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Insights into the world of offshoring: is it for you?

Release date: 23 February 2024

If you're experiencing staffing issues in your practice, this episode is worth a listen!

Robyn chats with Jonathan Ryall, Co-Founder of Frontline Accounting and Paul Franks, Partner, Lambourne Partners, about their experience in offshoring accounting and tax work, driven primarily by labour shortages in the profession in Australia.

They cover:

  • The difference between outsourcing and offshoring
  • Managing risk
  • The offshoring experience from a practitioner's perspective
  • A special offer at the end of the episode!

Host: Robyn Jacobson, CTA

Guests: Jonathan Ryall, Co-Founder of Frontline Accounting and Paul Franks, Partner, Lambourne Partners

Robyn Jacobson

Hello, and welcome to TaxVibe a podcast by The Tax Institute. I'm Robyn Jacobson, the senior advocate at The Tax Institute and your host of today's podcast. On the show, I chat with some of the tax profession's brightest minds, drawing on each guest unique perspective to give you valuable and practical insights you won't hear every day. We hope you enjoy this episode of TaxVibe.

I'm joined by Jonathan Ryall, co-founder of Frontline Accounting, and Paul Franks, partner at Lambourne Partners, based in Newcastle and Sydney. Jon is a chartered accountant who's based in Melbourne, has more than two decades in public practice. Jhn previously worked in public practice serving many clients across large and small firms. These days he's focused on an innovative space bridging staffing gaps. He co-founded Frontline in 2012, an award winning Philippines based BPO. At his business process, Outsourcing, which provides a staffing solution for hundreds of accounting firms worldwide, Jon is also the coauthor of Offshore or Die The Original No Nonsense Guide to All Things Offshoring. Based on his own experience, hiring and training offshore team members. There's a special book offer for our listeners today, so stay tuned for more details. Paul is a chartered accountant and partner with Lambourne Partners and is based in Newcastle. He's also a chartered tax advisor and ACA SMSF specialist. The firm is established 38 years ago and is a business based practice offering tax business advisory, audit, financial planning, bookkeeping and mortgage broking services from the group. Lambourne Partners has been using offshore staff in the Philippines for the past nine years and Paul has been the responsible partner during this time. John and Paul, welcome to TaxVibe

Jonathon Ryall

Thanks for having me.

Paul Franks

Thank you, Robyn.

Robyn Jacobson

It's great to be here. This is a really interesting discussion and very timely with all the staffing shortages that we're seeing around firms at the moment. So it is the start of the year and it is important for practitioners to have hopefully had an opportunity to take time out and reset, recharge and come back into the year. Reflecting on what sort of opportunities are available for the way that you're running your practice.

We know that 2023 was a challenging year for many reasons, including the staffing shortages that continued to grip firms across the country. So there are opportunities out there to consider different pathways and looking at options and solutions that might improve the way you are resourcing your practices. So, Jon, can I start with you and just the basics of the language that we're using. What is outsourcing? What is offshoring? And is there a difference between the two?

Jonathan Ryall 

Thank you, Robyn. Yes, it's a common question. And when most people we talk to and haven't really been exposed to offshoring, they just think offshoring and outsourcing is the same thing. So the models are different. Outsourcing really is you know, you take a piece of work and an actual job that goes to another company. Usually in another offshore location somewhere. And they quote the work on a number of hours or on completion of that particular piece of work. And then that comes back to you in shape. Offshoring on the other hand, is more of a labor hire arrangement where you have your own staff solution in another location. You're building your own team under your systems and training and management.I would say the biggest difference between the two is that is the issue of control around workflow offshoring. You have full control outsourcing. You're giving that control to another company.

Robyn Jacobson

There are lots of different models of offshoring, and some might involve using our own staff. Others might involve contractors or using labor hire firms. Can you run through some of those different models, how they operate and what are the advantages or disadvantages of using these different models?

Jonathan Ryall 

In the early days, we would often engage in contractors. When I was in my accounting firm, we had managers that would just be brought into specific purposes to do bits, pieces of what I suppose that is in terms of remote staffing. It is it is a flexible remote staffing arrangement that's similar to two offshoring. So you get the flexible body and the skills you need without asking to put in a lot of training. If you go to the next, I guess another level of kind of a more managed service, which would be there'd be an actual office in a location with staff working you, you're really kind of like renting the desk, you know, in a sense, renting the infrastructure via the Internet and then the salary and wages. Really, you're just paying for those plus that monthly sort of infrastructure charge, which would be our service fee or leasing fee. And that still gives you that element of control over what's happening. And then the next probably level after that would be going to outsourcing, where there's some management in place watching over that person that you're working with and you've taken the workflows more on them than you.

Robyn Jacobson

In the pandemic, we had such a shift in work practices and the working from home. That acronym WFA, has become so familiar to all of us is this is an extension of that. So prior to pandemic, the idea of people working remotely was occasionally out there, but certainly not a mass idea that was embraced by the profession as a whole. Now it's become so commonplace and we're used to dealing with people virtually even this recording we are recording virtually as well. So is it just an extension of that or is it something completely different?

Jonathan Ryall 

Yeah, good question. I would say it's a work from home. The difference there is probably been in the home, it's remote work or multi office is similar, but it but it's a bit more infrastructure around that person's working environment. I mean, for us, we have a big combination of staff that are working from home or working out of our office in Manila. And certainly the pandemic has broken down some of the walls that people had up around a kind of a set up. Yeah, true. What's going to be you have working in the home? And I think remote work is probably a little broader than just that.

Robyn Jacobson

But it's the idea of the firm being used to what I'm going to talk about. Control and security and all those sorts of issues as we get further into this discussion. But it is a cultural issue and it's a mindset, and that's a shift in terms of the way you might have run your practice in the past.

Jonathan Ryall 

Yeah, definitely. And I think Australian firms, we've all been through that, haven't we, you know, through the pandemic. So we've all been forced along that journey to.

Robyn Jacobson

Come to you in more detail shortly about your experiences, all of this. But just as an initial question, how do you go about venturing into this space? What's the first thing you've got to think about? Or how do you go about taking that first step to go into offshoring?

Paul Franks

I guess it's probably a little bit easier now than what it was nine years ago when when we first started, when we did it, I guess we looked at the different locations, whether it be India or Philippines, and we decided to head over there with with one of my partners. And we then went to a number of different outsource companies within the Philippines and really looked at what then was the best match for us. That's how we came across that line. And we've been using their services ever since. But it's finding the right match. The company that works with you and going to get the best outcomes for your business. It's really looking at those different fits, the cultural fit and all the other aspects of what you need to do.

Robyn Jacobson

We, as we look at the sorts of countries and you've mentioned the Philippines, Malaysia, but there's also offshoring in India and Vietnam, other countries. So what are some of the considerations when you're choosing a particular country as the right fit for your practice?

Paul Franks

The language was was one of the first obvious things that people have concerns over. I guess people have had the phone calls and with people trying to sell them different products over the years. And what we found culturally, the Philippines was quite similar to Australia. It was, I guess previously a US sort of base. There was a lot of US influence within the country and culturally their English was was very good, they were highly trained, they timezones were quite similar. So they were working when we were working at similar times in Australia. So meant you could get on the phone, you could talk to them, you could zoom, call them. So all those sorts of aspects were important because if the staff overseas have to culturally mold into your practice and the culture of your own business. So if you can't do that, if culturally they're way different, then it's going to be very difficult for your business that way.

Robyn Jacobson

Now, Australia is always a long way from anywhere. It takes 7 hours just to leave our shelves in most cases. But if we're talking about physical proximity, some countries might be more attractive than others in that respect.

Paul Franks

Absolutely. And the Philippines is only, I guess, a relatively short flight of around 8 hours, whereas some of the other countries a further Y plus all the infrastructure in Manila makes it the i.t. Is is quite sophisticated and you get Paris into some of the other countries. So nine years ago I'm sure that Vietnam and India and those sorts of countries advanced a lot further, but we just found a much better cultural fit to our practice and that's what drew us to the to the Philippines.

Robyn Jacobson 

Jon, what do you find is the main driver for the decision to outsource? Is it always about saving money?

Jonathan Ryall 

Not usually, yeah. I mean, that is a benefit to using it, but going offshore is, you can operate out of a lower cost country with lower wages and things. But the vast majority of clients that we're in prospects we're talking to, we're doing it as a staffing solution. Unemployment's been low here. It's three and a half per cent or something and it's been low for quite a while, particularly in a rural or, you know, regional location. There's just limitations inside. They're getting access to, you know, the 2020 million people living in the Manila area and over 100 million in the Philippines as a whole. So there's just this whole other pool of talent that they can access. And we're, of course, noticing the challenges of getting grads and young professionals interested in this profession. Now, we think it's wonderful. We're decades into it and we can't think of doing anything else but try to get younger ones interested and attracted to tax and accounting and all that. It is a challenge out there. Absolutely. When I started as a, you know, university grad, someone invited me along to a CIA evening somewhere and I thought, Wow, this is great opportunity and it sets you up in the business world and all that sort of stuff. But clearly that hasn't been. Yeah, we've got the image problem in this area with the next generation. They don't see it. The same. And talking to some firms that I'm speaking to, I think a firm from it was regional Victoria and there's a university in their in their area and the volume of accounting students coming through just isn't there at the moment. So they weren't actually wanting to do offshoring but sort of had to because they needed some other alternatives.

Robyn Jacobson

So let's turn now to the, I guess, the business side of things, on the serious side where we need to look at risk. How does a firm in Australia manage issues such as quality control, supervision of staff, the culture, the regulatory environment, particularly cross-border and training and supervision of making sure that the staff are up to speed in the technical, see a lot of issues in there.

Jonathan Ryall 

Ultimately, offshoring is going to be an extension of what you've got going in your own set. So if you've got good quality control procedures before you're offshore, you're probably going to adapt those into the offshore team as well. There's some key things that I would look for when I'm talking to someone that has never offshored. Firstly, have you got someone that's got the time just to supervise the staff that you're about to hire? You know, they're going to come in, they're going to need lots of training, they're going to learn new softwares and all that sort of stuff and have lots of questions and it's just not going to work Well, if they don't have a friendly face at the other side to be able to get help when they need it, that's a big one. So if the partner is swimming in work and can't get stuff out the door, offshoring, maybe not the best solution because there needs to be some freedom at the in the early stages to help that new person.

Robyn Jacobson

Quality control.

Jonathan Ryall 

Yeah, quality control. So I mean, if you were to hire a grad out of uni, you'd have probably keep a pretty close eye on their work progress. Are they actually improving in the review points being repeated over and over again, or are they learning each step of the way? So in the early stages of quality, it really comes down to good training. You need to be prepared to put some training into the team. We have some training programs as a people. Some of our clients take advantage of an ongoing supervision beyond that. So it's definitely not a plug and play, it's not a set. And forget this is a new team member. They'll come to you with some good accounting skills. So debits and credits, I should know, maybe not so much on the Australian tax all the time. So that needs to be trained. So you need to have someone reviewing their work, writing that feedback to make sure that by the time it gets to the level or out the door, it's being checked and that the quality that the firm would expect it, which you would do anyway if you had a if you had a grade come in and learn from the ground up. Obviously there's security things to consider. So and again, no different to any any work from home set up. You need to have that security environment needs to be sort of considered. I mean Paul probably would have some of the specifics about what they do in that area. But but generally speaking, it's things like, you know, the hardware. So, you know, we provide sort of encrypted computers that, you know, where USB hubs a disabled and so staff can easily just grab things off and do what they want with it. There's monitoring type software if needed. There's think about password control and the normal things that your IT person would want to look at. We have an IT teams who are often working with IT teams to make sure that that is all sort of flowing from firm to offshore staff on a on a consistent sort of security environment.

Robyn Jacobson

All from a practical perspective when actually interested in the cultural challenges or opportunities and also the regulatory environment. So how do you manage both of those and ensure there is cohesion with your own practice?

Paul Franks

Just jumping back onto one of Jon's comments before I run into that, Robyn, the one point I probably make there is it's not that different putting on a new overseas staff member to putting on a garage here in Newcastle for instance, you're going to have to supervise and you're going to have to put in time training them. And the more effort you put in at those early days, the better outcomes you get into the future. It's no different from an offshore perspective. It really works in the same way. So I guess I don't want people getting the impression it's more because it's pretty similar. The difference is, is you're doing the training via a zoom or a phone call compared to walking up to their desk. But if they're working from home, then it's really no different in in that aspect sort of thing. So the key point in there is really if you want to succeed in the offshoring environment, you've just got to put the time in just like you would with the normal staff in Australia, put the time, you'll get the results long term. So that's a long pie if, if that's what you're looking for. In terms of the your question, the cultural aspects and engagement, we got our staff locally engaged by having a local mentor. So what they would do is there was a responsible senior staff member in Australia who dealt on a probably a daily basis quite regularly with the staff and that building, that contact between the staff built relationships. We also would bring we've brought our Philippines staff to Australia to, to give training. They then get to meet all the time in Australia and as work very well even for our local staff. Our local staff really get a kick out of seeing the staff coming from the Philippines. They've, they've never left their country before. They turn up in Australia with their eyes are as big as there's dinner plates send and they get an experience, but you get it back tenfold because their enthusiasm, once they've been here, they've know our staff, take them out on the weekends to do touristy things. But that all is a part of the business that's moulding them into our culture and building those, those personal relationships. So that's probably the key building, building strong personal relationships between the staff in Australia. And that's why I guess I've been the consistent sort of partner who will regularly, along with other staff. So that builds the whole team and the strength into the other team. So I guess our Australian staff see how from the top, how the partners deal with, with the staff over there and they're treated like any other staff and I guess that's where leading by example.

Robyn Jacobson

What's the legal nature of the arrangement? So are they contractors, Are their employees, are they your employees or are you paying fees through the intermediary?

Paul Franks

I guess technically they're not our employees, but I think look, Jonn can answer this. The legal aspect from the Philippines is they're not our employees, but we see them really as just another employee of our practice. Correct.

Jonathan Ryall 

Just in substance, they are employees, but it's a legal and payroll purposes. We have a company that deals with the tax and and the legalities of employing in the Philippines. And so for one of to give his staff pay rise then he can, you know not just get notified they are or whatever and that'll just go on the invoice can be passed through straight to the straight to the team member. But yeah, there is a lot going on. I guess you'd call it an employer of record in the Philippines to handle that type of thing, the legality of it.

Robyn Jacobson

And they are dedicated staff for your practice. Also whilst there it's an arrangement through this intermediary, they are still wholly allocated to you. You're not having them part time or sharing. There are lots of other practices.

Paul Franks

That's correct. It's I guess it's probably calling it a labor hire arrangement, just like you could employ staff in Australia. It's exactly that same arrangement. So you have your your invoice for the staff that includes every cost, the provision of the, the seat, the computers, the technology, the I.T, the staff wages and hopefully a little bit of profit margin in there for Jon. So he continues into the future. You know, in all other aspects they're seen as our employees. So when we put the time and effort into them, we see the results through their improved skills and experiences. And one of the staff that we started with is still an employee nine years later.

Robyn Jacobson

So how do you protect yourself from whatever risks might be associated?

Paul Franks

Really no different to any of our other staff in Australia. We have our to factor authorities authorizations on all of our software. Most of the software we're using now within the practice is cloud based. We can switch them off if we have a had we've never had to. If we had to kick them out of software or not give them access, then it's very quick and easy and it can be done instantly. So and certainly the I.T. controls that are in place in Frontline is as good or probably better than than what we see in Australia. There really is leading edge technology to to ensure that there is no breaches of technology and it touch forward with. We've had an excellent experience and no issues in any of these type.

Robyn Jacobson

I'd like to delve into your experience a little more. What difference has this made to your practice and where do you see the benefits continuing into the future?

Paul Franks

I'd certainly say it's been a very, I guess, a very positive experience. What it's done is it's given us a capacity. That was one of the main reasons that we started looking at the offshoring quite a few years ago. It's also provide us a well-trained, very stable workforce. So what our experiences were and I guess many medium sized firm was we'd find that we'd spend a lot of time, we'd put graduates on every year, we'd spend a lot of time training them up. They'd get up to intermediate level, and that seemed to be the level where people in their careers might different choices had a staff member who joined the police service staff who wanted to go to Melbourne to to see the bright lights. So you'd spend a lot of time and a lot of resources training staff up for three or four or five years and then they turn over. So then you'd be back to square one. So from a client perspective, which was I guess top of the list for us, you saw turnover and that wasn't a great outcome for a client. So one of the top benefits with using the offshore staff has been the stability of clients sort of in that, you know, junior through to to sort of mid-range experience. It's it's been a really a really good outcome for us. And probably the other point we like many firms when we first started out down this road, was wondering what was going to be the client's reaction. How will our clients react to using offshore staff? A little bit nervous to start with, but we found pretty quickly that our clients just wanted a good service. And what these did was it enabled us to provide a better service. We were able to be more responsive. We had capacity, so we really don't want a staff member in Australia sitting around with no work to do. But if you've got a staff member offshore that is costing you significantly less, you can have a little bit of excess capacity there that if something needs doing, then it can be done instantly because you've got that capacity. That was sort of another key aspect and the client reaction is know they've seen better service, quicker reactions, their response times have only improved with that capacity. So they've been enthusiastic through, through the process as well. Not everyone likes it and I've got a couple of clients who, for whatever reasons, haven't been a fan of it, and we just use local staff to do it. But having those offshore staff frees up the local staff as well. But there's also there's arguments around that having a lower cost with those offshore staff gives you the ability and the capacity to look after your Australian staff even more as well.

Robyn Jacobson

Everybody wants foreign staff client-facing or have any contact directly with clients or is it only the Australian staff who deal with your clients?

Paul Franks

Good question. We have a number of our offshore staff dealing directly with our clients and we provide bookkeeping services. We have mortgage broking our at mean for their our parapan as in our financial planning practice. Also so broadly across all of the staff in the Philippines, they deal directly obviously with supervision, just like with any other staff member. But if you need something sent off quickly, some reports, you know, a payment slip, anything along those lines, then they have that direct contact and the clients are just happy to get good service. And these are highly skilled staff over there. Some of our staff have done the equivalent. If you're a CPA, they're university trained and they're doing bookkeeping, so you don't always see those sorts of highly skilled people in Australia providing that service.

Robyn Jacobson

To keep our listeners a sense of the sorts of differential in salaries or wages that are being paid. If you had, say, an Australian worker on 75 to 100000 K a year, what would be the equivalent in the Philippines for your workers?

Paul Franks

The range obviously depends on experience in that sort of range with all the own costs. So wages we provide medical even down to the presence that you send to them on their birthday, those sorts of things. The administration costs providing premises, I.T, services, internet, all of those all wrapped up probably cost us in the range of 25 to $30000 a year.

Robyn Jacobson

Being roughly a third say of what the Australian equivalent would be.

Paul Franks

Yes, that's correct.

Robyn Jacobson

Yeah. It's quite a significant saving by staff. Training was something that you know, certainly was my background. It's something that is dear to my heart and important and and it's worth sharing also that for our listeners, Paul was a trading client of mine a long time ago and for a very long time. So it's nice to have a chat with you again. But in terms of staff training, you run that for your Australian staff participation by the foreign staff as well?

Paul Franks

Yes, just like Australian staff, we want them as highly trained as well as we can get. So what we do is we involve them in all our internal technical trainings. So if we do an online webinar they will also log into that. We also will travel a couple of times a year to the Philippines and I'll take staff with me because my staff are much smarter than I am, so they will spend time training them and we also from time to time bring our Philippines staff out to Australia and give them a couple of weeks of intensive training as well.

Robyn Jacobson

Now something that I know is a challenge when it comes to getting access and security, let's talk microbiology for a moment because in Australia you've got to your various strengths and with our Australian driver's license or our passport, you can of course get the highest strength possible. When you're a foreign individual. That's very difficult and usually it's just the standard that is the maximum that is capable of being obtained. How does that work in practice for you? So does that restricts the ability of the foreign staff to do certain things because they can't get there, might have it to the strength that might be needed for the tasks that are being done by those in Australia?

Paul Franks

That's true. So with my goals, the only level you can get them to is the basic level and it's a bit of a process. It's not as easy as you would for an Australian, so you've got to lodge paperwork with the Australian Tax Office, you've got to get certified documents from the Philippines to send off to it, but it gives enough access for a lot of the basic, you know, pulling reports off, getting information off. But there's the upside as well, where I guess a lot of practitioners would probably feel positive that there are restrictions in on what they can do. So they can't go in and change bank details for a client. They can't go and do other aspects that you can with a higher level like I.D. So it actually provides some some additional levels of security within the practice without really stopping everything. So the access is adequate for what we need them to do. And it also gives people who would be new to offshoring the confidence that a client's refund couldn't get sent somewhere else. But an Australian staff member could do that as well. No different to any other employee that people have concerns in that area. So it's a strength as well.

Robyn Jacobson

Jon, I want to go down a couple of pathways now. Those who have been early adopters with this approach of resourcing their workforce and those that are yet to, they're shut down this pathway. So what would be your key messages for each of those groups? So let's start with the early adopters, okay?

Jonathan Ryall 

So early adopters have had plenty of experience and don't sort of need to be told what to do or how to do it. It really is, I guess just an analysis of how their overall firm's going and how those staff are, you know, growing and and progressing in relation to how they'd expect an Australian to do. And in my experience, I mean, I did this myself for about a decade, like Paul, I had people start and I was I had spent nine or ten years with them and saw them move up the ladder really, So that manager level and able to handle quite complex things on their own sometimes will tend to put a little bit of a cap on their offshore team for some reason. Maybe it's like, Yeah, you'll only ever be able to do bookkeeping or things like that. So my approach is really don't put limits on what they can do with the right input. They'll grow and progress like, like anybody. So obviously that answers your question. So the established ones.

Robyn Jacobson

You've talked about a possible warning sign where screens go black on video calls.Can explain this?

Jonathan Ryall 

Okay. So best practice is really you want to have cameras on. Plenty of contact with the team. I recommend that sort of a daily huddle or something. Checking on screen regularly. Daily is is probably best practice at least you know where things have fallen off the wagon a bit is where we had one client that only emailed his staff for nine months, never called them, never did a zoom or anything. To be honest, I'm surprised that the person stayed that long. You know, we've had people in tears in Manila because they've been chatted on from a manager in Australia and it's just, you know, maybe some small caps. I think the words were dammit, you know, in all caps on to do with a particular issue. But the staff thought they were directing that at that. Just a real signal that there's not the communications breaking down a bit. So so I would say extra effort around communication with all working remote and that really keeps things moving, keeps things working well.

Robyn Jacobson

The screens start going black and they start doing email only and they're not engaging with you. That's a reason to be concerned, definitely.

Jonathan Ryall 

I think often times partners get this, and I think partners usually are partners because they're good at what they do. They're good with with people most of the time develop delegated to a manager, and perhaps that manager didn't want to work with an offshore team or, you know, it's a little bit intimidating. We've never dealt with Filipinos before or something like that. That's probably where you just want to make sure that those things are being done the right way.

Robyn Jacobson

Paul, any comments on that?

Paul Franks

I was just going to say you wouldn't have an employee in Australia and put him at a desk and not talk to him for nine months or only send emails. It's really not that hard. You walk in, you talk to yourself in Australia, that's all Jon saying. It's no different. It's not that hard. 

Jonathan Ryall 

In addition, there's there's social things you can do. I mean, you know, some firms will have, let's say a celebration, someone's on another birthday or a significant anniversary or something like that, and everybody gets pizza. So they order pizza over in the Philippines, not pizza in Australia, and then get on a call and have some banter and fun pizza, you know, that sort of thing.

Robyn Jacobson

Now, the groups that are yet to venture down this path are if you're coming cold, if you've been adverse to this idea in the past, if you're reaching the point where you're still struggling to find staff and this really could be an option, what would you say to them?

Jonathan Ryall 

So we talk about it in depth in the book, but there's three components that you really need for it to work well with an offshore team. So and I say it's a bit like a triangle or a three legged stool. You have to have all three things in place. So you've got good systems in place. You need to have checklists for people to follow. If it's all in the partner's head, it's going to be a hard and frustrating training and getting productivity. So yeah, think about the systems that most firms are pretty good at. That training is, you know, one of the legs and monitoring is the other one. So accountability as your daily catch ups you've got with that, you're holding your team accountable to billing targets and things like that and called the offshore team to that as well, make sure that they know what their targets are, you know, and that it's visible. I think the real really good spot to be with this is is to set things up in a way that creates an internal team peer pressure so that if there's visibility on what everybody's doing, you know, team members can see other team members activity and that sort of thing, then it's not all on me to make sure that they're performing. It's, you know, they don't want to look bad in front of their peers. So it's just a way of setting that up. So things are visible, reports are visible, you know, that that sort of thing works well. Well.

Robyn Jacobson

Paul, you made the comment to us in our planning discussions on this that most of the risks associated with offshoring are not specific to offshoring, but in fact they exist with Australian staff as well. And I think you've made that point a few times throughout our discussion today.   

Paul Franks

Absolutely. The aspects of offshoring are they're very similar to having employees in Australia and it's really just being consistent. It's just making sure that you communicate with them, you treat them as any other employee and that that's really the key and just dealing with them regularly. Like I said, it's not rocket science in that respect.

Robyn Jacobson

So Jon, if anyone ventures down this pathway. They get into offshoring, they set it up, they run out for six, 12, 18 months, two years, whatever. And then they find, you know, well, this is not for me. How is it to unwind or to exit from that particular arrangement.

Jonathan Ryall 

That has happened? You know, on rare occasions that firms have gone down the road and then for whatever reason, it just hasn't worked for them. Obviously, from our perspective, as you know, we're a star staffing company. We have quite a few other clients to be extremely interested in staff that have got some experience. So it's it's quite easy for us to say, well, let's make an agreement and find new homes for them. But look, the normal procedure there is normal procedures that would be followed around, you know, making sure that is it performance or whose end is the fault? Is it the staff's performance or is it you know, the firm really didn't do their part and kind of making assessments about where those staff, what their future would look like in that regard. You would know the standard sort of procedure would be two months notice to switch off and then we try and find a quicker solution if that's on the cards too.

Robyn Jacobson

Jon, you've had the rare situation where you've actually asked a client, a firm, to leave the arrangements.

Jonathan Ryall 

Yeah, Yeah. I mean, we've had a few. Normally we get warning signs. Yeah, we've got a, we've got a team that are checking in with staff welfare and all of that sort of thing regularly and we might hear, oh, such and such wants to resign and that's not unusual. And staff everywhere don't stay forever. But it's more when let's say the whole team wants to resign, you know, okay, we've got some problems, you know, so it's it let's pull out all stops. Let's find out what's been happening. The ones where it's it's usually mutually agreed in those situations or perhaps the firm didn't realize and they want to turn that around and we'll work with them to try and salvage where it had to be turned off. Like I said earlier, it was you know, we've had two or three where, you know, new managers come in. They're people skills are not really like the old one was. They sort of see it more like software or, you know, something that should just happen automatically that in terms of their offshore team. And it just turned it into a the offshore team didn't respond well, just turned it into a mess. So in those situations you've got it. Yeah, you've got to make some calls. We obviously our interest, we want to look after the staff, We want the clients to be happy of course. But yeah, it's, it's, it can be a bit messy but we would come to some sort of a plan to work it out.

Robyn Jacobson

Thank you. Paul, any final comments from you as to recommendations, advice your suggestions as to whether this is a good idea for firms and what benefits it could bring them?

Paul Franks

I guess like anything in business, owners and partners have got to continuously adapt. We've got to consider new innovations, technology that we can improve our business. And I guess offshoring has been around for a little while now, and I think that most businesses should at least consider it to see if it is going to improve their services to their clients. So there's that aspect to it. I, I guess also there's a risk factor there if you're potentially not using offshore staff and you've got competitors within within your local area that are using those, is that going to put you at a disadvantage? So I think that firms also need to consider that. But on the other side, they might go down the other path where they differentiate themselves by not having offshore staff and it's not for everybody. So I'm not suggesting that that either, but I think it's important to to consider it and to make sure that all those aspects and benefits. But for us, it's it's been a great success. It's given us good capacity. It's given us a good, stable workforce across all different divisions within our with our business. And to some extent, it's now quite critical to our business. If we didn't have them there, our our staff, then that would be quite a difficult outcome. And just having great stability, we've got a great team there in the Philippines and they do a great job. And it's not just that low level work. I guess John Knight mentioned before, we certainly not capped the sort of work that our staff do and they do everything from dealing with the ATO, talking to the ATO on the phone all the way through to self-managed super funds, super fund audits, all different structures and quite complex work. So we found just like with our Australian staff, if you challenge them, then they certainly will lift and you'll get the best out of them. So don't I guess, have the source that they don't have the skills. They're certainly highly skilled and worth considering.

Robyn Jacobson

May I add that it's perhaps made the world a little bit smaller for your practice as well, but the cultural benefits it brings for your staff working with offshore workers and the offshore workers getting access to the beautiful beaches of Newcastle?

Paul Franks

Yes, absolutely. The staff, it's like Christmas when they when they turn up our staff from the Philippines, everyone wants to take them out for lunch or take them whale watching on the weekend. And it's culturally it's been a great thing for our staff as well to experience another culture, even for my of my children, when when we started bringing staff out, we had them stay at my house and the experiences that gave my children and adults that the staff are seeing, what other cultures, what they experience and it makes them appreciate what they've got in Australia and when they see how hard the Filipino staff work and how they live, it's certainly much different to Australia. So it's a good it's a good wake up call. It values sort of aspects of it as well. But it's good for business and good, good for a lot of other aspects of what we do.

Robyn Jacobson

Thank you Paul and Jon, final words from you and then let's hear about this book offer for our listeners.

Jonathan Ryall 

Yes. So if we have a book, which is just just that, read one there, I will. I'll send a free copy of that to anybody that's on this podcast. All you got to do is send me an email. At jon@frontlineaccounting.com and I'll have someone in the office send that out And that's got all the, I guess how to make it work, you know, all the various stories and things that can go wrong and how to avoid them and just our own experience over a decade of building offshore teams.

Robyn Jacobson

Terrific. And that email again is jon@frontlineaccounting.com and Jon with J.O.N.

Jonathan Ryall 

That's it, no H.

Robyn Jacobson

Thank you both for your time. It's been a really interesting discussion and I hope our listeners have got a better insight into the world of offshoring.

Paul Franks

Thank you, Robyn

Jonathan Ryall 

Pleasure 

Robyn Jacobson

Thanks for listening to this episode of TaxVibe. I've been chatting with Jonathan Ryall, co-founder of Frontline Accounting and Paul Franks, partner at Lambourne Partners. If you've enjoyed this episode, we'd love for you to subscribe, rate and review TaxVibe wherever you listen. We welcome any feedback and suggestions. To catch all the latest from TaxVibe and The Tax Institute, join us on LinkedIn. If you're interested in being at the centre of the tax conversation and membership at The Tax Institute, it could be just what you need. Stay current and connected with tangible real-world benefits. Learn more at taxinstitute.com.au. Thanks again. Till next time on TaxVibe.

The 2024 tax terrain – treasure and traps included

Release date: 26 January 2024

Strap yourselves in, this is a long episode full of reflections on 2023 and the biggest insights for 2024!

Robyn hosts Todd Want CTA, The Tax Institute’s newly appointed President for 2024. They cover everything from the Stage 3 tax cuts to AI and so many things in between!

Listen to this episode for:

  • Key reflections on 2023
  • The biggest factors at play in 2024
  • Labour shortages in the profession and changes in work practice
  • The upcoming Federal Budget
  • Tax debts and ATO debt collection activities
  • All things superannuation – Division 296, Payday super, NALI/NALE
  • The integrity of the tax profession
  • Todd’s vision as President for 2024, including our new digital micro-learning experience, Tax Academy

Host: Robyn Jacobson, CTA

Guest: Todd Want, CTA

Robyn Jacobson

Hello and welcome to TaxVibe, a podcast by The Tax Institute. I’m Robyn Jacobson, the senior advocate at The Tax Institute and your host of today's podcast. On TaxVibe, I chat with some of the tax profession's brightest minds, drawing on each guest's unique perspective to give you invaluable and practical insights you won't hear every day. We hope you enjoyed this episode of TaxVibe. I'm joined by Todd Want, the president of The Tax Institute and a director in William Buck's tax services division in Sydney. Todd has more than 20 years of experience with expertise in private client tax matters. He advises clients on a broad range of tax issues such as CGT structuring and restructuring acquisitions and divestments, small business, CGT concessions, Division 7A, Taxation of Trusts, International Tax Issues and Tax Risk Management. Todd also provides specialist consulting services to accountants, lawyers, financial planners and other professionals in public practice to assist them in advising their clients. He's a regular presenter on changes to tax legislation and interpretations. Todd is a Chartered Tax Advisor with The Tax Institute and a member of Chartered Accountants Australia and New Zealand and CPA Australia. As well as being our President for 2024. Todd is also a member of the National Council and the New South Wales State Council with The Tax Institute. Todd, congratulations on your appointment and welcome to TaxVibe.

Todd Want

Thanks, Robyn. I'm really pleased to be here today and looking forward to what 2024 has to offer.

Robyn Jacobson

Kicking off the year but before we get into all the the business side of the conversation, how did you spend your summer? Did you get some downtime?

Todd Want

Look, I did. It's actually been a really enjoyable summer, you know, spending plenty of time actually away from the world of tax time with family and friends. Had some family come out from the UK to visit us, which is wonderful. Some of the kids went to cricket, spent the beach catching up on a bit of DIY around the house, that sort of thing. So getting plenty of stuff over the last few weeks. But looking forward to getting into, you know, into the world of tax again.

Robyn Jacobson

Sounds like a good Aussie summer. So we had a big year last year and I hope that practitioners around the country have had some time out and an opportunity to relax, reset, recharge, reinvigorate. We come back into the new year and as we do lots of collections. Briefly, can we cut back on 2023? What are the learnings perhaps at a macro level?

Todd Want

I think it's been an interesting few years and it's continued to build. You've had a whole range of cost of living pressures that are being felt. Rising interest rates, that type of thing, inflationary pressures and and that's built across a broad range of people and we have multiple speeds in the economy. I think it'd be fair to say some are really feeling the pressure on the household budget, others perhaps not quite as much. But I think if we if we're looking more broadly the tax system and where that heads to help people out to have some more fundamental changes to the tax system will be great to have some genuine tax reform on the table there. But I think we've got enough interesting areas or evolutions in the world of tax this year that it's certainly not going to be a quiet year in the world of tax.

Robyn Jacobson

I was just reading this morning there's been another construction company that's gone into administration this morning down here in Victoria. And I'm wondering with the all the government support that was provided during 2021 and even into 22 is that 23 and 24, we're really starting to see the impact and we'll continue to see the impact perhaps of the post pandemic and the fact that the government support has come to an end.

Todd Want

Look, I think that's right, Robyn, and I think businesses needing to stand on their own two feet, so to speak, and some of those things washing through the system as far as the catch ups where businesses that perhaps have overextended themselves or they've got labor market shortages that are hitting their workforce and their ability to fulfill contracts and do it cost effectively, I think all those types of things are really starting to hit and probably much like myself, getting a bit of time away from from the profession that are operating day to day, a lot of other business people will have taken the opportunity over the summer to to have a little bit of downtime, probably reflect on what has happened with their business and where their business heads moving forward and whether they need to make some difficult decisions leading into 24 or be prepared for difficult decisions that might come. And that's never pleasant. But I think there's also a lot of really positive decisions that people could look forward to this year and opportunities that, as the saying goes, never waste a good crisis. So opportunities also come out of this type of thing. So I think a lot of people will be ready to to step up in their profession and and move forward with a strong 2024 and beyond.

Robyn Jacobson

I'm particularly interested in delving a bit more into the the shortages with the workforce will come to that in a moment. In terms of 2024, what do you see as being the really important factors at play? What's going to shape the landscape of 2024?

Todd Want

Look, I think, as you say, we'll come back to the labor shortages in the profession and more broadly, but inflation is something that we saw obviously over the last couple of years. There was some fairly significant inflation that's know appears as though it's starting to ease. But how quickly does that ease and what does that do for for clients, for businesses, for pricing, for household budgets and also dovetailing into that where the interest rates go and I think have they kept out, is there further increases or will actually we see some cuts later this year. It's a fascinating little interplay there with, with what that means for borrowing capacity as well, be it for for businesses looking to invest. And we've obviously had certain government measures yo instant write off temporary full expensing type things that have meant a lot of businesses acquired, a lot of capital assets, the ability to borrow for those sort of things. Now where's the borrowing capacity for future acquisitions of capital assets, albeit perhaps they aren't as tax effective. Now with with the changes to the instant write off type measures, But still businesses looking to keep themselves at the forefront of their industries. So I think that's an interesting part. Tom. As you mentioned, Robin, the the government support and the ending of that, what will that actually mean? Businesses needing to to manage an environment where they need to be able to fend for themselves and genuinely be able to push a path through without those levels of support. And that will be tough for many of them. I think you've also got get the mortgage cliff that's been talked about and fixed interest rates coming off. People who are on these 2% interest rates or sub 2%, some of them rolling on to five, six, 7% interest rates. What does that look like? And same as business borrowing, What sort of interest rate of businesses borrowing money at and how does that flow through? So I think those things are certainly going to be interesting during the 2024 year. But those businesses, those clients, those taxpayers that have have managed through sensibly, they'll be able to work a path through this. And it's all part of of good business management and economic management, household budgets, business budgets, all those type of things. So certainly those those are some of the things. And perhaps, Robin, you know, we touched on this labor shortages aspect now, because I think that's probably one of the biggest things that is ahead is the labor shortage dovetailed in with what impact does I have on the on the profession. So labor shortages more generally, I think across the economy, the tax in a tax and advisory space is certainly not exempt from that. Are we seeing those shortages where people are trying to recruit more people to us despite proving very tough? And it's not just those people who are running businesses out in the regions and the suburbs. It's everywhere that trying to get good quality people isn't easy. And so that's not going to solve itself magically just because we've all had a Christmas break.

Robyn Jacobson

The idea of upskilling and training staff and looking at alternative pathways. In an upcoming podcast, we're going to be chatting with Frontline who are experts in offshoring. And that's going to be a whole different conversation about how the firms actually resolve that using labor that is offshore and how do you control that. But if we come back to the Australian market for the moment, the course is being studied.vAre we still getting people wanting to embrace the accounting and tax profession as a career, the traditional pathways where you had a job for life, where you stuck with this career and you might have changed jobs four or five or six times, but that doesn't necessarily the same anymore. We've got people who are exiting the profession now, whether it means they're going off into industry, meaning they're still an accountant, for example, but they're simply not working in public practice or whether they're actually exiting the profession entirely. It's an interesting landscape.

Todd Want

Look, it sure is, Robyn. And I think if we look more generally at businesses and and that is new businesses, technology, everything else that has meant that the breadth of skills needed to assist and advise those businesses has evolved over time as well. And the tax profession is is one where people from different backgrounds, not just their cultural backgrounds, but also what they've studied previously, what they may be, haven't studied, whether they do need to upskill in certain areas of tax, whether they specialised in areas. I think it is something that we have got an evolution of what that looks like and perhaps people are looking for different things than perhaps people in previous generations did. The tax profession, though, is still one where there's many, many hugely interesting and exciting things to look at in all areas of tax. But I think the key thing there, Robin, about upskilling and training is really crucial. It doesn't matter the background, if someone is keen and they are bright enough to do it, they can do the study, they can upskill, they can train and bring themselves up to speed and be able to be a really well equipped advisor to be able to provide the sorts of things that clients are looking for. And then that's exciting. I think as a profession that the the breadth of skills the different backgrounds bring can actually make the profession more vibrant moving forward. And I think that would be a fascinating thing to play out over the next generation or to.

Robyn Jacobson

Comment on cultural shift. And I'm not just referring to working from home, although that's a big part of it. Are we seeing changes in the way that an aspiration to be a partner? Amersham may not be the driving motivation for young practitioners. Maybe they do want to progress, but they don't want to take over the ownership or the capital, the equity or the responsibility of running a practice. What are you seeing out there?

Todd Want

Well, look, I think there's certainly still a a strong amount of people who do aspire for that partner type thing. But there's also a large amount who perhaps that's not for them and there's nothing wrong with that as long as it's clear to everyone and the balance is right, nothing wrong with people wanting the balance in their life and perhaps the changes of their career throughout, I think I certainly enjoy my week here. Yes, there's plenty of hours worked in my week, but I also enjoy going coaching my kids sports teams or taking them to swimming lessons. You know, every every couple of weeks they're going to see them. And that's a part of my work life balance that actually helps keep me sharp for for the time that I am focused on working on client matters or doing tax related things. So I think that the evolution of you're not chained to a desk, if perhaps there was a perception that that was the only way to to be effective. I think that shift is an important one. But the work life balance and what that phrase actually means, I think is a really important one. And getting that right for for everyone and making it clear between the employer and the employee that, hey, they might aspire to be a partner, but that doesn't mean they have to work ridiculous hours every day of the week getting that balance rights are important. So I think we'll continue to see an evolution of it. Robin, as you say, the work from home is a part of that. The flexible working hours, those types of things. I think it's just something that will continue to evolve.

Robyn Jacobson

In terms of the role of technology. Some firms have embraced it, others are still perhaps a little more resistant. And I'd like to do things the way they've always been done. There are certainly some great tools out there, but if we look at, for instance, CBT and in terms of it being a useful tool, productivity more efficient, but is it any way in terms of detracting from the quality of what we bring as professionals with the expertise and the experience? Can it make decisions? Can it judge ethical dilemmas? It's an interesting question about how I can be used in a practice.

Todd Want

I think you could open up a Pandora's box here, Robyn, of things, but technology there is no doubt about the fact that technology, if harnessed correctly, is very powerful in the world of tax, be it whichever part of tax you're you're coming from and what your job description or role actually is. But the efficiencies that can be driven there, if you understand the process and what you're actually trying to get the technology to do, I think is critical. And you take your reputation in that they can be very useful, but don't expect them to give you a completed solution to a problem. You still need to have the technical nous in the background to be able to identify whether it's complete and correct. It may be that something that GPT has put out is somewhat correct in a particular context, but is it actually fit for purpose for what you're you're actually trying to achieve? So those types of things, I think is where technology has a place and will continue and obviously I will continue to get better and better, one would assume. But the real skills that I experienced and keen tax professionals have, that'll be very difficult to replace the breadth of what that is. And as you say, Robyn, the ethical dilemmas is often those require a judgment call that is far from easy in many instances, and sometimes you need to to discuss that with others and take on board different views to come up with a solution to a potential problem. And a lot of people in the world of tax, the role could probably be more aptly described as a problem solver rather than a tax person. And and problem solving requires the same core process, irrespective of whether it's a tax issue or an ethical dilemma or whether it's something you're trying to as I've been doing, trying to fix around the house a few DIY problems and whatever else. You've just got to come up with solutions using a process to get there. So I think technology is something that 2024 is. Technology's only going to become more powerful, but people need to understand their process and make sure they've got an efficient process because the old adage of garbage in, garbage out probably still applies pretty well there, that you haven't got the right systems and processes you technology's not really going to help you in the way that you perhaps think it will.

Robyn Jacobson

Be also important to check the veracity of what it is you are reading that is produced by a I heard of a lawyer who was provided with some research and the precedents that were discussed in this research were compelling and persuasive, and it was all very well put together. And of course he did his proper due diligence and make sure that he checks that this was all correct. And the cases that had been described in this artificial, the intelligently produced document was in fact all made up. It isn't going to be just because you're provided with something from the computer. A computer may not be correct.

Todd Want

Well, that's one way of supporting your technical arguments with things that exactly fit the fact pattern not even led to a good story in the way the truth has.

Robyn Jacobson

So moving into our space, looking at what's on the radar from a tax perspective in 2024, it's a most dominant discussion at the moment and not just because of the time frame coming up. We have, of course, got the federal budget and it's this annual gathering. I'd describe it nearly as the most exciting night of a year, where, of course, at the Tax Institute. We all get together, we spend the night poring over the budget papers and producing reports and summaries and and videos, etc. for our members in the broader profession. But it is the 14th of May this year scheduled at this stage, and certainly the focus is on the stage three tax cuts. So it's worth making the point that these were legislated back in 2018. It was a three stage approach stages one and two were deliberately targeting the lower and the middle income earners first. And it was always intended that the stage three tax cuts delayed until 1st July 2024, would target the higher income earners. Now, in order for them not to proceed, the government would need to change the law. So they need to get the support of the Parliament to actually put some amendments through. We will watch and wait with great keenness over the next few months to see how this plays out. And I am not interested particularly in getting into the political arguments here, but certainly it is dominating headlines and cost of living Relief is something that the government has undertaken to provide in the budget. Your thoughts on this?

Todd Want

I think, Robyn, you've got obviously, as you mentioned, this was legislated a number of years ago, so this is not something that requires a budget and in future passing of legislation, it is locked in. So there would have to be superseding legislation to go and change those tax cuts. What we've probably got is the fact that we're not in that extreme deficit position that was perhaps forecast as little as a year or two ago, largely because of the natural resource prices and the strength of the tax, the inflows that are being coming in. So I think that means that it perhaps is the ability to have the stage three tax cuts just continue to to to flow through and happen in six months time when they're meant to kick in, but also provide some cost of living relief for those lower income to middle income earners who perhaps are finding it tougher. So it's something that I think the federal budget, as you say, it's a really exciting night for tax person. And reading through it, I'm not going to sit here and lie about that. It's interesting whether there is a lot of changes or whether there are not and the speculation around why or whatever. So it so I think I think it would be nice, obviously, irrespective of political party to see some bold tax measures. But I think the the budget position being where it is, there probably is some room for them to provide certain reliefs there perhaps that weren't as readily available without going into even bigger deficits, as I say, because of those natural resource prices and that type of thing that has assisted.

Robyn Jacobson

Yeah. And we are in the process of preparing our pre-budget submission. So this is an annual process. Again, the government calls for this each year and we are gathering feedback from our members and I'm putting this together to let the government know what our thoughts are on what they should do in the budget.

Todd Want

That's right. And I think we we're always looking to to make sure that the tax system is fit for purpose. And and some of that involve measures that are a bit more future looking rather than perhaps political type measures. And so I think trying to find the right balance and putting it forward to the politicians to to make sure they're at least considering some of the things that we believe as an institute and as a tax community are worthwhile to consider.

Robyn Jacobson

So perhaps my tip to those who are interested in budget night, cancel all your social engagements unless you're going to spend the evening with an accountant or a tax lawyer. Or do you pizza and settle in for an interesting evening?

Todd Want

I think the pizza delivery companies and the different pizza companies, that must be a real kicker for their not that they now would know that it's the accountants and the tax professionals that are are ordering big from that Tuesday night each major.

Robyn Jacobson

All right. On to another really significant development for those in the assembly side of things. We had a tribunal decision last year. And when we look at the decisions that come out of the Administrative Appeals Tribunal, which by the way, is in the process, of course, of being rebadged and redesigned as a new administrative review tribunal, that's not going to come further on down the track. We've got a decision that deals with unpaid present entitlements. Now, you and I and and of course, members of the profession have been talking about EPAs for about 15 years now. So it's 2009 and that particularly came on the agenda. And all these years we've been having debates about whether or not a an entitlement that is made from a trust to a corporate beneficiary is in fact a loan for divisions that repurposes. We've had various forms of ATO guidance. It's been reshaped and it's shifted and it's adapted and been extended. And I won't go back through all of that guidance that has been issued. But this decision Bindal has certainly grabbed our attention and it is now on appeal to the Federal Court. Perhaps. Can you describe a little bit more about the case, why it is so interesting to us and what it could mean if indeed having had a culture that cost the taxpayer win in the tribunal. The tax office has appealed this up to the federal court. So what happens next?

Todd Want

This is certainly one of the biggest things in the SME tax base for 2024 of them. There is no question about this, because for as you mention, this past 15 years, we've all been having to focus on distributions from trusts to corporate beneficiaries and how to deal with those distributions. Do they need to physically be paid in previous years? Could they be put on sub trusts, interest only facilities, all sorts of things like that? This decision certainly I won't say it flips that on its head, but it certainly brings the technical issues to the forefront and something that a lot of people are probably saying, Well, why has it taken so long to get here? These technical issues we've had the ATO's view for for well over a decade now or their broader view that's evolved over time there. But practitioners have had to either put their clients and themselves potentially at risk if they're taking a more aggressive approach or take them, perhaps what some may say is the more conservative approach consistent with the ATO view and paying those distributions through to corporate beneficiaries or putting them on Division seven, a complying loan arrangements, that type of thing. So this issue I think will be fascinating is to where the Federal Court decision goes. And if it goes in favor of the taxpayer, do we see legislative change? Do we see it reached the high court? If it goes in favor of the tax Office again, do we see it going to the high court? Where does it go? But probably more broadly, what does this mean for distributions in recent years where people are having to either clients or their advisers assisting them in making decisions on what do they do with these distributions from trusts to corporate beneficiaries? What does it mean for tax planning for 2024 for the June 24 distributions? And I think it's probably too early right now to make a definitive call on what people should or shouldn't do. But unless we get a decision over the next few months, which probably may take more time than that, they probably do have a really interesting next few months as to, well, will some clients push for their advisors to say, Hey, can we take a more or less less conservative approach this year than what we did previously? But does that come with a risk that if the Federal Court decision is in favor of the commissioner, what does that mean for those distributions? So I think this is a really interesting in the tax planning space and also the use of trusts where we've obviously had a whole range of trust related matters in focus over recent years. This one was one that had once it died down, but it certainly has not necessarily been the focus until the BENDALL decision came out. And now I think it's going to be a fascinating year on this front, Robyn.

Robyn Jacobson

It's important to remember this is an administrative decision at this stage. So in other words, when the tribunal makes a decision, they're not changing the law. They are simply standing in the shoes of the commissioner and remaking the decision that he's already made. But in this case, it was different to, of course, what the commissioner had decided when it goes to the federal court, or it could, in fact, go straight to the full federal court, we will have proper case law. And then, as you say, it's a case of whether it gets appealed further up to the high court. Also, I've referred to prior years in question. So, for example, if there was a UPC in June of 2022, it is now that the trustee and also the advisors are going to have to think about, well, how are they going to treat that? They go back to, for example, a distribution made in June of 2022 in that would have become potentially a loan by lodgment of the 22 return. So sometime in early 2023. And then if it is indeed a loan, it would need to be managed by lodgment of the 23 return of the company, which is roughly right of this year. So there may well be a reasonable approach where people are focusing on distributions made in the 24 year given we've now got Bendall in play. But in fact it could be 22 or 23 distributions that are actually affected at the moment or will be certainly by lodgment day this year or looking at June 30 this year. So as you say, we don't need to do anything right now. But I would hope in the months ahead that we would see a little bit more guidance from the ATO on what practitioners can do. They have already issued a decision impact statement in an interim form back in November last year. So perhaps they won't issue any further guidance beyond that where they stated we will stick with our current position until we're told otherwise by the court.

Todd Want

I think I think you're right, Robyn. This is yet another area where practitioners can't necessarily give a definitive answer to their clients on what they can and can't do, but more a position as to, well, this is where the whole matter sits at the moment. These are the options you've got. These are the potential downsides and upsides to each of them and making an informed decision or advising their clients or the client to make an informed decision based on where they wish to go. It is one that hopefully we do see this federal Court decision and if it does proceed that far, the High Court decision and get a bit more of a definitive set of ground rules as to how to manage GP's with corporate beneficiaries. But in the meantime, just another one of the areas of tax where we're all sort of sitting there looking forward to to where this takes us.

Robyn Jacobson

We should get our popcorn and sit and watch and play out.

Todd Want

Said like a true tax person. Robin But it's certainly not going to get me disagreeing on that.

Robyn Jacobson

Now, very briefly, the multi national package, there's a bit going on in this space, so can you just briefly run through some of the key points that this particular package is looking at? Because we know that people like to have a go at the multinationals and say they never pay enough tax. In fact, they are one of the best tax payers in terms of the gaps, the difference between what they should be paying and what they do pay. Nonetheless, we've had some fairly significant tax measures come in in the last decade and we've got some tightening up of some of those rules.

Todd Want

Look, we do, and I think this is where the multinational area continues to be a focus and continues to be one where the costs of complying or the technical issues just keep growing. In this instance, things like thin cap anti-avoidance rules for denying deductions, for certain payments relating to intangibles where they're related to a low or no tax jurisdictions, reporting requirements to enhance tax disclosures, debt deduction creation rules. There's a whole range of things that they require, not just necessarily an Australian coordinated response, but also knowing the broader group that an entity might operate as part of. And and that's certainly something that for multinationals, be they smaller multinationals in Australia, larger ones, it can touch these things can touch a whole range of businesses that operate cross-border. And I think that's where these packages and the issues where the Bendall type case may have been something that the SMB area, it's a hugely important thing. I think those who practice in the, you know, the larger end of town or the cross-border type in these multinational things and the continuing evolution of packages relating to multinationals and tax issues, there, this is just going to be another year where there's more measures that keep tightening things and requiring a very robust compliance approach for taxpayers and also a robust set of planning to to manage the issues so that it is not inadvertently achieving unintended poor outcomes for taxpayers.

Robyn Jacobson

Heading back to the ATO and away from Treasury, we've seen a firmer and quite definite shift in the approach taken by the regime when it comes to debt collection. So we know that during the pandemic they were going really softly and gently with businesses they didn't want to send them under and we had payment arrangements being offered and we had remission of the general interest charge. We had, if you like, a holding on things like garnishee notices and those sorts of things or actions. But all this has cranked up, including director penalty notices. So again, as a practitioner, what are you seeing out there? What are you hearing and how do you think this is going to play out when they've got still a very high level of collectible debt going by, in particular, small businesses?

Todd Want

Look, I think it is one problem where the government probably needed to go back to business as usual on debt collection, that it was very carefully managed by the tax Office during that COVID sort of period and trying to to give businesses the best chance to survive through that period and come out and and continue on. But the sheer size of the the debts that are sitting there, it's just massive. And so people who genuinely need some assistance and some time to pay it off, making sure that they get that time and assistance from the tax office is important. But equally, those who will never be able to pay it off, Unfortunately, the decision does need to be made and sort of making sure that those debts are managed appropriately because we can't just have debts continuing to balloon know forever. Ultimately, they do need to be paid or managed. And so I think it is going to be a year where because we have had interest rates increase, debts will grow a lot quicker just because of the interest component adding on top as well. So the ability to manage some of these debts will continue to be harder for those who don't have the cash flow and don't have the ability to pay it off. So speaking with an appropriate advisor in that area is probably quite a useful thing for those businesses who are just not sure whether they've reached a point where it's actually their debts too big or how best to manage it.

Robyn Jacobson

To put some figures to the large amounts you're referring to in June of 2019. So about six months out from the pandemic, we had collectible debt at about 26 billion. Now that increased 89% to June 2023. So over a four year period to more than 50 billion and about 33 billion of that is owed by small businesses. So it is disproportion that given the contribution and and the extent to which we have small businesses in the economy, given of course the turnover in the tax they pay. So it is a concern that that collectible debt has gone up. And I'm not talking about debts that are collectible. These are amounts which are regarded by the ATO still being recoverable.

Todd Want

So it's a big number and I think of that number, there's a lot of them that will have just needed some short term breathing space. Others where perhaps they are using the tax office as their pseudo bank and perhaps that's not the right mindset to have and actually coming up with a payment arrangement that they can manage, that they can work with and that chips away at the debt over an appropriate time frame is really important. So picking up the phone to the Tax office and having a chat to them about it in equally the Tax Office hopefully being reasonable in setting it a payment arrangement that will work in a sensible timeframe.

Robyn Jacobson

Many of our listeners may be aware that there was an announcement in the Mid-Year Economic and Fiscal Outlook in December which announced the Government's intention to make general interest charge and the shortfall interest charge, which is a lower rate nondeductible from I think it's 1st July 2025. So this is something that will have a quite a big impact because there may be businesses that have debt, but the way they're prepared to manage it is, yes, we know it attracts interest, but at least that interest is deductible.Once that deductibility is taken away, then it becomes a much more significant cost to have an outstanding tax debt.

Todd Want

There's no doubt about that, Robyn. And I think it's yet another measure that's encouraging people, whether it's with the carrot or the stick, to to pay their tax office debts and make sure that they're up to date with those. So it is something that for those businesses that are paying their debts on time, there's an element of probably fairness to them for those who are not, it's an increased cost that suddenly they're having to pay their tax office debts and that interest not being deductible increases the cost of that debt. And it is one of those things that will focus the need for some businesses to make some hard decisions on how they get themselves out of this into superannuation.

Robyn Jacobson

Two major reforms, proposals, measures on the horizon, and one of them's a little bit closer than the other. We've got a bill before Parliament currently which is due to commence and take effect from one July 20, 25 in the tax world as boffins call a Division 296, because that's where it sits within or will sit within the 97 Tax Act. But in layman's terms, this is the additional 15% tax on earnings from superannuation balances above $3 million. Now there may be many out there who say, I wish I had $3 million in my super fund, but for those who do, this is certainly going to be a significant change. Now, most across the profession agree that if the Government wants to increase the tax rate, not only is its prerogative, but those sorts of policies come and go all the time. The biggest noise we're hearing around this particular policy is about the proposed taxation of unrealized gains encapsulating those earnings. Again, your thoughts?

Todd Want

It's absolutely right, Robyn, that taxes, tax rates go up and down forever in a day when there's been a tax system. But the taxing of unrealized gains, that's the big one. That's the really big one here. And I think, you know, some of the concerns from people that, hey, I'll be taxed on again that's unrealized that I may never realise. So I'm paying tax on an amount that I never actually Kit And where's the fairness of that and the appropriateness of that? And I think that's the discussion and the real issue that a lot of people are finding very, very tough to to get their head around. And I think probably more broadly making sure that if this does come in as a measure, that it doesn't spread out into other parts of the tax system and suddenly become a norm across other areas, because we don't want this to create a precedent in that regard because it suddenly it will fundamentally change behaviours. And is all of it a good change to behaviours or not making sure that superannuation system and the cost to the tax system that superannuation has is sustainable into the long term is an important part of government decision. There's no question around that. But dealing with it in a fair and reasonable manner and taxing unrealized gains, is that fair and reasonable? I think that's where a lot of people are finding this one particular challenge. So how do to nine six evolves will be an interesting one. And obviously we will have a federal election between now and when that kicks off. So will that become an issue from a political point of view leading into the next election? Who knows?

Robyn Jacobson

My explanation for of in layman's terms, is instead of using a profit or loss statement, which is actual earnings of the fund for that particular member, they're instead using a movement in balance sheet approach. So the balance in your superannuation accounts and unfortunately the balance in your superannuation account is the unrealized gains that are embedded in these assets and that's what they're effectively going to be taxing. So that's why we're keeping a very close eye on this. The other measure, which is a year later, one July 20, 26, but no less significant, in fact I would suggest this has much broader application is what's called Payday super. And we're going to see a requirement of all employers at this stage. There is no carve out no de minimis rules where employers will need to pay the superannuation guarantee at the same time that they pay their salaries and wages. The Tax Institute and and in particular my self has been directly in targeted consultations and having sat through a number of these meetings and I'll say that many of them have not been confidential, so I am afraid to discuss this with you now. It's been very pleasing to see the collaboration, the openness to ideas, the tabling of issues, thinking through all the aspects, all the different stakeholders. It's not just a change in timing of payment. It's going to affect the onboarding of employees, the gathering and sharing of information, the development of reporting systems, how the ATO ascertains, whether there has been in fact a shortfall. It's going to necessitate a whole design redesign of the guarantee charge. So when we look at this current 11%, maybe 12 and a half, eventually to 12%, it's not just that the charges impose, but all the draconian penalties that come with it and that currently operates on a quarterly basis. So to start moving it to a weekly or fortnightly does need a rethink. So without going into any more detail, I see this as a golden opportunity to bring this very archaic regime, very necessary, but the regime itself is over 30 years old and bring it into the 21st century. From your client's perspective, are they going to welcome this? Is this something that they are going to be concerned about? Where does the business community sit on this?

Todd Want

Look, I think the vast majority of businesses do the right thing by their employees and they genuinely pay the right amounts of their wages, withholding, super, all that sort of thing for their employees, pay them their wages, comply with their SGP and other obligations. And so this will probably from a compliance point of view, be more of a cash flow type thing where it's a managing cash flow there at the moment they may be paying the super quarterly. This will require it to be paid earlier and in, you know, perhaps more bite sized chunks. But that cash flow change will be important for a lot of businesses. The degree that that interacts with. If you look at the size of the ATO debts there, that the sheer growth in the size of that, that's probably indicative of how tough some businesses are finding the cash flow at the moment. So is this going to be another thing that weighs on cash flow for businesses and creates bigger problems there? That's a question that I think needs some more delving into. You know, there's a whole separate issue there, but I think you're quite right, Rob, And the ESG penalties, the broader rules around super and the mischief or non mischief and the degree of a penalty when a business has genuinely tried to apply with their obligations but perhaps has an inadvertent error or mistake there and is the penalty that they cop for that fit. So what has actually occurred? I think it's the right time to relook at all those things. And so I'd love to see a broader piece here. And we've got time that these measures are not proposed to apply for well over two years. So I'd love to see that. And it's refreshing to hear that there is genuine breadth of consultation ideas, thoughts coming together, and hopefully we land on something that's user friendly and able to manage things appropriately.

Robyn Jacobson

We would certainly want to see a much more proportionate penalty so that if you one day like this is someone who never pays on behalf of their staff, they are treated differently and as they should be.

Todd Want

As you mentioned, Robin, with super heading to 12% for ESG and it started at a much, much smaller number than that many years ago with the cash flow impacts the the quantum of the penalty because of how it's calculated, it suddenly can become a very big number. So we need to make sure that it's fit for purpose.

Robyn Jacobson

Now, turning to the integrity of the tax profession, I know that we can speak for a long time on this alarm. We ran a webinar for our members, which is available on the member portal at the end of last year. So if members want to go and look at that from the Tax Institute, they can delve into it in much more detail. Very broadly. We've got some major legislative changes coming in affecting the regulation of tax agents and best agents. Some law has been enacted, some is before Parliament, some is still in the pipeline. So there are quite a number of stages being rolled out at an overarching level, the approach to this, it's certainly appropriate to look at improving the integrity of the system, but at the same time it is also valid for genuine concerns to be raised about the design of the provisions.

Todd Want

That's right, Robyn, And I think that's we fully support that. The Government wants to ensure that there is a high degree of integrity in the tax profession and that the profession does engage in ethical conduct. I don't think there's any issue with that. I think the vast majority of tax practitioners do operate in an appropriate manner and they are fully aware that society should hold them in high regard and they want to be held in high regard as someone that can be trusted to act appropriately, ethically, with a high degree of integrity, where, yes, they are looking after clients and taxpayers, but they are doing so within the bounds of the tax laws in an appropriate manner. So, yes, some have overstepped the mark, there's no question about that. But the response needs to be commensurate with that. Those who are operating at the fringes or even well outside the fringes, they should be dealt with appropriately. But we need to make sure that the measures here don't lead to the everyday client being unable to access tax advice and assistance because of cost effectiveness or that sort of thing, because tax practitioners are so burdened with the red tape or the regulation they need to go through to just be able to get a client on board. It ought to be able to document things or deal with it and so on to be able to give advice to clients. We've got to find the right balance there and make sure that we don't price the everyday Australian out of getting good quality tax advice from a tax agent and tax advisor. But we need to manage the integrity of the tax profession and ensure that tax practitioners do act ethically and do act in a way that is where the community expects that practitioners should be operating.

Robyn Jacobson

Finally, your vision as president. So you've got a year ahead and we've probably got you at the commas point of view a year. It's only going to ramp up from here and you will of course be traipsing around the country, going to lots of our events and other activities and meeting with members and looking at our advocacy work in terms of looking at submissions and so on. What do you hope to get out of the year for the Tax Institute? What direction do you want to take instituting and where do you think our focus will be.

Todd Want

As an institute, I want to make sure that we have got the, the offerings that are right for our current and future members that we're bringing through the next generation of tax practitioners. And that can be a broad range of things. You know, if you look at something like our Tax Academy that's just recently been launched, they bite sized chunks of micro credentialed learning. That is a fantastic set of tax learnings there where you can take the opportunity if you're a novice in the world of tax to upskill, if you're a strong, experienced practitioner but want to upskill or refresh in certain areas, you can take some bite sized chunks of learnings out of that. It's technically very strong, it's practical, great set of things there. So Tax Academy is something that we've built to help that be the way that people want to learn bite sized chunks on the go. But for a breadth of people who it's not just aimed at the novices or the experts, it's for everyone. As you say, Robyn, I'll be going around the country. I'm really looking forward to meeting members around the country, hearing what they've got to say, helping advocate for the issues that are affecting them and also taking the tax profession forward in an appropriate manner. I think one of the real strength of the Tax Institute is the sharing of knowledge, the experience and the skills. And I think that's something that we need to make sure is fit for purpose moving forward. As to how that is, we run some fantastic events where our presenters freely give up their time to both present on the day, but also write their papers, share their knowledge and skills and put back into the tax profession. And that's something that I want to make sure that our tax community continues to work together to pass the baton on to the next generation, but also help design a tax system that's fit for the future. So advocacy sticking up for the tax profession, not just providing, you know, one sided views, but a balanced consideration of what is good for the tax profession, also for members raising issues that and obviously for for part of your role, Robin, is taking forward issues that members might have and helping them get those resolved if they've got issues along the way. So supporting our members, our practitioners, our tax community to really make sure that as a profession it's an attractive profession to be part of. It's an interesting and exciting one. It's a fulfilling one and that it's one that we are fit for purpose for the future. So I want to help take the tax profession, the Tax institute forward. And that's that's something that really excites me. So I'm looking forward to 2024. Robyn I'm looking forward to working with the team at the Institute. I'm looking forward to working with the members, with the broader tax community to be able to achieve a lot of things this year.

Robyn Jacobson

Well, thank you, Todd. On behalf of the staff at The Tax Institute and all of our members and the broader profession, thank you for your commitment over many years. You don't just become president overnight. It's many, many years of voluntary work up through our working groups and committees and state council and then on National council. So congratulations again on your appointment as President. We look forward to your energy and your your drive and the vision for this year. And let's roll up sleeves up and get into the work.

Todd Want

Thanks, Robyn. I think it'll it'll be a cracker of a year for, for the world of tax and I'm looking forward to it.

Robyn Jacobson

Terrific. And thank you also for your time today.

Todd Want

Thanks, Robyn.

Robyn Jacobson

Thanks for listening to this episode of TaxVibe. I've been chatting with Todd Want, CTA, President of The Tax Institute and Director, Tax Services with William Buck in Sydney. If you've enjoyed this episode, we'd love for you to subscribe, rate and review TaxVibe wherever you listen. We welcome any feedback and suggestions. To catch all the latest from TaxVibe and The Tax Institute join us on LinkedIn. If your interested in being at the center of the tax conversation. A membership with The Tax Institute could be just what you need to stay current and connected with tangible real world benefits. Learn more at taxinstitute.com.au. Thanks again. Till next time on TaxVibe.

Shifting tax payment culture for taxpayers and employers

Release date: 17 November 2023

In this episode of TaxVibe, Robyn Jacobson, CTA chats with Vivek Chaudhary , Deputy Commissioner, Lodge and Pay, at the Australian Taxation Office, about the ATO’s approach to taxpayers’ lodgment and payment obligations, and the shift in payment culture, from the anomaly that was the pandemic, and how things need to change in the future to ensure a fair tax system for all Australians. 

Host: Robyn Jacobson, CTA

Guest: Vivek Chaudhary, Deputy Commissioner, Lodge and Pay, ATO

Robyn Jacobson

Hello and welcome to TaxVibe, a podcast by The Tax Institute. I'm Robyn Jacobson, the Senior Advocate of The Tax Institute and your host to today's podcast. We love the vibe of tax and here at the Tax Institute, we do tax differently. I'll be chatting with some of the tax profession's great thought leaders, who will share valuable and practical insights you may not hear every day. We hope you enjoy this episode of Tax Vibe. I'm joined by Vivek Chaudhary, Vivek joined the ATO in 2019 in his current role, Deputy Commissioner of Lodge and Pay at the ATO. He has 20 years of global financial services experience transforming and growing business teams into highly productive operations. Vivek previously worked at NAB and was responsible for transforming its collections function into NAB assist, making NAB the first Australian company to make the Fortune's Change the World's list in 2016.  Vivek has reshaped the ATO's approach to lodgment and payment obligations to one that focuses on tailored solutions based on a deep knowledge of the client's circumstances and behaviors. Vivek, welcome to TaxVibe

Vivek Chaudhary

Thanks, Robyn. Thank you for having me here today. Yes, at the recent Tax summit, I spoke about how the ATO is returning to normal operations to address collectable tax debt, and I look forward to discussing that with you here today.

Robyn Jacobson

Yeah, that's great. We know the ATO had a very different approach during the pandemic. Not only were you handing money out through things like job keeper and cash flow boost, but the very supportive approach in terms of remitting GIC and other penalties and payment plans and so on. But we are now in a situation where debt has increased and we do need to return to a business as usual type approach. But we also know that there's been some observations made out in the community and in the profession regarding the ATO’s changed approach. So I look forward to unpacking this with you. So at the Tax Institute's recent tax summit in Melbourne, you recently outlined the shift in the ATO's approach to addressing collectable tax debt. Would you give us a brief overview of what you provided in your address?

Vivek Chaudhary

Sure. Through the pandemic, we shifted our focus from debt collection to stimulus payments and assistance with tax. We redeployed over 5000 staff and turned our attention to focus on how we help and assist taxpayers. As part of this, we paused most of our firmer debt collection actions, which was appropriate at the time, and we encourage taxpayers to lodge even if they couldn't pay. We offered payment plans deferred due dates and as you mentioned, remitted penalties and interest without question. Offering additional time to pay was an effective lever to help small businesses stay on track. And a large portion of the tax bills were paid before those deferred due dates. This was the right thing to do for a lot of businesses and it delivered many successes. But it has also had an impact on payment culture. And we are seeing more businesses not paying tax on time since before the pandemic began.

Robyn Jacobson

So Vivek, do you think there's a bit of change in approach? People have got used to those supportive approaches from the ATO and they've taken that into a post-pandemic phase?

Vivek Chaudhary

Some businesses, yes, are probably have changed their habits for the worse, but the vast majority of the system continues to operate at good health. 70% or more tax obligations are met on time and the vast majority of tax liabilities are paid on time. And our concern is for those that are doing it tough, but yet paying taxes on time, it makes it unfair for them that some others are not. And that's why we are changing our approach. Otherwise it remains something that is growing at an unsustainable level and may get out of hand.

Robyn Jacobson

So what are you seeing out in the market and in the community?

Vivek Chaudhary

What we're seeing is that too many businesses have accumulated unsustainable levels of debt and we also see a number of profitable businesses who have the capacity to pay their bills but are choosing not to. Over the past 4 years, collectable debt has increased 89%, and now we do feel it's the right time to reestablish that culture of paying taxes on time and turn this trend around. Where we see businesses are behind with tax, there's a fair chance that they are also falling behind in payments to creditors, suppliers and even their employees, which isn't good for those that are directly impacted. It's not good for the system and it's not good for that business itself. We do know that many people are facing cost of living pressures right now, but we also know that the community expects all taxpayers pay the right amount of tax and pay it on time. And the ATO has a critical role in protecting not just the revenue but also the taxpayers themselves from creating too much debt and from impacting their creditors or the broader economy.

Robyn Jacobson

So can you provide an example of what you're seeing out there.

Vivek Chaudhary

Obviously I cannot talk about individual taxpayers, but I can tell you if and this is a recent real life case and something we do see more often than we would like to, the case concerns a smallish business, one that had quite a few staff, customers and suppliers. The business was impacted by the pandemic due to the lockdowns, but also other factors that resulted in the business started to pay late and our response was to support them with payment plans and other support options and ones that were supportive and gave the owner some breathing space. It also meant that the business owner was not forced to face what the business was and some of the habits that were not in the best interest of that business were formed and they weren't forced to think about their pricing, whether they were too reliant on debtors who were paying late or might be in trouble themselves, or whether they needed to slow up their expansion plans. In the end, the business became insolvent and the business owner has now personal debt that are substantial and will probably take a very long time to pay off. But it doesn't just impact the business owner. They were over 150 creditors both businesses and consumers, as well as staff who had not been paid their entitlements, including their superannuation, which is their retirement savings. So in this case there were no winners other than the insolvency professionals. While we can never know what might have happened, we have to think that if we had intervened earlier about the debts they owed to the ATO and their staff, there is a chance that the business owner might have either taken action to set the business on the right course or taken action to close the business earlier, which means less damage for everyone that was involved.

Robyn Jacobson

And sadly that's not going to be an isolated case.

Vivek Chaudhary

There's like I said, there's many more that we're seeing than we would like to see.

Robyn Jacobson

So what are the trends that you're seeing in terms of collectable debt?

Vivek Chaudhary

As I mentioned so the total collectable debt has increased by 89% over the last four years. 90% of the collectable debt, which is $45 billion of it is owed by businesses and small business continues to be overrepresented in our debt book. And so of the 45 billion, 33 billion is owed by small businesses, 23 billion of the 33 billion is unpaid activity statement debt. So this is your PAYGW the withholding from the wages. It's net GST that is collected or adjusted but not paid and it's PAYGI which is based on anticipated profits in the future year. $1.8 billion of this is also superannuation guarantee charge and that has that direct impact on the employees.

Robyn Jacobson

So Vivek, I just want to make an observation. Leaving aside the PAYG instalment, you mentioned then PAYG withholding, GST and the unpaid SGC and all three of those are of course personal liability for directors. So director penalty notices can be issued in respect of those debts. So they're not just business debts. This can actually flow on to be a personal liability of the directors.

Vivek Chaudhary

Absolutely. In fact, the liability exists in a corporate structure from the time someone becomes a director and the director penalty notice is a requirement for the ATO to issue those prior to commencing recovery proceedings is a requirement for us to do that, and that creates an account into their personal tax obligations until either it's paid by the business or by any of the directors themselves. We do as a strategy and a contemporary approach during COVID because we had stopped our firmer actions. As we look to recommence them, we issued awareness letters. So writing directly to directors of these businesses and we had seen some great engagement from many on the back of that awareness campaign. There are so many that at the moment that we do not have the engagement from businesses or their directors and we are continuing to issue director penalty notices to them and collect from those. I want to make a point clear, although small business is overrepresented in the total tax, collectable debt, non or late payment is a focus across the board for the ATO from individual taxpayers all the way to the big end of town. So our expectation is that people will lodge and pay on time and if they are not able to do so, that they will engage with the ATO before the due date, not after the due date. Our expectation is that people engage with us before.

Robyn Jacobson

The point of engagement. So if people aren't in a position to pay, you'd much prefer them to at least come on to your radar and keep up to date with their lodgments?

Vivek Chaudhary

Keep up to date with their lodgments and have a payment arrangement in place. If they do not have a way to enter a payment arrangement, that should be something that they need then to consider whether their business is viable. We would be able to provide them additional time to go seek advice from the appropriate professionals. May that be tax advisors or insolvency or restructuring advisers. But we do not want that they grow the amount of debt without actually having a good understanding of whether they can recover from it. Because I was saying earlier, it's in their best interest to do that, but it's also in the best interest of other businesses that are dealing with them and their employees who we are very concerned about.

Robyn Jacobson

While small business makes up a sizable chunk of the collectable debt. You are still seeing issues across the board.

Vivek Chaudhary

Yes, we are, absolutely. In fact, our focus is not in a particular segment of business. As I said, 90% of the collectable tax debt is from businesses. Our focus is that, particularly for this year in five specific areas, the first one is super guarantee charge so those that have already have a super guarantee charge debt that they have not paid. We have always prioritized these debts. So this focus area is not new, but it's certainly one that we would be keeping on top of our pile of work because it is so important for us to make sure that we can reunite that super to the retirement savings of those employees. We're also focusing on refund fraud. We view that fraud and take it very seriously, that taxpayers who engage in refund fraud that they can expect serious consequences. We have a very clear and deliberate approach to recovering these debts, and we won't hesitate to apply to all of those clients who are involved in this. We will fully extend our stronger powers where necessary, beyond our ordinary posture for these clients. We are also doubling our efforts in the recovery of aged and high value debt. So these are debts that are of high value and aging. The 2023 24 budget has funded a four year program for us to focus on public and multinational groups and privately owned groups that have debts over $100,000 and have been overdue for more than two years. For these clients in particular, that are no concessions available. Debts will progress to firm actions and payment plans will be very limited and for a very short duration, and they will align to the reporting cycle. So what we do want to see is these businesses get back on track and remain on track, otherwise they really have to consider their viability and seek the appropriate advice. There is one more that we are increasing our focus on this year and they are employers with new debts. Our experience shows that ultimately businesses that choose not to pay the employee superannuation, they start by not paying some of their initial obligations, such as their BAS payments, and that includes a PAYGW and GST. And what we are doing is looking at timely action and quick turnaround in terms of these debts. So anyone that employs staff should expect that we will be prompt in taking action if they incur debt.

Robyn Jacobson

Looking further down the track, Vivek of course we've got pay day super which is proposed to commence on the 1st of July 2026. So without getting into that many detail, it's going to be another game changer for employers where it's going to be yet another obligation that they will have to meet at the time of paying the salary.

Vivek Chaudhary

You're absolutely right. In fact, we are actively thinking about how that is not a shock to many businesses. And if we can influence and communicate now to start turning those payment habits and that payment culture, that will mean that when that new legislation comes into place, that those businesses are ready to adapt to that rather than be finding themselves in a state of shock.

Robyn Jacobson

Yeah, that's really important. So why are the changes being made now? You've talked about we're out of the pandemic and the level of debt is not sustainable. So I guess that answers the question. But can you provide a bit more detail around why the changes are being made now?

Vivek Chaudhary

Look, it's essential that we shift payment behavior for the good of the Australian community. We are reaffirming now that our expectations have climbed and resetting what clients can expect of us. And practically speaking, this means that tax professionals and their clients can expect to see us acting earlier than we have been. We know that preventing debt is the best way for businesses to stay on track, and we have seen that leaving debt unchecked and unmanaged for prolonged periods rarely improves future viability of a business. We have a role to play to protect the taxpayers from accumulating debt. That becomes a burden sometimes for the rest of their life. And may impact their family home and those who pay late or do not pay and do not proactively engage will have interest and penalties apply. And we do not want clients to rely on remissions, and we will consider them only in very limited circumstances. But clients who make a choice to contact us early will be best placed to discuss options that are available in early means before missing the due date, not after missing the due date. Certainly not after the ATO has had to chase them. You know, at that stage we would have very limited room for concessions. The taxpayers that are contacting us can expect a conversation about making payment in full. So if we will assess if they have the capacity and we will encourage them to make the payments in full. But if they need a payment plan, our approach will be that it is one that is in the shortest possible time frame and really an ideal payment plan would be one that gets them back to square before their next payment obligation. Like I said before, if there is an inability to do that, that is the time for them to consider their viability in their financial status and position and they should seek advice and that is what we would recommend to those businesses. I do want to make a point about superannuation as well. That is a growing concern for us. It has grown over the pandemic from less than $1 billion to now over $2 billion, and we do review every complaint of unpaid super. We monitor payments to ensure that employees receive the correct and timely amount of super, but we will continue to apply a full range of firmer actions, including garnishee, The Direction to Pay, Director Penalty notices, the disclosure of business tax debt and prosecution actions to ensure payment of super. And we will continue to detect if employers are taking advantage and not paying the relevant entitlements. This is a key concern for us and a key area of focus that we'll continue to look into.

Robyn Jacobson

Back in yourspeech at the tax summit, you mentioned the range of firmer actions, including director penalty notices, DPNs, disclosure of business tax debts and insolvency, and you've just mentioned those again now together with garnishee notices. Would you tell us a bit more about when the ATO is likely to apply these firmer actions?

Vivek Chaudhary

Sure. So over the past 12 months we've started to use more of the firmer and stronger actions, but they are for those who are choosing not to engage with the ATO.  And some of these stronger actions are director penalty notices and disclosure business tax debts, to credit reporting bureaus and the potential legal actions to either wind up a company or bankrupt an individual. There is over $5 billion owed by clients who currently meet the criteria for disclosure of business tax and the signs posts are that this is likely to grow. And what we are seeing is that the disclosing action, it does provide strong incentive for the engagement with the ATO, either when we intend to disclose notice, we see lots of businesses that engage, but then some engage even after they have been disclosed. Since July 2022, over 24,000 director penalty notices have been issued and these are in relation to about 18,000 companies. In last financial year we issued 19,000 intent to disclose notices and nearly one in three clients had engaged with us in response to that entered a payment plan or made payments in full. I think 2000 clients paid their debts in full, that was nearly half a billion dollars that was put back into the system for critical services that was otherwise not being paid. We do know that not all businesses are viable in having a tax or super debt is often a symptom of insolvency. And you would have seen there’s a lot of media currently that insolvencies are on the rise after a slowdown during the pandemic. We are a party to many insolvencies and we are often a major creditor. Generally, corporate insolvency action is initiated by the directors themselves or by other commercial entities. ATO initiate one in six insolvencies. So we’re not a major initiator of insolvencies. In terms of timing, I think more businesses who remain disengaged can expect these actions. And like I said before, we are also looking to bring forward the timing of these. So, for example, employers who are choosing to not pay their activity statement debt they will see quicker action that includes disclosure and if their debts are greater than $100,000, that disclosure of business tax debt will be quite timely in those cases. Finally, I would also say that the disclosure of business tax has been a reasonably new provision in the suite of actions that the ATO has and we've completed now the full system implementation of all the letters that have to be issued and the exchange of information with the credit bureaus. And that means we will be clearing up a backlog of many businesses that are already eligible or were eligible for some time before the system implementation. We have now written to over 15,000 of these businesses and in the month of October, if they still remain disengaged, that we're likely to disclose them.

Robyn Jacobson

The winding ups that you take through the Federal court, what's the trend you're seeing here?

Vivek Chaudhary

Normally we wind up pre-COVID about 1000 companies in a year roughly. During COVID that had significantly reduced due to our approach in the last six months that's about 500. So, we are sort of back to our pre pandemic levels and in the most recent month of July, we had about 100 wind ups initiated. So that kind of gives you a sense for we're back to normal levels and these are the levels that we expect to maintain. In some months they may go up, they may come down in another. But overall, go back to the same levels.

Robyn Jacobson

You’ve made some recent comments about the need for a collaborative approach to shifting the payment culture of predominantly the business community, but also individuals. So why do you see tax professional's contributing to this change in culture and the role that they play in terms of fitting this alongside the other pressures of their roles and there are many of them out there, including ongoing labor shortages?

Vivek Chaudhary

So we are very conscious and aware of the pressures everywhere in business as well as businesses that are professionals. And our aim in shifting our approach is to position businesses to avoid falling behind in the first place and position them to better be able to recover if they have fallen behind. As trusted advisers for their clients, tax professionals can help their clients avoid bill shock by setting up good habits and see them put aside the money that they have collected or withheld from others, so they can pay it when it is due. And tax professionals can reinforce that their clients are only the temporary custodians of GST, PAYGW and super guarantee, it is not theirs. Professionals also know the time when a business is struggling on the brink of insolvency or perhaps needs to be told the time has come to exit gracefully. Having these conversations at the right time rather than clients waiting for us to take action will ensure that they are best placed to manage their bills, avoid actions that may have more lasting effect. We also encourage professionals that their clients and to their clients that they talk to each other. And particularly if someone is experiencing financial difficulties, they need to contact us as soon as possible so we can provide them with support. And we do appreciate that tax professionals are busy and that helping their clients with debts will take more time. And to save some of the professionals time, we will increase our self-serve payment plan threshold in November this year from $100,000 to $200,000. And what that means is that more clients can be put through that self-serve online option. But I must emphasize that this is for those who have capacity to pay in full, should still pay in full rather than enter a payment plan. We have also heard from tax professionals the feedback that our calls can sometimes be untimely. We don't allow people to prepare for a conversation and that results in a game of telephone tag. And what we are making now is appropriate adjustments and have recently implemented a change to streamline our lodgment and payment interactions. When we are unsuccessful in a phone conversation, we will send a practice mail through the online services for agents platform and that will allow the agents to contact us back at a time when they are prepared to talk about the matter and have their client's instructions on hand. So we hope that some of these things will help reduce the pressure on the tax professionals. But we do think that it is a collective role for everyone to influence what is best for the broader system.

Robyn Jacobson

You mentioned the increase this November of the self-serve payment plan threshold to $200,000. That's a permanent increase in that threshold? It's not a temporary increase?

Vivek Chaudhary

Our intention is to keep it at 200,000. That said, I cannot predict the future. It may be more suitable in the future to increase it. It may be suitable to reduce it. We don't know that today, but based on what we are seeing and the value of money itself continues to change. So the $100,000 threshold was set up quite some time ago. We do think that the $200,000 is an appropriate setting for now, but yeah, we do not have an intention for it to just be temporary. So that should remain in place.

Robyn Jacobson

So what is your final message or key takeaway for our listeners today, for those who have tax debts, it can be an incredibly challenging and difficult time, very stressful but there’s obviously ways that they and tax professionals can work with the ATO. So what's your takeaway for those who are listening?

 Vivek Chaudhary

Thanks, Robyn. My key takeaway is it is essential that we shift the payment culture for the good of the Australian community. Australia needs all taxpayers to pay the right amount of tax in full by the due date. It's also crucial that employers withhold and pay their employees correct pay as you go withholding and super. My final message is that tax professionals, as their trusted advisor help their clients understand that it's in their best interest to pay on time and engage with the ATO rather than waiting or having the ATO reach out to engage with them. And I do want to acknowledge the role that the Tax Institute plays. And Robyn, you fearlessly advocate for your members and your sector, but also I think really contribute in a very positive way to the overall system operating at help and building it better for the future. So I do want to take the opportunity to acknowledge that and thank you for having me here today in your podcast.

Robyn Jacobson

Thank you, Vivek and very much appreciate on behalf of the Tax Institute your comments and your feedback. We obviously represent the tax profession and our members, but we're also so dedicated to improving the tax system overall and whether that's tax reform and the development of policy on the Treasury in the government side of things, or whether it's tax administration in working with you and your colleagues. So thank you. We all want a better system that serves all of Australians. So I really appreciate your time today. It was very interesting to hear your address at the tax summit and for those that want to go back and look at formally your address, it is available on the ATO website in the media section. But thank you again, Vivek.

Vivek Chaudhary

Thank you very much.

Robyn Jacobson

Thanks for listening to this episode of TaxVibe. I've been chatting with Vivek Chaudhary, Deputy Commissioner Lodge and Pay at the Australian Taxation Office. To keep up to date with TaxVibe, be sure to subscribe, rate and review wherever you listen to your podcasts. If you'd like to connect with us, you can find us on socials. Not a member of The Tax Institute? Join a collective voice of 10,000 practitioners at the heart of the profession and find out what the best tax professionals have in common. Visit taxinstitute.com.au. We look forward to you joining us next time.

Improving the administration and integrity of the tax system for all taxpayers

Release date: 27 October 2023

If you’ve ever wondered who conducts independent tax dispute investigations for taxpayers and is committed to ensuring the tax system is administered fairly, equitably and transparently, you’ll want to hear this!

In this special episode of TaxVibe, recorded in person at The Tax Summit 2023, Robyn chats with Karen Payne, Inspector-General of Taxation and Taxation Ombudsman, about the office and role of the IGTO. This is a rare opportunity to hear about the work their office undertakes to support the tax profession and taxpayers.

They discuss current reviews and investigations, how the IGTO works to improve the administration and integrity of the tax system, and their important role in ensuring accountability of ATO decisions and actions. 

Host: Robyn Jacobson, CTA

Guest: Karen Payne, Inspector-General of Taxation and Taxation Ombudsman

Robyn Jacobson

Hello and welcome to TaxVibe, a podcast by The Tax Institute. I'm Robyn Jacobson, the senior advocate at The Tax Institute and your host of today's podcast. We love the vibe of tax here at The Tax Institute. We do tax differently. I'll be chatting with some of the tax profession's great thought leaders who will share valuable and practical insights you might not hear every day. We hope you enjoy this episode of TaxVibe. I'm joined by Karen Payne, Inspector General of Taxation, the Taxation Ombudsman. Karen was appointed the Inspector-General of Taxation and Taxation Ombudsman and commenced a five year tenure on the 6th of May 2019. She leads the Taxation Ombudsman Complaints Management Service for Taxpayers and Adviser’s and the Inspector General of Taxation is review and public reporting function, both of which are directed at improving the tax administration system for all taxpayers. Karen was previously a member of the Board of Taxation, as well as the inaugural CEO of the Board of Taxation. She was formerly a partner with Minter Ellison, specializing in corporate and international tax mergers and acquisitions and capital raising for various sectors. She brings a wealth of experience and extensive networks to the role of Inspector general, having worked with a range of government and private stakeholders, as well as the legal profession and many industry bodies. Karen is a solicitor admitted in New South Wales. A chartered tax advisor with the Tax Institute. A chartered accountant and a member of the Australian Institute of Company Directors. Karen, welcome to TaxVibe

Karen Payne

Thank you. 

Robyn Jacobson

Karen, can you explain the role of the Office of the Inspector General of Taxation and Taxation Ombudsman? Because there are two different roles here. What's the purpose of each?

Karen Payne

Well, the Inspector General of Taxation was set up in 2003 and it's fundamental to address the secrecy and confidentiality provisions in the tax rules. So we were set up with powers to, if you like, lift the secrecy veil to go and take a look and provide independent assurance back on back to Parliament and all the community and all the minister on what should be improved. In 2015 we inherited the Taxation Ombudsman role and that is a very different role where we're now investigating on behalf of individual complainants. And by individuals I mean not just people with heartbeats but entities as well, but anyone who's a taxpayer who wants to complain about the way in which their affairs are being administered. So that is a role we've been providing since 2015. And we can also sorry, I should mention, even though more than 90% of our complaints are about the Tax Office, we do investigate complaints by practitioners about the way in which the Tax Practitioner Board has dealt with them as a practitioner.

Robyn Jacobson

Essentially, the role of the Taxation Ombudsman is to deal with an individual taxpayer complaint. When I say individual, it could be any type of taxpayer that initially made a human being taxpayer create a complaint of an individual taxpayer who has a situation. Whereas the role of the Inspector General of taxation is more about understanding the processes. And if there are systemic problems within the way the system is being administered. But might there be occasions where in looking at a taxpayer's matter, you realize that they're not alone, they're not Robinson Crusoe, if you like. There in fact repeated instances of that occurring, and somehow this has morphed into a systemic issue which might indeed lead to an investigation.

Karen Payne

I think that's exactly right. And I think the key thing is that these two roles are very complementary. So we see stuff happening in our review space in death and taxes, for example, and that then leads to people acknowledging or recognizing they can lodge complaints with us about the way the ATO is administering deceased estates. But the the genesis for the Death and Taxes review was the complaints we were in fact receiving on deceased estates. Similarly, we saw through the job keeper, job maker processes a number of complainants coming to us and we had investigated those individual complaints, but collectively we thought actually this is something we should report on publicly So people are aware of and this has been the improvement we've identified in administration for the Tax Office to take on without needing to come and lodge complaints with us. So the two processes, the two investigation models absolutely are complementary and one informs the other.

Robyn Jacobson

Could you briefly explain, Karen, the scope of the powers? So what are you able to do? What can you ask for? What do you have the right to demand of the ATO and what do they have to comply with?

Karen Payne

I'm going to start with the very extreme view. Right. We have powers of compulsion. We can go and conduct a Citibank raid on the Tax Office if we need to. So we have very, you know, compelling powers to access information if we choose to exercise those powers. Now, I would say that it would be ridiculous for us to exercise those types of powers of compulsion on every occasion. So the more frequent way in which we get access to information is through our ordinary investigation rules. Now, once upon a time when we were the Inspector General of Taxation, we had access to information as a right. When we inherited the Commonwealth Ombudsman, Legislative framework. We now have access according to the rules of the Ombudsman Act, and those rules say we have access to information. If the Commissioner chooses to give us access to that information now whilst practically I'm not suggesting the Commissioner is preventing us from accessing information, if I were to stand back and say what what is independent access? What does an independent investigation look like? Well, for me, it doesn't look like the head of the agency that you're investigating gets to choose whether you do or don't get access to the information. So if I you know, if I could have a wish for Christmas, it would be that we got actually unfettered access to information. Because even though I'm not suggesting we don't get the information that we request, sometimes it's a challenge. I think the fact of having an unfettered statutory right to access information changes the way people see that they should engage with you. And you can see some of those recommendations in the robodebt Roll Commission report, where the commissioner has suggested that there should be an obligation to assist the agency through an investigation. The recommendation is not that it's just imposed on the head of the agency, but on all officials that work in that agency. So that's one of the recommendations in the Royal Commission that we keenly watching.

Robyn Jacobson

You've been delivering sessions for the duration of your tenure to date. And one of the questions you ask in your sessions is about the importance of integrity and the awareness of your office, both that of the inspector general and that of the ombudsman. What are you finding in terms of awareness and is there more that your office and more generally the profession can do to understand what it is you do?

Karen Payne

I think absolutely there is a need for greater awareness of our office. We did a review into how effective is the ATO in advising taxpayers of their rights to appeal, complain and dispute challenged decisions. And one of the recommendations out of that review investigation was that actually the Tax Office should proactively tell people how to lodge a complaint with them with the tax Office and with us as the Taxation Ombudsman. You'll see in our charter on page three, the Tax Office have now put that into our charter, but that's only recently come out. It came out in June and they've made clear in our charter that your position, your rights as a taxpayer are not affected, just because you choose to lodge a complaint either with the Tax office or with ourselves. That's very important because fear of reprisal action, I think, is what sometimes holds people back from lodging complaints. Anyway, it is now formally in our charter that you can lodge a complaint with us as the Ombudsman, but ideally in the first instance you try and resolve your complaint with the tax office. It's also the case that the Tax Office should be putting that information on decision correspondence going to taxpayers. They should be reminding everybody that if you disagree with the decision or you wish to challenge the decision, here are your avenues and one of those avenues at the at the very least should be recognizing the tax ombudsman. But I absolutely acknowledge there's more for us to do. I am always surprised at how many people, when I put up my polling questions at conferences will say either they don't know that we existed or if they're aware of our existence, they don't know what we do know. I'm should also add the Senate Economics Legislation Committee did a review three months into my term. They did a review of the performance of the Inspector General of Taxation and one of their recommendations. They make 16 recommendations. All good, in my opinion. But one of their recommendations was that the government should fund a program to promote the fact that there is in fact a taxation ombudsman and service.

Robyn Jacobson

To the community.

Karen Payne

Correct, yeah, I didn’t advocate for that, the committee came up with that idea themselves, which would be.

Robyn Jacobson

But you're perfectly happy

Karen Payne

Happy, but I'd be very happy to read that to receive additional promotion because as I said, I'm speaking to sophisticated tax literate audiences and they don't know that we exist. Well, how is the rest of the community going to be identifying that we exist?

Robyn Jacobson

Karen, do you have any observations on the evolution of your role from its genesis to now and from now into the future?

Karen Payne

Yeah, I think we are evolving as an agency in terms of where our core focus is on. I think it's always still the case and I think it always will be that we need to make sure we're engaging with stakeholders to understand what are their concerns. That's kind of fundamental and core to what we do. So I don't see that changing. And whether that's to inform our review investigations or to just help, you know, promoting the fact that there's a tax ombudsman in the system. But on the Taxation Ombudsman side, I can see that that will evolve materially and significantly. And in particular, because we're now seeing ourselves investigating more complex and highly complex disputes where, you know, we are looking to see if we can get outcomes for people where they've been recognizing they've been through three or four decision processes internally at the Tax Office as well as a complaint process sometimes as well as, you know, objection and or appeal processes. And then they come to us. So you know, we're at the end of the complaint chain. And so by the time they come to us, they're very frustrated, They're sometimes angry, they're very confused. You know, they just looking for answers. They think something's unfair. We're finding that we are more and more engaging in investigations of very complex dispute issues. And that's a big drain on our resources and our time. But the rewards, even though we can't compel the Tax Office to do anything, I think the community does respect the fact of our independence when we've gone through the process, even if we sometimes come back to them and say, look, we've taken a look at what the tax officer have done here, we would have done this differently, but we can't compel them to do anything. And, you know, here is our report. So more and more complex investigations and trying to find better ways to interact with the community so they understand where their investigation process is at. That's where I kind of see the next stage in our evolution.

Robyn Jacobson

And I think it's fair to say that your office is not about that. I use the word in a non-criminal sense prosecuting a government agency or otherwise acting in the interests of the taxpayer. It's about what's good for the system, particularly with your inspector General Hatchell, and trying to improve the efficiency and the way the tax system is administered. Now, there are times the taxpayers, of course, can play a greater role in the responsibilities, particularly we look in the fraud space of making sure that everything is done properly according to their obligations under the law, but equally, the administrator has enormous responsibilities to administer the law properly. So in terms of your role, I always see you as a bit of a guardian or a custodian of the system. You're always trying to improve the way that works.

Karen Payne

That's right. So we're not a taxpayer advocate service like they have in the US. We're there to investigate independently, and that means we're not taking the taxpayer's side or the tax office's side. We're there to report or mediate, if you like, exactly what we find and what we think is the fair outcome as an independent observer. So I don't think that's always understood. And sometimes the complaints that we get back after we finish an investigation is, you know, oh, well, you weren't able to change the tax officer's view. You couldn't get me a different outcome. What got your decision Override the Tax Office decision? It's an ombudsman model. We we don't.

Robyn Jacobson

You don't? The Federal Court That's right.

Karen Payne

We don't pretend to be substituting for the Tax Office's decision. It's their decision. It's their administration. We like an independent commentator on whether or not that administration is fair and consistent with law and the Tax Office's own guidance.

Robyn Jacobson

Hey, Karen, I'd like to look now at some of your previous investigations. There are many of them, and anyone who wants to look at those can jump onto the website, which is i g t decaf dot aew. So some of the key investigations have undertaken. You've looked at the way the ATO administers and manages objections and there's an interim report available for that. You've looked at how the ATO deals with deceased estates. You've examined the future of the tax profession. You've looked at how the ATO handles and manages the use of garnishee notices. And even in 2014 there was a report that circled back to some of the previous investigations to say, Well, how have these reports gone and the recommendations that we put forward? Is that still the case? And if not, what is the process now for looking at whether prior recommendations are implemented?

Karen Payne

So we did actually change the way we're going to go back and if you like, do a post implementation review, recognizing we have limited resources, we thought another approach that might have suitable integrity was to rely upon the ATO's own audit and risk committee process. So since 2014, we don't do post implementation reviews to see how things have been progressed and implemented. But instead what we do is we write and confirm at various regular intervals with the Audit risk committee that they're seeing sufficient evidence of the implementation by the Tax Office of those recommendations. It's also fair to say that because we do still engage actively with stakeholders, if things that have been promised to be implemented and are not actually either progressing fast enough or they're not being implemented in the way that it was once anticipated they would be, we get stake all the feedback on that and we, you know, we go and make independent inquiries or individual inquiries to say, hey, what's happening there? So deceased estates is a classic. There are still a lot of complaints that we get around the ATO's administration of deceased estates, and I still get lots of stakeholders coming to me saying, Hey, this was supposed to happen and it hasn't and where is it? And we're, you know, we do chase those things.

Robyn Jacobson

Have there been any positive changes as a result of your report, an investigation into the handling of deceased estates?

Karen Payne

Look, there's been a recognition that the representative that the Tax Office can engage with is not always going to have probate. And there has also been a recognition within the tax office that the threshold before, which, you know, they can deal with somebody, has been increased to allow more people to engage with the Tax office, even though they don't meet those formal legal, personal, representative requirements.

Robyn Jacobson

Because the law is very strict around, of course, who is authorized to act on behalf of the taxpayer or when your taxpayer has passed away, then they, of course, can't authorize anybody. And we often see the example of the executor and administrators a slightly different situation, because it tends to be, of course, that more court appointed. But an executor wants to go to the accountant who looked after the deceased person's affairs and said, Well, why can't you just do this? Why can't you just lodge the outstanding return and why can't you make this happen? And there's all this administrative red tape around what they're able to do and what they're authorized to do. So they've got to be some practical cut through as well.

Karen Payne

Exactly. And there was actually a report that was released earlier this year. It's not in the tax base, but it's on the operation of my golf where they acknowledge that, you know, not everyone who should or needs a myGov account is going to be computer literate. So the suggestion I think it was some folks report the suggestion was that you should have some kind of a nominee arrangement that is acceptable in relation to my job rather than people basically defrauding their relatives, pretending to be them. You should just set up a nominee account or a nominee arrangement and that should be permissible. I'm not sure where that's all got to, but I guess it's the kind of same theme where you have a number of well, in the case of deceased person, they're dead, right? They can't they can't engage with the tax office. But somebody who is acting on their behalf and or who has responsibilities to wind up their estate, even if they don't need probate, why can't they be recognized for the purposes of engaging the tax office.

Robyn Jacobson

And just to play devil's advocate, in this current climate, an environment of identity theft and cybersecurity issues and even elder abuse, I can see why there would need to be a great control series of controls over who would be authorized to do that, because you certainly don't want to pave the way for people who are not authorized, who claim to be authorized getting access to that type of information.

Karen Payne

I totally agree. But you also want it to be user-friendly, so you try to keep in balance these two competing objectives sometimes. But provided you've got the right checks and balances in the system, it does still seem appropriate that you can have lines of communication that are user-friendly and that are accessible.

Robyn Jacobson

So turning now to your current investigations, there are certainly three that are currently sitting on your website, and this has to do with the exercise of the commissioner's remedial power. Secondly, the exercise of the commissioner's general powers of administration. And thirdly, the ATO's administration and management of objections that you've been working on these for many months. In fact, I've got to suggest over 12 months in some cases. Where are these actions and when can we expect for those to be publicly released? And what do you hope will come out of these three reviews?

Karen Payne

So the report that looks into the commissioner's administration of his general powers of administration is currently with the minister. That report makes recommendations for both the Tax Office and makes recommendations for legislative change because it includes recommendations for legislative change. It has to be I don't get to release that publicly. It has to be released by the minister, but I've provided the report to the Minister for his consideration and he may or may not choose to respond to the recommendation at the time he releases it, but there is a statutory obligation to release it within a particular time frame. I think it's 25 House of Representatives sitting day. So that should be out before the end of October. Similarly, the remedial power report is largely written and if not currently with the Tax Office soon to be with the tax Office. So again, I would say that that should be released to the public sometime before the end of October. And importantly for me, because I see both of these reports as dealing with to some extent a similar problem. I wanted to do these two reviews together, but I was persuaded that we should separate them. So anyway, they'll both be in the market largely around similar times. The objective report. We're still working through a raft of information that the Tax Office has given back to us. The phase one process was to put out the will. This is the data, and then phase two is then to go and interrogate for some of the concerns that people were raising, whether it's around the data. So that's probably not going to come out. I haven't seen a draft of that report. I don't believe that will be out this year, but in the meantime, we've released other reports and we're doing other self-initiated or unemotional reviews. So we recently released a report on the ATO's administration of the Small Business Litigation Funding program, which the funding from the Tax Office came to an end on the 30th of June this year. But I believe the Tax Office's intention is that it will just roll into test case funding. We've made a number of recommendations in that report, even though it wasn't a review. We did it on the back of having done two very detailed dispute investigations where we engaged a cost assessor who's, you know, clearly experienced in the ways of the Federal Court to come to look at what the process was for those funding arrangements. And based on their report back to us, we've then made, if you like, recommendations on on what we would like to see as improvements to the funding arrangement, because fundamentally people were not clear upfront on what costs would or would not be compensated. And if you're about to go into litigation, I think you need to be very clear on is how much of these costs are you funding yourself and how much is being funded. Because the Tax Office has chosen to brief somebody externally. And then we've got a number of other own motion investigations that we're either currently scoping or will we'll get off the ground soon. One concerns the way in which the ATO administer a debt release on grounds of serious hardship, and that was a follow on from an earlier review that we did in relation to collectible but undisputed debts. And then we've got another review, a self, an own motion review where we're looking at the concept of an approved four. Now you might say, well, that's a pretty specific thing to be looking at, but it has big implications on whether or not the commissioner has a discretion to give you more time to lodge an approved form. So we're kind of we think it's important to take a deep dive on that.

Robyn Jacobson

There's always a lot that you're managing, but with all of that going on, what's ahead in the next 6 to 12 months? Say what's on your radar and how do you see your role evolving even further to bring fairness to the system?

Karen Payne

So there's a lot on my radar. There's a lot of things I'd like to be doing. I have to manage resources and do, you know, do the things that we can do. And for that reason, I have to prioritize. So the one thing I would say is we keep a register of potential review investigations on our website. I wouldn't mind if people took a look at that and maybe feedback through the Tax Institute. You know what are your top three issues? If you have a look at that list, or maybe there's something that is on your top three that's not on the list that you want to feedback to us. And that way that helps us to prioritize what we should be looking at in terms of the dispute investigations. The key thing we're looking to do in the next 6 to 12 months is to implement a new case management system. That system, I think, will be game changing for us because it's going to have a protected portal that allows a complainant to see where our investigation on their complaint is at. And that way they'll feel like there's more control from their end in terms of understanding, you know, is it the ATO that's delaying the in the conclusion of their investigation? Is it the fact that we requested information from the Tax Office and we haven't got it, or is it in fact the complainants delay because we've asked them to give us something to, to progress their investigation and we're waiting on that so we can progress it. I think that aspect of our complaint Investigation service will help us a lot in terms of helping the community understand where their investigation is at. And take a if I'm frank, take a lot of the frustration run out of the process because sometimes it does feel like a bit of a black box. And I totally get that.

Robyn Jacobson

Considered also improving the relationship or communication because essentially what you're describing here with that system upgrade is improve transparency and visibility. So instead of something being submitted through a website or ad, that's generally how complainants will do so. But they might also make a phone call that might save some of those unnecessary calls, which the more occasions your staff are dealing with phone calls to say, where is this at, the less time they have to spend on actually investigating the particular issue. But certainly having that transparency will be a really good thing to taxpayers.

Karen Payne

Yeah, So I agree. I think it's all about improving the transparency of our investigation, but improving the accountability within our investigation by for those that could objectives.

Robyn Jacobson

And I assume there'll be some communications about that next year when all that rolls out and improved experience for the complainants. 

Karen Payne

We hope so. Absolutely. 

Robyn Jacobson

Karen, thank you so much for your time. It's been great chatting with you. 

Karen Payne

Cheers. 

Robyn Jacobson

Thanks for listening to this episode of TaxVibe. I've been chatting with Karen Payne, Inspector General of Taxation and Taxation Ombudsman, to keep up to date with Tax five. Be sure to subscribe, rate and review wherever you listen to your podcasts. If you'd like to connect with us, you can find us on socials. Not a member of the Tax Institute. Join a collective voice of 10,000 practitioners at the heart of the profession and find out what the best tax professionals have in common. Visit taxinstitute.ocm.au.  We look forward to joining us next time. 

The Superannuation landscape: an ATO perspective 

Release date: 6 October 2023

In this episode of TaxVibe, Robyn chats with Emma Rosenzweig, Deputy Commissioner, Superannuation & Employer Obligations, ATO, about the current Superannuation and FBT environment.

They cover the top issues currently facing employers, what happens if employers get it wrong, how the ATO is supporting employers and employees and why a ute is not a magical purchase that is automatically exempt from FBT.

Host: Robyn Jacobson, CTA

Guest: Emma Rosenzweig, Deputy Commissioner Superannuation and Employer Obligations, ATO

Robyn Jacobson

Hello and welcome to TaxVibe, a podcast by the Tax Institute. I'm Robyn Jacobson, the senior advocate of The Tax Institute and your host of today's podcast. I'll be chatting with some of the tax profession's great thought leaders who will take valuable and practical insights you may not hear every day. We hope you enjoyed this episode of TaxVibe.  

I'm joined by Emma Rosenzweig, Deputy Commissioner Superannuation and employer obligations at the Australian Taxation Office. Emma is responsible for ensuring a complex ecosystem of employers, workers and retirees and ensuring that superannuation funds operate efficiently. Support willing participant nation and safeguards entitlements has worked for the ATO for 24 years in a range of roles across nearly all areas of the organisation. Emma holds a Bachelor of Laws, a Bachelor of Commerce and a masters of tax. Emma, you last spoke with us just over a year ago now. So welcome back to TaxVibe. 

Emma Rosenzweig

Thank you, Robyn. Thanks for having me. 

Robyn Jacobson 

Look, it's really good to check in with you on a regular basis to see what's happening in your ecosystem. And it's a big one when you're looking at the employer obligations as well as the entire superannuation system, both large funds and small. So there's always a lot we can talk about. But as usual, that's a good place to start with the superannuation guarantee regime. Now a few things are going on here, but let's just set the scene. We've had 31 years now of the regime and yet it continues to be a challenge both in the area of law, the way that it is interpreted, the way that it's applied and of course dealing with it in practice by both employers and employees. But there is still a really significant gap and that is basically the difference between what you should be receiving by way of employer contributions through the superannuation system and what is being paid. So what's the extent of the gap and what's the ATO doing about it? 

Emma Rosenzweig

That's right, Robyn. So people would be familiar. We measured tax gaps across a range of the texts that we administer and so the super guarantee gap does the same thing as you describes. Our last measurement of the gap puts it at 4.9% or $3.4 billion, and that is the net gap. So after our intervention, that compliance intervention, so, you know, that is still a very big number. A small percentage in a very big system still relates to a very big number of gap. It does mean that a large number of employers are doing the right thing, though, and I think it's important not to lose sight of that. It's easy to talk about the problems, but that that really does say that 95% of the contributions that should be going into the system are going in, which is actually really, really good. So we should recognize that most employers are doing the right thing there. But it is important that we tackle those employers that are not doing the right thing. And I guess for the ATO Super Guarantee is one of those things where we do probably have a tolerance for people who are not compliant because that is entitled minutes that we collect on behalf of employees. So some of the things we take it very seriously. We obviously action any of the complaints that we get from employees about unpaid super. I've got the figures for the 21/22 year. We got 19 and a half thousand complaints from employees in that year and actioned all of those complaints. We also initiate our own cases based off data that we have, and we also get voluntary disclosures from employers who do undertake things like payroll audit or they have an employee come to them directly and they realize that they've made a mistake. And so we do have employers come to us voluntarily to lodge super guarantee charge statements. So we do try to be very active in this space. But I really predominant approach is to try to help employers get it right this time. So we also try to do a lot of communications and messaging. We've got some videos out at the moment having conversations like these. We do a lot of speaking engagements, conferences or direct to employers where we try to help them make sure they understand their obligations and get it right, because that's really the best way for this to work that they get it right the first time and super goes into funds for those workers 

Robyn Jacobson 

Like so many other parts of the tax system. The ATO relies heavily on data in regular data, not just through single touch payroll, which has been in place for a few years now, depending on whether employees transitioned in early or later on. But of course, you've now got the data coming in from super funds, so there's quite a bit of matching going on. To what extent is this vital to the work that the ATO does? 

Emma Rosenzweig

So data is a growing increasingly important part of the work that we do, and we are making some big investments in the way we can bring that data together. We were provided with some additional funding by government in budget to do that as well and to enhance our ability to be much more proactive where employers have made a mistake. So we've been talking for a while to both employers and super funds about the importance of quality of data and the importance of so the data that they were reporting to us is right because we are increasingly bringing those to big datasets to talk to that together to try to identify where an employer has not met their obligations. And one of the things that we are looking to do is for April next year or the end of the first quarter next year, we'll actually be starting to nudge employers who have not met their obligations to that quota. Or five forces will be starting to prompt them and actually write at them, indicate that we're aware. We've identified that there might be a problem. We will obviously make sure those employees get a chance to correct Doctor, if that's incorrect. You know, sometimes that happens, but we will be much more proactive. So at the moment, you know, compliance activities are predominantly driven by employee compliance. And we still take that very seriously. But we really want to get to a position where we are proactively identifying those underpayments much earlier, and we're not reliant on an employee. We don't put employees in a position where they feel that they have to come and complain to us. So data, as you can tell from that, will be increasingly important. And I know you want to ask me about payday Safer in a bit, but if you think about as we work towards payday Safer on 1st July 2026, it's really important that employers start to have those expectations that we will be more proactive and that we will be identifying problems earlier and that we will be acting on it and expecting them to act on it, which we also hope will help employers get back on track. So I think super can be one of those problems where if people get behind, they can bury their head in the sand a little bit and then the problem grows and grows and sometimes gets to a point where they actually can't deal with it. It gets to be a very big liability that they have to be paying off. So we also hope that by acting earlier, we will actually be able to put employees in a position where they can respond faster, hopefully get back on track quicker. 

Robyn Jacobson 

You’re right Emma, I will be asking you about payday super very shortly, but before we get onto that, it's probably worth reminding our listeners that the rates are continuing to increase at the moment and when I say at the moment, there was some rate increases put through some years ago that go right through until 1st July 2025. So at the moment we're on 11% for this year. Is the SG rate or the charge percentage and it will move to 11 and a half and then finally to 12% of years' time. With all the pressures on businesses at the moment, in fact, more broadly across the entire community with cost of living and rate rises and so on, are you findin that I guess there are two issues in here. One is about the change in the rate and making sure employers are on top of that information so they know when they go into a new income year, they are actually applying the correct rate. And there's the secondary issue that as that rate increases, depending on whether the employee is on a package, which means as the rate goes up, take home pay comes down, or whether it's more a wage plus super, in which case the employer pays that and that becomes very much a financial impost that's increasing on the employer.

Emma Rosenzweig

That's right, Robyn. I think you've described the scenario. We do a lot to try to remind employers about those rate increases at the right time. We don't see that as a big problem, that employers are getting that wrong. So that's great. Obviously, the message is getting out there. I think also many payroll systems actually have it built in and have those automatic updates built in, which also makes it really easy. That is probably one thing that with checking, sometimes employers have overridden those automatic updates or they might have an agreement in place that they've put a different amount in. So it is always worth checking at the beginning of the year that your system has actually updated and has gone to the new amounts. So we don't see it as a really big problem that employers aren't on top of those increased rates. But yes, all those challenges you just noted that that working out the total remuneration package amounts or whether this is in amount on top is something that employers just need to keep on top of. 

Robyn Jacobson 

Let's turn now to the rising debt. So you've referred a couple of times to employers who sometimes don't pay it and then it becomes a growing problem and sometimes it all becomes too much and they just turn away from the problem but that doesn't make it go away. And I do remember the ATO saying at a conference years ago that, you know, don't ignore us because we don't go away. We're still here. And that debt doesn't disappear and it's not going to magically evaporate just because you don't want to deal with it as an employer. So when you talk us through these, the level of debt now a concern, what is the ATO doing about this? How closely do you work with the Chaudhri and his team at Lodge and Pay? And just on that point, we have separately recorded a podcast with Vivek and we will be releasing that in the next little while. And what sort of action are you taking in respecting employers who don't do the right thing? So it's quite a bit to unpack there.

Emma Rosenzweig

Look there sure is, And look, I was going to say, many of you or many of your listeners might have been at the tech summit and heard Vivek speak personally about the reset approach to our collection activities, which is really critical and super guarantee is a priority for them. As part of that. So if I just paint a bit of a picture, the debts to super guarantee, which is the amounts that we have identified, people go and actually crystallized as a liability, has grown from just under $1,000,000,000 before the pandemic to around $2 billion today. So really increased significantly in a fairly short space of time. The other challenging part of that picture, to paint is that about 87% of that unpaid super guarantee debt is owed by small businesses. And as I said earlier, super is an amount that really is an entitlement to your employees. And these are the people who are working in your business, helping your business grow or thrive or survive perhaps. And so amounts that you're not paying are really directly impacting their futures. So we do take that pretty seriously. And as you can see from that growth, it is something that we are concerned about. I'm sure that we'll talk to you in the other podcast with him about some of the actions he's taking. But certainly we give people plenty of opportunity to engage with us. The best outcome is that they can be in a position to pay those amounts and get on top of their top of their liabilities. But if people can't and if people or people won't engage with those debts, there are steps that we can take. So we have direct penalty notices that we can issue. We can issue directions to pay any fee. And if you Don't comply with the direction to pay. It is a criminal offense. We also wind up businesses and can prosecute people. And another power that we have that we haven't used very much yet. We were given this just before the pandemic. And so it is something that we're thinking about, how we use that we actually now have the power which is an exception to our secrecy provisions, that if you have not met your super obligations, we can actually inform all of the employees that you have of that, not just employees who have complained to us about unpaid super. So obviously that is almost putting people on notice about your behaviour as an employer, because often employees don't pay attention to this, so they might not realize. So that is another power that we have to make sure that the people who are affected by this understand that. So, you know, I think, as I said, those are all almost last resort things we'd like to do. We'd really much prefer to be in a position where we can work with the business and get them back on track, paying their obligations. 

Robyn Jacobson 

I’d like to ask you about the winding up, and I know over many years we've been conversations around, well, if the ATO proceeds with winding up, then doesn't that eliminate the ability to recover anything? Whereas if the business continues to operate, at least there's a chance of recovering something. How do you respond to that? And also, where does the issue sit as a priority in terms of that is do you see liability in a winding up of the company? 

Emma Rosenzweig

So I might start saying I'm not insolvency expert, so Super guarantee does have priority in a winding up. And as I've said a couple of times now, that is because it is an entitlement that goes to the workers. So that's important to realize. And look, getting that balance right between is a business in a position to be able to trade out of the difficulties or not. It is a real judgment call that our staff have to make And it is a hard one tonight. I would say if you're a business who is having that conversation with us, the more engaged you can be in that and helping us understand why, on what basis you think you can actually try it out of that, the better informed stuff to then make a judgment about whether I agree with you not. I think people also need to think about not only do you have to be in a position to recover the liabilities that you currently have, but you have to do that on top of then meeting your ongoing obligations as they do. So there's no point cutting up past liabilities if you're actually just digging a bigger hole next door with new ones. So all of those things are relevant. I think in the case of business with employees who are not meeting the super obligations we have, and I certainly have a lower tolerance for businesses who may be just digging a bigger and bigger hole and getting themselves into more and more trouble. And so that judgment call about the reality of cannabis and actually try tried out of this problem is probably one we have a lower tolerance for when there is belt simply because you know I've said I'm like a broken record today but it is the employee's money. And in a sense we have to really think about how long we let that business go on becoming more and more indebted to their workers before we take any action. So, look, I think getting that balance right, it's not a science, it's a bit of an art, but the more informed out stuff be, the better position you can put them in to understand your thoughts on it.On why you think you can trade out the better decision making might

Robyn Jacobson

We think about superannuation. I am not suggesting that it is any more or less or greater importance than paying salaries and wages. But if I don't pay you a dollar today as an employer, you're missing out on that dollar. Let's assume that some after tax that when we're talking superannuation, a dollar today that's not sitting in the superannuation fund and isn't invested for what could be 40 years, we're talking an enormous compounding benefit that's not available to the employee either.

Emma Rosenzweig

That's exactly right, Robin. So and I think one of the challenges with Super is that often employees, particularly young employees, might be in this job. It's not something that they're necessarily thinking about and it's not as easily identified to them if it's not being paid. So if you're not getting salary wages and you can't go out on Saturday night, you might have been paid. That's really obvious. If you haven't been paid to super, it's not something that particularly young people are really checking. So I think some businesses think it's easy to get away with it because it's one of the last things that people might identify that they haven't paid and I guess this goes back to the point we were talking about, about our use of data. We really want to be in a position where we put all the data that we've got in the system to work really hard so that we can identify when that happens. And those young people go out on Saturday night and know that we we are looking after it for them. 

Robyn Jacobson

There's also the power imbalance that when you've got a young employee, they might find it incredibly challenging. And I get why to take on their employer and challenge them on the fact that maybe super's not being paid for fear of losing their job or for it to have an effect on the way that responsibilities are allocated to them in the workplace or their relationships with their colleagues or their employer. So it becomes really difficult from a workplace perspective too.

Emma Rosenzweig

That is true. That is that is very true. It is interesting. We are saying, you know, we're in a tight labour market at the moment and we're actually seeing an increase in employee notifications coming to us. So that's where employees come and complain about unpaid super. And we are seeing more and more employees complain while they're still employed then previously used to be much more common for people to wait till they had left a workplace to complain. You know, I've not done any scientific analysis to prove that that is related to the tight labour market, but it is a really interesting thing to observe that some people seem to they might also be students, that there's a lot more conversation about super at the moment. And so that encourages people to pay a bit more attention. But we are seeing a lot more people come forward and complain at the moment.

Robyn Jacobson 

And if nothing else, it shows there's an awareness of that mechanism to be able to notify the ATO. So that's good. 

Emma Rosenzweig

Yes, that's right. 

Robyn Jacobson

Okay, Payday Super. Let's chat about this. So it's an announcement that was made in this year's federal budget. It is due to commence 1st July 2026, which sounds like a long time away. But having already been involved on behalf of the Tax Institute at some of the target of consultation, that's taken place, I've got an insight as to just how much work is involved, and we're going to need every minute between now and then to be able to design the framework, get the policy implemented.  And of course that needs to pass through Parliament. And then of course the ATO needs to turn its mind to the rolling out of this in the awareness campaign and so on. So broadly, can you tell us what Payday Super is all about, What's going to change and for both employers and employees and so many other stakeholders in this, for those two cohorts, what does it mean for them?

Emma Rosenzweig

That's right, Robyn. It's it's quite an exciting reform that the Government has announced. So I'll probably need to qualify this by saying it is in announcements and it's not law yet and there is still work to do to come back to budget in next year to consider the actual detail of the policy. But the announcement was that employers will be expected to pay their super at the same time they pay salaries and wages. And I guess we've been on this journey for a while with the introduction of single touch payroll. We started reporting at event. So rather than once a year getting that reporting from employers that we actually get event based reporting through single touch payroll, this takes the next step to say actually we need event based payments as well of superannuation. So that's that's the basics. So employers just pay more frequently or some employers pay more frequently than they are now because we know there's already a large number of employers paying more often than the quarterly minimum obligation at the moment. As you said, though, there's lots of parts of the system now that need to actually operate to make this work. So employers are reliant on the software providers to report to us, but also to automate these payments. So we know that digital service providers are going to need to update their systems to do this. There are clearinghouses that offer services to employers. They're going to have to be able to accept these super funds who report regularly to us on contributions. And so they're going to have to make changes to allow for this. And one of the other potentially slightly overlooked, except perhaps by super nerds, elements of the government's announcement was the fact that they will be made to be changes to the super guarantee charge regime as part of this in order to really could temporize those rules about what happens if an employer doesn't meet their obligations. So that is a huge job, but also a really great opportunity to be able to tackle some of the issues that we know employers struggle with at the moment. We know some of the rules are very inflexible and it's partly because they were designed a very long time ago. So very different operating environment than we're in now with prior to choice, prior to a quarterly regime, even never mind a pay day regime. And so it's a really good opportunity to think about what what is the right mechanism to have where employers do not meet their obligations and how do we have the right consequences in place to tackle those problems. So really exciting opportunity and I'm really looking forward to it. I know that we've got a very diverse group of stakeholders in the community as well who will really work with us to help get this right.

Robyn Jacobson

I see it as a golden opportunity to modernize these rules and they were, of course, the back in the early nineties. So history we've had since 1992. Back in those days, we didn't have quarterly payments. That only started in 2003. We had payments made by check. We certainly didn't have a hefty we didn't have the clearing houses, we didn't have stapled super, we didn't have choice of super as you say. And we've ended up all these years later, over 30 years with a system that you describe it as inflexible. I'm going to go a step further and call it draconian because when you've got employers who are treated exactly the same way, regardless of whether they never pay the super for their staff or they pay at one day late, that happened not to tell the ratio through a formal history statement and paying the charge. And that's where it's unfair because it shouldn't be the same penalty regardless of the level of culpability. Also, the fact that the nominal interest continues ticking on whether or not you've paid the amount when that was actually designed to reimburse the fund for the lost earnings, for the contribution having not been made up when it was supposed to. So if you paid the contribution a month late, but you still do till the 80, So that interest keeps ticking and in my view it becomes effectively a double penalty because we've already got the part seven penalty for not notifying the ATO when at a policy level you've also got this interest that keeps on ticking. So that's nothing the ATO is able to exercise discretion on. There is no flexibility for the commissioner as we well know. So that's why I call it a golden opportunity because I think this is a chance to bring these rules into a modern environment, into the 21st century, where we can acknowledge the digital tools we've now gotten, the technologies we're not paying by check, but as you say, to have a quarterly charge when you're going to be potentially paying on a weekly or a fortnightly payroll basis just doesn't work.  And that's why it does need to be altered and refined and made much more flexible to cope with a flexible payroll cycle. 

Emma Rosenzweig

That's right. And look, we've done what we can in terms of we do have party remit the pot seven penalty. And so I think we've worked with a bunch of people a little while ago to put out a press statement about how we would apply those. And that seems to be working very effectively. And the goal of that is to really think about applying or remitting those penalties in line with the behavior of the employer, whether they're someone who regularly doesn't pay, whether that's someone who one off has made a mistake, we hope. And I think the way our penalties are applying now does genuinely reflect that behavior much better. But I think this is an opportunity really to take all of that feedback about the current consequence rules, the current charge regime, and think about what's the right model to have in an environment of pay discipline, a digital environment and really contemporary it. So I agree, Robyn. I think it's a golden opportunity. I don't want to preempt what that outcome might be, but I think reflecting that the goal of this is to get money into the fund for employees in a timely way. It is really important and I think it is a real opportunity to ensure that employees are getting the right amount of money to ensure that business is can manage their cash flow appropriately, reflecting the fact that those amounts are really entitlements. So they work as is really a great opportunity. 

Robyn Jacobson

We shouldn't overlook either the cash flow impact. So it's one thing to change systems and upgrade software systems and technologies and processes, but this will have a real impact for those who are currently paying super on a quarterly basis. The idea is if you're paying smaller amounts more frequently, then you more able to keep on top of those obligations rather than it building up and even potentially falling behind. 

Emma Rosenzweig

That's exactly right. You know, the thing is, I gave you before so that 87% of the current debt is held by small businesses and in some cases they are businesses. Very few cases. Their business is willfully not paying. In most of the cases that we see, they are businesses who have struggled to manage their cash flow in a way that lets them meet those obligations. And so I think that's right. There will be a real impact that hopefully we can get on top of the issues earlier and in the small moments.

Robyn Jacobson

Moving to another issue that never goes away and that sort of employee base as contractor from the perspective of looking at how the tax rules deal with this, there's currently a draft ruling 2022 D3, and there is also advice under development with the ATO at the moment and that can be found on the ATO website. This continues to remain a challenge. So do you have any remarks about where we're at with this particular debate? And of course we've had the recent High Court cases and I'm sure there'll be more cases in the pipeline.

Emma Rosenzweig

 It has been surprisingly active lately. This issue, you know, it goes for a bit of a lull and then we have had a number of cases. So as you said, we have put out a new draft ruling at 2022 slash 33, which was drafted after those two big high Court cases in gem sick and personnel contracting. It also has we have also put out a practical compliance guideline with it which talks about where we're putting our flags on the dates in terms of employers making decisions about how they treat their workers and where they can expect us to apply our resources to looking at those issues. And I'm really grateful for all people who provided a step back and comments on that. So far they seem to be taking an approach that seems to be practical and realistic for people to be able to comply in a way that might give them a bit more certainty. They asked to draft. We have had a bit of feedback on them, but we also had a recent Federal Court case of James versus the commissioner and we want to make sure that we reflect the considerations in that case in those two cases. So if there are more cases in the pipeline that then it will become at what point do we finalise these and have to update the cases? We're not aware of any other cases at this point, although we have sought as special leave to appeal in the JMC case on one particular element of it. So we are just waiting to hear about whether we'll be granted that special night before we finalize those. There has been a bit of a that has taken a bit longer to finalize them than we initially thought, but we do want to make sure that they genuinely reflect the current state of affairs in this issue. But but it is an interesting and complex issue. We know for a lot of businesses to work through. So we really do highlight that our approach in that case gives some clear guidance about the steps a business can take if they want to have confidence about how they will look at the decisions they've made.

Robyn Jacobson

Neither of us are particularly Fair Work experts that I just also want to mention to our listeners that there is a bill before Parliament that is dealing with proposed changes to the Fair Work Act, and for that reference, it's the Fair Work Legislation Amendments, Closing Loopholes Bill of 2023 and might be good to look to bill once it goes through Parliament, may be early next year and have a chat about what that means from an employer and a superannuation perspective.

Emma Rosenzweig

Yes. So that that Bill does not make any changes to superannuation or tax legislation. And so we're obviously interested observers in how that progresses. It's been referred to a committee who are due to report early next year, but at the moment that Bill does not make any amendments to any of the tax laws. So we don't say it directly affecting the way we administer any of that current legislation.

Robyn Jacobson

Thank you. So to another of your huge portfolio, Fringe benefits tax. Now, we're not in FBT season at the moment, as we all know, but you are still finding that there's a bit of a knowledge gap, and particularly with this tight labour market that you have referred to already, you're saying particular types of behaviours that concern the ATO because there could be some employers not aware that they're offering taxable fringe benefits and therefore could be overlooking their obligations here.

Emma Rosenzweig

That's right. So I would say maybe it's not FBT return season, but perhaps all year is FBT big. And if you are offering some of these benefits. So, you know, I have to put a plug into good recordkeeping here and make sure that even though it might not be tax return time, it is important to think about the records you might want to keep. But that's right. We are seeing more and more employers think about how they can retain staff or check staff. And part of that might be to offer them non-salary benefits. And that might mean some employees who've never been part of the system before are now suddenly brought into it or aren't aware that actually they should be paying if they pay on these benefits. So really want to encourage people know your business listening to this and you are providing non-cash benefits, whether you're giving people tickets to the footy or to the theatre, or you're providing a car or all sorts of things, if, if it's a benefit you'll give in to your employees. Have a think about whether they could apply. And if you're a practitioner, perhaps it's great to ask some of those questions to, to some of your businesses as well about whether they've taken on any paper or offered any new package arrangements to people because it is a real challenge to make sure people are aware that they've got these obligations.

Robyn Jacobson

You provide some specific examples of the sorts of benefits you're seeing out there that perhaps are more common or perhaps being offered by an employer for the first time? 

Emma Rosenzweig

Well, look, I think one of the things that we might have seen a little bit of media on recently, because we've been trying to bust some myths about the fact that providing a car, particularly a use this seems to be a myth that if you buy a you can provide it to your employees that it's not subject to if they take a there's no magic in it being a ute. And so I think it's really important to people to know that it will be subject to FBT unless there's really minor and incidental private use of that vehicle. So that's one of the things we say, you know, people providing a car, that car can be taken home in the weekend and you drive kids to soccer games and you might go camping with it. Particularly Ute’s really good set camping that is not incidental personal use and does make that subject to fringe benefits tax. So I think thinking about the use of work cars is really important. There are record keeping requirements people need to meet to to show the use of the car. And we do look at those. If we if we come and look at you and ask you questions about your as they say, the cars would probably be one of the biggest benefits, Robyn, that we say people, people get wrong, 

Robyn Jacobson

but it could also include tickets to events and I'm thinking of, for example, the Melbourne, the Australian Open is coming up again and we've got Melbourne Cup season coming up and football finals and all that sort of thing. So a lot going on down in Victoria. There could be school fees being reimbursed by the employer that you may have to sacrifice arrangements, not into super, but I'm talking other types of benefits. So there could be a range of things that people do need to turn their minds to.

Emma Rosenzweig

There are a whole range of benefits that people offer. And and I think that's right. There's all sorts of entertainment benefits that we say people are afraid to say meal expenses, reimbursement of living expenses. So all of those things can be subject to, as they say. And so I think if you're providing any of those to your employees, it's worth going and asking the question.

Robyn Jacobson

Might be worth highlighting another one that people can overlook, we've got the changes over the last year relating to the provision of electric vehicles. And if I might, certain conditions they can be exempt from FBT, but it doesn't stop them being reportable as a reportable fringe benefit. So that's something else that employers need to be mindful of and employees because it can affect, of course, their overall reported income.

Emma Rosenzweig

That's right. So it's still important to recordkeeping purposes to make sure that even if they do meet all those requirements to be exempt, so an employee salary packaging an electric vehicle, it may well be exempt from FBT. But you're right, Robyn, that it will still be considered a reportable fringe benefit. And that is important to report through to us. And as you say, it can affect people's entitlements to other benefits, welfare benefits. It can affect if you have a fixed it, it it gets included for calculation of your HEX debt. And the other thing with electric vehicles, I think is important to note, so things like the running costs of the vehicle registration insurance and I understand they don't need anywhere near as much maintenance, but repairs and maintenance costs can also be, if they take free things like the provision of a home charging station is not actually included in that exemption. It is it is not part of the vehicle running cost. And so that's another thing to think about too. If you're actually providing reimbursing for the home charging station, that is likely to be subject to if it's a property fringe benefit or an expense payment fringe benefit.

Robyn Jacobson

Helpful. For the last one, on a technical level, consolidation for income tax purposes does not facilitate consolidation for FBT purposes. They're quite separate pieces of law. 

Emma Rosenzweig

Yeah, look, it is something we do see that some that businesses are trying to lodge a consolidated return and so that makes it really hard for us to data match. It is very likely that if you're trying to lodge a single FHA return for a group of companies, that it will generate some questions from us. And generally people prefer to avoid having us come and knock on the door and ask them questions. So I really encourage that if there is a corporate grade in place, the H employer in the group needs to lodge their own FHA return. 

Robyn Jacobson

So in closing, any tips or where people can go for more assistance or help? 

Emma Rosenzweig

Well, we have plenty of information on our website ato.gov.au. We try to give it in lots of different formats. We have some great videos on Super Guarantee and a lot of information about FHA as well. If people are interested in what we do do in terms of super guarantee compliance, if they search for ato.gov.au/sgsnapshot, you will get straight to some information about the compliance activities we do and we'll be updating that in about October when our annual report goes out. That would be the latest SG gap as well. But obviously then organisations like yours as well, Robyn, and tax agents, BAS agents, payroll advisors are excellent resources for people to ask for assistance in. 

Robyn Jacobson

As always, there's always so much to unpack, so much more we can say that I thank you for your insights and for sharing your various experiences and anecdotes with us.

Emma Rosenzweig

Thank you so much for having me. 

Robyn Jacobson

Thanks for listening to this episode of TaxVibe. I've been chatting with Emma Rosenfield, Deputy  Commissioner Superannuation and employer obligations at the Australian Taxation Office. To keep up to date with TaxVibe. Be sure to subscribe, rate and review wherever you listen to your podcast. If you'd like to connect with us, you can find us on socials.

Not a member of The Tax Institute? Join a collective voice of 10,000 practitioners at the heart of the profession and find out what the best tax professionals have in common. Visit, TaxInstitute.com.au, we look forward to you joining us next time.

Uncertainty vs. certainty in death and taxes

Release date: 22 September 2023

In this episode of TaxVibe, Robyn chats with Ian Raspin, estate taxation specialist and Managing Director, BNR Partners, about his broad experience in advising on the myriad of tax issues associated with deceased estates.

They cover:

  • Valid wills, intestacy and assets that cannot be dealt with by a will
  • Tax issues, including CGT, GST, Division 7A, superannuation and so much more
  • Probate, the role of executors and estate law considerations
  • Other considerations, like control of entities, digital assets, social media accounts and disputes between beneficiaries

Host: Robyn Jacobson, CTA

Guest: Ian Raspin, estate taxation specialist and Managing Director, BNR Partners

Robyn Jacobson

Hello and welcome to TaxVibe, a podcast by The Tax Institute. I'm Robyn Jacobson, the senior advocate at The Tax Institute and your host of today's podcast. We love the vibe of Tax, and here at The Tax Institute, we do tax differently. I'll be chatting with some of the Tax profession's great thought leaders who will say valuable and practical insights you may not hear every day. We hope you enjoy this episode of TaxVibe. I'm joined by Ian Raspin, who is an estate taxation specialist and managing director of BNR Partners, based in Melbourne, which is specialised in the taxation of deceased estates since 2008, provides estate taxation, compliance and technical advice services across Australia exclusively by referrals from legal practices listed on public trustee companies and by direct appointment from the Supreme Court. BNR has one of the only dedicated teams of accountants in the country who specializes in this neat and often complex area of taxation, which frequently involves cross-border estate issues. Ian is highly regarded nationally and internationally on estate taxation matters as a published author, as a frequent presenter at legal and accounting conferences and events across the country. Ian also consults with the professional associations, government agencies and regulators and the private sector on estate taxation issues. Ian is a chartered tax advisor at the Tax Institute, a fellow of both CPA Australia and CAA NZ, a current sitting member of CPA Australia's Tax Centre of Excellence for Registered Practitioner at the Society of Trusts and Estate Practitioners, of which he is the current National Chair and a graduate member of the Australian Institute of Company Directors. Ian, welcome to TaxVibe. Great to have you here.

Ian Raspin

Wonderful to be joining you again, thank you for the invitation.

Robyn Jacobson

So, Ian, you've certainly established yourself as one of the preeminent experts when it comes to the taxation of estates and related matters. And we can draw back on a very famous quote from 1789. I don't think anyone who works in the tax profession, who hasn't had this one and many outside the profession, from Benjamin Franklin, and he said, ‘Our new constitution is now established. It has an appearance that promises permancy. That in this world nothing can be said to be certain except death and taxes. And you've very successfully combined the two.

Ian Raspin

Growth industry at that too, Robyn. Great, great quote.

Robyn Jacobson

So what makes this area of law so complex?

Ian Raspin

Great question. And really, I think we need to sit back and look at it and say, well, as tax practioners we are working with federal tax law, so, you know, Income Tax Assessment Act, but a state law is a jurisdictional base thing. So every state in Australia has their own jurisdiction or staff succession law as well as the trustee act. So it's an interplay between tax law, the Income Tax Assessment Act and those particular areas. You overlay that and say, well, the income Tax Assessment Act has particular provisions in the way that deceased estates are actually treated and estate actually falls into Division six of the act. So it's treated like a trust, but by default that creates a whole heap of technical nuances when it comes to deceased estates. So it's a combination of those sort of areas. We also need to be, I guess, judicial changes in our interpretation of law. The location of the beneficiaries and the LPR also changes the domicile and treatment of assets and tax purposes out of that and believe it or not, the circumstance of the deceased are their wealth, what structures they've got that wealth in their migration patterns. Where were they when they died? How does that interplay in relation to this area of tax as well? And I think overlaying all of that, you've sort of got to go well, complex area that's probably not appreciated by many practitioners, but at the end of the day, that is there is ITII guidance out there. Some of that guidance is dated and some areas and it's sort of lacking in relation to that. And look, I think in that sort of area that things are progressing very quickly, whether it's generational wealth transfers and growth and in death rates in Australia. So it's an area that needs quite a bit more focus I think.

Robyn Jacobson

And the expertise of practitioners, how specialised or otherwise do they need to be to work in this space?

Ian Raspin

Look, I think a lot of it starts with the Manila estate where with things are black and white and it's pretty straightforward. You know, mum and dad were guys a hassle? I'd be a bit of money in the bank on the share portfolio and that's that's about it. And prima facie, again, it's a pretty simple estate, but embedded into that, there's a lot of potential through tax nuances and traps that come along with it. And what can seem to be very simplistic can soon become quite a complex estate and given numbers. United Small Estate. The risks probably pretty small. If it's an estate, tens or hundreds of millions of dollars, all of a sudden the risks exposures and those levels are quite high. And one of the nuances I guess with deceased estates is that the LPA, the executor, administrator or whatever title might be given in that particular case is personally liable for tax. And, you know, they finalized the estate administration, their liability remains. It's not on to the beneficiaries. And so if something goes wrong, that means that those people will be turning around to their technical advisors as to what's actually go on here. So I think an awareness of these areas are really good. Know what you do know and what you don't know? And to reach out when you get into some of these technical nuances and every day I'll reread the legislation around provisions I know just to make sure that things navigate their way through the way I think they should on a particular matter.

Robyn Jacobson

And to give us a sense of the scale of the number of estates you cover each year, what are we talking about?

Ian Raspin

On average, we'd be doing with about 5000 estate tax matters a year across Australia, which sounds like a very large number. But when you sort of break that down and you say in Australia last year there was just over 190,000 deaths in Australia that's an average of 521 deaths per day. You know, so many dealing with a fraction of the market. But I think if you start looking at that too and you go, well, a lot of those estates are just going to be really simple estates, age, pension, not much else. That's a nice easy estate to just off. So that deals with the majority. But there are the others and that's where the Frankenstein monsters are, is for the Paid Representative Tax Institute. Just a couple of weeks ago.

Robyn Jacobson

As I go into this next question to you, I just want to set the scene, because sometimes terminology can be a bit confusing and there is a whole different language when it comes to estates. So, for example, we talk about someone who dies intestate. And I want to make it clear, I didn't say interstate, it's interstate. You might be interstate when you die intestate, but it's about someone who doesn't have a valid will when they die. Now, that itself informs the terminology we use because we've already mentioned the other legal personal representative, which is effectively the trustee of the deceased estate, the trustee of the trust. But it breaks down into further terminology. So if you die with a valid will, you have someone who is called the executor. And in fact, the executrix, if we're talking about the masculine and feminine version of those words, whereas if you die without a valid will, holds an administrator, and again there is a female equivalent of that. So in our space, we often see accountants taking on the role of executor for their clients. And yet you've seen a trend by many legal practitioners who in fact decline copies of invitations from their clients. So what are some of the risks and why do you think the lawyers are perhaps moving away from taking on those roles? But we're seeing accountants still taking that on behalf of their clients.

Ian Raspin

I personally won't take on the roles any longer because I become very much aware of what's involved here. I think to the legal fraternity, you know, remember a while ago there was one year I attended. I regularly speak at law courts across Australia. The three conferences in one year where somebody got up as a presenter and actually lectured a roomful of lawyers, that qualified lawyers that specialized in this space with their master's degrees or specializations, accredited specialists, and telling the audience not to act as executors. The risks in the area are phenomenal and thus look at it and say, well, look, if the legal fraternity at telling people that understand law and are actually qualified just in this space and focus in this space not to act executives, well, why would another professional stand into that place like an accountant? We don't understand that most accountants would not understand or probably haven't read the succession Law Act in their local jurisdiction, let alone understand the terminology. You look at it and you sort of go, Well, am I covered? And this is a really important one for a journalist to be looking at. Am I covered by professional deputy insurance? And when you look at the PR cover for me, accounting firms, you are not covered to act as an executor. So it's a personal responsibility, not a professional responsibility, right? You will be held paid professionals standards in relation to acting in that role. So a number of times I can give examples where I saw practitioner will act as an executor and the impact on their practice from doing so is just phenomenal. You only need a simple family maintenance claim against the estate and you find yourself in court, know, defending the estate and the world against those sort of claims. And so much of your time and energy has gone to that you're not really qualified to do and you're getting legal advice to be able to do that, that you drop the ball around your own practice. And I've certainly seen practitioners suffer significantly from taking that so wrong. I advocate very strongly that probably not to look at it. It's very nice. You know, a client comes in, they'll be the client for years and you go, Well, hey, you know, you act as my executor again. This is a major, major honor, you know. Yes, I'm happy to do that and help tie the family together. But again, you can do that, but you might find yourself in a fight with next generation. Then you end up with no clients. Right.

Robyn Jacobson

So it could be better to keep your arm's length and charge for your professional services as you need to, but not get legally involved in the arrangement.

Ian Raspin

To find someone else. Now, more so where, you know, people will actually say, I'd like you to refer to my accountant X, Y, Z for advice on this matter. Therefore you can go looking to charge those professional fees as an executor. You might be an executor or a commission born into the world, but it doesn't mean you're actually going to get that commission. It's open to challenge by the beneficiaries in judicial interjection. So it's not necessarily a cash cow. Some people think it's going to be.

Robyn Jacobson

So moving on to some broader estate issues I've already discussed with you, we have people who die with and without valid wills, but I often feel there's a perhaps a false comfort that people get by having a will. They think that it kind of deals with everything. And in fact, there are quite a number of assets that you can't deal with through your will. Can you give some examples of those?

Ian Raspin

Oh, absolutely. And really good point. You know, particularly for some practitioners out there that are trying to have those discussions with their clients around estate planning. Superannuation is not part of your estate unless you get a binding death benefit nomination to pay to the estate or the deed is hard wired for it's county estate. That's often an estate planning technique not to have it part of the estate, particularly if there's a second, third or fourth family. Nobody knows about their assets holding companies or individuals, trusts, family, trust. That is, they don't form part of your estate loan accounts to those entities. Well, maybe the assets within a company that owns a whole heap of real property, you know, you won't own the real property. You own the shares of the company, but it doesn't give you the right to actually transfer that real property in the company to a particular beneficiary and of course, jointly held assets. The rules of survivorship can come in here where the asset actually moves across to the surviving spouse. And so it's a matter I think it was sitting down and listing what the assets are, who owns them. So estate planning, working out who's ultimately are they an asset to which a will can actually control?

Robyn Jacobson

It's an interesting one because if you have, say, a couple who are both killed at the same time, so let's assume there's a car accident and they're both killed instantly. The law of survivorship, where you've got one person leaving their estate to the other and vice versa, you've got a tiebreaker needed because how do you work out which model you invoke first? And the law says that the oldest person is taken to die first.

Ian Raspin

Exactly right. So marry somebody older than yourself.

Robyn Jacobson

All right. So to superannuation, we talk about the role of the Biden death benefit nomination. Now, you could either arrange to leave all of your superannuation benefits directly to your estate or of course superannuation being a trust in its own right. You can direct the trustee of the fund to pay those benefits out to nominate a beneficiary. It strikes me that in recent years we've seen increasing litigation, often involving, as you say, the second, third and fourth families that people didn't know about. I'd like to think people did know about the vote anyway. So in terms of that litigation, it's often two generations that you'll have, if you like, the current partner and perhaps the children of the first or former partner. And it can lead to some pretty ugly disputes between families.

Ian Raspin

Are hundred percent. In fact, the Law Council of Australia, you know, started a few years ago that this is the biggest or one of the biggest growth areas in litigation in Australia and that is around the sister states and super is part of that. You know, beneficiaries going after executors or going after each other or going after professional advisers. Litigation is rife in this area, people trying to obtain what they rightfully think is theirs and recipients start looking, well, what's the binding death benefit, you know, executed in accordance to the terms of the will and not the will? The trustee wasn't in the right format, was it actually submitted to the trustee? You know, there might have been completed, but was it ever submitted or acknowledged it lapsed.And so all these sort of things into place through there. So a very, very complicated area in which professional advice is very much needed. But yes, a lot of litigation.

Robyn Jacobson

In terms of administration. When you very briefly outline the concept of probate for those who may not understand it and for those who don't have a will, because probate suddenly where you do have a will is called matters of administration.

Ian Raspin

So it's an application of the court. So the Supreme Court, in the relevant jurisdiction, you make an application and effectively turn up with will. Your Lloyds ends up with where we make an application. And the role of the court, I guess, is to determine whether that's the most current and valid will and therefore the appointment of the executor. And by getting that in the case of a will, by getting your letters or a grant, what actually happens is that's effective your license now to go and deal with banks or the assets or to represent that particular party in the case where there is not a will as you sort of said, that's an intestacy. And so that goes down to the last administration and as a ranking order is who can actually apply for that. But you go on to make an application as administrator and effectively the same sort of thing. It gives you a license once the courts are allowed you onto that or appointed you to act as the administrator to deal with those assets. I think what's really important is to concepts here. One is that once appointed, it's very, very hard to get out of it, to renounce will be removed. So once you're in there, you're always in there. And secondly would come in that you intermingle with some estates that as you actually start to act as an executor, even though you haven't been formally appointed, you may actually be deemed to be the executor, and therefore you may end up in that role, but you don't want to be particular in. So I think it's really important to not intermingle with the estate during those early stages until a grant has actually been provided. Third thing outside of that is just in every state of Australia except for Queensland and these are required Queensland, you don't necessarily need a grant of probate to be able to act for the estate. So again, that sort of goes down to every state is different.

Robyn Jacobson

I want to play back to your remark then about that period in between. We know that when an estate is beyond the stage of probation, it's being administered. It is, if you like, a regular trust. Now there are special tax rules that apply as to how the incomes taxed and so on. But broadly, we're into a tax base where it has to lodge a tax return, it gets its own TFN and you either distribute the income to the beneficiaries or the income's retained on the assets to the trustee at a special tax rate. What about the period between the date of death? So when the estate begins to be administered now that could be a period of months or even years and legally owns the assets in the meantime.

Ian Raspin

Good question. And that'll come down to a state by state jurisdictional basis. But generally you will find that will actually exist within the public trustee around Australia. But there's no no active role where it's this thing just sits and idle. It's all, you know, often a grant is actually provided to then the executor or PR. It's got LPA as the term for executor administrator. It's sort of a joint term. They still retrospectively become responsible for that all the way back to the date of death and need to deal with the tax returns, etc., during that period. So it's not once they've been appointed, once they've been appointed, it's not like you can wipe your hands and say, well, that was at eight months that we don't have to write that. Now, you still have that responsibility retrospectively.

Robyn Jacobson

There's a whole lot of administration, and I particularly at this point, want to go into the TFN for the estate and DE-REGISTER and GST and ideas, but there's certainly a lot of bureaucratic process that needs to happen from that perspective. In terms of notifying the ATO and receiving the administration of the estate, what are the issues that need to be considered here?

Ian Raspin

Well, there's an obligation to actually notify the ATO death form. So simple form, you need to notify the ATO death and nowadays that needs to be submitted to the ATO. Sadly, in hardcopy it needs to be sent with certified copies of will, probate, etc. Along with that, the ATO has a little bit of a problem and it's time that you bring that up because you know, you need to submit this to the ATO to prove that somebody died. That makes sense. They want to know somebody is dead before they actually, you know, provide access to the ATO portal, etc.. Right now this process can take 3 to 4 months with the ATO. Not only that, even though in my office, again we deal with a large volume of these, you know, you send them in, we'll do it by certified mail where be able to track it's the ATO that it's physically been received by the ATO, but then it falls into the void and often we had one matter just this last week we've done three different submissions for the same estate in relation to date of death notifications, because whilst we can prove it's been there, it's just been lost. There's no lying issue here. That's certainly creating a lot of social media attention at the moment too. And that is that you said that you need a certified copy of the will and grant, etc.. Well, lawyers are signing those. You know, you act for a client you've drafted. Well, you've now they've died. You've got these documents, you certify, you send them in either through us or through your accountant or directly and the ATO announcement around and saying, well actually there's a conflict of interest there. You know, you've acted for the client, we can't accept you certifying this document. And so that's creating a backlog on this sort of stuff as well. So once you get through all of that, you can then get access to nowadays in the deceased's pre-death area on a portal access. And obviously as you and I have spoken about previously, that was an issue for a few years. Then we can certainly access that and apply for an estate to and start that process. But until that point, it's an offense for the ATO officer to speak to anybody around a person's tax affairs that they don't have authority for. And it's a sexual offense that carries a two year jail term, but for the ATO officers, so they take this role very, very seriously. So you have to jump that hurdle before you can really start interacting.

Robyn Jacobson

You talked about having to notify the ATO of the death toll signature and not receive information from the Registry of Marriage.

Ian Raspin

Robyn, I think he just playing with my buttons here today. Yes, yes. So there is data sharing and this is one of the areas I think is quite frustrating that certainly does interact with the registry of marriage, births and deaths right around Australia. Again, a state by state or territory based jurisdiction thing, but that just doesn't seem to correlate into this area here. And whilst there has been recommendations by our Inspector General of tax the get away from this area up and through to explore this that certainly hasn't happened. And as far as I'm aware, saying not on any immediate ATO radar list, I'll take that. It's helpful to Robyn and it's a sad indictment because sort of set of a lot of the states are very simple and small and you know, this is surviving spouse that needs access to that money, those kids that need access to the money, maybe 30 or 50 grand. But, you know, by the time you get a grant of probate, you go through, notify the ideal things you might be a year or two later before you can get that out. The process should be a lot simpler for those simpler estates.

Robyn Jacobson

And that has real ramifications for beneficiaries.

Ian Raspin

100%. 100%.

Robyn Jacobson

So the Inspector General of Taxation and the Taxation Ombudsman, Karen Payne, did release a report in July 2020 titled Death and Taxes An Investigation into ATO Systems and Processes for Dealing with Deceased Estates. And that investigative report is on Inspector General's website. What have we learned out of that investigation?

Ian Raspin

Great [ ], investigation by the campaign at her office, the inspector general on that, and to commend the office for the work that went into that. But I think at the end of the day they raised some very pertinent points and the ATO has responded to a number of those points and has acted in parts of some of those points. But I think there's still some serious work there to be done and trying to build that space up and to bring all that together. But I think in the scale of things and to the Commissioner's sort of defense, I mean, the tax revenue, as I understand it from the space is about 4% of tax revenue in Australia that comes from deceased estates. Currently it's growing. And so the focus of the ATO on these areas aren't necessarily as large as it is, but there are holes and chance reports, certainly points some of those out and I think it'd be good to see a little bit more traction from that report.

Robyn Jacobson

We'll keep an eye on that one. Now, in terms of the tax issues, look and you and I could spend the rest of the day talking about this stuff, but let's just perhaps pick on a few of the high points we've got to trust. Let's assume that we are retaining the income while the estate is being administered. We're not distributing assets or income out to the beneficiaries at this point. In a sense, we've got the normal rolls in Division six, in part three of the 1936 Tax Act. That is, the trustees assessed on that share of the trust's taxable income. To the extent that no one is presently entitled to the trust income, there are special rights. And what do we do when it comes to resolutions? Do we still do them when it comes to a deceased estate question?

Ian Raspin

So, yes, look, a couple of things. There are special rights. It's Section 99. So ordinarily, our listeners will be aware of Section 99 rights which apply to a trustee of a trust, and that is tax rights all the way through context to the stage two state section 99 rights apply at the commissioner's discretion. He generally use that discretion if he lodge the returns on that basis, and that will apply for the first three income tax years after death. So if I died on the 1st of May, my first income tax year would only be two months. Okay, so two years and two months. And that effectively Texas's adult marginal tax rates the 18,200 tax free providing it's a resident trusts estate and not a nonresident trust. And thereafter Section 99 rights will apply. But without the 18,200 tax rates are still progressive marginal tax rates. But I go back to my point that it's at the commissioner's discretion and he can invoke 99 rights at any time that he believes the estate administration has been delayed intentionally for tax advantages. I don't want the example. We have every beneficiary in the highest marginal tax rate, so they want to try and take advantage of the longer years. And so I really, really caution against that.

Robyn Jacobson

If you've particularly seen that in practice when 99 has been used instead of 99.

Ian Raspin

Per cent of [ ], and I've seen cases where it really should be invoked and I say in a live case no, because the way we practice and I guess the trustee companies around Australia practice and we consult and work with, we certainly adopt a more considered view on that because you'd be exposed as an executor if she did something like that, the beneficiaries may come after you. I am aware that there are practitioners and practices out there in Australia that are taking advantage of these provisions and they bear the risk. I guess is the best way I can respond to that.

Robyn Jacobson

Question, what about resolutions? Are they still needed?

Ian Raspin

Yeah, look, I think so. As a tax ruling, I tell you, 2622, very outdated ruling. It came out before self-assessment in Australia, certainly. BANFIELD And in an Australian tradition. So it certainly needs to have a right, which I think at the tax conference last year, Robin, the ATO representatives did say there were close to releasing a redrafting my take 2620 to understand it's on backburner now but that sort of talks around stages of administration and divides the estate into three stages. So during that stage where you're trying to work out what's going on, what the assets, how the liabilities, get a grant, etc., all incoming as the trustee, it's a it's a matter of that ruling matter in law. So that's clear middle stage. You're in that stage where if you make an interim distribution that's were beneficiary of income, they would be assessed on their share of trust income. And the final stage, obviously, where you've got to the stage that you've basically administered the estate, you might not have transferred assets, but you can say, well done, everything. Now I've put money aside to pay for tax pull out. Now I've got to do is to transfer assets. At that point, beneficiaries can be presently entitled to income. I'm a big advocate, however, the sort of game I think doing resolutions around present or specific entitlement, particularly specific entitlement are absolutely paramount in this space, particularly for the larger states where you really want to clearly demonstrate what the intention was. And again, it comes down at risk. Then in failure to do that, you know, the trustee will be assessed against that capital gain or that income. And it was a capital gain, for example, or a beneficiary had a capital loss or it was a not for profit beneficiary. And I said, for the not for profit sector are shaking down the market at the moment. They will come after executives and advisors for not doing that. So I think best practice is definitely to look at that and say, no, let's, let's do a resolution, let's get this correct. That's really document and demonstrate what the intention of the LPI our trustee of its testamentary trust is at year end in relation to both those areas.

Robyn Jacobson

Let me respond to the notion that a deceased estate would be regarded as a fixed trust.

Ian Raspin

Or another really good question. So really the fixed trust sort of thing during the estate administration stage? No, they can't really be a fixed trust until the end of the state administration because, one, you don't know whether you're insolvent. You know, a person may look solvent, but they might have a couple of million dollars worth of debt. You know, it's in the background that nobody knows about. There might be ATO history you don't know about and you don't know whether you can distribute. So it's only in the final year of estate administration that you can actually turn around ground and go, Well, is this a state, a trust? And in that final year, certainly you could argue you're that's final stage. You might have beneficiary offshore, for example, entitled to the capital gain from a nontaxable Australian property. You could try and argue that that was a fixed trust at that point. And certainly we've got some rulings with the ATO where that's actually been confirmed. I will 540 which effectively means that if the fixed trust are to which the nonresident beneficiary is in receipt, the trustee wouldn't be taxed on the non taxable Australian property portion of that distribution. But I think it's sort of one of those areas that I would never take for granted. Certainly the trust sector right across Australia, wiseguys for rulings and those sort of areas as well to to make it there. And given the delays in getting proper rulings at the moment of the ATO, you want to make sure it's a sizable amount of money before you started delaying processes.

Robyn Jacobson

Division 7A, another area where of course across the country and across private companies there are some very substantial sized loans. Yeah, even the old quarantine ones, those were made prior to the 4th of December 1997, when Division seven commenced. They are still liabilities that are effectively owed by these individuals. I don't know is regarded as such, but an asset that is receivable by a company by definition means that it is payable by the shareholder or the associate. So when they die you do have to consider the implications of that line. So briefly, can you talk us through what happens when you've got a line that inside back to a private company and it hasn't been repaid? Does the estate then assume that liability?

Ian Raspin

So yes, and this is a really complex little area that sort of dies out. So if you had a the estate does, so the executor effectively stands into the shoes of the deceased and so you become the deceased for all intents and purposes. So that for tax purposes is a separate area, a separate tax entity. So any individual seven guideline agreements that are in place when that person dies, an executor needs to continue to meet the obligations of that division, separate loans through the estate administration, and that is to pay the minimum amount with interest, etc., all the way through back and finally to do that will trigger a Division seven dividend to that extent, which is a little bit of a problem. It's interesting, though, that if a deceased died and let's say there was a loan and it was taken out in that year of death and in that particular case there, they hadn't actually entered into a loan agreement, but the company's tax return lodgment date hadn't come to light as yet. Well, the taxpayer hasn't had the opportunity to enter into a Division seven guideline agreement. The APRA is not obliged to do so. And so whilst yes, it's still an effective line back to the company, it falls outside of the scope of Division seven provisions. And so you've got those sort of areas through there. And if it happened during the loan and the estate was compliant on the way through, you know, the deceased was two. Again, you don't have that issue. But as an executor, if you sort of students the shoes of the deceased and you go on, okay, well, we do have this loan agreement. Are they retrospective years? What was non-compliant? You had that obligation to look backwards and go, well, three years ago, we failed to make this right. We need to go in a minute, depending on your amendment periods, because it's a real issue and we'll see. Often people will draft wills where they sort of, I think, give these lines, you know, either way. And they try to clear things up. And we just got to watch their, I guess, the commercial debt forgiveness rules, etc., and the implications that they could have on it. So a really, really important area to look at up on the other side, Robyn. You know, that's an estate asset and so that's an asset that could be called upon or should be called upon by the estate or the administration. It might be an asset that they pass across the next beneficiary like an upper until they've lost trust as opposed to calling it in and effectively maybe causing the trust to collapse. This is where it starts to get a little bit more nuanced and we need to sort of really sit down and have a look at what's going on.

Robyn Jacobson

With other thoughts. You talked about the commercial debt forgiveness rules if the loan is forgiven, but if it's a Division seven alone and it's forgiving, you could actually just have a straight deemed dividend and depending and on the estimate itself, my other thought was if your loan is big enough so you might have the beneficiaries, the family who think I we're going to be inheriting $5 million from the family member who's passed away. But it turns out that there was a $6 million loan back to the private company. So, in other words, when I say back to us, the money was went to them and that's a liability. So you may actually have an insolvent estate because by the time the loan is discharged, you may not have any net assets left over.

Ian Raspin

Also say whereby the shares in the company are being gifted to one party and the residual beneficiaries who thought they were going to get in. Your example, $6 million end up with a Coke bottle at of time that loans going back where they all went up one person.

Robyn Jacobson

So even if the loan is repaid which effectively depletes the value of the estate if they become the shareholders of that company, then effectively all you've done is convert a receivable in the company into, let's call it cash back. But if it's other shareholders who take over the control of that company, then the benefit of that line being repaid goes off to somebody else, as you say.

Ian Raspin

So it goes back to our early conversation around litigation. Now, this is the massive area of growth of litigation in this area, and that is if you're say you and your brother were in that scenario and it all went to you and your brother began, Well, I actually I should get everything this was never the intent. I've got to go and challenge the will. I've got to take the executor to court. If that executor happens to be one of our members, well, they've got to be in court for the next 12, 18, 24 months, whatever it is trying to argue that as opposed to focusing on their practice, unintended.

Robyn Jacobson

CGT, huge area when it comes to estates. And again, there's so much to unpack that we can't possibly achieve in our short time together that we of course have rules around the date of death being pre or post CGT post 85 we've got when the asset was acquired, how the asset was used. There are special rules for the CGT discount and of course we've got all our main residence issues as well. So and in fact you and I have run sessions together talking about mine residents. So this short time we have. What do you see as the key aspects or the key considerations when it comes to the maintenance.

Ian Raspin

Of things for practitioners to put in their mind? And that is that to the extent that is the main residence of the deceased at date of death, you get a market reset at that particular point. But one of the requirements is that it's not income producing a date of death. And so I had a case just this last week whereby, you know, it was a property mum had that she was living in her property, but the granny flat out the back was rented to a third party. So all of a sudden we have a problem because it wasn't primarily used for her date of death as a principal place of residence. So to that extent we can get that uplift. I think that's really important to look at. But then you've got to step back and go, well, what was the size of the property? We had one and Toorak of all places, and you go into our problems, it's going to influence the exemption size of two hectare exemption. Well, this lady had actually acquired just over two hectares of land and we put an African mansion down a track. And so, you know, point whatever percent of her estate was now subject to capital gains tax when her main residence was sold. And again, the amount of tax in that was quite considerable, let's just say just over six figures just on that small proportion. And again, if you failed to pick that up in an active audit, they didn't match with title officers. They lost more than two hectares executors going to where that and I can't go after the beneficiaries Brown's case 950 whatever it was they'll come after your cover. So it's about sitting back and going, okay, two hectares, is it under that? Yes. Do we get the market uplift? Yes. Were they a resident or non resident when they died? That changes the entire dynamics but one but yet again. And then looking at it and saying, well, proportional rules, you know, days that it was main results versus days it wasn't main residence and the ability to be able to access those provisions as well. Also very important. I think the other thing that I'll be saying there is that and a really interesting one that's often missed is that, you know, you have two years from date of death on which to sell a principal residence without triggering CGT as a concession. It used to be 12 months and often it's two years. They've now come out with a peg which allows you to say, Gee, six, 19, slash five, I think it is, which allows you to extend an additional 18 months on that in the Safe Harbor rules. So looking at those and sort of going well, we saw it as sort of two years. Do we now have another 18 months? Do we make those rules? If we don't, doing it's going to get a private ruling by the commissioner, you know, to protect that the parties that are actually involved, a really important sort of considerations as mine residency rules to step up to market value also attach themselves to any private residential property. So if you had a couple of investment properties that were pretty five that were owned by the deceased, now you get market step up as a daily death as well, but you get two years to sell them without capital gains as well. So you might be as so say three properties in my example without CGT consequences within two years, without a death.

Robyn Jacobson

In the situations where you don't get the market value, uplift in cost base for whatever reason, it could be that within fact got it high CGT property that wasn't solely a main residence, for example. There are going to be enormous challenges in identifying when it was acquired, what the cost base is. And imagine this three chains of muscle chains of estates. So, you know, I'm very good at my record keeping, but I know that plenty of people are not. And so when you got someone who bought it as the home is on the ever used it for their home but let's say they were renting out the granny flat at the end. Suddenly you can't use the market value rule on death. So in fact, we've got to go back and reconstruct the cost base. How do you manage that? What do you do with the records?

Ian Raspin

It's horrific. We had an estate for about three years ago and I think they had about 15 properties in this estate and they were all being try. And so I think we're in the fourth, we just heading into the fourth generation. But these properties have been a series of, you know, fairly quick deaths that had happened through this family. But those properties had all been used for different purposes through the years as main residence for different people and different things. And it's a matter of tracking that back and being able to work it out where it is. And I think a really important note to our members is to say that when you lodge a tax return, not only is the client saying it is true and correct, but so is the taxation. And so if you can't backtrack on that and I've had many a scenario where you can't you can get to the titles office from most jurisdictions and get a detailed research which provides you the cost base of the property, etc., not necessarily the duties that were paid on all the legal costs. Nothing around the swimming pool that was built in the backyard or capital improvements. You put together what you can and sometimes it's a matter of going to the commissioner and saying, look, vulture disclosure, you know, basically we've got everything we can here to pull together on this. But this is what we've got to and I'm a big advocate to say that, you know, adopting a more conservative approach, particularly, is the opposite. Personally liable is probably the better approach. And government commissioner putting a position up to say, well, look, basically this is the best that we can possibly do. Can we get some effectively coverage from this? We've agreed to these terms and therefore, can we pay the tax on the settlor and settle the estate administration without leaving the executor personally? But, Robyn, that that opens a paradox. There are issues, too, because these are historically, you know, lots of senior tax counsel around the country, etc., that do work in this space. You know, they watch these sort of voluntary disclosures to the ATO, and we've been out to settle millions of dollars worth of tax debt across Australia with the ATO on these matters, on many, many estates. And it's a bit of a change of practice in the eighties at the moment where they really push back on such voluntary disclosures around assist states, and I'm not sure whether that's an administrative practice, but somehow states have sought, according to within the aggregate, whether it's a broader issue that that in itself is relying on state administrations as those parties are actually now having to grapple. Well, we can't sign this tax return because it's perjury, but we can't administer the estate because we to be personally liable, that's going to clog up the judicial system in Australia as people go for court directions to be able to take themselves on that or they're going to continue fine with the ITII in trying to release those. So that's an area we're actively engaged in some discussions with the ACA at the moment, but if you can't sign it, it's not correct. You need to open up the door ways to try get that certainty.

Robyn Jacobson

As we say, we've fallen short on what we would like to have as the documentation or the tax position. Can you help us out?

Ian Raspin

Correct. Yeah.

Robyn Jacobson

Look, there is one shining light in all of this doom and gloom that we've been talking about and try to reconstruct records and those tax liabilities, those who pass away, who still owe a hex or helped debt. It's one of I can think of two things that go to the grave with you. Apart from any personal belongings, capital losses and tax losses cannot marry for to the estate or the beneficiary. So they go to the grave with you. Now, that's not a good thing necessarily.

Ian Raspin

It's very, very pertinent observation. As I say, too many tax practitioners where matters are referred to as post their work that send a message that they can't use those losses in the estate. I think.

Robyn Jacobson

They're gone. But so as you [  ] you help liability. So there has been some talk over the years about possible legislative changes which haven't proceeded. So the current law remains the case that when you die out, the liability does not pass to your estate or to any surviving beneficiary of the estate. It goes to the grave of you. It's completely white.

Ian Raspin

Now, it's an interesting topic. In the year of death, the executor still have to pay up to the date of death in a proportional sort of basis because the personal still life and they have it. You're right, the debt's written off. And you also make a good point. There's been many discussion around that's not fair. It's costing the Australian economy so many dollars and significant amount of money. But I think we need to sit back and this is where it always sort of starts to pull back on and to say, well, who are the parties that that debt is? And you know, we all think every day, you know, it's you know, when you turn 80, 90, 100, whatever, by accident or something, you're going to die. So it's an aging population that many has died. I a car accident 30 year old you know suicide 35 year old fire. All these incidents like that, young people die and these people are often just recently married. They leave a spouse, maybe two or three kids, you know, maybe a mortgage, maybe nothing, maybe maybe they were living on the brain, borderline.And there's an extent and there's a little bit of superannuation or a little bit of something coming in. So it's probably not a good example, but a little bit of money there that could help that family significantly. But if it has to go unchecked, it and that's why this thing keeps getting pulled back. But it is still very much a lot of discussion. Your 100% are on.

Robyn Jacobson

A bundle of issues to wrap up with things like control of entities. So we've spoken about how you might own shares in a company, but you don't personally own the assets in the company. So the role of the director, the trustee, the appoint, all those office holders that control entities, this doesn't automatically pass to the APRA, does it?

Ian Raspin

Not at all. And this is again where estate planning, particularly space, is really, really critical. I recommend going to an accredited specialist or a member of Step Society Trust. And so practitioners there, people that just do it's not general practitioners that I guarantee GP the documents need to be provided. You need to have a look at the trustees on the constitutions. How does control really pass? Is it possible to hardwire that in the will do you need to change, you know, the constitution of the company to be able to make this happen. And in a maybe and I've seen this happen to where, you know, the deceased is a sole shareholder and director of a private company that employs people, dies. How do you pay the staff? You know, if there's nobody in control of this thing, like how does this sort of get dealt with? And this sort of issue is live issue. And it's a matter of addressing this as part of estate planning and working out how it goes. Now, an example such as that, arguably, yes, the estate will inherit the shares once you get a grant, a probate three, six months later, you know, ordinarily you could then you have the shares you can vote your self in based on those shares as director. But you got my staff left. They've all gone walkabout. So I think it's really important to look at that. But also situations and we've had situations whereby there's a company in the state is no control there. But at the end of the day, you know, we had one here in Melbourne whereby the family thought this guy would support, you know, those $1.3 million in their bank account. His company, the estate got the shares. That's how we found out about it. But it was like, well, hang on a minute. What does that money come from? They all thought he was doing nothing since drugs, this is people trafficking where they come from and like, holy cow, who wants to be director of this thing? What liability or responsibility you want to take. So they sort of issues are really pertinent to be part of the estate plan.

Robyn Jacobson

What about digital assets, cryptocurrency, social media accounts, other digital assets that have wealth that are sitting in these accounts? To me, the control and being able to access those accounts is a crucial feature and very much an emerging issue because a lot of people are getting into this space.

Ian Raspin

Then very much an emerging issue and. You're right, the control of those things. How do you get that? You know, Facebook, for example, I believe it varies jurisdictions, you know, they block that. They won't pass it on to an executor. Okay. So as far as what sorts of things in there that all of a sudden you can't access, so you're not necessarily dealing with Australian law, you dealing with different jurisdictional law in relation to the grants of access and agreements that people have just ticked as they are into these environments that they haven't read the detail or ever considered. And if there's some real intangible assets within some of these areas, that needs to be considered as part of the estate plan, it's that about access. You know, you sort of turn around and say, well, somebody has got a few Bitcoin, you know, IP worth half a million or ten, 20 mil, who knows? You know, but how do you pass that across? How do the coding to be able to get access to that on the Keys? And you know, there's a law conference just last week, two of them actually speak at regular law conferences and both conferences. There were there was a speaker talking exactly around this and that we're recommending to lawyers, do not hold the keys to these things in your vote. You do not want to take that responsibly only so these sort of things need to be brought to the table. Our members are understand, I hope, how you know, cryptos taxed, etc. but these are real, tangible assets and they can be some real value in a it's a nightmare. That's an entire conversation at a time.

Robyn Jacobson

It is. Look, so is this next point aging population. So challenges in the next, let's say 10 to 20 years. What do you see as the major issues there are?

Ian Raspin

Look, we've just on the cusp of the largest generational wealth transfer to ever occur. 2019. The wealth transfer by succession in that year was just on $107 billion. By 2050, they're going to say it's projected to be $224 billion one year because all of a sudden you've got all this intergenerational wealth transfer going on. We have a people in Australia, a very multicultural society, so we have assets, beneficiaries, executors, all sorts of things in and out of this jurisdiction all over the globe.  And we're one of the most multicultural countries in the world. So that into place. And so to me it's really the issues and the challenges in the next few years is one of the biggest growth areas litigation going on biggest in the generational wealth transfer a recurring the complexities around structures and things that are people have got their overlay with international jurisdictional sort of play on all of these across all of those parties involved in an estate and the assets and tax law that really needs to be looked at. You know, to me, the sister states, because it was kind of it was logical at the time you and I formed part of Division six antitrust provisions, but it doesn't necessarily make sense to be there. You know, we because of that, we fall into things like family trust elections. We fall into nonresident estates. So I could be a resident of Australia.I point somewhere in Singapore as my executor and my state becomes a nonresident estate and that opens up an entire paradigm of new tax issues there. Go to the UK, the residents of the estates determined by the residents to the deceased. So that would stay in Australia. So I think there needs to be an overhaul. I'd like to see special provisions invoked around assisted states in Australia. I'd like to see the domicile put back here, Australia and particularly with a risk to our members around this litigation. It is absolutely horrendous. It's an exciting area, it's a growth area, but there's a lot of a lot of risks and a lot of complexities in there that people need to be aware of.

Robyn Jacobson

And this is within the around 40% of Australian adults having a valid will.

Ian Raspin

And how scary is that, you know, because you love the people around you, but yes, there are rules of intestacy in which who's going to get what? But they need to go and deal with that. If you want things to be uncertain direction, go make a well. It's not hard and I deprecate our clients in our clients, our members, you know, representing taxpayers. So these people are your clients, you know, they're paying you money. One question whether you don't have an obligation to actually try and point them in this direction, you know, go get a will, get professional advice, deal with these matters. Just reverting back to your earlier comment about, you know, what else I see playing out, I think that you'll see a death tax play out again in Australia. I'm not an advocate for it. I think if you look across the OECD world, you know, a lot of countries are actually pulling back from the administration of death duties, you know, gifting provisions in place as well for these sort of things. And administrative costs of running those and all these other jurisdictions often outweigh the benefits of these areas. You know, if you got a 0.5 or 1% move to GST, you might get a similar outcome here in Australia as opposed to the administrative burden of doing the other. But I think politically there will still be a push for this. It does keep raising its head. It's tall poppy syndrome, the haves and have nots, the minority, you know, taxing the upper echelon to to death duties, etc., sort of politically makes sense. It's an election platform or it was an election platform that was lost on a few years ago. I do think we'll see that surface, but it's just demonstrated anecdotally around the globe and I've said countries that do do these things, but it just doesn't work the way it should.

Robyn Jacobson

So and you're going to be speaking at our Death and Taxes conference in Brisbane in early October.

Ian Raspin

That's correct, Robyn. It's a fantastic annual event. I'm really looking forward to that. I'm sitting on a panel up there and I'm really looking forward to the event two day event in Brisbane and highly recommended to our members.

Robyn Jacobson

Terrific look. Thank you. And your insights as always have been so valuable and thank you for your time.

Ian Raspin

Nice to be involved. Thanks, Robyn.

Robyn Jacobson

Thanks for listening to this episode of TaxVibe. I've been chatting with Ian Raspin, managing director at BNR partners. To keep up to date with TaxVibe, be sure to subscribe, rate and review wherever you listen to your podcasts. If you'd like to connect with us, you can find us on socials. Not a member of The Tax Institute, join a collective voice of 10,000 practitioners at the heart of the profession and find out what the best tax professionals have in common. Visit TaxInstitute.com.au, we look forward to you joining us next time.

 

Getting tax returns right the first time

Release date: 4 August 2023

It’s that time of the year again – tax time! In this episode, Robyn Jacobson chats with Tim Loh, Assistant Commissioner and Tax Time Spokesperson at the Australian Taxation Office about helping people get their tax returns right the first time and avoiding mistakes at tax time.

In a jam-packed near-hour discussion, they cover:

  • Tax time season
  • What’s new this tax time?
  • Records, records, records!
  • The ATO’s top focus areas for 2022–23
  • Support available this tax time
  • Scams – and how to protect yourself

Don’t miss this one, and see if you can keep count of the number of times the word ‘records’ is mentioned to get an idea of how important it is to keep good tax records!

Host: Robyn Jacobson, CTA

Guest: Tim Loh, CTA, Assistant Commissioner and Tax Time Spokesperson at the Australian Taxation Office

Robyn Jacobson

Hello and welcome to TaxVibe, a podcast by The Tax Institute. I'm Robyn Jacobson, the senior advocate at the Tax Institute and your host of today's podcast. We love the vibe of tax, and here at The Tax Institute we do tax differently. I'll be chatting with some of the tax profession's great thought leaders who will share valuable and practical insights you may not hear every day. We hope you enjoy this episode of TaxVibe.

I am joined by Tim Loh, Assistant Commissioner and Tax Time spokesperson at the Australian Taxation Office in the Individuals and Intermediaries space. Tim's role is focused on understanding the risks and behaviours that drive noncompliance and designing a strategy to address those concerns with the aim to reduce the tax gap and make it easy for individuals to comply with their tax obligations. Prior to joining the ATO, Tim worked at one of the world's largest mining companies, two large international law firms and a big four accounting fair. Tim holds a Master of Laws, Bachelor of Laws and a Bachelor of Commerce. Tim is a chartered tax advisor and is admitted to practice in Victoria and Tim, this is not your first rodeo with us. So welcome back to TaxVibe.

Tim Loh

Thanks for having me, Robyn. It's really great to be here again.

Robyn Jacobson

Look, it's that time of the year again. You're on your usual media circus. You've been chatting to anyone and everyone who listen about tax time. So we're very pleased to be here today and have a chat about what this means for taxpayers and for the profession. So what are the key messages and why is tax time important?

Tim Loh

Yeah, thanks, Robyn. And I've seen you on the circuit as well, so it's fantastic to see and hear your voice as well. You're incredible role model in the tax industry. So it's great to see you on the look out over the next few months and millions of Australians will be watching their tax returns and my job as the spokesperson for the ATO is to get out there on the TV screens, airwaves and print to help people get their tax returns right the first time. And we know for many interacting with the is a once a year occurrence if you don't live and breathe tax like we do. Robyn Communicating these key messages means taxpayers are aware of any key changes and focus areas and can avoid mistakes when it comes time to lodge.

Robyn Jacobson

Look, we get rather excited about tax all year round, but for these people it is a once a year occurrence. So to try and get together and get all that information and all the documents which we're going to run through, it's something that people do tend to put off. Others will jump in in the early days and lodge so we can chat about that. So how long does tax time typically run for?

Tim Loh

Well, as you know, text time begins on the 1st of July. And for most self preparers, they'll need to lodge their tax return before the 31st of October of this year. Now I have access to later lodgment dates if you are up to date with your lodgment. But those planning on lodging with an agent will need to be on the books of a registered tax professional before the 31st of October. So if you do use an agent, you typically have until May four. It's really important that if you've got all your prior lodgment lodged on time already.

Robyn Jacobson

And just on that point, Tim, it's really important that taxpayers understand they may have a delayed or deferred lodgment date of, say, 15 May if they're lodging for tax agents. But that doesn't mean they should be turning up on the 13th of May and saying to their agent, Well, I'm here, make sure you can lodge within two days. The purpose of a Staggered Lodgment program is so that agents can manage their workload over that entire 1011 month period. So I really encourage people not to leave it until March, April, May, to turn up at their age and say, Well, here I am, that actually try and get to their agent earlier in that period.

Tim Loh

That's right, Robyn. So it's really important that, you know, you've got all your information ready. You really organize it present to the registered tax agent, all that information so they can streamline that. And like you said, don't leave it to the last minute.

Robyn Jacobson

I imagine the tax office does a lot of preparation well in advance of one July. So what are the some of the things that The Age has been doing this year to get ready for tax time?

Tim Loh

Yeah, look, it's a really a year round job for us. As soon as one tax time ends, we're already preparing for the next one. I know a couple of colleagues already who are already preparing for next year's tax on it for 2024. And what we are doing at the ATO is we're obviously constantly trying to work and build and improve our systems through updates and testing. You know, the tax agent community is a really important partner for us when it comes to that testing. And we have a range of new data matching technologies that we're trying to use to help assist with incorrect reporting and making sure that tax agents have access to that so we can actually help reduce the tax gap. Now, leading into tech start, we develop a range of communication and media activities to help educate taxpayers and reach the tax agents, making them aware of any changes. Our focus areas and additional resources we have available to support them and help understand their obligations and eligible deductions. They always are constantly working to improve our online services. We anticipate that during the tax time period, particularly through July into September, of course, centers and service centers will be in high demand and we may see some increase waiting times. We know that most people call about these issues and some of these issues particularly can be managed through our online services. So that's something to keep in mind. If your client can use the online services to view their income statement and check the progress of their tax return, for example. And while tax professionals can use online services for agents, among other things, check your client's progress and return. Set up payment plans if they're in a deposition lodge business activity statements and also report single touch payroll as well.

Robyn Jacobson

Tim, is there a key message that profession should hear as to their role in how they can assist the ATO or making tax time run more smoothly?

Tim Loh

Yeah, so look, from our perspective, it's we've got up to date information. Our systems, it's really important that you check that information out on our system so you can really plan in terms of their workloads with your clients. You know, this year, remember mining tax professionals to make sure their clients preferred financial institution details are included on all returns.And this includes when you lodge multiple returns and for debit assessments as well. So when the information is left off a client's tax return, their financial institution details will be removed from their income tax account, which means any refund or future payments, including interest from early payments, will be issued as a check, which we know is in anyone's preference. Right. We also recommend that tax professional utilize any pre-filled data that is available in the preparation of the tax return at this minimizes their errors and actually save you time as well. Talking to clients to understand if any of their circumstances have changed. For example, do they have a second job or side hustle? That's really important in terms of getting the tax return right the first time.

And finally, the terms and conditions for online services agents have been updated. From one July of this year, agents are required to complete verification prior to providing tax or agent services for those clients using IT systems. As you know, Robyn, you need strong client verification that helps take tax professionals, clients and Australia's tax and superannuation system from misuse and abuse due to identity theft and related issues that we've seen quite a bit over the last 12 to 18 months.

Robyn Jacobson

Not more about identity theft and scams later, but it is rife and right through our community. We hear every day of people that are being scammed and cyber attacks. It's it's just awful. So I think on this particular point, it's important to mention that agents shouldn't be retaining these documents per say. So you don't want to take a photocopy of your client's driver's license or their passport and keep that on your files, physical or virtual, in an electronic form.

Because if that information is stolen, whether it's a physical break in or something where it's a cyber theft. So there are lots of software solutions available today where practitioners can verify this information, but it's not actually storing that off the site. So it's something for them to consider.

Tim Loh

Absolutely.

Robyn Jacobson

Right now, terms of lodgement stats have you got some rough figures on how many tax returns a year we lodge collectively across the country? It must be many millions.

Tim Loh

Yet to date, 3 million income tax returns have already been received this year, which surprisingly is an 8% decrease compared to the same time last year where we had received 3.3 million tax returns in total. Last year we received nearly 15 million income tax returns and when it comes to lost income, know 67.8% of those income tax returns were lodged by REG the tax agents and the 32.2% were lodged by self preparers.

Robyn Jacobson

So it's really interesting. It's often been maybe more than two thirds, even three quarters of individuals use the tax agent. And I think the figure, something like 95% of business taxpayers use the tax rate so that 2122 figure is suggesting it's down slightly. So it'll be interesting to see what the data looks like for the 23 year amount.

So that's in.

Tim Loh

Yeah. It will be interesting to see, you know, from our perspective, we're always, you know, big believer in choice whether you want to do it yourself or whether you want to use a registered tax agency, it really is up to you, and particularly if you've got more complicated affairs. We do recommend using a tax engine to help with your tax return.

Robyn Jacobson

Absolutely. And look for the world that I live in. We certainly know how complicated the tax law can get. So, yeah, there are minister. I think. Can be extremely useful. So let's turn our minds now to what's new this tax time. There are quite a number of changes that taxpayers need to get their heads around.

Tim Loh

Yeah, look, there have been a number of changes, Robyn. That's right. The first one that a lot of people are talking about is the working from home expenses and how you can calculate that to claim working from home deduction for the 2020 223 income year. There are two methods to choose from the actual cost method and the revised fixed rate method when it comes to the revised fixed rate method from the 1st of July of last year to the 30th of June this year, we have the revised fixed rate method that would increase the rate from $0.52 per hour to $0.67 per hour when you work from home and the key change that's happened, there are a couple of changes that happened there, but one of the key changes is no longer either dedicated home office space or Home Office to use that method. So you could be working on the couch, the kitchen bench or the dining table, and you can access that method.

Robyn Jacobson

So many more people are working from home permanently. Now, whether that's five days a week, seven days a week in some cases, or whether it's just two or three days a week, the idea that you're no longer bound to an office and I think this recognizes that post-pandemic there are much more flexible work practices.

Tim Loh

That's right. One of the reasons for updating the method was to reflect the changes coming out of the pandemic in the way we work. And one of the things we wanted to change was making sure more people had the ability to access the revised fixed rate method. Then one of those big changes was to remove that dedicated workspace requirement.

Now, in terms of what else has changed with the working from home expenses, we've also changed what expenses are included in the rate. So the right now includes the cost of any additional running expenses. So things like energy costs as well as any computer consumables, stationery and phone and internet usage as well. On top of that method can also claim separately for the declining value of any depreciating assets that you purchased during the year that you use to work. Those are things like your laptops and home office furniture that you might have purchased during the year. Now, most importantly, the recordkeeping requirements have also changed. Using this revised fixed rate method, the clients are required to keep a record of the number of hours they've been working from home so you can use a timesheet or diary entries. So document the number of hours that you've been working from home. Now, one thing we have done for this year as a transitional provision is allow for a representative period from the period of 1st July 2020 2 to 24 February this year. And you can just use effectively a representative periods of four week diary or timesheet entry to reflect that period. But then from one march of this year to the 30th of June this year, you need to show the number of total number of hours using that diary or timesheet entry time.

Robyn Jacobson

It's also important to note that this requirement to keep a record of actual hours is ongoing. So certainly for the period one March to 30 June for this tax time. But as we move into the 2324 year and onwards, that requirement to record actual hours will be ongoing.

Tim Loh

That's right, Robyn. So it's really important that you've got good record keeping always on the TV or radio, same records, records, records and you know, having good records gives you the flexibility to choose the methods that suit your circumstances the best. Right. So you may want to choose the revised fixed rate method used to calculate that we've got you on the show or speak to your registered tax agent that might give you a particular result or the actual cost method, if you've got really good records, can give you a potentially a better result. So it really is up to you. But if you've got really good records and as you suggest, probably keeping a record of the number of hours you've been working from home, the receipt for anything you purchased during the year that will give you maximum flexibility to choose the method that gives you the best result. Now, one last thing I wanted to mention in terms of record keeping was any of those additional expenses that you have incurred. If you are using the revised fixed rate method, just make sure that you've got a copy of the phone bill, electricity bill or an Internet bill in your recordkeeping suite. Now, more details about it on our website at update forward slash I.

Robyn Jacobson

Thank you Tim. Look I'd also expect there would be an inverse relationship between people that are claiming travel expenses and working from home expenses. In other words, you can't have it both ways. You're either traveling, in which case you're not at home or you're at home. In which case you're not traveling. So I would expect that if taxpayers had claimed significant working from home deductions at the height of the pandemic and they normally do a lot of travel for work, that their travel expenses would start to increase. So maybe the employer is covering those costs for them and they're working from home. Claims would drop down. So people just need to be mindful that this sort of relationship is noted by the ATO. And if you've got someone is claiming high travel expenses and high working from home expenses, that could be a red flag raised.

Tim Loh

That's right. You know, everyone knows that you can't be in two places at once. Men can't be in two places at once. And what we say to people is, don't just copy and paste loss use claims. It's really important to look at your facts and circumstances. And like you said, we're tracking all sorts of different records. We do see the trains much busier between Tuesday and Thursday because employees of US employees are coming back into the office. So yeah, absolutely right. You travel expenses might go up to the extent it's not reimbursed by your employer, but it's really important just to look at your particular facts and circumstances, especially you might have even changed jobs or have a second job, that it could be different expenses that you might be able to claim. So copy and paste, you might be undercutting your own tax return because you've just been copying the previous year's claim. So it's really important to put your facts and circumstances.

Robyn Jacobson

All right. So what else is new or different this year?

Tim Loh

Yeah, two other things that have changed this year is on one July of last year, the requirement to exclude the first $250 of certain self-education expenses has been removed. This change applies from 2020-2023 financial year onwards. And the second thing that's changed is for those who are eligible to claim those cards, Spencers, the cents per kilometre method, if you are using that method, has increased to $0.78 for the 2020-2023 income year. So that was $0.72 previously. So that's quite a decent increase as well.

Robyn Jacobson

It is. And look really good to see that old 250 rule being removed. Most people wouldn't understand it was actually a legacy from some changes that were made way back in the early to mid eighties. This just remained in place and it really shouldn't have been in place all these years. So that is now gone and that's good to say with the cents per kilometer. If anyone's thinking about car or engine size, that's irrelevant now. It is just a flash cents per kilometre. And I think I'd also just point out to everyone, just make sure you're picking the right rate for the right year. We're now sitting in the 23-24 year, but lodging the '23 returns. So make sure you're using the rate in your 23 return being the $0.78, not the $0.72 from the year before or the $0.85 that now applies that this current financial year.

Tim Loh

That's right, Robyn. A really good tip.

Robyn Jacobson

Also worth noting with electric cars, the ATO has provided some guidance around what sort of rate per kilometre can be claiming working out your electricity charging, because clearly you're not going down to the servo and filling up your fuel tank. So the ASIO's released a draft package which is 2023 D, one which puts forward a proposed rate of 4.2 cents a kilometre. Now that sounds really low when you compare it to the $0.85 for this year or the $0.78 that we'll be using for the '23 year. But this is really about working out the FBT aspect for employers who provide a car or for those who are using the logbook method. And this enables you to work out how much electricity charge you might be using because it's very difficult to keep track of this in practice. But I just want to point out to everyone that you can't claim your 4.2 cents for these electric vehicles on top of the $0.78 that you might be claiming under the cents per kilometre method. So you've got to make a choice which method you're going to use.

Tim Loh

Yeah, that's a really good call that, Robyn. And it's really important that you don't you do double dip in terms of the deduction methods that you're using.

Robyn Jacobson

All right, So let's turn now to record keeping, which is, I've got to say, the dullest part of tax. Even as we get excited about tax, can't get excited about record keeping, but it's a very important part of the tax process. So what sort of advice can you offer to people in this space who are wondering what records they should keep or how long ago to keep them for and how to go about it?

Tim Loh

Yeah, you know, I'm going to sound like a broken record, but it's red records, records, records. Robyn And if your clients are planning to claim deductions, you need to have records full stop. And these can vary, obviously, depending on the type of expense that you have. And you can use the information on our website to help guide those conversations with the clients. Now, if your individual sole trader clients want to, I would suggest using the ATO, the actions tool. It's great. It's a great place to have all your receipts in the one place. And we are the records as well. And when it comes time to lodge, they can easily send them to the tax agent or if they are self-repair, I can upload it into my tax. So I always say that's a really good place to keep your records. Whenever I talk to people, everyone's got slightly different record keeping processes. You know, when I speak to a number of people, they sometimes have a folder in their email account labeled Tax. That's another way in which you can keep all your records. But the key thing is, starting from the 1st of July, making sure you've got those records, and then when you come to lodge your tax return, you're not looking around in the old shoe box for those receipts or manila folder here or the glove box in the car. Having an all in one space ensures that you're not rushing when it come to lodging your tax return. And then you can also maximize the deductions you're entitled to nothing more, nothing less.

Robyn Jacobson

The issue is often spoken of three golden rules, so we should roll those out again to remind everyone what are the three golden rules when it comes to record keeping?

Tim Loh

Yes. So when it comes to record keeping, you must have spent the money not be reimbursed. Second, the expense needs to be related to your work so they can't be a private component to it. If there is a proportionate. And the third is making sure that you've got good records or receipts, the best form of records to have when you ignore deductions like.

Robyn Jacobson

The many years the shows put together some very useful tax time toolkits. I think the actually loves the alliteration here with all these trades. So what do these tool kits having them? How are they useful for taxpayers.

Tim Loh

When it comes to these tool kit? So what we try and do is we're not about to audit people when we need to. But, you know, our preference is for people to get it right the first time. We always talk about prevention before correction and making sure that people have the right information so they can actually get their tax return right, whether they're lodging the tax return themselves or using a registered tax agent. When it comes to the tax agents, we want registered tax agents to help the clients get it right the first time. So we're all about producing these tax time tool kits to really make sure that people, I guess, get it right. As I said before, the first time. And so we've got a number of different toolkits that are available this tax times. We've got a regular tax time tool kit that helps so preparers work out what deductions they have. We also got nearly 40 occupation guides to help people get that right in terms of what deductions that they can and can't claim. So registered tax agents can use that as a guide to help them educate their clients about what kind of claims that they might be able to claim when it comes to lodging their tax return. When it comes to investors. We've also got an investors tool kit as well, which is a really great useful resource for anyone who's got a rental property investment as well as any investments in shares crypto as well. So my box is to really have a look at those types of toolkits. They're really great resource and they can help facilitate a much more well rounded conversation with the clients as well.

Robyn Jacobson

I'm not sure how routinely the ATO does this, but we've certainly seen cases where the ATO has engaged with the employer. So for example, if there's a taxpayer who's claiming a higher amount of work related expenses and then they speak to the employer and the employer says, no, they don't travel or No, they don't need to carry that for work or whatever the case may be. So, there are occasions where you may engage with the employer or other third parties to help establish the profile of the taxpayer or verify what they're saying is correct.

Tim Loh

Yeah, this can happen on occasion. You know, our preference is you already have information to substantiate your clients. As I said before, it's all about the records. If you've got the records, there's nothing to worry about from our perspective. But typically we find that when we have to progressing to that direction, the taxpayer doesn't have those records and we don't have those records. Life becomes a lot more tough. And we go, we're going to go through things with a bunch of Australians want to know that people are doing the right thing. So it's really important that you have those records. But like you said, you know, there are certain situations that will go in that particular direction to get that substantiation, to corroborate the claim that people are making their tax returns.

Robyn Jacobson

A quick anecdote. I was in one of the major department stores speaking to one of the sales assistants in the handbag department and these are the ones that are all chained up, the really extensive ones. And I was looking around and having a chat to this lady about the rate of theft in this store. And she didn't tell me how much is stolen or quantified, but it just gave me a sense that it is a substantial cost for retail businesses. And it just made me think if you look around the store of all the goods that have to factor in the cost of theft, they have to price all of their goods accordingly to cover that cost. So I think it's the same with tax. If everybody paid exactly the right amount of tax that they should be paying, potentially we'd all be paying less tax because the government wouldn't have to cover the cost of evasion and avoidance that's undertaken. So that's an interesting aspect about people that think, oh, well, someone else is doing better out of this, so I'll just claim this because no one will notice the ATO does notice and it does affect the system as a whole.

Tim Loh

Yeah, that's spot on Robyn. And I always say you know when you over claim incorrectly by $100, if everyone does that it's about $1.5 billion. We're talking a lot of schools, it's probably a hospital, you know, in terms of operational costs. But, you know, for schools and hospitals and all the public services that we rely on as a first world country. So it's really important that people understand that it's important to do the right thing just because someone else is doing it doesn't mean you should do that. And I think the commission feel comforted by the fact that we are making sure that people do the right thing at the ATO and we will come down on people who are deliberately gaming the system.

Robyn Jacobson

You remember that series of ads in the zine? Just because the traffic was doing it doesn't mean you should as well.

Tim Loh

Yeah, that's right. That's right.

Robyn Jacobson

So it's interesting the increasing use and understandably this use of data and we've seen for many, many years now the ATO using data matching projects where they will obtain data from a third party and then extract certain information or run certain tests through it and match it up to what's been lodged in these things don't make sense. So some practical examples of this. There are some projects underway at the moment with landlord insurance. So the ATO is going to the companies that provide landlord insurance, which tells the ATO who owns a rental property, and then that can lead you to inquire about if the rents are appropriate or deductions are appropriate or whether there's a capital gain on the sale of it that's been properly declared. You're going to the banks to look at who's obtaining loans for obtaining residential property and again, whether if that's a home, they shouldn't be claiming anything. And if it's a rental property, is that being done properly? There's also a current project underway for motor vehicles. So the ATO is going to all the registration boards all the way down to Victoria. We call it VicRoads, of course, and understanding who owns a vehicle and that's a really good one because if it's owned by a company or trust, then the obvious question is how is the FBT looking if it's owned by an individual, well, do they use it for work, in which case it's okay that there are claims being made, but if in fact it's not being used for work, why are claims being made? So I think there's a whole series of questions that come out of this. But when I look at the scope of what the ATO can gather, so it has information, mobile phone, metadata, sort, it need to be making a phone call for the ATO to know that my phone's connected to a particular tower. And we know, for example, in criminal investigations the police are using this increasingly to place people at a certain point in a certain location. So you come back to superman earlier comment. He can't be in three places at once. Well, how can I be on the phone in a holiday beach area or a vineyard area when I'm claiming to be meeting a client in the city and therefore claiming some sort of tax deduction relating to that meeting? So with passport records, if I'm claiming I'm in the country using my car for work purposes, but my passport shows that I'm voluntarily out of the country, then questions need to be asked.

Tim Loh

Yeah, that's right, Robyn. And I think you touch on a really important point, which is we are using data a lot more, both from a compliance perspective, as you pointed out, but also we want to use it from an education perspective as well. As I said before, you know, it's all about prevention before correction. We want people to get it right. The first time we are in the business of auditing everyone, we are in the business of making sure people get it right. The first time. So for us it's about how do we make it easier for people get it right. First time there's an education component to it, but also, as I mentioned before, there is a compliance component, but we only want to use that component for the people who are deliberately doing the wrong thing.

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Robyn Jacobson

All right. So what are your top areas that are being focused on for 22, 23 returns? So this is the 23 income. Yeah.

Tim Loh

Yeah. So we talk obviously a lot about expenses, work related expenses. You mentioned before around the travel expenses and not copying and pasting losses claims. That's a really important area for us. It will continue to be important area for us this financial year and beyond. We've also focused on capital gains tax. We are seeing people make errors in relation to disposal of property, particularly around the main residence. So we are seeing a lot more people rent out a room in their main residence. So we're just reminding taxpayers there are capital gains tax consequences when you do sell that main residence into the future. So just making sure that got good records in place. The other thing we're focused on is rental property deductions, in particular for rental property investors. We are seeing nine out of ten rental property investors get it wrong. So it's really important they get it right this time.

 

Robyn Jacobson

That's a really high figure. Nine out of ten returns.

Tim Loh

It is a very high figure. It's something that we're very conscious of. And of these returns, 87% are prepared by tax agents. So what we're saying to people is particularly agencies, to ask those extra questions of a client in relation to the state of affairs to make sure that they're giving you the right information. It's really important that you do that because we just can't have those mistakes being made year on year. And one of the key things that we do see people make mistakes with is just in relation to rental income being left out. So for example, some of the things that we are seeing able to claim the matching amount after deductions from the annual property management statement rather than the gross amount and then claiming deductions. Again, it's another example of double dipping, right? So it's really important that you just take the extra care into making sure that the right income's been included. There isn't the double dipping of the deductions and the client is giving you all the information that you need to make a proper assessment particularly, but also around relation to introductions as well, where there's a bit of refinance you've done for private expense. It's just really important that you get this right because it is an area, as I said before, that we're really focused on this year.

Robyn Jacobson

And this is quite dynamic at the moment. And I mean that because we've had all these months of rate rises over the last 14, 15 months now, that's had an effect on, of course, potentially pushing up negative gearing losses, but it's also going to be an increased cost along with everything else going up with the cost of living and insurance and rights and so on. So rental incomes are also going to be going up. So there's no one size fits all in terms of the outcome. I've got to say, for taxpayers, some might have bigger losses, some might have more positively geared income coming through. But my point is that I'd expect to see changes this year compared to last year's return.

Tim Loh

That's right, Robyn. That's exactly right. So, yes, obviously the interest rates rises will potentially have an increase in terms of the deduction side. But we also know that there is a shortage of rental properties and the rental incomes have gone up as well. So we expect that to increase. But like you said, it really depends on the area city involved in the location. So like you said, it's really important to understand that your tax return will be different this year and the agent is really important just to make sure that you ask those questions of your clients to make sure they can get it right the first time.

Robyn Jacobson

That one on the net rent is really interesting and I could see how that could happen because if you own a property and it's managed by an agent, they of course take their agents fee and certain of the repairs and maintenance that they arrange out of that gross rent. So if you were simply relying on your bank statements and you went through your used bank statements and picked up the rental figure, yes, that will be the net rent received from the agent. So that's why I think it's really important for agents, international tax agents, to be asking the right question of their clients to say, would you give me this rental income figure? But as you said, Tim, is it the gross or the net figure? And maybe some taxpayers just don't realize that they have to declare the gross amount, not just simply what turns up in their bank account.

Tim Loh

That's right, Robert. So, yeah, it's just really important that you take that extra care. Like I said before, it's a real strong focus area for us this year and going forward. So people need to understand that you've got to get it right the first time and that's why those investor toolkits are really important kind of access. It's got all the information there for you to make your job a lot more easier and have those conversations and ask those questions of your clients as well.

Robyn Jacobson

One more mention on property before I move on to the next topic. But holiday homes, we've always had issues with people potentially not allocating expenses when they use it for private use or during mates rights or things like that.

Tim Loh

Yeah, look, it's that's again is another focused area, you know, holiday homes, Robyn, it is important to distinguish between a rental property and a holiday home. People can't claim deductions for those periods. They are producing income which includes when they use a property for private purposes with a renting out mates at mate's rights. And when the property isn't advertised in a way that is desirable for tenants.  So for example, we've seen properties stipulating a three night minimum stay, then every Sunday it's blocked out, right? So those are things that we're looking at and we'll be taking a really close interest this text on.

Robyn Jacobson

Right. So onto capital gains tax. It's been around many decades now, but it continues to be a complex area. So why the focus this year.

Tim Loh

When it comes to capital gains tax? We are seeing people make mistakes on it. And if your clients do have investments like shares, crypto management investments or rental properties, they need to tell you when a CGT event occurs. So that includes things like selling assets, share buybacks, transposons, exchanges of crypto gifting, typical situations where you no longer the legal or beneficial owner of the asset. So it's just really important to ask those questions when you are speaking to clients now, when it comes to selling property, as you know, Robyn, some of your main residence is exempt from CGT. But as I've said before, if you are renting out a room through Airbnb or stage, it's important that you have good records and when you do sell the property there are some capital gains tax consequences that you need to work out, which can be quite a complicated calculation. So I would suggest speaking tourism, taxation about that one practical tip I have is typically getting a market valuation done at the time. So you've got a starting point to calculate that CGT rather than waiting to eventually sell out potentially years in advance, do that again. It's those records which I keep talking about. I do sound like a broken record now, but that is really what it's all about when it comes to working out what those capital gains tax consequences are going to be coming out of that. The other thing to note is that we've got a new fact sheet that we brought out in our investor toolkit. As I mentioned before, you can find that out today for such a fact sheet. So it's really important that just to finish up on this particular point that we don't want your clients to fall into the trap of thinking we won't know this if we sell an asset for a gain and don't declare it. As you said before, Robyn, we're using a lot more data from different sources. So we've got the residential investment property loan data, over 1.7 million individuals, but the landlord insurance data as well. So we've got different data points that we're using to cross-match against the data that we have on our systems. And then we use that to make sure we cross-check against the information that's put in the tax return as well.

Robyn Jacobson

Cryptocurrencies is a burgeoning area and we've got lots of tax payers getting into this space either for the first time or have been doing it for many years. But the point is there are still CGT implications for dealing in crypto and if you're going to exchange one type of crypto for another, it's no different to exchanging some Telstra shares for BHP shares, for example, CGT that still get triggered. So try to get that message through. How, how's the ATO going with that particular issue?

Tim Loh

We think of these things similar to kind of other investment assets, right? So we think of it like shares in many cases. And as you were quite rightly pointed out, Robyn, there are capital gains tax consequences when you sell, swap or change cryptocurrency. Now everyone knows that cryptos fluctuate a lot over the last 12 to 18 months. So some people would have made a capital gains, some people would make capital losses. But if you have held some of your crypto for at least 12 months or more, you can get the 50% CGT discount. So that's something that investors should be aware about. The other thing to note is with any capital losses that you made into your crypto, you can offset any other capital gains not just from crypto but any other message that you have. So just something for investors and clients and savings to think about when you lodge any tax return this year.

Robyn Jacobson

But you can apply those capital losses against your normal income like rent or interest on your salary.

Tim Loh

That's right. Robyn. Yeah.

Robyn Jacobson

Now side hustles, gig economy. There are lots of names for this particular part of the economy. What are you seeing in this space?

Tim Loh

Yeah, we've got a lot of data that's showing that nearly a million people have multiple working jobs. So that's about 7% of Australian workers working two or more jobs or supplementing their income with these side hustles or gig economy activities. And look, there are obviously new and different ways to earn an income these days. You can be driving movies or you could be making content on Instagram and you can get some dough out of that. So it's really important that whatever way you were earning your money, the tax obligations are exactly the same. Clients need to make sure they keep accurate and complete records and declare all their income in the tax return. Now, if new clients already come through continuous and repeated activities for the purpose of making a profit, that's going to be considered a business. And it's really important, as I said before, to declare that income into your tax return. You know, some things aren't going to be considered to be running a business if you're doing the annual garage sale of some old items, that's probably not going to be a side hustle. You won't have to include that in your tax return. And one thing to kind of also note in this is if you do have clients earning income, that isn't just money. So could be just goods or services. They receive tips or gifts, you know, subscription payments or fees. That's considered to be income. I need to include that in the tax return as well. And one thing that we have noticed is people have been getting tax bills. And part of the reason for that is people with some of these side hustles aren't having any tax withheld at the time they receive some of these payments.

So that's resulting in a large tax obligation at the end of the year. So it's really important that you have a think about signing up to the page. You go withholding installment regime to make sure that you are withholding tax on an ongoing basis so you don't have a big tax bill at the end of the year.

 

Robyn Jacobson

Really good advice, too. And we certainly see instances and it's reported across the media a lot lately with people with unexpected tax bills and some of these people have formerly been employees where all this was taken care of them. And when you go out on your own, you are now responsible for your own tax position. So if you've not been paying installments along the way through Pay I YJ and you've no longer got an employer taking withholding amounts out of your salary, then yes, you will have a shortage of tax paid during the year, which means it's got to be paid almost into the return. That's when some of the surprises happen. But also it can lead to unexpected steps that people aren't prepared for. And of course, they're not getting super support because there's no employer to pay that anymore. So they also need to think about should they be putting some money aside for their own super. And it's difficult because often gig economy, they're on relatively incomes.

Tim Loh

Yeah, that's right, Robyn. And you know, you're spot on in terms of what you just said when you are with an employer panel where you think it's kind of like living at home, your parents typically pay for everything, but then when you move out of home, you've got to take more responsibility. And it's really important that you put aside money for your tax obligations. And as you said, a really important point when it comes to superannuation, consider whether you need to keep some way for when you retire, which is always a bit hard to do because it's obviously many years into the future. But super is a really important asset for your retirement, so it's well worth having a think about that and speak to a financial advisor. That's something that you're interested in doing.

Robyn Jacobson

We know that there have been some taxpayers with unexpected tax bills this year. Part of this that I can't say it's wholly attributable to this is the removal of the low and middle income tax offset, which ended on June 30, 2022. Now, whilst it ended that date, people of course, were still seeing it coming through their income tax assessment notices throughout 20 to 23 years. They lodge their 22 return. So it's really only now one year on that people have said, oh gosh, we're now seeing a smaller refund of perhaps some even payable. There was plenty of messaging about this at the time through the ATO and by the profession that maybe not everyone understood the implication of what the removal of that offset has done. So I think it's important to note that the amounts of the low and middle income tax offset was effectively baked into the stage. Two personal tax cuts that kicked in some years ago, and then it was temporarily extended for another couple of years. So if people have unexpected tax bills, what can they do? What sort of support is available for people that find themselves in a tax position they didn't expect?

Tim Loh

Yeah, look, if you do get into a tax debt position, it's really important that you don't bury your head in the sand. It's really important that you do know that we do have payment plans. So you can do that, actually do that yourself online. And if you do get a tax bill, just don't stress about it too much about it, but make sure that you do lodge as per normal. And then if you are having trouble paying for this, make sure you're trying to pay a and you can do it yourself or mine or you know, or you can speak to a registered tax agent who can help when it comes to agents, you know, you can use your online services for agents to view, set up, adjust or cancel payment plans for your clients.

Tim Loh

So that's something that happens as you start to lodge a tax return on behalf of your clients. Do go to our website, which is Oakdale Value Forward slash module paid and get some further information to help you out in relation to this.

Robyn Jacobson

What about agents themselves who might be feeling under the pound for a bit overwhelmed? We know there are still labor shortages across the profession as there are in many sectors across the economy. What can I do to seek support?

Tim Loh

Yeah, good question, Robyn. Tax time is a really busy and challenging time for the profession. You know this, I know this, and tax agents listening know this. And we do acknowledge the aggregation of events over the recent years, including the pandemic, has added significant pressures on all of us. Really. We think it's really important that you're having those conversations with your clients to manage expectations. And we know a lot of agents are already doing this as well. And as you said before, we've been telling people for months now about potential for lower refunds and potential depositions. But we do know, you know, that some agents might be encountering circumstances beyond their control that will prevent the potential of lodging on time. So we've got, as you know, a lodgement program and lodgement deferrals that can provide agents with additional time to lodge without incurring the failure to lodge them. Time penalty. Now, the problem of your experience affecting your whole practice, for example, as a result of a significant event or ill health, you can request assistance via a supported lodgement program. So whatever the reason, we're here to help and work with you to get your lodgement program back on track and making sure that we can tailor our support to you, to your particular facts and circumstances. So my best tip is to check out our website, look after reports that lodgement program help and get some further information to help you with the potential support options that we have to help you get your practice back on track.

Robyn Jacobson

We've also got a new feature within a CSA online services for agents, and it's a new lodgment deferral function. So any agent is listening to this. So remember the, the wonderful days of having to send in a spreadsheet with a list of clients they Clare's ato can we have a on these particular lodge lodgment and a working group and set up of which the Tax Institute was part of. And through this process we collaboratively designed this new feature. So we're really pleased to see this go live and effectively it's a digitalized approach. So instead of the old fashioned spreadsheet being sent in, there's now a digital feature where you can basically say to the ATO, These are the clients, we want to submit a deferral request form and in real time you can see what's happening. You can keep track of what's being progressed. If something needs to be manually dealt with by the ACR, then they're made aware of that as well. But it seems to be much more efficient and more responsive than the old spreadsheet.

Tim Loh

Absolutely. Whenever you have to look at a spreadsheet on Excel, it's a good thing. I would say, look, you're absolutely spot on. We have worked collaboratively with tax practitioners, professional associations like yourselves to come up with this new function. We do hope it does dramatically cut the time it takes to lodge a deferral request and we wanted to make things easier. You know, this is a cost to tax agents that they shouldn't have to deal with. And we hope this new process helps tax agents streamline their processes. This tax time and beyond.

 

Robyn Jacobson

Something that people should be aware of. And this isn't a particularly happy note, but the amount of a penalty, you know, increased again on the 1st of July. We do see indexation every three years, but we also had a separate increase on the 1st of January. So one penalty unit is now worth $380. Now that may not sound much when you're talking one unit, but when you go to the tax law and you might have ten penalty units or 20 penalty units or 50 penalty units for not doing something such as lodging or not attending to a particular obligation, these penalties can get quite substantial. So I just remind people that in the background where there is a breach of a particular tax obligation, you can find yourself with some hefty penalties as a result, and that's separate from the general interest charge. So turning now and basically finishing our discussion on another not so happy note scams, cyber security, fraudulent misuse of identity and it's just such a hideous part of reality that we all need to deal with. We've seen the banks tighten up an enormous amount of spend that they've invested in tightening up security. We're seeing all the government departments and agencies doing the same thing, and scammers will always find the weakest link. So if they find that at the government level, things are so tight they can't penetrate the defenses so good, then they'll just go to the next weakest link and they might filter down through the professional, they filter down to businesses or they filter down to the individual taxpayer. What are your best tips? I mean, there is so much available online that people can rely on, but there are certainly some do's and don'ts when it comes to being really smart about looking after your data and your identity.

Tim Loh

Really good points and observations from the weakest link observations are really pertinent point and unfortunately, you know, scams are becoming increasingly widespread. There's been a lot of data breaches at Optus, Medibank and a few other organizations as well, and the scammers are just unscrupulous, right? They're going to, like you said, find the weakest link to make sure they can potentially get that data and use that to infiltrate not only the government systems, but any other organization for that matter, to extract moneys for devious purposes. Now, when it comes to the advice that we give when it comes to tax time as we are now, it's just pretty important to be on the front foot, be wary of any scam emails or text messages, phone calls and impersonated accounts on social media claim to be in the show. So a few tips I'd like to tell people is never provide any personal identifying information by email service will never include that type of request in those emails. Something else that you don't like to do is any hyperlinks. Hyperlinks are typically there to fish information from you so that scammers can direct you to a fake website where you're putting your personal details. And through that, they can access information relevant to you and use that to commit identity fraud. The other thing is, when it comes to phone calls, we always call you with a no caller I.D. So a number that would never project onto your phone and the other thing to also note is, will never speak to you in a threatening tone, threatening rigorous deportation or jail. Typically contact you in a friendly voice at the ATO. And the third thing is we do engage on social media, which we do. We never ask for personal information like your myGov details, your bank account details or your text phone number. Given why you might give details like giving away your case to Australian Media House and then watching them change the locks on your house, it's not a place that you want to go and with identity as this they can make your life so and it's really important that don't give those details away. So those are my best tips in terms of making sure that you look after your personal information and your bank account. You want to give your bank account details to a stranger. Why would you give your Marg update details to a stranger? So take those really personal details, then hold them really closely to him.

Robyn Jacobson

How do I know if someone calls me and they say they're from the 1890? How can I be sure? How should I respond? How do I act?

Tim Loh

Yeah My best tip is actually to hang out. My best tip is to hang up. If it does, tell me that it's a scammer. So my best hope is to hang up. And there's two things you can do. The first is to call us on our dedicated scam hotline, which is one 800 00540. And the other thing you can do is also check out our website at 8:00 today for that scam. Now, it's really important to ring that number because sometimes it could be a genuine person from the show, but by ringing that number, you can find out if in fact all the genuine call from the show or indeed was from a scammer. So that's my best tips when when it comes to working out whether it was a scam or someone calling me.

Robyn Jacobson

Thank you, Tim. I know that wasn't the most positive note to end our discussion on, but a really important one. As our community continues to be vigilant and fight off this hideous aspect of modern cyber activity. We love the online activities and we love being able to do things efficiently and be connected. But it does come with some really big risks.

Tim Loh

Yeah, and I just want to add probably one thing which relates to tax agents. Obviously, as you've said before, we talked about ad nauseum, Robyn, about identity fraud and cyber security risk across the community. It's really important as an agent, but you've got those range of controls and security mechanisms in place to prevent the fraud, which agents are responsible for managing their own security and cyber protection, and to not lose sensitive identifying information. And it's really important they've got that security in place. So some of the tip I have is to check out a website. I talk to you for us, touch professional security for for more information on this. It's really important because it can be quite disruptive if there is a situation where the scammers get a hold of your information or your client's information.

Robyn Jacobson

Absolutely. Because one of the first things the show will do is close off access to online services, which means you can't logically engage with the ATO, you can't access your client information. So it becomes very debilitating. And speaking to agents who have had this happen, there's a lot involved and it can take many, many months, if not longer, to be able to get them back up and running again.

Tim Loh

Yeah, that's right. And it's unfortunate, but these scammers are unscrupulous and un-Australian, and they'll do anything to take people's money.

Robyn Jacobson

Yeah. Look, Tim, thank you. I also wanted to personally thank you in terms of your contribution to the tax profession. I know this is your last round as tax time spokesperson for the ATO. You've become a very familiar face on our TV screens and across the airwaves and right throughout social media. I hope you've enjoyed it as much as we've all enjoyed your little anecdotes and your tidbits of advice, but you've done a wonderful job in this particular space now.

Tim Loh

Thank you so much, Robyn. It's been a privilege to have the opportunity to represent the ATO but also represent the tax community as well. For me it's been a real privilege after working many years in this space. But yeah, looking forward to getting back into the books a little bit more over the next coming years. So thank you for that wonderful acknowledgment.

Robyn Jacobson

You’re very welcome. Thank you, Tim. Thanks for listening to this episode of TaxVibe. I've been chatting with Tim Loh, Assistant Commissioner and Tax Times spokesperson at the ATO in the individuals and intermediaries space. To keep up to date with TaxVibe, be sure to subscribe, rate and review wherever you listen to your podcasts. If you'd like to connect with us, you can find us on socials. Not a member of the Tax Institute? Join a collective voice of 10,000 practitioners at the heart of the profession and find out what the best tax professionals have in common. Visit taxinstitute.com.au. We look forward to you joining us next time.

Why your favourite colour matters for data security

Release date: 9 June 2023

From the archives — recorded at The Tax Summit in October 2022, this is an in-depth discussion between our own Senior Advocate, Robyn Jacobson, CTA, and a couple of experts in data security: Debra Anderson, ATI, Board Member at the TPB, accountant, registered tax agent and cyber security specialist, and Corey Cacic, Founder and CTO at Annature.

They discuss current data security issues, the steps practitioners can take to ensure the security of clients’ data, the 3 golden rules for all taxpayers, and of course, why even your favourite colour is an important consideration for this type of security!

This is just a taste of the type of content you can expect at this year’s Tax Summit. The 2023 Tax Summit will be here before we know it — catch you in Melbourne from 5–7 September!   

Host: Robyn Jacobson, CTA

Guests: Debra Anderson, ATI, Director, Anderson Tax Consulting and Corey Cacic, Founder and CTO, Annature

Robyn Jacobson

Hello and welcome to TaxVibe, a podcast by The Tax Institute. I'm Robyn Jacobson, the senior advocate at The Tax Institute and your host of today's podcast. We love the vibe of tax, and here at The Tax Institute, we do tax differently. I'll be chatting with some of the tax profession's great thought leaders who will share valuable and practical insights you may not hear every day. We hope you enjoy this episode of TaxVibe. I'm joined by Debra Anderson, Director Anderson Tax and Consulting. Deb is a registered tax practitioner and specialises in tax and technology for small businesses. Deb also works alongside me as a member of the ATO's Tax Practitioners Stewardship Group and a bunch of other working groups. More significantly, Deb sits on the board of the Tax Practitioners Board.

I'm also joined by Corey Cacic who is the product and engineering visionary, at Annature with more than ten years experience in Digital Signature Solutions. Corey carries numerous Amazon Web services specialty certifications, including cloud security. Deb and Corey, welcome to TaxVibe and particularly in-person at the Tax Summit in Sydney.

Debra Anderson

Thank you, Robyn.

Corey Cacic

Thank you. Pleasure to be here.

Robyn Jacobson

Great to have you. So in light of a lot of interest in the media and in the community about security of data, I thought it would be great to have a chat with both of you in your respective roles and with the expertise that you bring. Now, I googled data security as a search and it produced 6.3 billion search results. So that tells me a lot about how much interest there is and how many sources of information. I didn't have the opportunity to go through all 6.3 billion of them to see how many but legitimate. But you can say my point now in this technology revolution, and with so much of our personal and professional lives spent online, data security is more important than ever.

So, Deb, I'd like to start with you. How do you define data and why is it important?

Debra Anderson

How do I define data? Data is anything and everything that we put online. It can be something that is completely irrelevant or we think is completely irrelevant. Such as your favourite colour. You know, when you're on Facebook and you do those sort of Facebook quizzes, those types of things, or it can be really important data, which is things identifiable to you.

So your tax file number is an obvious one for what we're talking about today, your date of birth, your address and on its own bits of data don't really, depending on the type of data, don't really matter. Right. Like if it's just what's your favourite colour? But when you start putting lots of data online, you can actually then be mapped, I guess, and profiled and all that data becomes an identity. And that's when people can take all of that data that you've put online and actually create another you.

Robyn Jacobson

So when you're looking at people who are, let's say, not so honorable, they have tools and mechanisms and resources to be able to extract this data and collate it and then build profiles or create new ones, don't they?

Debra Anderson

They do, and these people are so clever. I just wish they would use these skills for good instead of evil. But what they are doing is setting up these really cool little, you know, press here on this Facebook quiz and it'll tell you what this is. But what you're actually doing when you press. Yes. Is giving over your data to an unknown place. So, yeah, data is everything.

Robyn Jacobson

When we look at tax practitioners, whether they be tax agents, best agents, legal practitioners, essentially anyone who's acting in an agent or representative capacity, they've got a lot of data that might be stored at their office. It could be on a local drive, it could be on a cloud based drive and then of course, there's all the ATO data, and the ATO has been sharing with us for some time that they can have 4000 hack attempts in an hour. They can have two and a half, 3 million attempts in a month. There's a lot of unsavory activity going on out there. So in terms of being aware of this, your thoughts, Corey.

Corey Cacic

Yeah, when you acting in a represents capacity, you're dealing with many individuals data, attacks on individuals themselves may be common, but the end result of an attack is to understand what are they looking to gain from getting access when after an individual they're getting one person's identity and they look at a legal professional or a tax professional, the end result can be many identities. It's important to understand the targets and what the desired outcomes are for these people that are, you know, conducting malicious activity.

Debra Anderson

And I think tax agents are high value targets.

Corey Cacic

Exactly.

Debra Anderson

You know, we hold rich data, we hold lots of data, and we have access to systems just by being us as well. So our own identity is under threat.

Robyn Jacobson

When we look at the impact of a data leak, we've heard many stories over the years of people that have been sucked into scams or been vulnerable and weren't aware what was going on. And we continue to read in the media about, you know, someone lost $100,000 here or they lost $60,000 here. And all this different circumstance. With identity theft, we've got fraud and there's financial losses and reputational damage. And we've had some quite high profile leaks which have been affecting millions of Australians. They've been not just recent but very sobering and I think it's a bit of a wake up call for everybody. Again, I'm interested in your thoughts as to do we need to reset, we just need to increase awareness, don't we?

Corey Cacic

I certainly think we do. It's important to also understand when you're dealing with software providers or other companies, are they keeping up to date with technology and their security protocols and what they're doing? So what may have been acceptable ten or 15 years ago is no longer acceptable these days. The methods they're using to obtain access to these data is evolving a lot quicker than some of these large enterprises are keeping up with our internal measures to prevent against this.

Robyn Jacobson

Is there ever going to be a time where we can be in front of us? Are we always going to be catching up?

Corey Cacic

I think we'll always be catching up. There's too much to be gained by attackers that are successful in their attempts.

Debra Anderson

I guess, you know, if we look at some of the more high profile hacks recently, we look at something like Optus, for example, and then you look at the average practitioner or the average tax agent business in Australia and you know, if a corporate such as Optus struggles to keep the hackers out, how does the average person like us manage to keep the hackers out? And I think, you know, for me that's the stuff that keeps me up at night. As a practitioner, how can I make sure that I'm keeping everything safe? And that's a challenge, because if they can't do it, how we supposed to be doing it?

Robyn Jacobson

And you are a guardian of that information.

Debra Anderson

What tax practitioners need to realise. It's not a matter of if, it is a matter of when someone tries to get into your system and all you can really do is make it really hard for them forgetting. It's like knocking on someone's front door and going, Oh, they left the door unlocked. They'll just walk in versus Oh, they've locked the door. I'll go next door and say their door's open. And so I think, you know, that's pretty much all you can do is just try and keep them out. You know, Robyn, your question of will we ever get in front of these people? I don't think we ever will. And the reason is they are so agile, they are so smart. I don't think we will unless we get some of them coming from the dark side to the light and actually helping.

Robyn Jacobson

Deb, from a regulation point of view, we have something called the Notifiable Data Breaches Scheme. Can you briefly explain what this is and how it works?

Debra Anderson

Sure. It's if you are a tax agent and you have a turnover greater than $3 million, if you are subject to a breach and your client's data has been compromised, you need to notify the Office of the Australian Information Commissioner and also the affected individuals. If you are a tax practitioner below $3 million, you still need to make a notification to those individuals. And you also need to contact the Australian Tax Office immediately to let them know that your client's data has been compromised.

Robyn Jacobson

Deb, in terms of interactions with government. We've got relatively new platforms and I say new because they weren't around 20 years ago. We've got myGov and we've got myGov ID and I just want to explain the difference because there's still confusion about these two. myGov is a platform which is how you interact with government services, and that was primarily built by Services Australia. So you get your Medicare information through it and Veteran's Affairs and of course you can attach the tax module and that gives you access of course to ATO information. myGov ID is a digital identifier, so it's an app that you download on your phone and you upload or have verified your documentation might be driver's license or a passport. And once that is accepted, then that is a way of proving who you are in order to access services. So with my given myGov ID, what do you say to those who are still so concerned about using these technologies or these platforms or ways of accessing information?

Debra Anderson

myGov ID  is fully encrypted. It is really secure. You've got fingerprint or face I.D. technology behind it and you know, the documents are not stored on your device. The identity documents are matched in the background and then just said, yes, they're verified. So it's very secure. And I think, you know, we should be encouraging everybody whenever to use myGov ID and we should be encouraging other agencies to take on myGov ID and wherever we can use it.

I think the biggest risk with myGov ID is people are still sharing the logging details and we do say that at the TPB that people you know, in the old days he put the password for the ATO portal app on a post-it note and these dice they sharing it might have ID date. He cannot do that. And I think in this day and age, we need to be safeguarding your identity more than anything. And as a professional, you need to be safeguarding your identity because when you're communicating with the Tax Office or any other agency, they need to be sure who they're dealing with. And if you are letting other people use your ID, you are responsible for that.

Robyn Jacobson

It's also worth noting within myGov ID, you've got different levels of strength so you can have standard or strong and of course would encourage people to have the strong setting rather than just the standard one. It's extra security.

Debra Anderson

And only takes a couple of minutes to do

Robyn Jacobson

Yeah, it's quick and sun in real time so when we've got scam call as was so prevalent out there how do you know it's the ATO calling and call comes through and I might say no caller ID. How do you trust the person you're speaking to? And I'm interested to get in both your thoughts. I'll start with Corey.

Corey Cacic

The sensible answer is don't trust them. You don't trust that it is the attack on you. If you believe that there may be a valid reason for you receiving a call from the ATO, let them know that you're going to be calling them back. So you go to the ATO’s website and you find that contact number and you call them yourselves. That way you know that you are in fact reaching someone at the ATO and then you can pick up, you know, exactly where you left off when they called you.

Robyn Jacobson

Deb I'm just thinking, particularly when you bring the ATO, you can wait in call centers and lines. Things have improved of course, but trying to get back to the person who called you isn't always easy, is it, as a practitioner?

Debra Anderson

No, it's not. But if you call the agent line, it's really quick. So it's usually not an issue. But I do subscribe to what Corey was suggesting. Do ring back. It is really important. And in fact, what's really scary is if the call comes through and it says ATO on the call because that's usually when the fraudsters are spoofing the ATO's phone numbers. And we had a situation about this recently, about two or three years ago, where they were actually using real ATO officer numbers. And so when people were bringing back the number on the phone, they were actually ringing people at the ATO who had never rung them. So, you know, these people are really clever and I think the important thing to do is, as Corey said, go to the website or an independent place to get a phone number. But I will also add to that, be really careful that you're going to the right website, okay? Because if you are Googling a number, the first thing that comes up in most cases will be the right one. However, it's not always the case. Okay. So it could be, for example, that you're getting a phone call from a financial institution that may not actually be a financial institution about your client. So really make sure that when you are speaking to people that you identify them as well and are confident with who you were speaking to.

Corey Cacic

I think to add to that as well, coming from a development background and understanding how SMS’s and phone calls can be made, it's I think everyone would be incredibly surprised,to understand how easy it is to spoof a number, even when you're talking about text messages to spoof that number and send a text message from the ATO, it's incredibly easy to do so when you have a mobile number saved in your phone under Mum, for instance, if an attacker is then able to send you a text message from Mum, certain phones will actually place that message in the same thread. And unbeknownst to you, that's just another message you've received from attackers.

Debra Anderson

And that's that high mum scam that's been going around recently, right?

Corey Cacic

Exactly.

Debra Anderson

Exactly.

Corey Cacic

Exactly, So just understanding that. Yes, spoofing numbers is an incredibly easy thing to do. And so just getting back to what do you do, call them back yourself.

Robyn Jacobson

So I think there are three golden rules. One, don't provide your personal details over the phone unless you totally trust the person you are speaking to. In other words, you're calling a family member or you're calling the ATO because you have sourced that phone number from the ATO, legitimate website or another institution, etc., that you're trying to get in contact with too. Don't click on suspicious links in text messages and emails. Three The ATO will never threaten you with legal action or arrest via a voicemail or any other recorded message. And I think all of us have at some point been threatened with that. I know I have Amazon from Customs, from the ATO. It's amazing how many warrants are out there for my arrest at the moment.

AD BREAK

Robyn Jacobson

So Deb, as a practitioner, what steps can you take to ensure that your client's data is secure? Some thinking in a physical office the old days and going back to many decades ago, you would have made sure your desk was clear of confidential papers. You would have locked up your computer, put your client files in the filing cabinet, and locked everything up in a secure fashion, and you will shredded any confidential ways to make sure that that's all properly disposed of. Now that we're in a shared workplace, we could have shared offices which people are now using in a literal fashion, not a virtual fashion. We're sharing rooms with other organizations. We could be sharing printers. And then of course what the working from home scenario. So as a practitioner, how do you manage all this?

Debra Anderson

Carefully, I think all those situations, my anxiety levels went up with each one of them because thinking about, for example, you mentioned shared workspace. I think that's why it's risky. I think any kind of printing in a shared workspace that is not your practice is incredibly risky. You know, you need to be so careful that your client's data, your client's information is not able to be accessed by anybody outside of you and your practice. So if you even leave your computer on and go to the bathroom, your computer is vulnerable. If you print something and go to the bathroom, you know, a tax return, for example, there is a lot of data on the he even if he's selected the option of no TFN, you've still got date of birth, address, income details you know all of that kind of information is available. So I think, you know, you need to really have a look and risk assess that particular situation and whether it's right for your practice because it's not just the printed material, it's not just the computer. It's also when you're on telephone calls with clients, it's also when you're on telephone calls with the ATO. Every time you ring the ATO, you need to identify yourself every single time. So every single time you're in a shady environment, you are sharing your data. So I think that's called a whole bunch of issues there. Working from home is another really good one and I think again, you need to have really secure passwords. Ideally have facial recognition on your computer. I know I've taken all pins off. It's all facial recognition. So I think we just need to be making sure we're doing all of those really basic things. Using a password manager, not re-using passwords, I think is for me the number one thing, not sharing too much information about ourselves wherever possible. And I know with social media that's particularly tricky. And also making sure that if you are having client meetings that you are in a, a quiet space. So you're not having those identity type conversations in a café, in a shared workspace, any of those types of things. And you know, the youngers out there who are share housing, you really need to be making sure that none of that information gets out.

Robyn Jacobson

Deb, what about cloud based services? So we've certainly got rules within the code of professional conduct in the Taxation Services Act where you're not permitted to share any of your client data without their permission unless legally required to do so. Now, I think almost all practitioners would be well aware of this, although they're expected to know it as part of their registration. But sometimes there's just a differentiation, perhaps in some minds that if I'm just going to cyber follow my computer, it's actually being saved in iCloud or Dropbox or OneDrive or any of these other cloud based platforms. And that actually is a third party provider. So you've got to need your client's consent to save their information. If they don't consent, you can't save it there.

Debra Anderson

It's a really good point, Robyn, because I think there is a misconception we always think about the file is here, it's in front of me, I can see it on my computer. But in fact, the most people, they're not actually looking at a file that is on their local computer. The file is up there in the cloud on another service. So practitioners do need to be aware that they cannot use cloud based services that have not been approved for want of a better term by their client. Now, the ideal way of doing that, I guess, is to include all your cloud based providers in an engagement letter. That is a practical solution. And, you know, unfortunately letters of engagement are not mandatory, but they are highly recommended by the TPB and this is another really good reason.

Robyn Jacobson

And bear in mind, different professional bodies have their own ethical and regulatory requirements for membership. So it can be separate layers there. Cory, your thoughts on the tips and tricks and pitfalls of using this sort of third party storage?

Corey Cacic

Yeah, so thinking in a practical sense, saving a PDF document, probably the first thing that a practitioner wearing so thinking of a PDF document where that document is being stored may be the most obvious example of where you are storing that data. So whether it be on your local computer or up in Google Drive, for instance, understanding that when it is on your local computer, you may have services turned on that do sync your data and do back up your data. Where are that data being backed up to? When we think about things like HubSpot, if you're using HubSpot as a CRM, where are those data centers located? So where are those physical files located? In a data center. So while you may access it from your computer in your home in Queensland, that file also exists in a data center, possibly in the US, and that may then be backed up into another location. So thinking broader than just where that file exists, think of all the data controllers

Debra Anderson

And Cory, to go even further with that, we also access a lot of those documents on our telephones. So, you know, it is even bigger than that. And we really need to make sure that we guard these electronic devices as best as we can.

Robyn Jacobson

Proper passcodes, face ID, wherever you can.

Debra Anderson

Absolutely. Do not share passwords. Do not share pins, but where possible, use biometric type, you know, authentication. So facial ID, a fingerprint, those types of things don't make you children on your phone. I know on my telephone I can access all my emails. I can access my accounting system. I mean, forget the Internet, right? We can access almost anything, right? The had everything. But I've also got all my client Pauls I can access through because I use, you know, Dropbox, you can access that on your phone as well. So we do need to be incredibly careful. And going to Corey’s point about it's not just a matter of saying, okay, well, I use this particular provider, you need to understand where that provider is storing that information and what the jurisdiction of that particular information is.

Robyn Jacobson

Corey, how do you know where the data's being stored by these third party providers?

Corey Cacic

Says software providers do have an obligation to disclose where their data is being stored. So that's immediately looking at the privacy policies of a lot of these websites and providers, but also understanding that certain jurisdictions may have disclosure rules into what data must be disclosed. So investigating what those jurisdictions are, if the data is being stored in a certain state in the US, does that state have disclosure regulations that may force that vendor under certain parameters to disclose the data that is being held there without, you know.

Debra Anderson

To finish on this particular note before we move on, I think we also need to address that when we dispose of our laptops, our computers, our smart printers and our smartphones, we need to be really aware of what data is on those phones and that they all the computers or the memories that are in those printers. So I think, you know, they're all the types of things you can't just get your phone, say, you know what, I got a new iPhone 14. I'm throwing this one in the bin. You can't just say even worse. I've got a new iPhone 14. I'll put the 11 on eBay and sell it. We need to be making sure that all the data is deleted properly. So just like you would have a piece of paper and would throw it through a shredder inside to be making sure you're doing that correctly with your electronic devices as well.

Robyn Jacobson

Really good point.

So let’s move away from security of data. And let's talk about the clients themselves. We've got a lot of new guidance and regulation in relation to proof of identity, proving who our clients are or then proving to us who they are. So can I start with you? What are we required to do? What do we do with all these photocopies and scans of ID documents? And then I want have a chat to Corey about some digital solutions here. But let's kick off with what do you have to do?

Debra Anderson

I think the first thing there is you mentioned, I'll start with the proof of identification. So the TPB have issued a practice note on the proof ID requirement as earlier this year. What that means is that for new and existing clients, you need to do a proof of ID. All for existing clients could be an assessment of the proof ID. What I mean by that is new client comes in. You need to prove that who you're dealing with is actually who you're dealing with. All right. You need to verify that by looking at, for example, a a photographic piece of identification that shows their full name residential address database. If they don't have photographic ID, you can use a non photographic ID like a primary one being something like a birth certificate, a citizenship certificate, and then you can use a secondary form a by de such as a medicare card or something like that for existing clients. And you know, everybody's got existing clients they've had for 20 years and you're thinking, why do I need to do a ID check on them doing not assume that if you are dealing with someone electronically, for example, you cannot assume that the person you're dealing with on the other side of an email is the person you were dealing with last year. On the other side of the email, and I did see a case recently come through the Board Conduct Committee where a client had been going to a particular tax agent for a couple of years. And then this year I think it was like the 2019/2020 year the client emailed the information to the agent. The agent had a new employee. They junior person prepared it all, got it all signed off and the client got a refund, very large refund. Thank you very much. What had happened was that client's email had actually been compromised and so it was a fraudster on the other side of that email. So even though this was a client that they had dealt with beforehand, there were some situation changes which didn't cause alarm, which should have. And I think the number one thing is when situations change with the client, you know, when all of a sudden they change occupation and so it's wait a minute, you've got all these losses or something like that, right? Or you know, they've paid a lot of package compared to their income with a complete different employer. There's also the really big one for me is bank details. All right. And let's be honest, no fraudster start lodges a tax return with an amount payable. It's always refundable. So, you know, they're the types of things that you should really be looking out for. The interesting thing about a lot of the cases that we see with that is that in most cases, the practitioner is not even using the pre-filled and the pre-filled would have been another red flag saying, hey, there's something wrong.

Robyn Jacobson

But some of the things you mentioned then I would have thought would have been overcome if you just picked up the phone and spoken to your client and said, you know, have you changed jobs or have you changed your occupation having a dialog, wouldn't that assist?

Debra Anderson

You know, it's interesting, Robyn, because I don't think picking up the phone isn't always the way clients like to work with you these days and the world has changed. In a lot of cases, some clients only want to deal with you via email and that's really hard because these fraudsters are so clever and they mimic you. So you just need to be really careful. Now, in that particular case, I don't know whether a proof of identity would have even fixed that. Like they may have had access to that. But the fact that they didn't do a proof of identity, the fact that there were all these red flags but none of it was checked, was obviously concern and cause for not using reasonable care.

Robyn Jacobson

Corey, solutions. How can we overcome some of these challenges?

Corey Cacic

Best judgment is understanding that a client that you've been dealing with for ten years has consistently submitted returns where there has been a small amount, either payable or refundable, and then suddenly you now have a return with thousands of dollars so that there should immediately rise flags in saying that our best judgment is good. But there are also tools that you should use before that judgment comes into play. So at Annature, we saw this notice coming through in June and we immediately found a product we could build to meet the requirements that were laid out in that notice. So a digital tool where you are able to collect a name, a date of birth and an address from a client and a primary photographic identification document, a license or a passport. The important thing to remember with this is that these information is not being transferred over email. Email inherently is insecure. None of this should ever be going over an email. So what we've done with our platform is build upon the foundation of our ISSO certification that we have, and all of the security protocols that were built into the core of the product and provide a host of Experian s where a client may provide that information and photograph the ID document. That information is then stored securely with us in our data centers in Australia, all encrypted on the best practices and then only through our platform, which requires a practitioner to sign in and two factor with them. Mobile as well is always enforced for us and it's through that platform that they are able to temporarily review that information and sight that license electronically.

Debra Anderson

I think going back to your point, Robyn, where you say what do we do with all the photocopies? So if they are using the, you know, traditional methods for photocopying, the TPB strongly recommends that you do not create any record of the ID, that it is securely destroyed. And, you know, you don't need to photocopy it. You know, you take the details, you visually take the details and you document that in your checklist. You know, the date that you took it, the time who took the information or you know who verified it, what the ID was, but do not document the ID numbers. And I think that's really key as well. So it's one thing to say or, you know, verify. Debra Anderson, you know, New South Wales driver's license. One, two, three, four, five, six, seven. Whoa. All of a sudden, like we saw in the Optus hack that all that information is available. Think of it like your credit card numbers, you wouldn't leave that lying around. So you know, x x x x with, you know, one two on the end or something like that. That's practical. That shows that you did do the verification checks, but you have nothing that could be used to recreate that identity. Because again, we come back to tax practitioners, hold really rich data on their clients.

Robyn Jacobson

Look, I think this is a conversation that we could just continue for hours and hours. And I'm very grateful for both of your insights. I think of the challenges that face businesses, the community, generally, government and, of course, organisations. And we talk about the profession in particular in this case. So thank you Debra nd Corey, for both of your insights and hopefully around a little bit more mindful and aware of the sorts of challenges that are out there.

Debra Anderson

Thank you, Robyn. And you I do say the TPB website, we've got some great handy fact sheets on there. We've got a fact sheet that you give your clients so that they understand when you are doing a proof of identity that it is a requirement that you need to do so they won't be questioning that as well.

Corey Cacic

Yeah, thank you for having us Robyn.

Robyn Jacobson

My pleasure. So thank you for listening to this episode of Tax Bob. I've been chatting with Debra Anderson, Director Anderson Tax and Consulting and a board member with the TPB and Corey Cacic from Annature. We recorded this episode of TaxVibe LIVE at the biggest tax event of the year. The Tax Summit. The Tax Summit is three days of tax,

technical insights, thought leadership and will post networking opportunities. Where the profession's best and brightest come together. Tax Summit will be coming to Melbourne. We hope to see you there. To keep up to date with TaxVibe sure to subscribe, rate and review. Wherever you listen to your podcast. You can also contact us by emailing us at taxvibe@taxinstitute.com.au, we look forward to you joining us next time.

Bonus Episode — Federal Budget 2023-24

Release date: 12 May 2023

You won't want to miss this bonus episode of TaxVibe, where you'll get a special insight into our post-Federal Budget reflections - a sneak peek behind the closed doors of our member-only webinar. 

You'll hear the highlights of key tax & superannuation measures and their commercial and practical implications. Facilitated by our own Robyn Jacobson, you'll hear from panellists Clint Harding, CTA, Partner, Arnold Bloch Liebler, Clare Mazzetti, Chair, The Tax Institute, and Marg Marshall, CTA, President, The Tax Institute.

To hear the full webinar and access other member-only insights and resources, become a member of The Tax Institute. You can learn more at our website.   

Host: Robyn Jacobson, CTA

Guests: Clint Harding, CTA, Partner, Arnold Bloch Liebler, Clare Mazzetti, Chair, The Tax Institute, and Marg Marshall, CTA, President, The Tax Institute.

Robyn Jacobson

Hello and welcome to TaxVibe, a podcast by The Tax Institute. I'm Robyn Jacobson. We love the vibe of Tax and here at The Tax Institute, we do tax differently. In this bonus episode of TaxVibe, you'll get a special insight into our post federal budget reflections, a sneak peek behind the closed doors of our member only webinar.

You'll hear the highlights of key Tax & Superannuation measures and their commercial and practical implications. You'll hear from our panelists Clint Harding, CTA partner at Arnold Bloch Liebler, Clare Mazzetti, chair at The Tax Institute, and Marg Marshall, CTA and President of The Tax Institute. You'll also hear me facilitating the discussion. To hear the full webinar and access other member and the insights and resources become a member of The Tax Institute. Head to our website to learn more. We hope you enjoy this episode of TaxVibe. 

I would like to seek your insights and your reflections on the budget that was delivered last night and it's hard to disagree with a headline appearing in the Financial Review today that talked about, as I quote, spending and taxing puts off all the hard decisions.

Clare, I'd like to start with you. What are your reactions to the budget? Did it achieve everything that you thought -we could use this opportunity for? Is there more that could be done?

 

Clare Mazzetti

Look, I. I'm surprised the opportunity wasn't taken to start a broader conversation around tax reform but if we really think about where the government is in its lifecycle, it's one year into a three year term and it probably doesn't want to expend too much political capital on what's going to be a very difficult and big and broad ranging conversation that will be needed with the electorate.

So, in some ways I'm surprised, but in others I'm not. Globally, we face significant economic challenges and headwinds, not just in Australia, but in many of our like minded countries. Interest rates have continued to rise and probably will for a little longer, even though we're probably toward the peak of the cycle. Inflation challenges are still there, so it makes sense that the government have focused on cost of living relief, particularly for those in our community that need it most and so I think, you know, you can't fault them with that but unfortunately, those measures probably will be stimulatory and reinforce the need for more interest rate hikes. And so you get caught into a bit of a hamster wheel of structural challenges that will need to be discussed and will need to be tackled. So I understand probably where they've prioritised, but maybe a lost opportunity to start talking about things of of substance so that that would be my reflection.

 

Robyn Jacobson

Clint, your observations?

 

Clint Harding

Yeah, I'm glad Clare can speak as more as an economist than I can. My take on it really as a tax nerd was that it was a pretty small target budget. A lot of the measures that were in the budget had already been announced or had already been the subject of significant consultation and so doesn't mean that they're not interesting and not important, but it means that they weren't a surprise.

So I perpetually wake up in the morning hoping that there's something that no one knew about. There's not a lot of that in there. So I definitely think there are some hard decisions to be made, whether they get put off to next year or taken to the next election cycle as is anyone's guess but certainly with what we've got in front of us to talk about today. there's lots in there but I thought it was a, as I say, a fairly low profile budget.

 

Robyn Jacobson

And Marg, there didn't seem to be too many surprises, but against the backdrop of 11 rate rises in 13 months and the inflationary impact which we will return to a few times in our discussion today, the global uncertainty. There isn't a lot of substance in the budget. It's not short on volume. There are certainly plenty of measures. But in terms of real substance, and as you say Clint, us tax nerds like to look for that substance? Has it targeted those in need? Could they have done more?

 

Marg Marshall

Look, I certainly that there's been a distinct effort on the government's part to to target the most needy in our community. Some of these cost of living measures will be well and truly, gratefully received to Clare’s point, some of them may well be inflationary of course, when whenever there's a handout that tends to be additional spending. Unfortunately, that's just the nature of who we are as people but to the point of what's in it, in terms of real meaty stuff that we can get in to improve the system, yeah, it's very light on. Yeah.

 

Robyn Jacobson

Clare, we've already hit this referred to as the high taxing and high spending budget. Is this the case? In an earlier discussions you've referred to the concept of inefficient taxing. We headed down that pathway.

 

Clare Mazzetti

Well, I think that this is part and parcel of the need for a broad ranging conversation on holistic tax reform. And, you know, obviously, the Institute is a very big proponent of that. And I know we'll pick up that conversation as we go through today's chat. But yes, I would argue it's inefficient, taxing, you know, bracket creep obviously is something that continues to raise its head, among other things and so when we think about what the community values the most in terms of government services, you know, NDIS, broad access to good quality education, a strong medical system, all those sorts of things. They are increasingly expensive services to provide but important services to provide. So unless we, you know, have conversations to help every part of our community understand, you know, what, we want to continue funding and what is the best way to be able to pay for that. Then we will get into the situation where things fall short or we can't prioritise the things that we need. So I would I would argue that until we have that conversation on structural reform, it's it's inefficient taxing.

 

Clint Harding

And Robyn, I suspect the starting point of that will be one of the things that didn't touch she said was she had tax cuts. And so they were introduced to as a sort of tip of the iceberg. Let's try and address bracket creep, which most economists and academics will acknowledges is a bad thing. But that will be if those things that need to be funded, that will possibly be the first thing on the menu that the government takes a look at in terms of what they're prepared to do. And that might start that conversation around structural reform.

 

Robyn Jacobson

So we're all well aware of the rate rises and the impact that is having financially on many households and businesses around the country. Inflation seems to have the start of its descent back to what we could describe as a more normal level, but it's still remaining stubbornly high. So for now, the cost of living pressures really remain a challenge out there.

Where does this take us? So internationally, Clare, we look at the measures that we've got in place and is it enough the rate rises and the fiscal response? Is this a responsible way of dealing with the challenges we've got at the moment?

 

Clare Mazzetti

Well, typically when you have inflation sort of running above, you know, 3 to 4%, obviously governments will increase rates to try and slow the economy down. And that's what's been happening. But unfortunately, inflation has been running well ahead of, you know, government's ability to be able to increase rates and to keep up. So while it does look like it has reached the peak globally and it is starting to to moderate when you've had big global situations like the Ukraine war, which has interrupted supply chains, food chains, these flow on effects typically take, you know, six, nine, 12 months to flow through and that's exactly what we're seeing now. So we're on the receiving end of those challenges, but inflation isn't coming down fast enough. And so governments probably will need to increase rates or reserve banks will a little more to to moderate those pressures within the economy. So it probably will remain more challenging for a little while longer. And my sense is that probably as we get toward the back half of the year, that rate cycle will have peaked but unfortunately, it probably does mean a little bit more pain ahead and potentially, you know, for the US to go into a recession toward the back half of this year, which has global implications for other economies too.

 

Robyn Jacobson

Clint, I think the one thing that did surprise me last night, the surplus forecast, you know, there has been talk over particularly the last couple of weeks about the fact that we are very likely to go into surplus. But the way it hit seemed to be the 23/24 year. And so the surprise for me last night was opening up the papers to understand that that is predicted for the 22/23 financial year but if we look at the turnaround, it's been massive. We're sitting at roughly a $37 billion deficit when the budget figures are updated last October. So that's roughly a $40 billion turnaround but given the spending measures that are in this budget, we are going to see deficits return from 23/24 and again for many years on. That's the horizon. So is it going to make it a very difficult budget next year?

 

Clint Harding

Yes, I think it will. Look, I think as a non economist I get a bit fatigued when we talk about deficits because we've had one four, call it now 14 of the last 15 years, go 2023 but I mean, what does it really mean? And governments roll them out and they become topical for a week around the release of the budget and then life tends to go back to normal until we see the size of the interest bill and next year's budget. But I think what it does mean is that they've announced a whole lot of spending programs that will carry on over the forward projections that need to be funded. How Treasury goes about modeling inflows of taxation. I mean, important to things like the Ukraine war and the impact on Australia's commodity prices, Australia’s great at digging stuff out of the earth and selling, that's what we do. That's been a seen there's I've read articles about how they take a conservative approach to price of iron ore and things like that. So your guess as good as mine as to what those numbers look like but it was surprising to find us and an immediate surplus but then being taken away over the next four estimates how far you want to go.

So I think that does make for a more difficult conversation and will potentially restrict their ability to roll out further cost of living measures or largesse in future years.

 

Robyn Jacobson

And this is not to frame spending as a negative. There are, of course, reasons and purposes and occasions where it is necessary and appropriate, particularly with the cost of living pressures, at the moment.

 

Clint Harding

I have three teenage daughters. I have that conversation quite a lot.

 

Robyn Jacobson

We're all aware of this! Marg, turning to funding, so there's always been allocations in the budget for various government agencies and certainly The Tax Institute supports the appropriate allocation of funding but do you see that we're going to have potentially more touch points with the ATO because of increased funding? I'm referring to compliance activities and taskforces and the like.

What are your thoughts on this?

 

Marg Marshall

Oh, look, like I said, we do support the regulator having funding that it needs to do the job to ensure that we have a system that's working well. What we would prefer to see, I think, is is more permanent funding as opposed to temporary funding, where there's a program that's meant to achieve a certain target of so many complying taxpayers or so much of the tax gap collected or that sort of short term response. But having said that, those sorts of programs do mean that there will be more comms coming out from the ATO, approaches about the various different things that they decide they need to look at, whether it's a GST gap or a tax deductions for work related expenses, which we've heard about in past years. So yes, I do think that we will probably be hearing more from the ATO because they've been provided with more funding and extension to the compliance program. 

So that creates more work, obviously, in an environment where we're all struggling with resources across the board, really, including the ATO, I might say, they also struggle with resources. Like while the funding's there are the people, they're not sure. So how that gets efficiently done is always a concern. So, you know, should we be thinking about funding?

And that's the proverbial sort of royal way as a community to make sure that what we're actually funding is something that's going to achieve an outcome of long term benefit rather than short term gain.

 

Robyn Jacobson

The idea of having permanent funding versus temporary funding. There are often been budget announcements where a section of funding is provided to one of the agencies, let’s call it the ATO and it is on a temporary basis. It'll be announced for two year period or hopefully in the year him and it kind of just means it's handed out in dribs and drabs and we wonder whether there might be benefits in having a proper, reliable permanent source of funding like anyone's like having a permanent full time job versus a casual job.

If you don't know when the next dollars coming in, it's difficult to plan ahead. So those agencies need to resource themselves the same way that any other organisation does.

 

Marg Marshall

That's correct. Yeah.

 

Robyn Jacobson

Thoughts on this Clare?

 

Clare Mazzetti

Look, I think that could take us into sort of a long winded conversation about, you know, efficiencies of business and what levels of resourcing and productivity and how much people can do. Look, one observation I would make in certainly in the post-COVID world, even though we're still living with COVID, is that all the businesses I have touch points with, their teams and staff are exhausted and there is a significant amount of fatigue.

There are significant resource gaps and challenges. So outside of our regulatory friends, you know, we have a lot of interaction with, that is a common problem across all businesses. And you know, as our budget pressures in being able to to attract the right people, to retain them and and to be able to keep up with needing to give pay rises because of things like cost of living.

It is a broader conversation and obviously not one that we can solve. But I think your point is very, very valid, that where there are increased compliance requirements for, you know, an increasingly complex tax system and for our ability to to serve our clients in whatever capacity, then the regulators equally need, you know, budget certainty to be able to do their compliance and enforcement work.

So it would be something, I would imagine that, you know, should be looked at.

 

Robyn Jacobson

And certainly The Tax Institute position is that we would favour funding that allows there to be the development of good law and good reliable guidance as opposed to the funding of taskforces that are there to achieve a certain revenue outcome. It leads to a better tax system overall.

 

Robyn Jacobson

Marg, SME’s, there has been quite a number of measures in the budget that deal specifically, but there seems that mindful also that over the past few years we have had quite a range of measures that have really targeted the SME market, whether we're talking under 10 million to go get a turnover or 50 mill.  So there's not a lot in it this year.

But do you think what is that hits the mark?

 

Marg Marshall

I'm not sure actually. Like, I think certainly there will be businesses out there that will be pleased to see an extension to the instant asset write off, $20,000 for another year.

 

Robyn Jacobson

I say again. 

 

Marg Marshall

Yes, yes. This is one of those things where every year we get an extension. It's like, can we just maybe think about something permanent, is the $20,000? I mean, I'm pretty sure that's at the smaller end of the market that's going to be well received. There are questions about what happens down the track. Of course.

 

Robyn Jacobson

As it is headlines, we're talking about the tradies. I kind of like this for their tools, that sort of thing.

 

Marg Marshall

Yeah, that's right. Yeah. Again, like, there's still the detail to come. Like with a is this just an extension or are we going to see some some tinkering with what's eligible and what's not? We don't know at this stage. And otherwise, the $20,000 figure seems to be popular this year. We've got the energy incentive boost. That's also that maximum of $20,000. This seems to be a measure that's partly tax, but also partly about the environment. The electrification of assets, moving away from the traditional fossil fuels to electric assets. That's going to be an interesting thing. I'm not sure really like in manufacturing. Is that really enough? I wouldn't think so. So that would be interesting to see how that goes.

Of course, we're still waiting for the previous posts that were announced to be legislated, so it'll be interesting to see how long that actually takes. Another one that I feel is more likely to be about the environment, less about taxes. The EV concessions in the FBT regime, last night's budget announced that plug in hybrid vehicles won't be eligible after 31st March 2025, so still a couple of years.

But given the timeframes that people are waiting to get their cars, if you haven't got your order in now, it might be too late. But I'm not not especially surprised, I think there was a bit of noise at the time that it should have just been 100% electric vehicles in the concession in the first place from that sector of the community.  One that many of our practitioner members will probably be pleased with is the the amnesty for failure to lodge penalties. If we've got clients and I certainly know that there are people out there who do whose 2021 tax returns haven't yet been done for various reasons. And we all know how hard practitioners worked during the pandemic and some of us did get behind in our lodgement programs as a result of having to step up and implement the stimulus measures. So it seems as though the government has heard the noise that we're behind, and we need to we need some breathing space to catch up this might just help again in an environment where we're a bit resource strapped, but at least if our clients aren't copping penalties, that might help the things they and just enable us to to catch up.

 

AD BREAK 

 

Robyn Jacobson

Superannuation, there's been a lot of talk over the last six months. This $3 Million threshold consultation has begun. I'd just like to make some observations as to what I'm seeing, particularly with the three measures that should appear in the budget. We firstly got the NALI changes so the non arm's length income and there's always been this wonderful verbal debate or audible debate as a NALI or NALE?

The non arm's length income and then an arm's length expenditure provisions. So we have seen an improvement. But the question is whether or not this two times multiple versus a five times multiple for determining what is able to be subject to the gnarly provisions and how you determine what has got to be taxed at the high rate. Does this ultimately address the concerns that have been raised by the professional associations?

And it's really not clear yet, we're yet to see the legislative changes that would be put forward. So there's certainly a commitment to improving the NALI provisions, but we really want to understand whether that's going to achieve the purpose. But I do acknowledge, and I think we should commend the fact that there's been an extensive amount of work done, both by The Tax Institute, but also with our Superannuation Technical Committee and a number of our members who are heavily involved in this space.

And I'm not talking a couple of meetings over a few months. This has been years and years of work and meetings with  the ATO and Treasury and Ministers. So to me this is a wonderful example of the benefit of the value of consultation and how this can actually lead to these sorts of outcomes where yes, we are starting to see some proposed amendments, which is great.

I'll now move to the current consultation, the $3 million threshold, and that's going to be very, very important in the final design of these measures. The Tax Institute submission is available on our website, so please feel free to have a look at that. But it's going to be interesting as this moves from what is currently a discussion paper stage into the exposure draft to phase as to what improvements we see and whether it can be more workable.

Whether you agree or not with the actual policy, there are certainly improvements that could be made to the way that it's going to function. And that brings me to the third element. So we've looked at what consultation can do with what emerges from that process. We've got the current consultation going on and we're about to embark on what would be one of the most crucial consultations we've had in years, and that is the payday super.

Now I think back many years I was involved in the single touch payroll consultation when that was first being designed by Treasury, and there was a suggestion at the time by the Government that we may well have real time payments as well as real time reporting. And there were some pilot studies done and the feedback was that no, that would not be well received, it would have a very big impact on cashflow.

And so the decision was made to just stick with real time reporting, and that's been implemented very successfully over the past few years. But when we look at a 1 July 26 proposed start date, which is deliberately some years off, this is going to be a huge amount of work that needs to be undertaken. And so the value of understanding the feedback from our members, what you see is the issues and the risks and what issues need to be brought to the attention of both the ATO and Treasury as this policies designed is absolutely crucial and the value of consultation cannot be understated.

So can I ask how you see the value of consultation? That's just a brief example of how we're seeing it in practice. We're seeing it right now, and we're going to be seeing that consultation in the months and years ahead. Clint?

 

Clint Harding

Consultation's crucial and The Tax Institute along with with other bodies have been doing outside of the obviously some of the controversial elements that are in the media at the moment. But behind the scenes, there's a lot of work being done between the professional bodies, including The Tax Institute, Treasury and the ATO to work out how what is the optimal consulting mix in terms of bringing a piece of policy from a conceptual stages through to design to exposure draft, and then what guidance goes around with that?

What goes in the end, this is what goes and ATO guidance. So there is a lot of good consultation that happens. It's very important and it continues. We had a very busy, as I said, six months on our committee with putting in submissions on some very crucial points. And we'll wait and see where that lands.

 

Robyn Jacobson

As chair of one of that national technical committees, you meet every month or so to talk to a group of committed committee members. The value that they bring to it, the importance of us tapping into all these volunteers in our member base who bring forward these issues and enable us to help prepare the submissions and provide that feedback to the agencies.

 

Clint Harding

We couldn't do it obviously without them. I mean, taxes so complicated and we’ve got a mixture of corporate members and other advisors. And between them everyone has sort of specialties and are able to contribute at different levels to conversations and that works. And I don't think there's anyone in the market that is all knowing and can answer and give meaningful feedback on every division in the Tax Act where it counts.

So you've got to be able to have a broad spread and be able to call on people who you know and a bit to give up their own time. And you invariably find yourself writing submissions and doing policy work when you're on your family holiday, which is always soul destroying. But that's what we do. That's that's what we're prepared to give up to help do that and, and a bunch of like minded people that, that and think like that.

 

Robyn Jacobson

I'd like to get a comment from each of you, Clare as our Chair and Marg as our president the value that the members bring to our ability to do the work that we do.

 

Clare Mazzetti

Yeah. Look, I echo what what Clint has said. Obviously, it's all about, you know, getting to the best outcomes and being part of the process to ensure government and our regulatory friends are best set up for success in what they do by leveraging our expertise. So I echo all of those points and I think more broadly the other point that I would make is that it gives us an opportunity to help influence and shape the political discourse, and I don't think that can be understated either.

So collaboration has a very, very important part to play in trying to tone down the political rhetoric and help governments or help key stakeholder groups progress, or to push forward really important policy changes or in tax system changes that otherwise might not, you know, get there or get there quickly enough.

 

Robyn Jacobson

Marg?

 

Marg Marshall

I think one of the beauties of our membership base is that we're a very broad church. You know, we have everyone from the corporates and the large business advisors, right through to our sole practitioners who see on a daily basis the challenges that our small businesses have and how even individual clients can have in the system. And so having the mechanisms that we have where we can seek and and obtain feedback from our membership base across the board to inform the consultations that are going on. You know, it's a fabulous resource that we have at our disposal. It's it's unique, I would suggest, in terms of of how engaged our members are in that process and I would encourage members if when you see those emails come through in TaxVine, for example, saying we're going to be doing a submission on X, Y and Z, tell us what you think.

That's a real request. We're actually asking you for your views. So I would encourage people, if you've been a bit sort of all I think we know something about this, but, you know, maybe I don't don't worry about that. Just let us know what you think. It's important.

 

Robyn Jacobson

I would add to that, Marg, that if any member is out there and thinks that all my issue is too small and I don't feel comfortable raising this, and I'm sure that they've got other members to worry about and more important issues to worry about. You'd be amazed how often a members contacted us, and it turns out that they're not the only ones.

And then we realize there's a systemic problem out there. We escalate the issue, and in some cases, yes, we can resolve it promptly. In other cases, there may be some particular challenges or roadblocks along the way that are beyond our control. But I implore all of you to come forward, talk to us of the tax policy and advocacy team, because you never know when your issue is being experienced by many other practitioners, and you may well have identified something fundamentally systemic that needs addressing within the system.

 

Marg Marshall

Absolutely right.

 

Robyn Jacobson

All right. I'd like to see this now into the tax reform discussion. That's something very dear to our hearts, something that we are very committed to. So we know that we're likely to see this returned to surplus for this current financial year, likely to return to deficit thereafter in the context of Australia's debts. And we are headed for that $1 trillion mark in the next year or so.

What does all this mean for our tax system? So Clare, I'll continue with you for the moment.

 

Clare Mazzetti

We'll look at the structural issues in the budget haven't gone away. The increasing demands for public services are not going away. And so, you know, at some point very, very soon as a community, we need to face into a very broad ranging conversations about how we're going to pay for the things that we need and how we're going to pay down the debt.

Now, the beauty of government is that they can tax and they can increase the size of the pie or they can change the mix of the pie. And and I think, you know, we are very, very well placed to continue helping that discussion because it will need to be a broad ranging discussion and it won't be easy. There are no choices that will be easy and there will be trade offs.

But those structural challenges won't go away easily or quickly, and certainly not without facing into them. And so I perhaps want to focus more optimistically that while not all of the things that we had hoped to see conversation start as occurred last night, I think we're in a really good position to be able to help drive those conversations which are needed.

 

Robyn Jacobson

Marg?

 

Marg Marshall

Look, I would echo what Clare saying. I think while whatever we continue to see a little adjustment here and a little adjustment there in budgets, we're not going to get what we really need, which is holistic structural reform. And I do wonder whether the, the political environment is such that that there's not enough courage out there just yet.

Your point earlier about them being this government is only one year into it, into their first term, and perhaps that, you know, that sussing out the landscape a bit first, I don't know, but it's really important that we're there and that we are continuing to make noise about it. It's encouraging that the community is starting to participate in that conversation, we're hearing more about it in mainstream media and hearing more about it from some peak bodies as well. So it's gaining momentum. It's inevitable in my view. We need it, the country needs it. So yeah, they just need to keep the conversation going.

 

Robyn Jacobson

I'm going to channel Scott Treatt because I know if he was here he would make this comment. Tinkering doesn't solve problems and the announcement of temporary measures does not solve permanent problems.

 

Marg Marshall

No, absolutely right.

 

Robyn Jacobson

Clint, does the community confuse tax changes tinkering, with holistic tax reform?

 

Clint Harding

Look, my concern is, is a fear of tax reform dominating the conversation when a lot of the work's being done. I mean, the challenges have been well articulated over the various processes that we've been through even in the last ten, 15 years. The Henry Review had a whole lot of recommendations that still haven't been pushed through, that are probably been back and revisited them.

But there's probably many that are still as valid today as they were back when he made them. We had the white paper process not so long ago. Those conversations have been had, or especially around some of the big picture issues, the the tax mix, as you say, the pie to grow the pie to change the composition of the pie.

It's pretty well understood where Australia gets its tax and the burden it places on segments of the community. So I just want people to understand that we're not starting fresh from all of this. There's a whole lot of knowledge we can build on that has been done. Those discussions have been had. We can pull all that together. I would have thought reasonably quickly and get to the nub of some hard decisions.

But you've got to have that political will to make those decisions. Yeah. Back to your question, which you asked. I'm not quite sure I answered. Do I think the community confuses tax change with tax reform? No, I think I think the community, the taxpayer community are smart enough to see tinkering in short term measures like one year instant asset write offs as something different to let's have a discussion about whether we broaden the base of GST or how we redistribute GST takings across states and federal governments.Do we play with negative gearing or CGT discount? I think people are smart enough to understand that there is a bigger and different conversation to scanning the paper on the morning after budget to see if someone's given you another $10 a week to put towards your rent.

 

Robyn Jacobson

In 2010 we, of course, had the Ken Henry Report and his colleagues who put together that mammoth review, and it was described at the time by many as a blueprint, that it might sit in the drawer and gather dust for a little bit. And that turned out to be particularly true that it is still a blueprint along with rethink, along with our Case for Change report or all of these, as you say, Clint, are very valuable sources from which to draw inspiration for reform.

And on one hand, we would have loved to send the government announced that it was going to progress discussions on tax reform, but it also would have been disappointing if it had been all week to announce another review. Because we don't need another review. We need action. We know what needs to be done. I'm not saying we know all the answers, but we know what the irritants and the challenges are.

We know what the possible options are. We need to navigate our way through that. Our electoral cycle is always going to be an inhibitor of that. No, it's not unexpected terms of the budget outcomes, but we do look forward to the day when politicians can have this conversation, be part of it, and have a mature dialog. We talk about courage and that seems to be really the missing ingredient at this point.

How do we inspire? How do we play a role in the community and be a true thought leader both in the profession without the professional associations with business leaders? I'm just drawing on your collective thoughts. How can we get ourselves out there and drum up this support?

 

Clint Harding

Look, I mean, the difficulty for us or for me as an adviser, I'm not placed to talk about big policy. And with a getting rid of the imputation systems, the best thing for the Australian economy, those are the bigger brains than mine to figure that out. So I see my role and certainly the role of a lot of us through The Tax Institute as being able to clearly articulate systemic issues or problems and outcomes so that at least when people are making that decision, they're aware of what the impact of that decision will bend that, I guess, is how I would sum up what our best input into sort of big policy reform will be.

 

Clare Mazzetti

And look, I think my my view on that would be for for our members and through our committees to keep doing the things that they are doing because it's used and leveraged in so many different ways. You know. You know, throughout government and the political sphere. But probably one of the things that will be of more use in coming years to the conversation we've just had that we know what needs to be done. So I guess broader consultation and collaboration with other industry groups with government like across the political divide are probably needed to help all of these different parties navigate their way through having conversations about change. That's where the difficulty will lie ahead. And so I think, again, our our expertise will will help others navigate those conversations.

 

Robyn Jacobson

And to Marg,