16 January 2019
Speech - #2019001, 2019

Address to the Australasian Tax Teachers Association 31st annual conference, Duxton Hotel, 1 St Georges Terrace, Perth

Good afternoon, it's great to be with you in the picturesque city of Perth on this traditional Perth summer afternoon.

I'm pleased to be at your conference and talk about the Morrison Government's tax policies. Thank you Annette (Annette Morgan) for having me along.

As you would've heard the Prime Minister say, if you have a go, you'll get a go.

Keeping our economy strong, keeping Australians safe and keeping Australians together - that's what the Government stands for.

We've made real progress in strengthening the economy.

Over 1.2 million jobs have been created since we came to office - the majority of them full-time.

Unemployment is just 5.1 per cent, down from when Labor left office at 5.7 per cent.

Real GDP is expected to grow by 2 ¾ per cent in 2018-19 and 3 per cent in 2019-20.

The drivers of economic growth are broad based assisting the adjustment from the end of the mining investment boom, which I know had a massive impact here in WA.

The strength of the Australian economy has recently been recognised by the International Monetary Fund, the OECD and through our AAA credit rating being reaffirmed.

These examples are proof that good financial management is in the Liberal Party's DNA and that our economic plan is working.

Small Business is an important part of our economic plan, and one of the reasons the economy is growing and more people are in jobs is because of what we've done to assist the small business sector.

We've reduced the tax rate for companies with a turnover less than $50 million to 27.5 per cent - the lowest rate in 50 years - putting more money in the hands of business owners. This will further reduce to 25 per cent in 2021-22.

We announced the $20,000 Instant Asset Write-Off in the May 2015 Budget. It initially applied for assets 'acquired and installed ready for use' until 30 June 2017, and we have since extended it to 30 June 2019 so it can continue to support thousands of small businesses across the country.

We're also helping improve the cash flow for small and family businesses by a range of measures including:

  • committing to pay Government contracts up to $1 million in 20 days from 1 July this year;
  • requiring large businesses seeking to tender for Government work to have satisfactory payment times in line with the 20 days pay on time policy;
  • committing to have 35 per cent of all Government contracts up to $20 million delivered by small business; and
  • requiring large businesses with a turnover of over $100 million and Government agencies to publish payment information on how they engage with small business.

Since I was appointed Assistant Treasurer in August, I've asked the ATO that when  dealing with small business, they act with grace. Grace being unmerited, unwarranted and unearned favour.

We're ensuring small business is treated fairly when challenging ATO decisions by setting up a new fast-tracked Small Business Taxation Division within the Administrative Appeals Tribunal (AAT).

The Government is making it easier for small and medium businesses to access finance by establishing a $2 billion securitisation fund that will invest in the securitisations of smaller banks and non-banks to on-lend on more competitive terms.

We're also giving more small business owners more of their time back with a $6 billion reduction in red tape since 2013. An example of this has been the introduction of the Simpler Business Activity Statement - saving small businesses time and money so owners can get back to running their business. We are also  committing $300 million to work with the States to further reduce red tape.

Lower taxes are one of the keys to Australia's continued prosperity. But while taxes should be lower across the board, everyone should pay them - and the Australian Taxation Office does a great job in making sure that this occurs.

This is also where you and your association play such a crucial role - educating, mentoring and nurturing our tax professionals, administrators and academics of the future. And I'm very pleased to be with you today to demonstrate the Government's support for the important work that you do.

In particular, following on from Annette's presentation, I want to talk to you about an important initiative that the Prime Minister announced in November last year.

We want to make sure that taxpayers who have a tax problem have the support they need to achieve a fair outcome.

Generally, while the ATO does a good job for the most part, I'm sure you'll agree that there's always room for improvement in helping individuals and small business taxpayers navigate some of the complexity of our tax system.

Just to give you an example of the expanding complexity of the tax system, the income tax law has grown to more than 6,000 pages today.

Australia's first public servant, Sir Robert Garran, said of the very first income tax assessment act that "it was a thing of beauty and simplicity with words that T.S. Eliot might have envied."

But over the years, complexity crept in and it became, in Sir Robert's words, "a literary monstrosity". That was how Sir Robert described it in the 1950s.

I wonder what he'd have to say about it today!

Just think - a single section in the Act, ten lines in length, was intended to tax the non-salary remuneration of employees. It was replaced in 1986 by the Fringe Benefits Tax Assessment Act, which is a 474 page monster.

Regardless of the complexity of the law, we're committed to reducing the regulatory burden on businesses, including the tax burden.

To help do that the Government has allocated one million dollars to set up 10 tax clinics under a trial program, based on the Curtin University Tax Clinic that Annette just spoke about, which has been the proof of concept.

Each clinic will receive up to $100,000 for 12 months to support unrepresented individual or small business taxpayers by providing general taxation advice and helping them with their tax obligations and reporting requirements.

The clinics, through identifying issues and building greater understanding of the tax system in operation, will also improve the interactions that small businesses and individual taxpayers have with the ATO.

The 10 clinics will be established in major and regional universities across the country that already have complementary courses and faculties - providing broad coverage across Australia. The shortlisted universities are:

  • The Australian National University
  • Charles Darwin University
  • Curtin University
  • Griffith University
  • James Cook University
  • University of Adelaide
  • University of Melbourne
  • University of New South Wales
  • University of Tasmania, and the
  • University of Western Sydney

The trial is designed to complement the ATO's existing range of help and support services for unrepresented taxpayers. Services like their long-running Tax Help community volunteer program which celebrated 30 years of operation last year - with over 800 volunteers in about 600 locations across Australia. The program helped over 30,000 people get their basic tax returns done last financial year.

And the Dispute Assist service, the ATO's free service that kicked off in 2017 to help unrepresented individuals and small businesses through the dispute process with the aim of swift and fair resolution.

The cost of disputing a tax assessment can be considerable. The Government knows that. Unlike the Opposition, we will not be putting a $3,000 cap on the deduction an individual taxpayer can claim for tax advice and representation.

We're hoping the trial tax clinics will fill a gap in the market for those individuals and small businesses that may not be able to afford proper advice and representation. As we know, life can get in the way - whether it's a failing business, mental health problems, the challenges of family life or English language proficiency, life can get pretty complex, even before tax issues are thrown in the mix! Tax clinics are one way we will be able to resolve issues, provide advice and education services as well as represent and advocate for taxpayers. It's about helping people who may otherwise fall through the cracks.

It wouldn't be a conference without an acrostic to remember, so I'm not going to let you down! Our tax clinics will cover a broad AREA:

Advice
Representation
Education
Advocacy.

The services offered in the tax clinics must cover each of these activities, although each university will have flexibility in how they do that.

People rely on the advice of our tax professionals, in much the same way as we rely on the advice of our doctor. When it comes to tax, advice from a trusted professional provides comfort and reassurance that decisions and actions are legal, sound and wise. However, as you will be aware, ATO officers and Tax Help volunteers are unable to give taxpayers tax advice.

It might be that having looked at the books and after a meeting at the tax clinic, a struggling small business needs to be advised that their business model should be changed in order for the business to succeed. Or that their business has sufficiently evolved to the point that they need to consider paid representation.

I think the key thing here is that we know people may be more prepared to say something to a volunteer or supervising tax professional at the tax clinic than they would necessarily reveal to an ATO officer. And it's important that unrepresented people have a chance to do just that, in the same way that taxpayers with representation can do.

Case study (Curtin Tax Clinic)

Annette tells me that the Curtin University Tax Clinic has already helped over 180 taxpayers with their tax disputes so far - from simple ones to extremely complex cases, which is an amazing result.

I heard about one taxpayer who came to Australia in 2007 with his wife to make a fresh start. He purchased a snack food franchise business in a shopping centre with hopes and dreams of turning a profit, employing some locals, contributing to society, and building a house for his growing family. He took out significant loans to fund the purchase of the franchise and initial set-up costs and got cracking.

The reality of running a small business soon hit home as the global financial crisis took hold: high rents, unexpected interest and other costs, and rapidly shrinking margins. He found himself with a long list of creditors including the bank, the shopping centre, the ATO, suppliers and staff.

He realised that he would need to walk away from the business at the end of the lease and had to pull out of the contract he'd signed to build his family home. There was no resolution in sight.

When he realised his combined debt to the ATO was over $60,000 including over $30,000 in super guarantee payments, he wrote in seeking assistance but was unsuccessful. This led him to the Curtin tax clinic.

The clinic made representations to the ATO on his behalf and was able to successfully negotiate for the tax and GST debt to be written off. The clinic was able to negotiate a payment arrangement with the ATO for the remaining superannuation guarantee to be repaid at a rate of $1,000 per month.

The taxpayer is now working as an employee, paying tax, contributing to society, and getting on with his life thanks to the advocacy of the Curtin Tax Clinic.

US Low Income Taxpayer Clinic (LITC) program

There is a similar program in the United States called the Low Income Tax Clinic or LITC.

The program celebrated 20 years of operation in 2018 and similarly helps American taxpayers who enter into disputes with the Internal Revenue Service (IRS). We know this program has been a great success in the States and we're keen to follow in their footsteps and learn from their experience during our trial, noting obvious legal, cultural and practical differences. Their program is independent of the IRS but funding is through the IRS.

The American LITC program has 134 clinics. From 2012 to 2016, LITCs represented more than 52,400 low income taxpayers with IRS problems; and educated almost half a million low income taxpayers.

The key difference here in Australia is that we will not be limiting an income bracket at a program level; however some universities may choose to limit the availability to a certain income level of taxpayers in line with demand for services. It's all about being flexible in our response to the needs of taxpayers. As we work through the trial, we hope to understand better who will benefit from this service and how we can consider rolling it out more broadly.

Our clinics are also designed to build practical experience for students who are the future of the tax profession. They will offer student volunteers the opportunity to work with unrepresented taxpayers under the direct supervision of qualified tax professionals. We envisage the experience will also help students forge their own path and potentially focus on an area of tax that they are interested in, thanks to the exposure and experience gained through the clinics.

The clinics will foster ongoing professional connections and a workforce of future tax professionals with real-life experience ready to hit the ground running after graduation.

They will also raise awareness and understanding of tax issues through local educational activities.

The Tax Office will support the trial program by establishing the grant activities in this program in collaboration with the 10 selected universities in the coming months.

The tax clinics will be up and running by March, with all the pillars of Advice, Representation, Education, Advocacy being delivered in this academic year.

Importantly, we're open-minded. There's no doubt that the proof of concept at Curtin has been a huge success. But we want to test and learn through the trial with a range of university and professional partners. What works here in Perth may not be the answer in regional Queensland. There's going to be a different client base, varying levels of demand and complexity, different faculties involved, and various models of operation trialled. And that's what it's all about: ensuring we test and learn to find a model that works well and benefits everyone. This includes the students, academics and tax professionals helping out on the ground, the ATO learning more about issues and how best to respond, and most importantly, taxpayers - who will benefit from the clinic services.

While this trial includes 10 universities to keep the size manageable, we want to work with other universities as well. This could include looking at partnership models, small grants, research proposals and fresh ideas. We want broad involvement. And the ATO is ready and available to help out.

The trial will wind up by December this year and we're expecting honest and robust analysis and recommendations to help us decide next steps. The tax clinic concept has received strong support from the Australian Small Business and Family Enterprise Ombudsman (ASBFEO).

ATO Second Commissioner Andrew Mills and Deputy Commissioner Damien Browne are here at the conference and I encourage you to take the opportunity to discuss the tax clinics trial with them.

The Government has also unveiled other initiatives to help small businesses that are in dispute with the Tax Office. The Prime Minister announced in November that the Government will establish a small business concierge service within the Australian Small Business and Family Enterprise Ombudsman's office to provide support and advice to taxpayers about the Administrative Appeals Tribunal (AAT) process before an application is made.

The Prime Minister also announced a review of the ATO's implementation of the Compensation for Detriment Caused by Defective Administration - the CDDA Scheme - in relation to small business taxpayers who suffer an economic or personal loss.

In addition, we are creating a dedicated Small Business Taxation Division within the AAT, which will include a case manager to support the business through the entire process, a standard application fee of $500 and fast-tracked decisions to be made within 28 days of a hearing. Furthermore, if the ATO appeals against the AAT's decision to the Federal Court, it will pay the small business' reasonable costs.

This proposal has also been welcomed by the Small Business and Family Enterprise Ombudsman Kate Carnell, who said, and I quote: "We feel the proposed $500 fee to lodge an appeal is financially manageable for a small business and the timeframe of 28 days for a decision to be made following a hearing is reasonable.

"This new proposal is critical for small businesses as more often than not, their houses are on the line. The financial impacts of a dispute through the courts over a long period of time are devastating and it doesn't take long for a small business to run out of money. Our assistance team is well-placed to manage small and family business tax disputes, having already triaged hundreds of similar cases for almost three years." Unquote

Along with our focus on helping small businesses and individual taxpayers comply with their tax obligations, the Government has been working in partnership with the OECD and through the G20, to ensure that multinational corporations are paying the right amount of tax here in Australia.

As G20 president in 2014, Australia led the global effort to deliver the first stage of the OECD Action Plan to combat Base Erosion and Profit Shifting (BEPS) by multinationals. Since then the Government has:

  • Implemented new anti-hybrid rules to prevent multinationals from exploiting cross-country differences in tax laws, which commenced on 1 January 2019.
  • Ratified the OECD Multilateral Instrument, which will help protect the majority of Australia's bilateral tax treaties from being exploited for tax avoidance purposes.
  • Strengthened Australia's transfer pricing rules to ensure that they remain international best practice. These rules prevent profit shifting by multinationals through excessive related party payments. 
  • Implemented country-by-country reporting rules which require large multinationals to report to the ATO on their global operations including income derived and tax paid in each country in which they operate. The Government view is that the Opposition's announcement that they will publicly disclose the content of these reports is bad policy. Australia has signed up to this BEPS action on the agreed basis that the reports improve transparency for tax authorities. And the Commissioner of Taxation has said that making these reports public would mean "no one would give us anything, so there'd be nothing to make public."

The Government has also gone beyond the BEPS recommendations by implementing a range of additional anti-avoidance measures:

  • Implemented the Multinational Anti Avoidance Law (MAAL) to strengthen Australia's permanent establishment integrity rules, and the Diverted Profits Tax (DPT) which introduced a new 40 per cent penalty rate of tax to apply to multinationals avoiding tax by diverting profits offshore. The ATO expects more than $7 billion in sales annually will be returned to Australia's tax base as a result of the MAAL.
  • Established a Tax Avoidance Taskforce which has strengthened the ATO's capacity to identify and crack down on tax avoidance by large corporates, multinationals and high wealth individuals. In a little over two years of operation it has collected about $6 billion in extra tax.
  • Increased penalties for multinationals failing to lodge tax documents on time and making false or misleading statements to the ATO.
  • Encouraged large companies to adopt the Tax Transparency Code to support informed public scrutiny of tax information.
  • Introduced legislation giving effect to new whistle-blower protections for people who disclose information about tax misconduct to the ATO.

So, to conclude, I'm very proud of the Government has put in place some of the strongest tax integrity rules in the world, ensuring a level playing field for all taxpayers, big and small. And I am proud that the Government has reduced the tax burden on small business, and is making it simpler and quicker for small businesses to pay the correct tax and to resolve tax disputes.  

Alternatively Labor's plan features $200 billion of new taxes which will stifle growth, cost jobs and damage confidence. Not to mention the fact they left behind $240 billion in accumulated deficits and $210 billion in net debt when they left office less than six years ago. Additionally they haven't delivered a surplus since 1989.

Thank you once again for the opportunity to talk to you today and I congratulate the team at Curtin University and the Australasian Tax Teachers Association on hosting this wonderful gathering.