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Editor: At the end of last year, the Government asked for submissions of areas of Red Tape that were causing concern to business.

This document has now been widely distributed to Government and to our new Commissioner, Michael DAscenzo.

You may have noticed that, in his latest speech to the TIA, the Commissioner said:

"Tax agents and the professional bodies have told us we need to adopt a whole-of-practice approach to the lodgment program which recognises the full range of returns and documents tax agents lodge.

"We are currently examining the suggestions regarding changes to the tax agent lodgment program, and will provide feedback to the professional associations on the outcomes as soon as possible.

"In addition, we are looking at a proposal which recognises the efforts of those tax agents who bring people back into the system by taking the time to complete prior year returns."

These comments would seem to be a direct result of the document that was provided to the Commissioner – see below.

Government Red Tape

These are four of the main issues raised by tax agents in relation to their dealings with the ATO and other Government departments.

These issues are followed by a range of matters of concern to tax agents and the tax system in general.

1. "Whole of Practice Lodgment Program" reports

The ATO requires tax agents to lodge income tax returns according to the strict criteria set out in their lodgment program.

However, the lodgment program is specifically targeted at income tax returns and excludes all other tax agent reporting requirements. That is, it includes all individual, partnership, superannuation, trust and company income tax returns, but does not include other client reporting requirements such as GST/BAS/IAS returns, FBT Returns, etc.

Nor does it include lodgments of past year returns.

The Tax Office is therefore unable to under-stand the full scope of tax agents’ annual reporting requirements or the work involved to be able to effectively lodge returns on time.

The Tax Office is therefore constantly pursuing tax agents which creates reverse workflows and actually slows the lodgment process.

One tax agent reported that:

"This is absolutely essential as it is the only way the ATO will understand what we do as Tax Agents. In fact my reporting requirements would be phenomenal, if you included all the returns the practice lodges on behalf of clients/entities such as FBT/IAS/BAS, Tax returns, ASIC returns, PAYG, Payroll Tax, Year end PAYG Summaries and other miscellaneous returns.

"I am strictly judged on my performance by the ATO on the Income Tax returns lodged. There is no recognition at all for any of the multiple year returns that I have lodged over the last five years for clients in some cases 5 years at a time. Five year's back returns shows up as only one client line item on our lodgment program."

We are concerned that the ATO does not appear to be prepared to create a "Whole of Practice Lodgment Program" with all types of lodgments listed, as it will show the unreasonable nature of multiple deadlines and competing requirements between the GST, FBT and Income and other Tax Systems.

We believe that the ATO has, via the Lodgment Working Party (LWP), undertaken to start work on this approach but nothing seems to have eventuated, leaving many tax agents unable to cope with the demands made on their time by the ATO.

2. Reporting to various government departments

Following on, reporting requirements demanded of tax agents by different government departments do not take into account other returns/lodgments required by other government departments.

Government departments must be made to coordinate/merge their reporting requirements so as to avoid impacting on the time available to complete all the various reporting requirements.

As an example, the ASIC Annual Review and company tax lodgments.

At the very least, government departments must be made to understand and allow for the fact that tax agents have these competing/conflicting stakeholders and reporting issues.

For example, since ASIC changed its Annual Company Returns reporting day to the company’s inception date, company reviews are due all through the year. Late lodgments are penalised.

There should be a specific review panel made up of Government, Treasury, business, tax practitioners, and professional representatives that has the responsibility for making all government entities including the ATO justify the efficiency and need for all documentation produced before becoming ingrained into the system.

3. Communicating in paper time consuming and wasteful

Why must amendments to a company tax return, or a return with a CGT change, or an FBT change, all be lodged by paper? Why are tax agents not given the opportunity to lodge all amended returns electronically by ELS rather than paper?

In addition, why are tax agents not allowed to lodge their ELS printed tax return documentation where the ATO requires a paper lodgment?

This would seem obvious and appropriate as the ATO is responsible for defining and detailing all the ELS and print specifications to the tax return software providers. Why is it that the same printed form cannot be used for lodging if need be?

4. Income distribution statements on varying and confusing forms

Distribution statements from any Public Trust (e.g., managed fund or investment trust) need to be standardised (ATO approved) in a simple and comprehensible reporting format.

At present, trust distribution statements are not standardised and differ widely and are (often) extremely difficult to understand.

Precedent exists with the ATO specifying to companies what information must be provided on a dividend statement. In fact, the ATO already has a standard report format for trust distributions available on their website.

Additional Matters that are of Concern to Tax Agents and Professional Associations

• Consultation Process

The consultation process must be strengthened and associations like the NTAA need to be consulted before new legislation is released. Adopting this approach will eliminate problems being experienced by tax agents and their clients. Take for example:

• Debt/equity rules which were aimed at the big end of town, caught everyone and had to be changed to essentially exclude small business.
• De minimis rule for depreciation purposes of $100; this needs to be set at much more realistic amount, such as $500 - $1000.
• The practice statement on absorption costing for retailers. Consultation with big end of town retailers and no consultation with NTAA. After it was brought out and NTAA became involved the practice statement had to be amended.

• Introducing certainty into the tax system

Terms in the ITAA such as minor, infrequent, irregular should be defined or accompanied by some ATO guidance (e.g., a ruling or practice statement). These create confusion which in turn means widely different interpretations, mistakes are made, and time and money is wasted by tax agents, their clients and the ATO.

• Family trust elections

There is no central registry, so when clients change tax agents, or tax agents simply want to check if an FTE has been made, they can’t.

• Tax Returns
  • The ATO requires tax agents (predominantly) to complete a large amount of schedules which have nothing to do with the calculation of tax payable and are apparently merely information gathering often for the Bureau of Statistics, such as the:
  • CGT schedule
  • PSI schedule
  • Rental property schedule
  • Losses schedule
  • Capital Allowance schedule
• ATO Forms

Downloading forms from ATO site is a nuisance as you can download samples only. This does not make sense.

• ASIC and Company Tax Return

It has been suggested that the front page of the ASIC return and ATO company return should be merged.

• No changes in a tax return

If nothing changes on a return (such as Name, Address, etc), why does it need to be re-keyed?

• Two Tax Acts

It is time to combine the two Income Tax Assessment Acts.

• Forms constantly changing

If they don’t change the law why are forms changed?

• ATO bypassing tax agents

Directors’ penalty notice (DPN) goes straight to directors and bypasses the agent, often when the tax agent is in negotiation with the ATO about settling the debt. Penalty notice should also go to the tax agent.

• Offline returns

The ATO does not advise when a return is taken offline and is refusing to pay interest on refunds for extended periods offline. The ATO should be required to advise lodging agents by e-mail or mail when they take a return offline and why it’s been taken offline.

• ATO practices can add to workload on tax agents

Income matching is often wrong. ATO says it doesn’t have to prove anything. Tax agent has to prove it.

• Superannuation Guarantee Charge Payments not on Portal

Difficulties often arise when clients make payments (often instalment payments) following a Superannuation Guarantee Default Assessment, i.e., following an audit which results in default assessments and payment of the Superannuation Guarantee Charge (SGC).

Payments may be misallocated by Tax Office staff creating reverse work flows for the tax agent and their client because tax agents are unable to follow the payments on the Tax Portal.

They are not visible to the tax agent who is then required to contact Tax Office staff directly and spend countless hours tracking down the misallocated payments.

• No differentiation between treatment of Small vs. Large Businesses

It must be made clear to all areas of the ATO/Government that Small/Micro Business clients are not Large Business clients. At present, they are treated exactly the same as Large Business clients.

They do not have the resources or the time to report all the issues required of them such as Workers Compensation, PSI, BAS, IAS, Fringe Benefits, Public Liability issues, Human Resources, CGT issues, Non-Commercial Losses, etc.

• Varying a PAYG notice and activity statements

Extreme inflexibility currently exists in an agent’s ability to vary the above on behalf of their client.

Especially in the context of self assessment, greater flexibility to vary instalments should be given to the agent/client.

For example, if an instalment amount is payable on a client’s IAS, and the agent is aware that the client is in a refund position, there should be no need for payment or a variation to be made by the IAS payment due date.

If, ultimately, when the tax return is lodged and the client is not in a refund position so that a payment should have been made – it would be appropriate to levy penalties/GIC etc., – this will continue to protect the integrity of the tax system.