2015 Release Review Overarching Report Australian Taxation Office 2015 Release Review Overarching Report July 2015 Liability limited by a scheme approved under Professional Standards Legislation
Contents 1 Executive Summary 2 2 Background and Approach 3 2.1 Overview 3 2.2 Sample 3 2.3 Review Process and Methodology 3 3 Detailed Findings 4 3.1 Question 1 4 3.2 Question 2 5 4 Limitations 6 This report is solely for the information of the and is subject to the terms of our engagement and the limitations set out in section 4 of this report. Its existence may not be disclosed nor its contents published in any way without the prior written approval of PricewaterhouseCoopers. PricewaterhouseCoopers does not accept any responsibility to any other party to whom this report may be shown or into whose hands it may come. PwC i Liability limited by a scheme approved under Professional Standards Legislation
1 Executive Summary This report was prepared by PricewaterhouseCoopers (PwC) in respect of its engagement by the (the Tax Office) to independently review 125 release cases selected randomly by the Tax Office on a national basis. The objective of the review is to give an independent view as to whether the Tax Office has followed its procedures, policies and guidelines and kept the taxpayer informed of the status of their application when making decisions in relation to the recovery of debt during the 2014 calendar year. Specifically, PwC has reviewed the decision process of the Tax Office in circumstances where the taxpayer has requested release from their tax debt. The review involved an assessment against two specific questions that were determined by the Tax Office in relation to the decision to grant or refuse release of a tax debt. The review found that in all cases the decision to grant or refuse release was made in accordance with the content and general direction of the Tax Office s Practice Statement Law Administration 2011/17 Debt Relief (PS LA 2011/17). The review found that in 108 of the 125 cases reviewed, the taxpayer was kept informed of the progress and result of their application (assessed against Tax Office directive time frames). For 17 of the cases reviewed the Tax Office was unable to demonstrate that the taxpayer had been adequately kept informed of the progress of their application. This compares with 54 cases outside of target time frames in the prior year Release review. The review was subject to a number of limitations as described at section 4 of this report. In particular, reviews were based on electronic (Microsoft Excel) case files prepared by the Tax Office for each case which comprised notes of relevant communication and correspondence between the taxpayer and Tax Office, taxpayer release application forms, Tax Office application assessment worksheets and statements of taxpayer running debt balances. The information provided has not been audited or verified in any way by PwC and we are unable to provide assurance that these provide a comprehensive and accurate record of correspondence between the Tax Office and taxpayer. PwC 2
2 Background and Approach 2.1 Overview Where the Commissioner accepts that payment of certain tax liabilities will cause serious hardship, he/she is able to decide to grant release from payment. The term serious hardship is not defined by legislation however the Judiciary has provided descriptions and interpretation of that term in various matters heard before them. The Tax Office recognises that there may be circumstances that prevent payment of taxes when due and, where appropriate, will allow arrangement for payment by instalments over time. Where taxpayers and businesses are unable to pay their taxes, the Tax Office is able release taxpayers from the tax debts or take further recovery action. The purpose of the review is to provide an independent assessment of whether the Tax Office has followed its procedures, policies and guidelines and kept the taxpayer informed of the status of their application when making decisions in relation to the release of debt. 2.2 Sample A sample of 125 release decisions made during 2014 were selected and extracted by the Tax Office from its debt management files. Several additional files were also selected by the Tax Office to be used in the case that a conflict of interest was identified. PwC was provided with the names of the selected case files prior to the commencement of the review in order to identify any potential conflicts of interest. Where a potential conflict was identified, an alternative case was selected. 2.3 Review Process and Methodology All reviews were undertaken at the Tax Office s premises at Francis St Northbridge, Perth, WA during May 2015. Reviews were based on electronic (Microsoft Excel) case files prepared by the Tax Office for each case which comprised notes of relevant communication and correspondence between the taxpayer and Tax Office, taxpayer release application forms, Tax Office application assessment worksheets and statements of taxpayer running debt balances. Our approach to each review was as follows: Review all file notes and documentation in the files provided by the Tax Office to gain an understanding of the case; Determine the taxpayer s circumstances and assess the information available to the Tax Office to inform key decision throughout the management of the case; Determine the appropriateness of the Tax Office s actions against the two review questions; and Complete an assessment on each file in relation to the decision made by the Tax Office. The case file review forms were provided to the Tax Office at the conclusion of the review. PwC 3
3 Detailed Findings As part of our review two questions were considered: 3.1 Question 1 Was the decision to grant or refuse release made in accordance with the content and general direction of the Tax Office s Practice Statement Law Administration 2011/17 Debt Relief? Yes: 125 cases No: 0 cases Review observations are as follows: The guidance for determining serious hardship referred to in the Tax Office s Practice Statement Law Administration 2011/17 Debt Relief was used in addressing this question. The Tax Office s PS LA 2011/17 requires that release decisions be made on the basis of whether taxpayers would suffer serious hardship if the tax debt was to remain outstanding. The policy states that serious hardship would be considered to exist where payment of a tax liability would result in the taxpayer being left without the means to afford food, clothing, medical supplies, accommodation, education for children and other basic requirements at a reasonable level. The Tax Office uses three tests to assess the taxpayer s application: o The taxpayer s personal income and expenditure is assessed to determine whether the taxpayer could meet the tax liability without suffering serious hardship (Income/Outgoing test). o The taxpayer s personal assets and liabilities are assessed to determine whether the taxpayer has sufficient means to discharge the tax liability without suffering serious hardship (Assets/Liabilities test). o Other factors including, but not limited to, the taxpayer s lodgement and compliance history, whether they had previously sold assets without making sufficient provisions to meet tax liabilities and whether a grant of release would not alleviate the serious hardship (Other Factors test). In 125 of the cases reviewed the release decision was consistent with relevant aspects of the Tax Office s PS LA 2011/17, as evidenced by the Tax Office s application assessment worksheets (Release Case Summary of Facts). PwC 4
3.2 Question 2 Was the taxpayer kept informed of the progress and result of their application? Yes: 108 cases No: 17 cases Review observations are as follows: The Tax Office has the following procedures in place to ensure that the taxpayer is kept informed of the progress and result of their application: o All applications for release are received by the Tax Office. The Tax Office subsequently confirms receipt with the taxpayer through written acknowledgement, verbal communication or delivery of an SMS message. o Where relevant, the Tax Office contacts the taxpayer to discuss their personal circumstances, in order to assist in the decision making process. o Once a decision is made, the Tax Office advises the taxpayer in writing of the outcome including detailing the reason for the decision and advising of the option of appealing the decision in cases where the release is refused. In April 2009 the Tax Office issued a directive to officers responsible for assessing release cases that established a 7 day timeframe for acknowledging receipt of release applications. The directive also confirmed the existing requirement that applications be assessed within 56 days of receipt or as otherwise discussed with the taxpayer. These timeframes were used as the basis for assessing whether the taxpayer was kept informed of the progress and result of their application, noting that where decision notification was delayed marginally into the 57 63 day period this was also considered acceptable. For 108 of the cases, applications were assessed within a reasonable timeframe and/or the taxpayer was kept adequately informed of the progress of his/her application, consistent with the above procedures. For 17 of the cases, applications were not assessed within a reasonable timeframe (as outlined in the procedures above) and the Tax Office was unable to demonstrate that the taxpayer was kept adequately informed of the progress of his/her application. This compares with 54 cases outside of target time frames in the 2014 Release review. We were advised by the Tax Office that increasing use of SMS messages to acknowledge receipt of applications from taxpayers is a driver for this improvement. PwC 5
4 Limitations PwC was advised that the Tax Office s selection of cases for review was on a random basis from a national list of debt management files on the Tax Office systems. PwC had no input into the selection process. There are inherent risks in drawing conclusions from a random sample. The sample may not be representative of the entire population. Reviews were based on electronic (Microsoft Excel) case files prepared by the Tax Office for each case which comprised notes of relevant communication and correspondence between the taxpayer and Tax Office, taxpayer release application forms, Tax Office application assessment worksheets and statements of taxpayer running debt balances. The information provided has not been audited or verified in any way by PwC and we are unable to provide assurance that these provide a comprehensive and accurate record of assessment time frames and correspondence between the Tax Office and the taxpayer. PwC cannot guarantee that it has considered all necessary information and issues, particularly if these were not included in the case files that were provided. For example, in the majority of files there were file notes which referred to other documents, searches and correspondence between the Tax Office and the taxpayer. PwC has not verified that these documents exist or that they are accurately described in the case files. PwC has not verified the validity and completeness of file notes and telephone notes that the Tax Office case staff have recorded on file. Findings and conclusions reached in the review are subjective. It may be possible that a different finding could be drawn from a review of the same file. Our engagement did not constitute an audit or review in accordance with Australian Auditing Standards and accordingly no such assurance or opinion is provided in this report. We have not undertaken an audit, or otherwise sought to verify, the information supplied to us in connection with this engagement, which we have been required to rely upon. PwC 6