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26 Apr 077 Review of ATO’s management of service entity arrangements released

In a press release issued on 24 April 2007, the Minister for Revenue and Assistant Treasurer, Peter Dutton, announced the release of the Inspector-General's report "Review of ATO’s management of complex issues - Case study on service entity arrangements" dated 24 January 2007.

The report examines the ATO’s ability to identify and deal with issues concerning service entity arrangements in the period between 1978 and 2006. The Inspector-General has made recommendations to the ATO designed to improve its processes for:

- providing advice to taxpayers;
- identifying and managing changes to general administrative practices; and
- auditing service entity arrangements.

The ATO has fully agreed with 7 of the IGOT's 12 recommendations, including 5 of the 9 key recommendations and has partly agreed with 3 of the remaining 5

One of the key recommendations that the ATO has expressed disagreement with relates to the IGOT's view that in relation to service entities the ATO has changed a previous general administrative practice. The ATO's insistence that it has not changed its previous administrative practice allows it (in its view) to issue retrospective tax adjustments for service entity arrangements conducted prior to the 12 months period of grace which is referred to in TR 2006/2 (which ends in April 2007). This proposed course of action is strongly criticised by the IGOT who concludes, at para 2.37:

"The Inspector-General therefore concludes that there is a systemic weakness in relying on ATO fairness and objectivity to provide access to the principles, protections and provisions of a changed general administrative practice."

The IGOT also says, in the letter to the Minister accompanying his report:

"I propose to engage in a process of further dialogue with the Commissioner in relation to the two key recommendations the Commissioner does not agree with and the remaining recommendations which the ATO agrees with only in part. This process would, I expect, consider alternative approaches to achieving the remaining improvements sought by the review. The ATO was not prepared to discuss within a reasonable timeframe the recommendations from the review before the report was finalised."

For a copy of the IGOT's report, go here

For a copy of the Minister's press release, No 2007/038, 24 April 2007, go here

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