TaxVibe Podcast

Marg Marshall, CTA

Good afternoon, everyone, and welcome to the final session in our six webinar series for members. It's really great to have you all in line with us today. We're looking forward to finding out about our year end, I'm going to call them tips and traps. Robyn and Svetlana will have very different words, I'm sure. My name is Marg Marshall and I'm the facilitator of today's session. So today I am joined by our panel made up of Robyn Jacobson, who needs no introduction. and Svetlana Kolyasnikova from BDO in Hobart. I will hand over now to Robyn and Svetlana who will be discussing end of year tax issues.

Robyn Jacobson, CTA

Thank you, Marg and Svetlana, great to join you. You and I are going to be working our way through a bunch of issues. End of year, of course, is the focus. We won't call it tax planning. We will instead look at some of the considerations that people need to give regard to as they're approaching your end. What we're going to kick off with is looking at, of course, some key dates. We have just had a federal election. And just to keep all of this in perspective so we know what's happening and when and what you can expect. So of course we did have an early budget this year, would normally be the second Tuesday in May, but it was back on the 25th of March. Parliament then wrapped up really quickly, so that of course was the Tuesday night, and by the Friday the writs had been issued to call the election, and that led to a flurry of legislation passing through the Senate on that Wednesday and up to the Thursday the 27th. We of course had the election on Polling Day, the 3rd of May, and Counting continues. It looks like this morning they have just finally allocated the last seat in the House of Reps, so it looks like we've got a final position. Now, 1st of July is when the new senators take up their seats, so we only ever have a change on 1 July for the state senators. You may not be aware that if the four senators of the territories, they actually commence their terms and conclude them along with the members of the lower house, not the upper house. And they're on three-year terms, not six-year terms. The last day for return of the writs is the 9th of July, but likely they will be returned ahead of that time. And we're now being told that the government will resume parliament by the end of July. The latest date they could resume parliament is the 8th of August, but we are now expecting that sometime around the end of July, we will see the resumption of parliamentary sittings. So of course that will lead to a flurry of new legislation and bills and measures being introduced. Now that has meant that we've had no sitting days since the 27th of March right through until the end of July this year. And then there'll be of course sitting days right through till early December. Now in terms of bills, any that were before the lower house when the election was called, they have already lapsed. And of course any measures the government wishes to progress would need to be reintroduced into the 48th Parliament. However, any bills that were sitting before the Senate And there are some of those that we'll talk about today. They actually have not yet lapsed and they will not do so until immediately before the new parliament commences. All right. So here's the final wash up of the election. Of course, there's been no doubt since election night who actually won. So we've got Labour sitting on 94 seats. I'll leave you to read the rest of those numbers. The Senate is where this looks interesting because with the Greens, Labour has enough seats in the Senate, to pass whatever legislation it wants. Now if it doesn't have the green support, it doesn't quite have enough just with the minor parties or the independents, so it would need the support of the coalition. And even this morning there's talk about them negotiating potentially with the coalition on the Div. 296 measures, the $3 million tax for super, which we'll talk about later. All right, so Svetlana, over to you. Some considerations for firstly, individuals.

Svetlana Kolyasnikova, CTA 

Thank you, Robyn. So let's talk about what's happening with resident tax rates, with personal income tax rates. It's legislation. There is no change in tax rates from 1 July 25. However, what we wanted to reiterate is there has been a change in rates from 1 July 2024. So the FY25 rates had changed compared to FY24, financial year, which is relevant to our income tax planning that year end  tax planning that we're doing now. So the rates have come down from 19 cents in a dollar to 16 cents in a dollar for the second tax bracket, $18,200 to $45,000. And for the falling tax bracket, the rates come down from 32 and a half cents in a dollar, which was an FY24 to 30 cents in a dollar in FY25. And that tax bracket had also changed. So it's now going from $45,235,000, we'll see in FY24, the tax bracket was $45,220. Another important change in FY25 comparing to FY24 is our top bracket changed from $180,00 to 1$90,000. So basically for the first $190,000, an individual resident tax payer would pay $51,638. compared to $51,666, a very, similar amount that was paid for the first $180,000 in FY24. I know I've thrown a lot of numbers, but this is a of a major change in income tax rates that we've had. And then there is another one coming from 1 July 26, ie the financial year fall in the next one.

Robyn Jacobson, CTA

Just to let everyone know, it is definitely law. So they managed to announce those 26 and 27 start date tax cuts in the budget and within two days they had passed through the parliament. So they became law just prior to the election. As a result, we're not waiting for that to pass through the new parliament.

Svetlana Kolyasnikova, CTA 

At least we have some certainty.

Robyn Jacobson, CTA

We did, absolutely. It's amazing what they can do in two days when they really try.

Svetlana Kolyasnikova, CTA 

Work related expenses, the car expense rates. So we've got two major methods. Logbook method hasn't really changed. The cents per kilometer rate went up from 85 cents in 2024 financial year to 88 cents in 2025 financial year. It's going to remain the same in FY26. The EV, electronic vehicles charging rates. The commissioner had issued a PCG 2024/2. That defines the right to be 4.2 cents per kilometer. If you charge your electric vehicle at home, you can use this ride for the purposes of FBT when calculate, for example, contribution towards private use, or you can use it when calculating your costs for the car expense purposes. Now travel expenses, travel expenses always gives me quite a bit of trepidation, even though I've been in practice for over 10 years. I've had to in preparation for this webinar naturally, I went through all of a massive resources that you've seen on a screen. And it continues to be a matter of fairly significant complexity, which I find it really hard when you're dealing with individual personal tax returns, but it is important for us to understand this so that we can advise our clients. Some of the resources that you've seen on the screen relate to reasonable travel and overtime mill allowance expenses that can be claimed. And it's important to know circumstances to refer back to also a taxation rule in 2004/6, which is the actually talks about the substantiation exception. Now, Robyn, whenever we hear as practitioners, substantiation exception, it's like a candy to a kid, isn't it? So it's something that allows you not to keep receipts, et cetera. The only problem and there is a sign in the back where I'm from in Russia, there is a sign, only free cheese is on a mouse trap. Every substantiation exception that we have in a tax law comes with a lot of its and buts. And in this case, you still got to incur expense, you still get up and it's not reimbursed. It's got to be incurred performing work duties. And you've got to be still able to show that how you worked out a claim. There is a lot of information to go through. I won't go into much detail, I don't think Robyn, but perhaps I'll leave the audience to work through it.

Clothing expenses. Now to be able to claim work related clothing deductions. There are certain uniform restrictions that it's going to be applied to. So it's occupation specific clothing, protective clothing or compulsory uniform. A uniform that specifically identifies you as an employee of an organization. As per always, there's been no change to these rules for a while. You cannot claim a deduction for conventional clothing, such as, you know, your slacks or white t-shirt.

Even though, for example, in professional services, you're required to wear a business suit. If it's just conventional clothing that you can buy in any store, that is not protective clothing, not a profession specific and not compulsory uniform. You cannot claim those deductions as they are private and non-deductible. Self-education expenses. There is a, on the matter of self-education expenses, there is a taxation ruling 2024-3, which I find really useful and I've worked through it before. With self-indication expenses on the surface of it, it is a fairly simple principle. There's going to be an access to early and accessible income, isn't it? As always without, expenses section eight one. In this case, you're always looking for, for the connection to what the individual is actually doing at the moment. And the principles are that there is going to be a sufficient connection in maintaining and improving the specific knowledge that required in your current work or it's either or likely result in increase of your income, such as guaranteed promotion. Now the tax rule in 2024/3 goes through in detail through a lot of examples, including different types of expenses that you can incur when you're doing self-education, including overseas trips, if there is a private portion, what happens if you've got an interest. It also goes through different types of loans it can be obtaining like HECS and help debt. One of the main issues that I come across my practice with self-education expenses, a lot of the time they incur at a point too soon where there is not enough connection. For example, someone working in the supermarket and doing a teaching degree because they want to become a teacher. Now, this is a very extreme example. A lot of the time there is a lot of subtlety involved. Working from home expenses, ever since COVID we've got the rate from the ATO, the rate had gone up from 67 cents in FY 2024 to now it is 70 cents for FY25. What's important to remember about what from home rate is what it covers. It covers your home, internet, electricity, stationary and computer consumables. But if you purchase a laptop or a desk or bookshelf that can be claimed separately as decline in value or alternatively, you can claim on a user actual expenses method. And a lot of the time in practice, we would undertake calculations to see which method would produce a better result. But it's important to remember that work from home rate. If your using that, you cannot claim your mobile or phone or internet bills separately.

Robyn Jacobson, CTA

So Svetlana, a questions has just come through. I'll grab that one now. If actual method is used, would a four-week sample of working from home hours be sufficient or would the ATS still require all hours to be journaled? Now, obviously this approach we're talking about here is the fixed rate of 70 cents an hour. If it's actual, you need to keep a record of your actual hours worked. Now, you can use, as I recall, a three-week sample for telephoning internet under the actual method, but you cannot run a four-week diary if you like under the fixed rate method and you can't do an estimate of hours under the actual method would have to be a record of actual hours worked regardless of which method you're using.

Svetlana Kolyasnikova, CTA 

Such as a timesheet, diary or notebook. 

Robyn Jacobson, CTA

Exactly. Yep. Also want to add that there has of course been an announcement as part of the election campaign that there would be a $1,000 standard deduction for work related expenses. Three points to mention here. Number one, it is not law. It is yet to be legislated and we will see this in the new parliament. Number two, when it does come in, it is proposed to start 1 July, 2026. So it has no relevance or bearing to the 24-25 income year or preparation of 25 tax returns. Number three, And I know all of you know this, but let's communicate this to the community and the general public. You are not going to get a $1,000 refund. It's not a tax offset. It's a deduction. So these are the three points we need to convey. And I know you're going to have clients walking into your office saying, where's my $1,000 deduction? Marg?

Marg Marshall, CTA

Yeah. This is actually quite a good point, that someone's raised the question specifically about someone in the public eye. The question is, what if a client who earns income from OnlyFans and wants to deduct all the various clothing items they buy for that need? Now I would expand that to say, what if I'm a television presenter? And we've seen cases over the years where that additional spend has been the subject of some litigation. So a comment on that perhaps with regard to claiming clothing expenses.

Robyn Jacobson, CTA

Clothing always needs to be either of course protection, and these are protective. Occupation specific is probably where we're headed with this. Now I thinking to someone the other night who has a lot of friends who work in musical theatre and live performances. Now if they're doing a live production but they're walking on stage in jeans and t-shirt, it's still conventional clothing and no deduction would be allowed. But if they happen to be doing a performance where it's a period piece and they're wearing 19th century costumes on, or 16th century, then it's now something that is specifically for that performance. You're not going to be walking around the streets wearing something from the 1600s. So I would argue that is more occupation specific and able to be claimed. So when you talk about OnlyFans, it depends what they're wearing on screen. If it's something that is just to look a certain way, we all wear professional clothing to work, but none of us can claim a deduction. Your news readers, it might be the excessive amount you're required to wear because I'm talking male, female now because of course females would need to wear a different outfit every night to read the news but it's been proven that a male presenter can go a whole year without changing their suit. when you've got an excessive amount of clothing because of your job then there potentially is an argument but you would really have to prove that and it's been very very limited cases where deductions have been allowed for clothing.

Svetlana Kolyasnikova, CTA 

I would like to also refer to the occupation and industry specific guidelines that are in the slides. I refer to them quite a bit. I'm not sure if you do Marg, but I've used them myself and I've given them to clients. It's quite an extensive list of professions and under each profession, you would have an extensive list of examples of deduction. It's not exhaustive. It's not, you know, it's not legislative. It's not prescriptive list, but it's a, it's a good guide. And it does sort of explain the ATO's view, where the ATO is leaning and what they would likely question.

Robyn Jacobson, CTA

Two quick things now again, looking at some of these questions. The Brisbane Lord Mayor extra close case. The case that you're thinking of is Edward's case, and it was actually the PA to the wife of the governor of Queensland, I should say. So it was the governor's wife and it was her PA, and that's what the case was about. And yes, she got a deduction. Also the $1,000, we haven't got the detail yet, but there's a question about what substantiation will be needed. Let's see what the draft legislation and the bill looks like before we get to much further into that policy. So we'll keep moving on, there's still so much to get through. 

So moving now into some changes to the Foreign Resident Capital Gains Withholding Rules. This is law and the changes apply from the 1st of January this year. The first change is a very simple one, it's an increase in the rate of withholding. So when first introduced in 2016, the withholding rate was 10%, then it went to 12.5 and now it's at 15%. The second change is that the $750,000 threshold for taxable Australian property has been removed altogether. Now that means that any sale of taxable Australian property, in particular, real property, will be subject to these rules regardless of its value. Now that has big implications for your clients who have only ever bought and sold property below that $750,000 threshold. They've never been exposed to these rules. So it now means that if they're an Australian resident vendor selling their home for four or $500,000, they will need to obtain a clearance certificate if they don't want that 15 % to be withheld on settlement. Now they can claim it back by lodging a tax return, but you've got to wait until a lodgement to get that refund of the credit. As far as purchases are concerned with a resident or non-resident, they need to be requesting a clearance certificate from Australian resident vendors so that they do not have a payment obligation come settlement date. The rules are as they have been, you've got links right throughout our presentation to ATO guidance. So please familiarise yourself again with these rules, but in particular, talk to clients who may be under this $750,000 threshold for the first time and give them some guidance. 

Thanks for listening to this bonus episode of Tax Vibe. If you want to hear the full webinar and join a collective voice of 10,000 practitioners at the heart of the tax profession, become a member of the tax institute.  head to our website to learn more. To keep up to date with Tax Five, be sure to subscribe wherever you listen to your podcasts. Please join us on our socials and let us know your thoughts or any topics you'd like to hear us discuss. We look forward to you joining us next time.

Robyn Jacobson, CTA

Hello and welcome to TaxVibe, a podcast by The Tax Institute where we peel back the layers of the Australian tax world. I'm Robyn Jacobson, your host and the senior advocate at The Tax Institute. We bring you the sharpest minds in the tax profession, digging deep into their unique insights and sharing nuggets of wisdom you won't find elsewhere. Always keeping it real and interesting. So sit back and relax and let's dive into the world of tax. One conversation at a time. We hope you enjoy this episode of TaxVibe.

I'm joined by Paul Hockridge, Chartered Tax Adviser and principal of Hockridge Advisory in Melbourne. Paul specialises in advising high wealth families and closely held businesses, as well as providing support for a number of accounting and law firms. Paul's niches include litigation support, property development and fringe benefits tax and salary packaging. Paul is a legal practitioner in Victoria, a chartered of tax advisor of The Tax Institute, a fellow of Chartered Accountants Australia and New Zealand, and a senior fellow and teacher at the University of Melbourne's Law School in the master's program. Paul, it's been a while but welcome back to TaxVibe.

Paul Hockridge, CTA

Thank you Robyn.

Robyn Jacobson, CTA

So today we're having a chat about family and in particular marriage and relationship breakdowns. And Paul when I think about family law which is an area outside tax law, of course it's an intrinsic and an unavoidable part of modern living in relationships. So what I'd like to discuss with you today is how does family law interact with tax law?

Now we are recording this in person at the Victorian Tax Forum in Melbourne. And Paul yesterday ran a session on family breakdowns. So I'm really interested to understand what you covered in your session. And also let's explore some of the rabbit holes that people need to think about when they are going through a family breakdown. So let's start with what you covered in this session yesterday.

Paul Hockridge, CTA

The starting proposition is some people might think that tax issues on divorce are pretty straightforward because after all, there’s capital gains tax roll over relief, if only life were that simple. For a start, sometimes we don't qualify for CGT roll over relief, but if we don't there might be other reliefs, but there's a whole range, a whole myriad of of other income tax issues. So maybe let's take the blinkers off and say do we qualify for Div126a relief? But also what could all the other income tax issues be?

Robyn Jacobson, CTA

So there's a lot to unpack here. In terms of perhaps a starting point. We know that the statistics on divorce and separation are not great. About 40% of marriages and 60% of de facto relationships come to an end. And according to the statistics, this is unchanged from the 1960s . When we look at the rate of divorce. And we also know that if you are in a de facto relationship, there is a higher rate of separation. That makes sense because it's a bit like try before you buy, and you ay not like trying on that particular garment, so you try another one before you actually buy the one you want. And in fact, that's six times more likely to have a de facto breakdown than a marriage breakdown. But regardless of the statistics and how often this happens, it does happen. And we know that practitioners are often very close to these relationship breakdowns. So perhaps start with the CGT, because that seems to be the logical place for people automatically think there's a rollover in place. So as you say, it's all simple. Firstly, how does the rollover work and why is it not simple?

Paul Hockridge, CTA

The first reason why Div126a might not apply is in essence applies where there is a transfer pursuant to an order of the court. So if Barbara, my wife and I were to separate, touchwood, that won’t happen. But if we were to separate and we were rational, mature individuals, you know, being a tax advisor and my wife's a medical scientist, if we sensibly and rationally divided up the assets and then went along and told our accountant and lawyer what we'd done. Oops, no CGT rollover relief because the asset transfer wasn't pursuant to an order of the court. Similarly, it might be that the assets aren't in our own names. It might be then, for instance, in the Hockridge Family Trust, and they're in a trust for a really good reason. And so it might be I want to transfer from that trust to a trust for Barbara. There is no rollover relief going from a trust to another trust. So the rollover works if it's any entity to a natural person, but only to a natural person. And so in that respect, the rollover provisions in 126a are quite deficient in dealing with a transfer that results in the structure that we had and we want to have on an ongoing basis.

Robyn Jacobson, CTA

It's almost like the concession was always contemplating a very straightforward spouse to spouse or partner to partner. And okay, we'll let you do an entity to the former spouse or partner. But anything more sophisticated than that? No rollover. And of course, in today's world, so many people have structures and they may not want it to go to the individual name.

Paul Hockridge, CTA

And it might be in this century. There are so many people of male and female genders who are primary breadwinners, who are investors, business people. And the limits to 126a, don't help those people.

Robyn Jacobson, CTA

And also, if I think about how things have changed when my grandparents, who have now passed away, got together, they were late teens, early 20s. They were together for more than 50 years. They married young, they had their white picket fence, and everything was all very straightforward in contemporary terms. These days, you often don't meet your spouse or partner until you could be further into your career. You've got wealth. You've built up assets. You know your career is very much progressed and if not established. And so it's a very different look to getting together, say, in your 30s, 40s or indeed even 50s and goodness knows there are still people getting married in the 60s and 70s, of course, compared to building wealth together from the very beginning when you're in your 20s.

Paul Hockridge, CTA

That's right. And given that the average age of divorce, when we look at the stats of the almost 50,000 divorces each year, the females are typically early 40s. Males are typically later 40s, and the in that sort of age period, there is often a significant degree of career development and asset generation. So that's why this applies. And when we think, well, who's going to look after these almost 50,000 people a year, it's very often going to be your small medium practitioners rather than the top end of town firms.Certainly top end of town families do work in this space. But often it'll be the small medium practices who need to be across these issues.

Robyn Jacobson, CTA

You mentioned also that the roll-over relief is only available if there is a court order or a binding financial agreement. So let's say you and Barb did separate, but it was on such amicable terms that you wanted to avoid costs involving lawyers. You didn't want to go to court and you thought, we can sort this out ourselves. In that situation, you're actually disadvantaged because without the BFA or without the court order, you're not going to get the roll-over relief.

Paul Hockridge, CTA

No, that's that's right. And so then I'd be doing things like saying, well, what concessions are there in the tax legislation? For instance, might I get the main residence exemption if one of us becomes a non resident? Did that make life difficult for the main residence exemption. Might there be collectibles personal use assets. Again there's different rules there. Might I qualify for Div115 relief under the 12 month holding rule. So it's a case of then applying all of those other myriad.

Robyn Jacobson, CTA

So CGT discount.

Paul Hockridge, CTA

Correct.

Robyn Jacobson, CTA

Cost base adjustment. So sometimes people can overlook yes the effect of these.

Paul Hockridge, CTA

Yeah. So there's a degree of common sense here. If I've got a unit trust or a company and I transfer assets out of the unit trust or company as part of the division of assets. Clearly the entity I've transferred assets out of has decreased in value. Result is the tax legislation requires a cost base adjustment. Now, in my paper I referred to the ruling on point and for a start I'd say thank heavens is a ruling on point because reading the provisions is a nightmare. Unfortunately, after you read the ruling, I'm still losing sleep. So perhaps the takeaway is if I'm transferring value out of an entity, think to myself, gee, there could be a cost base adjustment here. The there might well be a cost base adjustment. Put some time aside because how that cost base adjustment rule works not straightforward.

Robyn Jacobson, CTA

Okay. Now Division7a. So we've got our very in-depth integrity provisions. And we could talk about this for hours if not days. But we've got rules dealing with private companies and how certain loans. And in this case payments can be treated as a deemed dividend. Now when we think of a payment from a private company out to a shareholder or associate, we just think of a payment being made. But when we look closely at the definition of a payment, it includes the transfer of property.

Paul Hockridge, CTA

Yeah.

Robyn Jacobson, CTA

So can you talk us through what Division seven implications can arise when it comes to a relationship breakdown?

Paul Hockridge, CTA

Sure. I'd actually go back a step and say an ordinary dividend under section 44 before we even get into Division7a. Is a transfer of money or property. Take a breathe, property so it catches asset transfers. Who would have thought you could Frank an asset transfer. But of course you can. So an ordinary dividend is a transfer of money or property out of a company, out of profits to a shareholder. If I'm transferring, say, to Barb. And Barb isn't a shareholder in Hockridge Proprioty Unlimited. That's when I go to Division7a. I've got a payment, a debt forgiveness, a loan to an associate of a shareholder. That's when I’m in to Division7a.

Robyn Jacobson, CTA

And pausing on that because of course, if it's going from your company to her and she's not a shareholder, it can't be an ordinary dividend.

Paul Hockridge, CTA

Correct. It can't be an ordinary dividend. So we let go of the ordinary dividend provisions. We go to Division7a, transfer to an associate. Clearly Division7a applies. And then we say is that likely to happen? Yes. We transfer assets out of entities all the time. One of the other regular transactions might be that Barb has pulled money out of the company. She owes the company money, and we want to clean the slate as part of the settlement. So it would be a debt forgiveness. Now, there could be issues with UPS. Let's park the UPS because, gee, that's hard, but let's just say it's a conventional debt forgiveness. We might say, well, how do these rules work? Because we've got Division 245 dealing with commercial debt forgiveness. Then we've got Division7a, 1o9f deals with forgiveness. And Barb's also an employee of Hockridge Propriety along with Paul. So how do these rules mesh.

Robyn Jacobson, CTA

So potentially FBT issues as well.

Paul Hockridge, CTA

Correct, correct. And so the short answer is likely to be that Division7a is likely to trump Division 245 debt forgiveness, assuming it's a commercial debt, not what I call a personal debt and is also likely to trump FBT. Rarely would you be into FBT because normally there would not be a causal nexus between the forgiveness of debt and the employment relationship. The forgiveness is for other reasons, but nonetheless, think to yourself Div 245 commercial debt forgiveness, FBT, Division 7a. Division7a wins. That's the takeaway.

Robyn Jacobson, CTA

So there are a lot of different components, but we've also got a layering reprioritising.

Paul Hockridge, CTA

Correct and unfortunately here there is a primacy rule, whereas with some other tax puzzles there isn't a clear primacy rule.

Robyn Jacobson, CTA

Now they've clearly thought of that. The franking is a really interesting question. So Paul, let's say I'm your advisor, whether accountant or lawyer, and we're working through this together. Now, if I am acting on your behalf, then we don't particularly want to mention that this can be franked, because if you are able to retain the franking credits in your company for your own use later on, then that is obviously in your best interest. If, however, I'm acting for Barbara, I'm going to be pushing really hard on her behalf for any payment that is made to her by way of a property transfer to be franked.

Paul Hockridge, CTA

Absolutely.

Robyn Jacobson, CTA

And ultimately this will come down to firstly negotiation. But secondly, the awareness of the different advisers acting for both parties. As to who understands what can be done and who can't. Now, obviously, if I'm going to push for this on behalf of Barbara, then you may or may not be aware that it can be franked, but we're certainly going to make you aware that it can be, and we would push for that. But as I said, if I'm acting for you, I'm not going to raise this no benefit her.

Paul Hockridge, CTA

It's highly likely that a conflict of interest will arise if there's even the slightest level of complexity. And so, with all of the pronouncements coming out of the Tax Practitioners Board in recent times, ethics and conflict of interest suddenly has taken on a whole new importance. And after all, who wants to risk losing their practicing certificate or the tax agent registration? If there's a tax agent registration.

Robyn Jacobson, CTA

Let's talk about this. So in the Code of Professional Conduct in the Tax Agent Services Act, there is a requirement to not avoid conflicts of interest but to manage them. So the code acknowledges that you could be acting for husband and wife or two parties who are partners in relationship with a de facto same sex couples, and you would need to manage that. Now, that's from a Tessa perspective, yes. Are there different requirements or code obligations when it comes to say the professional associations.

Paul Hockridge, CTA

They can be, in fact a really good one. A good indication of when this might come up is, CAANZ has a Conflict of interest guide, which was published in November of 21. So it's relatively recent. And one of the examples at the back is a situation where mum and dad say to Robyn, their adviser, you've looked after for years, Robyn would you please continue to look after us because we're separating on amicable terms a little bit down the path, you find a particular transaction where there's a tension which parties should be advantaged or disadvantaged. What do I say? And then you're scratching your head thinking, who will I act for? And the answer is not the one who's prepared to pay your bills. It's a more ethical question what the CA anz guide says. Robyn, stop acting for both. That's how you manage the conflict.

Robyn Jacobson, CTA

So even though TASA would accept that as long as you are managing it, you could continue to act for both or even one of them if you think that's the best choice. This particular guideline, if I can call it that, from, CA ANZ, is saying you've got to say something for both.

Paul Hockridge, CTA

Yeah. And there's really a sense in part because you accumulate knowledge in acting for both parties along the way. And that knowledge can't be taken back. So if you decide, for instance, to continue to act for the husband, what are the chances that over the next few years, transactions will come up where you're thinking is in formed by the knowledge that you've gained when acting for both parties.

Robyn Jacobson, CTA

Like a subconscious bias.

Paul Hockridge, CTA

Yes, or you've got information as a result of that previous relationship that you would not otherwise have, and therefore you could act to the benefit of one party, the detriment to the other. So really fraught with difficulties. And since 2001, and since the PWC fiasco, these issues have taken on a whole new importance. This isn't just some airy fairy issue that we can park.

Robyn Jacobson, CTA

It's also worth mentioning that in this context of our conversation, we are focusing more on marriage and relationship breakdowns. But a family breakdown can include parents and children that could include siblings. Yes. And again, the same conflict type issues come up. So if you've got two brothers or two sisters who have been running a business together for many, many years and the relationship just breaks down irrevocably, then we've got exactly the same considerations.

Paul Hockridge, CTA

Yeah.

Robyn Jacobson, CTA

Although of course no rollover relief I’m talking.

Paul Hockridge, CTA

Yes. And of course, if it's a discretionary trust and the trustee is exercising your discretion each year in relation to distributions of income or capital, some awkward issues need to be addressed.

Robyn Jacobson, CTA

So let's move on to some structural issues with entities. It is typical within family groups there will be normally more than one entity. There might be a collection of companies. There could be unit trust, discretionary trust. It could well be a self-managed fund and will get to superannuation shortly. But along with the establishment of those entities we've got certain office holdings. So you've got directorships, you've got shareholdings in unit holdings. There are the trustees, there are the appointors. They could be guardians depending on the trust deed. So a whole range of different executive positions if you like, and ownership positions unwinding these structures. It's one thing to transfer the shares or the units. And we're into our CGT rules for that or our Division7a rules because we're moving around CGT assets.But the control of these entities is something entirely different. Yes. And then we've got, without owning up a whole separate discussion on unpaid person entitlements. But UPES and loan accounts will, of course, hang off these entities. Yes. So how do we unpack? Well, how do we unravel this incredibly complex web?

Paul Hockridge, CTA

Okay, The simple part sometimes is saying who is the shareholder? Who is a director of the corporate trustee of, let's say, a discretionary trust. And it might be having regard to many things like shareholders agreements and constitutions, that is not that hard to change shareholdings and appoint new directors, if that's the case. But as you were suggesting before, if we go to your stereotypical discretionary trust deed. We really need to look at who they appointor is because the appointor is the kingmaker or the queen maker, as the case might be they get to sack the existing trustee and appoint a new one. So we need to deal with what the deed says about changing appointors. That bit's absolutely critical. If it was a company in its own right or a unit trust, again, we'd look for shareholders or unit holders agreements to say what they have to say. And then we'd look at changing for instance, shareholding. If we are changing shareholdings, as you mentioned, might be a CGT event. One of the tricky things is we need to look at the constitution and see who appoints the directors, because sometimes it's a shareholder, but sometimes it's the directors who appoint directors. So don't assume. And even though we're probably getting pretty good at reading discretionary trust deeds these days before we do income or capital distributions, when was the last time you pulled out a constitution and read what the Constitution said? So this is a new path for some people to go down. And as I mentioned before, don't assume that it's shareholders who appoint directors. It could be directors who appoint directors.

Robyn Jacobson, CTA

It's a really interesting point.

Paul Hockridge, CTA

Yeah. And then where that then takes us is we might say, gee, there are some losses in this entity and we're changing shareholders. So it might be to recoup the losses or let's not forget bad debts, because the bad debt rules kind of mirror the loss rules. Let's bear in mind we might have to satisfy the continuity of ownership test or the continuing business test. And if that's a trust, and we've got to go to those lovely rules and schedule to f dealing with trust losses, I would lose what little hair I have left. If I have to go back to them again, I should say some good news. There is the family trust election rules, the ability to revoke or vary. They are so much friendlier where we've got marital breakdown.

Robyn Jacobson, CTA

Because originally they just didn't cater to this at all. Yeah. So at least now we've got former spouse, we've got stepkids and those sorts of concepts that are incorporated into it.

Paul Hockridge, CTA

Yeah. So I guess where this takes us is when we deal with companies and trusts, we could have a CGT event on a transfer. We've had to look at controlling who appoints losses, bad debts, maybe cost base adjustments. When we transfer assets, our people should be getting a sense by now that, gee, what looked like being fairly straightforward maybe wasn't quite so straightforward.

Robyn Jacobson, CTA

The story came across a unit trust many years ago where it was a, let's call it a corporate trustee, and he was sole director, or it was a single trustee, and he was the trustee that was running the business. But the way the deed had been set up, they were joint appointors. And when the marriage broke down, he was then still having to go to his former spouse to get her approval to make significant decisions when it came to the operation of the trust.

Paul Hockridge, CTA

Yes.

Robyn Jacobson, CTA

And it became not just unworkable, but such a point of leverage for her that she was able to use that in the family law negotiations to get what she wanted because he needed to keep running his business. Yeah. And it's just something when everything is set up, it all seems fine. I think of another story where a typical trust deed might name the spouse by person, but it becomes very tricky when you set up a trust state and you walking into the solicitor's office. And yes, I'd like a deed and I'd like it to simply say my current spouse rather than the spouse's name. And your current spouse looks at you and says, well, why can't my name go in there? And you're just trying to keep the deed flexible in case something happens in the future. So can be difficult to navigate?

Paul Hockridge, CTA

Absolutely.

Robyn Jacobson, CTA

Now superannuation, this is a whole separate area. Yes. We have now got rules that allow splitting of superannuation. And there's a whole range of ways this can be done. But when I think back to before these rules came into play and I'm going back many, many years now, we had a situation where, let's say it came back to you and Barb again. Superannuation wasn't able to be taxed in the case of the marriage settlements. Yeah. So what would happen is let's assume you had built up a office and then some of superannuation in your career, and Barb had been the one to stay home and raise the family amount of work, generally part time. So she has much, much less. And so the court would say, well, gee, we Paul, we can't touch your superannuation, but on equitable grounds, it's unfair that you get to keep all that.But then everything else is divided equally. So what we'll do is give Barbara the house, but we'll give you the superannuation. So it all seemed equitable on paper, except the reality was that she had somewhere to live, but nothing to live off in the future. And you had something to live off in the future, but no where to live now.So fortunately we've now got these splitting arrangements or flagging type holders. Again, briefly, can you talk us through what this looks like and also the impact of breakdowns on the binding death benefit nominations? Because sometimes people can forget about this.

Paul Hockridge, CTA

Yes. So dealing with a last issue first because it's relatively straightforward, assuming we had a binding binding death benefit nomination, I use that binding twice because sometimes what appears to be a bonding death benefit nomination might not be binding, because it might not have been executed in accordance with the terms of the deed. So please read the deed and check. Then when we refer to superannuation splitting orders, they're very much what they sound like. So even though I would always get a superannuation specialist involved because I'm conscious of how complex those rules are. And so that's why I always get a specialist involved. A super splitting award is just what it's just what it sounds like. Paul's got 2 million in his super fund. We want 1 million to go across to Barbara. How do we do it, given that we're not meant to touch the money in super until, you know, certain certain triggers? The super splitting order allows us to access those funds. Now, when you mentioned before about one party could get, let's say, a $2 million house and the other might have 2 million in super. Is that fair? It might be difficult paying the bills, but is it fair? That actually leads us to a whole raft of other issues. And so in my paper, I've dealt with seven family law cases because the family law cases inform our thinking on tax matters. Just like when we read some of the trust law cases, they inform our thinking on how Division6 and trust matters might , might apply. And it deals with issues like if there's an asset transfer and that asset is pregnant with a CGT liability, should the CGT liability be taken into account in dividing the assets up? Now, in the case of superannuation, you might say, oh, a super fund is a really good tax shelter, because it might be this 10 or 15% tax paid on income and gains. It might be zero depending on whether we've switched on a pension. It might be with the main residence that there's no CGT payable. But given those rules are about 26 pages long, forming a view that the main residence can be sold tax free is not straightforward. So those are the cases deal with with issues like when do we take an income tax or a CGT liability into account? Do we take into account the value of tax losses in the entity we were talking about before? Do we take into account selling costs, not just a CGT, but the selling cost? Do we take into account the catch up tax on dividends? If one party keeps an asset that's pregnant with retained earnings? So your simple example with super and the difference between the after tax value of super or a main residence, these family law cases do inform our thinking. With lots and lots of other transactions.

Robyn Jacobson, CTA

On to estate planning. The key issue with Wills. And we still note about 40% of Australians do not have a valid will. And I find that it's extraordinarily how aware you become of the need for a will once you buy your first property for your home or an investment property. But we have a rule that says when you get married, your will immediately is invalidated. So if you do not create a new will, you will die intestate. And I don't mean interstate, I mean interstate. And in that case, you should arrange for new will when you get married. But interestingly, when you get divorced, it does not invalidate the will. And people have been caught out with this. It is assumed that it was invalidated or they hadn't turned their mind to it. And then all of a sudden the former spouse is well and truly alive. When someone dies and they make a very valid claim on the estate where the current partner may be thinking that things are automatically going to move to them. So your thoughts on all this?

Paul Hockridge, CTA

It's probably self-evident. Get an estate planning lawyer involved right from the very get go. So that, let's say effective from the time of a consent order. If there is a consent order, what I mean by consent order is Paul and Barbara still relatively amicable, they each engage through their own lawyers. The lawyers work out the proposed asset split, and then they take that paperwork along to the family court. And the judge says, do you people agree with this? Is it fair and equitable when everyone says, yes, it is, and the court stamps it? So that's what I mean by a consent order. Apologies to all the lawyers out there. I know that wasn't technically accurate, but hopefully people get a bit of a sense really from that time in particular. Then we need to turn our mind to wills, particularly if there are new relationships and there are children involved, adult children involved. If we don't take care of wills, we're lucky to have a real problem. Just as one of the takeaways here is, don't assume, we say, don't assume that the family lawyer is necessarily across all the tax issues. That's not disrespectful. That’s just recognising that if tax specialists find this stuff hard, isn't it reasonable to assume that the family lawyer might find this hard as well? So that's just being sensible and respectful. Similarly, from an estate planning point of view, when we're getting our wills re done, when there's been this trigger, don't assume that the estate planning lawyer is across all of the tax complexities for the very same reason. So again, that's just him being sensible is not being disrespectful.

Robyn Jacobson, CTA

When I think of so many cases that have been heard over the years involving the more contemporary family. So you've typically got children from a former relationship and it could be the second part, not the third, the fourth, whatever number were up to. But so often we're seeing disputes about who controls the superannuation, who controls the fund, who controls the wealth in trusts. Because we talk in all the fairy tales about the wicked stepmother and Cinderella and so on. But there is some truth. And I'm not saying about the wicked stepmother in particular, but the relationship between stepchildren and stepparents, of whatever gender where you can get this enormous tension and a mismatch or a failing of to have a meeting of the minds and if the wishes of the deceased are not clear, if it's not well documented or if they're inconsistencies or things haven't been well executed, it can lead to the most disastrous litigation.

Paul Hockridge, CTA

Absolutely. And where promises have been made over the years to family members that have never been fulfilled in the minds of those parties. Yes, we're looking at fertile ground for dispute.

Robyn Jacobson, CTA

And I think also another case I heard about years ago where there was a father who passed away and brother and sister were then looking at what was going on in the company. Now the father, according to the daughter, had been gifting her amounts of money for many years. But the way they had been booked in the books of account of the company, whether this was the intended treatment or not. Is by way of a loan. So of course, when the brother took over control of the company, he then looked at this loan account that was owing from his sister and said well time to pay up, and she said no, no, no, no. There were gifts. There was no intention of ever repay those amounts. So this is why when we loosely over the decades passed, and I think back to my days in practice, when loan accounts was sitting there in some of these entities and they still are today, what is the true character of those amounts? It's not a case of just dumping it into a loan account. You just can't do that now.

Paul Hockridge, CTA

Yeah. So it might be that one of the takeaways is we start with the accounts and then we question whether the accounts are correct. And it actually makes sense to be quite critical, particularly in situations like that. And it might be that a red light flashes, for instance, when there have been no interest payments or capital repayments over a substantial period of time, that might cause us to question whether this is genuinely a loan. Because if it was a loan, why has no interest been paid? Why hasn't it been documented? Why haven't there being principal repayments? It also causes us to recognise that when relationships are to fall apart, very often the quality, the record keeping drops off. There seems to be a pretty good link between the two, and where that's particularly problematic is when we then want to do this division of assets. We say maybe the business accounts are a bit late, but at least we can get the business accounts prepared. But it might be that a whole lot of the assets are in individual names, and we don't have accounts for individuals because we don't prepare accounts for individuals, we only prepare accounts for business entities. And so there's often confusion and uncertainty in relation to asset ownership

Robyn Jacobson, CTA

...and valuation too.

Paul Hockridge, CTA

Absolutely, absolutely. And when I mentioned before about some of the family law cases, the case in particular referred to in the paper dealing with the value to be attributed to tax losses, it seemed to me it was really a battle of the experts as to what value should be placed on tax losses. So yes, valuations a key issue, not just what's the land worth, but what are the things like? Well, what capital gains tax or income tax might be payable. Can we use tax losses. So it's it really is likely to be a multidisciplinary effort to resolve these things.

Robyn Jacobson, CTA

Also when we think about how we do have books of account for the business or investment entities, it's not an asset of the individuals. It's actually a liability, whether it's good old debit loan accounts. Yes. And I return to this when you've got joint loan accounts. And again, while everything is happy and the roses are red and the sun is setting and the cocktails are out, then it's all fine and well to have this joint line account because you just drawing the money out. But I can just about guarantee that when there is a relationship breakdown, one party is probably going to point the finger at the other and say, well, they're the ones who took all the money out. Yes. And when there's no record of who took what because it's all gone to a joint loan account, it's not great.

Paul Hockridge, CTA

No. And in the paper I referred to a number of private rulings. Two of them deal with situation where there was a difference between the apparent legal interest. Let's say it was 5050 between mum and dad and the agreement between the parties, which might be that the income expenses will be split in 20. So the difference between the agreement between the parties and the legal interests. And guess what the tax man said in both those private rulings. It's the legal interest. And also because they can be a delay between when the consent order is stamped and when title passes from Paul to Barb, or vice versa. And then you say, well, gee, what do we do with the income or the expenses during that gap period? And what the taxman said in one of his private rulings is income and expenses allocated in sorry, consistent with the consent order from the date of the consent order, even though there's this delay.

Robyn Jacobson, CTA

Three more quick things. Child maintenance Trusts, can you make quick comment on those..

Paul Hockridge, CTA

Yeah, this might be described as the tax solution for the rich people. And the reason I say that is it might be that Paul and Barb are doing pretty comfortably when there's one household maintain, when we suddenly had two households to maintain, we don't have $1 million to stick in a child maintenance trust to provide for Sarah and Louise, our daughters. Whereas if we were super wealthy, that might be great. Let's put $1 million in a child maintenance trust, bearing in mind that if Paul's paying maintenance, it sounds misogynist. That's not my apologies there, but if Paul's paying maintenance, I don't get a deduction for it. And Barbara's not assessable on it. Yeah. So we say is there a solution? Well maybe putting some money into a child maintenance trust might be tax efficient because the income distribution might be subject to tax at ordinary rates under Dive6aa, not the penalty rates that usually apply to income distributions to minors.

Robyn Jacobson, CTA

So if you've got children under the age of 18, yes. And you set up regular trust for them, then of course the division6aa rights applying, we've got quite penal under the 416 tax free. And he got from there with the different thresholds.

Paul Hockridge, CTA

Correct.

Robyn Jacobson, CTA

But you're saying when we do a child maintenance trust, we've got the normal adult marginal tax rates that apply even though we're distributing to minors.

Paul Hockridge, CTA

Yes. Correct. And so that can make them very attractive. One of the issues to be addressed is at the end of the life of the trust, the remaining capital has to go to the kids. So if you were to put, let's say, a rental property, and that's a doubling in value every ten years, I'm not suggesting that's what happens with real estate, but let's just use that as an example.You might find if you set up the child maintenance trust early and it runs until, let's say, the kids finish uni rather than secondary school, that assets worth an awful lot query, whether you ever intended that you'd pass this asset to the kids? They might be driving this Ferrari at Melbourne University. On the other hand, what if you used the cash that you would otherwise use in your business to buy some new plant and equipment, transfer those funds to a child maintenance trust, which buys plants and equipment, which then rents that plant and equipment across to your business at market rates.And it must be at market rates. In that situation, your business might get a tax deduction for the rent paid across the rental income, net of depreciation, capital allowance deductions, but then flow down to the kids. And at the end of the life of the trust, most depreciating assets decrease in value. And so this problem of the big capital amount going to the kids at the end of the life of the trust might be far less of an issue.So it gives them.

Robyn Jacobson, CTA

An income flow without the massive amounts of capital.

Paul Hockridge, CTA

Correct. So we're spending a bit of time on child maintenance trusts.

Robyn Jacobson, CTA

Child support, just to make mention that we have now of course got reporting through STP. So single touch payroll to Department of Human Services. So we've got the reporting the normal payroll data to the tax office. But with phase two STP, we've also got reporting to other government agencies. And so there's just much more transparency around the amounts of income that people are earning to make sure that the amounts of child support are appropriately calculated. Insurance. What's the key point here?

Paul Hockridge, CTA

Okay, the key point here is let's do with the life insurance, because that's what I'd call the big one. And I'd say the people don't shut off when I talk about tax and insurance, because some people might say, oh, this is boring. This is super important. The reason it's super important is we only take out life cover if it's for a big amount. Otherwise, frankly, we wouldn't bother. So if we get this wrong and the life cover, let's add $2 million of life cover is subject to tax. Boy, we've got a major problem. And this isn't just a client problem. This is a pie problem. If we didn't advise the clients. So let's just assume for a second that Barbara takes out a policy on my life for $1 million. She takes the policy out. She's the original owner. She's the beneficial owner of the policy because she's the one who makes the decision as to whether the policy gets renewed. So she's the owner. If we then divorce and we decide that she doesn't need that policy anymore, then it might be a case of I'll go along to the insurer and want to take out a new policy, and the new insurer might say, thanks, but no thanks, all because your risk has changed fundamentally from when you were 30 through till now. And so we might say, okay, this is the problem. There isn't an automatic right over a statement like there is in some policies. So I take out a new policy. If I take out a new policy, then on the original owner, that's great. But if I can't take out a new policy because the underwriter isn't friendly, then what I might do is have Barbara assign her interest in the policy to me. If Barbara assigns her interest to me, I'm not the original beneficial owner. Barbara is. And if I gave consideration to acquire the interest on taxable when the million dollars comes in. So did I give consideration to acquire my interest in this policy. Yes. Because the exchange of policies between Paul and Barbara as part of this divorce settlement, that's a consideration.It's not a question of what the value is. It's a case of was there consideration. So an assignment of a life policy could mean that this million dollars is subject to tax. And like I said, this isn't just bad news for the client. It's bad news for the tax adviser. The tax advisor should’ve picked that up.So really important issue.

Robyn Jacobson, CTA

Thank you. Another aspect I'm thinking of is if you don't turn your mind to this, and Barbara retains that beneficial interest in that policy because she took it out and she's been paying the premiums and renewing it. And there's no consideration given to the circumstances. And you two have divorced and you've moved on to a new relationship, and then you die.And there's this awareness. Oh, but he had a life policy in place, and all of a sudden Barbara's getting the proceeds and not your new partner. And there could be some that raised questions there.

Paul Hockridge, CTA

Yeah, they certainly could. That would be perhaps more likely to happen in the immediate period after the divorce, because there are probably premiums payable annually. And if the premium notice comes to Barbara, she's going to form a view. But if, for instance, two months before the renewal notice comes in, I’d off the perch. Barbara's going to do very handsomely out of this, and some other members of the family might be rather peeved.

Robyn Jacobson, CTA

Absolutely. But you're saying probably no more than 12 months that that could be a risk?

Paul Hockridge, CTA

Yeah, because the renewal notice has got to be a trigger,.

Robyn Jacobson, CTA

Agreed. Look, there's one more issue I wanted to cover and it's not, really the subject of this particular discussion because I have had this with Doctor Anne Kumar recently, but that of financial abuse and in particular with intimate partners. But I do think it's worth just bringing this into the tail end of our discussion, because when there is a relationship breakdown, there has in some cases, of course, been financial abuse that's been imprisoned. And this is a situation where there is coercion or control of a person's behavior or of their assets, or of their income, or denying them access to things. And when you've got a breakdown, they can in fact be people that are settled withtax dect. There can be people that are not able to access superannuation or find that the superannuation in their joint fund has been taken out. So it's a whole separate conversation and there's some work being done in this space. Yes. But I just think when we look at breakdown of family relationships. that of financial abuse is a factor that unfortunately can be omnipresent, and it's very important to be aware of that.

Paul Hockridge, CTA

Absolutely. In fact, when I was having my paper from yesterday, peer reviewed, zany from the tax office raised this issue with me, and she mentioned particular concerns about things like identity theft by intimate partners. And the message from her was, if you have a sense or a concern, this might be happening, contact the ATO. They're alert to it. This won't come as a matter of oh, never heard of this before. What we will do. The tax office is very alert to it. Far better for me to say the ATO is here to help, but it seems in this case, that's that's precisely the case. The ATO will certainly take your concerns on board.

Robyn Jacobson, CTA

Absolutely. Look, Paul, it's been a great pleasure to sit down with you and discuss all these issues. Family breakdown and marriage breakdown is not a happy time for those involved, but it's certainly something that you just can't bury your head in the sand and not turn your mind to the tax implications. So very grateful for your insights.

Paul Hockridge, CTA

My pleasure. Thanks for the opportunity.

Robyn Jacobson, CTA

Thanks for listening to this episode of TaxVibe I've been chatting with Paul Hockridge, CTA. If you enjoyed this episode, we'd love for you to subscribe, rate and review TaxVibe wherever you listen. We welcome any feedback and suggestions to catch all the latest from TaxVibe and The Tax Institute, join us on LinkedIn. If you're interested in being at the centre of the tax conversation, a membership of The Tax Institute could be just what you need. Stay current and connected with tangible, real world benefits. Learn more at taxinstitute.com.au. Thanks again. Till next time on TaxVibe.

Robyn Jacobson

Hello and welcome to TaxVibe, a podcast by The Tax Institute. I'm Robyn Jacobson, the senior advocate at The Tax Institute and your host of today's podcast. On the show, I chat with some of the tax profession's brightest minds, drawing on each guest’s unique perspective to give you valuable and practical insights you won't hear every day. We hope you enjoyed this episode of TaxVibe, recorded live at the 2024 Tax Summit at the ICC in Sydney. 

Today I'm joined by Anthony Marvello, Assistant Commissioner, Client Engagement Group at the ATO. Anthony has significant experience across all markets, including the leadership of assurance, reviews, audits and the provision of rulings and guidance. Anthony, welcome to live and great to do this in person.

Anthony Marvello

Thank you Robyn. Very glad to be here.

Robyn Jacobson

Now you've already presented your session on division 7A.. And this is a great opportunity to look at where we're at with it. So I don't propose that we dive into all the provisions, but it's been part of the landscape for 27 years. And when we look at the significant amendments over that period, there’s been about 25 legislative amendments. And on my reckoning, there are about 25 different pieces of ATO public advice and guidance. And this is separate to any web guidance. I'm just talking proper official guidance. So when I got to background, it is an integrity measure, and it's designed to prevent shareholders of private companies and their associates taking money out of these companies in a tax free form. There has been an increased focus on Div7A, from the ATO, and I'd like to today try to unpack that with you and understand what is the focus. What are you seeing? What is concerning you, and what does this mean for practitioners and their clients moving forward? So in terms of Div7A and its inception, opening comments from you.

Anthony Marvello

You're right. It has been there for 27 years. It is meant to be an amber light, you know, some hazard lights if you work as long as there's always private companies, Div7A will always be an issue. The very nature of private companies, they are closely held, somewhat opaque. The owners may feel that the company is theirs, and it is theirs, but a company is a separate legal entity, and taxpayers and advisers need to make that point very clear. So invariably Div7A it's invariably going to be one of the top issues that we look at anyway is in this sort of market. I suppose the point that, and I probably don't agree with the characterisation of renewed focus, it’s always going to be a focus area. But what we discovered was we were doing a bit of a review of some of the rulings or some of the discretionary requests we were getting, we were also looking at some audit results. And we found that the vast majority, you know, there were fundamental errors or very basic errors being made and that's why it was these ordered adjustments. And that's why, there's been a lot of rulings or requests for Discretions being issued. And it was very much as a part of a consultative process, you know, like The Tax Institute, like the other professional bodies. We said, well, there's a real problem here. We need to up the ante in terms of about education piece and dare I say, we probably had to up the ante in some of our messaging because as I said, Div7A is, you know, targeted at private companies and the shareholders and those associated with them. But the reality of it is because of the nature of the private company and a little bit opaque. Advisors need to really step up because our feelings were that, and we get that being an advisor is tough and we get good advice, costs money, but we also get that Div7A is a fundamental issue, the fundamental set of hazard lights. And we felt that some advisers have been way too passive. Some advisers weren't asking the hard questions. And then that's where Div7A becomes a problem. So it's a little bit of, you know, we all need to up our game. Certainly taxpayers and their advisers can't, you know, have their head stuck in the sand. They've got to realise that we have concerns about it. We're very much taken the approach of this educating phase. It doesn't mean the audits have stopped and it doesn't mean the reviews have stopped. But we very much, you know, have raised the ante, in terms of how we’re approaching Div7A and the general implication across the board and messaging to reflect our level of concern. And that's what we have talked about yesterday.

Robyn Jacobson

Anthony, we'll get into the sorts of areas you're seeing and you talk about them in many cases being basic. Are you seeing any trends across the type of demographics, the geographical location, the type of business, the size?

Anthony Marvello

Yeah. Unfortunately, no. The mistakes are very basic, fundamental errors and even the, you know, the basics of Div7A hasn't really changed, notwithstanding all those, you know, well, there's lots of changes. Does it really matter the size of business, you know, small businesses. Yeah. First companies first. We're starting up or significant profit groups. The mistakes across the board. It doesn't matter what industry, don’t matter about the nature of it. So it's across the board. So there's nothing that would help us and help the profession help advisor to say, okay. We're going to target x y z because it’s not x y z. It's the entire alphabet if you like.

Robyn Jacobson

Do you even get a sense of the type of practitioner. And by that I mean, the rules have been around since December of 97 and the trust rule since February 98. Many practitioners have been around since day one and have seen the evolution and all the debates and all the progress and all the guidance that has been formulated over those years. And of course, there are a new generation of practitioners who may only been in practice for 5 or 10 years and weren't around back then. Is there even a sense that it's some of the more experienced practitioners who may have either forgotten or, as you suggest, maybe becoming too complacent? Or is it more a case of practitioners who maybe never got taught properly in the first place?

Anthony Marvello

Well, I certainly don't have a label. I can't categorise one, to be fair. And as we've heard in the conference over the last or two, it's a lot of those basic issues, you know, 100a, capital gains tax, family trust selections. You know, it's those basic things. They're not new, they're not fancy, they're not shiny. They're existing issues. So our concern is that advisors need to ask those questions of their clients, because if there's a private company involved and there must be a stream of questioning about what's actually happening in the company, you know, how are profits or benefits been taken out of that company. Now, that's a very appropriate question to be asking, because ideally, in a planning phase, to catch up with the client during the year, you need to you had a sense of, okay, well, how are you going to pay yourself? Cause invariably, the private company shareholder is the director as well, probably the employee as well. How are you going to remunerate yourself, so that in a rational sense, conscious sense, you've got a thriving business.

Robyn Jacobson

Because if you're a director or an employee, of course, you've got all of the employment cost for the withholding, and super and so on.

Anthony Marvello

Yet. So no matter what the capacity is and what we like to break down is, you know, there's always different hats that people are wearing. And so you need to be conscious of what those hats are. But there also needs to be some quite hard conversations about, well, what are you actually doing with the company? The company's not your event, notwithstanding the fact that you know, you are in fact, the company. The company is a separate and distinct legal identity. So there's a difference. You can't be raiding the company's piggy bank and not expect there to be tax consequences. And that's the reality.

Robyn Jacobson

I can recall the campaign many years ago for superannuation. Yeah. And the document in particular was titled It's Your Money, But Not Yet. I feel like this one should be this one. It's not your money.

Anthony Marvello

I think we may have discussed this Robyn, but I do want to have the cookie jar and have someone slapping the hand saying it's not yours. And that also if I can just like a liberty for a second. In reality that also applies to pay as you go withholding. Yes, it applies to super and it implies the GST. So I think it's a really important lesson for all those in business and all those that are advising those businesses that it's, dare I say you need to have those separate buckets and you need to be very conscious about those separate buckets, because it is important that we all lodge on time and we pay our debts on time.

Robyn Jacobson

So into the specifics, what is the ATO seeing when it comes to basic errors?

Anthony Marvello

So besides inability to distinguish between the company and the individual or the shareholder, there are some other elements. So we get down to the more basic things. So if you find that you know you have an outstanding loan or an outstanding benefit, you need to do a couple of things. So if there's a recognition that, okay, we're in Div7A territory, how do we avoid that. Yeah. You need to make sure that before the end of the year or before you lodge your tax return, that you have an agreement with the company about the terms. And if it's seven years unsecured with 25 years, how it's going to be repaid, typically there's a minimum yearly repayment, there's an interest rate that varies annually and over the last couple of years, it's almost doubled like it's an 8.77% at the moment. And that needs to be taken into account. So all that mechanical things that needs to be in agreement are what we call a complying loan needs to be put in place before you lodge a return. You've actually got to then satisfy and pay a combination of principal and interest back on that loan. And that needs to be all journaled, actually paid and done before 30th June, or whatever your tax time is, is to ensure that even though the complying one, by not complying with that complying loan, you've run up short on that. That can certainly lead to a deep Div7A deemed dividend. You know, there's a basic elements of it.

Robyn Jacobson

Just to make a particular point. You say before a lodgement day, it's got to be at least the day before lodgement day. So anyone who thinks that as long as I put it in place literally before I lodge could still have an issue, it's got to be done at least the day before, the day of lodgement.

Anthony Marvello

And the other elements, just to unpack it a little bit. And I know, is that the favorite topic of yours is that you can't just journal yourself out of it.  Journal entries reflect the transaction. It's not the transaction. The other thing we see is, well, I'm going to call a round robin where there's the constant repayment of the Div7A loan, but then there's the constant withdrawing of the Div7A loan.

Robyn Jacobson

109r specifically deals with that. And it was built in as an integrity measure to stop people doing that.

Anthony Marvello

Again basic issues. So if we get nerdy for a second 109r does deal with that, basically it would have reasonable person would conceive. But constantly a problem because people think they know better and perhaps their agents, you know, aren't probably holding to the account that they need to be.

Robyn Jacobson

I do want to link back to the journal entries because..

Anthony Marvello

I know you love it.

Robyn Jacobson

...It is a topic that is of interest. There is a mechanism by which, of course, a minimum yearly repayments can be undertaken without cash, and that is by the declaration of a dividend. But to make it work properly, the dividend has to be properly declared by June 30th. And sometimes there may not be an understanding of why this is so important. And I think it's important for our listeners to understand this. So the minimum repayment, of course, is due by June 30th each year. If it is not paid, you have a shortfall and the shortlisting dividend for it. So what we need to do is create that mutual obligation. So a journal entry can be used as a payment. Now we know the shareholder owes the company the repayment. The company needs to pay the shareholder something. So that's therefore the obligation to pay the dividend. So the dividend must be declared by June 30th. That then puts in place a whole series of other obligations. Corporations act. And this is not my space, I work in tax law. But of course we do have obligations with directors minutes or resolutions to be in the corporate register within a month of a decision being made. You then have to issue a distribution statement to the shareholders by 31st October. For profit companies. Then you can get to your journal and record the transaction that's already happened. But it's so important to get that right because the failure to do that means it could have breached as a direct to the Corporations Act. You could have penalties under the Tax Admin Act for not issuing a distribution statement properly, you may have the deemed dividend under Division7A and then I to even go into the Taxation Services Act right now. But if there's been a backdating of documentation to purportedly declare a dividend, it could be an issue.

Anthony Marvello

So yeah, you're bang on attention to detail everything. And that's where the planning part goes to it. And even maybe to add to the mix, even the planning element goes towards what I call is a outstanding line hasn't been put on complying terms. Are we going to bring that to an end. Are we going to repay it or is it going to go in the form of a dividend? Or would it be reflected in salary wages. You know, very important element. Well Div7A is looming large before 30th June if you like. These steps could easily be put into place to mitigate the impact of Div7A.

Robyn Jacobson

And just to let members of The Tax Institute know, we ran a webinar in 2021 that specifically deals with the use of journal entries to make minimum yearly repayments, and that can be found on the member portal for Tax Institute members. Commissioners discretion. Let's move into this area. 109r is the provision that if there's been an honest mistake or an inadvertent omission by the taxpayer, by the company, or by someone else, such as the tax agent, then there can be the opportunity for the commissioner to disregard that deemed dividends. Now, the discretion has been there for many years. Can you talk us through what you're seeing in terms of the applications, and has anything changed? Because this seems to be a bit of anecdotal feedback that this discretion is harder to obtain than it used to be.

Anthony Marvello

It so probably just address that one first. So as a tax ruling said 2010/8 . And there's a practice statement which is an instruction to staff which is 2011/29 So they’ve been around for a while. So that's the ATO view. And that's how the commissioner advises his staff to approach the discretion. So the important thing to note is, first of all, there needs to be either an honest mistake or an inadvertent admission. So that's a tick. And as you said and as you mentioned, it relates to the company, the entity, the benefit from the dividend or the payment and the tax adviser, invariably. Yeah. So it's really a bit of a party. So we need to be conscious of what the various parties are doing. So as I said, this should be an honest mistake on inverted admission and then do the facts and circumstances warrant it. Now we need to consider that any time if there's an audit we make an adjustment. So as soon as we consider making the adjustment and the Div7A a poss. We need to go through that practice because that's what's required. And naturally, if an advisor in their review of going about their business notices that there's a potential Div7A issue or there is a Div7A issue, well, then if it is an honest mistake or an inadvertent admission and the facts and the circumstances warrant it, well, then commissioner can consider the exercise of the discretion. So after that run up, I think over time, advisers have felt that the discretion was almost automatic and it didn't necessarily need to result in there being an honest mistake or an inverted admission. So I thought it was just like a given. So I think the point that we've been making is that, no, that's not the case. That's a bit of a myth and that we have to bust that myth. So it's not a get out of jail free card, and we need to consider it. And taxpayers and shareholders and other associates need to consider that carefully. Now, has there been an honest mistake or an inverted admission? And what are the facts and circumstances. So very much I wouldn't I refocus, but yeah, we're very much conscious of what the TR and the PSOA say.

Robyn Jacobson

So that threshold has to be met first before the commissioners even empowered to be able to exercise that discretion.

Anthony Marvello

And this is where the advisor is fundamentally important because we would expect the advisor who's advising private companies. You would have a pretty good understanding of Div7A and certainly the working parts of Div7A, maybe not all the funky bits, but you know, the basic elements. And again, as I've mentioned before, most of the mistakes we see around the basic elements. So it's really up to the advisor to, dare I say, probe and push a little bit can't be passive. You know, they need to be asking their clients, you know, what are they up to. And there's some examples in the TR this as examples in the PSOA how the Commissioner will approach it. So for example, you know, if the agent is only being provided with a summary of the accounting records. So no detail other than that and they just blithely accept that. And it’s shown that, you know, later down the track, you know, via an audit that, you know, the director or the shareholders more precisely hasn't been doing the right thing and has been stripping money out of the company or being using the holiday house and not doing the right thing. Well, then it's highly unlikely we're going to exercise the discretion because the agent hasn't done enough to satisfy themselves of what's actually happening. Now, there will be cases where, you know, we certainly will. You know, for example, if somebody just maybe got the interest rate wrong. You know, I hope I forgot to adjust it so to the current year rate. And I should, you know, the ATO website, you know, gives that sort of helpful tools. So, you know, that's just a random thing. Well then yes. If you look at all the facts and circumstances where you say, okay, and you do have a discretion, or where a company and the shareholders have been, you know, they've been out and they thought they were buying something for the personal. But they just mistakenly had the company credit card and then down the ways they work it out and they correct it.

Robyn Jacobson

Yes

Anthony Marvello

Well then. Yes, you're going to take that into consideration and it's probably going to be, you know, a positive result.

Robyn Jacobson

Yeah. Anthony, a really common situation is where you take over a new client. And you find a division7A problem I think nearly every accountant could point to that. And that's in that no one's actually creating the problems. The ruling here is from somebody else. So is that an area that is open for the discretion? Well, and I don't tunes on whether there's honest mistake. Again.

Anthony Marvello

Yeah, obviously it depends on the facts and circumstances. But if the previous agent has been wilfully blind or wilfully ignorant and the client hasn't been open and transparent, yeah, that's going to be problematic. And I think there was this element in the past where an agent or an adviser has got a new client and it is a bit of a basket case, and they come to us thinking that we're going to fix it. And again, it's probably going to be a no. But I think people need to be and I suppose that's where expectations needed to manage. You know, the client's expecting the new agent, the fixer of a new adviser to fix it. It may not be fixed or might not be fixable. And that's problem. And I think that's where a lot of the misconceptions around 109rb come and come through. And I think, you know, we've made it pretty clear that, yes, it is available where there's been an honest mistake or inadvertence. However, it's not a get out of jail free card for any other misdemeanor

Robyn Jacobson

And do you think it's possible there are practitioners out there who could be trying to correct these situations without necessarily seeking the discretion?

Anthony Marvello

Well, possibly. And obviously it's a discretion for the commissioner. But again, they need to work with their clients to fix these things and draw these things out. So very much encourage people to sort of try to fix these things, and obviously communicate with the commissioner. But also, dare I say, start with a clean slate. like, yeah, this case, maybe.

Robyn Jacobson

With all that discussion, where to from here, what sort of awareness campaign is the ATO running in and where does this take us for the rest of this year and into next?

Anthony Marvello

And so, We've done a bunch of things already to be very proactive and I know I’ve spent a lot of time doing this. So we've got a couple of events planned, probably at least one other major event. I feel that this is going to be an ongoing thing, and we need to make sure that there are solid roots and solid understanding. And it is a lot of conversation with clients and there's a lot of management of expectations as well. So I think this will be an ongoing thing. I'm hoping over the next couple of years and we'll get some real traction. And then, you know, the the evidence will be, well, okay, less adjustments, less request the discretions and we can all focus on something else. And hopefully, you know, something that actually you can, you know, really help the business. As opposed to trying to deal with , dare I say, missteps.

Robyn Jacobson

So in closing, what are your key bits of advice or tips for practitioners? What's their role in this?

Anthony Marvello

Okay, probably if you are advising private clients, make sure you have a very good understanding of the provisions or advising them. You need to be proactive. You need to be planning with the client about how they are going to extract wealth and benefit out of the company appropriately. If there is a Div7A potential issue, well, then you need to make sure that there's a complying loan agreement. You need to make sure that when you're paying, that you're not trying to be a bit cheeky in terms of round robins or just using journal entries, ensure that the minimum yearly repayment is being met, including the interest, which is the combination of principal and interest. If you don't do that, that's a that's another Div7A issue. So if you can come a bit of a circle and a bit of a cycle initially to make sure that all the timings are right, the journal entries are right, you get the ordering right so that it doesn't become a problem, and then you just move on and actually can get on with your business.

Robyn Jacobson

Okay. Anthony, thank you for your session yesterday. Thank you also for joining us on TaxVibe

Anthony Marvello

Pleasure. Robyn.

Robyn Jacobson

So thanks for listening to this episode of TaxVibe I've been chatting with Anthony Marvello, Assistant Commissioner in the client engagement group at the ATO. If you've enjoyed this episode, we'd love for you to subscribe, rate and review TaxVibe wherever you listen to your podcast. We welcome any feedback and suggestions to catch all the latest from TaxVibe and The Tax Institute. Join us on LinkedIn. If you're interested in being at the center of the tax conversation, a membership of The Tax Institute could be just what you need. You can learn more at taxinstitute.com.au, will look forward to joining us next time.

Robyn Jacobson, CTA

Hello and welcome to TaxVibe, a podcast by The Tax Institute. I'm Robyn Jacobson. We love the vibe of Tax and here at The Tax Institute, we do tax differently. In this bonus episode of TaxVibe, you'll get a special insight into our post-Federal Budget reflections. A sneak peek behind the closed doors of our member-only webinar. To see the full webinar and access other member only insights and resources, become a member of The Tax Institute. Head to our website to learn more. We hope you enjoy this episode of TaxVibe.

Welcome to The Tax Institute's webinar addressing the tax measures announced last night in the Federal Budget, 2025-26. I'm Robyn Jacobson, the senior advocate at The Tax Institute. And in this webinar today, I will be the chair and facilitator of the panel session. Thank you for joining us today. This webinar is live and interactive. Joining me on the panel today, we have Tim Sandow, CTA and president of The Tax Institute. We have Julie Abdalla, FTI, head of tax and legal at The Tax Institute, Jonathan Ortner, FTI and partner at Arnold Bloch Leibler. And last but not least, we have Scott Treatt, CTA, who is of course, the CEO of the Tax Institute. So, thank you all for joining me this morning. What I will be doing is drawing on this panel for their reflections, for their insights. It wasn't a what we would call a particularly big budget and certainly will unpack that in a lot more detail. But I first would like to turn to Scott and ask you what your overall reaction to the budget was.

Scott Treatt, CTA

It's an interesting one. The overall reaction, unsurprising. That was probably my comment, because that's got to be one of those. No, not one of it's got to be the lightest budget I've ever seen. I say seen deliberately as opposed to heard, etc., because it wasn't that 90 odd pages of, oh, I don't know how long exactly it was about what was it, about a third or less than a third of the papers that would normally see coming out of a budget, and that I find, that is unsurprising given the timing, like the election's imminent. 

Robyn Jacobson, CTA

But even if it had been a small budget in length, we might have had a lot of tax measures, but we couldn't even have a lot of them.

Scott Treatt, CTA

So, but it was never expected. I don't think we expected anything in relation to major tax aspects. I think I was a bit surprised that we saw tax cuts come out. Now that I see how it's playing through. I'm not surprised, given the political move that sort of happened. As you look at where it's being introduced now, they're introducing it into Parliament. Those tax cuts alongside the Medicare changes, which are due to take effect from the beginning of this financial year. So, there is a you're already seeing a bit of a jostling around some of these key issues before we're coming into an election. Even being called. It's going to be called over the next few weeks. I think it's quite interesting to look at, still the broader economic context in which this sits. I think it's really changed from what we've seen over the past few years as no substantive changes to that. In my opinion, you've still got bucket loads of debt. We still got those underlying core issues within our system that we've got to address, that we've got to deal with. I think some of the front of mind issues that the budget's trying to address, you've still got the cost-of-living issues. You've still got the education issues. It's still got the structural issues within our system around housing and social support, etc. those structural issues haven't moved. I haven't gone away.

Robyn Jacobson, CTA

And Julie will talk about the tax cuts in more detail shortly. But the positioning of this bill, we've got what looks like to be parliamentary sitting days left, 5 to 7 weeks to the election, which is somewhere between the third and the 17th of May. It's going to be one of those three Saturdays. And there's even talk that they may be calling the election as soon as this Friday.

Scott Treatt, CTA

Sure.

Robyn Jacobson, CTA

So, positioning all of this and what's going to get through the current Parliament, what's not.

Scott Treatt, CTA

Yeah. But it's interesting. Before we went live, Julie made an observation around the political posturing of where certain measures are placed, etc. and maybe she kind of had her two cents to that. But it's fascinating that if it is only true, that is what actually happens around the Medicaid stuff, the stuff that's needed for this. She the certainty we need in the system. And that's probably the aspect as an institute, we were keen on what is the certainty we can draw out of this. And I know and when the team worked tirelessly through to pull the report together, we tried something different with our members to try to go, right, what is it that we talk of that certain in this environment, given the election as opposed to all these would be announcements because the announcements of the announcements.

Scott Treatt, CTA

But actually, what does it mean to be able to advise people? And that's the piece that, I guess now when I wake up this morning to see the combination of those matters in that one bill, I go, wow, are we in another difficult position here around certainty coming into year end?

Julie Abdalla, FTI

So, we wrote in the, report that we weren't expecting these Tax cuts to be introduced. For an election. Anyway, but we would have expected that for the Medicare threshold changes. And so we've actually seen this in recent times, where a measure is put in a bill that is completely unrelated for different reasons, and pushing things along in the process can be the objective, but it doesn't always work out that way. And so we had, for example, Division 296 measures that were taken out of a different bill. The instant asset right off was in the buy now, pay later, bill. And then that was taken out at the last minute. So, it makes certainty all the more difficult. And it's concerning when it comes to the Medicare levy changes. We want certainty on that as a priority.

Scott Treatt, CTA

Yeah. It's kind of like Robyn, I think I said to you this morning, it's the budget that we didn't need, but we had to have.

Robyn Jacobson, CTA

Because the optics of having a May election and not having a March budget.

Scott Treatt, CTA

Yeah.

Robyn Jacobson, CTA

The key headline figures, deficits as far as the eye can see. And 2025-26 is the first year forecast we’re going to tip over that gross debt of $1 trillion. Quite eye watering figures. So where was the focus of the budget at a macro level.

Scott Treatt, CTA

Well, I think as I said before it was the cost of living aspects. It's those similar, structural issues that we've had in the system for a while. And, you know, around the housing, around the education, the social support, etcetera. But it's fascinating. You already see in the press, like, how are we going to pay for that?

Robyn Jacobson, CTA

Yes.

Scott Treatt, CTA

That still remains the question. But you've got to look ahead a number of aspects within our system. And we keep harping on around the need for a holistic tax reform, tax reform, tax reform. And I'm happy to keep saying that until we go blue in the face because like I sit there and say we can throw all these measures out there, but how do we create a sustainable system? Is our system sustainable? And there are a number of questions in preparation for this and I was there going, if I had the opportunity again just to sit down with the treasurer, post this budget and say, right, what questions would I ask? And I put them down here, are we taxing income at the right level? Are we taxing capital and consumption at the right level? Is our tax mix right? And I think if you can't answer yes to those questions, then you don't actually have a sustainable system. And I don't know at the moment that any politician could genuinely answer yes to any of those. Which means then we'll we don't have sustainability. A lot of what we're doing within the budgets remain just tinkering as opposed to creating a sustainable future and having meaningful effect. And so what are we doing about it?

Robyn Jacobson, CTA

Before I throw to Jonathan and Tim, for their initial observations of the budget, two things which are always for front of mind when we talk about particularly homeowners and businesses. And I'm referring to interest rates and inflation. So, we have had that first reduction of 25 basis points for the first time since 2020. Given all the rises and the inflation is back within the Reserve Bank's range on paper, but it's still very much having an impact on cost of living for everyone.

Scott Treatt, CTA

Oh, I think that's right. But I don't know that I'd be comfortable being an economist at the moment. Like just so much global uncertainty going on. There's so many things happening in different jurisdictions at different levels and for different reasons, and there's likely to be an impact that flows on to Australia. What that it is exactly. My crystal ball is probably a little dustier than others, so it's going to be interesting to watch how that then plays out and how the overlay of those other issues come through as well.

Robyn Jacobson, CTA

Thank you. Tim, how are you reading the tea leaves?

Tim Sandow, CTA

Robyn. For me, it feels like it's a bit of a placeholder budget, as in, I had to do something, as Scott said a bit because of the optics, but it sort of feels like I'm wondering if we going to get a second budget later in the year. I mean, we obviously probably will win if there's a change in government, but I think even if there's a, if this government continues, albeit probably with a different mix going forward, are we going to see something later in the year? And as Scott said, there's so much global uncertainty. Maybe the world does look a little bit different in six months’ time. And some of the assumptions that are in it in this budget may change. So, I guess it's a bit of a watch, this space. I think good news out of the budget is, some of the assumptions. Robyn. We're all going to live longer. So, the assumption is that longevity is going up by year for men and women, 86 women and 82 men.

Robyn Jacobson, CTA

So more time for Holidays.

Tim Sandow, CTA

That's right. More time for super, and the birth rate has again increased in the next five years as well.

Robyn Jacobson, CTA

And this is without Peter Costello, who's encouraging everyone to have that third child.

Tim Sandow, CTA

Correct, its gone from 1.44 to 1.54.

Robyn Jacobson, CTA

Oh goodness. Significant. Jonathan, your take on the budget.

Jonathon Ortner, FTI

Well, I think to continue to lighten the mood, Australian brewers and beer drinkers can rejoice. Jim Chalmers has announced a freeze on the indexation for beers for two years. So that's good. Saint George Dragons, unfortunately, over my beloved storm also received funding. Why that was chosen, I don't know, but I think the reality is we haven't seen any major tax announcements in the last three budgets. Probably more. Yeah. So do we expect any announcement of substance in a budget like this was going to be, you know, very low on the probability scale. So I'm unsurprised by what has been announced other than for the fact that the tax cuts have been, you know, presented in a way that perhaps they could have designed it differently. So, we're not outlining $17 billion when we're ready, forecasting deficits over the next however many years.

Scott Treatt, CTA

But wouldn't it say the budgets over the past few years, Jonathon, really like where the compliance dollars were going to go and what the policy position was on integrity within our system was really called out loud and clear. And I don't know that those things were within his budget. Not in that same way.

Jonathon Ortner, FTI

Oh. Certainly. There's still I mean, in terms of compliance within the tax system, the spending going through the Tax Avoidance Task Force. 

Scott Treatt, CTA

Not like the multinationals because of X, Y and Z should, those bigger theme aspects were absent here. And I do wonder if that's again a deliberate move around. Well, we've got time now for,  before the election coming. And we know that those historically in elections it's like every week there's something new. And I do wonder, are we going to see something along those lines over the coming weeks?

Robyn Jacobson, CTA

Jonathan, also interesting to be mindful of where we are on the cycle, because traditionally, if a government wants to go harder or bring in a measure that may not be as popular, they are not going to do it weeks out from a federal election, they are much more likely to do it at the beginning of their term, or perhaps even halfway into. Right? Yeah. So, Julie, your reactions, we've talked briefly about the traditional tax cuts, but, the IBMs, this is our favourite expression, the announcement unelected measures. For those of you who are not familiar with the expression, did we see any movement on the IBMs?

Julie Abdalla, FTI

We saw movement on a few, but less than a handful. There is still a long list that weren't addressed, but one thing that is on, or I thought was interesting on this point in the budget paper. In budget paper number two, if you're interested in the payments and receipts tables, there are line items for decisions taken but not announced. And so these are amounts that are attributed to that are not actually announced measures within the budget. And so I'd be expecting to see post budget potentially pre-election announcements that might shed a bit of light on what those amounts are related to. Hopefully that would deal with some of the announcement on inactive measures. But again, we've mentioned certainty already. People want certainty whether they're proceeding with a or amending it or discarding it, abandoning it altogether. People just want to know where they stand as compared to the law.

Robyn Jacobson, CTA

And make decisions about where they invest and how they run their businesses and understanding where they stand. Scott, we have talked about what the budget means, but in particular, as we head into an election, if we think about the way we brought up our budget reports in non-election news, we always say the government has proposed that it will or the government is intending to do such and such. But given we are weeks out from an election, what does it really mean when the government says it will do this?

Scott Treatt, CTA

That's the hard thing to answer. Like what is going to eventuate in, let's call it seven weeks’ time, right? What? It is a maximum of seven weeks

Robyn Jacobson, CTA

Maximum 7 weeks could be five.

Scott Treatt, CTA

Thought so what is going to actually eventuate at that point? What's going to be the composition of Parliament.

Robyn Jacobson, CTA

Both houses nice houses not just the Senate, yeah.

Scott Treatt, CTA

At that point of time, therefore where do we stand? I think that overlay still sits there. So the difficulty is, yes, there's been some positions put forward. The positive is we've got some view on it which kind of aligns and I know will come to it around the regulation of the profession. That's I sit there and go, well actually there are elements where we can go with some level of certainty because of both sides of Parliament thing aligned on not doing something.

Robyn Jacobson, CTA

Yes.

Scott Treatt, CTA

So I think that's the one positive I'd take up the rest as it can go. Well, actually it's going to depend on what Parliament looks like post-election.

Robyn Jacobson, CTA

And that's really going to be interesting to watch. Listen, I just noting that we are not yet certain when Parliament is going to resume. There are certainly parliamentary sittings scheduled throughout the year, as we know, with sync by July, that have all certainly by a lot. The new senators have to take up their seats, whether we're going to see any sittings in June before they go into their winter recess in July. We really will depend on the counting of the votes and have the sworn in, the minister's internal housekeeping, and I talk about it, putting the new signs on the doors around Parliament House. So there's a little bit of administration that needs to be sorted. Tim, Where does this leave business sentiment? So when they're looking, yes, we're going the election year. Yes. We've got a whole lot of proposed measures. Again, that's as we move into caretaker mode. Would we see a potential slowdown in business decisions, or do you think it will just be business as usual?

Tim Sandow, CTA

Robyn, I think it depends on how much of an influence you think things like tax have on on business decisions. But I'm probably not best to, to speak about sort of that overall business confidence, but certainly I mean from my perspective, I mean I'm thinking in Adelaide, it does feel like there's still plenty happening around the place. And as I'm traveling around as part of the president role, I don't think any of it is just sitting around wondering what we're going to be doing tomorrow. So, because we do have clients that are doing things, whether that's they're investing, they're buying things, they're selling things. So I still have a fairly. Yeah. And I think comes down some of the numbers as well that, yeah, it does feel like the economy is doing reasonably well from what I've read so far, it doesn't feel like any of the Trump tariffs are going to have a big impact on the economy as a whole. They're not having impact on parts of the economy. I guess we're just waiting. Wait and see.

Robyn Jacobson, CTA

Scott, I just wanted your thoughts to. We've often talked about the impact of changes on the profession and compliance costs and regulation. We've still got labor shortages across the profession and that's really being felt by our members.

Scott Treatt, CTA

Absolutely. I think there's a couple of challenges around that one Robyn, them because we are seeing some firms having less graduaate intakes and that's not necessarily driven by demand. I think that's sometimes also driven by supply and quality of supply coming through. You look at the last ten years, student numbers coming through the social sciences and culture avenues and the management type spaces. Those that lead into accounting and law, etc., which drives tax as well. In terms of the student succession coming into the profession, it's dropping year on year. It continues to drop. And I think I've said previously in other webinars like, the impact of the regulation on the profession, right. And the perception that's there is also that impacting students decisions to go into that. And, you know, it's on us to to then try to keep tax sexy and ensure that students maximize the thought processes around coming through, because that supply is limited. That supplies is a key issue to be addressing.

Jonathon Ortner, FTI

I agree with that on. I think, you know, there's been reputational harm to the industry as a result of sort of past events and the regulatory burden that's been imposed is significant.

Robyn Jacobson, CTA

Yeah.

Jonathon Ortner, FTI

But then we've got the complexity of the tax regime. It is so hard at the moment.

Robyn Jacobson, CTA

Yes,

Jonathon Ortner, FTI

it it's acting as a disincentive for younger people to come into the industry. And it's a problem.

Robyn Jacobson, CTA

And Scott, we talk tongue in cheek about it being sexy. We just love tax so much. So we just can’t understand why no one would want to be part of this. But in all seriousness, when we're competing with other sectors where a young person can become an influencer and has that public social media profile, why would they want to come into the tax professionals?

Robyn Jacobson, CTA

All right. So let's now start to do a bit of a deeper dive into some of the tax measures that were announced. So Jonathon, I’ll kick off with you, What's happening in the SME space. What are you hearing on the ground and where is the noise coming from.

Jonathon Ortner, FTI

So I think we still have to correct me if I'm wrong. Over 60 billion in undisputed.

Robyn Jacobson, CTA

Excited it's over 50 billion. Yeah over 50.

Jonathon Ortner, FTI

So obviously that and since the commissioner has come in last year, you know, that's a key part of his agenda, which is to collect that debt. And so I think many in the profession are seeing that starting to happen. Yeah, certainly. Then as a result, you're seeing stronger enforcement of directive penalty notices. Garnishee notices. There's less appetite to, you know, remit GRC or ASIC. In certainly instances where perhaps the ATO would have in the past in light cases. And you know, we're seeing certainly more aggressive a more aggressive ATO in their approach in audits. And objections and, and so that's, you know, obviously becoming difficult for the SME population to manage because the compliance cost for taxpayers is going up considerably.

Robyn Jacobson, CTA

Yeah.

Jonathon Ortner, FTI

Other issues that we're seeing on the ground, and it's no secret it's on the its website as sort of tax issues to, watch out for in the 2025 years family trust elections. I've been presenting on that, recently over the last year at the profit business retreat on the tech summit last year, it's becoming, an ever increasing problem, partly due to the sort of common fact that we've got blended families now, we've got the death of the test individual, we've got really complex private groups, and it's going far beyond, I think, what the rules were set up to deal with and mistakes are happening as a result. So we're seeing that manifest and come out and, you know, reviews as a result. What's on the tip of everyone's tongue I think, is Division 7A and Bendel. And you know, we've got the 2023 UPE’s which need to be dealt with now for, for lodgement day. And, and you know, everyone is asking, what do we do with that now that the ATO sort, you know, special leave to the High Court and, you know, what do we do around tax planning time for, for this current financial year? So happy to open that up as a discussion if we want to.

Robyn Jacobson, CTA

Absolutely. And it is worth reminding our members that yesterday we ran a live webinar with Fiona Dillon, Paul Sokolowski and Tracy Dunn. Fiona, of course, being the chief tax counsel at the ATO called being, the solicitor representing bindle in the full federal court. And Tracy, with a great deal of experience in this space. We unpacked all of this and we talked about, firstly, what does the decision mean? What do you do with the pre 2009 ups? What do you do with those that were managed through that intervening period of 2010 to 2022, and what do you do most importantly with the ups that need to be dealt with by the lodgement day coming up? So we'd certainly encourage our members to access that webinar. You can contact the Tax Institute. We'll look at that through the member webinar series that we've been running. But it's a really interesting situation, and I'm just interested in your thoughts. And yes, I recognize you do work for the firm that represented the case in a different state.

Jonathon Ortner, FTI

Whatever Paul’s thought are, are my thoughts.

Robyn Jacobson, CTA

Very diplomatically put. But it's a really interesting situation where we have a position that was taken by the ATO back in 2009, which they have stuck with all through these years, despite being controversial and many practitioners disagreeing with it. We've now got unanimous two members in the tribunal and three judges now in the full federal court, all finding in favour of the taxpayer. The commissioner. Yes, we know, has sought special leave from the High Court, and we are waiting to see whether that will be granted. But in the meantime, the interim decision impact statement makes it very clear that the ATO will be sticking with its current position. So the main question everyone is asking is legally, how can the ATO do this effectively? It looks like the disregarding full federal court case law while they pursue their appeal. And so people are trying to understand how does that work?

Thanks for listening to this bonus episode of TaxVibe. If you want to hear the full webinar and join a collective voice of 10,000 practitioners at the heart of the tax profession, become a member of The Tax Institute. Head to our website to learn more. To keep up to date with TaxVibe, be sure to subscribe wherever you listen to your podcasts. Please join us on our socials and let us know your thoughts or of any topics you'd like to hear us discuss. We look forward to you joining us next time.

Robyn Jacobson

Hello and welcome to TaxVibe, a podcast by The Tax Institute, where we peel back the layers of the Australian tax world. I'm Robyn Jacobson, your host, and the senior advocate at The Tax Institute. We bring you the sharpest minds in the tax profession, digging deep into their unique insights and sharing nuggets of wisdom you won't find elsewhere, always keeping it real and interesting. So sit back and relax, and let's dive into the world of tax one conversation at a time. We hope you enjoy this episode of TaxVibe.

I am joined by Neil Brydges, CTA, Principal in Sladen Legal's Tax group in Melbourne. Neil primarily practices in direct taxes, and GST with a focus on the taxation of trusts, deceased estates, property corporate tax, M&A and Division 7A. Neil is also advised extensively on cross-border taxation issues. Neil is an accredited specialist in taxation law. A member of the Tax and Revenue Law Committee with the Law Institute of Victoria.A member of the Tax Committee of the Law Council of Australia and a CTA with the Tax Institute, and a member of the Institute's National Dispute Resolution Technical Committee. Neil. Welcome to TaxVibe.

Neil Brydges

Thanks, Robyn, glad to be here.

Robyn Jacobson

So today, we're going to have a chat about the recent Bendel decision. And we will, of course, explain what all this is about ,and why it's so significant. But social media has been abuzz with the long-awaited release of this decision. And we're in particular talking about an appeal relating to the tax treatment of unpaid present entitlements. So, we'll break all this down. But, firstly, why is this such a significant decision? Why is everyone so excited about this, and that's before we even get into what the decision means for everyone.

Neil Brydges

It's a decision that's had quite a long history, not so much in this particular piece of litigation which we'll get to later on, but also what prompted this litigation was the Commissioner's views, which were released in a public form in a draft ruling in December 2009, but also had been expressed publicly a few months before it, and it started in February 2009. When the then Deputy Commissioner Mark Conser, at a talk on basically another topic confirmed his view that a UPE, in certain circumstances could be a 109D loan. and then over the next sort of 10 months. Between February 2009 and December 2009 was discussed at the NTLG meetings, and you can see comments around that in the minutes of those NTLG meetings before releasing a draft ruling in 2009, which became finalised in 2010, as we know, in TR2010/3, and practice statement. 2010/4. Those views. If you read the NTLG minutes and certainly consultation papers that are publicly available. They were controversial views, and that was controversial at time, and they remain controversial for 15 years or so, until ultimately they were tested before the tribunal in 2023 in the Bendel decision, and also the full Federal court more recently. So there's a lot of buzz because the Commissioner's views were controversial back in 2009/10 that probably died down a little bit because people were just like, well, we just have to live with those views until someone challenged them through the courts, and the Bendel decision is basically what has happened with that.

Robyn Jacobson

So let's wind it back. The very essence of the structure for people that may not be familiar with UPEs as we call them, the unpaid present entitlements. What are we fundamentally talking about in terms of a structure, or what the transactions are that's caused this dispute.

Neil Brydges

Fundamentally keeping it to the simplest possible structure. You've got a trust in this case. It's a discretionary trust, that confers a present entitlement to income, in layman's terms makes the distribution of income to a beneficiary, and the beneficiary is a private company. Now that distribution that present entitlement is not paid, it's not paid out in cash or bank transfer. It's just left as an amount owing from the discretionary trust to the private company, the corporate beneficiary. and against this name an unpaid present entitlement. The actual cash that would be used to pay that present entitlement, in the case of Bendel, but also in many cases, retained within the trust. So it's this unpaid amount, owing to a corporate beneficiary that's the unpaid present entitlement.

Robyn Jacobson

Okay. So we need to then put an overlay. We've got some rules called Division 7A. Which in essence talk about loans made by private companies, and if they're not genuine loans, then they can be treated as a deemed dividend, and then they get assessed to effectively the borrower who we're talking about shareholders or associates of those shareholders of the private companies. So again, at its essence, we've got a trust distributing to a company, it's not paid out. The company is therefore owed an amount, so in very simple terms, it's a receivable that the company has on its books. It's waiting to receive the amount of cash. And the whole question is whether that UPE is or is not a loan for Division 7A purposes. So you were saying that the Commissioner's position was controversial. Why was it controversial?

Neil Brydges

So, as you say, Robyn, Division 7A is looking to prevent distributions from private companies of profits to shareholders or associates other than in the form of dividends and Division 7A has a rule around a loan which says, if there's a loan from a private company to a shareholder or associate of that private company, then that loan needs to be paid back before the lodgement date, or put on terms complying with Section 109N, in simple terms, you know, people say complying Division 7A agreement's got to be in writing seven or 25 year term. Now, the definition of loan in Section 109D, includes what we think of as a loan. The Commissioner refers to that as an ordinary loan but also includes an extended definition that deems certain other things which may not be ordinary loans to be loans for the purposes of Division 7A and that extended definition includes the words, a provision of credit or other form of financial accommodation. So in December 2009, when the Commissioner released his then draft views, he said that an unpaid present entitlement with a corporate beneficiary is in effect a form of financial accommodation from that corporate beneficiary to the trust, and if it's not paid back within a certain time, it's going to be treated as a loan for division 7A purposes. So, what the Commissioner was saying was, well, the Trust is getting the benefit of the funds, but it's not a loan. It's an unpaid amount, and because the Section 109D includes this extended definition, including the provision of credit and any other form of financial accommodation. The Commissioner's view was that an unpaid present entitlement fitted within that part of the definition, and so was a loan for Division 7A purposes which, if it wasn't treated in certain ways, would become a deemed dividend under Division. 7A.

Robyn Jacobson

So the Commissioner has taken this view for 15,16 years, that a UPE is indeed a loan. We have got, of course, separate provisions, which were not the subject of this appeal, which we will call subdivision EA. And these deal with loans made by the Trust, where there is an unpaid entitlement with the company. Now that was not what was going on with these circumstances. So it's very important that we distinguish that and say that this case was not about those sorts of arrangements we're just talking about, if you like, the basic UPE between the company and the trust. So the Commission's taken this view. Some in the profession have not agreed with that view. What have you seen all these years? What have most people, therefore, done each year, when the trust has got its income. And it's working out who to distribute to. And we've still had distributions going down to corporate beneficiaries. How have people generally managed these UPE’s

Neil Brydges

So there's a number of ways that people can manage them. So I'll just talk about the ways people can manage them before you know what we've seen. The Commissioner at the same time 2010 released a practice statement which said, There is various ways you could, instead of paying out the UPE’s so that the Trust pays the company the money or putting it on a section 109N loan. Then complying Division 7A loan agreements. The amounts could be held simply on a subtrust investment agreement where there was an interest return paid, and the principal amount was payable after either 7 years or 10 years. Typically there was another option as well. So what people have done in practice when they've tried to comply with the Commissioner's views. Obviously some people haven't complied like Mr. Bendel and his entities in that case, which led to the litigation. But you get a mixture of ways people try to comply with it. Some may pay it out, but certainly sometimes part of the problem is that there is not the cash in the Trust to pay out the present entitlement, because that cash is tied up in working capital stock, etc. Particularly when the Trust carries on a trading business. so in terms of managing it, not falling foul of Division 7A, people have either put it on a complying loan agreement, or one of these subtrust arrangements under the practice statement. Now in 2022 the Commissioner released a taxation Determination withdrew the 2010 guidance, and he provided probably quite a good summary of the various options people have done with in the past, relating to dealing with these UPES putting aside, paying them out in full, or doing nothing but the three where people have tried to deal with them the most and those three are, one, you've made the UPE subject to a ection 109N loan agreement. Two, you've satisfied it, the UPE and replaced it with a 109N loan or three, you've put it under one of the subtrust arrangements. So, certainly those are the main methods in terms of one and two. It's variations on the we're going to make it compliant with 109N. Option one and the TD was, we’re trying to walk the fine line between we're making it subject to 109N but it still maybe is still a UPE and option two is, the UPE  is paid out and replaced by a loan, certainly talking to different practitioners. You know there is a mixture of both of those. Some people are firmly in the second camp, where they're doing the repayment or satisfaction, then replacement and other ones are trying to walk that hybrid line. So it's as important as advisors moving forward to see which of those, if you're in the call it the 109N. Treatment, whether you're in the scenario one or scenario 2 because it may have different implications, and and what you do next.

Robyn Jacobson

All right. So without going back into detail to the tribunal decision, because really the focus is now on this full Federal court decision. Suffice to say that the taxpayer, Bendel, so we had a deemed dividend determined by the Commissioner being this UPE down to the corporate beneficiary that created additional taxable income in the trust that ultimately then was distributed for tax purposes down to an individual and that same company. So an amended assessment was raised. The objection was lodged. Commissioner made his decision on objection, and off we go to the tribunal and in that tribunal decision the tribunal found in favour of the taxpayer, which was very significant at the tbut also we all sat back and thought, well, it is just tribunal. It's an administrative decision. It's not law. So we we need to go to the next stage and thankfully, yes, there was an appeal by the Commissioner up to the full Federal court. It has what we call test case funding. So the ATO is paying, or the government is paying for the cost of this particular appeal. So what did the full Federal Court find, and why?

Neil Brydges

So the Full Federal court found, as I'm sure everyone knows, the Full Federal court found that the UPE in that particular case, the Bendel case was not alone under the extended definition in Section 109D. While they came to the same answer as the tribunal, they took a different approach, and they actually criticised the tribunal's reasoning in the Full Federal Court decision. But what the the full court did was they looked at the the context, and the purpose of section 109D. But also particularly the particular subsection within section 109D. That talks about this extended definition of loan. When they looked at that context, they said, while and call it a surface level, leaving an amount unpaid between a trust and a private company there is a form of financial benefit the trust is receiving because they've got the use of the funds, and they're not paying an interest cost on it. But they say, when you look at section 109D,a loan in that context, both starting with an ordinary loan, which is what we sort of, can envisage as a loan. There is an advance of funds by the private company in this case, and then there's obligation to repay. In some of the other extended part the extended definition in Section 109D. They talk about this advance of funds, or a payment of money by the private company, and then an obligation to repay that advance or that amount was paid first. So they said, what with the UPE, there is not this obligation to repay, because there was no advance, in the first place, by the private company to the trust and the example, what the UPE is an obligation to pay, and they said that the loan in Section 109D talks about an obligation to repay as opposed to an obligation to pay. Therefore the UPE was not alone under that definition, because, while there is an obligation to pay amount. It was not an obligation to repay amount. The taxpayer, and Bendel said, a loan requires a positive act by the private company, the positive act being advancing the funds, whereas what the company does is not a positive act, it just sits there. It doesn't call for the funds. The Full Court didn't say about the positive act, but they basically picked up that sort of approach of saying, well, there needs to be this advance of funds, as payment first by the private company, to enable an obligation to repay, not an obligation to pay.

Robyn Jacobson

So the Full Federal was found in favour of the taxpayer. We'll go through what that means for different arrangements in practice, but just for the moment. Let's stick with this appeal. What happens now?

Neil Brydges

Well, Robyn, that's the $64,000 question, as they say, but certainly the taxpayer was successful in the full court, or putting it the other way. The Commission was unsuccessful in their appeal to the full court. So there's various things that could happen now. Probably the most immediate thing is that the Commissioner, if he wants to apply for special leave to appeal to the High Court, must do so by the 19th of March. So that's in less than two weeks time. So, If that application is lodged well, then, a few months down the track, there would be a hearing to determine whether special leave to appeal is granted or not doesn't have to be a hearing. But typically there is. and if that was deniable, that would be would end with a Full Federal Court. if the application for special leave was accepted. Well, then, the substantive hearing, and once that's heard and decisions handed down, the High Court would either agree with the full Federal court or disagree with the Full Federal Court, but certainly in terms of the appeal process, the 19th of March is a very key date, because either the 19th of March is the end of this piece of litigation because the Commissioner doesn't apply for special leave or if he does there's a couple of sort of subsequent steps, irrespective of the outcome of those those steps from the Commissioner's point of view, but it may go on for a few more months.

Robyn Jacobson

So it's not quite choose your own adventure, but there are certainly different junctures or places that we could go down different pathways in terms of the outcome of this particular appeal.

Neil Brydges

That's right, Robyn, and certainly one of the things with applying for special leave, which is which is maybe not peculiar to this case. But as a feature of this case is that the Commissioner lost at the tribunal, there were two tribunal members in this case. They also lost in the Full Federal Court, and there was a unanimous three nil, three judge decision. So in terms of making an application for special leave, there's not a dissenting judgment somewhere in the journey that you can sort of base your special leave application of, going, you know the tribunal was right, the full court was wrong, or the dissenting judge in the full court was correct, and the other two were incorrect. So I imagine the ATO is very carefully going through the full court judgment and finding, sort of, you know, an avenue as opposed to just picking up on a dissenting judgment. The other thing also is the commission is a model litigant. So so in terms of whether they appeal, they are sort of bound by the model litigant rules in terms of you know they need to have, you know, a reasonable charge, you would think in terms of, applying for special leave due to the model litigant overlay as well.

Robyn Jacobson

But they can't just run a case because they're let's say, adamant that they want to win it. They would actually have to have a good legal argument and a good public interest argument for running the case and then ultimately depending where we land with the High Court, whether they grant special leave if they do, whether they find in favour of the Commissioner or not. Would you still expect that at the end of this we're probably going to have a law change that at some point the government might say, well, that might be what the courts found. But ultimately this is what we want, and we can't speculate at the moment what that policy response might be, but it seems that that's going to be likely at some point.

Neil Brydges

Yes, it certainly, it’s possibility, and I think, with a Federal election being on the horizon, that any legislative change, if there were to be a legislative change. There certainly wouldn't be any announcements of that until post the election and post the appeal process. So if the Commissioner does not apply for special leave. We'll know that on the 19th of March. Well, then, I think even on the legislative change it would be a wait until after the election. If the Commissioner does apply for special leave. Well, I think if there was any announcements of legislative change that would wait until you know until that appeal process is finalised one way or the other. In terms of whether there would be legislative change. There has been announcements by the Government in the past about amending Division 7A. I'm just looking now at the 2019 budget, and they said, the government will ensure that UPE’s come within the scope of Division 7A from one July 2019. This will apply where a related private company is made entitled to a share of trust income as a beneficiary, but has not been paid that amount known as an unpaid present entitlement. So certainly back then, That was the 2019 budget announcement, but it was actually flagged before that the Government had sort of indicated that they're looking to change Division 7A. To bring UPE’s into scope apart from what was already the case with subdivision EA. So there was no draft legislation at that time. They have flagged that. So if the Government did look to legislate any changes down the track. You know they have set the scene in the past. I suppose the things that are important to be considered, When would be the application date? Would it apply just prospectively, or would it be retrospectively? If so, what date? Obviously the budget announcements might give them a bit of a handle for doing a retrospective change because they have announced it in the past. But there are precedents also, as well as governments going back and doing retrospective changes many, many years earlier. Petroleum resource rent tax, not something to do with Division 7A  but there have been long-term retrospective changes. With that, the other thing also, I think, with any legislative changes, is what is the change? One of the things in the Bendel case, the full court acknowledged, and the and the taxpayer actually submitted as well. was that if a UPE is a loan, under the extended definition of section 109D.

There can be certain fact patterns when the trust would be a deemed dividend to the Trust under 109D. But if money has actually left the trust, say a loan to a beneficiary well, then, under subdivision EA, that amount could also be accessible. So there's a potential, for I'll call it double tax. There might be two different taxpayers, but the same basic set of transactions that if the amendment to 109D. Or if there were an amendment to 109D. Bringing a UPE in, you hope that any legislative change will also have an anti-overlap compensating adjustment type rule that if on the facts subdivision, EA could also apply, there's not double tax. Now. I don't say anything about that in the Budget announcement, but certainly the full court acknowledged that there could be double tax in certain circumstances. not the case in Bendel, because the money never left the trust. There wasn't a subdivision EA issue, but in other fact patterns there could be.

Robyn Jacobson

So in terms of what Bendel did not say, or what it doesn't consider. Pre 2009 UPE’s, those created before 16 December 2009, which was the position the Commissioner took from that date that these were loans. So this was not a pre 2009 situation. So we still don't really have any judicial clarity around how they are to be treated. We've simply got the Commissioners assurance at this stage, based on current guidance that they will not go back and apply Division 7A. To those early UPE’s you've already established for this, that it did not cover subdivision, EA. Because the money stayed in the trust. It was not lent out to a shareholder of the company or one of their associates. but it also didn't consider 100A. Now I'm hesitant to even raise 100A, Neil because it's a whole separate conversation, and it there's a lot been said on it over the past few years, but it does seem that there could be some application here where a UPE does not become alone in so far, as the ATO has said. if a UPE becomes a loan we generally won't manage it under Section 100 A. We won't apply 10A to it because you're running it as a commercial loan.that if it doesn't become a loan, and Bendel confirms that a up doesn't become a loan. Could there still be a 100A issue here?

Neil Brydges

Certainly, as you, said Robyn, raising 100A is a thing that everyone in the tax profession knows. The last couple of years is, we're all probably sick to death of section 100A. But we're going to talk about again. But certainly I think there is a risk that in certain fact patterns that there could be a Section 100A risk that was flagged back as long ago as March 2009, when post the speech by Deputy Commissioner Mark Conzer at the time NTLG Meeting, minutes from March 2009, they talked about section 100A might apply. So this was sort of the very, very pre, the draft ruling in December 2009, when they talked about whether a UPE could be a loan by the NTLG process that they also raised the flag of Section 100A. So it's been acknowledged over the time. It wasn't an issue in the Bendel case. But certainly, if you've got fact patterns around where there's present entitlement, and to a corporate beneficiary, and the funds are left in the trust, say the Bendel fact pattern will then section 100A requires a reimbursement agreement. We know from case law that that agreement needs to be before the present entitlement. But the ATO tax ruling on Section 100A relying on the Raftland decision in comment and orbiter, says that you can infer a reimbursement agreement from prior events. So if there is a pattern of behaviour where they're having this present entitlement left unpaid for for many years. Well, there's certainly a risk that there could be a reimbursement agreement looking at the pattern of behaviour, not saying there would be. But there's certainly a possibility if you're looking at the Commissioner's view on reimbursement agreements. then you'd be in the the question around, Is it an ordinary family or commercial dealing? If there's a reimbursement agreement, then would it be ordinary family and commercial dealing? Now I know the way the rules work was. If there's ordinary family commercial dealings. It's not a reimbursement agreement, but sometimes people do it. That two-step process like I described. Have you got this agreement? And then, was it ordinary dealing, certainly around the ordinary dealing point. If you're looking at the once again the Commissioner's view and the taxation ruling on 100A he does talk about. If funds are retained in the trust to lower the overall tax rate of the group. So ie. There's you use a corporate beneficiary. But the funds are retained, so the overall tax rate is less than if it had been accumulated in the trust or paid to beneficiaries in higher rates, and lent back. The Commissioner says that he doesn't think that that's an ordinary family or commercial dealing. Now, that's not necessarily what the courts say, but the Commissioner says it in his 100A ruling. So if you look at the Guardian case, where Justice Logan at 1st instance made comments around a corporate beneficiary is not necessarily not an ordinary commericial dealing, but I think the Commissioner is flagged in this 100A ruling that some of these arrangements could run a risk of 100A buying to it.

Robyn Jacobson

So if we now look at what the decision means for clients arrangements across the country and I think we can broadly look at the old 2009 prior UPE’s, as we've discussed, not affected by this. If we look at those where they've been managed as a UPE and held on subtrust.

Then this decision would seem to suggest that they are not Division 7A loans. So you've always treated them as a UPE, and they don't become a loan, and the court has confirmed that. What about all those that have been managed as a Division 7A lloan all these years?

Neil Brydges

Yes. So that's, I think, just a useful sort of summary of those, call it three types of arrangements. If you look at paragraph, as I mentioned before. Paragraph 101 of TD2211 has the three types of arrangements. Scenario three is the subtrust arrangements, and then scenario one and two are the ones where scenario one is. It's made subject to a 109A loan agreement and scenario. two is when the UPE is satisfied and replaced by a 109N loan. So I think scenario two is probably the easiest one to deal with where there was a UPE, and it was satisfied, and then replaced by a loan. So now you're in the world of you've got a loan, while that satisfaction and replacement may have been driven by a view which the full Court says is incorrect. The UPE you had is no more, and it's been replaced by a loan. And now you actually have an actual loan, an ordinary loan from a private company to a trust. And so that loan is within Divison 7A And if you stop making minimum payments on it, it could be a 109E dividend, and if you forgive it, there could be a 109F Debt Forgiveness.

Now the 1st category, the ones where the UPE is made subject to a 119N loan agreement. So there's been no satisfaction and replacement of the of the UPE replacement with a loan. But you sort of trying to say it's a UPE, but it's on 119 terms. It gets very nuanced talk because the agreement does it say loan agreement at the top? Does it say talk about repayment of the amounts? and things like this. So it does become down. You know, who had drafted the agreement. How it's done. You know also how it's recorded in the financial statements, if it's put into liabilities as opposed to beneficiary amounts owing accounts that may be an influential factor. So the saying that it's still a UPE. But it was subject to a 119 n loan. And so today, you say, well, it's still a UPE, and it's not a loan you need to sort of scratch below the surface. Look at what the the agreement says, you know, if it says, Talk about loan agreement at the top and repayment, etc. You're probably treding dangerous ground, otherwise might be drafted differently, whereas it was a little bit more, saying, Well, we're just making it this, UPE .It's got to be paid back in 7 years, and it's got to be an interest cost on. And there's got to be minimum, minimum, not repayments. Minimum payments of it over 7 years. So there is sort of picking up the flavour of 109 N, and it's under a written agreement that might mean you're okay, whereas ones which have the more the flavor of an actual loan agreement, saying, calling it a loan agreement, and saying it must be repaid.then I think it may actually mean that the conduct of the parties could have resulted in what was a UPE being converted, not used in a technical sense, converted into an actual loan because of the way they went about it. Type thing.

Robyn Jacobson

Practitioners do now. Some of them are dealing with lodgments of the 24 returns. Still, of course, that'll continue for another few months  into May, June this year they could be dealing with even earlier lodgement deadlines. They've got their 2025 distributions coming up for June 30th this year. So there are lots of milestones that need to be considered.

We don't know if we're going to have a resolution of this appeal process before all those particular dates come up. So what should practitioners be doing? And what's the Ata saying to practitioners by way of guidance.

Neil Brydges

So after the tribunal decision in late 2023, the the ATO put out an interim decision impact statement and they haven't updated it post the full court decision. But what that interim statement said was that until the appeal process is complete, we continue with our views. And but we won't apply compliance resources to people, you know, over this period.

I'm paraphrasing that. But basically, it's like until the appeal process is complete, so we will know on the 19th of March whether the appeal process is complete, or whether it has another few months to to run in terms of a high Court application.

So that's in terms of what the ATO is doing. in terms of what taxpayers do, particularly in the next few or advisors do in the next few months in terms of the lodgements of the 24 returns we're really looking at. In many cases the 2023, June 2023 present entitlements, which, on the Commissioner's view, would have become a loan in the 2024 year, under 109 d.

Under the extended definition loan, which means, by the time you get to lodgement date for the 24 year, which is the next few weeks, couple of months, those amounts treated as loans under 109 d. Need to be either paid out or put on 109 N terms.

So the decision, as you sort of said, in terms of what people do in the next few weeks, few months, as a result of the full court decision. As well do they continue to apply the Commissioner's view and say, Well, we'll make it 109 n compliance basis. And then do you, when you do that, do you do the satisfaction and replacement the scenario 2 and paragraph 101 of Td. 2211, or do you do the we're trying to Walk the fine line by saying it's subject to a 109 N. Loan. That's 1 approach. Tthe other extreme is to say, the full court's right, and we'll do nothing, and if  ultimately this was what the law ends up. that will be fine. If the law, the Commissioner wins on appeal or the laws change. Well, then, it may mean that you've got a deemed dividend arising because the Commissioner's view, either through a court process or legislative change, is proven to be correct, assuming it applied retrospectively. What you do there, or your clients would do then would be, you know. Would they? Could they make a 109 rb. Application. And would that be successful? Because that requires an honest mistake or an aversion of mission? If you consciously followed the Federal Court decision? Is that an honest mistake? You know,I don't know. Between those 2 sorts of extremes, that do nothing approach and the follow the Commissioners approach. There's probably a middle ground, which is which is. you do something akin to the practice statement. The withdrawn practice statement. Where you say, well, what we'll do is we'll start. The Trust will start to make payments, effectively. 1/7th of the principal, plus an interest cost to the private company. They may not formally do the 109 N sort of loan agreement across the top, but there is an agreement which says, we will pay you 1 7th of the principle of the up plus an interest charge, so that you're sort of in a position where you're you're complying with, call it the cash flow underlying the How Division 7. A works in terms of 109 d. And 109 E. Payments. But you're not, you're leaving it as a UPE. So so then, in terms of you know, if the ultimately the Hr. Was successful. Well, there's, you know, there's probably an argument. There's been no real mischief, because you've been paying it back on the same basis of this as if you had put the the loan agreement in place. So I think those are the 3 approaches.and what's best for you will really come down a lot of it to one. The client's risk profile are they risk averse, you know, risk risk chases, etc. And also their facts. Because if if you have an Ea situation. we excuse me, money's actually left the trust, and, gone to us to to a shareholder associate. say, for a loan, you may be wanting to avoid an EA deemed dividend. putting it, putting either the the loan, the line between the trust and the company, for example, or the line between the the Trust and the shareholder associate onto complying terms, because, irrespective of Bendel and the 109 d. Position, you may have an Ea deemed dividend as well instead. Importantly, with EA the timeline is different as well, so like in terms of when the deemed dividend arises.

Robyn Jacobson

Really, we don't have certainty yet. We need to look and watch and wait. See whether the Commissioner does apply for special leave. What would you say to practitioners who are looking to lodge amended assessments or think that suddenly Bendel is going to give them access to buckets of cash at the end of the rainbow that suddenly we've got all these refunds that might come through.

Neil Brydges

My views on amended assessments, and also objections, are probably in a similar sort of vein, as well as what are you amending the assessment in relation too, one and and two, is there something else you should be looking at? So in terms of that first point, if the amended assessment is relation to. For example, the private company saying, I put this interest in my tax return, and did I actually derive it if these things weren't a loan under Commissioner's view, can I object to or take second amendment in relation to that interest income which I've paid tax on. The other side of the coin is, there may be an interest deduction in the trust, for example, so it may be a bit of a zeo sum game. But if you're just looking at that interest well, then the first thing was, if there was a legally binding agreement to pay interest, they may well have derived that interest anyway. The fact you entered into that agreement because based on the Commissioner's view, which the full court says was not correct. If there was an agreement to pay for a loan to pay interest well, the interest’s been derived, so that may be not the best thing to object against. If there has been a deemed dividend.

so that, division 7A was not complied with, perhaps a 109 RB submission was not successful, and the deemed dividends you could potentially look to object against that saying, well, that deemed dividend arose because of your view of the law and your view of the law, Full Federal Court said is incorrect. Before you do, I think the thing to look at is whether, if there was a subdivision EA problem or 100A problem before you lodge the objection or the amendment, thinking, well, there's a saying, you know ‘clean hands’. So your saying, well great, I can object against the deemed dividend under 109d but there would be an EA deemed, otherwise, you might find there's no benefit, or if 100a applied that could go back multiple years. So certainly. what are you objecting about, It was the first point, and also 2, making sure there's no sort of secondary sort of consequences which haven't been an issue at this point. But if you go for an amendment or rejection, the ATO reviews the client's affairs, they may say, hey, you've got an EA problem, you've got a 100A problem, and you might find that you know the benefits of the objection are lost, and worse.

Robyn Jacobson

So, whilst on the face of it, it seems Bendel is a win for the taxpayer, and indeed they were successful in respect of the Commissioner's appeal to the Full Federal Court which the Commissioner of course lost. It is rather complicated, and there are so many considerations, aside from whether or not the UPE is itself a division 7A loan.

Neil Brydges

Yes, exactly right, Robyn. I think it's one of the things that while all tax advisors will be, you know, celebrating the decision. There's still more to go in terms of the appeal process, maybe legislative change. But also, even if it stays where it is, it's working out what that means in terms of your arrangements some will be complicated. One thing we have not chatted about was what the full court did say. While it was not a loan, they said, in the particular facts under Bendel that there was a debtor creditor relationship that was created.

So they said, it was not a loan under the extended definition but there was a debt accreditor relationship. There's issues that remained unresolved because they weren't an issue in Bendel about it. If your facts there's a debt accreditor, relationship created. And part of that was the way it was recorded in the financial statements.

Would that mean that if that UPE  which was a debt accreditor, relationship was forgiven, that there could be a deemed dividend under, for example, section 109F. Which is in Division7A, which deals with the forgiveness of debts. Section 109 F does not mention loans. It mentions debts, so there's certainly other things to consider before we sort of get, you know, rushing away and doing things about sort of, you know, forgiving amounts and lodging objections that there's a lot of sort of nuances to work through for us.

Robyn Jacobson

Neil. Thank you so much for your comments and for your insights. It's going to be really interesting to watch in particular, over the next few weeks, and the months ahead where this goes.

Neil Brydges

Thanks, very much.

Robyn Jacobson

I also want to let all of you know that The Tax Institute will be running a webinar on the Bendel decision, and that will be held on Tuesday, the 25th of March. More details will be available very soon, but we will continue to pick up this conversation with a star-studded panel. Thank you again, Neil. Appreciate your insights and thank you to you all for listening to this episode of TaxVibe.

I've been chatting with Neil Bridges, CTA, of Sladen Legal in Melbourne. If you enjoyed this episode, we'd love for you to subscribe, rate, and review TaxVibe wherever you listen. We welcome any feedback and suggestions to catch all the latest from TaxVibe and The Tax Institute, join us on Linkedin. Thanks again, and till next time on TaxVibe.

Robyn Jacobson

Hello and welcome to TaxVibe, a podcast by The Tax Institute. My name is Robyn Jacobson. I'm the senior advocate at the Tax Institute and your host of today's podcast. On the show, I chat with some of the tax profession's greatest minds, drawing on each guest unique perspective to give you valuable and practical insights. You might hear every day. We hope you enjoyed this episode of TaxVibe, recorded live at the Tax Summit at the ICC in Sydney. Today I'm joined by Paul Bannister, CTA, partner at Grant Thornton in Brisbane. Paul is a chartered accountant and has more than 35 years experience helping clients navigate through complex and potentially risky tax and commercial issues. Paul has presented at many professional and business forums, both in Australia and internationally. Welcome to TaxVibe, Paul

Paul Banister

Thanks, Robyn. Nice to be here.

Robyn Jacobson

Now at the Tax Summit, you have been discussing what happens when you take on a client and you discover a whole host of problems. Now, it's interesting when you're working with clients, of course you want to look after them and service them to the best of your ability, but you don't really want to be opening up a balance sheet or a P&L and discovering a whole host of problems that you really wish weren't there. And probably the client didn't even know about.

Paul Banister

No, indeed, and especially where there are brand new client, you don't want to be the bringer of bad news. And, you know, when you're in particular trying to focus on making sure that you're vindicating their decision to come with you, it might not be ideal for you to be just highlighting what issues that they need to consider that, might ultimately cost the money, or at least some inconvenience.

Robyn Jacobson

A really quick question to kick off with. Have you ever taken on a brand new client, delivered that bad news and they’ve immediately left because they just weren't interested in hearing it.

Paul Banister

Well, the answer is depends on how you define immediately. But if you, define, about 30 days. Yes.

Robyn Jacobson

Soon after, I'll accept, yes.

Paul Banister

Yes, yes, yeah.

Robyn Jacobson

And, do you know, if they went back to the former practitioner or did they go to another.

Paul Banister

One, I I'm unaware. However, I believe it was to another.

Robyn Jacobson

Oh, gosh. And that's something I presume the TPB would also be looking at. Because if people are moving around agents regularly, to me, that would be a bit of a red flag.

Paul Banister

Indeed, in this day and age, that would be, I think we think about maybe some of the issues around that somewhat differently.

Robyn Jacobson

Yes. So you've seen it. You've got that sinking feeling when you open up the book. So you think, oh my goodness, there's something here. And you'll run through some examples of, what are the typical things you might say in practice, what sort of errors you are coming across. And of course, what do you do about it?  So let's kick off with what are the common things you see?

Paul Banister

Yeah. Well, and we're not necessarily looking for problems past. We're looking at what are the things that might impact your current job that are carry forward from prior years. So but the first thing I look at is the balance sheet and the P&L. And I'm sure that if Division 7A has not been mentioned more often than any other term on your podcast, I'd be fairly surprised. So Division 7A is a is a stand out. So we're talking there about loan balances that aren't moving or aren't moving enough. We’re talking about interest income that might not be showing up, at least to the level that you expect. Any other sort of I suppose, enter into the loan account that might look like it has some potential Div 7A obligations.

Robyn Jacobson

So provide another example. Yeah, I many years ago hit about a firm they had taken over the clients of an older practitioner who was retiring. And the first thing I did was look through the balance sheet just to get a sense of what the company owned to where things were at. And there was a property sitting on the balance sheet. So they asked a few questions about always the property. And, you know, what's it worth now? And the response from the client was that property was sold years ago. Now, what had happened was it had been sold. The proceeds had gone to the company, the proceeds had been taken out by the shareholder. And that property on the balance sheet was actually a non-compliant division 7A loan. Completely missed. And to me, that was a great example of asking the right questions of the client.

Paul Banister

And, well, proof of the balance sheet if I use that terminology, which I've used for my career. But when you're finalising your your current year work and if, you're asking questions to the client to validate, then that would show that sort of thing out. And then, that takes you down a sort of a whole pathway, in relation to the past, some other examples. You, you talk about assets on the balance sheet might be the asset that might be, you know, on the bordering a private versus sort of investment, let's just say the Gold Coast apartment that happens to be a valuable, 11 months, a year rather than 12 months a year. So that might be something that you need to, dig down a bit deeper on.

Robyn Jacobson

Or even those situations where a holiday house and I heard about this one, too, on the South coast. And when you go to inquire about its availability, they are the most unreasonable terms. And so, yes, it's available, but, you know, most need to be a redhead. No offense against redheads. You'd need to be left handed. And you must have a dog that's a particular color in order to have that house at that time.

Paul Banister

So that I think that might be a little bit problematic and, might need a at least a serious conversation with your new client as to as what sort of, reasonable guidelines of, for availability might be.

Robyn Jacobson

Now, we could talk about Div 7A all day, but what are the topics? What things pop up? And as you say, it's not that you're looking for them, it's just that they kind of jump off the page with you.

Paul Banister

Yeah. Well, if you think about what do you need to be able to do a good job going forward? It's access to documentation and documentation be one thing. But obviously in the private space there's a lot of trust. So getting access to the the trust documentation, the trust date and all all of their various revisions, getting access to trust resolutions as to application of previous years income, just so that you can help build a profile, is to help you help the client administer each of their entities going forward, that you've got a reasonable amount of information and source documentation to to carry forward. In addition to that, you know, some of the basics. They might be prepayments on the balance sheet. And maybe, you know, I've seen it where the the balance doesn't change, or the trading stock valuation where the balance doesn't change, over a few years. So you might need to dig a bit deeper into those sort of issues to see whether or not they're the right approach in terms of sort of calculating those balance sheet set of items, valid, whether it's, external finance. So you've got interest expense.

Robyn Jacobson

Yes.

Paul Banister

You want to make sure that that's associated with an asset. And sometimes it's very hard to determine that because there might be a lot going on, on the P&L, but other times it might be a very simple P&L and it happens to have interest expense but no assessable income. So that should probably help inform a different conversation that you might have with a client.

Robyn Jacobson

Another example, and I think in both interest and division 7A I in the same sentence, there was a question that came in two years ago from a practitioner who said, if I don't have a desirable surplus at year end, do I have a division 7A problem if there's a loan? And I said no, and that was supposed to be a comma, not a full stop, and they went to their own and said, great, thanks. And I said, hold on a second, but look at why there's no discernible surplus, because if it's simply that losses were made, then that's fine. You might have had a desirable surplus, but by the end of the income year it's no longer there. But equally, it could have been that money has been borrowed on lent. How did they borrow if there is not a suitable surplus and maybe there's an interest tractability question here and date.

Paul Banister

And this is where I suppose the accountant's way of looking at the world is some can be very valuable to help identify and manage risks.

Robyn Jacobson

What do you do when you, a practitioner picks up a new client in, let's say, July or August? September. And you ask the client for the trustee resolution. So you can prepare the trust accounts and the beneficiary through channels, and they can't produce them. Or you have a very strong sense that they were not done by June 30.

Paul Banister

And this is, I suppose, where some of the more risky elements to a new appointment arise. And the first thing, and I suppose from a tax agent's perspective, one of our jobs is to inform clients of their rights and obligations. So if, the rules and they're pretty clear cut from the commissioner's policy about trust distributions, about they need to be in writing by 30 June, if that is not met, it's not necessarily the end of the world, but it might be something that you may decide will client. There's a shortfall of information that you've provided me here. Maybe that's something that we need to get some legal advice on to determine what the true position of that trust is, and whether or not it has provided present entitlement in that year. So that then that can brief you to handle that year's 30th June financials and tax returns, etc. if the client is balking and willing to cooperate in relation to that, then that does become problematic. And for instance, it might be that the client's risks become your risks if you don't handle it properly. And you know that at the sort of pointy end and work, you know, we'll forget about the code of conduct per say at the moment, at the pointy end. That means under our professional standard obligations is, we should consider withdrawing from the engagement.

Robyn Jacobson

I've heard stories over the years about practitioners who've been in the witness box for particular cases, and a question I've asked has had a very, very consistent response. And that is, how did you feel when you were in that witness box? And the same word was used to describe the experience? Daunting. It didn't matter how experienced they were or how strong they were in their own convictions about what they'd done. The experience of being cross-examined, interrogated by the other side was daunting. And my point is that if you're going to do something incorrectly for your client, the client is never going to lie to say to you. You shouldn't be. Similarly lying to cite your client.

Paul Banister

Well, this, comment is applicable across many areas and begin with the end in mind. And if you think about how these situations might play out favorably, unfavorably, points in between. Think about that and in the context that, you explain. Well, it it could play out very badly where, you know, using the vernacular, you're thrown under the bus. And you'll have serious questions to answer for professionally, aside from your responsibility on that particular engagement.

Robyn Jacobson

Absolutely…. Can you explain where the practitioner's responsibilities or obligations start and stop? Yes. You need to tell your client and explain to them their obligations or what will happen as a consequence if they don't take certain action that I, you obliged to report them will go to the regulator side of this.

Paul Banister

So this is where there has been changes with the, recent, changes to Tasso, to the code of conduct, and that is, you are required to dob in the client in relation to material matters. So if you do have concerns that you made to make sure that, they are, informed to the commission.

Robyn Jacobson

And we’re still working through because the government has recently announced that they are going to be, revising the wording. And this is a response to concerns from the official associations and the professional broadly. And we're yet to see that wording released publicly.

Paul Banister

Well some. Yeah. And I certainly a watch this space. And I think even if you just look at the last 2 to 3 months, it's sort of gone from quite a few different steps. So I think everybody needs to make sure that they follow that situation closely because some but initially it might mean that we approach things differently. And I understanding it will change. And then separately, one of the responses that we'll need to make will be to update our standard engagement letters so that it clearly sets out to the client as to what the issues are, so that, for instance, the client should then be under no misunderstanding when I appoint you that this is a consequence of appointing you as a tax.

Robyn Jacobson

Yes. Let's tend to the former agent. Now. The breach reporting rules started 1st July this year for breaches on or after that date. And there may be technically a breach of the code or a suspected breach of the code that took place before that date. So arguably would not fall within the provisions. But is there still a moral or an ethical obligation? If you see quite a courageous behaviour or you see returns that are just so blatantly, incorrectly prepared year after year, and maybe it's not the first time that you've taken over from this agent.

Paul Banister

Yeah, yeah. And that's a difficult one because it's, the obligations that you have, to inform your client of what you suspect is the case. And hopefully you'll get cooperation for the client to, have some expanded scope to explore it further. Or at least encourage them to appoint someone else. It might be a lawyer, for example, to give that, you know, a full consideration. And sometimes that might be addressed or it might be, explained and you can move on, but other times, yeah. If it if it looks like it's a great just behaving particular pattern, then you need to give consideration to what you do while we're still progressing into the new environment, there's no specific obligation upon you to inform, you know, the, regulator, but the legislative framework invites you to bring that to their attention.

Robyn Jacobson

What about the capacity of advisers? So we know that accountants are given the the ability, the power to advise on tax law because of the Taxation Services Act, we then go to state based taxes that are not covered by Tessa. We've got lawyers who are tax agents. We've got accountants who are also lawyers. So there's a lot of cross-pollination across the different disciplines. And so it's really important to understand the capacity in which you're advising. And also I'll just bring kind that as well.

Paul Banister

Yes. Well I suppose one of the things if you start with the proposition that if things might go wrong, they will go wrong, then that's where you need to make sure that you've got, engagement letter, that it well defines your scope of work and in particular what's not in your scope of work. You need to consider, especially that the things that are in your scope of work, you're qualified to do now, aside from the professional standards, you know that you should only take a, an appointment for which you, you know, you have competency and you're you're qualified to provide those services. There might be exceptions in your professional indemnity policy to say that certain things are not covered. Now, the example might be things like payroll tax and stamp duty, which are state based taxes. Yes. As you pointed out in your question, that they're not things that a tax agent is registered under a Tessa to provide services in that area. So the question is whether or not you are otherwise qualified to have the skills and competencies in that area to provide, and if not, then you need to have a colleague or, third party to assist with those obligations. Otherwise if it does go wrong, then you stand to have some compensation claim against you that might not be covered by insurance.

Robyn Jacobson

I'm also thinking through the situations that's more likely to go wrong are the situations where they're more likely to have text. It's for example, if you pick up a client and you see their, historical superannuation guarantee shortfalls, then we don't need to pull apart all the different components. But it turns into quite a hefty bill when all that adds up. And of course you've got your non deductibility. But on top of the text it they then have to arguably pay for your services to unpick it all. Putting the necessary history statements if they're going to be properly complied from here on in I'm thinking of those that have built up substantial text. It's through activity stipends, GST, withholding, whatever. And then we've got issues with director penalty notices and mogadishu's with trying to negotiate payment arrangements. All of this takes time, and your time is costing the client money to the extent you can pass it all. In other words, someone's got to pay for this or what? They drop out of the system altogether by not engaging an agent, and then they're not likely to manage all this on their own.

Paul Banister

Yeah. So this is, I suppose if you start from the practitioner and firstly and then go a bit wider, I think from the practitioner's perspective they need to undertake some proper due diligence, have some take on procedures that does explore what are the issues that are current, that are looking that you might need to deal with in the first year or so of the, relationship that might be sort of pressure points. They might ultimately, you want your clients to be able to afford to pay you for the services they want you to perform. Yes. Do you want the clients to work with you to achieve success generally? Right. So if they're not really positioned to be that because of the state they're in, then maybe you're not the right advisor for them. Yes. Maybe you should introduce them to someone else that, for instance, might be able to walk them through a sort of a, you know, stepping stones from something financial uncertainty to financial certainty. Yes. I look at from that perspective, individually, but then from a broader perspective, and this is, I suppose, a question, profession wide question. It's a little almost like an access to justice. Question is yes. People, they struggle with the tax system because it's so complex. So there needs to be some availability to get some advice to help them, go through that. So things like tax help and whatever it is that you can draw on the ATO to provide some assistance. But depending on the sort of nature of the the business or the client or the entity, it's often unsuitable. So you need to direct them to the right sort of person that might be able to provide help, and it might be multiple people that are required, to just sort of navigate them through a few sort of, you know, choppy series of choppy waters before they, get into some, wide open space.

Robyn Jacobson

So that was my next question at the start. How, in your experience, effective in play been or how helpful have they been or supportive when you go to them with a situation? You know, I've just inherited this situation, it turns out with, you know, I didn't some Pandora's boxes of we've turned some stones over and found a whole lot of miss here, and then you're trying to work through it with the ATO. Do you find that they're generally very open to, them approaching you and trying to resolve those problems?

Paul Banister

I think it depends on the issue. And like, for instance, one example might be problems that relate to family trust, elections and enterprise in the elections. And, and really the hands are largely tied. And it's just a problem that, doesn't go away easily. Yes. There might be some issues a lack of documentation where, you know, I like use the example before about the retired, person that maybe didn't approach things with the same degree of alacrity that you might. So, yeah, that can just help through a few sort of, yeah, uncertainties. But I think you need to look at each issue that's confronting you and determine, well, what's the best approach. And, and not every situation lend itself to just, going across and saying, here you go ATO, here's the whole situation. Help me out here.

Robyn Jacobson

And a week later, it'll look shiny again.

Paul Banister

Yeah, yeah. And especially because you've got a new client. A lot of this is coaching and managing expectations. Because as soon as you identify a problem, it's a bit like in business they will problem fix, move on. And where there is, a solution that needs ATO input, it's a prior issue, so it's only got limited resources. They're not going to prioritise resources urgently to solve this problem. And that might be something that affects 2 or 3 years ago. Yeah. And it just needs to take its time to work through. And that can be quite difficult for, clients that, sort of get anxious about this sort of thing because I might have come from a previous relationship where they, they might not be the same level of proactivity, of maybe dealing with regulators as you might have. And final point, I suppose, on that, is I think that the ATO is open to being approached on these things and, I think they've got a job to do. So you understand that. But, if you identify problems, take to them. We have a self-assessment system. Let's use it, including making voluntary disclosures, which at least helps the level of penalties and potentially interest that might be charged to your client to help them solve a problem rather than leaving it there so that they need to be, you know, it might blow up one day, you know, due to it review. Or maybe they want to sell their business and the entity goes with that and they need to deal with it all at once.

Robyn Jacobson

Problems don't just go away by themselves.

Paul Banister

Correct.

Robyn Jacobson

One of the very interesting issues that was raised in your session was about the amendment period. So if you discover an issue and let's say it is one month short of, let's assume it's a four year amendment period, ethically, do you sit on it and wait for that months to pass, or do you act on that and bring it to the attention? What's the answer?

Paul Banister

Yeah, I strongly think the answer is to make sure that you get it to if if the approach to the ATO is the right solution in that context, absent the question about amendment period, get it to the ATO as soon as you can on that, because if you are seen to be sitting on it and bearing in mind the time that this is examined is 2 to 3 years time when it's first discovered by a regulator, that can really reflect poorly on you and can reflect poorly on your client. If you discovered it at one month out and you've just conveniently missed, informing them, on time.

Robyn Jacobson

We could be running into problems with the honesty and integrity Code item 1.

Paul Banister

Yes. Well, and bearing in mind, of course, part of the answer to this might be your client, taking it in and saying that they're willing to, agree to extending the amendment window anyway in relation to the issue. I'd so. So it depends on how that plays out. But if that's not on the table, then, you know, I think you'd need to encourage that going to the ATO just to, to manage your risk and manage your client risk. Because the other thing as well as you've identified one issue here, there might be another three that you haven't discovered, so that if there is evasion alleged two years later, all issues are on the table.

Robyn Jacobson

And there’s no amendment period for fraud or evasion.

Paul Banister

Correct. So if you focus on that, you take it and try and resolve it. And and it may well be that they don't get to it and, so be it. But I think, you know, you've got to do your part.

Robyn Jacobson

Okay. Paul, thank you for your insights. It's been really interesting both listening to your session and also having a chat with you now.

Paul Banister

Thanks, Robyn. I've enjoyed the conversation.

Robyn Jacobson

Thanks for listening to this episode of TaxVibe. I've been chatting with Paul Banister, CTA, from Grant Thornton in Brisbane. If you've enjoyed this episode, we'd love for you to subscribe, rate and review wherever you listen to your podcasts. We welcome any feedback and suggestions to catch all the latest from TaxVibe and The Tax Institute. Join us on LinkedIn. If you're interested in being at the centre of the tax conversation, a membership of The Tax Institute could be just what you need. Stay connected and connected with tangible, real world benefits. Learn more at taxinstitute.com.au. We look forward to you joining us next time.

Robyn Jacobson

Hello and welcome to TaxVibe, a podcast by The Tax Institute, where we peel back the layers of the Australian tax world.

I'm Robyn Jacobson, your host and the Senior Advocate at The Tax Institute. We bring you the sharpest minds in the text profession, digging deep into their unique insights and sharing nuggets of wisdom you won't find elsewhere. Always keeping it real and interesting.

So sit back and relax and let's dive into the world of tax, one conversation at a time. We hope you enjoyed this episode of TaxVibe.

I'm joined by Tim Sandow, tax partner at BDO in Adelaide, and Julie Abdalla. Tim has more than 30 years of experience as a tax professional, including 25 years in the Big four. He provides income tax related advice to a variety of private and large public companies, as well as multinationals. Tim is the partner leading BDO’s national tax risk and ethics group, and was a regular presenter for our TASA related webinars last year. Tim is also the national president of The Tax Institute for 2025, and is the South Australian representative on the National Board of The Tax Institute. Tim is a chartered tax advisor of The Tax Institute and a Chartered Accountant with CA, ANZ.

Julie is the head of Tax and Legal at The Tax Institute and is an FTI. Julie has practiced in the tax teams of the Big four and top tier law firms in Sydney and Melbourne, and in London. She has expertise in law and policy across a broad range of taxes and industry sectors. Julie represents The Tax Institute in several external forums, including the ATO’s National Tax Liaison Group and the Australian Treasury's Tax Treaty Advisory Panel, and has appeared as an expert witness in several Senate committee inquiries. Tim and Julie. Happy New Year and welcome back to both of you to TaxVibe.

Tim Sandow

Thank you Robyn. It's great to be here in 2025.

Julie Abdalla

Thanks for having us, Robyn.

Robyn Jacobson

Pleasure. So look, somehow the year has already come and gone. I'm talking about we're already well into January. There's so much ahead of us. So much to be excited about. Lots of work ahead of us all. So, can I ask you a personal question before we get into any of the tax talk? It's so important for people to relax over that summer break, to relax and recharge and mentally come back with a fresh mind.

How do you both relax over that period? So, Julie.

Julie Abdalla

Well, I spent some time away with my family over the break. We had a good two weeks off and we had great weather in that time, so I spent a lot of time at the beach just relaxing, switched off from my emails and it was really nice. We've had a real change in the weather since then, but it was a beautiful time over the break.

Robyn Jacobson

Yeah, there's something about the sand between the toes. It's good for the soul. And Tim.

Tim Sandow

Robyn, we spent two and a half weeks in Tasmania. We were seemingly we were by the beach, walking along the beach, doing some hiking and camping and relaxing and, I guess just trying to, you know, put 2024 behind us in a good way and sort of mentally getting ready for 2025. And also, we live in the Adelaide Hills and we have chickens. So, I spent part of my time building a mobile chicken coop, that we could, take around our place and, have the chickens do all the hard work in the garden for us.

Robyn Jacobson

Alright, while you're still in frame. You are the president for 2025 of The Tax Institute. So congratulations on your appointment. What are going to be the main drivers for you? What are you focusing on? What would you like to see as a legacy of your presidency?

Tim Sandow

Thanks, Robyn, and thanks for, the congratulations. I was reflecting over the break, and as of, we're walking around Tasmania about how does it feel being a tax advisor in 2025 and it sort of feels like it's a bit of a frustrating time. It sort of feels like over 2023. In 2024, we had a lot of focus on the, conduct of tax practitioners, and we saw a lot of changes. We saw the, mandatory reporting, for breach reports. We saw, changes to the code of conduct, and it did feel like we were under a bit of a attack. But at the same time, we also are dealing with a very complex tax system, and most of us are trying to do our best at navigating our way through the tax system. So just before Christmas in the in tax, Rob, I was talking about, wanting to really focus on The Tax Institute being the voice of tax and constructively advocating on positions to help our members in the tax system more broadly. But I very much for that practical mindset. And I guess over the break, I was thinking about what does that actually mean? And for me, it's about how do we help tax practitioners have more certainty in the advice they're providing to their to their clients? So how do we hope our members in that certainty? And effectively, there was three things that I'm really keen to focus on this year. Three priorities. One was around tax reform.

The second one about dealing with announced but unenacted measures, or ABUMs, as we like to call them, and the last one was around providing more certainty in the way that the tax system is administered. And maybe if I can just touch briefly on each of those Robyn, and then we can sort of draw out a bit more as we go through. If I think about tax reform and, you know, over the break or not in Tasmania, but I did reread the parts of case the change, and it is interesting that it's as relevant now as it was when it was written back in 2021. And I guess while achieving holistic tax reform might be something that goes beyond my presidency in 2025, particularly if that involves changes to the GST, it does feel like there's a lot of areas that we can focus on where they can be more certainty, you know, and I'm thinking here about and particularly about measures that deal with small businesses, the number of different thresholds. And, you know, when you're applying the small business concessions, it's really hard to navigate your way through and really easy to make a mistake inadvertently. So you look at that every time I think about those rules is at a $2 million threshold. 5 million, 10 million, 20 million, 50 million. It would be wonderful to have one simple definition of what are small businesses? So that we can, apply them. I think this is lots of opportunities for looking at those sort of thresholds, rewriting Division seven. I probably even rewriting Division six, the, the trust provisions. You know, now that we've had some experience with 199 billion, if there's parts of that legislation that was written a long time ago that no longer works. I'm a big believer in simplicity. And if we look at those sort of rules and think these rules should be applied by small businesses in a really straightforward context, they shouldn't need to get very complex legal opinions about how those rules apply. So should little be rewritten. So it actually does what it says it's going to do. And I think there's just this real opportunity. Maybe if we can't tackle wholesale tax reform, we can at least tackle simplicity. And actually doing the law, doing what it says it should do.

Robyn Jacobson

Tim. You’ll remember the simplified tax system, as many of our listeners will. And that was a regime that was around from 2001 to about 2007, and most formed the view that it actually wasn't a simplified tax system. It was a rather complicated tax system for simpler businesses. So what you're saying has so much resonance for me, because you look at all the different definitions, and that's before you start bringing in ASIC definitions and fair work definitions outside the tax system.

Tim Sandow

I think it's such a complex area for what should be, you know, small businesses should be able to focus on running their businesses. They shouldn't have to spend huge amounts of money complying with the system. I mean, maybe I'm talking against some of our members interests here. But, you know, I think there is a great need for simplifying thresholds, simplifying rules so that the rules do what they say we're going to do. As I said, some of these, provisions 199 and so on. I've been around for many, many, many years. And the question I'd have is in 2025, are they still fit for purpose and are they still doing the things that they should be doing? The second thing that I was going to talk about was just around dealing with the announcement on the measures. So again, around, you know, it's really frustrating as a tax practitioner when a client says to you, and I'll use the instant asset write off as an example, a client says if I purchase this piece of plant equipment, it's going to cost me $10,000. Do I get a tax deduction for it? And I have to say it depends. Again, it's a frustration that some of the things when they get announced take months to get enacted. But I really see the point in having an instant asset write off threshold legislated on the 28th of June. Because if the purpose of the threshold is so, the rule is to encourage businesses to purchase equipment, then they've got no time to do it. So what you're doing is rewarding behaviour that's already happened.

Robyn Jacobson

Particularly when it's announced on budget night. It's designed to provide that incentive. It wasn't just months. I mean, that was turning into every year before it was enacted.

Tim Sandow

Yeah. And the one that came up really raised its head again at the end of last year for us was around, corporate tax residency. And particularly it got light again because of the changes overnight to the reporting for yeah, for financial reporting for some of the major companies and these rules, they announced the change in the 2020-21 budget. So in October 2020, that's four and a bit years ago, they, set to apply from 2017. Well, that's almost eight years ago and we're still waiting. And so as a practitioner, when I'm talking to my clients and I say, well, we've got a company overseas, why are you telling me that that's it's how you operates business overseas. Why are you telling me that's an Australian resident. You know, it's very difficult to provide advice with certainty and sometimes it doesn't even change amount of tax payable. But when you get into the, the detail of lots of the other rules about bringing dividends back, maybe even some of the integrity measures like the anti-terror new measures and tax consolidations and other things, they don't apply particularly well when they should. And it's this extra layer of complexity that just shouldn't exist. And it's been announced, but it just hasn't ever been enacted. And it's a really frustrating thing when you're a practitioner wanting to do the right thing, wanting to provide your advice with certainty to clients, but you just feel like you can't quite get there. And then the last thing is, I'd love to say I think the tax office does a great job, but there's a couple of things that I'd really like to see around having some more certainty in the way that, the law is administered. One is around consistency, and I understand that, when you've got so many employees in an organisation that different people can make different decisions. But, you know, we've seen instances where companies within a wholly owned group can ask for a lodgment extension. Same facts, even the same case officer. One company gets denied and the other one gets granted.

And there's no logical sense that it's so difficult to explain that to a client. And then lastly, I just, rather it was about getting access to the right people in the tax office and particularly in the private ruling system. I think there is still some improvements that can happen. There. Usually you requesting a private bonding ruling because you want certainty of the outcome. So a client sold their business, where administering a deceased estate. People want to know how much tax to pay. They have to pay so they can get on with life and reinvest or spend or whatever they want to do with that money. Sometimes those ruling requests take a very long time, and it's very difficult to get access to the right technical people to have the discussion, to keep the the ruling moving. So that's a very long answer. But if I just sort of break that down, the priorities for me this year are around what can we achieve in tax reform? How do we deal with the ABUMs? And then how do we get more certainty in the way the law is administered.

Robyn Jacobson

Yeah, thank you, Tim. And the issues you raised about getting responses to private rulings, getting objection decisions, getting deferral, certainty, GST, remission, these are all very common things at the moment.

Tim Sandow

Yeah.

Robyn Jacobson

Julie I know a lot of that will resonate with you too. We've talked often about the ABUMs and we've talked about challenges and with policy, with administration. What are your key priorities this year.

Julie Abdalla

Thanks, Robyn. So I think, you know, last year was such a big year. And if I'm, you know, gazing into my crystal ball, my prediction is that this year will be another big year for us. One of the key themes that was coming through, a lot of what Tim was saying is the uncertainty that people are dealing with, both as advisors and as taxpayers, and some of these things are really easy fixes. I think one of the key priorities for us is listening to and supporting our members. So we are trying to do this on very different levels. We are delivering content that is useful for them in their day to day practices, and that helps them to support their clients and navigate some of this uncertainty in what is seemingly a constantly changing legal and regulatory landscape. So we're trying to provide resources that assist them in what they do on a day to day basis, and so they can also understand and meet their own obligations as a practitioner. And then on a higher level, we're also advocating for them to the government. So that includes the government that we, when we're speaking on behalf of our members and the system in Parliament, when we're dealing with the ATO and other stakeholders in the system. And over time, we've built really strong relationships with stakeholders in the system. And we often say that positive changes result from our advocacy efforts, whether it's through our submissions or our role in consultations or otherwise. And that goes to our voices. Tim mentioned before. That goes to our role as the voice of tax in Australia. We're advocating for our members, and we're advocating for improvements to the system that will benefit the society as a whole. So I think that's our priorities in a nutshell.

Robyn Jacobson

Tim, let's return to 2024 for the next little while. We had some major changes to the regulation of the tax profession. And by that I mean registered tax agents and registered agents. Of course, lawyers will generally be sitting outside. What we know is the tax agent services Act, but there are certainly some lawyers who are registered as tax agents. And we have some new rules begin mid-year to do with break reporting and then some further changes, which, look, I've got to say from Julia, my perspective pretty much dominated that a year. I feel like I lived and breathed the last year with all the advocacy work that was done and engaging with government. Can you briefly talk us through where did we land? What does this mean for practitioners? What's the way forward for all these thousands of practitioners that are dealing with new rules?

Tim Sandow

Yeah. Thanks Robyn, look, I, I think there's two aspects to it. One of them is the breach reporting rules. And it's, with all these different dates, it's easy to forget what's applying and when. So the mandatory breach reporting rules applying from 1st July 2024. We probably haven't seen too many examples yet of when breaches have been reported. I'm aware that the Tax Practitioners Board has had some, but I think that given that the breach must relate to something that's happened after 1st July 2024, we'll probably see more of those sort of, issues that where we may need to make a decision about whether they're being reported or not. As 2025 progresses. So, the likelihood of us picking up a new client or doing something with a 30th June tax return, 30th June 2024 tax return has been lodged and we see an error in it. And then we have to make a decision about, well, does that make the test for is it a one off material era? Is it a systematic area. Do I need to be reporting. You know, and the unfortunate thing here is that it is a mandatory reporting hour for the yourself or of another practitioner. You don't have a choice to sit back and say, I don't feel like reporting that person. It is mandatory. So I think as we're coming to 2024, we're going to see more and more of our members having to turn their minds to whether or not they need to be undertaking a report. Of course, the other changes, to the code, you know, particularly around making false, misleading statements and, keeping clients informed. Some of those are some practices for the larger practices of more than 100 people. They're applying from 1st January. So they're already applying or other practices that apply from 1st July 2025. So I guess over the next five and a half months, there'll be, a number of our members who are looking at how they do comply with those new measures.

Robyn Jacobson

And more information and guidance to come on all of that.

Tim Sandow

Well, that's right. And of course, the TPP finalised their guidance, virtually on the on Christmas Eve, I think it was Julie or thereabouts. So, it'll be a little bit of a Christmas present when people come back to it. Yeah.

Robyn Jacobson

Julie, we also saw some new reporting requirements come in last year for the reporting of self assessing. So in other words, if you're a non charitable not for profit organisation you now need to work through a new process to basically establish that you are able to self-assess and that you are tax exempt. So what does this mean. We're still seeing this roll out in practice.

Julie Abdalla

Yeah. That's right. So for non charitable not for profits with an active ABN. Where they're seeking to be income tax exempt, they now need to self-assess against eligibility criteria in one of eight categories. And they need to do this by lodging an annual not for profit self review return. So an SRR, another acronym to add. Now the new annual reporting obligations came into effect from the 1st of July 2023. And since then, about more than 14,000 not for profits have lodged their first, self review return. The due dates were on the 31st of October for 2024 for the 2023-24 returns, but the ATO have provided extra time for not for profits to lodge their self from year returns until the 31st of March this year. Now, you don't need to do anything if you're, within the scope of these rules, the time extension is already there. But if a not for profit is taxable, it doesn't need to lodge a self review return. It must instead lodge a normal income tax return or notify the ATO if a return is not necessary. And it might need to consider applying the principle of mutuality. To their income. And that's a legal concept that an organisation can't derive income from itself.

Robyn Jacobson

One of the biggest issues Julie is that the ability to lodge this return, it's primarily done electronically or digitally, which means these organisations need to access online services for business. To do that, you need a myID, which is the brand new name for what was mygovID, finally removing hopefully that confusion that, emanated for years. But to do that, you need up to date data in the Australian Business Register and you might even need to engage the tech items, and only about something like 8% of not for profits that are not charitable previously had used a tax agent. So this could be a whole new line of work for tax agents. But more to the point, we’re going to see these not for profits engaging, having to engage in the tax system, perhaps in a way that they haven't previously.

Julie Abdalla

Yeah. That's right. So some of this will be quite foreign to a lot of these not for profits. And there will be an additional compliance burden, especially in the initial stages when they're first getting set up and making sure they have the right information to be able to complete these on an ongoing basis.

Robyn Jacobson

And why is that happening? Because the ATO found, through its work that too many of these, not for profits, were getting their status wrong. They were deeming themselves to be tax exempt when maybe they perhaps weren't. So we need to see where all this lands.

Tim, you've already spoken about the instant asset write off and you mentioned, the 28th of June being the date that the 20,000 threshold was finally enacted. And we got that certainty for the 23-24 year. But it seems that no sooner have we finally got certainty on one year that we've then got uncertainty for the next year. Can you talk us through where we're at with the 24-25 measure, which is proposed to, again maintain this 20,000 threshold till June 30th this year?

Tim Sandow

So, Robyn, my understanding is that the day we're talking that hasn't been legislated yet, I don't really understand why, it hasn't been legislated. I don’t understand what's so hard about it? It would be great to see a permanent threshold in the legislation. And I know that's something we've been advocating for for a while as The Tax Institute. Just the removal of uncertainty? Because, as I said, otherwise, it's just very difficult as a tax advisor, to be able to tell people whether they get tax deductions for things and it doesn't feel like this is a particularly complex or even contentious area of the law. So I don't really understand why it keeps getting deferred.

Robyn Jacobson

We are seeing the political football being kicked around a bit. So we know that the coalition are pushing for a permanent threshold of 30,000, and we've suggested 30,000 as a permanent threshold for many years now. So it's consistent with that. But we've also seen the government maintaining up to 20,000 for just one year. But this one year extension has been going on since 2015. So this would now be the seventh time we've seen a one year extension. So agree this uncertainty has to come to an end. But at the moment, was the relevant schedule removed entirely from the relevant bill? It seems that this will be perhaps not certain until after the election, which is not great either, because we're looking very much into May or June before we might find out what's happening this year.

Tim Sandow

And that's exactly right, Robyn. You know, particularly this year is an election year. It could be June again before we know. I mean, it could even be after June. And then as I said before, you know, if the policy is to encourage businesses to invest in new equipment, then all you're really doing is rewarding past behaviour. So which is not a bad thing. I certainly like getting tax deductions for our clients, but you don't have this alignment with policy and the tax law.

Robyn Jacobson

And it seems to me that squabbling over a $10,000 difference in thresholds, when all of this is a timing difference anyway, can't we just move on and debate the really big issues in tax rather?

Tim Sandow

Oh, I was going to say, it feels like there's bigger issues in the economy than 20 or $30,000 difference in the instant asset write off.

Robyn Jacobson

Julie, we've seen some very recent changes that kicked in 1st January this year to do with the foreign resident capital gains withholding regime, and that name's always been particularly confusing because it's not confined to capital gains and nor is it confined to foreign residents.

Julie Abdalla

No it's not. It is a bit misleading. So you're right. We had some legislative changes from the 1st of January this year. And what they've done is to increase the foreign resident capital gains withholding rate. There's you mouthful from 12.5% to 15%. And they've also removed the $750,000 threshold below which the withholding would not normally apply for transactions involving taxable Australian real property and certain indirect Australian bill property interests. So now the key change there is that Australian residents selling real property for less than 750,000, they'll be affected as well. And so they'll need to obtain a clearance certificate from the start of this year to avoid withholding on the sale of their homes or investment properties. So something to be really mindful of that it's not just about foreign residents.

Robyn Jacobson

And since the rules have been around since 2016, anyone with high value property should be reasonably accustomed with these rules by now. But as a vendor, you've got to provide the certificate so you don't have withholding taken out of your transaction proceeds. But similarly, the purchasers generally know now that they need to acquire one from, from the vendor so as they don't have a payment obligation, that if people have been dealing in property below that threshold, they may not have ever encountered these rules.So I feel like there's a whole new cohort of people that this will be unfamiliar, and they really need to be getting advice. I will be relying on conveyancers and real estate agents just to increase awareness that they can give advice, of course, but just to increase awareness.

Julie Abdalla

And it is something that the tax advisers will need to be aware of as well, to be giving advice to their clients on what needs to be done.

Robyn Jacobson

And Tim this is where advisors can be proactive, because there's no point saying to your client when they come in after year end. And so we sold a property during the year, whether their home or whether an investment property and the purchaser simply might come in and say, oh, we bought a property. Well, did you get a clearance certificate from the vendor or to the vendor if you wanted the purchaser? Oh, we didn't know about that. It's all too late to do something about it then.

Tim Sandow

Yeah. And I would hope, Robyn, that Conveyancers would, would be across it as well. So, hoping the risk of that happening is, is small, but, but you never know.

Robyn Jacobson

Yeah. This next one. I don't know who I should, direct it to you, because I know you both got, great interest in this space, corporate taxation. And maybe you can divvy it up between you. But we might start with you, Tim, because you've already mentioned the corporate tax residency rules. We're still in limbo, as you say. So any clarity on the horizon here.

Tim Sandow

Robyn, who knows. I mean, I guess that was, I said that I reread, some of the Case for Change, over the Christmas break, and I read it with mixed emotions because it was in one way it was, good to see that all that hard work that went in in 2021 is as relevant today as it was back then. But on the other hand, it's sort of disappointing that we haven't really made much progress. And there was a comment in the case for change to say it's really encouraging to see that, the government has accepted their Board of Tax’s recommendation, and, we'll be making the change to the corporate tax residency definition. And so to be sitting here three and a half years later and still waiting, it's quite frustrating. And as I said, it's it's just the the uncertainty and the extra work that it creates on something that shouldn't be complex. So in other words, you know, if, for example, you have an overseas company and you saw this, an Australian resident, you know, there's even a question, where is that company now? Join the tax and solidarity group. And if it does, then I have to go through the process of registering that company for an IPA. And it's just a lot of work, but no extra tax and no extra VAT for the client. So I really do hope that that change does get legislated quickly, because it's one of many things that are in there which just creates a lot of work for no value for anybody.

Julie Abdalla

And it's got a bigger picture implication to it as well in terms of foreign investment into Australia. I mean, I think the amendments themselves would provide a lot more certainty to foreign residents, looking to invest in Australia and that that has a bigger picture implication than in terms of supporting investment here. And so I think we have very much advocated for consultation to proceed with this. There's no real need for delays.

Tim Sandow

That's right. Well, I mean, a lot of the heavy thinking was done in the Board of Tax, paper, and none of that's changed. So it shouldn't be that difficult.

Robyn Jacobson

Julie, another aspect of the corporate taxation rules – we’ve seen some pretty big changes in what's called pillar two. And many may be familiar with that. Many may not be. Thin capitalisation, something called the deduction creation rules. And I think I am talking English there, and country by country reporting rules. That's all a big mouthful.

Julie Abdalla

There has been certainly a lot going on in the large corporate end of town. So you've got you mentioned pillar two first and that we've recently had this legislative package that has established a framework around the OECD's global anti base erosion rules. The globe rules. And so this is aimed at ensuring that multinationals are subject to a minimum level of tax on the income that arises in the jurisdictions in which they operate. And then from an Australian perspective, an Australian domestic minimum tax for certain very large multinationals. And they're the ones with an annual global revenue of at least €750 million. So it's not actually affecting quite so many Australian taxpayers. But where it does, the rules are very complicated. There's a lot of compliance to it. You also mentioned think cap. So we did have almost a complete overhaul of Division 820. And that has basically attempted to bring Australia more in line with the OECD's best practice approach in BEPs action item four. And so the reforms now limit the way that amounts of debt can be deducted by multinationals in an income year in a few different ways. You've had the safe harbor test replaced by a new fixed ratio test. The arm's length test has now been replaced by a third party debt test. And there's a worldwide gearing test that has replaced the group ratio test. Those amendments became law last year, but they actually apply retrospectively from the 1st of July of 2023. And then you mentioned the debt deduction creation rules, which is English. And that's a new measure that has applied from the 1st of July last year. Now the last one, I'll tick off before we continue on is the country by country reporting. And those changes have simply required certain multinationals to now publish selected tax information on a country by country basis. And there are some exceptions to that. But again, it's only affecting those very large multinationals.

Robyn Jacobson

It seems that there's not too much lemon juice left in that lemon, but they’ve squeeze just about everything they can out of this sector. Is that a fair statement?

Julie Abdalla

On the one hand, if you look at the tax gaps, for example, the large business tax gap is actually quite small in terms of percentage, and the dollar value is enormous, but it is actually quite small. So they have a very high compliance rate from an Australian tax perspective. And you actually do have much larger gaps in the smaller business space. But on the other hand, I mean, it is politically and socially a bit more palatable to pursue the multinationals. That is something that we say it's very common in the media to say, you know, multinationals are not paying any tax, and it doesn't really get into the reasons behind that. So part of the work that needs to be done is educating the public about why that might not be the case, why they might not be paying tax for perfectly legitimate reasons. And what goes on behind.

Robyn Jacobson

So very quickly, some other changes we've seen come in recently. We've got an increase in the penalty unit. So this underpins almost every penalty we've got in the federal system where if there's been some sort of misdemeanour or breach of something or a failure to do something, that's come from $313 to $330 per penalty unit from the 7th of November, we are seeing some proposed changes from 1st July this year to deny deductions for the general interest charge and shortfall interest charge, and that's going to make the cost of essentially borrowing from the ATO or not paying your debts on time, if more expensive. We've got some changes coming through for luxury car tax. I won't go through the detail of those. And then administratively we've got new ART. So the new Administrative Review Tribunal has now replaced the Administrative Appeals Tribunal. 14 October was that change. In a sense, I’ll ask you Julie, does this actually change anything or is it just a cosmetic name change?

Julie Abdalla

It's certainly not meant to be a cosmetic name change. So it's a new federal body. It is still conducting merit reviews of administrative decisions in the same way that the Administrative Appeals Tribunal did. And that includes tax matters. It has assumed all of the existing rate cases. And so it's dealing with a backlog. Now, since the October transition, there had been quite a lot of challenges with the A8 in, not just in the tax division, but in others and the way that it was managed. And so there is a lot of work was done. A lot of consultation took place. We were very much involved in that to create a new entity, a new tribunal that will be able to achieve some of the challenges or overcome the challenges that the AAT struggled with.

Robyn Jacobson

So Julie, turning to what we're now waiting on and what's ahead and what's on our radar for this year, let's kick off where we could go all day on these matters. But the first one is the Bendel appeal, which is all about unpaid and entitlements and trusts and corporate beneficiaries. Where are we at with this?

Julie Abdalla

So we are now awaiting the full federal court's decision on the commissioner's appeal from the earlier appeal case. Now, in that case, the tribunal found that the up arising from the entitlement to income or capital of a trust is not a loan for Division seven purposes. Now, this is in total contrast to the administrative position that the ATO has taken in its public guidance over the past 14 years or so. The ATO is issued an interim decision impact statement in. I think it was about November of 2023. So the commissioner's appeal has test case funding and the court's decision has been reserved. A decision either way is going to affect both, whether it's in favour of the commissioner or in favour of the taxpayer, is going to affect small businesses that commonly distribute from trusts to private companies. Special leave application, we might say that with the case potentially going to the High Court, but we'll have to wait and see the sitting time.

Robyn Jacobson

Got to look likely, doesn't it? Regardless of the outcome and the appeal.

Julie Abdalla

I would think so. Either way, it's going to have huge implications.

Robyn Jacobson

Absolutely. The next one is Division 296, otherwise known as the $3 million tax, on the proportionate earnings of super balances above $3 million, proposed to kick off for middle of this year. Yet the legislation's been very much stalled before the parliament.

Julie Abdalla

Yes. So the bill's been divided into two to enable the passage of the measures that aren't related to Division 296. But now it sort of hangs in the balance and we don't know whether we're going to see something moving forward. It's unlikely that it will be debated again before the election. But we don't know. We've got, you know, huge concerns about the taxation of unrealized gains and some of the other key issues in there, like the lack of indexation, for example, that will lead to a kind of creep with more and more taxpayers being within the scope of the measure. There are quite a lot of problems with that over time that we would hope would be resolved before it would progress further. But again, we wait and see.

Robyn Jacobson

And we're also seeing a political separation of positions on this, because we know the government clearly wants to progress that. And they've indicated that while they don't seem to have the numbers ahead of the election to pass it with the current Senate, that they would, still commit to doing this if reelected, whereas the coalition have said, we will not do this, we do not support taxing unrealized gains. So it is a point of differentiation between the parties. And again, it's almost like the election is going to help determine, where we land with this.

Julie Abdalla

Yeah, absolutely. I mean, it's very much a different approach to the policy. I mean, the measure we support generally, we would support clawing back some of the concessions in the superannuation system. You know, we do have a very concessional system in terms of super. But taxation of unrealised gains is not quite the best way to go about it, in our view.

Robyn Jacobson

And payday super, it was first announced in 2023. It was or is due to start. I shouldn't use past tense 1st July 2026 and three years lead time seemed appropriate and reasonable, but we're now sitting less than 18 months out. We still haven't even seen draft legislation yet. So what are your thoughts on where we're going with this over the next 12 months?

Julie Abdalla

I think the biggest development we had was the fact sheet that Treasury released in, I think, September last year, and that set out some of their further policy details. And while it was very good to see in that, a lot of our recommendations have been taken on board, and especially when we're looking at the reforms of the penalties regime. But this again, there hasn't been a lot of movement since then. Well, there hasn't been any movement since then and the start date is around the corner. The time will fly in for, you know, here and there's so much work that needs to be done to actually get this rolling. And this will affect every, you know, every employer, obviously every super anyone will be affected. But you also have the role of the DSPs.

Robyn Jacobson

So the digital service providers who have to build the systems to make it all work.

Julie Abdalla

Yeah. That's right. And they can't really get started without a bit of certainty from the legislation. So there's a quite a long road ahead. And it would be good to see things picking up again this year.

Robyn Jacobson

And then you've got the debate about the cash flow impost on employers who are not paying it more regularly than quarterly at the moment. But then we've got more than $3 billion a year of super. That is not being paid on behalf of employees, which is also a disgrace. So it's interesting going to look at how this is going to work in practice. Thousands upon thousands, if not millions, are going to be affected because we've got the employers, we've got the practitioners, we've got employees, all the intermediaries, payroll providers, clearinghouses. There's a lot of stakeholders involved.

Julie Abdalla

Absolutely. So many people are affected by this. And the best way to figure out how it's going to look in practice is through consultation.

Robyn Jacobson

Absolutely. Tim. Julie and I have been chatting a lot about budget and the election and all these things coming up on the horizon. Comment on the budget, because this is traditionally, of course, the second Tuesday in May, but we know that the federal election must be held no later than 17 May. So that kind of knocks out a May budget. Are we going to have presumably a March budget based on what the parliamentary sitting dates are telling us, or are we not even going to have the budget before the election?

Tim Sandow

Robyn, I think at the moment, if you are betting you, I don't know which way you'd go, it sort of feels like both leaders are certainly, ramping up their, discussions. They're traveling the country. I don't know where the. You sort of get the sense that it might be an election sooner rather than later. Whether it might be before May, maybe we won't have that much budget. I guess if we do have the March budget, it's very unlikely that anything that gets announced would actually be enacted. So really becomes, you know, an election platform for both the prime minister or treasurer, about what they're intending to do if they are reelected. And, and I guess for the opposition in his response to, to talk about, well, what would he do if he was elected in listening to numerous podcasts about, from different commentators about the political landscape? It's going to be a really interesting election. And, and there's certainly a lot of discussion about whether we end up with a minority government and, and what that looks like and who that could be and who would work with who. And it's, I think it's going to be quite an interesting election, this one.

Robyn Jacobson

And an observation because the election campaign has not formally begun whilst both leaders are traversing the country at the moment, they are doing that on taxpayer dollars. Whereas once the election campaign is fully underway, each party must fund its own electoral expenses. So at the moment it's all on us.

Tim Sandow

I won’t make any comments.

Robyn Jacobson

So Parliament is scheduled to resume in early February. We presume that will still be the case. So we're looking about roughly two, three weeks away from now. But it remains to be seen, as you say, Tim, whether anything that is potentially debated in Parliament or if we do have a budget, whether it is, you know, actually be enacted this side of the election. So lots to watch out for there. Now, of course, very briefly, Julie, once the election is called, we move into caretaker mode. What does that mean for any bills that might be sitting before Parliament there?

Julie Abdalla

So once they issue the election writs, the government assumes caretaker. And at that stage, all the bills, any legislation in the House of reps will lapse and the bills before the Senate will lapse immediately before the commencement of the new parliament. So it might be some time, some of these measures that we've been talking about, it might be quite some time before we know their budget and where they're going to land. But as Tim said, that list of announced but unconnected measures will continue to grow. And that's something that we really need to see being dealt with as a matter of system maintenance as well. We've already got a long list, and we need to know the government needs to clearly indicate whether it's proceeding or not.

Robyn Jacobson

Another observation there are 52 weeks in the year, and typically Parliament sits for about 19 of those. In an election year, you lose chunks of months out of that because the caretaker mode kicks in. The elections held, you then got to count all the votes. So the time between when Parliament last sits to when Parliament does sit again isn't just a matter of weeks we could be looking 3-4 months.

Julie Abdalla

That's right. And they're not just dealing with tax bills in there. That's the other thing. There are so many other bills that are going through the houses, and a lot of time is being spent on certain measures going like the instant asset write off, going back and forth between the houses that could be better spent elsewhere.

Robyn Jacobson

Tim, let's go back to tax reform. It seems every year we have another budget. Every three years we have another election. Hopes are raised, and then it seems that hopes are dashed as we move in and out of this cycle of will they or won't they progress with holistic tax reform? Is this going to be another missed opportunity this year, or do you think there's actually some hope?

Tim Sandow

Robyn, I think that both parties are probably a bit gun shy about tax. When it comes to making big promises in elections. I know that when the Labor Party was talking about, changes to franking credits and so on, a few years ago, that didn't go well. So I don't think. Are we going to see any brave, announcements around tax reform as part of the election? But even if there is not, I mean, you still the underlying reasons why you would, regularly review the system, look at the policy, look at fairness. That's not changing. The cost of living is not changing. The, young people being able to afford houses is not changing the issues we've got with them. You know, people, having children coming back to work and, you know, extraordinarily high effective tax rates when you take into account loss of rebates and so on. None of that stuff has changed the underlying reasons why tax reform should be considered is not going away. At some point. It has to be addressed. And so I, I'm really interested in exploring just what that trigger point is, because it does feel like we're getting closer and closer. And, we have a lot of good discussions there. We have the Ken Henry report from 2010, but from memory. Yeah, there's a lot of good stuff in there. We've got Case for Change. We've got the Board of Tax that does regular reviews. There's a lot of really great thinking that happens, but not a lot of action. And at some point I just feel like it's just going to come to a head.

Robyn Jacobson

And it's becoming very obvious that more and more people are engaging in the conversation. And that's a really good place for momentum to progress.

Tim Sandow

Yes, that's exactly right, Robyn. I think it's going to be really difficult. I don't think we're going to see whole scale tax reform, unless we can put GST into the agenda and have a really serious discussion about what that looks like and what that could achieve in a very educated discussion. But you really have to take the politics out of that, because any side that is going to to start talking about that in an environment where we're still dealing with inflation and cost of living and housing and so on, they become a very big target for the other side. So it needs to be a very mature discussion about what, can be achieved for the broader good of the economy.

Robyn Jacobson

So, Julie, to wrap up, what do you expect to see in the year ahead? So whether in a policy level or a business confidence level, what's the ATO going to be doing? How do you see things?

Julie Abdalla

What the ATO's doing? I think we'll see firmer action on the outstanding tax it, that's for sure. The ATO has made its position very clear that it will be pursuing. It's much more proactive, I think, than it had been, especially during the pandemic period. That is putting pressure we're already seeing on businesses and vulnerable taxpayers. I think in terms of business confidence, some of these measures and some of these kind of debt recovery activity, this will impact business confidence, for sure. People feeling the challenges. And if we think about our own practitioners, their own businesses and the pressure that they're under, not only to keep up to date with all of these changes, but to support their clients and in managing their own businesses. So there's a lot of pressure out there. The economic climate is challenging, to say the least, and I don't think that will necessarily ease in a way that will be significant enough to provide relief on its own any time soon, which is all the more reason why our tax system is not sustainable and work needs to be done to alleviate those sort of constraints and get businesses going and support Australian taxpayers. I think there's going to be a focus on some of these regulatory changes. I think will continue to be a focus in policy areas, clawing back some of the concessions available in the system. You'll also see, I mean, at a state tax level, there will be, I think, further work around payroll tax and payroll tax exemptions, changes in the property tax base. We've seen so much going on in Victoria alone for the past year or so, and that the implications of those we will see more and more over the years to come.

Robyn Jacobson

Be interesting to see whether any other state governments, start adopting some of the measures that we've seen down here in Victoria. Tim, to wrap up, what do you see for the year ahead, apart from a very busy year for you personally?

Tim Sandow

It is going to be a busy year. Robyn. I think it's going to be a really interesting year, as it often is. I think that from a tax practitioner's perspective, I'd like to hope that, the bulk of the changes, the bulk of the spotlight that's been put on to the profession over the last few years, rests for a little while, and we can't get on with that with our day jobs of providing great advice to our clients. I do hope that, we do get some more certainty in the way that we can provide that advice, whether it's through tax reforms, dealing with ABUMs, dealing with the way the law is being administered. But of course, there's also it's going to be things to look at the impact of, what's happening in the world. It's the 16th of January. Today. We're four days away from, Donald Trump, becoming president again. We've got an election happening soon. It it's going to be a really interesting year for world politics.

Robyn Jacobson

It sure will. And, just a reminder to all of our members, welcome to the year. We are here to support you, and we encourage you to reach out to us throughout the year as you need to, whether in person events or, drop us a line. And for the non-members out there, always time to take another look at us and see whether membership might be right for you.

Tim Sandow

Robyn, if I could just add one more thing. I think if I look at 2025 and everything that's happening in our own world, as practitioners, that there's never been a more important time to have a really strong network around you. And so that's something which, you know, that's what's so special about The Tax Institute. It's why I've been volunteering for 27 years. And while I was really keen to, to take on the presidency role because it is really special about the collegiality that we have, and people share their thoughts and ideas and insight willingly and it's just such an important time as we try and navigate where we are in the tax system that we have that kind of support around us. So The Tax Institute has never been more relevant than it is in 2025.

Robyn Jacobson

Well said and thank you for your time, Tim, and all the best for the year.

Tim Sandow

Thanks, Robyn.

Robyn Jacobson

And Julie. Thank you to you. We will continue to work away at, all the, challenges and particular issues that come our way. But I look forward to working with you throughout the year.

Julie Abdalla

Likewise. Thank you for having me on the podcast.

Robyn Jacobson

Thanks for listening to this episode of TaxVibe. I've been chatting with Tim Sandow, CTA and Julia Abdalla, FTI.

If you enjoyed this episode, we'd love for you to subscribe, rate and review TaxVibe wherever you listen. We welcome any feedback and suggestions. To catch all the latest from TaxVibe and The Tax Institute, join us on LinkedIn. If you're interested in being at the centre of the tax conversation, a membership at The Tax Institute could be just what you need. Stay current and connected with tangible real world benefits. Learn more at taxinstitute.com.au. Thanks again. Until next time on TaxVibe.

Robyn Jacobson

Hello and welcome to TaxVibe, a podcast by The Tax Institute. I'm Robyn Jacobson, the senior advocate at The Tax Institute and you're host of today's podcast. On the show, I chat with some of the tax profession's brightest minds, drawing on each guest unique perspective to give you valuable and practical insights you won't hear every day. We hope you enjoyed this episode of TaxVibe. I'm joined by David Montani, CTA, who is the national tax director. Admitted firm. David provides tax, technical, strategic and training support and has more than 30 years experience in specialist taxation advisory. He's also a lifelong observer of politics, having lived and breathed the political battles over tax reform across more than three decades. Now, David has combined his two great passions, a tax and politics, into a book called Tax Wars, which looks at the gridlock in reforming our tax system over many decades and where a solution might be found. David, welcome to TaxVibes.

David Montani

Thanks, Robyn. Thanks for having me.

Robyn Jacobson

So the title Tax Wars is intriguing. So how did you come up with the title? Why are you writing this book?

David Montani

I came up with the title because the gridlock on reforming our tax system feels like a bit of a, a stalemate in war. And I use the comparison in the book. It's a bit like the old mutually assured destruction concept in the Cold War era, where we have a situation where both sides of politics, have, over time, you know, developed their arsenals of essentially dishonest scare campaigns, and they're just ready to launch, at a moment's notice. And as a result, looking the side will really propose anything, meaningful. And that's, that's built up over, you know, more than 30 years. So, you know, writing this book, hopefully what you will get from it is that people will sort of see the wood for the trees and what's been happening over this time. And that's really what we need to look to, to figuring out a way to break the gridlock.

Robyn Jacobson

What is the book about? Is someone going to sit down and read this and it's going to be wall to wall text concepts?

David Montani

It's not, I mean, for a book about tax, it's surprisingly not technical. It's more storytelling. It's telling the stories of events over the last 30 plus years. And that, I think, will give the insight that's necessary. It'll allow people to see the wood for the trees on what's been going on for 30 years, and how that has led to the the gridlock of where we are today. So yeah, it's silly. It's my my interpretation. It's my take on those events. But, a large part of it is, you see, it's telling stories of those events over those years.

Robyn Jacobson

Why now? because you've been in practice for many years now, you've seen this come and go, all set back and watched elections and reviews and budgets and changes of governments and lots of promises and lots of tinkering. And we'll talk about that shortly. Why now?

David Montani

You know, this book could have been written any time in the last ten years, but it was about two years ago that the idea popped into my head. But certainly, in the lead up to the next federal election, which could be any time in the next five months. Certainly we want people be having these conversations in the lead up to an election. People will certainly, I think, focus their attention more on these issues. And so we want to get this out there while people, you know, will be turning their minds to these sorts of policy issues.

Robyn Jacobson

Does it strikes me that either the government or the community or base doesn't want to have those conversations, or is there, in fact, someone who does want to have these conversations, but it's a particular cohort that might be holding things back. In other words, what's the stalemate been caused by?

David Montani

We certainly want to have these conversations, and yeah, amongst ourselves and in the, in the text community, of course, we have these conversations, a lot I find. Why are the the kinds of conversations in this book, you know, you don't really see so much out there. And I think it's because a lot of the discourse out there is off the mark. People and the media go to politicians and essentially tell them what to change. And you might have noticed that that's not achieving anything or all that alone is not, I mean, like The Tax Institute does good advocacy work, and that's very important. We need something more. And there's something more. I think is rather than tell politicians what to change. It's also about understanding why they refuse to make any meaningful change. That is where I think the solution is to be found.

Robyn Jacobson

Is there potentially also a how, how should go about changing it?

David Montani

Yes, it is very much a how. So in terms of who can do what to actually achieve ultimately reforms and obviously changes of laws to our tax system. At looking at the books, not just telling those stories, it gives those perspective because that's then a basis to then say, right, well, let's put some meat on the skeleton here. I'll actually suggest like a starting package of changes. That's the the what to charge. But then what comes after that is okay. Well how how could we go about actually making this a reality? And what that comes down to is getting politicians to change laws. And I do set out a plan for how we might actually get that to happen.

Robyn Jacobson

Now, throughout the book, you refer to quite a number of pop culture references. If I can call them those. And this is being used, to my mind, to explain some of the very, very complex fold of texts trying to break down those concepts. What was the thinking behind using that approach of referring to pop culture?

David Montani

Well, I had a lot of fun with that. I find that it does make it easier to understand the concept for people. If you can relate it to something that they can identify with, and then it's easier to, to understand. And I'll give one example. In the book, I talk about the changing attitudes towards the GST from the 1980s to today. Look back in the 1980s, or consumption tax as it was referred to then. It was an unknown and it was quite scary. Whereas today, you know, we're used to it and it's not quite the same thing. So I do use a comparison. With those changing attitudes to, I used the movie A Nightmare on Elm Street. Now, Nightmare on Elm Street was a 1980s horror film introduced us to the slasher killer Freddy Krueger. I watched The Nightmare on Elm Street in the 80s when I was a teenager, and it was scary. It was scary. And so then, you know, years later when, kids were old enough for life and I thought, let's have some fun. Let's perhaps terrorize our kids a bit. Let's watch A Nightmare on Elm Street. But you know what? It wasn't scary. Things are change. Times are past. We watched it and. Oh, you know. What this is actually This is not scary anymore. And so that's the parallel with the GST. Gary, in the 1980s, but not today.

Robyn Jacobson

So the idea of perhaps the seed being planted, the idea being accepted and even getting used to what it would look like.

David Montani

Yes. And experiencing it, I believe.

Robyn Jacobson

Now, in terms of the book, what do you hope that its release will achieve, and is it a coincidence? If you look at the timing of when the book is looking to be published and this is going to be, early next year, we know we have got a federal pulp now to get really technical for a moment, the Senate has to go to the polls by late May. The House of reps itself can go through to September, but I'm not familiar with governments that like to go to the polls twice in one year. And the cost of running to election site. We seen there is a normal general election no later than the 24th of May, but there are murmurings that could even be earlier about a march election. So the timing of this book in relation to what would likely be, right in the middle of a federal election campaign, pure coincidence.

David Montani

Not so much a coincidence in that, I, I just wish I had the idea had popped into my head six months earlier than than when it did. But look, certainly we looking to have the book out before an election is called. And again, the election could be called, for example, in late January, you know, for an early March, poll. So that's entirely possible. So, look, we do want to get this out there. So to give people time to, to absorb it. And in terms of like, you know, what are we trying to achieve? Certainly lead up to an election. There's probably been a focus on these sorts of issues. But, you know, my hope is that what the book will do is a few things. One, you know, change conversations. As I mentioned before, I think a lot of the public discourse is is off the mark as to what the issues are that we are dealing with. So I'd like to change those conversations. I would like to give, journalists ideas for asking different questions of politicians. I find when politicians get interviewed and say they're asked question and they give an answer, and I think, you know, that answer is not actually really what needs to be explored here. And then you want the journalist to ask this question. So hopefully I can, inspire that. And look, and ultimately, the goal of the book is to enlighten a pathway that will end the tax wars and actually result in those changing through Parliament, for a better tax system. That's the ultimate goal.

Robyn Jacobson

Do you challenge long term thinking about tax reform and everyone? It's interesting. Perhaps it's like falling in love, but everyone has a different definition of what, tax reform should look like or what form it should take. So whatever perspective people have taken on tax reform, are you challenging the way people are thinking about it or how it should be approached?

David Montani

I think I am for the reason that, is another one of those pop culture references. I draw upon, the movie Raiders of the Lost Ark, where the villain, although we're not villains, is digging in the wrong place. So I like to think that I've come across I've conveyed information that, helps us. Now. Now we're digging in the right place, to find a solution. And the thing is that the our unreformed tax system, it's leaving us less productive, less competitive. It pushes all the wrong incentive buttons, leads us less incentivize, and it undermines the funding for a decent social safety net that makes us a less wealthy country. And again, it's getting worse. In terms of the inter-generational theme that runs right through the book, the intergenerational theme in terms of, well, why do we need reform? But like, like most parents, I think ahead to the years ahead and ponder the kind of world we are leaving for our children. And in terms of our tax system, we are leaving a very lopsided system that will place a greater and really quite objectively unfair tax imposed on, on younger people. And so in terms of challenging your long term reform, often with any kind of reform, you know, the notion of winners and losers comes about. And the thing is that any reform endeavor has short term winners and losers. Now, the emphasis there is on short term because people do adjust their behavior. But with a lack of reform. And by reform I mean genuine reform. The lack of reform is what produces long term losers. And for the most part, I'm sorry to say, people on the 40, that's who one of the interviews I did for the book was with Ken Henry, former Treasury secretary and chair of the Henry Tax Review, released in 2010. Now, he has some very fascinating observations and comments about, you know, his experiences through that review and even back working for Treasury in the 80s. And, of course, you know, he's very big on that intergenerational thing that Treasury told government off the government over many years. Look, this is coming. You have to deal with this. But they haven't yet.

Robyn Jacobson

If we start to pursue layers over this. So we've got a tax system that is often described as creaking under its own weight. And if we look at the three pillars of what a good tax system should be simplicity, equity and efficiency. Now, it could be argued that you can never in nirvana achieve all three of those. Because if it's really, really simple, it's probably not going to be as equitable and certain amount of equity needs to be built in. And that in itself will create a little bit more complexity. But I think everyone would agree that we haven't got the balance right. So if we've got a tax system that's not as efficient as it could be, and we start putting in aging population housing process, and I'm talking the long term issues, not just the next year or two. Then we start to have a much greater dependency on the government and pensions and, and how those people are going to be supported in all age, particularly if they don't have, say, equity in their homes that they can draw on in the future. And then we've got potential lack of superannuation. With the growing gig economy. There are just so many dynamics to this.

David Montani

There are and I, one thing I, I talk about in the book is what's called, you know, get your big rock sorted first. It's a essentially a parable about prioritizing issues where, big rocks, you know, the very important things might have second order issues, and then you've got, what you call grains of, of of sand and, if you put big rocks in a jar, this is the analogy. Get them sorted first, then you can put in smaller rocks, they'll fumble and bumble bad into the gaps, and then you can tip sand in the, you know, the lower priority issues. They'll fill in all the gaps. Then you go to full jar. Whereas if you start by just dealing with the the lower priorities, if you just tip grains of sand into a jar, you deal with those first, okay? And then you try and deal with the big rocks. The spice in the jar is going to be used inefficiently. Yeah. And you're going to have big and small rocks left on the table. You cannot get into the jar. So what I find is that for many years now, across both sides of the political spectrum, we're not dealing with the big rocks and more. So we're just scraping grains of sand into a jar. And then that's not dealing with those long term serious implications.

Robyn Jacobson

This is, I think, more a rhetorical question, but do we need more than tinkering? It's us and my answer itself. We often talk at The Tax Institute about addressing the very lengthy list of bumps. And for those who are not familiar with this acronym, it's the announced bit on enacted measures. And throughout the year, we've got our reviews and budgets. As I mentioned before. And these will add to the list of measures that they're announcing, which they're going to legislate. And yet the number they actually do legislate, or the time it takes to legislate is resulting in this list either remaining very, very long or it just stays there for a long time. And again, it seems to be tinkering. We're not fundamentally dealing with what you describe as genuine reform.

David Montani

Those who are old enough who remember sort of 20 plus years ago, which that includes May, of course. There were many times when again, from both sides of politics, a government would announce a policy change. The, you know, the legislation would be within Parliament. Obviously, it was all prepared beforehand. It would be debated, legislated and implemented really over a matter of months. And that that was the norm for a long time. And then this changed. We had these announcements. The clearly the the work behind that to actually legislate those announcements hadn't been done. And as you said, you've got the week with this increasing list of, you know, announcement, unconnected measures. And I do comment on that in the book, in that I get the sense that others would be more qualified to comment on this than me, but I get the sense that the professional advice from the public service has been hollowed out over the years, and I referred to a report by the Grattan Institute that talks about not just tax reform, but but gridlock on reform in general, and the comment about how nowadays the, you know, the expertise used to reside in the public service. And in our case, we're talking particularly Treasury data and so forth, whereas nowadays that's also been shifted to, you know, what we call, ministerial advisers. And they seem to have taken the place or largely displaced that those ranks of expertise in the public service. So I can only speculate that, you know, the minister's going to the spin master in the next office rather than going to the public sector expertise in the next building. More and more of that nowadays, I get a sense is contributing to this inability to, announce something, have the legislation in Parliament because you've already had that prepared and, and it's debated and, and, and the arguments prosecuted and implemented so that this is clearly, something has changed in the last 20 plus years. I think that is a part of it. It might not be the only thing. But, you know, I do think that, ministers have perhaps a more nowadays, a shallower pool of expertise to rely on, because of the way they've changed who they go to for advice.

Robyn Jacobson

In July 2021, The Tax Institute published its own report into tax reform. And we called it case for change. And this wasn't the silver bullet. Was it going to solve all the problems overnight? It's a bit like a blueprint, and it set out lots of challenges and issues and pathways and options for reform. Does advancing tax reform need political courage, and have we got that across anyone in the spectrum of government? You're looking right or left or in the middle. Is that what we need and have we got the ability to progress this one day?

David Montani

I find that, pyrite is not the word that comes to mind because that implies, like defeating an adversary. That's not so much what I think is going to win the day. And I make that point in the book, I think, what we need of this is not a word I use in the book, but, I think what we need is statesmanship and look, and that involves a number of attributes. In a politician, you know, the ability to, to have a chance of successfully prosecuting reform being what it is. Still looking at a minister who has a personal store of knowledge on the subject himself. The the minister needs to be able to test a that they are receiving and where that's lacking. I think you are less likely to have reform because I minister either is less able to prosecute the case for reform, the perhaps less able or less likely to take up a very worthwhile suggestion from the departmental advisers, because if they themselves not that they would admit it, that I feel that they really couldn't carry the day prosecuting the argument, and I'll possibly shy away from it. And I do comment about the the, you know, the increasing professionalization of politics. You know, we have more and more politicians today who basically have no experience outside of politics. Look, and I think that has an impact on the the ability to articulate, prosecute and implement, reform.

Robyn Jacobson

As a reader, what insights could someone gain by reading the book?

David Montani

I'm looking for readers to gain insights, in terms of, you know, oh, no, I'm it's it's like, oh, that's why so-and-so opposes this tax. Oh, that's why the government back then did that or didn't do that. Oh, I understand now why and why why and wherefore. So that's the kind of insight I'm hoping readers will get. It's those oh, moments about these, these unexplainable reasons, public why governments and politicians have done things, not done things. What are they? Take certain decisions. Oh, that's why now I understand. So that's the kind of insight I'm hoping readers will get.

Robyn Jacobson

Maybe no one's explained it to them before. Maybe they haven't had access to the right people who understood this to be able to explain it. So it's a great perspective.

David Montani

Yes. And I think part of that is that, you know, this is not so much a technical issue. You get a group of tax experts and economists in a room. What should we change in our tax system? They'll come to a fairly broad consensus on what we should change. It's not the technical issue. It's the political gridlock. And and that's what the that's what the tax laws reflects. It's a political gridlock. And so when, again, when you have that insight as to how it is that we have come to this gridlock, you understand that. But it's not about what we should change. It's about why the politicians won't change anything. And so that means that the solution is not going to be found in a technical discussion of what we should change. The solution is to be found in how can we get politicians to act when presently and for a long time they refuse to act. That's where the solution lies.

Robyn Jacobson

What is one thing that you learned while writing the book?

David Montani

I learned that, I think, you know, the deep cognitive process of writing a book. It helps you figure out what you think on a subject, having to explore a subject. I mean, I, I had some fairly well formed opinions, but the point of that is that is that if you write with an open mind, then, I mean, you're open to changing your mind. And again, that's the thing I talk about in the book where, you know, there are views I've held in the past on certain subjects, but I don't close my mind to those subjects. And this book has helped with a number of things where you we're having to write about it. You have to think about it and you actually discover some things about what it is you actually think, of a subject. So that's, you know, it's it's a very I mean, I like that intellectual process.

Robyn Jacobson

And finally, no spoilers regarding the last chapter, but its title is the one person who could end the text falls. What can you tell us about that?

David Montani

Well, it's all good. Well, to talk about the political gridlock and how we got here and so forth. But then it's a case of, well, now what? So I do put forward a, a starting package of reforms to give an anchor point. Here's a package of things I think would be we would do well to do. But then I go on from that and say, right, how could we actually make this happen again? It's about resolving a political impasse, not a technical impasse. And so it's about what incentivizes politicians to act. And through that, yes, I have brought it down to one lone individual whom I believe is the one who could end the tax wars.

Robyn Jacobson

So out of this entire population of Australia, readers will have to make their way to the last chapter to find out who that is. David, we look forward to this hitting the bookshelves or the e-books. Congratulations on writing it. It's a very necessary conversation to have and we wish you well with it.

David Montani

Thank you very much, Robyn.

Robyn Jacobson

Thanks for listening to this episode of TaxVibe. I've been chatting with David Montani, CTA and author of the upcoming book Tax Wars. If you enjoyed this episode, we'd love for you to subscribe, rate, and review TaxVibe wherever you listen. We welcome any feedback and suggestions to catch all the latest from TaxVibe and The Tax Institute. Join us on LinkedIn if you're interested in being at the centre of the tax conversation. A membership with The Tax Institute could be just what you need. Stay current and connected with tangible, real world benefits. Learn more at taxinstitue.com.au. Thanks again. Until next time on TaxVibe.

Robyn Jacobson

Hello and welcome to TaxVibe, a podcast by The Tax Institute. I'm Robyn Jacobson, the senior advocate at The Tax Institute and your host of today's podcast. On the show, I chat with some of the tax profession's brightest minds, drawing on each guest unique perspective to give you valuable and practical insights you may not hear every day. We hope you enjoyed this episode of TaxVibe. Recorded live at The Tax Summit at the ICC in Sydney. Today I'm joined by Andy Milidoni, CTA, partner at Johnson Winter Slattery, and he specialises in all aspects of taxation, revenue law and trust law, and some aspects of superannuation law. He advises both public and private corporate groups, SMEs, high wealth individuals across industry sectors and he also works closely with a range of intermediaries such as accountants, business and corporate advisors, liquidators, financial planners and court appointed trustees and guardians. Thank you for joining us at The Tax Summit, Andy.

Andy Milidoni

Thanks, Robyn. Thanks for having me.

Robyn Jacobson

And your session was talking about the changed position, the firmer action that the ATO is taking in relation to texts and what sort of support that practitioners can provide their clients. So I wanted to unpack that a bit more with you. It is a changed environment and when we look at historically, the ATO’s has of course had very wide ranging powers and there are actions they can take when it comes to debt. But we know during the pandemic, the was a directive to say take it easy. We don't want businesses going under, we want to keep them afloat. So we did see very generous remissions of penalties, general interest charge, shortfall interest charge, generous payment arrangements and the firm direction of things like direct penalty notices. And we'll talk about all the different types of things they can do. Also, the foot came off the accelerator. Whether that went too far, people can, talk about that and make their own surmises as to whether that was appropriate or not. But it does seem that some businesses have perhaps taken that and expected that some new normal, which it's not. You know, and I want to talk through the levels of text it that we're now seeing. We are hearing anecdotally through our membership that the ATO is taking stronger action. And they've effectively said this themselves in their public statements. So can you talk us through what does the current landscape look like? What is the amount of debt that is now owing? Who owns it, and is this ATO action appropriate?

Andy Milidoni

Well, I think that's right. I think since Covid and probably since, early 2022, we've seen enormous increases in it collection activity. I think just recently in a speech made by various ATO officials, I think the approach of the ATO moving forward from this point on is to go back to being an old school tax collector. The point I think to make here is, is that, you know, Uncollectible debt stands at 50 bill. And the has taken the view of, well, there's a risk management aspect here in that, this historical debt which is very high and in fact much, I think doubled since before Covid. And there'll be more debt to collect. So they're buying the bullet and, they're putting their foot down on collection. And we've seen that through, the legal recovery actions. We've seen so many thousands of DPNs being issued, garnishee orders, lot more, engagement in it or at least enforcement. But, ATO officers chasing debts, chasing agreements is a big thing as well. A lot of what I'm sort of saying is there's a bit of an attitude which, I know that accountants and other advisors are trying to get on top of, and that is some taxpayers are saying, look, I won't lodge because that means I won't have the debt. But that's only really compounding, their own, their own personal circumstances when it comes to debt. But the reality is, is that the ATO are being told to collect the debt, and that, I think the, sort of the generous approach is, I think, well and truly over.

Robyn Jacobson

Well, they couldn't keep handing up money forever. So the role of handing out all that support, which, again, people have their own views as to whether that was or wasn't appropriate, but it still did its job. They're now at a point where they've got to go back to being a revenue collector. And the figures are quite astounding. If you look at the representation by the SME sector in that collectible debt. It's about two thirds of it. It's disproportionate.

Andy Milidoni

Yes, it is a lot.

Robyn Jacobson

Yeah. So why is that? Because there's always this focus on big end of town and whether they're doing the right thing. But in fact the problem seems to be more at the SME end.

Andy Milidoni

I think that's right. And a lot of that debt is carried over from the pandemic. I think we're in a pretty tough economic climate at the moment as well. And in some sectors of the economy, there's a sort of the double whammy of costs going up and revenues dropping, and they're being squeezed and that's hitting cash flow.

Robyn Jacobson

Yes.

Andy Milidoni

And unfortunately, sometimes the first things that aren't being paid are the, the tax, the tax collections and where it's pay out withholding, for example, it's opening up directors to personal liability through the issue of DPNs. And so unfortunately, it's mainly in the SMB sector, private groups. And they're saying most of that debt is as a result of the nonpayment of activity statements, which broken down is pay withholding and GST liabilities.

Robyn Jacobson

Yes. Both of which are now part of the DPA regime. So historically, of course, it was just withholding. And then SGC came into it and then we added more recently GST and perhaps less of an issue, but luxury car tax and one equalization.

Andy Milidoni

Do the other, you know, the other indirect taxes.

Robyn Jacobson

So could you explain this three month rule that exists because people are often a bit confused about this having to do with the reporting and the nonpayment of when directive penalty notices can actually kick in?

Andy Milidoni

Yes. The important thing about, responding to a DPN is that what you should be doing even before a DPN is issued is getting your lodgment seen. So in relation to pay a wage, withholding and GST and the others, except for superannuation guarantee, you must lodge within three months of the due date of the lodgment. If you don't do that, then any DPN that you get is what we refer to as a lockdown. And what that means is that, in the event you haven't paid, you haven't lodged within a three month period when you get your DPN. The only options you have, to pay it because with the, an option under DPN includes putting the company into some form of external administration, and you don't get that option if you haven't lodged within the within the, the three month period. So that's what the three month means. And unfortunately, a lot of people I think when things are going southwards, they sort of going back to what I'd said earlier, we won't lodge because the debt's not there and we'll deal with that later. But the take home message is, is that even if you don't have the funds to make the payment, make sure that your lodgment are up to date. So if things don't turn around in a reasonable period of time, and you can address the debt through payment arrangements and other engagements with the ATO, if it gets to the point that the ATO issued you the DPN, you have the option of putting the company into liquidation and removing the personal liability. DPNs are used as sort of the first step towards, if it gets to it, putting the putting the company into liquidation. It's one of the first steps that the ATO, takes in the in, in the journey towards, putting the company into liquidation.

Robyn Jacobson

So leaving aside for a moment the three month rule and direct penalty notices, is an an unrealistic and perhaps foolish move. To think the ATO is not going to find you are not going to be interested that if I don't lodge and don't pay, they'll somehow forget about me.

Andy Milidoni

I think it's look, in some cases, you may be able to fly under the radar, but only for a period of time. It really all comes to a head. And what we've found, we've had experiences where there's sometimes, Look, the systems are so more, so much more sophisticated. There's a lot more talking between systems, etc.. But what we've found is that, taxpayers might be on the tax officer's radar for something else, and then they pull a thread and then they, they see what else is going on in terms of non lodgment, debt that's piling up. And as I said, often times it might be something else that they're looking at. And then it opens up to everything else. And then that's where I think taxpayers really are in a world of pain.

Robyn Jacobson

Andy, can you run us through the powers the commissioner has to collect it? What is this firmer action that we're referring to?

Andy Milidoni

Yeah, Look, powers include, issuing garnishee notices, issuing DPNs, freezing orders. There's the offsetting. Obviously, which is where, a credits owed in relation to one part of, a lodgment, but is then withheld where there's another debt. There's the general insolvency regime and bankruptcy regime that's available to the commissioner. And the starting point there would be, the issue of statutory demands and other things. So they're all the more formal legal recovery, actions that the commissioner can take. Now, whether he takes those or not, is really as a result of everything else failing.

Robyn Jacobson

Yes.

Andy Milidoni

And we've, we've seen examples where and it's not with or not with everyone, but through examples where you've got the taxpayer that literally puts their head in the sand and pretends that this is not happening and then let a year go by another year the notices are coming in all the other.

Robyn Jacobson

And then when engage with advice.

Andy Milidoni

Just won't engage because I think, there's a it's like a slippery slope. There's sort of so far to falling off the edge of a cliff. There's obviously other things going on with the business, and maybe in the personal life it is a world of pain, but people get to the point where they put their heads in the sand. I don't want to, deal with it. And then you say the much more formal recovery action. We had a client that, got to the point of a statutory demand. It wasn't a huge amount of money. A lot of other things were going on. There were other debts within the group, but they let it get that far down where, they actually could have paid it, but they were the head they had so far in the sand that they just were. We're not getting on top of these things. They actually end up paying the statutory amount because that really that was the first point before the ATO was going to apply for a winding up order. So, we're very much in these formal legal, legal recovery powers really come about where the ATO has, has really at the end of their tether as well.

Robyn Jacobson

Yes.

Andy Milidoni

And, and oftentimes they'll resort to those powers, sure, for outstanding debt. But they say other risks.

Robyn Jacobson

Would you also throw a departure prohibition order into this?

Andy Milidoni

Oh, if there's a risk of the, taxpayer leaving the country. So there's the DPOs. So, yes. Certainly.

Robyn Jacobson

Yes.

Andy Milidoni

And, yeah. So that those all make up, legal recovery, actions that, that, that the ATO can take.

Robyn Jacobson

Is it fair to say that when a matter hits your desk, it's already escalated to a pretty serious point? In other words, you're the lawyer, not the accountant. And are they the ways or approaches that accounting practitioners can take to try and deal with these well before everything elevates or escalates to such a point that if they go to bring the lawyers in to fix everything..because I would have thought the cases you see are going to be the much more heightened ones.

Andy Milidoni

Yeah. And that's, that's right. Robyn, as a tax lawyer, we get involved towards the very end when, when all the alarms are going off and the red flags are being, should I look at that? I have enormous respect for the accounting profession that I do wonderful work there. They're the trusted advisors to to to their clients and taxpayers. I work a lot with accountants, and I see the very good work that they do. I think, the good practices I'm saying with accountants is that, they encourage their clients to keep lodgment up to date. Even despite this idea, we won't lodge because the date won't be. They don't know lodge because they understand that it gives options when it comes to DPNs. Closely, I saw them with the tax office and negotiating payment plans as soon as possible, but also keeping in touch with the tax office when circumstances change. So there's an ongoing liaison with the tax office. And I think, look, we all have our sort of views about, tax office behaviour. But overall, I think if you continue that engagement, keep them informed. Then I think together the debts can be managed. Now, if it gets to the point that the company is going looking at going to some form of external administration, that might be that that might be the case. But by keeping the tax office informed and, keeping that engagement going, I think stays the tax office away from a lot of the more formal like recovery action. So take, for example, Garnishee notices we often call because a client might have been have received a Garnishee knows always in the most, unexpected circumstances. It creates a lot of turmoil.

Robyn Jacobson

And when they can least afford it.

Andy Milidoni

When they can least afford it, one minute they think there's money in the account, next minute it's not there.

Robyn Jacobson

Yes.

Andy Milidoni

So and that's an example where, I see that often happens where there's been very minimal engagement. Or if there has been, there hasn't been compliance or there hasn't been follow up. So I think the take home message is keep your lodgment all up to date. Talk to the tax office. Have the, accountants are talking to their clients. The clients are open with the accountants. Really try and keep engagement to the highest possible level as possible. And also where money does become available, make payments and, encourage, additional payments on the repayment plan or to chip away at the date to demonstrate to the ATO so that, there is a history in relation that particular payments being made, I think, with a debt collector, whether it be the ATO or someone else, if they see that there is a willingness to get on top of the debt and to make payments, it's really not in their interest to push the more formal buttons, because that costs money as well.

Robyn Jacobson

Of course it does.

Andy Milidoni

It cost money and time, But the opposite is no engagement. Gone. I will head in the sand.

Robyn Jacobson

They don't like it when you go silent.

Andy Milidoni

You're pushing the the collector to to stop pushing other buttons to get the reaction. So yeah. So I think the short of it is liaison and engagement.

Robyn Jacobson

An anecdote I heard many years ago. I remember the program Wheel of Fortune.

Andy Milidoni

Oh yeah.

Robyn Jacobson

Now, apparently there was a taxpayer who owed some money. I don't know how much. Obviously the ATO had been trying for some period of time to try and collect this debt, and I think you spelt it for 30 the afternoon or something. And this particular ATO officer was home that day. Was this a well before Covid? I was watching the show when this taxpayer appeared on the show.

Andy Milidoni

Yeah.

Robyn Jacobson

And he immediately rang the station's producers and said, you know, I want to issue a notice that fellow who's on your show because he owes us some money.

Andy Milidoni

Yeah.

Robyn Jacobson

And the station said, don't you know that we pre-record this.

Andy Milidoni

Was already on the money to go out the door, so I could see the taxpayer……..

Robyn Jacobson

So what are you seeing and hearing out there with the the escalated action? Do you see that the ATO is cooperating because we are hearing increased feedback, and I don't know whether anything has changed as such at the ATO said about payment arrangements not being quite as forthcoming as they might have been. Now, we do know that there's firmer action in back in Covid days, but is it getting more difficult to get a payment arrangement?

Andy Milidoni

I'll say it is. I think there's a number of, if you've got a taxpayer that's just fallen on some hard times, has a very good compliance history. My experience is that you could get a payment arrangement between 6 and 12 months with that too much fanfare and without too much grief. I think with this sort of the repetitive, the taxpayer that's gone through the ups and downs over the last few years has put a few payment arrangements, and there's been a few, some noncompliance around that, but eventually got through it. It's it is for though for those taxpayers, it has become much harder. Anything beyond 12 months is much more difficult. More information, more submissions, more trying to demonstrate that, the taxpayer can go to third parties to get funds before the ATO, entertain much longer arrangements. I've seen, some taxpayers having to give security over the date. It is certainly much tougher. What I'm hearing from accountants is, is that, it's, the it's certainly is much harder to negotiate and the ATO are taking, a little bit more of a, a tougher position on how generous payment arrangements will be.

Robyn Jacobson

What advice you've got for practitioners, particularly the accounting practitioners, who might be perhaps a little closer to the coalface than you are in terms of the the direct dealing with the client and that taxpayer.

Andy Milidoni

Look, I think the advice is, it's sometimes it's the difference between is the business going to survive or if it's not, if there's a genuine belief that a longer arrangement is needed and that that's going to help the business, because really the differences, we either, step on the business and have the ATO sort of take more formal action, and it basically is wound up or trying to put forward a pathway where, the business can survive, but the ATO can get their money back, perhaps in a much, a much longer time frame, I think for accountants, I think they know a lot of those issues. But to work on pathways with the tax office, but also with the clients to demonstrate that it is worth entering into that longer payment arrangement, that everyone's risks are being sorted in that the ATO obviously want to collect the data, but they want to be able to say that the money is going to be can't be forthcoming. So I think we just need to get a little bit more creative in the way we approach payment plans with being able to juggle a number of these things. So, I think the advice is to probably, provide more comprehensive submissions, actually demonstrate to the idea that there is that pathway, that there is some and unusual circumstances affecting the business that can be traded through. And to really go in and advocate for the tax taxpayer, but also to understand the position as well.

Robyn Jacobson

It is such a tough question to ask though, you've got a business owner. They might have set up the business 40 years ago, five years ago. Whatever their heart, their soul has gone into this to confront the idea that they may need to shut down the business, give up the business, that it's not been financially, economically successful. It's not just about the financial aspect. There's all that pride and all that sentiment caught up in it and trying to get the client to acknowledge that and face it and deal with it. Very difficult.

Andy Milidoni

It is. And I mean huge financial and personal investment. The other thing that we find, Robyn, is sometimes you've got, you know, it's a it's quite a great it's a great business. And then what happens is an audit comes along and I go back five years and, it's not because there's been some sort of, deliberate attempt to avoid the payment of tax or the assessment of liabilities or whatever, but something's gone wrong. They've gone back and now they're confronted with, the payment of back taxes.

Robyn Jacobson

Yes.

Andy Milidoni

So you're in a tough economic environment looking forward. You're barely paying your, meeting your liabilities. And then you have this audit and then you've got taxes going back for years with interest and penalty. That can be quite a shock. And, having to negotiate payment plans around that historical date can be, very challenging. And this is where I think, you know, I'd like to think the state would step up and recognize that he's a situation where no one sort of saw this liability. Or maybe. Yeah, sure, they maybe should have sort of seen it, but for whatever reasons and I've seen it, in some circumstances where it was just very unfortunate that the businesses got themselves into that position. And he comes in audit. And you'd like to think that in that scenario, there would be, more understanding in their negotiating of those payment plans because not only do you have your debts moving forward and those liabilities, you also have to then find the money to try to, to fill those back taxes.

Robyn Jacobson

I've said for years that things can go undetected for a long, long time until and unless you get an audit or this death Or this divorce.

Andy Milidoni

Yeah.

Robyn Jacobson

And if you're unlucky, you have all three happen at the same time.

Andy Milidoni

As I say, when it rains, it pours.

Robyn Jacobson

Yeah. And it can unravel things that you did not expect. So, Andy, as we close off our discussion, any final tips or ideas or suggestions as to how you can help you navigate through this?

Andy Milidoni

So we're in a, I guess, a bit of an economically volatile environment, particularly for some sectors. There's a lot of new tax law coming through. We've heard the ATO is focusing on the the collection of that $50 billion of outstanding liabilities. I think a tip I would give is, if there is, if a business can find the time to engage with their accountant and tax lawyer to undertake just to review. So everything's going well, maybe submit to a, have a review of the business, look at what the the risks are from a tax, perspective. Try to, get ahead of any particular liabilities that might be on the horizon. That might not be sort of expected. Now, do it in a time where there's no distress, because if changes, need to be made, they should be made at a time when there's no date on the horizon, no one's chasing anything. And if there can be some changes to, put the business into a better structure or something that's more fit for purpose. I would encourage that because there could be some really good stuff that comes out of the review, and it at least gives, business owners, a bit of a snapshot as to what the next two, three, 4 or 5 years looks like. And as much as possible mean. If we had the benefit of a crystal ball, and we could look into that and see what's on the horizon, obviously we don't have that. But if we can just get ahead of ourselves and, see what things might look like and what changes that can be made, because oftentimes when we do hit distress, there's an appetite there. So let's change this. Let's change that. But often times it's just too late.

Robyn Jacobson

Yes. So this is the equivalent really of going to your dentist for a health check, going to the doctor once a year for a health check, or taking a card and salute the mechanic to get it checked out.

Andy Milidoni

Yeah. And, we do we've worked with accountants to do these reviews. And often times when we can sit back and go through these things, business owners, it's a very good opportunity for them to sort of do a bit of navel gazing. Yes. And to oftentimes the process identifies other issues that no one really expected. And people are very grateful for. Yes. Because, when we're all busy trying to sort of make money and run the business and do everything else, we're not these things aren't on our radar. And it's a really good opportunity to do that.

Robyn Jacobson

Andy, thank you for your insights. Thank you for your session. And, there's a lot for people to think about that. I think the key message is if you've got to text it, engage, seek advice, talk to your accountant, talk to your lawyer. Yeah, talk to the ATO.

Andy Milidoni

Absolutely. And thank you. And thank you, Robyn. And thank you to The Tax Institute.

Robyn Jacobson

You're very welcome. Thank you. Thanks for listening to this episode of TaxVibe. I've been chatting with Andy Milidoni, CTA, partner at Johnson Winter Slattery. If you enjoyed this episode, we'd love for you to subscribe, rate, and review TaxVibe wherever you listen to your podcasts. We welcome any suggestions and feedback to catch all the latest from TaxVibe and The Tax Institute. Join us on LinkedIn. If you're interested in being at the centre of the tax conversation, a membership with The Tax Institute could be just what you need. Stay current and connected with tangible, real world benefits. Learn more at taxinstitute.com.au. Thanks again and we look forward to joining you next time.

Robyn Jacobson

Hello and welcome to TaxVibe, a Podcast by The Tax Institute. I'm Robyn Jacobson, the senior advocate at The Tax Institute and your host of today's podcast. On the show, I chat with some of the tax professionals, brightest minds, drawing on each guest unique perspective to give you valuable and practical insights, you may not hear every day. We hope you enjoyed this episode of TaxVibe, recorded live at The Tax Summit at the ICC in Sydney.

Today I'm joined by Adrian Cartland, principal solicitor of Cartland Law, based in Adelaide. Adrian is practice for nearly 20 years in a number of tax roles in top tier firms, as well as boutique tax practices. About ten years ago, he founded his own on Cartland law and thinking about the future of law, developed an interest in artificial intelligence. Adrian specialises in and only accepts instruction in tax, trusts and technology. He's also created Ailira, the Artificially Intelligent Legal Information Research Assistant, which beat a paralegal on ABC's I race past the Adelaide University tax law exam and powered the world's first law firm without lawyers. Adrian is the chair of the Society of Trust and Estate Practitioners, South Australia, and also is a member of The Tax Institute's State Taxes committee. So Adrian, welcome to TaxVibe

Adrian Cartland

Thank you very much. That was very good. The polite and sanitised version of my intro. So and so, You speak much too highly of me. And you say that you have many clever people on here. Hopefully I can live up to that.

Robyn Jacobson

 I'm sure you will.

Adrian Cartland

So, we're going to talk about some AI today.

Robyn Jacobson

Yeah. Let's unpack this because it's, it’s an emerging technology. And our listeners will be on a spectrum. Some will be very regular users of some of the products, such as ChatGPT, and others will have very little understanding of what it involves.

Adrian Cartland

So first of all, the thing we need to deal with is the conceptualization of AI. So the largest part of the human brain works towards understanding other humans. So when we look at the moon, we see a face in there. When we think of a robot, we think of it in a human way. We anthropomorphise it. So that's why we are scared of the Terminator. What? Hal 9000. We think of C-3PO. However, those are not accurate descriptions of what AI is. AI is should actually be, called alien intelligence. It's entirely unlike human. A better example of what AI is like is like Tony Stark's Iron Man suit, which takes Tony Stark from being a human to being like Superman but still requires Tony Stark. So we are symbiotic with machines. If you put a human in the jungle naked and alone, they will die a terrible death. Without technology, 99.99% of the human race will die. And this scares us. And because we don't like the idea that we are not the masters, but we actually symbiotic, technology without humans is useless in a junk. And we can't do anything without technology. Even our stomachs have evolved over hundreds of thousands of years to require cooked food. We can't just eat grass. So, we require technology. And every time we are reminded that we are symbiotic with some new technology, that's scares us. But once we become used to it, just like we've become used to podcasts we're comfortable with.

Robyn Jacobson

Well, let's go back 20/30 years when email or internet was all born. It was unfamiliar technology to everyone at that point, and yet we all accept it as day to day technology now.

Adrian Cartland

That's correct. So it's absolutely terrifying when we are confronted with something new. But once we get familiar with it, then we become comfortable with it and it no longer scares us. So if you were thinking of AI as something scary, it just means you need to familiarise yourself with. Now, I've done something fun at The Tax Summit, and I wanted to show this as an example of how AI can work. And at The Tax Summit, I have produced the first paper for The Tax Institute that openly at least, is entirely written by a large language Model, by AI

Robyn Jacobson

What I now what is a large language model for those of you have never heard the expression?

Adrian Cartland

Sure. So if we go back 50 years or 20 years, and when we see the things that a computer forecast, we familiar with, they will often be built on a bunch of if this then that statements. And I'm back from the 80s. In the 90s there was expert systems where we plug in specific pieces of questions and answers, and we can therefore write out knowledge that way. That's not the type of AI that it was commonly used now or rather, is in the public consciousness. Instead, what happens is a bunch of fancy Maths. And I'm going to try and explain this in a simple way. You take all the words that there are and we convert them into tokens. And so there was a token for the and and and and so on. And then what happens is these tokens is we create relationships between those tokens mathematical relationships. And those relationships are called vectors. And what happens then is they, a company like OpenAI or Google or many others will feed large amounts of text or other data into those. And and those vectors will be trained to create a relationship between them. And then based on that statistical relationship, based on that fancy maths, it will generate. We're talking about generative AI. It will generate answers. So they're not stored in there. You can't open up the hood and and see them. There's not a bunch of rules.

Robyn Jacobson

And it's not insisting content.

Adrian Cartland

No. So some potentially do save it in there. But the the general way of doing this, there is something that is created a fresh which is also interesting from a copyright perspective. So just just don't make the copyright law. One thing that is really problematic, particularly in Australia, is people say there's been copyright theft. Now that's more of actually an Americanism. Theft requires taking something. I take something from someone else with, with the intention to deprive them of it. You can't steal intellectual property in Australia. Now you can breach copyright. Totally different thing. But, there is a question of whether reading over something is a breach of copyright. I don't think so. If you generate something that looks like something else, again, if it's generated fresh, it's not a breach of copyright. So what I've got is I got copilots, which is one of which is Microsoft's, large language model to generate a paper. Now, I've written a number of papers. They take a lot of time. They're very difficult. And what I did is I said, I'd like you to explain the relationship between, you know, the tax profession and artificial intelligence. And I forgot to spit it out. Paper.

Robyn Jacobson

Do you specify the premises? Do you say I want a page or I want a 20 page paper?

Adrian Cartland

So if I wanted to make a better paper, yes, I would. And in fact, at the end of the process, I asked copilot for some feedback and what I could have done better. I knew things that I could've done better, but I asked for some feedback, and the feedback it said is you should have specified these parameters more. Now I just said, write me a paper on this and, and off you go. And so the one thing that I did include that is my text in this paper was I said, this is a paper written by copilot, not me. And then I said, and here are the exact prompts. Now if you copied and pasted those prompts, you would get a similar paper to mine. You would not get the exact same paper because it's generated afresh. Now, something that's interesting about this is because it's it's generator fresh. It can create things wrong when it creates something that is wrong. We call that a hallucination. So for example, if I asked, copilot to explain some tax laws, it might generate them correctly. It might make some up. Now I can't actually control that. So that is something that's problematic. And in fact this is something that's been that there have been a number of tax cases in the UK. There have been, where people have, have done this. There's been some solicitors who have got, in big trouble in the US, and our courts here have, regularly saidt submissions, particularly by unrepresented litigants, that they have just gone into ChatGPT and written and said, yeah, explain this case for me or write, write out some submissions for me. I will make up some cases.

Robyn Jacobson

So the person in question at this point is AI that to replace the profession, or is it simply not going to be the case because you're saying it can generate all this report and files, article, whatever content it is we want to write for us? But you're saying it might be correct or it might not be correct. So therefore isn't there, of course, a professional obligation to check what is there before it is used for professional service or a commercial purpose, or for a device purpose or for publishing purposes?

Adrian Cartland

So that's that's an excellent question. So technology doesn't replace humans and no technology ever makes another technology obsolete. So if I go into the Sears Robot catalogue of 100 years ago, I can buy every item in the new today.  I own an edaphon because I love vintage, office accessories. I've got some typewriters and old telephones and, and an edaphon and an edaphon is a wax dictating machine. The one I've got from is from 1912. This is. And there's a wax cylinder on there, and I can buy new wax cylinders for that today. So technology doesn't get rid of old technology. So I have a pen, I have I sometimes send written letters sometimes, you know, I've sent handwritten notes just to people from time to time. I send emails, still send faxes to the tax office. Yeah, I know, I send text messages and in whatsapps and so on, and each of them becomes more niche. So first of all, generative AI is not going to replace some of the other technologies though, like the more niche. The other thing is just professions don't get replaced, say in law. The biggest change we've seen over the last 40 years has been the invention of copy and paste and Microsoft Word, and so and going from people who have typewriters and having to, to text out any, any changes and send things to the typing pool. And instead now what happens is they if they want to change, they go to copy paste or delete. And if I want to take a precedent, instead of having to stick it through a Xerox machine or some kind of ink copying, I just go to copy paste. Now that hasn't replaced lawyers, and in fact it creates more work because then people work longer and longer contracts. People make more and more legislation. Again, looking back a hundred years ago, every profession that was 100 years ago, it still exists today. There are blacksmiths. There's not that many, but they still exist. So they never replaced. The only professions that I've totally replaced are ones that have a Specific technology they work with, for example, elevator operators.

Robyn Jacobson

Yes.

Adrian Cartland

100 years ago, an elevator was terrifying. Death defying adventure to go up in an elevator. And, you know, maybe you go up, maybe you career down to your death that you need to. Someone needs to operate this correctly. Another one is computers. A computer originally, just like in the 1950s, was a lady who sits and almost all women who sits there and turns on various switches and punch cards and and connects wires in a machine in the overall, mainframe computer.

Robyn Jacobson

They used to take up entire rooms.

Adrian Cartland

Correct. And there'd be a team of 20, 20 computers, like, ladies who are programming those in. Now we have disk drives, and, and solid state memory and so on. To those very technology specific things have been replaced. Maybe in the future, TikTok influencer will be replaced. I really hope for the good of humanity that they are, but those things, will be replaced. But otherwise, no, what might happen is that parts of the job can be automated. Now, the things that can be automated is, so robots do things at, at scale. They do things they can they can do boring, laborious tasks. They do them much better. And, and so I, I just want to go, does it back. Even if robots are better than humans at something, it doesn't mean they are replaced. Since Gary Kasparov was beaten by, Deep Blue in 1997. People still play chess. And in fact, people play central chess. Central chess, are the best chess players. The human plus machine, beats a pure machine or a pure human. Now, in fact, the best centers pilots of chess programs are actually not the best chess players. Because the best, solo chess players will, overthink what the machine does and second guess it. And so you actually, again, coming back to Tony Stark's Iron Man suit, you know, like, if Tony Stark was Superman. Superman wearing alignment suit. Probably not a great idea, but maybe Tony Stark, who's a clever you know, human. Great idea. So another thing is, so humans have been bested by machines at a number of tasks for hundreds of years. The best hand-to-hand fighter has been a machine for, I know, at least Leonardo da Vinci's time. Maybe it maybe a year earlier we could create, machines that will beat a human. Yet people still have boxing and cage fighting, and they get in their underwear and into a cage and slug each other out. If you put a robot on there, 100% of the time will win. If you have a a good robot. So people still want humans with things, and humans have a purpose even if they are not the best. But there are things that humans will always be better at. One, contextual reasoning. This is two creativity. Three charisma four. Empathy five. Judgment six lateral thinking. So these these things humans will always do better. If you want to stand up in court and convince somebody of your case, a robot is not going to be convincing. They're not going to get that empathy. If I want to make a judgment as to what is the best thing to do, what is the best law to to use a human will always be better than a machine, but will be augmented by machines. And just as we are augmented by machines now, so will we be replaced by generative AI? Now the level of generative AI at the moment it's actually pretty good. I would say a reasonable approximation of what the level of general AI’s ability is is probably a university student or a university graduate who has gone to all of the lectures, but who hasn't done the reading. So now they're sitting in their exam and you're asking them questions. Now they might make some of them up. But they're pretty good. Now what could you get a graduate to do? You get them to do a lot. And especially if you have an unlimited amount of them. Now anyone who has worked with, with junior professionals before immediately knows the things that you're going to need to put in place to work with generative AI. So you don't just get a junior to write something for you and then send it off to the clients.

Robyn Jacobson

Yes.

Adrian Cartland

You read things, you might get them to write something for you and then use it as inspiration. They might write many, many words, but they just sort of a word salad.

Robyn Jacobson

Are there some examples of where professionals have used AI, and perhaps not been sufficiently looking over the contents, and therefore have passed it off as being correct, and it's turned out to be incorrect?

Adrian Cartland

Well, there was a great example in the US, Mata, Mata, V avianca and a solicitor or attorney had to prepare as case submissions and, didn't have access to a research tool. And so instead went onto ChatGPT and said, I want you to generate me some cases that say this. And it did exactly as it was told to, which is, yeah, which is fantastic, except that it hallucinated the cases it made up, a case about Southwest Airlines that answered and helped his case exactly like he told it to. And again, think of this like a university graduate. And he said, go and do this thing you haven't said. Don't make it up. If you do say don't make it up. Yeah. It that improves it. Now then what happened is he submitted to the other side and they did. The first thing that they would do is looked up the reference and go, well, this seems to be a case that would win you the case when you you matter. Why can't we find it? Now I just want to stop and say I don't understand how someone could have relied on a case without actually reading it. Like. I mean, who does that?

Robyn Jacobson

Did he think it to be a valid case?

Adrian Cartland

Yes. He said, you know, I want a case that supports the thing that I'm doing and it's and it listed off and it looks like a properly cited case. And I gave a summary of the case. Okay. Yeah. I mean I would have thought that you would have checked it like that was that was what I understood. Everyone was taught in in legal research and writing when I was at university. But anyway, so the other side then comes back to him and says, we can't find this case. And then he continues to, to cause a problem. So instead of going, you know, maybe they're right, maybe I should, you know, get someone else's help on this, lookup a proper research service. But then he went back to ChatGPT and says, is this case real? And then ChatGPT says, yes.

Robyn Jacobson

Is it like saying to someone, are you lying?

Adrian Cartland

Are you lying?

Robyn Jacobson

 And they say, no

Adrian Cartland

No, Is that a lie? No. It’s just, It's ridiculous. But then he said, okay, show me the case. And then it generated the case, which is totally a made up text. And if you look at it carefully, you will not even carefully, you know, if you half decently look at it, you can see that it looks like legal text, but it isn't particularly coherent. Again, like there's a uni student who's sitting in their exam and they've written many words and they've used lots of legal words, and you go, but you just made this up. So he got in trouble, he got fined. And I think he got struck off and, and rightfully so.

Robyn Jacobson

So do we look at that as an isolated case. And yes, we can have a laugh about it or doesn't represent or present a serious risk in terms of what professionals are passing off as work to their clients.

Adrian Cartland

Well, let's again, consider the alternative is what if he had given this to a junior? And he gives this to this junior who goes off and finds a case who, you know, doesn't read it. And maybe the junior is not going to expressly make it up. But if you've gone, if the junior finds a case for you you don't read it.

Robyn Jacobson

It could be the wrong.

Adrian Cartland

It could be the wrong case. That's it. And then then his. It still would have made the same problems with the processes that he had. Whether he used ChatGPT or a junior, he would have run into problems. So, you know, the problem is not generative AI. The problem is the processes that he had. So if you were following good professional practices, you shouldn't have a problem with this. Although although of course, another part of this is that he didn't quite understand what it was doing. He genuinely thought that this was an accurate research service. And so you you need to understand the tools that you're, that you're using. So it's like if you get in your car when you come to the wharf and you go, well, I just got to drive off of this wharf because I expect that it's also a boat. No, it's not a boat. You need to get out of the car. Get on the boat. So here he thought that this was an accurate research service, and it wasn't. So you need to understand the technology that you're using. And again, that's a fundamental problem, not a generative AI problem.

Robyn Jacobson

If you're AI practitioners using it and there are now, are they going to be streets ahead from those who don't. And I think of this a comparison cloud accounting and cloud computing. We know that there are many advantages. There are efficiencies. They've got the ability to share a file directly with your client. You can work from anywhere on it. There are lots of commercial advantages and efficiencies that come from that. And to some extent, they've moved ahead. And they might still be those using, say, desktop programs. Is this an example where those that adopt us engage, that are going to have commercial advantages and those who don't are going to have disadvantages, or is it just a different way of working?

Adrian Cartland

So if I was trying to sell a book or an article or a consultancy report, I would say yes. If I was trying to sell some software, I would. I would say yes, but I'm going to say it kind of depends on what you're doing. So let me give you some simple examples. If you're trying to do a first draft or something or like generative AI is fantastic. Now we joke about lawyers not being good with maths. And then the the flip side of that is that we joked about accountants not being good at writing. I know a number of accountants who use generative AI all the time to write emails and so on, because they write them in, let's say, accountant words.

Robyn Jacobson

Yes.

Adrian Cartland

And then I turn this into polished words, and you can tell that it's from the generative AI, but it's a much, much nicer email. So again you're stepping up and it's another thing is are you trying to generate lots of words. So let's just say if you did a job that you did was generating consultancy reports that talked about the future of artificial intelligence. Now at the moment, there are some consulting firms that get 22 year olds to generate a lot of text. And then charge six figures for that to large corporations who say, great, you know, we're learning about new technologies. Can that be replaced by I'll call could. Could someone be much more efficient in doing that? Absolutely. As you can see from my paper, I've written something like that. The the futurist, Richard Sass guide. He's written lots of papers and books and articles and so on. I look at what copilot, drafted for my paper, and I. You know what? I think it's better than a fair amount of his writing. So certainly, if that was what you're doing, then. Yes, if your job is to think, you know, have contextual reasoning with your client, you sit down there and go, I understand this one thing that you're saying, but I also need to understand all the problems that you that you're dealing with, that you need to empathize with the client. If you're understanding, if you're trying to make judgment for the client, that doesn't help. Now, I might do some of the back office work. You know, like, again, watching your emails, writing some nice blog posts, said ten things about FBT. Do do a listicle. It will absolutely smash that. I use generative AI on all of my, website blog post images because they're much better than, much better than stock images. And I write a lot about artificial intelligence in the law. There's only like five stock images for AI and ML, and they're all used by every news outlet. And so I'll look at my blog post and I'll see it on 50 other websites. But now I've got a whole bunch of really specific intricate pictures on there, and they're fantastic. Now so that stuff is replaced again. Has that made my core business better? Not really, but it has improved things.

Robyn Jacobson

It makes it less generic.

Adrian Cartland

Yeah, it makes it less generic. The other thing is the biggest change that we've had in, say, more is the ability to copy and paste.

Robyn Jacobson

Yes.

Adrian Cartland

And 40 years ago there were typing tools. And since we had WordPerfect, the ability to delete and copy and paste, that's changed all the typing tools of God. Now, has that impacted the core part of wall? Not really. Obviously the people who could copy and paste and they've become a more efficient. So yes, there is absolutely competitive advantage there. And it really just depends on particularly what you're doing. So I don't like making broad statements. And so that's why I've got a really long answer to that. And and so the answer is it kind of depends for some things you can for some things you think that you can't, you know, when you see someone who says 49% of, you know, more jobs or your professional jobs are going to be replaced by artificial intelligence? Yeah, well, that's not it's not true. Can things become much more efficient? Yes. But also the job of the positional is not actually about cutting down work. See, our incentive structure as a professional, the most overriding thing that we have is not to screw up that. So over a career of, say, 40 years could be 60 years for many people, but say 40 years if you make one large critical mistake that could end it. So the like the most important thing in your job is not to ever be negligent, not to ever screw up. So you don't have unlimited time. You have a constraints on this. You can't look at every piece of legislation, every every law. And so you need to do some triage on that. Now if suddenly you can do that triage faster, your incentive is not to do more work, but is to go deeper and remove mistakes. If you're, say, a, returning to law and with the ability to copy and paste, legal contracts have doubled, tripled in size because lawyer will go now I can add in this clause. This goes, this goes. I don't have to dictate it out. I can just go copy and paste. And so the more research we can do, the faster the research we can do, the more we will do. And so it will just expand the nature of work. And it works the other way around. The ability of AI to automate things will mean that the government says, let's find new things to review. Like, you can easily set a generative AI to review a whole bunch of text. You don't need to specifically data match. You can say reveal this text, okay. That means now there's a whole bunch of other things that can be audited. There is more work. This comes back to basic economics, to bond and supply curve. We have shifted the supply curve. When you shift the supply curve out, what that means is that you will produce more things for lower price. So there will be a greater quantity of goods. You move along the demand curve. And so now you might say does that mean we're all going to charge less. No. Maybe you can do this one job cheaper but you charge by the hour like you. You just do more jobs and there will be more jobs created. So I think that what will happen over the next ten years and again, I hate making these big predictions, but over the next ten years, there will be a massive explosion in the amount of tax work.

Robyn Jacobson

Adrian. Thank you. You've taken us on quite a journey, and it's really interesting to see where this is now and where this is going to take us in the future. So I'm sure you'll keep us informed of the period ahead.

Adrian Cartland

Fantastic. Thank you very much. Thanks. Excited.

Robyn Jacobson

Thanks for listening to this episode of TaxVibe. I've been chatting with Adrian Cartland, principal solicitor at Cartland Law. If you've enjoyed this episode, we'd love for you to subscribe, rate and review. Wherever you listen, we'd welcome any feedback and suggestions to catch all from TaxVibe and The Tax Institute. You can join us on LinkedIn if you're interested in being at the center of the tax conversation. Membership of The Tax Institute could be just what you need. Stay current and connected with tangible, real world benefits. Learn more at Taxinstitute.com.au. Thanks again and we look forward to joining you next time.

Robyn Jacobson

Hello and welcome to TaxVibe, a podcast by The Tax Institute. I'm Robyn Jacobson, the Senior Advocate at The Tax Institute and your host of today's podcast. On the show, I chat with some of the tax profession's brightest minds, drawing on each guest's unique perspective to give you valuable and practical insights you won't hear every day. We hope you enjoyed this episode of TaxVibe. I'm joined by Dr Ann Kayis-Kumar, Associate Professor of Taxation Law at the University of New South Wales Business School. Ann specialises in tax law and policy at a domestic and an international level. She's the founding director of the UNSW Tax and Business Advisory Clinic, an international award-winning platform for experimental work integrating learning, innovative grassroots research and catalysing social impact across Australia. Her research has appeared in the media, including Channel Ten's The Project, ABC Radio National, and The Guardian. Ann also serves on the Tax Institute's National SME Technical Committee, the ATO's Small Business and National Tax Clinic Stewardship groups and the Law Council of Australia's Taxation Committee. Ann, welcome to TaxVibe.

Dr Ann Kayis-Kumar

Thank you so much for having me, Robyn.

Robyn Jacobson

Look, this is a really important conversation that we're going to be having today. And I just wanted to firstly, thank you for the time and your commitment to this space. As we talk about economic and financial abuse in relation to, in particular, intimate partnerships. You wrote an article for us in our TaxVine, our member newsletter, that was titled Domestic Violence – What's tax got to do with it? Now, leaving aside the really catchy title, I think this is such an important social conversation to have, and I thought as we take a more serious path away from more regular tax conversations, and we delve into how the tax profession can take a role in identifying and disrupting financial and economic abuse. Can you just set the scene for us as to on the national landscape – where's this sitting? How's the conversation going? What's the narrative like? Because we've seen a lot of increased media coverage in this space.

Dr Ann Kayis-Kumar

Yes, absolutely. Robyn. So we know that domestic violence is a national problem. We've had people as senior as the prime minister talk about it as a crisis. We also know that most cases of domestic violence also have an element of financial and economic abuse. And we know the numbers are really staggering. So the ABS most recently estimates that 16% of Australian women and around 8% of Australian men have experienced intimate partner financial abuse. So we're talking 2.4 million Australians. And that's likely an underestimate because tax so far hasn't really been as deeply understood.

Robyn Jacobson

Yes, staggering figures and we'll get more into the stats and the data and the trends. But for our listeners can you explain or define what is economic abuse or financial abuse. Perhaps those terms are interchangeable, and does it relate to domestic violence?

Dr Ann Kayis-Kumar

Yes. Yes, absolutely. So what is financial and economic abuse? There's a lot of literature around defining it and unpacking it, but at its broadest, it's about a perpetrator in an intimate partner relationship using money as one of the tools at their disposal to control the victim survivor. So that just adds to the pain and the dynamics of power and control and coercion. And money is a really powerful one. You wouldn't think that it would be so profound, but it actually, is one of the most problematic and insidious elements because, for starters, it continues after the victim survivor has escaped the abusive relationship. And also it can be used in ways that are less visible. And so there might be less help seeking behavior by victim survivors because they might not even realize that what they're experiencing is financial abuse. So coupled with that plus relatively low awareness of what it even is as a community, it makes it really important that we have programs like yours to raise awareness and lift the lid on it so that we can have more of a conversation about what it is, what the red flags are, and more optimistically, what we can do about it.

Robyn Jacobson

One of the key points I take from what you just said was that even after any immediate physical threat has passed, there is still, if not an ongoing or potentially even an increased risk of this financial or economic abuse.

Dr Ann Kayis-Kumar

Yes, yes. And to add to that as well, often, and this is what we know from the domestic violence literature, often it's financial instability and economic instability that can lead someone back into an abusive relationship, even after they've left. So that really highlights the importance of the systems supporting victim survivors.

Robyn Jacobson

And whether that's returning to that initial abusive relationship or whether it's seeking some sort of alleged refuge, or apparent refuge in a new relationship which might turn out to be equally as damaging.

Dr Ann Kayis-Kumar

That's such a good point.

Robyn Jacobson

Yeah. So we know that financial abuse almost always occurs alongside other forms of domestic violence. And this could be physical threats sexual, psychological and emotional abuse, threats, intimidation, controlling behaviors, duress. The list is endless. What sort of trends are we seeing? What's the prevalence of this in our community? And I might even suggest your community, your population that you particularly look after might be a little more exaggerated than perhaps the general population.

Dr Ann Kayis-Kumar

We definitely see the people that we help are in the most extreme of crises. So the clinic that I'm the director of, we partner with community organizations to identify people who are in serious hardship. And since we've started, we've always seen an overt representation of particularly women who are experiencing domestic violence and financial abuse that manifests in really unexpected ways. When you layer on the tax taxpayers. That goes back to your question, what's tax got to do with it? And ultimately, it boils down to business structures and joint and civil liability. Once you have any sort of mechanism and this applies beyond tax as well to other facets and other areas of law. Once you have some sort of joint liability at play, it is vulnerable to abuse by a perpetrator who can, as a tactic of control and revenge, allocate, sometimes without the victim survivors knowing, even allocate tax debts into that person's name. And that might not even come to light until, for example, that person receives a direct penalty notice. So, for example, one of our clients had that happen to her. She came to us in tears with the direct penalty notice for a company that she didn't even know existed, let alone that she was the director of.

Robyn Jacobson

And that's where my mind was going. You've got obviously, the case of multiple directors. So let's assume that we've got, two people in a relationship who are both directors of the same company. In the ideal world, they are, of course, appointed formally. And they know when they signing off that they have been appointed. But we've heard of store directors where unscrupulous directors might deliberately approach homeless people or people who are down and out and very desperate for some money, and they'll take it on in order to become a director of the company. But that understanding the implications, that's slightly different. This is where perhaps that director doesn't even know they've been appointed. But the other place that my mind went was cross partnerships. And there are a lot of small business partnerships which are in a domestic relations sense, set up. And so you could immediately have that joint and civil liability where one of them just walks away from all the commitments and obligations and leaves the other partner to carry the mess?

Dr Ann Kayis-Kumar

Precisely, yes. And we have had situations just like what you're describing, Robyn.

Robyn Jacobson

Yeah. What do you think is driving this? So we've seen a lot of increased discussion. Is it because there's greater awareness of the issue and the communities talking about this more a little bit like other things that years ago were taboo and now we are talking about it, or is it a case of an increased rate of incidents of this happening, or is it, in fact both?

Dr Ann Kayis-Kumar

That's a really good question. And while I don't have the the concrete numbers because it's something that is still relatively new as an area, I imagine, I suspect it is a bit of both. So on one hand, there is this increased awareness really catapulted to, a national conscience since the royal banking Commission led to the big banks doing work on financial abuse and identifying things like $1 transactions being a marker of financial abuse, that's then really shifted the national conversation around financial abuse specifically. So there's heightened awareness of it, but also, we do know that from the literature, increased levels of financial distress are significantly associated with financial abuse. Unfortunate. In a post-pandemic environment, we've seen a cost of living crisis that is not easing up and people are really struggling. We know that there are millions of Australians who are living below the poverty line. We know that of people who are homeowners, around half of them are experiencing some sort of financial distress. So there is a lot of pressure financially across the community more broadly, and that can manifest in these issues being triggered and exacerbated.

Robyn Jacobson

Do you have any numbers around the the people who are going through this financial distress, either in what we call official severe financial hardship or those that are feeling pressure but may not actually be seeking assistance?

Dr Ann Kayis-Kumar

Yeah, that's such a good question. We know from the Financial Counseling Australia data that it's roughly only 300,000 people per year who approach a financial counselor. So that's people who are in such deep money problems, and they really need someone to help them navigate those many problems. And we know from research that my team and I did, this is pre-pandemic, so the numbers are probably higher. We know that over a third of people who approach a financial counselor have an unmet tax need. And of that third, roughly 90% need a registered tax agent because they are unable to manage the long term overdue tax returns and best returns, and also tax debt discussions with the ATO. And really, like you say, once you layer in a small business angle, you really need a professional to help you navigate it. It's pretty much otherwise impossible.

Robyn Jacobson

And yet, ironically, in most cases, there's a cost associated with seeking that professional tax advice unless they're going to something like a tax clinic.

Dr Ann Kayis-Kumar

Exactly. Yeah.

Robyn Jacobson

Do you think also we've got a bit of a cocktail going on where we are some years out of the pandemic, and yet it feels that some people are still coping with that or dealing with that. There seem to be a lot of short tempers. We know their mental health issues across the community, and it just seems a lot of this is fusing together with that cost of living pressure as well. And there may be people who have never experienced this before, who haven't been in mortgage stress, who haven't had the familiarity of being around financial distress and are now facing it. So this is not to exclude in any way, but it helps to understand why, some of this perhaps does occur.

Dr Ann Kayis-Kumar

Yeah, I absolutely agree with you, Robyn. I think one of the things that we were really, surprised to find when we started collecting client data six years ago is that severe mental health issues were one of the most striking trend. About 80% of our clients self-report severe mental health issues. That was no surprise to colleagues in the mental health space, though, because they've established for decades that financial distress and mental health illness go hand in hand. They are significantly associated. So for us and then in the tax literature, it was new but not new from a mental health literature perspective, which is informative for us because it adds an extra dimension, like you're saying of these are all interrelated issues.

Robyn Jacobson

I understand that ASIC has published some figures around the people who are reporting distress. In other words, they're trying to keep up with their loan repayments but actually struggling. Have you got to figure around that?

Dr Ann Kayis-Kumar

Yeah, I think the last time I checked, it was about 5.8 million Australians have some sort of financial distress, which is really troubling. Absolutely. And those are people who, I guess the literature is, is silent when it comes to people in poverty. For the most part. And so that there's a bit of a policy blind spot at that level, too. And that's the focus of what we're doing with the clinic and finding really surprisingly, that, for example, most about clients have a tax debt that is quite significant. And that's up to, in some cases, $300,000 of tax debt. But they're on Centrelink. So it gets to a point where we really need to unpick what's happening. The difference between, once you overlay the financial abuse angle, what the solution should be, because it's not right that if someone is not even responsible for creating a tax debt, that they are deemed responsible for paying it off. So our clients will be in, transitional housing, reliant on Centrelink. So they've got income of the significantly less than the national average. But on average the tax debt that they hold is about $90,000. It's simply impossible for them to pay that off with a payment plan. And what I worry about and what my team is concerned about, is the next steps that can then lead to bankruptcy. And that then fades into what you're saying before about the mental health piece. Because if someone is made bankrupt, then what are the consequences of flow from their.

Robyn Jacobson

And we'll chat about that in a moment. So does any of this get into the sphere of elder abuse or is that a different conversation?

Dr Ann Kayis-Kumar

That is a whole other conversation and one that we really need more work being done. In my research, focus has been on intimate partner financial abuse, but there is absolutely a whole other unexplored unknown when it comes to that and its interaction with the tax.

Robyn Jacobson

Okay. What about whether this is getting into what can be described as gendered violence?

Dr Ann Kayis-Kumar

Yeah. So unfortunately there is an overrepresentation of women when we talk about financial abuse. The statistics, it's you know, it's 16% versus 8% women to men experiencing financial abuse. So statistically, much more likely to be women experiencing financial abuse.

Robyn Jacobson

And that's a national average. You're referring to the 16% of women.

Dr Ann Kayis-Kumar

Of all Australian women, according to the ABS data.

Robyn Jacobson

On what would be the proportion that you're seeing in your clinic.

Dr Ann Kayis-Kumar

We've got much, much higher rates of financial abuse. Unfortunately, when I first started the clinic six years ago, it was about 60%. And that then prompted collaboration with the Gender Violence Research Network. And they've just been invaluable because they've already been working in this space and have significant strides in the financial services industry. However, what's even more troubling is in the last year and a half, that number has skyrocketed to over 80% of our female clients. So reporting financial abuse.

Robyn Jacobson

Recently, there was a report delivered from the Independent Rapid Review of Prevention Approaches to help stop gender based violence. A lot of words in that. There were some recommendations made across six key areas. My question is, is this just another report? Another review with more recommendations. Does this report progress the conversation or more importantly, progress action and solutions to actually make a difference to those who are in these very, very difficult circumstances?

Dr Ann Kayis-Kumar

Thank you, Robyn. I think what's really special about the Rapid Review is it's we already knew from the national plan that tax was part of the landscape, but the national plan didn't have any concrete policy solutions. And what's really promising about the rapid Review is that the expert panel has identified tax as one of the significant systems that can cause harm. And so that in and of itself is breakthrough. That is the first time that a federal government level report has recognized the interaction of tax and financial abuse. And so I'm really optimistic that with the report coming out and then in October next month, the Parliamentary Joint Committee on Financial Abuse will deliver its recommendations to government. I am an optimist, and I'm hopeful that we will see some real policy recommendations being made, that the government will be able to act on the things that are practical and meaningful, because that is really what we need in this space. We need law reform so that the regulatory environment and the administrative levers are modernised and appropriate to deal with this.

Robyn Jacobson

So let's unpack the tax side of it a bit more. With your background as founding director of the UNSW Tax and Business Advisory Clinic, what do you see and how does tax play a role in all of this? And I'll add to that, you have in your previous research and papers and, and other publications referred to sexually transmitted tax debts. So can you also explain what that means?

Dr Ann Kayis-Kumar

Absolutely. So sexually transmitted debts are a term that financial counsellors coined a little while back to highlight how a victim survivor can be saddled with debt. What we're seeing is that playing out via business structures in the tax system, and that's really problematic, because then it means that the ATO is pursuing victim survivors, sometimes without the victim survivor even knowing about the debt to begin with. And it's, unfair on the ATO as well, because they don't have the legal mechanisms that make it really clear that, for example, with that DPN affected clients. That that is a defence. If we were to legislate for those sorts of defences or to have a mechanism, an exit valve, it would be beneficial for the ATO and beneficial for the community.

Robyn Jacobson

So you've talked about Director Penalty Notices being issued to people who are directors but didn't even know they were. And of course, the DPN makes you liable for unpaid PAYG withholding superannuation guarantee charge, but also GST, luxury car tax and wine equalisation tax. You've also talked about bankruptcy. So let's delve into that further. What are the implications if someone is declared a bankruptcy, what sort of impact does that have on the victim survivor.

Dr Ann Kayis-Kumar

Absolutely. And particularly keeping in mind, the piece around the lack of social justice that is achieved by bankrupting someone for a debt that they weren't even responsible for creating and oftentimes didn't even know existed. So in addition to that, then it is part of the broader tactic of control and revenge and abuse. So what we then see is the system effect kicks in, and the system is often deliberately used by perpetrators as a further tactic of control and abuse. So the system effects of things like once someone is made bankrupt, it impacts their ability across short, medium and long term to attain economic security. It can affect housing, it can affect employment. It can affect ability to get finance. So it can affect ability to travel overseas. But more profoundly when it's done in really sinister ways. And we have seen clients who have told us that their former partner has said to them, I am going to financially ruin you, and that is a deliberate thing that they're doing. It's loading up with revenge tax debts as a result. Once you overlay and family law and bankruptcy, things can get really problematic in ways that are really unexpected. For example, being made bankrupt can affect someone's standing in a family court matter, which can in turn affect their ability to secure child custody. So there are very profound ripple effects.

Robyn Jacobson

These words, and I'm going to reel off a bunch of them for you, are these apt descriptions of what you see with your clients: power imbalance. You've talked about someone deliberately setting out to ruin the victim, intentional behaviour, revenge, calculated behaviour, vendettas, and energy put into destroying the victim.

Dr Ann Kayis-Kumar

Yes, yes to all of the above. Unfortunately, it's chilling.

Robyn Jacobson

Yeah, it really is. What role does the tax system and maybe this is a paradox. Does it actually enable or facilitate this inappropriate behaviour? Or can it be used to harness good out of it? It there a way of using the tax system to identify and prevent financial abuse.

Dr Ann Kayis-Kumar

Yes.

Robyn Jacobson

And I feel that you’re more likely going to be leading on the bad list rather than the good list. But let's see how we go.

Dr Ann Kayis-Kumar

I think the present state is bad just because we've had such poor awareness and understanding of it. And often when I talk to people, they are surprised at how the tax system is weaponised. It's something that we don't expect to see. But unfortunately at frontline level it is commonplace. What we could do is turn this whole ship around and empower the ATO to identify and support victim survivors by bringing in legal solutions that give them the discretion to release victim survivors from tax debts created by the perpetrator. Also other administrative solutions, too. And that's often things that we can see international examples of in the way that debt is managed, for example, in the United States, which really is the shining light when it comes to serious hardship in the context of innocent spouse relief is that they have the legislation that means the IRS is poised to be able to grant these sorts of discretions, but they also have administrative mechanisms, like a victim of domestic violence indicator that while not perfect, we could learn the lessons from and cherry pick elements of to design something that's really going to make the ATO positioned in a way that it can disrupt perpetrators rather than the situation that we have today.

Robyn Jacobson

How does the indicator in the US work?

Dr Ann Kayis-Kumar

That one's a little bit complicated, but it goes to previous behaviour in screening, and then the IRS is able to keep a record of that. Another thing that we could be doing here, which I understand is forming part of the broader conversation around the national response, is sharing data across agencies. So for example, ASIO, Centrelink and the ATO, we know from previous work in this space being led by academics like Kay Cook, that there is also the weaponisation of the child support system. So by not lodging a tax return or by lodging a tax return, but understating income that has a knock on effect, the child support payment amounts. And we've also seen situations where perpetrators have deliberately understated and subsequently amended their tax returns, which then creates Centrelink debts, which then the ATO needs to pursue. And it gets to a really messy state because you can't get relief from your tax debts on grounds of serious hardship if you have other tax debts, and Centrelink debts are one of those other tax debts.

Robyn Jacobson

Is it the case that if you don't lodge a tax return for two years, then you don't need to pay child support?

Dr Ann Kayis-Kumar

Yes, that is something that has been uncovered as well. And I absolutely agree with you in the way that you're saying it. It is absurd even just saying it. And that's one of the deficiencies in the system that I'm hopeful that we see corrected as a result of the government work in this space.

Robyn Jacobson

What other red flags do you see, or, I guess more importantly, for our members who are practitioners and they're sitting there with their clients, what sort of things should they be looking out for? And I want to emphasise, this is not about an expectation that the tax profession should be running to the rescue and solving all the problems, intervening, because they're not trained to do so. They're not trained psychologists, they're not trained in domestic violence issues, but there must be signs or red flags that would make a practitioner sit back and think, gee, I wonder if there's an issue here, and if there is, what could and should they do about it? So perhaps we break it down and look at what are some of the red flags you're seeing.

Dr Ann Kayis-Kumar

Absolutely. So in situations where decisions are being made, transactions are being made, organisations being set up. And that's happening as a couple, but without the written or, evidence consent of the client's spouse. That is a red flag. Identification checks. So we've seen again, really chilling ways that perpetrators can, you know, through charisma and other tactics, put accountants in positions that are compromising. For example, one client came to us and their abusive former partner had masqueraded as them by setting up a fake email account, pretending to be them, and telling the accountant that she couldn't attend meetings. She was too busy at work and everything just needed to be done via email. There was no client verification. Now, that's not to say that solving that would solve all the problems, because you still could have situations where there is coercion. And so the client's spouse may be physically, there may be giving consent that may actually be in a situation of coercive control. And we know that a couple of states, including New South Wales, have enacted legislation against that. But going to your point about what can we do as a profession? I absolutely agree with you. We are not trained mental health practitioners or domestic violence support services. It's more about where it is safe for both the client's spouse and for the individual who's identified a potential red flag, where it is safe to pull them aside and say this might be a red flag. Are you getting support? Do you need support? Something as simple as raising an awareness of it could have, a trajectory changing effect, but any further action? I think it's imperative that that individual, that particular person, is empowered to do the next steps of reaching out. It's certainly an area where I wouldn't recommend any further action from a professional's perspective, but things like raising awareness around the need to get consent, the need to make sure that the individual has an awareness of what the implications are from a tax and liability and personal liability perspective are really important. So it's about, an education piece rather than a crisis support, imperative.

Robyn Jacobson

Yeah. So in a similar way, if I was a practitioner and someone I didn't know approached me and asked me to set up an entity, change a bank account, amend a prior lodged return, and then that generates a refund either from an activity statement or a tax return. I think my little antenna would be going up thinking, okay, is this all legitimate? Is this a potential fraud on the ATO? So in a similar fashion, it's not to say that anyone who sets up a new entity or changes a bank account is engaged in in fraudulent or inappropriate behavior, but it's perhaps a red flag to look out for. What are some of the other red flags you would suggest accountants should be alert to?

Dr Ann Kayis-Kumar

Yeah, absolutely. And that pays around bank accounts is really interesting. So where an individual, the client's spouse is assigned income, but then the funds don't go to that account or they go to a different account. The tax liability will still be triggered, but they may not have access to funds. So there's only so much that we can do as a profession. But just having some guardrails around awareness, I think is a really important first step in identifying and supporting, people in these situations. One really interesting piece that I often hear domestic violence advocates talk about is the need for, the victim survivors to have their own bank accounts, but that is set in a way that assumes that that is achievable. Often one of the really unfortunate elements is that that's not the case. We shouldn't take for granted that people have independent access to their own bank account. And the knock on effects of that is also something that it's still early days, but does make you wonder when it comes to lodging things, whether or not you use an accountant via myGov, for example, with director IDs, what potential issues there are that we're still, you know, just scratching the surface of.

Robyn Jacobson

So would you also be looking at for say changes in patterns of distributions from trusts or changing office bearers? So whether it be directors, trustees, appointors, shareholders, beneficiaries of trust, there's a whole swag of things there, perhaps looking out for amendments of returns or activity statements.

Dr Ann Kayis-Kumar

Yes, yes, absolutely yes to all of those things. Yes. And unusual patterns of really large numbers that can, create large tax liabilities that are outside the norm of that particular operation. While that might just be a really good boon for that business, it could also be an indicator of other things. And we've seen that in areas that are adjacent, like with protego. But it's just about I think from our perspective as a profession, the first step is raising awareness amongst the profession of what financial abuse, even is and what those signs could be, and the pace around consent and coercion and how they interact. Sometimes the victims will have knowledge, sometimes they won't. But in the US, it's really interesting because they don't require evidence of anything but the abuse to then be able to relieve the tax debt, which I think is really interesting because it goes that piece around, even if you had knowledge and so called consent, there's coercive control. So as long as you can evidence that abuse was occurring, that is the legal threshold.

Robyn Jacobson

We know in Australia about two thirds of individuals use a tax agent. And this might be a difficult question to answer, but do you have any insight as to whether it's more likely to occur where a new client works, walks through the door, or whether it's existing clients that you might have been looking out of for the last 10 or 20 years.

Dr Ann Kayis-Kumar

That is such a brilliant question, Robyn. And I think because this area is still so new, we're literally in the infancy. It's only really been unpacked in the last two or so years in terms of the literature base from an Australian tax and financial abuse perspective. I would love to know what that number is. And it's something that would be really instructive to have the data around. We simply don't have as rich an understanding from an empirical research perspective. So potentially, if any of your listeners, interested in doing research in this space, that would be really, really interesting to to have that data and would inform government and policymakers.

Robyn Jacobson

That's actually an interesting approach, because if the data shows that, I don't know, let's say 80% of this was happening where it is a new client, that it means agents and practitioners more broadly should be that much more attuned to when someone walks through the door to make sure the radar is off on all the range of issues, not just, whether there's financial or economic abuse, but of course, if there's any fraud that's potentially being planned. Whereas if the data showing that it's more the longer term clients, the ones that have got fixed, existing relationships with their agents, then that brings in a different dynamic.

Dr Ann Kayis-Kumar

It does indeed. And what we have seen with a number of our clients is that, often if they do have an accountant, it's the perpetrators mate or contact. Who has brought that account into the fray to begin with. So once there is a separation, the client spouse is on the out and that can have knock on effects as well. One thing that we unfortunately have seen occasionally is our frontline team not being able to get the records for the period that they were with that particular professional, and that could be for a myriad of reasons, including just simply the client not paying for the work that it can be a red flag if there is a withholding of that sort of data. And so that would be really interesting to get a sense to, of how prevalent that is, because like we've talked about the clients that we say are really at the pointy end, they're the most extreme. But we do have situations like that. And that's echoed in what the evidence has been presented to the parliamentary joint committee around the role of various professions and silence and subjugation across a myriad of different professions, and how that works as well.

Robyn Jacobson

Where my mind is going is the code of professional conduct and the Tax Practitioners Board and the regulation of the tax profession. And there are two things that jump out at me that one is about managing conflicts of interest. And of course, if you are then in the situation where the client, as in two people have separated, you then need to manage that conflict. There's nothing that says you must only act for one of them. But in a situation where it's quite acrimonious, then that could be a situation where you do need to pick one over the other so that you're not conflicted in that way. And the other is about the agents making sure they comply with the proof of identity requirements. So we know there are standards expected by the Tax Practitioners Board. They've got that in there, the guidance notes or practice notes. And so checking the identity and verifying who the client actually is is a really important piece of this. And that's needed for so many reasons to safeguard against inappropriate behavior. Absolutely no tax clinic. I just want to heighten this for a moment. Understand there are now 15 tax clinics across the country. You're getting Commonwealth funding, which is fantastic. And this is a really important piece of work. And I look at the stories, the reports and of course LinkedIn posts about people who work on the tax clinics going to remote parts of Australia and providing tax and superannuation services to those who probably haven't heard too much about it. How's the work going, and is there anything the profession can do to support the clinics?

Dr Ann Kayis-Kumar

Thank you so much. I really appreciate that, Robyn. I think one of the amazing things is our ability to collaborate. And also credit to the ATO for giving each of the clinics the discretion to formulate a clinic that best suits our geographical areas and serves our communities in the way that we were able to craft as we saw fit and where the demand was. When it comes to demand, obviously demand will far outstrip any supply in terms of frontline service provision, but I would definitely encourage anyone who's interested in contributing, whether it's in a in a pro-bono basis or in the case of my clinic, as an employee, albeit compared to what you'd be getting in practice, we'd only be offering you a peppercorn, but very much encourage anyone who's interested to reach out to your local clinic. And we are always really keen and welcoming of people who want to be at the frontlines and help people who need it the most.

Robyn Jacobson

Yeah, yeah, it's very, very, honourable work and very much needed. Some of the resources available to practitioners. Now reiterating that it's not about putting yourselves or your clients at risk. Of course, the key message here is leave it to the experts. That said, there are some resources, and it would be useful if you could just run through some of these. I am aware, in particular of the Redfern Legal Centre’s. Financial Abuse Service in New South Wales. Is there an equivalent in other states?

Dr Ann Kayis-Kumar

That's the pace that I think really highlights the deficiencies and the lack of awareness more broadly. For funding when it comes to this. So like you say, Redfern Legal Centre’s financial abuse service is a terrific service. And they're a strong partner organisation that we've been working with from an advocacy perspective as well as a client work perspective. And there's also some brilliant organisations like CWES’s money clinics, and they do some amazing work when it comes to economic empowerment and security. Unfortunately, though, that is quite unique to New South Wales. And we don't have across every state or territory, a financial abuse specialist statewide service. So that is a gap and it is something that would be really great to see, you know, a change in the funding model of the policymaking framework so that every state and territory can have its own specialist service.

Robyn Jacobson

What are some other services that are available to practitioners or to their clients?

Dr Ann Kayis-Kumar

Broadly, there's 1800 RESPECT. And so that's a really good first port of call. I wish we had a number for every state and territory that was financial abuse specialist and specific. But each state will have its own services. But at a top level 1800 RESPECT is a really good first port of call for people. If they're also experiencing financial distress and hardship, then the National Debt Helpline is really useful, as is the Small Business Debt helpline, and they will be able to patch in other supports that are specific to the client's needs and the geographic area. Once they are made, the referral out, those are the primary ones. We were talking about the interaction of mental health, domestic violence and financial stress, so mental health supports as well, would be potentially something where a practitioner would be able to, encourage particularly small business in the current economic climate to get support. But of course, it's hard because it adds to the burden of needing to go and reach out to get help. And that help seeking can be really powerful, but also it can be quite overwhelming for people. So that's one of the things of, you know, it's one of the challenges of it's one thing to give a number to someone. It's another thing for that person to actually go and take the step of calling that number. But there's only so much that we can do as professionals and I think the most critical thing is not necessarily the technical depth and the what is done, but it's the how. So if you have a client who discloses something that is financial abuse, or mental health, it's about not just glossing over that, but instead holding in that discomfort and saying, thank you for sharing that with me, believing them, and asking if there is a way that you can support and that can have a really profound impact on that individual, and it can even change the way that that person then chooses to disclose or not in the future. So that's really important to keep in mind as well.

Robyn Jacobson

And of course, the practitioner needs to be mindful of the confidentiality rules around this because they can't be disclosing their clients information to anyone without the client's consent. Alright: policy. So just in a minute or so to wrap up, what would you like to see change? How do we embark on this journey to make a difference to these people who need assistance?

Dr Ann Kayis-Kumar

Policy is such, this is the so what? Isn't it? So what I would love to see is, law reform that can give the ATO the right tools to be able to screen and support victim survivors. So we know from the US that they have multiple mechanisms for different under different grounds. You've got instant spouse relief that is specific to financial abuse. You've got, discretion to grant relief for tax debts on grounds of public policy, which we don't have here either. And you've got serious hardship relief provisions that are much more robust than what we have here in Australia, too. So the pointy end is the piece where the taxpayer is facing bankruptcy. And that would be the starting point for law reform here, enacting rules that can give the ATO the discretion to release a tax debt on grounds of financial abuse, and instead enable the ATO to retarget the perpetrator for the tax debt would go a long way in in profoundly changing lives.

Robyn Jacobson

And I can see you beavering away to make that happen. Ann, your key messages. What's the takeaway for practitioners? What are some things you would like them to reflect on after listening to this conversation?

Dr Ann Kayis-Kumar

Yeah, I think the top two things, one, the collective efforts around financial abuse have really been coming to a head, particularly over the last 12 months or so. And so I hope there is a ‘watch this space’ piece around policy changes when it comes to financial abuse and a tax lens overlaid on that. The other piece would be it is quite eye opening to know that it's 16% of Australian women. So it's about one in every six Australian women, and 8% of Australian men. So that's a lot of people across the community. Chances are that forms a small part at least of client bases. And so to have a heightened awareness that this is a national problem and being aware of that and watching out for red flags of that can hopefully help to disrupt the abuse to the extent that it's within our control as professionals.

Robyn Jacobson

Thank you. And I would add perhaps also the lack of awareness. There's no shame in still getting to grips with all this. It's going to be, for most people, firstly unfamiliar territory and secondly probably very awkward or difficult territory. So there is no shame in putting up your hand and saying, look, I don't understand this or I need some assistance to get my head around this so that I can better be there to support the client.

Dr Ann Kayis-Kumar

Yes, absolutely.

Robyn Jacobson

The other thing I would add is make sure as a practitioner, that you're not being used by the perpetrator to in fact, perpetrate more financial abuse. So keep that antenna up. Look at some of those red flags that Ann has identified and hopefully the whole profession can work as it always does together to make this a better system for everyone. So, Ann, thank you so much for your time and your insights. And your work is so important and so commendable.

Dr Ann Kayis-Kumar

Thank you so much, Robyn, and I really appreciate your support as well. It has been phenomenal. Thank you.

Robyn Jacobson

You're very welcome.  

Thanks for listening to this episode of TaxVibe. I've been chatting with Dr Ann Kayis-Kumar, Associate Professor of Taxation Law at the UNSW Business School.  

If you've enjoyed this episode, we'd love for you to subscribe, rate and review TaxVibe wherever you listen. We welcome any feedback and suggestions. To catch all the latest from TaxVibe and The Tax Institute, join us on LinkedIn. If you're interested in being at the centre of the tax conversation, a membership with The Tax Institute could be just what you need to stay current and connected with tangible, real world benefits. Learn more at taxinstitute.com.au. Thanks again and till next time on TaxVibe.

Robyn Jacobson

Hello and welcome to TaxVibe, a podcast by The Tax Institute. I'm Robyn Jacobson, the senior advocate at The Tax Institute. And your host of today's podcast. On the show, I chat with some of the tax professions brightest minds during on each guest unique perspective to give you valuable and practical insights you might hear every day. We hope you enjoyed this episode of TaxVibe. I'm presenting to this today from the Barossa convention. So Peter is up in Adelaide and I'm down the Barossa. So this is a South Australian experience today. I’m here with Peter de Cure,  chair of the Tax Practitioners Board, and we're very pleased to be able to speak with Peter today and unpack some of the developments of light regarding the changes to the Taxation Services Act. Peter is a professional non-executive director. His experience in tax matters has developed over 25 year career as a tax partner with KPMG, and is a registered tax agent for 16 years. Peter is a fellow of the Australian Institute of Company Directors and a Fellow of Chartered Accountants Australia and New Zealand. It is also a chairman and on the board of a number of other organizations, including the Royal Flying Doctor Service, S.A. and Inti, and the South Australian Fire and Emergency Commission, as well as Variety, the children's charity. Peter, a very warm welcome to TaxVibe

Peter de Cure

Thanks, Robyn. It's good to be here. And I think from a South Australian perspective, you’re a bit upside down. So we'd say you're up in the Barossa and we're down in Adelaide.

Robyn Jacobson

Yes, I am north of you, good correction.

Peter de Cure

That's all right.

Robyn Jacobson

Now. All good. Look, lovely to be here. But obviously here with the South Australian members predominantly and certainly I know they love showing off their valley.

So we are here to talk about the changes to the Tax Agent Services Act. We've had quite a journey over the past couple of years. And of course, this all started with the review of the TPB and TASA, as it's referred to back in 2019. And this has led to some very significant developments. So I just want to set the scene and and understand why we've got to this point. Obviously, integrity is a central point of any good tax system and the tax profession, and there's no question that the community must have trust in the system. And of course, they must be an integrity in the way that the tax profession and the practitioners conduct themselves. It's got to be free from any reproach. We acknowledge that most practitioners are doing the right thing, and we've got an few that have shone a light on the profession, which has led to setting a lot of political focus, media focus and even media articles this week continue to talk about these issues. So putting aside the revelations of 2023, there was momentum to reform. TASA, well before we found out about the misconduct of a few. So this review was in place that there were 28 recommendations in total, and 20 of those have been accepted by the government. So we're now into a space of working our way through the implementation of some of those. And this has come in a couple of tranches. Now, also tonight, Peter, as a statutory body is a government agency. You're there, of course, to lead the administration and the implementation of new laws regarding TASA. But of course, anything of a policy matter is beyond the scope of the TPB and is a matter for the government. So I acknowledge that upfront. And of course, our discussion will be confined to the things that are within your realm and what you can administer. So are you able to walk us through briefly how we've got to where we are? Because it has been a quite a journey. There've been lots of stages, lots of developments, and would be good to understand what's law and what's still to come.

Peter de Cure

Yeah. Thanks, Robyn. And I think it really is very important to acknowledge the The James review in 2019 was a pre planned and scheduled post implementation review of the TASA and the effectiveness of the TPB so that you know, really business as usual thing from a from a government perspective. And as you said, there was a range of recommendations in that large number of which were accepted by government, including one of them, which was to allow the, the minister in this, in our case, the assistant treasurer, a legislative power mike, a legislative instrument that becomes a code determination to add to the code of conduct. That does a couple of things. One is that allows the minister to respond if there is, you know, a major issue or some form of process. And we know that, you know, there's been both significant public and political comment around, you know, the misbehavior of, of a small number of tax professionals. So the minister's made the most recent code determination as his first term. And I said under the the revised legislation, one of the things I'd like to stress to practitioners about the ability for the minister to make a legislative instrument code determination is it also creates a capacity for the minister to do something in response to issues that agents might raise in terms of changing how the profession is going to work in the future. And I think, you know, the minister's capacity to be agile has been demonstrated by the fact that there's been a pretty quick response to add to the the termination, the transitional provisions. And that's been very much based around discussion with the profession. and the way that we've been speaking publicly about how the TPB intends to implement transition, so that that gave the minister an opportunity to respond very quickly and very directly to practitioner's concerns. The other part of these recommendations that, as you've seen, there's been several tranches of legislative change, including the introduction of the grants reporting requirements, including the expansion of whistleblower protection, so people who are eligible whistleblowers, I can now make whistleblower protected disclosures to the TPB as well as the ATO. Their consultation type is out there at the moment in relation to the appropriate accreditation and qualification requirements. To be a registered tax agent, there's a number of detail consultations in progress at the moment about guidance in relation to some of the changes in the law, and happy to talk about those as we go through today. And I think it's important to understand, for your members, that this started out as ordinary course of business. It's been pushed and followed around, perhaps by a little bit of farce in Parliament and the media around some specific issues. And government has worked with Treasury, ourselves and the professional bodies through the tax practitioners, governance and standards Forum to try and make sure that the legislation that comes out is practical and implementable. And by way of comment, I one of the things I really want to say that I think over the journey, the TPB is probably established, a reputation of practitioners. Yeah, we're a regulator and I think we're a robust regulator. But I think we've established a track record of playing a pretty fair lot. And we're going to stick to a risk based, management of compliance activity. first thing I'll tell you is that I'm not about to send out to our investigative team an eight point checklist of the new determination. And so I get out there and trip somebody up with this. What we're going to do is continue to focus on the high risk cases. The people that are really exposing the profession to reputational damage and deal with those. The new eight point code determination is consistent with the existing code. It's just a bit more specific.

Robyn Jacobson

And look, that's a comfort. What I would say, and this is a policy question. So I don't expect a comment from you on this. But I would like our listeners to understand is our position would always be that the law is articulate, free from ambiguity and clear about what it wants to achieve and what the policy intent is. And one of the overarching concerns we've got through a lot of the provisions that have been introduced is that there are very vague terms, we've got things like reasonable grounds and material and otherwise significant and ought to have. These are terms which are subjective and which require interpretation. So we as a professional class, relying very heavily on the TPB at the moment. And it's not just about trust, but it's about understanding practically how you can decipher the terms that are given to you in the law and then be able to be able to explain that to practitioners as to how they comply. So we would always prefer better drafted law. So less reliance needs to be placed on the regulator to interpret that and then provide the necessary guidance. But it is necessary, particularly in this case.

Peter de Cure

Yeah. And that you know what I'll say to you is we're working pretty hard on guidance at the moment. And, a number of those issues are going to be subjects aware of our guidance documents coming in.

Robyn Jacobson

So let's start getting into some of the detail. And I'm going to kick off with the breach reporting rules. So in order that everyone is clear this is law. We're not waiting on bills to be approved or any legislative instruments. This applies to breaches on or after 1st July this year. And very broadly, if, let's say I'm a registered tax agent or a best agent, if I have reasonable grounds to believe that I have breached the Code of Professional conduct or another agent has breached the code, and that code is significant, then I have a positive obligation to report that to the TPB. So in terms of the triggers for reporting, you really need to have reasonable grounds to believe and there needs to be significant breach. If you haven't got both of those things, then there's no obligation to report. Now, you've had, some of the feedback, Peter, or if not all the feedback, you understand, this particular set of rules is concerning from our perspective.It was introduced into Parliament without any direct consultation with the professional association. So the first we saw with these rules was when they'd already hit Parliament. And there is an explanatory memorandum that accompanies these particular changes. So again we're relying on TPA guidance. It has been issued in draft and we've had input with the board and working with you to refine that and make sure it's as, effective as it can be. And we're now waiting for that final guidance to be issued. So how will you administer this? How will you provide the guidance that's necessary so practitioners can navigate these rules?

Peter de Cure

Well thanks, Robyn. I think in the first instance, draft guidance is out for public consultation as we speak. And so I really encourage practitioners and, unusually familiar engaged in a LinkedIn discussion this morning. just encouraging people that have genuine concern and want to make representations to do it through the consultation process. And we will certainly consider that. I think, as you've mentioned, key things are about, first and foremost, a breach has to be a significant breach. And we're going to be giving some guidance on what what will you say is significant. And it's got a line up, I think quite conveniently with some of the stuff around informing your plants and significant matters about whether they should or shouldn't report. But in the first instance, you know, significant breaches of, matters that are clearly the sort of thing that the TPB regulates. So a significant breach of the code that would get you a sanction is something that that you should be thinking about. Yeah. We're we're saying in relation to the self disclosure pieces, that you wouldn't have to advise a client if you've been given a caution on the TPB, but you clearly have to advise them if you've been sanctioned, you clearly should be self declaring if you become a bankrupt, you should be self disclosing. If you have committed a taxation offense or been convicted of an offense involving dishonesty. So those things I think are relatively clear. There's going to be a need for people to use some professional judgment around breach reporting for technical matters or competence matters. And I think the, you know, the clear example that people are concerned about is circumstances where they're taking over a new client from other practitioners, especially with disseminated problems. What I'm encouraging people to think about is, well, first and foremost, if you're in that position, one thing I'd like to see there was talk to the client about how they got themselves into this position, because you know as well as I do sometimes the the practitioner leads the the client to a position. Sometimes the client insists on leading the practitioner to a certain way of thinking. So I think that's an important piece of context. If you've got a client that's got a significant deep seven eye problem and wants to take you down a certain road, you should be thinking clearly about whether you want to engage with that person. Is this a sort of client I want to be engaged with? And I'll use that example again when we start talking about the requirement to correct false or misleading statements. So, or to notify the TPB in the ATO about false or misleading statements, if, for instance, you had a client that might have false and misleading statements in their return or, another communication with the ATO, if you become aware of that, the first thing you need to do is to decline about if they're not prepared to notify the ATO, I would say that the statement is false or misleading. And I think you've got a real question to ask yourself about. I've got a client making a deliberate material, false or misleading statement, and they're refusing to correct it. Is it really in my best interest in my practice to be dealing with people like that, to be advocating for people like that? I don't think so. So, you know, I want to clear things I want to talk to our practitioners about is these sort of provisions. They're not that far removed from the sort of business practices you should be thinking about in your practice, in your relationship with the patient, professional indemnity insurer, and to protect yourself from negligence claims. So, you know, if you're representing a client that's making false or misleading statements and you get caught for that, do you think you pay? I insurers kind of want to defend that. I think it might be time to kiss goodbye to the odd client and stick to the ones that are prepared to play within the system.

Robyn Jacobson

That's for sure. A question of whether it's significant and whether you've got reasonable grounds.

Peter de Cure

Yeah.

Robyn Jacobson

Because the definition and we do have a definition of significance. So it's about whether you've got an indictable offense, an offense involving dishonesty, material loss or damage to an entity otherwise significant. How does a practitioner who, let's say, has no knowledge or skill in criminal law or indictable offenses or dishonesty, how can ascertain whether or not any of those have been triggered?

Peter de Cure

You know, if if you're a practitioner and you've been to court for a, for a speeding fine or something, you can probably Google whether that's, an indictable offense. If you've been charged with something more serious, you need defending yourself. You can probably ask the lawyer working to defend you. You know, doctor, Google's a powerful weapon these days. You know, there are relatively easy ways to to get at least a feeling for what territory. If you if you're in doubt, you probably close to in trouble. So get some help. I think is a great way to do it. And I think as we're we're trying to focus on significant and make that clear. And you also raised reasonable grounds or, you know, ought to have now and I don't know whether you remember Hogan's Heroes on the telly, but when I was a kid, I saw some churches debating and remember he knew nothing and he saw nothing. And for a practitioner, you need to be awake at the wheel. And you should have known if your clients were, you know, you've got a positive obligation under the code to make reasonable inquiries, if you can, to understand the circumstances and to be able to detect work properly. So you should be doing PR well, I think you should be inquiring about how they business runs or what their family circumstances are. And if you don't make those sort of inquiries and don't do the normal professional things, if they found yourself tripping over something, well, I think you should have known and could reasonably be expected to have known. So it's about being, awake in the circumstances that you do need. If you get a new client, they've got a series of problems, make be inquiries to figure out how they got to where they were. And that's going to be a lot of guidance.

Robyn Jacobson

You mentioned whistleblower protection before and in one respect I agree with you. We have got an extension of the whistleblower protection in that the TPB is now an eligible recipient of that information, which is appropriate. We still have concerns about the scope of the definition of eligible whistleblower. Now, again, this is a policy question. So I'm not asking for your, comment on this, but I do think it's important to point out to our listeners. So let's say you and I, Peter, are partners in the same firm. We, by definition, are what would call a section 318 associate. And because we are associates of each other, that would mean I am an eligible whistleblower. So I can then get to the relevant protection if I need to report you. But if you happen to be a practitioner down the road, unrelated, and we're not associates as defined in the 36 tax set, then I actually don't have whistleblower protection. And I just think that's something that practitioners need to be mindful of. We yet to see all this play out, and I don't want to overstate things, and I don't want to suggest these things will happen. But we have had concerns raised by practitioners about defamation proceedings, malicious claims. And I know you've already made comment about vexatious claims, where you might actually turn it around and focus some attention on the reporting practitioner as to whether they might actually be a fit and proper person if they're making such a claim.

Peter de Cure

Yeah. And I think, you know, the problem. There are those points, understood and acknowledged. I guess the things I'll say is that if a practitioner makes a complaint to us or a notification to us about another practitioner to the best of our ability, we'll protect them from disclosure, even if they if they're not in a whistleblower, if they're not an eligible whistleblower. But I can only do what I can to satisfy. So we, are subject to the normal laws of the land as well. Now, equally speaking, in relation to those matters, I think it's really important to note that there is protection for you so long as you're not frivolous, malicious, vexatious. and I'm not trying to make that as a threat, but I'm just trying to say to people just, you know, don't use it for commercial advantage because you don't like Bob or Jane down the road just because you're having a bit of a personal spat with a practitioner in, in your regional town or suburb or whatever, don't use it for that. Because the funny thing about those sort of things is when we look into the facts or when any, any investigator looks into the facts, the truth comes out pretty easily. And if if you don't have a serious cause to report somebody, don't do it. It doesn't get anybody anywhere.

Robyn Jacobson

What do practitioners do in this situation? I'm going to describe a few different scenarios, but it's all the same issue. Text discussion groups conferring with another practitioner. our profession has for decades relied upon referring to each other. We've said, I've got a client who what do I do in this situation? What would you do if you were me? And sometimes it's seeking formal advice. We certainly do have practitioners who formally advise other agents. We've got those who informally assist their colleagues or their friends in support networks. And then you've got more casual conversations. So this idea that you've now potentially putting yourself at risk by sharing an issue with a practitioner in good faith to try and resolve the issue, but for fear now that they might have to report you.

Peter de Cure

Yeah. And I've I've been involved in discussion groups and I've, in my professional career advise the range of other accounts and advisers in the profession, at the more specialist level. So I get where you're coming from. I'd say a couple of things. Firstly, I think a legitimate discussion group has nothing to fear when you come to the table when you talk about how to interpret the law, how to implement the law, you talk about client scenarios. I don't think there's anything in what I do think there is something new. If somebody comes to a discussion group and you're having a good generic discussion about those sort of things, the professional issues, how to interpret section 100 II or D7 or whatever it might be, and somebody says to you in that discussion group, are you a lot? That's a lot of bunkum. What we're going to do in our practice is we're going to implement this scheme to go around, or I'm sure you would have seen this. The odd practitioners at City Hall, we don't do it. That way. Where I come from, we just ignore. Yep. I think that's a completely different perspective. If somebody comes to you and says, I'm going to implement a scheme to get around that, or I've just we just always don't do that. And if you know that it's serious and it's not just better, then I think there's an issue there. but I think, you know, I wouldn't I wouldn't be going to stress about a bit of pub talk when, you know, I'm participating in a bit of pub talk, having TVs, and I wouldn't think that it would be a common issue for a tax discussion group, that there would be a problem that you would need to write to report, look for those serious ones, use those sort of examples of deliberate evasion, avoidance or, you know, implementation of tax schemes.

Robyn Jacobson

We still have issues where there is an issue with the clients and leave aside the discussion group, it's no longer pub talk, but I've actually gone to another practitioner and said, look, I think I've got a problem here. What do you think I should do? Or this is getting out of my scope. Is there someone you can refer me to? So in these situations, again, I might have inadvertently shared with that practitioner that I've done something incorrectly. From a competence perspective.

Peter de Cure

I would be simply sitting there saying, if it's at that level and you're saying, I'm not sure what I should do here, I need some help with this work. And I go to, I think, in a discussion where the person might you genuine attempts to get things so that you should probably side of them will listen. Are you aware of the breach reporting rules. Do you need to use the breach reporting rules? should you think about that? You know, perhaps don't put yourself in a position where you actually, you know, if you're engaged to give them advice and you get to the bottom of the fact, you say, well, might I really think given in trouble, you should advise on the breach report. And you probably need to say to them, you know, you've put me in a position where I think I need to do this time. So why don't we do it together practically?

Robyn Jacobson

In that situation, we expect both a self-report and a breach of another practitioner. Where is it sufficient if someone, say, does a breach report that the other agent doesn't need to report?

Peter de Cure

I think it's the if the agent who's made the breach does the reporting on the advice of another agent really, if push comes to shove, I'd probably say that's sufficient. What I think is the easiest thing to do is to get, you know, to the agent who's made the breach to report and the other one for breakfast, I understand so and so from down the road as self-reported. Yeah. You know, and we're not trying to create a wall between practitioners, but we are trying to have that set of circumstances where if you go to a more experienced practitioner for help and they tell you that you breached reporter Bob, put them in the soap as well. Yeah. Understand that makes sense.

Robyn Jacobson

Yes it does. So Peter, with now into early August it's a month on from in the role started. Have you in fact received any breach reports yet either self-reporting or reporting another agent.

Peter de Cure

Robyn, there's been a handful of breach reports my already and I can't really go into the detail of them, but what I can tell you is that they're going through a, a triage process so that we can get to understand the the nature and level of seriousness of the issues. And I think, you know, that allows me an opportunity to blow the whole up from the tape a little bit. We understand and empathize with the amount of work that's going on in, in England as we speak. But the other side of the coin is our team, working really hard on a real time pressure in the same time frame as you are. So I, we, you know, we're we're getting new law, we're trying to issue guidance, we're running consultation processes, we're doing our BAU registrations and compliance work, trying to issue tax time updates, and all of those sort of things. So the hamster's giving the wheel a pretty hard spin at the TPB at the moment.

Robyn Jacobson

It's a lot to do. But we could keep going on about breach reporting. And certainly there's more to say, more conversations to be had when your final guidance does issue and look incidentally or mentioned that, you will be making an appearance, you will be on hand and available to members and practitioners at The Tax Summit in Sydney. So that's 11 to 13 September and we'll be continuing this conversation as part of a panel session, also with Tim Sandow. So look forward to perhaps having more to talk about. Hopefully by the time we get to that Summit session.

Peter de Cure

I'll polish my shoes and be ready.

Robyn Jacobson

All right, so let's turn to the other major development, which is a little more recently, though we did have noticed back in December that this was on its way. So as you indicated from the outset, the law has been changed to give the relevant minister in this case the Assistant Treasurer and Minister for Financial Services, the I'll call it intellectual power is a legislative instrument, so it still needs to be tabled before both houses of Parliament. And this is a window for a motion to disallow to be put forward. But that's in the political hands. So we'll leave that to one side. But this determination has now been registered after being issued in draft last December, registered on the 2nd of July. There are eight additional code obligations which broadly we were aware of back when the draft was released and we come into them. But there are certainly some additional obligations built into sub provisions which were not in the draft. So we can't say hand on heart that in all cases where across every single new obligation before it came out on the 2nd of July. So can you walk us through the eight new obligations? Some of them, I would have thought, are fairly benign or to be expected. In fact, I would suggest shouldn't even be necessary. So if we're talking, for example, about managing conflicts of interest in dealings with government and maintaining confidentiality in your dealings with the government, you would hope that a confidentiality agreement would be sufficient. But we've obviously not got a legislated code in respect of those, so I don't think we need to delve into those in too much detail today.

Peter de Cure

And I think, Robyn, you're right with that. It's not going to impact the majority of your, practitioner constituency. It's really for those larger firms that are engaged with the government on consultation processes. You cannot apply unless you are engaged by a government to work for them.

Robyn Jacobson

And most of us are.

Peter de Cure

Not nice, most practitioners.

Robyn Jacobson

So all right. So let's put those to one side. Can you walk us through some of these other new obligations. And then we'll have a chat about when does all this kick in. So let's understand physically what the instrument does.

Peter de Cure

Yeah okay. So the instrument applies from the 1st of August 2024. And we've got also, an addition to the instrument to bring in a transitional provision. So the transitional provision will apply such that any firm with 100 or less employees has, until the 1st of July, 2025, to be fully implemented against things any firm with more than 100 employees or 101 or more, has until 31st December to have implemented these new points. Now, from there, I think the critical thing is, and I'll say again, there is an an eight point checklist going to where investigators to go out there and trip people up. What will happen is that if a practitioner finds themselves investigated by the TPB for other serious misconduct, and we go through an investigation, we will go and then, you know, be part of that investigation. We'll look at these eight points. Have they been keeping proper client records? Do they have a decent quality management system in place? by upholding the standards of professional and ethical behavior that we expect them to. So we'd have a look at that and see how that goes. And that's going to contribute to the whole picture of whether or not the sanction needs to be at the lower end or the heavy rain, if we might, you know, if we make a finding of code breaches. So we're not going out to enforce these specifically, but it might come up if you're doing other things that are wrong, I guess. Couple of things I'd really like to talk about. And we mentioned false and misleading statements earlier, but they are and have been a cornerstone of the tax business for as long as I've been around. You're not allowed to make a false or misleading statement of the commissioner. And now it's clear that you're not allowed to make one of the TPB, but it needs to be clearly understood. You can make a false, misleading, or inaccurate statement by omission. So if you are filling out a form and you don't put all the information in it, that can be as false or misleading as a positive state.

Robyn Jacobson

I want a system with the tax law currently. So we know that if we don't comply, the liable on a tax return, that's still a false statement.

Peter de Cure

Absolutely. And one tax return could contain 20 false or misleading statements. Okay. Let's agree that that's the same. So one of the things I really want to talk about is for practitioners who have existing code obligations to supervise and control their staff. If you get your staff to fill out your registration application for the TPB or renewal application, and you don't tell us about your significant unpaid tax liabilities, or you don't tell us that you're not discharged, bankrupt, or you don't tell us you've been convicted of a tax from their false or misleading statements. So if you're getting your I or Eugenie's to fill out a renewal application, make sure you check it because you're the agent responsible for supervision and control applies to that as much as anything else. So I think that that's a really critical thing. The other thing I'll go back to yep, I insurance if you're making false and misleading statements, positively evil by omission, I think you pay I insurers kind of drop you like a hot sign. you know if if you're getting sued by a client for something else and you and your insurer can say, well, you haven't, done the right thing in terms of false or misleading statements, you're going to be on your own. So I know it seems like an onerous additional recon, but it's consistent. We've had a run, a good practice in reality in.

Robyn Jacobson

Respect of those statements you've made. I agree, but I do want to hone in on 15 two, see which is a new requirement that we did not see in draft until the 2nd of July. And in the view of so many in the profession and the professional associations, this is a step into new territory. So it's one thing where you shouldn't be making false or misleading statements and you make efforts to correct them when you've made them. But this new requirement to report a client to the commissioner, where let's say you've prepared a statement which might be a tax return activity statement, could be an election, could be a private ruling, whatever. And then they have somehow identified or you've identified that it's erroneous. You have a chat with them and then they don't fix it up within a reasonable period of time. You're under an obligation to report them. And we've not seen this before.

Peter de Cure

Yeah. And I guess, Robyn, I'm going to go back to one of my early comments. If we're talking significant, false or misleading style, you've worked with the client. You've found out that whether you know, deliberately or unintentionally, that the statement is false or misleading and it's significant and it's in relation to their own personal tax phrase, you go back to them and say, well, look, Mr. or Mrs. Client, you made this statement in your returns. I'm pretty sure it's false and misleading of the view that is significant. And the client says to you, I don't want you to do anything about it. I'm sticking with it. You might then have a, you know, a significant discussion about explaining to them the implications of a false or misleading statement, both on them and on you. And I think you would have a discussion says, well, you know, I'm really sorry about this, but I have a positive legal obligation to disclose this. And I'm happy to give you some information about what I'm going to do, and I'm happy to tell your lawyer or whoever, but I've got a positive legal obligation to do it and impacts my livelihood and my ability to practice. I cannot do this, so I can't be involved with this. So if you're telling me that you're not going to correct it within a reasonable time frame, I'm just saying that I don't have another option. Now, what's a reasonable client going to say to a person that you want to be representing? They're going to get it. If it's the sort of person that says, look, I'm afraid the law doesn't apply to me, I'm instructing you. I want to make a false and misleading style. Is that the sort of client that makes the the priority requirements of your practice? I don't think.

Robyn Jacobson

So. Try to be so many questions of trust. And yeah, we're worried about what the community, the business community and the individual community might do. Yeah. Once they come to understand this new requirement imposed on practitioners.

Peter de Cure

And Robyn, I don't I don't want to undermine the the legitimate concerns that the profession has. And I think this is a new piece of law and we've all got to work to understand it together. I don't want to say that there are no new situations, but I have thought about and I sit there and say, well, if your client is telling you that you're wrong and that they have citing is what they got, and Mike and you're convinced that it's false and misleading and it's material significant, then you just tell me you got an obligation to disclose if you're wrong. Disclosure wanted.

Robyn Jacobson

I guess, to fully understand what information may be shared or not shared with the ATO as well. So what implications it could have for the client.

Peter de Cure

Well, you know, and it just depends on the matter. But there will be new situations. There will be situations where a client's position is reasonably arguable. If it's reasonably arguable, it's probably not going to satisfy that. The threshold for false and misleading is.

Robyn Jacobson

It's still something that obviously concerns the profession greatly.

Peter de Cure

Yeah, I genuinely acknowledge that is working through these things at price as I.

Robyn Jacobson

All right. Can we tend to keeping proper client records.

Peter de Cure

Yeah.

Robyn Jacobson

Yes. New requirements. Sounds fine in theory. Back in real world. Is this the end of verbal advice? Does that mean for clients just have to get that much better?

Peter de Cure

I think again, I'm going to go back to good practice. How to how do you run a good practice. How do you satisfy your obligations to your insurer? How do you make sure that the advice you give is professionally competent and not negligent? What's enough to protect you from negligence is probably enough to demonstrate maintenance of proper client records. So, you know, to verbal advice over the phone for a quick thing like what's the cents per kilometer ride for my V8 Maserati or whatever it is? You know, all you gotta do is a quick note to the file that says, you know, Bill rang us this, to that reference, Mark the tax car. What we're talking about is a tax return file should have enough information on it to evidence the tax return that's been lodged. So that's probably a set of accounts. It's a tax reconciliation. It's probably a couple of nights at the depreciation schedule or a logbook or those sort of things. And it's if there was a contentious issue, what did you do about it. What rolling. Did you look at those. Sort of not it clearly doesn't mean you've got a copy of every invoice and a copy of every journal entry that makes up the general ledger. What it does mean is that you can demonstrate professionally how you reached the position of rights in a written or a best statement, and why you dealt with an issue a particular way. What's the cheapest car park within one kilometer radius? What did you do to establish that doctor? Google was going to help you. Then print off the page from a Google search.

Robyn Jacobson

Would be really helpful when the guidance does come out, or because the more examples that you can give and I know you understand as a practitioner yourself how the professional. Right. So under studying how this is applied in practice it's going to be crucial.

Peter de Cure

And again you know the through the consultation processes please tell us the things that you want examples of. It's it's a pretty tough, gig for our time at the office of trying invent examples that that hit the threshold for the high jump hurdle of being practical and interesting. That's one of the tough jobs.

Robyn Jacobson

All right. We'll help you out with some examples. one more particular requirement. It's, section 45. In the determination, keeping clients informed of all relevant matters is how it's described. Now, the wording in the law talks about you need to notify all your current and prospective clients of any measure that might influence their decision to engage or continue to engage you. There's been a lot of concern noise. There have been lots of suggestions as to how far this extends. And again, we know there'll be guidance from the TPB. The biggest concern we've got is the scope of this. And if it goes before a federal court judge one day and they look at the wording in the law which says any measure, it's difficult to break that down, but practically, isn't that going to be necessary?

Peter de Cure

It won't. I'm not going to go into the writing down arguments because I don't write down the law on, administer, with my team. We administer and give our interpretations. But the, the determination is going to require you to advise and prospective clients of any matter that could significantly influence their decision to engage. You will continue to engage you to provide text services. So that's one obligation. The other is, is to advise that the TPB maintains a register of agents and how you can access that. And the other is to advise your clients and effect that they can and how they can go about making compliance. Now, this is about not your sexual preference, your religious beliefs, or whether you're back from Hawthorn or come. It's about matters that relate to the business of being a tax practitioner. So some examples that we will be putting in the guard. Have you been convicted of an offense involving dishonesty? Have you been subject to promote a penalty font. Have you been subject of an investigation by the TPB and given a material or significant sanction? So one crystal clear message if you've had a, a suspension or a termination, that's a significant sanction. If we give you a caution that's not disclosed to your client like that, that's like a speeding ticket, you know, it's you've gone off road, we get you back on track. That's not a significant matter that needs to be disclosed. I want to be really careful about personal health issues. It's not an issue for your clients. If you if you're suffering from some health issues, that's not their business. What is their business? As if your health issue is going to prevent you from providing them with tax services. So if you've been advised by your doctor or your mental health practitioner that you're not fit to work, that might be disclosed. And I'd like to use the example, if you're approached by a new client to take on a significant job and you know you're not physically up to it, and you know you want to take the job because you want to have to work for when you get better. But you know, you can't make the requirements. I think you should be saying, no, I can't do that. But you don't have to tell them the personal issues to why.

Robyn Jacobson

I've been asked even about pregnancy, and I think most would agree that in many cases, my mind would be taken off work.

Peter de Cure

That's not a disclosure issue. This is a this is about your legal, ethical, professional obligations to your clients. Can you make them or is there a reason for them to believe that you shouldn't? Have you been suspended as a, as a, from a professional association? Have you been banned by ASIC? Has the ATO said you can't be a trustee to self-managed super fund? They are professional issues. Whether you're banks, accountant or horse or whether you support soccer or basketball. Their personal issues, political religious beliefs are personal issues. If you're a member of the kind of a liberal party not disclosed.

Robyn Jacobson

Okay. Thank you. And we do look forward to further guidance on this issue. Since the start date, you've, referred to this deferral until July or January next year.

Peter de Cure

Yeah.

Robyn Jacobson

And look, this followed extensive advocacy efforts by not just the professional associations, but we know that members of a practitioners are writing to their local MPs, etc.. So whatever ultimately led to the decision, the minister announced on the 1st of August, following an open letter that was sent to the joint bodies that confirms that there will be this deferral, but it does contain the words, so long as they continue to take genuine steps towards compliance during this period. Otherwise, it would seem that the start date would still be the 1st of August. Yeah. So how again, are you going to apply this or interpret this and is the TPB going to provide guidance on what genuine steps is?

Peter de Cure

I'm not 100% sure whether that is in a Gunns plan yet, but I'll tell you how I think it will work and how I intend to get it to work. And it goes back to our compliance normal compliance activities again. So you're not going to see a TPB investigator asking you whether you've got genuine steps to implement these things as a specific order. The only way this is going to come up is if you're under investigation for another matter. I you know, you're a high risk practitioner, you're pushing tax games, you're, you're stealing refunds, you're not paying your own personal tax obligations and not lodging your returns. All of those normal things that are out and normal compliance activity applies to if we do an investigation of one of those and we might, and it's clear that you cannot compliant, we might also come and ask, well, what have you done about implementing these new things? If you say nothing, well then you haven't. My genuine steps. If you can demonstrate to us in your practice administration that perhaps you've been to a court to what do I have to do to quality management system? Talk to another consultant to help you get a quality management system. bought something off the shelf that you're in the process of implementing all of those sort of things are reasonable steps. But the answer oh, I haven't gotten around to it yet. That's not a reasonable step, is it? Okay. Like, you know, I think the the genuine thing here is think about our track record as a regulator and a compliance activity. If people are looking at the cases where we make significant sanctions, you are saying people, you know, practitioners who haven't lost their own returns for 3 to 5 years, who have hundreds of thousands of dollars worth of tax debt, often are hundreds of thousands of dollars and SGC debt in relation to their staff and, not paying refunds through to their own font. we have, you know, practitioners. I've seen a practitioner that's run $10 million of their clients money through to the same clients who, you know, are in trouble with drug debts to, you know, to the drug rings and using clients that that's high risk behavior. You know, the the normal practitioner, the people we're talking to today that's taking care of their own tax obligations, getting their clients work done, giving them their refunds, and applying the law in a sensible fashion is not going to come up against a problem with this, and they'll have to have the opportunity and the transitional provisions to meet those challenges. When it comes to things like quality management systems, you know, as well as audit, there's plenty of guidance out there from various professional associations on what it look like, how you can get one. And it's certainly, a set of circumstances where we will be proportionate. So quality management system for a big 4 or a second tier accounting firm is really sophisticated, probably computer generated type of system that works. For a small practitioner, a sole practitioner. It's going to be a much more simpler series of checklists might be, you know, making sure there's a training program within their office for their staff. And it's a little bit like, you know, competence is, is a standard that applies to all practices. But a small practice doesn't need to be competent in every aspect of tax. THey need to be competent in the aspects of tax they're providing services in, you know, so a Parramatta Rd practice that's doing small business and personal returns probably doesn't need a lot of competence in transfer pricing. They need to be smart enough to go and get some help when they need it.

Robyn Jacobson

Which is always been the case.

Peter de Cure

Absolutely. Yeah.

Robyn Jacobson

Yeah. Peter. Thank you. I feel like we could keep up talking about these issues infinitum, but we will continue the conversation next month in Sydney. So thank you very much for your time.

Peter de Cure

Thanks, Robyn.

Robyn Jacobson

Thanks for listening to this episode of TaxVibe. I've been chatting with Peter de Cure, chair of the Tax Practitioners Board. If you'd like to join us at the Tax Summit from 11 to 13 September, there is more information on our website at taxinstitue.com.au. Peter will be part of a panel discussion among a whole host of speakers and a wide range of topics for you to enjoy and savour in the tax world.

If you've enjoyed this episode, we'd love for you to subscribe, rate and review TaxVibe wherever you listen to your podcasts. We welcome any suggestions and feedback to catch all the latest from TaxVibe and The Tax Institute, join us on LinkedIn. If you interested in being at the center of the tax conversation, a membership of The Tax Institute could be just what you need. Stay current and connected with tangible real world benefits. Learn more at our website. Thanks again and until next time on TaxVibe.

Robyn Jacobson 
Hello and welcome to TaxVibe, a podcast by the Tax Institute.
I'm Robyn Jacobson, the Senior Advocate at the Tax Institute, and your host of today's podcast. 

On the show, I chat with some of the tax profession's brightest minds, drawing on each guests, unique perspective to give you valuable and practical insights you won't hear everyday.
 
We hope you enjoy this episode of TaxVibe.

Today I'm joined by Robert Thompson, the assistant Commissioner for Experience, government and case leadership, individuals and intermediaries, and the official tax time spokesperson at the ATO.

Rob is an experienced tax professional with more than 10 years experience and has recently returned from his role as Minister, Council taxation at Australia's permit delegation to the Organization for Economic Cooperation and Development, the OECD in Paris. Rob has extensive experience across several diverse roles in the ATO, starting as a postgrad in high wealth individuals, Rob progressed to a compliance officer role.

He then worked his way into specialist task forces, policy implementation and strategic programs.

Rob also holds a Masters of International Taxation and the Bachelor of Commerce Prior to joining the ATO, Rob worked in the managerial role for a not for profit foundation in New York.
 
Rob, welcome to TaxVibe

Robert Thomson   
Thanks Robyn.
Thanks for having me.

Robyn Jacobson   
Pleasure and look, first thing we need to acknowledge is that we have a new face as the ATO tax time spokesperson.
So our listeners would be familiar with Tim Loh, who held those reins for some years and you've taken over that particular role. So you're doing the media circuit.
 
Robert Thomson
That's right.
That's right.
Obviously so some big shoes to feel given Tim's role, but yeah, excited to step into the role.

Robyn Jacobson   
Yeah, very good to have you here.
So I wanna kick off with tax time.
Why is it important?
It's obviously the start of a new financial year.
It's when we start lodging returns for the year just ended.
Why is the messaging so important?
Why do we need to get it right?

Robert Thomson
Yeah.
So obviously tax time for a lot of individuals is that one time of the year where they actually just engage with the ATO as well.
So, you know, there might not be thinking about tax the whole year around.
We'd like them to, especially when it comes to record keeping Robyn.
But so we're really out there just trying to make sure that people understand their tax obligations and that people have, what they need to when they got to lodge, whether that's online or through an agent and really just help them to make sure that they're in the best position when it comes to lodging their tax return.
Obviously a lot of our messaging is around, you know around the tax basics, but just around reminding people around some other things like record keeping and and areas where kind of focused on.

Robyn Jacobson
So we're talking about millions of Australians who will be lodging their returns in the days, weeks and months ahead and we'll get into more detail about when they need to be lodging by.
But really, it's so important that they get it right the first time.
What are the best ways they can do this?
And we often hear about this rushing to lodge in the first few days.
What sort of numbers have you seen in on the day three so far of the tax time season?

Robert Thomson 
Yeah.
Look, Robyn, it's it's too early to make any predictions around what numbers looking like compared to last year or previous years.
You know, last year also we started on a weekend and we traditionally know weekend lodgments are a little lower.
But no, we definitely are just reminding people some of the things we're focused on is just reminding them actually if they can, to wait for prefill in late July to kick in.
We know people.
Some people want to rush to get their lodgments in, but you're actually twice as likely to have your good to have your return stopped, if you launch either through an agent or obviously online it twice as likely to have it stopped if you do it before all that pre fill information is in, so you know that's one of the main things we're just trying to communicate to people is wait for all that prefill, and that includes where you're logding through an agent.
Obviously that helps agents as well, because then they can see those messages or see those income amounts and remind people of perhaps things they've forgotten about during the year, but also as they lodge, obviously you get the reminders around crypto assets et cetera, share sales and so also helpful for agents once all that's there because it can remind their clients to remind them that they've had that sale and there's some capital gains consequences and they need to have the records.
So we think we think waiting for people to lodge until the end of July is both beneficial for individuals that are lodging, but it's also beneficial for the tax agent because it can then it can stop and having to like go back later on and fix something or deal with the request from the ATO or an amendment.

Robyn Jacobson   
We also know that, of course, employees don't need to finalise through single touch payroll until mid July.
So anyone who's logging in the first couple of weeks is really working off data that hasn't yet been finalised by the employer.

Robert Thomson   
That's right.
And you know, and it's not just employer data.
You know, it's bank information.
It's information we get from other government agencies.
You know, it's your private health insurance information, which obviously can impact the amount of rebate that you should or should not claim, which can impact your tax return.
So it's just about making sure that people wait for all of that information to come through, make sure that you know the income statement is marked as Tax ready for employers which are talked about us then and that just really allows people to be in the best position to obviously make sure that they're including everything in the tax return that they should, you know, and getting it right the first time.
And then the agent doesn't have to worry about any reverse workflow later on as well.

Robyn Jacobson   
Banks are pretty good at getting the data to you each year, as are the listed companies with their dividends paid, but we've all heard stories about other data taking many months to come through, and whether that be managed funds or other types of data.
So what can taxpayers do?
It's one thing to wait a few weeks until the end of July, but it's quite another to potentially wait some months in order for that data to be prefilled.

Robert Thomson   
That is correct, Robyn.
I mean and for some of those, some of those, some of those obviously reporters, they do have legislative requirements around when they need to provide that to us and that can be a few months after the income year.
But we think waiting is just a good reminder, but it's also just a reminder that people still need to check the prefill information is correct, You know, if there is a discrepancy with the prefill information, then the client and agent need to work that out with the provider.
So for example, your employer, unless it's the bank information that you don't need to kind of work out with the bank.
But it's also just a reminder that it may not include all the income sources.
You know, we'll probably talk a little bit later about, you know, some side hustles and some of the income that people get from sharing economy, et cetera.
So it is a good reminder that it won't include all of your income, potentially for some for yourself or some of your clients, and they still need to think about asking, you know, agents still need thing about asking their clients about any other income sources that they may have had during the year or any other assets that maybe they've disposed of or that might generate income during the year.

Robyn Jacobson   
Just one more point before we move off this particular topic.
I've heard that there are people who literally stay up till midnight on the 30th of June just so they can then tick over midnight and lodge their return and be the first one.
Is there any prize offered to the person who lodges their return first?

Robert Thomson   
No, there is no prize Robyn and you are correct.
There are some people that do that.
You know it is an Olympic year.
Maybe they're inspired and wanna go for gold, but you know, like what we're saying to people is, you know, actually wait, you know, it's better.
Better to get it right the first time and that be a few weeks longer than be the first person to lodge.
No, there is no prize.
Obviously people can lodge before all that prefill information is there, they just need to make sure.
Obviously they've got all their records in order, but as I said before, you know.
We just find people, make more mistakes and they do double their chances of having the of they're having their tax return flagged by the ATO as being incorrect and now obviously holding it up while we have to go and ask questions.

Robyn Jacobson   
So revisiting the deadlines self lodgers have until the end of October.

Robert Thomson   
That's correct.
So if you're logging yourself, one July starts to one, you're saying hold off to mid July, but Deadline is 31st of October, if you're logging yourself, obviously.
Otherwise, individuals need to be on the books of a registered tax agent by the 31st of October and that registered tax agent needs to inform us that they're doing that.
If you are logging through a tax agent, obviously you may have up until the 15th of May to lodge a tax return through the tax agent and we obviously have the lodgement support and the lodgement program for tax agents which is designed it just a recognition of the important role that taxations play in the system and design to help them manage their lodgements through the year.
Now we've just published the 24/25 Lodgement program dates, Robyn. 
So they're on the website for everyone, and also anyone that gets our tax professionals newsletter will also be informed of  those dates.
I think in the next week or so, so also good plug for the tax professional newsletter and why you might want to sign up for that because it does have lots of helpful information in terms of you running your practice.

Robyn Jacobson   
Yeah, that's great.
And it does have valuable information. Something that I'd like to call out, is while those are extended lodgment dates for agents so they can spread their workload over the year.
There are so many agents who often talk about the clients working to those same dates, so it's a really good reminder to the clients of agents that don't take your work to your agent a week before the 15th of May and expect that you're going to be prioritised because there are so many other clients they need to look after.
So I’d be saying to the clients also get your work in as early as you can let the agent manage their workload over that 11 months period and don't just dump it on them in the days before.
And then expect it to be lodged on time.

Robert Thomson   
No, that's that's definitely right, Robyn.
You know, like it's not a, you know, it's not a, you know, handing their assignment in, you know, 2 minutes before it's due, you know, this is definitely making sure you have all your records in order and providing those to the tax agent as early as you can, even if you are lodging, if you've got that extension.
And one of the reasons for that is because obviously your tax agent might look at those records, have some questions or identify some other information that you need to provide.
And if you're leaving that to the last minute, you're really putting yourself at risk.
Kind of not being in a good place to lodge, so definitely talk to your tax agent about when they need the information from you.
If you are gonna lodge through a registered tax agent.

Robyn Jacobson   
We could talk about how the ATO gets ready for tax time each year, and obviously that's about awareness and it's education.
It's updating resources on the website.
The tax time toolkits, the occupation guides rolling systems over giving instructions to the digital service providers who update all the software that the agents use.
That's all stock standard.
Is there anything different this year?
Is there anything in terms of how the ATO is prepared for tax time?
That is a little unusual or something that is new.

Robert Thomson   
So there are one or two new programs obviously this year for tax time and which I I'll talk to in terms of lodgment requirements.
But one of the thing also we're just also highlighting to agents in terms of preparing for tax time this year is around proof of identity.
So just to reminder to tax agents to make sure that there's obviously the tax practitioner board know around the minimum requirements when you're on boarding a new client.
But we're saying it's important where you still have concerns about the identity of that client.
So even go beyond those minimum requirements and also to even check the check the POI of your existing clients.
You know, we do see criminals actually take over people's kind of identity and lodge through their existing agents.
So just to reminder around POI at this time of the year as well.
But in terms of changes, there's probably there's one or two changes, one that probably is being conflated with tax time, but won't impact tax time.
And that's the change to the rates and thresholds, income tax rates and thresholds that have come in this year. So obviously they apply from 1 July 2024 and so there we're just reminding people that and reminding agents that it's just a good time to have a discussion with those clients that are employers, that they've updated their payroll software to reflect those new rates or they've looked at the ATO’s new tax with holding tax tables which we've published, if they're not using a software provider.
But for individuals, you'll see the change in the tax rate and how much tax you pay for salary and wage earners in their take home pay from one July.
It's not going to impact the size of their tax return this year, and you don't need to contact the Ato or do anything for those tax cuts to kick in.
We know there's been a little bit of conflation of the two, so that's it's it's not new for tax time, but you know it is something that we have seen a little bit of questioning around the one of the main changes is around the non for profit return.
So obviously from for the 23/24 income year and from one July non charitable non for profits with an ABN need to lodge an annual non for profit self review return with the ATO
And so we think there's about 155,000 of these types of norm for profits that all need to lodge with the ATO.
So just to reminder for those that they need to lodge.
And obviously this came in as part of the 21/22 budget and it's just meant to increase the transparency in the integrity and the taxation system.
But there are a few things that non for profits can do.
Now so one is to set up my Gov ID and and obviously link that to RAM in online services for business is the 2nd is to just review their documents and their constitution around what their purpose is.
Umm, the third is, to look at our look at online.
We have a guide around eligibility, so checking the eligibility guidelines to see if you do need to lodge and the last one is just to make sure you update your details as soon as possible.
We've put the change of registration details form actually seeking.
Download it on the ATO website, but we are gonna be sending out more information in July and August to all these entities.
So it's really important they kind of update their details now so that we can make sure that communication goes to the right people that may be representing that non charitable non for profit with an ABN.

Robyn Jacobson   
A few points on that new regime Rob not for profits in a sense, have always had to look at whether their tax exempt or not.
But this requirement to lodge a self review return is new and this is one that starts 1 July 24, but it actually does apply for the 23/24 years.
So that's one way we do have to look back at the year that's just ended and you've identified there are going to be many, many 10s of thousands of not for profits that are gonna be going through this for the first time.
What is of great concern is that the data on the ABI in some cases will not have been updated for a very long time and so the person who was named as the Treasurer or the Secretary or the public officer or whatever on the business register is probably long out of date for many of these.
So I can see some challenges when they try to get a my Gov ID and then linked through the relationship access manager that it's not going to be a straightforward process.
So in that case, should they be reaching out to a tax agent for assistance?
Should they be reaching out to the ATO? 

Robert Thomson   
So either Robyn, obviously tax agents have a lot of experience in terms of being able to help people update their registration details etcetera, but they can also reach out to the ATO.
So we have a lot of good information on our website.
We know this is going to be an issue for some and we so we have already done some letter campaigns out earlier in the year to try and make sure that people's details are up to date, but we know there will be somewhere they're not.  
We know we're not so new regime.
We know it's the first year we also appreciate that a lot of non for profits are run by volunteers.
We have very much in these first few years about supporting people to make sure they get right, can get their lodgment obligations right.
This is really, I think, this first years about a lot of support and a lot of education for those that do have a new lodgment requirements.
So just with that message, obviously talk to your taxation or give the ATO a call, if you're having any issues updating your data files.

Robyn Jacobson   
And of course, just to mention that it to engage a tax agent now they have to go through what's called client agent linking.
To do that, they need to have a my Gov ID, so it becomes a very circular process and we've seen some challenges and difficulties with taxpayers navigating their way through client agent linking.
So just to make mention, there might be quite a few tax agents who are called upon to assist those who may not have gone through the process before.

Robert Thomson 
Yes.
And you know and, you know, I think we're continuing to obviously engage with the tax agent community around client agent linking and after every kind of every deployment of client agent linking, we have sort feedback around how we can improve the process.
So that is an ongoing kind of process for us with respect to client agent linking.

Robyn Jacobson   
Alright, so in terms of some common areas that people often either claim or tend to get wrong, they're working from home expenses.
So part of work related expenses, it's interesting because there isn't a separate working from home claim in the tax return.
It just falls into other work related expenses and in fact it's not even specified in the law itself.

Robert Thomson   
That's right.

Robyn Jacobson   
So the ATO’s approach of this fixed rate method now $0.67 an hour, is an administrative approach, and that's essentially because the law is deficient.
Uh, it doesn't address this properly in, so the ATO’s come up with this approach in terms of where it will direct its compliance resources.
So what are the key points people need to understand if they're going to be using this fixed rate method $0.67 an hour as opposed to claiming using the actual cost method?

Robert Thomson   
So Robyn, as you noted, there's two methods and it's obviously up to an individual as to which method that they would like to use.
So there's the fixed rate method which you've just talked about and that allows someone to claim $0.67 per hour for every hour that they work from home.
And that's an all inclusive method.
And so that's one method that people can use, and that method is also designed that we appreciate that under the actual cost method, some of those costs can be a little bit more tricky to apportion.
So if people don't want to go through the process of working out how to apportion those, they can, they can just use the fixed rate method.
So to be able to use the fixed rate method, there are some record keeping requirements which come into effect for the income year that you'll be logging 23/24 and that is you need to have kept a record of the hours you've worked at home for the full year.
Now that can be a diary, that can be a spreadsheet that can be whatever works in terms of either a physical or digital record that allows you to identify the hours you've actually worked from home for the whole year.
So that's one thing you need to have.
The second is just need to have copies some copies of some bills that show that you have incurred a little bit of expense, additional expense from working from home.
So for example, your electricity bill, you know your Internet bill, etcetera.
So that's the fixed rate method.
There's then obviously the actual cost method that people can use as well.
Now if you are using that method, you do need to be able to show for each cost that you're claiming the apportionment between the work related element and then the personal related element.
So a little bit more work on that.
There's a lot of information on our website around examples around how to apportion some of those, and obviously it also need to keep.
There are some time.
There are some time record requirements around that, not as extensive as needing to keep it for the whole year.
You know, to get the rest of the whole year, do need a give an indicative sample.
But what we're saying to people is if you actually keep the record for the whole year, then you've got the flexibility at the end of the year or your clients have the flexibility to choose whichever method they want and whichever method may actually give them the best result.

Robyn Jacobson    
And that record of actual hours worked from home should be run contemporaneously.
It's really not something that should be put together retrospectively once the year has ended.

Robert Thomson   
That's right, rather than that is definitely right.
You know, I don't sit down on 30 June and try and remember all the hours you went at home.
It does need to be a contemporaneous record of the hours you've worked.

Robyn Jacobson   
All right.
I also note that there should be an inverse relationship between travel expenses and working from home expenses.
Now, unless you're working 120 hours a week, in other words, you're doing an awful lot of travel and you're doing an awful lot of hours from home, there shouldn't be a high claim for each of these.
Is that fair to say?

Robert Thomson   
You know, I think rather than you know, like we've had some changes to those methods over the last few years.
You know, people still do need to travel for work.
I think it's remembering what exactly what trips you can claim as a work related travel.
You know, we continue to still think people still think it is.
Some people still make mistakes and think they can claim you know their from their home to their work  Travel.
So you know, it's just that reminder about if people are looking to claim work travel, obviously reminding them around what trips they can claim, then obviously in terms of the car expenses, if you're using a motor vehicle, there are the two methods that you can use.
So there's the cents per kilometre method that someone can use.
Now that doesn't require you to keep a log book.
It's the other method, but it does allow you to claim up to 5000 kilometres per vehicle without any receipts, but you still do need to be able to have a record to show you how you've calculated the five.
Yeah.
The up to 5000 kilometres, we see some myths out there that people just think, oh, I just need to have a number.
No, you still, if the ATO asks and before you lodge your tax return, obviously, you need to be able to show your agent how you've calculated, you know, the kilometres that you'll be using under the cents per kilometre method, which has gone up to $0.85 this year.
Then there's obviously the log book method.
Now the logbook method obviously does require you to keep a log book, not for the whole year.
For 12 weeks and obviously then, if you're that's, you know consistent year on year you can use that same logbook as evidence over a number of years, but you then do need to keep there are more receipts that you need to keep with respect to that method and the logbook method, you do need to keep receipts of all the types of expenses that you are going to claim.
Now one thing we do see here, one common mistake we are seeing people make is people think they can use their credit card statement or their bank statement as a receipt.
Just a reminder, obviously that normally for most claims, a credit card or a bank statement on its own won’t suffice as substantiation for those expenses.

Robyn Jacobson   
Because that only tells you you've spent money.
It doesn't tell you what you've spent it on, even if it lists the retailer.

Robert Thomson   
That's right.
That's right, Robyn.
I was at an event recently and someone, a tax agent, came up to me, and said but Rob, what else would my tradie client be buying from the servo you know other than fuel?
And I was like, I don't know. A sausage roll, a coffee? Like there's a range of other things.
You know the Tax Administration Act does identify some of the things that need to be included for, for to be a valid kind of receipt and substantiation of the expense.

Robyn Jacobson   
I've also heard over the years people who are still enough to try and claim whether it be a car expense or a travel expense or somewhere collated expense when passport records indicate they were not even in the country at the time or their mobile phone records indicate that they were in some lovely wine region as opposed to where they say they were or the E tag on their car places them in a particular location.
Now it could be that they lent their phone or their passport or their E tag to someone else, but chances are that wasn't the case.

Robert Thomson   
Yeah.
Look, Robyn, unfortunately, every year we do see, you know, the minority of some people that do try and, make some claims they're not entitled to.
I think recently we had a social worker that tried to claim about 12 cars as it as motor vehicle expenses for the year when they only owned one.
So you know we do see the occasional crazy claim that, you know, we think the majority of areas where we see non-compliance or people making with around motor vehicle expenses is really around record keeping and just not understanding the records that they need to keep.
So just a good reminder there for tax agents around just making sure that their clients have all those records in place before they kind of come and see them to do their return.

Robyn Jacobson   
And a quick one also, we've got guidance on electric cars where they can claim at the rate of 4.2 cents a kilometre.

Robert Thomson   
That's right, Robyn.
And look on that guidance.
Obviously we've put out some guidance there.
There are some limits around that.
Guidance around that's only for charging at home.
Unless you know your car specifically, does have the ability to track where your charging from that commercial versus home.
So if you are, if you are using.
If you do have electric vehicle, do you have a look at our guidance there and rounding what circumstances you be able to claim?
What costs?

Robyn Jacobson   
Moving to another area – rental properties.
Now these have long been challenging and I consider that it's become even more challenging the last five to 10 years, we've had a lot of legislative change and if we think about the rules around claiming travel expenses for residential rental properties, depreciation on plant and equipment that's already been used.
When we look at the way that we've got interest deductibility issues and having to apportion, we've got vacant land rules, they've got rules around GST withholding its settlement, we've got foreign resident capital gains withholding rules and you got to get clearance certificates.
So you don't lose part of your settlement proceeds.
There's been a lot of law change, so I get why people are finding a lot of hurdles when they're trying to navigate their way through this particular mine in terms of all the problems they face.
But at the same time, we are hearing stories about some people who seem to be wilfully double dipping or are not apportioning or are claiming for holiday houses when they should not be, so this is a really big focus area for the ATO this tax time.
What are some of the things you are seeing and what are the key messages to those who are claiming rental properties?
And I know it also, it's often been quoted, 9 out of 10 returns have errors in them and that is being challenged the profession's saying "really?".
So how do you respond to that?

Robert Thomson   
Or Robyn, you know, we do continue to see mistakes being made and/ and I might talk about genuine mistakes being made before we talk about those that maybe trying to inflate their claims artificially.
But as you've noted, there has been a lot of changes.
And then there's complexity in the law.
And so we think that actually a lot of those mistakes are due to the complexity or due to record keeping.
And so that's why it continues to be 1 area that we're focused on.
Obviously, you've talked about interest income, interest expense apportionment that continues to be an area that we do continue to remind people about the need to apportion.
But one area we've been focused on this year is about the difference between repairs and maintenance and capital works. Now you know spend money on the property.
It can be a repair, it can be an initial repair, it can be capital works or you could have spent money on a depreciating asset.
So you know, it’s not like an A or B choice.
It's ABC or D choice, so we're just reminding people there, you know about ensuring that they are spending money on the property that they do understand which of those kind of expenses it does fall into. Obviously, repairs themselves are immediately deductible.
Why initial repairs?
So we've bought a property and it needs some repair, and that damage was there prior to you buying it irrespective of when you discover it.
Anyway, that's actually not immediately deductible.
Needs to be, you know, needs to be deducted over a number of years.
Kind of in line with the capital works provisions generally.
So it's just about reminding people about that and ensuring that they're correctly characterising it, obviously perhaps being depreciating assets, another area where we see people that think it's an instant, you know, bought a new air conditioner for a few 1000 bucks, installed it in the rental, think it's an immediate deduction instead of deducting that over the effect of life of the property.

So were reminding people around the complexity and making sure that they're identifying the right deduction and claiming at the right time.
But we're also reminding people around record keeping and what I record keeping is really important because it can help you understand what you can claim this year.
But it sets you up to maximise the deduction.
You're entitled to claim every year by having good records at the start, and also then when you go to dispose of the property, as most rental property owners you know, investors don't hold it for 40 years.
It does help you to get your capital gain or loss correct, when you go to dispose the property.

Robyn Jacobson   
Some thoughts on repairs – we often talk about initial repairs and of course that is capital in nature and you can't just claim an outright deduction for that.
And that's something that's inherent in the property at the time you bought it.
But I think taxpayers also get confused with a genuine repair.
But it's to the entirety.
So for example, if you have a pothole in your concrete or paved driveway, and you repair the pothole, then that's a repair and it's deductible.
But if you can't replace the entire driveway, even with the same material because you've replaced the entirety, that's considered to be capital.
Replacing one tile on the roof as a repair, replacing all the tiles on the roof is capital, so it does bear going back to look at the ATO guidance and there is a ruling that talks about this and I think from memory it's something like 92.3 but don't quote me on that one and that does talk about when you've got these things in their entirety being replaced.  I think the other thing that confuses people is this distinction.
As you say, between what's capital, even if it is capital, is it cost base, is it depreciable or is it climbable over the 14 year period?
So there's a lot to navigate through there.

Robert Thomson   
That there is Robyn and your point around, you know, the pothole versus the driveways are really good example around, you know about a repair being improving something back to its basic functionality versus an improvement.
So replacing the whole driveway and so we have we have put out a lot of information in this in our investor toolkit to help people understand the difference.
But this is also why, you know, we have been saying in our messaging to people.
If you are thinking about investing, you might actually want to go and talk to registered tax agent so you understand.
Actually, you know, if you are going to make this investment, what your tax outcomes might look like, what records you need to keep from the start, so you've got good record keeping from the start because obviously that impacts just not every year tax return.
But obviously when you go to dispose of the investment as well.

Robyn Jacobson   
And of course, with interest rates that continued to rise throughout last year, we've seen them pause this year.
The claims that people are making for interest on their rental properties are now much more significant than they were some years ago, so the importance of allocating between the private use and taxable's was always there.
But now I'm gonna say it's even more important because of the more substantial figures that are involved.

Robert Thomson   
Yes, I I don't have the latest figures, Robyn.
In terms of the trend over the last few years and how that's played out, but you are correct.
What we continue to see is that people just fail or make mistakes in terms of apportioning their interest between, you know, where they've taken out a mixed use loan.
So they've bought a property, but they may have used some of that for a personal personal expense or a non income generating expense might be the more technical way to put it and.
And so there's 2 kind of mistakes we see there.
Umm one is well actually the same thing is really about people understanding.
They need to apportion that for the whole life of the loan.
And so, you know, if you've taken out a loan for, say, 750,000 and the you've used 50,000 for another purpose, you know some people think they can pay the 1st, 50,000 off and then everything else is deductible for the interest they don't need to apportion anymore. And so that's one mistake we're saying.
No, you're actually need to apportion for the entirety of the loan and obviously that becomes complex.
You know that needs to keep good records around how they're doing that year on year, but it is one area we do see people make mistakes

Robyn Jacobson    
The ATO has a top 10 tips for residential rental property owners.
It's a really good guide and and are doing encourage people to have a look at that.
Alright, let's look at side hustles.
Call it gig economy.
Call it what you will.
These are people who may not fully appreciate the extent of their tax obligations.
They may need to be registered for GST.
They certainly have income tax implications.
They do need to get an ABN, they have got record at keeping obligations and of course they may be kicked into depending on the size of their activity, the PAYG instalments system.
So there's quite a bit to get across.

Robert Thomson
There is, there is Robyn.
You know, I think it's like side hustles and like, start again, a new income stream or any new business you need do need to think about the tax consequences.
But we definitely have seen with the rise of online, social media, gig economy that more people are doing Content creation, side hustles, you know, might be working rideshare, on the side and it's just really a reminder for those people that they do need to do need to include that in their income tax return as income.
Now obviously they can claim the deductions that are entitled to in generating that income.
So, you know, don't just remember the income.
Remember the deductions, but this is 1 area where just reminding people you're doing a little bit of side hustle work.
While you might just think it's a little bit of side hustle, it could have tax implications.
So you do need to make sure that you've reported that income in your tax return, and that's just not income that can be whether you've received that income through online services, but also if you've also got cash as well.
So it's just about reminding people about their what income needs to go on their tax return.
And obviously another one in that kind of same space is around crypto.
So obviously we continue to see people are investing in crypto and we're just trying to remind them of their tax consequences there.
And we think about 30, I think 30% of people don't think they need to keep records for crypto, but obviously at a basic level, they do need to create keep you know the transaction dates, how much they bought it for, how much they sold it for etcetera.
So just a reminder and this will pop up, you know there is a pop-up alert when people go to file their tax returns to remind them that they might have had a crypto event or a crypto transaction during the year.
So it's just a reminder as well around crypto needing to being included in a gain or loss. If for individuals this year, if they've invested in crypto and one reminder is they were just under people, you know like every quarter download your transaction wallets, you've got that information there and before you close out your account, definitely make sure you've got you've downloaded your account.
Activity and information.
So you can give that to your tax agent at tax time and kind of work out your capital gain or loss on any crypto assets you've had.

Robyn Jacobson   
And do not lose your password.
I had a fellow who had his crypto pathway to his wallet password on the hard disk of an old laptop and inadvertently through the laptop out.
This was, I believe, in the UK and then spent vast amounts of money trying to convince the local council to dig up the tip to try and locate this missing laptop.

Robert Thomson   
They should’ve bought BitCoin early on Robyn.

Robyn Jacobson   
Absolutely.
Just sounds like he might because you're storing it on the head to.

Robert Thomson   
You know, a good reminder about why it's good to keep contemporaneous records, right?
So if you're downloading your transaction account every few months, you know your clients get into a good practice that doing that.

Robyn Jacobson   
Yeah, we're focused a lot on tax time.
Looking back at the 23/24 income year, but just perhaps some quick highlights of what's changing from one July, the rate of superannuation guarantee has gone up again by another half a percent.
So 11.5%.
So for employers, this is for payments made on or after one July of salaries and wages.
It's not based on when the work was done, so you might be making a payment today in respect of work done in June, but it will attract the higher rate of SG.
So that's really important.
The amount of a penalty unit goes up, so for those who are on the wrong side of the law, we've now got $330 for one penalty unit and penalties throughout the tax admin system and essentially based on penalty unit.
So you might have 10 penalty units or 50 or 100 or whatever it is based on the particular misdemeanour.
So that makes of course noncompliance, late, lodgment that sort of thing become even more expensive.

Robert Thomson   
What we'd say on the penalty units for late lodgments?
Umm is you know if you think you're gonna have an issue lodging by time, then get in contact with us early and we can help you work through that.
So you don't have to.
You know, need to worry about the penalty unit.
We do appreciate and we can probably talk about tax agents, support and a little while, but you know, we do appreciate other things come up in people's lives where perhaps they are intending to lodge by certain date, but they've got something that's outside of their control.
And So what we're saying to people is if you do find yourself in that situation make sure you in contact and discuss your circumstances or speak to your registered tax agent.

Robyn Jacobson 
That’s a nice segway into talking about what support is available.
So if people are having trouble lodging or paying, what can they do?
And then separately as a second part to that question, what support is available to agents?

Robert Thomson   
So if people are having issues lodging or paying.
You can go online.
There are some you can go online.
So for example, you can request some payment services online, so you can actually go to the ATO website online or your tax agent can help you with those.
So I think our main messaging is getting contact with us early to discuss your situation or speak to your registered tax agent early on.
Don't leave it to the last minute.
The earlier can get in contact with us, obviously, the easier it is for us to be able to address your situation and obviously we are busy at tax time as well, right?
So we have a lot of people trying to call us.
It's also leaving it to the last minute, you know, isn't the best idea.
So just engage with us early.
Also have a look on our website.
You'll also, depending on your circumstances, might be entitled to other support options like tax help.
So there is a lot of support on the website around how you can see support if you need it, how you can go on our online services to perhaps request a deferral or to request a payment plan but then who to contact if you need.

Robyn Jacobson   
Agents have something called the supported lodgment program.
So how does that work?

Robert Thomson   
So the supported lodgment program is a program that allows agents to acquire to request additional time, to defer some of their lodgments, and this can actually be done through online services for agents.
Now if you things about that, the agents do need to be aware of, it needs to be that the the deferral needs to kind of be because of exceptional or unforeseen circumstances, being your client or your practice and that those circumstances are actually affecting your ability to lodge.
So our reminder there and why I made that reminder is because we're seeing a significant number of these lodgment requests that deferral requests that come through where the the agent hasn't provided that information in the enough detail for us to be able to grant that lodgment requests. So really important for you to be able to provide detail to us, to explain what the unforeseen circumstance is, why that's impacting on your ability to lodge because otherwise we're just gonna come back to you on, it creates a lot of reverse workflow for both tax agents and us.

Robyn Jacobson   
Certainly in the last week alone
I've spoken with two agents who have lost Staff and this is really challenging.
We've talked often about the shortage of Labor across the accounting and tax profession, particularly post COVID.
But it's still biting and I know the governments are aware of this, but it's something that is a real issue for practitioners where they're trying to keep up with lodgements, whether it be dealing with last years, we've now got a brand new compliance season kicking off and when they lose Staff, it just depletes their resources and they can only work so many hours a week.
They can only do many so many six or seven day weeks without leading that break and and needing a bit of reprieve.
So to what extent is the ATO aware of this and mindful of this?

Robert Thomson   
Obviously we engage with the tax agent community quite often.
We have the tax practitioner stewardship group and we do understand the pressures facing tax agents.
So you know, we do have.
I've talked about the Lodgment program.
We also have other programs available, such as our tax Practitioner Assistance Service, which can help provide advice on an even administrative matters around your practice and the programs we've talked about, including that tax practitioner support program.
There are obviously available to all size of agents and we also have other programs. 
So I guess the main messaging is if you are having issues and you're an agent, just out getting contact with us early, that's the best idea and then we can work out what's the best support. 

Robyn Jacobson   
OK, look, this next issue is one that we could speak for hours and hours on, but with just a moment left: scams.
Try to identify what is genuine contact from the ATO.
We're all so suspicious, myself included, of phone calls, emails and text messages, and trying to work out.
Is it in fact the genuine supplier or provider?
Or is there someone scamming me and we've all been a victim of some form of scam or text message that is not genuine?
What does the ATO do and not do?
And if you're not clear on whether something is genuinely from the ATO, how can you check?

Robert Thomson   
Yeah, so, so good question, Robyn,
I had someone the other day calling me telling me that the tax office and they're gonna throw me in jail for a tax debt, which I kind of found funny.
And when I told them that I knew the deputy Commissioner of fraud and criminal behaviours, they hung up very quickly.
But no, it's it's something we're facing, right.
You’ve gotta you've got an unpaid toll account.
You've got an unpaid, you know, TV streaming account.
We do see it at Tax Time obviously though, because people are expecting to engage with the ATO that there is scammers use that to their advantage.
And what you know, I say scams all year round, but we see new scams at this time of the year and what most of them are trying to do is harvest people's mygov ID credentials, typically through either a fake email or a fake text message.
So a few red flags, one is that we're never gonna text you or send you an unsolicited email that asks you to click onto a hyperlink and enter your mygov  ID or details or any other personal information.
Well, that's one way that you can identify something is probably not from the ATO the other.

Robyn Jacobson   
If there's a link, it's not from the ATO.

Robert Thomson   
Not from the ATO.
What I do when I get those, even when I get I, you know, it's just you always just going to to your my Gov you know in your browser and check your activity that's the easiest way. So that's the first thing you can do.
That’s the first flag, the second flag is.
We're never gonna ask for personal information via email via text message over social media.
That's another red flag.
The other one is when the ATO calls you, it actually comes up as no caller ID.
So if you're getting a mobile number coming up and they telling you the ATO, they’re not.  and the last thing is we're never gonna make you stay on the line and threaten you with jail until you've made a payment.
So any of those things Red flag if you don't think it's genuine, you don't know, hang up, you can call us on 1800 008 540 and speak to someone and they'll be able to help you to understand whether it is you're generally talking to an ATO officer or not.

Robyn Jacobson   
Can you repeat that number again Rob?

Robert Thomson   
1800 008 540, Robyn.
There’s also a few things practices can do at this time of the year you know, so one is making sure that they've updated their obviously their IT security software.
The second is making sure that they're obviously gone through POI for all their clients, which we talked about earlier.
And the third one is to have a discussion about who has access within your practice, to what information and do they need it?
So that question around access to information.
So they're obviously things you can do as an individual, but there's also things that can be done for practices and the same information on our website for tax agents around what they can do to kind of make sure that they're protecting themselves as well.

Robyn Jacobson   
And I think it's also important to mention that there have been a number of changes in recent years involving the ATO’s approach and security procedures and so on.
And ultimately this is done to protect agents, to protect the community and to protect the ATO itself.
So sometimes they're inconvenient, but sometimes these steps are unfortunately necessary.

Robert Thomson   
That's right rather than we definitely want to protect taxpayers, we also wanna protect tax agents as well.
I mean, there's nothing worse for a tax agent than having their kind of their ID taken over as well.
You know that can impact their whole practice and their livelihood as well.
So this is very much about making sure we're keeping both the community and tax agent safe.

Robyn Jacobson   
Rob, I really appreciate you taking time out.
I know you've been doing a big circuit and this is one of just many, many discussions you are having, so we've gratefully appreciate your time.

Robert Thomson   
Thanks Robyn.
Thanks very much.

Robyn Jacobson   
Thanks for listening to this episode of TaxVibe.
I've been chatting with Rob Thomson, assistant commissioner at the ATO and the tax time spokesperson.
If you enjoyed this episode, we'd love for you to subscribe, rate and review TaxVibe wherever you listen, we welcome any feedback and suggestions. To catch all the latest from TaxVibe and The Tax Institute, join us on LinkedIn. If you're interested in being at the center of the tax conversation, a membership with The Tax Institute could be just what you need.  Stay current and connected with tangible real world benefits.  Learn more at taxinstitute.com.au. 
Thanks again. Till next time on TaxVibe

Robyn Jacobson, CTA

Hello and welcome to TaxVibe, a podcast by The Tax Institute. I'm Robyn Jacobson. We love the vibe of Tax and here at The Tax Institute we do tax differently. In this bonus episode of TaxVibe, you'll get a special insight into our member-only webinar. To see the full webinar and access other member-only insights and resources. Become a member of The Tax Institute. Head to our website to learn more. We hope you enjoy this episode of TaxVibe.

Chris Wookey, CTA

Hello everyone, and welcome to The Tax Institute's End of Year Tax Issues Member Benefit Webinar. My name is Chris Wookey and I'm a member of the National SME Technical Committee here at The Tax Institute and a life member of the Institute. And before I introduce our Speaker, I'd like to remind you to take advantage of the advanced rate and register for The Tax Summit being held in Sydney in September, later on this year. Now I'd like to introduce our presenter, Robyn Jacobson. Robyn is going to be well known to everybody here. She's the senior advocate at The Tax Institute. She's been around in tax for more than three decades in the profession. We started working together last century and so over to your Robyn.

Robyn Jacobson, CTA

Thank you, Chris. And yes, I look back on those days of how simple tax was in the mid-nineties and even early nineties and it's come a long way since then. So thank you for chairing today and good afternoon everyone. It's a pleasure to have you join us today right across the country.

This is obviously a very busy time for you all, but the purpose of today's webinar is to consider the issues you need to think about for both your own practice and the affairs of your clients as we lead up to June 30.

Alright, so let's get into it. Starting with what we know when it comes to the taxation of individuals. Now you're of course across the stage three revised tax cuts and these kick in on the 1st of July this year. Now just the completeness, this slide [member-only] shows you stage one and stage two, which of course have been in place for some years now. I'm not going to go through every threshold and rate with you, it is obvious by what's indicated in red. But I did want to make some observations about what this means for your clients and what their expectations are over the next year. So if I move now to this insight slide, firstly, I know there are going to be some clients and certainly the community more broadly, particularly those who don't use tax agents, who may confuse the start date of the tax cuts being 1st July 2024 with the tax position for 23/24. So of course this does not alter their income tax position for the current financial year, and nor does lodgement of the '24 tax returns have any impact. So '24 cut it off. Make sure you explain to your clients that this is all to the 24-25 year onwards.

Secondly, I haven't seen much narrative on this, and it's something that you may wish to raise with your clients, but the government has been broadly saying in all its messaging: every taxpayer receives the tax cut from 1 July this year. Well, firstly, it's only income tax. So of course if you're paying GST, then that doesn't make you a taxpayer for this purpose. Secondly, there are people who may pay tax, but they may be, in terms of the final tax position, below the tax free threshold. Now, of course, they would get a refund of any tax they've paid, but ultimately, if they're below the tax free threshold and whether that's increased by way of other offsets, apart from the low income tax offset, they may not have a net tax position, which means they're not going to benefit from this. But moving to those who are on the withholding system, anybody who's on a PAYG withholding arrangement as an employee will see an immediate benefit from their first payroll from the 1st of July this year. But anybody who's on the PAYG installment system only and I'm talking about sole traders, certain businesses, of course, and your investors, they pay their tax by way of installments. And these aren't going to be adjusted because of the tax cuts. So they will pay their installments, as usual, varying, if that is appropriate, and they won't effectively see the benefit of the tax cuts until they lodge their '25 tax return, work out whether any tax has been overpaid, and then, of course, that would be adjusted upon assessment. So it's just a distinction I think is important because those who are not on withholding are not going to see that immediate benefit. Of course, a reminder to employers they need to make sure that they adjust their PAYG withholding tables effective the first payroll from 1 July this year and we are expecting that the ATO will be updating those witholding tables in mid-June. Now that obviously would be around this week, perhaps into next.

Student loans. For those of you who have clients with the old HECS debts or HELP debts as they're now known, the Higher Education Loan Program in the budget it was announced that the indexation factor applied to increase the loan effectively as a pseudo interest calculation is going to be adjusted. And this is in response to the particularly high indexation last year when it was 7.1%, I think the highest it's ever been, or perhaps the second highest. But certainly typical increases over recent years have been around say 2 or 3%. So, effective from loans that were outstanding on the 1st of June 2023, instead of just applying the CPI indexation rate, which as you can see in that second bullet point was 7.1%, the law will instead apply the lower of the CPI or what's called the wage price index, and that would drop that indexation rate down to 3.2%. For the indexation on 1 June this year, instead of 4.7, it means it would only be 4%. Now about $3 billion of student loans is going to be improved, if you like, benefiting from this. But please note also if a student repaid their debt in full before the 1st of June 2023, they will have the indexation applied using only the CPI. They won't benefit from the lower of the two indexation factors. So something that I've said in a bit of social media where they've realised they've missed out on this particular measure,

Moving on to work related expenses. Now you can run a whole webinar on this alone, but some key considerations are listed in the next couple of slides. Now, starting with of course car expenses, there's your cents per kilometre. The $0.85 is in a registered instrument, so that is already, if you like, in the legislation. And the rate for 24-25., the ATO has issued a draft legislative instrument yet to be registered and it's proposing the rates will be $0.88. I've not particularly seen changes in the draft to the final over the years so I would expect that to go through as is. And then of course we've got the relatively new approach for electric vehicles at 4.2 cents per kilometer and that can be applied for either FBT or for income tax purposes. Now, notably D1 is only where you own or lease the car. If you're borrowing someone else's car then it becomes a travel expense at D2, not a car expense at D1. D2 – I'm going to skim over this.

You've got lots of guidance on the relevant reasonable travel and overtime meal allowance expense amounts for the 23-24 year linked there. There's information on FBT, accommodation, food, drink, itinerant workers. There is so much that goes into this but have regard of course to itinerant workers, bulky tools and equipment, home to work travel, whether it is legitimate travel or whether it's just someone who is choosing to stay somewhere else for the convenience of being closer to work. That doesn't automatically make it travel. So it's very important to look at the character of the expenditure that's being incurred and make sure it's being classified correctly. Also, the ATO will of course be looking at a correlation between working from home expense claims and travel expenses, and you would think that somebody who's working from home should have minimal travel expenses and vice versa, unless they're working particularly ridiculous hours and they're traveling as well as doing significant hours working from home. But a typical worker who does travel or is working from home, there shouldn't be high claims for each of those in the same return.

Moving onto clothing expenses at D3, a reminder about all the rules regarding compulsory uniforms, the non-compulsory uniforms which must be registered in order to make a claim for those, protective clothing is okay and occupation-specific clothing is okay. But anything that is required to be worn by the employer but isn't occupation-specific (and we go back to our chef's pants and our barrister's robes and the like), or is some type of compulsory or non-compulsory registered uniform, is simply not deductible and that includes the waiters who are required to wear black, that's still conventional clothing. Same with typically gym wear and similar. Now don't forget about your $150 worth of laundry. There needs to be a calculation of the various loads of washing. Also, if you're going to be relying on the $0.50 on the dollar per load and I will leave it with you as to whether you'll make the appropriate inquiries as to whether the, let's say, underwear is also being washed along with the trade clothing as to determine whether it's a $0.50 claim or a dollar claim per wash. I'll leave those personal and private questions to you and your clients, you can work through that one.

Now. Self-education expenses. A reminder that the expenditure must either improve your skills or knowledge that you currently require in your employment duties, or is likely to result in an income in your employment activities. So in those other income that comes from those activities. So we've seen so many cases over the years and time doesn't permit us going down all those rabbit holes, that you're well familiar with, the necessary nexus between claiming that and of course deriving the necessary assessable income. A reminder that the old $250 rule has been gone for a couple of years, so you don't need to worry about taking off that non-deductible threshold first.

All right, let's spend a little bit more time on the working from home expenses. For the 23-24 year, we're into the full year of the fixed rate method that was revised about 18 months ago. So we're talking here about the $0.67 an hour, the $0.80 an hour shortcut method finished up. That's long gone up post-COVID. Secondly, the $0.52 an hour no longer exists. So the taxpayer has a choice of $0.67 an hour under the fixed rate method or the actual cost method. If they use actual cost, they do have to keep receipts for everything and they will need to determine an appropriate allocation for challenging expenses like internet, telephone, power and your heating, cooling, etc.. Now that includes gas. So if you're going to go with the $0.67 an hour, that covers your electricity, your gas, telephone, your internet stationery, and computer expenses and consumables. So if you feel your client is going to be better off not using the fixed rate method, then you'll need to work out really essentially by setting out two sets of calculations that I'll share with you, that when I did my last tax return, I needed to work through this. I looked at the fixed rate and I compared my actuals and you've got to determine which one works better for you. But unfortunately it does increase, as a result, the amount of compliance work involved. Also, you do not need to have a separate office in order for the working from home expense fixed rate method. It is sufficient that it's simply working from home. You do need to keep a copy of the relevant bill that supports the electricity, the gas or the internet. Not every one, just at least one bill. And. also bear in mind that the $0.67 an hour doesn't include depreciation. So you are able to claim that separately, but you won't be able to claim certain other expenses because of the double dip. The other point to mention is that you have to keep a record of the actual hours worked if you're going to use the fixed rate method. You can't use a four week diary. You must keep a record in the spreadsheet or some sort of log book or whatever that records every single hour that you work from home during the year.

Right. Moving on to rental properties. Now the ATO continues to share data with us and I am the co-chair of the Tax Practitioner Stewardship Group. And whenever we meet this is often discussed and that is the fact that the ATO data is showing nine out of ten tax returns that include rental property claims have errors in them. This also includes Agent lodged returns. So there's no suggestion that the nine out of ten that are wrong are all self lodged returns. There are errors being made in returns lodged by agents. Now the ATO has released the top ten tips to help rental property owners avoid these common mistakes. And I do recommend you have a look at that document. You may run through it and think, yeah, yeah, we know this, but it is a good reminder and it's also useful to send your clients so they are aware of all the tips and traps that need to be considered when you're looking at rental property claims. Now we are looking at running a number only webinar on rental properties in the next few months. So keep your eyes out for that. But some common areas that are an issue. Make sure that the gross rent is being declared. The ATO are seeing instances where the net rent per the agent's statement is being included in the tax return, and then the expenses in that statement are being claimed against the net rent. So in other words, it's a double dip of the same expenses. Now obviously net rent is what gets deposited into your client's bank accounts, but they need to make sure that they're giving you the full information and that you're grossing that back up to include the gross rent, claim the expenses and of course, anything else that they incur outside the agent arrangement. I think it's also incumbent upon agents to ask the right questions of clients. So make sure when you're getting that figure, query them and say, is this the net rental or the gross rental figure from the agent. When it comes to mate's rates, if you're going to reduce the rental income rate for a friend, for family member, then you're not going to get a full deduction for the outgoings. So make sure that if non market rates are being charged, you appropriately adjust the expenses. There are still issues with clients who are not correctly apportioning their interest where the property is not generally available for rent, but they're still claiming the interest or they're failing to apportion where there is mixed use of the funds. Now another occasion we can run through the difference between a redraw of a mortgage and offset facilities. But it's very important to understand the nature of a loan. And when you've got all these different features, how you should treat the interest deduction accordingly. Borrowing expenses – remember the claim is over five years or the term of the loan if that is less than five years. It is not a straight line – in other words, you don't just take the amount and divide by five. Technically the claim runs for the number of days, but it runs over six income years. So four full years and then two part years. Check your repairs. Make sure there's no capital amounts in there. Check for something that could be constituted as an initial repair and instead should be treated as capital. Watch out for entirety. So if you fix a pothole on a driveway or a fence paling, that's a repair. Replace the whole fence, or replace the whole driveway, even if it's a repair, it is considered a capital amount because you've replaced the entirety of it. And it is worth looking at the ATO ruling on this, which from memory is something like 92/3, but you'll be able to find it with a quick search. Of course, don't forget about the changes with residential rental properties. So from 1 July 2017, you've got your rules for second hand assets in these properties and you'll need to consider whether the depreciation is limited. In these cases, you can't claim depreciation, but you would then calculate a capital loss under CGT event case seven when the property is sold. So in that case you'd have an A1, typically a capital gain on the sale of the property, plus a K7 capital loss on the sale of the relevant depreciating assets where they are second hand and they've been acquired after that date. You also need to consider no deduction for travel expenses where it's a residential rental property. The $300 rule is still available for rental property owners to claim minor depreciating assets, but it's not on a per asset basis. So anything that is identical or substantially identical or is part of a set, you need to look at that in the context of the $300 limit.

Thanks for listening to this bonus episode of TaxVibe. If you want to hear the full webinar and join a collective voice of 10,000 practitioner as the heart of the tax profession, become a member of The Tax Institute. Head to our website to learn more. To keep up to date with TaxVibe, be sure to subscribe wherever you listen to your podcasts. Please join us on our socials and let us know your thoughts or any topics you'd like to hear us discuss. We look forward to your joining us next time.

Robyn Jacobson, CTA

Hello and welcome to TaxVibe, a podcast by The Tax Institute. I'm Robyn Jacobson. We love the vibe of Tax and here at The Tax Institute we do tax differently. In this bonus  episode of TaxVibe you'll get a special insight into our post-Federal Budget reflection. A sneak peek behind the closed doors of our member-only only webinar.

You'll hear the highlights of key tax measures and their commercial and practical implications. You'll hear from our panellists, Annemarie Wilmore, Partner (Tax) at Johnson Winter Slattery, Clare Mazzetti, Chair at The Tax Institute and Todd Want, CTA, President of The Tax Institute. You'll also hear Scott Treatt CTA, CEO of The Tax Institute, facilitating the discussion.

To see the full webinar and access other member-only insights and resources, become a member of The Tax Institute. Head to our website to learn more.

We hope you enjoy this episode of TaxVibe.

Scott Treatt, CTA

Good afternoon and welcome to The Tax Institute's webinar, addressing last night's federal Budget, Federal Budget 24-25. My immediate reaction was in my professional career to date and I dare not say how many years that is, but I've never recalled a budget that was so light in tax measures. As a bit of an anecdote, because there were so many tax measures, I probably was up at midnight last night trying to find something interesting out of the papers, and I tried to find how many times tax was actually mentioned in the budget papers this year compared to prior years, and it's around half, half as many times last night as in prior years. And they weren't really on substantive matters. But anyway, let's start, and Clare if I may start with you, immediate reactions then to last night's budget.

Clare Mazzetti, ATI

Well, look, I had a very similar reaction to you, albeit not necessarily just focused on tax given I have a more commercial background and I'm not a tax specialist. But one of the really insightful comments I heard from one commentator last night was to reflect that once upon a time budget night used to be something of an event like listening to a political speeches and leader’s debates in a in an election year, people used to tune in and get quite excited and have a sense of anticipation of what the government would say and what agenda was being set as they would when the right of reply comes a couple of nights later. But the overwhelming sense in this commentary was that actually nobody is listening and there's really not a lot to say. And I think that that's really reflective of what we saw last night, and that's a great shame because it's such a missed opportunity. But if we contextualize it, we are coming into an election year while an election probably could be held as late as September next year, it's likely to be within the next 12 months, possibly much sooner into the new year. And so I think what was announced is really reflects on the government not wanting to expend any political capital and trying to sprinkle as many sort of breadcrumbs as possible to keep as many people happy, albeit there's not a lot of substance in that. Certainly the cost of living measures that were announced were largely already pre-announced, so there wasn't very much new in there. And look, just as a broader comment to close off this before we hear from our other colleagues, you know, I'm not really convinced that there's too much in the budget that will potentially stop the RBA from needing to increase rates again. So while there was talk of bringing inflation down, I'm not sure that some of the economic data globally will support that. So they were my initial thoughts.

Scott Treatt, CTA

Yeah, perfect, Thanks Clare. Todd,  I might pass to you next if I may, and again your initial reaction but I'd also like to explore if I could – could they have done anything different?

Todd Want, CTA

 I think, Scott, that the the budget was a missed opportunity to at least talk about tax. It wasn't implementing measures. Certainly substantial measures can take time. But from the tax system needing to be overhauled, not even putting on the table any real comments about that at all or tying them in to the the broader policies in any major way was really the thing that just seemed to slip away. The stage three tax cuts or revised stage three tax cuts that kick in from 1st July 2024, that was sort of seen to be our centrepiece, but a major part of the budget of the tax measures, and that was locked in quite some time ago.

Scott Treatt, CTA

It was, it was really just the budget was really just pricing in the impact now of those announced and re-announced and re-announced til the cows come home. These stage three tax cuts.

Todd Want, CTA

I was pleased as an avid enjoyer of sweet potato fries to see that the levies on sweet potatoes are coming down a little bit so I assume that will pass through to the costs when I'm go and buy those when dining out, but that type of thing when you're looking for those sorts of measures and saying well that's a bit of a highlight from the budget, not taking away from our sweet potato farming colleagues, that's disappointing with taxes. We've missed that. So I think for the business landscape, for our members and the types of issues that we have to deal with, the budget really didn't didn't hit on anything. It didn't give us any real growth.

Scott Treatt, CTA

Yeah thanks, Todd. Anne-Marie, your, your reactions to the budget.

Annemarie Wilmore, ATI

Yeah, similar to Todd and Clare's. There was not really much news for large corporates in here. There's some tinkering around the edges. We've seen a lot of legislation introduced in recent years, so there's some adjustments to some of those, but it's very much consistent with that theme of making multinationals pay their fair share of tax. That's a constant theme that seems to be coming through and I think one sweetener in the deal is that some of these measures that have been announced appear to be prospective and perhaps we're seeing an end to retrospective legislation, one can hope.

Scott Treatt, CTA

One can hope but I'm probably not going to be one that's holding my breath for that. But that out of this one glaring admission, Robyn, last night really wasn't there. This government's been in power now for two years, and a lot of work that we did when they came to power, we did have an incoming government brief at the time. And in that brief I think there was some 84 or so announced but unenacted measures, where are we at now? How many ABUMs, as they colloquially known, how many announced but enacted measures are sitting there today and where do we stand?

Robyn Jacobson, CTA

Yeah, ABUMs. These are a rolling figure. In other words, they always creep up every budget, they creep up every review, they creep up every election. And through the course of a term of government, we might knock a few off. What's been concerning is the longevity of some of those items, but they have been around for so long and for example, there are three in particular that we continue to focus on and continue to advocate for some progress.

The first is the corporate tax residency rules. There seems to be consensus across the profession and even in broader industry that what was previously announced is a good thing. So let's just get on with that. The individual residency proposals, you can't say the same. There are concerns about what they would mean if brought in in their proposed form. And then we've got the perennial Div7A measures which, look, we're up to 12 years if we can go back that far. It was May 2012 when the then Assistant Treasurer David Bradbury, commissioned the review by the Board of Taxation to review the rules to see if they were still fit for purpose. The conclusion was they're not. Changes need to be made and I'm not going to go back through all the history of those announcements, but we still wait for reform. Now. Scott, we often talk about, particularly in our Tax Policy and Advocacy team, about be careful what you wish for. So we don't necessarily want change for the sake of it. We don't necessarily want change just to reduce the length of the list of items. But we do want certainty. And when you've got measures that go on for years and years and years, we haven't got certainty, particularly when they have retrospective application. Now we say there was virtually no movement on the ABUMs. There was one. And this was that very odd announcement back in the 2019-20 budget, which is about ABNs and how if you had an ABN, you had to lodge a tax return, which is a current requirement anyway. So that's always been a perplexing one. If we look more broadly, there was a proposal in the budget to abolish 457 nuisance tariffs. Now Todd, I'm not suggesting that the marketing levy on the sweet potatoes is a nuisance tax and we give that one full credit for abolition. But the point is, Scott, that we've got a proposal to get rid of some nuisance tariffs because they are cluttering up the system. So productivity, they're not serving the system very well. Why aren't we having the same conversations about other taxes that are in the system? Why is the focus on, for example, these tariffs and not on many dozens of the taxes that were identified by Ken Henry in his review back in 2010? So we continue to advocate for some clarity and certainty on these items. There just doesn't seem to be an appetite. They just get pushed into the too hard basket.

Scott Treatt, CTA

I think that's right. And I am challenged by the fact that they don't take the budget as an opportunity to then improve what certainty we talk of confidence and certainty in the system, but it just leaves it as a really uncertain environment where you've got those measures as announced that untouched for so long in evidence. What do we do then? How do we deal with this? And so so Claire, coming back to you, if I could, like, where do we stand up off the back of last night's budget? Then from a business confidence perspective, the impact on the outlook, do you think that means for businesses as we are moving forward then?

Clare Mazzetti, ATI

Well, look, I think we're in a very precarious sort of inflection point and your monetary policy and fiscal policy continue to work at cross-purposes. And that is absolutely not useful. And it's been a structural problem for quite some time. And obviously, the institute has been through its advocacy work and talking about broader tax reform, you know, a very vocal voice around that. So I think that remains an important issue. But without bringing those two things into alignment, productivity is really the only way for the Australian economy to grow its way out of this particular challenge is the tax system is not going to be at least tinkered with or, you know, some pathway for broader reform is not going to be undertaken. So look, where does Australia sort of stand? I think we're very, very lucky that commodity prices again have been strong and obviously that was noted last night. You know, Treasury had probably on the budgeted by sort of quite some substantive amounts for four key, key resources. And that's really, I guess a key piece about why surplus was announced last night. So they've been strong and resilient, households have been resilient, and that's in large part because those Kogan buffers and cash surpluses that people built up are still there, albeit they're dwindling and they are dwindling fast. And our banking data shows that quite clearly. But unemployment stays very, very low at the moment, and that's also helping us remain quite resilient, even though we're seeing spikes in wage rises. But, you know, these pressures of global inflation, geopolitics, uneven growth throughout our economy, in a global economy are going to put significant pressure on us. And that is weighing on the broader business environment for sure. Doesn't really matter what business you're in. You know, this uneven or patchy growth and some of these patchy results are showing up in lots of different industries and more worryingly, at the moment, we do see that banks are starting to provision much more stringently for bad debt and insolvency fees are on the rise. And I guess how we would see that through the tax provision as well. But they are at decade highs. So what does it mean? I think that you know, there's a bumpy road ahead, a very bumpy road ahead and back to where I started around that misalignment between some fiscal and monetary policy. The longer that remains and the longer that all of this sort of structural work, particularly around things like tax reform, the can down the road, the harder it becomes for whether it's a large enterprise or small enterprise or a mum and dad business to be operating in that environment.

Scott Treatt, CTA

Absolutely. So, Todd, I'll come to you then if I could. SME’S It's the most touched part of tax provisions. I'd say over the last seven years would be instant asset write offs. And again last night.

Todd Want, CTA

 It’s, it’s fascinating Scott. We obviously had the COVID related measures where it got bumped up for a broader range of businesses with the instant write offs and temporarily expensing. But this is something that I think all, you know, all parts of politics are guilty of because this is if it's a lost decade, it's been happening. And I think it's something real. And like the seventh change in the last decade where we get to budget night and we're just wondering whether what the number is for the instant write off and it both the threshold for the dollar value of the assets bought and for the size of business. But it's literally a rinse and repeat of last year's budget of $20,000 for, for small business through the $10 million turnover aggregated turnover.

Scott Treatt, CTA

But this is still just an announcement.

Todd Want, CTA

this this is the this is one of the real problems that yesterday before the budget was handed down, the Senate had back in March proposed some changes to last year's measures because last year's measures still haven't come to legislation. As it stands, a small business has $1,000 instead of threshold. So last year's measures, yeah, we're obviously nearly finished this particular financial year and our legislation passed. The Senate had proposed a 30,000 limit. So businesses with an aggregate or turnover in the group of 50 million or less. So that passed the House of Reps yesterday to consider, they kicked that down the road to today and it would appear as though the tennis game is going to continue.

Scott Treatt, CTA

It's going to be fascinating, isn't it? So yes, last year's measure was $20,000 deduction for a 10 million cap. As you say, Senate then has pushed it back 30000 to 50 million right now. Where are we going to learn how to our members advise their clients around what to ask? Six weeks out for me and we've now going, Will, what is it for this year, let alone how will that impact the Senate's view of what it should be for next year?

Todd Want, CTA

This is where I think the tax policy and broader economic issues. This is a classic of it being one that businesses who are looking to upgrade, say, computer systems or other bits and pieces and spend money to improve their systems and processes and efficiencies, they just want some certainty. You cannot claim the deduction upfront for that. Actually be able to factor in an after tax cost. But what I need to be able to help grow the business in the economy yet this seems to be over many years now a political issue to get this point scoring on depreciation rates. Ultimately, for the most part, it's a timing issue. It's not a permanent thing. The most instances, most of these small businesses, they would have claimed that depreciation over three or four years sort of time period, a large chunk of it ordinarily. So it's only a timing thing. But for but it seems to be something that just makes an adviser's life so tough and clients, you know, when you're telling them, oh, look, we don't actually know for this year what you can claim. It's still not sorted out by the government They now what does that what are you doing? We are and so are we glad that there's not too many measures. Now. We'd actually like something like this just locked in as a permanent thing in the legislation. Let's forget about it being the number one smart business thing in the budget each year. Let's just lock it into 20,037, whatever the appropriate thresholds are, and get it locked in there and keeping certainty to just go out there. I mean, the the threshold of 20,000, a proposed threshold, most businesses are not going to be able to buy a car or a vehicle and walk that off instantly.  At that level, we're talking more desks and computer equipment and things like that, maybe some shelving and racking and the like. Very, very practical for a small business. But let's give them some certainty.

Scott Treatt, CTA

Absolutely. Robyn, I can see you wanting to say something. It's one of your pet peeves like this is a sugar hit to the government though, isn't it? Like this becomes like a it's a new sugar hit and.

Robyn Jacobson, CTA

Poor old instant asset write off. It's become this political ping pong. Well, clearly the government likes it and government of either persuasion because we've seen it change and altered increased under both sides. Clearly, business likes it and it's a no brainer because as you say, it's a timing difference. So we're having these enormous squabbles, the energy that is put into drafting legislation and debating it in Parliament to work out whether or not we're going to write something off now or in two or three years time. And the difficulty, Scott, is that at a policy level, it undermines the purpose for which it's being introduced, which is to provide an incentive, generate productivity, get businesses investing in these sorts of depreciable assets is six weeks out from your end and you've got no idea where the what you've already spent this year is eligible for a write off this year or not. And I don't feel that many practitioners don't fully appreciate that without any of these legislative changes, it has reverted already to $1,000. So what we're looking for is a transitional provision to supersede that and make this a 20,000 write off for this year or in the same case for next year. But as we've been advocating for in many of our pre-budget submissions and similar over recent years, we want this to be a permanent measure and take it off the table, give businesses certainty, and wherever you place those settings, look, we would like it under 50 million just confined to the small business entities I look with. You said it at 2025, 30, 50,000. At this point I cannot I can't. I just want to permanently in the law.

Scott Treatt, CTA

Absolutely, now Anne-Marie, so turning to capital gains tax.

 Annemarie Wilmore, ATI

Yes. For foreigners. Yes. So will be some changes in this space. There'll be an expansion of the scope in terms of the assets that might be caught. There's a new concept to deal with. So in terms of the current rules, we focus on a test of evaluating the indirect interests, whether they the the value is greater than 50% of Australian real property. That perhaps will change. It's unclear. Maybe there's an additional layer of integrity rules to be introduced.

Scott Treatt, CTA

Yeah, there's a lot of detail that's not quite.

Annemarie Wilmore, ATI

It's not quite it's not quite there. But there is this new concept of assets with a close economic connection with Australia, with Australian land in particular. There's also a change around the testing time. So at the moment you're quite to test at a particular time there's an averaging of 12 months and there's a notification requirements that is going to be it.

Scott Treatt, CTA

Which is fascinating, is maybe touch on the testing over time. So pragmatically for advisors, for their clients, what it's going to mean from a record keeping perspective and that can be challenging when you're talking to clients and you know only saw it on this day, why do you need all these other data?

Annemarie Wilmore, ATI

And it's a bit speculative at this stage, but I think it's it's going to require a bit of thinking through and planning for organizations that are looking to divest of their assets. You know, the valuation aspects will need to be worked through in terms of how a value a might approach this question over a period of time. And you run the record, there's going to be record paying implications for sure.

Scott Treatt, CTA

And so that notification piece, though, who's that applying to.

Annemarie Wilmore, ATI

Say, the the foreign residents who have who are considering to dispose of their shares in land that's worth more than 20 million? I think that they'll be required to notify the ATO that the announced measure actually says before the transaction is executed we should see some really early isn't really, really early. And it would be interesting to see if any attempts are made to strike a balance between that need and desire. So transparency on one part of the government and the ATO and the real practicalities of getting a deal done. And what we also don't know at this stage is what that might mean in terms of there's a notification requirement. I think that's clear. But what sort of powers will the idea have around this? Can they hold up a deal? Will they look to investigate it post post implementation? So these are sort of the unknowns in some ways, this is not a new issue for foreign investors into Australian assets. It's been around for so many years. I think there may have been a similar announced measure some years ago after the ACA litigation. So it's sort of a bit of a back to the future type vibe to it.

Scott Treatt, CTA

Look at it. I think we've covered off matters on fact that there is so little in last night's budget from a tax perspective and what have you. So maybe just to wrap this up, maybe from each of you. Well, on we've heard what we've heard. Yes, there's little in there is aside from a text perspective. So what's different then? If I'm an adviser, I've now got to sit in front of clients who don't get that some joys and thrills of sitting down at budget night and listening to Jim Chalmers wading through the papers. They've got questions that they want to I want to know what is it that I'm talking to my clients about? What is it that I need to do differently in the future, plan differently, etc.? What's your takeaway? And I'll go one by one if I might play starting with you.

Clare Mazzetti, ATI

Well, look, given my roles a little bit different, I might answer the question slightly differently because I'm not sitting in front of clients giving tax advice. But look, I think a broader macroeconomic comment is is just to reiterate what I've said before, that clearly productivity is needed in the Australian economy in lieu of governments of any persuasion addressing some of these structural challenges that we face into and obviously taxation reform and broader reform would need to be a part of that conversation. And we bang the drum very, very well and passionately and will continue to do so. But really not much is sort of different and not much will change. And in some ways, you know, I'm not that I sort of want to wish sort of crisis upon the economy, but Australia does respond well in a crisis and people pull together. And I think that COVID showed us that. And in many ways we almost need some kind of big crisis in order to have the will and desire to to address some of these structural changes where it can then be, you know, on a bipartisan approach.

Scott Treatt, CTA

Understood. Todd, You're a practitioner.

Todd Want, CTA

I think what what's clear from, you know, Robyn, talking about ABUMS and the depreciation measures, they're not being enacted. Uncertainty, even though things are announced, is just a given in this in this climate. But what does have more certainty out of these budget measures is the amount of money that the government keeps throwing in the ATO to conduct reviews, audits, task forces, etc. So those taxpayers who are either wealthier individuals, larger private groups, individuals that are pushing the boundaries on deductions, whatever it is, the cross section they expect and expect to review, that's that's what I take out of these papers, because dollar wise, if you dug into the amount of money thrown the way over the coming years for those types of things relative to the total pot of measures, it was a huge proportion of all. And so it's certainly giving a message that's and I think quite rightly, Robyn has thoughts on whether they go far enough in what the ATO should be allocated money for. But as far as taxpayers and as an advisor for clients, don't expect that reviews and audits are going to go away. Did they're part and parcel of the environment now having your records, your processes, procedures, your documentation in place and being prepared to to go through that and not, you know, I think some people perhaps if you went back a number of years, would consider themselves unlucky to have been picked for a review or audits. Well, I think now you just got to accept that's part and parcel of being a taxpayer and certainly in a lot of pockets of of taxpayers.It's just how it is now. So I don't see it as being unlucky. It's now the process you just got to roll with it. And the ATO are going to continue to be funded to deal with this stuff.

Scott Treatt, CTA

Absolutely. So I might then step out of line and then move down to Robyn just to comment or add to some of those comments and your thoughts on what this means to the future. I'll come back to you, Annemarie.

Robyn Jacobson, CTA

For many years we have advocated for a more permanent and certain source of funding for government agencies and whether we're talking the TPP, the ICAO or the dozens of others, there was significant expanded funding announcements or extensions of current funding programs that were new ones that were announced. The sense I get, it's like the teenager whose constantly putting their hand out for more money from the parents. And if they had either a steady allowance or maybe they're just not trusting the teenagers with the cash. Yeah, we'll give you a drip feed amount, so we're not going to give you a big sum of money. And when we talk about but can I have some money to go to the proverbial cinema, which is code for we want to do another review or we want to build some more infrastructure or we want to upgrade our systems. It's constantly having to be sought as a separate bit of funding, sometimes allocated on an existing pool, sometimes not. Now, over the last year we have seen the recommendation from the James Review with the TPP, where they've now got a special account and they don't need to seek an appropriation from the ATO's funding. They've got it directly from Treasury and that's a good thing. But it seems that they haven't noticed our members contacting the ATO 60 days for objections is kind of that's a bonus if you can get it within that period. We're hearing increasing of six months where people are not getting feedback from the ATO on those sorts of matters. They challenged by labor markets as much as any other business. So how the funding works long term but certainly would like to see something that's a little bit more permanent and gives them more certainty.

Scott Treatt, CTA

Anything else from a future perspective, then you'd like to close out on.

Robyn Jacobson, CTA

Look, I'm going to circle back to where I started. The ABUMS

We need to move on is we need to know what the government's position on a range of measures is. Now, I can remember many years ago, and I think it was under Tony Abbott where formed government and there was a cleanout and of the I think it was on like 75 or 77 odd items, they were classified into three categories. We will proceed. We will proceed with amendments, in other words, will change the policy, but tweak it and go ahead or we will abandon it. And it's almost at the point where I won't say people don't care, which is the three we end up with, but we just need to know where we're headed.

Scott Treat, CTA

Where the client is. Absolutely. Absolutely. All right. Annemarie last but not least by any means.

Annemarie Wilmore, ATI

Thanks, Scott. I think what's if we take a step back, what's promising and it goes back to my my opening comment is that a lot of the announcements seem to be prospective. And I hope that really foreshadow is the opportunity for meaningful consultation with businesses about some of these measures so that they're not caught by surprise and that the policy intent, particularly around some of the incentives that are offered, has that opportunity to have that full effect, because these are, I imagine, not decisions that are made lightly and need to be thought through. And I think taxpayers want to get a bit more certainty and clarity around what the what the detail of these measures might actually involve.

Scott Treatt, CTA

No, that's okay. Well, with that, greatly appreciate at the time of the panel. In short notice, obviously even in preparation for these immediately after the federal budget. So again, thank you for your time and we look forward to joining you again next time.