Bills Digest No. 114,
2017–18
PDF version [482KB]
Joseph Ayoub
Economics Section
15
June 2018
Contents
The Bills Digest at a glance
Purpose of
the Bill
Structure of
the Bill
Background
Committee
consideration
Policy
position of non-government parties/independents
Position of
major interest groups
Financial
implications
Statement of
Compatibility with Human Rights
Key issues
and provisions
Other
provisions
Concluding
comments
Date introduced: 7
February 2018
House: House of
Representatives
Portfolio: Treasury
Commencement: On the
day after Royal Assent.
Links: The links to the Bill,
its Explanatory Memorandum and second reading speech can be found on the
Bill’s home page, or through the Australian
Parliament website.
When Bills have been passed and have received Royal Assent, they
become Acts, which can be found at the Federal
Register of Legislation website.
All hyperlinks in this Bills Digest are correct as at
June 2018.
The Bills Digest at a glance
Purpose of the Bill
- The
purpose of the Bill is to amend the Taxation Administration Act 1953 and
the Income Tax Assessment Act 1997 to introduce:
- criminal
offences for the production, distribution, possession and use of electronic
sales suppression tools (ESS tool) which are used to falsify tax
records created by electronic point of sale systems and
- administrative
penalties corresponding to the criminal offences and
- reporting
obligations on entities that provide a courier or cleaning service and engage
other entities to perform a courier or cleaning service on their behalf.
Background
- The
measures contained in the Bill were announced by the Government in the 2017–18 Federal
Budget and are in response to the recommendations made by the Black Economy
Taskforce in its interim report. The recommendations include:
- an
immediate ban on sales suppression technology and
- requiring
an entity that provides cleaning or courier services to report information
relating to the contractors it engages to carry out those services.
Stakeholder concerns
- Members
of the tax profession generally support the measures contained in the Bill
because the purpose of the measures is to prevent tax fraud and evasion.
- There
are concerns that a person may inadvertently commit a criminal offence for the
possession of an ESS tool. It has been suggested
by a stakeholder that the Australian Taxation Office could provide taxpayers
with certainty by certifying electronic point of sale systems or the
manufacturers of those systems.
- The
reporting obligation imposed on courier and cleaning services is a compliance
mechanism that allows the Commissioner of Taxation to gather information in
order to data match and audit taxpayers. While it imposes an additional
obligation on businesses to report relevant information, practically it may not
be as effective as imposing a withholding tax on the business making the
payment to the contractor for cleaning or courier services.
- Following
the introduction of the Bill, stakeholders expressed concerns about the application
of the reporting requirements to entities that provide limited courier or
cleaning services. The Government has attempted to address these concerns by
moving an amendment to the Bill that exempts entities from the proposed
reporting requirements where the total amount of payments the entity receives
for courier or cleaning services are less than 10 per cent of the entity’s GST
turnover.
Key elements
- Under
Schedule 1 of the Bill, an entity will commit a criminal offence if it produces,
supplies, possesses or uses an ESS tool.
- The
offence for the production or supply of an ESS tool extends beyond Australia’s
geographical jurisdiction, which means that overseas suppliers can be convicted
of an offence.
- The
maximum penalty for each offence is:
- 500
penalty units (currently $105,000) for the possession of an ESS tool
- 1,000
penalty units (currently $210,000) for using an ESS tool to alter a tax record
- 5,000
penalty units (currently $1.05 million) for manufacturing or supplying an ESS
tool.
- The
offences are ones of strict liability, which means that a person can be
convicted without the need to prove fault such as intention, recklessness or
negligence.
- The
following defences are available in limited circumstances:
- the
general defence for an honest mistake of fact where, for example a person
inadvertently possess an ESS tool but honestly believes it is not such a tool
and
- where
a person possesses, manufactures or supplies an ESS tool for the purpose of
preventing or deterring tax evasion or enforcing a taxation law.
- In
the absence of criminal proceedings, corresponding administrative penalties for
such offences can be imposed by the Commissioner of Taxation.
- Under
Schedule 2 of the Bill, an entity that provides cleaning or courier services,
has an Australian Business Number (ABN) and engages another entity to provide
cleaning or courier services on its behalf (excluding an employee) must report
the following information to the Australian Taxation Office:
- the
ABN, name and address of the entity it engages
- the
gross amount paid to the entity for the financial year
- the
total GST included in the gross amount paid to the entity and
- the
total payments made to contractors in the financial year.
- As
noted above, entities are exempt from the proposed reporting requirements under
Schedule 2 to the Bill where the total amount of payments the entity
receives for courier or cleaning services are less than 10 per cent of the
entity’s GST turnover.
Key issues
- One
of the key issues is whether criminalising the production, distribution,
possession and use of ESS tools significantly deters such behaviour. As
discussed in the digest, the Organisation for Economic Co-operation and
Development considers that criminal offences should be an element of a
multipronged approach to preventing tax fraud and evasion through the use of
ESS tools.
- Another
issue is whether it is appropriate that the criminal offences are ones of
strict liability where significant financial penalties can be imposed.
Purpose of
the Bill
The purpose of the Treasury Laws Amendment (Black Economy
Taskforce Measures No. 1) Bill 2018 (the Bill) is to amend:
- the
Taxation
Administration Act 1953 (TAA) to introduce specific criminal
offences for the production, distribution, possession and use of electronic
sales suppression tools (ESS tools) used to manipulate or falsify tax
records created by electronic point of sale systems by:
- inserting
a definition of electronic sales suppression tool and
- inserting
specific criminal offences for the production, distribution, possession and use
of an ESS tool.
- the
Income Tax
Assessment Act 1997 (ITAA97) and Schedule 1 of the TAA to
insert administrative penalties corresponding to the criminal penalties
proposed under item 2 of Schedule 1 to the Bill and
- amend
Schedule 1 of the TAA to introduce reporting obligations on entities
that have an Australian Business Number (ABN) and provide a courier or cleaning
service and engage other entities to perform a courier or cleaning service on
behalf of the first entity.
Structure
of the Bill
This Bill is divided into two Schedules.
Schedule 1 of the Bill amends the TAA and the ITAA97
to insert specific criminal offences and administrative penalties for the
production, distribution, use or possession of ESS tools.
Schedule 2 amends Schedule 1 to the TAA to impose a
reporting obligation on entities that have an ABN, provide cleaning or courier
services and engage other entities to provide courier or cleaning services on
their behalf.
Background
Both measures contained in the Bill were announced in the
2017–18 federal budget[1]
and are part of the Government’s response to the Interim Report of the Black
Economy Taskforce.[2]
The Taskforce is chaired by Michael Andrew, the current
Chair of the Board of Taxation. The Taskforce was established in December 2016:
... to develop a whole of government policy framework involving
new proposals to tackle black economy activity.[3]
The Taskforce’s Interim Report was released publicly on 9
May 2017 (Budget night) and additional policy ideas were released in August
2017.[4]
The Taskforce provided the Black Economy
Taskforce: final report—October 2017 (Final Report) to the Government
in October 2017, which was publicly released with the 2018–19 federal budget.[5]
The release was also accompanied by the Government’s response Tackling
the Black Economy: Government Response to the Black Economy Taskforce Final
Report.[6]
In its Interim Report, the Taskforce’s initial
recommendations included among other things:
- an
immediate ban on sales suppression technology and
- extending
the taxable payments reporting system (TPRS) to two high risk sectors—cleaning
and courier services.[7]
On 23 October 2017 the Minister for Revenue and Financial
Services, Kelly O’Dwyer (the Minister) released the Treasury Laws Amendment
(Black Economy Taskforce Measures No. 1) Bill 2017 as an Exposure Draft for
public consultation.[8]
While the Bill largely reflects the Exposure Draft, some changes that have been
made are discussed below under key issues and provisions.
According to the Taskforce, the ‘black economy’:
... refers to businesses and individuals who operate outside
the tax and regulatory system. Other terms used include: the shadow economy,
cash economy and underground economy. Businesses and individuals may entirely
avoid reporting activities, or they may deliberately underreport income in order
to evade their obligations. The activities themselves would otherwise be legal,
but there may be complex linkages with illegal activities (for example, money
laundering).[9]
The Taskforce considers that black economy activities can
have the following negative effects:
- undermine
community trust in the administration of the tax system
- create
an unfair commercial environment which penalises businesses and individuals who
comply with their obligations
- enable
and entrench the exploitation of vulnerable workers
- undermine
tax revenue and
- enable
abuse of the welfare system.[10]
In 2012, the Australian Bureau of Statistics (ABS)
estimated that ‘underground production’ or the ‘cash economy’ was equivalent to
1.5% of Australia’s Gross Domestic Product (GDP) which, according to the
Taskforce is approximately $25 billion today.[11]
KPMG has recently estimated the total annual aggregate tax
gap including losses to Pay As You Go (PAYG) income tax, GST and self-assessed
personal income tax to be $5.8 billion.[12]
In its Final Report, the Taskforce considered that the
black economy is larger than estimated by the ABS in 2012 and could be as large
as three per cent of GDP—in 2015–16 this equated to $50 billion.[13]
The Taskforce considered that the black economy is most
prevalent amongst businesses that have regular access to cash because:
Owners of these types of businesses deal directly with their
customers and can avoid their taxation and other obligations by underreporting
income, especially by understating cash receipts, and paying workers cash in
hand. The higher share of labour costs as well as the high number of small
value transactions make black economy participation easier.[14]
Further information on the black economy, including the
drivers, consequences and measures announced in the 2018–19 budget aimed at addressing
the black economy can be found in the Parliamentary Library Budget
Review 2018–19 under the heading ‘Targeting the black economy’.[15]
Committee
consideration
Senate Standing Committee for the
Scrutiny of Bills
The Senate Standing Committee for the Scrutiny of Bills (Scrutiny
Committee) questioned the appropriateness of the following aspects of the Bill:
- the
application of strict liability to offences with maximum penalties of 500 and
5,000 penalty units and
- the
inclusion of offence-specific defences, which impose an evidential burden on a
defendant.[16]
The Scrutiny Committee sought further information from the
Minister on these matters.[17]
The Scrutiny Committee did not raise any concerns
regarding Schedule 2 of the Bill.
The Scrutiny Committee’s considerations and the Minster’s
response are discussed in greater detail under key issues and provisions.
Senate Standing Committee for the
Selection of Bills
The Senate Standing Committee for the Selection of Bills
recommended that the Bill not be referred to a committee for inquiry.[18]
Policy
position of non-government parties/independents
At the second reading stage of the Bill members of the
Australian Labor Party (ALP) supported the passage of the Bill,[19]
but also called on the Government to address other areas of the black economy
including phoenixing activity engaged in by company directors.[20]
For example, Andrew Leigh MP (Shadow Assistant Treasurer) stated:
The measures in this bill are unexceptional. They deal with
the use of electronic sales suppression tools, prohibiting their production,
distribution and possession to incorrectly keep tax records. The measures in
this bill require entities having an ABN providing courier or cleaning services
to report to the Australian Taxation Office information about transactions that
involve engaging other entities to undertake those courier or cleaning services
for them. But the measures missing from this bill are the critical ones. We
need action to crackdown on dodgy phoenix directors. While the government is
unwilling to crackdown on dodgy phoenix directors, it isn't taking the critical
action which the experts recognise is needed.[21]
Other non-government parties and independents do not
appear to have expressed a particular view on the Bill.
Position of
major interest groups
At the time of writing, Treasury had not yet publicly
released the submissions on the Exposure Draft, however a limited number of
stakeholders have made their submissions publicly available or have otherwise publicly
expressed a view on different aspects of the Bill.
From the submissions that are available, the measures
proposed in the Bill appear to have the support of the tax profession,
including from bodies such as Tax & Super Australia and The Tax Institute.[22]
While those bodies have expressed support for the measures as reflected in the
Exposure Draft, BDO Australia has expressed broad support for a ban on sales
suppression technology and the extension of the TPRS.[23]
Chartered Accountants Australia and New Zealand (CAANZ) supports the ban of
sales suppression technology.[24]
Financial
implications
Schedule 1
According to the Explanatory
Memorandum to the Bill, Schedule 1 of the Bill is expected to have an
unquantifiable gain to receipts over the forward estimates period.[25]
Schedule 2
The 2017–18 Budget stated that extending the TPRS to
contractors in the cleaning and courier service would:
- have
a gain to revenue of $318.0 million in the forward estimates period and
- the
underlying cash receipts impact of the measure would be $362.0 million over the
forward estimates period.[26]
However, the gain in revenue has subsequently been revised
down and it is now expected, as stated in the Explanatory Memorandum, that this
measure will result in tax receipts of $132 million over the forward
estimates period, which includes an estimated increase of $56 million in
goods and services tax receipts.[27]
Statement of Compatibility with Human Rights
As required under Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the
Bill’s compatibility with the human rights and freedoms recognised or declared
in the international instruments listed in section 3 of that Act. The
Government considers that the Bill is compatible.[28]
In particular the Government considers:
- Schedule
1 of the Bill is compatible with human rights as it does not engage any
applicable rights or freedoms[29]
- Schedule
2 of the Bill engages the prohibition on arbitrary or unlawful interference
with privacy contained in Article 17 of the International Covenant on Civil
and Political Rights (ICCPR).
However, the Government considers that the Bill is consistent
with Article 17 of the ICCPR on the basis that its engagement of the
right to privacy will neither be unlawful nor arbitrary.[30]
Parliamentary Joint Committee on Human Rights
The Parliamentary Joint Committee on Human Rights (Human
Rights Committee) noted that the Bill engages the right to privacy.[31]
However, the Human Rights Committee’s primary concern was the impact of the
imposition of strict liability on the presumption of innocence.
The Human Rights Committee noted that the right to the
presumption of innocence is engaged by the Bill because strict liability
offences allow for the imposition of criminal liability without having to prove
fault.[32]
The Human Rights Committee observed:
Strict liability offences will not necessarily be
inconsistent with the presumption of innocence provided that they are within
reasonable limits which take into account the importance of the objective being
sought and maintain the defendant's right to a defence.[33]
Accordingly, the Human Rights Committee expects that the
statement of compatibility with human rights in the Explanatory Memorandum will
provide an assessment of whether the limitation on the presumption of innocence
is:
- in
pursuit of a legitimate objective
- rationally
connected to that objective and
- a
reasonable, necessary and proportionate means to achieving that objective.[34]
- In this regard, the Human Rights Committee sought the advice
of the Treasurer regarding:
- whether
the strict liability offences are aimed at achieving a legitimate objective for
the purposes of human rights law
- how
the measure is effective to achieve (that is, rationally connected to) that
objective and
- whether
the limitation on the right to be presumed innocent is proportionate to achieve
the stated objective.[35]
In response, the Minister advised that she did not accept
that the Bill engaged and limited the right to the presumption of innocence as
the prosecution would still need to ‘prove all of the physical elements to the
offence before a court will impose any criminal liability’, a view that was
rejected by the Committee.[36]
The Minister further advised:
- deterring
the production, use and distribution of tools used to manipulate or falsify
electronic point of sale records to facilitate tax evasion is a legitimate
objective for the purposes of human rights law because such tools serve no
legitimate function other than to facilitate tax evasion
- applying
strict liability to the offences ‘substantially improves the effectiveness of
the prohibition on electronic sales suppression tools’ as it acts as a
‘significant and real deterrent’ to the production and supply of such tools,
and
- the
strict liability offences are appropriate and proportionate because the
principal function of an electronic sales suppression tool is to facilitate tax
evasion; there is no reason for an entity to produce or supply such a tool.
Further, the applicable defences act as safeguards where an entity is acting to
prevent or deter tax evasion.[37]
Based on the information provided to it, the Committee
considers that the strict liability offences are likely to be compatible with
the presumption of innocence.[38]
Key issues
and provisions
Schedule 1—Criminal Offences:
electronic sales suppression tools
Item 2 of Schedule 1 to the Bill introduces proposed
Subdivision BAA into Division 2 of Part III of the TAA, which creates
specific offences for the production, supply, possession or use of ESS tools. Proposed
Subdivision BAA makes it unlawful to:
- manufacture,
develop or publish an ESS tool[39]
- make
a supply of or make available for use an ESS tool or a right to use such a
tool; or provide a service to an entity that involves the use of such a tool[40]
- acquire,
possess, or have control of an ESS tool or a right to use an ESS tool where the
person is required to keep or make a tax record[41]
- keep,
alter or make a tax record using an ESS tool, or prevent a tax record being
kept, altered or made using an ESS tool, where the person is required to keep
or make a tax record.[42]
The Explanatory Memorandum notes that while there are
existing penalty provisions under the tax laws and criminal offences under the Criminal Code Act
1995 (Criminal Code), these provisions do not adequately capture
or penalise the conduct that the Bill proposes to address—the production,
distribution, use and possession of ESS tools.[43]
In particular:
- the
tax laws contain penalties relating to keeping tax records and tax evasion
which may apply to entities that use ESS tools. However, the Explanatory
Memorandum considers that these penalties are not high enough to adequately
reflect the seriousness of using an ESS tool[44]
- the
Criminal Code contains offences relating to forgery and providing false
documents to the Commonwealth which can be punishable by imprisonment for up to
ten years. However, according to the Explanatory Memorandum, such offences
require either an intention that the device will be used to commit an
offence of forgery or only apply to ‘Commonwealth documents’. It is considered
that electronic point of sale records are generally not Commonwealth documents.[45]
Under section 8T of the TAA it is an offence to
incorrectly keep records with the intent of misleading the Commissioner.[46]
The maximum penalty for this offence is 50 penalty units ($10,500) or
imprisonment for a period not exceeding 12 months for a first offence.[47]
In this case, conviction under this provision requires the prosecution to
establish fault.
Under subsection 8L(1) of the TAA a person commits
an offence if among other things, the person is required by a taxation law to keep
any accounts, accounting records or other records and the records kept do not
correctly record and explain the matters, transactions, acts or operations to
which they relate. An offence under section 8L of the TAA is an offence
of absolute liability.[48]
The maximum penalty for incorrectly keeping records is 20 penalty units for a
first breach and 40 penalty units for a second or subsequent breach.[49]
The Bill seeks to prevent tax evasion and fraud through the use of ESS tools by
comprehensively criminalising a range of activities that may otherwise fall
outside the scope of the existing laws, impose higher penalties, or place a
greater burden on the prosecution to establish because the offences require
fault to be established.
Tax evasion, fraud and avoidance
The common meaning of ‘tax avoidance’ relates to practices
which seek to circumvent or significantly reduce tax obligations owed to the
Commonwealth (some prohibited by law, some legal). Courts in Australia, however,
have made a semantic distinction between tax avoidance and tax evasion:
- tax
avoidance involves using (or attempting to use) lawful means to reduce
tax obligations
- tax
evasion involves using unlawful means to escape payment of
tax.[50]
Whilst the courts have been clear on the difference
between tax avoidance (legal) and tax evasion (illegal), popular commentary
often uses a range of different terms such as ‘tax minimisation’, ‘tax
evasion’, ‘tax planning’ and ‘tax avoidance’ to refer to any and all attempts
to reduce taxation (both legal and illegal) and therefore conflates and confuses
the two legal concepts of tax avoidance (legal) and tax evasion (illegal).
Schedule 1 to the Bill creates specific criminal offences
for what would otherwise likely be tax evasion or fraud.
Sales suppression technology
Historically, sales suppression was generally achieved by
‘skimming’ cash receipts that an entity received for goods or services. An
entity may have retained two accounting ledgers—one for the purposes of their
income tax obligations and another which showed the actual value of the
business which could be relied upon if the business sought finance or wished to
sell. This type of tax evasion could generally be achieved because cash
is fungible and untraceable.[51]
It is now apparent that cash is no longer necessary to
successfully underreport income; sales suppression technology now enables
businesses to misreport their income regardless of whether the purchase is made
by cash or card.[52]
As noted in CAANZ’s submission to the Taskforce:
SST [sales suppression technology] has the potential to turn
what used to be fraud at an individual level (i.e. ‘two sets of books’) into a
much broader, systemic problem. A 2013 OECD report indicated that SST can
result in significant loss of revenue, for example:
-
Canadian Restaurant and Food Services Association estimated suppressed sales in
the restaurant sector could add up to nearly CAD 2.4 billion for 2009.
- Quebec tax losses estimated at CAD
417 million for 2007-2008.
-
Sweden recovered EUR 150 million in
2,000 audits over 4 years.
-
In South Africa EUR 22 million was
expatriated in a single case.
-
In Norway, a single case involved EUR
7 million under-reported.[53]
The Organisation for Economic Co-operation and Development
(OECD) notes that electronic sale suppression technology is used to alter the
evidence of a transaction in a point of sale system (POS system) regardless of
whether cash or electronic payment methods are used. The two main electronic
sales suppression tools are:
- Phantomware—installed
on the POS system to allow the user to alter sales data that is recorded
- Zappers—external
devices (such as a computer program stored on a USB or accessed online) that
can be connected to the POS system and allow for the manipulation of sales
records.[54]
As explained in the Explanatory Memorandum to the Bill,
the records made by POS systems are an important source of information for
auditors to check taxation and other obligations have been complied with.[55]
However, this information is easily manipulated by sales suppression technology
which can be very difficult for auditors to detect.[56]
Similarly, CAANZ highlighted that the technology ranges in sophistication from
an ESS tool that allows a product to be changed from an expensive product to a
cheap product, to:
The more sophisticated programs also correlate the income
skimmed to business inputs and adjust wastage and cash wages to really throw
auditors off the track.[57]
Meaning of electronic sales
suppression tool
The offences under proposed Subdivision BAA rely on
the definition of electronic sales suppression tool under proposed
section 8WAB.
Item 1 of Schedule 1 to the Bill inserts a
definition of electronic sales suppression tool into subsection
995-1(1) of the ITAA97 which is defined by reference to proposed
section 8WAB of the TAA. The definition will also be relied on under
Schedule 1 of the TAA for the proposed administrative penalties in item
3 of Schedule 1 of the Bill—Schedule 1 of the TAA relies on defined
terms in the ITAA97.[58]
The defined term is important because it is a critical
element of the offences created under proposed Subdivision BAA. The defined
term’s importance is further elevated because the offences created are ones of strict
liability. Unlike other offences that require fault elements to be established
such as intention, recklessness or negligence, it is only necessary to show
that the entity has satisfied the physical elements of the offence.[59]
This means that once the prosecution has established that something is an ESS
tool, it is then only necessary to establish that an entity has manufactured,
distributed, possessed or used an ESS tool as a matter of fact, irrespective of
the entity’s intention.
Under proposed section 8WAB, electronic sales
suppression tool means a device, software program or other thing, or
any part or combination of such things that:
- is
capable of falsifying, manipulating, hiding, obfuscating, destroying or
preventing the creation of a record:
- an
entity is required by a taxation law to keep or make and
- such
a record is, or would be created by a system that is or includes a POS system and
- a
reasonable person would conclude that one of its principal functions is
to falsify, manipulate, hide, obfuscate, destroy or prevent the creation of
such records.
Importantly, the thing or things only needs to be ‘capable’
of falsifying, manipulating, hiding, obfuscating, destroying or preventing the
creation of a tax record. This means that it is not necessary to establish that
a tax record has been altered except under the offence created by proposed
section 8WAE which deals with altering, making or incorrectly keeping
records using an ESS tool.
The primary constraining element of the offence is the
fact that a reasonable person would conclude that one of its [the
alleged ESS tool’s] principal functions is to falsify, manipulate, hide,
obfuscate, destroy or prevent the creation of such records.[60]
In this regard the Explanatory Memorandum states:
The principal function test operates in conjunction with the
capability requirement to ensure that the definition does not extend to an
ordinary system or specific features of an ordinary system that could be used
to erase, hide or manipulate records. This aspect of the test takes into account
the context of a particular tool to exclude ordinary and legitimate features of
point of sales systems from the definition, even those which are capable of
abuse with some effort.[61]
(Emphasis added)
Tax records
The record which is capable of being manipulated must be a
record that is required to be kept under a taxation law. A taxation law
includes among other things:
- an
Act or part of an Act of which the Commissioner has the general administration
and
- legislative
instruments made under such an Act or part of such an Act.[62]
However, for the purposes of the TAA, a taxation
law does not include the Excise Act 1901, or any legislative instruments
made under that Act.[63]
The Explanatory Memorandum notes that this is because excise is levied on
manufacture rather than sale and therefore sales suppression does not affect
such liabilities.[64]
There is a wide range of record keeping obligations
imposed on taxpayers under legislation that the Commissioner administers.[65]
The general record keeping provisions are under section 262A of the Income
Tax Assessment Act 1936 (ITAA36) and section 382-5 of Schedule 1 to
the TAA which impose broad obligations on taxpayers, for example:
- a
person carrying on a business must keep records that record and explain all
transactions and other acts engaged in by the person that are relevant for any
purpose of ITAA36
- a
person must keep records that record and explain all transactions and other
acts they engage in that are relevant to a supply, importation, acquisition,
dealing, manufacture or entitlement to indirect tax transactions (for example
GST).[66]
There are additional record keeping obligations, however
it is sufficient to note that the definition of electronic sales suppression
tool extends to a wide range of records, including those records that are
required to be kept for the purposes of GST. This is logical considering that
the Bill’s intent is to prevent tax fraud and evasion using ESS tools to
manipulate tax records.
Electronic point of sale system
‘Electronic point of sale system’ is not defined in the
tax Acts, and hence will be given its ordinary meaning.
A POS system can simply refer to a manual system for
transacting and recording sales. However, under the proposed definition of electronic
sales suppression tool the ‘record’ is one that is or would be created
by an ‘electronic point of sale system’—accordingly, the POS system must
be an electronic one.[67]
What exactly will be considered to be an electronic point of sale system is not
clear, however, modern point of sale systems are generally computer systems
with varying degrees of functionality.[68]
As stated by the OECD:
The functionality of POS systems varies in sophistication
from the fairly simple to the extremely comprehensive. It is possible that not
all of the functions that are available from the supplier will be activated in
the system that is delivered and installed for the particular business user.
Mid-range to high range systems often include either touch pads or touch
screens and can be optionally networked to computers and linked to scanning
systems. The sophistication and variety in such systems can present a challenge
to the tax auditor who needs to understand how to effectively audit them.[69]
Point of sale systems are also available as cloud-based software.
In this case a vendor may access the point of sale software directly through a web
browser, using a tablet for example.[70]
Like many cloud-based services, the service provider may not necessarily be
located in Australia.
Criminal offences under proposed
Subdivision BAA
Producing or supplying ESS tools
Proposed subsection 8WAC(1) makes it an offence to
manufacture, develop or publish a sales suppression tool. In turn, proposed
subsection 8WAC(2) makes it an offence to make a supply[71]
of or make available for use an electronic sales suppression tool or a right
to use[72]
such a tool, or to provide a service to an entity that involves the use
of such a tool.
In both cases, the maximum penalty[73]
is 5,000 penalty units—currently $1.05 million.[74]
Possessing ESS tools
Proposed subsection 8WAD(1) makes it an offence to
acquire, possess or have control of an ESS tool or a right to use an ESS tool
where the person is required to keep or make a tax record.
The maximum penalty under proposed section 8WAD(1)
is 500 penalty units—currently $105,000.
Incorrectly keeping records using ESS
tools
Proposed subsection 8WAE(1) makes it an offence to
keep, alter or make a tax record using an ESS tool or prevent a tax record
being kept, altered or made using such a tool where the person is required to
keep or make a tax record, and as a result of the use of the tool:
- the
record does not correctly record or explain the matter, transaction, act or
operation to which it relates and
- the
person does not keep or make the record in accordance with the taxation law.
The maximum penalty that can be imposed is 1,000 penalty
units—currently $210,000.
Extension of criminal
responsibility
The criminal offences under proposed Subdivision BAA
also apply to a person who aids, abets, counsels or procures the commission of
any of the offences.[75]
Application of strict liability
The offences under proposed sections 8WAC, 8WAD
and 8WAE are offences of strict liability. As noted above and stated by
the Scrutiny Committee:
Under general principles of criminal law, fault is required
to be [proved] before a person can be found guilty of a criminal offence
(ensuring that criminal liability is imposed only on persons who are
sufficiently aware of what they are doing and the consequences it may have).
When a bill states that an offence is one of strict liability, this removes the
requirement for the prosecution to prove the defendant's fault. In such cases,
an offence will be made out if it can be proven that the defendant engaged in
certain conduct, without the prosecution having to prove that the defendant
intended this, or was reckless or negligent.[76]
The Scrutiny Committee noted its concern with the
application of strict liability to the proposed offences where a significant
financial penalty can be imposed. In particular, the Committee noted that the A
Guide to Framing Commonwealth Offences states that strict liability is
only appropriate where the offence is not punishable by imprisonment and is
only punishable by up to 60 penalty units for an individual.[77]
Strict liability applied to offences under subsections
8WAC(1), (2) and 8WAD(1) of the Exposure Draft. However strict liability did
not apply under subsection 8WAE(1) (incorrectly keeping records using an ESS
tool). Further, under all offences in the Exposure Draft, punishment could
include a term of imprisonment with maximum terms ranging from two to five
years.[78]
In contrast the Bill does not provide for terms of imprisonment under proposed
sections 8WAC, 8WAD and 8WAE.
Justifying strict liability
offences
The application of strict liability to the offences under proposed
subsubsection 8WAC(1) and (2) (producing or supplying an ESS tool) have
been justified in the Explanatory Memorandum on the following grounds:
- it
improves the effectiveness of the prohibition on electronic sales suppression
tools
- it
will act as a significant deterrent to entities facilitating tax evasion and
fraud through the production and supply of electronic sales suppression tools
- there
is no reason for an entity to produce or supply an electronic sales suppression
tool as by its very nature it is designed to facilitate tax evasion and fraud (excepts
as provided for by the specific defence)
- prosecuting
at the facilitation level will reduce the instance of evasion and fraud at the
user level
- the
severity of the penalties is justified because they relate to intentional and
systematic tax evasion and fraud and
- the
penalty is aligned with the civil penalty applied to the promoters of tax
exploitation schemes and penalties that are imposed for breaches of directors’
duties under the Corporations Act 2001.[79]
In relation to proposed section 8WAC (producing or
supplying an ESS tool), the Scrutiny Committee noted:
... the difficulty in reconciling an offence which seeks to
punish intentional conduct with a proposal to remove the requirement
to prove fault in relation to that conduct.[80]
The Scrutiny Committee specifically drew out this point
because one of the bases on which the Explanatory Memorandum justifies the high
penalty under proposed section 8WAC, is that it relates to intentional
and systematic tax evasion and fraud.[81]
As noted in the Explanatory Memorandum, the penalty for a
promoter of a tax exploitation scheme is commensurate with the maximum penalty
that can be imposed under proposed section 8WAC for producing or
supplying an ESS tool—5,000 penalty units.[82]
In fact, a higher maximum penalty can be imposed for promoters of tax
exploitation schemes, being the greater of 5,000 penalty units for an
individual, 25,000 penalty units for a body corporate or twice the
consideration received by the entity or its associates in respect of the
scheme.[83]
However, the Federal Court is prevented from imposing a penalty if, broadly, the
entity satisfies the Court that the conduct:
- was
due to a reasonable mistake of fact or
- was
due to the act or default of another entity (excluding employees), to an
accident or to some other cause beyond the entity's control and the entity took
reasonable precautions and exercised due diligence to avoid the conduct.[84]
The Scrutiny Committee considered that less extensive
justification was provided in relation to offences under proposed sections 8WAD
and 8WAE (possession or use of an ESS tool). In the case of
possession of an ESS tool, the Explanatory Memorandum states that strict
liability is appropriate because ESS tools have no purpose other than to
facilitate tax evasion or fraud.[85]
However, CAANZ noted in its submission on the Exposure Draft that considering
the sophistication of some tools, it may not be immediately apparent to a
person whether they are in possession of an ESS tool or how they find out if
they are.[86]
This is consistent with the Scrutiny Committee’s concern that criminal
liability would extend to mere inadvertence, for example where a person is
unware that they possess an ESS tool notwithstanding that it is not used and is
not intended to be used for the purpose of altering sales data and evading tax
obligations generally.[87]
CAANZ recommended that such a risk could be mitigated by
requiring the ATO to endorse software providers. To this end, CAANZ understood
that Treasury, the ATO and software providers were in discussion to ensure that
computer systems do not ‘inadvertently trigger’ the proposed criminal offences.[88]
CAANZ’s recommendation is consistent with the ‘quality mark’ approach and the use
of ‘certified’ electronic point of sale systems noted with approval by the OECD, which broadly involve the revenue authority
endorsing specific software or hardware and in some cases mandating the use of
those systems.[89]
This concern is also partially mitigated by the fact item
4 of Schedule 1 prevents proposed subsection 8WAD(1) (possession
of an ESS tool) from applying for up to six months after the Bill commences if
the person acquired the ESS tool before 7:30pm on 9 May 2017 (2017–18
Budget) and notified the Commissioner after the commencement of the Bill (the
day after Royal Assent) and complied with the Commissioner’s direction to deal
with the ESS tool in a particular way. However, if a person is unaware of their
possession of an ESS tool, or they inadvertently acquire an ESS tool after 7:30pm
on 9 May 2017, then they will not be afforded such protection.
In response to the Scrutiny Committee’s concern, the Minister
emphasised the application of strict liability to the proposed offences on the
basis that there can be no legitimate use of an ESS tool. Accordingly, the fact
that a person possesses, uses, manufactures or supplies an ESS tool is
sufficient to determine criminal liability.[90]
The Minister has also reiterated:
- the
proposed penalties send the strongest possible signal, short of imprisonment,
regarding the severity of the behaviour of engaging in systemic tax fraud and
evasion
- the
upper limit of 5,000 penalty units for the manufacture and supply of ESS tools
reflects that the activity can involve systemic and commercial scale operations
designed to facilitate tax fraud and evasion. The upper penalty limit also
reflects the magnitude of the risk to Commonwealth revenue from such activities
- the
proposed penalties are comparable to those that apply to promoters of tax
exploitation schemes and breaches of certain directors’ duties (consistent with
the principle that there should be consistent penalties for existing offences
of a similar kind as articulated in the A
Guide to Framing Commonwealth Offences) and
- the
general defence for honest mistake of fact (discussed below) is available to a
person who unwittingly comes into possession of an ESS tool.[91]
However, as noted above the Scrutiny Committee remains
concerned that where a person acquires an ESS tool, does not use it but
nevertheless continues to possess it because, for example they are unaware of
the intention to criminalise such possession, the person can be convicted of an
offence under proposed subsection 8WAD(1).[92]
It is unlikely that the defence of honest mistake of fact would apply in such a
circumstance.
While the Scrutiny Committee remains concerned about the
application of strict liability to offences that carry maximum penalties varying
between 500 to 5,000 penalty units:
- it
has left it to the Senate to decide the appropriateness of the application of
strict liability to such offences and
- it
has requested that the key information provided by the Minister be included in
the Explanatory Memorandum.[93]
Defences
Honest mistake of fact
A defence of honest mistake of fact is available under
section 9.2 of the Criminal Code, which provides that a person is not
criminally responsible for a strict liability offence that has a physical
element for which there is no fault element if:
- at
or before the time of the conduct constituting the physical element, the person
considered whether or not facts existed, and is under a mistaken but reasonable
belief about those facts, and
- had
those facts existed, the conduct would not have constituted an offence.
In the case of an offence under proposed subsection
8WAD(1) for the possession of an ESS tool, it appears that this defence may
be able to be relied upon where, for example a person purchases an electronic
point of sales system that contains an ESS tool, but the person was under the
belief that it did not contain such a tool. The Minister gave the following
explanation in response to the Scrutiny Committee’s concerns:
In developing the proposed offence for possession, careful
consideration was given to this issue and it was determined that the general
defence for honest mistake of fact provided appropriate protection to persons
who unwittingly came into possession of such a tool, as well as in respect of
the other actions covered by the proposed offences (the availability of this
defence is noted at paragraphs 1.52, 1.66 and 1.76 of the explanatory memorandum).
As such, if a person inadvertently acquired an electronic sales suppression
tool but genuinely believed that it did not have that function, the person
would not commit an offence.[94]
Notwithstanding that the defence is available in such a
case, the defendant still bears the evidential burden in relation to the
defence.
Preventing or deterring tax evasion
A defence is available under proposed subsections
8WAC(3) (producing or supplying) and 8WAD(2) (possession) where the
conduct was undertaken by a person for the purpose of preventing or deterring
tax evasion or enforcing a taxation law.
While this defence was available in section 8WAE(2) of the
Exposure Draft for incorrectly keeping records using an ESS tool, it is not
available under proposed section 8WAE. The Explanatory Memorandum justifies
this on the basis that the scope of the offence in proposed section 8WAE is
limited to conduct involving an entity’s own tax records:
Such use is fundamentally inconsistent with the purpose of
preventing or deterring tax evasion as it inherently involves the actual
commission of tax evasion.[95]
In any event, this defence is narrow in its application and
as stated in the Explanatory Memorandum it is intended to apply to entities
such as:
- researchers
developing ‘counter-tools or tools designed to provide better information about
how the technology operates’
- ‘whistle-blowers
that alert authorities to the existence or use of electronic sales suppression
tools’ and
- ‘authorities
that confiscate such tools or develop or use them for law enforcement purposes’.[96]
The defendant bears the evidential burden in relation to
the defence, which means that the defendant is required to raise evidence on
the matter to establish whether it exists.[97]
As stated by the Scrutiny Committee:
At common law, it is ordinarily the duty of the prosecution
to prove all elements of an offence. This is an important aspect of the right
to be presumed innocent until proven guilty. Provisions that reverse the burden
of proof and require a defendant to disprove, or to raise evidence to disprove,
one or more elements of an offence, interferes with this important common law
right.[98]
The Scrutiny Committee considered that the framing of the
exception as an offence-specific defence has not necessarily been justified in
accordance with the A
Guide to Framing Commonwealth Offences.[99]
The Minister has since explained that an offence-specific defence is justified on
the basis that:
- the
defendant will be best placed to raise evidence about their purpose for
engaging in the activities
- it
will be difficult for the prosecution to establish such a purpose, whereas it
will be peculiarly within the defendant’s knowledge and comparatively simple for
the defendant to establish and
- it
makes clear the expectation that persons must exercise extreme care and
diligence when undertaking such actions.[100]
The Scrutiny Committee has requested that this information
be included in the Explanatory Memorandum.[101]
Extension of Australia’s jurisdiction beyond it geographical borders
Proposed subsections 8WAC(5) and (6) apply extended
geographical jurisdiction category D to the offences under subsections 8WAC(1)
and (2) in specified circumstances. Under section 15.4 of the Criminal Code,
this means that, in the circumstances explained below, the offences apply:
- whether
or not the conduct constituting the offence occurs in Australia and
- whether
or not a result of the conduct constituting the alleged offence occurs in
Australia.[102]
Under proposed section 8WAC(5) extended geographical
jurisdiction applies to the offence under proposed subsection 8WAC(1) for manufacturing,
developing or publishing an ESS tool if the tool is used at any time to modify
records that a taxation law requires an entity to keep or make.
Similarly, under proposed subsection 8WAC(6)
extended geographical jurisdiction applies to the offence for the supply or making
available of an ESS tool or the provision of a service involving the use of
such a tool to an entity that is required by a taxation law to keep or make a
record. An example of the operation of this provision is provided in the
Explanatory Memorandum:
Example 1.3 - manufacture and supply of an electronic
sales suppression tool outside of Australia
Luke, a software developer in Iceland, develops an electronic
sales suppression tool that alters point of sales transactions by removing them
entirely from an entity’s sale records. He advertises the tool for sale online
and it is purchased by Hans, who owns a bar in Perth, Australia.
Hans installs the electronic sales suppression tool on the
point of sales registers at his bar and uses the tool to modify his transaction
records.
Even though Luke is not in Australia, he has committed an
offence by manufacturing an electronic sales suppression tool that is used to
modify records that are required to be kept under Australian taxation law.
Luke has also committed the offence of supplying an
electronic sales suppression tool to a person, and because he has supplied it
to a person that has record-keeping obligations under Australian taxation law
the offence applies to him despite his geographical location.[103]
The Explanatory Memorandum justifies the extension of
Australia’s geographical jurisdiction on the basis that overseas manufacturers and
suppliers should be held responsible for their role in the facilitation of
Australian tax evasion or fraud.[104]
While the provisions apply to entities outside of Australia,
enforcement and detection will likely be an issue. Where sales suppression is
provided as a service over the cloud, it is conceivable that the supplier may
operate different elements of the service in multiple jurisdictions, which may
make it more difficult to discover.
Complementary and alternative measures
In the 2017–18 Budget, the Government considered that the
prohibition on sales suppression technology was in line with the responses of
other jurisdictions.[105]
In response to the threat posed by ESS tools to government revenues, the OECD’s
2012 paper Electronic
Sales Suppression: A threat to tax revenues[106]
made the following recommendations:
- tax
administrators should develop a strategy to combat electronic sales suppression
- a
communication programme should be developed to raise awareness of the criminal
nature of sales suppression
- tax
authorities should consider whether their powers to review and audit POS
systems are sufficient
- tax
administrators should acquire new skills and tools to audit POS systems and
- consideration
should be given as to whether providing or possessing ESS tools should be criminalised.[107]
The report also highlighted the use of ‘fiscal tills’ in
foreign jurisdictions to address sales suppression.[108]
The OECD’s 2017 report Technology
Tools to Tackle Tax Evasion and Tax Fraud states:
Where tax crime is facilitated by technology, a technology
response is needed. The most common counter-suppression tool used to address
electronic sales suppression is data recording technology. This tool records
and secures the sales data immediately as the transaction occurs and stores it
in a manner that means it is tamper proof. This means it cannot be
manipulated by phantomware or zappers, or if tampering has occurred, it is
traceable and detectable...
There are different types of tools that are
being used to perform this function, which are referred to in different
countries and by different service providers as a fiscal control unit,
electronic fiscal device, fiscal memory device, sales data controller or sales
recording module...
As an additional feature, these types of
tools are also being used to send data automatically to the tax authority,
connecting cash registers online to their data server systems. This can occur either in real time or in bulk scheduled transfers,
such as at the end of the day or each month. The tax authority then has the
opportunity to access the data remotely for compliance and audit purposes.[109] (Emphasis added).
The 2017 Report highlighted the results
that various jurisdictions have had as a result of the introduction of the
reporting technology, including:
- Austria — expected revenue as a result of the ESS tools is €900
million in tax revenues
- Belgium — 8% increase in restaurant sales reported
- Quebec, Canada — CAD $1.2 billion in taxes recovered
- Hungary — Value added tax (VAT) revenue increased by 15%
- Rwanda — VAT increased by 20% and
- Sweden — increased VAT and income tax revenues has been estimated to
be around SEK 3 billion per annum.[110]
In the absence of compulsory compliance,
incentives such as special deduction or a reduced corporate tax rate can be
used to encourage businesses to utilise the technology.[111] The reporting measures
also likely result in a reduced amount of auditing hours for the tax authority
as the relevant information has already been provided to it.[112]
In contrast to the above, the Bill does
not mandate the use of certified software or hardware nor is a scheme that
introduces incentives to use approved or certified systems that report sales
data to the ATO introduced by the Bill. However, changes made by the Tax
and Superannuation Laws Amendment (2015 Measures No. 5) Act 2015 will soon require ‘administrators’ of payment systems to
report certain electronic business transactions.[113]
Generally speaking, this will require ‘administrators’ such as authorised
deposit-taking institutions, specialised payment providers and third party
processors to report all transactions processed for businesses, excluding
exempt transactions, to the ATO.[114]
According to the ATO:
The data will be electronically matched with data held by the
ATO with the aim to pre-fill a non-individual business tax return and to
identify businesses that are non-compliant with registration, reporting,
lodgment and payment obligations under taxation law.[115]
Only electronic transactions such as
those made by credit or debit card, BPAY or other online payment methods are
required to be reported—payments made by cash and cheque are excluded.[116] In the case of
electronic transactions, it would appear that the ATO will be in a much better position
to identify when tax records are being altered or in fact prevented from being
created.
The Taskforce’s Final Report makes a
number of recommendations that although not directly aimed at sales suppression
technology, may nevertheless assist in preventing its use. For example, the
Taskforce recommended that the requirements for tax record keeping practices
should be reformed so that they are clear and simple.[117] As part of this
recommendation, the Taskforce noted that the ATO should have a range of scaled administrative
sanctions available to it, one of which could be requiring a control unit or ‘black
box’ (a device which records all transactions processed through a cash register)
be attached to non-compliant taxpayer’s cash register. The Taskforce also
recommended that there should be incentives for businesses to move to a
non-cash model such as tax instalment relief or implementing a ‘trusted
taxpayer’ system which treats non-cash businesses as low risk.[118]
More broadly, the Taskforce noted that all
levels of government already possess a significant amount of data which can be
better utilised before imposing new regulations and reporting
requirements on taxpayers.[119]
The Taskforce also recommended that the Government implement a black economy
data strategy and improve the data analytic capabilities of regulatory and law
enforcement agencies.[120]
Schedule 1—Administrative penalties:
electronic sales suppression tools
Item 3 of Schedule 1 will add proposed sections
288-125, 288-130 and 288-135 to the end of Division 288 of Schedule
1 to the TAA, which contains a range of miscellaneous administrative
penalties. The proposed administrative penalties correspond to the criminal
penalties under proposed Subdivision BAA of Division 2 of Part III of
the TAA.
The proposed penalties rely on the definition of electronic
sales suppression tool under proposed section 8WAB of the TAA.[121]As
noted earlier, if criminal prosecution is commenced against an entity under the
offences in proposed Subdivision BAA, then the entity is not liable for the
corresponding administrative penalty, and any amount paid is to be refunded.[122]
Producing or supplying ESS tools
Proposed section 288-125 of Schedule 1 to the TAA
imposes liability for an administrative penalty on a person if they:
- manufacture,
develop or publish an ESS tool
- supply[123]
or make available for use:
-
an
ESS tool, or
- or
a right to use[124]
an ESS tool or
- provide
a service to an entity that involves the use of an ESS tool.
The maximum penalty is 60 penalty units—currently $12,600.[125]
Possessing ESS tools
Proposed section 288-130 makes a person liable for administrative
penalty if they are required by a taxation law (other than the Excise Act
1901) to keep or make a record, and they:
- acquire
or have possession of an ESS tool or
- a
right to use an ESS tool.
The penalty is 30 penalty units—currently $6,300.[126]
Incorrectly keeping records using
an ESS tool
Proposed section 288-135 makes a person liable for
administrative penalty if:
- they
are required by a taxation law (other than the Excise Act 1901) to keep
or make a record, and the record is kept made or altered or prevented from being
made kept made or altered with the use of the ESS tool and
- as
a result of the use of the ESS tool, the record does not correctly record or
explain the matter or the record is not kept or made according to the taxation
law.
The penalty is 60 penalty units — currently $12,600.[127]
Extension of liability
Liability for penalty is also imposed on an entity that
aids, abets or counsels another entity in the undertaking of conduct which
results in an administrative penalty.[128]
The Explanatory Memorandum justifies this on the basis that the administrative penalties
should reflect the automatic application of the Criminal Code to the
criminal offences under proposed Subdivision BAA.[129]
Exceptions
In the case of liability under proposed subsections
288-125(3) and 288-130(3), the administrative penalty does not apply
if the conduct was undertaken for the purposes of preventing or deterring tax
evasion or enforcing a taxation law. This exception to liability does not apply
in the case of the administrative penalty under proposed section 288-135
for incorrectly keeping records using an ESS tool. This exception was not
contained in the Exposure Draft. In its submission on the Exposure Draft, CAANZ
was concerned that appropriate defences to the administrative penalties were
not available, stating:
Given that these administrative provisions are ones of strict
liability and have large penalties attached to them, Chartered Accountants
recommends that defences similar to those available to a criminal offence in
relation to an electronic sales suppression tool be made available to
equivalent administrative offences. For example, Section 9.2 Criminal Code Act
1995 provides a mistake of fact. Such a defence should be available to a person
who has relied upon software which has the appropriate ‘tick’ of approval.
(Citations omitted).[130]
While the ‘mistake of fact’ defence has not been included,
the proposed sections will be subject to the machinery provisions in Division 298
of Schedule 1 to the TAA.[131]
Accordingly, the Commissioner has the discretion to remit all or part of the
penalty[132]
and the Commissioner’s decision is reviewable under Part IVC of the TAA.[133]
As noted by CAANZ and canvassed above, the ATO could
engage with POS manufacturers and suppliers to develop a ‘quality mark’. In
such cases, the ATO might indicate to the community that use of such systems
would be considered to be ‘low risk’ to provide taxpayers with a level of assurance
where they inadvertently possess an ESS tool.
Item 4 of Schedule 1 also prevents proposed
subsection 288-130(1) (possession of an ESS tool) from applying for up to
six months after the Bill commences if the person acquired the ESS tool before
7:30pm on 9 May 2017 (2017–18 Budget) and notified the Commissioner after the
commencement of the Bill (the day after Royal Assent) and complied with any
direction given by the Commissioner as to how the ESS tool should be dealt with.
Application of existing
administrative penalties
There are existing administrative penalties that may be currently
applied by the Commissioner, for example for making false or misleading statements
to the Commissioner.[134]
The penalties vary depending on whether there is a tax shortfall amount and
whether the taxpayer fails to take reasonable care, is reckless or intentionally
disregards the law.[135]
While higher penalties can be imposed for a false or misleading statement that
results in a tax shortfall, the Bill seeks to deter the use of ESS tools by
creating specific administrative penalties and imposing high maximum penalties.
Schedule 2–Third party reporting: couriers and cleaners
Item 1 of Schedule 2 to the Bill adds new
items 11 and 12 to the table in section 396-55 of Schedule 1 to the TAA.
The amendments require an entity that has an ABN and provides a courier or
cleaning service to report certain information on entities that they engage to
supply courier or cleaning services.
This is a transparency measure which will allow the ATO to
receive data on what contractors in the cleaning and courier industry are being
paid. Accordingly, this should increase cleaning and courier contractors’ compliance
with their taxation obligations or risk being audited by the ATO. However, BDO
Australia notes:
The success of the TPRS in the building and construction
industries will be difficult to mirror in the higher volume cleaning and
courier industries. The focus on business to contractor payments may yield some
results at the cost of significantly increased compliance costs to businesses.[136]
BDO also considered that this measure does not assist
where payments are made in cash, which will continue to form part of the black
economy.[137]
To this end BDO national tax director, Lance Cunningham, commented on 7
February 2018 on the introduction of the Bill:
These measures are a good start to this process but these
measures on their own are unlikely to affect the more blatant tax avoidance in
the cash economy. There are many more recommendations and issues for
consideration in the Black Economy Taskforce report and we look forward to
seeing how the Government responds to some of the other
recommendations/considerations that would have a more substantial effect on the
cash economy, like the proposal to make it illegal to undertake cash transactions
above a certain threshold.[138]
The extension of the taxable payments reporting system was
recommended by the Taskforce as well as the Inspector-General of Taxation (IGT).
The IGT considered that the system should be extended to contractors across all
industries.[139]
The Taskforce has also stated:
The Taxable Payment Reporting System (TPRS), which requires
contractor payments to be reported in some sectors, could be seen as an
underutilised reporting tool for our more fragmented, non-traditional labour
market.
... a case can be made for the TPRS to apply to sharing economy
operators, both on-shore and off-shore. This could be a condition of them being
able to operate in Australia (we appreciate that this will require cooperation
with state authorities who typically issue licences to them). Under this
approach, sharing economy firms could not avoid this obligation by arguing they
were merely ‘tech platforms’. If the required reporting was not
forthcoming, they would be closed down.[140]
(Emphasis added).
In relation to the sharing economy specifically, the
Taskforce has since recommended that ‘designated sharing (‘gig’) economy
websites’ should be required to report payment data to the ATO, the Department
of Social Services and other relevant agencies. It is the Taskforce’s view that
this information could, among other things, be used to pre-fill tax returns.[141]
The Government agreed that ‘greater transparency’ of payments made through
sharing economy platforms is required and it has committed to consulting with
the stakeholders to determine ‘how this recommendation could be implemented.’[142]
More generally, the Taskforce also recommended that the
TPRS be extended to other high risk industries including:
- security
providers
- road
freight transport
- IT
contractors
- owner-builders
and home improvements.[143]
The Government has in part agreed with the Taskforce’s
recommendation and announced in the 2018–19 budget that it will extend the TPRS
to:
- security
providers and investigation services
- road
freight transport and
- computer
system design and related services.[144]
This reporting obligation is intended to take effect from 1
July 2019 with the first annual report required in 2020.[145]
The Taskforce noted that the IGT’s recommendation to
extend the TPRS to contractors in all industries would increase voluntary
compliance, increase the ATO’s data source for audit purposes and provide a
more level playing field for businesses that comply with their obligations.
However, the Taskforce ultimately considered that this would increase the compliance
burden and costs for some businesses, which was presently unwarranted.[146]
The Taskforce also consider that TPRS obligations should
be progressively removed from industries that meet their reporting obligations
and benchmarks and the similar third-party reporting regime which applies to
some government entities, should be extended to all government entities.[147]
The Tax Institute supports the expansion of the TPRS to
the cleaning and courier industries, but indicated that the ‘overseas
experience’ was that withholding systems were more effective than reporting
regimes.[148]
However, it is the Taskforce’s view that low compliance reporting mechanisms
should be preferenced over withholding mechanisms which generally impose
greater compliance burdens on businesses and impact cash-flows.[149]
The Taskforce nevertheless considered that withholding mechanisms may be
required in ‘particularly problematic sectors’.[150]
Who does it apply to?
Under proposed table items 11 and 12 in
section 396-55 in Schedule 1 of the TAA, an entity that:
- has
an Australian Business Number and
- makes
a supply of a cleaning or courier service,
must report certain information to the Commissioner where
the entity has provided consideration to another entity
wholly or partly for the supply of a cleaning or courier service.
Under proposed table items 11 and 12, the
relevant entity does not need to report this information if:
- the
entities are the members of the same consolidated group (consolidation allows
wholly-owned corporate groups to be treated as a single entity for tax
purposes) or Multiple entry consolidated (MEC) group[151]
or
- the
PAYG withholding obligations under Division 12 of Schedule 1 to the TAA apply,
for example, payment to employees for which an amount is required to be
withheld.
Under the A New Tax System
(Goods and Services Tax) Act 1999 (GST Act), consideration
includes:
- any
payment, or any act or forbearance, in connection with a supply of anything,
and
- any
payment, or any act or forbearance, in response to or for the inducement of a
supply of anything.[152]
Supply is defined in subsection 995-1(1) of
the ITAA97 and is given its meaning in section 9-10 of the GST Act.
Supply within the meaning of section 9-10 of the GST Act is very broad
and includes any form of supply whatsoever.
The obligation to report does not appear to extend to
platform providers that facilitate a transaction or service. In CAANZ’s
submission on the Exposure Draft, it identified this as a potential issue,
stating:
This raises the issue as to whether a sharing platform
provider (e.g. Deliveroo) or a labour hire firm are within the scope of these
provisions. It could be argued that the platform provider is merely providing a
technical interface and that the labour hire firm is merely providing a labour
matching service even if the end product is in fact a cleaning or courier
service. Chartered Accountants suggests that greater clarification of this
issue be provided legislatively.[153]
Defining a cleaning or courier
service
The tax Acts do not define ‘cleaning service’ or ‘courier
service’ and the Explanatory Memorandum states that it is intended that the
terms take their ordinary meaning.[154]
The ATO has released draft guidance on its interpretation of the terms. In
relation to the term ‘courier services’ the ATO states:
Courier services include activities where items or goods are
collected from, and/or delivered to, any place in Australia using a variety of
methods including by truck, car, station wagon, van, ute, motorcycle, motorised
scooter, bicycle or other non-powered means of transport, or on foot.
Courier services do not include:
- passenger transport
services e.g. buses and taxis
- transporting of blood, blood
products, organs or tissue
- freight transport.[155]
In relation to ‘cleaning services’ the ATO states:
Cleaning services include any of the following activities
undertaken on a building, residence, structure, place, surface,
transport/vehicle, industrial machinery or equipment and for events:
• Interior cleaning
• Exterior cleaning (except sand blasting or steam cleaning)
• Carpet cleaning
• Chimney cleaning
• Gutter cleaning
• Road sweeping and street cleaning
• Swimming pool cleaning
• Park and park facilities cleaning.
‘Events’ include staging of sporting, cultural, scientific,
technological, agricultural or entertainment events and exhibitions.
‘Transport/vehicles’ includes trains, trams, buses, ferries,
airplanes, ships, trucks, cars and other motor vehicles.[156]
Government amendment
A Government amendment to the Bill was passed by the House
(with the Bill) on 30 May 2018.[157]
Broadly, the amendment exempts entities from the proposed reporting
requirements ‘where the total amount of payments an entity receives for courier
or cleaning services are less than 10 per cent of the entity’s GST turnover.’[158]
According to the Minister, the amendment was introduced after stakeholders raised
concerns about the application of the proposed amendments:
Following the introduction of the bill to parliament on 7
February 2018, additional stakeholder consultation was undertaken to address
concerns that businesses providing a small portion of courier or cleaning
services may have a disproportionate compliance burden. Stakeholders were
supportive of the introduction of a threshold test based on GST turnover to
exempt certain businesses from the reporting requirements.[159]
The Commissioner may by notice, or legislative
determination, exempt a particular entity or a class of entities from the
reporting requirements imposed under section 396-55 of Schedule 1 to the TAA.[160]
Subitem 3(2) of Schedule 2 to the Bill exempts
an entity from the proposed reporting requirements where less than 10 per cent
of the entity’s GST turnover for the reporting period
relates to supply of a cleaning service (including supplies made by a
contractor or subcontractor on behalf of the entity).[161]
Subitem 3(3) of Schedule 2 to the Bill provides a corresponding
exemption in relation to supplies of a courier service. As stated in the Supplementary
Explanatory Memorandum, the exemption applies separately to cleaning and
courier services:
so that if an entity offers both courier and cleaning
services it must work out whether it satisfies the test separately for both
cleaning and courier services. If an entity receives less than 10 per cent of
its GST turnover in payments for courier services, but 10 per cent or more of
its GST turnover in payments for cleaning services, it will be required to
report payments made to contractors or subcontractors in relation to cleaning
services and not courier services.[162]
Subitem 3(7) of Schedule 2 to the Bill defines
relevant GST turnover as an entity’s ‘current GST turnover’ if
the entity has been making supplies for at least 12 months or otherwise the
entity’s projected GST turnover as at the end of the reporting
period—that is, ‘the turnover as of the last day of the period for which the
entity would be required to submit a report with details of the transactions’.[163]
Current GST turnover and projected GST turnover are both
defined in the GST Act.[164]
Generally an entity’s current GST turnover is, at a time during a particular
month, the sum of all the supplies that the entity has made, or is likely to
make, during the 12 months ending at the end of that month other than supplies
which are excluded.[165]
Generally an entity’s projected GST turnover is, at a time during a particular
month, the sum of all the supplies that the entity has made, or is likely to
make, during that month and the next 11 months other than supplies which are
excluded.[166]
As noted in the Supplementary Explanatory Memorandum, it
will be necessary to determine when a supply is a supply of a courier or
cleaning service:
Where a courier or cleaning service is part of a mixed supply
with other goods or services, only the payment received for the courier or
cleaning service is counted towards the 10 per cent threshold. The other goods
or services that are part of the mixed supply are not counted towards the 10
per cent threshold.
Where the courier or cleaning service is part of a composite
supply the dominant part of which is a courier or cleaning service, the whole
of the payment is to be counted towards the 10 per cent threshold.
Whether a courier or cleaning service is part of a mixed or
composite supply is a question of fact. There are a number of ATO rulings which
characterise whether a supply is a mixed or composite supply. (Citations
omitted).[167]
According to the Minister, ‘[t]he ATO will publish
guidance material on its website to assist businesses providing cleaning or
courier services to determine when they need to report.’[168]
Notwithstanding the exemption, an entity can still choose
to lode a report if it wishes to do so.[169]
Also, the exemption does not cover transactions if the entity is otherwise
bound by a separate reporting obligation under section 396-55 of Schedule 1 to
the TAA to report that transaction.[170]
Determination not a legislative
instrument
Under subitem 3(4) of Schedule 2 to the Bill, the
exemption, which is taken to have been determined under 396-70(4) of Schedule 1
to the TAA is not a legislative instrument (which would be the case if
the exemption was made by the Commissioner in a determination under 396-70(4)
of Schedule 1 to the TAA).[171]
This means that the exemption is not subject to the Legislation Act
2003 which broadly governs the making, regulating and repeal of
legislative instruments. This is justified in the Supplementary Explanatory
Memorandum on the basis that the exemption is being made through a primary law (the
Bill) that is subject to direct scrutiny by Parliament.[172]
Repeal or amendment of the
determination
Under subitem 3(5) of Schedule 2 to the Bill, the
Commissioner is given the power to repeal or amend the exemption by way of
legislative instrument, which according to the Supplementary Explanatory
Memorandum ‘ensures that there is flexibility to modify the determination to
address any concerns with its operation raised by affected entities in the
future.’[173]
According to the Minister:
Given that legislative instruments are disallowable by either
house of parliament, any proposed change to the threshold test by the
commissioner will be subject to parliamentary scrutiny.[174]
What is required to be reported?
The relevant entity must provide the commissioner with a
report that sets out specified information for the financial year.[175]
Under section 396-60 of Schedule 1 to the TAA, the information required
by the Commissioner must relate to:
- the
identification, collection or recovery or the reduction of a possible tax-related
liability of a party to the transaction, and
- may
relate to identifying the parties to the transaction.[176]
According to ATO draft guidance, the entity which makes
the supply will be required to report:
- the
ABN (where known) of the other entity and its name and address
- the
gross amount paid for the financial year
- the
total GST included in the gross amount paid and
- the
total payments made to contractors in the financial year in which the payments
are made on a cash basis (that is, when they are actually paid rather than when
liability arises).[177]
Other provisions
Whilst the amendments made by the Bill will commence the
day after the Act receives Royal Assent,[178]
the transitional provisions in Schedule 1 and Schedule 2 ensure that the
amendments do not apply retrospectively to certain actions or transactions.
Schedule 1
The transitional provisions in Schedule 1 of the Bill provide
an entity with the opportunity to avoid committing an offence after
commencement under proposed subsection 8WAD(1) of the TAA for the
possession of an ESS tool or liability for an administrative penalty
under proposed subsection 288-130(1) of Schedule 1 to the TAA, if
the entity:
- acquired
the ESS tool before 7:30pm on 9 May 2017—that is, when the 2017–18 federal
budget was delivered
- notifies
the Commissioner of its possession of the ESS tool as soon as practicable after
the commencement of Schedule 1 to the Bill, and
- complies
with any direction given by the Commissioner regarding the disposal of the ESS
tool.[179]
The exception applies from commencement of Schedule 1 to
the Bill until the earlier of the date specified in the Commissioner’s
direction or six months after commencement.
Schedule 2
The transitional provisions in Schedule 2 of the Bill provide
that the proposed amendments will apply in relation to a transaction unless:
- the
transaction happens before 1 July 2018 or
- the
transaction happens during an alternative reporting period[180]
that begins before 1 July 2018.[181]
This ensures the new reporting requirements will not apply
to transactions that occurred before the commencement of the new obligations imposed
by the Bill.
Concluding comments
The Bill is uncontroversial in the sense that it seeks to
deter conduct which facilitates behaviour that is already illegal—that is, tax
fraud and evasion. To this end, the Bill creates specific criminal and
administrative offences for the production, distribution, possession and use of
electronic sales suppression tools. While the Bill implements the
recommendation of the Taskforce, the OECD’s analysis indicates that criminal
and administrative provisions should be just one part of a multipronged approach
to tackling the use of electronic sales suppression. In that regard, the Bill
does not advance some of the other strategies suggested by the OECD, such as
certified software systems.
The Bill also requires businesses in areas that have been
identified as high risk to provide information to the ATO which can be used to
ensure that cleaning and courier contractors are correctly declaring their
income. This also implements, in part, the recommendations of the Taskforce and
beyond placing additional obligations on cleaning and courier businesses, the
measure is likely to be uncontroversial.
Members, Senators and Parliamentary staff can obtain
further information from the Parliamentary Library on (02) 6277 2500.
[1]. Australian
Government, Budget
measures: budget paper no. 2, 2017–18, pp. 35–6.
[2]. K
O’Dwyer, ‘Second
reading speech: Treasury Laws Amendment (Black Economy Taskforce Measures No.
1) Bill 2018’, House of Representatives, Debates, 7 February 2018,
p. 492.
[3]. The
Treasury, ‘2017–18
budget measures’, The Treasury website.
[4]. Black
Economy Taskforce (Taskforce), Black
Economy Taskforce: additional policy ideas – consultation paper, The
Treasury, August 2017; Taskforce, Black
Economy Taskforce: interim report–March 2017, The Treasury, March 2017.
[5]. Taskforce, Black Economy
Taskforce: final report–October 2017, The Treasury, October 2017.
[6]. Australian
Government, Tackling
the black economy: government response to the Black Economy Taskforce final
report, The Treasury, May 2018.
[7]. Taskforce,
Black
Economy Taskforce: interim report–March 2017, op. cit., pp. 44–5.
[8]. The
Treasury, ‘2017–18
Budget Measures’, the Treasury website, 23 October 2017; K O’Dwyer,
(Minister for Revenue and Financial Services), 2017–18
Budget measures consultation, media release, 23 October 2017.
[9]. Taskforce,
Black
Economy Taskforce: interim report–March 2017, op cit., p. 11.
[10]. Ibid.,
pp. 1, 11.
[11]. Ibid.,
p. 14; Australian Bureau of Statistics (ABS), Information
paper: the non observed economy and Australia’s GDP, 2012, cat. no. 5204.0.55.008,
ABS, Canberra, 2012.
[12]. KPMG,
The
last frontier: shining a light on the black economy, KPMG, 2017, p. 2.
[13]. Taskforce, Black Economy
Taskforce: final report–October 2017, op. cit., p. 35.
[14]. Taskforce,
Black
Economy Taskforce: interim report–March 2017, op. cit., p. 13.
[15]. Research
Branch, Budget
Review 2018–19, Research paper series, 2017–18, Parliamentary Library,
Canberra, 2018, pp. 38-46.
[16]. Senate
Standing Committee for the Scrutiny of Bills, Scrutiny
digest, 2, 2018, The Senate, 14 February 2018, pp. 55–59.
[17]. Ibid.
[18]. Senate
Standing Committee for the Selection of Bills, Report,
2, 2018, The Senate, Canberra, 15 November 2018, p. 3.
[19]. House
of Representatives, ‘Treasury
Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018’, Votes
and proceedings, 20, 30 May 2018.
[20]. A
Leigh, ‘Second
reading speech: Treasury Laws Amendment (Black Economy Taskforce Measures No.
1) Bill 2018’, House of Representatives, Debates, (proof), 30 May
2018, p. 73; M Thistlethwaite, ‘Second
reading speech: Treasury Laws Amendment (Black Economy Taskforce Measures No.
1) Bill 2018’, House of Representatives, Debates, (proof), 30 May
2018, p. 75.
[21]. A
Leigh, ‘Second
reading speech: Treasury Laws Amendment (Black Economy Taskforce Measures No.
1) Bill 2018’, op. cit., p. 74.
[22]. Tax
& Super Australia, Submission
to Treasury, 2017–18 Budget measures, November 2017, pp. 1 and 3; The
Tax Institute, Submission
to Treasury, 2017–18 Budget measures, November 2017, pp. 1–2.
[23]. BDO
Australia, Submission
to Black Economy Taskforce, Black Economy Taskforce, August 2017, p. 2.
[24]. Charted
Accountants Australia and New Zealand (CAANZ), Submission
to Treasury, 2017–18 Budget measures, November 2017, p. 1.
[25]. Explanatory
Memorandum, Treasury Laws Amendment (Black Economy Taskforce Measures No.
1) Bill 2018, p. 3.
[26]. Australian
Government, Budget
measures: budget paper no. 2, 2017–18, p. 35.
[27]. Explanatory
Memorandum, Treasury Laws Amendment (Black Economy Taskforce Measures No.
1) Bill 2018, pp. 3–4.
[28]. The
Statement of Compatibility with Human Rights can be found at pages 22–3 and
28–30 of the Explanatory
Memorandum to the Bill.
[29]. Explanatory
Memorandum, Treasury Laws Amendment (Black Economy Taskforce Measures No.
1) Bill 2018, p. 23.
[30]. Ibid.,
p. 30–1.
[31]. Parliamentary
Joint Committee on Human Rights, Human
rights scrutiny report, 3, 27 March 2018, p. 79.
[32]. Ibid.,
p. 80.
[33]. Ibid.
[34]. Ibid.
[35]. Ibid.,
pp. 80–1.
[36]. Parliamentary
Joint Committee on Human Rights, Human
rights scrutiny report, 4, 2018, Australian Parliament, Canberra, 8 May
2018, p. 162.
[37]. Parliamentary
Joint Committee on Human Rights, Human
rights scrutiny report, 4, 8 May 2018, Appendix 3.
[38]. Parliamentary
Joint Committee on Human Rights, Human
rights scrutiny report, 4, op. cit., p. 163.
[39]. Proposed
subsection 8WAC(1).
[40]. Proposed
subsection 8WAC(2).
[41]. Proposed
section 8WAD.
[42]. Proposed
subsection 8WAE(1).
[43]. Explanatory
Memorandum, Treasury Laws Amendment (Black Economy Taskforce Measures No.
1) Bill 2018, p. 6.
[44]. Ibid.
[45]. Ibid.
[46]. TAA,
section 8T.
[47]. Ibid.,
section 8V. The maximum penalty for a second or subsequent
conviction is 100 penalty units ($21,000) and/or two years imprisonment (subsection
8V(2)). Section 4AA of the Crimes Act 1914
provides that a penalty unit is currently equal to $210.
[48]. Ibid.,
section 8L(1B); Criminal
Code Act 1995, section 6.2: an offence of absolute liability has no
fault elements and unlike strict liability offences, the defence of honest
mistake of fact is not available.
[49]. TAA,
section 8M(1).
[50]. R
v Meares (1997), 37
ATR 321 as per Gleeson CJ.
[51]. Organisation
for Economic Co-operation and Development (OECD), Technology
tools to tackle tax evasion and tax fraud, OECD Publishing, 31 March
2017, p. 6.
[52]. OECD,
Electronic
sales suppression: a threat to tax revenues, OECD Publishing, Paris,
2013, p. 5.
[53]. CAANZ,
Submission
to Black Economy Taskforce, Black Economy Taskforce, February 2017, p.
6.
[54]. OECD,
Electronic
sales suppression: a threat to tax revenues, op. cit., pp. 14–15.
[55]. Explanatory
Memorandum, Treasury Laws Amendment (Black Economy Taskforce Measures No.
1) Bill 2018, p. 5.
[56]. OECD,
Electronic
sales suppression: a threat to tax revenues, op. cit., p. 6.
[57]. CAANZ,
Submission
to Black Economy Taskforce, February 2017, op cit., p. 6.
[58]. TAA, section
3AA(2).
[59]. Attorney-General's
Department, A
guide to framing Commonwealth offences, infringement notices and enforcement
powers, September 2011, pp. 22–5.
[60]. Schedule
1, item 2, paragraph (b) of the definition of electronic sales
suppression tool at proposed section 8WAB of the TAA.
[61]. Explanatory
Memorandum, Treasury Laws Amendment (Black Economy Taskforce Measures No.
1) Bill 2018, p. 10.
[62]. TAA,
section 2 and ITAA97, section 995-1(1).
[63]. Under
subsection 2(1) of the TAA a ‘taxation law’ is given the meaning under
the ITAA97, however subsection 2(2) excludes an ‘Excise Act’ as defined
at subsection 4(1) of the Excise Act 1901, which includes any
instruments made under the Excise Act 1901 and any instruments made
under any other Act relating to excise.
[64]. Explanatory
Memorandum, Treasury Laws Amendment (Black Economy Taskforce Measures No.
1) Bill 2018, p. 11.
[65]. ATO,
Practice
Statement Law Administration: PS LA 2005/2 Penalty for failure to keep or
retain records, ATO Legal Database, 25 January 2013, p. 2.
[66]. Ibid.,
p. 5.
[67]. See
for example: OECD, Electronic
sales suppression: a threat to tax revenues, op. cit., p. 9.
[68]. Business.gov.au,
‘Point-of-sale
(POS) systems’, business.gov.au website.
[69]. OECD,
Electronic
sales suppression: a threat to tax revenues, op. cit., p. 9.
[70]. See
for example: Bluebird, ‘How
Cloud-Based POS Works’, Bluebird website; technopedia, ‘Cloud-Based
Point of Sale (Cloud-Based POS)’, technopedia website.
[71]. Under
proposed section 8WAB, supply has the meaning given by section
9-10 of the A
New Tax System (Goods and Services Tax) Act 1999 (GST Act).
Under section 9-10(1) of the GST Act a supply includes any form of
supply whatsoever.
[72]. Under
proposed section 8WAB, the definition of right to use includes
right to possess.
[73]. Crimes
Act 1914, section 4D.
[74]. Under
section 4AA(1A) of the Crimes Act 1914, a penalty unit is currently
equal to $210 and will be subject to indexation from 1 July 2020.
[75]. Criminal Code Act
1995 (Criminal Code), section 11.2.
[76]. Senate
Standing Committee for the Scrutiny of Bills, Scrutiny
digest, 2, op. cit., p. 56.
[77]. Ibid.,
p. 57.
[78]. Exposure Draft,
subsections 8WAC(1), (2), 8WAD(1), 8WAE(1).
[79]. Explanatory
Memorandum, Treasury Laws Amendment (Black Economy Taskforce Measures No.
1) Bill 2018, pp. 12–13.
[80]. Senate
Standing Committee for the Scrutiny of Bills, Scrutiny
digest, 2, op. cit., p. 58
[81]. Explanatory
Memorandum, Treasury Laws Amendment (Black Economy Taskforce Measures No.
1) Bill 2018, pp. 12–13.
[82]. Ibid.,
p. 13.
[83]. TAA,
Schedule 1 section 290-50(4).
[84]. Ibid.,
section 290-55(1).
[85]. Explanatory
Memorandum, Treasury Laws Amendment (Black Economy Taskforce Measures No.
1) Bill 2018, p. 15.
[86]. CAANZ,
Submission
to Treasury, November 2017, op. cit., p. 2.
[87]. Senate
Standing Committee for the Scrutiny of Bills, Scrutiny
digest, 2, op. cit., p. 57.
[88]. CAANZ,
Submission
to Treasury, November 2017, op. cit., p. 2.
[89]. OECD,
Electronic
Sales Suppression: A threat to tax revenues, op. cit., pp. 25–6, 29,
33.
[90]. Senate
Standing Committee for the Scrutiny of Bills, Scrutiny
digest, 3, op. cit., p. 304.
[91]. Ibid.,
pp. 304–5.
[92]. Ibid.,
p. 305.
[93]. Ibid.,
p. 306.
[94]. Ibid.,
p. 304.
[95]. Explanatory
Memorandum, Treasury Laws Amendment (Black Economy Taskforce Measures No.
1) Bill 2018, p. 18.
[96]. Ibid.
[97]. Criminal
Code, section 13.3(3).
[98]. Senate
Standing Committee for the Scrutiny of Bills, Scrutiny
digest, 2, op. cit., p. 58.
[99]. Ibid.,
p. 59.
[100]. Senate
Standing Committee for the Scrutiny of Bills, Scrutiny
digest, 3, op. cit., pp. 308–9.
[101]. Ibid.,
p. 309.
[102]. Criminal
Code, section 15.4.
[103]. Explanatory
Memorandum, Treasury Laws Amendment (Black Economy Taskforce Measures No.
1) Bill 2018, p. 14.
[104]. Ibid.
[105]. Australian
Government, Budget
measures: budget paper no. 2, op. cit., p. 36.
[106]. OECD,
Electronic
sales suppression: a threat to tax revenues, op. cit.
[107]. Ibid.,
p. 35; Note also that Tax & Super Australia made these recommendations in
its submission on the Exposure Draft, see: Tax & Super Australia, Submission
to Treasury, op. cit., p. 2.
[108]. OECD,
Electronic
sales suppression: a threat to tax revenues, op. cit., pp. 37–43.
[109]. OECD,
Technology
tools to tackle tax evasion and tax fraud, op. cit., p. 11.
[110]. Ibid.,
p. 12.
[111]. Ibid.,
p. 16.
[112]. Ibid.,
p. 11.
[113]. Schedule
4 to the Tax and Superannuation Laws Amendment (2015 Measures No. 5) Act 2015;
ATO, ‘Business
transactions through payment systems’, ATO website, 17 November 2017.
[114]. ATO,
‘Business transactions through payment systems—Payments
you do not need to report’, ATO website, 2 May 2018.
[115]. ATO,
‘Business
transactions made through payment systems (BTTPS) specification v1.0.1 and test
scenario’, ATO software developers website, 15 November 2017.
[116]. Explanatory
Memorandum, Tax and Superannuation Laws Amendment
(2015 Measures No. 5) Bill 2015, p. 75
[117]. Taskforce, Black Economy
Taskforce: final report–October 2017, op. cit., pp. 170-72.
[118]. Ibid.,
p. 70.
[119]. Ibid.,
pp. 107-8.
[120]. Ibid.,
pp. 113, 119.
[121]. ITAA97,
subsection 995-1(1) proposed definition of electronic sales
suppression tool, inserted by item 1 of Schedule 1 to the Bill.
[122]. TAA,
section 8ZE.
[123]. ITAA97,
section 995-1(1), supply is defined by section 9-10 of the GST
Act.
[124]. ITAA97,
section 995-1(1), definition of right to use includes
the right to possess.
[125]. Proposed
subsection 288-125(1).
[126]. Proposed
subsection 288-130(1).
[127]. Proposed
subsection 288-135(1).
[128]. Proposed
subsections 288-125(2), 288-130(2) and 288-135(2).
[129]. Explanatory
Memorandum, Treasury Laws Amendment (Black Economy Taskforce Measures No.
1) Bill 2018, p. 20.
[130]. CAANZ,
Submission
to Treasury, November 2017, op. cit., p. 3.
[131]. TAA,
Schedule 1, section 298-5.
[132]. Ibid.,
section 298-20(1).
[133]. Ibid.,
section 298-20(3)(c).
[134]. TAA,
Schedule 1, Part 4-25 (the uniform penalties regime). See for example, TAA,
Schedule 1, section 284-75.
[135]. Ibid.,
Schedule 1, section 284-90(1); ATO, Practice
Statement Law Administration: PS LA 2012/5 Administration of penalties for
making false or misleading statements that result in shortfall amounts,
ATO Legal Database, 11 June 2015; ATO, Practice
Statement Law Administration: PS LA 2012/4 Administration of penalties for
making false or misleading statements that do not result in shortfall amounts,
ATO Legal Database, 11 June 2015.
[136]. BDO
Australia, ‘Extension
of the taxable payments reporting system’, BDO Australia website.
[137]. Ibid.
[138]. BDO
Australia, ‘Black
Economy Taskforce Measures – Update – 7 February 2018’, BDO Australia
website.
[139]. Inspector-General
of Taxation, Review
into the ATO’s employer obligations compliance activities, Australian
Government, Inspector-General of Taxation, Commonwealth of Australia,
Canberra, December 2016, recommendation 3.4.
[140]. Taskforce,
Black
Economy Taskforce: additional policy ideas – consultation paper, op.
cit., pp. 2–3.
[141]. Taskforce, Black Economy
Taskforce: final report–October 2017, op. cit., p. 136.
[142]. Australian
Government, Tackling
the black economy: government response, op. cit., p. 18
[143]. Taskforce, Black Economy
Taskforce: final report–October 2017, op. cit., pp. 133-4.
[144]. Australian
Government, Tackling
the black economy: government response, op. cit., p. 18; Australian
Government, Budget
measures: budget paper no. 2: 2018–19, pp. 22-3.
[145]. Budget
measures: budget paper no. 2: 2018–19, op. cit., pp. 22-3.
[146]. Taskforce, Black Economy
Taskforce: final report–October 2017, op. cit., pp. 131-2.
[147]. Ibid.,
p. 130.
[148]. The
Tax Institute, Submission
to Treasury, op. cit., p. 2.
[149]. Taskforce, Black Economy
Taskforce: final report–October 2017, op. cit., p. 125.
[150]. Ibid.
[151]. While
the consolidation regime requires an Australian resident head company (item 1
of the table in section 703-15 of the ITAA97), under Division 701 of the
ITAA97 Australian-resident entities that are wholly-owned subsidiaries
of a foreign top company can form a MEC Group.
[152]. GST Act, sections
195-1; 9-15; 9-17.
[153]. CAANZ,
Submission
to Treasury, op. cit., p. 4.
[154]. Explanatory
Memorandum, Treasury Laws Amendment (Black Economy Taskforce Measures No.
1) Bill 2018, p. 27.
[155]. ATO,
Draft
guidance: Expansion of the taxable payments reporting system to contractors in
the courier and cleaning industries, Treasury website, pp. 1–2. It
should be noted that the ATO issued the draft guidance through its stakeholder
forum Let’s Talk so that
submissions on its interpretation of cleaning and courier services could be
made by the tax community. The writer notes that the ATO issued revised draft
guidance, however the revised version no longer appears to be publicly available.
[156]. Ibid.,
p. 3.
[157]. House
of Representatives, ‘Treasury
Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018’, Votes
and proceedings, 20, 30 May 2018.
[158]. Supplementary
Explanatory Memorandum, Treasury Laws Amendment (Black Economy Taskforce
Measures No. 1) Bill 2018, p. 5; Government amendments, Treasury
Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, House of
Representatives, Sheet HG228,30 May 2018, Schedule 2, item 3.
[159]. K
O’Dwyer, ‘Consideration
in detail: Treasury Laws Amendment (Black Economy Taskforce Measures No. 1)
Bill 2018’, House of Representatives, Debates, (proof), 30 May 2018,
p. 85.
[160]. TAA,
Schedule 1, subsections 396-70(1) and (4).
[161]. Government
amendments, Treasury
Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, op. cit.
[162]. Supplementary
Explanatory Memorandum, Treasury Laws Amendment (Black Economy Taskforce
Measures No. 1) Bill 2018, pp. 5–6.
[163]. Ibid.,
p. 6.
[164]. GST
Act, sections 188-15 and 188-20.
[165]. Ibid.,
subsection 188-15(1).
[166]. Ibid.,
subsection 188-20(1).
[167]. Ibid.,
pp. 6–7.
[168]. K
O’Dwyer, ‘Consideration
in detail: Treasury Laws Amendment (Black Economy Taskforce Measures No. 1)
Bill 2018, op. cit., p. 85.
[169]. Government
amendments, Treasury
Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, op. cit.,
paragraphs 3(2)(c), 3(3)(c) and subitem 3(7).
[170]. Ibid.,
paragraphs 3(2)(b), 3(3)(b) and subitem 3(7).
[171]. TAA,
Schedule 1, 396-70(4).
[172]. Supplementary
Explanatory Memorandum, Treasury Laws Amendment (Black Economy Taskforce
Measures No. 1) Bill 2018, pp. 7–8.
[173]. Ibid.,
p. 8.
[174]. K
O’Dwyer, ‘Consideration
in detail: Treasury Laws Amendment (Black Economy Taskforce Measures No. 1)
Bill 2018, op. cit., p. 85.
[175]. TAA,
Schedule 1, section 396-55.
[176]. ITAA97,
section 995-1; TAA, Schedule 1, subsection 255-1(1) a tax-related
liability is a pecuniary liability to the Commonwealth arising directly
under a taxation law (including a liability the amount of which is not yet due
and payable).
[177]. ATO,
Draft
guidance: Expansion of the taxable payments reporting system to contractors in
the courier and cleaning industries, op. cit., p. 3.
[178]. Treasury
Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, clause 2.
[179]. Ibid.,
Schedule 1, item 4.
[180]. Under
subitem 2(2) of Schedule 2 of the Bill alternative reporting period is
the reporting period determined by the Commissioner under subparagraph
396-55(a)(ii) of Schedule 1 to the TAA.
[181]. Treasury
Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, Schedule
2, item 2, subsection (1).
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