TaxVibe Podcast

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.

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.

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.

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. 

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.

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.

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.

Robyn Jacobson:
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 Julie Abdalla, who is the tax council at The Tax Institute. Julie is an experienced tax lawyer and emerging leader. She has practiced in the corporate tax teams of Big Four and top tier law firms in Sydney and Melbourne.

Robyn Jacobson:
Julie also gained experience across the spectrum of UK taxes while working at an international law firm in London. Julie has a strong passion for tax policy and reform, and the depth of knowledge to advocate for members. She's been recognized among her peers and throughout the profession for her leadership and excellence in tax. Julie holds a bachelor of arts and a Juris Doctor from the University of Sydney, and a master of laws from the University of Melbourne, part of which was completed at the University of Oxford. Julie, welcome once again, back to TaxVibe.

Julie Abdalla:
Thank you, Robyn. It's a pleasure to be back here on TaxVibe and in person too.

Robyn Jacobson:
Absolutely. So we are recording this episode live and in person at the Victorian Tax Forum. And to also let our listeners know that the conversation that Julie and I are going to have today is in part drawn from a session that we ran earlier today with our colleagues, Scott Treatt and Andrew Mills at the Victorian Tax Forum, and a recording of that session will be made available to all Tax Institute members.

Robyn Jacobson:
So Julie we're here today to talk about the election, it was last Saturday, and whilst the dust is still settling it's becoming very clear of certain ways the chambers are shaping up. So we're going to talk through what the House of Reps looks like and the Senate, and what this means for tax policy and for all the practitioners out there that are trying to advise clients when there is still some uncertainty in relation to some measures. So to make the point that The Tax Institute has always been apolitical and we will continue to be so, and it's important that we be able to work with any party that is in government and across all of the government agencies. But Julie, with the change in government, and we, of course, now know that Anthony Albanese has now been sworn in as the 31st prime minister of Australia. This does create new opportunities.

Julie Abdalla:
That's right, Robyn. There is an opportunity for us to develop new relationships with politicians and ministers that we haven't had relationships with before. What we have seen is that it's quite an interesting House of Reps and Senate, which we'll get into in a bit of detail shortly, but it's certainly more diverse than we've seen before, but it actually remains to be seen how things play out.

Robyn Jacobson:
And how effective it's going to be in terms of governing.

Julie Abdalla:
Absolutely.

Robyn Jacobson:
So it is yet to be determined whether the Labor Party will be able to form what's called a majority government or a minority government. So this, of course, focuses on the House of Reps, where there are 151 seats. So to have a majority government, you need to have a majority of the seats in the lower house, that would be 76 seats. Now we're following a combination of the ABCT outcome and also the Australian electoral commission.

Robyn Jacobson:
At the moment they're placing Labor on 75 seats, so we're still not sure whether they'll make it to 76, which would mean they would govern in their own right. If they remain at 75, they have certainly been assured of what is called supply and also confidence from cross benches. In other words, if a no confidence motion was put up, then the cross benches would vote against that but if they do stay put at 75 and don't get to 76, they would need the support of at least one green or one cross venture, or let me say it, one member of the liberal party or the Coalition, which is unlikely, in order to get their particular measure through. So it remains to see exactly where we land in terms of the lower house.

Robyn Jacobson:
Julie and I are also going to have a chat about the role of independence and smaller parties in terms of getting policy through and what that looks like. So let's take a slightly closer look at the lower house, as I said, Labor is sitting on 75, we know there's been a swing against, not just the Coalition, Julie, but also Labor itself. So in other words, both the major parties have had a swing against them in favor of the Greens and also the independence. So what does this mean?

Julie Abdalla:
So we've seen an increase from about six to 16 cross benches, which is interesting, I touched on there being a more diverse makeup, but it's going to be interesting to see how this actually plays out in practice in terms of developing policies and getting legislation put through, and even more so in the Senate, we will come to that shortly.

Robyn Jacobson:
So we've got increased diversity, Julie, but how workable, that is, what that looks like and how they're going to come together will be really interesting to watch, but what is more interesting is the look of the Senate. So can you talk us through where we are landing based on current count?

Julie Abdalla:
Yeah. So in the Senate, there's 76 seats and the key number is 39, so we need 39 to form a majority. Right now it's looking like the Coalition's got 31 seats, Labor has 26 and the Greens have 12. So there are still two in doubt yet to be confirmed, but if you think about Labor and the Greens, even together that only forms 38, and so they'll need at least one cross venture to get things through. The challenge here is, where you've got the Coalition 31 seats, so it's not a majority either, but there is a risk posed by the ability to block measures, and that actually creates influence in terms of the independence.

Robyn Jacobson:
We know the new treasurer is Jim Chalmers, and he's indicating that they will deliver a revised budget because of course we have the 22-23 federal budget delivered on the 29th of March by the Coalition, but with a changing government, it looks like we'll have an October budget, and that will be an opportunity to potentially reset but at least revisit policies that have been announced and hopefully get some certainty on where the new government stands on on each of those policies.

Robyn Jacobson:
Certainly in terms of the way Jim Chalmers is talking up the economic situation, don't be surprised if we see deficits that could even be larger than what have been forecast. It is often the case of either side of politics that an incoming government will say that the books are in a worse state than we thought and we also know that there may be a priority over certain spending measures to boost productivity and get the economy going again, and of course, to curb rising inflation, as opposed to the priority being to make sure that deficits are brought down, and they're going to be reasonably high in the short to medium term, at least.

Robyn Jacobson:
So moving onto, what can we expect for tax policy under a Labor government? Well, I'm going to start with personal income tax cuts and the lay of the land there. Labor has indicated that they have committed to delivering the already legislated stage three income tax cuts that are due to start on the 1st of July, 2024. And this will provide tax relief for more than 9 million Australians earning over $45,000 a year. Now, Julie, it remains to be seen whether in fact that already legislated series of tax cuts does proceed, or whether in fact, given dynamic environment and anything can change between now and then, whether in fact, we do see that come to fruition, so it will be interesting to watch.

Julie Abdalla:
That's right, it might not necessarily be the best policy to stick to what has been announced when things are changing so quickly. If the government's getting advice from treasury external economists, that this is going to exacerbate a problem, then it may actually be prudent to step away from it and consider other measures that might be more suitable in changing economic climate.

Robyn Jacobson:
Still on the personal tax front, Labor government has also committed to supporting the increase in the low and middle income tax offset. So in the budget, this was called the cost of living tax offset, but it's actually just an increase in the LMITO by $420 for 21-22. Now that is expected to conclude after the end of this financial year, you'll still be claiming it or of course the ATO will be processing it through 22 tax returns but it won't apply beyond June 30 this year. So I also wonder whether that's a policy that Labor would question or revisit its effective removal is going to result in a tax increase for millions of Australians who for four years now have become very accustomed to seeing that being built into their tax liability as a reduction thereof.

Robyn Jacobson:
Julie, on the main tax policies and platforms that were put forward by Labor. There really wasn't much that they spoke of, and maybe that's a result of the policies they put forward in 2019 that they didn't want to revisit necessarily in this election campaign. But there was certainly talk about their intention to target multinationals and whether there is any more revenue that if you like, or lemon juice that could be squeezed out of that lemon, what are your thoughts on this?

Julie Abdalla:
That's right. So we know that both major parties declined to put any sort of holistic or significant tax reform on the table, but multinationals did get quite a bit of attention from the incoming government and in a few different measures they've looked to target the way that multinationals could avoid their tax obligations. So one way the government is looking to target this is by supporting the adoption of the OECD/G20 Inclusive Framework on BEPS 2.0 proposals, including global minimum tax rate or 15%, and other ways, a proposed modification of the thin cap rules, to reduce a safe harbor, to a cap of 30% of EBITDA, which is earnings before interest tax depreciation and amortization, and that's really to limit debt related deductions by multinationals.

Julie Abdalla:
We would still be maintaining the arms length test and the worldwide gearing ratio, which allow a taxpayer to justify a higher interest deduction than the safe harbor. I won't get too much into the detail, as Robyn mentioned earlier, we did speak about these measures at length in the earlier session today, but this is really consistent with the OECDs recommendations from the 2015 BEBS action for limitation on interest reductions report, and it would be not inconsistent with what other countries have implemented, where they've taken on board these recommendations.

Julie Abdalla:
Another measure is about treaty shopping, and it's really trying to target royalty payments where they're made to a jurisdiction with a favorable tax system, but that only applies to quite a limited group of significant global entities. Finally, there were measures that were announced in relation to transparency, which relate to country by country reporting data being made public, a potential beneficial ownership registry, as well as exposure to tax havens and dealings with tax havens, and finally, in relation to government tenders.

Robyn Jacobson:
Julie, how does this align or otherwise with the Greens position, because they've also talked about targeting multinationals and certain multi-individuals. So how does that align?

Julie Abdalla:
That's right. So the Greens have looked to put forward policies, which target essentially rich companies and rich individuals. So there is a proposed billionaires tax, and also a 40% super profits tax on large corporations, which has actually got a lower threshold than the significant global entity concept.

Julie Abdalla:
Given the policies announced by the Greens in relation to multinationals and wealthy individuals, it'll be easier for Labor to garner some support from them in terms of its policies in relation to multinationals, but there is always the question of what the Greens will be getting in return in making those alliances.

Robyn Jacobson:
And this billionaires tax, Julie, where is it going to kick in or what's the rate that would be applied?

Julie Abdalla:
It's a rate of 6% and I think initially it was targeting about 110 billionaires, although it's looking now to be about 122 or so. It would be a tax of about 60 million per year, assuming each of them had a billion each, but obviously that's just the minimum, that's just the starting point.

Robyn Jacobson:
So if you are worth 10 billion dollars, it would be 600 million?

Julie Abdalla:
600 million dollars, that's right. Which seems astronomical, but I suppose relative to a billion, that's another story.

Robyn Jacobson:
All right, so another policy that the Labor party has been putting forward during the election campaign is what's called their electric car discount. Now, it's interesting when we look at climate policies, and of course there's been a huge push through particularly the independence about ensuring that there are better policies that target climate change and environmental impact. So this one is designed to encourage greater use of electric vehicles, and the way this would work is that the government would remove or exempt from the 5% import tariff and from FBT, electric vehicles that cost less than the fuel efficient luxury car tax threshold, and that's sitting just below $80,000 for this income year.

Robyn Jacobson:
So if you buy a 70 or $75,000 electric car, then under this policy there would be no FBT and no 5% import tariff. It's not just a case of eliminating the tariff and FBT on this, which immediately you would think would favor businesses and employers, but as an employee, anyone who can access exempt benefits through salary packaging is going to benefit as well. So it certainly would involve a rethink of what benefits could be packaged up and this would be another one you could add to that collection, where employees who would like to drive a fuel efficient car and be able to do so tax effectively through salary packaging may also benefit from this policy so we need to see a bit of detail around that one. While we're still on the idea of transport, Julie, the reduction in the fuel excise.

Julie Abdalla:
Well, that's only a temporary measure, that's due to come to an end on the 28th of September. So it will be interesting to see what happens then, but actually, if you think about it now, the price of petrol is creeping up quite quickly, and it's almost back to where it was even with the fuel excised reduction.

Robyn Jacobson:
I filled up on the weekend and it was $2.25 a liter. Goodness, if that had the additional 22.1 cents reduction not built in, it would be a $2,50.

Julie Abdalla:
It does come back to that bigger challenge of the cost of living on the impact of inflation as well.

Robyn Jacobson:
And if you look at the inflationary impact, we know the reserve bank is forecasting a peak in inflation, which of course recently hit the headlines at 5.1% for the 12 months to March, could well peak at 6%, by the end of the year. Now, the timing of this increase in the fuel excise when the temporary reduction ceases, would mean an automatic increase of 22 cents after the 28th of September. So firstly, you're going to have an inflationary impact, which we know has already contributed to the inflationary figures at 5.1%. So what would it do to take it even further towards six or beyond?

Robyn Jacobson:
And secondly, when you've got the price of fuel being advertised every few kilometers, driving around the suburbs, it's a very visible reminder of the cost of living, and when not just fuel for cars is going up, but transportation generally. So if you think about all the deliveries of goods and services, and how that impacts ultimately what hits our supermarket shelves and the prices there, it's going to be really interesting to watch this politically play out as well as from an inflationary perspective.

Robyn Jacobson:
So Julie let's return to a closer look at the independence who now make up what looks like to be 16 seats in a long house, we've never seen this many, previously six and now we're looking at 16. We know that the media has focused on primarily three aspects to their collective platforms. Most of the independence and many of them indeed are women, have been looking at policies that focus on climate change, greater equality for women and establishing a federal integrity commission, and certainly on that last one, it looks as though that may well be progressed in the next three to six months so this calendar year. But that was the media focus, if we actually peel back some layers and dig a bit deeper, what else have the independence been looking at and does any of it relate to what we would love to see on the agenda tax reform?

Julie Abdalla:
Yes, actually. So if you dig a bit deeper, you'll see that quite a few of the independents have a strong interest in RND, innovation and supporting small businesses. And indeed two of the new independence, Kate Chaney for Curtin and Allegra Spender for Wentworth, have both come out and made comments about the need for tax reform and to revisit our system.

Robyn Jacobson:
And indeed Allegra Spender has suggested a formal tax review to be concluded or reporting back by September of 2023. Now it's music to our ears, but perhaps too ambitious?

Julie Abdalla:
It could be challenging with everything else going on at the moment. It could be challenging to get that through in the timeframe she suggested, but it's really great to see them putting tax reform on the agenda and prioritizing that. And then if you think about the independence, you made a comment earlier that really the sum of their paths worth more. Together they can have such significant influence in the way government operates, they'll be making noise in public and bringing attention and drawing light to these issues, which is great.

Julie Abdalla:
And we talked about earlier the opportunity to build new relationships with different ministers and politicians, and certainly with the independence, that's what The Tax Institute will be looking to do.

Robyn Jacobson:
So regardless of the lower house, it's certainly looking like Labor would need all of the Greens and at least one independent to be able to get anything through. So there may be opportunities for an independent to say, "Well, yes, I'm happy to give you my vote on X, as long as you can provide Y." And that does create enormous opportunities. So yeah, that's why I say potentially the sum of the parts is greater than the whole, that individually there might be just one vote, but they may collectively be able to have a much greater voice in the parliament.

Robyn Jacobson:
Julie, what is The Tax Institute doing in terms of activities? And now that we effectively know the election outcome, what happens from here and what are our top priorities?

Julie Abdalla:
The team has been working hard on is preparing an incoming government brief, which will be provided to the new treasurer, Jim Chalmers. And that's drawn from our state of tax policy report, which many members will recall, we recently put out a federal budget, election special edition, and this incoming government brief will set out what we think are the priorities in terms of announce, but unenacted measures from a tax perspective, that we think should be at the forefront.

Robyn Jacobson:
So can you provide some examples of what we are considering are some of those key priorities?

Julie Abdalla:
Yeah. So one of the first that I would suggest is the corporate tax residency changes, we're a few years into it now, and we haven't seen draft legislation yet. So as many listeners would know, there was an announcement in the 2021, 2022 federal budget, which proposed technical amendments to the corporate residency test. And this follows on from the decision in, by water and the board of tax review. And essentially the law is proposed to be amended to provide that a company that's incorporated offshore will be treated as Australian tax resident if it has a significant economic connection to Australia. That of course will be where it's the company's central management and control is in Australia and its core commercial activities are also undertaken in Australia.

Robyn Jacobson:
So to be clear, Julie, we're only talking about companies that are not incorporated in Australia, because if they're incorporated here, they're automatically a tax resident?

Julie Abdalla:
That's right. So public consultation, as I said, hasn't occurred yet, but treasurer will need to consult on a workable definition of core commercial activities to give taxpayer certainty in this regard. One other measure that I would like to mention as a priority is the patent box regime. So the original measure related to medical and biotechnology innovations, although that bill has since lapsed, there was a subsequent announcement which expanded the patent box regime to agricultural businesses and low emissions technology innovations, although that has not yet been introduced. So we would like to see the original measure reintroduced and the expanded version introduced into legislation.

Robyn Jacobson:
So have to pick up the original measure plus the additional one and both effectively, still in limbo.

Julie Abdalla:
That's right, yeah.

Robyn Jacobson:
Now, another measure that has been of interest to a number of practitioners is what is known as NALI, this is non-arm's length income. So this is where you have a superannuation fund that has incurred a non-arms length expense, and that can effectively taint or change the tax character of income derived by the fund where it's taxed at the top rate, rather than the 15% concessional rate. Now, around April the former minister for superannuation, Senator Jane Hume advised that they would amend the law, they would consider looking at what was necessary to make the provision work as intended.

Robyn Jacobson:
Now, given that she's no longer the minister for superannuation. And of course, we're still waiting to see who is going to be sworn in as that relevant minister, but certainly The Tax Institute will continue to engage, and has been with both the now opposition and the now new government so that we can ensure that tax law works as they're supposed to. And this isn't just about self-managed funds with a small property that's not being treated concessionally, this can affect really big funds as well and unintentionally so. So we hope that we can get some resolution and some legislative clarity on that one very soon.

Robyn Jacobson:
Probably the biggest measure that is of interest to the small business sector at the moment is the small business boost. In fact, there are two of them, the small business skills and training boost and the small business investment in digital technology boost was announced in this year's budget. And this provides an additional or a bonus 20% deduction for eligible expenditure where the entity has an aggregated turnover of less than 50 million. Now, the skills and training boost started on budget night, 29th of March this year, and will end on the 30th of June, 2024, whereas the investment in digital technology boost, while also starting on budget night this year, will end on June 30, 2023, a year earlier.

Robyn Jacobson:
The problem is, Julie, that these two measures did not make their way into parliament before it was prorode back in March following the budget. So neither of these booths are law and we yet to understand exactly where Labor sits on both of these. I'd like to think that they would support them and that this will be a fairly swift passage of legislation but until parliament resumes, and we're unclear whether that will be at the end of June or perhaps not until the 9th of August, and whether or not in fact, we could be waiting until October in this so-called budget that's going to be handed down, to gain some certainty around this, but it makes it very difficult for advisors in the meantime.

Julie Abdalla:
That's right. The difficulty is with these kinds of measures they're designed to incentivize spending on these kind of categories. The difficulty with these kind of measures is that they're designed to incentivize spending, but the challenge is, where they're not legislated businesses don't have enough certainty, and this is the challenge for the businesses and their advisors. It's not law yet and so it's not clear whether it will be legislated, whether it will be legislated in the form that it was announced, we just don't know. So it's hard to encourage that spending to take place now.

Robyn Jacobson:
That said, Julie, remember that these measures while starting budget night, we're never going to permit the boost to be claimed in the 22 tax return. So whilst you may have eligible expenditure now, assuming this does become more, the first time you would actually claim this would be through the 23 and 24 tax returns. And to go a step further, I'm expecting to see that your basic expenditure, let's call it the base amount, so let's say spend a hundred dollars that would still be deductible in the year you've incurred or spent it, but the boost component would not be claimable until the 23 and or the 24 tax return, depending on which particular boost you're looking at. So I just want to assure our listeners that it's not as if this is going to impact on the preparation of 22 tax returns, because we're about to go into that compliance season.

Julie Abdalla:
No, that's right, and there might need to be some new labels on the tax returns to be able to distinguish between the different categories.

Robyn Jacobson:
The other elephant in the corner of the room, and I call it an elephant because I know there's been a lot of talk in recent months about Division 7A and Section 100A, and whether there would be any legislative reform or push for legislative change. So let me take each of these in turn. The Division 7A legislative reforms... Look, Julie, we've hit 10 years, it was 2012 when the then Labor government commissioned a review by the board of taxation, and it was 2016 when the Coalition government said that they would amend the law. We've not seen those changes beyond a discussion paper released back in 2018, nothing since. So we know we've got a draft position from the commissioner to do with unpaid present entitlements, but that doesn't address the other aspects that were proposed in the discussion paper to reform Division 7A more generally.

Robyn Jacobson:
So we've got to be careful what we wish for as a profession, and while many would still like to see legislative reform and there were some good measures proposed, there were others that greatly concerned the profession. There's no mention, as far as we're aware that this is a priority for the government, certainly there's been no mention of legislative change since the measures were last deferred at the end of 2020, to start on the first one, July following enable in legislation being enacted and goodness knows when that's going to be. On Section 100A, this is not the time or the place to get into a big discussion on all the draft guidance issued by the commissioner, and we've had other discussions on that separately and I refer you to a previous podcast where I spoke with Jonathan Ortner about these issues.

Robyn Jacobson:
But there's certainly been a push by the profession to remove the unlimited amendment period that applies when 100A assessments are raised, and I just think this is something that the government should think about. If you look to the late seventies, when the provision was introduced, it was amidst the bottom of the Harbor schemes and trust stripping schemes and arrangements, and maybe there was an argument for it being unlimited, particularly in those days where access to information is not what it is today. But if you consider the fraud innovation provisions that are unlimited versus Part 4A which is only a four year amendment period, is it still appropriate that 100A is an unlimited amendment period?

Robyn Jacobson:
So we know both the former assistant treasurer, Michael Sukkar and his counterpart at the time, the shadow assistant treasurer, Steven Jones, undertook that they would be prepared to look at the legislation if legislative change is warranted. That it would be interesting too, to see whether an administrative approach can be the most suitable pathway to handle this rather than amending the law. So all of this still to play out but it's a really interesting period in terms of guidance from the ATO, potential policy changes at a treasury and in parliamentary level, and in the meantime you've got all the practitioners who are just trying to carry on and advise their clients.

Robyn Jacobson:
So in terms of where we go to from here, The Tax Institute will continue to engage with the incoming Labor government and the independence and the minor parties in relation to tax policy and continue to push, as far as our commitment is concerned, to genuine and holistic tax reform, there was talk from one of the independence Kate Chaney, and this is the new member for Curtin in WA, about a tax system that is future fit. It's a great expression, and we often talk about whether the tax system is sustainable or able to encourage growth and productivity and investment in businesses, et cetera, but I think that all boils down to it being future fit and we need a system that can carry us through the decades ahead.

Julie Abdalla:
While major tax reform wasn't on the agenda this election, there is hope for the next election, and it's really something that we need to make a mom and dad issue. Tax effects everybody directly and indirectly and we have a role to play in educating government on its impacts and on the importance of tax reform.

Robyn Jacobson:
Julie, I think we've covered so much ground today, but there is so much more we could say about the election. Look, more to discuss in the future, and I'm sure you'll be invited back onto TaxVibe, after the budget, and we can have another chat and break down what all this looks like with a bit more information from the government.

Julie Abdalla:
I look forward to joining you again, thank you for having me.

Robyn Jacobson:
Thanks, Julie. Thank you for listening to this episode of TaxVibe. I've been chatting with Julie Abdalla, FTI tax council at The Tax Institution. 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 on social media, follow The Tax Institute on LinkedIn, Facebook, Instagram, and Twitter. You can join the conversation on our member only community forum at community.taxinstitute.com.au. Not a member of The Tax Institute? Join a collective voice of 15,000 practitioners at the heart of the profession and find out what the best tax professionals have in common. For more information, visit tax institute.com.au/membership, you can also contact us by emailing tax vibe@taxinstitute.com.au. We look forward to you joining us next time.

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.

Robyn Jacobson:
I'm joined by Tracey Dunn. Tracey is an associate director in the tax services division of RSM in Perth, and has worked in public practice for over 20 years. Prior to commencing a career in public practice, Tracey worked in commerce in various roles, including banking, logistics management, and international trade. She has significant experience in advising on the application of fringe benefits tax, division 7A and trusts, and regularly presents on taxation topics.

Robyn Jacobson:
Tracey writes extensively on the interpretation of tax legislation for businesses and has been published in a number of publications, including the Australian Financial Review, ABC News, Accountants Daily, Public Accountant Magazine, and Thompson Reuters Weekly Tax Bulletin. Tracey has a bachelor of business accounting, a graduate certificate in commercial law, and a bachelor of laws. I recently saw Tracey in person at our WA Tax Forum in Perth, as she presented on the world of digital assets, Are you ready? Her practical explanations prompted me to invite her to be a guest on TaxVibe. So Tracey, a very well welcome to you.

Tracey Dunn:
Thank you so much for extending the invitation to talk with you on TaxVibe.

Robyn Jacobson:
Pleasure. Look, I've known you for some years now, but when I saw this topic being presented, and it's so topical at the moment, there'd be few accountants in the country that aren't seeing some form of crypto come across their desk. I thought it really is a good opportunity to unpack this and understand it and peel back the layers for people who don't understand cryptocurrency, digital assets, blockchain, and these extraordinary new things called NFTs. So from the original use of blockchain, which, of course, was what launched Bitcoin, and gave it the underlying framework, and we've had this massive avalanche of cryptocurrencies emerging all over the world. And we've now got these NFTs, non-fungible tokens. And I know you got to explain this to us in more detail.

Robyn Jacobson:
We know that these continue to flood the market at an exponential rate. They're incredibly volatile. And I also think back to the way you were describing these in your session, the incomprehensible meets the incomprehensible, being tax law and crypto. And I think that's a great way to describe these two. So I thought we could kick off just by unpacking some of the key terminology that you and I are going to be referring to, because if we get too far into this by using terminology that isn't understood, we're going to lose them straight away. So what is blockchain? What is Bitcoin? What is cryptocurrency? And what are NFTs?

Tracey Dunn:
Okay. So Robyn, I think your analogy about peeling back the layers, blockchain and cryptocurrency in digital assets, you need to approach like an onion and actually peel back each of the layers to work out what it is. So, one of the things that I talked about in my session that you were at was the language. So the distinct language that is used around digital assets, that is quite confusing. It's unique. It's a lot of jargon. So we have blockchain, we have Bitcoin, we have cryptocurrency, and then we have O-coins, and we have stablecoins and we have staking and mining and gas fees and people get overwhelmed and go, well, I'll just switch off. But realistically, if we break things down, we can identify, or we can relate to these digital asset concepts to the everyday concepts that we see with clients who have shares or general banking transactions.

Tracey Dunn:
So blockchain, to try and simplify blockchain, it's distributed ledger technology, which in itself sounds confusing, basically means that the information is stored on multiple computers called nodes, which exist in multiple jurisdictions. And the information exists at the same point in time on every single one of those computers that happens to be on the network. And that's the beauty of blockchain, is that when a transaction occurs on blockchain, the information is gathered together by the nodes and they compete to solve these mathematical equations. So think of it as a game, or a competition to see who wins first, because there is a monetary reward for them if they solve the puzzle first. And when it's solved, that solved puzzle is broadcast to the entire network. So it exists everywhere, which creates jurisdictional issues for those that are using blockchain technology. But we'll set that aside. So basically peer to peer network. So I can transact with you, although I might not know that I'm transacting with you. And the information that relates to our transaction could exist in multiple nodes around the network. But once that information exists, it can't be changed.

Robyn Jacobson:
So in a very crude form, if I could use the analogy of a word document that we have up on, say Office 365, and you and I both have it open, and I make a change to it and it's permanently in markup. So you see my change and I can't undo my change, but we both agree the change is made and the change can only be made if you and I both agree to it?

Tracey Dunn:
Essentially. And if we were entered into a dispute down the track, or somebody wanted to dispute what happened in that very first version, we've got this single source of truth. That information can't be changed. So we could go back to that original transaction and whatever existed at that time will still be there.

Robyn Jacobson:
So whilst this technology underpinned the introduction of the ability for Bitcoin to evolve and all the other cryptocurrencies, it has enormous commercial potential for, I'm thinking of property and insurance and health records and passenger movements and all the dealings we have right across industry.

Tracey Dunn:
Absolutely. And personally, I see where that is where the future is. There's lots of interesting things happening now, but in the future that even using government. So with protecting tax file numbers and unique information that relates to a person's identity, if it's stored in blockchain and can't be changed, then it reduces the risk of identity fraud. So there's some real exciting things that could happen in that space, or that the technology can be used for, as it continues to develop.

Robyn Jacobson:
When you think about people who put forward academic qualifications, or university qualifications, to say that they have a doctorate, or they have a particular interest, or skill in some place, and you've always had to go back and verify that with the issuer of that qualification, with that institution, with blockchain, you would just know that to be true.

Tracey Dunn:
Yeah, absolutely. And that's what is really exciting about it. And you think from a perspective of, you mentioned property. So property records, we went through a period of time where there was fraud where people were claiming to be the owner of property. The actual owner might be overseas. Somebody was able to come in and pretend to be the owner, sell the property. The original owner actually comes back and finds that their property's been sold and there's nothing that they can do about it. So if you have records that are recorded on blockchain, then it makes it far more difficult for people to engage in that kind of fraudulent activity, which I think is really exciting.

Robyn Jacobson:
And I want to, of course, get us back to our core topic today, being crypto and NFTs. But from the perspective of the accounting profession, I think it really raises interesting questions about the future of the auditors, because I can see them in the future transitioning to becoming experts in all of this, where they're no longer verifying records, because the records are known to be true, but they become experts in helping to administer these sorts of systems.

Tracey Dunn:
Definitely. I think that this is a game changer for the industry. And one of the really important things, if we go back to the fundamentals is that we are now in a situation where at least one in four Australians, they either have crypto, or they have had crypto, and those numbers are going to continue to increase. So for agents, that means one in four of your clients will have a crypto transaction. So unless you build your skills and you understand the technology and the tax issues that impact on the use of that technology, you could find that you can't actually service your client base.

Robyn Jacobson:
So let's move into what is Bitcoin and cryptocurrency, and how is it different from blockchain?

Tracey Dunn:
So blockchain is that technology that underpins cryptocurrency. So blockchain was the technology that the original developers introduced to be the foundation for Bitcoin. In 2014, we had Ethereum come into the market. And Ethereum was really exciting because not only was Ethereum an alternative form of cryptocurrency, it was a platform that also allowed advanced applications to run on top of the Ethereum platform. So this is where the exciting things for more exciting developments come in, where we've got NFTs, non-fungible tokens, we've got decentralized autonomous organizations, we've got smart contracts, we've got all of these other exciting things and these amazing minds out there in the world that are creating things that faster than we can keep up with.

Robyn Jacobson:
Two questions come to mind immediately on this, Tracey, the first is, can you explain why they're so volatile? And secondly, how can anyone trust what's real? It's all virtual and intangible anyway, but how do we know what's real and what's a scam?

Tracey Dunn:
Well, that's a really good question, Robyn, and I'm not sure that I can answer it, because it's not regulated. There's no regulation in Australia, and there's no consistent regulations throughout the world. We have jurisdictions globally that they realize the potential of blockchain and the risks that are involved, and all of these different jurisdictions are working towards bringing in their own rules and regulations around cryptocurrency, because one of those real risks is scams, and the market is extremely volatile. So I'm sure we'll discuss this later, but cryptocurrency currently isn't recognized as a currency. So it's not something that generally people will transact with. But if I was to transact with you in cryptocurrency, there's still value there, because if you wanted the cryptocurrency that I had, it's value is in what you are prepared to pay for it. So it's an unregulated market. The value is in what another person wants to exchange at the time. And it's very volatile.

Robyn Jacobson:
And if we think about property, if I'm going to engage an agent to sell my property for me to you, the buyer, the agent has to be registered and hold a real estate license. If I'm going to engage a broker, or a financial advisor to assist me to move in or out of the share market, that person needs to hold an Australian financial services license, but in the world of crypto, none of that exists.

Tracey Dunn:
No, there are some rules. So if you are going to issue cryptocurrency in Australia, then you are required to have an AFSL. If you operate a digital exchange in Australia and you are going to advise or transact or offer a platform to exchange cryptocurrency and digital assets in Australia, then you may be required to have an AFSL, but it's unregulated. And there is nothing preventing you from transacting on a platform that exists in another jurisdiction. So you just google cryptocurrency, or download an app onto your phone, and nobody is required to give you advice. So there's very few barriers to people actually buying, selling, exchanging in cryptocurrency. And there's a real lack of information for consumers and investors.

Robyn Jacobson:
This volatility, we've all seen the prices skyrocket and then plummet almost to the same extent, and then they skyrocket again. We've heard of people that have made extraordinary wealth out of particularly low entry points. So they happened to enter when the market was right down, or they'd held it since the very early days and their wealth has just blossomed out of this. So we are starting to hear stories now of people that are experiencing those extreme highs and lows, much more volatile than the Australian share market. And I also think of the stories we've heard about people that have lost their digital passwords. And there was a report out of the UK where a fellow had lost his digital password. It was on the hard disc of a computer, which he threw out. It was years old. And he had long forgotten that the password was sitting on that computer.

Robyn Jacobson:
It ended up in landfill, his local tip. And for quite some time, I think he was ultimately unsuccessful, was trying to get court orders to order the tip to allow him to basically dig this entire physical area up so that he could try and retrieve this computer. Because of course, in the meantime, his wealth had astronomically blossomed. So we are going to continue to hear stories like this.

Tracey Dunn:
Absolutely. And that is a real risk. I think that there's a lot of people that aren't aware of that. So you keep your cryptocurrency, you can keep it on a hard wallet or a soft wallet. So your soft wallet might be an app on your phone. A hard wallet might look like a credit card, or there's lots of different providers. I have one that looks like a USB. And if I put that in my bag, I would probably never find it again. And when you use a wallet, this is one of the really interesting things, is that not only do you have your password or your pin to get into your wallet, and if you put your cryptocurrency on your wallet, that's where it's stored.

Tracey Dunn:
And if you set up an account on a wallet, it will give you multiple warnings saying, you must ensure you retain your password and your seed phrase in a secure spot where you know where to find it, because if you lose it and you don't have access to either your password or your seed phrase, you will lose everything that's on your wallet. It will not be able to be recovered. And a seed phrase, so you have your initial password and then you have your seed phrase, which is your backup. So if you forget your password, you can use your seed phrase. Well, a seed phrase is, I have one that's 12 words in sequence. So it gives you 12 words in sequence that you have to write down. And then it shows you on the screen, you have to verify in order each of those words, and you have to keep that little piece of paper somewhere safe.

Robyn Jacobson:
So this isn't okay. So popping down to your local bank branch, if you happen to forget your account number and saying, can I have access to my funds, please?

Tracey Dunn:
No. So if you lose it, or the dog eats it, or your house burns down, it's gone.

Robyn Jacobson:
So you want to have secure storage and backups in multiple places, but obviously very secure.

Tracey Dunn:
Absolutely.

Robyn Jacobson:
So let's move now to the legal and the regulatory framework around this. You've explained, at least within the Australian exchanges, you need to have an Australian financial services license to advise on these types of assets, or to run the exchanges themselves, but that doesn't extend to overseas exchanges. And that wouldn't apply if you and I are dealing privately with each other outside someone who is providing advice to us. So in terms of the protection for consumers, there's an old adage, it looks too good to be true. Is this one of those cases?

Tracey Dunn:
Pretty much. In very simple terms, yes. There's a huge amount of risk involved. So if people are not getting advice, there are limited protections unless the Australian consumer law applies as this being, say misleading a deceptive conduct, but for your average consumer, how are they going to be able to... There'll be challenges in actually bringing an action under the Australian consumer law, especially if they can't even identify who they're transacting with.

Robyn Jacobson:
We'll get onto the ATO properly in a moment, but we've also had many stories and reports about ATO concerns around self-manage superannuation funds, holding crypto or holding too high proportion of their assets in crypto. What are your thoughts around that?

Tracey Dunn:
I think that would be a question that I would throw for a financial advisor as to who was advising the self-managed super fund trustee. Now, I believe I don't work with self-managed super funds, but I believe that there are now caps on the percentage of assets, a self-managed super fund can hold in cryptocurrency, which is, for me personally, just from my own personal perspective, I think that having caps is a good thing because this is somebody's retirement and the crypto markets are so volatile. Now I play around with crypto, just for my own personal fun and knowledge. I have some crypto, not much, it's dropped 10% in the last two days. So, when you're talking about your retirement, to have that kind of volatility, and some of the crypto I've seen drop 40% in the space of two weeks.

Robyn Jacobson:
And yet if the share market did that, and it has done that at times through the GFC and the pandemic and so on, that would be front page headlines.

Tracey Dunn:
Absolutely.

Robyn Jacobson:
Okay. We're also seeing quite an increased use commercially. So when it first came on the market, there were people who were mining it. So these are the people who were solving the mathematical puzzles and basically creating these solutions, which became the Bitcoin. And then we had people who were trading in it and buying it and selling it, or people who were holding it for investment. But we're now seeing, you can buy things with it. You can pay for professional services, you can buy property, and we certainly, you can buy cars with it because we've seen that in one of the particular car manufacturers. So increasingly this is starting to become much more commonplace.

Tracey Dunn:
Absolutely, it is quite mainstream now. And I expect that it will continue to. There's a lot of businesses and organizations that realize that people have cryptocurrency and want to be able to transact in cryptocurrency. So they're providing that as a option.

Robyn Jacobson:
What the market wants, the market responds to.

Tracey Dunn:
Yeah. And there's no regulations preventing them from doing so.

Robyn Jacobson:
So let's talk about the ATO. They've put out some guidance, and that's been in the form of some taxation determinations, as well as informal web guidance. And back in 2014, they did issue four determinations, basically setting out their views on what they thought of Bitcoin and similar cryptocurrencies and digital assets. In terms of where the ATO sits on this, and also whether or not we can treat this as currency, is we know that many people would like to think of it as a form of currency, but what is it from a taxation perspective? Is it money or is it more akin to shares like a CGT asset?

Tracey Dunn:
So the ATO take the view that it is a CGT asset. And I would agree with that view. Essentially cryptocurrency is property. And whilst there hasn't been any judicial guidance in Australia on that question, there has been now I believe around four cases in international jurisdictions, the UK, Singapore, the New Zealand that have all landed at the same spot that cryptocurrency is property. So therefore if it's property, CGT asset not a currency. And if you look at an AAT case in 2020, Seribu Pty Ltd and the commissioner of taxation, that case dealt with the question of whether or not cryptocurrency was foreign currency. And the AAT, and whilst it's only an administrative appeals tribunal decision, held that it was not foreign currency. It was a CTT asset.

Robyn Jacobson:
In the ATO's original reasoning, one of the things they set out was it couldn't be a form of currency because there are only two forms of currency. We've either got Australian local currency, or we have foreign currency. And it can't be Australian currency because our official currency is the Australian dollar. And for it to be a foreign currency, it would need to be recognized as the country's currency, or a form of currency by a sovereign state. And back in 2014, there was no country in the world that was recognizing Bitcoin, or any other cryptocurrency as a form of currency for that sovereign state. Now in September, of 2021, El Salvador became the first country in the world, and I'm not sure that there are too many others that have joined them since, to recognize Bitcoin as a currency. And just looking at some media reports on this, they've spent hundreds of millions of dollars rolling out Bitcoin ATMs.

Robyn Jacobson:
You think of walking down the street and arranging money to be transferred through an ATM on the wall. They've bought Bitcoin at a government level on the basis that it's going to increase. And they're looking at rolling this out across their community and amongst their traders who have to get on board. And it is something that the ATO I imagine will need to consider as part of this, that as countries do start to recognize it, does that change the ATO's position, which is currently that it is not foreign currency, and it's certainly not Australian currency. Now, I don't know that the ATO position's going to change in a hurry and that's, of course, for them to set out any views on that, but it raises very interesting questions if more and more countries do get on board.

Tracey Dunn:
It certainly does. And I did hear quite a bit of chatter around that issue when El Salvador did make the decision to have Bitcoin as a currency, but there hasn't really been any discussion that I've seen that's substantive since then. And there's been nothing from the ATO. And when I look at what's happening on an international basis, the larger countries are still looking at cryptocurrency as a form of property. They're not recognizing it as a form of currency. I suspect that we won't have any clear position on that until either the ATO provides formal guidance, or somebody challenges it in a court.

Robyn Jacobson:
And it's not as though we've got dozens of OCD countries jumping on board, saying we are doing the same as El Salvador. They seem to be taking a quite cautionary approach as well.

Tracey Dunn:
Absolutely. I have not seen any other country that has made a declaration that cryptocurrency is foreign currency under their legislation.

Robyn Jacobson:
So let's now turn to the tax treatment. If I go out and I buy some Bitcoin today and I hold it for a period of time, it goes up in value. And then I sell it because I either want to exchange it for another form of cryptocurrency, or because I want to cash it out and buy something with it. What's my tax position?

Tracey Dunn:
Well, generally, and this is one of these circumstances that we need to peel back the layers. We need to have a look at how did you acquire that cryptocurrency and what was your intent? So if your intent was to hold the currency, to exchange it in the future for something of value and, or to hold it with the intent that it would increase in value, so you could eventually exchange it, then it's more than likely of, I'll just say it is a CGT asset. And the implications for you is that you will have a accessible capital gain on the disposal.

Tracey Dunn:
So it will be like any other CGT asset. And you'll have a look at, do I have a CGT asset? Yes, it's been disposed of, is the disposal value less than the cost base? Yes. I've made an accessible capital gain. Do I have any capital losses that I can offset? How long have I held it for? Have I held that CGT asset for longer than 12 months? Because if it's a CGT asset, if you've held it for longer than 12 months, and it's on an investment account, capital account, then you're going to be eligible for your 50% CGT discount.

Robyn Jacobson:
The personal use asset is an interesting one because I've often heard people say, oh, yes, I can disregard the capital gain, or the capital losses, the case may be, depending which way you've gone, because it's a personal use asset, and I only bought it for a very small amount, but we've got to remember that the personal use asset rule is where you are holding onto the asset for your personal use and enjoyment. So it's one thing if you bought the crypto with the intent that you are going to hang onto it and the gain that you've made, you are going to go out and buy a holiday with it, or pay for your wedding, or do something, I don't think your wedding's probably more expensive for a crypto, but you know what I mean?

Robyn Jacobson:
But if instead it was a case of buying an asset, waiting for it to go up in value, cashing it out and then spending it on your personal use item, why is it any different to buying some shares that have gone up in value and then using the profit from the shares to pay for the holiday, or the wedding, or the private expenditure that you wanted? So, I think consider there are often misunderstandings about exactly how broad or narrow this personal use asset exemption can be.

Tracey Dunn:
Absolutely. I think there's this misunderstanding that people look at cryptocurrency and think of it, that it is the same as their bank account, if they can buy and sell things, which is actually quite limited in Australia at the moment, then it looks and smells like a bank account. So maybe it is a bank account, but in reality, it's not. It's no different than buying shares. If you are buying the cryptocurrency because you can see how volatile the market is, and you're hoping that you're going to have a 2000% increase on what your purchase price was. Then your intention is no different than buying a share or another investment asset. You buy it with the speculative intention that you're going to make money. And once you've converted it to fiat currency, then you've got your personal use asset because it's just your cash in a bank that you then go and spend on personal use items.

Tracey Dunn:
That said, there may still be occasions where cryptocurrency is a personal use asset, very limited. But if I think of an example that if say a cryptocurrency is minted and it's specifically for use in an online gain. So for you to be able to get into, and use that platform, but you can't then convert it back to fiat currency or any other form of currency, and it's used to play a game. Then that might be a personal use asset, because the reason that you purchase that particular coin is for your personal use and enjoyment, and you can't exchange it for something else of value.

Robyn Jacobson:
You've been referring to this concept called fiat currency. Some people may not be familiar with what that means.

Tracey Dunn:
Australian dollars.

Robyn Jacobson:
So our local currency.

Tracey Dunn:
Our local currency. Yes, apologies.

Robyn Jacobson:
No, that's okay. Now there'll also be some people who are what we call miners or traders, and it's still a CGT asset because, of course, trading stock is a CGT asset, but we have a different set of tax rules that may apply to them.

Tracey Dunn:
Yes we do. And that takes us into a whole new area. So you touched before on miners, and miners are different to traders. So if I start with traders, because we started with a CTG asset and we've got the different concepts between capital and revenue. So if you had shares, you might hold them on capital account, you might hold them on revenue account. If they're on revenue account and you are trading, you are looking at the volume of your transactions. So same thing with cryptocurrency, you would need to go through that. And [inaudible 00:29:01] of, are you carrying on a business to see whether you are trading?

Tracey Dunn:
Mining is different. So mining is a reward for a service. So not necessarily trading stock, but might be once you have received the reward, again, you have to look at what the underlying transaction is. You could have a miner that's just a person that just happens to have a really sophisticated computer that happens to be lucky enough to solve the mathematical equation, or you could have a mining pool where a number of large organizations that have a massive amount of computational power use their power, they pull it to get the rewards of solving these mathematical problems, because when they solve the problems, they get a reward of cryptocurrency. So that initial reward is a reward for service and it's revenue, but then they've got their underlying asset that is either going to be a CGT asset, or it's going to be held on capital account, or it's going to be trading stock depending on how they use it.

Robyn Jacobson:
I don't think we can get our heads around the computational power that's required. I remember the early days there was talk that all the low hanging fruit was essentially being taken. So the easy solutions it's like getting the first 50% in an exam, it's always easier than the second 50%. And so a home computer in the very early days was capable of being able to generate Bitcoin to mine it and find those mathematical solutions to the puzzles. But it's got to the point now where the power needed, there was talk about it consuming more electricity than the whole of New Zealand consumes an entire year. It's extraordinary.

Tracey Dunn:
Yes it is. And that's absolutely correct, is the amount of power that is required to mine Bitcoin in 12 months is more than many small countries consume in a whole year. So it's not very environmentally friendly.

Robyn Jacobson:
I have to say, this will not be of great attraction to people that are very mindful of the environmental impact.

Tracey Dunn:
Well, this is where the proof of stake, which is a new method of authentication, which uses holdings of coins is coming into play. So it's a different verification method that is more environmentally friendly, and we are starting to see, and it was one of the topics in the Senate inquiry into Australia as a innovation hub, was potentially providing a tax incentive to miners, to develop more environmentally friendly methods of verifying cryptocurrency transactions.

Robyn Jacobson:
I want to discuss with you the way the ATO approaches this, because perhaps for a long time, there was a perception that the ATO couldn't possibly see this, it's off their radar, how do they know what I'm up to? I can make profits. And as long as I'm not getting back into Australian dollars, how would the ATO know? I attended a conference many years ago where someone from the ATO was speaking about this, and it was the early days of Bitcoin being rolled out. And the way they described it was, imagine you have a highway and on every major, or even a freeway, probably a better analogy, but on your freeway or your highway, you have entrances and exit points. So there's the entry ramp and the exit ramp. And back then the ATO was saying that they couldn't always have visibility over who was on the highway itself, that they could see when people were jumping on or jumping off it.

Robyn Jacobson:
So for example, if I take money out of my Australian bank account, and we're talking about Aussie dollars, and I go and buy a cryptocurrency with it, they will see the withdrawal from the bank account. They may not know what I do with the crypto once I'm in crypto world, particularly where I'm in foreign exchanges now, as opposed to the Australian ones, but they may well see what I'm doing if I then cash it out and go and buy property with it, or buy a car with it in Australia. So again, I'm interested in your thoughts about how's the ATO going with all this? And it's not that you're, of course, representing the ATO, but they're getting better at identifying when people are engaged in these transactions. And anyone who thinks that, oh, don't worry, the ATO won't see it. I think they need to think twice about this.

Tracey Dunn:
I agree completely. That ATO have extremely sophisticated data matching and data accumulation programs. So anyone who thinks that they're going to fly under the radar with cryptocurrency transactions, good luck to you. Well, you've probably going to need more than good luck. So in Australia, we have laws now that give the ATO powers with their data matching. So I'll take a step back with that, or say that with digital service providers and digital currency exchanges, now if they have a presence in Australia, so they operate a business in Australia, or they have a permanent establishment here, they're required to register with ASIC as a digital service provider.

Tracey Dunn:
The ATO's data matching program requires digital service providers to provide information to the ATO in relation to cryptocurrency and digital asset transactions. There's a lot of digital service providers in Australia, and that might not just be limited to a digital currency exchange, but also accounting platforms that are tracking information between banks and reporting accounting information, or there's bank transactions as you mentioned about the highway analogy. So it still allows the ATO if you have a taxpayer who is dealing with a digital currency exchange in an offshore jurisdiction, that the ATO still has visibility of where the money is transferred from Australian bank account to this offshore digital currency exchange. I see on many pre-filled reports, quite a lot of them these days, says the ATO has information that you have had a cryptocurrency transaction this year.

Robyn Jacobson:
And I think it's important to call out that where you have someone who swaps one form of cryptocurrency for another, this is no different to say selling the HP shares and buying Telstra shares. You may still be in the crypto environment, but you have exchanged one CGT asset for another. So at a tax level, you've had a CGT event, it creates a taxing point.

Tracey Dunn:
Yes it does. And because of the volatility of the crypto markets, you might find that people have multiple transactions, and you might have people who are not only doing these exchanges between one form of cryptocurrency and another, but they might also be staking their currency and getting staking or rewards, which is like interest. They might be using decentralized finance platforms and investing, or purchasing these financial products in cryptocurrency. And they can have multiple CTG events that are going on, because it's on a platform they may not actually be aware that they may have multiple transactions that are going on. And that then leads us to an issue with record keeping and working out what is the actual tax position? What is the net capital gain or loss?

Robyn Jacobson:
Final discussion, because there's so much for everyone to think about as they're getting into tax time again for 2022, not far away now. NFTs, that's just a whole new layer, whole new set of rules. So what's going on with these?

Tracey Dunn:
Okay. So a non-fungible token, NFT, it's non-fungible. So it's not like crypto, but it's an asset that you own. So it does relate to you and it can relate to digital art, music, it can relate to an actual physical, underlying asset. It might represent membership to an online community, and it might have then further rights that are attached because of your membership to that online community. So in a very basic form, now I've mentored my own NFTs. It wasn't hard. I used a platform and I connected a wallet, and that might sound like strange language, but it was actually really easy. And I uploaded a photo and then I pressed a button that said mint NFT. And there it was, it was created.

Tracey Dunn:
So my image, that was actually a drawing that I did in 1987, is out there on blockchain. And if I want to sell it, then I can set up in that account a base price, so a floor price for my NFT, and I can attach conditions. So I can say, well, if somebody buys it and then continues to trade in that NFT me as the original artist receives a 2.5% commission on every trade.

Robyn Jacobson:
Are you trading the right to the drawing you made, or the right to be able to access the drawing that you made?

Tracey Dunn:
Well, it depends. It depends on what rights that you attach to that NFT.

Robyn Jacobson:
So you can create whatever rights you want?

Tracey Dunn:
Absolutely.

Robyn Jacobson:
Now the tax treatment of these, because they [inaudible 00:38:27] grow in popularity, again, we seem to have volatility. We seem to have an attraction to NFTs because someone famous has one, or is a member of one of these exclusive communities, and that can push the price up.

Tracey Dunn:
Yes. And this is one of the exciting things that I've spoken with you about before, and it's these multiple layers that can attach to an NFT. And to work out the tax treatment, you actually have to strip back those layers and look at what is the original underlying NFT? So what were the rights that were attached to that? And I'll use the example that I used in my presentation. It was an NFT that on the purchase, you had exclusive rights to the digital artwork that was represented by that NFT. So once it was yours, it was yours to deal with as you please. And with that, it gave you an exclusive right to a rather exclusive club. And that's really where the value came. So if you traded that NFT with another person for value, then you've got a potential disposal of a CGT asset.

Tracey Dunn:
But if you held onto that asset, there was additional rights that came with that. And it might be that you were entitled to an airdrop of this new currency that was minted, that was exclusive to your club. It might give you rights to exclusive club membership that has other rights. So it might be something that is of an income nature. It might give you the rights to obtain another CTG asset for no cost. So you've then got to have a look at what is the underlying asset and what are the assets, or revenue items that I've received, because I own that original non-fungible token. And that to me is really, really interesting, because you have multiple layers that you have to peel away and then try and identify it, match it up to something that is in the old tax world that might be a right to income, the right to a share issue and things like that.

Robyn Jacobson:
Can we turn now as a final discussion, inheriting these sorts of assets. So someone passes away, they've got wealth in these, let's assume that we do have the passwords or the details of the digital wallets and so on. So it's not as though they're lost and we can just ignore it. And I'm not even sure what we do if we can't locate those things. Arguably there's perhaps a capital loss that happens on the passing, but we know we disregard capital losses on death. So it's an interesting one. They probably just go to the grave with them, but let's assume we do have all the ability to access the information. It's an interesting question as to how beneficiaries or estates then have to deal with these sorts of assets, because there's going to be enormous wealth in them.

Tracey Dunn:
Potentially. And it's a really interesting area because how do you, if there's no centralized register where you can search to see if somebody actually holds these assets, how do you identify where the wallets are? And assuming somebody has left the passwords and you can access them, then yes, an executor of an estate is then going to have to work out, how do you deal with that within the estate? What does a will say? Was the cryptocurrency left to a specific beneficiary, or does it just form part of the estate? Are you required to realize it to meet estate costs? And then if you've realize it's not cryptocurrency anymore, it's just normal currency. So some really interesting issues there. And then you might have recipient beneficiaries under a will. How do you transfer the cryptocurrency to them?

Robyn Jacobson:
Particularly if that beneficiary is not particularly interested in the crypto world.

Tracey Dunn:
Yeah.

Robyn Jacobson:
Which case it potentially does need to be crystallized and converted back into fiat currency again.

Tracey Dunn:
Yeah.

Robyn Jacobson:
Look, Tracey. I don't think we've even scraped the surface of all these issues, but it's been fascinating to take a walk with you through this amazing new world. Thank you so much for your time.

Tracey Dunn:
Thank you so much again, Robyn.

Robyn Jacobson:
Thanks for listening to this episode of TaxVibe. I've been chatting with Tracey Dunn of RSM Australia in Perth. 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 on social media, follow The Tax Institute on LinkedIn, Facebook, Instagram and Twitter. You can join the conversation on our member only community forum at community.taxinstitute.com.au. Not a member of The Tax Institute? Join a collective voice of 15,000 practitioners at the heart of the profession and find out what the best of tax professionals have in common. For more information, visit taxinstitute.com.au/membership. You can also contact us by emailing taxvibe@taxinstitute.com.au. We look forward to you joining us next time.

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 professions great thought leaders who will share valuable and practical insights you may not hear every day. We hope you enjoy this episode of TaxVibe.

Robyn Jacobson:
I'm joined by Jonathan Ortner. Jonathan is a partner in Arnold Bloch Leibler, Sydney taxation group. He practices in all areas of direct and indirect tax with a particular focus on the taxation of trusts and corporate income tax and mergers and acquisitions. Jonathan has particular experience in dealing with the ATO on complex tax issues in a dispute resolution context. He is a keen and active member of the tax community, as well as presenting on tax topics at various sessions and authoring a number of published articles, papers and bulletins. Jonathan is the deputy chair of The Tax Institute's national SME technical committee, and is recognized as a key tax lawyer in the legal 500 Asia Pacific. Jonathan, a very warm welcome to TaxVibe.

Jonathan Ortner:
Thanks Robyn, thanks for having me today.

Robyn Jacobson:
It's wonderful to have you on board. We recently had you join us for a member only webinar run by The Tax Institute as part of a panel with the ATO. We were focusing on section 100A, which will be our focus today. So very pleased to get you back again. I just want to set the scene for our listeners. I'm describing this as the biggest development in the taxation of trust income in more than 10 years. The 23rd of February this year, the ATO released long awaited draft guidance materials on section 100A. And what I'd like to do with you is unpack this provision, understand what it is, what it does and broadly, why is there such concern across the tax community about the guidance materials that have been released? So the materials without diving into specific details now are broadly three products. We have a taxation ruling, TR 2022/D1, a draft practical compliance guideline PCG 2022/D1 and a taxpayer alert TA 2022/1. So with that overview, could you run us through what exactly is 100A and why is it in the spotlight at the moment?

Jonathan Ortner:
Sure, 100A is a specific anti-avoidance provision, which was originally designed to counter tax avoidance through trust stripping schemes. But it also remains a clear threat in any circumstance that involves the distribution of trust income, where cashflow is not aligned with the legal entitlement and the enjoyment of the benefit of the funds by the beneficiary is deferred or does not eventuate. The provision works by effectively deeming there to have been an accumulation of trust income by the trustee with the result that the trustee is assessed at the highest marginal rate of tax.

Jonathan Ortner:
As to why it's in spotlight, the section has been part of the Australian tax landscape, as we know since 1979, but it's only recently become an area of significant focus within the ATO. It's certainly a fair question as to why it's in the spotlight. What currently concerns the ATO is factual situations where a beneficiary is made presently entitled, but at the end of the day, someone else benefits. So perhaps in their view, this has become more prevalent and a crackdown is warranted. However, in saying that discretionary trust have been the subject of intense scrutiny by the ATO over the last 15 years. This to me really appears to be just another attack on trust, more broadly. Their initial public views on 100A, expressed as far back as 2009, which was at the same time as the issues relating to UPEs and division 7A led to tax payer concern and cause for guidance material. So it really was inevitable that we would end up where we are. And as I always say, be careful what you wish for.

Robyn Jacobson:
Can you provide some insights as to why this has now got the momentum that it does? What was the Genesis for the ATO starting to focus on this provision given it's been around for more than 40 years?

Jonathan Ortner:
I think just going back to what I said previously, in terms of why the ATO is focusing on it, perhaps it's in relation to just their broader attack on trusts or their genuine dislike for entitlements or the cash not flowing with the entitlements. So this has prompted them to release guidance on their views in relation to the application of 100A. We first saw their comments in 2014, where they provided examples of the types of arrangements that they thought 100A applied to. And when the ordinary family or commercial dealing exception might apply. On the back of that significant concerns were raised by advisors and taxpayers in relation to the way that the commissioner was proposing to apply 100A, which was far broader than previously applied by the ATO and arguably far beyond its intended scope. And so that really resulted in a demand for a proper guidance product, so that advisors and tax payers understood what risks existed in relation to the types of arrangements that were otherwise previously thought to be common to private family groups.

Robyn Jacobson:
There's been no shortage of seminars and discussions and conference sessions discussing 100A in the last five to 10 years. And anyone who sat through the ATO speaking about 100A would understand that it has been on their radar and many practitioners have also been putting out cautionary tales about the scope of 100A. So this still seems to have caught the profession by surprise, given the scope of the guidance that's now been published. Why do you think that is?

Jonathan Ortner:
The ATO's taking a strict view on certain aspects of the law, which appears to be contrary to past practice. The way that the Commissioner is now proposing to apply at 100A, again, arguably goes far beyond its intended scope. Examples include typical family dealings, which advisors otherwise believe fell within the ordinary dealing exception. That includes arrangements like the retention of trust funds, the gifting or assignment of UGEs and the utilization of losses. And as a result of that, most private groups could in some form be distributing trust income in a way that puts them in the ATO's red zone. That's possibly prompting a review or audit action. So taxpayers are really bound to be upset given this new approach by the ATO and the fact by the way, that there's no limit of amendment period.

Robyn Jacobson:
So let's unpack the provision a bit more so we can understand how it operates. It has been around in the law since 1979. It took effect in 1978, which was the original date of announcement. How does the provision work? What are the conditions that trigger 100A?

Jonathan Ortner:
The first thing to note with 100A is, it's self executing and it applies if the criteria of its operation exists. So unlike, for instance, the provisions of part 4A, 100A is not made depending on a determination being made by the Commissioner. That's the first thing to know, so taxpayers must self-assess. For 100A to apply there are a number of key requirements. The first is that there must be a beneficiary who is presently entitled to a share of the income of the trust estate, whether actually, or on a deemed basis. There must be a reimbursement agreement, which will be the case where firstly, there is an agreement and the broad definition of which does not include conduct or a transaction entered into, in the course of an ordinary family or commercial dealing. The identified agreement must provide for benefits to someone other than the presently entitled beneficiary that may or may not be equivalent value to the incoming question. And the identified agreement must have been entered into with a tax reduction purpose. So we need a present entitlement, we need a reimbursement agreement and we then need that present entitlement to arise out of the reimbursement agreement. So a lot to chew through, but at its simplest level those are the key requirements.

Robyn Jacobson:
All right, let's unpack some of that. So with the beneficiary who must be presently entitled, are there any conditions around what sort of beneficiaries we're talking about?

Jonathan Ortner:
Yes, a beneficiary under legal disability will not be caught by these provisions, but otherwise, a beneficiary presently entitled will be caught.

Robyn Jacobson:
All right, so that would exclude our minors and people who are bankrupts and so on.

Jonathan Ortner:
Correct, and you'll see an example in the Commissioner's tax ruling, I think it's the tax ruling, not PCG, that talks about a minor being entitled to income in a testamentary trust where 100A won't apply until such time that minor turns 18. And then, obviously the provision may be switched on, it needs to be looked at.

Robyn Jacobson:
All right, reimbursement agreement. It sounds like I've incurred something and I'm going to be reimbursed for that amount. Does that have any relevance whatsoever to what we're talking about here?

Jonathan Ortner:
I think the thing to note and what the courts have said is that you can't break up the term reimbursement agreement and just focus on the ordinary meaning of reimbursement and try and work out what that actually is. You've got to look at the provision which define a reimbursement agreement. And really that involves a situation where benefits go to someone other than the presently entitled beneficiary. That can be at it's very simplest form, you, Robin being made presently entitled to $100, but that $100 going to me instead, that's a reimbursement agreement potentially because I'm receiving the benefit and you're the one entitled not getting the benefit of cash.

Robyn Jacobson:
And that could be money paid to you by the trust? It might be an asset being transferred across to your property? It could be services being provided? So it's quite broad.

Jonathan Ortner:
It could be by the trustee, that's one thing to note. Or the cash could flow to you and you could give it to me. So that's still a reimbursement and that's important to remember. It doesn't only involve situations where the cash doesn't flow to you. It's where the cash doesn't stay with you necessarily.

Robyn Jacobson:
Isn't my choice? If I'm made presently entitled, I get my $100 from the trust, and then a week or three years later, I choose to then gift it to you. What's wrong with that?

Jonathan Ortner:
Well, it depends as always on the facts and the arrangement. So, three years down the track with nothing more will not invoke this revision. But if there's repeat behavior of the gifting of entitlements and there's clear evidence of an arrangement that has been entered into with a view to reduce tax on that entitlement, then you need to be aware of this provision as it may apply.

Robyn Jacobson:
Perhaps the way I could describe it, Jonathan is, it's a separation of the cash from the benefit as you were articulating in your opening comments. If there's a situation where someone is being made presently entitled, but they ultimately don't get to keep that amount because there's an arrangement to pass it on. And the typical arrangements we've seen is where the adult child who's at university or on a low income, they get topped up to one of the income thresholds so that they're still below the top marginal tax rate, but able to benefit with those marginal rates. Then they're passing the benefit of that distribution on to their parents who if the parents had received the distribution from the outset, would've been taxed, presumably at the top marginal tax rate, given the dollars involved. So I think that the ultimate problem here is you've got someone who, if it was always intended the parents get the distribution. Why then did you distribute to the adult child? Why didn't you just give it to the parents originally? And it comes into this third element about the tax purpose and why you did it. There might be 50 reasons why commercially you did it, or for family reasons but you were talking about how there's a purpose of reducing or deferring income tax. Now, the purpose of using the marginal tax rates might be just one of those purposes. Is that enough to potentially get us into this provision?

Jonathan Ortner:
I think just one point before we go there to note is that the example you just described is something that many advisors would've otherwise felt previously fell within the family dealing exception. And so that's a reason why many are upset. The other thing to note is that a reason for doing or a reason for giving effect to an arrangement in a way that you described. So as to increase the wealth of the family group on a post tax basis is not accepted by the ATO as being something that has at its pursuit or in a familial end. I just wanted to make those two points.

Jonathan Ortner:
In terms of your question, there's two parts to this. The first is to work out whether the ordinary family or dealing exception can apply and embedded within that is some consideration of purpose of the arrangement and whether it's motivated by tax or not. Now, if tax, taxating is sort of incidental to the overall pursuit of the familial end, then the Commissioner says that it won't be one that is set with a tax avoidance purpose, and perhaps may come within the exception. If for whatever reason it doesn't come within the exception, then you still need to go through the other requirements of 100A. One of those requirements is the tax reduction purpose requirement. And really all you need to find there is a purpose of achieving a lower amount of tax than what otherwise might have been paid in a counterfactual, a reasonable counterfactual scenario. And if the answer to that is yes, then you may fail the tax reduction purpose.

Robyn Jacobson:
This is why it's so much broader than part 4A, you've already mentioned that it's got an unlimited amendment period, whereas part 4A has only four years. Secondly, part 4A of course, has a sole or dominant purpose of entering into the scheme or the arrangement. Whereas this is a purpose. So it seems to be so much easier to full foul of 100A than it does part 4A.

Jonathan Ortner:
Well, definitely because it doesn't require, at least in the context of the tax reduction purpose requirement, it doesn't require a dominant purpose. There's no dominant purpose test. So it's just a purpose, no matter how minor that purpose may be, that's enough to fail the, or satisfy rather the tax reduction purpose. So yes, and the other thing to note though, as well is part 4A is an objective test. There's elements of the tax reduction test that require subjectivity to come into it, to get into the mind of the relevant person that had the tax reduction purpose. That's also a key distinction.

Robyn Jacobson:
Back to real world, we've unpacked all this theory and we've explained what the provision does, but in practice, how does any practitioner or taxpayer work out whether or not they have fallen foul of 100A? You say it's a self-assessing provision. So it's not relying on a determination by the Commissioner. How do we know where the goalposts are, or the red flags down at the surf beach to know whether or not we are within that safe zone or whether we've fallen outside? It seems incredibly gray.

Jonathan Ortner:
Yeah, what we know from cases such as Prestige Motors and IDLECROFT is that the examples given in the extrinsic materials were intended to be illustrative and not an exhaustive statement. Som what we might have previously thought of being the types of arrangement, subject to 100A, like blatant and complex trust stripping schemes. Schemes devised by promoters involving artificially created paper losses. Those aren't the only types of situations where 100A can apply. Really it's a provision that remains a clear threat in any circumstance involving trust distributions, where cashflow is not aligned with the legal entitlement. If that's something that arises, you really need to take a step back and look at the arrangement in its totality, work through the provisions of 100A and ask yourself whether you're caught out.

Jonathan Ortner:
In my opinion, the [inaudible 00:17:03] of scheme 100A was introduced to counter, I think are important to establish some sort of practical boundary between what is okay and what is not. So it's not as simple as taking the Commissioner's examples in the tax ruling and the PCG and putting your hand up and conceding that a 100A applies, that won't always be the case. I think you really need to drill down into the cases into the extrinsic materials, into the provision, understand the context and the purpose, and take a proper approach to statutory interpretation, to work out whether your particular arrangement is caught.

Robyn Jacobson:
Let's take a look at some of the cases that have come before the courts and particularly some of the high profile cases and what do they have in common? And is there something unique to those cases that we took some comfort from and therefore dismissed 100A is being relevant to the sorts of arrangements that are typical in family groups?

Jonathan Ortner:
The four cases that we're all familiar with are Prestige Motors, IDLECROFT, Raftland, East Finchley, and now obviously Guardian, but I'll leave that to one side for now. Judicial consideration of 100A appears to have started with Dr. Thomas and East Finchley and he migrated to Australia in 1978, established a discretionary trust and established a discretionary trust with a corporate trustee. In 1983, the corporate trustee distributed the income of that trust to various persons who were relatives of Dr. Thomas and valid objects of the trust. This included 126 relatives who were overseas residents and who received $585 each, which was neatly the tax free threshold for non-residents at the time. So no tax was paid in that situation.

Jonathan Ortner:
In Prestige Motors, there were three separate transactions that were largely centered on the transfer of a business to a unit trust and units being issued to a company with losses and to a tax exempt organization. Again, the arrangement had the purpose of allowing the business profits to be distributed effectively tax free.

Jonathan Ortner:
In IDLECROFT a joint venture between various trusts was put in place where the trustee of those trusts inserted a beneficiary that had substantial tax losses and so paid no tax upon the appointment of income to it.

Jonathan Ortner:
Finally, Raftland, although a very complex case and one that the high court ultimately found to be the subject of a sham involved, the introduction of unit trust with substantial tax losses and entitlements not being paid in cash other than a single sum of a small amount. And there was some evidence that there had never been any intention of making any further cash payments. So we can certainly see a trend here. It was only the egregious paper schemes that previously came before the courts, and that appear to reflect the types of arrangements, the extrinsic materials that a 100A was inserted to stamp out. So rightly or wrongly many believe these cases provided a sort of limiter on how broadly 100A could be applied.

Robyn Jacobson:
So if we combine the decisions in these cases, all of which I think we can comfortably describe them as being egregious or blatant schemes.

Jonathan Ortner:
Yes.

Robyn Jacobson:
Then we also look at the wording in the legislation, ordinary family or commercial dealing of which there has been little to no guidance on the meaning of that term, and certainly no judicial guidance until very recently. And that itself in Guardian as the subject of a full federal court appeal. It's no wonder that practitioners looked at these situations and thought, well, what I'm doing, therefore doesn't fall within 100A because we can take some comfort from this safe harbor being the exemption for the ordinary dealing. So there's been quite a significant shift. The question is whether there's been a shift in the original policy intent from the late seventies to what the law is doing today, or whether there's been a shift in the way that practitioners understand the provision to work?

Jonathan Ortner:
I don't think that there's necessarily been a shift in the way that practitioners believe the provision to operate. I think the reality is no one knows how it operates, particularly in relation to the ordinary dealing exception, we are all including the Commissioner, we're all making it up as we go. And we're really waiting on the courts to provide some firmer authority on what some of these terms mean. So I think that if you look at it from a policy perspective and the time at which this provision was inserted back in the 70s, which was a time that was the bottom of the harbor schemes, the policy intent behind the provision is certainly in my opinion, different to the way the Commissioner is now administering the provision.

Robyn Jacobson:
It's hard to think of any other provision in the tax law that has been there for as many decades as this one that is so poorly understood. And we're all struggling to understand how it applies in practice. It shouldn't be this difficult.

Jonathan Ortner:
It shouldn't be, but that's, I guess, Australian tax law for you and it's probably not the only provision... Well, it's definitely not the only provision that's been around for a long time. That has a lack of clarity and uncertainty about it. A very simple one that comes to mind is 99B, that was also inserted at the same time as 100A and that is also a provision that has been drafted in a way that is incredibly broad, that applies to trust. But what kind of trust non residents or Australian trust is something that remains debated until today.

Robyn Jacobson:
So the case that remains before the courts at the moment, Guardian, can you briefly explain what was going on in that case and how helpful is this? Does it share any similarities with those previous cases you mentioned?

Jonathan Ortner:
I would say that it doesn't really share the similarities of the previous cases. It's a case that certainly introduced more commonly encountered family group dealings or concepts. I'll give you just the facts that follow us down a pattern to give the listeners some context. Guardian was the trustee of a discretionary trust, and it also owned all of the shares in the company, which was one of the beneficiaries of that trust. In three financial years, Guardian made the company presently entitled to a share of the trust income. Then in the following year, sufficient cash was paid by the trustee to the company to allow the company to pay tax on the net income. Then the balance of that entitlement remained unpaid, and having paid tax on the net income, the company could then declare a fully franked dividend to its shareholder being the trust. The trust would set off the dividend against the balance of the unpaid entitlement that was owing to the company. Then the trust would stream the franked dividend to Mr. Springer, who was a non-resident at the time, and so no further tax was paid.

Jonathan Ortner:
In essence, the income was sheltered at the corporate tax rate of 30%. It was this that the Commissioner took issue with. It is a fact pattern that is far removed from the types of egregious schemes that we might have previously become accustomed to where you've got low or no tax introduced beneficiaries, where you've got promoters of tax schemes, where you've got entities with significant tax losses. Here, we have pretty much a family group dealing with tax being paid still at a fair rate of 30%, but it coming within the ATOs view of 100A.

Robyn Jacobson:
It does display some features that were described in the ATOs July 2014 guidance, which has been described in the vernacular as the washing machine.

Jonathan Ortner:
Yes and no. I mean, it wasn't a strict washing machine in that it was going round and round and round. It was going to the company and then back to the trust and then out to a non-resident. So I guess, it was incorporating elements of it. It was also incorporating elements of other types of examples the commission doesn't like where distributions are going out to non-residents and no further taxes being paid, and it's capped at either withholding tax rate or because we've got a franked dividend, there is no withholding tax.

Robyn Jacobson:
Can you comment on lessons we can learn from Guardian, which as I say again, remains on appeal before the full federal court and could ultimately go to the high court that remains to be seen. But in terms of the credibility of the taxpayer and their advisor and the quality or otherwise of contemporaneous documentation?

Jonathan Ortner:
The case largely turned on the facts. But at the end of the day, the taxpayer won because of the strong contemporaneous evidence. And because Justice Logan was persuaded by the credibility of the witnesses and oral evidence provided, The contemporaneous documentation included emails and file notes, which corroborated the oral evidence provided. Justice Logan said, 'I thought each of these witnesses offered honest, candid, consistent evidence, which also sat well with this correspondence.' So it was not as though there was a significant amount of evidence. It was just that the evidence came together in a way that properly supported what was being said by each witness and made sense in the context of the overall affairs of the taxpayers group. So the key takeaway for me, is remembering the importance of the whole picture, an oral statement without nothing else will not be sufficient. That an oral statement that is affirmed by the surrounding events that unfolded and even basic documentation, such as emails, file notes and aid memoirs will be given significant weight.

Robyn Jacobson:
Really important to understand and learn from. So in terms of moving forward from here, there's been a lot of discussion around the retrospective application, whether this is fair, how broadly the ATO should apply the guidance to taxpayers and what should taxpayers do? Just before you answer that, it's worth noting that this guidance is currently available for consultation and those consultations close in a couple of days, time and The Tax Institute, like many others will be putting forward submissions with our views and our concerns, but in terms of the retrospectivity, this is probably the biggest issue that is concerning the profession.

Jonathan Ortner:
Yeah, it is absolutely. It's certainly what has received the most attention outside of arrangements that many thought were otherwise family or commercial dealings. Really several examples set out in the guidance material reflect what many believe to be taxpayer practice for the last 20 to 30 years. The examples provided are not necessarily egregious and the Commissioner has not previously as a matter of practice audited or queried those factual scenarios, including at the time, since the commissioner issued his website guidance and the 2014 financial year. Certainly I've seen in practice in various reviews or disputes an opportunity for the Commissioner to apply 100A when he didn't and this was post 14. So the change in attitude by the commissioner arguably represents a U-turn according to many advisors, and it's understandable. Then why many believe the approach being taken by the commissioner is unfair.

Jonathan Ortner:
The commissioner believes the white zone compliance approach in the PCG is sufficient. I disagree, the white zones blurred by its various exceptions and the 2014 website guidance was, and really remains confusing. And in my mind, it's not an appropriate date for a line to be drawn, particularly in relation to the non egregious examples in the draft guidance material. This view seems to be shared by the government and opposition who've also articulated their concern regarding the potential application of the draft guidance material on a retrospective basis. It's my view, which I previously expressed on the panel presentation that the guidance materials should operate on a prospective basis only, from the date that the draft materials were released, not from obviously when it's finalized, because we're now aware of the commissioner's views.

Robyn Jacobson:
It's also interesting to note the recent media release issued by the Assistant Treasurer, Michael Sukkar, who made the comment that the ATO would not be applying this retrospectively and that anyone who was relying on the July 2014 guidance, where that would give them a more favorable outcome than the ATOs draft guidance could continue to rely on that, but went further to say that they would be looking at this closely and after the election and I understand that both the government and the opposition have made this undertaking. It remains to be seen who forms government after the 21st of May, but both have committed to looking at the provision and if necessary making legislative change. Now with that said, and that's comforting to hear that. I think it's also important to acknowledge that generally there would be a preference or a leaning towards administrative approaches by the ATO, rather than trying to amend the law.

Jonathan Ortner:
I think an administrative approach might be an interim solution, but I don't think it's a permanent fix. I think legislative change is important here. The reason for that is when you... There's really not many, or if any reason, given for why 100A was thought to be a provision that should be subject to an unlimited amendment period. Perhaps at the time when amendments were made to section 170, which dealt with amendment periods, it was thought that the egregious paper schemes of that time were such that the commissioner needed an unlimited period to be able to actually uncover those sorts of arrangements much like that is the justification for fraud or evasion cases and why there's an unlimited amendment period. But when we break it down now, and we think about the way the Commissioner's trying to apply the provision in practice, and it's really to a set of fact patterns that arguably part 4A could also apply to, which is subject to a limited amendment of four years. I see no reason why from a legislative perspective, 100A should not be subject to the same four year period as other types of specific integrity provisions.

Jonathan Ortner:
Now, if an administrative approach is going to be applied, the Commissioner could take a similar approach to that, which he does involving trustees of discretionary trust that aren't issued with assessments, so that where there's evidence that there has been no fraud or evasion, the commissioner will limit his review of cases involving 100A to a four year period. And that seems to be a sensible approach to take until we have a legislative fix, if we ever get one.

Robyn Jacobson:
What should taxpayers do now? How can they prove their situation or substantiate their circumstances or decisions they've made? Particularly where if you're trying to show there is not a reimbursement agreement in place, how do you prove that something didn't exist?

Jonathan Ortner:
This might be a vapid comment, but I think taxpayers should think seriously about whether 100A might apply to the set of facts in motion first. Substantiation is not about creating evidence that leads to misdirection. It's about lending support, to refute arguments that the Commissioner might advance and prove the facts in issue. At the end of the day, it is the taxpayer that bears the owns of proof. So maintaining strong evidence is always essential, whatever the tax matter might be. Once it's established that 100A ought not to apply or it's reasonably arguable that it ought not to apply. Then the answer is to your question that is, it depends. It depends on what the relevant arrangement or lack of arrangement entails.

Jonathan Ortner:
In Guardian, the documentary evidence was simple, emails, file notes, aid memoirs, and actions taken by Mr. Springer, which supported his statements regarding the need for asset protection and simplifying his life, going into retirement, everything was consistent, and what was said was able to be corroborated.

Jonathan Ortner:
My suggestion would be to think about what it is that you're doing, ensure that what is said, or what is being done rather is defensible. And so in some instances, a reasonably arguable position paper might be obtained from a qualified tax professional. In other instances, it will be about proving how the arrangement in its totality sought to achieve primarily commercial or familiar [inaudible 00:33:15]. And in more simple cases, it might just be about retaining basic documentation, such as in Guardian's case. There's no one size fits all.

Robyn Jacobson:
There are two further issues that have come up that seem to have antagonized the profession. That is in the taxpayer alert where the Commissioner talks about referring agents to the Tax Practitioners Board, where they've been involved in promoting these arrangements to their clients. And secondly, potentially applying promoted penalties to such arrangements. What are your views on both of these?

Jonathan Ortner:
Personally would not worry about it. It's been blown out of proportion. The assistant Commissioner Justin Dearness came out and said that taxpayer alerts have, and I'll just read what he's actually said, 'Have a standard way of being presented. And they are meant to identify the full range of remedies that might be available for anyone operating the market.' So he said, don't take this general messaging as an indication that the ATO is out there looking for referrals. And the promoter penalty laws are not intended to obstruct tax advisors and intermediaries from giving particular advice to their clients. For what it's worth, and I said this again on the panel as well, I think the tax alert should be withdrawn. It could have probably been dealt within the PCG, and I really don't think advisors should be concerned about some of the statements in that alert, although I accept that those statements should not have been made in the first place.

Robyn Jacobson:
So Jonathan, as we pull this to a close we're waiting on the appeal in Guardian, there are potentially more court cases in the pipeline. We're waiting for the ATO to finalize their draft guidance materials, which may or may not happen before the Guardian matter is resolved. We're still waiting to see exactly what compliance activity the ATO will undertake. There's a bit of uncertainty here for practitioners. It makes it very challenging.

Jonathan Ortner:
It does. I suspect the full court... I think they sit again in may and then August. I think Guardian won't be heard again until later this year, so we may not really find out anything more until 2023 on this case. I do know that there are other arrangements that are currently before the court. Some of which reflect the examples in the draft guidance materials. So it will be a case of watch this space, because I think that there's a little more action to come and I don't really think that guidance materials will be finalized before the end of this financial year, given the election, the cases before the courts and the current market reaction. They'll need to seriously take into account. All submissions provided by relevant stakeholders. So we've got a bit of a way to go still, Robin.

Robyn Jacobson:
I would suggest the submissions are going to be very extensive.

Jonathan Ortner:
I'd say so.

Robyn Jacobson:
Jonathan, thank you so much for your time and your insights today.

Jonathan Ortner:
Thanks very much Robin, for having me.

Robyn Jacobson:
Thanks for listening to this episode of TaxVibe. I've been chatting with Jonathan Ortner of Arnold Bloch Leibler in Sydney. 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 on social media, follow The Tax Institute on LinkedIn, Facebook, Instagram, and Twitter. You can join the conversation on our member only community forum @community.tax institute.com.au. Not a member of The Tax Institute? Join a collective voice of 15,000 practitioners at the heart of the profession and find out what the best tax professionals have in common. For more information, visit taxinstitute.com.au/membership. You can also contact us by emailing TaxVibe@tax institute.com.au. We look forward to you joining us next time.

Robyn Jacobson:
(Silence). 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 professions great thought leaders, who will share valuable and practical insights you may not hear every day.

Robyn Jacobson:
We hope you enjoy this episode of TaxVibe. I'm joined by Alan FitzGerald. Alan has spent over 30 years in technology with 23 of those just in Tax and accounting software. In 2015, based on demand from several accounting firms, he established Practice Connections Advisory and offers independent and technology agnostic advice to firms large and small in areas such as practice management, workflow, tax, document management and reporting solutions options.

Robyn Jacobson:
Alan is regularly engaged to write and speak on the accounting tech market by The Tax Institute, CPA Australia and Ireland and Chartered Accountants Australia, New Zealand. He is also regularly engaged by corporate organizations to assist with developing accounting and finance technology strategies, as well as by vendors to assist with their future product development.

Robyn Jacobson:
Alan's experience working with Tax and accounting software, along with his industry insights makes him the perfect buyers advocate. He's independent, tech agnostic, always willing to share his knowledge. And it's great to have him here. So just as a side note, I first met Alan about four years ago.

Robyn Jacobson:
Alan was part of a panel discussion that I was facilitating on work related expenses, so very much in the individual's tech space. At later stage in the panel, there was a question from someone in the audience asking about Country-by-Country Reporting, which is polls apart from work related expenses.

Robyn Jacobson:
And to my great surprise and with great agility, Alan easily answered the question. And I remember going up to him and saying, "Who are you?" So Alan, it is great to have you on TaxVibe. And just before we get underway, a mention that we are not endorsing any of the products. This is a general discussion about what solutions are out there now. So Alan, welcome to you.

Alan FitzGerald:
Hello Robyn. Thank you. It's wonderful to be here today.

Robyn Jacobson:
So we are into 2022, it's been interesting ride over the past couple years. What have you been seeing in the technology space and particularly the ability or otherwise for practices to pivot towards this remote working environment?

Alan FitzGerald:
Look, I think everybody would appreciate that the last couple of years was not on the bingo card, if we could say that. It certainly wasn't one of those items that could be ticked. And I think the firms and the organizations for that matter that were able to manage that appropriately, and what I mean by that is the ones that had a setup that enabled them to be able to, hey, it's a horrible word, but pivot, from being in the office to be able to then work from home was the success for a lot of organizations.

Alan FitzGerald:
Now, when I say success, I don't mean the organizations that weren't in that space, collapsed or went out of business, but they certainly found it a lot harder. And I think part of that was driven by, there's a great curve. I use it a lot. It's called the Everett Rogers diffusion of innovation curve. Now, that's a bit of a mouthful, but it's fundamentally, you have on the very left-hand side, you have the innovators.

Alan FitzGerald:
And on the very far right-hand side, you have the laggards. And it's a bell curve basically. And across that you have the early adopters, the early innovator, et cetera, et cetera. Anyone who was on the left-hand side of that curve had a far easier way of working from home, in essence, in the professional field.

Alan FitzGerald:
Anyone that was on the right, and they were generally the ones that reliant on in-house systems or in-house client servers or everything was done within the four wall. They had a bigger issue to working from home because generally their remote access systems only allowed one or two people to concurrently access the systems. Whereas those on the left-hand side of that Everett Rogers diffusion curve, could allow anybody to access the systems.

Alan FitzGerald:
So if you are on the right-hand side of the curve and suddenly you had to send 20, 30 people at home, then you had a lot of problems. And that was really, I guess, the genesis for me and for a lot of the other similar advisors out in the marketplace is how do we pivot from this older way of doing things to a newer way of doing things so we don't have these issues?

Alan FitzGerald:
And I think that was probably the biggest lesson that has come out of the whole event. And there's been a lot of talk, Robyn, you may have seen some of those polls, what has been your IT strategy? What has been driving it? And at the top of it is COVID 19. It is just an issue that a lot of firms have faced and a lot of organizations too.

Robyn Jacobson:
Alan, you remember back in 2000 when the GST was introduced.

Alan FitzGerald:
Oh, I remember.

Robyn Jacobson:
It was a new system, and it took thousands upon thousands of businesses out of what used to be the shoebox full of receipts into automated accounting software for the very first time. And of course, that practice or behavior has been sustained.

Robyn Jacobson:
What are your thoughts on the change that we've seen with accounting practices and also law firms? Any professional practice really, that is using the word you've used already, pivoted, to this online space and remote learning. Surely, this is now sustainable. We're not going to go back to how it was, are we?

Alan FitzGerald:
Oh, no, absolutely. I think it is sustainable. I saw an advert in the, it might have been in the US, where they weren't hiring by a geographic locality, i.e., if you are in New York City or if you are in, I don't know, Kansas or something like that. They were hiring by time zone. So if you fitted into a particular time zone, they wanted to talk to you.

Alan FitzGerald:
And so this whole work from anywhere scenario, and we see this with property prices in regional areas around Australia, because people have gone, why do I need to live in the city when I can actually do all of my work quite satisfactorily from a remote location? Now, obviously, you miss out the whole social interaction component of.

Alan FitzGerald:
That there is absolutely an element to that, but there's nothing stopping people from working remotely. I've worked remotely now for, in essence, six and a half years with Practice Connections. And I have to say, my business has doubled, tripled every year since inception. It hasn't been a barrier to what I do.

Alan FitzGerald:
Now, I can understand when you've got a multidisciplinary firm or you've got a larger organization that you do need to have those interactions on it on several days. So what we'll definitely see is that whole three days in the office, two days at home, potentially, or vice versa.

Alan FitzGerald:
The knock-on benefits for that for organizations is the fact they don't necessarily have to hire bigger offices because they can actually save on real estate. So there's a couple of knock-on benefits can come out of this, but it's only, I guess, from the legal, and if we focus in on the legal and accounting fraternity, it's very particular to those markets.

Alan FitzGerald:
So it's very difficult for a welder, for example, to work from home. Or you'd know this example, an airline pilot, you don't necessarily want your airline pilot working from home. Right? So there's certain professions where it's simply doesn't work, but there's other professions where it does actually work quite well.

Robyn Jacobson:
So in terms of moving into the current landscape, we've looked at the past couple of years and how firms have shifted. And there are still some firms to go through that process. There are many that have maintained, we want this paper environment. We like the way our work papers are operating and our processes and that suits us.

Robyn Jacobson:
Now, that is of course their decision. And there's a lot of pressure from government and from the ATO to move into more digitalized space. And even, some of the budget measures we've seen this year further that objective. The government is very much trying to get everyone into a digital space. Having a look around the current landscape, what are you seeing?

Alan FitzGerald:
There is a definite move to more, it's called the holistic systems. And what I mean by that is that, the challenge for accounting firms, in which we focus in on accounting firms just for the moment, is that they build up processes based on the constraints of the software that they use. So you get used to a particular software, you know it's pros and it's cons and it's pitfalls.

Alan FitzGerald:
And so you build up a series of workarounds. It's very difficult some times to change to another system because you have to unwind all of those processes and all of those, the workarounds that you have. There's a great quote by a guy called James Clear in a book, that he said, "You don't rise to the level of your goals. You fall to the level of your systems."

Alan FitzGerald:
And so it's basically, you're hemed in by what because you're used to what that system actually delivers. So when firms ask me to come in and talk to them, I say, "Just start with a clean slate. What would you like to do? And if you had no constraints on what you were able to do, what would you like to do?" And it's quite incredible when they say, "Oh, we can't do that because the system."

Alan FitzGerald:
I say, "No, no, no, no. Forget about the system. What do you want it to do, so we'll get the core basics out of it?" Because technology these days can fundamentally do anything you want it to do, but that comes with two caveats. And the two caveats are your appetite for risk and how deep your pockets are. Right?

Alan FitzGerald:
And so it's one of those things, you can go with a series of solutions that are out in the marketplace that play, I call the term play beautifully together. So it's like kids in play group. Do they play nice together? Yes, they do. Great. So when they play nice together, they start sharing and it's a good way of doing information.

Alan FitzGerald:
So those pitfalls that we're previously holding back firms, they're suddenly realizing, oh my God, we can either automate or all of this stuff or there is actually a better way. Because the way that software has developed particularly over the last five years is that you have a series of individual vendors that are basically saying, "We're just going to do this bit."

Alan FitzGerald:
"And you know what, we're going to try and make it as good as we can. And we'll connect it to all of these other pieces." And those other pieces are going, "Yeah, going to try and be the best we can over here as well." So what you end up is this best of breed scenario rather than a suite. Because a suite, they always have to compete for price.

Alan FitzGerald:
And that each element of that cannot be a best of breed, because it just simply goes against the grain. So what's happening now is this evolution. And I actually wrote a post about it on LinkedIn the other. Because the main vendors in the marketplace in Australia today, so reckon APS, MYOB, Sage, Handysoft.

Alan FitzGerald:
They were the guys that were creating the suites and they told the market for many, many years, "You have to have a suite to compete. A suite is the only way to go." They are now literally disintegrating all of their products. So they're basically saying, "We're going to do a few elements of this. We're going to try and do this as good as we can, but we're going to start pulling in the ability to interact with other third-party applications."

Alan FitzGerald:
So that has impacts on those organizations, but it also has major impacts on the client base, because the clients are now going to go, "Oh, hold on a second. If you're not going to support a suite, then who does the research to find out who does the various elements of it as they come through?" So we're seeing this transition from the legacy players going, now, look, we're the only guys in town to, maybe we're not. Maybe we need to start to playing nice with other people.

Robyn Jacobson:
Alan, you talk of research. This can be incredibly daunting to even know where to start. If you've recognized that you need to update or improve your processes and software environment, where do you begin? How do you know what's suitable for you? How do you know what to trust and how do you know what's going to be the most suitable for your practice?

Alan FitzGerald:
Oh, look, good call. I mean, obviously, we don't endorse or advocate any one particular product and, or solution apart from Alan FitzGerald who's talking right now. Sorry, I've put that plug in. Look, it comes down to, there's a couple of elements. Talk to The Tax Institute.

Alan FitzGerald:
Talk to other associations. There's a series of events coming up. There's ABE. I think you and I are going to be in separate things at ABE in a couple of weeks time. Accountex are launching in 2023. That's from the UK. There's ChangeGPS. There's Zero Forms. There's a lot of fora that are happening at the moment. It's having an inquisitive mind.

Alan FitzGerald:
It's having and taking time, that you sit back and go, "Okay, I'm just going to take a day out or a couple of days out on alternate days or alternate weeks and say, I wonder what is actually out in the marketplace." And it's part about having the what if scenario? And so I used this a lot. I got a recent engagement from a firm that approached me in Sydney a couple of weeks back.

Alan FitzGerald:
And they said, "Oh, we're about to go down the path of seeing what our current vendor offers." And I say, "Okay." I'm going to quote Warren Buffett to you here. Right? One of the world's greatest investors. "Why would you ask your hairdresser if you need a haircut?" Right? Because the answer is, "Yes, we can give you that haircut. There's no need to go anywhere else. We'll just lop off a little bit at the end."

Alan FitzGerald:
And so it's about having and look looking at about what is out from an independence perspective, but also understanding what you want from the firm. Because every firm is in a different stage of their transition. They're either starting out. And I talk to a lot of people who are exiting firms to set up their own organizations or they're looking to hand over a firm or they're somewhere in between.

Alan FitzGerald:
And it depends on where you are in that scheme of things, determines what products are going to be best for you either to position your firm for a sale or position yourself as a startup firm for success into the future. And so I have to say, there is a lot of information out there, that horrible word that we're seeing a lot with relation to COVID, do your own research. Maybe not.

Alan FitzGerald:
But there is certain certainly avenues that you can go down to explore what is actually going to be good for me, and picking up the phone and just ringing people. You'd be surprised what your peers would be able to say. "Hey, what do you think about product X, Y and Z?" They'll tell you a story of why.

Robyn Jacobson:
Alan, the nirvana of having integrated systems and everything works seamlessly. And I'm talking not just across your own practice, but across different government agencies. We've got so many different government agencies to deal with and different regulators.

Robyn Jacobson:
We'll get into more discussion on online services for agents and for businesses shortly, but are the current systems, whether they're provided by the government agencies or their third-party providers, are they meeting the requirements of the sector?

Alan FitzGerald:
Compliance is a funny, funny beast. So if you look through tax, and hey, we're talking with Tax Institute today, let's talk tax. Every tax application, the outputs are not determined by the vendor. They're determined generally by the regulatory authority, in Australia's case it's the ATO. How the various vendors get that output, which in theory should be the exact same, varies from vendor to vendor. Right?

Alan FitzGerald:
So as part of that process, its ability in turn to then play nice, I'll use that expression again, with other applications become a determining factor. And so you can have a very low cost compliant application, which doesn't necessarily talk to other components because they're selling it at a low price in order to get a market share.

Alan FitzGerald:
Or you can have an expensive solution which talks to a lot of things and nice with a whole variety of vendors. And that comes back to my point earlier about your appetite for risk and how deep your pockets are. And so this is where the interactions between, arguments say, what's provided from the regulatory authorities.

Alan FitzGerald:
So you can go onto ASIC Connect, for example, and then set up a company. Or you can go through things like BGL or NowInfinity or a host of other applications to do it. And so there's a couple of methodologies that you can employ. And so what I see when I talk to the bookkeepers, the smaller accounting firms, they're quite happy because they've only got a handful of clients. They're happy to go through ASIC Connect.

Alan FitzGerald:
Once you start getting into the director's identity numbers, you got multiple clients and blah, blah, blah, then you have to have a solution. And then it comes down to, well, how do these solutions talk to my main database? How do they then work with other solutions that I've got in my kit bag that will then, as I build up a piece and I look at that landscape of the solutions that I use in my firm, do they all talk to one another?

Alan FitzGerald:
And if I use that one, what are the opportunities for me to use another solution that sits off to the side? Do those guys talk well to each other? And so there's a lot of things that you'd have to sit back and go, what does my landscape look like and how much does it actually interact with each other? And I think it's one thing to listen to a vendor, to say that.

Alan FitzGerald:
When you're talking, arguments say, a tax vendor talking about practice management, talking about accounting, talking through to corporate compliance and self-managed superannuation, so forth, they have to be... I'm fortunate I have that 30,000 foot view. So I get to see and I go, "Oh look, those bids work really well with each other."

Alan FitzGerald:
But sometimes the vendors will just, and it's understandable, they want to sell you their product. And so it's like, now you're a prospect, Robyn. So we're going to tell you it does everything. And then when you switch it on, it's like, "Oh yeah, that bit, that's coming in the next release." And so suddenly you've become a customer.

Alan FitzGerald:
And so it's that balancing act between being a prospect and being a customer. And I think that's where finding out where these things actually sit, and I'm not an advocate of integrators selling their preferred tech stacks. So people might see these on forums where they talk about this is our preferred tech stack. That's great, because it suits that particular vendor to support that particular tech stack.

Alan FitzGerald:
It's easy for them to support. Or if it's an accounting firm, this is my tech stack. That's great. That works for them. It may not necessarily work for you. And so that's where you have to sit back and actually take this 30,000 foot view and simply ask questions. People are more than happy to answer questions.

Robyn Jacobson:
Let's drill down now into some more tech specific type tools that are available to the market. What are you seeing out there that people may not be aware of?

Alan FitzGerald:
I think people underestimate, especially the newer solutions. And when I say newer, I'm referring to ones that are more in the cloud than the traditional. So if I talk from an accounting firm perspective, because if you think of probably the most comprehensive tax solution out in the marketplace is MYOB's AE tax, right? That stems from the late 1980s. Now, that's had a complete rewrite and it's progressively going up into the cloud.

Alan FitzGerald:
So what people are using on AE today is not what they're going to get when they move on to the cloud solution. Now, that's the same when you move from a client server and you move it into the cloud, there's elements that you get a positive element in some aspects. But also, you don't get the same functionalities it used to have in the past. And that functionality has only evolved over time.

Alan FitzGerald:
Now, what I tell my clients is that whenever this has scenario in any kind of work situation or a life situation, the first statement that comes at is, "Okay, let's just get back to basics here. Let's get back to what we actually need." Instead of being something like, "Let's get back to complexity." Nobody ever says, let's get back to complexity.

Alan FitzGerald:
And so what's happened with some of these solutions is that over time they've just created more, more fluff within them to justify the monthly maintenance fee that the various vendors charge for this, right? Whereas the new software vendors like your Logic, your Zero, your TaxLab, to a great extent, they have basically said, well, what do people actually need?

Alan FitzGerald:
So the ATO says, we need these forms. We need individuals, companies trust, blah, blah. What we need within there. And so the guys then have gone into those and said, "Well, what are the forms that are most popular within the tax returns?" So they've gone, "Well, let's put those forms in." So that's going to cater 80, 90% of what the market needs.

Alan FitzGerald:
And it's those 10% outliers that might need to do stuff in either externally in Excel or might need to look at another application. And when I talk on that scenario, that might be the larger organizations might need to do consolidations or they might need to do a caning calculations. You're not going to get that in an APS, an MYOB or a Zero, right.

Alan FitzGerald:
You're just simply not going to get it. You have to then go into the next echelon of tax return software, which is your TaxLabs, your Wolters Kluwer Integrator, Thomson Reuters ONESOURCE, that's where you start getting into that realm. And so then it comes up, okay, well, I've just jointed tech stack here.

Alan FitzGerald:
So I've got a tax returns for 80%. And then I've got a different version of tax app here for the other guys. There's one vendor. And I do wear a small hat, which is the Xero which will do everything from the individual through to those consolidations.

Alan FitzGerald:
We're seeing a consolidation, no pun intended, a consolidation of what the tax return capabilities are and then the functionalities that exist within there. But it shouldn't be a shock and don't let it be a shock if you move from a 30 year old, 20 year old piece of software to a cloud environment software which is at best, six, maybe seven years old.

Alan FitzGerald:
Don't be surprised if it doesn't get the same functionality, but be surprised as to what you'll actually get out of that particular piece of software. Because for most firms that I deal with, and I've moved from very large firms onto what ostensibly is quite basic tax return softwares. We've gone, we didn't notice anything different.

Alan FitzGerald:
We were told to be scared and to be wary and not to do it by the incumbent vendor, naturally, because they don't want to lose no client. But when we actually dipped our toe in the water, we didn't actually notice a difference. And they can get access to the information that they previously hadn't had access to.

Robyn Jacobson:
Alan, there's such a range of needs of firms. It's not just tax return preparation software, we've of course got practice manage, the time sheets, self-managed superannuation funds and all the requirements that are associated with that including all the investment strategies and member statements, et cetera. We've got all the corporations act requirements.

Robyn Jacobson:
And then you think we've got FBT returns, we've got payroll software that some firms are still very much involved with on behalf of their clients. There is so much to manage. And then I'm thinking further ahead, we've got client verification requirements that are being implemented, and there'll be more information on that coming shortly. So again, try to juggle all the needs of a practice where tax return software is really just a very, although important, but a very small part of all the requirements of the firm.

Alan FitzGerald:
Oh, look, if you think of, and I talk about this, about arguments say, I do talk about this, but the practice management in particular is that the very popular practice management suites that are in the marketplace at the moment that have been around for the last, in essence, 20 years, were designed for 20 years ago.

Alan FitzGerald:
I've done a number of keynote speeches where I talk about practice management is for billing a client, whereas CRM is more for knowing a client. Now, what I mean by that is that the rise of the multidisciplinary firms, and you gave a great example of that with self-managed superannuation and wealth management and all the associated things.

Alan FitzGerald:
They're not suited to be run a practice management system because it's only giving components of how much they built last year, what their current whip is, et cetera, et cetera. They're not actually telling you, when I look at that client, how much is that client worth to me at a single view across my database. And so a client relationship management system will give you that.

Alan FitzGerald:
And this is the fundamental change. So every organization that deals with a client, so I'm talking about, or every vendor that deals too with an accounting firm is using a client relationship management system. So everyone is using a client management system. Yet, what are they selling the accounting firm, we're selling them a practice management system.

Alan FitzGerald:
Well, I want to say, that doesn't make any sense. You're using tools to sell to me a tool that I should be using when I'm talking to my clients, but I'm not. You're selling me something different. And I think it's that, because the nature of the interaction with the clients, so the end clients, so the actual client of the accounting firm, it's a different relationship to what has happened over the last 20 years.

Alan FitzGerald:
To your point, GST came in, the rise of clients using their own GL systems, receipt captures, automated systems, so forth. Well, hey, the practice management systems were designed before GST came into play and they haven't really evolved since then. So you're using a system, it's kind of a square peg in a round hole.

Alan FitzGerald:
You're using a system that was designed for a particular function back then, but nowadays we're actually offering more services and more capabilities to our clients, but the systems aren't adapting. And I think that's one of the key things that is happening in the marketplace at the moment.

Robyn Jacobson:
You speak of evolution, let's look to the future.

Alan FitzGerald:
Yup.

Robyn Jacobson:
Artificial intelligence, robotics, big data. What's ahead for the profession or what does even some of this mean? There'll be some of our listeners who are yet to fully understand what is AI and how does it work in the real world> can you unpack some of this for us?

Alan FitzGerald:
Yeah. Sure. Absolutely. Love it. Oh, love this stuff. Love this stuff. Okay. So robotics, robotics is basically automating processes. Yeah. And linking pieces of software and automating a process that happens within there, rather than having human do that particular process. There's two ways you can look at this. One is you're taking the robot out of the human, which is, at least I'll be freeing up their time.

Alan FitzGerald:
And the other element is, don't automate a bad process. Because if you automate a bad process, you're just speeding up a bad process. Now, that goes back to my original point where a lot of firms are in this scenario at the moment because they're constrained by the capabilities of the systems that they're using. Right?

Alan FitzGerald:
So if you just all automate a bad process because of the limitations of that software, great, you're making it faster. But what are you doing? You're fundamentally automating a bad process. So what robotics do is basically they learn by Roch. So you basically say... So a great example is you're out of office reminder on email. In essence, that's a really robot.

Alan FitzGerald:
You're basically saying, I'm not in the office between these days. As soon as the expiry date finishes, I don't have to go back in and change the out of office reminder. Right. So that's a very simple one, message comes in, bang, a reply message goes out. Machine learning then basically says, "Oh, Robyn seems to take every Tuesday, Wednesdays and Thursdays off." Right. I know you don't.

Robyn Jacobson:
I wish.

Alan FitzGerald:
But it's like, "Oh, okay, well, that seems to be a bit of a trend." And the software will learn. So if you think of looking at Netflix or listening to Spotify, so it is listening or watching or recording what you're watching. So if you're into, I don't know, sci-fi adventure. It's saying, "Hey, you might like some of these ideas."

Alan FitzGerald:
So that's a mixture of machine learning and artificial intelligence because it's picking up on, Robyn's always looking at Star Wars movies. So she might be interested in Star Trek. Now, I know that two of them are an affirmate to each other in some instances, but it's basically, here's some suggestions and some stuff that you might want to do.

Alan FitzGerald:
So it's actually picking up on a trend that you're learning on. So when we utilize that in a tax and finance scenario, it's basically saying I can look at it, rather than looking at a handful of transactions, I can look at all of the transactions. And I can identify within, or the system can identify, actually based on what Robyn has said previously, that seems to be, to me, the computer, that seems to be bit of an error in transaction.

Alan FitzGerald:
Let me just grab that. And I'll just flag it to Robyn and saying, "Hey, I found one. You might want to take a look at this. I'm not saying it's right or it's wrong. I'm just bringing it to your attention." And that's where this rise of AI will come in there. So you could view AI rather, than being artificial, you could view it as more of an assisted intelligence. So it's not going to replace anything.

Alan FitzGerald:
And this is one of the lines that I use in my, and every tax person will appreciate this, is that, up until a point that robotics, artificial intelligence, machine learning, all of these things can actually clarify what a client wants, you're all safe. Right? Because you know, Robyn, I talk about tax advisors and financial advisors being the anxiety transfer specialist. Right? Because you guys speak a very special language.

Alan FitzGerald:
That's the language between the general ledger and the ATO or any kind of regulatory authority. And that's why people come to accounting careers, because they don't want to learn that language. They simply don't want to learn it. They want someone to be that translator that can also keep them compliant and think. And that's where I think is the unharnessed awareness from a tax and financing perspective that needs to be brought forward.

Alan FitzGerald:
So these are just simply, AI, robotics, it's just an evolutionary tool. They're in tools that used day in day out. Google Maps. That's why Google Maps puts all these different alternative routes to take you from destination A to B. It's also why Google Maps often sends you down those errands lane wise, why am I being pointed down this way?

Alan FitzGerald:
Because it's trying to learn, is this a faster way at this time of day to send people rather than the way that they would normally associate with that direction? So the machine is trying to learn, and that's where the machine learning element comes into play as well. So it's gathering all of this information.

Alan FitzGerald:
And that's where, using Google Maps as an example, if you put on between say Melbourne and Tullamarine Airport, it'll show up in certain areas as red. So its certain stretches. It's pulling information where they can see that the traffic isn't going 100 kilometers an hour, it's going 20. So it's flagging that as red.

Alan FitzGerald:
Because everybody's sitting there going, using Google Maps like, "Why am I slowed down?" And so it's actually learning or picking up all of that information. So my message is, don't be afraid of it. It's not going to replace the jobs. It's actually going to be a tool that will benefit and accentuate some of the stuff that you're already doing.

Robyn Jacobson:
Without suggesting in any way that you're a spokesperson for the ATO, how do you see AI affecting online services for agents, online services for business, practitioner lodgement service, et cetera. So these are basically tools or platforms that the ATO's built. How is this going to be affected by the evolution of robotic and AI, in your view, but [crosstalk 00:30:43] this is all crystal ball gazing?

Alan FitzGerald:
And I don't get paid by the ATO. Look, I did a posting many years ago about the changing of the portals. We had to send some of the portals to the new generation of it. And I used, I'm trying to think, my analogy was space travel and the ATO portal and why they were actually interlinked. And it was the story of Michael Collins. Michael Collins is the guy, when Buzz Aldrin and, oh God, I've even forgotten his name. First man in the moon.

Robyn Jacobson:
Neil Armstrong.

Alan FitzGerald:
Neil Armstrong, thank you very much. Stood on the moon, he was floating around in the capsule going around. And he had time to think, right. He had time to think. He's waiting for the guys down on The Eagle has Landed. And he looked around the capsule and he realized that everything in that capsule was made by the lowest cost vendor. Right.

Alan FitzGerald:
And my point in that article was that the design of the portal that was coming, by the time it was released, would be out of date because the process to get it right was based on the technology that existed at that particular point in time, rather than, and I know it's a chicken and egg scenario, rather than the technology that would exist when it was ultimately released.

Alan FitzGerald:
So the frustrations that people are encountering, this is why people are saying don't switch off the portal because we've just got used to it. It had its foibles. It had its weaknesses. It had all these issues, but it worked. And then they swapped onto something else. And hey, presto, things started going wrong.

Alan FitzGerald:
And it's because you have this lag from the ATOs perspective, whereas the rest of the software that everybody else is using has leapfrogged ahead. And so it's kind of always a generation behind, in order to keep up with it. They are in fact in a no-win situation.

Alan FitzGerald:
So because they can't be so far on the bleeding edge, because the technology hasn't got there in order for them to have something that's going to be stable for the next couple of years after that. So they're anything up to 3, 4, 5 plus years behind.

Robyn Jacobson:
Something that your world and our world has in common, and I'm talking technology and tax, neither of them stands still. We get daily updates. We know the law is constantly changing. We've got decision coming out. The courts, we've got guidance being issued by the ATO on a daily basis.

Robyn Jacobson:
I'm not going to sit here and work out which one changes faster. But certainly, from the perspective of an accounting or law firm, it's incredibly challenging that not only is their technical world changing in terms of tax law, but their technological world is also changing rapidly.

Alan FitzGerald:
Absolutely. Look, the compliance is one of those, particularly tax compliance. And it's probably the main reason that I've hung around in this market for so long is because it changes every year. And that to me is one of the... I did a presentation to about 140 CFOs a couple weeks back.

Alan FitzGerald:
And I said, "Look, if you have kids, nieces, nephews, whomever. You have kids friends, neighbors friends or whatever, and they're interested in doing tax and they're interested in learning something else." I said, "Get them to learn software, because even though it sounds the most bizarre thing, the tax software world is probably one of the most dynamic software platforms around because it changes every year."

Alan FitzGerald:
Yeah. You might say, "Oh yeah, it's percentage here and it's percentage..." No, no, no, no. It is all about, how can we make this stuff more and more efficient? So if you think back to what I mentioned earlier about the 30 year old piece of software and moving it to cloud, and it's like, okay, what do we need?

Alan FitzGerald:
The massive benefits you get in productivity and efficiencies by moving to newer generations, which as I said, the outputs are determined by a third-party. And they all tick the boxes with relation to that. How you get their changes, that is amazing at the moment. It is absolutely amazing. And so when you actually open up your mind to go, "Oh, oh, actually, let's sit back and take a look at this."

Alan FitzGerald:
You suddenly go, "Actually, this is potentially for us a better way of doing things. And that's where it gets really exciting. And so because of the regulatory landscape change is so much. The vendors, in turn, not only are they trying to keep an eye on what the changing goal posts are with relation to the tax technology, but they've got the opportunity on a regular basis to update how you get to that end point.

Alan FitzGerald:
And that invariably means it's the Altius, Citius, Fortius, the Higher, Faster, Stronger, the Olympic ideals. And so it's basically how can we tweak this software in a way that is more efficient to process returns for the accounting firms, which in turn frees up the accounting firm's time to be able to offer additional services and, or go home early.

Alan FitzGerald:
I'm a big effort of the go home early bit. So it's one of those scenarios where these software solutions are becoming so much cleverer. They're not taking anything away from the practitioner, far from it. They're actually basically saying, here's a third arm or [inaudible 00:35:46] operate. That's a really obscure reference for anybody, but [inaudible 00:35:49], here's the second hand to be able to do some of those things that might have taken up more of your time.

Robyn Jacobson:
Final question for you. What is, in your view, the single biggest opportunity for practices with technology?

Alan FitzGerald:
I think it goes back to that CRM component, the client relationship management from an accounting firm particularly, because I think it's, as I say to some of my clients, it's a eureka moment when you discover what you can actually do. I'm not suggesting that people stand up naked in their bathtub or anything.

Alan FitzGerald:
But it's basically, when you realize that you can see all of the information across all of your clients ranked and you can say, well, if I have 2000 clients and I look at that and I see that there's a proportion of them that are, arguments say, doing wealth management or there's a portion that don't have self-managed superannuation.

Alan FitzGerald:
It actually allows you to go, "Oh, okay. Now, which guys do I like working with?" This is really important. This is what CRM does as well. So it gives you the opportunity to go, which organizations that I like dealing with or the individuals that I like dealing with, and how can I best hone my skills?

Alan FitzGerald:
So if I'm a specialist in transfer pricing or if it's a specialist in indirect taxes or self-managed superannuation, let's look at my database and I can basically hone in and manage the opportunities that sit within my database in order for me to either increase my business potential or get rid of the clients that I don't need to deal with anymore.

Alan FitzGerald:
Now, that's something that I see, it's the shedding of clients being a massive thing in the next six to 12 months. Because we've got low unemployment, we've got high rates of people exiting the profession and not coming into the profession. So that whoever's left over is going to be managing a big database and going, "I don't want to have to deal with that person anymore."

Alan FitzGerald:
And so they start working out who their ideal client is going to be. So I'm guessing that there's going to be a lot of change over the next six to 12 months in that space alone, as CRM is going to be able to enable you to analyze that.

Robyn Jacobson:
Thank you so much for your comments. I feel like we could keep talking for many more hours. We haven't even touched the surface of things like Bitcoin and cryptocurrency and they're very much associated conversations, but I thank you for your insights today. It was great chatting with you.

Alan FitzGerald:
Wonderful. Thank you for having me.

Robyn Jacobson:
Thank you for listening to this episode of TaxVibe. I've been chatting with FitzGerald of Practice Connections Advisory. 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 on social media, follow The Tax Institute on LinkedIn, Facebook, Instagram and Twitter.

Robyn Jacobson:
You can join the conversation on our member-only community forum at community.taxinstitute.com.au. Don't miss our inaugural member appreciation week, April 26 to 29. An opportunity to recognize, acknowledge and thank our members for everything they do for the profession and for The Institute.

Robyn Jacobson:
Visit taxinstitute.com.au for more information. Not a member of The Tax Institute, join a collective voice of 15,000 practitioners at the heart of the profession and find out what the best tax professionals have in common. For more information, visit taxinstitute.com.au/membership. You can also contact us by emailing taxvibe@taxinstitute.com.au. We look forward to you joining us next time.

Robyn Jacobson:
Hello and welcome to TaxVibe, a podcast by The Tax Institute. I'm Robyn Jacobson, a 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 that will share valuable and practical insights you may not hear every day. We hope you enjoy this episode of TaxVibe. I'm joined by Julie Abdalla, who is the tax counsel at The Tax Institute. Julie's an experienced tax lawyer and emerging leader. She has practiced in the corporate tax teams of big four and top tier law firms in Sydney and Melbourne. Julie also gained experience across the spectrum of UK taxes while working at an international law firm in London.

Robyn Jacobson:
Julie has a strong passion for tax policy and reform, and the depth of knowledge to advocate for members. She has been recognized among her peers and throughout the profession for her leadership and excellence in tax. Julie holds a Bachelor of Arts and a Juris Doctor from the University of Sydney and a Master of Laws from the university of Melbourne, part of which was completed at the University of Oxford. Julie, welcome to TaxVibe for the very first time and, of course, our first episode for 2022.

Julie Abdalla:
Hi, Robyn. Thank you for having me. It's a pleasure to be here.

Robyn Jacobson:
I wish we could still do this in person at some stage, but for the time being we will still do this remotely, you in Sydney and me in Melbourne.

Julie Abdalla:
I know. It'd be nice to be in the same room, but I suppose that's one of the beauties of technology, that we can actually do this from totally different states.

Robyn Jacobson:
Absolutely. Look, we've already got ourselves one month into the new year. Can't believe it's February already. In terms of the holiday break, how did you chill out? Because, gosh, it was a big year last year. In fact, two big years, but how did you spend time to just recharge and break away from this tax law?

Julie Abdalla:
It was a big year, and you're right, it has been a big couple of years. My break was actually pretty short, but I became a proud auntie for the second time to another little niece so I had a lot of family time with them. I was actually in London when my first niece was born, so it was nice to actually be here this time and not miss out on the early stages where they're changing so much. That's been really fun. Otherwise, I had a pretty quiet break. I spent a lot of time in my garden. I've got this wild, lush garden and the complete introvert in me is speaking now but I really love spending time out there. Got this fish pond and I've managed to keep my fish alive, so very happy with that. What about you? Your break was probably a bit more adventurous than mine.

Robyn Jacobson:
Well, having been locked out of Melbourne for what feels like all of two years, and a few of our members may recall that beginning of 2020 I broke my foot and so I was laid up with a moon boot and keeping my leg elevated. I really feel like lockdowns for me began back in January of 2020, but I was able to do some trips around regional Victoria. One of the things I love doing is getting out in the car and doing road trips and country trips and catching up with friends and family so, look, I feel like I've covered the north of the state up to Yarrawonga and down to Geelong and down the peninsula and through the alpine area of Victoria. It was lovely to get some fresh air, not read tax. It may surprise some people, but yes I can go a couple of weeks without tax. It was lovely to recharge and have some time out.

Julie Abdalla:
When I lived in Melbourne, I used to love doing those regional trips out to different parts of Victoria. It's so beautiful out there. I mean, it's quite different from regional New South Wales but that's also really beautiful. I just love being in the country so I'm happy either way.

Robyn Jacobson:
And it's quite a compact state so with a few hours' drive you can cover a fair bit of it.

Julie Abdalla:
Easy to do, yeah.

Robyn Jacobson:
As we get back into the working year, how do we best pace ourselves? Now, that's you and I and our broader team and, of course, the profession more broadly again. We talk about New Year's resolutions and how quickly they are broken [inaudible 00:04:15] this way of approaching this when we're talking about getting back into the working year and how do you manage it?

Julie Abdalla:
Well, that is the million dollar question isn't it. I think, look, different things work for different people. I think, though, the past couple of years have been relentless and draining, especially in and out of lockdown and having to adapt to different working situations. But for me, I don't actually make any New Year's resolutions. I find that's a very good way to break them very quickly. I do like to set goals and there are things that I want to achieve throughout the year, but try not to put too much pressure on the beginning of the year by calling them resolutions. But it's a bit of balance, and balance isn't even a 50/50 thing. Balance is just what works for you on that day, during that week. It's exercise, it's managing work, it's spending time with my family and my friends in my garden. What about you?

Robyn Jacobson:
Look, I think it is time out. When you're looking at these beautiful long evenings we've got at the moment... I know WA doesn't have daylight savings nor Queensland, but for those states that do we have got these long evenings, and particularly in Melbourne and then more so down in Tasmania. Our highlights are so much longer than the northern states.

Julie Abdalla:
So beautiful.

Robyn Jacobson:
I have been making a point of getting out every evening and having a walk after work, and that's something I would love to maintain right through winter but that's one of those things that you strive to do and may not actually [crosstalk 00:05:41].

Julie Abdalla:
I always do it in the morning. I go out for a morning walk so I get it over and done with for the day, but you're right. It's so important to just take a moment to reset and refresh.

Robyn Jacobson:
So with a better year ahead, let's just flag some key dates coming up. Federal budget. Now, I've always described this as the most exciting date on the accountant's calendar. We're talking typically that second Tuesday in May, and I've already said cancel your social plans and if you're going to spend the evening with anyone else, it's got to be other accountants or lawyers where you order your pizza and have a beer or two and just enjoy the evening. But this year with the federal election having to be held at least in the Senate now, it's unlikely we're going to see two elections, one for the lower house last September. We are talking about, of course, a federal election by the 21st of May. That's brought forward the budget to the 29th of March, which is only a couple of months away. We will keep a very close eye on what is going on with that, but can you make a brief comment about what we've been doing lately? Because pre-budget submissions are an important part of gearing up for the federal budget each year.

Julie Abdalla:
Yeah, that's right. We've just lodged our pre-budget submission and it's something we do pretty much every year, and it's one way that we advocate for what our members and what the community wants and needs from our government in relation to tax and to the system. They're things that we put in there that we want to see in the upcoming budget and, I guess, it's a wait and see on budget night. I've been very privileged to actually attend the budget lock-up, which is where we have a first glimpse of the budget papers and the budget measures before the Treasury gives his speech on budget night. Hopefully we'll have that opportunity again this year. Of course, we'll be providing resources for our members to explain the impact of the budget measures.

Robyn Jacobson:
We're also going to have another disrupted parliamentary year [crosstalk 00:07:33]. In an ordinary parliamentary year, and I'm talking ordinary outside COVID and outside elections and anything else that might be a big disrupter.

Julie Abdalla:
I don't really remember those times.

Robyn Jacobson:
Feels like a few years now. We typically have around 19 or 20 sitting weeks a year, which doesn't sound very many but they need to spend time back in their electorates throughout the year. But with the election having to be held by May, and then of course we've got the caretaker period before that and the election campaigning, I've counted up we're unlikely to see much more than six sitting days before August this year, which might sound quite extraordinary but we've got a few sitting days in February, we've got the three days for the budget then we both are going to go into caretaker mode, the election will be called.

Robyn Jacobson:
I'll be very surprised if there are any sitting days at the end of June. It depends how long they're going to take to count the votes, but I think with COVID we're going to have a much higher proportion of postal votes than we might have seen in years gone by. That always takes longer to count those up and get them in, and then we've got the winter resets so it really could be August, September before we get any meaningful debate before the parliament. What does this mean when we've got such disruption to the legislative program? The business world has to keep on operating.

Julie Abdalla:
Well, that's right. The world keeps spinning, doesn't it? I mean, businesses going on, people are living their lives and we do need a degree of certainty from our taxes, and that's the problem. If we don't have enough time where parliament's sitting, we don't get legislation through, but we need to have some of these new measures coming through, we need debate and people need certainty. We need some degree of certainty from our tax system, and what we've seen in the changing landscape where things are moving pretty quickly all the time is that our system's just not coping.

Robyn Jacobson:
Our members recently will have received a copy of our State of Tax Policy Report which sets out the status of all the tax and superannuation measures that we think are key to our members. It'll be interesting to rerun that report roughly midyear because, of course, we will either have a returning coalition government or a new Labor government. Now, if it's returning coalition you'd expect any lapsed bills before the parliament to simply be reproduced, but they may take it as an opportunity to tweak some of their policies. If it's an incoming Labor government, then we would expect some changes in tax policy but that's all to be revealed. It's going to be in one sense a very disruptive year, but it's also a year of opportunity.

Julie Abdalla:
Absolutely. Absolutely. We have to keep hopeful.

Robyn Jacobson:
What are the key things on our radar at the moment? Now, we've got some things noted down here and we're going to across the SME sector as well as the large corporates, but what would you like to kick off with in terms of what we're keeping an eye on over the months ahead?

Julie Abdalla:
Okay. What about the professional firm's PCG 2021/4? The final version was issued in December last year, and so I think the dust is really still settling on this one. But PCG sets out the ATO's compliance approach to the allocation of profits or income from professional firms to in the assessable income of the practitioners that work in those firms. It does so through two gateways and a risk assessment framework of objective factors which are used to rate arrangements from low, medium or high risk. As we know, PCGs are essentially risk assessment tools. I think people are still really coming to terms with this PCG and what it means for their practices and how it affects business structures and operations. We've had a working group, a committee of our experienced practitioners involved in consultation with the ATO for quite some time now. I'm very conscious that PCG applies from mid this year, from 1st of July 2022, so we're working with our committee during this time to provide resources to educate our members on what they need to consider and what they need to do in light of the PCG.

Robyn Jacobson:
I think what's really important to note, and you made that comment about it being a risk assessment tool. Practical compliance guidelines, or PCGs, are not rulings. They might look like one and sort of have the flavor of one, but they don't explain the Commissioner's interpretation of the law or how the law applies to tax payers. What they do is set out the extent or the risk profile that they're likely to undertake a review or an audit of a taxpayer.

Julie Abdalla:
But it is how they allocate their compliance resources and what the Commissioner will consider as high risk or not, but it isn't a statement of the Commissioner's view of the law and we do need to be mindful of what they mean, how they operate, what reliance can we place on them.

Robyn Jacobson:
Another interesting thing we're keeping a close eye on, and this has been, I've got to say, dragging on for some years now, Section 100A. Anybody who has a trust and has distributions made to a beneficiary where, I'm going to describe it really simply, your cash goes one way and the distribution on paper goes somewhere else. It's a separation of profit and the economic benefit of that distribution. If [inaudible 00:12:33] agreement, you can end up with adverse tax on occasions for the trustee. Now, the ATO has been saying for some time that they would provide some guidance on this and they did delay it from late last year. They said it was ready at the time, but because of the pressure on the profession they said they would delay it until this year. Now, at the moment the ATO website is still indicating that this guidance is expected to be completed in February, but I think what is interesting, and we need to wait and see how this plays out, but there's been a recent Federal Court decision called Guardian.

Robyn Jacobson:
Now, I won't go through the detail of the case, but it is worth a read and we've also included a summary of this in our recent TaxVibe or [inaudible 00:13:11] The Tax Institute. But I think what's really relevant about this case, it is a single judge not three judges, but I would expect it to go on appeal to the full Federal Court. It deals with what is a reimbursement agreement and concludes that there wasn't one. It deals with whether there was an ordinary family or commercial dealing and the judge concluded, Justice Logan, that there in fact was this situation. In other words, they got the benefit of the exemption. And he went on to conclude that part 4A did not apply. To me, this case has everything and you just need to see whether this delays the ATO's guidance because it's hard to see how they could release a draft ruling and a PCG when potentially there's still an appeal still to play out. We'll keep a very close eye on this one.

Julie Abdalla:
Yeah. Look, I think it was a very sensible decision to hold off on releasing the guidance in light of what's going on and the pressure on practitioners. I think it would be difficult to see how finalized guidance would be issued at this stage. We do need to see what happens next.

Robyn Jacobson:
Now, dovetailing very closely with that, Division 7A. Can we ever have a conversation about SMEs and tax and not talk about Division 7A?

Julie Abdalla:
I don't think so. 

Robyn Jacobson:
I'm going to say we're heading into 11, 12 years now since the original review by the Board of Taxation was commissioned by the then Labor assistant treasurer way back in 2012. Now, we are still waiting for the proposed Treasury reforms. We have seen nothing formally from Treasury since 2018 when they released that discussion paper. We know the measures are deferred and they will commence on the first, 1 July following enactment of the enabling legislation. That's open ended. That could be anytime. Could be five, ten years from now, but in the mean time we do know that the ATO is going to be releasing a new package of Div 7A guidance, a new ruling, presumably a new PCG and possibly a new practice statement but that might all be bound up together in the PCG. We'll be very, very keenly following this. It's going to be highly relevant for many of our members and the broader profession, those that have, of course, trusts, private companies, et cetera so we'll keep a close eye on this one.

Julie Abdalla:
Absolutely. The guidance that the ATO's looking to release, that's quite distinct from the Treasury reforms, though, those reforms.

Robyn Jacobson:
Yes, it is. I think that's a really important point because people may get the two confused or even conflate them. Treasury putting forward a bill to parliament that amends the legislation is quite different from the ATO providing guidance on how to interpret the law, or indeed how they might approach risk reviews. So yes, this is distinct and, again, will be interesting to see what does it do, how does it rewrite the existing rulings. I'm referring to 2010/3 and PSOA 2010 form documents like that, which are then around for more than 10 years now. Maybe it's time to update them, but how does that sit in the context of the proposed reforms? It's really interesting to watch. So next issue, individual residency. We are still waiting and waiting and waiting.

Julie Abdalla:
We are waiting and waiting. As you know, last year there were those changes that were announced to the individual tax residency rules in the federal budget. The new framework is based on the recommendations made by the Board of Tax in its 2019 report. Essentially, it's proposed to consist of a primary bright-line test based on visible presence and then you've got a secondary test based on certain objective factors. I don't think we have time to get into the detail of all the challenges right now, but certainly with the Addy case and the ATO's recent decision impact statement there's a lot going on in the individual tax residency space and likely to be a significant overhaul of the rules. We haven't seen the draft legislation yet, but I think we'd anticipate there will be some consultation at that time.

Robyn Jacobson:
Is it too simplistic to boil it down to one core concern, and that is are we at risk of replacing one set of complex rules that require interpretation and possibly judicial guidance with another set of complex rules that require interpretation? Isn't that a significant risk here?

Julie Abdalla:
No, I think you're absolutely right. If you think about the litigation of these kind of matters over the past few years and when they changed the rules earlier, exactly as you say, replacing complex rules with more complex rules. But I don't know that that's the answer.

Robyn Jacobson:
The date was 1 July 2009, that's when they changed or narrowed particularly the exemption 23AG. Since that time, we've had a whole bundle of taxpayers trying to argue that they in fact are non-residents because that way, the incumbent would otherwise be assessable in Australia, could be exempt, and most of them have been unsuccessful. Onto the corporates and the multinationals. What do you see as, I guess, the top priorities or the key areas that we are keeping a very close eye on?

Julie Abdalla:
Well, sticking to the theme of residency, corporate tax residency is another to keep an eye on. In the 2021/22 federal budget, the government announced technology amendments to clarify the corporate residency test and those amendments would basically provide that a company that's incorporated offshore is treated as an Australian tax resident if it has a significant economic connection to Australia. Those changes have been really welcomed. Last year, a further announcement was made by the government that they would consult on extending the rules to trusts and CLPs, so corporate limited partnerships. Consultation hasn't taken place yet and it's been delayed a number of times, presumably due to other priorities, but we anticipate it'll commence in the coming months. That's one area to keep an eye on.

Julie Abdalla:
Pillar One and Pillar Two... Now, of course, we don't have time to get into the detail here, but at a very, very high level we've got Pillar One, which is about ensuring profits are allocated more appropriately, Pillar Two which is essentially implementing a global minimum corporate tax rate. There have been ongoing negotiations for quite some time, which are expected to progress throughout the year. I think it goes without saying that it's an ambitious timeframe for go live, if you will. It's really interesting to see the interaction between tax and accounting and the administrative aspects as well. I know Treasury and the ATO are working really closely together. It's also interesting to think about the policy designs going on, so that's a watch and see over the next 12 months, I think.

Robyn Jacobson:
What's happening with the sharing economy? Because we've seen a lot of noise and activity in relation to Airbnb and Uber and the like, but we're getting a new legislative framework that's going to allow more data sharing with the ATO.

Julie Abdalla:
Yes. Well, we think so, depending on how the parliamentary sittings go. This measure... You're right, it does have its roots in the efforts of the shadow economy taskforce recommendation. Last year, we actually appeared before the Senate Economics Legislation Committee inquiry into the bill and we've been keenly tracking its progress. The proposed start date for taxi travel and short term accommodation is 1 July of this year, and for pretty much every thing else that's captured is 1 July next year. The bill hasn't been passed though, so potentially in the upcoming parliamentary sitting this month but we don't know. We do understand the ATO will be consulting on administrative issues with the implementation of the regime, including the need for public advice and guidance and, of course, reporting requirements so watch this space.

Robyn Jacobson:
Few things to keep an eye on there. Legal professional privilege pressure cult. Try and say that quickly three times.

Julie Abdalla:
It's a tongue twister, but it's a very important fundamental concept, the LPP... Well, it's a fundamental right of all clients, and including taxpayers who seek legal advice. What the protocol attempts to do is document the ATO's view of what is best practice when making claims of LPP in response to formal information gathering notices from the ATO. There has been ongoing consultation with the ATO and certain groups, including The Tax Institute, and I know that the protocol has evolved over time due to that consultation, which is great to see. The ATO website at the moment is telling us that further consultation may take place, but expected completion is in March, so next month. So it remains to be seen whether it will change again since feedback was provided late last year or if that's it.

Robyn Jacobson:
One final measure in the corporate space, what is known as CCIV, corporate collective investment vehicles.

Julie Abdalla:
We do like a little bit of a tongue twister in the corporate space. Yeah, so the bill was introduced into the House of Reps in late November. It won't be debated until parliament resumes this year so, again, potentially in this February sitting, but it has been referred to the Senate Economics Legislation Committee and they will be reporting on it early this month. The main purpose of the bill is to create a new class of companies, so CCIVs, that any investors in which will be taxed on a flow through basis. At a very high level, it piggybacks off the AMIT rules, the existing attribution managed investment trust rules, but if the CCIV doesn't fall within those rules then its shareholders may be taxed under Div 6 or Div 6C.

Robyn Jacobson:
So, effectively, we're trying to attract foreign investment here.

Julie Abdalla:
That's right, we are trying to encourage foreign investment and it does have the benefit of relating back to the AMIT rules as well, which is something we're a bit more familiar with over the past few years since they've been around. It's actually been a long time coming. The new regime start date is 1 July this year, but the intention to create it was actually first announced in the 2016, 2017 federal budget. It'll be interesting to see how this progresses following standard inquiry as well.

Robyn Jacobson:
It will. When I hear you talk about AMIT and CCIV, it just makes me wonder if the government and the ATO have run out of three letter acronyms so they're having to move into four letter acronyms.

Julie Abdalla:
Well, let's hope we don't move to five any time soon.

Robyn Jacobson:
Creating new words by then. Here's another four letter one, IGTO. IGOT depending how you express it, but the Inspector-General of Taxation and Taxation Ombudsman is currently undertaking three reviews. Now, the office of the Inspector-General always has a web program available on their website setting out the work that they're doing, but what are these three particular investigations about?

Julie Abdalla:
This first one's about the ATO's administration and management of objections, second one's the exercise of the general powers of administration and the last one's about the exercise of the commissioner's remedial power. They're really interesting topics. We've been doing some work in the background on these issues and we've been engaging with the Inspector-General. It's always interesting for me to see how things are done in other jurisdictions as well to compare... Sometimes we can learn things from what other countries do, something that we should be doing or actually what not to do. And we'll be making three submissions in response to those reviews.

Robyn Jacobson:
Another issue we're looking at is the... Here we've got another four letter acronym, the ANAO, which is the Australian National Audit Office. Now, many of our listeners may not be aware that the role of the Australian National Audit Office is in fact to audit the government and government departments. They're currently conducting an audit of the ATO's engagement with tax agents. I have already mentioned on behalf of The Tax Institute with the ANAO we've had some initial meetings to talk about the scope of their audit and feedback that they're seeking. We have put a call out to our members saying, "If you've got any feedback on this, please let us know." They are calling for feedback right through til April, but we will continue to be meeting with them between now and then.

Robyn Jacobson:
This is a formal audit that gets sent in draft to the ATO, and then it will be actually formally tabled before the parliament, expected in August. It will interesting to see not just what the recommendations of the ANAO are, but what might come out of any reforms so changes could be made down the track to these processes. Another issue we're looking at, there is a current working group set up by the ATO called the Lodgment Program Review Working Group. Again, I am the Institute's representative in this working group and we are meeting with other professional bodies and some practitioners and the ATO and looking at the whole scope of everything that has to be lodged, the timing, all the different lodgment requirements.

Robyn Jacobson:
I think back 20 or 30 years ago where it had these lovely quiet periods in between lodgment season. Yes, [inaudible 00:26:10] April, May. Yes, you have a flurry of activity in June, your lodgments began July, business lodgments you typically have another rush before Christmas and maybe another one in May. With activity statements and TBARs and TPARs and, of course, tax returns and SG statements, there are so much now. It just seems to be a rolling cycle of lodgment obligations.

Julie Abdalla:
Practitioners certainly have their work cut out for them, and actually so does this working group.

Robyn Jacobson:
Absolutely. Once again, we're seeking feedback from members and we're keen to hear your thoughts and your experiences and what can be done to improve the current lodgment program. The last comment I wanted to make was in relation to the COVID business support. We had almost thought that we might be coming out the tail end of all these different programs and the vaccine level's so high, and yes Omicron is widespread and case numbers are up but its severity does not seem to be quite as bad as Delta and the previous variants. But that said, there is a hesitancy by consumers to go out in retail settings. We're certainly seeing an enormous staffing shortage where almost every business you have some sort of dealing with now, they're short staffed.

Robyn Jacobson:
The service is limited, it's taking longer to do everything and not just truck drivers, but shop assistants and hairdressers and all sorts of things. On the 30th of January, the New South Wales government announced another round of business support. Now, it would be a mistake to call this JobSaver 2 or JobSaver 2022. It is called the Small Business Support Program and what we know to date is that there will be a one off payment in February based on a decline in turnover of at least 40%. Now, the specific parameters and the features of the program we will be sharing in social media as well as in vlogs with our members but, of course, if you want the initial detail you can find that at the New South Wales Premier's media release webpage.

Robyn Jacobson:
Hopefully we don't have to continue to rely on government support to get through the remainder of the pandemic, but I think it would be unrealistic to think that we're not going to see further outbreaks. What we may well see is targeted or localized support rather than a universal program being rolled out like JobKeeper, or JobSaver in the case of New South Wales. More detail to come on this program. Obviously applications still need to open up and all the fine print needs to be worked through, but I'd like to think that we won't see too many more of these in the next year, but I hope I'm not proven wrong.

Julie Abdalla:
Fingers crossed. I mean, it is great to see the government still providing some level of support while I know there's a lot of effort to go back to normal, whatever normal is, and living with COVID, but we do have to acknowledge businesses are still struggling and people are still struggling through so it's great to see that support coming through.

Robyn Jacobson:
And not wanting to overlook members or practitioners or businesses outside New South Wales, do keep a close eye on your particular state or territory because, for example, I saw last week South Australian government has announced further support. I'd expect there might be something further from Victorian government, and with case numbers as broad as they are and businesses continue to be affected it is important that you do check your local state government websites to see what support is available to you or your client's businesses. Julie, as we wrap, big year ahead, lots of things in store, but there's that certain optimism and hope every January, February as we embark on a brand new year and we don't know what's in store.

Julie Abdalla:
Always. I mean, we do have to keep that hope alive throughout the year, but yeah, absolutely, it's going to be a big year. Very much looking forward to it.

Robyn Jacobson:
And I look forward to working with you and the rest of our tax policy advocacy team.

Julie Abdalla:
Yeah, likewise. Hopefully, we'll get you up to Sydney more often this year.

Robyn Jacobson:
Well, I hope so. I want to stand in front of a live audience, so I do look forward to that. No, thank you so much for your time, Julie.

Julie Abdalla:
Thank you for having me on the podcast.

Robyn Jacobson:
We'll get you back again this year, so don't think this is your last appearance.

Julie Abdalla:
Thank you.

Robyn Jacobson:
Thank you for listening to this episode of TaxVibe. I've been chatting with Julie Abdalla, FTI, tax counsel at The Tax Institute. 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 on social media, follow The Tax Institute on LinkedIn, Facebook, Instagram and Twitter. You can join the conversation on our member only community forum at community.taxinstitute.com.au. Not a member of The Tax Institute? Join a collective voice of 15,000 practitioners at the heart of the profession and find out what the best tax professionals have in common. Join before 28th February 2022 and save 50% on membership. For more information, visit taxinstitute.com.au/membership. You can also contact us by emailing taxvibe@taxinstitute.com.au. We look forward to you joining us next time.  Robyn Jacobson:

 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 professions, 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 Jerome TaxVibe, CTA who is a partner at King & Wood Mallesons in Sydney, specializing in taxation disputes and litigation. Jerome is also the firm's global transfer pricing coordinator. Jerome is an experienced tax practitioner and has been involved in a number of Australia's recent high profile tax cases. Jerome is a National Counselor of The Tax Institute, has been the 2021 Vice President and will be our President for 2022.

Robyn Jacobson:

I'm also joined by Marg Marshall, CTA who is a partner at WLF Accounting and Advisory in Hobart. Marg has built a reputation as one of Australia's foremost experts in specialist taxation. She is regularly engaged to present local and national conferences and seminars. Her professional commentary is also in demand for media. And as a panelist speaker, Marg has over 25 years experience in chartered accounting firms, Marg has been the Tasmanian National Counselor since 2016 and a State Counselor for Tasmania since 2013, she'll be the Vice President of The Tax Institute for 2022. Jerome and Marg, welcome to Tax Vibe for this final episode for 2021. And congratulations on your appointments for next year.

Jerome Tse:

Thanks Robyn. Very excited for 2022, very excited for 2021 to end too.

Marg Marshall:

Oh yes, absolutely. Yes.

Robyn Jacobson:

We talk about the light at the end of the tunnel finally, and we hope that this indeed is the light at the end of the tunnel and not another oncoming train like the Delta Variant was this year. So Marg, just to quickly kick off, the professions pretty exhausted, isn't it?

Marg Marshall:

You're right. Robyn, everyone really needs a break. People have worked very very hard over the last 18 months to two years and not many did take a break last year, I know that. So we are seeing a lot of fatigue amongst our members and we are really strongly encouraging people to try and take that break. In fact, not just try, actually book it in and do it-

Robyn Jacobson:

And leave the laptops at the office.

Marg Marshall:

Yeah. Leave your laptop at the office, if you are working in the office of course. That's one of the problems I suppose, with this year is so many people still working from home, that separation of work and fun, those lines are very blurred. So shut it, close it, put it in its bag, put it in a cupboard. So you can't even see it.

Robyn Jacobson:

Don't be tempted.

Marg Marshall:

Yeah.

Robyn Jacobson:

Jerome, the Tax institute's going to be launching a new campaign called Out of Office, and we're going to be running this over the next few weeks. And it's really an opportunity to our members and the wider tax community to take that willing break so people can focus on life outside of work over the holiday period. We can talk in cliches about swapping suits for sandals and Zoom for [zeeds 00:03:33] and emails for easy breezy days. But Jerome in all seriousness, how, do we ensure that people do take the break that is so deserved and needed this Summer?

Jerome Tse:

That's hard though to, especially because we can't travel and we might get to that down the track in this podcast. I'm seeing a lot of our staff accumulate annual leave and that's not great for us. And the cynics might say, as an owner of a business, you're just trying to reduce your a liability, but in all seriousness, that is there for you to rest and recuperate. It's not there for you to, I mean, ideally, if you've got an eight week European holiday book, that's great, but we've had a two year stint in Australia where we can't really go anywhere. We really need to take this January, take the leave and rest. January, I guess, for a litigator like me is probably the ideal time because the courts are closed. The barristers are all on holidays and I've encouraged my teams to take January off.

Jerome Tse:

It's one of the few months of the year or few weeks of the year that you can. And indeed the holiday period, between the end of December and January, no client's going to be calling you. So as Marg said, take, put your laptop away. When I go overseas for a longer break, I usually turn my work emails off in iPhone. So I'll keep my home emails on. I'll keep my messages on, but I'm one of those people who have [Ad 00:04:57] so there's one on there, I need to read it. So if I turn it off, I don't see that there's an email outstanding and I'll turn it on at the end of the day. But please do take a break. I've been telling my team to take a break. And I tell all our members and our listeners, you deserve a break.

Marg Marshall:

And it's Important to have that self-awareness or however you want to express that emotional awareness that sometimes we get so caught up in the busyness and the deadlines and the adrenaline that sometimes it can be difficult to stand back and recognize that you indeed do need a mental break.

Jerome Tse:

That's right. Unfortunately, alcohol... I'm Probably one of these people, alcohol probably doesn't help you sleep. Right? So maybe sometimes just go lighter on the alcohol. You get a better sleep for it. I mean, I usually try and do [Feet Fast 00:05:45] or [Dry July 00:05:46]. I'm not plugging either of those charities, but they're good for You.

Robyn Jacobson:

I've got friends who are drinking 0% alcohol. Now I'm not here to plug that either. But it is something that's becoming more socially acceptable and you get none of the downsides of having an afternoon on the beers that does contain alcohol.

Jerome Tse:

Yep. And that's certainly something I'm starting to do more and more. And you know, they look like real beers. I've had bad, not alcohol free Gin. I haven't found a good one at those yet.

Marg Marshall:

I've got a recommendation for you.

Jerome Tse:

Probably a Tassie one. Hey Marg.

Marg Marshall:

Yeah, definitely a Tassie one. There's some good ones out there you do, but you'd have to find them, but you're absolutely right. The whole alcohol thing can be... it's a time when we do have lots of opportunities to drink. There's always been in the past a bit of an expectation, but I'm seeing the same thing amongst my friends and peers, people making choices about how much or what they're going to drink and making those healthy choices and absolutely right. I sleep much better if I haven't had a skin form before I go to bed. So yeah,

Robyn Jacobson:

We recently went to both a brewery and a winery and managed to get through most of it without any alcohol. It's, it's quite amazing. Jerome, we look at the year, in fact, the two years that we've had, but particularly the last 12 months, which we didn't see coming, and we can say the same thing about 2020, but we got to the end of 20 and really thought we'd done the hard yards and 21 was going to be very different. And, and so for many people, this was actually a harder year than 2020. And of course, New South Wales had the extended lockdown really for the first time in the pandemic, to the extent it did. So, how do you avoid burnout? And, and when you find yourself depleted, how do you perhaps in a normal environment, if I could still refer to normality and perhaps how has it been affected by the past couple of years?

Jerome Tse:

Usually what I like doing, I'm not as active as my doctors tell me, I need to be, what I usually do is, go... I like holidays, I like going to new places, whether it's domestic or overseas, unfortunate enough or unfortunate enough to go overseas for work for a bit. So, usually take on a weekend here or there just to find a new place. And that's been hard obviously, because we haven't been allowed to travel. So I don't think I've switched off as well as some other people who might be able to, do laps of Bondi Beach, and go up and down swimming. So it's been hard for me and I think people have to not be afraid of saying it's been hard, because people will help, but I'm hoping, next year, subject to Omicron that will stop and we can go and do things again. I have to preach what I tell my teams. I need to recharge in January too.

Robyn Jacobson:

Marg, How do you work out the best way to break away from all the hecticness of the day?

Marg Marshall:

Well, Robyn of course, being in Tassie much more fortunate than the rest of the country in terms of haven't had a lockdown since that very first one that the whole country went into, apart from a very short three day one, and generally, able to do most things. My personal thing is Green time, I'm a big believer in Green time, getting out, having a bush walk, even locally here in Hobart. And it's the same in most cities, there are parks and trees are really important for that. If you can get in amongst some trees, whether it's half an hour or an all day walk, I find that's very... it's calming, and it just resets your mind. And I've been on this one, my personal trainer runs Friday afternoon walks or Friday night walks and that's Winter and Summer. So down here in Summer, of course we get the very long evenings and that's fabulous.

Marg Marshall:

But in Winter, the walking in the dark, is a lovely thing to do as well. And we take really easy parts and those sorts of things and it's really local and it's only an hour and a half. It's a Friday night thing and it really puts a great full stop on the week. They're becoming more popular, more people doing them. And so, I would encourage everyone to and get some Green time if you can. I know it's not everybody's cup of tea. And a lot of people aren't that active, but you know, a half hour stroll through a park even can be enough really.

Robyn Jacobson:

Thinking of the contrast. So, let's work on the basis. You've spent the whole week in your office. You've been sitting at your desk, you've been sedentary and the mind's been incredibly active and working hard, and then you've switched them around. So when you're going for your walk on the Friday afternoon, closes off the week, you're now physically active and the mind is switched gear completely.

Marg Marshall:

Yep. It is amazing. And it is really, really good for wellbeing. I find it's great for my wellbeing and I've noticed because I haven't been able to go for the last few weeks and now the season's finished and everyone's busy doing Christmas things. I can see a difference in me just from not having done it. So I know what it does for me. Green time, really important.

Robyn Jacobson:

Maybe it's because I'm a Piscean, but I've always found that water is calming. So whether it's a beach, an ocean, a lake, a river, I find if I can be near water and watch the floods, it's a bit like watching the embers in a fireplace, watching the flow of water, I find incredibly calming. So let's change gear in our conversation. We're closing off 2021 move. We're moving into 2022. We know it's got to be a federal election year. We have this wonder full system in Australia where we're still going to have speculation for many months as to when the election will be held. But we know it's got to be held on the basis. There is one election next year, not two because they technically could run the half Senate plus the full Lower House, but they're going to run one general election. It would need to be by the 21st of May. We now know that the parliamentary sittings they've scheduled 29 March for the federal budget. So that would suggest an election sometime in early to mid-May. So, there's an imperative to keep tax reform on the radar here, but what are some of the key issues that we'd like to keep on our tax radar? And Jerome, I'll kickoff with you, in corporate land? What are the key tax issues on your radar?

Jerome Tse:

I think industrial matters are going to come to the forefront. There's been a lot of pressure on staffing, not enough employees, in restaurants and so on in accounting and IT and so on. So I think industrial issues pertaining to tax and super will come to the forefront, particularly contractor, employee issues. You've seen the on call payroll tax matter and that's spreading to New South Wales and other states and territories as well. So, I think those things are important to keep an eye out on. Internationally transfer pricing, I think continues to rear its ugly head, financing issues, commodities, IP, and then IP generally, you've got two products coming out from the ATO next year, got the current draft software ruling and also the intangibles BCG. So, they will impact corporate tax payers if not mid-market as well. And finally, I think Crypto finally, Crypto is coming to the forefront for good or bad-

Robyn Jacobson:

And in the corporate world,

Jerome Tse:

Well, in the corporate world, you're looking at exchanges and financing and blockchain issues. So maybe not Crypto particularly, but blockchain and technology. There are some really interesting developments coming out. CBA's released its Crypto App in the last couple weeks. So, consumers can start or select consumers can start trading in Crypto now. So you've got Senator Bragg's report coming out and then a referral on Crypto CGT and Crypto to the border tax. So that's all next year. So I think Crypto is going to be quite an interesting new development. It's interesting to me and I hopefully interesting to a few other people I wouldn't ever in invest in it yet. I've got a house to pay off, but there are others who probably are less risk averse.

Robyn Jacobson:

Look, it's certainly one of those areas that a few people dabbled in it some years ago, but it is becoming much more mainstream. And for that reason, we're seeing increasingly more guidance from the ATO about the CGT implications. And of course the impact we in you're trading or exchanging for different Cryptocurrencies.

Jerome Tse:

Yeah. And whether it's a foreign currency now, we've got Ecuador, I think-

Robyn Jacobson:

El Salvador.

Jerome Tse:

El Salvador, sorry, using Bitcoin. So, there's some guidance to come out from the ATO hopefully next year, too.

Robyn Jacobson:

Really interesting space. And I want to watch next year. Marg, in the SME space, what's on the radar here?

Marg Marshall:

Uh, Robyn, we've got a few things that we've been waiting for a while. People are probably sick of us hearing from the Tax Institute that we're still waiting on, D7 reform that we've been promised now for years. There has been some indication that we are likely to see something early in the new year around D7 [inaudible 00:14:15] 100. So I guess it's a watch this space with that one, but does seem as though there is some traction going on there that's, as I understand it, the ATO talking, we're still not really sure what treasury are doing.

Robyn Jacobson:

That's correct. What we're hearing. And this was a shared at a recent conference. We ran in [Mosa 00:14:33] we are of still of course waiting for treasury to release draft legislation on the proposed reforms, which- we are now up to nine and a half years from when the measures were first reviewed by the Board of Taxation. And certainly we're talking about five years or so since the government committed to reforming them. This is [separate 00:14:51]. So the ATO is looking at the current D7 guidance that the ATO's published. And they're looking at putting out some fresh guidance early next year. So I think it's important to note, this is quite separate from any legislative reform that treasury might initiate or progress.

Marg Marshall:

Yeah. So I think it's important for us to note, to be across that. And of course when that guidance comes out, we will be putting material out to our members and no doubt offering training, but it's a really good distinction that Robyn points out that this is not legislative reform, which is what we've been waiting for. So, we continue with a bit of uncertainty there. The other big thing that I suppose we can all expect is the analyzed version of the PCG 2021 D2, which of course is the allocation of professional firm profits. So that's obviously very dear to a lot of our members' hearts, and it'll be interesting to see what the ATO have done with our voluminous submissions that have come through from various parts of the profession. We certainly put our own in, and there was a joint submission as well. So I'm very keen to see what it looks like in terms of my own practice. And I know others are as well.

Robyn Jacobson:

PCG is scheduled to be released on Thursday the 16th of December. It will be interesting to see if it doesn't indeed get issued that date. And then of course the reaction of the profession to what is finally published. But we do know that there will be an additional 12 months in terms of its application date. So it's now going to take effect from on July 2022, which is a positive and a sensible outcome.

Marg Marshall:

Yes. As it should be, Merry Christmas, like thanks ATO, maybe they'll listen, but maybe they won't, but we'll see. Yeah.

Robyn Jacobson:

All right. So vision for next year, both of you move into formal leadership positions on National Council and as Directors of The Tax Institute. So Jerome is President and Marg is Vice President. What are your respective visions? And I'll start with Jerome first. For next year, what would you like to see as a legacy of your presidency and, and the Institute more broadly achieves throughout next year? And by the way, I'm not going to hold you any commitments in this podcast.

Jerome Tse:

Marg will though.

Marg Marshall:

I've got, I'm taking notes Jerome.

Jerome Tse:

I think the first thing is I think looking at our, the diversity of our membership and making sure it's reflected in all our committees, councils, event organizing committees events and so on, and also to try and attract new members who might not normally be members. So that's really important for us. I think that's been important for society, I think in the last couple years, if not more. So I'm really keen to get a formal diversity policy up and running with Joanna Price. Who's the GM of people and culture at The Tax Institute, making sure our members don't burn out is really important supporting members through education, advocacy, and so on. Just what, what do members need? We're looking at a new website. I know we've said this a few times, but I mean, going back to the industrial issues, trying to find IT staff, in all our businesses has been difficult. So it is a little bit slower than what we'd ideally like, but we want to get a website that works for our members. So, that is coming next year. There are a few other things Marg, you might want talk about Micro Credentials and things, but that's quite exciting.

Marg Marshall:

Yeah. Jerome, I'm happy to... Like Micro Credentials, is a new way of learning that probably a bit of a buzzword out there in learning and education, but we've taken on the challenge of turning some of our programs into really tiny bite sized bits. So you can get hold of a small, maybe a 10 minute or a 20 minute online learning program, do that and build up your knowledge that way. So these little bites like chunks that, you just might want to understand one section of Div 152. So, you've got something a bit quirky on the CGTS, more business concessions. You get, you've got the basics down, but you've got something that's a bit out of the ordinary. So you can go through the catalog of Micro Creds and find that bite size bit. It doesn't, it's not going to be hideously expensive to do the course.

Marg Marshall:

You're not committing to 10 hours. It's not a whole day thing, you can do it when you want to. And it's meant to be something that you can get in, do it, and then get on with your work and, hoping to launch that in this coming year. And that will grow as we go. The first offerings will be limited because to Jerome's point about IT staff, and all of that sort of stuff, we've got lots to do in terms of making sure that the learning content is right as well. So there's a fair, there's going to be a lot of rigor behind this and, it will be something that you can hang your hat on. We're really excited by the prospect that people can get what they need in the timeframe that they wanted it and in something that's easy, and not too time consuming.

Marg Marshall:

So looking forward to seeing that come to fruition and look, we are really interested in seeing how people's careers are going. What makes your career in tax actually meaningful? Look, I'm really, really quite proud to say well, to have been involved with The Tax Institute over the last couple of years through the pandemic, the amount of work that we did that supported our members, all of the webinars that we did around job keep and cashflow boost and, and the stuff that was done for the state based stimulus packages, all of that was provided as part of your membership. And so we want to make sure that our community is engaged, that we continue to see that happen. People are seeing this as a valuable thing to have in terms of their membership and that they can be either involved just via the learning and the training opportunities that are provided or get involved in other ways. So we are really looking forward to seeing how that pans out for next year.

Robyn Jacobson:

You talk about diversity. I think about how diverse tax is. It touches everything we do. And I don't just mean we as tax professionals, everyone in the community, whether you're a business owner, an investor, a retiree, an employee, you work in the gig economy, tax affects everything. And so everyone can be part of this conversation about how to improve the system? How to improve engagement? How to improve... How the regulators do what they do? And The Tax Institute's got a really important role, not just for our members, but also more broadly for the community.

Jerome Tse:

Now that's that's right here. And I think diversity, I mean, may not just mean gender or ethnicity. It can mean getting more younger people involved, or getting the older, and, who have the wisdom, who might be retired and getting them back involved in the community as well, even though they might not be practicing anymore. They've got an important part to play in the system as well. So, I am interested in making sure that we, our membership and our offerings are diverse to meet those diverse audiences because the TTIs vision, isn't just for our members it's to improve the system for the community generally.

Robyn Jacobson:

So, as we draw the year to a close and thankfully we can draw a line under this very challenging year, how are both of you going to stop and recharge over the Christmas break and come into 2022 with your new roles and, lots of fighting energy to take on all the challenges of next year?

Marg Marshall:

Is probably common enough, in a number of offices. Well, I hope it's common. We will close on Christmas Eve. The lead up to Christmas in our office is amazing. Really, we do Christmas very well in our office with lots of things on lots of celebration, secret Santa and Christmas decoration competitions and all sorts of stuff. So the office looks a bit like Maya with the windows and things.

Robyn Jacobson:

Santa's Workshop?

Marg Marshall:

Yeah. Yes, somebody just walked past my office carrying a Large Life-Sized Elf. So, it's on. So we will close until the 4th. Then, I am going to take a break in January. I'm having the second two weeks of January off and having beach time going to a lovely spot. One of my favorite parts of Tassie, The Bay of Fires. So really looking forward to 10 days at the beach. And yeah, so that's my way of having a bit of a break.

Robyn Jacobson:

[inaudible 00:23:06] feeling the sand between your toes instead of the keyboard under your fingers.

Marg Marshall:

Absolutely. Right. Robyn, absolutely. Right. Yes.

Robyn Jacobson:

And Jerome?

Jerome Tse:

Probably just trying to find short breaks in New South Wales, maybe Queensland now that I'm allowed to go and Tassie as well. I mean, Marg knows I can [sort a 00:23:23] Tassie holiday earlier in the year because of coronavirus. So might head back down there and visit Mona in Hobart and just recharge for the new year.

Robyn Jacobson:

Well, thank you both for coming on the show, it's been wonderful to chat to you both, and hear about your visions for next year. I also want to thank you on behalf of The Tax Institute for the work that you do for us and the work you have done and will do into next year. So, I hope you have a wonderful break and come back with all that wonderful energy we're going to need from you both.

Jerome Tse:

Thanks Robyn. And just thank you to all our members as well. You've done a great effort over the last year, two years, to help support the community through this job keep, job saver, all the New South Wales and state support packages. I know you're tired. We're here to help you next year. Our goal is to help you educate not just in technical, but in practical ways in wellbeing. Hopefully, we'll see you in person in some events as well. That hopefully that starts again. And I know Robyn, you are reaching to get going and seeing people around the country. So hopefully we'll get to see you all in 2022.

Robyn Jacobson:

Okay. Those sentiments. Exactly. Jerome, it's been an amazing year. The profession has absolutely stepped up. Everyone should be incredibly proud of themselves, but absolutely recharge and, take that will deserve break. And we look forward to seeing it some face to face events next year. So, thank you for listening to this episode of Tax Vibe. I've been chatting with Jerome TaxVibe, partner King and Wood Mallesons, and the 2022 President of The Tax Institute and Marg Marshall, partner at WLF Accounting and Advisory and the 2022 Vice President of The Tax Institute to keep up to date with Tax Vibe, be sure to subscribe, rate, and review wherever you listen to your podcasts. If you'd like to connect with us on social media, follow The Tax Institute on LinkedIn, Facebook, Instagram, and Twitter, you can join the conversation on our member only community forum, @community.taxinstitute.com.au. Not a member of The Tax Institute? Join a collective voice of 15,OOO practitioners at the heart of the profession and find out what the best tax professionals have in common. Join today, and save 50% on membership. For more information, visit taxinstitute.com.au/membership. You can also contact us by emailing taxvibe@taxinstitute.com.au. On behalf of The Tax Institute, I wish you all a safe, relaxing and happy festive season, and we look forward to you joining us next year. 

 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. We love the vibe of tax and here at The Tax Institute, we do tax differently.

Robyn Jacobson:

I'll be chatting with some of the tax professions 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 Liz Westover, the Partner and National SMSF Leader at Deloitte. 

Robyn Jacobson:

Liz is responsible for the firms' SMSF service offering, providing compliance and advisory services to the firm's clients. Liz has extensive experience in superannuation and has strong capabilities on the technical application of superannuation and associated tax laws. She is a regular commentator on superannuation issues with mainstream and social media and has also blogs and articles on superannuation and related issues for many years.

Robyn Jacobson:

Liz has been heavily involved in superannuation policy development and advocacy, regularly liaising and consulting with government, regulators and stakeholders on technical, legislative and policy matters. Liz is a Fellow at The Tax Institute, a Fellow Chartered Accountant, CA SMSF Specialist and holds a Master of Legal Studies from the University of New South Wales and a Bachelor of Business from the University of South Australia. So in this big week of The Tax Summit, Liz, welcome to TaxVibe.

Liz Westover:

Thank you, Robyn. Lovely to be here.

Robyn Jacobson:

Great to talk to you and look, we did have a chat earlier in the week. You've already run your session for The Tax Summit. And in terms of this week, you're one of more than 100 speakers at our event, The Tax Summit: Challenge Accepted. 

Robyn Jacobson:

So as we are emerging from a very long COVID period and particularly, you and I in Melbourne where we have been locked down more than any other city in the world, how important is it for you, as a practitioner, to be able to reconnect with your peers, even if it's in a virtual environment at the moment?

Liz Westover:

Critical, Robyn, I think. And these online sessions and virtual sessions and things like that, they do become difficult and that craving to be face-to-face with people is almost palpable at the moment, especially as the end is in sight for us. 

Liz Westover:

But it does make these online events even more critical than before, simply that we're not face-to-face with our peers and our clients and our staff members. So we've got to stay up to date and we've got to get that information through some forum, and I think The Tax Summit has been one of those vital forums for us to be able to do that. 

Robyn Jacobson:

Well, it's been great to have you as part of it. So I thought we'd have a chat today about of course your pet area, self-managed superannuation funds. Can we start with what's the latest on the legislative front? 

Robyn Jacobson:

We sometimes think that tax law moves very quickly and it's constantly changing and there's less going on in the super space, but when we start to work through the legislative changes in super, it's not a short list. So can you touch on some of the key changes that we've seen recently?

Liz Westover:

Absolutely. And you're spot-on. As I started to put this session together and I said, "Oh, my goodness. What am I going to talk about? There's not that much that's been happening." But as I started to collate it all, it became very apparent that there were lots of changes and some of them quite meaningful. I think probably one of the key ones that we've seen is the ability to increase the number of members in a self-managed super fund from four to six came through in the 2018, '19 Federal Government Budget.

Liz Westover:

I don't think anybody particularly asked for it, but I think now that it's here, people are really starting to see value in it, and I've certainly had a lot of inquiries from my clients asking, "Okay, can I now add the kids?" and so on and so forth. So I think it will be quite useful and people will make the most of it.

Robyn Jacobson:

That change has been a long time coming, hasn't it?

Liz Westover:

It has but it is now effective from the 1st July 2021. So we're off and running. But probably a couple of things to think about and number one is, think about why you're adding extra members in the first place. And we've always said this, whether it was four members or six members was your maximum, think about who is in your fund.

Liz Westover:

Because those people that are in your fund have a lot of control over your benefits and particularly in payment of death benefits and so forth. And those people have a say in how that fund is run. So if you want to bring the kids in, that can be well and good and there might be some really good reasons why you do that, but those kids have just as much say in how that fund is run. 

Liz Westover:

They have a lot of visibility about your own benefits as a parent. They'll know what you have. So if those sort of things, you'd rather keep separate from your kids then perhaps you don't want to bring them actually into the fund and if you want to help them, you might set up a separate fund.

Robyn Jacobson:

Because of course the main rule that the member in a self-managed fund, of course, has to be the trustee as well.

Liz Westover:

That's right. All members are trustees and all trustees, members. And of course payment of death benefits generally in an SMSF death benefit, in the absence of any binding death benefit nominations, remaining trustees decide who receives those death benefits. So do you want your kids to decide who gets your benefits? Do you have blended families in the sense of who's making decisions, who's going to have control where you want those benefits to go to? 

Liz Westover:

Think about who's coming into your fund and who actually has the control. But in a practical sense, there's probably a couple of other things to think about is check your trustee. Always check your trustee. And a lot of practitioners in this area is, "Check your deed, check your deed, check your deed. Read the deed."

Robyn Jacobson:

Liz, it's interesting that you say that because we ran a podcast recently with Paul Hockridge and we were talking about trust and unpaid present entitlements, and repeatedly throughout that discussion, he said exactly the same thing. So because a super fund is a trust, there's no escaping the deed.

Liz Westover:

No, that's exactly right. So I've had some clients already talk to me about increasing the number of members, adding members, and what we found is with some deeds, they're actually hard-coded, restricting the number of members in the fund. In fact, the first inquiry I received from a member, I had a look at the deed. Sure as eggs, there it was, no more than four members in the fund.

Liz Westover:

So it's hard-coded into his deed. So no matter what the law says, his deed says he actually can't have more than four members. So if we want to increase the members, if we're going to put in member five and six, then we actually have to get a deed update and to a deed that allows those additional members to come through.

Liz Westover:

But the other practical side of it too is trust law, so state-based trust law. Most states actually restrict the number of individual trustees of a trust to four. So in actual fact, if you're going to have more than four members, again, coming back to all members are trustees, and all trustees are members, if you want more than four trustees, you have to have a corporate trustee.

Liz Westover:

So you can certainly have six directors of a corporate trustee but you can't have more than four individual trustees. So corporate trustee, check your deed, think about you who you want as members of your fund.

Robyn Jacobson:

Very good. There's been another change and this is to do with making non-concessional contributions, and it's called the bring-forward rule so you can access two future years' worth of your non-concessional contributions cap. Can you run through the changes that are affecting people here?

Liz Westover:

Yeah. Not a huge change other than the age for which you can bring forward those contributions. So previously, it was maxed out at age 65. So if you're above age 65, you might still have the ability to make contributions if you're passing the work test, but you couldn't use the bring-forward provisions. Once you're over that age group, it just wasn't available to you.

Liz Westover:

So previously, we've seen changes to the work test. So that no longer applies up to the age of 67. And so now these new changes allow bring-forward provisions up to the age of 67 as well. So bit of alignment there between the work test and the bring-forward provisions and giving people a renewed opportunity. So my tip in that is probably go back and see which of our clients might actually have a renewed opportunity to make some last contributions into your super. 

Robyn Jacobson:

There's been a very technical change and this relates to where you've got someone in pension phase and then calculating how much of their income is able to benefit effectively from a tax exemption and actuarial certificate. So would you like to run everyone through that?

Liz Westover:

Yeah, absolutely. So we have this circumstance where you might have a fund that is wholly in pension phase for the whole year, but a member of that fund has a total super balance. So that's their balance within that fund and any other superannuation holdings they have, if they have a total super balance of more than $1.6 million.

Liz Westover:

What that meant was that that fund had what we call disregarded small fund assets. And the law says that if you are one of these types of funds with these disregarded small fund assets, is that you can't segregate your assets, which means you can't use the segregated method for calculating your exempt current pension income.

Liz Westover:

You are required to use the proportionate method to calculate it. And part of the proportionate method meant you had to get an actuarial certificate. Now, if you've got a super fund that is wholly in pension phase for the whole year, then what's that actuarial certificate going to say? 100%. Of course, it's going to say 100%.

Liz Westover:

So we have this red tape where people who are clearly always going to be fully exempt or be able to claim 100% exempt current pension income, were required to get an actuarial certificate and the cost that was associated with doing that for no added benefit whatsoever.

Liz Westover:

So the requirement to get that actuarial certificate has now been removed. If you're in that bucket, no longer have to get an actuarial certificate. So a really good practical, sensible movement in this piece of legislation.

Robyn Jacobson:

So not every amendment we get is an unwanted one. 

Liz Westover:

No, that's right. That's right. 

Robyn Jacobson:

Another change is coming through and in fact, there's a lot of talk about this outside the super space. I'm referring to the DIN, the Director Identification Number. Its genesis was in concerns about phoenix activity and people illegally moving around companies and using false names.

Robyn Jacobson:

And astonishingly, when you apply to be a director of a company, or you notify ASIC that you're going to be a director, you could basically tell them anything. They never verified the information you gave them. So now we're going to have this verification process and every company director's going to have a DIN. Why is that relevant to self-managed funds?

Liz Westover:

Well, the issue is that it equally applies to any body corporate that is registered under the Corporations Act and that applies to trustee companies as well because they are registered with ASIC under the Corporations Act. So any director of a corporate trustee of a self-managed super fund is going to have to have a Director Identification Number or a DIN as you said.

Liz Westover:

So we equally have to pay attention to this matter. Individuals only have to have one DIN across all of their directorships. So if you are a director in another entity, perhaps your own business and so forth, you can use the same DIN for your SMSF, but I imagine for a lot of practitioners out there, there's going to be a little bit of coordination that goes on around this one.

Liz Westover:

Interestingly, directors have to apply for the DIN themselves. It's not something that we can actually do for them. But clearly, they may not be aware that this is coming or in fact that it's here and that they will need it. So a little bit of coordination around making sure that they do get one or that they actually have one. And there are some dates that were released I think only last week around these transitional arrangements.

Liz Westover:

So big thing, big date for me really is that if you become a director for the first time between the 1st of November this year and the 4th of April next year, then you've got 28 days after your appointment to get a DIN. So in other words, if you're setting up a self-managed super fund with a corporate trustee, and I think there is a real trend towards using corporate trustees now for SMSFs, if you're doing that now, you are squarely in this regime.

Liz Westover:

Just really pay attention if you've got anyone that's setting up new funds. If you are in fact increasing your numbers from four to six and you've got an extra director coming in for the first time, they're going to need a DIN.

Robyn Jacobson:

And a couple of other tips to pass on, existing directors have until November next year to get a DIN.

Liz Westover:

That's right. Yes.

Robyn Jacobson:

And if you become a director from April next year, you have to get your DIN before you are appointed as a company director.

Liz Westover:

That's exactly right. And I think April is going to be upon us very, very quickly.

Robyn Jacobson:

Yes, it will.

Liz Westover:

So I think firms really need to get their systems and their processes in place to identify who actually needs one of these DINs and making sure that their clients actually get them.

Robyn Jacobson:

One more tip and I can almost hear some of the groans already coming through from our listeners. The best way to do this is using a myGovID. And as you correctly say, you can't do it as an agent on behalf of your client. 

Robyn Jacobson:

So they'll have to do it themselves. But myGovID is the best way to do this. Not myGov. That is different. You need a myGovID which is the identification process through, typically, a smartphone. There will be alternatives through telephone and paper but there will be delays, not as efficient and your experience is going to be much better if you do it through the myGovID.

Liz Westover:

And do you know what? My tip in that space will be I plan to do my own very quickly, as soon as I can. Simply because if I've been through the process myself, I can talk my clients through it. So I would strongly suggest that perhaps we take care of our own affairs first and then we're in a better position to help our client.

Robyn Jacobson:

Make sure the plumbers don't have leaky taps. 

Liz Westover:

That's it. 

Robyn Jacobson:

All right. And one more change that's worth noting of significance and that's to do with minimum drawdown rates.

Liz Westover:

Yeah. Look, this was another COVID-19 relief measure. So we saw an extension of the 50% reduction, the mandatory minimum that needs to be withdrawn and that's been extended up until 30th of June FY '22. So we've got this extra year of just reducing what we're required to withdraw from, from pensions. My tip there really is around when you apply the percentage, make sure you have the percentage first and then apply that reduced percentage to your opening balance or closing balance.

Liz Westover:

So you're doing closing balance to work out what your mandatory minimum actually is. The risk is if you apply the larger percentage of the old percentage and then halve the resulting figure, you may end up with this anomaly where you've actually paid less... rounding can force you to pay less than your mandatory minimum.

Liz Westover:

And it might sound like rats and mice but it can make a difference and it can detrimentally impact on your fund. So just be careful, apply the percentage first or reduce the percentage first and apply that against the balance.

Robyn Jacobson:

Okay. Good advice. Let's move onto the caps and gosh, there's an array of them. I've certainly written content about this previously and listed out all the superannuation caps we have in the system and it's quite extensive. Is it really necessary that we have this many limits and this many sets of rules to keep on top of?

Liz Westover:

Look, I don't think there'll be anyone that would argue that simplicity would be a much better way to go. And I think indexation, particularly around the transfer balance cap, is going to cause a lot of problems. And it is going to cause a lot of errors to be made and whilst we might have a handle on it around this first round of indexation, I think the next round of indexation is going to put people in a whole world of pain just trying to work out what their personal transfer balance cap is.

Liz Westover:

So previously, we haven't really been concerned about the difference between a general transfer balance cap and a personal transfer balance cap because it was all one and the same. It just didn't really matter. So we used this generic transfer balance cap. Now we need to start talking about what the general transfer balance cap is versus a personal transfer balance cap.

Liz Westover:

And that'll be different for different people depending on what they have or haven't done already around income streams. Basically, if a new transfer balance cap and your general transfer balance cap is the $1.7 million, if you are now commencing an income stream for the first time, your personal transfer balance cap will be the same as the general cap and that's $1.7 million.

Liz Westover:

But if you have previously commenced an income stream, so prior to the 1st of July 2021, you previously commenced an income stream, your personal transfer balance cap will not be the general transfer balance cap. And in fact, if you had previously used 100% of that $1.6 million cap, your personal TBC is $1.6 million and you have absolutely no ability to use the indexed amount to commence any future income streams.

Liz Westover:

And then if you are somewhere in-between that, then your ability to use any of the indexed amount, will depend on the proportion of the previous cap that you've actually used. So if, for example, you used 75% of the previous cap, so you commenced an income stream of, say, $1.2 million then you've got 25% unused cap. So you apply that 25% against the indexed amount, 25% of $100,000 gives you $25,000. So your new personal transfer balance cap will be the $1.6 million that you previously had, plus $25,000 of the indexed amount. So 1.625 is your personal transfer balance cap.

Liz Westover:

So a little bit confusing already, so imagine how it's going to look when we have indexation again and we're trying to work out what proportions people have actually used of previously indexed amounts and so forth. So gee, I wish we had some simplicity around that.

Robyn Jacobson:

Liz, it's hard to point to any other cap, threshold or limit anywhere in the tax or superannuation law that is indexed but the indexation isn't provided to everyone. So if you think about everything else that has increased out there from year to year, all taxpayers, all classes of taxpayers who come under that particular set of rules, benefit from it.

Robyn Jacobson:

But in this particular case, it's only those who had started a pension and not fully exhausted the 1.6 to begin with and that's a proportionate amount, or you get the ones, of course, who never started an income stream till later and they get the full benefit. But everyone's going to have their own special personal transfer balance cap. The complexity in the system's going to be extraordinary.

Liz Westover:

Absolutely, absolutely. And I think it's only going to get worse. And that is compounded too because we often use, previously, that $1.6 million as a reference point for other measures. So for example, your ability to make non-concessional contributions. And in fact, in some areas of law, and in the one we talked about previously about actuarial certificates, that is hard-coded at $1.6 million.

Liz Westover:

That amount, when you talk about a person's total super balance in terms of determining whether they have disregarded small fund assets, that's hard-coded, that $1.6 million. It's not indexed. So now not only do we have some thresholds, they all started from this one reference point, but now some are going forward, some are not, some are played differently to different people in different ways. Of course, it's going to get confusing and people will make mistakes. 

Robyn Jacobson:

We've also got, for good reason, delays in reporting by self-managed funds of the transfer balance account data known as the TBA. And they, of course, report on a quarterly or an annual basis depending on the size. But the delay in getting that information to the ATO then results in of course that then delayed passage of information back to the members. 

Robyn Jacobson:

And where I'm hearing this is particularly becoming a problem, is you've got people giving advice to individuals on how much they should contribute or what their fund should do with the options available to them, who don't necessarily have access to that data that is on myGov, which is the individual's own account, or through online services for agents which is only available to tax agents.

Robyn Jacobson:

Now those agents, of course, shouldn't be giving advice on super. So we've got this category of people like lawyers, people like self-managed fund administrators and financial advisors who are almost at the front-end of giving the advice but it's the agents, the tax agents who have access to the data through [OSPA 00:19:27] who are dealing with the tax implications if they happen to get it wrong.

Liz Westover:

Yeah. And you're spot-on, Robyn. And we often talk about tax agents but there is often a difference between the tax agent for the fund and the tax agent for the individual. You actually have to be the tax agent for the individual to be able to get access to that information. So you're absolutely right. This is a cohort of people who need the information and can't actually access it.

Liz Westover:

It is a real challenging area. I think APRA-regulated funds have a much tighter timeframe within which to report but nevertheless, it still takes time to do calculations and work out what's going on to be able to report that information.

Liz Westover:

Self-managed super funds, in particular, we often don't do the accounts until May or June, the year after the end of financial year. So there is a huge delay in all of this. But I'd also say that if you're in an SMSF, you've got access to that information more readily or to find that out before you make decisions around commencing income streams and so forth. 

Liz Westover:

So if I'm looking after an SMSF client, my first point of call is what other funds have you got? Let's check that out. Let's check what the valuation is and then determine what capacity or what balance we actually have to commence an income stream out of the self-managed super fund.

Liz Westover:

So yes, it's challenging to get the information but it's not impossible. And I think we just have to make sure that we get the right relevant timely information before we advise the clients about commencing income streams.

Robyn Jacobson:

I think it also illustrates the importance of getting proper advice. Now self-managed, you do have to take responsibility for trustee decisions that you make but equally, you've got to make sure you're getting the right advice because we all know that you can't cry foul later and say I didn't know or I wasn't aware of the laws and how they operated because it's not going to get you anywhere.

Liz Westover:

Yeah, absolutely. Absolutely.

Robyn Jacobson:

All right. So moving onto some other issues, can you give us an update on what's going on with SuperStream?

Liz Westover:

Oh, heavens. Yes. So look, SMSFs have been familiar with SuperStream for a little while and their notion of having an electronic service address. We've had to be in that regime for quite some time where a super fund was receiving employer contributions. 

Liz Westover:

So employers have been legally obliged to use SuperStream to make those contributions and that meant if an SMSF was receiving them, they had to have an ESA to be able to receive those contributions. So we're kind of familiar with these concepts. And I would suggest most funds would have an electronic service address.

Liz Westover:

What's new around all of this is that from the 1st of October this year is that rollovers in and out of self-managed super funds must now be undertaken by SuperStream as well. So APRA funds will not roll over into an SMSF and [inaudible 00:22:08] via SuperStream and equally, SMSFs in-between themselves, can't actually do it. 

Liz Westover:

It's all got to be done via SuperStream. And that means technology is going to play a big role because that's exactly what SuperStream is. It is a data and payment standards around employer contributions and rollovers in the super industry that's done electronically for consistency around payments and the associated data that comes with it.

Liz Westover:

So we absolutely have to be involved. Now, it's not always as easy as you think and timing is everything, and getting it wrong can be quite problematic as well. So there are 20 penalty units which is $4,400 per trustee if you actually get this wrong. So main thing to remember is that once full information is received requesting a rollover, you actually have three days to roll it over. And that applies to self-managed super funds as well. 

Liz Westover:

So if you are looking at rolling over from a fund, be very careful about when you pull the trigger on getting that rollover done. You don't want to go to your new APRA fund and request it because once that comes through, you've got three days to do it. And I would suggest that most funds are going to take a lot longer than three days to actually bring member records up to date to determine a balance and be able to process that rollover back out of the fund.

Robyn Jacobson:

So if you're a trustee of a self-managed fund, where's the best place to go to look for information on these ESAs?

Liz Westover:

Yeah. Look, there are a couple of points around that one. So as I said, most SMSFs are going to have an electronic service address. Anyone that uses the three major software providers, they all provide an ESA service. There's probably a dozen or more providers already around ESAs, but not all are compliant with rollover.

Liz Westover:

So there are a number of ESA providers out there that are capable of doing employer contributions, they are not yet capable of doing SuperStream rollovers. So speak to your provider and your ESA and there is also a list on the ATO website that'll tell you who the providers actually are and what they're capable of doing, either employer or rollovers. And if you're looking at rollovers, you may need to change your ESA provider to be able to actually facilitate a rollover.

Robyn Jacobson:

For those who are not yet compliant for rollovers, would you expect that they will be at some point? It's just a case of them catching up?

Liz Westover:

I believe so. I believe there are a lot of providers out there who are taking steps to become capable around rollovers, but that's a business decision for them as to whether or not they actually do that. The other thing to remember about SuperStream, Robyn, is it's not mandatory to have an ESA.

Liz Westover:

If you are not receiving employer contributions and you're not making rollovers or receiving rollovers, you don't have to have an ESA. It's not mandatory to do that. The ATO will be processing a number of their release authorities through SuperStream as well, so you will be receiving DIV 293 excess contribution release authorities and so forth via SuperStream.

Liz Westover:

But again, if you don't have one, they will still issue those by paper. So it's not mandatory to have one unless these events are actually happening in relation to your fund. 

Robyn Jacobson:

But like most things, I'm thinking of Single Touch Payroll and myGovID and all these other digital initiatives. It is designed to make life easier and more efficient to deal with the government.

Liz Westover:

Look, and I think it will eventually. It feels a bit clunky at the moment, and I think that's because it's a new process, we're not getting information in the way that we used to. And even at the moment, there is a flow of information into the fund, but we don't have that document that we normally get. So like a rollover benefit statement. We don't have it yet and it's making sure that we get it so that we've got complete files so that we can prove it to the auditor. Those sorts of things.

Liz Westover:

So it's still finding our way around it. We've started doing our first ones already and we're just really taking our time in terms of dotting the Is and crossing the Ts to make sure that we get all the right information and certainly, if we're requesting rollovers. So now I can go and request a rollover from an APRA-regulated fund, is making sure you've got the authority from your client to do that.

Liz Westover:

Because the last thing you want to do is process a rollover for their full balance when they didn't actually intend for their full balance to come over and you've just blown up all their insurance in their APRA-regulated fund. Make sure that you're getting those authorities signed to actually process the rollovers. 

Liz Westover:

But equally, you've got to make sure that the ATO actually has up to date information for the fund. So it must have obviously the member details, so particularly around if you're adding members and you're trying to do rollovers, make sure that you give the ATO time to update their data so that when the APRA-regulated fund checks, it's all good. 

Liz Westover:

They can say, "Yes, that person is a member of this fund and it's all correct." The fund has to have an ABN, they have to have a unique bank account and of course, they must have an electronic service address. So you've got to just line up all your ducks before you press the go button.

Robyn Jacobson:

So it sounds a bit like the toddler's walking but still needs to be a bit steady on their feet.

Liz Westover:

I'd say that's quite a good analogy, yes.

Robyn Jacobson:

Okay. Now, we could talk for a long time about this but with the limited time we've got, can you identify the main concerns the profession has with NALI and NALE? And I've not yet found a way to distinguish audibly between the two. So non-arm's length income, NALI with an I, and non-arm's length expenses, NALE with an E.

Liz Westover:

I hear you on that one and it's NALI or NALE, I'm not sure. But I absolutely agree with you on that one. In a real nutshell, what they're saying, is non-arm's length expenses. So if you're not paying enough or you're not paying anything for services to the fund, or that the fund receives, then it's going to invoke non-arm's length income provisions. 

Liz Westover:

And that means income associated with that or has a sufficient nexus to those expenses will be taxed at the highest marginal tax rate of 45%. The real concern in the industry at the moment, because this isn't new law, this has been around since 2018. So the real concern in the industry at the moment is the Law Companion Ruling that came out recently from the Tax Office.

Liz Westover:

And in particular, the real sticking point around this is the ATO has a view that general expenses has a sufficient nexus to all of the income of the fund. So when we talk about general expenses, we're talking about accounting fees, audit fees, financial advisor, investment management fees. Those things that don't have a particular nexus, in the way a property manager would to a property. You've got that direct link.

Liz Westover:

We're talking about things that apply really to the whole fund. So if they are deemed to be non-arm's length expenses, then we have a problem for all of the income of the fund. So the ruling has been widely criticized by the profession and rightly so. I don't think that they have really made their case around sufficient nexus between the general expenses and the income of all of the fund and I certainly don't think that that was what was intended when this legislation was brought in.

Liz Westover:

So needless to say, there's a strong push and quite an aggressive push by industry against these reforms and I think Minister Hume said at The Tax Institute Super Conference that they are well aware of this issue and that in fact, they would be looking at it. No promises or anything like that by any means but at least we know she's aware of the issue.

Liz Westover:

And hopefully, we'll see some change, but I think for us as practitioners, how many of us are used to getting our firms to do our own funds? How many financial advisors are used to providing their services to their own funds? And we've seen a very gray area arise. It's not been clear where the line is actually drawn on trustee providing services in your capacity to a trustee, versus providing services in your capacity as an individual.

Liz Westover:

And this is where I kind of struggle with it is because I'm skilled at what I do, why can't I do that for my fund? And why do I have to pay for those services when anybody else who's not a tax agent, can legally still do all their own accounts and lodge their own tax return and in fact, they can't charge for that service. But because I am a tax agent, I must. So I really struggle with that a little bit and I just don't think that is consistent with our overriding drive to increase retirement savings.

Robyn Jacobson:

And there's a real tension also between the SIS Act which regulates what funds can do which says you can't charge for your services as a trustee and this rule which is saying you must charge otherwise, you'll have a NALI problem. 

Liz Westover:

That's right.

Robyn Jacobson:

And I know it's a great concern to the profession about does that mean I have to charge or does that mean I can't charge for my accounting services? I would draw everyone's attention to the examples that I think it's around example six to 10 in the ruling which is 2021/2. It's a Law Companion Ruling, an LCR, where it does talk about if I'm a trustee who's an accountant versus I'm a trustee who's an electrician.

Robyn Jacobson:

And it seems to go with this argument if I'm providing accounting services then that's a trustee capacity, so it's okay if I don't charge for that. But if I'm providing electrical services to my rental property that's in my fund, then if I don't charge for that, I would have a NALI problem. And it is gray, it's awkward.

Liz Westover:

Absolutely. And it's all well and good to give examples where there is extreme differences between the two scenarios but as we all know, in real life, that is rarely the case. And you can imagine a whole heap of scenarios that are somewhere in the middle and people not knowing how to actually apply it.

Liz Westover:

The other thing in that ruling too which I think people should pay attention to too, is they talk about acquisition of an asset is really important in this context. So if acquisition of an asset is deemed to be not on an arm's length basis, then the asset is actually tainted for life, and that includes capital gains.

Liz Westover:

So that's actually huge. So get your financing wrong, don't do the purchase at a market value, you've tainted the asset for life. All of the rental income or the dividend income, whatever it might be, including ultimately your capital gain.

Liz Westover:

And we also know that typically what people do is there might be a... when an asset is acquired by the fund, let's say it's a business real property, there might be a portion of a purchase and a portion that's done as an in-specie contribution. And this ruling makes very clear that if you do not document correctly then that document actually says that you might have non-arm's length expenses, regardless of the fact that you might journal an in-specie contribution within the fund.

Liz Westover:

So even though you think you've done everything right, maybe you think you're doing it the way we've always done it in the industry, you could be causing your clients to actually have non-arm's length expenses and around an acquisition of an asset, tainting that asset for life. So it is critical that the documentation around acquisition of assets where it includes an in-specie contribution component is documented correctly and meticulously or we're going to have a problem.

Robyn Jacobson:

A lot of work has been done by The Tax Institute in conjunction with the other professional bodies, and I'm not just referring to the traditional accounting bodies either. We've been involved with superannuation industry groups, it's a really broad group of organizations that have been working together. So it'll be interesting to see in the months ahead and we do hope that the government does listen to the concerns of the profession.

Robyn Jacobson:

But there's one piece around the ATO's interpretation of the law through this final ruling and there's another piece around the policy that of course the treasury and the government are responsible for. Now maybe there's a tweak that could be made to the legislation itself which is merely to clarify how the law was intended to work, and maybe if that could be done and remove something like a problem where there's $100 discount on electrical work done on my rental property, shouldn't taint all of the income earned from the $10 million worth of my assets in my fund and all my future capital gains forever either. It's just nonsense.