TaxVibe Podcast

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.

Robyn Jacobson, CTA

Thanks for listening to this bonus episode of TaxVibe. You've heard the highlights of our member only post-Budget webinar. 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 any topics you'd like to hear us discuss. We look forward to joining us next time.

Robyn Jacobson

Hi and welcome to TaxVibe, a podcast by the Tax Institute. I'm Robyn Jacobson, the senior advocate at The Tax Institute and the host of TaxVibe. On the show, I chat with some of the tax profession's greatest minds during each of the guest unique perspectives to give you valuable and practical insights. You may not hear every day. We hope you enjoy this episode of TaxVibe. Today I'm joined live in person at the South Australian Tax Forum by Tim Sandow, CTA, Tax Partner at BDO in Adelaide. Tim has more than 30 years of experience as a tax professional, including 25 years at the Big four. He provides income tax related advice to a wide variety of private and large public companies, as well as multinationals. He has advised on mergers and acquisitions, tax governance, corporate tax, international tax and employment tax issues. Tim is the partner leading BDO is national tax risk and Ethics group. Tim is also the national vice president of the Tax Institute for 2024, and is the South Australian representative on the National Board of the Tax Institute. Tim is a chat, a tax advisor with the Tax Institute and a Chartered Accountant with Chartered Accountants Australia and New Zealand. Tim, welcome to TaxVibe.

Tim Sandow

Thank you Robyn. It's lovely to be it and looking forward to the discussion today around risk and ethics. And I will say the opinions I shared today are my opinions, not necessarily those of the Tax Institute and not necessarily those of BDO.

Robyn Jacobson

So we are speaking, I'll just make this comment, from the Sir Donald Bradman Pavilion. So this is quite an esteemed place we're sitting in today.

Tim Sandow

Exactly. We're on holiday.

Robyn Jacobson

Yeah. All right. So a bit of scene setting. We've had a lot of attention squarely focused on the tax profession for the last 12, 20 months. And it's been in the media. It's been in political circles. Governance has come under the spotlight. And of course, professional or unprofessional conduct of particular practitioners. So we're not going to go into the specifics of that today. But in terms of where this has taken us and the journey we've been on at the last 12, 20 months, you've got a lot of background in managing risk and ethics of practitioners, and I'm really keen to explore that with you and unpack that further. But if we look at the reforms that are coming through the legislative landscape now, I think it's important we acknowledge that some of this was well in play before the revelations during 2023. So if we go back to 2019, there was a review of the TPB, the Tax Practitioners Board. There were 28 recommendations made and five of those made their way. And others are still to come into what I'm calling tranche one. So this is the Treasury Laws Amendment 2023 measures number one bills, a bit of a mouthful. And that bill has a number of measures in it.I’m not going to go through all those particular measures, but things like disqualified entities and not being able to take people on without getting approval from the board who are disqualified. But what we also saw last year, because of the revelations during the year is some amendments made to that bill in November, and there's amendments to that Bill. Number one were made by Bob Peacock, Senator Peacock and they deal with what we call the dubbing provisions. Now, that's the vernacular. And they fall term is they breach reporting rules. And I just want to mention all this as we get underway, because I think it does set the scene for where the rest of this conversation is going to go. Yep. Those rules were introduced into that bill without any warning and without consultation. And the main concern that we've got is around the breach reporting rules. We're still to receive guidance from the TPP as to what those rules are going to look like and how they're going to be played out in practice and what sort of guidance we got to get. But in terms of the administration, I know that it's something a lot of practitioners are concerned about. And then we've got the whole second tranche of measures which did come out of the revelations of last year. And that's what I'm calling the second tranche. And this is all the promoter penalties and the information sharing, etc. powers of the TPB and greater sanctions. So there's been a lot of movement. Some of it's enacted as law, some of it has already started on the 1st of January. Some of it starts 1st July this year, and some of it is still to come. So your initial reaction to all of this progression of legislation.

Tim Sandow

Robyn, I think you're right. I think that the events of last year really sort of was almost like that lightning bolt out of the storm cloud that brought it all to a head. I think the community's expectations around tax practitioners has probably gone up a step. I think it's pretty interesting. I think that's, nobody likes paying more tax than they should, and I expect their accounts to tell them about, well, what are the opportunities? I've got to save some tax, but I think there is a line there. And is it that where do you actually cross that line? I guess the other comment on how just about what we saw towards the last end of last year was there there were a couple of changes which I thought were a little bit reactionary and maybe not really addressing what the real issue was. And for example, the changes to the community representations on our tax practitioners border and limiting that to one firms of under 100 people. I just thought if the issue here is about managing conflicts of interest, there's actually not addressing what the issue is. And so it's very hard to see how you have community representatives when you're excluding a portion of the community that I should be representing.

Robyn Jacobson

And there would be an outcry if there was, let's say a TP board that was completely represented by Big Four or even second tier firms and no one from the assembly sector. But conversely, they shouldn't be a board made up of only SMB practitioners and no one from the big four.

Tim Sandow

That's right. And I and I think that's where it's about really understanding what's the core issue that we're worried about. And here's the remedy addressing what that core issue is. And I just wonder with some of the things we're seeing coming through now, particularly when there's very little time to make a submission in consultation with, it's just been a little bit rushed and reaction. Right.

Robyn Jacobson

Is it fair to say that what happened to that last year or the revelations last year? I should say, because the events obviously go back many years before that highlighted some drawbacks in the system. There were some areas where it was clear that the TPP was not able to share certain information and sign with the ACR. So has the pendulum swung too far in trying to respond to some of those deficiencies in the current framework?

Tim Sandow

Yeah. Look, I think it is. I mean, I think the average person on the street would probably be surprised by some of that sort of thing. But, you don't have this sort of communication channel between Treasury, the ATO in TPP. So in some ways that sort of information sharing doesn't feel like it's a surprise. So like it'll be interesting to see how that does evolve. Well, I think and obviously we're seeing an enormous number of resources now being allocated to the TPP guys in terms of the fair, the number of fan employees they have, but then also the technology that will be investing in we are going to feel like we are being monitored.

Robyn Jacobson

So talk to me about loopholes. That's an expression that is tossed around from time to time. Yeah. They can be defined in many different ways, but what is the responsibility of practitioners when it comes to either actual or perceived loopholes?

Tim Sandow

Yeah. And I thought, I guess that there's a lot of emotion in some of these words because usually they talk about exploiting loopholes. And it's the large companies and the multinationals and the big tax advisors. So all that exploiting loopholes. I think what I would say is there's very few really genuine loopholes, and they tend to exist for a short period of time, and then they get shut down the site. My caution to someone who feels like they have found a loophole is to really examine it very carefully, because what I often find is I'll come up with a really brilliant idea, or someone else will come to me with a really brilliant idea and then will say, have you thought of? And there'll be an integrity measure which I could apply. And, and I think I'm going to talk a bit about as we go through today about the power of the network having a really good, strong network, because what I find is that it's very hard to have all the knowledge in your own head. And so often when you're talking to somebody else, you can actually draw out, what is it that I'm missing here? So I think my first caution with day, is it really a loophole or is this something already in the law that sky to counter it, I think the next thing I'd be looking at would be to say, okay, well, look, maybe it is a gray area, a genuinely gray area. My next question is, is there a reasonably arguable position and is it just a reasonably arguable position or is it a very solid position. I think by then this is the next question about the discussion with that clients to say, look, this is genuinely a gray area, and I always like to talk to clients about having an eye to the bigger picture too often of saying tax planning and loopholes and stuff being exploited. When I save a small amount of tax now. But the long term consequences are quite large. And particularly if were waking the client who might have a terrific business, they want to sell it, or they want to do an IP, and we come in and we say, look, if you want to sell your business, the tax that comes from selling the shares in this company are significantly better than selling the assets. But if you want to sell the shares, that company needs to be squeaky clean. And so if there's something in there that looks like a tax dodge or at a position that someone's taken, even if the current adviser says that's erasing the arguable position, the purchaser is going to look at it and go, you know what? I'm either going to hold back some money or the deal doesn't go ahead. So saving that small amount of tax in the short term can have some really big long term consequences. So I think that we just need to be really careful at that, exploiting tax loopholes a bit. I think really genuinely there. And maybe a test for that isn't a rabbit hole for him. If I went to the tax office to ask for a private ruling that the it, I would agree and sometimes I did. I mean, you look back in time now for instance, from the rights the future income provision came out in 2010. In tax consolidations, there was billions of dollars of tax deductions were claimed at that time because the law didn't apply in the way that it was intended, and then it was shut down. So from time to time, as loopholes exist, I just tried really carefully.

Robyn Jacobson

So you make the point to about having a network around you that you can draw on. And that's so important because as experienced practitioners, we know that classic tax law, there'll be a rule, there'll be an exception to that rule, and then there'll be an exception to the exception. Correct. And if you really lucky, you'll find a fourth one.

Tim Sandow

That's right.

Robyn Jacobson

Younger practitioners or those who are perhaps not as technically proficient or don't spend their lives buried in the law itself, may not have the visibility over some of those deeper provisions that provide the exceptions or exceptions to exceptions. Yeah. So that's why reaching out to networks that look, has anyone encountered this or is there anything I've missed? It's such an important question to ask.

Tim Sandow

It really is. And I guess what I find is, I'm becoming more experienced is that I don't need to know everything. But if something feels a bit too good to be true, like if someone comes to me and says, I don't think this is taxable, I think we get a deduction for that. you know, whatever might be like, I remember that law coming out. I don't think that's the way it was supposed to apply. So if it feels too good to be true, I think that's the we need to really start asking some deep questions.

Robyn Jacobson

And look, let's link it back to obligations. Here. We have an item, as I referred to in the Code of Professional Conduct in the Tax Agent Services Act, and it requires you to act lawfully in the best interests of your client.

Tim Sandow

Yeah. 

Robyn Jacobson

So it's not just act in the best interests of your client. It's act lawfully in the best interests of your client.

Tim Sandow

Yeah, yeah. And I think the lawfully thing is the really important bit. And way I kind of look at that is I think if I've gone through that process that I talked to that before and it is something that exists and it is lawful, then I think to act lawfully in the best interests of my client would suggest that I should talk to the client about it. But I think this is where that communication with the client becomes really important, because that's when we can talk to the client and say, look, lawfully, I think this exists, but there is a risk. And then we can talk about what that risk might be. And, you know, whether that's something that we want to pursue. And it is interesting. And yeah, if if I look at what's happening globally because this is not an Australian only issue, the International Ethics Standards Board for accountants has been looking at some tax planning and, whether there should be this overriding public interest test. The discussion paper that I put out, it's very hard to articulate what in the public interest rates. So a and I'm sort of conscious as well that. Yeah, if you look at for instance, for example, in that case, and about reading the legislation assets as it's written and how you introduce other materials, including rulings, you know, that sort of statutory interpretation, part of it becomes critical. I mean, I've had instances where, you know, I've gone to the ATO to say, look, in my tax situation, I don't think the law was applied properly and quite rightly, they've said, Tim, I understand it's a bit unfair in your situation, but we have to interpret the law as its written. Yeah, but I think that goes both ways as well. So if the law is clear, then I think that, while there may not be an overriding public interest test, I think that the way they're articulating and just to say you need to talk to your client and explain what the risks are.

Robyn Jacobson

Something else that you talked about lawfully, we discussed that particular word. We're not thinking of tax evasion. I may that's acting outside the letter of the law.

Tim Sandow

Yes.

Robyn Jacobson

Part IVA and the general anti-avoidance rules and other anti-avoidance rules or equity measures to me is where you're acting within the letter of the law but outside the spirit of the law.

Tim Sandow

Yes.

Robyn Jacobson

So when we're talking acting lawfully in the best interests of your clients, are we talking the letter of the law or also the spirit of the law?

Tim Sandow

look, I think we have to be mindful to both. Yeah. and I think if we're acting outside of the the spirit of the law, I think we just really need to be very mindful of, we are 100% confident that this is what we want to do it.

Robyn Jacobson

I'm a client, I come in, I give you a whole bunch of information that could be in written form. I might be conveying things verbally to you. Can you believe what I'm telling you?

Tim Sandow

Okay, look, this is a really interesting one. And again, and under the code of conduct, we require to take reasonable care. So, what is reasonable care? if you look through the guidance, it talks about exercising professional judgment. Again, what's exercising professional judgment. So if a clime brings in a whole stack of information, I'm not required to do an audit. I don't have to verify every piece of information in that building. But I am expected to look at that with professional judgment and skepticism and say, what do I know about this person? What do I know about the industry that I operating? And I think for me, professional judgment is about standing back and saying, before that client walks in, what am I expecting to see? And if what they give me will be law, and then I can probably largely accept what they're telling me if something looks unusual, I think that's when this professional judgment skepticism steps aside. yes. I think you can accept what people tell you, providing there's nothing this really flagging. There's no red flag that thinks that doesn't quite sound right.

Robyn Jacobson

And tax agents are not auditors. Correct. So they're not required to go through an audit and sign off and certify that everything is true and correct in that respect. But in what circumstances is further investigation warranted when you supposed to dive deeper or ask further questions?

Tim Sandow

Yeah. Look, it's a good question, Robyn. I think that, as I said before, when something doesn't look and feel right, so and look an example for this might be, I mean, if I'm preparing the accounts and I'm not absolutely everything that's in there, then I probably know I'm not just accepting it. if, for example, I've got a client who's got their own bookkeeper or I've got their own accounting team, and they present me with a trial balance or a draft set of accounts, they might say, look, we don't want you to have a look at legal fees, for instance.

Tim Sandow

And I might say, oh, okay. Well, let's just have a look. Oh, that's I'm like, oh, that's I need $3,000 or whatever. That's probably to do with leases or something. Yeah, I'm I can accept that. If that number was $3,000 last year is $500,000 this year. Yeah. I don't think I can just accept that. Yeah. So I think that, in fact, talking to an accountant recently and I had that situation that actually found out that the owner of the business had put it through all of their, family law expenses that after the divorce they were going through, they'd put through their company. So, and he said, well, I was protecting my, my mum, my company for my spouse. So it should be deductible. Oh, do. Yeah. No, I know I do.

Robyn Jacobson

I can think of another anecdote. I heard of a firm that took over another small practice. and in doing so, they picked up the balance sheets of lots of their new clients. I'm having a look. And there was a property sitting on the books, and so I just asked to read normal due diligence. what's this property and what do you use it for with, like I said, etc.? Well, it turns out that property had been sold some years prior and for whatever reason had not been correctly accounted for. And it meant that the property that was showing as the debit on the balance sheet was in fact a debit loan, because the proceeds on sale had been taken up by the shareholders. So it was a Division seven problem. Yep. And without asking the right questions, you don't unveil these things now.

Tim Sandow

That's right. And I think that's where there is. There is a real role for experience. And again, a role for talking to other people and to saying now sometimes the professional judgment is also talking to somebody else and saying, does this feel right to you? And it's amazing how many times we talk to a colleague or even another member and just say, can you experience difficulty? This is right in my mind silently. And and I know that often happens in this industry or whatever month, but a conversation you can have with someone, it's just got old.

Robyn Jacobson

Tim, next scenario. I'm your client. You give me some advice and I don't like it. I don't want you to lodge my return on that basis, or I'm insisting that you do claim something that you know shouldn't be client. What do you do now?

Tim Sandow

Yeah, this is a really tricky one, Robyn, because, the correct answer is to say I'm going to refuse to lie to retain. And I think that's sort of, you know, even more important, we saw last the end of last year the, exposure draft on the code of conduct that came out, but really reinforced that a tax agent must not make a false and misleading statement to the commissioner, which includes lodging a tax return. So if that number, but it starts talking their bad material amounts as well. there's that expectation that we're always absolutely perfect. But I think that if the client's refusing to follow our advice and wants us to approach that retail, then the why? I like to look at this. I've got a colleague who describes this really well. She says, how we feel in three years time, looking back at what you did. And I think that making that taste like cake. Will the future team feel like looking back is a really good way of looking at it? Because if I'm going to lodge that, retain and feel sick in my stomach that I've done it, I think that's telling me I shouldn't do it. If I'm looking at it and thinking, well, it's only a very small amount, there isn't an argument. I can sort of almost get the I'll talk to somebody and see what they say. maybe I can get there. But, I do like this idea of the future self test, you know, how do I feel looking back about what I've done and if I'm going to feel sick that you know the item up, review it, then I think that's a really a really big test. And the other thing I'd say, of course, that client could go to another accounting and anyway, and that other accountant picks it up, maybe they're going to tell me none of these new domain rules. So I think that's, doing something now which you're not comfortable with, that you don't just have the risk of the tax office picking it up. You've got the risk of somebody else, a fellow tax agent, picking it up a name, feeling compelled to you out and doing all right.

Robyn Jacobson

So you've slept on it. It doesn't sit well with you because you've decided to claim it anyway. Then there's clearly a problem with your conduct as well as me as a taxpayer. If, however, you say, no, Robyn, you're not allowed to climb out. And that's my advice. Does it change anything? If I represent a really big chunk of your face? I'm a long term client. We've had a great relationship. You've looked after my affairs and that of my family, all my business interests, for 30 years.

Tim Sandow

That's right. And you referred me off to your friends and your friends in airports as well. And. Yeah, look, I mean, and this is where that's sort of, when we know the right answer is not to lodge the tax return becomes so much more difficult. the comment I'd have about that is, I still think you have to sit back and think about what does this do to my reputation? Do I want to be known as the person that can be walked over and lodge the tax return? Anyway, we'll talk a little bit later about reputation, but for me personally, I kind of fake. I've spent 30 years building a reputation. Am I prepared to let that go for the sake of lodging a tax return with an extra deduction? It and I try and weigh that up against the fees from the client and whatever. It's really going to be the case that it's worth it.

Robyn Jacobson

Well, weighing up on one hand, trying to look after one client supposedly this is putting at risk your entire practice.

Tim Sandow

Your entire practice, your entire career. And I doubt that client way there to support you when it all goes to pot. Yeah. Agreed.

Robyn Jacobson

All right. So moving on to the next bits. What duties do you have as a practitioner when you pick up a new client?

Tim Sandow

Yeah. Look, and I think this is getting a little bit interesting at the moment because the it's put out their best practice principles, which were aimed at the big four and the big four was signed up to them about 18 months ago. And now the it's having come and side with the mid tier firms. And so firms like ours and others about whether we would also like to adopt these and make a statement on our website that we've adopted the best practice principles. In some ways, the best practice principles are really restating a lot of the stuff we know already. There's very consistent with five. The tax agents code of conduct and also with the accounting body's ethical standards. So they're very consistent with that. One of the things I do talk about though is effectively you should not be doing, taking a position unless there's a reasonably arguable position. They also talk about if you're picking up a new client, you should be looking at what they've done in the past to see if they've all side paying, adopting, raising positions or what they've done in the past. So to me, that puts it an extra layer on top of what we probably already would have done. And I think that, often we might have just picked up a new client and, accepted what they've done in the past and focused on the future. So this is sort of suggesting there's an extra obligation to go back and have a look. that, of course, becomes even more so if the, for instance, there's been a position that's taken in the past which has an on going implications for tax returns that I might watch. Now, I will say.

Robyn Jacobson

E.g. Divison 7A. So let's assume again, I've walked through the door and the first thing you do is look at my company's balance sheet and you find there's a Division seven I learned from three years ago that has not been placed on complying terms, and there's no evidence that that amount was included as a team dividend in that year. Tax. So we got a problem. Or look at most graduates. We've got an issue with that not being declared a dividend in the year the loan was made. Let's assume there was a complying loan agreement. But then none of the repayments have been made. So that's where it becomes an ongoing issue for you.  What do you do in that case.

Tim Sandow

So look, Robyn, I think we'd be looking for the commission's discretion and, he can't ignore that sort of thing. And, I'll be very interested to see the TV base guidelines when they come out about dob-in provision yet. Because is this something that is serious enough, substantial that that would obligate me to dob in a practitioner and I feel really glad about that. You know, particularly if it's more of a mistake as opposed to a systematic exploitation of tax loopholes.

Robyn Jacobson

But interesting with these new breach reporting rules, am I yet to see some guidance from the TPB, so at the moment all we've got a literally the provisions themselves. There was no explanatory statement or memorandum accompanying the amendments been put through the Senate. So we've literally got the letter of the law only. There's nothing there about intent. So it doesn't talk about why you might have breached the rules or whether it was inadvertent. It questions whether there has been a significant breach and whether you have a reasonable belief that that has occurred. So what obligation are you under? And a practitioner may not want to do it. But the problem is you've got a positive obligation to report them, to dob them in. Otherwise you face penalties yourself one day.

Tim Sandow

There is that there is a time period for when I have to make that decision.

Robyn Jacobson

30 days.

Tim Sandow

It's not a long time.

Robyn Jacobson

It is not.

Tim Sandow

So I'm really looking forward to seeing what these guidelines say. but I do worry about it. And I do worry about the positive obligation it's putting on the tax profession to self-regulate.

Robyn Jacobson

Yeah.

Tim Sandow

And, and whether that's there.

Robyn Jacobson

Is interesting in the review of the TPB, so this was the James review. There was a comment that it is for the government agency. I.e. the TPD to regulate the profession and the conduct of agents. And it's not for the profession to self regulate.

Tim Sandow

Now, I and I look, I'm very busy and I think all of our members are extremely busy to expect us to also be stopping thinking and worrying about whether or not I should be dubbing in somebody else. We'll face some breach myself if I don't. well, on top of a very busy workload. Is that really the best use of our time?

Robyn Jacobson

But we can see where the system from. Now, competence.

Tim Sandow

Yes.

Robyn Jacobson

So obviously we have an obligation under the code as tax agents we need to provide our services competent like me. What happens when you act outside your sphere of competence?

Tim Sandow

I think more and more, Robyn, it is dangerous to do that. I think it's very important to understand what you know and what you die by. For instance, for me, we sat through this morning a session on GST and the GST margin scheme. I would not touch advice on GST and margin schemes, but I'm not here to call and I think that's really important. I think that's when we talk about the power of a network. I think it's really important to understand what you mean, know, not venturing far away from that, because I just think it's fraught with danger in term. You know, when you practice in an area and you know that area, you know, where all of the integrity measures, you know, where the exceptions and the exceptions to the exceptions and exceptions to the exceptions and the exceptions, all set. And so you're less likely to trip up and make a mistake when you're dabbling in an area that you're not quite familiar with. The risk is just getting too high. And hindsight's a perfect thing. So, you know, it's very easy in three years time for the future self to look back and say, why didn't I do that? Yeah. And for the client to say, why did you give me that advice? You were negligent because you didn't know about this.

Robyn Jacobson

So I actually got I can think of four implications here. We've got the possibility of being sued for negligence, although it has to be said that over the years they haven't been too many successful claims against accountants. We've got the risk of breaching the code, which requires you to provide your services competently. Yeah. There is the risk of breaching relevant bylaws of the professional association of which you are not. Yeah. And then we've got the other issue being the professional indemnity insurance policy.

Tim Sandow

Yes.

Robyn Jacobson

Which does tied to the negligence I accept. But there's a number of matters that come up there, whether or indeed covered and whether you're going to be going through litigation and whether there are sanctions.

Tim Sandow

And that's right, Robyn. What's interesting is over the years, from my understanding, is a lot of the claims of negligence against accountants have been in relation to small business CGT provisions, which are often extraordinary because those provisions are supposed to, you know, be there for ACMA companies and practitioners and they are some of the most difficult to understand.

Robyn Jacobson

Best fail in terms of also providing services as an accountant versus a lawyer. And this gets really important when it comes to state tax issues.

Tim Sandow

It's important when it comes to state tax issues because obviously, you know, as a tax agent, we provide advice on the federal law about income tax and JSA, FBT and so on. So stamp duty, payroll tax and so on. one standing, not, covered by tax agent services. So we have to be very careful as accounts about how far we strike into those state taxes. I think we have to be very careful also about the documents we draw for clients. particularly if they look like an illegal agreement. now I'm saying trust deeds being drafted by accountants. And I think, you know, I don't think I would do that.

Robyn Jacobson

And I think it's important just to strip this back and come back to some core principles here. Accountants are not lawyers. Accountants cannot advise on the law. And that is why we have the Taxation Services Act, because if not for that, then no accountant would be allowed to give advice on tax law.

Tim Sandow

That's right.

Robyn Jacobson

So tests are exists to allow accountants to be able to advise others on the preparation of tax returns and relevant statements, but also more broadly on transactions and arrangements. but TSA is federal law and governs federal tax laws, whether that be FBT, GST, income tax. But as you say, when we're talking about payroll tax, land tax and stamp duty, those are state taxes. Yeah. And losses would be a potential one across the federal. But some and I call it a class because you cannot expense at a state level. But they have levies and things like that. All sorts also apply the Texas taxes that we're all going to disappear. Yeah. And so advancing on those is getting into very thin ice. When it gets to the ability of an accountant to lawfully provide these services.

Tim Sandow

Yes. And where that becomes interesting is that clients, I expect us to be talking about, I particularly if a client comes up to us and says, can you look after my affairs? That normally means can you also make sure I'm paying payroll tax? Yeah. So again, having somebody in your network, good law lawyer in your network, who you can talk to about these things is is also very important.

Robyn Jacobson

Does it fair to say the more we all learn about tax, the less we feel we know about it?

Tim Sandow

look, it's it's really just. I've said that forever. The older I get, the more I see it. I in fact, I was talking to a very senior tax partner just recently. He was a doyen of the industry. And he said, Tim, the more I know about tax, the less I know. And I said, that's exactly how I feel. my other thing I say is I, I need to know everything. I just need to know who to call. Yeah, yeah.

Robyn Jacobson

So quickly, to wrap up, in terms of being accountable for advice to others in your practice might be providing.

Tim Sandow

Yeah. So if is something you can take out of the events of last year, is that, when you're in business with other people, you spend a lot of time building a reputation and which can be tainted by what other people do within that, within the same. And so I think you have to be very careful about knowing a bit about what your fellow partners, directors, business owners are doing and whether that is consistent with your own risk profile. Yeah. So because I think that reputations take a long time to build and a second to destroy. So we just need to be very careful and very mindful about what others in our practice doing.

Robyn Jacobson

Advice to practitioners, if they have an ethical issue, what should they do?

Tim Sandow

Talk to someone that it's amazing. When you talk to someone, you start to voice it. Sometimes as you're voicing it, the answer comes to you. The mere act of actually saying it out loud, rather than having a rattling around in your head, can often resolve the issue for you, but it's surprising how many times you can talk to someone and else have another opinion or another approach. And, have some words of advice about how you might approach so that in a day that network where you can ask those questions, it's just really critical.

Robyn Jacobson

Thank you. Look, Tim, I've really appreciated the discussion. We've covered quite a lot of ground. And I actually it's been there's some venues practitioners who are wondering how they best place the next.

Tim Sandow

Yeah. No, thank you, I rather enjoyed it. Thank you.

Robyn Jacobson

Thanks for listening to this episode of TaxVibe, I've been chatting with Tim Sandow, CTA and Tax Partner at BDO. 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. Please 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 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 case unique perspective to give you valuable and practical insights you won't hear every day. We hope you enjoy this episode of TaxVibe.

I'm joined by Liz Westover, FTI, a partner and national SMSF leader at Deloitte. Liz is responsible for the firm's SMSF Service offering, providing compliance and advisory services to the firm's clients. She has extensive experience in superannuation and has strong capabilities in the technical and practical application of superannuation and associated tax laws. Liz is a regular commentator on superannuation and SMSFs and has been involved in superannuation policy, development and advocacy, regularly liaising and consulting with government regulators and stakeholders on technical, legislative and policy matters for many years. Liz is a fellow of The Tax Institute, a fellow Chartered Accountant, a CA SMSF specialist, and holds a Bachelor of Business from the University of South Australia, as well as a master of legal studies from the University of New South Wales. She's also the chair of The Tax Institute's Superannuation intensive organising committee, with the online intensive coming up offering 8 hours of CPD on the 26th and 27th of March. Liz, welcome to TaxVibe.

Liz Westover

Thanks Robyn, lovely to be here.

Robyn Jacobson

Well, superannuation is always a moving area. It's always subject to so much regulation, constant changes and it's always good to focus particularly on their SMSF sector, which does represent a large chunk of the market. So we're going to cover quite a few topics in this discussion today, but let's kick off with the caps limits and thresholds. Now there are so many of them, and in our recent submission to Treasury, the pre-budget submission, we note a number of things such as inconsistent indexation or the number of different caps and rates and thresholds across the superannuation sector, in fact more broadly across the whole system. And really look at tax and superannuation there are so many caps and thresholds to be mindful of. We've also got challenges with certain caps being indexed and certain caps not. So can you read through some of the recent changes and what we're going to see coming up?

Liz Westover

Absolutely. And we do have quite a significant change coming up around indexation has been an increase in the concessional contributions from 1 July 2024. Broadly, your comments around change is our constant in the superannuation industry and it is frustrating. This particular cap, the concessional contributions cap is indexed via AWOTE and our transfer balance caps, for example, is indexed against CPI. So we have this sort of mismatch. In some years we get indexation on one and not the other. Sometimes it's both and sometimes it's none. For this year, it's the concessional contributions caps churn to get indexed. So we're seeing an increase in the cap from 27 and a half. $30,000 always goes up in those $2,500 increments. So $30,000 per annum from the 1st of July 2024. And because the concessional contributions cap is coming up, the non-concessional contributions cap is always four times the concessional cap. So we now have a non-concessional cap of $120,000 from the 1st July 2024. So no indexation on the transfer balance, couple of general transfer balance cap. So that's going to stay at $1.9 million and what does that mean, that threshold for which people's total super balance is for their ability to make non-concessional contributions caps? So I'll keep going on that one. I want to move all the gap. So your ability to use the bring forward provisions for non-concessional contributions caps is always starts with the general transfer balance cap. So anything above that balance on the 30th of June or the previous financial year dictates your ability to make non-concessional, period over that threshold. No concessional contributions for you. If you are under that, then we start to see these thresholds around your ability to use the bring forward in three years, two years or not at all, and that is set by the general transfer balance cap lets the non-concessional contributions capped for the year. So notwithstanding the $1.9 million isn't changing, those thresholds are changing. So it's now going to be less than $1.66 million. You can use the full three year bring forward provision. So $360,000 in that year. If the next cap is 1.66 million to 1.78, you can do two years bring forward to do $240,000 worth of non-concessional contributions, 1.78 to 1.9. No. Bring forward. So just the annual non-concessional cap at 120 and then of course, over 1.9. No non-concessional contributions. So no wonder it gets confusing. I'm sort of set looking at all these sort of thresholds and so on, but a renewed opportunity for people to make contributions.

Robyn Jacobson

So when you look at the different ways of indexation, you're fed to everybody, which is the or I was depending on your pronunciation, the average weekly ordinary time earnings versus CPI. Yeah, liquid need to unpack all the policy decisions made many decades ago as to why some use one basis of indexation and other caps and thresholds use another. But if we look across superannuation for example, the $500,000 retirement exemption limit has never been indexed. We have legislative changes to increase the ESG rate, which we're going to come to shortly. And then we've got these other modes of indexation for these particular caps and transfer balance of course, and concessional and non-concessional. It does make it very confusing. And while there is a limited amount of discretion where people do get it wrong, particularly in the case of concessional non-concessional caps, it's not easy to navigate this. No, it's really not. And you've got to stay close to your advisors. The ICRC website is actually very good, as is the money Smart website is very good for information and updates and so forth. I guess the other comment I want to make about indexation as well, because we know it's a big issue with respect to Division 296 tax and I'm going to be talking a little bit about that I think because we saw CPI on sort of inflation really increase quite significantly, which mean we had that increase in the transfer balance cap two years in one year effectively and no one really anticipated that that would ever happen.

Liz Westover

So I believe that there's a bit of a fear around automatic indexation because you do lose that control about when those thresholds actually increase, especially with due to nine six, it's actually not a deal breaker for me. I know the industry is pushing very hard for some sort of automatic indexation and there is a lot of merit in that. But so long as there is an ability to index at future times, which there will be and it might be every budget submission the Tax Institute does from here on in, there'll be a call for an indication of that cap, but I don't say they all and end all with respect to Div two on six I believe will be indexed over time anyway.

Robyn Jacobson

One area in particular complexity is the transfer balance cap and now it's designed to of course limit how much you can hold in this tax free earnings environment, in pension funds. But with the personal transfer balance cap, you don't automatically get the benefit of all the indexation when it does go from 1.7 up to 1.9 million as it did last year. You have to then work out your personal or proportionate amount of that increase based on how much you've already utilised. And the more times this gets indexed, the more complicated this is going to be.

Liz Westover

Yeah, that's exactly right. So whilst the general transfer balance cap gets indexed, you're right, personal doesn't necessarily. And once you commence an income stream you now have a personal transfer balance cap. So for someone who is fortunate enough to start an income stream in 2017 with $1.6 million, that's it for them. They will never be able to start anymore income stream subject to commutations and so forth. But they will not be able to start new income streams because they have already met 100% of the cap as it was then. So then means, depending on what your proportion of the cap that applied. So if I had only is 50% of the cap at the time, I would be able to use the remaining remaining cap plus 50% of the indexed amount. So you're absolutely right. The more indexation we have, the more complicated it gets and the more likely it is we're going to create a spreadsheet around it to make sure that we actually get it right.

Robyn Jacobson

Where would we be without Excel spreadsheets.

Liz Westover

Exactly.

Robyn Jacobson

Moving on to some release of data. Now, there are two aspects to my question to you on this. We've seen for many years data on what they called the tax gaps and in particular the superannuation guarantee tax. I mean can unpack that. But recently on the 22nd of February, for the first time, the share release data around illegal early access estimates. So in other words, they're estimating the extent to which they think people have access their superannuation illegally and early. So this is interesting to draw some insights and I'm interested in your thoughts on this.

Liz Westover

Yeah, look, it's an interesting piece of work and I think it was delivered quite well by the tax Office in a bit of a call to arms by the industry to try and put this out. It wasn't a criticism, personal thought. It was just, you know, really did come across as we've all got a role to play in making sure that we have a secure superannuation system. So that was quite welcome. One of the interesting factors I thought about it was that the main body of work was around the 2021 year and I think the numbers were $256 million they believe was illegally early released, which was actually a decline from the prior financial year of about $380 million. But you might recall 2021 was the year of COVID, and we had a lot of people applying for release of their $10,000, in fact, twice over applying for. I believe there might be some numbers in there. There are actually people who were reported as illegally in early release, but it may have been that they just withdrew their $10,000 without waiting for the release authority from the tax office. So there's an element of that. So I'm actually very interested to see subsequent years results. But also the Tax Office is doing a lot of work to try and stop illegal early release. As you can imagine, there's a range of activities including review of registrants. So if they believe there's any risk factors around it, they'll pick up the phone, potentially talk to the trustees, make sure they actually understand what it is they're doing and why they're doing it, that type of thing. And they believe in the 2021 year they've stopped about $168 million from coming out of a system that might otherwise have not intervened in that way. So that's a really good thing. I see that as as a real positive. But the interesting to see some trends in future years and just make sure we're all doing our part, doing the right checks and so forth to stop any of this illegal early release.

Robyn Jacobson

There's support for the proposition that many of the funds that were involved in this early release were in fact newly established funds.

Liz Westover

Yeah, that's often the case. And in fact the ATO sees light on non lodgment of a first year fund as a significant red flag around illegal early release. So, you know, they are very keen to make sure that the right people are actually registering for these funds. And there is a concern that a lot of these first year funds are actually as a result of promotions and scams and so forth. So they are using other means to be able to crack down on some of those promoters as well, to make sure that they're not encouraging people to sit up in a submissive role over there. They're after regulated funds. Money's into a dismissive and then take a very nice cut for the privilege of assisting and so I'm no fan of providers and scammers. So anything that they can do to shut that down and it's probably worth a plug for tax office and have dedicated pages for people to be able to report these promoters and any scams that they actually see. You can do it anonymously if you if you would like to what email, phone, whatever means you need to. And in fact, if you are in a tax adviser or an accountant, I imagine that the the Tax Institute would help facilitate some of those reports as well if there was really sort of any significant issues around that. But personally seeing the result of it where people have been encouraged to set up this massive promised property with lobbies and so forth, and the money's gone, it's just gone. And in a lot of cases it's with people who didn't have money to lose in the first place. So a lot of money to lose in the first place. Nor do they have the resources to try and fix it or get the advice that they need or know how to engage with the tax office. It is a big problem.

Robyn Jacobson

And regulation aside, these are heartbreaking stories because it's people's financial future. The analysis also found that around $200 million of prohibited loans have been made by self-managed funds, but then around three quarters of this have been repaid. So what are you seeing out there when it comes to making loans to members?

Liz Westover

Look, I think there's a bit of a misunderstanding. And again, this is sort of where the law just you know, you've sort of got to have this a bit of a knowledge and trust your advisers and get in touch with your advisers before you actually go and do these things. But there's a general prohibition on dismissive or super lending to members or relatives.But of course, it's called an in-house asset and there is restrictions on the amount of these in house assets you can have. So Fund can have no more than 5% of the total market value of this asset in an in-house asset. So we believe that that number reported by the office include people who would have gone over the 5% limit. So often when that happens you've got a breach of the 5% limit. It is reported as a disqualified by order. It's reported to the Tax Office, but part of that process is actually putting a plan in place to repay it. So it's good to see that those plans are actually in place and those amounts are being paid back as they're required to do so, to continue to comply with that with relevant law about the funds.

Robyn Jacobson

So we know that this illegal early access estimate will be done on an annual basis from now on. But for many years we've always had this ESG tax gap analysis. So what is this telling us about the difference between the amount of ESG that the expects should be paid and what is actually being collected by the funds?

Liz Westover

Yeah, look, the numbers are still quite staggering. It really is a little bit frightening. And I think that's why there is broad support for the new payday super. I write down the mechanics behind that once we get it right. And the latest numbers is that we've still got a 2021. The ATO figures with a gap of 5.1%, which means that people are still not getting the super guarantee that they're actually entitled to be paid from their employers.And that is that's a staggering figure really, and it's for a variety of reasons. I've seen in my own family where employers think they can call someone a contractor, and so long as they issue an invoice, it doesn't matter that they're actually for every other purpose or every other, you know, look and feel they're an employee. But I think because I'm a contractor, they don't have to pay extra for them. And in my family's particular case is, please don't do anything about it. Don't say anything. I like my job so people get away with it simply by calling them a contractor. So there's a lot of that and there's people who miscalculate amounts, and then there is a cohort of other employers who simply do not remit but are employed. And they're the ones I think we really need to focus on. I believe the law needs to be better for people who make mistakes. And it's not this sort of catastrophic outcome for people who make a mistake. And the way the law is written at the moment is it it's quite impactful from minor error can be quite significant. But by all means, anyone who's not paying the rate for their employees should absolutely have the book thrown at them that those deliberate nonpayment should be dealt with appropriately.

Robyn Jacobson

So all the figures when we talk about a gap of 5.1%, the positive spin could be that nearly 95% are actually meeting their obligations. So 5% doesn't sound like a lot, but the problem is when you translate into actual dollars, it's three and a half billion dollars in 2021 that wasn't paid in super staggering figure, isn't it?

Liz Westover

It's an unbelievable number. And when you think about that money that's not going in and the earnings that it could be doing in the way it could be invested in meantime. And, you know, what's been opportunities have been missed by people who are having that money invested for them. So, yeah, we have a problem. We need to deal with that. And I believe there are things being done to do that.

Robyn Jacobson

Yes, there are, and we'll get to that shortly. I also add that this isn't a one off fee or an anomaly. If we look at the last six years for 15, 16 through to 2021, which is the year that we have the gap analysis available for the net gap was more than 3 billion in five, six years. So this is absolutely a trend. It's not a one-off.

Liz Westover

Yeah, that's exactly what we need to do. We need to do more. But I think, you know, it will probably take time, I guess, for all of these measures to really take effect. But the impact that it does have on people's retirement savings is is huge. So if we get that money in there, it's less people in the age pension.

Liz Westover

Eventually it's more invested, it's better retirement outcomes, it's a win-win.

Robyn Jacobson

So let's move on to Division 296 and for the we vote all those that haven't yet and the legislation references Division 296 is a proposed new division in the Income Tax Assistant at 97 which is going to tax the earnings that relate to superannuation balances above $3 million, add an additional 15%, it's expected to affect around 80,000 people. Initially from when it kicks in 1st July 2025. But let's unpack this a bit more because whilst it looks like a fairly small proportion of the population around, I think they're talking point .5% in total. We've got obviously concerns about what happens in the future and the really big concern around this taxation of unrealised gains. So yes, motivations from you on, is this something to be concerned about of where we at with this proposed measure?

Liz Westover

It's a very hard one to articulate, particularly in the media. And the first thing I'll say is that my observation is that for the most part, people do not have a problem with an additional tax on earnings for people with high superannuation balances. That is not the trend. Most people are very much on board with this. The problem that people have with it is the manner in which they are going to be taxed and this division 296 actually has very little bearing on an additional tax on earnings for those relevant people. It's a brand new tax and that's the way that people have to think about it. And it is quite literally a tax on people who have had $3 million at the end of a financial year. And that'll that'll start from the 26 financial year. So we put balances on the first July 25. The report balances again on the 30th of June 2026. And if you got more than $3 million on 30th June 2026, we work out what your earnings is in that period and if you do have positive earnings, then you're going to be up for this division 296 tax. So by virtue of the fact that it's assessed against total super balance means it incorporates everything including unearned income or growth in assets, which is just not a feature of our tax system and the inequity around that and the possible. Where does it stop? What else are we going to tax that we previously haven't taxed on? Unearned income is a lot of concern, not just in super but across the tax industry. So there are other proposals that are going through at the moment. That Division ten on six legislation has gone to the House of Representatives, that it has not passed the House yet, but it has been referred to a Senate economics committee. They were due to report in April and that has now been pushed back to the 10th of May for them to report back. And whilst we believe that the law is going to get across the line, there is still hope on two fronts. One, that we see automatic indexation. And on the second one is that we see a different means by which the earnings is calculated because on this unearned income we have this inequity around it, but there's also some very strange outcomes as a result that seem to be inconsistent with what we were going, you know, government was proposing in the first place. So hopefully we'll see something different. I believe the proposal is for application of the 90 day bank bill rate that would be used instead of this change in total super balance to to calculate earnings. I have to say that's probably more broadly reflective of earnings. They'll still be some winners and losers out of it, but it's probably more equitable than this change in title super balance calculation.

Robyn Jacobson

Essentially using a balance sheet approach instead of a profit and loss. So sort of looking at the actual earnings of the fund allocated to the members account and that could be spread across multiple accounts, of course, multiple super funds proposing to use this moment in the balance sheet amounts and then assuming that any movement is attributable to earnings. But you could have movements in balances due to recovery of previously lost market value. One of the ways I'm describing this is it's agnostic. It doesn't care. The movement between those two balances is due to a revenue gain or a capital gain or a discount gain or a non discount gain or a realised gain or an unrealised gain. It just says the movement with a couple of adjustments for benefits and also pension payments. And any contributions is taken to be this earnings figure.

Liz Westover

And you could have these very strange outcomes where let's just say someone has $20 million in super at the beginning of the year, they get $2 million in dividends, interest, rent, whatever it might be, but the value of the asset actually declines by $2 million. So at the end of the start, you have $20 million. At the end you have $20 million, you will pay no division 296 tax. And yet that fund has a $2 million in revenue. So that's really inconsistent, I think, with what we were trying to achieve through this. There's also some equity around the starting date. So if someone has an asset that has declined in value quite significantly and let's say that's what it's reported on the 1st of July, the 30th of June 25. So the starting value is quite low and that asset recovers in value. So by the end of the year and it recovered as my money just recovered, they're going to pay off 296 tax on that recovery amount. And that to me is not fair. It's not federal. And then we're looking at the impact on farmers. If it was lumpy assets, how are they going to fund these new tax liabilities? So whilst all this this income is supposedly in super, not everybody's going to be able to access super necessarily. You do have a choice about whether you pay these amounts early or you get a release authority from the tax office to pay it from the fund. But again, if you've got lumpy assets in low income, your cash flow may make it very, very difficult to be able to pay some of these tax liabilities. There's some big issues around it that I think you've really been thought through. I think it's been sort of pushing, I mean,  being able to implement this policy, I can't like I say, policy, no one's got a problem with the implementation is what everyone has a problem with.

Robyn Jacobson

I agree it's the design. And you could have an interesting outcome where you pay your division 296 tax on, let's say, actual earnings. Then the fund makes a loss. And we've been advocating with the other joint bodies to be able to carry that loss back to recover the tax that you previously paid through a credit or an offset or something. And that's not being supported at this stage. So you can carry a loss forward. But what happens if you then die, for example, or there was a peak in the growth of that asset and it never recovers to that venue again, You will see these amounts of tax being paid on amounts that may never actually be realised.

Liz Westover

Correct. And if you are one of those people that sort of fluctuates above and below the $3 Million threshold, one year you're in one year out, how does that affect your losses and your ability to do it? It's very strange how that how that will actually work. And it could be these just these losses that are lost forever, you know, gone. You're never going to be able to recover on them just for people listening. That is the way it kind of works. If you think about it. Similarly to the way capital gains and losses works is that if you have a loss, you carry it forward to offset against future gain. So similarly here you carry for those losses to offset against future gains of future increases in your total super balance.

Robyn Jacobson

Though to let everyone know that we have been working very closely with the other professional associations across superannuation tax and accounting and we've put in submissions. We have been pushing for possible indexation of this $3 million cap. We've certainly expressed our concerns about the taxation of unrealised gains and also the fact that we can't carry these losses back. So they're the primary issues we've got with us and we wait to see what this does when it comes back before the rest of the Parliament.

Liz Westover

Yeah, I fear it's going to come through with very little change, but there is even still some very strange things in there. If you die before the 30th of June, you don't pay dip tune on six tax for that year. But if you die on the 30th of June, you do. It's going to be a drafting error but doesn't seem to have been fixed in that period when it actually was presented to Parliament to harmfully in the final version will at least get a change on that one to make sense.

Robyn Jacobson

We have said that's something that we did put in our submission to the Senate committee because that's completely anomalous that a single day in an income year would be treated differently from any other day in that year.

Liz Westover

Exactly.

Robyn Jacobson

All right. So moving on to the SG rate. We've seen it increase in recent years. It's currently sitting, of course, at 11%, what's going to happen to the rate next 1 July.

Liz Westover

So we're going up by another half a per cent from the 1st of July 24 and that'll be the second last one before we go to 12% from the 1st of July 2025. So we're nearly there in terms of getting to the 12%, The interesting thing is watching this interaction with maximum contributions base and whether that what indexation that amount will be. So we haven't seen the release of the new contributions by set for the current financial year,  any high income earner is pretty much having SG that takes them to the concessional contributions cap. So for next year with the kept going up to $30,000 will be just watching to see what that maximum contributions base actually goes to as well. And if there's any opportunities there for people to top up and play contributions.

Robyn Jacobson

And for anyone concerned that it seems that the maximum contribution base is indexed faster than the concessional cap is indexed, the law does contain a built in mechanism and what this does is basically limit the maximum contribution base to the concessional cap if it actually ever reaches that point, which it may well in the next few years.

Liz Westover

That's exactly right. And that makes perfect sense for it to be that way, because you do not want employer contributions from one employer causing you to have a breach of the concessional contributions base. Yes, we've got some built in stopgaps there, thankfully.

Robyn Jacobson

Yes. And a reminder that when these particular rates keep going up, so 11 and a half and then up to 12 over the next year or so, that increases based on the payment is made, not when the work is done. So employers can get confused about which rate they should be applying to which salary, wage payments.

Liz Westover

It's complicated.

Robyn Jacobson

It is. All right. Payday, super. Look, there's so much we could say about this, but just in a few short minutes, what's happening with this? Certainly the Tax Institute and other bodies have been heavily involved in targeted consultation, and that does continue. And we do expect to see some draft legislation and a bill later this year. Plus, we're being told that there will be some further announcements in this year's budget. But what does this mean? What can we expect in the year or two ahead?

Liz Westover

Yeah, So I think there's still a lot to happen and there's a lot of productive consultation on that revenue. You're very heavily involved and a lot of the consultation that goes on, which makes sense, right? We want it to make sense, to be practical, to anticipate any of what would otherwise be unintended consequences of changes in legislation. But it does mean that there's a lot of systems and processes that need to be built before this is implemented. So I believe it's we need at least 12 months or a clear year to allow payroll providers and super and employers to get their systems up to scratch, to be able to to kind of deal with it. But at the end of it all, it just means that contributions into super will be made at the same time as the pay cycle for employees. Again, that makes sense. Like there've been a lot of sort of amounts going in for them and there'll be more reporting to make sure we can identify where those are not actually being paid. So I think it's fantastic legislation. As we know, the proof is in the pudding. So, you know, we'll have a look at the legislation when it finally comes through. But I do believe there's some really good people doing some really good things in this area to get the right outcomes.

Robyn Jacobson

And look, we do hope the right outcomes are achieved. It is a great opportunity to streamline the current penalty rules and also to overhaul the disproportionate penalty outcomes we see on employers. With someone who pays just one day late is treated exactly the same as that really egregious employer who never pays the super. And we would like to see a lot more proportionality coming in there.

Liz Westover

Absolutely. And I think it is that opportunity to rewrite the legislation. It's always been clunky. It was hard to work out. It was easy to get it wrong. So streamlining it and making it easier to understand and easier to comply with is going to avoid a lot of problems for employers in and of itself, not least of all the outcomes, is that people get the money to super faster with greater clarity and investment earnings faster. So that's a good outcome.

Robyn Jacobson

The two major things that of course need to be considered apart from all the technical interactions with other parts of the law, the cash flow impact on employers who do pay quarterly at the moment, they will notice, of course, a big change in the impact on their cash flow. And secondly, the timing of all this. It is a one July 26 start date at this stage. Now that sounds like a long way off, but there's an awful lot of work to do in the meantime. Plus, we have a federal election that, on my reckoning, would need to be held by May of next year at the latest. And then we know that the digital service providers, those designing the software, want an act of law in place for at least a year so they can invest and design the systems that are needed in order to implement the new regime. So it will be an interesting couple of years. There is a lot to achieve and it sounds like a long time, but it's actually going to be gobbled up pretty quickly.

Liz Westover

Agree. And I don't blame them for wanting legislation in place. When things can change so quickly, so rapidly for a developer I imagine that would be a big problem until you've got absolute certainty. But it's similar, you know, even with the division 296 where we're talking about it, we're raising it with clients and so on. But at the end of the day, just hold back on acting until we've got legislation. We know exactly what it's going to look like.

Robyn Jacobson

And just a completely different sphere. Liz, We've got the $20,000 instant asset write off threshold for small business entities for the current income year. That is one July 23 to 30, June 24. We're now sitting here in March and that bill is still before the Senate. Interestingly, court obviously measures not arm's length of income. So we talk about having certainty for taxpayers and yet we're what are we, eight months into this income year and we still haven't got certainty on that particular measure. Wow. Yeah, not ideal. So where do we go from here? You've got your event coming up. We know, of course, there's lots going on in this space. And I think something that is of interest that you might touch on in your session, that's the superannuation intensive, the amount of money sitting in super. Now of course continues to be published every quarter. But what are the current figures for the self-managed fund sector.

Liz Westover

We've cracked the non $913 billion in self-managed super funds, which means the SMSF sector itself is not far off cracking the trillion dollars. So it's it's amazing amount of money that is sitting in our sector and just shows the importance and the criticality of what we do as advisors for our clients to protect those monies and encourage, you know, good retirement savings outcomes. So amazing. And I think the number was the same 23 figures, 214,000 is some six or just over that number. So we continue to increase in number and assets under management and so on. So a very healthy sector, but the bigger it gets, the more critical it is for advisors to stay up to date and back to attending things like the Superannuation Intensive, just to make sure that you're getting the latest on some of these strategies and measures and changes in our legislation.

Robyn Jacobson

Liz, I get very excited about tax, but I think you get even more excited about superannuation.

Liz Westover

I do.

Robyn Jacobson

Thank you for your insights and I'm very interested to hear your session and your insights. That's your session at the superannuation tax intensive coming up in March.

Liz Westover

Thanks Robyn.

Robyn Jacobson

Thanks Liz. Thanks for listening to this episode of TaxVibe. I've been chatting with Liz Westover, fellow of The Tax Institute partner and national estimates leader with Deloitte. 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 center 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