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Standing Committee on Tax and Revenue
Australian Taxation Office annual report 2016-17

CAWTHRA, Ms Frances, Chief Finance Officer, Australian Taxation Office

CROSBY, Ms Michelle, Deputy Registrar, Australian Business Register, Australian Taxation Office

CURTIS, Ms Jacqui, Chief Operating Officer, Corporate and Enabling Services Group, Australian Taxation Office

DAY, Mr William, Deputy Commissioner, Private Groups and High Wealth Individuals, Australian Taxation Office

JENKINS, Ms Deborah, Deputy Commissioner, Small Business, Australian Taxation Office

JORDAN, Mr Chris, Commissioner of Taxation, Australian Taxation Office

KATF, Mr Ramez, Chief Information Officer, Enterprise Solutions and Technology, Australian Taxation Office

MILLS, Mr Andrew, Second Commissioner, Law Design and Practice, Australian Taxation Office

OLESEN, Mr Neil, Second Commissioner, Client Engagement Group, Australian Taxation Office

RAVANELLO, Mr Robert, Deputy Commissioner, Debt, Australian Taxation Office

SMITH, Ms Melinda, Chief Services Delivery Officer, Service Delivery, Australian Taxation Office


ACTING CHAIR: I welcome to the hearing the Commissioner of Taxation and senior representatives of his office. We thank you for making yourselves available to give evidence today. Although the committee does not require you to give evidence under oath, these hearings are formal proceedings of the parliament and warrant the same respect as proceedings of the House of Representatives. As such, the giving of false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. The evidence given today will be recorded by Hansard and attracts parliamentary privilege. Thank you for the ATO submission to the inquiry. Before we proceed to questions, I invite you to make any opening remarks that you may have.

Mr Jordan : I would like to make an opening statement, thank you. Good afternoon. I'm certainly pleased to be here again for this performance review of the ATO, on the ATO 2016-17 annual report. I'm proud of the performance of the ATO. Like I said in the annual report, last year was both a successful and a challenging year for the ATO. As you know, we're in the midst of our long-term transformation program to improve the client experience and build trust and confidence in us and the tax and super systems more broadly. In 2016-17, the ATO delivered a highly successful tax time, increased prefilling of data and improved the experience with myTax. We had significant wins in the courts; we achieved good results under the newly established tax avoidance task force; increased the use of early engagement and alternative dispute resolution; improved our advice, guidance and assistance; and engaged meaningfully with small business, tax agents, the superannuation industry and other segments. We also continued our leadership contribution and participation in the OECD's Forum on Tax Administration's work program—I'm a vice-chair of that—including projects such as the Panama and Paradise papers, and we certainly kept a focus on tackling tax crime.

We, as an executive, and I, certainly welcome fair-minded and constructive discussion about the ATO and the administration of Australia's tax and super systems, and I'm sure that we'll have some of that today. But before we go into the questions and answers, I do want to address some derogatory and self-serving comments that have been made about the ATO and its officers by a particular organisation. Now, whilst these sensational and misleading comments are only generated from one source, they are making their way to parliament and into the media. I want to address these claims, because they are to the detriment of small business owners and serve only to create more tension and needless worry for them. It is also important for me to call this out because of the potential broader impacts on the community's confidence in the ATO and the tax system.

People do need to meet their tax and super obligations. We don't need them scared away or deterred because of incorrect and incredulous reports. We want to work with people collaboratively to deal with things early rather than letting them fester, because that's the worst outcome for everyone. I acknowledge that our primary role is to take money from people and businesses, and it's never a popular starting point for any relationship. That is why we are focusing on the client experience, to ensure that the majority of people, who are willing to do the right thing, have a good experience with us: infrequent, quick and painless.

Now, with that said, I want to address the reckless claims that have been made recently about the ATO's actions and our staff, who are trying to do the right thing for our country—sometimes under difficult and emotional circumstances—and, specifically, about our treatment of small businesses. Firstly, the comment is made that the ATO routinely destroys the business, the personal lives and, often, the mental health of small-business people. Really? Do you really believe our people would seek to do this? Do you really think that ATO people would get up in the morning thinking,' Who can I destroy today?' Do you really think that our society and all our scrutineers—you being amongst them—and the media, would allow this to happen?

Put another way, you have to ask: is this a reasonable portrayal of what is happening at the ATO? Of course not! And, in fact, quite the opposite. We proactively put in place support and services to help people get things right from the start and to stay on track. We regularly engage, consult and co-design with small businesses, their agents, their industry associations, state based small business commissioners and other representatives. These are people who actually work constructively and pragmatically with us in the interests of businesses meeting their obligations and tax and super being easier for everyone.

Where taxpayers do experience serious hardship, including in times of natural disasters—like Cyclone Debbie and the aftermath, or when a major business collapses—we provide support to those who are impacted, making sure there is a reasonable approach and tolerance for getting them back on their feet and meeting their obligations. Recognising that some taxpayers whose businesses may not be going well are also going through other stressful issues in their lives, such as a family break-up or physical or mental health issues, we offer what is called Dispute Assist. This is for unrepresented taxpayers, where our people are trained to recognise the signs, and we allocate them a guide who helps them through the process of a dispute. And, as far as we can see, this is the first of its kind for tax authorities anywhere in the world and the feedback on this has been outstanding from the small-business community and its representatives.

To put disputes into perspective, though, rather than routinely destroying businesses, we actually have very low numbers of disputes. In the 2017 financial year, there were just over 35½ million returns and activity statements lodged across all markets. Out of that 35½ million, 253,000 were adjusted following an audit—0.7 per cent. Out of those 253,000, 24,500 were objected to by the taxpayer—0.07 per cent. Out of those 24,500, only 456 were taken to court or the AAT—0.001 per cent. Only 141 of those proceeded to a decision—0.0004 per cent. And out of those 141, 85 per cent of those cases were found to be in the ATO's favour, which tells you we are progressing the right cases. So to claim widespread or systemic issues with the way we treat small business in disputes is distorted and unfounded rubbish being peddled by a self-interested organisation.

Secondly, another claim that has been made is the ATO can form an opinion that a person owes a tax debt and that opinion is enough to make that debt real and collectable, even if the opinion is wrong. So we can form an opinion, even if it is wrong, the debt is real and collectable. Of course we don't arbitrarily make up debts. Do you really think we would or could just make up a debt? It is so absurd, it beggars belief. Again, if this was right, how come it is only now coming to light?

The overwhelming majority of debt is a product of self-assessment on the tax return or activity statement lodged. We only issue a default assessment when a taxpayer has repeatedly ignored our reminders to lodge and refused to engage with us about their outstanding income tax returns or activity statements, or, in a small number of cases, where there is a very high risk, usually when a taxpayer is suspected or linked to organised crime. Of course, it is important to bring taxpayers to account and make sure that we are creating a level playing field for other small businesses who do the right thing, lodge returns, and pay their tax.

A default assessment is a last resort and it is based on the best information we have before us. It must have a reasonable basis, and it is externally and independently reviewable in the AAT and the courts. The processes and procedures of default assessment are necessarily robust and, importantly, they are there for when all else has failed to get people to work with us. Of the millions of returns lodged by small businesses in 2016, we only issued around 1,000 default assessments. I will give you an example. If someone is living in a $10 million home, drives an expensive car, sends their kids to private schools and travels business class a number of times an overseas holidays each year but only annually returns $50,000 of taxable income from their business, for many years, and they refuse to engage with us or provide details, what would you expect us to do?

The third comment made was that the ATO can, without a warrant, raid a person's home, garnishee a person's bank account, sell a person's house and then send them into bankruptcy, and the ATO can bankrupt a small business before it has had a chance to dispute a debt. Yet again, think about this statement—'The ATO can bankrupt a small business before it has had a chance to dispute a debt.' This is absurd, and I was shocked to see this in a submission to parliament. We only use stronger action like garnishees and bankruptcy proceedings when taxpayers refuse to engage with us and don't deal with their tax debt over a period of time. In all cases, except a small few where there is a very high risk, we issue a warning letter to taxpayers before undertaking firmer actions such as the issue of a garnishee. In the 2017 financial year, we issued around 23,700 garnishees, which equates to 0.5 per cent of all collectable debt cases. The combined total of ATO initiated bankruptcies and wind-ups accounted for 7.7 per cent of all bankruptcies and wind-ups in Australia. We initiated 640 bankruptcies, 3.9 per cent of the total, and we initiated 1,295 wind-ups, 15 per cent of all wind-ups. Importantly, ultimately, the courts make the final, independent decision on bankruptcy and company wind-ups, and I just do not think they would allow us to bankrupt someone without them having had a chance to dispute a debt.

An independent external review of our insolvency cases, completed in June 2017, concluded that our collection practices do not prematurely lead to viable taxpayers being made insolvent. If anything, we get feedback from small businesses or their representatives that they wished we had moved more quickly on those small businesses engaged in phoenix activity or operating while insolvent. Good small businesses do not want to be the victims of other businesses that continue to trade whilst insolvent. For the vast majority of taxpayers who have a dispute, no recovery action is undertaken while there is that dispute. For all taxpayers, including the 3.8 million small businesses—all of those millions of returns—we have only 4,300 active disputes currently on hand, and less than five per cent, 215 of those, have recovery action underway.

In extreme cases, we do support the Australian Federal Police to execute search warrants when dealing with serious financial crime, outlaw motorcycle gangs and organised crime. In other extreme cases, for tax purposes, we can access premises to copy documents relevant to a person's tax affairs. We can usually obtain the information we need for tax purposes without accessing premises. Last financial year, we only needed to access premises 27 times with notice and 10 times without notice. And I want to point out that not one—not one—of those cases involved accessing a small-business owner's home. I should also point out that our powers in this regard are the same as other comparable OECD tax authorities.

The fourth claim made—and I'm nearly finished—was that the proposal would further extend the ATO's ability to bully, harass and destroy small-business people. As I said at the start, our position is to support honest small businesses to thrive. The Deputy Commissioner of Small Business, Deborah Jenkins, and her team are working collaboratively with small businesses and their representatives. It is in all of our interests to have small business prosper and meet their obligations. It is good for the economy and it is good for the tax base. Why would we seek to destroy small-business people? It just doesn't make sense. I'm proud to stand up for the relationship and services the ATO has with and for small business.

The feedback I consistently receive from credible sources, like small businesses themselves and their associations, is positive about how well we listen and respond to the needs of small business. So while I welcome external feedback and constructive critique, we all need to make sure that we are working towards the best interests of those incredibly hard-working and innovative small-business people around Australia. We should not listen to the extreme and recklessly wrong views of an organisation that seeks to scare small businesses, and maybe we should be trying to get them to join that organisation.

Finally, it has been claimed that the ATO is not subject to proper oversight, because there are no bodies that can order the staff of the ATO to stop any abuses of its powers. The ATO is subject to a substantial degree of scrutiny—the exact point of us being here today. You know we are required to report regularly and transparently about many aspects of our business. Parliamentary oversight comes from this committee, the House of Representatives Standing Committee on Tax and Revenue, the Senate Economics References Committee inquiry into corporate tax avoidance, Senate estimates hearings three times a year and one-off parliamentary inquiries. Then, of course, there are the full and wide-ranging scrutiny powers of the Inspector-General of Taxation, the Australian National Audit Office, the Commonwealth Ombudsman, the Office of the Australian Information Commissioner, courts and the Administrative Appeals Tribunal. All these scrutineers and authorities play a role in the fair and just administration of the tax system. None have found any systemic issues with our approach to small business.

Ultimately, I am accountable for the performance of the ATO, and it is my role and that of other leaders throughout the organisation to ensure the staff of the ATO are doing their job effectively and efficiently. In such a large organisation, with such complex systems to administer—and the fact that our role is to collect money from people, for the betterment of our society—it is unrealistic to think that things won't go awry from time to time. But there are avenues for people to let us know about mistakes or opportunities for improvement, feedback or complaints direct to us, to senators, to you, members of parliament, to inquiries, to the inspector-general, to legitimate and credible small-business representatives, such as the Australian Small Business and Family Enterprise Ombudsman, various industry representatives and the Council of Small Business of Australia.

We are very happy to work with these representatives and advocates who work honestly and constructively with us, their clients and constituencies to make their tax and super a experience better. Thank you.

ACTING CHAIR: Thank you, Commissioner Jordan. I want to ask a few questions relating to this, just to clear up a few things. I think I read that submission, but I read them all. I would just like to compliment the tax office right from the beginning on the work it has done to improve its taxpayer engagement; that's understood. On page 3, it said there are 24,490 people or businesses that objected to the assessment. There's quite a gap between objecting and being taken to court. So 24,000 or so objected but didn't end up in court. Where did they end up?

Mr Jordan : Andrew Mills can pick up this, but a lot of them sometimes are just self-corrections. They might have made a mistake in their return and, rather than just asking for an amendment, they go through the official route of objecting to correct an error that they've identified in a post review.

Mr Mills : That's exactly right, and, in addition, sometimes the objection's the result of a substantial request to get certain kinds of information. By the time the assessment is raised on an audit, for example, afterwards, the information comes in on the objection and we are able to just allow it, because that is what we were after in order to fill the gap.

Mr Jordan : Sometimes people wait until the last minute to actually give us the information.

ACTING CHAIR: I understand that. I'm just trying to get a picture of how many of these end up in dispute but do not go to court.

Mr Mills : The 456 that end up in a court or tribunal are a reflection of the people who have in fact made that application.

ACTING CHAIR: Yes, I understand.

Mr Mills : They've had it disallowed. Their objection has been disallowed, and they've made that application. The 24,000 difference, effectively, is those who we've been able to, often, explain our reasons for the original decision to, and people say, 'Now I understand. That's fine.' We've had some of that. Sometimes, it's, as I've said, further information being provided, and, sometimes, the mistake has been made by the automatic data matching. Assessments have been raised through that process. They're able to provide information on objections, which helps to clarify that they didn't, perhaps, have that account or what have you, and that's been able to resolve it as well. So a fair number of these get allowed because of additional information that's provided.

Mr FALINSKI: That's great. What are the numbers?

Mr Mills : The numbers, in terms of those that are sorted, if you like, the difference between those two, and how many are allowed versus how many are disallowed and so on?

Mr FALINSKI: No. The people who pull out.

ACTING CHAIR: There can't be 24,000 happy people at the end of the day because the tax office said, 'By the way, this is what really happened,' and they said, 'Okay.'

Mr FALINSKI: You're giving us a series of reasons, but—

ACTING CHAIR: In there, somewhere, there have to be people who are unhappy. My question is: what happens in that dispute process? How many of those 24,000 end up in a disputed process, and what does that process look like?

Mr Mills : The dispute process starts from the objection. That's the first point at which people dispute something that's going on. Usually—this has been the experience for many years—what that results in is, first of all, a phone call to these people to get clarity around what they're objecting about.

ACTING CHAIR: Some of them are solved really easily, but some of them are not, so what does it look like over that 24,000?

Mr Mills : Around 70 per cent of the 24,000 are resolved relatively quickly. Either we're able to explain our position and people say, 'I understand; if I'd known that I wouldn't have bothered objecting,' or, sometimes, it's just a lack of information. They didn't understand the reason for our decision in the first place. I don't have that number, but I can get it for you.

ACTING CHAIR: I understand.

Mr Mills : There is a significant number of the 70 per cent that would be allowed because of the additional information provided. That's 70 per cent of the 24-odd thousand. The other 30 per cent are often more complicated. They involve further consideration of, perhaps, a deeper analysis of law. They need to go into some kind of resolution mode, and, sometimes, it's a case of adopting one of the various means that we have, so we'll often use—as the commissioner mentioned—Dispute Assist for those who are unrepresented and may have some other issues that apply. We have a number of in-house facilitation type things. We actually get people around the table to try and narrow down the differences between us and them.

ACTING CHAIR: I fully appreciate that the tax office is trying all sorts of things—

Mr Mills : To resolve them.

ACTING CHAIR: to resolve things, but there must be a proportion of them that aren't resolved. I'm just—

Mr Mills : The ones that aren't resolved—I think that what you're trying to ask me is: is there a number of the 24,490 that aren't otherwise sorted out? The 70 per cent get sorted very quickly because—

ACTING CHAIR: But even those that get sorted out aren't—

Mr Mills : Of the remaining 30 per cent, are there some, apart from the 456, who are still unhappy but who just go, 'I'm just going to have to wear it'? We don't know. I don't know how we could possibly know that they're unhappy and have failed to take it on.

ACTING CHAIR: Of the 23,700 garnishees, how many would be in the 24,490?

Mr Mills : None. It's not part of the dispute. These disputes are around assessments, as opposed to—

ACTING CHAIR: So where are the disputes?

Mr Mills : We have complaints as well, but they're separate. There are another 23,000 to 24,000 complaints that we receive each year about a whole range of our activities. That's not in the numbers that the commissioner quoted—that's separate. Some people pick up the phone and say, 'I'm unhappy about,' and they often come through our call centres. Sometimes, they come through the inspector-general. There are another 1,200 to 1,500 that come through the inspector-general as well, and they're also resolved through other processes.

Mr Jordan : But don't forget, on the debt front, some people put in their BAS and they disclose it all, but they just don't have the money to pay it.

ACTING CHAIR: I totally understand that, and I—

Mr Jordan : So it's not a dispute. It's just a debt.

ACTING CHAIR: I totally understand that. I've read the tax office's work on improving the debt collection side of things. There are 23,700 garnishees. I think you said, Commissioner, that in the vast majority of cases there would be no action while under dispute. What are the circumstances in which there would be action while there's a dispute?

Mr Mills : I might ask Deputy Commissioner Rob Ravanello, who looks after debt to help on this, but generally it's where we are concerned that there may be a dissipation of the assets while we're going through the dispute process.

Mr Ravanello : That is the case. With 96 per cent we take no action while the dispute is underway. and four per cent are a mix of what we call a fifty-fifty arrangement, where we agree the taxpayer pays 50 per cent of the primary amount under dispute. With that undertaking we give them the benefit of not charging them interest should the dispute fall our way. For the remainder, and it's a very small number, we do take recovery action, because there is evidence that they are either shifting assets or looking to evade any final outcome of the dispute.

Mr FALINSKI: What's that number?

Mr Ravanello : I don't have the breakdown of the 215 as to what number is a fifty-fifty versus what percentage is recovery action. I can get it for you, but I don't have it. I'm happy to take that one away. It will be a portion of the 215.

Mr VAN MANEN: Thank you, Mr Jordan, for your opening statement and the comprehensive nature of it. I've got a pretty good idea of who the organisation is you're referring to, because I get regular emails from them. A constituent who has contacted me has an issue with the ATO that is based at least in part on this issue, but it has been brought to my attention in the past on other occasions. My concern is around the record keeping of the ATO when taxpayers advise of new or changed details. In this particular instance, I believe part of the reason there is an ongoing issue is that the ATO were advised of the taxpayer's new addresses and contact details, yet correspondence is sent to old addresses. Of course, the taxpayer didn't respond to the correspondence and the matter escalated as a result. What work is being done? I know you've had issues with IT systems in terms of outages over the past few months as well. What is being done in that space to ensure that when new details are provided they're accurately recorded in a timely manner and the issue of the correspondence being sent to old addresses is removed as a reason for a dispute escalating?

Ms Smith : I look after the enterprise register accounts. I'm not aware of there being a reason why there wouldn't be any real-time, immediate adjustment where a taxpayer has made contact with us, either directly through a call centre, or where they've gone on ATO online. I'm not aware of a reason why there would be a delay, nor do I think it acceptable that we would be sending correspondence to a previous address without somehow assisting that taxpayer. I would like to take that on notice to have a look at what could have potentially caused that issue.

Mr Jordan : If you're willing to provide the details we can get back.

Ms Smith : It's not something that's systemic.

Mr VAN MANEN: The matter is now in arbitration between the ATO and the taxpayer, which is why I'm conscious of not putting too many details out there on the public record.

Mr Jordan : We can have a look as to what happened, if anything, there. The other thing is the ATO app. If you authenticate yourself through myGov and myTax, you can leave a voiceprint. I can pick up my phone, hit the app, hit online services and say, 'In Australia, my voice identifies me.' I will go directly to my account, and I can change my address there. I can change my bank details, lodge a BAS, lodge an instalment activity statement, lodge my return, check my super balance, check if there are any outstanding activity statements and all that. So that's another way on mobile devices the taxpayer can change their address, if they have the app, while watching TV.

Mr VAN MANEN: I accept that, Mr Jordan. This particular case has been going on for a period of time. I accept that. You will be pleased to know that I regularly check my accounts through myGov.

Mr Jordan : Have you left your voiceprint?

Mr VAN MANEN: I haven't actually yet.

Mr Jordan : It makes it easier to get on. If you go to myGov and myTax, it will prompt you how to do it and then it's really easy after that. I always get people saying, 'My kids use myTax and think it's wonderful.' I say, 'Why don't you?' They say, 'Okay. Good point.' MyTax is a facility that has a lot prefilled—wages, salary, interest, dividends, managed investment trust distributions and medical insurance—and all you have to do if you have a few deductions, like a donation or something like that, is stick that in and press submit. A lot of people still go through the laborious process of having a look at their bank statements, adding up all the interest, taking it to their tax agent and saying: 'Here's the $28 in interest I got. Here's the dividend statement.' It's all prefilled. It's all there. The agent opens up the thing and it's done. You can do it at myTax.

ACTING CHAIR: But if it's incorrect, as mine was, for example, and I just accepted the ATO's prefill, who would be to blame?

Mr Jordan : We get information from providers. The bank generally gets it right.

ACTING CHAIR: But would I be to blame if I accepted the ATO's prefill even though it was wrong?

Mr Jordan : No, if you can show that the prefill was wrong, of course you wouldn't get any penalties, interest or anything like that. If it was wrong and you owed us money, you'd have to pay it. If it was wrong and we owed you a refund, we'd give it to you and we would give you interest. The prefill is information that we get from banks, share registry providers and all of that.

ACTING CHAIR: I think all of us use it, so we probably do understand.

Mr Jordan : There is an enormous amount of data that we get and generally it's right, because the bank knows. What we want to do is get it earlier because there are people who on 1 July are straight in there. We don't have the data because the data is required to be given to us by 31 October. That was a compliance thing. You're required if you don't have an agent to lodge a return by 31 October. We require this information so we can data match to make sure you are putting in the interest from the bank, dividends and that sort of thing. Now we use it as a service. A lot do this. If a bank really wanted to, it could do a run on 30 June and provide us the data on 1 July and we could upload it. Company registries know what dividends have been paid. It's rare to have a dividend on 30 June. Normally there is an interim and a final. So they could give it to us. We'd love to get information quicker because it's a service now not a compliance matter.

ACTING CHAIR: What steps are you taking to make that happen?

Mr Jordan : We encourage the financial institutions, and generally they're pretty good and give it to us earlier. We had an issue a couple of years ago with one of the medical insurance funds—one of the big membership based organisations. They had a bit of a problem. They tried to change their systems on 1 July. It's never a great idea. We've learnt that one. We worked with them. The law says 31 October, but we worked with them to voluntarily give it to us quicker.

Mr VAN MANEN: In your submission you talk about the administration of the Australian Business Register and the issue of ABNs. We still from time to time hear of people who either struggled to get an ABN or have had an ABN cancelled and don't understand why. Can you just explain a little bit about how that system is working, what parameters you are putting around it to try and tighten up the validity of the system, but at the same time ensure that appropriate new businesses are being—

Mr Jordan : Yes, I will ask Michelle Crosby, the deputy registrar. But we issue about 800,000 new ABNs every year, and 95 per cent of those are issued automatically online. There is a balance here between ease of obtaining a licence, effectively, to carry on a business through the ABN and getting that really quickly, and making sure there is integrity in the system. So we have upped the ability of people to get them quickly as a service, but I think we need to have a good look at where that balance should lie to make sure they are entitled to that because more and more people are using these ABNs for good reason—states, local governments, federal governments. There are 770 million lookups of ABNs each year to check that that business is legitimate and the ABN is current. So on one hand sometimes we get people saying you don't give them out easy enough, on the other hand we get people saying you give them out too easily. We cancel ABNs when there is no evidence of a business being carried on. For example, if the business has not lodged an activity statement or a tax return for a number of years, we tend to write a letter and then cancel it so there are some bulk cancellations. When a company is deregistered by ASIC, we take away the ABN.

Ms Crosby : I will say that we don't take a decision to cancel an ABN lightly. We work with the holder of the ABN and, if it does turn out that they are not entitled to the ABN, we work with them over a significant period of time to move to other arrangements which better suit the business model that they are working within. I think that is an important point. It is not like we are out there cancelling ABNs across-the-board; we are actually doing it in a very constructive way with those entities.

ACTING CHAIR: There was a comment in the submission about the need to keep in mind the changing nature of the whole economy. You can't, for example, use e-commerce unless you have an ABN, unless you have an account with the bank, and there are a whole lot of reasons why you might legitimately want one to do social good or whatever. So what is the tax office's view about the need, given the changing nature about e-commerce?

Ms Crosby : I think the gig economy and the platform economy are causing us to look at who is entitled to an ABN. Certainly it is something that we are very conscious of at this point in time. As those different business models do emerge, we are trying to work with the different providers of those business models to look at ABN entitlement more broadly. I think the thing to remember with that is, if people are still technically employees, rather than in a contracting world, we have obligations to ensure that those employees and the employers are meeting their obligations from a tax and super point of view and so this will be an ongoing challenge, I think, for us as an agency, as different models emerge. But it is fair to say that, at this point in time, the majority of models that have emerged we are able to deal with under the existing legislation.

Mr Jordan : The other thing to note here, too, is that sometimes you hear about people who were doing a service and got their ABN cancelled or whatever. There is a transfer of responsibility from the employer to the employee or contractor here. Once you're a contractor, you've got to do the BAS. You've got to collect and remit GST if you're doing more than $75,000. You've got to put in your quarterly payments and you've got to look after yourself for superannuation and all that sort of thing. There's a lot of responsibility that is sometimes transferred and people may not fully understand at the beginning of it what they have to do. If you're a part-time employee, like most restaurants, cafes and retail shops have, you get your pay, you get your tax taken out and you're all done. You do your tax return at the end of the year. You get your super paid and all the rest of it. So to be a contractor is not necessarily as great a thing as some people think.

Mr FALINSKI: Are you trying to talk people out of becoming independent contractors?

Mr Jordan : No.

Mr FALINSKI: Oh, good!

Mr Jordan : I'm just saying that if you are an independent contractor, it carries with it responsibilities around compliance for BAS and all that sort of thing.

ACTING CHAIR: Of course it does. I don't think anyone on the committee would question that.

Mr VAN MANEN: I just want to take this a step further, and I suppose it's a bit of a tangent. In your opening comments you touched on the issue of phoenixing. Using the necessity for somebody to apply for an ABN in conjunction with working with ASIC, do you have the capacity to identify directors of companies where there is a reasonable expectation, or a reasonable understanding, that they are engaging in phoenix activities, or questionable activities, and to deny them access to an ABN to commence a new business out of the ashes of the old one which they've just phoenixed?

Mr Jordan : Often the directors of the company are not required or entitled to get an ABN, so they just become a director.

Mr VAN MANEN: But when applying, though, the directors would be listed on the application. Isn't that correct?

Mr Jordan : I wish it were that simple. What people do, as you saw in Operation Elbrus, is to get what are called dummy directors.

ACTING CHAIR: So what do you need?

Mr FALINSKI: Can you run through—

Mr Jordan : If they are who they say they are, and they've just never had any experience in running a company or being a director then their associates can—

Mr FALINSKI: Can you run—

Mr Jordan : The people that do the phoenixing don't put their own names down as the directors, is what I'm saying.

Mr FALINSKI: Can you run analytics to find out relationships between the people who are coming up as dummy directors within that organisation?

Mr Jordan : We can run analytics to look at people known to have done it and their associates. But you'll never know: Joe Smith is a director but is he a dummy? We're getting better, but it's a pretty complex thing. People pay people to take on that service—

ACTING CHAIR: So you're saying that—

Mr FALINSKI: But ASIC is doing it at the moment with insider trading.

Mr Jordan : Sure.

Mr FALINSKI: It's running very complex systems within that. Where are your systems up to in that regard?

Mr Day : I have responsibility for phoenix within my business line. We work very closely with ASIC. If you're talking about identification of directors, we work very closely with ASIC through the Phoenix Taskforce to share information that we both have around—

Ms BUTLER: I think Jason's question was about your technology. Do you have the same technology as ASIC does?

Mr FALINSKI: Why don't I just cut to the chase? You guys have a project in hand to take all the government registries that are out there currently. There are 35 of them, is that right?

Ms Crosby : ASIC has about 31 registers and then the ABR. So there are 32 registers in total.

Mr FALINSKI: But the ATO is the lead agency in looking at those registries and how they can be updated and better managed?

Ms Crosby : The ATO is one of a number of agencies working together. The department of industry and ASIC are the others.

Mr FALINSKI: We've been led to believe that you are the lead agency on this project.

Ms Crosby : We were the agency that issued a request for information to the market to explore products that might be suitable for what is a modernised registry system. Government consulted on this more broadly late last year in relation to what would constitute a modernised registry.

Mr FALINSKI: So you are running that project?

Ms Crosby : Yes, we are.

Mr FALINSKI: Where is that up to?

Ms Crosby : We have gone out to the market to look at whether there are products that exist, and we will be awaiting a decision on that.

Mr FALINSKI: Whose decision is that?

Ms Crosby : It's a government decision as to whether to proceed on that.

Mr FALINSKI: So you are making recommendations to—

Ms Crosby : Government will be considering the outcomes of that tender, also based on the consultation that our minister went out with late last year.

Ms BUTLER: Is there something before the minister on which to make a decision right now?

Ms Crosby : I think that's a matter for the minister.

Mr VAN MANEN: But is there something sitting on the minister's desk for them to make a decision on?

Ms Crosby : We certainly have provided advice to the minister on the modernised registry program.

Ms BUTLER: Does your advice include a recommendation as to which product to use?

Ms Crosby : There is no advice on a particular product at this point in time.

ACTING CHAIR: Do you have a time frame?

Mr FALINSKI: Did you advise the minister to use distributed ledger technology or services?

Ms Crosby : I don't think we're that far advanced in terms of the technology. We've put a request out to the market which was twofold: one was to look at a registry system, and one was to look at innovation and how you could innovate within that system. I haven't personally seen the responses, but I imagine some of those responses would have provided responses around things like blockchain.

Mr FALINSKI: Is it possible for us to get some answers in terms of where the process started, where it's up to at the moment and what pathway it's going down, obviously without interfering with the process?

ACTING CHAIR: And a bit of a time line.

Ms Crosby : I can take that on notice and bring it back.

Mr FALINSKI: The reason this committee considers this to be urgent—I was going to come back to you, Mr Day—is that phoenixing activity appears to be getting worse. The evidence we've had before us from different sources is that, simply put, regulators do not have the technology in front of them to run analytics on the basis to predictively determine whether a particular person is a bogus director or a shadow director or a dummy director.

Mr Jordan : We have a business line called Smarter Data. It's a project which is being done to look at what are the typical attributes of a director. So you might know that John Smith is John Smith, but do they have the attributes of a director? If you've been on Centrelink payments for 15 years, didn't finish high school and don't own any property or whatever, you might not have the typical attributes of someone with a $500 million finance company.

ACTING CHAIR: I am going to interrupt you, Commissioner. I understand what you're saying. So you can identify people on the directors list who aren't appropriate directors. What do you do about it then?

Mr Jordan : We would work with ASIC. Obviously ASIC have responsibility for that and we would work with ASIC and all of those people to raise a red flag there and do something about it.

Mr FALINSKI: So on the basis of where you are heading, you would not have approved the formation of Microsoft or Apple?

Mr Jordan : I don't know what you are talking about.

ACTING CHAIR: Their directors were still unemployed.

Mr FALINSKI: Because the directors were college dropouts at the time.

Mr Jordan : You've just taken one little aspect of what I said totally out of context.

Mr FALINSKI: I apologise for doing that.

Mr Jordan : We are building attributes of directors.

Mr FALINSKI: But you are putting the ATO in the position where it can determine—

Mr Jordan : So we would run that against it. If you have any better ideas we would love to hear them. If you've got submissions that have some solutions, we're all ears.

Mr FALINSKI: Mr Jordan, maybe if you'd allow me to ask this question. You are putting the ATO in a position where it will be able to determine or come up with a range of skill sets to determine whether a director is appropriate or has appropriate skill levels.

Mr Jordan : No, not at all.

Mr FALINSKI: So what is it that you said to us that I misunderstood?

Mr Jordan : We're not looking at their skill levels; we're looking at the basic attributes of the person to see whether that matches the typical attributes of someone not forming a company that has $2 of capital but might have $500 million of turnover. Why would someone that has no attributes of a director be appointed? We might ask the question, they'll tell us why and we'll say: 'That's great; good on you. Off you go.'

ACTING CHAIR: So you don't do this for companies that have small turnovers?

Mr Jordan : It is part of an overall system.

ACTING CHAIR: So every single ABN with a director is—

Mr Jordan : The difficulty with phoenixing is—there are some legitimate businesses that get into strife and go broke. For some people, being a business person is in their DNA, so they start another company in a genuine way, in a genuine new business. You can't stop that. That's good. It's not good that it went broke, but it's good that they're having a go again. So, there is a balance between understanding the rebirth of a good new business versus a phoenix.

Mr VAN MANEN: A bugbear of mine is a lack of identification for company directors. It's been a long time since I applied for a tax file number, I'm sad to say—

Mr Jordan : I hope so—in a personal capacity anyway! You might be doing it for a company or something.

Mr VAN MANEN: However, if I were to apply for a tax file number today, would I need to produce 100 points of identification? If not, why not?

Mr Olesen : Yes, you would.

Mr Ravanello : My understanding is that, under the current process, you go online and fill out some details. Then you're required to front up at an Australia Post post office and produce documents, and they will do the verification of those documents. That could be a driver's licence, Medicare card—

Mr VAN MANEN: Whatever the standards ones are.

Mr Ravanello : and the documents would be validated back then.

Mr VAN MANEN: So, in other words, anybody applying for a tax file number is being identified as a genuine person in the same way as when one is opening a bank account or whatever else. The weakness in the system now is the fact that, as a company director, you don't have to do that.

Mr Jordan : I think it is the company that has to have the tax file number; it's the entity that's trading. The company needs the ABN because it's making the sales and collecting the GST.

Ms BUTLER: There's no identification for individual directors, though. There's no director identification number yet. That is yet to be implemented.

Mr Day : That's right—to the extent that you're registering through ASIC as a director of a company, that's right.

Ms BUTLER: Yes. So, there isn't a corresponding record for the director, in terms of tax, because the corporate entity attracts the tax liability rather than the individual director. You don't have the identification probity in respect of individual directors that you have in respect of individual taxpayers. Isn't that the case? People are nodding, for the benefit of Hansard.

I want to change topics, Commissioner, to something I have raised with you before with respect to child support. Is it now the case that penalties are being routinely imposed on child support payers who lodge their returns late regardless of whether they owe a debt to the revenue?

Mr Jordan : I couldn't—you've asked about child support in the past, Ms Butler—

Ms BUTLER: I'm going too quickly! When a child support payer files a tax return late, are they routinely being penalised even if they don't owe any tax debt?

Mr Olesen : I would have to check.

Ms BUTLER: Could you take that on notice?

Mr Olesen : I would be happy to.

Ms BUTLER: I have a couple of related questions. Is there currently, in effect, an MOU between the ATO and DHS in respect of child support payers who have failed to lodge their returns?

Mr Olesen : We have an arrangement with them about how many lodgements we go after for potential child support payers.

Ms BUTLER: Is there currently any funding attached to that arrangement?

Mr Olesen : There's no funding. You might recall there was a funding agreement, but we've maintained our ambitions, notwithstanding that that funding has gone away.

Ms BUTLER: Since you're taking things on notice, could you take on notice the following question: what action has the ATO taken in respect of the ANAO report with respect to the collection arrangements for child support payers—sorry, not collection arrangements—pursuing people to file their tax returns?

Mr Olesen : Sure. I'm happy to take that on notice.

Ms BUTLER: I put some questions to the IGT earlier about the level of outsourcing of ATO frontline staff. I don't know if you had the chance to hear it. I think it was broadcast. A group of ATO employees came to see me recently to express concern about the level of outsourcing with respect to what they described as business-as-usual functions—not in respect of demand peaks, but just ongoing contracts with large private companies or private interests. They told me that about 30 per cent of the frontline work that's being done is being done by employees of contractors, not by employees of the ATO.

Mr Jordan : There are a number of people that might want to respond—

Ms Smith : I'm happy to take it.

Mr Jordan : because the service delivery with the call centres is through the CFO. Do you want to have a go, Mel?

Ms Smith : Yes, sure.

Ms BUTLER: I've got two questions on this. The first question is: what's being done, if anything, to monitor whether there's any difference in the amount of complaints or dissatisfaction from people who are calling through the outsourced services?

Mr Jordan : Complaints went down 30 per cent in tax time this year.

Ms BUTLER: That's great.

Mr Jordan : That's really good, because the experience is—

Ms BUTLER: I'm just wondering whether it's been disaggregated by the provider of the service—whether there's a comparison of the complaints against the call centres, who are outsourced, versus the—

Ms Smith : Yes, it is. We monitor any complaint that we get through. I note they dropped by 30 per cent last year, which was terrific, but any complaint is categorised based on whether or not it's internal or external. We always look at the complaints as an opportunity to rectify something—it might be a process; it might be training—so it's very important for us to actually understand what the source of the complaint is and what the right action for us to take is—for example, is it just a one-off or is it something that's systemic? As far as what percentage it is, I'll need to get back to you with the actual percentages—

Ms BUTLER: Could you do that. Thank you.

Ms Smith : but I can do that. We then meet, of course, as you'd expect, with the outsourcing providers and we routinely go through that. The outsourcing staff go through the same ATO training and the same quality assessments. They sign up to the same code of conduct. They're all Australian citizens. They're based here in Australia. We try not to differentiate too much around the processes we use.

Ms BUTLER: But there is a difference in their legal status. They're not covered by the Public Service legislation; they're not employees of the Public Service.

Ms Smith : That's correct.

Ms BUTLER: They are clearly two different classes of service providers that you have.

Ms Smith : I agree with that, but the processes and the training are applied equally to both groups.

Ms BUTLER: How does the taxpayer charter apply to those service providers?

Mr Jordan : When you talk about frontline staff, sometimes people think of audit and that.

Mr Olesen : I was just going to make the point that for that kind of work we do—if you're a small-business person or an individual being audited by the tax office—that's almost always permanent staff in the tax office.

Ms BUTLER: I understand. How does the taxpayer charter apply to those outsourced providers?

Ms Smith : I'm going to take that on notice, specifically around the charter, just to confirm I'm correctly answering that question.

Ms BUTLER: I suspect it's just contractual.

Ms Smith : Yes, I also suspect that. But, if you wouldn't mind, I will take it on notice, notwithstanding what I spoke about earlier. I can't think of a reason why it wouldn't, frankly—to try and help in this discussion—but I will take that on notice.

Ms BUTLER: When you say they sign up to the code of conduct, that's just contractual as well, isn't it? There's no obligation arising out of the Public Service Act for them to comply with the code of conduct?

Ms Smith : It's contractual.

Ms BUTLER: That leads on to the next of questions, which is—

Mr Jordan : Could I also make just one point there too. Don't forget we've got ASL limits and caps and all that. It's not like we can just turn a tap and say, 'Okay, we're going to get a thousand more people to come in.'

Ms BUTLER: No. That's a question for government, isn't it.

Mr Jordan : If you want to agitate for an increase in our ASL, we'd be happy with that.

ACTING CHAIR: You'd be very happy.

Ms BUTLER: And that’s a question for the government, isn't it, the ASL?

Mr Jordan : Yes.

Ms BUTLER: Is there any analysis done about how much the outsourced work costs compared with the ASL if it were to be increased?

Ms Curtis : I'll ask the Chief Finance Officer, Frances Cawthra, to take that question.

Ms Cawthra : We have done some analysis. I don't have the actual figures here but I can talk more generally around that. There are some costs that are naturally cheaper that have been done by the outsourcers. Some of those are things like us not having to hold massive amounts of property to be able to ramp up and ramp down for tax time. That's a saving for us. In the environments they have they have a ready workforce on tap, so their recruitment costs are cheaper. There's their ability, their training. We have access, through them, to best-of-breed technology et cetera. So there is some analysis about the work that they provide in terms of work to us.

Ms BUTLER: Is there a difference in remuneration of the staff, or do they get paid the same?

Ms Cawthra : I don't know the difference exactly; I would imagine it would be different for a whole range of reasons. One of those is that some of the work they undertake for us, as my colleague Ms Smith started to mention, when compared to the work that the tax office people do, is considered to be low-complex and high-volume work. It is much more about the more service-orientated pieces they'll need to do, whereas the work we do in the tax office is of higher complexity and requires a deeper understanding of the tax and superannuation systems. Our staff are normally at a higher level; they tackle more complex work. Under the contracts we have with them and the obligations, the contact centres are still required under those obligations to meet all of the laws of Australia, including all of the workplace laws. They also have to meet all of their tax obligations and their warranty for their entire contract that they will do that and then, lastly, as Ms Smith mentioned, they are required to be employees of the organisation; they can't be contractors to the suppliers.

Mr Jordan : One of the big suppliers is on the Sunshine Coast.

Ms BUTLER: At Maroochydore?

Mr Jordan : I think they try to pick up some regional people and others on the Gold Coast, so they're not also all Sydney or Melbourne necessarily. It is a big pool of employment opportunity outside of hospitality.

Ms BUTLER: When you say they're required to comply with workplace laws, workplace laws wouldn't oblige them to pay the same rates as people in the ATO, would they?

Ms Cawthra : No, it would be under the Fair Work Act. They are required under the awards to pay the award rates.

Ms BUTLER: But you're not required to pay the award rate? You're required to pay the collective bargaining rate.

Ms Cawthra : The rates would be different, but the work is different.

Ms BUTLER: When you say they're required contractually to abide by the Fair Work legislation, that doesn't imply that there is any requirement on them to pay the same rates as are being paid in the tax office?

Ms Cawthra : Of course not.

Ms BUTLER: Do the outsourced providers provide you with any information about the gender pay gap in their organisations in the work they're doing for tax?

Ms Cawthra : I would have to take that on notice. My colleague Ms Smith may know.

Ms BUTLER: We routinely get reports about gender issues in government departments. We get a sense in your higher levels of what the gender relationships are like, but I wouldn't have a clue about what your outsourced providers do.

Mr Jordan : I'm not sure. We would have to ask them. Fifty-eight per cent of our employees are female; 42 per cent male; 49 per cent of our executive level are female—we have a target of 50 per cent—it's 49.7 per cent or 49 point something. Why can't we just get that to 50!

Ms BUTLER: We've just done that in the Labor Party. We are at 48 per cent now.

Mr Jordan : Our SES are 42 per cent female, up from the 30s, so it's been quite a good result. The executive team now is three males, three females, and I chair it. We're pretty proud of what we've been able to achieve.

Ms BUTLER: And rightly proud of it. My point is that those same targets are not applied to the outsourced providers, are they?

Mr Jordan : I just don't know.

Ms Curtis : We'd have to look at the contract, but I doubt it very much.

Ms BUTLER: I'd appreciate it. I think it would be worth looking at whether there is a gender pay gap for the staff who are doing the work and whether there is gender parity or equity in terms of the composition of the executives who are running or managing the work that's being outsourced by tax to these companies. That would be quite interesting for the committee and no doubt for yourselves as well, given the commitment you've made.

Mr Jordan : We would have to rely on what they tell us.

Ms BUTLER: Of course, and that brings me to my next issue. You do have to rely on what they tell you and you also have to rely on them having their systems up to scratch and their security up to scratch, because really your only recourse against them is your contract. You're not the direct employer and so you don't have as much control over what the individuals do on a day-to-day basis. You don't have as much supervision or insight.

Ms Curtis : With regards to security, we do require the same security checks for those employers. In fact, whilst the outsourced provider will get their staff to complete the documentation, it is our security team that does the checking of their security. So in that respect we do have that. Also, if they have access to our systems, it is we who do the monitoring of the systems. Obviously, we do rely on the outsourced provider to a certain degree and that's all in the contractual arrangements, but particularly around security and access to taxpayer information, that's where we're doing that with our own staff.

Ms BUTLER: If you are an outsourced service provider employee operating as part of a call centre, you're receiving personal information directly—someone's tax file number, name, income—aren't you?

Ms Cawthra : That's coming in through our systems, and we monitor those systems.

Ms BUTLER: Yes, but if I'm the outsourced employee, I'm the one putting it in the system.

Ms Cawthra : Yes.

Ms BUTLER: So you have access to private and personal information. It's not unheard of for private firms with government contracts that require good, strong data security to nonetheless inadvertently or otherwise commit a data breach. How do you ensure that can't possibly happen with your outsourced providers?

Ms Curtis : That question might be better directed to our chief information officer.

Mr Katf : All our systems have login capability, so we know exactly which person has accessed which records. If we detect people looking at records they shouldn't have access to, those raise flags that we act upon.

Ms BUTLER: Your system is one thing, but if I am an individual staffer and happen to get some information about someone I or somebody else know, it goes into my head, my memory, not into the system alone.

Mr Katf : You're right: by definition we can't stop people remembering or doing things. We have processes and policies that our people and outsourcers have to follow as part of their obligations to keep personal information private. Our systems can go a certain length of the way.

Ms BUTLER: My question is more an operational one, of how you ensure compliance with the requirements.

Ms Smith : From an operational perspective it comes down to ensuring your selection of the employees is right and they are trained the right way, then you have restrictions on their access. We then monitor that access. I can't remember the number off the top of my head, but we look at how many outsourced and insourced breaches we identify where an operator has accessed a record that isn't deemed part of the course of their job. Following recognition of a breach, we then sit with the employee, be they internal or external, and seek to understand the circumstances. Consequences follow from that. The same approach is applied to ATO staff as to outsourced staff. By restricting what they can access and then monitoring what they are accessing, we are able to keep a close check on ensuring our training is right and helping our people do the right thing.

Ms Cawthra : They are open to the same scrutiny we are. A number of scrutineers have had a look at the outsourcers on our behalf, including the ANAO and the Inspector-General. Our own auditors look at how they're performing. We meet with them on a monthly basis. We want to understand not only their achievements but also whether they have a highly engaged workforce. We have those conversations as well. They are not a black box; we have full access to understanding how they run their operations, they absolutely have the same scrutiny which can be applied, and we undertake those audits as well.

Ms BUTLER: Do you keep data on how many breaches there are?

Ms Smith : Yes, we do.

Ms BUTLER: Do you keep it disaggregated by who is internal and who is external?

Ms Smith : Yes, we do.

Ms BUTLER: Can we have some information about how many breaches per month are from external and internal people. We don't want names or identifying information, but it would be useful to understand that too.

Ms Smith : Yes.

Ms BUTLER: On this point of visits, you said the ANAO has visited?

Ms Cawthra : No, the ANAO undertook a performance audit of our external debt collection agencies. They also undertook a performance audit of the administration of our contact centres, then went to our outsourcers. The Inspector-General undertook a review of our external debt collectors as well.

Ms BUTLER: Putting aside the debt collection, to be honest I'm more interested in the people who are answering the phone if a taxpayer calls in with a problem or concern—what is actually happening with that, because I understand it's quite a different question to debt collectors.

Mr Ravanello : All calls are recorded. So there is a record of the calls recorded, whether they're in the ATO or through our outsourced providers.

ACTING CHAIR: Can I just go to the transparency of taxation debt laws? The drafts are out, and people are making submissions. I noticed in your submission you said that the reporting would occur gradually and that the Inspector-General of Taxation would be involved. What is the process of growing this scheme up to its full scale?

Mr Ravanello : I will take that. The law gives the broad parameters, and the legislative instrument that sits under that is relatively broad. Our intent has always been—and we put this in the public consultation—that, subject to the government passing it, we would ramp this up slowly. In the first instance, while we haven't finally decided, we were thinking perhaps it would be those entities that we understood were in phoenix operations, or those entities that were serious organised crime entities, that had large debts with us. We'd start with what we call the most egregious taxpayers, report a few and make sure the process is working.

In terms of our relationship with the inspector-general, before we report a debt we will always write to a taxpayer and notify them of the intention to report. Under the current proposed arrangement, they'll have 21 days in which to contact us. They can seek that not to be the case. They can ask for an internal review, separate to the debt area. If they're not happy with that outcome, they can also lodge a complaint with the inspector-general. Should the inspector get a complaint, we will not report them until the complaint has been resolved and we understand the outcome of the complaint.

Mr Jordan : Can I have Melinda Smith relate a New Zealand experience—they've just recently brought this in—because I think it's really an interesting story.

Ms Smith : New Zealand recently introduced this. They contacted I think the number was 37 companies—these companies had disengaged with the tax office but had a tax debt—to advise them that they were going to fall under this power. I think one ended up being reported to a credit reporting bureau, because 22 of them—you know the exact number?

Mr Ravanello : Yes. In reporting their first case, 27 taxpayers that they contacted entered into a payment arrangement when advised of reporting, and eight paid on the spot. There's a media article we can provide which has this information in there.

ACTING CHAIR: Yes, please do.

Ms Smith : It's a great example of that acting as a deterrent, isn't it?

ACTING CHAIR: Yes. There are a lot of grey areas, of course, with small business. You can have a perfectly viable small business, but, because another company does a phoenix, they get left with debt. So you can have a perfectly viable company that is unable to pay their tax debt. My concern is whether you have done modelling of what happens in those circumstances if these companies prioritise the tax office over other suppliers, who then can't pay their tax, and so on, so you get a cascade down the chain.

Ms Smith : It's important to say this is only where they've disengaged with the tax office. If they're working with us, we have—

ACTING CHAIR: Effective engagement.

Ms Smith : effective engagement to put in place payment plans. If people talk to us, we work through it. We have empathy for the companies in the individual circumstances they go through. This is what happens. We want to help this small business sector thrive. But, if they've disengaged and will not talk to us, it's a very different circumstance from us being able to say, 'Maybe your first payment doesn't occur until month X. Let's talk about what we can do to try and make this suit your personal circumstances more adequately.'

Mr Mills : I would like to just add one thing in relation to this. It is not that it gives us a priority, anyway; it just puts us on an equal footing with any other unsecured creditor because other unsecured creditors—banks, finance companies and so on—are already reporting to credit bureaus and we are not, and so our debt is given to the other small businesses who are engaging with those small businesses.

ACTING CHAIR: Yes, it puts you on equal footing but not equal consequence of not being paid. My point is if the tax office is not paid, the tax office is losing. But if another small business is not paid because a perfectly viable business has been ripped off by a phoenix company, then it cascades down those small businesses. So there is not an equal consequence of not being paid.

Mr Mills : No, and part of the thing is to protect that small business dealing with the phoenix company.

ACTING CHAIR: That's right, and then protect the others that would be impacted if this company prioritises the tax office first because they need to refinance. That was my question: whether you have done the modelling of the decisions that people will make.

Mr Mills : It is a behavioural response.

ACTING CHAIR: Yes, it is.

Mr Ravanello : Can I just make a point that some of the debt is super guarantee charge debt so that is debt that we recovered—

ACTING CHAIR: We want to collect the debt—totally understood—but it is just the unintended consequences sometimes. And I would ask on that nature, what is the definition of 'effective engagement'?

Mr Ravanello : It doesn't have a specific definition, but usually for a debt we would advise the taxpayer there is a debt, usually in the form of a letter, an SMS—usually several letters. The taxpayer can receive an outbound phone call, they may be referred to an external collection agency and that agency makes a number of attempts to engage them. If after all of those events have occurred and the taxpayer still isn't engaging with us and still isn't talking to us about a payment arrangement then we consider that they haven't met effective engagement. And it is usually—

Mr VAN MANEN: Or they are raising an objection.

ACTING CHAIR: Or lodging an objection.

Mr Ravanello : Of course if there is an objection or a dispute—

Mr Jordan : Ms Jenkins, what is the feedback you get from other small businesses about this?

Ms Jenkins : One of the pieces of feedback we got about this proposed measure was certainly people were concerned initially about the measure, but I think, as we have been talking it through and with the New Zealand experience, it has really helped people understand how we implement it. And so as we have been talking through, some of the things that Mr Ravanello has been talking about, have started to lower that concern.

At a meeting I was at with the small business commissioners last week, what they were more concerned about was the phoenix activity. I think many of them are seeing this as very much helping to expose some of that activity as well.

ACTING CHAIR: In the New Zealand model, do you get put on the credit report and then get taken off again or you are on a permanently in New Zealand?

Ms Jenkins : I understand in the New Zealand model, it stays on. We can take it on notice.

Mr Ravanello : I would need to check; I am not sure about that one.

ACTING CHAIR: I am an old entrepreneur and even though I look at what is ethical not what is in the rules, my brain always goes to the rort, even though I would never do it. I can imagine a business not paying their tax debt and getting on the report and then entering into a negotiation and coming off the report in time to get a loan from another credit provider and then not paying and coming back on the report. Or not lodging at all because they know they're going to get on and you need to refinance. So it could encourage a small number of taxpayers other behaviours which are not intended.

Mr Jordan : Unfortunately we can't legislate against bad behaviour.

ACTING CHAIR: No, but taking it off the report opens the door to a whole range of behaviours that leaving it on the credit report doesn't.

Mr Ravanello : I think it is a difficult issue either way. The way we view it at the moment is we want to support small business and make sure they are not penalised if they are engaging. But equally, part of the consultation feedback was exactly that point.

ACTING CHAIR: It could cause phoenixing, it could cause to-ing and fro-ing and it could cause gaming the system. The really good gamers will figure it out.

Mr Ravanello : There is always that risk.

Mr Mills : There is nothing you can do to legislate against fraud.

ACTING CHAIR: But the process of making sure that we—

Mr VAN MANEN: Chair, I just quickly looked that up. Basically it says:

… serious credit infringements remain on a credit report for seven years from the date they're listed. However, if they have been paid they revert back to a default and will remain on the report for five years.

Mr Ravanello : Five years is the default, and I think the seven years applies to bankruptcies, more serious criminal activities and those things.

ACTING CHAIR: There seems to be a view that once it is paid, the report changes. Once a company or small business starts to engage with the tax office again, it sort of comes off the report. Is that not right?

Mr VAN MANEN: Well, from this I'd say it's noted that it's being repaid or that there's an arrangement, but it won't come off for those five years, possibly.

Mr Ravanello : So the way the measure was planned to be implemented was in the consultation material that was sent out in January and through February. Once the taxpayer engages, which could be entering a payment plan, we will ask the credit reporting bureaus to remove it, and, as part of the agreement that we have with them, there will be a standard time in which we'll expect them to remove it, and it'll be a small number of days.

ACTING CHAIR: So it comes off?

Mr Ravanello : It comes off, under the current proposal.

ACTING CHAIR: I'm aware of the range of submissions on that because it is a really interesting thing. But leaving them on permanently means your process of putting them on there needs to be so much more rigorous, and that's, I guess, my question to you. Before we finish, do you have anything further you'd like to add?

Mr Jordan : I won't do another statement—

ACTING CHAIR: Good, because otherwise we'll be here for 25 minutes!

Mr Jordan : I don't. Deb, did you?

Ms Jenkins : No.

Mr Jordan : You got to say something.

Ms Jenkins : I did. Thank you, Commissioner. You stole all my thunder.

Mr Jordan : I wanted to make sure that everyone who made the effort and came from Sydney and Brisbane and all over the place could. But thank you very much for the opportunity to be here and to get some constructive feedback from you. I think there's a number of things that we're going to come back to you on. So we'll get cracking on those.

Mr VAN MANEN: I'll put a question on notice about the IT outages.

Mr Jordan : It's all history. We're in the best tax time ever. Do you know that, in 2015, not one refund was made in five days. Now we've had 4.8 million, or 5.4 million or something like that, refunds in five days. That's extraordinary! Sometimes the good gets overshadowed by a hiccup. And we're really proud of the five days—

Mr VAN MANEN: I'm not really interested in reprosecuting the whole argument about what happened. I am more interested in what you're doing in terms of developing your IT strategy going forward.

Mr Jordan : There is a very rigorous and detailed plan. I can tell you, I know a lot more about IT now than I did before.

Mr VAN MANEN: If you wish to take that on notice—

Mr Mills : Commissioner, if I may make one final comment: we haven't had the opportunity, necessarily, to see evidence that has been put to you by others, and, if there are any questions that arise from any of that or you want clarification or responses, we'd welcome those as questions on notice as well.

ACTING CHAIR: Thank you. You get hard questions when you do nothing or when you do something! Thank you for your attendance at the hearing today. You'll be sent a copy of the transcript of your evidence and will have an opportunity to request corrections to any transcription errors. If you've been asked to provide additional material, or if there is any further information that you'd like to provide, please forward this to the secretariat by Friday, 20 April. Additionally, the committee will provide you with further written questions—I think I've got about seven that I didn't get to, so there might be 15 or 20 in the end—to finalise your contribution to the inquiry, with your responses to be taken as additional evidence. Your timely assistance with this will be much appreciated. Thank you very much for taking part today.

Mr Jordan : Thank you. The timing is well done, Chair.

ACTING CHAIR: Well, no—we were supposed to finish half an hour ago, I think. I declare this public hearing closed.

Resolved that these proceedings be published.

Committee adjourned at 18 : 04