CHAPTER 5 | looking at the agencies

Under section 4(3) of the Ombudsman Act 1976, the Commonwealth Ombudsman is also the Taxation Ombudsman when dealing with complaints about the Australian Taxation Office (ATO).

The ATO is primarily responsible for administering Australian Government taxation legislation and collecting Commonwealth revenue. Under the self-assessment system of taxation which we have in Australia—that is, where the taxpayer is responsible for the accuracy of his or her own taxation assessment—the ATO has increasingly taken on the role of providing accurate and timely information to taxpayers (and tax agents) to enable them to comply with the law. The ATO also administers some other non-taxation legislation, such as the Superannuation Guarantee Charge Act 1992.

Inspector-General of Taxation

The 2003–04 financial year was the first year of operation for the Inspector-General of Taxation (IGT), whose focus is on tax systems review. The Taxation Ombudsman continues to be the only external complaint-handling agency for taxpayers with complaints about the ATO. We will also continue to identify systemic issues and remedies that flow from individual complaints and to conduct own motion investigations. To avoid any duplication in our work, we will maintain regular liaison with the IGT.

Liaison with ATO

During the year, we continued to benefit from effective working arrangements with the ATO. We met regularly to discuss issues raised by complaints, such as a complaint about the ATO's handling of test and lead case litigation. The ATO accepted that, where arrangements had been reached with third parties concerning litigation involving individual taxpayers, it was important to keep the individual taxpayers informed of significant developments relating to that litigation. In a particular case raised, the ATO acknowledged that this had not been done, and indicated that it would be open to providing realistic compensation by settling with the individual taxpayer concerned.

'… it was important to keep the individual taxpayers informed of significant developments relating to test and lead case litigation.'

The ATO briefed Ombudsman staff about a range of activities, including the compliance and debt recovery areas, and alerted us to incidents that might generate complaints. In each case brought to our attention, the ATO initiated steps to mitigate the risk of complaints and provided specific high-level briefings to the Special Tax Adviser and Tax Team staff. This provided us with up-to-date information, enabling our staff to respond effectively to these complaints.

We also contributed to the ATO's consideration of integrity issues through the Special Tax Adviser's attendance at the ATO's Integrity Advisory Committee.

We further refined arrangements between the ATO and ourselves to assist in:

• improving response times to ensure that we can shorten the time required to resolve complaints
• referring complainants directly to the appropriate person at the ATO to ensure complaints are dealt with efficiently.

ATO complaint handling

In our 2002–03 annual report, we advised that the Commissioner of Taxation had accepted all of the recommendations in our own motion investigation report on complaint handling in the ATO. During 2003–04, we worked with the ATO on implementing these recommendations, particularly towards the ATO developing a single ATO-wide complaint-handling and recording system. The new system is to be in place by late November 2004, and should dramatically improve the ATO's ability to track and manage complaints. It should also result in some flow-on effects on the complaints we currently refer to the ATO, as well as on our own investigations.

Complaints overview

In 2003–04, the Ombudsman received 1,711 complaints about the ATO, compared with 1,909 the previous year (see Figure 5.3). There has been a steady reduction in the number of complaints about the ATO since 2000–01, due primarily to the declining number of complaints related to mass-marketed schemes and the bedding down of the new tax system. The office finalised 1,904 individual complaint issues, of which 24% were investigated; error or deficiency by the ATO was found in 17% of the cases investigated.

Complaints were received about a wide range of issues. Some of the more prominent complaint issues are covered below, and include active compliance and debt recovery, 'competitive edge' issues, tax relief, the impact of changing demographics, the GST, the TaxPack and mass-marketed schemes.

Active compliance and debt recovery

During the year, there was a decrease in the number of audit and debt recovery complaints coming to the Ombudsman, from 575 in 2002–03 to 457. This decrease was unexpected, given that the ATO increased its focus on compliance, and suggests that the ATO has improved its handling of audit and debt collection matters. Our investigation of cases found no evidence of improper or over-zealous action by tax officers. We were able to assist taxpayers by expediting completion of audits and advising people on their options about ATO recovery action against a tax debt.

The Commissioner of Taxation advised us that the ATO would continue actively to pursue outstanding tax debts. This may result in an increase in the number of bankruptcies and insolvencies. Although we appreciate the Commissioner's obligations to the community as a whole to ensure that tax properly due and payable is collected, we are mindful of the human element involved. We can intervene where we consider the effects of ATO recovery action to be unjust or oppressive. The use of legal action, including bankruptcy or insolvency, to recover an outstanding tax debt is not in itself unreasonable, unjust or oppressive. We will continue our important work in this area to provide assurance to taxpayers, the ATO, and the community more generally.

Compliance—'competitive edge' issues

ATO compliance activity during the year led to some complaints raising 'competitive edge' issues. The concern is that not all taxpayers in the same industry are being targeted by the ATO. For example, we received a complaint from a tax agent concerned about an audit of his clients and subsequent tax adjustments. The audit in question was based on random selection and related to the taxation of incentives that some greeting card suppliers give to newsagencies and other similar businesses. The agent considered that the ATO attention given to his clients was unfair and that failure to enforce against others in the industry put his clients at a competitive disadvantage.

The ATO was able to satisfy us that there was no evidence of a widespread practice of failure to make relevant disclosure in tax returns. As a result of the complaint, the ATO decided to focus specifically on incentives from greeting card suppliers to newsagencies and other similar businesses, including rebates and non-cash benefits relating to quantity purchases.

Following several complaints we received last year about 'competitive edge' issues stemming from GST rulings, we received two complaints from companies that conduct title searches about the application of GST to the information-broking industry. The complainants were concerned that GST did not apply to entities that were performing a search function but were not brokers. They also complained the ATO would not advise them of any steps it might be taking on the compliance front.

On the basis of our inquiries, we were satisfied that the ATO consulted the industry, was seeking to apply the law with proper regard to the particular facts of relevant transactions, and was taking appropriate steps to educate the industry and to ensure compliance. We noted that the ATO is required to comply with stringent secrecy provisions as well as privacy legislation, and concluded that there was no basis for us to be critical of the ATO for declining to provide details to the complainants about specific compliance activities.

'… we were satisfied that the ATO consulted the industry ... and was taking appropriate steps to ensure compliance.'

Tax relief

In September 2003, an important change was made to the way in which taxpayers can seek relief from their tax debts on the grounds of serious hardship. The Taxation Relief Board was abolished and replaced by a system that allows taxpayers to seek relief by submitting a simple application to the ATO. The reforms also created a right to object to the ATO's decisions on relief, with a flow-on right of review by the Small Taxation Claims Tribunal. These reforms should streamline the process of seeking relief, with gains in both timeliness and accountability.

Impact of changing demographics in Australia

There was much policy debate during the year about the impact of changing demographics in Australia and the 'ageing' of the population. A number of cases we received highlighted an administrative issue that will be an increasing challenge for the ATO in response to this demographic change.

For example, in one case, a complaint from an elderly self-funded retired couple stemmed from their confusion about the reasons for the wife's inclusion in the PAYG instalment system. Despite a number of telephone conversations with ATO staff, the couple apparently did not understand the new system. As a result of our inquiries the ATO wrote to the taxpayer advising how the PAYG instalment system applied in the specific circumstances, explaining in simple terms the criteria for annual PAYG instalments and clarifying which notices had been sent to her. The ATO also invited the taxpayer to telephone a specified contact officer for further clarification.

The growing administrative challenge for the ATO arises from the convergence of a number of factors, including:

• the ageing population and likely increase in age-related illness
• an increasing emphasis on fully or partly self-funded retirement
• the current complexity of the tax system
• the nature of the self-assessment regime.

After we raised the general issue, the ATO advised that it was conscious of the demographic changes, having already identified seniors as a population segment requiring increasing support. It is also moving to adopt a range of products, services and strategies to target and assist that section of the community. The ATO also accepted that more could be done to assist taxpayers affected by complications associated with age and infirmity. The ATO undertook to explore additional steps that might be taken to better assist these clients, particularly through more immediate case management.

GST issues

In the fourth year of operation of the new tax system, taxpayers generally have a better understanding of the way the GST operates. We received only a few complaints stemming from the GST. One case highlighted the initial uncertainty relating to application of GST in the taxi industry, but also the ATO's preparedness to find a practical solution for a difficult problem. In this case, the complainant, a minibus business operator, was cooperative and anxious to adopt the correct procedure and was dependent on ATO advice, which was delayed because of the complexity of the issues.

'One case highlighted … the ATO's preparedness to find a practical solution for a difficult problem.'

We also received a complaint from a tax professional concerned that the unrequested cancellation of his client's GST registration might be indicative of a systemic problem. We clarified how the error had occurred and were satisfied that the error did not indicate any widespread problem.

As the ATO focused more on compliance and initiated recovery action, we received several complaints that the ATO was unreasonably interpreting the GST legislation. In such cases we decided not to investigate, because the complainants could challenge the ATO view through the objection and review process.

TaxPack improvements

TaxPack and its supplements provided a comprehensive starting point for most individual taxpayers. We provide feedback each year to the ATO on TaxPack, as well as providing suggestions if and when they arise from the investigation of specific complaints. This year we identified an ambiguity in the TaxPack text, relating to travel claims, that the ATO agreed to address in future editions.

Mass-marketed schemes

We continued to receive complaints arising out of the ATO's handling of mass-marketed schemes (114 in 2003–04 compared to 112 in the previous year).

The largest single category of complaints came from those taxpayers deemed ineligible for the full concessionary settlement opportunity offered for most mass-marketed scheme investors by the Commissioner of Taxation in February 2002. The ATO put in place a review process for these taxpayers and informed them of their right to further review by the Ombudsman's office.

We investigated all of the 'ineligibility' complaints we received. Although we did not find any reason to criticise the ATO's decision in any of these cases, our earlier investigations encouraged the ATO to make improvements in the quality and content of its decision letters.

We were also able to assist some taxpayers who had already settled. For example, one of our investigations disclosed errors in the ATO's statement of account. Our intervention resulted in an ATO apology for the taxpayer and a concession on the starting time for his repayments.