Aiming to improve tax law certainty for taxpayers without delay via CRP 

The Inspector-General of Taxation and Taxation Ombudsman (IGTO), Ms Karen Payne, has today publicly released her report and recommendations following her office’s investigation into The Administration of the Commissioner’s Remedial Power (CRP).  

Since March 2017, the Commissioner of Taxation has had a statutory power – the Commissioner’s Remedial Power (CRP) – to modify the operation of certain taxation law provisions that give rise to unintended or unforeseen outcomes. 

The report examines this important power and discretion vested in the Commissioner of Taxation – that is the Commissioner’s ability to temporarily modify tax laws where it produces results which are unintended or unforeseen until a more permanent, legislative resolution can be implemented. In addition to providing improved timeliness and greater certainty for taxpayers, the measure was also intended to reduce the pressures on the law reform agenda.  

“The Australian taxation and superannuation system is one of the most complex in the world, with over 14,000 pages of legislation. The interactions between these taxation laws can sometimes produce unintended, unforeseen, or inadvertent tax outcomes and consequences,” Ms Payne said. 
“In many cases, these outcomes cannot be corrected via legislative amendment in a timely manner, given there are many competing priorities for the Australian Parliament and the legislative agenda.” 

It was forecasted (at the time the law was passed) that the CRP would be used up to ten times per annum. However, since its enactment in 2017 (over six years ago), the ATO has received and considered 68 candidates (as at 30 September 2023) for the exercise of the CRP and has exercised the discretion seven times – see Appendix A. Clearly, the actual usage is lower-than-was expected.   

Some examples include: 

• The tax secrecy provisions contain restrictions on who could access information relating to a deceased taxpayer, which made the finalisation of the deceased’s affairs more difficult. The CRP was exercised to allow tax officials to disclose (otherwise) protected information relating to the deceased to registered tax agents, BAS agents or legal practitioners representing an executor or administrator of the deceased estate; 
• During the COVID-19 pandemic, foreign resident workers employed under the Seasonal Worker Program (SWP) could extend their stay in Australia using a different temporary visa, but they would no longer be covered by the concessional tax rate under the SWP. The CRP was exercised to allow these workers to continue to be covered by the special taxation regime designed for the SWP. 
• The automatic remission of penalties and General Interest Charge by the ATO for taxpayers affected by natural disasters prior to liabilities being raised was not previously supported by the tax law. The CRP was exercised to expressly allow the Commissioner to automatically remit penalties and interest for natural disaster affected taxpayers who satisfy the relevant criteria whether or not the charge or penalty has become due and payable.  

Stakeholders have hypothesised that the lower-than-expected usage of the CRP may be due to the ATO adopting an overly narrow or conservative interpretation of the CRP criteria.  

“While the case sampling undertaken by the IGTO has demonstrated this to not be the case, we have identified opportunities in Chapters 3 and 4 for the ATO to improve its systems and to make the process for considering candidates more robust,” said Karen Payne. 

A recommendation for the ATO to include a mechanism that would allow CRP candidates to be reconsidered in certain circumstances could effectively rectify shortcomings in proposed modifications, thereby encouraging increased utilisation of the CRP. 

There remains a preference for law change … and for the law to expressly state everything … which makes sense in theory but in reality, codification of tax law is impractical.  

The IGTO observed that, of the 68 CRP candidates assessed and finalised by the ATO as at 30 September 2023, legislative solutions were preferred in approximately 30% (a total of 20 cases, comprising 15 cases in which a legislative solution was preferred at first instance and another 5 cases in which a legislative solution was pursued after the issue was found unsuitable for exercise of the CRP)– see Figure 1.3 of the report.  

Figure 1.3 Resolution status of all CRP cases received by the ATO as at 30 September 2023

This means that the power was not exercised to the extent that it could have been and that there were therefore delays in resolving unintended, unforeseen, or inadvertent tax outcomes and consequences.

“Law change provides the highest level of certainty, but waiting for law change can result in uncertainty and unfair outcomes in the interim,” Ms Payne said. “In our investigation, the range of timeframes that we observed CRP issues were addressed through preferred law change ranged from eight (8) months to three and a half (3.5) years. An exercise of the CRP can be effective 15 sitting days (in both Houses of Parliament) after tabling.”

In one case, submitted by the IGTO to the ATO for consideration, it was concluded that although the candidate had met all criteria for exercise of the CRP, a decision was ultimately made not to exercise the CRP as legislative amendments had been announced to rectify the issue. The relevant legislation did not receive Royal Assent until two years later. In other cases, consideration of the CRP was abandoned midway to pursue law change through the miscellaneous and technical amendment (MTA) process.

“Deferring or suspending the CRP in favour of law change is not itself an issue, but careful consideration needs to be given to this course of action so that taxpayers are not unduly impacted by uncertainties and unintended outcomes while awaiting legislative amendments,” Ms Payne said.

The reason that a large proportion of CRP candidates failed was due to a finding that the proposed modification was “inconsistent with the intended purpose” of the provision.

In one case, the ATO considered an exercise of the CRP to allow (a loss carry back) choice to be modified would not be inconsistent with the intended purpose or object of the provision; but the fact that the legislation did not expressly describe or enable that modification ultimately led to a determination that exercising the CRP would be inconsistent with the intended purpose or object of the provision.

Stakeholders expressed concern about the impact and operation of the Budget Impact criteria

Many stakeholders believed that CRP candidates failed as a result of not meeting the “negligible budget impact” criterion. Although the IGTO investigation did not observe this in practice, we did observe in a small number of cases that the lack of reliable data to adequately assess the budget impact did hamper the progress of some CRP candidates. That is, because the budget impact requirement does not allow for imperfect data, a lack of reliable data may be a barrier to the exercise of the CRP discretion. The IGTO also observed that unintended impacts and consequences are best identified early (within the forward estimates period) for the Commonwealth Budget impact to be assessed as negligible – a core CRP requirement. This is unlikely to be well understood.

There is low community and ATO awareness of the CRP, but the ATO relies on issues to be brought to it for consideration

The IGTO observed that there was an opportunity to enhance awareness of the CRP, both within the community and the ATO itself in order to improve the quality and quantity of candidates being submitted for CRP consideration.

“The ATO’s CRP processes rely in large part on taxpayers, tax practitioners and ATO officers identifying and submitting issues for CRP consideration. This, in turn, depends on these stakeholders being aware of and understanding the scope, purpose and criteria of the CRP,” said Ms Payne. “The high rates of CRP candidates being found to be unsuitable, suggest that more can be done to raise awareness and understanding of the CRP.”

IGTO Recommendations

The IGTO has made nine recommendations to the ATO to improve its administration of the CRP. The ATO has agreed with, agreed in part, or agreed in principle with all recommendations save for one part of one of recommendation with which it has disagreed (Recommendation 4.2(a)).

The IGTO believes that implementing these recommendations would improve the administration of the CRP, transforming it into a more effective tool for the Commissioner. “Unintended outcomes in the tax laws can generate unfair tax consequences for taxpayers or subject them to unnecessary record keeping or other compliance requirements. Where these outcomes remain unresolved for lengthy periods, the cost and uncertainty experienced by taxpayers can be quite substantial,” Ms Payne said. “Exercising the CRP quickly to resolve these issues will result in timely and fair outcomes for taxpayers and tax practitioners in a manner that is consistent with the intended purpose of legislation as enacted by Parliament. Improved administration of the CRP will ultimately result in a better tax system.”

List of Recommendations

1. Recommendation 3.1 

The IGTO recommends that the ATO consider additional channels and opportunities to:

• 1. communicate with stakeholders about the existence of the CRP, the process to request an exercise of the CRP, its purpose and how it can be utilised to address unintended consequences; and
  2. bolster community awareness through guidance and information, including that which is already published and available on the ATO website.

2. Recommendation 3.2

The IGTO recommends that the ATO consider strategies to improve the level of staff awareness and understanding of the CRP and how it operates within the broader 3-step process for resolving unforeseen issues that may arise in the administration of tax law, particularly for ATO officers in CEG and LDP who engage frequently with taxpayers and tax practitioners.

3. Recommendation 3.3

The IGTO recommends that the ATO consolidate and improve its system for capturing, tracking and reporting on the progress of CRP candidates, to reduce duplications and minimise the need for manual inputs and ensure that there is a complete record of relevant communications and deliberations for all CRP candidates.

4. Recommendation 3.4

The IGTO recommends that the ATO:

• 1. develop guidelines or a set of criteria that clearly define the circumstances in which an approach or enquiry made to the CRP team is formally recorded as a CRP candidate for consideration and ensure there is a consistent treatment of all approaches made to the CRP team; and
  2. provide periodic progress updates to CRP applicants, or alternatively, clearly inform CRP applicants that they can contact the ATO to receive progress updates if the ATO does not provide updates to CRP applicants automatically.

5. Recommendation 4.1

The IGTO recommends that:

• 1. unless there are clear reasons why it would be inappropriate to do so, the ATO consult with the CRP Advisory Panel on each CRP candidate, providing a full analysis of the reasons for its view in each case, before a final decision as to the suitability of the candidate for exercising the CRP is made;
  2. where the ATO determines that it would be inappropriate to consult on a particular CRP Candidate, ensure that the decision is carefully considered, approved and documented; and
  3. when documenting the ATO’s consideration of whether a proposed CRP modification is ‘not inconsistent with the intended purpose or object of the provision’^[1]Taxation Administration Act 1953 sch 1 s 370-5(1)(a).^, for consultation with the CRP Advisory Panel, the ATO document its conclusion of the policy intent before explaining its decision on whether the proposed CRP modification is or is not inconsistent with the intended policy intent.

6. Recommendation 4.2

The IGTO recommends that:

• 1. the ATO CRP assessment processes are reviewed and revised, as necessary, to ensure that in scoping a CRP candidate there is a fulsome consideration of the potential scope of application and legislative parameters by the Secretariat with input from the Advisory Panel at the outset in accordance with section 370-5(3), including identifying opportunities for the Secretariat and the Advisory Panel to revisit and review the scope of a candidate which may fail the budget impact criterion, but otherwise satisfy all the other criteria for the exercise of the CRP; and
  2. the ATO, in consultation with the Treasury and the Department of Finance, consider what further information may be published about the CRP costing process generally as well as the costings of CRP candidates, both successful and unsuccessful, where the negligible budget impact criterion is considered.

7. Recommendation 4.3

The IGTO recommends that the ATO enhance its consultation in relation to the CRP by:

• 1. developing guiding documents, protocols or charters to inform its consultation with the CRP Advisory Panel (including processes for refreshing or expanding the Panel), the Board of Taxation, other Government organisations and specific stakeholders;
  2. leveraging its existing consultation and stewardship forums to consult on potential CRP candidates that are under consideration; and
  3. publishing information about the consultation that the ATO undertakes in relation to each CRP matter published on the ATO website.

8. Recommendation 4.4

The IGTO recommends that the ATO develop internal service standards for each main stage of the CRP process pathway and measure its performance against these service standards.

9. Recommendation 5.1

The IGTO recommends that:

• 1. the ATO update its policy to ensure that the CRP process is not to be suspended in favour of a law change process, such as the MTA, except in very limited circumstances, such as where the ATO has received advice from Treasury that the law change is likely to occur before the CRP process can be finalised; and
  2. where the CRP process is suspended or not pursued, so that processes such as the MTA or legislative change can run their course, the ATO should implement procedures to monitor the progress of the relevant legislative change and, in consultation with the CRP Advisory Panel, reconsider the candidate for CRP actions where appropriate (that is, the initial time expectations are no longer realistic).

 

For further information – Contact

Marjorie Johnston – Wordmakers

Mobile: 0407 329 430

[email protected]

About the IGTO

The Inspector-General of Taxation and Taxation Ombudsman (IGTO) has been supporting the integrity of the taxation and superannuation systems for over 20 years – as the Inspector-General of Taxation since 2003 and additionally as the Taxation Ombudsman since 2015. The IGTO provides an important safety net service in the tax system.  Independent investigation of taxpayer complaints enhances community confidence in the integrity and fairness of the tax system and provides assurance to taxpayers in the fairness of their outcomes. This helps to enhance voluntary compliance. The IGTO also provides independent advice and assurance to Government on the taxation administration laws and systems.

Since 2015, the IGTO has performed dual roles, which complement each other:

• The Taxation Ombudsman provides independent assistance and assurance directly to taxpayers and tax professionals and investigates taxation complaints about the actions and decisions of the Australian Taxation Office (ATO) or the Tax Practitioners Board (TPB).  The Taxation Ombudsman also conducts investigations of actions that have broader community impact or are commonly observed in a number of complaints to identify wider system improvements that address the causal issues.
• The Inspector-General of Taxation undertakes investigations of actions, systems and taxation laws (to the extent they deal with tax administration matters).

 

Annexure A – CRP determinations made by the Commissioner as at 30 September 2023

 

Table 1.2: CRP determinations made by the Commissioner

CRP modification	Date of effect	Ceases/ceased to be in effect
Taxation Administration (Remedial Power – Foreign Resident Capital Gains Withholding) Determination 2017	17/10/2017	1/10/2027
Taxation Administration (Remedial Power – Small Business Restructure Roll-over) Determination 2017	9/5/2018	1/4/2028
Taxation Administration (Remedial Power – Disclosure of Protected Information by Taxation Officers) Determination 2020[2]CRP later enacted effective 1 January 2022 – refer Items 47 and 48 of Schedule 3 to the Treasury Laws Amendment (2021 Measures No.5) Act 2021	15/5/2020	23/3/2023
Taxation Administration (Remedial Power – Certificate for GST-free supplies of Cars for Disabled People) Determination 2020[3]CRP later enacted effective 1 January 2022 – refer Item 44 to 46 of Schedule 3 to the Treasury Laws Amendment (2021 Measures No. 5) Act 2021	9/12/2020	1/1/2022
Taxation Administration (Remedial Power – Seasonal Labour Mobility Program) Determination 2020[4]CRP later enacted effective 1 April 2022 – refer Items 33 to 37 of Schedule 8 to the Corporate Collective Investment Vehicle Framework and Other Measures Act 2022	14/5/2021	1/4/2022
Taxation Administration (Remedial Power – Work Test for Personal Superannuation Contributions) Determination 2023	11/08/2023	1/7/2028
Taxation Administration (Remedial Power – Remission of Charges and Penalties) Determination 2023	15/09/2023	1/10/2028