Sarah Blakelock and Jacqui McGrath discuss the ANAO's findings on the ATO’s settlement practices.
In December, the Australian National Audit Office (ANAO) published its findings following its review of Australian Taxation Office (ATO) settlement practices. The review consisted of a sample of settlements, selected from each taxpayer segment (including Public Groups and Internationals, Private Groups and High Wealth Individuals, Indirect Tax), and tested against the following criteria:
Overall, the ATO received a clean bill of health following the audit. Importantly, the ANAO concluded that the ATO’s settlement practices were effective and that settlements were entered into and negotiated in line with the principles of its guiding material such as the ATO’s Code of Settlement. It was interesting to note the positive sentiments in the report surrounding the ATO’s public reporting of settlements. Whilst observing the limitations on full disclosure by the ATO of settlement details (by virtue of the secrecy provisions contained in the Taxation Administration Act 1953), the report concluded that the ATO provided ‘higher levels’ of public reporting about settlement activities than comparable national revenue authorities in other jurisdictions. This would be particularly pleasing for the ATO given its continued focus on transparency and instilling community confidence and trust that settlements, the Commissioner enters into, are reasonable.
The ANAO made a number of recommendations for continued improvement and refinement of ATO settlements. One such recommendation related to the ATO more closely monitoring taxpayer adherence to certain terms of the settlement deeds. The standard ATO agreements may incorporate a payment plan for the tax debt but may also include clauses about future compliance. The ATO was found to have adequately referred matters to the debt business line for monitoring of settlements where a payment plan was involved. However, the ANAO report noted some inconsistent practices within the ATO about how they monitor taxpayer adherence to the terms of settlement agreements involving their future compliance. Some example compliance conditions, that have been incorporated into a number of settlement deeds, include Advance Pricing Arrangements (in the Public Group and International sector) and ongoing timely lodgements of activity statements and returns (in the Private Group and High Wealth Individuals business line).
Relevantly, the ANAO recommended that the ATO implement processes that provide assurance that settlement terms involving future compliance obligations are being met. It was recognised, for example, that taxpayers falling within the Public Groups and International sector would have relevant future compliance undertakings in settlements already captured as part of the ATO’s ongoing Top 100 and Top 1000 assurance programs. Similarly, the Private Groups and High Wealth Individuals business line closely monitor settlements for those taxpayers who fall within the Top 320 taxpayers to ensure that they adhere to applicable future compliance obligations. Interestingly, the Private Groups and High Wealth Individuals business line is recorded in the ANAO report as being in the process of undertaking reviews of whether any future compliance obligations under the ‘Project DO IT’ (‘Declare Overseas Income Today’) settlement deeds have been adhered to by taxpayers in respect of both offshore asset repatriation requirements and other terms of those particular settlements.
The ATO has accepted this recommendation but there remains speculation about how it envisages implementing this recommendation in those cases not otherwise captured in the ongoing reviews observed in the sectors above. As one of the benchmarks for determining the effectiveness of settlements is to achieve participation in the tax system; we anticipate seeing more from the ATO about this.