Australia's Future Tax System

Architecture of Australia's tax and transfer system

2.10 Administration of the tax‑transfer system

Chart 2.12 outlines the administrative framework of the tax‑transfer system from the broad perspective of the formation of tax and transfer policy, through to the implementation of that policy and the resolution of any disputes between administering authorities and taxpayers/transfer recipients. For the purposes of simplicity, it does not include the ministerial and parliamentary processes that underpin the formation of tax and transfer policy. The location of the participants in Chart 2.12 indicates where they tend to be involved in the development of policy and its administration.

At the core of the diagram are taxpayers and transfer recipients. The transfer system is reflected in the upper half of the diagram, the tax system in the lower half. The state tax and transfer arrangements are depicted at the outer margins of the diagram but operate parallel to the Australian government tax and transfer systems.

The tax and transfer systems have different objectives. These objectives have influenced how the agencies administer their part of the system. While represented as spatially separate, there are strong links between the tax and transfer components at the Australian government level, and to a lesser extent between the two arms of the state tax‑transfer systems and between the Australian government and state tax‑transfer systems.

Chart 2.12: Administrative framework of the tax‑transfer system

Chart 2.12: Administrative framework of the tax‑transfer system

Administration of the Australian government tax system

The development of Australian government tax policy and its implementing legislation is the responsibility of the Treasury Ministers, advised by the Australian Treasury. The Australian Taxation Office (ATO) is a key player in the policy formation and legislative process, as is the Office of Parliamentary Counsel, reflecting the interdependence of the policy, legislation and administrative aspects of the tax system. Taxpayers, often through representative agencies and associations, may also engage in the formation of policy and legislation. This can be through correspondence with members of parliament, representations to the Treasurer or other ministers, representations to the Australian Treasury, the ATO, the Board of Taxation, or through consultative forums such as the ATO's National Tax Liaison Group (NTLG) and specific consultation arrangements.

The Commissioner of Taxation has statutory independence to administer, through the ATO, the principal Australian government taxes. The ATO's primary function is to administer tax and superannuation legislation passed by Parliament. To do this the ATO develops administrative arrangements to implement tax law, educates and advises taxpayers about their rights and obligations, collects tax revenue, and ensures compliance with the law. It is the only agency with which most taxpayers and tax professionals interact in fulfilling their tax obligations. Taxpayers can rely on, or ask the Commissioner to give, rulings or advice in relation to their tax obligations.

Under the income tax self‑assessment system, taxpayers lodge their tax returns with the ATO, which then uses the information to issue a notice of assessment. For most other tax types, taxpayers also lodge statements or returns that report their liability or entitlements but it is generally not necessary for the ATO to make and issue an assessment.

The ATO may make an adjustment to an income tax assessment, such as where the taxpayer has made a mistake adding up figures, but does not take responsibility for the accuracy of the details on a tax return. That is the responsibility of the taxpayer. At a later date, the ATO may check some details on a tax return more thoroughly. The ATO has two years to review tax returns for most taxpayers and, if necessary, increase or decrease the tax payable by issuing an amended assessment. Returns for taxpayers with more complex affairs can be reviewed within four years.

Should the taxpayer be dissatisfied with the assessment (or a ruling) the taxpayer may object — effectively requiring the Commissioner to reconsider the assessment (or ruling). If the Commissioner disallows any of the objection, the taxpayer has the right to take the matter to the Administrative Appeals Tribunal (AAT) or the Federal Court. Disputes between the Commissioner and taxpayers are arbitrated through the legal system with the courts providing authoritative interpretation of tax law.

In practice, a significant majority of taxpayers engage professionals to work out their tax obligations. The ATO works closely with the tax profession through a range of consultative forums, particularly the National Tax Liaison Group, to improve tax administration and voluntary compliance.

The Commissioner has substantial powers to collect and recover amounts of tax payable under the assessments and can apply penalties and interest where appropriate. The ATO is subject to external scrutiny — through Parliament and the Inspector‑General of Taxation (IGOT), as well as the usual channels such as the Ombudsman and the Australian National Audit Office.

An ancillary role is played by the Australian Customs Service in collecting GST and excise equivalent duties and tariffs on imported goods. A range of minor industry specific taxes are administered by other Australian government departments.

Administration of the Australian government transfer system

In contrast to the tax system, many government ministers, advised by their relevant agencies, have responsibility for policy formation and administration of the transfer system. These agencies include: the Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA); the Department of Education, Employment and Workplace Relations (DEEWR); and the Department of Veterans' Affairs (DVA). They are responsible for providing advice on policy, including advice on issues such as eligibility, rates and means testing.

Separate agencies such as the Department of Human Services (DHS), Centrelink and Medicare are responsible for delivering transfers to recipients. Their responsibilities can include processing applications, determining initial and ongoing eligibility by assessing customers against means testing and activity test requirements, and transferring payments into customer bank accounts.

The transfer payment system is based on self‑identification — an individual needs to apply for most payments. Eligibility is assessed by an agency using information provided by the individual. Individuals seeking or receiving transfers may need to deal with more than one agency, in part because it is possible for individuals and families to receive a number of different transfers at the one time. To streamline an individual's access to government services, Family Assistance Offices have been set up in Medicare Australia offices, Centrelink Customer Service Centres and ATO shopfronts across the country. They deliver FTB, Child Care Benefit, Child Care Tax Rebate, Baby Bonus, Maternity Immunisation Allowance and Rent Assistance.

The right to have a decision reviewed exists for almost every decision made by Centrelink or the Family Assistance Office (FAO). The first step is for a customer to request internal review by the original decision maker or authorised review officer. Reconsideration by the original decision maker is not a formal review but an administrative check for obvious errors. An authorised review officer is a senior and expert officer who undertakes the first formal review of the decision, having regard to the facts of the case as well as the correct application of the policy and the law.

If a customer is dissatisfied with the outcome of an internal review, they may apply to the Social Security Appeals Tribunal (SSAT) for independent external review. The SSAT conducts a merits review based on the facts and the law. Further merits review may also be undertaken by the Administrative Appeals Tribunal (AAT). Beyond this, appeal to the courts can only be made on a matter of law.

Administration of the state tax‑transfer system

There are parallels between the state administrative structures for taxation and that at the Australian government level. The process for the development of state taxes involves consultation between the respective state treasuries, state revenue offices (SROs) and taxpayer and industry representative groups. The degree of involvement of the state revenue offices in tax policy and legislation varies across the States. Commissioners for State Taxation and their respective revenue offices are responsible for administering most state tax laws. However, other government departments are engaged in the collection of some taxes.

Like the ATO, the state revenue offices have a role in clarifying the application of the legislation and providing rulings. As is the case with the Australian government, state revenue offices consult with taxpayer representative groups on implementation and compliance issues. State taxes are administered through a mix of self‑assessment and state revenue office assessment, depending upon the extent of compliance costs. Taxpayer disputes are handled through an appeals process and the state courts, in addition to the usual channels such as State Ombudsmen.

As noted in Section 2.9, the primary ways in which States redistribute income or provide income support are through the direct provision of public services, such as subsidised public housing, through the provision of concessions, such as reduced charges for household utilities and public transport, or via tax concessions. The key agencies engaged in the provision of this assistance are the state departments for housing and for communities, and various other agencies operated by individual States; state government corporations (for example, utilities and public transport concessions); local government (rate concessions); and the state revenue offices (for example, stamp duty concessions). As with taxation, disputes are arbitrated through an appeals process and the state courts.

Linkages between tax and transfer systems

Although separate administrative architectures exist for the tax system and for the transfer system, there are strong links between these systems. At the Australian government level these links exist because entitlement to assistance payments can be determined by taxable income and because parts of some transfers are delivered through tax. Reflecting this link, the agencies administering the tax and transfer systems exchange data to ensure that consistent information is used. At the state level, there are interdependencies between the tax and transfer systems, with both mechanisms being used to deliver assistance to target groups.

There are also links between the Australian government tax‑transfer system and the state tax‑transfer systems. Under the Intergovernmental Agreement on the Reform of Commonwealth‑State Financial Relations all revenue from the GST is distributed among the States. GST policy is coordinated through the GST Administration Sub‑committee (GSTAS). The States interact with the ATO in relation to the collection and administration of the GST legislation. The costs of administering the GST are recovered by the Australian Treasury from the States. The States also interact more broadly with the ATO under information sharing agreements to ensure that consistent information is used across the Australian government and state tax systems. For example, information on house sales is used for the collection of stamp duty on conveyancing and for checking capital gains tax on investment property sales. Linkages also exist between the Australian government and state transfer systems, as some state transfers are linked to Australian government transfer policy through the concession card arrangements.