the way businesses in the affected areas operate. For example, verification may be via Internet or via telephone.
Similarly, in those cases where the final element of the new measures, the identity verification of suppliers, is invoked, the Commissioner will approve methods which align to acceptable industry practices. To keep costs to a minimum, verification of the ABN or identity will generally only need to be sought once in respect of each supplier.
In most cases the costs are likely to be offset by the on-going compliance cost reductions which most businesses will experience under PAYG and the new tax system.
Once accounting systems have been modified in order to record the information in the form required, the only on-going compliance cost lies in the extraction of the information each quarter whilst the system remains activated. This will entail the completion of an approved form, or extraction of relevant information from an electronic accounting system, and the transmission either electronically or by post, of the report to the Commissioner. Once again, it is not possible to quantify the recurrent costs to business at this stage. It will depend on the nature of the business, the number of transactions entered into, the nature of the non-compliance (and hence element or elements of the measures invoked to deal with it) and the sophistication of the business record keeping.
It must be noted that any costs associated with these measures will only be incurred by businesses operating in areas where there is evidence of systematic non compliance and that the costs will only be imposed whilst the non-compliance continues and the supporting regulations apply.
The abolition of the PPS and RPS systems will remove a significant compliance cost burden on payers in these systems. Most payees will also benefit from the removal of the need to make a declaration to each of their payers.
In relation to the PPS, some 200,000 payers will no longer have to register, manage payee declarations, deduct and remit tax, provide receipts to payees and notify the Commissioner of their liability. Although the PPS is not to be replaced directly by any other withholding system, some PPS workers (eg. building and construction workers) may be covered by the new labour hire and voluntary agreement withholding events.
In relation to the RPS, some 18,000 payers will no longer have to meet a broad range of reporting and withholding obligations.
The ATO’s administrative costs are expected to be as follows.
|
1999-2000
$m |
2000-2001
$m |
2001-2002
$m |
2002-2003
$m |
Total
$m |
|
2.030 |
1.290 |
0.470 |
0.380 |
4.170 |
The figures in the table below are illustrative of the costs involved in administering the system for a small number of typical industry groups where serious non compliance is occurring. Ultimately, the total costs will depend on the industries in which the system will apply, for how long and the nature of the non compliance.
|
1999-2000
$ m |
2000-2001
$ m |
2001-2002
$ m |
2002-2003
$ m |
Total
$m |
|
2.570 |
2.045 |
0.990 |
0.730 |
6.335 |
Consultation will be conducted with industry prior to activating the provisions with the aim of minimising costs to business.