An investigation by the Inspector-General of Taxation and Taxation Ombudsman finds the Commissioner’s discretion often results in inconsistent treatment of taxpayers and reduces the integrity of the system.
Curb opaque powers of Commissioner, tax watchdog urges
The tax watchdog is urging the government to curb the general powers of the Commissioner because they are opaque, often delegated to junior officers or exercised without proper oversight, and lead to the perception of unfair treatment.
The Inspector-General of Taxation and Taxation Ombudsman (IGTO), Karen Payne, said to maintain trust in the system the longstanding general powers of the Commissioner to settle tax disputes and administer law needed to be properly defined.
“The legislation does not define or describe the purpose, nature or scope of the Commissioner’s general powers of administration (GPA),” Ms Payne said. “Our view is it would improve certainty, accountability and transparency and thus benefit Australian taxpayers if it did.”
She said the Commissioner exercised wide discretion to administer tax and superannuation when it came to dispute settlements, developing practical compliance guidelines, administering the law after significant court decisions and implementing COVID relief measures.
But that resulted in taxpayers being treated differently despite being in similar circumstances and a lack of community awareness of the scope of the Commissioner’s powers, according to stakeholders surveyed as part of the investigation.
The IGTO’s investigation into the Exercise of the Commissioner’s General Powers of Administration, released Wednesday, consulted current and former senior ATO officers, academics, tax practitioners and professional bodies.
The ATO's handling of early superannuation release was one area of particular concern, the report said.
“In drawing a line at a monetary threshold of $1,000 to allow taxpayers to correct errors in their application, the ATO potentially deprived taxpayers who similarly made an honest mistake or genuine error from the same treatment,” the IGTO said.
“The perception of unequal treatment is itself problematic and diminishes trust and confidence in the fairness of the tax system and accordingly reduces the integrity of the tax system,” it said.
The ATO’s actions also caused uncertainty over military superannuation. The ATO’s approach in using its powers to give effect to the Federal Court’s ruling in the Douglas case concerning invalidity pensions, which affected almost 20,000 veterans, were made under an implied authority when they should have been made under the requirements of the ATO’s practice statements, the IGTO found.
“The decision was significant and complex, affecting a large number of taxpayers who could have potentially been adversely affected. In these circumstances, the [ATO’s practice statement] contemplated the issue will be escalated through to the Commissioner. Based on materials available to the IGTO, that does not appear to have occurred.”
Ms Payne also said the IGTO found “no universal understanding” and a “lack of clarity” over the Commissioner’s general powers of administration.
“In particular, the IGTO considers that it is unclear as to whether the GPA simply imposes a duty upon the Commissioner which carries with it no additional administrative discretions - or whether it is a power in its own right to allow the Commissioner to administer the tax laws as enacted by parliament in a sensible and practicable manner,” she said.
“In many cases, decisions and actions appear to be exercised by tax officials on behalf of the Commissioner, without written delegation or authorisation. Rather they seem to be exercised as a matter of implied authority, without an objective or principled framework but simply as a matter of individual judgement.”
She said the Commissioner was authorised to delegate the GPA by writing to deputy commissioners and senior ATO managers. Under ATO internal guidance, public rulings needed approval by a delegated senior executive service officer but for private rulings, administrative binding advice and SMSF-specific advice, more junior officers would be authorised to approve decisions under a deputy’s name, the report said.
The ATO’s delegation framework also lacked specific references to issuing practical compliance guidelines (PCGs) despite being described as “high-risk public advice and guidance”.
“The deputy commissioners who authorise the issuing of PCGs do so in accordance with an implied authority extending from their delegations from the Commissioner and the duties and functions encompassed by those.”
The IGTO recommended the government write an “express administrative discretion” for the Commissioner, require the Commissioner to publish an annual record on the GPA when decisions affected a broad range of taxpayers, and implement a “principled framework” to guide tax administration decisions.
It also urged the setting up of an oversight panel in the ATO to guide the Commissioner’s decision-making powers and improve accountability and transparency through its communication channels.
There needed to be greater awareness and understanding of the Commissioner’s powers, the IGOT said.
“The implementation of these recommendations would improve the tax administration system by allowing more transparent and fairer outcomes for taxpayers and tax practitioners while also ensuring that ATO decision-making is consistent, efficient and effective to achieve the intended purpose of the legislation as enacted by parliament,” Ms Payne said.
“This would enhance the accountability of decision making and the overall integrity of the tax system.”
The IGTO’s investigation comes as the ATO ramps up its compliance activities in the wake of Covid, with Commissioner Chris Jordan “unapologetic” about a tougher approach to business debt collection.
The tax office said it would also “continue to take firm action against trustees who persistently fail to comply with their obligations and seriously breach the superannuation laws” throughout FY2023–24.
Second Commissioner Kirsten Fish said the ATO had agreed to implement all three recommendations to ensure the Commissioner “continues to administer the taxation and superannuation laws according to law, and in a manner that fosters trust and confidence in the taxation and superannuation systems”.