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Complex tax law throws up unintended consequences but few people know about the power devised to solve the problem, the IGTO says.
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Commissioner’s remedial power ‘underused, invisible’
20 December 2023
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The ATO Commissioner’s remedial power to modify tax law is so rarely used it fails in its design purpose of resolving unintended legal consequences, the tax ombudsman says.
The Inspector-General of Taxation and Taxation Ombudsman (IGTO) said giving the Commissioner a remedial power was controversial when it was introduced in 2017, but the problem of unintended legal consequences had been searching for a solution for some time.
“The Australian taxation and superannuation system is one of the most complex in the world with 14,000 pages of legislation,” the IGTO, Karen Payne, said. “The interactions between these taxation laws can sometimes produce unintended, unforeseen or inadvertent tax outcomes and consequences.”
“In many cases, these outcomes cannot be corrected via legislative amendment in a timely manner.”
The expectation was that the power would be used up to 10 times a year, but Ms Payne said there had been only 68 applications since it was introduced and it had been deployed on a mere seven occasions.
“I genuinely think a real part of that problem is people are not aware that it's there and how it can help,” she said.
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“ATO officers internally and taxpayers externally if they happen upon consequences and go, ‘Wow! Surely that’s not intended.’ This is one way you can address that if a law change looks a long way off.”
“But it’s an invisible power that the Commissioner has.”
In its report on the Commissioner’s remedial power (CRP), released today, the IGTO said other reasons for underuse included a preference for law change and a rigidity in the application process.
“In one case … it was concluded that although the candidate had met all criteria for exercise of the CRP, a decision was ultimately made not to exercise the CRP as legislative amendments had been announced to rectify the issue. The relevant legislation did not receive royal assent until two years later.”
Another reason for the failure of many CRP candidates was the ATO finding that the proposed modification was “inconsistent with the intended purpose” of the provision, sometimes because the law did not “expressly describe or enable that modification”.
A requirement that there be negligible budget impact that failed to allow for a lack of reliable data was an additional reason for underuse.
The IGTO said there was an opportunity to raise awareness of the CRP and made nine recommendations to the ATO that included better communication with stakeholders, improved tracking of candidates, guidelines for applications and progress reviews.
“Unintended outcomes in the tax laws can generate unfair tax consequences for taxpayers or subject them to unnecessary record keeping or other compliance requirements,” Ms Payne said.
“Where these outcomes remain unresolved for lengthy periods, the cost and uncertainty experienced by taxpayers can be quite substantial.
“Exercising the CRP quickly to resolve these issues will result in timely and fair outcomes for taxpayers and tax practitioners in a manner that is consistent with the intended purpose of legislation as enacted by parliament.
“Improved administration of the CRP will ultimately result in a better tax system.”
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