TAX ADMINISTRATION

Tax Administration
Two primary levels of government
Commonwealth (Upper and lower house)
States
3 types of power
Legislature create, amend and repeal laws
Executive makes policy decision, administers the law and
carries out the business oof government
Judiciary - courts
Power to raise taxes
s51(ii)) of constitution make law with regard to taxation
Page 24 taxation bills process of passing bill
s96 Cth has power to make grants to states and territories
(ie, GST)
Administrative law
S8 ITAA36 Commissioner (appointed by gov general) is
granted general power of administration and may delegate
authority to tax officers
S175 ITAA36- assessment is valid notwishstanding the fact
the provision of act has not been complied with
S177-notice of assessment is conclusive evidence of due
process in making an assessment
Challenges
Reconsideration by Commissioner (Part IVC of TAA)
- Onus on Tax payer to show assessment is excessive
and demonstrate the correct amount
An objection that forces reconsideration by
commissioner
Review of decision by AAT (based on merits), which
has wide powers to remake the original decision (which
a court cannot do)
AAT also has quasi judicial powers
AAT not bound by own precedent
AAT doesnt answer questions of law
May otherwise appeal to Fed Court (qn of law)
Judicial review (s75v Constitution) under ADJR
Judicial review focussed on improper exercise of
power/lawfulness rather than whether decision wqas
a good one
Ombudsman independent person with wide powers to
investigate complaints about gov departments
Usually last resort as cannot overturn or remake
original decision
Commissioner
Make exercise quasi judicial powers to impose admin
penalties
Income tax assessment
S6(1) ITAA36
Liability arises on assessment
S161 ITAA36- Commissioner publishes notice each year
requiring lodgement of tax return
All tax payers deemed to be aware of publication
(ignorance is no defence) (Kelton case)
Must be of approved form
Commissioner has power to exempt classes from
lodging a return (s161(1A))
Lodgement must be signed by taxpayer

AtO has power to extend lodgement dates from 31 Oct

(s388-55(1))

Power to require further payment of tax (s162) where not

satisfied with original return

Assessments
1. Ordinary assessment (s166 ITAA36) based on info
in lodged tax return and/or any info in commissioners
possession
a. s166 can disregard amounts in taxpayers return
b. relies on good faith of commissioner (George case)
2. Full self assessment (s166A)-when payer lodges
return, commissioner is deemed to have made an
assessment of tax payable/refundable in accordance
with info in retrun on day of lodgement
3. Default assessmenta. S167 - Power to make default assessment if
i. No lodgement
ii. Commissioner dissatisfied with return
iii. No lodgement, but reason rto believe taxable
income has been derived
b. S167 Commissioner can assess the amount upon
which in his judgment income tax ought to be levied
c. Assessment may involve honest guesswork or
approximation (Briggs case)
d. Methods of default assessmnet:
i. Asset betterment approach (Gashi) determine the
improvement in net position which cannot be
explained by other factors
ii. T account calculation (Armirthalingam)
iii. Comparative earnings
4. Special assessments (s168)-assesments for parts of
year (useful where taxpayer intends to leave Australia
part way through year)
5. Other assessments (s169)
6. Consolidated assessments (s169AA)-single
consolidated assessment where 2+ people receive
icome on hehalf of person not in Australia)
Amendments of assessments (pg34)
4 time periods imposed (s170 ITAA36)
2 year time limit (from day notice of assessment served
on taxpayer) individuals and SME with turnoaver
<2million)
4 year time limit complex affairs
Unlimited time
where there has been perceived tax avoidance due to
fraud/evastion (s170(1))
give effect to review/appeal/objection
express provision providing unlimited time
(s170(10))
Amendments
Tax payer requested (s170(5))
Private ruling (s170(6))
S170(7)-commissioner can amend where ATO has bugen, but not
completed, an examination of the taxpayers affairs before
expiry of time limit and either
Federal Court grants extention
Taxpayer consents in writing
Tax audits (pg36)

Risk management approach (Compliance model)

Make it easy for those willing to do right thing

TAX ADMINISTRATION

Help to comply for those willing by dont always

succeed
Deter by detection for those who dont want to comply
Use the full force of law for those deciding nott to
comply
S262A ITAA36-alll to create and retain hard copy electronic
records (or convertable to0 in English which record/explain
relevant matters for ready ascertainment of position
ATO powers to gather info
S263(1)-entitled at all times to full and free access to all
buildings, places, books, documents and other papers for
proper purpose and can make copies / extracts from such
materials
Does not give power to remove original items (Citibank
case0
S263(3)-occupier of premises required to provide all
reasonable facilities and assistance for effective exercise of
s263 powers
Notice requiring:
Provision of specific info (May case)
Attend to give evidence to an officer (ANZ banking
group case; s264(1)(b) 1st limb)
Produce specifc books/docs/papers in their
custody/control (One tel case; s264(1)(b) 2nd limb)
S264 power to required provision of info
Limitations/Defences to power:
ATO limitations to access to info

Legal professional privilege

Doc created for purpose of giving/receiving legal
advice / or anticipated litigation (T v Citibank)
Need to be confidential communications for urpose of
obtaining/receiging legal advice (not a newsletter)
Exception:
Facilitate crime, fraud or purpose contrary to public
interest (Kearney case)
Waiver (express or implied) ie, quoting priv do in
court (Petrolious)
SELF INCRIMINATION IS NOT A VALID DEFENCE
Accountants concessions (p39)
ATO will seek access to source documents but will only
seek access to restricted source and non source docs in
exceptional circumstance
Restricted source = prepared by external accountant
at time of transaxtion for urpose of advising
Non source = provided after completion of
transaction/audit/due diligence
Objections (pg40)
S175A can lodge written objection against assessment
Timing lodgement by later of:
2 or 4 yr time limit of original assessment
60 days after amended assessment
Court limited to grounds stated in objection
Objection limited by isses which were amended by later
assessment (s14ZV)
Extension granted where justice of case requires iit (Brown
case). Court reference to
Taxpayer acceptable explanation for delay
Prejudice to ATI cause by delay

merits of taxpayers case

If refusal to allow extension, taxpayer can apply to AAT
(s14ZX(4))
Appeals (s42)
AAT (cheaper and can exercise powers of commissioner) or
Fed court (questions of law only-misunderstanding of legal
effect)(s14ZZ)
Onus on taxpayer on balance of probabilities
PAYG income tax
Withholding rates (pg 44)
Salaries 49% for residents with TFN; 47% for non
residents
Investments with no TFN/ABN 49%
Divideents for non residents- 30% for unframked
Interest to non residents 10%
Reyalties 30%
Business transaction (no ABN) 49%
Dates of remittance
Small withholders (=<25000) 28th day after end of each
quarter)

with no GST payments -21st day

Medium withholders (25001 1million) 28th day
With no GST payments= 21st day
Large withholders (>1million) within 1 week of
withholding the amount
PAYG instalment systems pg45
Calculating PAYG instalments (pg46)
GDP adjusted notional tax method
Instalment rate method
BAS (pg48)
Penalties and Rulings
Public rulings pg51
Must state that it iis a public ruling
Where conflicts, taxpayer can rely on either (s375-75)
Cannot object to public ruling, must obtain a private
ruling to object on
Private rulings pg52
Only rulee can rely on
Applies to certain set of fact
If arrangement changes, private ruling may not apply
(CTC resources)
Application in writing
Ruling within 60 days
If no ruling, can give commissioner notice
If nothing after notice, (30 days), can object

Must state that is a private ruling

Commissioner rights / responsibilities

Must make a ruling unless exception
Prejudice the admin of tax law
Already been considered
Commission defers payment
Requested further info

TAX ADMINISTRATION

Correctness would depend on assumptions, leading to

reasonable opportunity for taxpayer to respond

Timing- latest of:

60 days after commissioner ruling; or expiriy of 30 day
period of notice
2 years for individuals/SME or 4 years from lodging return
for others
Oral rulings (p54)
Only to individuals
No right to object, nor receive written record
Penalties and interest charges
Pg 55 table of penalties relating to statements
No reasonable care (20 PUs:25% of shortfall)
Recklessness (40 PUs:50% of shortfall)
Intentional disregard(60Pus: 75% of shortfall)
No reasonable arguable position with significant shortfall
(25% of SF)
Failure to make statement (75% of SF)
Not liable for penalty where took Reasonable care
Are which reasonably prudent person with taxpayers
knowledge , education, skill would take
Create a safharbour by providing registered agent with al
relevant tax info
Followed advice of ATO
Penalties realting to statements not reasonably arguable
Liable where application of law is not reasonably arguable
Reasonably arguable position (RAP) = Is about as likely to
be correct as incorrect for omitting
Penalties for schemes (p57)
aggravating the situation base penalty increase by 20%
voluntary disclosure of shortfall penalty reduced by 20% or
80%, or nil where <$1000

Liability limited:
To extent that taxpayer is capable of complying with the
requirement (Ganke)
Offences & penalties (pg60)
Refusing
Furnish info
Lodge doc
Nnotify commissioner
Produce doc
Give info
To answer a qn
False or misleading statement
Incorrectly keeping records
Reckless making of statements/records
Falsifyin, alterin /concealint records with intention to
mislead/deceive/defeat purpose of tax law
Crimes act
Obstructing, hindering , intimidaiting or resistin Cth official
Fraud / conspiracy to defraud Cth
Aiding or abetting
General (GIC) and Shortfall interest charges (SIC) (pg 61)
Interest charges apply whether or not a penalty applies
Applies to:
Tax, charge, levy or penalty remaining unpaid
Underpayment of tax
Instalment of tax underestimated
Late lodgement of return
Failure to remit amounts
Stated as an annual rate depending on which qtr of year
Applies to amounts owing (daily rate)
GIC applies in addition to penalty units

SIC
4% points lower tab GIC
Applies in cases of amended assessments wherer tax payable
Admin penalties for failure to lodge on time
is increased compared with original assessment
SMEs 1 penalty unit ($170) for each 28 day period, with
SIC replaces GIC for period between due date for paymenyt
max of 5 penalty units ($850)
of original (understated) assessment and date of amended
Medium sized (1 million 20 million) - $340 for each 28 day
assessment
period
Large PAYG withholders ($850 for each 28 day period)
TAX AGENTS (pg63)
Failing to withhold / remit PAYG amounts
TAS Act
10 penalty units ($1700); or
Definition of tax agent service (pg64)
Penalty equal to amout that should have been withheld
BAS service definition (pg65)
Financial advice definition
Miscellaneous penalties
Registration requirements )>18 yrs, fit and proper, satisfy
Not keeping records as required (20 penalty units)
education prescribed and have prof indemnity policy)
Preventing tax officer from access to premises/records when
Fit & Proper test- good reputation, competence and
permitted (20 Pus)
integrity, with reputation and ability and prepare
honestly and competently
Promoting tax avoidance schemes (4 years application)
GOod fame integrity and character
Civil penalty
In last 5 yrs
5000 PUs for individual;
No disqualifying vent occurred
25000 PUsfor corporate; or
Not been backrupt at any time
Double the consideration receivable in relation to
Did not serve time in prison
scheme
Educational exp req

TAX ADMINISTRATION
Tertiary qualification; 12 month xp
If lacks commercial credibility, then Part IVA may
apply:
No tertiary exp, must show 8yrs xp
FCT v Peabody must have a realistic
CODE div 30 TASA
commercial purpose
Req a letter of engagement (description or work, how parties

Spotless-need to formulate sufficiently reliable

communicate, respective rights, basis of fee calc)
prediction of events if scheme had not been
Honesty and integrity (pr 68)
carried out
1. Act honesty and with integrity
2.
Dominant
purpose
was enabling taxpayer to obtain tax
2. Comply with tax laws
benefit
3. Account for property received on behalf of client and
Tax benefit obtained in several ways (pg 76)
held by trust
Independence (best interests of client)
Annihilation approach (based on alternative that
4. Act lawfully and in best interests of client
would have been occurred if scheme had not been
5. Have adequate arrangement to manage conflicts of
entered into)
interest
Reconstruction approach (based on alternative that
Confidentiality
might reasonable be expected to occur if scheme not
6. Must not disclose info relating to clients affairs to 3rd
entered into. Requires prediction of alternative
party without clients permission unless legal duty
transaction and constraints)
Competence
8 factors purpose of scheme(considerations)
7. Service are provided competently
Manner in which scheme was entered into
8. Maintain knowledge and skills req to service provided
Form and substance of scheme
9. Reasonable care in ascertaining client affirs
Time and duration
10. Reasonable care in application of tax law
Result achieved
Other responsibilities
Change in financial position that resulted/reasonable
11. Not knowingly obstruct admin of laws
expected to result
12. Advise client of rights, obligations and tax laws that are

Change in financial position of person connected to

materially related to services provided
taxpayer
13. Maintain professional indemnity

Consequence of person connect t taxpayer

14. Respond to requests and directions from TPD in

Nature of connection between the relevant taxpayer

timely manner
and other person connect with taxpayer
Consequences of failure to comply TPB can:
Dominant purpose objective test: reasonable person
Take breaches into account in determining registration
would conclude such a purpose using 8 matters above
3.
Commissioner
determines that whole/part of benefit is
Pursue civil penalty
cancelled(deny
deduction)
Caution
Order action
TP subject to scheme penalties of 50% of tax avoided
Suspend registration
May be reduced to 25% of tax avoided if tax payer has
Terminate registration
reasonably arguable position
Civil penalties and injunctions (pg73)

Application of Part IVA

Doesnt typically apply to sale and leaseback arrangements
Safe harbour defence from penalties (pg73)
Applies to consumers for failure of agents (late lodgement or Interest repayment arrangements
Hart case dominant purpose was gaining tax benefit
false / misleading stamtent s resulting in shortfall)

Income splitting - prevent redirection of income to others

Doesnt apply where taxpayer or agent was reckless or
Mochkin looked at 8 factors
showed intentional disregard
Investment loan repayments = generally not antiavoidance
Anti-Avoidance rules an Part IVA
Hart home and investment loan. Preferred to payoff
Tax evasion deliberate non compliance
home loan
Tax avoidance use of legal means in a way unintended by
Most cases go against the ATO (pg 87)
legislation
Tax planning ues of legal means in a way intended by
Part IVA Role of advisors
legislation
Vincent extends to not only those who entered but also
promoter of scheme or any part of it
Application of IVA anti avoidance provisions
1. There is a scheme
Advisor may be liable under contract law and negligence
Scheme, plan, proposal, action, course or action or
Advisors should challenge strengths of assertions before
conduct
relyinn on them
Spotless case-documentation is important in determining
nature of transaction. Can make reference to sub scheme Part IVA Promoter Penalties
to determine dominant purpose if broader scheme has an Civil penalties
overall commercial objective