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Administering the tax laws in a way that builds community confidence.



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Administering the Tax Laws in a way that Builds Community Confidence

CPA Congress - Melbourne, 14 October 2003

Your work, your world

Presentation by Michael D’Ascenzo, Second Commissioner of Taxation, and demonstrations of ‘iLearn’ by Peter Lapham, Australian Taxation Office.

Taxes are the price we pay for a civilised society.1

The Australian Taxation Office administers a range of laws - most require it to collect revenue (the ATO collects 92% of the Federal Government’s revenue), some require it to make payments (such as Family Tax Benefits and Diesel Rebates), some require both (including for example the often eagerly awaited tax refund).

The Tax Office strategy

Tax administration is not easy - for example in the 2002 fiscal year the Tax Office handled over 12 million telephone and written enquiries.

The strategy is to:

1. verify compliance on a risk management basis; and 2. help taxpayers and tax agents comply with their obligations (including making it as easy as possible to do so - within the framework of the law).

The phrase “within the framework of the law” is added to emphasise that the Tax Office only administers the law; it does not make it. However, if the law is difficult to comply with - the Tax Office will advise Treasury and Government accordingly.

Self assessment

The Tax Office takes a risk management approach to tax administration.

Self assessment is a risk management approach premised on the proposition that up-front checking of all taxpayers is likely to lead to inconvenience and delays for honest taxpayers, and limits other verification activities.

So we make judgments as to risks and allocate scarce resources accordingly to address those risks - up-front or post assessment as warranted by the particular risks. For example, there are ‘up-front checks’ on large refunds. With some high wealth individuals we require an expanded return and undertake targeted audit

activity. We have had significant coverage of large corporates since the introduction of the Large Case Audit Program in the late 1980s.

The Compliance Program for 2003-04 makes public the choices we are making and the mix of help and enforcement strategies we plan to employ.

We invite feedback on whether our choices make sense and are sustainable in the longer term. We want to engage the community in the administration of its tax system.

Guiding principles

The Taxpayers’ Charter and the ATO’s Compliance Model guide the Tax Office so that we operate appropriately as a:

(a) trusted authority on the law - the is particularly relevant to the Tax Office interpretive function

(b) professional advisor and educator - this reflects the need in a ‘self assessment’ environment to explain to taxpayers and their agents how the tax law works

(c) firm enforcer of the law - so as to support honest taxpayers

(d) fair administrator - this is all about being professional, observing procedural fairness being consistent and ensuring that responses are proportional to the particular circumstances.

Policy, legislation and administration

Policy and legislation is the domain of government.

Tax administration begins when policy proposals are taking shape, and includes the effective implementation of new legislative measures. The Tax Office adds the “voice of administration” to the policy development process for tax laws2. This includes feedback on how to administer a matter, including revenue and taxpayer compliance cost impacts.

The new Policy Management Division is the Tax Office ‘gateway’ to Treasury. Since August 2002 the Office has issued over 650 pieces of formal advice to Treasury. Attached is a chart which summarises the respective roles of Treasury and the Tax Office regarding the functions of policy, legislation and administration (Attachment A).

The ATO’s Policy Implementation Forum manages the effective implementation of new tax laws. This year there are over 60 new measures that have to be implemented. Major measures include the new consolidations regime, changes to the simplified imputation system, and changes to the energy grants credit scheme.

Knowledge and application of the tax law

The Tax Office needs to be an expert in the tax law in order for it to develop administrative systems that support taxpayer compliance with their obligations under the law.

The Tax Office also applies the tax law to particular facts, whether in response to requests for advice or as part of the Office’s active compliance activities.

In order to ensure consistency and fair and timely responses the Tax Office has developed a precedent database. Front line officers can access precedents on-line in order to undertake the often difficult task of applying them to the facts of a case. For example, 95% of private ruling requests are now answered by reference to the precedent database. This facilitates timely responses that are accurate and consistent.

The database is available to the public on the Tax Office website - www.ato.gov.au - under the heading “ATO Legal Database”. Another example of a transparent Tax Office.

Public rulings

Public rulings are the Tax Office flagship interpretative products. They provide the community with information on their obligations and entitlements and are a core strategy to assist taxpayers to comply with their obligations under the tax laws. In particular, public rulings provide a level of certainty by ensuring that the Tax Office acts consistently with the interpretation of tax laws set out in public rulings.

They provide the Tax Office view of the law - they are not laws in themselves. However they do protect taxpayers who act consistently with the Office’s view of the law.

As noted by the Australian National Audit Office in its Performance Audit of the Taxation Rulings system of July 2001:

... [T]he ATO has a well-developed public rulings system, which draws on the expertise of ATO Staff with detailed knowledge of taxation law, industry and community group experts, academics and the general public. The public rulings system incorporates control measures that allow the ATO to produce...public rulings of high technical quality...[W]e found that the public rulings system...provides taxpayers with increased certainty regarding the Commissioner’s application of the tax law (at paragraph 26 of the report, page 20)....

The system incorporates control mechanisms that allow the ATO to produce public rulings of high technical quality (at paragraph 2.55 of the report, page 70).

[T]axation Rulings perform a vital role in assuring taxpayers by enhancing the information available to them and thereby enhancing taxpayers certainty about taxation administration. Without taxation rulings systems, taxpayers would face a less certain, and probably more costly, environment in meeting their tax obligations (at paragraph 13 of the report, page 17).

We conclude... that the mechanisms in place for public rulings substantially provide for consistent and fair treatment for taxpayers (at paragraph 17 of the reports, page 17).

The Public Rulings Program

The Public Rulings Program sets out the topics and timetables of public rulings that are being prepared by the Tax Office. The program contains the important ‘watershed’ dates regarding the technical examination and publication of these rulings, and provides a ‘snapshot’ of the current rulings work being undertaken by the Office’s authoring and publishing teams. The program also lists public rulings that have been finalised, withdrawn from the program prior to finalisation or that have been delayed in issuing.

You can view the monthly progress of rulings via the Public Rulings Program on the Tax Office website.

Public Rulings Panels

There are three Public Rulings Panels convened by the Tax Office to contribute to the process of producing quality public rulings. They are the:

● Public Rulings Panel

● Indirect Tax Rulings Panel (includes GST and Excise matters), and

● International Tax Rulings Panel.

Nearly all public rulings (drafts and finals) are examined by the appropriate rulings panel to examine the ruling’s legal, practical, commercial, and business implications, as part of the approval process prior to release.

Each rulings panel is comprised of a number of the most senior Tax Office officers (including the Chief Tax Counsel) and external representatives who are respected tax practitioners and/or academics. The GST Rulings Panel also has a representative from the State and Territory Governments.

The three rulings panels were established to consider and advise on the proper interpretation of the law in public rulings. The panels may endorse or suggest changes to aspects of the proposed position. Recommendations of the panels are taken into account by the authoring team in consultation with the relevant Deputy Chief Tax Counsel and the Chief Tax Counsel in arriving at the approach adopted by the Tax Office.

Where an alternate view to that adopted in the proposed ruling is discussed by the panel it is normally incorporated in the ruling along with why it was not the preferred view. We try to be as open and transparent as possible about the process. We feel that if we explain why we adopted one interpretation rather than another it assists people in their understanding of the law.

In addition to performing an advisory role in relation to interpretative matters and technical accuracy, the rulings panels may also provide advice on a range of issues associated with the preparation of rulings, including:

● whether a ruling is the appropriate method of clarifying the law, or whether an alternative means of

clarification should be used in the circumstances such as legislative amendment or litigation ● whether the internal structure of the proposed ruling can be improved

● whether there are any commercially realistic examples that should be included in the ruling that

would make the ruling more useful to the business community ● whether the ruling makes commercial sense, and

● whether there are other related topics that may be appropriate for rulings.

GST rulings

Noteworthy GST rulings published recently include:

GSTR 2003/5: Vouchers - explains how GST applies to the supply and redemption of vouchers and the circumstances in which no GST is payable on the supply of a voucher. The Tax Office has allowed taxpayers three months from the date of release of the ruling to implement any necessary system changes. Some issues relating to the telecommunication industry still need further clarification, including consideration of possible legislative changes.

GSTR 2003/6: Transfers of property under Family Law Act 1995 - explains the GST consequences of the transfer of enterprise assets to a spouse as part of a matrimonial property distribution under the Family Law Act 1975.

GST 2003/7: What does 'directly connected with goods or property' mean? - explains that a supply of something (other than goods or real property) is directly connected with goods or real property, if the direct object of the supply is the goods or real property. The ruling further explains that a supply of work physically performed on goods is one where something is done to the goods to change them or otherwise affect them in some physical way. This includes supplies like repairs or alterations to goods. Activities that do not change or affect goods in a physical way, are not work physically performed on goods. For example, a supply of transporting goods affects the location of the goods but has no physical effect on the goods themselves.

GSTR 2003/8: Supplies of right for use outside of Australia - explains when the supplies of rights for use outside Australia are GST-free.

GSTR 2003/9: Financial supplies - applies to all entities that make financial supplies in the course of their enterprise not just those in the banking and finance industry. Any entity that purchases shares, for example, is making a financial supply. The ruling deals with all aspects of the financial acquisitions threshold, including the two tests for determining whether an entity exceeds the threshold. Where an entity is below the threshold, it is not denied its input tax credits for acquisitions that relate to making financial supplies.

GSTR 2003/11: Termination of leases of goods - applies to lessors and lessees who are parties to a lease of goods. It explains the circumstances in which a payment made on the early termination of a lease of goods is consideration for a supply. It sets out the GST consequences where a payment is made on early termination in different circumstances including where the right to terminate early is in accordance with the original terms of the lease; where there is a casualty occurrence, such as theft or destruction of the leased goods by fire; or where there is a statutory right, under State or Territory consumer credit legislation, to terminate early.

Income tax rulings

Important income tax rulings (including international matters) published recently include:

TR 2003/1: The arms length test and thin capitalisation - clarifies the application of the arm’s length debt test in the thin capitalisation rules. The ruling provides a 6 step methodology approved by the Tax Office that taxpayers can choose to adopt.

TR 2003/6: Attribution under the new alienation measure - provides guidance to taxpayers affected by the alienation of personal services income rules contained in Part 2-42 of the Income Tax Assessment Action 1997. In particular, the ruling explains how the ‘attribution’ rules apply to an individual’s personal services income that is derived by an entity (ie a company, partnership or trust), and is not earned in the course of the entity conducting a personal services business. ‘Attribution’ in the context refers to the inclusion of the individual’s personal services income derived by the entity, in the assessable income of the individual.

TR 2003/10: Deductions relating to personal service income - deals with deductions that relate to personal service income and should be read in conjunction with the other three ‘personal services’ rulings. The ruling explains the operation of Division 85 (deductions for individuals) and Subdivision 86-B (deductions for entities) in Part 2-42 of the ITAA 1997. The rules contained in these provisions limit and clarify the deductions available against personal services income.

Improving the experience of tax agents

The introduction of the ‘New Tax System’ presented the Tax Office business and tax agents with a high challenge of implementing massive changes.

Tax agents were particularly impacted by tax reform, straining their relationship with the Office.

In the past year, more than 4,900 tax agents have participated in research projects to assist the Tax Office better understand their needs and more then 1,900 tax agents have been involved in consultation, forums and advisory groups.

Some of the things that the Tax Office is trying to improve include:

● access to the information held by the Office about tax agent client accounts;

● improved phone services with reduced waiting times

● a more user-friendly website, and

● more timely information that is in simple language and easy to understand.

An August 2003 survey across the profession in relation to the Tax Office telephone service showed:

● 88% agreed the phone service had generally improved

● 94% agreed staff showed a willingness to help

● 83% agreed staff handled their query promptly and efficiently

● some areas of improvement were still needed - 21% were not receiving the required resolution of

their issues.

Improved online services have been introduced with the rollout of the Tax Agent portal. The enhanced version of the portal now allows:

● online access to view:

❍ instalment accounts

❍ registration details, and

❍ history of portal activity

● secure electronic messaging with the Tax Office to resolve ELS questions, client account reports,

and client detail change requests, and ● links to ABN transactions, calculators and other online information.

Also well received has been the implementation of a new Relationship Manager Model for tax practitioners - progressively implemented from July 2003 - where there are specific teams to assist in the resolution of issues with the Tax Office where agents are not able to have them resolved through our normal channels.

We are also working hard to improve the content and sequencing of our letters. We have already improved 35 letters of our most used BAS and PAYG letters, and are continuing to improve the wording and sequencing of the remainder.

Easier, cheaper and more personalised

Details of this program are included in the publication “Making it easier to comply” which is available on our website.

The program will allow key groups to do more transactions online through portals and an improved website. It will mean we answer our phone more quickly and resolve more issues in the first call. It will mean letters and notices that are easier to understand and more relevant to a client’s circumstances.

When we say easier, we mean making it easier for taxpayers to comply with their obligations.

Cheaper means making it cheaper for individuals, business and tax agents by reducing the workload, time and effort needed to meet their obligations.

By more personalised we mean being able to offer products and services that make sense to people and that fit with the systems they use in their daily lives as much as possible. We are not able to provide a service tailored individually to everyone.

In designing and developing the products and service that are part of the program we have been guided by a set of key principles.

These are, as far as practicable:

● You will be able to do business with us online - whether through our services or your commercial

services. ● You will have online access to information that is personal to your dealings with us.

● You will deal with a tax officer who has an understanding of your dealings with us and, in some

cases, your industry. ● You will receive notices and forms that make sense in your terms and that reflect your personal

dealings with the revenue system. ● You will receive high quality responses to your issues and interactions along with quick turnaround

times. ● We will be reasonable about the level of record keeping required that is necessary for you to

practically comply with your tax obligations. ● We will facilitate the use of commercial services developed to ease the cost of your record keeping

and compliance with the law. ● You will experience compliance action which takes into account your compliance behaviour,

personal circumstances and level of risk in the system. ❍ If you are a tax agent we will also acknowledge the important role you play in the

administration of our revenue laws and will develop an open and constructive relationship with you, recognising your practice management issues in our administrative design.

To deliver this program the Tax Office is undergoing significant changes in the way we do business. The program will change our business processes, our people capability, the tools we use to do our jobs and our technology.

To assist us with these changes we are also looking for outside consultants to join us as a ‘program implementation partner’. This partner will provide us with a wide range of expertise including program and change management, business process and design and IT capabilities.

The 2003-4 Compliance Program

We restarted making the Compliance Program public last year. Enforcement activities in 2002-3 resulted in some $6 billion in adjustments to tax and penalties, and extra collections in the order of $3 billion—although some of this is in dispute.

The 2003-4 Compliance Plan similarly includes extensive compliance activities across all market segments (see Attachment B - ATO media release - 03/85) including:

(a) Individuals

● There are some 10 million taxpayers - mostly salary and wage earners under the PAYG

(Withholding) System. ● There will be a strong emphasis on information and education supported by checks of WRE, Rental

deductions and Data Matching.

(b) Micro-Businesses

● These are businesses with annual turnover of less than $2 million

● There are about 2.5 million micro businesses - some 630,000 employ staff

● While there is a strong focus in the Compliance Plan on help and education, Cash dealings and Debt

and Lodgement issues are areas of concern and coverage.

(c) Small to Medium Enterprises (SMEs)

● There are over 100,000 SMEs with annual turnover between $2 million and $100 million

● SMEs employ some 1.8 million people

● The ATO uses the extra information available under the New Tax System to target businesses

whose performance or returns vary from the norm.

(d) Large Businesses

● These include enterprises with annual turnover over $100 million, and high wealth individuals

● This group comprises

❍ 1400 large business groups

❍ 650 high wealth individuals with over 1000 associated entities; and

❍ 460 large superannuation funds

● This segment contributes 17% of Commonwealth income tax, 55% of the GST, 54% of Fringe

Benefits Tax, and 95% of Excise Revenue ● It is also involved in International Transactions

● This group is subject to continuing focus and attention

In summary, our Risk Areas are as follows:

● Fraud and Evasion

● Cash Economy

● Aggressive Tax Planning

● International and Tax Havens

● Debt and Lodgment

Cash Economy Task Force Report

3

Task force members include academics, small business operators, tax practitioners, representatives from the building and construction and retailing industries, micro and home-based businesses and ACOSS, as well as senior staff from the Tax Office, Centrelink, AUSTRAC and the States and Territories.

The task force sees signs that the design of the new tax system (NTS) is impacting on the cash economy. Indicators include amounts withheld under the withholding provisions when no-ABN is quoted by a business; the larger than expected “draw-in” to the NTS as part of the registration process; collections consistent with the expected realisation of the compliance dividend of $2.6 billion; and practitioner perceptions of improved

record keeping and invoicing by their clients.

While many of the new tax system measures reduce the opportunity for non-compliance in business-to-business transactions, the impact of these measures on business-to-consumer dealings is limited. Consistent with this and overseas experience the task force believes that business-to-consumer transactions continue to give rise to ongoing compliance risks.

Key recommendations by the task force include:

● focusing ATO compliance activities on transactions between consumers and businesses

● encouraging the community to play a greater role in ensuring the integrity of the tax system

● implementing new strategies to encourage self-regulation within industries

● working with other agencies to help educate new businesses about heir taxation obligations

● baking taxation payments easier

● expanding the use of the Australian Business Register

● trialling new data matching initiatives, such as matching local council information on building

approvals and with ATO data and registration lists to identify people not registered, and ● expanded reporting requirements for businesses with poor compliance histories.

As evidenced in the recently releases ATO Compliance Program, the cash economy remains a key priority in 2003-2004, with the Tax Office investing more resources into detecting and addressing people operating in the cash economy. This year, 660 officer (up from 600 last year) will be focusing specifically on cash economy field activities. In addition, another 2,400 field officers will include reviews of cash economy issues in their work and a significant number of other officers will be undertaking ‘help and assistance’ initiatives that impact on the behaviour of those that have cash dealings.

Training of audit staff

In supporting honest taxpayers through our active compliance activities, it is important that we do so with high levels of professionalism and expertise. The way we go about our responsibilities to the community are vitally important to maintaining community confidence.

Accordingly, we have, among other things, been working with the University of NSW (ATAX) to develop an extensive training program for Tax Office field officers. An outline of the active compliance development program is attached (Attachment C). It is intensive and innovative, and includes assessment requirements.

Another innovative initiative is the Tax Office iLearn Field Audit Simulation Tool.

What are simulation tools?

Simulation tools simulate “real world” environments and allow learners to practice and apply newly acquired skills and knowledge. They compensate for ‘real experiences’ especially where making a mistake can have dire consequences. A flight simulator is an example of a simulation tool that allows a pilot to practice their skills and knowledge, often in computer-generated “hazardous” conditions.

An important feature of simulation tools is that it allows learners to use their own logic to solve problems to “likely” situations they may encounter. This provides a powerful incentive for learning.

The features of the field audit simulation tool:

● the simulation is based on an actual case however, the name, taxation file number, ABN, taxation,

accounting and bank records are fictitious

● the simulation follows actual internal working procedures and auditing protocols

● the learner has the services of a virtual team leader on readily on hand to provide assistance and

guidance ● the simulation allows the learner to practice and enhance their observation, interviewing, analytical

and problem solving skills ● it reinforces the Tax Office’s acceptable codes of conduct in interacting with clients, and

● it provides individually tailored feedback for the learner.

These features can best be illustrated by a practical demonstration.

Conclusion

The Tax Office serves the Australian public by administering the tax laws in a way that instils community confidence. Most (62%) of the community think that, overall, the Tax Office is doing a good job (29% disagree)4.

By better engaging the community in the strategic choices that are a necessary part of tax administration, the Tax Office hopes to promote community confidence in the effective operation of the community’s tax system.

Attachment C

Compliance Officers Advanced Audit and Accounting Program (COAAAP)

Program Overview

Active Compliance Development Program Oct 2003

Program Objectives

Enhance Senior Compliance Officers (APS 6/Executive Level 1) audit and accounting capabilities to:

● prepare them to undertake more complex and higher level audit case work

● enable them to lead an audit, and

● enhance and use their skills to coach, mentor and transfer their learning to

others in the workplace.

Who will deliver ● The University of NSW (ATAX) will design, develop and deliver the program with Tax Office input. ● ATAX will partner with Learning by Design and Bentleys MRI (a national

network of independent firms of Chartered Accountants across Australia. Their clients span all areas of commerce and industry). ● Modules will be prepared and presented by teams of specialists in the area.

Target audience

● About 300 APS6/EL1 Compliance Officers who are (or expect to be) working

on audit case work in the high priority market segment (or focus) areas will participate in the program throughout the year: ❍ cash economy and micro segment

❍ small to medium enterprise (SME)

❍ serious non compliance

❍ large segment

❍ individuals

❍ aggressive tax planning

● 100 participants will complete the program by Dec 2003, the remaining will

commence in early Feb 04. There may be additional roll outs following the first 300. ● The first 100 participants will be the nominated senior operatives who work

(or expect to be working) in cash economy projects. They will come from across relevant lines.

Proposed structure

The proposed program is 13 days spread over 10 weeks and is divided into two phases.

Phase 1 will comprise Modules 1 to 8 and will be completed in 2 training weeks (with a 2 week break in between). This phase will focus on the core and generic advanced skills for senior compliance officers covering audit, accounting, business and people skills and knowledge. Phase 1 will be a pre-requisite to Phase 2.

Phase 2 (one of Modules 9 to 11) is designed as electives and to be undertaken in the third training week. It will take ~3 days. Electives will be chosen based on the participant’s area of work or study requirements. This will involve the practical application of active compliance to specific business segments (Micro/Cash Economy, Small to Medium Enterprise, Large Segments). Participants will complete 1 of the 3 modules.

Participants will need to successfully undertake 9 modules to complete the program.

See Indicative Content Outline in Attachment A.

Course accreditation The training program will be designed in line with the Australian Qualifications Framework to meet the required outcomes for Certificate IV academic recognition by

the Australian National Training Authority.

Design of the tailored program

The modules are participant centered, practical, hands on and highly informative for tax professionals, imparting both skills and knowledge specifically designed for those who work in taxation.

The training program will be designed to include:

● active participation through the use of examples and discussions

● meaningful material that participants will be able to relate to their existing

knowledge and experience ● a holistic approach to training providing participants with direction and clear

outcomes ● multi-sensory learning through the integrated presentations, detailed

materials and examples ● reinforcement of key concepts throughout the training program

● feedback provided to participants during and after the training program, and

● workplace monitoring and coaching.

Delivery method

The primary form of delivery will be face-to-face. They will include pre-course reading, formal presentations, discussions, case studies, role-plays, assignments and projects, and work-based learning (during and after the course).

Phase 1 will be followed-up by audio conferences to review work-based exercises, supplement face to face contact and to ensure adequate time is given to reflective learning

Study materials and work-based exercises will be distributed to participants one week before the commencement of face-to-face training.

Extensive written study materials (paper based and electronic) will be available, in advance, to all program participants. Formal and informal assessment of participants will take place, and careful monitoring of key skill transfers to the workplace will be an additional feature of the program.

Proposed delivery dates & location:

● A program will be delivered in 4 regions for Cash Economy - NSW, VIC,

QLD and one of SA or WA. A program will run in early Feb 04 for the remaining region. ● Maximum class size 25.

Pre-test Dates:

Late Sept Pre-test for NSW, SA (or WA)

Early Oct Pre test for VIC and QLD

A program will be delivered to 1 group in each region as shown below:

Dates for NSW & VIC Dates for QLD & SA (or WA)

Program Activity

13 Oct

27-31 Oct

17-21 Nov

3-5 Dec

12 Dec

20 Oct

3-7 Nov

24-28 Nov

10-12 Dec

19 Dec

Pre-course preparation materials issued

Week 1: Phase 1 Core Elements followed by 2 week break

Week 2: Phase 1 Core Elements followed by 2 week break

Week 3: Phase 2 Elective

Assessment work due

Eligibility ● COAAAP is suitable for APS6/EL1 operatives with intermediate level audit and accounting skills/experience who need to develop to more advanced levels. This is not intended to be a base level /introductory program. ● As it designed to satisfy external accreditation requirements, potential

participants will need to be assessed for suitability to the program. ● Participants will possess pre-requisite knowledge, skills and attributes to

participate effectively in the program. ● Potential participants will possess the following to be suitable for entry to the

program. This benchmark is based on criteria used to recruit/promote people to these levels in recent recruitment exercises: ❍ tertiary qualifications or equivalent experience in audit and

accounting ❍ demonstrated experience and ability to interpret and apply tax and

associated law ❍ current audit experience to the extent of undertaking full reviews and

analysis of client accounts and systems to ensure compliance ❍ ability to take on more complex audit case work.

The following are also key skills & attributes expected of potential participants:

❍ demonstrated ability and commitment to development and to

transfer learning to others ❍ results driven with effective time management skills

❍ good analytical skills

❍ effective communication skills, leadership ability, client relationship

skills

❍ knowledge of business systems

❍ understands relationship between business environment, industry

issues and compliance risks.

Other factors to consider for suitability:

❍ participants currently work (or expect to be working) on Cash

Economy audit case work (for first 100 only) or in other market segments/focus areas (for next year’s program) ❍ availability for the duration of the program

❍ time to attend briefings, pre-assessment activities, the actual 13

days of the program (allowing for pre, during & post course activity/assessment)

❍ availability of cases and on-the-job activities both during and post

the course to reinforce skills and knowledge gained ❍ time and opportunity to consolidate, apply and reinforce their

learning to their work ❍ time and opportunity to mentor and transfer skills to others, and

❍ overall impacts on planned business outcomes balanced with the

need to develop required skills to do the work now.

Nominees and team leaders will be further briefed about the program requirements.

Nomination to the program ● Cash economy leaders will identify target/priority areas of their business for audit skills improvement.

● Select pool of suitable applicants: Team leaders, through discussions with

their staff, will nominate a pool of people (at APS6/EL1 level) who require this type of program AND meet the above suitability factors. PD&MS learning and development discussions/plans should inform this process. ● Pre-test: The identified pool of potential participants will undergo a 45 minute

knowledge based pre-test developed by the University to ensure pre requisite knowledge levels are met. Potential participants would have already acquired necessary knowledge levels either from prior tertiary level study or through work experience and/or internal training programs. This validates assumed knowledge. ● Further information will be provided to the nominees on the testing process

● For potential participants in the Feb 03 program, the nominations and testing

are expected to take place in early Nov in preparation for the next waves of the program

If not nominated or unsuccessful in the pre-test

Your team leader will discuss with you why you have been nominated (or not) to the program. This will generally be informed by a number of things - your learning plan and study requirements, the nature of the work you are doing, the extent to which you are suitable/ready for the program, extent to which this program meets your specific needs, priority skilling for the team etc.

This program will not necessarily suit everyone. This is one of a broader range of learning solutions that are available to support staff development.

If unsuccessful in the pre-test, feedback will be provided to the participant on the learning outcomes that were not met. This will enable them to:

● discuss learning needs with their team leaders so they can focus their

learning activities ● obtain appropriate support that best match their learning requirements, and

● address identified gaps and prepare to participate in future roll outs of the

program.

Evaluation & assessment

● Participants will be assessed both during and after the instructional

components of the course. These will need to be successfully completed to gain the academic certification. ● Assessment will be multi-faceted. It will vary between modules and may

include: ❍ participation in class activities, group analysis of key issues,

presentations, groups projects, role plays and discussions of case studies; ❍ post-course activities testing core skills and knowledge; and

❍ a take home assessment task that will re-enforce the participant’s

application of skills and knowledge using a practical case study. ● Participants will be set a written project or other activities based upon a

practical case study after Phase 1. This will be completed before continuing to Phase 2. ● ATAX will track student progress rates and provide support to assist

participants to complete required components before attempting subsequent modules. ● Formative and summative assessments are included throughout the program

and will be collected and analysed to monitor and evaluate the program, the achievement of learning outcomes and validate the program. ● Evaluation will be undertaken jointly with the Tax Office at critical stages to

determine the appropriateness and effectiveness of the learning objectives, curriculum, learning of participants, program relevance, quality of materials and the trainers’ skills. ● An evaluation process six months after the project to determine the on-going

success of the mentoring program and skills transfer to the workplace is envisaged.

Post course learning support Post-course learning support will be provided to all participants through a combination of :

● written feedback for each assignment submitted

● audio conferences following each face-to-face class. Sessions will discuss

and analyse post-course learning and to apply the principles in work-based situations ● an internal mentoring system within the Tax Office which ATAX will help

establish, and ● follow up strategies and activities in the workplace will be implemented in a

structured way (e.g. mentoring others and appropriate case allocation) to ensure that the new skills are successfully embedded and applied within the organisation. ● information on the post course strategy will be provided at a later date.

Implementation managers Implementation managers will coordinate the nomination process and the roll out of the program for the various market segments and across lines. The implementation

managers are:

Cash Economy (Kate Nicholas)

SME (Heather Forrester)

Large, SNC, Aggressive Tax Planning, Individuals (TBA)

Providing your feedback ● queries and to provide feedback on the program, please send an email to the Outlook address: COAAAP

COAAAP Indicative content online (Draft: being developed)

PHASE 1: CORE ELEMENTS

Module 1: 1/4 day

The Framework of Active Compliance

● This module sets the context of compliance work undertaken by the participants.

● Introduce the focus and purpose of the course i.e. commercial focus and an awareness of return on

invested time and energy ● The module/session should enforce that the documents/models discussed form a platform and staff

must behave in line with that throughout ● ATO compliance model (possibly addressed by senior officers )

● Taxpayers’ Charter

● Ethical issues and code of conduct

● Introduce BISEP (to be covered in module 3).

Module 2: 3/4 day

Effective Communication Skills in an Audit Context

● This module/session will include some technical content (although participants should have some

knowledge in this area and so the technical aspects are to be reinforced rather than taught “from scratch”) but focus more on using effective communication skills in the audit context. ● Commissioner’s powers including TAA, ss 65, 66, 263 and 264 and how and when to use those

powers. ● Common tactics used to delay/block access

● Informal access v formal access (ATO to provide internal procedure manuals indicating how and

when different modes of access should be pursued. The material in this module should reflect and reinforce the ATO policy on this area.) ● Reviewable decisions, Freedom of Information Act and the ADJR.

● Reading body language and knowing how best to react

● Managing conflict, negotiation and influencing skills

● Settlements

● Investigative audit interview techniques

NB: note that ATO staff will have assumed knowledge on effective communication and managing client relations that this program will build on.

Module 3: 2 days

Understanding the Business Environment

● Understanding the client’s business and commercial environment (including the application of the

BICEP model) ● Understanding the legislative framework (eg. taxation, corporate, partnership, trust, employment, etc)

● Understanding the business structure and concept of economic entity

● Identify factors that motivate the use of different entities/business structures (business/commercial

motivations and environmental drivers as well as tax related reasons) ● Analysis of the business lifecycle from set up to insolvency (genuine and contrived)

● Corporate restructuring (and economic reasons why etc)

● Identify critical points/events that trigger decisions such as a change in business structure e.g.

changes in tax and other laws ● Applying legal concepts, principles, theories, standards and techniques in the context of tax

administration ● Identify tax pressure points (introduction - expanded upon in Phase 2) and patterns/trends in real

time (pre-empting changes in the market and possible impacts where possible)

Module 4: 2 days

Essential Accounting Skills and Knowledge

● This module/session will focus on the preparatory work for an audit that can be done using

accounting techniques ● Explanation of the concept of forensic accounting, broad understanding of different meanings of the

term used in the industry, focus on evidentiary needs ● Explanation of accounting, reporting practices and business transactions of companies

● Consideration of cash economy and the lack of records - how to approach these situations, alternate

techniques e.g. source and application approach of funds/cash flow ● Analytical review of financial statements including ratio analysis and recognising “clues” (highlighting

commercial factors such as seasonal changes etc) ● Exploration of different business financial operations and different accounting and reporting practices

including financial reporting mechanisms and tools ● Detecting unrecorded transactions and undisclosed income, reconstructing accounts etc

● Applying accounting principles, theories, standards and techniques in the context of tax

administration ● Testing of completeness of declarations against accounts and client’s own declarations.

● Reconstructing accounts

● Deductive measures (eg. T accounts or Asset Betterment - sources and application)

2 week break - workbased learning & audio conference

Module 5: 2 - 2 1/2 days

Essential Audit Skills and Knowledge

● Planning for an audit

● Draw distinction between operational risks (eg difficulties in obtaining records, electronic data not

accessible) v compliance/audit risks

● Identify the cost benefits of actions and consequences of decisions made; making informed

decisions about when and what issues to pursue, taking into account time and other external factors ● Derived from accounts + manipulation

● Analysis of BAS construction - from an audit perspective (looking for the holes)

● Identify ‘shorthand’ or square up methods for double checking the validity of records/accounts to help

identify omitted income and data not apparent (cash economy focus) ● Workpapers and collecting evidence and information for an audit that can be relied on/used as

evidence if the taxpayer is prosecuted ● A comparison of accounting and tax auditing

● Comprehensive risk assessment and analysis in auditing accounts

● Audit techniques, methods and tools including computer assisted verification methods

● Internal controls - protective and detective

● Comparison of auditing accounts of small, medium, large business entities and various corporate

structures (simple to more complex) (more details in elective modules) ● Testing records and accounts - how do we know they are compliant (looking beyond the “books”)

● Evidence collection and evaluation to sustain appeals process and prosecution

● Applying auditing principles, theories, standards and techniques in the context of tax administration

Module 6: 1/2 day

Valuations

● Relevance of valuations - trading stock, CGT, GST, consolidations, value shifting, FBT etc

● Methods of valuation and ‘shortcut’ methods to verify/gauge accuracy (eg internet sites, newspaper

advertisements/trading post) ● Verification/documentation of valuations and challenging a valuation

● Consider the asset betterment test

● discuss the internal valuations office in the ATO (IVD) and what role they can play

● This session should consider the application of valuations in a practical context rather than from a

legislative perspective

Module 7: 1 day

Fraud and Serious Non-Compliance

● Avoidance vs evasion

● Implications of tax planning from a compliance perspective

● Fraud and serious non-compliance issues

● Specific and general anti-avoidance provisions

● Discuss aggressive tax planning and schemes

● Consider use of DPOs and FOI etc

● Focusing on “awareness” so that staff will know when and how to escalate a case to the specialist

fraud and non compliance areas if required

1 day

Module 8: 1 day

Sustaining the Training

● Developing high performance teams

● Developing leadership skills in the context of an audit team

● Coaching, mentoring and training (including learning contracts - note ATO have internal policies and

will provide details to be incorporated into this module/session ) ● Developing team and individual learning programs for a specific audit client

● Presentation skills

● Performance review

● Ask participants to review their Individual Learning Program

● Discuss self-directed learning and sustainability of learning, reinforcing a learning culture

1 day

2 week break - audio conference/assessment work

PHASE 1: CORE ELEMENTS

Module 9: 3 days

Micro Business and the Cash Economy Tax Obligations Active Compliance

● audit issues and techniques (1 day)

● cash economy

● record keeping

● contractor vs employee

● tax pressure points (GST, IT, CGT, Superannuation, FBT)

● superannuation guarantee levy

● simplified tax system

● changes in behaviour and structures as businesses grow from micro to small

Module 10: 3 days

Small to Medium Enterprise Tax Obligations: Active Compliance

● audit issues and techniques (1 day)

● record keeping

● business growth and reorganisations and restructures

● service trusts

● tax pressure points (GST, IT, CGT, Superannuation, FBT)

● international tax issues including CFCs, FIFs, transfer pricing and thin capitalization

● identifying possible future impacts on market behaviour (reinforcing ideas introduced in Module 3

with specifics)

Module 11: 3 days

Large Business Tax Obligations: Active Compliance

● audit issues and techniques (1 day)

● public information and accounts

● complex structures

● service trusts

● debt/equity and financing issues

● tax pressure points (GST, IT, CGT, Superannuation, Excise, FBT)

● international tax issues including CFCs, FIFs, transfer pricing and thin capitalisation

Written Assessment Due 1 week after Electives

Follow up and Post Course Strategy

● Case allocation to reinforce and consolidate learning

● Transfer learning to others by providing on the job development support (mentor/coach)

NB: Provide adequate time and opportunity to consolidate learning before coaching others.

Evaluation 6 months after program

1 Compania de Tabacos v Collector of Internal Revenue (1927) 275US 87 at 100 per Homes J, Brandeis J concurring, cited by Brennan CJ, Dawson, Toohey, Gaudron, Gummow and Kirby JJ in FC of T v Spotless Services limited 96 ATC at 5206.

2 "Tax laws" refers to the range of laws administered by the Commissioner of Taxation including income tax, GST, Excise and Superannuation Guarantee.

3 Copies of the report and the Commissioner's responses to the recommendations are available at www.ato.gov.au. See also ATO Media Release "Cash Economy Taskforce Report" 2003/91 or 23 September 2003.

4 AC Nielsen "Community Perceptions Survey" June 2003

Last Modified: Tuesday, 4 November 2003

commonwealth.copyright@dcita.gov.au.